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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
FORM 10-K/A
(AMENDMENT NO. 1)
(MARK
ONE)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
--- THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED AUGUST 31, 2002
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
--- EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
-------- --------
COMMISSION FILE NO. 1-4304
COMMERCIAL METALS COMPANY
(Exact name of registrant as specified in its Charter)
DELAWARE 75-0725338
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
6565 MACARTHUR BLVD., IRVING, TEXAS 75039
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (214) 689-4300
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- ---------------------
Common Stock, $5 par value New York Stock Exchange
Rights to Purchase Series A Preferred Stock New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
NONE
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS
REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO
--- ---
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405
OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE
BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS
INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS
FORM 10-K. [ X ]
THE AGGREGATE MARKET VALUE OF THE COMMON STOCK ON NOVEMBER 15, 2002, HELD BY
NON-AFFILIATES OF THE REGISTRANT BASED ON THE CLOSING PRICE OF $16.05 PER SHARE
ON NOVEMBER 15, 2002, ON THE NEW YORK STOCK EXCHANGE WAS APPROXIMATELY
$426,312,958. (FOR PURPOSES OF DETERMINATION OF THIS AMOUNT, ONLY DIRECTORS,
EXECUTIVE OFFICERS AND 10% OR GREATER STOCKHOLDERS HAVE BEEN DEEMED AFFILIATES.)
THE NUMBER OF SHARES OUTSTANDING OF COMMON STOCK AS OF NOVEMBER 15, 2002 WAS
28,420,735.
DOCUMENTS INCORPORATED BY REFERENCE:
PORTIONS OF THE FOLLOWING DOCUMENT ARE INCORPORATED BY REFERENCE INTO THE LISTED
PART OF FORM 10-K:
REGISTRANT'S DEFINITIVE PROXY STATEMENT FOR THE ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JANUARY 23, 2003 -- PART III.
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This Amendment No. 1 to Commercial Metals Company's annual report on Form 10-K
for the year ended August 31, 2002 is being filed to include certain
reclassifications for improved disclosures on the Consolidated Balance Sheets
and the Consolidated Statements of Cash Flows. We have also revised the language
in Note 2, Sales of Accounts Receivable, expanded disclosures related to
accounting policies and made various other modifications, corrections and
clarifications, including the reconciliation of non-GAAP financial measures that
is now required by Regulation G.
ITEM 6. SELECTED FINANCIAL DATA
The table below sets forth a summary of our selected consolidated financial
information for the periods indicated. The per share amounts have been adjusted
to reflect a two-for-one stock split in the form of a stock dividend on our
common stock effective June 28, 2002. Net earnings, diluted earnings per share,
total assets and stockholders' equity have been restated as described in
Note 14 to the consolidated financial statements.
FOR THE YEARS ENDED AUGUST 31,
2002 2001 2000 1999 1998
---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
Net Sales $2,446,777 $2,441,216 $2,661,420 $2,251,442 $2,367,569
Net Earnings 40,525 23,772 44,590 46,974 42,714
Diluted Earnings 1.43 0.90 1.56 1.61 1.41
Per Share
Total Assets 1,230,076 1,081,946 1,170,092 1,079,074 1,002,617
Stockholders' Equity 501,306 433,094 418,805 418,312 381,389
Long-term Debt 255,969 251,638 261,884 265,590 173,789
Cash Dividends Per Share 0.275 0.26 0.26 0.26 0.26
1
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
We manufacture, recycle, market and distribute steel and metal products through
a network of over 130 locations in the United States and internationally.
Manufacturing Operations
We conduct our manufacturing operations through the following:
o 4 steel mills, commonly referred to as "minimills," that produce
reinforcing bar, angles, flats, small beams, rounds, fence-post sections
and other shapes
o 29 steel plants that bend, cut and fabricate steel, primarily reinforcing
bar and angles
o 1 plant that produces copper tubing
o 27 warehouses that sell or rent supplies for the installation of concrete
o 6 plants that produce special sections for floors and ceiling support
o 4 plants that produce steel fence posts
o 1 plant that treats steel with heat to strengthen and provide flexibility
o 1 plant that rebuilds railcars
o 1 railroad salvage company
Recycling Operations
We conduct our recycling operations through 44 metal processing plants located
in the states of Texas, South Carolina, Florida, North Carolina, Oklahoma,
Kansas, Missouri, Tennessee, Louisiana and Georgia.
Marketing and Distribution Operations
We market and distribute steel, copper and aluminum coil, sheet and tubing,
ores, metal concentrates, industrial minerals, ferro alloys and chemicals
through our network of 16 marketing and distribution offices, 4 processing
facilities and joint ventures around the world. Our customers use these products
in a variety of industries.
You should read this management's discussion and analysis in connection with
your review of our consolidated audited financial statements and the
accompanying footnotes.
Critical Accounting Policies and Estimates
The following are important accounting policies, estimates and assumptions that
you should understand as you review our financial statements. We apply these
accounting policies and make these estimates and assumptions to prepare
financial statements under generally accepted accounting principles. Our use of
these accounting policies, estimates and assumptions affects our results of
operations and our reported amounts of assets and liabilities. Where we have
used estimates or assumptions, actual results could differ significantly from
our estimates.
REVENUE RECOGNITION Generally, we recognize sales when title passes. For a few
of our steel fabrication operations, we recognize net sales and profits from
certain long-term fixed price contracts by the percentage-of-completion method.
In determining the amount of net sales to recognize, we estimate the total costs
and profits expected to be recorded for the contract term, and the
recoverability of costs related to change orders. These estimates could change,
resulting in changes in our earnings.
CONTINGENCIES We make accruals as needed for litigation, administrative
proceedings, government investigations, including environmental matters, and
contract disputes. We base our environmental liabilities on estimates regarding
the number of sites for which we will be responsible, the scope and cost of work
to be performed at each site, the portion
2
of costs that we expect we will share with other parties and the timing of
the remediation. Where timing of expenditures can be reliably estimated, we
discount amounts to reflect our cost of capital over time. We record these and
other contingent liabilities when they are probable and when we can reasonably
estimate the amount of loss. Where timing and amounts cannot be precisely
estimated, we estimate a range, and we recognize the low end of the range
without undiscounting. Also, see footnote 10, Commitments and Contingencies, in
the consolidated financial statements for the year ended August 31, 2002.
INVENTORY COST We determine inventory cost for most domestic inventories by the
last-in, first-out method, or LIFO. At the end of each quarter, we estimate both
inventory quantities and costs that we expect at the end of the fiscal year for
these LIFO calculations, and we record an amount on a pro-rata basis. These
estimates could vary substantially from the actual year-end results, causing an
adjustment to cost of goods sold. See footnote 15, Quarterly Financial Data, to
the consolidated financial statements. We record all inventories at the lower of
their cost or market value.
PROPERTY, PLANT AND EQUIPMENT Our manufacturing and recycling businesses are
capital intensive. We evaluate the value of these assets and other long-lived
assets whenever a change in circumstances indicates that their carrying value
may not be recoverable. Some of the estimated values for assets that we
currently use in our operations utilize judgments and assumptions of future
undiscounted cash flows that the assets will produce. If these assets were for
sale, our estimates of their values could be significantly different because of
market conditions, specific transaction terms and a buyer's different viewpoint
of future cash flows. Also, we depreciate property, plant and equipment on a
straight-line basis over the estimated useful lives of the assets. Depreciable
lives are based on our estimate of the assets' economically useful lives. To the
extent that an asset's actual life differs from our estimate, there could be an
impact on depreciation expense or a gain/loss on the disposal of the asset in a
later period. We expense major maintenance costs as incurred.
OTHER ACCOUNTING POLICIES For additional information on our accounting policies,
see footnote 1, Summary of Significant Accounting Policies, to the consolidated
financial statements.
NEW ACCOUNTING PRONOUNCEMENTS See footnote 1, Summary of Significant Accounting
Policies, to the consolidated financial statements.
Consolidated Results of Operations
As discussed in Note 14, Restatement, we have restated the financial statements
and the financial information included in our management's discussion and
analysis.
Year ended August 31,
---------------------------------------
(in millions except share data) 2002 2001 2000
---------- ---------- ----------
Net sales $ 2,447 $ 2,441 $ 2,661
Net earnings 40.5 23.8 44.6
International sales 776 755 879
As % of total 32% 31% 33%
LIFO effect on net earnings
expense (income) 1.0 (1.1) 3.4
Per diluted share* 0.04 (0.04) 0.12
LIFO reserve 8.1 6.5 8.2
% of inventory on LIFO 72% 70% 71%
* Adjusted for stock split
Our management uses a non-GAAP measure, adjusted operating profit, to compare
and evaluate the financial performance of our segments. See Note 13, Business
Segments, to the consolidated financial statements. We define adjusted operating
profit, as referred to in our Management's Discussion and Analysis, as the sum
of our earnings before income taxes and financing costs. Adjusted operating
profit provides a core operational earnings measurement that compares segments
without the need to adjust for federal, but more specifically state and local
taxes which have considerable variation between domestic jurisdictions. Tax
regulations in international operations add additional complexity. Also, we
exclude interest cost in our calculation of adjusted operating profit. The
results are therefore without consideration of financing alternatives of capital
employed. In the following tables, we are providing a reconciliation of adjusted
operating profit (loss) to net earnings (loss), the nearest comparable GAAP
measure (in millions).
MARKETING AND CORPORATE AND
SEGMENT MANUFACTURING RECYCLING DISTRIBUTION ELIMINATIONS TOTAL
------------------------------- ------------- --------- ------------- ------------- -----
YEAR ENDED AUGUST 31, 2002:
Net earnings (loss) $ 45.0 $ 3.7 $ 8.1 $ (16.3) $ 40.5
Income taxes 25.7 1.2 3.8 (8.1) 22.6
Interest expense .3 -- 2.0 16.4 18.7
Discounts on sales of accounts
receivable .4 .2 .3 (.1) .8
------- ------- ------- -------- -------
Adjusted operating profit (loss) $ 71.4 $ 5.1 $ 14.2 $ (8.1) $ 82.6
======= ======= ======= ======== =======
YEAR ENDED AUGUST 31, 2001:
Net earnings (loss) $ 34.8 $( 1.5) $ 3.6 $ (13.1) $ 23.8
Income taxes 21.1 (.9) 2.1 (7.7) 14.6
Interest expense .4 -- 1.8 25.4 27.6
Discounts on sales of accounts
receivable .4 .1 .3 .2 1.0
------- ------- ------- -------- -------
Adjusted operating profit (loss) $ 56.7 $ (2.3) $ 7.8 $ 4.8 $ 67.0
======= ======= ======= ======== =======
YEAR ENDED AUGUST 31, 2000:
Net earnings (loss) $ 44.8 $ 3.8 $ 11.5 $ (15.5) $ 44.6
Income taxes 27.1 2.0 5.5 (8.5) 26.1
Interest expense .2 -- 2.2 24.9 27.3
------- ------- ------- -------- -------
Adjusted operating profit (loss) $ 72.1 $ 5.8 $ 19.2 $ .9 $ 98.0
======= ======= ======= ======== =======
Our results in fiscal 2002 reflect the impact of significant external factors.
Our fiscal year began on September 1, 2001, only 10 days before the September 11
terrorist attacks, which dramatically affected United States commercial
activity. Capital markets also suffered during our fiscal 2002 period due to the
collapse of the technology market bubble and corporate financial and accounting
scandals. Following signs of an economic recovery during the first
3
calendar quarter of 2002, the growth of the U.S. economy instead slowed during
the second and third calendar quarters. Economic activity also lost momentum in
most global markets, perhaps except for non-Japan Asia.
Our 2002 results reflect notable weakness in business investment. We saw big
declines in key markets such as nonresidential construction spending for
factories, offices and other commercial buildings. Public works outlays for
institutional buildings, highways and bridges remained strong, but did not
offset reduced expenditures in the private sector. Residential construction
activity fell, although it remains at a historically high level. Hotel/motel
building also fell. Consequently, we experienced lower margins in our
manufacturing segment, especially during our fiscal fourth quarter.
The weakening of the U.S. dollar during the latter part of our fiscal year
helped our results, although the impact was not as strong as we expected. We
believe that one reason is that world production and supply of many steel
products and nonferrous metals remained excessive.
During fiscal 2002, the U.S. government implemented tariffs on imported steel
products that compete with most of the products manufactured by our minimills.
However, because production by our U.S. competitors remained constant, we have
not seen a significant increase in prices. Conditions in our important end use
markets generally showed little improvement and in some instances deteriorated.
The following financial events were significant this year:
1. 2002 earnings were much higher than 2001, even excluding the $5.4
million after-tax litigation accrual recorded last year in the
manufacturing segment.
2. At year end 2002, we had no short-term financing needs and had, in
fact, significant cash and cash equivalents.
3. Steel minimill earnings were higher in 2002 due to increased
production and shipments in spite of lower selling prices and higher
scrap costs.
4. During the current year, our steel group received a nonrecurring
graphite electrode litigation settlement of $1.6 million after-tax.
5. Our steel group realized a $3.4 million after-tax gain from the sale
of the assets of SMI-Owen Steel Company in 2002.
6. We discovered a theft and accounting fraud and accounting errors at
two rebar fabrication operations totalling $3.0 million after-tax. See
Note 14, Restatement, to the consolidated financial statements.
7. Copper tube adjusted operating profits decreased in spite of record
production and shipments because of lower selling prices and margins.
8. Our recycling segment returned to profitability during 2002 mostly due
to the recently improved ferrous scrap market.
9. Our marketing and distribution group's adjusted operating profit was
higher than last year, but some markets remained weak. Our acquisition
of the Coil Steels Group in September 2001 significantly contributed
to adjusted operating profits.
10. Financing costs decreased due to lower requirements, reduced interest
rates and the beneficial effect of an interest rate swap.
11. A lower effective income tax rate, due primarily to the favorable
completion of IRS audits, added $1.0 million to net earnings in 2002.
4
Segments
Unless otherwise indicated, all dollars below are pre-tax. Financial results for
our reportable segments are consistent with the basis and manner in which we
internally disaggregate financial information for making operating decisions. We
have three reportable segments: manufacturing, recycling, and marketing and
distribution. The following table shows net sales and adjusted operating profit
(loss) by business segment (in millions).
Year ended August 31,
-------------------------------
2002 2001 2000
-------- -------- --------
Net sales:
Manufacturing $ 1,333 $ 1,321 $ 1,357
Recycling 378 394 463
Marketing and distribution 777 771 903
Adjusted operating profit (loss):
Manufacturing 71.4 56.7 72.1
Recycling 5.1 (2.3) 5.8
Marketing and distribution 14.2 7.8 19.2
2002 COMPARED TO 2001
MANUFACTURING We include our steel group and our copper tube division in our
manufacturing segment. Adjusted operating profit is equal to earnings before
income taxes for our four steel minimills, our copper tube mill and the steel
group's fabrication operations.
Our manufacturing adjusted operating profit in 2002 increased $14.7 million
(26%) as compared to 2001 on marginally more ($12 million) net sales. We
achieved this increase in adjusted operating profit for two primary reasons in
2002:(i) the nonrecurrence of the prior year litigation accrual in the amount of
$8.3 million, and (ii) the current year gain on the sale of the steel group's
heavy structural fabrication operation, SMI-Owen, in the amount of $5.2 million.
Excluding those items, our manufacturing segment's adjusted operating profit was
slightly higher than last year.
Increased production and shipments at our steel group's minimills more than
offset lower selling prices, increased scrap purchase costs and lower copper
tube earnings. Also, we spent less in 2002 on utilities, and we recorded lower
depreciation and amortization expense. However, fiscal 2002 was not a good year
in the steel group's downstream steel fabrication and related businesses due to
lower adjusted operating profits in rebar fabrication and structural steel
fabrication, excluding SMI-Owen.
The table below reflects steel and scrap prices per ton:
August 31,
---------------
(dollars per ton) 2002 2001
------ ------
Average mill selling price-total sales $ 269 $ 284
Average mill selling price-finished goods only 275 290
Average fabrication selling price 608 646
Average ferrous scrap purchase price 80 74
MINIMILLS During 2002, adjusted operating profit for our four steel minimills
rose 27% compared with 2001, despite lower selling prices. SMI South Carolina
had a $2.8 million adjusted operating profit in 2002 compared to a $1.6 million
loss in 2001. SMI Alabama turned around as well with a $2.5 million adjusted
operating profit in 2002 compared to a $2.2 million adjusted operating loss in
2001. Adjusted operating profits at SMI Arkansas were up 4% in the current year
period. These improvements more than offset a 7% decline in adjusted operating
profits at SMI Texas as compared to 2001. A major reason for the minimills'
improved profitability was a 14% increase in shipments because of continued
public projects infrastructure construction. Shipments were 2,171,000 tons in
2002 compared to 1,903,000 in 2001. Mill production also increased over last
year. Tons rolled were up 19% to 2,026,000 in 2002. Tons melted were up 17% to
2,100,000 in 2002. Even though demand was strong, the average total mill selling
5
price at $269 per ton was $15 (5%) below last year. Also, in 2002, we sold more
semi-finished billets, a product with a lower selling price than our average.
Average scrap purchase costs were $6 per ton (8%) higher than in 2001, resulting
in smaller margins. Utility expenses declined by $2.4 million as compared to
2001. Decreases in natural gas costs more than offset higher electricity costs.
Also, depreciation and amortization expenses decreased by $5.2 million in 2002,
primarily because SMI-South Carolina fully depreciated its mill rolls and guides
as well as certain melt shop equipment. The mills also received $2.5 million
from a nonrecurring graphite electrode litigation settlement in 2002.
The U.S. government's new tariffs cover most of the steel minimills' products
and range from 15-30% the first year, declining over the next two years. An
import licensing and monitoring system and an anti-surge mechanism will further
strengthen these remedies. Also, the U.S. administration plans to continue
discussions with other steel producing nations to remove excess global capacity
and eliminate subsidies.
FABRICATION AND OTHER BUSINESSES Adjusted operating profit in the steel group's
fabrication and other businesses increased by $12.1 million (57%) in 2002 as
compared to 2001. Excluding the 2002 gain on the sale of SMI-Owen ($5.2 million)
and the 2001 litigation accrual ($8.3 million), adjusted operating profits in
2002 decreased by $1.3 million (4%) as compared to 2001.
Near the end of fiscal 2002, we discovered two significant, but unrelated
events, requiring retroactive writedowns at two rebar fabrication operations.
The total amount of the adjustments required to correct the August 31, 2002
balance sheets of these two facilities was $4.6 million. These adjustments
affect four fiscal years from 1999 to 2002. In August 2002, we uncovered a theft
and an accounting fraud which occurred over four years at a rebar fabrication
plant in South Carolina. The total adjustment required to revert the accounting
records to their proper balances was $2.7 million. In September 2002, we
discovered accounting errors related to losses on rebar fabrication and
placement jobs at one facility in California, some of which date back to its
acquisition in fiscal 2000. The resulting charge was $1.9 million. The South
Carolina incident resulted in a $900 thousand expense in fiscal 2002. The
remaining $3.7 million for both instances was attributed $885 thousand to fiscal
2001, $2.6 million to fiscal 2000, and $227 thousand to 1999, resulting in prior
period adjustments to these previously reported financial statements. We took
immediate action to strengthen compliance with our internal control policies in
the areas of segregation of duties, personnel, and management review and
oversight. Controllers at both locations were replaced as well as the general
manager of the rebar fabrication plant in South Carolina. The steel group has
increased the level of detail, the frequency of submission, and the amount of
review of its operating locations' reporting. The Company has renewed emphasis
on periodic and timely internal balance sheet audits at all operating locations
and completed audits of all its operating locations in fiscal 2003. No major
areas of noncompliance were noted. Senior management and area managers of all
the Company's locations attended internal meetings led by the CEO and CFO
regarding management's responsibility for internal control, dealing with
noncompliance issues and the Company's commitment to only the highest ethical
standards of conduct.
Fabrication plant shipments totaled 984,000 tons, down fractionally from 986,000
tons shipped in 2001. The average fabrication selling price in 2002 decreased
$38 per ton (6%) as compared to 2001. Rebar fabrication markets were softer in
2002 as a result of intense competition, and several plants reported losses.
During the fourth quarter 2002, we acquired the real estate, equipment,
inventory and work in process of Varmicon, Inc. in Harlingen, Texas. We now
operate this rebar fabrication facility under the name of SMI-Valley Steel. The
steel joist operations, which includes cellular and castellated beams, were
breakeven in 2002, an improvement over the adjusted operating loss in 2001. Both
prices and shipments decreased, but lower operating costs and shop efficiencies
helped significantly. Also, in 2001 these operations incurred $8.9 million in
start-up costs. Structural steel fabrication adjusted operating profits,
excluding SMI-Owen and the prior year litigation accrual, were down in 2002
compared to 2001. However, our concrete-related products operations were more
profitable in 2002. We continued to expand this business through the acquisition
in the fourth quarter of Dowel Assembly Manufacturing Company, or DAMCO, in
Jackson, Mississippi. DAMCO manufactures dowel baskets and has an epoxy coating
business.
In 2002, the steel group started Spray Forming International, a stainless steel
cladding operation located in South Carolina. Spray Forming International will
use a patented process to produce stainless clad billets.
COPPER TUBE Our copper tube division's adjusted operating profit decreased 59%
with 7% less net sales as compared to 2001. Copper tube shipments increased 3%
from 2001 to a record 59.3 million pounds, and production increased 5% from 2001
to a record 56.2 million pounds. However, average sales prices dropped 10% in
2002 to $1.24 per pound as compared to $1.38 per pound in 2001. The biggest
factor was lower apartment and hotel/motel construction. Consequently, demand
for plumbing and refrigeration tube was not as strong. The 2002 product mix
included increased quantities of HVAC products and line sets. In the
marketplace, we continued to adapt to the consolidation among our buyers. The
difference between sales price and copper scrap purchase cost (commonly referred
to as "the metal spread"), declined 8% in 2002 compared to 2001. Lower raw
material purchase costs did not fully compensate for the decline in selling
prices.
6
RECYCLING Our recycling segment reported an adjusted operating profit of $5.1
million in 2002 compared with an adjusted operating loss of $2.3 million in
2001. Net sales in 2002 were 4% lower at $378 million as compared to 2001.
However, gross margins were 11% above last year, primarily because we shipped 8%
more total tons. Demand for ferrous scrap improved both in the U.S. and
internationally. The segment processed and shipped 1,494,000 tons of ferrous
scrap in 2002, 10% more than in 2001. Ferrous sales prices were on average $81
per ton, an increase of $6 from 2001. Nonferrous shipments were flat at 238,000
tons. The average 2002 nonferrous scrap sales price of $947 per ton was 9% lower
than in 2001. Increased productivity, higher asset turnover and reduced costs
contributed to the improved 2002 results. The total volume of scrap processed,
including the steel group's processing plants, was 2,568,000 tons, an increase
of 11% from the 2,308,000 tons processed in 2001.
In June 2002, we acquired most of the transportation assets of Sampson Steel
Corporation in Beaumont, Texas. These assets will be combined with our existing
scrap processing facility in Beaumont. Earlier in the year we closed our
Midland, Texas facility, resulting in a writedown of $455,000 on certain
equipment.
MARKETING AND DISTRIBUTION Net sales in 2002 for our marketing and distribution
segment increased 1% to $777 million as compared to 2001. Adjusted operating
profit in 2002 increased 82% to $14.2 million as compared to 2001, mostly due to
better results from our Australian operations. International steel prices and
volumes for steel and nonferrous semifinished products improved during the
second half of 2002, primarily in the distribution and processing businesses.
However, depressed economies, oversupply in most markets and intense competition
from domestic suppliers in the respective markets caused compressed margins for
numerous steel products, nonferrous metal products and industrial raw materials
and products. The U.S. dollar weakened against major currencies, a beneficial
development.
In September 2001, we completed our acquisition of Coil Steels Group, an
Australian service center in which we already owned a 22% share. This
acquisition provided $2.2 million of additional adjusted operating profits and
$69.0 million in net sales during 2002. Sales and profits for the Company's
pre-existing business in Australia also improved significantly. However, this
increase in net sales was more than offset by decreased sales in our U.S.
operations due to fewer imports into the United States.
Adjusted operating profits for the U.S. divisions improved significantly due to
Cometals which returned to more historical levels, and Dallas Trading which
benefited from the U.S. tariff legislation. Lower margins at Commonwealth on
semi-finished products almost offset these improvements. Our European
operations' net sales decreased slightly in 2002 as compared to 2001, but
adjusted operating profits improved significantly. The segment's recent strategy
of growing its downstream marketing and distribution business offset the
continuing very difficult trading conditions.
OTHER Selling, general and administration as well as employee's retirement plans
expenses were higher in 2002 as compared to 2001, mostly due to the acquisition
of Coil Steels Group and discretionary items, such as bonuses and profit
sharing. This increase was consistent with the improvement in our operating
profitability. Interest expense decreased by $8.9 million (32%) from 2001
largely due to lower interest rates and much lower average short-term
borrowings. Also, during 2002 we entered into two interest rate swaps (see
footnote 4, Credit Arrangements, to the consolidated financial statements) which
resulted in interest expense savings. During 2002, we favorably resolved all
issues for our federal income tax returns through 1999. Due to the lack of any
material adjustments, we have reevaluated the tax accruals and, consequently,
reduced the net tax expense by $1.0 million during 2002.
Near-Term Outlook
We expect that fiscal 2003 will be weaker than 2002. The global economy slowed
in 2002 amid considerable uncertainty, and economic growth in the United States
remains slow and uneven. Our specific markets reflect the soft demand and remain
very competitive. The outlook for our markets generally is weaker, in some cases
significantly so. The manufacturing sector continues to grow slowly. We do not
expect private, nonresidential construction to improve before mid-calendar year
2003, but we expect public construction to hold steady.
Residential building slowed in 2002, but housing sales and starts remain at a
historically high level because of the lowest mortgage rates in three decades.
Economic growth outside the United States also slowed, especially in Europe. On
the other hand, most analysts don't expect the global economy to fall into a
double-dip recession.
7
The fiscal 2003 quarterly results are likely to be erratic and the first half of
fiscal 2003 could be relatively weak. In addition to market conditions, we face
a number of other challenges including increased insurance costs and higher
energy costs. By segment, we anticipate a decrease in operating profit for
manufacturing, little change in recycling and an increase in marketing and
distribution. We expect fiscal 2003 diluted earnings per share to decrease
because diluted average shares will rise further. Our balance sheet should
remain strong.
During 2002, we had capital spending of $47 million plus $7 million for the
acquisition of the remaining shares of Coil Steels Group, compared to capital
spending of $53 million in fiscal 2001. We have focused on reducing short-term
financing needs during the past two fiscal years. We plan to increase capital
expenditures to $88 million for fiscal 2003. Fiscal 2003 capital expenditures
will include expansion in downstream rebar fabrication and concrete-related
products operations in the steel group and the acquisition of the flat-rolled
assets of Horans, a small service center in Australia. We have no major projects
planned at the steel mills for fiscal 2003, only smaller enhancements and
maintenance expenditures. All segments will continue to focus on improving or
disposing of under performing operations, especially if they no longer fit our
strategic direction.
Long-Term Outlook
We are well-positioned to exploit long-term opportunities. Our challenge is to
continue growing in a manner which increases our earnings per share and return
on capital and generates free cash flows over time. Further consolidation is a
virtual certainty in the industries in which we participate, and we plan to
participate in a prudent way. The reasons for further consolidation include an
inadequate return on capital for most companies, numerous bankruptcies, a high
degree of fragmentation, the need to eliminate non-competitive capacity and more
effective marketing.
The outlook section contains forward-looking statements regarding the outlook
for our financial results including net earnings, product pricing and demand,
production rates, energy expense, insurance expense, interest rates, inventory
levels, acquisitions and general market conditions. These forward-looking
statements can generally be identified by phrases such as we or our management
"expects," "anticipates," "believes," "plans to," "ought," "could," "should,"
"likely," "appears," "projects," "forecasts," or other similar words or phrases.
There is inherent risk and uncertainty in any forward-looking statements.
Variances will occur and some could be materially different from our current
opinion. Developments that could impact our expectations include the following:
o interest rate changes
o construction activity
o litigation claims and settlements
o difficulties or delays in the execution of construction contracts resulting
in cost overruns or contract disputes
o metals pricing over which we exert little influence
o increased capacity and product availability from competing steel minimills
and other steel suppliers including import quantities and pricing
o court decisions
o industry consolidation or changes in production capacity or utilization
o global factors including credit availability
o currency fluctuations
o energy and insurance prices
o decisions by governments impacting the level of steel imports and the pace
of overall economic activity.
8
2001 COMPARED TO 2000
Segments
MANUFACTURING Our manufacturing net sales for 2001 for the manufacturing segment
decreased by 3% compared to 2000. Despite an increase in both mill and
fabrication shipments, net sales decreased due to lower selling prices. Adjusted
operating profit as restated decreased $15.4 million (21%) in 2001 as compared
to 2000. The adverse charge for litigation of $8.3 million caused more than half
of the decrease. Also, 2001 copper tube adjusted operating profits dropped from
their record levels in 2000. Steel group adjusted operating profits, excluding
the litigation accrual, decreased slightly as well. We recorded pre-tax LIFO
income of $1.7 million in 2001 compared to LIFO expense of $5.2 million in 2000,
primarily in the manufacturing segment.
August 31,
---------------
(dollars per ton) 2001 2000
------ ------
Average mill selling price-total sales $ 284 $ 306
Average mill selling price-finished goods only 290 314
Average fab selling price 646 647
Average ferrous scrap purchase price 74 91
MINIMILLS Our steel minimills recovered in the second half of 2001 despite very
weak markets throughout the year. The four steel mills' adjusted operating
profit decreased 27% as compared to 2000. An adjusted operating loss at the
Alabama mill and lower adjusted operating profits in Texas and Arkansas
contributed significantly to the decrease. The lower adjusted operating profits
were partially offset by significantly lower losses at South Carolina. Tons
melted and rolled decreased 3% to 1.8 and 1.7 million tons, respectively.
Shipments rose by 3% to 1.9 million tons. The average mill selling price
decreased $22 (7%) in 2001 as compared to 2000. The average selling price for
finished goods decreased $24 per ton (8%) in 2001 as compared to 2000. The
average scrap purchase cost for the mills decreased $17 per ton (19%) in 2001,
which offset the decreases in selling prices. However, utility costs rose $9.8
million (13%) as compared to 2000. Import levels and more aggressive competition
caused sales prices to drop.
Excluding prior year graphite electrode settlements, adjusted operating profit
in 2001 at SMI-Texas decreased 16% and at SMI-Arkansas decreased 24% as compared
to 2000. SMI-Alabama reported an adjusted operating loss in 2001 as compared to
an adjusted operating profit in 2000. The price drops especially hurt
SMI-Alabama. Record shipments at the SMI-South Carolina mill caused adjusted
operating losses to decrease by $8.1 million in 2001 to $1.6 million. This mill
was profitable in the second half of 2001. Selling prices continued to be
significantly lower, and utility and scrap purchase costs were down as well.
FABRICATION AND OTHER BUSINESSES In 2001, our downstream steel fabrication
businesses had another solid year. We have restated 2001 adjusted operating
results by $885 thousand for the accounting fraud at the South Carolina rebar
facility. Also, we reduced fiscal 2000 adjusted operating profits by $677
thousand and $1.9 million, respectively, for the accounting fraud at the South
Carolina rebar facility and the accounting errors at the California rebar
manufacturing and placement operation. We discovered both events near the end of
fiscal 2002. Excluding a net pre-tax gain of $5.5 million from the sale of land
and improvements in fiscal 2000, net sales remained the same in 2001 as compared
to 2000. Adjusted operating profits increased 30% as compared to 2000, excluding
the 2001 litigation accrual of $8.3 million for an adverse court ruling and the
2000 $5.5 million gain on the sale. Fabricated steel shipments of 986,000 tons
increased 3% as compared to 2000; however, this included new capacity. Although
prices were mixed, the annual average fab selling price remained unchanged.
Steel joist and cellular beam manufacturing operations incurred $8.9 million in
startup costs for four projects. A major turnaround in large structural steel
jobs fabricated by SMI-Owen more than offset these costs.
COPPER TUBE Our copper tube division's adjusted operating profit decreased 29%
in 2001 as compared to 2000. Shipments decreased less than 1% in 2001 to 57.3
million pounds, and metal spreads declined 13% in 2001 as compared to 2000. Our
copper tube selling prices decreased 8 cents (6%) per pound to $1.38 in 2001 as
compared to $1.46 in 2000. Production at the plant decreased consistently with
shipments. Although the housing sector of the U.S. economy remained relatively
strong, demand for plumbing and refrigeration tube was softer than in the prior
year. In the second half of 2001, we added line sets to our product mix,
although shipments of this new product were not yet significant.
9
CAPITAL IMPROVEMENTS Our capital improvements decreased significantly to $53
million as compared to $70 million in 2000, primarily in the manufacturing
segment. The $70 million included the expansion at the copper tube mill and the
installation of a ladle metallurgical station at SMI-South Carolina. In fiscal
2001, we substantially completed the copper tube mill expansion.
RECYCLING Our recycling segment incurred an adjusted operating loss of $2.3
million in 2001 as compared to a $5.8 million adjusted operating profit in 2000.
Tons processed and shipped decreased 4% as compared to 2000; however, net sales
decreased 15% as compared to 2000. Due to high scrap imports, weak domestic
steel mills and the strong U.S. dollar, ferrous prices fell $21 per ton (22%) as
compared to $75 per ton in 2000, and shipments fell 5%. A sharp drop in terminal
market values resulted in lower nonferrous margins. The average nonferrous scrap
price was 5% lower on volumes which were 2% higher as compared to 2000.
Increased productivity, high asset turnover and reduced expenses mitigated the
effects of weak markets.
The total volume of scrap processed and shipped in 2001, including our steel
group operations, decreased slightly to 2.3 million tons from 2.4 million tons
in fiscal 2000.
MARKETING AND DISTRIBUTION Our marketing and distribution segment's net sales
decreased in 2001 by 15% to $771 million, and adjusted operating profits were
59% lower as compared to 2000. Depressed global economies, oversupply in most
markets and intense competition from domestic suppliers in the respective
markets contributed significantly to the decline. Also, the strong U.S. dollar
continued to hamper the segment's results in various parts of the world. Margins
were compressed for most steel products, nonferrous metal products and
industrial raw materials and products. Our strategy in recent years to enhance
regional businesses helped in the difficult market and currency conditions.
Most importantly, we achieved profitability even as we continued a major
commitment to develop quality people in sales and administration to provide for
long-term growth. We continued to diversify and build business by adding product
and geographic areas. We expanded regional trade as well, and continued to
increase our operations in the processing of the materials and products we buy
and sell.
2002 Liquidity and Capital Resources
We discuss liquidity and capital resources on a consolidated basis. Our
discussion includes the sources and uses of our three operating segments and
centralized corporate functions. We have a centralized treasury function and use
inter-company loans to efficiently manage the short-term cash needs of our
operating divisions. We invest any excess funds centrally.
We rely upon cash flows from operating activities, and to the extent necessary,
external short-term financing sources. Our short-term financing sources include
the issuance of commercial paper, sales of accounts receivable and borrowing
under our bank credit facilities. From time to time, we have issued long-term
public debt. Our investment grade credit ratings and general business conditions
affect our access to external financing on a cost-effective basis. Depending on
the price of our common stock, we may realize significant cash flows from the
exercise of stock options.
Moody's Investors Service (P-2), Standard & Poor's Corporation (A-2) and Fitch
(F-2) rate our $174.5 million commercial paper program, which is up from $135
million in 2001, in the second highest category. To support our commercial paper
program, we have unsecured revolving credit agreements with a group of eight
banks. Our $129.5 million facility expires in August 2003 and our $45 million
facility expires in August 2004. We plan to continue our commercial paper
program and the revolving credit agreements in comparable amounts to support the
commercial paper program.
For added flexibility, we may secure financing from the sale of certain accounts
receivable in an amount not to exceed $130 million. We may continually sell
accounts receivable on an ongoing basis to replace those receivables that we
have collected from our customers. Our long-term public debt, which was $255
million at August 31, 2002, is investment
10
grade rated by Standard & Poor's Corporation (BBB), Fitch (BBB) and by Moody's
Investors Services (Baa1). We have access to the public markets for potential
refinancing or the issuance of additional long term debt. Also, we have numerous
informal, uncommitted credit facilities available from domestic and
international banks. These credit facilities are priced at bankers' acceptance
rates or on a cost of funds basis.
Credit ratings affect our ability to obtain short- and long-term financing and
the cost of such financing. If the rating agencies were to reduce our credit
ratings, we would pay higher financing costs and possibly would have less
availability of the informal, uncommitted facilities. In determining our credit
ratings, the rating agencies consider a number of both quantitative and
qualitative factors. Such factors include earnings, fixed charges such as
interest, cash flows, total debt outstanding, off balance sheet obligations and
other commitments, total capitalization and various ratios calculated from these
factors. The rating agencies also consider predictability of cash flows,
business strategy, industry condition and contingencies. We are committed to
maintaining our investment grade credit ratings.
Certain of our financing agreements include various covenants. The most
restrictive of these covenants requires us to maintain an interest coverage
ratio of greater than three times and a debt to capitalization ratio of 55% as
defined in the financing agreement. A few of the agreements provide that if we
default on the terms of another financing agreement, it is considered a default
under these agreements. We have complied with the requirements, including the
covenants of our financing agreement as of and for the year ended, August 31,
2002.
Our unsecured revolving credit agreements and accounts receivable securitization
agreement include ratings triggers. The trigger in the revolving credit
agreements is solely a means to reset pricing for facility fees and, if a
borrowing occurs, on loans. Within the accounts receivable securitization
agreement, the ratings trigger is contained in a "termination event," but the
trigger is set at catastrophic levels. The trigger requires a combination of
ratings actions on behalf of two independent rating agencies and is set at
levels seven ratings categories below our current rating.
Our manufacturing and recycling businesses are capital intensive. Our capital
requirements include construction, purchases of equipment and maintenance
capital at existing facilities. We plan to invest in new operations. We also
plan to invest in working capital to support the growth of our businesses,
maintain our ability to repay maturing long-term debt when due at its earliest
maturity in 2005 and pay dividends to our stockholders.
Our management continues to assess alternative means of raising capital,
including potential dispositions of under-performing or non-strategic assets.
Any potential future major acquisitions could require additional financing from
external sources such as the sale of common stock.
CASH FLOWS Our cash flows from operating activities primarily result from sales
of steel and related products and, to a lesser extent, from sales of nonferrous
metal products. We have a diverse and generally stable customer base. We use
futures or forward contracts as needed to mitigate the risks from fluctuations
in foreign currency exchange rates and metals commodity prices (see footnote 5,
Financial Instruments, Market and Credit Risk, in the consolidated financial
statements).
The volume and price of the orders from our U.S. customers in the manufacturing
and construction sectors affect our cash flows from operating activities. Our
international marketing and distribution operations also significantly affect
our cash flows from operating activity. The weather can influence the volume of
products we ship in any given period. Also, the general economy, the strength of
the U.S. dollar, governmental action, and various other factors beyond our
control influence our volumes and prices. These periodic fluctuations in our
prices and volumes can result in variations in cash flows from operations.
Despite these fluctuations, we have historically relied on operating activities
as a steady source of cash.
11
Net cash flows from operating activities decreased to $96.6 million in 2002 as
compared to $192.7 million in 2001, primarily as a result of decreased funding
from sales of accounts receivable. Net working capital in 2002 increased to $379
million from $274 million in 2001, primarily due to increased cash and cash
equivalents and higher receivables. Increases in accounts payable more than
offset the increase in inventories. The ratio of current assets to current
liabilities was 1.9 at August 31, 2002, increased from 1.8 at August 31, 2001.
Excluding Coil Steels Group, CSG, and SMI-Owen, which were facilities acquired
and sold in 2002, accounts receivable at August 31, 2002 were $48.7 million more
than at August 31, 2001. The increase resulted because we did not request as
much funding from the accounts receivable that we sold to financial
institutions. Excluding CSG and SMI-Owen, inventories and accounts payable,
accrued expenses, other payables and income taxes at August 31, 2002 increased
by $37.2 million and $66.9 million, respectively, as compared to 2001.
Inventories in the steel group, excluding SMI-Owen, increased $22.3 million. The
majority of the increase occurred at the minimills because of higher scrap
purchase costs and higher inventory quantities. Steel fabrication and post
inventories increased as well. Inventories in marketing and distribution,
excluding CSG, increased $15.1 million in 2002 mostly due to shipments in
transit and customer delays. Accounts payable in marketing and distribution,
excluding CSG, increased by $65.5 million in 2002 due to higher inventory
purchases and extended terms with vendors. Accounts payable in the steel group
at the minimills increased $9.9 million in 2002. Also, during 2002, we received
$15.0 million from a litigation settlement (see footnote 10, Commitments and
Contingencies, to the consolidated financial statements). Increased profits
resulted in an increase of $5.7 million in income taxes payable. During 2002, we
received $5.2 million for the contract balance and settlement of disputed change
orders on an old large structural steel fabrication contract at SMI-Owen. Higher
net earnings in 2002 as compared to 2001 partially offset the increased working
capital. Depreciation and amortization expense decreased $5.7 million in 2002
primarily because SMI South Carolina fully depreciated its mill rolls and guides
as well as certain melt shop equipment. We realized a $4.1 million increase in
the tax benefits from stock issued under option and purchase plans during 2002.
Our cash flows increased by $2.4 million in 2002 as a result of deferred income
taxes, due largely to additional depreciation which was granted under new tax
legislation.
We invested $47.2 million in property, plant and equipment in 2002, which was
$5.8 million less than in 2001. In addition, in 2002, we acquired the remaining
shares of CSG for $6.8 million, net of cash. We received $19.7 million during
2002 for the sale of the assets of SMI-Owen. We expect capital spending for
fiscal 2003 to be $88 million, including both new construction and acquisitions
to expand our downstream businesses.
We needed much less short-term financing during 2002 than during 2001, primarily
due to better management of working capital, higher earnings, the litigation
settlement, the sale of SMI-Owen and cash from stock issued under incentive and
purchase plans. These events enabled us to repay all of our short-term
borrowings. In 2002, we also made our final payment on the 8.49% long-term
notes.
In May 2002, our Board of Directors declared a two-for-one stock split in the
form of a stock dividend on our common stock payable June 28, 2002 to our
shareholders of record on June 7, 2002 (see footnote 7, Capital Stock, to the
consolidated financial statements). On June 28, 2002, we issued 16,132,583
additional shares of common stock. At August 31, 2002, 28,518,453 shares of
common stock were issued and outstanding, and 3,746,713 were held in our
treasury. Also, we issued 2,361,265 additional shares of common stock during
2002 because more employees exercised stock options, and we issued more shares
than last year under our employee stock purchase plan because of the significant
increase in our average market price per share. We issued all shares from
treasury shares. As a result of this activity, our cash flows increased by $30.2
million in 2002 as compared to $4.4 million from such activity in 2001.
We paid dividends of $7.5 million during 2002, slightly more than the $6.8
million we paid during 2001. On May 20, 2002, our directors declared a quarterly
cash dividend of eight cents per share on common stock. We paid this quarterly
cash dividend on July 19 to stockholders of record at July 5, 2002. This new
cash dividend rate on the after-split shares represents a 23% increase in our
cash dividend. This was the 151st consecutive quarterly cash dividend we have
paid.
We believe that we have sufficient liquidity for fiscal year 2003 and the
foreseeable future.
12
Contractual Obligations
The following table represents our contractual obligations as of August 31, 2002
(dollars in thousands):
Payments Due Within*
--------------------------------------------------------
2-3 4-5 After
Total 1 Year Years Years 5 Years
--------- -------- --------- --------- ---------
Contractual Obligations:
Long-term debt(1) $ 256,600 $ 631 $ 105,859 $ 50,033 $ 100,077
Operating leases(2) 23,986 9,347 8,996 3,953 1,690
Unconditional purchase
obligations(3) 53,698 17,388 12,345 7,102 16,863
========= ======== ========= ========= =========
Total contractual cash
obligations $ 334,284 $ 27,366 $ 127,200 $ 61,088 $ 118,630
*We have not discounted the cash obligations in this table.
(1) Total amounts are included in the August 31, 2002 consolidated balance
sheet. See footnote 4, Credit Arrangements, to the consolidated financial
statements.
(2) Includes minimum lease payment obligations for noncancelable equipment and
real-estate leases in effect as of August 31, 2002. See footnote 10,
Commitments and Contingencies, to the consolidated financial statements.
(3) About 35% of these purchase obligations are for inventory items to be sold
in the ordinary course of business; most of the remainder are for freight
and supplies associated with normal revenue-producing activities.
At August 31, 2002, we received $2,141,000 of net funding from the sales of
accounts receivable. If we terminated the accounts receivable program on August
31, 2002, we would have to pay the first $2.1 million of collections from these
accounts to third party financial institutions. We complied with the terms of
this program as of, and for the year ended August 31, 2002.
Other Commercial Commitments
We maintain stand-by letters of credit to provide support for certain
transactions that our customers or suppliers request. At August 31, 2002, we had
committed $20.9 million under these arrangements. A cash deposit included in
current other assets on the consolidated balance sheet collateralized $6 million
of these commitments. All commitments expire within one year.
At the request of a customer and its surety bond issuer, we have agreed to
indemnify the surety against all costs the surety may incur should our customer
fail to perform its obligations under construction contracts covered by payment
and performance bonds issued by the surety. We are the customer' primary
supplier of steel, and steel is a substantial portion of our customer' cost to
perform the contracts. We believe we have adequate controls to monitor the
customer' performance under the contracts including payment for the steel we
supply. As of August 31, 2002, the surety had issued bonds in the total amount
(without reduction for work performed to that date) of $2,193,000 which are
subject to our guaranty obligation under the indemnity agreement.
Contingencies
In the ordinary course of conducting our business, we become involved in
litigation, administrative proceedings, government investigations including
environmental matters, and contract disputes. We may incur settlement, fines,
penalties or judgments because of some of these matters. While we are unable to
estimate precisely the ultimate dollar amount of exposure or loss in connection
with these matters, we make accruals we deem necessary. The amounts we accrue
could vary substantially from amounts we pay due to several factors including
the following: evolving remediation technology, changing regulations, possible
third-party contributions, the inherent shortcomings of the estimation process,
and the uncertainties involved in litigation. Accordingly, we cannot always
estimate a meaningful range of possible exposure. We believe that we have
adequately provided in our financial statements for the estimable potential
impact of these contingencies. We also believe that the outcomes will not
significantly affect the long-term results of operations or our financial
position. However, they may have a material impact on earnings for a particular
period.
13
CONSTRUCTION CONTRACT DISPUTES See footnote 10, Commitments and Contingencies,
to the consolidated financial statements.
ENVIRONMENTAL AND OTHER MATTERS We are subject to federal, state and local
pollution control laws and regulations in all locations where we have operating
facilities. We anticipate that compliance with these laws and regulations will
involve continuing capital expenditures and operating costs.
Our original business and one of our core businesses for over eight decades is
metals recycling. In the present era of conservation of natural resources and
ecological concerns, we are committed to sound ecological and business conduct.
Certain governmental regulations regarding environmental concerns, however well
intentioned, are contrary to the goal of greater recycling. Such regulations
expose us and the industry to potentially significant risks.
We believe that recycled materials are commodities that are diverted by
recyclers, such as us, from the solid waste streams because of their inherent
value. Commodities are materials that are purchased and sold in public and
private markets and commodities exchanges every day around the world. They are
identified, purchased, sorted, processed and sold in accordance with carefully
established industry specifications.
Environmental agencies at various federal and state levels classify certain
recycled materials as hazardous substances and subject recyclers to material
remediation costs, fines and penalties. Taken to extremes, such actions could
cripple the recycling industry and undermine any national goal of material
conservation. Enforcement, interpretation, and litigation involving these
regulations are not well developed.
The U.S. Environmental Protection Agency, or EPA, or an equivalent state agency
notified us that we are considered a potentially responsible party, or PRP, at
fourteen sites, none owned by us. We may be obligated under the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, or CERCLA, or a
similar state statute to conduct remedial investigation, feasibility studies,
remediation and/or removal of alleged releases of hazardous substances or to
reimburse the EPA for such activities. We are involved in litigation or
administrative proceedings with regard to several of these sites in which we are
contesting, or at the appropriate time we may contest, our liability at the
sites. In addition, we have received information requests with regard to other
sites which may be under consideration by the EPA as potential CERCLA sites.
In fiscal 2002, we incurred environmental expense of $12.1 million. This expense
included the cost of environmental personnel at various divisions, permit and
license fees, accruals and payments for studies, tests, assessments,
remediation, consultant fees, baghouse dust removal and various other expenses.
Approximately $507 thousand of our capital expenditures for 2002 related to
costs directly associated with environmental compliance. At August 31, 2002,
$5.0 million was accrued for environmental liabilities of which $1.5 million is
classified as other long-term liabilities.
Dividends
We have paid quarterly cash dividends in each of the past 39 consecutive years.
We paid dividends in 2002 at the rate of 0.065 cents per share each quarter for
the first three quarters, and 0.08 cents per share for the fourth quarter.
14
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
Commercial Metals Company and Subsidiaries
CONSOLIDATED STATEMENTS OF EARNINGS
Year ended August 31,
----------------------------------------------
(in thousands, except share data) 2002 2001* 2000*
---------- --------------- ---------------
Net sales $2,446,777 $ 2,441,216 $ 2,661,420
Costs and expenses:
Cost of goods sold 2,129,378 2,143,900 2,333,930
Selling, general and administrative expenses 220,868 212,424 211,403
Employees' retirement plans 14,685 10,611 18,108
Interest expense 18,708 27,608 27,319
Litigation accrual -- 8,258 --
---------- --------------- ---------------
2,383,639 2,402,801 2,590,760
---------- --------------- ---------------
Earnings before income taxes 63,138 38,415 70,660
Income taxes 22,613 14,643 26,070
---------- --------------- ---------------
Net earnings $ 40,525 $ 23,772 $ 44,590
========== =============== ===============
Basic earnings per share $ 1.48 $ 0.91 $ 1.59
========== =============== ===============
Diluted earnings per share $ 1.43 $ 0.90 $ 1.56
========== =============== ===============
* As restated, see Note 14.
See notes to consolidated financial statements.
15
Commercial Metals Company and Subsidiaries
CONSOLIDATED BALANCE SHEETS
August 31,
-------------------------------
(in thousands, except share data) 2002* 2001*
------------ ---------------
ASSETS
Current assets:
Cash and cash equivalents $ 124,397 $ 56,021
Accounts receivable (less allowance for collection
losses of $8,877 and $7,958) 350,885 297,611
Inventories 268,040 223,859
Other 50,930 45,522
------------ ---------------
Total current assets 794,252 623,013
Property, plant and equipment:
Land 29,099 29,315
Buildings 119,592 109,549
Equipment 727,650 704,469
Leasehold improvements 34,637 33,213
Construction in process 10,801 20,350
------------ ---------------
921,779 896,896
Less accumulated depreciation and amortization (543,624) (501,045)
------------ ---------------
378,155 395,851
Other assets 57,669 63,082
------------ ---------------
$ 1,230,076 $ 1,081,946
============ ===============
* As restated, see Note 14.
See notes to consolidated financial statements.
16
August 31,
-------------------------------
(in thousands, except share data) 2002* 2001*
------------ ---------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $ -- $ 3,793
Accounts payable 275,232 201,271
Accrued expenses and other payables 133,608 133,847
Income taxes payable 5,676 --
Current maturities of long-term debt 631 10,288
------------ ---------------
Total current liabilities 415,147 349,199
Deferred income taxes 32,813 30,405
Other long-term liabilities 24,841 17,610
Long-term debt 255,969 251,638
Commitments and contingencies
Stockholders' equity:
Capital stock:
Preferred stock -- --
Common stock, par value $5.00 per share:
authorized 40,000,000 shares; issued 32,265,166 and 16,132,583 shares;
outstanding 28,518,453 and 13,078,594 shares 161,326 80,663
Additional paid-in capital 170 13,930
Accumulated other comprehensive loss (1,458) (1,961)
Retained earnings 392,004 422,309
------------ ---------------
552,042 514,941
Less treasury stock 3,746,713 and 3,053,989 shares at cost (50,736) (81,847)
------------ ---------------
501,306 433,094
------------ ---------------
$ 1,230,076 $ 1,081,946
============ ===============
* As restated, see Note 14.
See notes to consolidated financial statements.
17
Commercial Metals Company and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
August 31,
----------------------------------------------------
(in thousands) 2002* 2001* 2000*
--------------- --------------- ---------------
Cash Flows From (Used By) Operating Activities:
Net Earnings $ 40,525 $ 23,772 $ 44,590
Adjustments to earnings not requiring cash:
Depreciation and amortization 61,579 67,272 66,583
Provision for losses on receivables 3,985 4,371 948
Deferred income taxes 2,408 (726) 7,868
Tax benefits from stock plans 4,467 404 274
Gain on sale of SMI-Owen (5,234) -- --
Other (307) (148) (5,570)
Changes in Operating Assets and Liabilities, net of effect of
Coil Steels Group Acquisition and Sale of SMI-Owen:
Decrease (increase) in accounts receivable (48,690) (8,276) (55,488)
Funding from accounts receivable sold -- 58,498 --
Decrease (increase) in inventories (37,206) 46,508 (23,213)
Decrease (increase) in other assets 912 5,837 (36,433)
Increase (decrease) in accounts payable,
accrued expenses, other payables and income taxes 66,927 (2,389) 3,269
Increase (decrease) in other long-term liabilities 7,231 (2,431) 5,780
------------ --------------- ---------------
Net Cash Flows From Operating Activities 96,597 192,692 8,608
Cash Flows From (Used By) Investing Activities:
Purchases of property, plant and equipment (47,223) (53,022) (69,627)
Acquisition of Coil Steels Group, net of cash received (6,834) -- --
Sale of Assets of SMI-Owen 19,705 -- --
Sales of property, plant and equipment 3,496 2,866 9,323
Other investments -- -- (2,966)
------------ --------------- ---------------
Net Cash Used By Investing Activities (30,856) (50,156) (63,270)
Cash Flows From (Used by) Financing Activities:
Short-term borrowings-net change (9,981) (88,673) 78,084
Payments on long-term debt (10,101) (8,786) (4,750)
Stock issued under incentive and purchase plans 30,238 4,383 5,958
Treasury stock acquired -- (6,716) (41,934)
Dividends paid (7,521) (6,780) (7,304)
------------ --------------- ---------------
Net Cash From (Used by) Financing Activities 2,635 (106,572) 30,054
------------ --------------- ---------------
Increase (Decrease) in Cash and Cash Equivalents 68,376 35,964 (24,608)
Cash and Cash Equivalents at Beginning of Year 56,021 20,057 44,665
------------ --------------- ---------------
Cash and Cash Equivalents at End of Year $ 124,397 $ 56,021 $ 20,057
============ =============== ===============
* As restated, see Note 14.
See notes to consolidated financial statements.
18
Commercial Metals Company and Subsidiaries
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Common Stock Accumulated
-------------------------------- Additional Other
Number of Paid-In Comprehensive
(in thousands, except share data) Shares Amount Capital Loss
---------- ------------ ---------- --------------
Balance, September 1, 1999,
as previously reported 16,132,583 $ 80,663 $ 14,131 $ (774)
Prior period adjustments
(see footnote 14)
---------- ---------- ---------- ------------
Balance, September 1, 1999,
as restated 16,132,583 80,663 14,131 (774)
Comprehensive income:
Net earnings*
Other comprehensive
loss-
Foreign currency
translation adjustment,
net of taxes of $440 (817)
Comprehensive income
Cash dividends
Treasury stock acquired
Stock issued under incentive
and purchase plans 100
---------- ---------- ---------- ------------
Balance, August 31, 2000 16,132,583 80,663 14,231 (1,591)
---------- ---------- ---------- ------------
Comprehensive income:
Net earnings*
Other comprehensive
loss-
Unrealized loss on
derivatives, net of
taxes of $7 (14)
Foreign currency
translation adjustment,
net of taxes of $192 (356)
Comprehensive income
Cash dividends
Treasury stock acquired
Stock issued under
incentive and purchase
plans (301)
---------- ---------- ---------- ------------
Balance, August 31, 2001 16,132,583 80,663 13,930 (1,961)
---------- ---------- ---------- ------------
Comprehensive income:
Net earnings
Other comprehensive
income (loss)-
Foreign currency
translation adjustment,
net of taxes of $276 513
Unrealized loss on
derivatives, net of
taxes of $(5) (10)
Comprehensive income
Cash dividends
2-for-1 stock split 16,132,583 80,663 (17,354)
Stock issued under
incentive and purchase plans (873)
Tax benefits from stock plans 4,467
---------- ---------- ---------- ------------
Balance, August 31, 2002 32,265,166 $ 161,326 $ 170 $ (1,458)
========== ========== ========== ============
Treasury Stock
---------------------------------
Retained Number of
(in thousands, except share data) Earnings Shares Amount Total
------------ ---------- ------------ ------------
Balance, September 1, 1999,
as previously reported $ 368,177 (1,726,323) $ (43,739) $ 418,458
Prior period adjustments
(see footnote 14) (146) (146)
------------ ---------- ------------ ------------
Balance, September 1, 1999,
as restated 368,031 (1,726,323) (43,739) 418,312
Comprehensive income:
Net earnings* 44,590 44,590
Other comprehensive
loss-
Foreign currency
translation adjustment,
net of taxes of $440 (817)
------------
Comprehensive income 43,773
Cash dividends (7,304) (7,304)
Treasury stock acquired (1,465,100) (41,934) (41,934)
Stock issued under incentive
and purchase plans 231,515 5,858 5,958
------------ ---------- ------------ ------------
Balance, August 31, 2000 405,317 (2,959,908) (79,815) 418,805
------------ ---------- ------------ ------------
Comprehensive income:
Net earnings* 23,772 23,772
Other comprehensive
loss-
Unrealized loss on
derivatives, net of
taxes of $7 (14)
Foreign currency
translation adjustment,
net of taxes of $192 (356)
------------
Comprehensive income 23,402
Cash dividends (6,780) (6,780)
Treasury stock acquired (271,500) (6,716) (6,716)
Stock issued under
incentive and purchase
plans 177,419 4,684 4,383
------------ ---------- ------------ ------------
Balance, August 31, 2001 422,309 (3,053,989) (81,847) 433,094
------------ ---------- ------------ ------------
Comprehensive income:
Net earnings 40,525 40,525
Other comprehensive
income (loss)-
Foreign currency
translation adjustment,
net of taxes of $276 513
Unrealized loss on
derivatives, net of
taxes of $(5) (10)
------------
Comprehensive income 41,028
Cash dividends (7,521) (7,521)
2-for-1 stock split (63,309) (3,053,989)
Stock issued under
incentive and purchase plans 2,361,265 31,111 30,238
Tax benefits from stock plans 4,467
------------ ---------- ------------ ------------
Balance, August 31, 2002 $ 392,004 (3,746,713) $ (50,736) $ 501,306
============ ========== ============ ============
* As restated-see footnote 14.
See notes to consolidated financial statements.
19
Commercial Metals Company and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 Summary of Significant Accounting Policies
NATURE OF OPERATIONS The Company manufactures, recycles and markets steel and
metal products and related materials. Its manufacturing and recycling facilities
and primary markets are located in the Sunbelt from the mid-Atlantic area
through the West. Through its global marketing offices, the Company markets and
distributes steel and nonferrous metal products and other industrial products
worldwide. As more fully discussed in note 13, the manufacturing segment is the
most dominant in terms of capital assets and operating profit.
CONSOLIDATION The consolidated financial statements include the accounts of the
Company and its subsidiaries. All significant intercompany transactions and
balances are eliminated in consolidation. Investments in 20% to 50% owned
affiliates are accounted for on the equity method. All investments under 20% are
accounted for under the cost method, unless the Company has the ability to
exercise significant influence over the investee.
REVENUE RECOGNITION Generally, sales are recognized when title passes to the
customer. Some of the revenues related to the steel fabrication operations are
recognized on the percentage of completion method. Due to uncertainties inherent
in the estimation process, it is at least reasonably possible that completion
costs for certain projects will be further revised in the near-term.
CASH AND CASH EQUIVALENTS The Company considers temporary investments that are
short-term (generally with original maturities of three months or less) and
highly liquid to be cash equivalents.
INVENTORIES Inventories are stated at the lower of cost or market. Inventory
cost for most domestic inventories is determined by the last-in, first-out
(LIFO) method; cost of international and remaining inventories is determined by
the first-in, first-out (FIFO) method.
Elements of cost in finished goods inventory in addition to the cost of
material include depreciation and amortization, utilities, consumable
production supplies, maintenance and production wages. Also, the costs of
departments that support production including materials management and quality
control are allocated to inventory.
PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment is recorded at cost
and is depreciated on a straight-line basis over the estimated useful lives of
the assets. Provision for amortization of leasehold improvements is made at
annual rates based upon the estimated useful lives of the assets or terms of the
leases, whichever is shorter. At August 31, 2002, the useful lives used for
depreciation and amortization were as follows:
Buildings 7 to 40 years
Equipment 3 to 15 years
Leasehold improvements 3 to 10 years
We evaluate the carrying value of property, plant and equipment whenever a
change in circumstances indicates that the carrying value may not be recoverable
from the undiscounted future cash flows from operations. If we determine that
impairment exists, we reduce the net book values as warranted. Major maintenance
is expensed as incurred.
START-UP COSTS Start-up costs associated with the acquisition and expansion of
manufacturing and recycling facilities are expensed as incurred.
ENVIRONMENTAL COSTS The Company accrues liabilities for environmental
investigation and remediation costs based upon estimates regarding the number of
sites for which the Company will be responsible, the scope and cost of work to
be performed at each site, the portion of costs that will be shared with other
parties and the timing of remediation. Where amounts and timing can be reliably
estimated, amounts are discounted. Where timing and amounts cannot be reasonably
determined, a range is estimated and the lower end of the range is recognized on
an undiscounted basis.
INCOME TAXES The Company and its U.S. subsidiaries file a consolidated federal
income tax return, and federal income taxes are allocated to subsidiaries based
upon their respective taxable income or loss. Deferred income taxes are provided
for temporary differences between financial and tax reporting. The principal
differences are described in footnote 6, Income Taxes. Benefits from tax credits
are reflected currently in earnings. The Company provides for taxes on
unremitted earnings of foreign subsidiaries.
FOREIGN CURRENCY The functional currency of the Company's international
subsidiaries in Australia, the United Kingdom, and Germany is the local
currency. The remaining international subsidiaries' functional currency is the
United States dollar. Translation adjustments are reported as a component of
accumulated other comprehensive loss.
20
Effective September 1, 2002, most of the Company's subsidiaries in Europe
changed their functional currency to the Euro. The Company does not anticipate
that this change will have a material impact on its financial condition or
results of operation.
USE OF ESTIMATES The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make significant
estimates regarding assets and liabilities and associated revenues and expenses.
Management believes these estimates to be reasonable; however, actual results
may vary.
DERIVATIVES The Company records derivatives on the balance sheet as assets or
liabilities, measured at fair value. Gains or losses from the changes in the
values of the derivatives are recorded in the statement of earnings, or are
deferred if they are highly effective in achieving offsetting changes in fair
values or cash flows of the hedged items during the term of the hedge.
RECLASSIFICATIONS Certain reclassifications have been made in the 2001 and 2000
financial statements to conform to the classifications used in the current year.
RECENTLY ISSUED ACCOUNTING STANDARDS Statement of Financial Accounting Standards
(SFAS) No.142, Goodwill and Other Intangible Assets, must be adopted by the
Company in the first quarter of its fiscal year 2003, and will be applied to all
goodwill and other intangible assets recognized on the balance sheet, regardless
of when those assets were initially recognized. Goodwill will no longer be
amortized, but must be tested for impairment as of the beginning of the fiscal
year of adoption and annually thereafter. Goodwill was $6.8 million at August
31, 2002. Management does not believe that the implementation of SFAS 142 will
result in an impairment charge.
In August 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement
Obligations, effective for the Company in fiscal 2003. This standard requires
entities to record the fair value of a liability for an asset retirement
obligation when it is incurred by increasing the carrying amount of the related
long-lived asset. The liability is accreted to its present value each period,
and the capitalized cost is depreciated over the useful lives of the assets.
In October 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets, that refines criteria for assets classified as
held for sale, further refines rules regarding impairment of long-lived assets
and changes the reporting of discontinued operations. SFAS No. 144 is effective
for the Company's fiscal 2003.
SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities,
was issued in June 2002. It is effective for all such activities initiated after
December 31, 2002. SFASNo. 146 requires that a liability for a cost associated
with an exit or disposal activity be recognized at fair value only when
incurred.
Management believes that the adoption of SFAS Nos.143, 144 and 146 will have no
significant impact on the results of operations or financial position of the
Company.
NOTE 2 Sales of Accounts Receivable
The Company has an accounts receivable securitization program (Securitization
Program) which it utilizes as a cost-effective, short-term financing
alternative. Under the Securitization Program, the Company and several of its
subsidiaries (the Originators) periodically sell accounts receivable to the
Company's wholly-owned consolidated special purpose subsidiary (CMCR). CMCR is
structured to be a bankruptcy-remote entity. CMCR, in turn, sells an undivided
percentage ownership interest (Participation Interest) in the pool of
receivables to an affiliate of a third party financial institution (Buyer). CMCR
may sell undivided interests of up to $130 million, depending on the Company's
level of financing needs.
This Program is designed to enable receivables sold by the Company to CMCR to
constitute true sales under US Bankruptcy Laws, and the Company has received an
opinion from counsel relating to the "true sale" nature of the program. As a
result, these receivables are available to satisfy CMCR's own obligations to its
third party creditors. The Company accounts for the Securitization Program in
accordance with SFAS No. 140, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities." The transfers meet all of
the criteria for a sale under SFAS No. 140. At the time a Participation Interest
in the pool of receivables is sold, the amount sold is removed from the
consolidated balance sheet and the proceeds from the sale are reflected as cash
provided by operating activities.
At August 31, 2002 and 2001, uncollected accounts receivable of $146 million and
$138 million, respectively, had been sold to CMCR, and the Company's undivided
interest in these receivables was subordinate to any interest owned by the
Buyer. At August 31, 2002 and 2001, $0 and $40 million, respectively of
participation interests in CMCR's accounts receivable pool were owned by the
Buyer and therefore reflected as a reduction in accounts receivable on the
Company's consolidated balance sheets.
Discounts (losses) on the sales of accounts receivable to the Buyer under this
Securitization Program were $793 thousand and $976 thousand for the years ended
August 31, 2003 and 2002, respectively. These losses, representing primarily the
costs of funds, were included in selling, general and administrative expenses.
At August 31, 2002, the carrying amount of the Company's retained interest
(representing the Company's interest in the receivable pool) was $146 million
(100%) in the revolving pool of receivables of $146 million. The carrying amount
of the Company's retained interest was $98 million in the revolving pool of
receivables of $138 million at August 31, 2001. The carrying amount of the
Company's retained interest in the receivables approximated fair value due to
the short-term nature of the collection period. The retained interest is
determined reflecting 100% of any allowance for collection losses on the entire
receivables pool. No other material assumptions are made in determining the fair
value of the retained interest. The Company is responsible for servicing the
entire pool of receivables.
In addition to the Securitization Program described above, the Company's
international subsidiaries periodically sell accounts receivable. These
arrangements also constitute true sales and, once the accounts are sold, they
are no longer available to satisfy the Company's creditors in the event of
bankruptcy. Uncollected accounts receivable that had been sold under these
arrangements and removed from the consolidated balance sheets were $2.1 million
and $18.5 million at August 31, 2002 and 2001, respectively.
21
NOTE 3 Inventories
Before deduction of LIFO reserves of $8,074,000 and $6,476,000 at August 31,
2002 and 2001, respectively, inventories valued under the first-in, first-out
method approximated replacement cost.
At August 31, 2002 and 2001, 72% and 70%, respectively, of total inventories
were valued at LIFO. The remainder of inventories, valued at FIFO, consisted
mainly of material dedicated to the marketing and distribution business.
The majority of the Company's inventories are in the form of finished goods,
with minimal work in process. Approximately $15.3 million and $10.8 million were
in raw materials at August 31, 2002 and 2001, respectively.
NOTE 4 Credit Arrangements
In August 2002, the Company increased its commercial paper program to permit
maximum borrowings of up to $174.5 million, an increase from the prior year $135
million level. It is the Company's policy to maintain contractual bank credit
lines equal to 100% of the amount of all commercial paper outstanding.
On August 8, 2002, the Company arranged an unsecured revolving credit agreement
with a group of eight banks consisting of a 364-day, $129.5 million facility.
This facility is in addition to the previously existing $45 million facility
that matures August 14, 2004. These agreements provide for borrowing in United
States dollars indexed to LIBOR. Facility and other fees of 0.150% and 0.125%
per annum are payable on the 364-day and multi-year credit lines, respectively.
No compensating balances are required.
The Company has numerous informal credit facilities available from domestic and
international banks. These credit facilities are priced at bankers' acceptance
rates or on a cost of funds basis. No compensating balances or commitment fees
are required under these credit facilities.
Long-term debt and amounts due within one year as of August 31, are as follows:
(in thousands) 2002 2001
-------------- -------- --------
7.20% notes due July 2005 $104,775 $100,000
6.75% notes due February 2009 100,000 100,000
6.80% notes due August 2007 50,000 50,000
8.49% notes due December 2001 -- 7,142
Other 1,825 4,784
-------- --------
256,600 261,926
Less current maturities 631 10,288
-------- --------
$255,969 $251,638
======== ========
Interest on these notes is payable semiannually.
On April 9, 2002, the Company entered into two interest rate swaps to convert a
portion of its fixed interest rate long-term debt commitment to a floating
interest commitment. These arrangements adjust the Company's fixed to floating
interest rate exposure as well as reduce overall financing costs. The swaps
effectively convert interest on the $100 million debt due July 2005 from a fixed
rate of 7.20% to a six month LIBOR (determined in arrears) plus 2.02%. The
floating rate was 3.88% at July 15, 2002, the most recent reset date. The total
fair value of both swaps was $4,775,000 at August 31, 2002 and is recorded in
other long-term assets, with a corresponding increase in the 7.20% long-term
notes, representing the change in fair value of the hedged debt.
Certain of the note agreements include various covenants. The most restrictive
of these requires maintenance of an interest coverage ratio of greater than
three times and a debt/capitalization ratio of 55% (as defined).
The aggregate amounts of all long-term debt maturities for the five years
following August 31, 2002 are (in thousands): 2003-$631; 2004-$563;
2005-$105,296; 2006-$17; 2007-$50,016 and thereafter-$100,077.
22
Interest expense is comprised of the following:
Year ended August 31,
-----------------------------------------------
(in thousands) 2002 2001 2000
-------------- --------- --------- ---------
Long-term debt $ 16,499 $ 17,532 $ 18,419
Commercial paper 145 7,076 4,816
Notes payable 2,064 3,000 4,084
--------- --------- ---------
$ 18,708 $ 27,608 $ 27,319
========= ========= =========
Interest of $447,000, $1,111,000, and $808,000 was capitalized in the cost of
property, plant and equipment constructed in 2002, 2001, and 2000, respectively.
Interest of $18,879,000, $28,704,000, and $27,536,000 was paid in 2002, 2001,
and 2000, respectively.
NOTE 5 Financial Instruments, Market and Credit Risk
Generally accepted accounting principles require disclosure of an estimate of
the fair value of the Company's financial instruments as of year end. These
estimated fair values disregard management intentions concerning these
instruments and do not represent liquidation proceeds or settlement amounts
currently available to the Company. Differences between historical presentation
and estimated fair values can occur for many reasons including taxes,
commissions, prepayment penalties, make-whole provisions and other restrictions
as well as the inherent limitations in any estimation technique.
Due to near-term maturities, allowances for collection losses, investment grade
ratings and security provided, the following financial instruments' carrying
amounts are considered equivalent to fair value:
o Cash and cash equivalents
o Accounts receivable/payable
o Short-term borrowings
The Company's long-term debt is predominantly publicly held. Fair value was
determined by indicated market values.
(in thousands) 2002 2001
-------------- ---------- ----------
Long-Term Debt:
Carrying amount $ 256,600 $ 261,926
Estimated fair value 259,656 252,531
========== ==========
The Company maintains both corporate and divisional credit departments. Limits
are set for customers and countries. Credit insurance is used for some of the
Company's divisions. Letters of credit issued or confirmed by sound financial
institutions are obtained to further ensure prompt payment in accordance with
terms of sale; generally, collateral is not required.
In the normal course of its marketing activities, the Company transacts business
with substantially all sectors of the metals industry. Customers are
internationally dispersed, cover the spectrum of manufacturing and distribution,
deal with various types and grades of metal and have a variety of end markets in
which they sell. The Company's historical experience in collection of accounts
receivable falls within the recorded allowances. Due to these factors, no
additional credit risk, beyond amounts provided for collection losses, is
believed inherent in the Company's accounts receivable.
The Company's worldwide operations and product lines expose it to risks from
fluctuations in foreign currency exchange rates and metals commodity prices. The
objective of the Company's risk management program is to mitigate these risks
using futures or forward contracts (derivative instruments). The Company enters
into metal commodity forward contracts to mitigate the risk of unanticipated
declines in gross margin due to the volatility of the commodities' prices, and
enters into foreign currency forward contracts which match the expected
settlements for purchases and sales denominated in foreign currencies. The
Company designates as hedges for accounting purposes only those contracts which
closely match the terms of the underlying transaction. These hedges resulted in
substantially no ineffectiveness in the statements of earnings for the years
ended August 31, 2002 and 2001. Certain of the foreign currency and all of the
commodity contracts were not designated as hedges for accounting purposes,
although management believes they are essential economic hedges. The changes in
fair value of these instruments resulted in a
23
$208 thousand decrease and a $452 thousand increase in cost of goods sold for
the years ended August 31, 2002 and 2001, respectively. All of the instruments
are highly liquid and none are entered into for trading purposes or speculation.
See footnote 4, Credit Arrangements, regarding the Company's interest rate
hedges.
NOTE 6 Income Taxes
The provisions for income taxes include the following:
Year ended August 31,
---------------------------------------------
(in thousands) 2002 2001 2000
-------------- -------- -------- --------
Current:
United States $ 15,173 $ 13,498 $ 14,731
Foreign 1,670 80 573
State and local 644 1,863 2,637
-------- -------- --------
17,487 15,441 17,941
Deferred 5,126 (798) 8,129
-------- -------- --------
$ 22,613 $ 14,643 $ 26,070
======== ======== ========
During 2002, the Company favorably resolved all issues for its federal income
tax returns through 1999. Management has reevaluated the tax accruals resulting
in a net decrease of approximately $1,000,000.
Taxes of $11,016,000, $8,691,000 and $26,363,000 were paid in 2002, 2001 and
2000, respectively.
Deferred taxes arise from temporary differences between the tax basis of an
asset or liability and its reported amount in the financial statements. The
sources and deferred long-term tax liabilities (assets) associated with these
differences are:
August 31,
---------------------------
(in thousands) 2002 2001
------------- -------- --------
Tax on difference between tax
and book depreciation $ 38,457 $ 33,873
U.S. taxes provided on foreign
income and foreign taxes 11,857 11,586
Net operating losses
(less allowances of $780 and $2,035) (561) (1,090)
Alternative minimum tax credit (1,713) (1,713)
Other accruals (9,183) (6,330)
Other (6,044) (5,921)
-------- --------
Total $ 32,813 $ 30,405
======== ========
Current deferred tax assets of $12.3 and $11.0 million at August 31, 2002 and
2001, respectively, were included in other assets on the consolidated balance
sheets. These deferred taxes were largely due to different book and tax
treatments of various allowances and accruals. No valuation allowances were
required at August 31, 2002 or 2001 for the current deferred tax assets.
The Company uses substantially the same depreciable lives for tax and book
purposes. Changes in deferred taxes relating to depreciation are mainly
attributable to differences in the basis of underlying assets recorded under the
purchase method of accounting. As noted above, the Company provides United
States taxes on unremitted foreign earnings. Net operating losses consist of
$120 million of state net operating losses that expire during the tax years
ending from 2006 to 2022. These assets will be reduced as tax expense is
recognized in future periods. The $1.7 million alternative minimum tax credit is
available indefinitely. The FSC Repeal and Extraterritorial Income Exclusion Act
of 2000 replaced the Foreign Sales Corporation (FSC) tax benefits with the
"extraterritorial income" exemption (ETI) for fiscal year 2002 and the years
thereafter. The ETI exclusion maintains the same level of tax benefit for
current FSC users.
24
The Company's effective tax rates were 35.8% for 2002, 38.1% for 2001 and 36.9%
for 2000. Reconciliations of the United States statutory rates to the effective
rates are as follows:
Year ended August 31,
----------------------------------------
2002 2001 2000
---- ---- ----
Statutory rate 35.0% 35.0% 35.0%
State and local taxes 1.0 3.1 2.3
ETI (1.2) (1.1) (0.6)
Other 1.0 1.1 0.2
---- ---- ----
Effective tax rate 35.8% 38.1% 36.9%
==== ==== ====
NOTE 7 Capital Stock
On May 20, 2002, the Company's Board of Directors declared a two-for-one stock
split in the form of a 100% stock dividend on its common stock. This stock split
was effective June 28, 2002 to shareholders of record on June 7, 2002. On June
28, 2002, the Company issued 16,132,583 additional shares of common stock and
transferred $17,354,000 from paid-in capital and $63,309,000 from retained
earnings to common stock. All applicable share and per share amounts in the
accompanying consolidated financial statements have been restated to reflect
this stock split. Following the stock split, the Company also instituted a
quarterly cash dividend of eight cents per share on the increased number of
shares.
STOCK PURCHASE PLAN Almost all employees may participate in the Company's
employee stock purchase plan. The Directors have authorized the annual purchase
of up to 200 shares per employee at a discount of 25% from the stock's market
price. Yearly activity of the stock purchase plan was as follows:
2002 2001 2000
-------------- -------------- --------------
Shares subscribed 282,780 347,640 330,000
Price per share $ 12.48 $ 9.48 $ 11.74
Shares purchased 257,860 74,480 273,980
Price per share $ 9.48 $ 11.74 $ 9.75
Shares available 366,446
The Company recorded compensation expense for this plan of $815,000, $291,000
and $890,000 in 2002, 2001 and 2000, respectively.
STOCK OPTION PLANS The 1986 Stock Incentive Plan (1986 Plan) ended November 23,
1996, except for awards outstanding. Under the 1986 Plan, stock options were
awarded to full-time salaried employees. The option price was the fair market
value of the Company's stock at the date of grant, and the options are
exercisable two years from date of grant. The outstanding awards under this Plan
are 100% vested and expire through 2006.
The 1996 Long-Term Incentive Plan (1996 Plan) was approved in December 1996.
Under the 1996 Plan, stock options, stock appreciation rights, and restricted
stock may be awarded to employees. The option price for both the stock options
and the stock rights will not be less than the fair market value of the
Company's stock at the date of grant. The outstanding awards under the 1996 Plan
vest 50% after one year and 50% after two years from date of grant and will
expire seven years after grant. The terms of the 1996 Plan resulted in
additional authorized shares of 52,126 in 2000, 67,270 in 2001, and 1,073,782 in
2002. In addition, the Company's shareholders authorized an additional 1,000,000
shares during 2002.
In January 2000, the Company's stockholders approved the 1999 Non-Employee
Director Stock Option Plan and authorized 400,000 shares to be made available
for grant. Under this Plan, each outside director of the Company will receive
annually an option to purchase 3,000 shares of the Company's stock. In addition,
any outside director may elect to receive all or part of fees otherwise payable
in the form of a stock option. The price of these options is the fair market
value of the Company's stock at the date of the grant. The options granted
automatically vest 50% after one year and 50% after two years from the grant
date. Options granted in lieu of fees are immediately vested. All options expire
seven years from the date of grant.
25
Combined share information for the three plans is as follows:
Weighted
Average Price
Exercise Range
Number Price Per Share
---------- ------------- ------------
September 1, 1999
Outstanding 3,821,522 $ 12.98 $ 6.31-14.91
Exercisable 3,424,636 12.78 6.31-14.91
Granted 773,800 15.45 15.44-15.97
Exercised (201,732) 11.49 6.31-14.91
Forfeited (42,730) 14.85 12.25-15.44
Increase authorized 452,126
---------- ------------- ------------
August 31, 2000
Outstanding 4,350,860 $ 13.47 $ 6.31-15.97
Exercisable 3,559,810 13.06 6.31-15.44
Granted 803,672 11.71 10.95-13.23
Exercised (320,422) 10.70 6.31-15.44
Forfeited (99,932) 13.82 10.99-15.97
Increase authorized 67,270
---------- ------------- ------------
August 31, 2001
Outstanding 4,734,178 $ 13.36 $ 9.21-15.97
Exercisable 3,608,052 13.47 9.21-15.97
Granted 805,380 17.28 17.17-21.42
Exercised (2,212,903) 13.13 9.21-15.97
Forfeited (80,920) 14.00 11.76-17.17
Increase authorized 2,073,782
---------- ------------- ------------
August 31, 2002
Outstanding 3,245,735 $ 14.46 $10.10-21.42
Exercisable 2,111,744 13.94 10.10-18.05
Authorized
Shares remaining 1,938,738
---------- ------------- ------------
Share information for options at August 31, 2002:
Outstanding Exercisable
---------------------------------------------------------------------------------- ---------------------------------
Weighted
Average Weighted Weighted
Range of Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Price Outstanding Life (Yrs) Price Exercisable Price
------------- ----------- ----------- ------------- ----------- -------------
$ 10.10-12.25 828,579 4.4 $ 11.72 476,224 $ 11.70
13.13-14.91 1,197,768 2.6 14.13 1,166,462 14.14
15.44-21.42 1,219,388 5.6 16.65 469,058 15.70
------------- ----------- ----------- ------------- ---------- -------------
$ 10.10-21.42 3,245,735 4.2 $ 14.46 2,111,744 $ 13.94
The Company has maintained its historical method for accounting for stock
options, which recognizes no compensation expense for fixed options granted at
current market values. Generally accepted accounting principles require
disclosure of an estimate of the weighted-average grant date fair value of
options granted during the year and pro forma disclosures of the effect on
earnings if compensation expense had been recorded.
The Black-Scholes option pricing model used requires the following assumptions
as of August 31:
2002 2001 2000
---------- ---------- ----------
Risk-free interest rate 4.42% 4.84% 6.34%
Expected life 5.44 years 4.60 years 4.06 years
Expected volatility .250 .232 .248
Expected dividend yield 1.7% 1.7% 1.9%
26
Management believes that the results have limited relevance as characteristics
of the Company's options such as nontransferability, forfeiture provisions and
long lives are inconsistent with the option model's basic purpose of valuing
traded options. For purposes of pro forma earnings disclosures, the assumed
compensation expense is amortized over the option's vesting period. The pro
forma information includes options granted in preceding years.
2002 2001 2000
---------- ---------- ----------
Net earnings (in thousands)
As reported $ 40,525 $ 23,772 $ 44,590
Pro forma 38,888 22,577 43,097
Diluted earnings per share
As reported $ 1.43 $ 0.90 $ 1.56
Pro forma 1.37 0.86 1.51
The weighted-average fair value of options granted in 2002, 2001 and 2000 was
$4.52, $2.77 and $3.89, respectively.
PREFERRED STOCK Preferred stock has a par value of $1.00 a share, with 2,000,000
shares authorized. It may be issued in series, and the shares of each series
shall have such rights and preferences as fixed by the Board of Directors when
authorizing the issuance of that particular series. There are no shares of
preferred stock outstanding.
STOCKHOLDER RIGHTS PLAN On July 28, 1999, the Company's Board of Directors
adopted a stockholder rights plan pursuant to which stockholders were granted
preferred stock rights (Rights) to purchase one one-thousandth of a share of the
Company's Series A Preferred Stock for each share of common stock held. In
connection with the adoption of such plan, the Company designated and reserved
100,000 shares of preferred stock as Series A Preferred Stock and declared a
dividend of one Right on each outstanding share of the Company's common stock.
Rights were distributed to stockholders of record as of August 9, 1999.
The Rights are represented by and traded with the Company's common stock. The
Rights do not become exercisable or trade separately from the common stock
unless at least one of the following conditions are met: a public announcement
that a person has acquired 15% or more of the common stock of the Company or a
tender or exchange offer is made for 15% or more of the common stock of the
Company. Should either of these conditions be met and the Rights become
exercisable, each Right will entitle the holder (other than the acquiring person
or group) to buy one one-thousandth of a share of the Series A Preferred Stock
at an exercise price of $150.00. Each fractional share of the Series A Preferred
Stock will essentially be the economic equivalent of one share of common stock.
Under certain circumstances, each Right would entitle its holder to purchase the
Company's stock or shares of the acquirer's stock at a 50% discount. The
Company's Board of Directors may choose to redeem the Rights (before they become
exercisable) at $0.001 per Right. The Rights expire July 28, 2009.
NOTE 8 Employees' Retirement Plans
Substantially all employees of the Company and its subsidiaries are covered by
defined contribution profit sharing and savings plans. Company contributions,
which are discretionary, to all plans were $14,685,000, $10,611,000, and
$18,108,000, for 2002, 2001 and 2000, respectively.
NOTE 9 Postretirement Benefits Other Than Pensions/Postemployment Benefits
The Company has no significant postretirement obligations. The Company's
historical costs for postemployment benefits have not been significant and are
not expected to be in the future.
27
NOTE 10 Commitments and Contingencies
Minimum lease commitments payable by the Company and its consolidated
subsidiaries for noncancelable operating leases in effect at August 31, 2002,
are as follows for the fiscal periods specified:
Real
(in thousands) Equipment Estate
-------------- --------- ---------
2003 $ 6,169 $ 3,178
2004 3,499 1,723
2005 2,529 1,245
2006 1,749 823
2007 and thereafter 2,088 983
-------- ---------
$ 16,034 $ 7,952
======== =========
Total rental expense was $11,774,000, $11,483,000 and $10,664,000 in 2002, 2001
and 2000, respectively.
CONSTRUCTION CONTRACT DISPUTES During 2001, the Company increased its litigation
accrual (included in accrued expenses and other payables) by $8.3 million due to
an adverse judgment from a trial. At August 31, 2002 and 2001, $9.8 million and
$9.4 million, respectively, were accrued (including interest). The Company has
appealed the judgment.
In another matter, a subsidiary of the Company entered into a fixed price
contract with the design/builder general contractor (D/B) to furnish, erect and
install structural steel, hollow core pre-cast concrete planks, fireproofing,
and certain concrete slabs along with related design and engineering work for
the construction of a large hotel and casino complex. In connection with the
contract, the D/B secured insurance under a subcontractor/vendor default
protection policy which named the Company as an insured in lieu of performance
and payment bonds. A large subcontractor to the Company defaulted, and the
Company incurred unanticipated costs to complete the work. The Company made a
claim against the insurance company for all losses, costs, and expenses incurred
or arising from the default. A portion of the claim, $6.6 million, was recorded
as a claim receivable in other assets at August 31, 2001. During May 2002, the
Company and the insurance company settled litigation filed by the Company
following the insurer' refusal to pay the claim. The Company recovered $15
million from the insurance company, which included recovery of the $6.6 million
claim receivable, receipt of an additional amount ($7.4 million), the release of
the balance of $1 million of previously escrowed funds for payment of certain
claims by subcontractors to the Company and, subject to certain contingencies,
reimbursement of an additional amount (up to $3 million). The $7.4 million in
excess of the claim receivable and escrow amount released was recorded as
deferred insurance proceeds (in other long-term liabilities at August 31, 2002)
pending final resolution of the Company's disputes with the D/B. The Company has
also filed a lawsuit against the insurance broker for insurance benefits not
received due to the broker's acts, errors and omissions.
Disputes between the Company and the D/B have been submitted to binding
arbitration. Depending upon future rulings in the arbitration, a portion of the
Company's recovery from the insurance company may be credited toward the
Company's claim against the D/B. The Company has filed a claim for approximately
$27 million against the D/B. The claims seeks recovery of unpaid contract
receivables, amounts for delay claims and change orders all of which have not
been paid by the D/B. At August 31, 2002 and 2001, the Company maintained
contract receivables of $7.2 million from the D/B. Such amounts are included
within other assets on the accompanying balance sheets. The D/B has not disputed
certain amounts owed under the contract, but contends that other deductive
items, disputed by the Company, reduce the contract balance by approximately
$6.3 million which together with other D/B claims (discussed below) exceed the
unpaid contract balance. The Company disputes the deductive items in the D/B's
claim and intends to vigorously pursue recovery of the contract balance in
addition to all amounts not recovered under insurance program coverage as a
result of misrepresentations or omissions of the D/B.
The owner of the Project and the D/B have filed joint claims in the arbitration
proceeding against the Company, primarily for alleged delay damages, totaling
approximately $144 million which includes alleged delay damages in construction
of a retail area adjacent to the Project. Management believes the claims are
generally unsubstantiated, and the Company has valid legal defenses against such
claims and intends to vigorously defend these claims. Man-
28
agement is unable to determine a range of potential loss related to such claims,
and therefore no losses have been accrued; however, it believes the ultimate
resolution will not have a material effect on the Company's consolidated
financial statements. Due to the uncertainties inherent in the estimating
process, it is at least reasonably possible that a change in the Company's
estimate of its collection of amounts receivable and possible liability could
occur in the near term.
The Company is involved in various other claims and lawsuits incidental to its
business. In the opinion of management, these claims and suits in the aggregate
will not have a material adverse effect on the results of operations or the
financial position of the Company.
ENVIRONMENTAL AND OTHER MATTERS In the ordinary course of conducting its
business, the Company becomes involved in litigation, administrative proceedings
and governmental investigations, including environmental matters. Management
believes that adequate provision has been made in the financial statements for
the potential impact of these issues, and that the outcomes will not
significantly impact the results of operations or the financial position of the
Company, although they may have a material impact on earnings for a particular
quarter.
The Company has received notices from the U.S. Environmental Protection Agency
(EPA) or equivalent state agency that it is considered a potentially responsible
party (PRP) at fourteen sites, none owned by the Company, and may be obligated
under the Comprehensive Environmental Response, Compensation, and Liability Act
of 1980 (CERCLA) or similar state statute to conduct remedial investigations,
feasibility studies, remediation and/or removal of alleged releases of hazardous
substances or to reimburse the EPA for such activities. The Company is involved
in litigation or administrative proceedings with regard to several of these
sites in which the Company is contesting, or at the appropriate time may
contest, its liability at the sites. In addition, the Company has received
information requests with regard to other sites which may be under consideration
by the EPA as potential CERCLA sites.
Some of these environmental matters or other proceedings may result in fines,
penalties or judgments being assessed against the Company. While the Company is
unable to estimate precisely the ultimate dollar amount of exposure to loss in
connection with the above-referenced matters, it makes accruals as warranted.
Due to evolving remediation technology, changing regulations, possible
third-party contributions, the inherent shortcomings of the estimation process
and other factors, amounts accrued could vary significantly from amounts paid.
Accordingly, it is not possible to estimate a meaningful range of possible
exposure. It is the opinion of the Company's management that the outcome of
these proceedings, individually or in the aggregate, will not have a material
adverse effect on the results of operations or the financial position of the
Company.
NOTE 11 Earnings Per Share
In calculating earnings per share, there were no adjustments to net earnings to
arrive at income for any years presented. The stock options granted June 7,
2002, with total outstanding share commitments of 10,000 at year end, are
antidilutive.
August 31,
--------------------------------------------------
2002 2001 2000
---------- ---------- ----------
Shares outstanding
for basic
earnings per share 27,377,083 26,059,122 28,036,052
Effect of dilutive securities:
Stock options/
purchase plans 898,208 261,866 464,118
---------- ---------- ----------
Shares outstanding for
diluted earnings
per share 28,275,291 26,320,988 28,500,170
========== ========== ==========
29
NOTE 12 Accrued Expenses and Other Payables
August 31,
---------------------
(in thousands) 2002 2001
-------------- -------- --------
Salaries, wages and commissions $ 31,544 $ 30,844
Litigation accruals 16,416 16,048
Employees' retirement plans 15,086 11,749
Insurance 12,987 10,401
Taxes other than income taxes 9,470 10,359
Advance billings on contracts 7,855 15,621
Freight 5,980 4,467
Environmental 3,437 2,675
Accrual for contract losses 2,506 3,278
Interest 1,901 2,491
Contributions 1,788 935
Other 24,638 24,979
-------- --------
$133,608 $133,847
======== ========
NOTE 13 Business Segments
The Company's reportable segments are based on strategic business areas, which
offer different products and services. These segments have different lines of
management responsibility as each business requires different marketing
strategies and management expertise.
The Company has three reportable segments consisting of manufacturing,
recycling, and marketing and distribution. Manufacturing consists of the CMC
steel group's minimills, steel and joist fabrication operations, fence post
manufacturing plants, heat treating, railcar rebuilding and concrete-related
products, as well as Howell Metal Company's copper tube manufacturing facility.
The manufacturing segment's business operates primarily in the southern and
western United States. Recycling consists of the Secondary Metals Processing
Division's scrap processing and sales operations primarily in Texas, Florida and
the southern United States. Marketing and distribution includes both domestic
and international operations for the sales and distribution of both ferrous and
nonferrous metals and other industrial products. The segment's activities
consist only of physical transactions and not speculation.
The Company uses adjusted operating profit to measure segment performance.
Intersegment sales are generally priced at prevailing market prices. Certain
corporate administrative expenses are allocated to segments based upon the
nature of the expense. The accounting policies of the segments are the same as
those described in the summary of significant accounting policies.
30
The following presents information regarding the Company's domestic operations
and operations outside of the United States:
External Net Sales for the
Year ended August 31,
--------------------------------------------------
(in thousands) 2002 2001 2000
-------------- ---------- ---------- ----------
United States $1,670,497 $1,685,981 $1,782,189
Non United States 776,280 755,235 879,231
---------- ---------- ----------
Total $2,446,777 $2,441,216 $2,661,420
========== ========== ==========
Long-Lived Assets
as of August 31,
--------------------------------------------
(in thousands) 2002 2001 2000
-------------- -------- -------- --------
United States $421,332 $449,121 $457,204
Non United States 14,492 9,812 10,483
-------- -------- --------
Total $435,824 $458,933 $467,687
======== ======== ========
Summarized data for the Company's international operations located outside of
the United States (principally in Europe, Australia and the Far East) are as
follows:
Year ended August 31,
--------------------------------------------
(in thousands) 2002 2001 2000
-------------- -------- -------- --------
Net sales-unaffiliated
customers $378,745 $266,609 $343,805
======== ======== ========
Total assets 124,870 83,743 68,556
======== ======== ========
The following is a summary of certain financial information by reportable
segment:
31
NOTE 13 Business Segments (Continued):
Adjustments
Marketing and
2002 (dollars in thousands) Manufacturing Recycling and Distribution Corporate Eliminations Consolidated
--------------------------- ------------- ---------- ---------------- ---------- ------------ ------------
Net sales-unaffiliated customers $1,329,159 $ 354,387 $ 762,584 $ 647 $ -- $2,446,777
Intersegment sales 3,587 23,667 14,428 -- (41,682) --
---------- ---------- ---------- ---------- ---------- ----------
Net sales 1,332,746 378,054 777,012 647 (41,682) 2,446,777
========== ========== ========== ========== ========== ==========
Adjusted operating profit (loss) 71,447 5,098 14,196 (8,102) -- 82,639
========== ========== ========== ========== ========== ==========
Interest expense 3,949 1,011 1,050 13,145 (447) 18,708
========== ========== ========== ========== ========== ==========
Capital expenditures 39,046 4,723 9,323 965 -- 54,057
========== ========== ========== ========== ========== ==========
Depreciation and
amortization 49,538 9,650 1,609 782 -- 61,579
========== ========== ========== ========== ========== ==========
Total assets 720,450 98,847 262,111 148,668 -- 1,230,076
========== ========== ========== ========== ========== ==========
2001 (dollars in thousands)
---------------------------
Net sales-unaffiliated customers $1,315,700 $ 371,298 $ 752,723 $ 1,495 $ -- $2,441,216
Intersegment sales 5,375 22,539 18,433 -- (46,347) --
---------- ---------- ---------- ---------- ---------- ----------
Net sales 1,321,075 393,837 771,156 1,495 (46,347) 2,441,216
========== ========== ========== ========== ========== ==========
Adjusted operating profit (loss) 56,700 (2,324) 7,833 4,790 -- 66,999
========== ========== ========== ========== ========== ==========
Interest expense 10,585 2,165 1,332 14,637 (1,111) 27,608
========== ========== ========== ========== ========== ==========
Capital expenditures 45,979 5,587 1,208 248 -- 53,022
========== ========== ========== ========== ========== ==========
Depreciation and
amortization 54,402 11,005 1,124 741 -- 67,272
========== ========== ========== ========== ========== ==========
Total assets 739,625 93,268 188,405 60,648 -- 1,081,946
========== ========== ========== ========== ========== ==========
2000 (dollars in thousands)
---------------------------
Net sales-unaffiliated customers $1,348,994 $ 432,115 $ 881,238 $ (927) $ -- $2,661,420
Intersegment sales 7,732 30,496 22,055 -- (60,283) --
---------- ---------- ---------- ---------- ---------- ----------
Net sales 1,356,726 462,611 903,293 (927) (60,283) 2,661,420
========== ========== ========== ========== ========== ==========
Adjusted operating profit (loss) 72,135 5,841 19,244 759 -- 97,979
========== ========== ========== ========== ========== ==========
Interest expense 11,007 2,811 1,741 12,568 (808) 27,319
========== ========== ========== ========== ========== ==========
Capital expenditures 61,538 6,220 1,260 609 -- 69,627
========== ========== ========== ========== ========== ==========
Depreciation and
amortization 52,688 12,152 1,061 682 -- 66,583
========== ========== ========== ========== ========== ==========
Total assets 769,536 115,532 242,568 42,456 -- 1,170,092
========== ========== ========== ========== ========== ==========
In the following table we are providing a reconciliation of our non-GAAP
measure, adjusted operating profit (loss), to net earnings (loss), the most
comparable GAAP measure (in thousands):
MARKETING AND CORPORATE AND
SEGMENT MANUFACTURING RECYCLING DISTRIBUTION ELIMINATIONS TOTAL
------------------------------- ------------- --------- ------------- ------------- -----
YEAR ENDED AUGUST 31, 2002:
Net earnings (loss) $45,026 $ 3,741 $ 8,085 $(16,327) $40,525
Income taxes 25,739 1,187 3,769 (8,082) 22,613
Interest expense 291 4 2,039 16,374 18,708
Discounts on sales of accounts
receivable 391 166 303 (67) 793
------- ------- ------- -------- -------
Adjusted operating profit (loss) $71,447 $ 5,098 $14,196 $ (8,102) $82,639
======= ======= ======= ======== =======
YEAR ENDED AUGUST 31, 2001:
Net earnings (loss) $34,826 $(1,579) $ 3,612 $(13,087) $23,772
Income taxes 21,150 (903) 2,139 (7,743) 14,643
Interest expense 357 12 1,798 25,441 27,608
Discounts on sales of accounts
receivable 367 146 284 179 976
------- ------- ------- -------- -------
Adjusted operating profit (loss) $56,700 $(2,324) $ 7,833 $ 4,790 $66,999
======= ======= ======= ======== =======
YEAR ENDED AUGUST 31, 2000:
Net earnings (loss) $44,794 $ 3,836 $11,548 $(15,588) $44,590
Income taxes 27,135 1,971 5,469 (8,505) 26,070
Interest expense 206 34 2,227 24,852 27,319
------- ------- ------- -------- -------
Adjusted operating profit (loss) $72,135 $ 5,841 $19,244 $ 759 $97,979
======= ======= ======= ======== =======
32
NOTE 14 Restatement
In August 2002, the Company uncovered a theft and accounting fraud which had
occurred over four years at a rebar fabrication facility in South Carolina. The
total adjustment required to restate the accounting records to their proper
balances was $2.7 million pre-tax. In a second, unrelated incident, the Company
discovered accounting errors related to losses on rebar fabrication and
placement jobs at one facility in California, some of which dated from the
acquisition of the facility in May 2000. The resulting charge was $1.9 million
pre-tax. The South Carolina incident resulted in a $900 thousand pre-tax expense
in fiscal 2002. The remaining $3.7 million pre-tax for both instances was
attributed $885 thousand in 2001, $2.6 million in 2000 and $227 thousand in
1999. All reported periods have been restated. The effects of the restatement
were as follows:
2001 2000
------------------------------- -------------------------------
As Previously As As Previously As
($ in thousands, except per share) Reported Restated Reported Restated
---------------------------------- ------------- ---------- ------------- ----------
At August 31:
Cash $ 33,289 $ 32,921 $ 20,067 $ 20,057
Accounts receivable 204,032 202,095 354,045 352,203
Inventories 236,679 223,859 277,455 270,368
Total assets 1,084,800 1,081,671 1,172,862 1,170,092
Accounts payable 201,292 201,114 194,538 194,205
Other payables and
accrued expenses 133,464 133,895 142,680 142,732
Income taxes payable 1,105 -- 678 --
Retained earnings 424,688 422,309 407,128 405,317
Total stockholders' equity 435,473 433,094 420,616 418,805
For the year ended August 31:
Selling, general and
administrative
expenses $ 211,539 $ 212,424 $ 208,808 $ 211,403
Earnings before
income taxes 39,300 38,415 73,255 70,660
Net earnings 24,340 23,772 46,255 44,590
Basic EPS 0.93 0.91 1.65 1.59
Diluted EPS 0.92 0.90 1.62 1.56
In addition to the above, beginning retained earnings as of September 1, 1999
was reduced by $146 thousand.
In October 2003, the Company determined that the amounts previously reported in
2002 and 2001 as temporary investments should have been classified as "cash
equivalents" and combined with the amounts reported as cash on its consolidated
balance sheets. Also, the Company has determined that it should have
consolidated its interests in CMCR, the primary effect of which is to combine
the amounts previously reported as notes receivables from affiliate with
accounts receivable on the consolidated balance sheets. As a result, cash and
cash equivalents shown in the accompanying consolidated balance sheets as of
August 31, 2002 and 2001 have been increased by $91 million and $23 million,
respectively, from the amounts previously reported as cash (as shown in the
table above), and the previously reported temporary investments line has been
removed. As a result of consolidating CMCR, accounts receivable as of August 31,
2002 and 2001 have been increased by $143 million and $95.5 million,
respectively, from the amounts previously reported (as shown in the table
above), and the previously reported notes receivable from affiliates line has
been removed. In conjunction with these balance sheet changes, cash flows used
by investing activities in the accompanying statements of cash flows for the
years ended August 31, 2002 and 2001 have been changed from ($99) million and
($73) million, respectively, to ($31) million and ($50) million. In addition,
the disclosures in Note 2, Sales of Accounts Receivable, have been revised.
Other changes were also made to the consolidated balance sheets and statements
of cash flows and accompanying notes as a result of the consolidation of CMCR,
none of which are material to the financial statements.
33
NOTE 15 Quarterly Financial Data (Unaudited)
Summarized quarterly financial data for fiscal 2002, 2001 and 2000 are as
follows (in thousands except per share data):
Three Months Ended 2002
----------------------------------------------------------------------------------
As Previously As
Reported Restated
Nov. 30 Nov. 30 Feb. 28 May 31 Aug. 31
------------- -------- -------- -------- --------
Net sales $564,880 $564,880 $566,419 $642,908 $672,570
Gross profit 78,095 78,095 74,872 92,116 72,316
Net earnings 8,832 8,482 6,572 16,433 9,038
Basic EPS 0.34 0.32 0.24 0.59 0.32
Diluted EPS 0.33 0.32 0.24 0.56 0.31
Three Months Ended 2001
-------------------------------------------------------------------------------------------------------------
As Previously As As Previously As As Previously As As Previously As
Reported Restated Reported Restated Reported Restated Reported Restated
Nov. 30 Nov. 30 Feb. 28 Feb. 28 May 31 May 31 Aug. 31 Aug. 31
------------- --------- ------------- -------- ------------- -------- ------------- --------
Net sales $ 594,540 $ 594,540 $578,330 $578,330 $622,090 $622,090 $646,256 $646,256
Gross profit 70,844 70,844 58,253 58,253 82,893 82,893 85,326 85,326
Net earnings (loss) (2,233) (2,421) 1,662 1,590 10,721 10,569 14,190 14,034
Basic EPS (loss) (0.09) (0.09) 0.06 0.06 0.41 0.41 0.54 0.54
Diluted EPS (loss) (0.09) (0.09) 0.06 0.06 0.41 0.40 0.53 0.53
Three Months Ended 2000
-------------------------------------------------------------------------------------------------------------
As Previously As As Previously As As Previously As As Previously As
Reported Restated Reported Restated Reported Restated Reported Restated
Nov. 30 Nov. 30 Feb. 28 Feb. 28 May 31 May 31 Aug. 31 Aug. 31
------------- --------- ------------- --------- ------------- --------- ------------- --------
Net sales $ 612,427 $ 612,427 $ 637,624 $ 637,624 $ 701,209 $ 701,209 $ 710,160 $710,160
Gross profit 77,434 77,434 79,132 79,132 87,076 87,076 83,848 83,848
Net earnings 10,233 9,972 10,358 10,317 12,961 12,453 12,703 11,848
Basic EPS 0.36 0.35 0.36 0.36 0.46 0.45 0.47 0.44
Diluted EPS 0.35 0.34 0.35 0.35 0.46 0.44 0.47 0.44
The quantities and costs used in calculating cost of goods sold on a quarterly
basis include estimates of the annual LIFO effect. The actual effect cannot be
known until the year end physical inventory is completed and quantity and price
indices are developed. The quarterly cost of goods sold above includes such
estimates. The final determination of inventory quantities and prices resulted
in $1.1 million after-tax expense in the fourth quarter 2002. Fourth quarter
2001 net earnings were not significantly impacted. Fourth quarter 2000 net
earnings decreased $1.2 million after the final determination of quantities and
prices was made.
In recording accruals for workers' compensation expense, management relies on
prior years' experience and information from third party administrators in
making estimates. Results at the end of fiscal year 2002, 2001 and 2000
indicated a decline in the number of claims resulting in a $1.0 million, $2.1
million and $2.6 million reduction, respectively, in the accrual during the
fourth quarters.
Following a revised Court ruling, the Company reduced its litigation accrual by
$2.5 million during the fourth quarter 2001 (see note 10).
34
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Commercial Metals Company
Dallas, Texas
We have audited the consolidated balance sheets of Commercial Metals Company and
subsidiaries at August 31, 2002 and 2001, and the related consolidated
statements of earnings, stockholders' equity, and cash flows for each of the
three years in the period ended August 31, 2002. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Commercial Metals Company and
subsidiaries at August 31, 2002 and 2001, and the results of their operations
and their cash flows for each of the three years in the period ended August 31,
2002 in conformity with accounting principles generally accepted in the United
States of America.
As discussed in Note 14, the accompanying 2002, 2001 and 2000 financial
statements have been restated.
/s/ DELOITTE & TOUCHE LLP
Dallas, Texas
November 22, 2002
(October 29, 2003 as to the effects of the restatement discussed in the last
paragraph of Note 14)
35
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this report:
1. All financial statements are included at Item 8 above.
2. Commercial Metals Company and Subsidiaries Consolidated Financial
Statement Schedule
Independent Auditors' Report as to Schedule Valuation and qualifying
accounts (Schedule VIII)
All other schedules have been omitted because they are not applicable,
are not required, or the required information is shown in the financial
statements or notes thereto.
3. The following is a list of the Exhibits required to be filed by Item
601 of Regulation S-K:
(3)(i) - Restated Certificate of Incorporation (Filed
herewith).
(3)(i)a - Certificate of Amendment of Restated Certificate of
Incorporation dated February 1, 1994 (Filed
herewith).
(3)(i)b - Certificate of Amendment of Restated Certificate of
Incorporation dated February 17, 1995 (Filed
herewith).
(3)(i)c - Certificate of Designation, Preferences and Rights
of Series A Preferred Stock (Filed as Exhibit 2 to
Commercial Metals' Form 8-A filed August 3, 1999 and
incorporated herein by reference).
(3)(ii) - By-Laws (Filed herewith).
(4)(i)a - Indenture between Commercial Metals and Chase
Manhattan Bank dated as of July 31, 1995 (Filed as
Exhibit 4.1 to Commercial Metals' Registration
Statement No. 33-60809 on July 18, 1995 and
incorporated herein by reference).
(4)(i)b - Rights Agreement dated July 28, 1999 by and between
Commercial Metals and ChaseMellon Shareholder
Services, LLC, as Rights Agent (Filed as Exhibit 1
to Commercial Metals' Form 8-A filed August 3, 1999
and incorporated herein by reference).
36
4(i)c - Form of Note for Commercial Metals' 7.20% Senior
Notes due 2005 (filed herewith).
4(i)d - Form of Note for Commercial Metals' 6.80% Senior
Notes due 2007 (filed herewith).
4(i)e - Officers' Certificate, dated August 4, 1997,
pursuant to the Indenture dated as of July 31, 1995,
relating to the 6.80% Senior Notes due 2007 (filed
herewith).
4(i)f - Form of Note for Commercial Metals' 6.75% Senior
Notes due 2009 (filed herewith).
4(i)g - Officers' Certificate, dated February 23, 1999,
pursuant to the Indenture dated as of July 31, 1995,
relating to the 6.75% Senior Notes due 2009 (filed
herewith).
(10)(i)a - Purchase and Sale Agreement dated June 20, 2001,
between various entities listed on Schedule 1 as
Originators and CMC Receivables, Inc. (Filed as
Exhibit (10)(a) to Commercial Metals' Form 10-Q for
the period ended May 31, 2001, and incorporated
herein by reference).
(10)(i)b - Receivables Purchase Agreement dated June 20, 2001,
among CMC Receivables, Inc., as Seller, Three Rivers
Funding Corporation, as Buyer, and Commercial Metals
Company as Servicer (Filed as Exhibit (10)(b) to
Commercial Metals' Form 10-Q for the period ended
May 31, 2001, and incorporated herein by reference).
(10)(i)c - $45,000,000 3 Year Revolving Credit Agreement dated
as of August 15, 2001 (Filed as Exhibit (10)(i)c to
Commercial Metals' Form 10-K for the fiscal year
ended August 31, 2001, and incorporated hereby by
reference).
(10)(i)d - $129,500,000 Amended and Restated 364-Day Revolving
Credit Agreement dated as of August 8, 2002 (Filed
as Exhibit 10(i)(d) to Commercial Metals' Form 10-K
for the fiscal year ended August 31, 2002, and
incorporated herein by reference).
(10)(iii)a* - Employment Agreement of Murray R. McClean as amended
through October 2, 2000 (Filed as Exhibit (10)(iii)
to Commercial Metals' Form 10-K for the fiscal year
ended August 31, 2000, and Incorporated herein by
reference).
(10)(iii)b* - Amendment to Employment Agreement of Murray R.
McClean dated March 28, 2001, (Filed as Exhibit
(10)(iii)b to Commercial Metals' Form 10-K for the
fiscal year ended August 31, 2001, and incorporated
herein by reference).
(10)(iii)c* - Key Employee Long-Term Performance Plan description
(Filed as Exhibit (10)(iii)c to Commercial Metals'
Form 10-K for the fiscal year ended August 31, 2001,
and incorporated hereby by reference).
(10)(iii)d* - Key Employee Annual Incentive Plan description
(Filed as Exhibit (10)(iii)d to Commercial Metals'
Form 10-K for the fiscal year ended August 31, 2001,
and incorporated hereby by reference).
(10)(iii)e* - Employment and Consulting Agreement of Marvin Selig
dated as of June 7, 2002 (Filed as Exhibit 10(iii)e
to Commercial Metals' Form 10-K for the fiscal year
ended August 31, 2002, and incorporated herein by
reference).
(10)(iii)f* 1999 Non-Employee Director Stock Option Plan (filed
herewith).
(12) Statement re computation of earnings to fixed
charges (filed herewith).
(21) Subsidiaries of Registrant (Filed as Exhibit 21 to
Commercial Metals' Form 10-K for the fiscal year
ended August 31, 2002 and incorporated herein by
reference).
(23) Independent Auditors' consent to incorporation by
reference of report dated November 22, 2002 (October
29, 2003, as to the effects of the restatement
discussed in the last paragraph of Note 14),
accompanying the consolidated financial statements
of Commercial Metals Company and subsidiaries for
the year ended August 31, 2002, into previously
filed Registration Statements No. 033-61073, No.
033-61075, No. 333-27967 and No. 333-42648 on Form
S-8 and Registration Statements No. 33-60809 and
No. 333-61379 on Form S-3 (filed herewith).
37
(31)a - Certification of Stanley A. Rabin, Chairman of the
Board, President and Chief Executive Officer of
Commercial Metals Company, pursuant to Section 302
of the Sarbanes-Oxley Act of 2002 (filed herewith).
(31)b - Certification of William B. Larson, Vice President
and Chief Financial Officer of Commercial Metals
Company, pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 (filed herewith).
(32)a - Certification of Stanley A. Rabin, Chairman of the
Board, President and Chief Executive Officer of
Commercial Metals Company, pursuant to 18 U.S.C.
1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (filed herewith).
(32)b - Certification of William B. Larson, Vice President
and Chief Financial Officer of Commercial Metals
Company, pursuant to 18 U.S.C. 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002 (filed herewith).
----------
* denotes management contract or compensatory plan.
A Form 8-K was filed on June 13, 2002, under Item 5, announcing Marvin
Selig's retirement effective August 31, 2002 and his resignation from
our board of directors. We also announced Clyde Selig's election as a
director to fill the vacancy created by Marvin Selig's resignation and
Clyde Selig's appointment as President and Chief Executive Officer of
the CMC Steel Group.
38
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
COMMERCIAL METALS COMPANY
/s/ WILLIAM B. LARSON
--------------------------------------
William B. Larson,
Vice President and
Chief Financial Officer
Date: October 31, 2003
39
INDEPENDENT AUDITOR'S REPORT
Board of Directors and Stockholders of
Commercial Metals Company
Dallas, Texas
We have audited the consolidated financial statements of Commercial Metals
Company and subsidiaries as of August 31, 2002 and 2001, and for each of the
three years in the period ended August 31, 2002, and have issued our report
thereon dated November 22, 2002 (October 29, 2003 as to the effects of the
restatement discussed in the last paragraph of Note 14). Such financial
statements and report are included in Item 8 herein. Our audits also included
the consolidated financial statement schedule of Commercial Metals Company
listed in Item 15. This consolidated financial statement schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion based on our audits. In our opinion, such financial statement schedule,
when considered in relation to the basic consolidated financial statements taken
as a whole, presents fairly in all material respects the information set forth
therein.
As discussed in Note 14, the financial statements have been restated.
/s/ DELOITTE & TOUCHE LLP
Dallas, Texas
November 22, 2002
(October 29, 2003 as to the effects of the restatement discussed in the last
paragraph of Note 14)
SCHEDULE VIII
COMMERCIAL METALS COMPANY AND SUBSIDIARIES
----------
VALUATION AND QUALIFYING ACCOUNTS
----------
YEARS ENDED AUGUST 31, 2002, 2001 AND 2000
----------
(In thousands)
Allowance for collection
losses deducted from
accounts receivable:
Charged to Charged Deductions
Balance, profit and to other from Balance
beginning loss or accounts reserves end
Year of year income (A) (B) of year
---- --------- -------- -------- ---------- --------
2000 7,714 948 567 1,361 7,868
2001 7,868 4,371 264 4,545 7,958
2002 7,958 3,985 591 3,657 8,877
(A) Recoveries of accounts written off and acquired allowance.
(B) Write-off of uncollectible accounts.
INDEX TO EXHIBITS
EXHIBIT
NO. DESCRIPTION
------- -----------
(3)(i) - Restated Certificate of Incorporation (Filed
herewith).
(3)(i)a - Certificate of Amendment of Restated Certificate of
Incorporation dated February 1, 1994 (Filed
herewith).
(3)(i)b - Certificate of Amendment of Restated Certificate of
Incorporation dated February 17, 1995 (Filed
herewith).
(3)(i)c - Certificate of Designation, Preferences and Rights
of Series A Preferred Stock (Filed as Exhibit 2 to
Commercial Metals' Form 8-A filed August 3, 1999 and
incorporated herein by reference).
(3)(ii) - By-Laws (Filed herewith).
(4)(i)a - Indenture between Commercial Metals and Chase
Manhattan Bank dated as of July 31, 1995 (Filed as
Exhibit 4.1 to Commercial Metals' Registration
Statement No. 33-60809 on July 18, 1995 and
incorporated herein by reference).
(4)(i)b - Rights Agreement dated July 28, 1999 by and between
Commercial Metals and ChaseMellon Shareholder
Services, LLC, as Rights Agent (Filed as Exhibit 1
to Commercial Metals' Form 8-A filed August 3, 1999
and incorporated herein by reference).
4(i)c - Form of Note for Commercial Metals' 7.20% Senior
Notes due 2005 (filed herewith).
4(i)d - Form of Note for Commercial Metals' 6.80% Senior
Notes due 2007 (filed herewith).
4(i)e - Officers' Certificate, dated August 4, 1997,
pursuant to the Indenture dated as of July 31, 1995,
relating to the 6.80% Senior Notes due 2007 (filed
herewith).
4(i)f - Form of Note for Commercial Metals' 6.75% Senior
Notes due 2009 (filed herewith).
4(i)g - Officers' Certificate, dated February 23, 1999,
pursuant to the Indenture dated as of July 31, 1995,
relating to the 6.75% Senior Notes due 2009 (filed
herewith).
(10)(i)a - Purchase and Sale Agreement dated June 20, 2001,
between various entities listed on Schedule 1 as
Originators and CMC Receivables, Inc. (Filed as
Exhibit (10)(a) to Commercial Metals' Form 10-Q for
the period ended May 31, 2001, and incorporated
herein by reference).
(10)(i)b - Receivables Purchase Agreement dated June 20, 2001,
among CMC Receivables, Inc., as Seller, Three Rivers
Funding Corporation, as Buyer, and Commercial Metals
Company as Servicer (Filed as Exhibit (10)(b) to
Commercial Metals' Form 10-Q for the period ended
May 31, 2001, and incorporated herein by reference).
(10)(i)c - $45,000,000 3 Year Revolving Credit Agreement dated
as of August 15, 2001 (Filed as Exhibit (10)(i)c to
Commercial Metals' Form 10-K for the fiscal year
ended August 31, 2001, and incorporated hereby by
reference).
(10)(i)d - $129,500,000 Amended and Restated 364-Day Revolving
Credit Agreement dated as of August 8, 2002 (Filed
as Exhibit 10(i)(d) to Commercial Metals' Form 10-K
for the fiscal year ended August 31, 2002, and
incorporated herein by reference).
(10)(iii)a* - Employment Agreement of Murray R. McClean as amended
through October 2, 2000 (Filed as Exhibit (10)(iii)
to Commercial Metals' Form 10-K for the fiscal year
ended August 31, 2000, and Incorporated herein by
reference).
(10)(iii)b* - Amendment to Employment Agreement of Murray R.
McClean dated March 28, 2001, (Filed as Exhibit
(10)(iii)b to Commercial Metals' Form 10-K for the
fiscal year ended August 31, 2001, and incorporated
herein by reference).
(10)(iii)c* - Key Employee Long-Term Performance Plan description
(Filed as Exhibit (10)(iii)c to Commercial Metals'
Form 10-K for the fiscal year ended August 31, 2001,
and incorporated hereby by reference).
(10)(iii)d* - Key Employee Annual Incentive Plan description
(Filed as Exhibit (10)(iii)d to Commercial Metals'
Form 10-K for the fiscal year ended August 31, 2001,
and incorporated hereby by reference).
(10)(iii)e* - Employment and Consulting Agreement of Marvin Selig
dated as of June 7, 2002 (Filed as Exhibit 10(iii)e
to Commercial Metals' Form 10-K for the fiscal year
ended August 31, 2002, and incorporated herein by
reference).
(10)(iii)f* 1999 Non-Employee Director Stock Option Plan (filed
herewith).
(12) Statement re computation of earnings to fixed
charges (filed herewith).
(21) Subsidiaries of Registrant (Filed as Exhibit 21 to
Commercial Metals' Form 10-K for the fiscal year
ended August 31, 2002 and incorporated herein by
reference).
(23) Independent Auditors' consent to incorporation by
reference of report dated November 22, 2002 (October
29, 2003, as to the effects of the restatement
discussed in the last paragraph of Note 14),
accompanying the consolidated financial statements
of Commercial Metals Company and subsidiaries for
the year ended August 31, 2002, into previously
filed Registration Statements No. 033-61073, No.
033-61075, No. 333-27967 and No. 333-42648 on Form
S-8 and Registration Statements No. 33-60809 and
No. 333-61379 on Form S-3 (filed herewith).
(31)a - Certification of Stanley A. Rabin, Chairman of the
Board, President and Chief Executive Officer of
Commercial Metals Company, pursuant to Section 302
of the Sarbanes-Oxley Act of 2002 (filed herewith).
(31)b - Certification of William B. Larson, Vice President
and Chief Financial Officer of Commercial Metals
Company, pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 (filed herewith).
(32)a - Certification of Stanley A. Rabin, Chairman of the
Board, President and Chief Executive Officer of
Commercial Metals Company, pursuant to 18 U.S.C.
1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (filed herewith).
(32)b - Certification of William B. Larson, Vice President
and Chief Financial Officer of Commercial Metals
Company, pursuant to 18 U.S.C. 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002 (filed herewith).
----------
* denotes management contract or compensatory plan.