e10vk
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
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(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended
August 31, 2006
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from
to
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Commission file number 1-4304
Commercial Metals
Company
(Exact name of registrant as
specified in its charter)
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Delaware
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75-0725338
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(State or other jurisdiction
of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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6565 MacArthur Blvd,
Irving, TX
(Address of principal
executive offices)
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75039
(Zip Code)
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Registrants telephone number, including area code:
(214) 689-4300
Securities registered pursuant to Section 12(b) of the
Act:
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Title of Each Class
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Name of Each Exchange on Which Registered
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Common Stock, $0.01 par value
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New York Stock Exchange
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Rights to Purchase Series A
Preferred Stock
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New York Stock Exchange
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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 þ No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
(Section 229.405 of this chapter) is not contained herein,
and will not be contained herein, to the best of
registrants knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this
Form 10-K
or amendment to this
Form 10-K o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer or a non-accelerated
filer. See definition of accelerated filer and large
accelerated filer in
Rule 12b-2
under the Exchange Act.
Large accelerated
filer þ Accelerated
filer o Non-accelerated
filer o
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the
Act). Yes o No þ
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 under the
Securities
Act. Yes þ No
o
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 of Section 15(d) of the
Act. Yes o No þ
The aggregate market value of the common stock on
November 3, 2006, held by non-affiliates of the registrant,
based on the closing price of $26.81 per share on
November 3, 2006 on the New York Stock Exchange, was
approximately $3,032,000,000. (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 3, 2006, was 118,244,823
DOCUMENTS
INCORPORATED BY REFERENCE:
Portions of the following document are incorporated by reference
into the listed Part of
Form 10-K:
Registrants definitive proxy statement for the annual
meeting of stockholders to be held January 25,
2007 Part III
COMMERCIAL METALS COMPANY
TABLE OF CONTENTS
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PART I
ITEM 1. BUSINESS
GENERAL
We manufacture, recycle, market and distribute steel and metal products and related materials
and services through a network of locations located throughout the United States and
internationally. We consider our business to be organized into five segments: domestic mills, CMCZ
(our Polish mill CMC Zawiercie S.A. and related operations), domestic fabrication, recycling and
marketing and distribution.
We were incorporated in 1946 in the State of Delaware. Our predecessor company, a metals
recycling business, has existed since approximately 1915. We maintain our executive offices at 6565
MacArthur Boulevard in Irving, Texas, telephone number (214) 689-4300. Our fiscal year ends August
31 and all references in this Form 10-K to years refer to the fiscal year ended August 31 of that
year unless otherwise noted. Financial information for the last three fiscal years concerning our
five business segments and the geographic areas of our operations is incorporated herein by
reference from Note 14 Business Segments of the notes to consolidated financial statements which
are in Part II, Item 8 of this Form 10-K.
Our Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K
and all amendments to these reports will be made available free of charge through the Investor
Relations section of our Internet website, http://www.commercialmetals.com, as soon as practicable
after such material is electronically filed with, or furnished to, the Securities and Exchange
Commission. Except as otherwise stated in these reports, the information contained on our website
or available by hyperlink from our website is not incorporated into this Annual Report on Form 10-K
or other documents we file with, or furnish to, the Securities and Exchange Commission.
DOMESTIC MILLS SEGMENT
We conduct our domestic mills operations through a network of:
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4 steel mills, commonly referred to as minimills, that produce reinforcing bar, angles,
flats, rounds, small beams, fence-post sections and other shapes; |
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scrap metal processing facilities that directly support these minimills; and |
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a copper tube minimill. |
Minimills. We operate four steel minimills which are located in Texas, Alabama, South Carolina
and Arkansas. We utilize a fleet of trucks that we own and private haulers to transport finished
products from the minimills to our customers and our fabricating shops. To minimize the cost of our
products, we try to operate all four minimills at full capacity. Market conditions such as
increases in quantities of competing imported steel, production rates at domestic competitors,
customer inventory levels or a decrease in construction activity may reduce demand for our products
and limit our ability to operate the minimills at full capacity. Through our operations and capital
improvements, we strive to increase productivity and capacity at the minimills and enhance our
product mix. Since the steel minimill business is capital intensive, we make substantial capital
expenditures on a regular basis to remain competitive with other low cost producers. Over the past
three fiscal years we have spent approximately $128 million or 32% of our total capital
expenditures on projects at our domestic steel minimills.
The following table compares the amount of steel (in tons) melted, rolled and shipped by our
four steel minimills in the past three fiscal years:
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2004 |
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2006 |
Tons Melted |
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2,265,000 |
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2,173,000 |
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2,324,000 |
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Tons Rolled |
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2,195,000 |
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2,024,000 |
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2,198,000 |
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Tons Shipped |
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2,401,000 |
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2,266,000 |
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2,492,000 |
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We acquired our largest steel minimill in 1963. It is located in Seguin, Texas, near San
Antonio. In 1983, we acquired our minimill in Birmingham, Alabama. As part of the acquisition of
Owen Steel Company, Inc. and its affiliates in 1995, we acquired our minimill in Cayce, South
Carolina. We have operated our smallest mill since 1987, and it is located near Magnolia, Arkansas.
The Texas, Alabama and South Carolina minimills each consist of:
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melt shop with electric arc furnace that melts ferrous scrap metal; |
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continuous casting equipment that shape the molten metal into billets; |
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reheating furnace that prepares billets for rolling; |
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rolling mill that forms products from heated billets; |
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mechanical cooling bed that receives hot product from the rolling mill; |
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finishing facilities that cut, straighten, bundle and prepare products for shipping; and |
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supporting facilities such as maintenance, warehouse and office areas. |
Descriptions of minimill capacity, particularly rolling capacity, are highly dependent on the
specific product mix manufactured. Each of our minimills can and do roll many different types and
sizes of products in their range depending on pricing and demand. Therefore our capacity estimates
assume a typical product mix and will vary with the products actually produced. Our Texas minimill
has annual capacity of approximately 900,000 tons melted and 800,000 tons rolled. Our Alabama
minimills annual capacity is approximately 650,000 tons melted and 575,000 tons rolled. We have
annual capacity at our South Carolina minimill of approximately 700,000 tons melted and 800,000
tons rolled.
Our Texas minimill manufactures a full line of bar size products including reinforcing bar,
angles, rounds, channels, flats, and special sections used primarily in building highways,
reinforcing concrete structures and manufacturing. Our Texas minimill sells primarily to the
construction, service center, energy, petrochemical, and original equipment manufacturing
industries. The Texas minimill primarily ships its products to customers located in Texas,
Louisiana, Arkansas, Oklahoma and New Mexico. It also ships products to approximately 22 other
states and to Mexico. Our Texas minimill melted 905,000 tons during 2006 compared to 870,000 tons
during 2005, and rolled 806,000 tons, an increase of 44,000 tons from 2005.
The Alabama minimill recorded 2006 melt shop production of 693,000 tons, an increase of 66,000
tons from 2005. The Alabama minimill rolled 522,000 tons, an increase of 49,000 tons from 2005. Our
Alabama minimill primarily manufactures products that are larger in size as compared to products
manufactured by our other three minimills. Such larger size products include mid-size structural
steel products including angles, channels, wide flange beams of up to eight inches and special bar
quality rounds and flats. Our Alabama minimill sells primarily to service centers, as well as to
the construction, manufacturing, and fabricating industries. The Alabama minimill primarily ships
its products to customers located in Alabama, Georgia, Tennessee, North and South Carolina, and
Mississippi.
Our South Carolina minimill manufactures a full line of bar size products which primarily
include steel reinforcing bar. The minimill also manufactures angles, rounds, squares, fence post
sections and flats. The South Carolina minimill ships its products to customers located in the
Southeast and mid-Atlantic areas which include the states from Florida through southern New
England. During 2006, the South Carolina minimill melted 725,000 tons and rolled 724,000 tons
compared to 674,000 tons melted and 655,000 tons rolled during 2005.
The primary raw material for our Texas, Alabama and South Carolina minimills is ferrous scrap
metal. We purchase the raw material from suppliers generally within a 300 mile radius of each
minimill. Ten scrap metals recycling plants located in Texas, South Carolina and Georgia are
operated by our steel group due to the predominance of ferrous scrap metal sales to the nearby
steel group operated minimills. Two of the segments ten recycling plants operate automobile
shredders. The eight smaller facilities assist the two larger locations with shredders and our
nearby minimills with the acquisition of ferrous scrap metal. These metal recycling plants
processed and shipped 1,218,000 tons of scrap metals, primarily ferrous, during 2006. We believe
the supply of ferrous scrap metal is adequate to meet our future needs, but it has historically
been subject to significant price fluctuations which have occurred more rapidly during the last
three years. All three minimills also consume large amounts of electricity and natural gas.
Although we have not had any significant curtailments and believe that supplies are adequate, the
price we pay for both electricity and natural gas has
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increased substantially during recent years. Regional and national energy supply, demand and
the extent of applicable regulatory oversight of rates charged by providers affect the prices we
pay for electricity and natural gas.
The smaller Arkansas minimill does not have a melt shop or continuous casting equipment. The
Arkansas minimill manufacturing process begins with a reheating furnace utilizing used rail
acquired primarily salvaged from railroad abandonments and excess billets acquired from either our
other mills or unrelated suppliers as its raw material. The remainder of the manufacturing
process utilizes rolling mill, cooling bed and finishing equipment and support facilities similar
to, but on a smaller scale, than those at our other minimills. The Arkansas minimill primarily
manufactures metal fence post stock, small diameter reinforcing bar, sign posts and bed frame
angles with some flats, angles and squares. At our Arkansas minimill and at our facilities in San
Marcos, Texas, Brigham City, Utah, and West Columbia, South Carolina, we fabricate fence post stock
into studded T metal fence posts. The product is finished at facilities similar to, but smaller
than, the other minimills. Since our Arkansas minimill does not have melting facilities, the
minimill depends on an adequate supply of competitively priced used rail or billets. The
availability of these raw materials fluctuates with the pace of railroad abandonments, rail
replacement by railroads, demand for used rail from domestic and foreign rail rerolling mills and
the level of excess billet production offered for sale at steel producers. We have annual capacity
at our Arkansas minimill of approximately 150,000 tons rolled.
CMC Howell. Our subsidiary, CMC Howell Metal,, operates a copper tube minimill in New Market,
Virginia. The minimill manufactures copper tube, primarily water tubing, for the plumbing, air
conditioning and refrigeration industries. Both high quality copper scrap and occasionally virgin
copper ingot are melted, cast, extruded and drawn into tubing. The minimill supplies tubing in
straight lengths and coils for use in commercial, industrial and residential construction and by
original equipment manufacturers. Our customers, largely equipment manufacturers, wholesale
plumbing supply firms and large home improvement retailers, are located primarily east of the
Mississippi River and supplied directly from the minimill or three warehouses located along the
east coast. The demand for copper tube depends on the level of new apartment, hotel/motel and
residential construction and renovation. Copper scrap is readily available, but subject to rapid
price fluctuations. The price or supply of virgin copper causes the price of copper scrap to
fluctuate rapidly. Our recycling segment supplies a small portion of the copper scrap. CMC Howells
facilities include melting, casting, piercing, extruding, drawing, finishing and office facilities.
During 2006, the facility produced approximately 63 million pounds of copper tube. CMC Howell has
annual manufacturing capacity of approximately 80 million pounds.
No single customer purchases 10% or more of our domestic mills segments production. Due to
the nature of certain stock products we sell in the domestic mills segment, we do not have a long
lead time between receipt of a purchase order and delivery. We generally fill orders for stock
products from inventory or with products near completion. As a result, we do not believe that
backlog levels are a significant factor in the evaluation of our operations. Backlog for our four
domestic steel mills at August 31, 2006 was approximately $329.1 million as compared to $169.8
million at August 31, 2005.
CMCZ SEGMENT
In December 2003, our Swiss subsidiary acquired 71.1% of the outstanding shares of Huta
Zawiercie, S.A. (CMCZ), of Zawiercie, Poland for 200 million Polish Zlotys (PLN), $51.9 million on
the acquisition date. In connection with the acquisition, we also assumed debt of 176 million PLN
($45.7 million). Since the initial acquisition we have acquired approximately 1.5% of the shares
outstanding. The Polish State Treasury owns approximately 26.4% of the remaining outstanding
shares. CMCZ is a steel minimill with equipment similar to our domestic steel minimills but also
includes a second rolling mill which produces wire rod. CMCZ owns a majority interest in several
smaller metals related operations, including two scrap metals processing facilities that directly
support CMCZ. CMCZ has annual melting capacity of approximately 1,400,000 tons with annual rolling
capacity of approximately 1,100,000 tons. During 2006, the facility melted 1,283,000 tons, rolled
1,121,000 tons and shipped 1,250,000 tons of steel. Principal products manufactured include rebar
and wire rod as well as smaller quantities of merchant bar. With this acquisition, we have become a
significant manufacturer of rebar and wire rod in Central Europe. We presented CMCZ, its
subsidiaries and related operations as a separate segment because the economic characteristics of
their markets and the regulatory environment in which they operate are not similar to that of our
domestic minimills.
CMCZ sells rebar primarily to fabricators, distributors and construction companies. Principal
customers for wire rod are meshmakers, endusers and distributors. CMCZs products are generally
sold to customers located within a market area of 400 miles of the mill. The majority of sales are
to customers within Poland with the Czech Republic, Slovakia, Hungary and Germany being the major
export markets. Ferrous scrap metal is the principal raw material for CMCZ and is generally
obtained from scrap metal processors and generators within 400 miles of the mill. Ferrous scrap
metal, electricity, natural gas and other necessary raw materials for the steel manufacturing
process are generally
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readily available although subject to periodic significant price fluctuations. During 2006 we
spent $36.5 million or 28% of our total capital expenditures on projects at CMCZ and its
subsidiaries. Included in these projects were the installation of a large capacity metal shredder
facility similar to the largest automobile shredder we operate in the United States and the
construction of a reinforcing bar fabrication facility. This shredder is wholly owned by a
subsidiary and is located at leased premises at the CMC Zawiercie mill with its output of shredded
ferrous scrap consumed by the CMC Zawiercie mills melt shop. The shredder commenced production
late in the fiscal year. The reinforcing bar fabrication facility is also located on property
leased from CMCZ and is wholly owned. The rebar fabrication facility is similar to those operated
by our domestic fabrication segment and will sell fabricated rebar to contractors for incorporation
into construction projects generally within 150 miles of the facility.
DOMESTIC FABRICATION SEGMENT
We conduct our domestic fabrication operations through a network of:
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steel plants that bend, cut, weld and fabricate steel, primarily reinforcing bar and angles; |
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warehouses that sell or rent products for the installation of concrete; |
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plants that produce special sections for floors and ceiling support; |
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plants that produce steel fence posts; |
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plants that treat steel with heat to strengthen and provide flexibility; and |
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a railroad rail salvage company. |
Our domestic fabrication segment operates facilities that we consider to be engaged in the
various related aspects of steel fabrication. Most of the facilities engage in general fabrication
of reinforcing and structural steel with 7 locations specializing in fabricating joists and special
beams for floor and ceiling support and 4 facilities fabricating only steel fence post. We obtain
steel for these facilities from our own domestic minimills, purchases through our marketing and
distribution segment and unrelated vendors. In 2006, we shipped 1,645,000 tons of fabricated steel,
an increase of 303,000 tons from 2005. We conduct these activities in facilities located in Texas
at Beaumont, Buda, Corpus Christi, Dallas (2), Fort Worth, Harlingen, Houston (3), Melissa, San
Marcos, San Antonio, Seguin, Victoria, Waco and Waxahachie; Louisiana at Baton Rouge, Keithville
and Slidell; Arkansas at Little Rock, Magnolia, Hope (2) and Springdale; Utah in Brigham City;
Florida at Fort Myers, Jacksonville and Starke; Nevada at Fallon; South Carolina at Cayce,
Columbia, Eastover, Taylors and West Columbia; in Georgia at Atlanta and Lawrenceville; North
Carolina at Gastonia (2); Virginia at Farmville, Fredericksburg and Norfolk; California at
Bloomington, Emeryville, Etiwanda, Fontana, Fresno, Rialto, San Bernadino and Stockton; Iowa at
Iowa Falls; Arizona at Chandler; Oklahoma at Oklahoma City and Tulsa; New Mexico at Albuquerque;
and Mississippi at Lumberton. The Norfolk Virginia facility was acquired in November, 2005 from
Hall-Hodges Company. Fabricated steel products are used primarily in the construction of commercial
and non-commercial buildings, hospitals, convention centers, industrial plants, power plants,
highways, bridges, arenas, stadiums, and dams. Generally, we sell fabricated steel in response to a
bid solicitation from a construction contractor or the project owner. Typically, the contractor or
owner of the project awards the job based on the competitive prices of the bids and does not
individually negotiate with the bidders.
Our joist manufacturing operations headquartered in Hope, Arkansas, manufacture steel joists
for roof supports. The joist manufacturing operations fabricate joists from steel obtained
primarily from our steel groups minimills at facilities in Hope, Arkansas; Starke, Florida; Cayce,
South Carolina; Fallon, Nevada; Iowa Falls, Iowa; and Juarez, Mexico. Our typical joist customer is
a construction contractor or large chain store owner. Joists are generally made to order and sales
may include custom design, fabrication and painting. We obtain our sales primarily on a competitive
bid basis. We also manufacture and sell castellated and cellular steel beams. These beams,
recognizable by their hexagonal or circular pattern of voids, permit greater design flexibility in
steel construction, especially floor structures. We fabricate these beams at a facility adjacent to
our Hope, Arkansas, joist plant.
Construction Related Products. We sell and rent construction related products and equipment to
concrete installers and other construction businesses. We have 41 locations in Texas, Louisiana,
Mississippi, South Carolina, Florida, Colorado, Arkansas, Arizona, Oklahoma and California where we
store and sell these products which, with the exception of a small portion of steel products, are
purchased for resale from unrelated suppliers. The facilities in Arkansas, Arizona, Oklahoma and
California were acquired during the fiscal year in a series of asset acquisitions.
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Heat Treating Operation. Our heat treating operation is Allegheny Heat Treating, Inc., with
locations in Chicora, Pennsylvania and Struthers, Ohio. Allegheny Heat Treating works closely with
our Alabama minimill and other steel mills that sell specialized heat-treated steel for customer
specific use. Such steel is primarily used in original or special equipment manufacturing. We have
annual operating capacity in our heat treating operation of approximately 30,000 tons. We also
operate a warehousing and distribution operation known as Impact Metals which distributes not only
the specialized products provided by Allegheny Heat Treating but also similar products obtained
from other similar specialty processors located around the world. During the year we commenced
renovation of an existing building which we purchased in Pell City, Alabama, near Birmingham, where
we intend to construct a new heat treating facility.
Railroad Salvage and Dismantling. We also operate a business that purchases and removes rail
and other materials from abandoned railroads. Most of the salvaged rail is utilized by our Arkansas
minimill.
Backlog in our domestic fabrication segment was approximately $673.5 million at August 31,
2006 as compared to $624.0 million at August 31, 2005. No single customer purchases 10% or more of
our domestic fabrication segments production.
RECYCLING SEGMENT
Our recycling segment processes scrap metals for use as a raw material by manufacturers of new
metal products. This segment operates approximately thirty nine scrap metal processing facilities
not including the ten scrap metal recycling facilities operated as part of our domestic mills
segment. In June, 2006 we closed the acquisition of substantially all the operating assets of
Yonack Iron & Metal Co. and related companies adding six locations including four in Texas and one
each in Arkansas and Oklahoma to the segments network of scrap metals facilities. With this
expansion the segment now operates from 20 locations in Texas, 8 in Florida, 3 in Oklahoma, 2 in
Missouri,and Tennessee and one each in Arkansas, Kansas, Louisiana,
and North Carolina.
We purchase ferrous and nonferrous scrap metals, processed and unprocessed, from a variety of
sources in a variety of forms for our metals recycling plants. Sources of metal for recycling
include manufacturing and industrial plants, metal fabrication plants, electric utilities, machine
shops, factories, railroads, refineries, shipyards, ordinance depots, demolition businesses,
automobile salvage and wrecking firms. Collectively, small scrap metal collection firms are a major
supplier.
In 2006, our scrap metal recycling segments plants processed and shipped approximately
2,474,000 tons of scrap metal compared to 2,163,000 tons in 2005. Ferrous scrap metals comprised
the largest tonnage of metals recycled at approximately 2,147,000 tons, an increase of
approximately 276,000 tons as compared to 2005. We shipped approximately 327,000 tons of nonferrous
scrap metals, primarily aluminum, copper and stainless steel, an increase of approximately 35,000
tons as compared to 2005. With the exception of precious metals, our scrap metal recycling plants
recycle and process practically all types of metal. In addition ten scrap metal recycling
facilities operated by our domestic mills segment processed and shipped approximately 1,218,000
tons of primarily ferrous scrap metal during 2006.
Our scrap metal recycling plants consist of an office and warehouse building equipped with
specialized equipment for processing both ferrous and nonferrous metal. A typical recycling plant
also includes several acres of land that we use for receiving, sorting, processing and storing
metals. Several of our scrap metal recycling plants use a small portion of their site or a nearby
location to display and sell metal products that may be reused for their original purpose without
further processing. We equip our larger plants with scales, shears, baling presses, briquetting
machines, conveyors and magnetic separators which enable these plants to efficiently process large
volumes of scrap metals. Two plants have extensive equipment that segregates metallic content from
large quantities of insulated wire. To facilitate processing, shipping and receiving, we equip our
ferrous metal processing centers with either presses, shredders or hydraulic shears to prepare and
compress scrap metal for easier handling. Cranes are utilized to handle scrap metals for processing
and to load material for shipment. Many facilities have rail access as ferrous scrap is primarily
shipped by open gondola railcar or barge when water access is available.
We operate five large shredding machines, four in Texas with one in Florida, capable of
pulverizing obsolete automobiles or other sources of scrap metal. We have three additional
shredders, two operated by our domestic mills segment and the third by our CMCZ segment.
We sell scrap metals to steel mills and foundries, aluminum sheet and ingot manufacturers,
brass and bronze ingot makers, copper refineries and mills, secondary lead smelters, specialty
steel mills, high temperature alloy manufacturers and other consumers. Ferrous scrap metal is the
primary raw material for electric arc furnaces such as those operated by our steel minimills. Some
minimills periodically supplement purchases of ferrous scrap metal with direct reduced iron and pig
iron for certain product lines. Our Dallas
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office coordinates the sales of scrap metals from our scrap metal processing plants to our
customers. We negotiate export sales through our network of foreign offices as well as our Dallas
office.
We do not purchase a material amount of scrap metal from one source. One customer represented
10% of our recycling segments revenues. Our recycling segment competes with other scrap metals
processors and primary nonferrous metals producers, both domestic and foreign, for sales of
nonferrous materials. Consumers of nonferrous scrap metals frequently can utilize primary or
virgin ingot processed by mining companies instead of nonferrous scrap metals. The prices of
nonferrous scrap metals are closely related to but generally less than, the prices of primary or
virgin ingot.
MARKETING AND DISTRIBUTION SEGMENT
Our marketing and distribution segment buys and sells primary and secondary metals, fabricated
metals and other industrial products. During the past year, our marketing and distribution segment
sold approximately 2.9 million tons of steel products. We market and distribute these products
through a network of offices, processing facilities and joint venture offices located around the
world. We purchase steel, nonferrous metals including copper and aluminum coil, sheet and tubing,
chemicals, industrial minerals, ores, metal concentrates and ferroalloys from producers in domestic
and foreign markets. Occasionally, we purchase these materials from suppliers, such as trading
companies or industrial consumers, who have a surplus of these materials. We utilize long-term
contracts, spot market purchases and trading or barter transactions to purchase materials. To
obtain favorable long term supply agreements we occasionally offer assistance to producers by
arranging structured finance transactions to suit their objectives.
We sell our products to customers, primarily manufacturers, in the steel, nonferrous metals,
metal fabrication, chemical, refractory and transportation businesses. We sell directly to our
customers through and with the assistance of our offices in Irving, Texas; Fort Lee, New Jersey;
Arcadia, California; Mexico City, Mexico; Sydney, Perth, Melbourne, Brisbane and Adelaide,
Australia; Singapore; Zug, Switzerland; Sandbach, United Kingdom; Kohl, Germany, and Hong Kong,
Beijing, Guangzhou and Shanghai China. We have a representative office in Moscow. We have agents
or joint venture partners in additional offices located in significant international markets. Our
network of offices shares information regarding demand for our materials, assists with negotiation
and performance of contracts and other services for our customers, and identifies and maintains
relationships with our sources of supply.
In most transactions, we act as principal by taking title and ownership of the products. We
are also designated as a marketing representative, sometimes exclusively, by product suppliers. We
utilize agents when appropriate, and on occasion we act as a broker for these products. We buy and
sell these products in almost all major markets throughout the world where trade by American-owned
companies is permitted.
We market physical products as compared to companies that trade commodity futures contracts
and frequently do not take delivery of the commodity. As a result of sophisticated global
communications, our customers and suppliers often have easy access to quoted market prices,
although such price quotes are not always indicative of actual transaction prices. Therefore, to
distinguish ourselves we focus on creative service functions for both sellers and buyers. Our
services include actual physical market pricing and trend information, as compared to more
speculative metal exchange futures market information, technical information and assistance,
financing, transportation and shipping (including chartering of vessels), storage, warehousing,
just-in-time delivery, insurance, hedging and the ability to consolidate smaller purchases and
sales into larger, more cost efficient transactions. We attempt to limit exposure to price
fluctuations by offsetting purchases with concurrent sales. We also enter into currency exchange
contracts as economic hedges of sales and purchase commitments denominated in currencies other than
the United States dollar or, if the transaction involves our Australian, United Kingdom or German
subsidiaries, their local currency. We do not, as a matter of policy, speculate on changes in the
markets.
We have previously made investments to acquire approximately 11% of the outstanding stock of a
Czech Republic steel mill and 24% of a Belgium business that processes and pickles hot rolled steel
coil. These investments allow us to expand our marketing and distribution activities.
Our Australian operations have eleven warehousing facilities for just-in-time delivery of
steel and industrial products. Our Coil Steels Group is the third largest distributor of steel
sheet and coil products in Australia and has processing facilities in Brisbane, Sydney and
Melbourne and warehouses in Adelaide, Perth, Darwin and Toowoomba. In March, 2006 we acquired
Southmet Pty Ltd., a plate and long products processor in Adelaide expanding our Australian
operations.
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SEASONALITY
Many of our domestic mills, CMCZ and domestic fabrication segments customers are in the
construction business. Due to the increase in construction during the spring and summer months, our
sales in these segments are generally higher in the third and fourth quarters than in the first and
second quarters of our fiscal year.
COMPETITION
Our domestic mills compete with regional, national and foreign manufacturers of steel and
copper. We do not produce a significant percentage of the total domestic output of most of our
products. However, we are considered a substantial supplier in the markets near our facilities. We
compete primarily on the price and quality of our products and our service. See Risk Factors
Risks Related to Our Industry.
We believe that CMCZ is the largest supplier of wire rod and the second largest supplier of
reinforcing bar in the Polish market. It competes with several large manufacturers of rebar and
wire rod in central and eastern Europe, primarily on the basis of price and product availability.
Our domestic fabrication businesses compete with regional and national suppliers. We believe
that we are the largest fabricator of reinforcing bar in the United States and our joist facilities
are the second largest manufacturer of joists in the United States, although significantly smaller
than the largest joist supplier. We believe that we are the largest manufacturer of steel fence
posts in the United States.
We believe our recycling segment is one of the largest entities engaged in the recycling of
nonferrous scrap metals in the United States. We are also a major regional processor of ferrous
scrap metal. The scrap metal recycling business is subject to cyclical fluctuations based upon the
availability and price of unprocessed scrap metal and the demand for steel and nonferrous metals.
Buying prices and service to scrap suppliers and generators are the principal competitive factors
for the segment. The price offered for scrap metal is the principal competitive factor in acquiring
material from smaller scrap metals collection firms while industrial generators of scrap metal may
also consider the importance of other factors such as supplying appropriate collection containers,
timely removal, reliable documentation including accurate and detailed purchase records with
customized reports, the ability to service multiple locations, insurance coverage, and the buyers
financial strength.
Our marketing and distribution business is highly competitive. Our products in the marketing
and distribution segment are standard commodity items. We compete primarily on the price, quality
and reliability of our products, our financing alternatives and our additional services. In this
segment, we compete with other domestic and foreign trading companies, some of which are larger and
may have access to greater financial resources. In addition, some of our competitors may be able to
pursue business without being restricted by the laws of the United States. We also compete with
industrial consumers, who purchase directly from suppliers, and importers and manufacturers of
semi-finished ferrous and nonferrous products. Our Coil Steels Group, a distributor of steel sheet
and coil in Australia, is believed to be the third largest distributor of those products in
Australia.
ENVIRONMENTAL MATTERS
A significant factor in our business is our compliance with environmental laws and
regulations. See Risk Factors- Risks Related to Our Industry below. Compliance with and changes
in various environmental requirements and environmental risks applicable to our industry may
adversely affect our results of operations and financial condition.
Occasionally, we may be required to clean up or take certain remediation action with regard to
sites we formerly used in our operations. We may also be required to pay for a portion of the costs
of clean up or remediation at sites we never owned or on which we never operated if we are found to
have treated or disposed of hazardous substances on the sites. The United States Environmental
Protection Agency, or EPA, has named us a potentially responsible party or PRP, at several federal
Superfund sites. The EPA alleges that we and other PRP scrap metal suppliers are responsible for
the cleanup of those sites solely because we sold scrap metal to unrelated manufacturers for
recycling as a raw material in the manufacturing of new products. We contend that an arms length
sale of valuable scrap metal for use as a raw material in a manufacturing process that we have no
control of should not constitute an arrangement for disposal or treatment of hazardous substances
as defined under Federal law. In 2000 the Superfund Recycling Equity Act was signed into law which,
subject to the satisfaction of certain conditions, provides legitimate sellers of scrap metal for
recycling with some relief from Superfund liability under Federal law. Despite Congress
clarification of the intent of the Federal law, some state laws and environmental agencies still
seek to impose such liability. We believe efforts to impose such liability are contrary to
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public policy objectives and legislation encouraging recycling and promoting the use of
recycled materials and we continue to support clarification of state laws and regulations
consistent with Congresss action.
New Federal, state and local laws, regulations and the varying interpretations of such laws by
regulatory agencies and the judiciary impact how much money we spend on environmental compliance.
In addition, uncertainty regarding adequate control levels, testing and sampling procedures, new
pollution control technology and cost benefit analysis based on market conditions impact our future
expenditures in order to comply with environmental requirements. We cannot predict the total amount
of capital expenditures or increases in operating costs or other expenses that may be required as a
result of environmental compliance. We also do not know if we can pass such costs on to our
customers through product price increases. During 2006, we incurred environmental costs including
disposal, permits, license fees, tests, studies, remediation, consultant fees and environmental
personnel expense of approximately $18.6 million. In addition, we estimate that we spent
approximately $6.2 million during 2006 on capital expenditures for environmental projects. We
believe that our facilities are in material compliance with currently applicable environmental laws
and regulations. We anticipate capital expenditures for new environmental control facilities during
2007 of approximately $11.7 million.
EMPLOYEES
As of September 2006, we had approximately 11,734 employees. Our domestic mills segment
employed approximately 2,439 people, our CMCZ segment employed approximately 2,041 people, and our
fabrication segment employed approximately 5,108 people. Our recycling segment employed 1,377
people, and our marketing and distribution segment employed 668 people. We have 53 employees in
general corporate management and administration and 48 employees who provide services to our
divisions and subsidiaries. Production employees at one metals recycling plant and two fabrication
facilities are represented by unions for collective bargaining purposes. Approximately one half of
CMCZs employees are represented by unions. We believe that our labor relations are generally good
to excellent and our work force is highly motivated.
ITEM 1A. RISK FACTORS
Before making an investment in our company, you should be aware of various risks, including
those described below. You should carefully consider these risk factors together with all of the
other information included in this annual report on Form 10-K. The risks described below are not
the only risks facing us. Additional risks and uncertainties not currently known to us or those we
currently deem to be immaterial may also materially and adversely affect our business, financial
condition, results of operations or cash flows. If any of these risks actually occur, our business,
financial condition, results of operations or cash flows could be materially adversely affected and
you may lose all or part of your investment.
RISKS RELATED TO OUR INDUSTRY
A SIGNIFICANT REDUCTION IN CHINAS STEEL CONSUMPTION OR INCREASED CHINESE STEEL PRODUCTION
SUBSTANTIALLY EXCEEDING LOCAL DEMAND MAY RESULT IN CHINA BECOMING A LARGE EXPORTER OF STEEL AND
DISRUPTION TO WORLD STEEL MARKETS.
Chinese economic expansion has affected the availability and heightened the volatility of many
commodities that we market and use in our manufacturing process, including steel. It is reported
that in calendar year 2005 China became a net exporter of steel, albeit only by 600,000 tons out of
a total estimated production capacity of 349 million tons. China now accounts for approximately
one third of the worlds raw steel production and one third of the worlds steel consumption.
Expansions and contractions in Chinas economy can have major effects on the pricing of not only
the price of our finished steel products but also many commodities that affect us such as secondary
metals, energy, marine freight rates, steel making supplies such as ferroalloys and graphite
electrodes and materials we market such as iron ore and coke. Should Chinese demand weaken or
Chinese steel production be allowed to expand unchecked to the point that it significantly exceeds
the countrys consumption, prices for many of the products that we both sell to and export from
China may fall causing erosion in our gross margins and subjecting us to possible renegotiation of
contracts or increases in bad debts. Significant exports from China of steel in the product lines
we manufacture in the United States would cause selling prices in the United States to decline and
negatively impact our gross margins.
RAPID AND SIGNIFICANT CHANGES IN THE PRICE OF METALS COULD NEGATIVELY IMPACT OUR INDUSTRY.
Prices for most metals in which we deal have experienced large increases and increased
volatility in recent years. With a few exceptions, our markets have been able to adapt to this
changing pricing environment. However, should metals prices experience
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further unanticipated and even more substantial rapid increases or be subjected to sudden
substantial decreases it would impact us in several ways. Some of our operations, the domestic
fabrication segment for example, may benefit from rapidly decreasing steel prices as their material
cost decline while others, such as our domestic mill and CMCZ segments, would likely experience
reduced margins until prices stabilized. Sudden increases could have the opposite effect. Overall
we believe that rapid substantial price changes, should they occur, will not be to our industrys
benefit. Our customer and supplier base would be impacted due to uncertainty as to future prices.
A reluctance to purchase inventory in the face of extreme price decreases or sell quickly during a
period of rapid price increases would likely reduce our volume of business. Marginal industry
participants or speculators may attempt to participate to an unhealthy extent during a period of
rapid price escalation with a substantial risk of contract default should prices suddenly reverse.
Risks of default in contract performance by customers or suppliers as well as a increased risk of
bad debts and customer credit exposure would increase during periods of rapid and substantial price
changes.
EXCESS CAPACITY IN OUR INDUSTRY COULD INCREASE THE LEVEL OF STEEL IMPORTS INTO THE U.S. RESULTING
IN LOWER DOMESTIC PRICES WHICH WOULD ADVERSELY AFFECT OUR SALES, MARGINS AND PROFITABILITY.
Steel-making capacity exceeds demand for steel products in some countries. Rather than
reducing employment by rationalizing capacity with consumption, steel manufacturers in these
countries (often with local government assistance or subsidies in various forms) have
traditionally periodically exported steel at prices that are significantly below their home market
prices and which may not reflect their costs of production or capital. This supply of imports can
decrease the sensitivity of domestic steel prices to increases in demand or our ability to recover
increased manufacturing costs.
OUR INDUSTRY IS AFFECTED BY CYCLICAL AND REGIONAL ECONOMIC FACTORS INCLUDING THE RISK OF A SLOW
DOWN IN ECONOMIC ACTIVITY OR RECESSION.
Many of our products are commodities subject to cyclical fluctuations in supply and demand in
metal consuming industries. Metals industries have historically been vulnerable to significant
declines in consumption and product pricing during prolong periods of economic downturn. A
recession in either the United States or the European Union or the public perception that a
slowdown or recession may occur, could decrease the demand for our products and adversely affect
our business. Our overall financial results will be dependent substantially upon the extent to
which economic conditions in both the United States and the European Union remain strong. Overall
economic activity has historically been susceptible to declines following periods of rapidly
increased energy costs or interest rates. A slower expansion or recession will adversely affect our
financial results. Our geographic concentration in the southern and southwestern United States as
well as Central Europe, Australia and China exposes us to the local market conditions in these
regions. Economic downturns in these areas or decisions by governments that have an impact on the
level and pace of overall economic activity could adversely affect our sales and profitability.
Our business supports cyclical industries such as commercial construction, energy, service
center, petrochemical and original equipment manufacturing. These industries may experience
significant fluctuations in demand for our products based on economic conditions, energy prices,
consumer demand and decisions by governments to fund infrastructure projects such as highways,
schools, energy plants and airports. Many of these factors are beyond our control. As a result of
the volatility in the industries we serve, we may have difficulty increasing or maintaining our
level of sales or profitability. If the industries we serve suffer a prolonged downturn, then our
business may be adversely affected.
Our industry is characterized by low backlogs, which means that our results of operations are
promptly affected by short-term economic fluctuations.
COMPLIANCE WITH AND CHANGES IN ENVIRONMENTAL AND REMEDIATION REQUIREMENTS COULD RESULT IN
SUSTANTIALLY INCREASED CAPITAL REQUIREMENTS AND OPERATING COSTS.
Existing laws or regulations, as currently interpreted or reinterpreted in the future, or
future laws or regulations, may have a material adverse effect on our results of operations and
financial condition. Compliance with environmental laws and regulations is a significant factor in
our business. We are subject to local, state, federal and international environmental laws and
regulations concerning, among other matters, waste disposal, air emissions, waste and storm water
effluent and disposal and employee health. Our manufacturing and recycling operations produce
significant amounts of by-products, some of which are handled as industrial waste or
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hazardous waste. For example, our minimills generate electric arc furnace dust (EAF dust),
which the EPA, and other regulatory authorities classify as hazardous waste. EAF dust requires
special handling, recycling or disposal.
In addition, the primary feed materials for the shredders operated by our scrap metal
recycling facilities are automobile hulks and obsolete household appliances. Approximately 20% of
the weight of an automobile hulk consists of unrecyclable material known as shredder fluff. After
the segregation of ferrous and saleable non-ferrous metals, shredder fluff remains. We, along with
others in the recycling industry, interpret Federal regulations to require shredder fluff to meet
certain criteria and pass a toxic leaching test to avoid classification as a hazardous waste. We
also endeavor to remove hazardous contaminants from the feed material prior to shredding. As a
result, we believe the shredder fluff we generate is not normally considered or properly classified
as hazardous waste. If the laws, regulations or testing methods change with regard to EAF dust or
shredder fluff, we may incur additional significant expenditures.
Although we believe that we are in substantial compliance with all applicable laws and
regulations, legal requirements are changing frequently and are subject to interpretation. New
laws, regulations and changing interpretations by regulatory authorities, together with uncertainty
regarding adequate pollution control levels, testing and sampling procedures, new pollution control
technology and cost benefit analysis based on market conditions are all factors that may increase
our future expenditures to comply with environmental requirements. Accordingly, we are unable to
predict the ultimate cost of future compliance with these requirements or their effect on our
operations. We cannot predict whether such costs can be passed on to customers through product
price increases. Competitors in various regions or countries where environmental regulation might
not be so restrictive, subject to different interpretation or generally not enforced may enjoy a
competitive advantage.
We may also be required to conduct additional clean up at sites where we have already
participated in remediation efforts or to take remediation action with regard to sites formerly
used in connection with our operations. We may be required to pay for a portion of the costs of
clean up or remediation at sites we never owned or on which we never operated if we are found to
have arranged for treatment or disposal of hazardous substances on the sites.
RISKS RELATED TO OUR COMPANY
FLUCTUATIONS IN THE VALUE OF THE UNITED STATES DOLLAR RELATIVE TO OTHER CURRENCIES MAY ADVERSELY
AFFECT OUR BUSINESS.
Fluctuations in the value of the dollar can be expected to affect our business. In particular
major changes in the rate of exchange of Chinas Renminbi or substantial increases in the value of
the Euro to the U.S. Dollar could negatively impact our business. A strong U.S. dollar makes
imported metal products less expensive, resulting in more imports of steel products into the U.S.
by our foreign competitors. Past economic difficulties in Eastern Europe, Asia and Latin America
have resulted in lower local demand for steel products and have encouraged greater steel exports to
the U.S. at depressed prices. As a result, our products which are made in the U.S., may become
relatively more expensive as compared to imported steel, which has had and in the future could have
a negative impact on our sales, revenues and profitability.
A strong U.S. dollar hampers our international marketing and distribution business. Weak local
currencies limit the amount of U.S. dollar denominated products that we can import for our
international operations and limits our ability to be competitive against local producers selling
in local currencies.
OPERATING INTERNATIONALLY CARRIES RISKS AND UNCERTANTIES WHICH COULD NEGATIVELY EFFECT OUR RESULTS
OF OPERATIONS.
We have our heaviest concentration of manufacturing operations in the United States but also
have significant facilities in Europe and Australia. Our marketing and trading offices are located
in most major markets of the world with our suppliers and our customers located throughout the
world. Our marketing and distribution segment relies on substantial international shipments of
materials and products in the ordinary course of its business. Our stability, growth and
profitability are subject to a number of risks inherent in doing business internationally in
addition to the currency exchange risk discussed above, including:
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Political, military, terrorist or major pandemic events; |
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Legal and regulatory requirements or limitations imposed by foreign governments
(particularly those with significant steel consumption or steel related production
including China, Brazil, Russia and India) including quotas, tariffs or other protectionist
trade barriers, adverse tax law changes, nationalization or currency restrictions; |
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Disruptions or delays in shipments caused by customs compliance or government agencies; and |
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Potential difficulties in staffing and managing local operations. |
WE RELY ON THE AVAILABILITY OF LARGE AMOUNTS OF ELECTRICITY AND NATURAL GAS FOR OUR MINIMILL
OPERATIONS. DISRUPTIONS IN DELIVERY OR SUBSTANTIAL INCREASES IN ENERGY COSTS, INCLUDING CRUDE OIL
PRICES, COULD ADVERSLY EFFECT ON OUR FINANCIAL PERFORMANCE.
Minimills melt steel scrap in electric arc furnaces and use natural gas to heat steel billets for
rolling into finished products. As large consumers of electricity and gas, often the largest in
the geographic area where our minimills are located, we must have dependable delivery of
electricity and natural gas in order to operate. Accordingly, we are at risk in the event of an
energy disruption. Prolonged black-outs or brown-outs or disruptions caused by natural disasters
such as hurricanes would substantially disrupt our production. While we have not suffered
prolonged production delays due to our inability to access electricity or natural gas several of
our competitors have experienced such occurrences. Prolonged substantial increases in energy costs
would have an adverse effect on the costs of operating our minimills and would negatively impact
our gross margins unless we were able to fully pass through the additional expense. Our finished
steel products are typically delivered by truck. Rapid increases in the price of fuel
attributable to increases in crude oil prices will have a negative impact on our costs and many of
our customers financial results which could result in reduced margins and declining demand for our
products. Rapid increases in fuel costs may also negatively impact our ability to charter ships
for international deliveries at anticipated freight rates thereby decreasing our margins on those
transactions or causing our customers to look for alternative sources.
IF WE LOSE THE SERVICES OF KEY EMPLOYEES WE MAY NOT BE ABLE TO SUCCESSFULLY MANAGE OUR OPERATIONS
AND MEET OUR STRATEGIC OBJECTIVES.
Our future success depends, in large part, on the continued service of our officers and other
key employees and our ability to continue to attract and retain additional highly qualified
personnel. These employees are integral to our success based on their expertise and knowledge of
our business and products. We compete for such personnel with other companies including public and
private company competitors who may periodically offer more favorable terms of employment. While
we have an employment agreement with our Chief Executive Officer, we typically do not have
employment agreements with other key employees. The loss or interruption of the services of a
number of our key employees would reduce our ability to effectively manage our operations due to
the fact that we may not be able to find in a timely manner, appropriate replacement personnel
should the need arise.
WE HAVE INITIATED IMPLEMENTATION OF AN
ENTERPRISE RESOURCE PLANNING SYSTEM WHICH, IF NOT EFFECTIVELY MANAGED AND CONTROLLED, COULD
THREATEN THE ACHIEVEMENT OF OPERATION AND FINANCIAL GOALS.
Planning and design of a new
enterprise resource planning system commenced in 2006 and will continue through 2007 with phased
implementation scheduled commencing in 2008. There are risks that this effort may not result in
a successful implementation resulting in resources being inappropriately diverted, untimely
completion and substantial cost overruns.
WE MAY HAVE DIFFICULTY COMPETING WITH COMPANIES THAT HAVE A LOWER COST STRUCTURE THAN OURS.
We compete with regional, national and foreign manufacturers and traders. Some of these
competitors are larger, have greater financial resources and more diverse businesses than us. Some
of our foreign competitors may be able to pursue business opportunities without regard for the laws
and regulations with which we must comply, such as environmental regulations. These companies may
have a lower cost structure, more operating flexibility and consequently they may be able to offer
better prices and more services than we can. We cannot assure you that we will be able to compete
successfully with these companies.
Furthermore, over the past several years, many integrated domestic steel producers and scrap
metal recyclers have entered bankruptcy proceedings. The companies that reorganize and emerge from
bankruptcy may have a more competitive capital cost structures. In addition, asset sales by these
companies during the reorganization process tended to be at depressed prices, enabling some
purchasers to acquire greater capacity at a lower cost.
OUR STEEL MINIMILL BUSINESS REQUIRES CONTINUOUS CAPITAL INVESTMENTS THAT WE MAY NOT BE ABLE TO
SUSTAIN.
We must make regular substantial capital investments in our steel minimills to lower
production costs and remain competitive. We cannot be certain that we will have sufficient
internally generated cash or acceptable external financing to make necessary substantial capital
expenditures in the future. The availability of external financing depends on many factors outside
of our control, including capital market conditions and the overall performance of the economy. If
funding is insufficient, we may be unable to develop or enhance our minimills, take advantage of
business opportunities and respond to competitive pressures.
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SCRAP AND OTHER SUPPLIES FOR OUR BUSINESSES ARE SUBJECT TO SIGNIFICANT PRICE FLUCTUATIONS, WHICH
MAY ADVERSELY AFFECT OUR BUSINESS.
We depend on ferrous scrap, the primary feedstock for our steel minimills and other supplies
such as graphite electrodes and ferroalloys for our steel minimill operations. Although we believe
that the supply of scrap is adequate to meet future needs, the price of scrap and other supplies
have historically been subject to significant fluctuation. Our future profitability will be
adversely affected if we are unable to pass on to our customers increased raw material and supplies
costs. We may not be able to adjust our product prices to recover the costs of rapid increases in
material prices, especially over the short-term and in our domestic fabrication segments fixed
price fabrication contracts.
The raw material used in manufacturing copper tubing is copper scrap, supplemented
occasionally by virgin copper ingot. Copper scrap has generally been readily available, and a small
portion of our copper scrap comes from our metal recycling yards. However, copper scrap is subject
to rapid price fluctuations related to the price and supply of virgin copper. Price increases for
high quality copper scrap could adversely affect our business. Finally, our Arkansas mill does not
have melting capacity, so it is dependent on an adequate supply of competitively priced used rail.
The availability of used rail fluctuates with the pace of railroad abandonments, rail replacement
by railroads in the United States and abroad and demand for used rail from other domestic and
foreign rail rerolling mills. Price increases for used rail could adversely affect our business.
UNEXPECTED EQUIPMENT FAILURES MAY LEAD TO PRODUCTION CURTAILMENTS OR SHUTDOWNS.
Interruptions in our production capabilities will adversely affect our production costs, steel
available for sales and earnings for the affected period. In addition to equipment failures, our
facilities are also subject to the risk of catastrophic loss due to unanticipated events such as
fires, explosions or violent weather conditions. Our manufacturing processes are dependent upon
critical pieces of steel-making equipment, such as our furnaces, continuous casters and rolling
equipment, as well as electrical equipment, such as transformers, and this equipment may, on
occasion, be out of service as a result of unanticipated failures. We have experienced and may in
the future experience material plant shutdowns or periods of reduced production as a result of such
equipment failures.
HEDGING TRANSACTIONS MAY LIMIT OUR POTENTIAL GAINS OR EXPOSE US TO LOSS.
Our product lines and worldwide operations expose us to risks associated with fluctuations in
foreign currency exchange, commodity prices and interest rates. As part of our risk management
program, we use financial instruments, including commodity futures or forwards, foreign currency
exchange forward contracts and interest rate swaps. While intended to reduce the effects of the
fluctuations, these transactions may limit our potential gains or expose us to loss. Should our
counterparties to such transactions or the sponsors of the exchanges through which these
transactions are offered, such as the London Metal Exchange, fail to honor their obligations due to
financial distress we would be exposed to potential losses or the inability to recover anticipated
gains from these transactions.
We enter into the foreign currency exchange forwards as economic hedges of trade commitments
or anticipated commitments denominated in currencies other than the functional currency to mitigate
the effects of changes in currency rates. Although we do not enter into these instruments for
trading purposes or speculation, and although our management believes all of these instruments are
economically effective as hedges of underlying physical transactions, these foreign exchange
commitments are dependent on timely performance by our counterparties. Their failure to perform
could result in our having to close these hedges without the anticipated underlying transaction and
could result in losses if foreign currency exchange rates have changed.
WE ARE INVOLVED AND MAY IN THE FUTURE BECOME INVOLVED IN VARIOUS ENVIRONMENTAL MATTERS THAT MAY
RESULT IN FINES, PENALTIES OR JUDGMENTS BEING ASSESSED AGAINST US OR LIABILITY IMPOSED UPON US
WHICH WE CANNOT PRESENTLY ESTIMATE OR REASONABLY FORESEE AND WHICH MAY HAVE A MATERIAL IMPACT ON
OUR EARNINGS AND CASH FLOWS.
Under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, called
CERCLA, or similar state statutes, we may have obligations to conduct investigation and remediation
activities associated with alleged releases of hazardous substances or to reimburse the EPA (or
state agencies as applicable) for such activities and to pay for natural resource damages
associated with alleged releases. We have been named a potentially responsible party at several
federal and state Superfund sites because the EPA or an equivalent state agency contends that we
and other potentially responsible scrap metal suppliers are liable for the cleanup of those sites
as a result of having sold scrap metal to unrelated manufacturers for recycling as a raw material
in the manufacture of new products. We are involved in litigation or administrative proceedings
with regard to several of these sites in which
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we are contesting, or at the appropriate time 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.
Although we are unable to estimate precisely the ultimate dollar amount of exposure to loss in
connection with various environmental matters or the effect on our consolidated financial position,
we make accruals as warranted. Due to inherent uncertainties, including evolving remediation
technology, changing regulations, possible third-party contributions, the inherent shortcomings of
the estimation process, the uncertainties involved in litigation and other factors, the amounts we
accrue could vary significantly from the amounts we ultimately are required to pay.
AN INABILITY TO FULLY AND EFFECTIVELY INTEGRATE FUTURE ACQUISITIONS COULD RESULT IN INCREASED COSTS
WHILE DIVERTING MANAGEMENTS ATTENTION FROM OUR CORE OPERATIONS, AND WE CANNOT ASSURE YOU THAT WE
WILL REALIZE THEIR FULL BENEFITS OR SUCCESSFULLY MANAGE OUR COMBINED COMPANY, AND FUTURE
ACQUISITIONS MAY RESULT IN DILUTIVE EQUITY ISSUANCES OR INCREASES IN DEBT.
As part of our ongoing business strategy we regularly evaluate and may pursue acquisitions of
and investments in complementary companies. We cannot assure you that we will be able to fully or
successfully integrate recent or future acquisitions in a timely manner or at all. If we are unable
to successfully integrate acquisitions, we may incur costs and delays or other operational,
technical or financial problems, any of which could adversely affect our business. In addition,
managements attention may be diverted from core operations which could harm our ability to timely
meet the needs of our customers and damage our relationships with those customers. To finance
future acquisitions, we may need to raise funds either by issuing equity securities or incurring or
assuming debt. If we incur additional debt, the related interest expense may significantly reduce
our profitability.
WE ARE SUBJECT TO LITIGATION WHICH COULD ADVERSELY AFFECT OUR PROFITABILITY.
We are involved in various litigation matters, including regulatory proceedings,
administrative proceedings, governmental investigations, environmental matters and construction
contract disputes. The nature of our operations also expose us to possible litigation claims in the
future. Although we make every effort to avoid litigation, these matters are not totally within our
control. We will contest these matters vigorously and have made insurance claims where appropriate,
but because of the uncertain nature of litigation and coverage decisions, we cannot predict the
outcome of these matters. These matters could have a material adverse effect on our financial
condition and profitability. Litigation is very costly, and the costs associated with prosecuting
and defending litigation matters could have a material adverse effect on our financial condition
and profitability. Although we are unable to estimate precisely the ultimate dollar amount of
exposure to loss in connection with litigation matters, we make accruals as warranted. However, the
amounts that we accrue could vary significantly from the amounts we actually pay, due to inherent
uncertainties and the inherent shortcomings of the estimation process, the uncertainties involved
in litigation and other factors.
SOME OF OUR CUSTOMERS MAY DEFAULT ON THE DEBTS THEY OWE TO US.
Economic conditions are not consistent in all the markets we serve. Some areas are still weak,
and our customers may struggle to meet their obligations, especially if a significant customer of
theirs defaults. We regularly maintain a substantial amount of accounts receivable at year end
over $1.1 billion. We charged off accounts receivable net of recoveries of $3.8 million during the
past fiscal year and at year end our allowance for collection losses was $16 million. Other factors
such as management and accounting irregularities have forced some companies into bankruptcy. A
weakening of the general economy and corporate failures could result in higher bad debt costs. In
certain markets we have experienced a consolidation among those entities to whom we sell. This
consolidation, along with substantially higher metals and other commodity prices, has resulted in
an increased credit risk spread among fewer customers without a corresponding strengthening of
their financial status. Although we have expanded our use of credit insurance for accounts
receivable in our marketing and distribution segment and require letters of credit from reputable
financial institutions in many international sales transactions, the majority of our receivables in
our other segments are considered to be open account uninsured accounts receivable.
CREDIT RATINGS AFFECT OUR ABILITY TO OBTAIN FINANCING AND THE COST OF SUCH FINANCING.
Credit ratings affect our ability to obtain financing and the cost of such financing. Our
commercial paper program is ranked in the second highest category by Moodys Investors Service
(P-2) and Standard & Poors Corporation (A-2). Our senior unsecured debt is investment grade rated
by Standard & Poors Corporation (BBB) and Moodys Investors Service (Baa2). In determining our
credit ratings, the rating agencies consider a number of both quantitative and qualitative factors.
These factors include earnings, fixed charges such as interest, cash flows, total debt outstanding,
off balance sheet obligations and other commitments, total capitalization
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and various ratios calculated from these factors. The rating agencies also consider
predictability of cash flows, business strategy and diversity, industry conditions and
contingencies. Lower ratings on our commercial paper program or our senior unsecured debt could
impair our ability to obtain additional financing and will increase the cost of the financing that
we do obtain.
THE AGREEMENTS GOVERNING THE NOTES AND OUR OTHER DEBT CONTAIN FINANCIAL COVENANTS AND IMPOSE
RESTRICTIONS ON OUR BUSINESS.
The indenture governing our 6.80% notes due 2007, 6.75% notes due 2009 and 5.625% notes due
2013 contains restrictions on our ability to create liens, sell assets, enter into sale and
leaseback transactions and consolidate or merge. In addition, our credit facility contains
covenants that place restrictions on our ability to, among other things:
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enter into transactions with affiliates; |
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sell assets; |
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in the case of some of our subsidiaries, guarantee debt; and |
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consolidate or merge. |
Our credit facility also requires that we meet certain financial tests and maintain certain
financial ratios, including a maximum debt to capitalization and interest coverage ratios.
Although the debt owed by CMCZ under a five-year term note is without recourse to Commercial
Metals Company, our Swiss subsidiary that owns the CMCZ shares or any other of our subsidiaries,
the note does contain certain covenants including minimum debt to EBITDA, debt to equity and
tangible net worth requirements (as defined only by reference to CMCZs financial statements).
Other agreements that we may enter into in the future may contain covenants imposing
significant restrictions on our business that are similar to, or in addition to, the covenants
under our existing agreements. These restrictions may affect our ability to operate our business
and may limit our ability to take advantage of potential business opportunities as they arise.
Our ability to comply with these covenants may be affected by events beyond our control,
including prevailing economic, financial and industry conditions. The breach of any of these
restrictions could result in a default under the indenture governing the notes or under our other
debt agreements. An event of default under our debt agreements would permit some of our lenders to
declare all amounts borrowed from them to be due and payable, together with accrued and unpaid
interest. If we were unable to repay debt to our secured lenders if we incur secured debt in the
future, these lenders could proceed against the collateral securing that debt. In addition,
acceleration of our other indebtedness may cause us to be unable to make interest payments on the
notes.
OUR SYSTEM OF INTERNAL CONTROLS MUST BE AUDITED ANNUALLY AND THE OCCURRENCE OF A MATERIAL WEAKNESS
MAY NEGATIVELY IMPACT OUR BUSINESS REPUTATION, CREDIT RATINGS AND PARTICIPATION IN CAPITAL MARKETS
Under the Sarbanes-Oxley Act management must now assess the design and functioning of our
system of financial internal control. Our registered independent accountants must then certify
such representation. Discovery and disclosure of a material weakness, by definition, may have a
material adverse impact on our financial statements. Such an occurrence may discourage certain
customers or suppliers from doing business with us, may cause downgrades in our debt ratings
leading to higher borrowing costs, and may affect how our stock trades. This may in turn
negatively affect our ability to access public debt or equity markets for capital.
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not applicable.
16
ITEM 2. PROPERTIES
Our Texas steel minimill is located on approximately 600 acres of land that we own. Our Texas
minimill facilities include several buildings that occupy approximately 806,000 square feet. Our
Alabama steel minimill is located on approximately 65 acres of land, and it includes several
buildings that occupy approximately 487,000 square feet. We utilize our facilities at the Texas and
Alabama steel minimills for manufacturing, storage, office and other related uses. Our South
Carolina steel minimill is located on approximately 101 acres of land, and the buildings occupy
approximately 628,000 square feet. Our Arkansas steel minimill is located on approximately 135
acres of land, and the buildings occupy approximately 217,000 square feet. We lease approximately
30 acres of land at the Alabama minimill and all the land at the Arkansas and South Carolina
minimills in connection with revenue bond financing or property tax incentives. We may purchase the
land at the termination of the leases or earlier for a nominal sum. Howell Metal Company owns
approximately 76 acres of land in New Market, Virginia, with buildings occupying approximately
400,560 square feet.
The facilities of our domestic fabrication segment utilize approximately 1,446 acres of land
which we own and lease approximately 95 acres of land at various locations in Texas, Louisiana,
Arkansas, Utah, South Carolina, Florida, Virginia, Georgia, North Carolina, Nevada, Iowa,
California, Pennsylvania, Mississippi, Arizona, New Mexico, Arkansas, Oklahoma and Juarez, Mexico.
CMCZs steel manufacturing operations are located in Zawiercie in south central Poland about
40 kilometers from Katowice. CMCZ and subsidiaries lease approximately 98% of the 2 million square
meters of land utilized by the principal operations with a small balance owned. The land is leased
from the State of Poland under contracts with 99 year durations and are considered to create a
right of perpetual usufruct. The leases expire beginning in 2089 through 2100. The principal
operations are conducted in buildings having an area of approximately 234,000 square meters. The 7
major buildings in use have all been constructed on or after 1974. The real estate is also
developed with approximately 133 other buildings including warehouses, administrative offices,
workshops, garage, transformer stations, pumping stations, gas stations, boiler houses, gate houses
and contains some structures leased to unrelated parties, CMCZ subsidiaries and affiliated
companies. Other much smaller tracts of land are leased or owned in nearby communities including
those utilized by 6 affiliated scrap processing facilities.
Our recycling segments plants occupy approximately 544 acres of land that we own in Beaumont,
Clute, Corpus Christi, Dallas, El Paso, Fort Worth, Galveston, Houston, Lubbock, Lufkin, Midland,
Odessa, Victoria and Vinton, Texas; Apopka, Gainesville, Jacksonville, Lake City, Ocala, Palm Bay,
and Tampa, Florida; Shreveport, Louisiana; Chattanooga, Tennessee; Springfield and Joplin,
Missouri; Burlington, North Carolina; Frontenac and Independence, Kansas; Miami and Stroud,
Oklahoma; and Lonoke, Arkansas. The recycling segments other scrap metal processing locations are
on leased land.
We lease the office space where our corporate headquarters and all of our domestic marketing
and distribution offices are located. We own two warehouse buildings in Australia, one of which is
located on leased real estate. We lease the other warehouse facilities located in Australia.
The leases on the leased properties described above will expire on various dates and with the
exception of the CMCZ leases described above, generally over the next nine years. Several of the
leases have renewal options. We have had little difficulty renewing such leases as they expire. We
estimate our minimum annual rental obligation for real estate operating leases in effect at August
31, 2006, to be paid during fiscal 2007, to be approximately $12.7 million. We also lease a portion
of the equipment we use in our plants. We estimate our minimum annual rental obligation for
equipment operating leases in effect at August 31, 2006, to be paid during fiscal 2007, to be
approximately $12.9 million.
ITEM 3. LEGAL PROCEEDINGS
We have received notices from the EPA or state agencies with similar responsibility that we
and numerous other parties are considered potentially responsible parties, or PRPs, and may be
obligated under the Comprehensive Environmental Response Compensation and Liability Act of 1980, or
CERCLA, or similar state statute to pay for the cost of remedial investigation, feasibility studies
and ultimately remediation to correct alleged releases of hazardous substances at 13 locations. We
may contest our designation as a PRP with regard to certain sites, while at other sites we are
participating with other named PRPs in agreements or negotiations that we expect will result in
agreements to remediate the sites. The EPA or respective state agency refers to these locations,
none of which involve real estate we ever owned or conducted operations upon, as the Sapp Battery
Site in Cottondale, Florida, the Interstate Lead Company Site in Leeds, Alabama, the Ross Metals
Site in Rossville, Tennessee, the Li Tungsten Site in Glen Cove, New York,
17
the American Brass site in Headland, Alabama, the Delatte Metals site in Ponchatoula,
Louisiana, the Palmetto Recycling site in Columbia, South Carolina, the Peak Oil Site in Tampa,
Florida, the R&H Oil Site in San Antonio, Texas, the SoGreen/Parramore Site in Tifton, Georgia, the
Stoller Site in Jericho, South Carolina, the Jensen Drive site in Houston, Texas and the Industrial
Salvage site in Corpus Christi, Texas. We have periodically received information requests from
government environmental agencies with regard to other sites that are apparently under
consideration for designation as listed sites under CERCLA or similar state statutes. Often we do
not receive any further communication with regard to these sites. We do not know if any of these
inquires will ultimately result in a demand for payment from us.
The EPA notified us and other alleged PRPs that under Sec. 106 of CERCLA we and the other PRPs
could be subject to a maximum fine of $25,000 per day and the imposition of treble damages if we
and the other PRPs refuse to clean up the Peak Oil, Sapp Battery, SoGreen/Parramore and Stoller
site as ordered by the EPA. We are presently participating in PRP organizations at these sites
which are paying for certain site remediation expenses. We do not believe that the EPA will pursue
any fines against us if we continue to participate in the PRP groups or if we have adequate
defenses to the EPAs imposition of fines against us in these matters.
In 1993, the Federal Energy Regulatory Commission entered an order against our wholly-owned
subsidiary CMC Oil Company, or CMC Oil, which has been inactive since 1985. As a result of the
order, CMC Oil is subject to a judgment which the Federal District Court upheld in 1994 and the
Court of Appeals affirmed in 1995. The order found CMC Oil liable for overcharges constituting
violations of crude oil reseller regulations from December 1977 to January 1979. The alleged
overcharges occurred in connection with our joint venture transactions with RFB Petroleum, Inc. The
overcharges total approximately $1,330,000 plus interest calculated from the transaction dates to
the date of the District Court judgment under the Department of Energys interest rate policy, and
with interest thereafter at the rate of 6.48% per annum. Although CMC Oil accrued a liability on
its books during 1995, it does not have sufficient assets to satisfy the judgment. No claim has
ever been asserted against us as a result of the CMC Oil litigation. We will vigorously defend
ourselves if any such claim is asserted.
We are unable to estimate the ultimate dollar amount of any loss in connection with the
above-described legal proceedings, environmental matters, government proceedings, and disputes that
could result in additional litigation, some of which may have a material impact on earnings and
cash flows for a particular quarter. Management believes that the outcome of the suits and
proceedings mentioned, and other miscellaneous litigation and proceedings now pending, will not
have a material adverse effect on our business or consolidated financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
18
PART II
ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES
OF EQUITY SECURITIES
PURCHASES OF STOCK
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(d) Maximum Number |
|
|
|
|
|
|
|
|
|
|
(c) Total Number of |
|
(or Approximate |
|
|
|
|
|
|
|
|
|
|
Shares (or Units) |
|
Dollar Value) of |
|
|
|
|
|
|
|
|
|
|
Purchased as Part |
|
Shares (or Units) |
|
|
(a) Total Number of |
|
(b) Average Price |
|
of Publicly |
|
that May Yet Be |
|
|
Shares (or Units) |
|
Paid per Share (or |
|
Announced Plans or |
|
Purchased Under the |
Period |
|
Purchased |
|
Unit) |
|
Programs |
|
Plans or Programs |
June 1, 2006 June 30, 2006 |
|
|
1,131,700 |
|
|
$ |
22.85 |
|
|
|
1,123,500 |
|
|
|
687,500 |
shares |
July 1, 2006 July 31, 2006 |
|
|
1,481,183 |
|
|
|
22.69 |
|
|
|
1,461,700 |
|
|
|
4,225,800 |
shares(1) |
August 1, 2006 August 31, 2006 |
|
|
905,298 |
|
|
|
22.42 |
|
|
|
884,040 |
|
|
|
3,341,760 |
shares |
Total |
|
|
3,518,181 |
|
|
$ |
22.67 |
|
|
|
3,469,240 |
|
|
|
3,341,760 |
|
|
|
|
(1) |
|
During July, 2006 the Company completed the purchase of the shares remaining to be purchased
under a previously authorized share repurchase program announced May 24, 2005. On July 19, 2006
the Company announced that the Companys board of directors had approved authority to purchase up
to an additional 5,000,000 shares. |
MARKET AND DIVIDEND INFORMATION
The table below summarizes the high and low sales prices reported on the New York Stock
Exchange for our common stock and the quarterly cash dividends we paid for the past two fiscal
years.
PRICE RANGE
OF COMMON STOCK
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 |
|
|
|
|
|
|
FISCAL |
|
|
|
|
|
|
QUARTER |
|
HIGH |
|
LOW |
|
CASH DIVIDENDS |
1st |
|
$ |
11.46 |
|
|
$ |
8.17 |
|
|
3 cents |
2nd |
|
|
18.08 |
|
|
|
10.03 |
|
|
3 cents |
3rd |
|
|
19.50 |
|
|
|
11.37 |
|
|
3 cents |
4th |
|
|
15.35 |
|
|
|
11.50 |
|
|
3 cents |
PRICE RANGE
OF COMMON STOCK
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
|
|
|
|
FISCAL |
|
|
|
|
|
|
QUARTER |
|
HIGH |
|
LOW |
|
CASH DIVIDENDS |
1st |
|
$ |
17.63 |
|
|
$ |
13.54 |
|
|
3 cents |
2nd |
|
|
24.59 |
|
|
|
17.11 |
|
|
3 cents |
3rd |
|
|
31.69 |
|
|
|
21.72 |
|
|
5 cents |
4th |
|
|
26.39 |
|
|
|
20.04 |
|
|
6 cents |
Since 1982, our common stock has been listed and traded on the New York Stock Exchange. From
1959 until the NYSE listing in 1982, our common stock was traded on the American Stock Exchange.
The number of shareholders of record of our common stock at November 1, 2006, was approximately
3,500.
19
EQUITY COMPENSATION PLANS
Information about our equity compensation plans as of August 31, 2006 that were either
approved or not approved by our stockholders is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A. |
|
B. |
|
C. |
|
|
|
|
|
|
|
|
|
|
NUMBER OF SECURITIES |
|
|
NUMBER OF |
|
|
|
|
|
REMAINING FOR FUTURE |
|
|
SECURITIES TO BE |
|
WEIGHTED-AVERAGE |
|
ISSUANCE UNDER |
|
|
ISSUED UPON |
|
EXERCISE |
|
EQUITY COMPENSATION |
|
|
EXERCISE OF |
|
PRICE OF OUTSTANDING |
|
PLANS |
|
|
OUTSTANDING |
|
OPTIONS, WARRANTS |
|
(EXCLUDING SECURITIES |
|
|
OPTIONS, |
|
AND |
|
REFLECTED IN COLUMN |
PLAN CATEGORY |
|
WARRANTS AND RIGHTS |
|
RIGHTS |
|
(A) |
Equity
compensation plans
approved by
security holders |
|
|
7,485,348 |
|
|
$ |
8.06 |
|
|
|
2,961,458 |
|
Equity compensation
plans not approved
by security holders |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
TOTAL |
|
|
7,485,348 |
|
|
$ |
8.06 |
|
|
|
2,961,458 |
|
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 two-for-one stock
splits in the form of a stock dividends on our common stock paid June 28, 2002, January 10,
2005 and May 22, 2006.
FOR THE YEARS ENDED AUGUST 31,
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
2005 |
|
2004 |
|
2003 |
|
2002 |
Net Sales |
|
$ |
7,555,924 |
|
|
$ |
6,592,697 |
|
|
$ |
4,768,327 |
|
|
$ |
2,875,885 |
|
|
$ |
2,479,941 |
|
Net Earnings |
|
|
356,347 |
|
|
|
285,781 |
|
|
|
132,021 |
|
|
|
18,904 |
|
|
|
40,525 |
|
Diluted Earnings Per Share |
|
|
2.89 |
|
|
|
2.32 |
|
|
|
1.11 |
|
|
|
0.17 |
|
|
|
0.36 |
|
Total Assets |
|
|
2,898,868 |
|
|
|
2,332,922 |
|
|
|
1,988,046 |
|
|
|
1,283,255 |
|
|
|
1,247,373 |
|
Stockholders Equity |
|
|
1,220,104 |
|
|
|
899,561 |
|
|
|
660,627 |
|
|
|
506,933 |
|
|
|
501,306 |
|
Long-term Debt |
|
|
322,086 |
|
|
|
386,741 |
|
|
|
393,368 |
|
|
|
254,997 |
|
|
|
255,969 |
|
Cash Dividends Per Share |
|
|
0.17 |
|
|
|
0.12 |
|
|
|
0.09 |
|
|
|
0.08 |
|
|
|
0.07 |
|
Ratio of Earnings to Fixed Charges |
|
|
14.80 |
|
|
|
12.43 |
|
|
|
7.30 |
|
|
|
2.57 |
|
|
|
3.77 |
|
ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This annual report on Form 10-K contains forward-looking statements within the meaning of
Section 27A of the Securities Act, Section 21E of the Exchange Act and the Private Securities
Litigation Reform Act of 1995, with respect to our financial condition, results of operations, cash flows and business, and our
expectations or beliefs concerning future events, 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, will,
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:
|
|
|
construction activity; |
|
|
|
|
decisions by governments affecting the level of steel imports, including tariffs and duties; |
|
|
|
|
litigation claims and settlements; |
|
|
|
|
difficulties or delays in the execution of construction contracts resulting in cost overruns or contract disputes; |
20
|
|
|
metals pricing over which we exert little influence; |
|
|
|
|
increased capacity and product availability from competing steel minimills and other
steel suppliers including import quantities and pricing; |
|
|
|
|
court decisions; |
|
|
|
|
industry consolidation or changes in production capacity or utilization; |
|
|
|
|
global factors including credit availability; |
|
|
|
|
currency fluctuations; |
|
|
|
|
scrap metal, energy, insurance and supply prices; and |
|
|
|
|
the pace of overall economic activity. |
See the section entitled Risk Factors in this annual report for a more complete discussion
of these risks and uncertainties and for other risks and uncertainties. These factors and the other
risk factors described in this annual report are not necessarily all of the important factors that
could cause actual results to differ materially from those expressed in any of our forward-looking
statements. Other unknown or unpredictable factors also could harm our results. Consequently, we
cannot assure you that the actual results or developments we anticipate will be realized or, even
if substantially realized, that they will have the expected consequences to, or effects on, us.
Given these uncertainties, we caution prospective investors not to place undue reliance on such
forward-looking statements. We undertake no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future events or otherwise.
This Managements Discussion and Analysis of Financial Condition and Results of Operation
should be read in conjunction with our consolidated financial statements and the accompanying notes
contained in this annual report.
We manufacture, recycle, market and distribute steel and metal products through a network of
over 150 locations in the United States and internationally.
Our segment reporting includes five reportable segments: domestic mills, CMC Zawiercie (CMCZ),
domestic fabrication, recycling and marketing and distribution. The domestic mills segment
includes the Companys domestic steel minimills (including the scrap processing facilities which
directly support these mills) and the copper tube minimill. The copper tube minimill is aggregated
with the Companys steel minimills because it has similar economic characteristics. The CMCZ
minimill and related operations in Poland have been presented as a separate segment because the
economic characteristics of their markets and the regulatory environment in which they operate are
different from the Companys domestic minimills. The domestic fabrication segment consists of the
Companys rebar and joist fabrication operations, fence post manufacturing plants,
construction-related and other products facilities. The recycling segment consists of the CMC
Recycling divisions 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, distribution and processing of both ferrous and nonferrous metals and
other industrial products. The segments activities consist only of physical transactions and not
speculation.
Domestic Mills Operations
We conduct our domestic mills operations through a network of:
|
|
|
steel mills, commonly referred to as minimills, that produce reinforcing bar, angles,
flats, rounds, fence post sections and other shapes; |
|
|
|
|
scrap processing facilities that directly support these minimills; and |
|
|
|
|
a copper tube minimill. |
21
CMCZ Operations
We conduct our CMCZ operations through:
|
|
|
a rolling mill that produces primarily reinforcing bar and some merchant products; |
|
|
|
|
a rolling mill that produces primarily wire rod; |
|
|
|
|
our scrap processing facilities that directly support the CMCZ minimill; and |
|
|
|
|
steel fabrication plant primarily for reinforcing bar. |
Domestic Fabrication Operations
We conduct our domestic fabrication operations through a network of:
|
|
|
steel fabrication and processing plants that bend, weld, cut, fabricate, distribute and
place steel, primarily reinforcing bar and angles; |
|
|
|
|
warehouses that sell or rent products for the installation of concrete; |
|
|
|
|
plants that produce special sections for floors and ceiling support; |
|
|
|
|
plants that produce steel fence posts; |
|
|
|
|
plants that treat steel with heat to strengthen and provide flexibility; and |
|
|
|
|
a railroad rail salvage company. |
Recycling Operations
We conduct our recycling operations through metal processing plants located in the states of
Texas, Oklahoma, Kansas, Louisiana, Arkansas, Missouri, Georgia, Tennessee, Florida , South
Carolina, and North Carolina.
Marketing and Distribution Operations
We market and distribute steel, copper and aluminum coil, sheet and tubing, ores, metal
concentrates, industrial minerals, ferroalloys and chemicals through our network of marketing and
distribution offices, processing facilities and joint ventures around the world. Our customers use
these products in a variety of industries.
You should read this managements 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 accounting principles
generally accepted in the United States (GAAP). 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 We recognize sales when title passes to the customer either when goods are
shipped or when they are received based on the terms of the sale. When we estimate that a contract
with one of our customers will result in a loss, we accrue the entire loss as soon as it is
probable and estimable.
22
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 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 discounting. Also, see Note 11, Commitments and Contingencies, to
the consolidated financial statements.
Inventory Cost We determine inventory cost for most domestic inventories by the last-in, first-out
method, or LIFO. Beginning fiscal 2005, we refined our method of estimating our interim LIFO
reserve by using quantities and costs at quarter end and recording the resulting LIFO expense in
its entirety. At the end of each quarter in 2004, we estimated both inventory quantities and costs
that we expected at the end of the fiscal year for the LIFO calculations, and we recorded 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 in our fourth quarter. See Note 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 domestic mills, CMCZ, domestic fabrication 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 buyers 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 and are evaluated annually. To the extent that an assets 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 and New Accounting Pronouncements See Note 1, Summary of Significant
Accounting Policies, to our consolidated financial statements.
Consolidated Results of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended August 31, |
(in millions except share data) |
|
2006 |
|
2005 |
|
2004 |
Net sales |
|
$ |
7,556 |
|
|
$ |
6,593 |
|
|
$ |
4,768 |
|
Net earnings |
|
|
356.3 |
|
|
|
285.8 |
|
|
|
132.0 |
|
Per diluted share |
|
|
2.89 |
|
|
|
2.32 |
|
|
|
1.11 |
|
EBITDA |
|
|
659.2 |
|
|
|
551.6 |
|
|
|
296.2 |
|
International net sales |
|
|
2,753 |
|
|
|
2,716 |
|
|
|
1,778 |
|
As % of total sales |
|
|
36 |
% |
|
|
41 |
% |
|
|
37 |
% |
LIFO* effect on net earnings expense |
|
|
50.6 |
|
|
|
12.5 |
|
|
|
48.6 |
|
Per diluted share |
|
|
0.41 |
|
|
|
0.10 |
|
|
|
0.41 |
|
|
|
|
* |
|
Last in, first out inventory valuation method. |
In the table above, we have included a financial statement measure that was not derived in
accordance with GAAP. We use EBITDA (earnings before interest expense, income taxes, depreciation
and amortization) as a non-GAAP performance measure. In calculating EBITDA, we exclude our largest
recurring non-cash charge, depreciation and amortization. EBITDA provides a core operational
performance measurement that compares results without the need to adjust for federal, 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 EBITDA. The results are, therefore, without consideration of financing alternatives
of capital employed. We use EBITDA as one guideline to assess our unleveraged performance return on
our investments. EBITDA is also the target benchmark for our long-term cash incentive performance
plan for management. Reconciliations to net earnings are provided below for the year ended August
31:
23
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions) |
|
2006 |
|
2005 |
|
2004 |
|
Net earnings |
|
$ |
356.3 |
|
|
$ |
285.8 |
|
|
$ |
132.0 |
|
Interest expense |
|
|
29.6 |
|
|
|
31.2 |
|
|
|
28.1 |
|
Income taxes |
|
|
187.9 |
|
|
|
158.0 |
|
|
|
65.1 |
|
Depreciation and amortization |
|
|
85.4 |
|
|
|
76.6 |
|
|
|
71.0 |
|
|
EBITDA |
|
$ |
659.2 |
|
|
$ |
551.6 |
|
|
$ |
296.2 |
|
|
EBITDA does not include interest expense, income taxes and depreciation and amortization. Because
we have borrowed money in order to partially finance our operations, interest expense is a
necessary element of our costs and our ability to generate revenues. Because we use capital assets,
depreciation and amortization are also necessary elements of our costs. Also, the payment of income
taxes is a necessary element of our operations. Therefore, any measures that exclude these elements
have material limitations. To compensate for these limitations, we believe that it is appropriate
to consider both net earnings determined under GAAP, as well as EBITDA, to evaluate our
performance. Also, we separately analyze any significant fluctuations in interest expense,
depreciation and amortization and income taxes.
The following events had a significant financial impact during our fiscal year ended August 31,
2006 as compared to our 2005 fiscal year:
|
1. |
|
We reported our highest net sales and net earnings ever for the third straight year. |
|
|
2. |
|
Increased selling prices, margins and volumes resulted in significantly higher adjusted
operating profits in our Domestic Mills, CMCZ and Recycling segments. |
|
|
3. |
|
Increased sales prices at our copper tube mill offset the dramatic jump in the cost of
copper scrap, giving significantly greater metal spreads and record adjusted operating
profits. |
|
|
4. |
|
Sales price gains at CMCZ exceeded the increase in the cost of scrap and together with
volume increases allowed the operation to go from break-even in 2005 to $52.8 million
adjusted operating profit in 2006. |
|
|
5. |
|
Domestic Fabrication had a 23% increase in volume, but the cost of steel was up
considerably resulting in some margin squeeze and a slight decrease in adjusted operating
profit. |
|
|
6. |
|
We had successful start ups of the new continuous caster at the Texas mill and the new
scrap mega-shredder at the CMCZ mill. |
|
|
7. |
|
A 14% volume increase, strong ferrous prices and historically high nonferrous prices
helped our Recycling segment to achieve a record adjusted operating profit. |
|
|
8. |
|
We recorded a $50.6 million after-tax LIFO expense ($0.41 per diluted share) compared to
$12.5 million LIFO expense ($0.10 per diluted share) in 2005. |
|
|
9. |
|
Our overall effective tax rate decreased to 33.9% as compared to 35.7% in 2005 due to
shifts in profitability among tax jurisdictions, the manufacturing deduction and tax
repatriation benefit. |
In 2006, our net earnings reached all-time record levels as a result of the combination of higher
selling prices, margins and volume in most of our segments. Non ferrous selling prices and margins
reached historically high levels. These positive factors more than offset increased purchase prices
and other input costs. We continued to benefit from favorable market conditions for most of our
businesses and achieved excellent performance in all of our segments. Strong global expansion has
helped, and the improved economic situation in Central and Western Europe has helped our Polish
operations achieve much improved net earnings. Our net earnings in the fourth quarter of fiscal
2006 exceeded those for any previous fiscal quarter that we have ever reported.
24
Segments
Unless otherwise indicated, all dollars below are before minority interests and income taxes.
Financial results for our reportable segments are consistent with the basis and manner in which we
internally disaggregate financial information for making operating decisions. See Note 14, Business
Segments, to the consolidated financial statements.
We use adjusted operating profit (loss) to compare and evaluate the financial performance of our
segments. Adjusted operating profit is the sum of our earnings before income taxes, minority
interests and financing costs. Adjusted operating profit is equal to earnings before income taxes
for our domestic mills and domestic fabrication segments because these segments require minimal
outside financing. The following table shows net sales and adjusted operating profit (loss) by
business segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended August 31, |
(in millions) |
|
2006 |
|
2005 |
|
2004 |
Net sales: |
|
|
|
|
|
|
|
|
|
|
|
|
Domestic mills |
|
$ |
1,600 |
|
|
$ |
1,298 |
|
|
$ |
1,109 |
|
CMCZ* |
|
|
574 |
|
|
|
478 |
|
|
|
427 |
|
Domestic fabrication |
|
|
1,772 |
|
|
|
1,474 |
|
|
|
1,047 |
|
Recycling |
|
|
1,360 |
|
|
|
897 |
|
|
|
774 |
|
Marketing and distribution |
|
|
2,954 |
|
|
|
2,926 |
|
|
|
1,882 |
|
Corporate and eliminations |
|
|
(704 |
) |
|
|
(480 |
) |
|
|
(471 |
) |
Adjusted operating profit (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
Domestic mills |
|
|
301.1 |
|
|
|
232.8 |
|
|
|
94.9 |
|
CMCZ* |
|
|
52.8 |
|
|
|
(0.2 |
) |
|
|
69.3 |
|
Domestic fabrication |
|
|
96.0 |
|
|
|
101.9 |
|
|
|
(3.4 |
) |
Recycling |
|
|
100.0 |
|
|
|
70.8 |
|
|
|
67.9 |
|
Marketing and distribution |
|
|
69.8 |
|
|
|
90.4 |
|
|
|
39.4 |
|
Corporate and eliminations |
|
|
(32.4 |
) |
|
|
(17.5 |
) |
|
|
(26.4 |
) |
|
|
|
* |
|
Dollars are before minority interests. |
LIFO
Impact on Adjusted Operating Profit LIFO is an inventory costing method that assumes the
most recent inventory purchases or goods manufactured are sold first. This results in current
sales prices offset against current inventory costs. In periods of rising prices it has the effect
of eliminating inflationary profits from net income. In periods of declining prices it has the
effect of eliminating deflationary losses from net income. In either case the goal is to reflect
economic profit. The table below reflects LIFO income or (expense) representing
decreases or (increases) in the LIFO inventory reserve. CMCZ is not included in this table
as it uses FIFO valuation exclusively for its inventory:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Twelve Months Ended |
|
|
August 31, |
|
August 31, |
|
|
2006 |
|
2005 |
|
2006 |
|
2005 |
|
Domestic mills |
|
$ |
(3,722 |
) |
|
$ |
11,948 |
|
|
$ |
(28,833 |
) |
|
$ |
(8,155 |
) |
Domestic fabrication |
|
|
(1,086 |
) |
|
|
2,491 |
|
|
|
(19,972 |
) |
|
|
(6,562 |
) |
Recycling |
|
|
2,139 |
|
|
|
(23 |
) |
|
|
(12,505 |
) |
|
|
(3,033 |
) |
Marketing and distribution |
|
|
(13,536 |
) |
|
|
2,235 |
|
|
|
(16,585 |
) |
|
|
(1,526 |
) |
|
Consolidated increase (decrease)
to adjusted profit before tax |
|
$ |
(16,205 |
) |
|
$ |
16,651 |
|
|
$ |
(77,895 |
) |
|
$ |
(19,276 |
) |
|
2006 Compared to 2005
Domestic Mills We include our four domestic steel minimills and our copper tube minimill in our
domestic mills segment. In 2006, our domestic mills segment set another all-time annual record for
adjusted operating profits. Higher selling prices, metal margins and volumes at our domestic steel
mills in 2006 as compared to 2005 helped net sales and adjusted operating profit continue to grow.
Metal margins (the difference between the average selling price and cost of scrap consumed) for the
segment increased in 2006 as compared to 2005 because increases in selling prices at our domestic
steel mills more than offset the increases in scrap purchase and other input costs. In addition,
historically high sales prices and metal margins helped our copper tube minimill achieve record
adjusted operating profit. The high prices of steel and copper scrap caused LIFO expense for 2006
to be at a very high $28.8 million as compared to $8.2 million in 2005.
25
Within the segment adjusted operating profit for our four domestic steel minimills was $264.1
million for the year ended August 31, 2006 as compared to $227.7 million for 2005. This $36.4
million increase in adjusted operating profit is even more remarkable considering 2005 contained
$20.1 million of insurance recoveries. Selling prices and metal margins increased in 2006 as
compared to 2005 due to continued strong global demand for steel. Volumes shipped were also up at
all four mills compared to 2005. Average scrap purchase costs were higher than last year as the
world demand for ferrous scrap also remained strong. Our overall metal margins increased, resulting
in higher total adjusted operating profits for the four steel minimills in 2006 as compared to
2005. The table below reflects domestic steel and ferrous scrap prices per ton for the year ended
August 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase |
|
|
2006 |
|
2005 |
|
$ |
|
% |
|
Average mill selling price (finished goods) |
|
$ |
530 |
|
|
$ |
489 |
|
|
$ |
41 |
|
|
|
8 |
% |
Average mill selling price (total sales) |
|
|
513 |
|
|
|
473 |
|
|
|
40 |
|
|
|
8 |
% |
Average cost of ferrous scrap consumed |
|
|
214 |
|
|
|
199 |
|
|
|
15 |
|
|
|
8 |
% |
Average FIFO metal margin |
|
|
299 |
|
|
|
274 |
|
|
|
25 |
|
|
|
9 |
% |
Average ferrous scrap purchase price |
|
|
191 |
|
|
|
171 |
|
|
|
20 |
|
|
|
12 |
% |
The table below reflects our domestic steel minimills operating statistics for the year ended
August 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase |
(short tons in thousands) |
|
2006 |
|
2005 |
|
Amount |
|
% |
|
Tons melted |
|
|
2,324 |
|
|
|
2,173 |
|
|
|
151 |
|
|
|
7 |
% |
Tons rolled |
|
|
2,198 |
|
|
|
2,024 |
|
|
|
174 |
|
|
|
9 |
% |
Tons shipped |
|
|
2,492 |
|
|
|
2,266 |
|
|
|
226 |
|
|
|
10 |
% |
Overall, our domestic steel minimills recorded $15.5 million LIFO expense in 2006 as compared to
$7.7 million in 2005. Our utility expenses increased by $25.8 million (36%) in 2006 as compared to
2005. Electricity increased by $16.2 million (34%) and natural gas costs increased by $9.6 million
(41%) due primarily to higher rates. Year-over-year costs for ferroalloys, graphite electrodes and
other supplies increased, while transportation rates rose significantly. We had a successful
startup of the new continuous caster at the Texas mill during the fourth quarter of 2006.
Our copper tube minimills adjusted operating profit was a record $37.0 million for the year ended
August 31, 2006 as compared to $5.1 million for 2005. The record adjusted operating profit was
achieved on volume slightly less than 2005, but much higher selling prices and metal margins. The
decline in housing starts coupled with the extraordinary high price of copper reduced the demand
for copper plumbing tube across the U.S. Our sales of plumbing tube were lower, but sales of high
value-added products increased disproportionately. We matched production and inventory levels to
coincide with order intake levels. We were able to increase the average selling price for the year
to $3.35 per pound, an historical high, and metal spreads widened significantly to $1.39 per pound,
up from $0.64 per pound, more than offsetting the dramatic jump in the cost of copper scrap. The
table below reflects our copper tube minimills prices per pound and operating statistics for the
year ended August 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (Decrease) |
(pounds in millions) |
|
2006 |
|
2005 |
|
Amount |
|
% |
|
Pounds shipped |
|
|
65.7 |
|
|
|
66.6 |
|
|
|
(.9 |
) |
|
|
(1 |
%) |
Pounds produced |
|
|
63.3 |
|
|
|
62.0 |
|
|
|
1.3 |
|
|
|
2 |
% |
Average selling price |
|
$ |
3.35 |
|
|
$ |
1.94 |
|
|
$ |
1.41 |
|
|
|
73 |
% |
Average scrap purchase cost |
|
$ |
2.29 |
|
|
$ |
1.38 |
|
|
$ |
0.91 |
|
|
|
66 |
% |
Average FIFO metal margin |
|
$ |
1.39 |
|
|
$ |
0.64 |
|
|
$ |
0.75 |
|
|
|
117 |
% |
Our copper tube minimill recorded $13.4 million LIFO expense for the year ended August 31, 2006 as
compared to $0.4 million in 2005.
26
CMCZ The table below reflects CMCZs operating statistics (in thousands) and average prices per
short ton:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase(Decrease) |
|
|
2006 |
|
2005 |
|
Amount |
|
% |
|
Tons melted |
|
|
1,283 |
|
|
|
1,101 |
|
|
|
182 |
|
|
|
17 |
% |
Tons rolled |
|
|
1,121 |
|
|
|
871 |
|
|
|
250 |
|
|
|
29 |
% |
Tons shipped |
|
|
1,250 |
|
|
|
1,092 |
|
|
|
158 |
|
|
|
14 |
% |
Average mill selling price (total sales) |
|
1,388 |
PLN* |
|
1,376 |
PLN |
|
|
12 |
|
|
|
1 |
% |
Averaged cost of ferrous scrap consumed |
|
728 |
PLN |
|
790 |
PLN |
|
|
(62 |
) |
|
|
(8 |
%) |
Average metal margin |
|
660 |
PLN |
|
586 |
PLN |
|
|
74 |
|
|
|
13 |
% |
Average ferrous scrap purchase price |
|
629 |
PLN |
|
650 |
PLN |
|
|
(21 |
) |
|
|
(3 |
%) |
Average mill selling price (total sales) |
|
$ |
437 |
|
|
$ |
418 |
|
|
$ |
19 |
|
|
|
5 |
% |
Average cost of ferrous scrap consumed |
|
$ |
229 |
|
|
$ |
240 |
|
|
$ |
(11 |
) |
|
|
(5 |
%) |
Average metal margin |
|
$ |
208 |
|
|
$ |
178 |
|
|
$ |
30 |
|
|
|
17 |
% |
Average ferrous scrap purchase price |
|
$ |
197 |
|
|
$ |
198 |
|
|
$ |
(1 |
) |
|
|
(1 |
%) |
CMCZ benefited from the improved economic situation in Central and Western Europe and especially
from stepped-up construction in Poland and Germany. Prices and margins were improved for the year
with metal margins increasing 13% over 2005 as the cost of ferrous scrap decreased slightly.
Operating levels and shipments were also up compared to 2005, including a 14% increase in
shipments. Functional currency fluctuations did not have a significant impact on adjusted operating
profits. The startup and operation of the new mega-shredder during the fourth quarter of 2006 was
successful, and the greenfield rebar fabrication plant in Zawiercie had a successful start in July
2006.
Domestic Fabrication Tons shipped in 2006 were up 23% and sales were up 20% compared to 2005;
however, adjusted operating profit was down 6% because the cost of steel was up considerably
resulting in some margin squeeze and LIFO expense increased 204% over 2005. LIFO expense increased
dramatically because of the higher steel price and more inventories on hand. During fiscal 2006, we
acquired the operating assets of Concrete Formtek Services, Inc., Cherokee Supply, Brost Forming
Supply and Hall-Hodges Company. These acquisitions did not significantly impact our 2006 adjusted
operating profit. See Note 2, Acquisitions, to the consolidated financial statements. The table
below shows our average fabrication selling prices per short ton (excluding stock and buyout sales)
and total fabrication plant shipments for the years ended August 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase(Decrease) |
Average selling price* |
|
2006 |
|
2005 |
|
Amount |
|
% |
|
Rebar |
|
$ |
771 |
|
|
$ |
738 |
|
|
$ |
33 |
|
|
|
4 |
% |
Joist |
|
|
1,115 |
|
|
|
1,112 |
|
|
|
3 |
|
|
|
0 |
% |
Structural |
|
|
2,058 |
|
|
|
1,785 |
|
|
|
273 |
|
|
|
15 |
% |
Post |
|
|
696 |
|
|
|
698 |
|
|
|
(2 |
) |
|
|
0 |
% |
|
|
|
* |
|
Excluding stock and buyout sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase |
Tons shipped (in thousands) |
|
2006 |
|
2005 |
|
Amount |
|
% |
|
Rebar |
|
|
1,076 |
|
|
|
874 |
|
|
|
202 |
|
|
|
23 |
% |
Joist |
|
|
357 |
|
|
|
282 |
|
|
|
75 |
|
|
|
27 |
% |
Structural |
|
|
87 |
|
|
|
85 |
|
|
|
2 |
|
|
|
2 |
% |
Post |
|
|
125 |
|
|
|
101 |
|
|
|
24 |
|
|
|
24 |
% |
Recycling Gross margins in 2006 were 39% higher as compared to 2005. The average selling price of
ferrous scrap remained strong with a 9% increase over 2005. The average selling price of
nonferrous for 2006 increased 52% over 2005 prices. Volume was also up in fiscal 2006 with a 15%
increase in ferrous tons shipped and a 12% increase in nonferrous tons shipped. LIFO expense for
fiscal 2006 had a significant increase of $9.5 million over 2005 caused primarily by the higher
prices. During July 2006, CMC acquired the operating assets of Yonack Iron & Metal Co., which
operates scrap metal processing facilities in Texas, Oklahoma and Arkansas. See Note 2,
Acquisitions, to the consolidated financial statements. The following table reflects our recycling
segments average selling prices per short ton and tons shipped (in thousands) for the year ended
August 31:
27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase |
|
|
2006 |
|
2005 |
|
Amount |
|
% |
|
Average ferrous selling price |
|
$ |
203 |
|
|
$ |
186 |
|
|
$ |
17 |
|
|
|
9 |
% |
Average nonferrous selling price |
|
$ |
2,476 |
|
|
$ |
1,634 |
|
|
$ |
842 |
|
|
|
52 |
% |
Ferrous tons shipped |
|
|
2,147 |
|
|
|
1,871 |
|
|
|
276 |
|
|
|
15 |
% |
Nonferrous tons shipped |
|
|
327 |
|
|
|
292 |
|
|
|
35 |
|
|
|
12 |
% |
Total volume processed and shipped* |
|
|
3,697 |
|
|
|
3,331 |
|
|
|
366 |
|
|
|
11 |
% |
|
|
|
* |
|
Includes all of our domestic processing plants. |
Marketing and Distribution The primary reason for the decrease in adjusted operating profit was a
significant $15 million LIFO expense increase in fiscal 2006 as compared to 2005. The increase in
LIFO expense was caused mainly by higher prices for aluminum, copper and stainless steel
inventories and increased prices and inventory levels of long and flat-rolled steel product. Market
conditions varied by product and geography, but overall were favorable. Steel tonnage was up in
most of our markets, especially sales into the U.S., although sales dollars were mixed in various
markets. Aluminum, Copper and stainless semis were characterized by higher prices but lower
volumes, which on balance resulted in higher gross margins, but higher transaction costs as well.
Sales and margins for industrial materials and products, though solid, were off the peaks of last
year reflecting mostly weaker market conditions and volatile prices. Our value-added downstream
and processing businesses continued to perform well. During 2006, we received a dividend of CZK
89.2 million ($4.1 million) from Trinecke Zelezarny, a Czech steel mill in which we own 11% of the
outstanding shares as compared to a dividend of CZK 62.4 million ($2.6 million) received in 2005.
Corporate and Eliminations We recognized income of $4.0 million on investment assets in our
segregated trust for our benefit restoration plan during the year ended August 31, 2006, as
compared to $4.8 million for 2005. See Note 10, Employees Retirement Plans, to the consolidated
financial statements. During fiscal 2006, professional services expense increased $9.6 million over
2005, primarily for information technology.
Consolidated Data On a consolidated basis, the LIFO method of inventory valuation decreased our net
earnings by $50.6 million and $12.5 million (41 cents and 10 cents per diluted share) for the years
ended August 31, 2006 and 2005, respectively.
Our overall selling, general and administrative expenses increased by $70.0 million (16%) for the
year ended August 31, 2006 as compared to 2005. Most of this increase was due to higher
discretionary incentive compensation and profit sharing accruals during the year ended August 31,
2006 as compared to 2005 due to increased earnings. Foreign currency fluctuations resulted in
decreases in selling, general and administrative expenses of $0.3 million for the year ended August
31, 2006 as compared to 2005.
Our interest expense decreased by $1.6 million during 2006 as compared to 2005 as our average
borrowings decreased though short-term interest rates increased more than 1.5% on an annualized
basis in 2006.
Our effective tax rate for the year ended August 31, 2006 decreased to 33.9% as compared to 35.7%
in 2005 due to shifts in profitability among tax jurisdictions, the manufacturing deduction and tax
repatriation benefit.
Near-Term Outlook
The prospects are excellent for another strong year for CMC. It should exhibit the traditional
seasonal pattern of a good start, seasonal slowdown, and strong pickup in our third and fourth
quarter. If CMCZ can weather the winter in good order, the year may well approach fiscal 2006
though LIFOs impact is always difficult to quantify.
We see solid demand during the first quarter in most of our global markets and inventories of most
products appear in line with sales. Although some economists point to a slowing global economy,
the overall level of activity remains robust and broad-based. Worldwide manufacturing activity
continues to expand. While residential construction in the U.S. has weakened, non-residential
construction remains strong in the U.S., Asia and South America, and has picked up in Europe. More
pointedly, construction materials generally are in strong demand. Our domestic steel mill markets
remain vibrant and Central Europe has strengthened. While imports of carbon steel bar products in
recent months have increased sharply into the U.S., strong demand appears to be absorbing the
supply. Our mill shipments in the U.S. and Poland will remain strong during the first quarter of
fiscal 2007, and realized steel prices should remain high. There is good news on the energy cost
side, especially the fall in natural gas prices. Ferrous scrap prices will remain at high levels,
although likely to be down for the quarter. Nonferrous markets continue at historically high
levels. Demand for downstream products and services remains vibrant, and the current short-term
margin compression should abate.
28
Net income from our domestic steel mills should remain strong during the first quarter, above the
first quarter of last year although down from the fourth quarter of fiscal 2006. In addition, we
have scheduled shutdowns at each of our domestic steel mills during the first two quarters for
routine maintenance or budgeted capital projects. Earnings from the copper tube business will be
lower than the fourth quarter of fiscal 2006. Results at CMCZ are expected to remain excellent.
Our anticipation is that fabrication profits will improve as finished goods steel prices remain
relatively flat. Our Recycling segment will again post strong results, both from ferrous and
nonferrous areas, although down from the fourth quarter of fiscal 2006. We expect the Marketing
and Distribution segment to have another satisfactory quarter driven by relatively firm volume and
margins in various steel markets, improved results in nonferrous semis, and steady performance for
industrial materials. Accordingly, we estimate that our first quarter LIFO diluted earnings per
share will be between $0.65 and $0.75.
We anticipate that our capital spending for 2007 will be $201 million, including the start of
implementing a new wire rod block line at CMCZ and new mill stands and reheat furnace at our
Alabama mill. We believe that we will derive benefits from reduced operating costs and increased
productivity in 2007 from the new large capacity shredder at CMCZ and the continuous caster project
at our CMC Texas mill which became operational in the fourth quarter of 2006, and from other
capital projects to be completed in fiscal 2007.
Long-Term Outlook
The rapid expansion of a number of emerging economies, including China and India, has been a major
catalyst for the strong steel and nonferrous markets around the world. The magnitude of the growth
in these economies has been a new dynamic in the global marketplace. Therefore, we believe that
there is an enhanced prospect of significant long-term growth in demand for the global materials
sector. We believe that we are well-positioned to exploit long-term opportunities. We expect strong
demand for our products due to demand throughout the major global economies as well as continued
growth in developing countries. Emerging countries often have a higher growth rate for steel and
nonferrous metals consumption. We believe that the demand will increase in Asia, particularly in
China and India, as well as in Central and Eastern Europe.
We believe that there will be further consolidation in our industries, and we plan to continue to
participate in a prudent way. The reasons for further consolidation include a historically
inadequate return on capital for many companies, a high degree of fragmentation, the need to
eliminate non-competitive capacity and more effective marketing.
We also believe our aggressive capital expenditure plan will allow us to improve efficiency and
cost effectiveness and help us meet our customers demand for our products currently and in future
years. We are undertaking a 5-year enterprise resource planning system implementation program to
improve our operating systems.
2005 Compared to 2004
Domestic Mills Net sales and adjusted operating profit were higher in 2005 due primarily to higher
selling prices and metal margins at our domestic steel mills as compared to 2004. Metal margins for
the segment increased significantly in 2005 as compared to 2004 because increases in selling prices
at our domestic steel mills more than offset the increases in scrap purchase and other input costs.
Although our copper tube minimill increased its selling prices during 2005 as compared to 2004,
purchase prices of copper scrap increased even more. As a result, our metal margin declined for
this mill. Also, expenses related to valuing our inventories under the LIFO method decreased as
compared to 2004 primarily because scrap purchase and other input costs did not increase as rapidly
in 2005 as compared to 2004. During the year ended August 31, 2005, we recorded $20.1 million
recoveries for the settlement of insurance claims relating to prior year transformer failures at
our steel minimills.
Adjusted operating profit for our four domestic steel minimills was $227.7 million for the year
ended August 31, 2005 as compared to $85.8 million for 2004. Selling prices and metal margins
increased in 2005 as compared to 2004 due to strong global demand for steel. Also, the competition
from foreign steel imports was less as a result of the weaker U.S. dollar and stronger global
markets. Average scrap purchase costs were higher than last year due primarily to increased world
demand for ferrous scrap. Our overall metal margins increased, resulting in significantly higher
total adjusted operating profits for the four steel minimills in 2005 as compared to 2004. The
table below reflects domestic steel and ferrous scrap prices per ton for the year ended August 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase |
|
|
2005 |
|
2004 |
|
$ |
|
% |
|
Average mill selling price (finished goods) |
|
$ |
489 |
|
|
$ |
385 |
|
|
$ |
104 |
|
|
|
27 |
% |
Average mill selling price (total sales) |
|
|
473 |
|
|
|
379 |
|
|
|
94 |
|
|
|
25 |
% |
Average cost of ferrous scrap consumed |
|
|
199 |
|
|
|
164 |
|
|
|
35 |
|
|
|
21 |
% |
Average FIFO metal margin |
|
|
274 |
|
|
|
215 |
|
|
|
59 |
|
|
|
27 |
% |
Average ferrous scrap purchase price |
|
|
171 |
|
|
|
149 |
|
|
|
22 |
|
|
|
15 |
% |
29
The domestic steel minimills production and shipment levels (tons melted, rolled and shipped) for
the year ended August 31, 2005 decreased slightly as compared to the at all-time record levels set
in 2004 as our customers worked through excess inventories. During 2005, we scheduled our
maintenance and lowered our production in order to most effectively manage our inventory levels.
The table below reflects our domestic steel minimills operating statistics for the year ended
August 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease |
(short tons in thousands) |
|
2005 |
|
2004 |
|
Amount |
|
% |
|
Tons melted |
|
|
2,173 |
|
|
|
2,265 |
|
|
|
(92 |
) |
|
|
(4 |
)% |
Tons rolled |
|
|
2,024 |
|
|
|
2,195 |
|
|
|
(171 |
) |
|
|
(8 |
)% |
Tons shipped |
|
|
2,266 |
|
|
|
2,401 |
|
|
|
(135 |
) |
|
|
(6 |
)% |
Overall, our domestic steel minimills recorded $7.7 million LIFO expense in 2005 as compared to
$24.1 million in 2004. Our utility expenses increased by $924 thousand (1%) in 2005 as compared to
2004. Electricity decreased by $664 thousand (1%) due to both lower usage from decreased overall
production and rate decreases due to refunds. Natural gas costs increased by $1.6 million (7%) due
to higher rates which more than offset lower usage. Costs for ferroalloys increased by $11.6
million in 2005 as compared to 2004 largely due to more demand from U.S. mills, the impact of the
weaker U.S. dollar and higher ocean freight costs on these imported items. Also, in 2005, all of
our domestic steel minimills focused on controlling costs and improving productivity, quality and
safety. The Texas highway building program provided good business opportunities for CMC Texas. A
new scrap yard was established at CMC Alabama to improve scrap flow and reduce congestion inside
the mill and reduce scrap handling costs. The installation of a new electric arc furnace
transformer and expansion of the baghouse at CMC South Carolina increased our steel melting
capacity. During the year ended August 31, 2005, CMC Texas and CMC South Carolina recorded $10.3
million and $9.8 million, respectively, from insurance recoveries (see Note 11 Commitments and
Contingencies, to the consolidated financial statements).
Our copper tube minimills adjusted operating profit was $5.1 million during the year ended August
31, 2005 as compared to an adjusted operating profit of $9.0 million for 2004. Although our average
selling price for copper tube increased, our average copper scrap purchase cost increased more than
our average selling price resulting in decreased metal margins in 2005 as compared to 2004. Copper
scrap purchase prices increased because global demand for copper scrap exceeded supply. However, we
could not increase our selling prices for copper tube because of pressure from alternative
competing products such as plastic water tubing and consolidation among our customers. The table
below reflects our copper tube minimills prices per pound and operating statistics for the year
ended August 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (Decrease) |
(pounds in millions) |
|
2005 |
|
2004 |
|
Amount |
|
% |
|
Pounds shipped |
|
|
66.6 |
|
|
|
68.4 |
|
|
|
(1.8 |
) |
|
|
(3 |
)% |
Pounds produced |
|
|
62.0 |
|
|
|
66.3 |
|
|
|
(4.3 |
) |
|
|
(6 |
)% |
Average selling price |
|
$ |
1.94 |
|
|
$ |
1.69 |
|
|
$ |
0.25 |
|
|
|
15 |
% |
Average scrap purchase cost |
|
$ |
1.38 |
|
|
$ |
1.08 |
|
|
$ |
0.30 |
|
|
|
28 |
% |
Average FIFO metal margin |
|
$ |
0.64 |
|
|
$ |
0.72 |
|
|
$ |
(0.08 |
) |
|
|
(11 |
)% |
Our copper tube minimill recorded $436 thousand LIFO expense for the year ended August 31, 2005 as
compared to $5.5 million in 2004.
30
CMCZ On December 3, 2003, our Swiss subsidiary acquired 71.1% of the outstanding shares of Huta
Zawiercie, S.A. (CMCZ), a steel minimill in Zawiercie, Poland. The table below reflects CMCZs
operating statistics (in thousands) and average prices per short ton:
|
|
|
|
|
|
|
|
|
|
|
Year |
|
Nine Months |
|
|
Ended August 31, |
|
Ended August 31, |
(in thousands) |
|
2005 |
|
2004 |
|
Tons melted |
|
|
1,101 |
|
|
|
1,159 |
|
Tons rolled |
|
|
871 |
|
|
|
863 |
|
Tons shipped |
|
|
1,092 |
|
|
|
1,082 |
|
Average mill selling price (total sales) |
|
1,376 |
PLN* |
|
1,466 |
PLN |
Average cost of ferrous scrap consumed |
|
790 |
PLN |
|
761 |
PLN |
Average metal margin |
|
586 |
PLN |
|
705 |
PLN |
Average ferrous scrap purchase price |
|
650 |
PLN |
|
690 |
PLN |
Average mill selling price(total sales) |
|
$ |
418 |
|
|
$ |
380 |
|
Average cost of ferrous scrap consumed |
|
$ |
240 |
|
|
$ |
179 |
|
Average metal margin |
|
$ |
178 |
|
|
$ |
201 |
|
Average ferrous scrap purchase price |
|
$ |
198 |
|
|
$ |
179 |
|
Our average selling prices and metal margins decreased significantly in 2005 as compared to 2004.
Weaker markets in Europe during our 2005 second and third fiscal quarters led to greater
competition in Poland. Also, our ability to export CMCZs products from Poland to other key
international markets was limited in 2005 due to the strong Polish Zloty, especially relative to
the Euro. However, we reported an adjusted operating profit from CMCZ of $1.85 million during our
2005 fourth quarter as market conditions improved. Functional currency fluctuations did not have a
significant impact on adjusted operating profits.
Domestic Fabrication During the year ended August 31, 2005, we acquired the operating assets of
J.L. Davidson Companys rebar fabricating facility in California and a joist manufacturing plant in
Juarez, Mexico. These acquisitions did not significantly impact our 2005 adjusted operating profit.
On December 23, 2003, we acquired 100% of the stock of Lofland Acquisition, Inc. (Lofland) which
operates steel reinforcing bar fabrication and construction-related product sales facilities in
Texas, Arkansas, Louisiana, Oklahoma, New Mexico and Mississippi. During the first four months of
2005, this acquisition accounted for $38 million and $1.6 million in net sales and adjusted
operating profit, respectively, and also accounted for 56 thousand tons shipped during the same
period. See Note 2, Acquisitions, to the consolidated financial statements. Our domestic
fabrication segments overall adjusted operating profit increased in 2005 as compared to 2004 due
to our overall higher average selling prices and higher shipments which more than offset increases
in our steel purchase costs. Market conditions were favorable, resulting in higher gross margins in
all of our product lines including rebar fabrication, construction-related products, steel fence
posts, steel joists, castellated beams and structural steel fabrication. The table below shows our
average fabrication selling prices per short ton (excluding stock and buyout sales) and total
fabrication plant shipments for the years ended August 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase |
Average selling price* |
|
2005 |
|
2004 |
|
Amount |
|
% |
|
Rebar |
|
$ |
738 |
|
|
$ |
586 |
|
|
$ |
152 |
|
|
|
26 |
% |
Joist |
|
|
1,112 |
|
|
|
871 |
|
|
|
241 |
|
|
|
28 |
% |
Structural |
|
|
1,785 |
|
|
|
1,272 |
|
|
|
513 |
|
|
|
40 |
% |
Post |
|
|
698 |
|
|
|
538 |
|
|
|
160 |
|
|
|
30 |
% |
|
|
|
* |
|
Excluding stock and buyout sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase |
Tons shipped |
|
2005 |
|
2004 |
|
Amount |
|
% |
|
Rebar |
|
|
874 |
|
|
|
803 |
|
|
|
71 |
|
|
|
9 |
% |
Joist |
|
|
282 |
|
|
|
236 |
|
|
|
46 |
|
|
|
19 |
% |
Structural |
|
|
85 |
|
|
|
85 |
|
|
|
|
|
|
|
0 |
% |
Post |
|
|
101 |
|
|
|
126 |
|
|
|
(25 |
) |
|
|
(20 |
%) |
31
We recorded $6.6 million of LIFO expense in our domestic fabrication segment for the year ended
August 31, 2005, due to the higher cost of steel and more inventories on hand. During the year
ended August 31, 2004, we recorded $26.3 million of LIFO expense. During the year ended August 31,
2004, we recorded impairment charges of $6.6 million. See Note 5, Asset Impairment Charges, to the
consolidated financial statements.
Recycling Gross margins in 2005 were 5% higher as compared to 2004. Our ferrous and nonferrous
scrap selling prices increased because demand from Far Eastern buyers, especially China, and the
weaker U.S. dollar resulted in more scrap exports by our competitors, especially early in fiscal
2005. The ferrous scrap market was extremely volatile during 2005, and scrap prices generally
decreased after our first quarter. Our ferrous sales volumes decreased slightly during 2005 as
compared to 2004 due to production cutbacks and cautious buying by our steel mill customers.
However, by the end of the 2005 fourth quarter, global demand for ferrous scrap increased which
resulted in increased prices. During 2005, our nonferrous scrap shipments increased as compared to
2004 due to higher demand for aluminum, copper and stainless steel scrap, although demand for
stainless weakened in our fourth quarter. The following table reflects our recycling segments
average selling prices per short ton and tons shipped (in thousands) for the year ended August 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (Decrease) |
|
|
2005 |
|
2004 |
|
Amount |
|
% |
|
Average ferrous selling price |
|
$ |
186 |
|
|
$ |
172 |
|
|
$ |
14 |
|
|
|
8 |
% |
Average nonferrous selling price |
|
$ |
1,634 |
|
|
$ |
1,382 |
|
|
$ |
252 |
|
|
|
18 |
% |
Ferrous tons shipped |
|
|
1,871 |
|
|
|
1,979 |
|
|
|
(108 |
) |
|
|
(5 |
)% |
Nonferrous tons shipped |
|
|
292 |
|
|
|
258 |
|
|
|
34 |
|
|
|
13 |
% |
Total volume processed and shipped* |
|
|
3,331 |
|
|
|
3,411 |
|
|
|
(80 |
) |
|
|
(2 |
)% |
|
|
|
* |
|
Includes all of our domestic processing plants. |
Also, we recorded $3.0 million LIFO expense for the year ended August 31, 2005 as compared to $5.2
million in 2004, due primarily to increased average material purchase costs for the fiscal year.
Marketing and Distribution Net sales in our marketing and distribution segment increased by $1
billion (55%) for the year ended August 31, 2005 to $2.9 billion as compared to 2004, $55 million
of which resulted from functional currency fluctuations. Our adjusted operating profit for the year
ended August 31, 2005 was $90.4 million as compared to $39.4 million in 2004, an increase of 129%.
Our increased profitability in marketing and distribution was largely the result of our strategy in
recent years to build up our regional business around the world and to increase our downstream
presence. The net effect of functional currency fluctuations on our adjusted operating profit was
immaterial. The majority of the increases in net sales and adjusted operating profit were due to
higher shipments and selling prices in 2005 as compared to 2004. The effect of these increases was
partially offset by $1.5 million LIFO expense in 2005. LIFO expense of $13.8 million was recorded
in 2004. Markets were favorable in most geographic regions around the world. We imported more
steel, aluminum, copper and stainless steel semi-finished products into the United States, and
gross margins for these products were higher in 2005 as compared to 2004. Our net sales to and
within Europe, Asia (including China) and Australia increased significantly in 2005 as compared to
2004 due mainly to significant selling price increases which more than offset increases in
purchases costs for our products and higher freight costs. Our 2005 sales and adjusted operating
profits for industrial materials and products (including minerals, ores, refractories, ferroalloys
and various metals and alloys) were at record levels because of strong global demand from the
metals industry and short supply. Also, we added several new products. However, during our fourth
quarter, prices decreased for some industrial materials and products, returning to more historical
levels. During 2005, we received a dividend of CZK 62.4 million ($2.6 million) from our 11%
investee, Trinecke Zelezarny, a Czech steel mill, as compared to a dividend of CZK 34.1 million
($1.6 million) received in 2005.
Corporate and Eliminations We recognized income of $4.8 million on investment assets in our
segregated trust for our benefit restoration plan during the year ended August 31, 2005. See Note
10, Employees Retirement Plans, to the consolidated financial statements. During the year ended
August 31, 2004, we incurred a $3.1 million charge from the repurchase of $90 million of our notes
payable otherwise due in 2005.
Consolidated Data On a consolidated basis, the LIFO method of inventory valuation decreased our net
earnings by $12.5 million and $48.6 million ($0.10 and $0.41 per diluted share) for the years ended
August 31, 2005 and 2004, respectively.
Our overall selling, general and administrative expenses increased by $57.4 million (16%) for the
year ended August 31, 2005 as compared to 2004. Most of this increase was due to higher
discretionary incentive compensation and profit sharing accruals during the year ended August 31,
2005 as compared to 2004 due to increased earnings. Our acquisitions of CMCZ and Lofland accounted
for
32
$10.0 million of the increase for the year ended August 31, 2005. Our selling, general and
administrative expenses for the year ended August 31, 2004 included asset impairment charges of
$6.6 million and losses on reacquisition of debt of $3.1 million. Foreign currency fluctuations
resulted in increases in selling, general and administrative expenses of $1.3 million for the year
ended August 31, 2005 as compared to 2004.
Our interest expense increased by $3.1 million during 2005 as compared to 2004 due primarily to
increased discount costs on extended term documentary letters of credit. In addition, short-term
interest rates increased more than 1% on an annualized basis during the year ended August 31, 2005
as compared to 2004.
Our effective tax rate for the year ended August 31, 2005 increased to 35.7% as compared to 30.7%
in 2004 due to a shift in profitability from low tax jurisdictions (Poland) to those domestic
jurisdictions subject to state taxes.
2006 Liquidity and Capital Resources
See Note 6, Credit Arrangements, to the consolidated financial statements.
Our sources, facilities and availability of liquidity and capital resources as of August 31, 2006
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
Total Facility |
|
Availability |
Net cash flows from operating activities |
|
$ |
233,383 |
|
|
$ |
N/A |
|
Commercial paper program* |
|
|
400,000 |
|
|
|
375,425 |
|
Domestic accounts receivable securitization |
|
|
130,000 |
|
|
|
130,000 |
|
International accounts receivable sales facilities |
|
|
90,980 |
|
|
|
29,075 |
|
Bank credit
facilities uncommitted |
|
|
997,980 |
|
|
|
448,679 |
|
Notes due from 2007 to 2013 |
|
|
350,000 |
|
|
|
** |
|
Trade financing arrangements |
|
|
** |
|
|
As required |
|
CMC international short-term credit facility |
|
|
112,000 |
|
|
|
52,000 |
|
CMCZ revolving credit facility |
|
|
32,573 |
|
|
|
32,573 |
|
CMCZ term note due March 2009 |
|
|
18,322 |
|
|
|
|
|
CMCZ & CMC Poland equipment notes |
|
|
11,898 |
|
|
|
|
|
|
|
|
* |
|
The commercial paper program is supported by our $400 million unsecured revolving credit
agreement. The availability under the revolving credit agreement is reduced by $24.6 million
of stand-by letters of credit issued as of August 31, 2006. |
|
** |
|
With our investment grade credit ratings and current industry conditions we believe we have
access to cost-effective public markets for potential refinancing or the issuance of
additional long-term debt and financial institutions for trade financing arrangements. |
Certain of our financing agreements, both domestically and at CMCZ, include various covenants, of
which we were in compliance at August 31, 2006. There are no guarantees by the Company or any of
its subsidiaries for any of CMCZs debt.
Off-Balance Sheet Arrangements For added flexibility, we may secure financing through
securitization and sales of certain accounts receivable both in the U.S. and internationally. See
Note 3, Sales of Accounts Receivable, to the consolidated financial statements. We may continually
sell accounts receivable on an ongoing basis to replace those receivables that have been collected
from our customers. Our domestic securitization program contains certain cross-default provisions
whereby a termination event could occur should we default under another credit arrangement, and
contains covenants that conform to the same requirements contained in our revolving credit
agreement.
Cash Flows Our cash flows from operating activities primarily result from sales of steel and
related products, and to a lesser extent, sales of nonferrous metal products. We also sell and rent
construction-related products and accessories. 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 Note 7, Financial Instruments,
Market and Credit Risk, to the consolidated financial statements.
33
During the year ended August 31, 2006, we generated $233.4 million of net cash flows from our
operating activities as compared to the $188.4 million of net cash flows provided by our operating
activities for the year ended August 31, 2005. Significant fluctuations in working capital were as
follows:
|
|
|
Increased accounts receivable higher selling prices and increased volume. |
|
|
|
|
Increased inventories higher carrying costs, increased volume and more in-transit
inventory, offset by a much higher LIFO reserve. |
|
|
|
|
Increased other assets increase in segregated assets held in trust related to deferred
compensation liability and higher inventory of construction related rental assets. |
|
|
|
|
Increased accounts payable and accrued expenses higher purchase costs, increased
volume and higher profit sharing and incentive compensation accrued. |
We invested $131.2 million in property, plant and equipment during the year ended August 31, 2006,
which was more than the $110.2 million spent during 2005. During 2006, we spent $44.4 million for
the acquisitions of businesses as compared to $12.3 million in 2005 and $99.4 million in 2004.
In May 2006, we paid a two-for-one stock split in the form of a 100% stock dividend on our common
stock and also increased our quarterly cash dividend to 6 cents per share on the increased number
of shares resulting from the stock dividend. During the year ended August 31, 2006, we received
$23.7 million from stock issued under our employee incentive and stock purchase plans as compared
to $18.7 million in 2005 and $19.5 million in 2004. We purchased 3,469,240 shares of our common
stock during the year ended August 31, 2006 at $22.67 per share for a total of $78.7 million.
During 2005 and 2004, we spent $77.1 million and $4.6 million, respectively, to acquire our common
stock. We paid dividends of $20.2 million during the year ended August 31, 2006 as compared to
$13.7 million and $9.8 million in 2005 and 2004, respectively.
Our contractual obligations for the next twelve months of $1.1 billion are typically expenditures
to be paid in the ordinary course of revenue generatiang activities. We believe our cash flows
from operating activities and debt facilities are adequate to fund our ongoing operations and
planned capital expenditures.
Contractual Obligations
The following table represents our contractual obligations as of August 31, 2006 (dollars in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due By Period* |
|
|
|
|
|
|
Less than |
|
|
|
|
|
|
|
|
|
More than |
|
|
Total |
|
1 Year |
|
1-3 Years |
|
3-5 Years |
|
5 Years |
|
Contractual Obligations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt(1) |
|
$ |
382,248 |
|
|
$ |
60,162 |
|
|
$ |
119,150 |
|
|
$ |
2,884 |
|
|
$ |
200,052 |
|
Notes payable |
|
|
60,000 |
|
|
|
60,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest(2) |
|
|
103,425 |
|
|
|
22,744 |
|
|
|
33,205 |
|
|
|
22,620 |
|
|
|
24,856 |
|
Operating leases(3) |
|
|
99,379 |
|
|
|
25,614 |
|
|
|
37,415 |
|
|
|
21,284 |
|
|
|
15,066 |
|
Purchase obligations(4) |
|
|
1,201,795 |
|
|
|
922,848 |
|
|
|
186,504 |
|
|
|
72,430 |
|
|
|
20,013 |
|
|
Total contractual cash obligations |
|
$ |
1,846,847 |
|
|
$ |
1,091,368 |
|
|
$ |
376,274 |
|
|
$ |
119,218 |
|
|
$ |
259,987 |
|
|
|
|
|
|
|
* |
|
We have not discounted the cash obligations in this table. |
|
(1) |
|
Total amounts are included in the August 31, 2006 consolidated balance sheet. See Note 6,
Credit Arrangements, to the consolidated financial statements. |
|
(2) |
|
Interest payments related to our short-term debt are not included in the table as they do not
represent a significant obligation as of August 31, 2006. |
|
(3) |
|
Includes minimum lease payment obligations for non-cancelable equipment and real-estate
leases in effect as of August 31, 2006. See Note 11, Commitments and Contingencies, to the
consolidated financial statements. |
|
(4) |
|
Approximately 92% of these purchase obligations are for inventory items to be sold in the
ordinary course of business. Purchase obligations include all enforceable, legally binding
agreements to purchase goods or services that specify all significant terms, |
34
|
|
|
|
|
regardless of the duration of the agreement. Agreements with variable terms are excluded because
we are unable to estimate the minimum amounts. |
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, 2006, we had committed $32.3 million under these
arrangements. All commitments expire within one year.
In January 2005, we entered into a guarantee agreement to assist one of our Chinese coke suppliers
to obtain pre-production financing from a bank. In May 2006, we entered into another guarantee
agreement for one of our suppliers financing. Our maximum exposure under the guarantees at August
31, 2006 was $2.9 million. See Note 11, Commitments and Contingencies, to the consolidated
financial statements.
Contingencies
In the ordinary course of conducting our business, we become involved in litigation, administrative
proceedings and government investigations, including environmental matters. We may incur
settlements, 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 as warranted. 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
consolidated financial statements for the estimable probable 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 quarter.
Environmental and Other Matters
See Note 11, Commitments and Contingencies, to the consolidated financial statements.
General We are subject to federal, state and local pollution control laws and regulations. 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 nine 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.
Solid and Hazardous Waste We currently own or lease, and in the past owned or leased, properties
that have been used in our operations. Although we used operating and disposal practices that were
standard in the industry at the time, wastes may have been disposed or released on or under the
properties or on or under locations where such wastes have been taken for disposal. We are
currently involved in the investigation and remediation of several such properties. State and
federal laws applicable to wastes and contaminated properties have gradually become stricter over
time. Under new laws, we could be required to remediate properties impacted by previously disposed
wastes. We have been named as a potentially responsible party (PRP) at a number of contaminated
sites.
35
We generate wastes, including hazardous wastes, that are subject to the federal Resource
Conservation and Recovery Act (RCRA) and comparable state and/or local statutes where we operate.
These statutes, regulations and laws may have limited disposal options for certain wastes.
Superfund The U.S. Environmental Protection Agency (EPA) or an equivalent state agency notified us
that we are considered a PRP at thirteen sites, none owned by us. We may be obligated under the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (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. Because of various factors, including the
ambiguity of the regulations, the difficulty of identifying the responsible parties for any
particular site, the complexity of determining the relative liability among them, the uncertainty
as to the most desirable remediation techniques and the amount of damages and cleanup costs and the
extended time periods over which such costs may be incurred, we cannot reasonably estimate our
ultimate costs of compliance with CERCLA. At August 31, 2006, based on currently available
information, which is in many cases preliminary and incomplete, we believe that our aggregate
liability for cleanup and remediation costs in connection with nine of the thirteen sites will be
between $2.2 million and $2.8 million. We have accrued for these liabilities based upon our best
estimates. We are not able to estimate the possible range of loss on the other sites. The amounts
paid and the expenses incurred on these thirteen sites for the year ended August 31, 2006, 2005 and
2004 were not material. Historically, the amounts that we have ultimately paid for such remediation
activities have not been material.
Clean Water Act The Clean Water Act (CWA) imposes restrictions and strict controls regarding the
discharge of wastes into waters of the United States, a term broadly defined. These controls have
become more stringent over time and it is probable that additional restrictions will be imposed in
the future. Permits must generally be obtained to discharge pollutants into federal waters;
comparable permits may be required at the state level. The CWA and many state agencies provide for
civil, criminal and administrative penalties for unauthorized discharges of pollutants. In
addition, the EPA has promulgated regulations that may require us to obtain permits to discharge
storm water runoff. In the event of an unauthorized discharge, we may be liable for penalties and
costs.
Clean Air Act Our operations are subject to regulations at the federal, state and local level for
the control of emissions from sources of air pollution. New and modified sources of air pollutants
are often required to obtain permits prior to commencing construction, modification and/or
operations. Major sources of air pollutants are subject to more stringent requirements, including
the potential need for additional permits and to increased scrutiny in the context of enforcement.
The EPA has been implementing its stationary emission control program through expanded enforcement
of the New Source Review Program. Under this program, new or modified sources are required to
construct what is referred to as the Best Available Control Technology. Additionally, the EPA is
implementing new, more stringent standards for ozone and fine particulate matter. The EPA recently
has promulgated new national emission standards for hazardous air pollutants for steel mills which
will require all major sources in this category to meet the standards by reflecting application of
maximum achievable control technology. Compliance with the new standards could require additional
expenditures.
In fiscal 2006, we incurred environmental expenses of $18.6 million. The expenses 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 $6.2 million of our capital expenditures for 2006 related to costs directly
associated with environmental compliance. At August 31, 2006, $6.3 million was accrued for
environmental liabilities of which $3.7 million was classified as other long-term liabilities.
Business Interruption Insurance Claims and Unclaimed Property
See Note 11, Commitments and Contingencies to the consolidated financial statements.
Dividends
We have paid quarterly cash dividends in each of the past 168 consecutive quarters. We paid
dividends in our fiscal year 2006 at the rate of 3 cents per share in the first two quarters, 5
cents for the third quarter and 6 cents for the fourth quarter.
36
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market Risk
Approach to Minimizing Market Risk See Note 7, Financial Instruments, Market and Credit Risk, to
the consolidated financial statements for disclosure regarding our approach to minimizing market
risk. Also, see Note 1, Summary of Significant Accounting Policies, to the consolidated financial
statements. The following types of derivative instruments were outstanding at August 31, 2006, in
accordance with our risk management program.
Currency Exchange Forwards We enter into currency exchange forward contracts as economic hedges of
international trade commitments denominated in currencies other than the United States dollar, or,
if the transaction involves our Australian or European subsidiaries, their local currency. No
single foreign currency poses a primary risk to us. Fluctuations that cause temporary disruptions
in one market segment tend to open opportunities in other segments.
Commodity Prices We base pricing in some of our sales and purchase contracts on forward metal
commodity exchange quotes which we determine at the beginning of the contract. Due to the
volatility of the metal commodity indexes, we enter into metal commodity forward or futures
contracts for copper, aluminum, nickel and zinc. These forwards or futures mitigate the risk of
unanticipated declines in gross margins on these contractual commitments. Physical transaction
quantities will not match exactly with standard commodity lot sizes, leading to small gains and
losses from ineffectiveness.
Interest Rates If interest rates increased or decreased by one percentage point, the effect on
interest expense related to our variable-rate debt and the fair value of our long-term debt would
be approximately $221 thousand and $13 million, respectively.
The following table provides certain information regarding the foreign exchange and commodity
financial instruments discussed above.
Foreign Currency Exchange Contract Commitments as of August 31, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Functional Currency |
Foreign Currency |
|
|
|
|
|
U.S. $ |
|
|
Amount |
|
|
|
|
|
Amount |
|
Range of |
|
Equivalent |
Type |
|
(in thousands) |
|
Type |
|
(in thousands) |
|
Hedge Rates |
|
(in thousands) |
|
AUD |
|
|
149,666 |
|
|
USD |
|
|
113,068 |
|
|
|
0.7152-0.7740 |
|
|
$ |
113,068 |
|
PLN |
|
|
84,262 |
|
|
EUR |
|
|
21,367 |
|
|
|
0.2461-0.2573 |
|
|
|
26,154 |
|
EUR |
|
|
46,679 |
|
|
USD |
|
|
60,132 |
|
|
|
1.2580-1.2942 |
|
|
|
60,132 |
|
GBP |
|
|
23,859 |
|
|
USD |
|
|
41,456 |
|
|
|
1.8775-1.9096 |
|
|
|
41,456 |
|
GBP |
|
|
116 |
|
|
EUR |
|
|
172 |
|
|
|
1.4837 |
|
|
|
211 |
|
AUD |
|
|
845 |
|
|
JPY** |
|
|
72,385 |
|
|
|
82.55-89.06 |
|
|
|
627 |
|
AUD |
|
|
1,271 |
|
|
EUR |
|
|
754 |
|
|
|
0.5698-0.5966 |
|
|
|
923 |
|
AUD |
|
|
269 |
|
|
GBP |
|
|
109 |
|
|
|
0.4033-0.4082 |
|
|
|
61 |
|
USD |
|
|
10,725 |
|
|
PLN |
|
|
33,000 |
|
|
|
3.0659-3.0750 |
|
|
|
10,725 |
|
USD |
|
|
287 |
|
|
EUR |
|
|
225 |
|
|
|
0.7753-0.7907 |
|
|
|
287 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
253,644 |
|
Revaluation as of August 31, 2006, at quoted market |
|
|
|
|
|
|
|
|
|
|
253,367 |
|
|
Unrealized loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
277 |
|
|
|
|
* |
|
Substantially all foreign currency exchange contracts mature within one year. The range of
hedge rates represents functional to foreign currency conversion rates. |
|
** |
|
Japanese Yen |
|
|
|
|
|
As of August 31, 2005 (in thousands): |
|
|
|
|
Revaluation at quoted market |
|
$ |
204,727 |
|
Unrealized gain |
|
$ |
165 |
|
37
Metal Commodity Contract Commitments as of August 31, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Range or |
|
Total Contract |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of |
|
Value at |
|
|
|
|
|
|
Long/ |
|
# of |
|
Standard |
|
Total |
|
Hedge Rates |
|
Inception |
Terminal Exchange |
|
Metal |
|
Short |
|
Lots |
|
Lot Size |
|
Weight |
|
Per MT/lb. |
|
(in thousands) |
|
London Metal |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchange (LME) |
|
Aluminum |
|
Long |
|
|
643 |
|
|
25 MT |
|
16,075 MT |
|
$ |
2,139.00-2,803.00 |
|
|
$ |
15,659 |
|
|
|
Aluminum |
|
Short |
|
|
357 |
|
|
25 MT |
|
8,925 MT |
|
|
2,390.50-2,940.00 |
|
|
|
22,901 |
|
|
|
Copper |
|
Long |
|
|
58 |
|
|
25 MT |
|
1,450 MT |
|
|
6,725.00-7,898.00 |
|
|
|
10,982 |
|
|
|
Copper |
|
Short |
|
|
111 |
|
|
|
25 MT |
|
|
2,775 MT |
|
|
6,800.00-7,903.50 |
|
|
|
21,288 |
|
|
|
Nickel |
|
Long |
|
|
20 |
|
|
6 MT |
|
120 MT |
|
|
30,743.64 |
|
|
|
3,689 |
|
|
|
Nickel |
|
Short |
|
|
170 |
|
|
6 MT |
|
1,020 MT |
|
|
19,450.00-29,525.00 |
|
|
|
25,054 |
|
|
|
Zinc |
|
Short |
|
|
3 |
|
|
55,000 lbs. |
|
165,000 lbs. |
|
|
2,880.00-3,405.00 |
|
|
|
241 |
|
New York Mercantile |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchange |
|
Copper |
|
Long |
|
|
522 |
|
|
25,000 lbs. |
|
14.0 MM lbs. |
|
|
136.00-365.85 |
|
|
|
43,778 |
|
Commodities
Division (Comex) |
|
Copper |
|
Short |
|
|
319 |
|
|
25,000 lbs. |
|
8.0 MM lbs. |
|
|
309.50-371.00 |
|
|
|
27,728 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
171,320
|
|
Revaluation as of August 31, 2006, at quoted
market |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
168,259 |
|
|
Unrealized gain |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
3,061 |
|
|
|
|
|
|
MT = Metric Ton |
|
|
|
MM = Millions |
|
|
|
lbs. = Pounds |
|
|
|
|
|
As of August 31, 2005 (in thousands): |
|
|
|
|
Revaluation at quoted market |
|
$ |
72,069 |
|
Unrealized gain |
|
$ |
261 |
|
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
REPORT OF MANAGEMENT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Our management is responsible for establishing and maintaining adequate internal control over
financial reporting for the company. Internal control over financial reporting is a process to
provide reasonable assurance regarding the reliability of our financial reporting for external
purposes in accordance with accounting principles generally accepted in the United States of
America. Internal control over financial reporting includes maintaining records that in reasonable
detail accurately and fairly reflect our transactions; providing reasonable assurance that
transactions are recorded as necessary for preparation of our financial statements; providing
reasonable assurance that receipts and expenditures of company assets are made in accordance with
management authorization; and providing reasonable assurance that unauthorized acquisition, use or
disposition of company assets that could have a material effect on our financial statements would
be prevented or detected on a timely basis. Because of its inherent limitations, internal control
over financial reporting is not intended to provide absolute assurance that a misstatement of our
financial statements would be prevented or detected.
Management conducted an evaluation of the effectiveness of our internal control over financial
reporting based on the framework in Internal Control Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management
concluded that the companys internal control over financial reporting was effective as of August
31, 2006. Deloitte & Touche LLP has audited this assessment of our internal control over financial
reporting; their report is included on page 40 of this Form 10-K.
38
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Commercial Metals Company
Irving, Texas
We have audited the accompanying consolidated balance sheets of Commercial Metals Company and
subsidiaries (the Company) as of August 31, 2006 and 2005, and the related consolidated
statements of earnings, stockholders equity, and cash flows for each of the three years in the
period ended August 31, 2006. These financial statements are the responsibility of the Companys
management. Our responsibility is to express an opinion on these financial statements based on our
audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). 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 the Company at August 31, 2006 and 2005, and the results of their
operations and their cash flows for each of the three years in the period ended August 31, 2006, in
conformity with accounting principles generally accepted in the United States of America.
As discussed in Note 1 to the consolidated financial statements, the Company changed its method of
accounting for stock-based compensation with the adoption of Statement of Financial Accounting
Standards No. 123 (revised 2004) Share Based Payment, effective September 1, 2005.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the effectiveness of the Companys internal control over financial reporting
as of August 31, 2006, based on the criteria established in Internal ControlIntegrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated
November 6, 2006 expressed an unqualified opinion on managements assessment of the effectiveness
of the Companys internal control over financial reporting and an unqualified opinion on the
effectiveness of the Companys internal control over financial reporting.
/s/ DELOITTE & TOUCHE LLP
Dallas, Texas
November 6, 2006
39
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Commercial Metals Company
Irving, Texas
We have audited managements assessment, included in the accompanying Report of Management on
Internal Control Over Financial Reporting, that Commercial Metals Company and subsidiaries (the
Company) maintained effective internal control over financial reporting as of August 31, 2006,
based on criteria established in Internal ControlIntegrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission. The Companys management is responsible for
maintaining effective internal control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting. Our responsibility is to express an
opinion on managements assessment and an opinion on the effectiveness of the Companys internal
control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, evaluating managements assessment, testing and evaluating the
design and operating effectiveness of internal control, and performing such other procedures as we
considered necessary in the circumstances. We believe that our audit provides a reasonable basis
for our opinions.
A companys internal control over financial reporting is a process designed by, or under the
supervision of, the companys principal executive and principal financial officers, or persons
performing similar functions, and effected by the companys board of directors, management, and
other personnel to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A companys internal control over financial reporting includes
those policies and procedures that (1) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles,
and that receipts and expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and (3) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the
possibility of collusion or improper management override of controls, material misstatements due to
error or fraud may not be prevented or detected on a timely basis. Also, projections of any
evaluation of the effectiveness of the internal control over financial reporting to future periods
are subject to the risk that the controls may become inadequate because of changes in conditions,
or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, managements assessment that the Company maintained effective internal control over
financial reporting as of August 31, 2006, is fairly stated, in all material respects, based on the
criteria established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Also in our opinion, the Company maintained, in all
material respects, effective internal control over financial reporting as of August 31, 2006, based
on the criteria established in Internal ControlIntegrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the consolidated financial statements as of and for the year ended August
31, 2006 of the Company and our report dated November 6, 2006 expressed an unqualified opinion on
those financial statements with an explanatory paragraph related to the Companys adoption of Statement of Financial Standards
No. 123 (revised 2004) Share Based Payment, effective September 1, 2005.
/s/ DELOITTE & TOUCHE LLP
Dallas, Texas
November 6, 2006
40
Commercial Metals Company and Subsidiaries
CONSOLIDATED STATEMENTS OF EARNINGS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended August 31, |
(in thousands, except share data) |
|
2006 |
|
2005 |
|
2004 |
|
Net sales |
|
$ |
7,555,924 |
|
|
$ |
6,592,697 |
|
|
$ |
4,768,327 |
|
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold |
|
|
6,476,832 |
|
|
|
5,693,483 |
|
|
|
4,160,726 |
|
Selling, general and administrative expenses |
|
|
495,030 |
|
|
|
424,994 |
|
|
|
367,550 |
|
Interest expense |
|
|
29,569 |
|
|
|
31,187 |
|
|
|
28,104 |
|
|
|
|
|
7,001,431 |
|
|
|
6,149,664 |
|
|
|
4,556,380 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before income taxes and minority interests |
|
|
554,493 |
|
|
|
443,033 |
|
|
|
211,947 |
|
Income taxes |
|
|
187,937 |
|
|
|
157,996 |
|
|
|
65,055 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before minority interests |
|
|
366,556 |
|
|
|
285,037 |
|
|
|
146,892 |
|
Minority interests (benefit) |
|
|
10,209 |
|
|
|
(744 |
) |
|
|
14,871 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
|
$ |
356,347 |
|
|
$ |
285,781 |
|
|
$ |
132,021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share |
|
$ |
3.02 |
|
|
$ |
2.42 |
|
|
$ |
1.15 |
|
|
Diluted earnings per share |
|
$ |
2.89 |
|
|
$ |
2.32 |
|
|
$ |
1.11 |
|
|
See notes to consolidated financial statements.
41
Commercial Metals Company and Subsidiaries
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
August 31, |
(in thousands) |
|
2006 |
|
2005 |
|
Assets |
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
180,719 |
|
|
$ |
119,404 |
|
Accounts receivable (less allowance for
collection losses of $16,075 and $17,167) |
|
|
1,134,823 |
|
|
|
829,192 |
|
Inventories |
|
|
762,635 |
|
|
|
706,951 |
|
Other |
|
|
66,615 |
|
|
|
45,370 |
|
|
Total current assets |
|
|
2,144,792 |
|
|
|
1,700,917 |
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment: |
|
|
|
|
|
|
|
|
Land |
|
|
44,702 |
|
|
|
41,887 |
|
Buildings and improvements |
|
|
268,755 |
|
|
|
245,924 |
|
Equipment |
|
|
970,973 |
|
|
|
863,748 |
|
Construction in process |
|
|
51,184 |
|
|
|
49,183 |
|
|
|
|
|
1,335,614 |
|
|
|
1,200,742 |
|
Less accumulated depreciation and amortization |
|
|
(746,928 |
) |
|
|
(695,158 |
) |
|
|
|
|
588,686 |
|
|
|
505,584 |
|
Goodwill |
|
|
35,749 |
|
|
|
30,542 |
|
Other assets |
|
|
129,641 |
|
|
|
95,879 |
|
|
|
|
$ |
2,898,868 |
|
|
$ |
2,332,922 |
|
|
|
|
See notes to consolidated financial statements.
42
|
|
|
|
|
|
|
|
|
|
|
August 31, |
(in thousands, except share data) |
|
2006 |
|
2005 |
|
Liabilities and Stockholders Equity |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Accounts payable-trade |
|
$ |
526,408 |
|
|
$ |
408,342 |
|
Accounts payable-documentary letters of credit |
|
|
141,713 |
|
|
|
140,986 |
|
Accrued expenses and other payables |
|
|
379,764 |
|
|
|
293,598 |
|
Income taxes payable and deferred income taxes |
|
|
14,258 |
|
|
|
40,126 |
|
Short-term trade financing arrangements |
|
|
|
|
|
|
1,667 |
|
Notes
payable CMC International |
|
|
60,000 |
|
|
|
|
|
Current maturities of long-term debt |
|
|
60,162 |
|
|
|
7,223 |
|
|
Total current liabilities |
|
|
1,182,305 |
|
|
|
891,942 |
|
|
|
|
|
|
|
|
|
|
Deferred income taxes |
|
|
34,550 |
|
|
|
45,629 |
|
Other long-term liabilities |
|
|
78,789 |
|
|
|
58,627 |
|
Long-term debt |
|
|
322,086 |
|
|
|
386,741 |
|
|
Total liabilities |
|
|
1,617,730 |
|
|
|
1,382,939 |
|
|
|
|
|
|
|
|
|
|
Minority interests |
|
|
61,034 |
|
|
|
50,422 |
|
Commitments and contingencies |
|
|
|
|
|
|
|
|
Stockholders equity: |
|
|
|
|
|
|
|
|
Capital stock: |
|
|
|
|
|
|
|
|
Preferred stock |
|
|
|
|
|
|
|
|
Common
stock, par value $0.01and $5.00 per share: authorized
200,000,000 shares; issued 129,060,664 and 64,530,332 shares; outstanding 117,881,160 and
58,130,723 shares |
|
|
1,290 |
|
|
|
322,652 |
|
Additional paid-in capital |
|
|
346,994 |
|
|
|
14,813 |
|
Accumulated other comprehensive income |
|
|
33,239 |
|
|
|
24,594 |
|
Unearned stock compensation |
|
|
|
|
|
|
(5,901 |
) |
Retained earnings |
|
|
980,454 |
|
|
|
644,319 |
|
|
|
|
|
1,361,977 |
|
|
|
1,000,477 |
|
|
|
|
|
|
|
|
|
|
Less treasury stock 11,179,504 and 6,399,609 shares at cost |
|
|
(141,873 |
) |
|
|
(100,916 |
) |
|
Total stockholders equity |
|
|
1,220,104 |
|
|
|
899,561 |
|
|
|
|
|
|
$ |
2,898,868 |
|
|
$ |
2,332,922 |
|
|
|
|
See notes to consolidated financial statements.
43
Commercial Metals Company and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended August 31, |
(in thousands) |
|
2006 |
|
2005 |
|
2004 |
|
Cash Flows From (Used By) Operating Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
|
$ |
356,347 |
|
|
$ |
285,781 |
|
|
$ |
132,021 |
|
Adjustments to reconcile net earnings to cash from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
85,378 |
|
|
|
76,610 |
|
|
|
71,044 |
|
Minority interests (benefit) |
|
|
10,209 |
|
|
|
(744 |
) |
|
|
14,871 |
|
Asset impairment charges |
|
|
|
|
|
|
300 |
|
|
|
6,583 |
|
Provision for losses on receivables |
|
|
2,676 |
|
|
|
6,604 |
|
|
|
6,154 |
|
Share-based compensation |
|
|
9,526 |
|
|
|
1,115 |
|
|
|
|
|
Loss on reacquisition of debt |
|
|
|
|
|
|
|
|
|
|
3,072 |
|
Net gain on sale of assets |
|
|
(2,518 |
) |
|
|
(877 |
) |
|
|
(1,319 |
) |
Changes in operating assets and liabilities, net of effect of
acquisitions: |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
(297,924 |
) |
|
|
(217,398 |
) |
|
|
(223,845 |
) |
Accounts receivable sold |
|
|
|
|
|
|
|
|
|
|
77,925 |
|
Inventories |
|
|
(36,196 |
) |
|
|
(49,313 |
) |
|
|
(290,474 |
) |
Other assets |
|
|
(48,498 |
) |
|
|
(6,997 |
) |
|
|
10,001 |
|
Accounts payable, accrued expenses, other payables and income
taxes |
|
|
171,045 |
|
|
|
83,757 |
|
|
|
223,968 |
|
Deferred income taxes |
|
|
(34,459 |
) |
|
|
(8,934 |
) |
|
|
2,142 |
|
Other long-term liabilities |
|
|
17,797 |
|
|
|
18,499 |
|
|
|
11,403 |
|
|
Net Cash Flows From Operating Activities |
|
|
233,383 |
|
|
|
188,403 |
|
|
|
43,546 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows From (Used By) Investing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property, plant and equipment |
|
|
(131,235 |
) |
|
|
(110,214 |
) |
|
|
(51,889 |
) |
Purchase of interests in CMC Zawiercie and subsidiaries |
|
|
(1,165 |
) |
|
|
|
|
|
|
|
|
Sales of property, plant and equipment and other |
|
|
11,290 |
|
|
|
5,034 |
|
|
|
3,192 |
|
Acquisitions of CMC Zawiercie and Lofland, net of cash acquired |
|
|
|
|
|
|
|
|
|
|
(99,401 |
) |
Acquisitions of other businesses, net of cash acquired |
|
|
(44,391 |
) |
|
|
(12,310 |
) |
|
|
(2,110 |
) |
|
Net Cash Used By Investing Activities |
|
|
(165,501 |
) |
|
|
(117,490 |
) |
|
|
(150,208 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows From (Used By) Financing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Increase in documentary letters of credit |
|
|
727 |
|
|
|
24,288 |
|
|
|
41,916 |
|
Proceeds from trade financing arrangements |
|
|
|
|
|
|
|
|
|
|
35,307 |
|
Payments on trade financing arrangements |
|
|
(1,667 |
) |
|
|
(22,322 |
) |
|
|
(34,343 |
) |
Short-term borrowings, net change |
|
|
60,000 |
|
|
|
(586 |
) |
|
|
(702 |
) |
Proceeds from issuance of long-term debt |
|
|
14,495 |
|
|
|
|
|
|
|
238,400 |
|
Payments on long-term debt |
|
|
(28,800 |
) |
|
|
(17,222 |
) |
|
|
(132,680 |
) |
Stock issued under incentive and purchase plans |
|
|
23,659 |
|
|
|
18,703 |
|
|
|
19,530 |
|
Tax benefits from stock plans |
|
|
21,240 |
|
|
|
12,183 |
|
|
|
6,148 |
|
Treasury stock acquired |
|
|
(78,662 |
) |
|
|
(77,077 |
) |
|
|
(4,586 |
) |
Dividends paid |
|
|
(20,212 |
) |
|
|
(13,652 |
) |
|
|
(9,764 |
) |
Debt reacquisition and issuance costs |
|
|
|
|
|
|
|
|
|
|
(4,989 |
) |
|
Net Cash From (Used By) Financing Activities |
|
|
(9,220 |
) |
|
|
(75,685 |
) |
|
|
154,237 |
|
Effect of
Exchange Rate Changes on Cash and Cash Equivalents |
|
|
2,653 |
|
|
|
617 |
|
|
|
926 |
|
|
Increase (Decrease) in Cash and Cash Equivalents |
|
|
61,315 |
|
|
|
(4,155 |
) |
|
|
48,501 |
|
Cash and Cash Equivalents at Beginning of Year |
|
|
119,404 |
|
|
|
123,559 |
|
|
|
75,058 |
|
|
Cash and Cash Equivalents at End of Year |
|
$ |
180,719 |
|
|
$ |
119,404 |
|
|
$ |
123,559 |
|
|
See notes to consolidated financial statements.
44
Commercial Metals Company and Subsidiaries
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
Treasury Stock |
|
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
Other |
|
Unearned |
|
|
|
|
|
|
|
|
|
|
Number of |
|
|
|
|
|
Paid-In |
|
Comprehensive |
|
Stock |
|
Retained |
|
Number of |
|
|
|
|
(in thousands, except share data) |
|
Shares |
|
Amount |
|
Capital |
|
Income (Loss) |
|
Compensation |
|
Earnings |
|
Shares |
|
Amount |
|
Total |
|
Balance, September 1, 2003 |
|
|
32,265,166 |
|
|
$ |
161,326 |
|
|
$ |
863 |
|
|
$ |
2,368 |
|
|
$ |
|
|
|
$ |
401,869 |
|
|
|
(4,270,476 |
) |
|
$ |
(59,493 |
) |
|
$ |
506,933 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
132,021 |
|
|
|
|
|
|
|
|
|
|
|
132,021 |
|
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation
adjustment, net of taxes of $4,996 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,279 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,279 |
|
Unrealized gain on derivatives,
net of taxes of $574 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,066 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,066 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
142,366 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,764 |
) |
|
|
|
|
|
|
|
|
|
|
(9,764 |
) |
Treasury stock acquired |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(143,847 |
) |
|
|
(4,586 |
) |
|
|
(4,586 |
) |
Stock issued under incentive
and purchase plans |
|
|
|
|
|
|
|
|
|
|
921 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,427,121 |
|
|
|
18,609 |
|
|
|
19,530 |
|
Tax benefits from stock plans |
|
|
|
|
|
|
|
|
|
|
6,148 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,148 |
|
|
Balance, August 31, 2004 |
|
|
32,265,166 |
|
|
|
161,326 |
|
|
|
7,932 |
|
|
|
12,713 |
|
|
|
|
|
|
|
524,126 |
|
|
|
(2,987,202 |
) |
|
|
(45,470 |
) |
|
|
660,627 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
285,781 |
|
|
|
|
|
|
|
|
|
|
|
285,781 |
|
Other comprehensive income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation
adjustment, net of taxes of $240 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,778 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,778 |
|
Unrealized loss on derivatives,
net of taxes of $(257) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(897 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(897 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
297,662 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13,652 |
) |
|
|
|
|
|
|
|
|
|
|
(13,652 |
) |
Treasury stock acquired |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,039,110 |
) |
|
|
(77,077 |
) |
|
|
(77,077 |
) |
Restricted stock awarded |
|
|
|
|
|
|
|
|
|
|
2,600 |
|
|
|
|
|
|
|
(6,737 |
) |
|
|
|
|
|
|
272,000 |
|
|
|
4,137 |
|
|
|
|
|
Stock-based compensation |
|
|
|
|
|
|
|
|
|
|
279 |
|
|
|
|
|
|
|
836 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,115 |
|
Stock issued under incentive
and purchase plans |
|
|
|
|
|
|
|
|
|
|
1,209 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,174,293 |
|
|
|
17,494 |
|
|
|
18,703 |
|
Tax benefits from stock plans |
|
|
|
|
|
|
|
|
|
|
12,183 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,183 |
|
Two-for-one stock split |
|
|
32,265,166 |
|
|
|
161,326 |
|
|
|
(9,390 |
) |
|
|
|
|
|
|
|
|
|
|
(151,936 |
) |
|
|
(2,819,590 |
) |
|
|
|
|
|
|
|
|
|
Balance, August 31, 2005 |
|
|
64,530,332 |
|
|
|
322,652 |
|
|
|
14,813 |
|
|
|
24,594 |
|
|
|
(5,901 |
) |
|
|
644,319 |
|
|
|
(6,399,609 |
) |
|
|
(100,916 |
) |
|
|
899,561 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
356,347 |
|
|
|
|
|
|
|
|
|
|
|
356,347 |
|
Other comprehensive income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation
adjustment, net of taxes of $1,506 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,404 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,404 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss on derivatives,
net of taxes of $(2,412) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,759 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,759 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
364,992 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(20,212 |
) |
|
|
|
|
|
|
|
|
|
|
(20,212 |
) |
Change in par value of common stock |
|
|
|
|
|
|
(322,007 |
) |
|
|
322,007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury stock acquired |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,469,240 |
) |
|
|
(78,662 |
) |
|
|
(78,662 |
) |
Restricted stock awarded |
|
|
|
|
|
|
|
|
|
|
(2,429 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
280,150 |
|
|
|
2,429 |
|
|
|
|
|
Stock-based compensation |
|
|
|
|
|
|
|
|
|
|
3,764 |
|
|
|
|
|
|
|
5,901 |
|
|
|
|
|
|
|
(9,100 |
) |
|
|
(139 |
) |
|
|
9,526 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock issued under incentive
and purchase plans |
|
|
|
|
|
|
|
|
|
|
(11,756 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,688,617 |
|
|
|
35,415 |
|
|
|
23,659 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax benefits from stock plans |
|
|
|
|
|
|
|
|
|
|
21,240 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,240 |
|
Two-for-one stock split |
|
|
64,530,332 |
|
|
|
645 |
|
|
|
(645 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,270,322 |
) |
|
|
|
|
|
|
|
|
|
Balance, August 31, 2006 |
|
|
129,060,664 |
|
|
$ |
1,290 |
|
|
$ |
346,994 |
|
|
$ |
33,239 |
|
|
$ |
|
|
|
$ |
980,454 |
|
|
|
(11,179,504 |
) |
|
$ |
(141,873 |
) |
|
$ |
1,220,104 |
|
|
See notes to consolidated financial statements.
45
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 domestic mills, recycling facilities and markets are primarily located in
the Sunbelt from the mid-Atlantic area through the West. Also, the Company operates a steel
minimill in Poland and processing facilities in Australia. Through its global marketing offices,
the Company markets and distributes steel and nonferrous metal products and other industrial
products worldwide. See Note 14, Business Segments.
Consolidation The consolidated financial statements include the accounts of the Company and its
subsidiaries. All significant intercompany transactions and balances are eliminated.
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.
The Company owns a 72.5% interest in CMC Zawiercie (CMCZ). The accounts of CMCZ are consolidated
beginning December 1, 2003. See Note 2, Acquisitions.
Revenue Recognition Sales are recognized when title passes to the customer either when goods are
shipped or when they are received based upon the terms of the sale. When the Company estimates that
a contract with a customer will result in a loss, the entire loss is accrued as soon as it is
probable and estimable.
Cash and Cash Equivalents The Company considers temporary investments that are short term (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, amortization, utilities, consumable production
supplies, maintenance, production,
wages and transportation costs. Also, the costs of departments that support production including
materials management and quality control, are allocated to inventory.
In November 2004, the Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards (SFAS) No. 151, Inventory Costs, which specifies that certain abnormal costs
must be recognized as current period charges. This Statement, which was effective for inventory
costs incurred after September 1, 2005, did not materially affect the Companys results of
operations or financial position.
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, 2006, the useful lives used for
depreciation and amortization were as follows:
|
|
|
|
|
Buildings |
|
|
7 to 40 years |
|
Land improvements |
|
|
3 to 25 years |
|
Leasehold improvements |
|
|
3 to 15 years |
|
Equipment |
|
|
2 to 25 years |
|
The Company evaluates 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 an impairment exists, the net book values are reduced to fair values
as warranted. Major maintenance is expensed as incurred.
46
Intangible Assets The following intangible assets subject to amortization are included within other
assets on the consolidated balance sheets as of August 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
2005 |
|
|
Gross |
|
|
|
|
|
|
|
|
|
Gross |
|
|
|
|
|
|
Carrying |
|
Accumulated |
|
|
|
|
|
Carrying |
|
Accumulated |
|
|
(in thousands) |
|
Amount |
|
Amortization |
|
Net |
|
Amount |
|
Amortization |
|
Net |
|
Non-competition agreements |
|
$ |
6,467 |
|
|
$ |
1,480 |
|
|
$ |
4,987 |
|
|
$ |
1,572 |
|
|
$ |
709 |
|
|
$ |
863 |
|
Production backlog |
|
|
211 |
|
|
|
158 |
|
|
|
53 |
|
|
|
63 |
|
|
|
|
|
|
|
63 |
|
Customer base |
|
|
6,272 |
|
|
|
1,778 |
|
|
|
4,494 |
|
|
|
5,655 |
|
|
|
1,102 |
|
|
|
4,553 |
|
Favorable land leases |
|
|
4,467 |
|
|
|
168 |
|
|
|
4,299 |
|
|
|
4,096 |
|
|
|
86 |
|
|
|
4,010 |
|
Brand name |
|
|
4,438 |
|
|
|
1,821 |
|
|
|
2,617 |
|
|
|
4,233 |
|
|
|
810 |
|
|
|
3,423 |
|
Other |
|
|
156 |
|
|
|
114 |
|
|
|
42 |
|
|
|
113 |
|
|
|
54 |
|
|
|
59 |
|
|
Total |
|
$ |
22,011 |
|
|
$ |
5,519 |
|
|
$ |
16,492 |
|
|
$ |
15,732 |
|
|
$ |
2,761 |
|
|
$ |
12,971 |
|
|
Excluding goodwill, there are no other significant intangible assets with indefinite lives.
Goodwill represents the difference between the purchase price of acquired businesses and the fair
value of their net assets. The Company has elected to test annually for goodwill impairment in the
fourth quarter of the fiscal year or if a triggering event occurs. Aggregate amortization expense
for intangible assets for the years ended August 31, 2006, 2005, and 2004 was $2.9 million, $1.9
million and $2.1 million, respectively. At August 31, 2006, the weighted average remaining useful
lives of these intangible assets, excluding the favorable land leases in Poland, was 6 years. The
weighted average lives of the favorable land leases were 83 years. Estimated amounts of
amortization expense for the next five years are as follows (in thousands):
|
|
|
|
|
Year |
|
|
|
|
2007 |
|
$ |
2,992 |
|
2008 |
|
|
2,622 |
|
2009 |
|
|
2,152 |
|
2010 |
|
|
1,945 |
|
2011 |
|
|
1,043 |
|
Environmental Costs The Company accrues liabilities for environmental investigation and remediation
costs based upon estimates regarding the 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.
Asset Retirement Obligations In March 2005, the FASB issued Interpretation No. 47, Accounting for
Conditional Asset Retirement Obligations-an interpretation of SFAS No. 143 (FIN 47). FIN 47
clarifies that an asset retirement obligation for which the timing and (or) the method of
settlement are conditional on a future event that may or may not be within the Companys control
must be recognized as a liability when incurred or acquired if it can be reasonably estimated. FIN
47 also clarifies when an entity would have sufficient information to reasonably estimate the fair
value of an asset retirement obligation. FIN 47 was effective for the Companys fiscal year ending
August 31, 2006 and its implementation did not have a material impact on the Companys results of
operations and financial position.
Stock-Based Compensation In December 2004, the FASB issued 123(R), requiring that the compensation
cost relating to share-based compensation transactions be recognized at fair value in financial
statements. The Company adopted 123 (R) effective September 1, 2005 using the modified prospective
method. As a result, compensation expense was recorded for the unvested portion of previously
issued awards that were outstanding at September 1, 2005. The Black-Scholes pricing model was used
to calculate total compensation cost which is amortized on a straight-line basis over the remaining
vesting period of previously issued awards.
The Company recognized after-tax stock-based compensation expense of $6.2 million ($.05 per diluted
share) and $0.7 million ($.01 per diluted share) as a component of selling, general and
administrative expenses for the twelve months ended August 31, 2006 and 2005, respectively. The
cumulative effect of adoption (primarily arising from the recognition of anticipated forfeitures)
was not material. At August 31, 2006, the Company had $11.1 million of total unrecognized pre-tax
compensation cost related to non-vested share-based compensation arrangements. This cost is
expected to be recognized over the next 34 months.
47
The following weighted average assumptions were required for grants in the years ended August 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
2005 |
|
2004 |
|
Risk-free interest rate |
|
|
4.79 |
% |
|
|
3.93 |
% |
|
|
2.94 |
% |
Expected life |
|
4.57 |
years |
|
4.94 |
years |
|
4.36 |
years |
Expected volatility |
|
|
0.328 |
|
|
|
0.305 |
|
|
|
0.260 |
|
Expected dividend yield |
|
|
1.1 |
% |
|
|
1.3 |
% |
|
|
1.0 |
% |
The weighted-average per share fair value of the awards granted in 2006, 2005 and 2004 was $7.78,
$3.60, and $1.84, respectively.
See Note 9, Capital Stock, for share information on options and SARs at August 31, 2006.
Prior to the adoption of 123(R), the Company accounted for stock options and stock appreciation
rights (SARs) granted to employees and directors using the intrinsic value-based method of
accounting. If the Company had used the fair value-based method of accounting, net earnings and
earnings per share for the years ended August 31, 2005 and 2004 would have been adjusted to the pro
forma amounts listed in the table below.
|
|
|
|
|
|
|
|
|
(in thousands, |
|
|
|
|
except per share amounts) |
|
2005 |
|
2004 |
|
Net earnings, as reported |
|
$ |
285,781 |
|
|
$ |
132,021 |
|
Add: Stock-based compensation expense recognized |
|
|
715 |
|
|
|
|
|
Less: Pro forma stock-based compensation cost net of tax |
|
|
(3,025 |
) |
|
|
(2,829 |
) |
|
|
|
Net earnings-pro forma |
|
$ |
283,471 |
|
|
$ |
129,192 |
|
Net earnings per share-as reported: |
|
|
|
|
|
|
|
|
Basic |
|
$ |
2.42 |
|
|
$ |
1.15 |
|
Diluted |
|
$ |
2.32 |
|
|
$ |
1.11 |
|
Net earnings per share-pro forma: |
|
|
|
|
|
|
|
|
Basic |
|
$ |
2.40 |
|
|
$ |
1.12 |
|
Diluted |
|
$ |
2.30 |
|
|
$ |
1.08 |
|
Accounts Payable Documentary Letters of Credit In order to facilitate certain trade transactions,
the Company utilizes documentary letters of credit to provide assurance of payment to its
suppliers. These letters of credit may be for prompt payment or for payment at a future date
conditional upon the bank finding the documentation presented to be in strict compliance with all
terms and conditions of the letter of credit. The banks issue these letters of credit under
informal, uncommitted lines of credit which are in addition to the Companys contractually
committed revolving credit agreement. In some cases, if the Companys suppliers choose to discount
the future dated obligation, the Company may pay the discount cost.
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 Note 8, Income Taxes. Benefits from tax
credits are reflected currently in earnings. The Company provides for taxes on unremitted earnings
of foreign subsidiaries, except for CMCZ and its operations in Australia, which it considers to be
permanently invested.
Foreign Currencies The functional currency of most of the Companys European marketing and
distribution operations is the Euro. The functional currencies of the Companys Australian, United
Kingdom, CMCZ, and certain Chinese operations are the local currencies. The remaining international
subsidiaries functional currency is the United States dollar. Translation adjustments are reported
as a component of accumulated other comprehensive income (loss). Transaction gains from
transactions denominated in currencies other than the functional currencies were $0.8 million, $1.5
million and $2.8 million for the years ended August 31, 2006, 2005, and 2004, respectively.
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 designated and are highly effective in
achieving offsetting changes in fair values or cash flows of the hedged items during the term of
the hedge.
48
Statements
of Cash Flows Non-Cash Investing and Financing Activity
The Company purchased computer software for operations in 2006 for $10.7 million. At August 31,
2006, it was financed by a trade account payable.
Comprehensive Income (Loss) The Company reports comprehensive income (loss) in its consolidated
statement of stockholders equity. Comprehensive income (loss) consists of net earnings plus gains
and losses affecting stockholders equity that, under generally accepted accounting principles, are
excluded from net earnings, such as gains and losses related to certain derivative instruments and
translation effect of foreign currency assets and liabilities net of tax.
Reclassifications Certain immaterial reclassifications have been made in the 2005 and 2004
financial statements to conform to the classifications used in 2006.
NOTE 2. ACQUISITIONS
Fiscal 2006
During the twelve months ended August 31, 2006, the Company acquired the following businesses:
|
|
|
On August 8, 2006, the Company acquired substantially all of the operating assets of
Concrete Formtek Services, Inc. (CFS), located in Riverside, California. CFS specializes
in the rental of forming and shoring equipment to the California construction market. |
|
|
|
|
On July 17, 2006, the Company acquired substantially all of the operating assets of
Cherokee Supply, with facilities in Tulsa, Oklahoma and Little Rock, Arkansas. Cherokee
Supply specializes in highway and commercial construction-related products supply. |
|
|
|
|
On June 7, 2006, the Company purchased substantially all of the operating assets of
Yonack Iron & Metal Co. and related companies, which operate scrap and metal processing
facilities in Dallas and Forney, Texas; Stroud, Oklahoma and Lonoke, Arkansas and a plastic
scrap recycling facility in Grand Prairie, Texas. |
|
|
|
|
On March 6, 2006, the Company acquired 100% of the shares of Southmet Pty Ltd, a plate
and long products processor, in Adelaide, Australia. |
|
|
|
|
On March 1, 2006, the Company acquired substantially all of the operating assets of
Brost Forming Supply, Inc., with facilities in Tucson and Phoenix, Arizona. Brost Forming
Supply, Inc. specializes in concrete framework, tilt-up and concrete-related products. |
|
|
|
|
On November 14, 2005, the Company acquired substantially all of the operating assets of
Hall-Hodges Company, a reinforcing steel fabricator in Norfolk, Virginia. |
These acquisitions are expected to strengthen the Companys marketing position in the respective
regions and product lines. The total purchase price of $46.0 million ($44.4 million in cash and
$1.6 million in notes payable) for these acquisitions was allocated to the acquired assets and
assumed liabilities based on estimates of their respective fair values. The following is a summary
of the preliminary allocation of the total purchase price as of the date of the respective
acquisitions (in thousands), subject to change following managements final evaluation of the fair
value assumptions:
|
|
|
|
|
|
|
Total |
|
Accounts receivable |
|
$ |
4,255 |
|
Inventories |
|
|
13,895 |
|
Other current assets |
|
|
125 |
|
Property, plant and equipment |
|
|
24,297 |
|
Intangible assets |
|
|
4,857 |
|
Goodwill |
|
|
5,149 |
|
Other assets |
|
|
36 |
|
Liabilities |
|
|
(6,643 |
) |
Net assets acquired |
|
$ |
45,971 |
|
|
The intangible assets acquired include customer base, trade name and non-compete agreements, which
will be amortized over 5 years and a backlog, which will be amortized over 12 months.
49
The pro forma impact of these acquisitions on consolidated net earnings would not have materially
changed reported net earnings.
Fiscal 2005
During the twelve months ended August 31, 2005, the Company acquired the following businesses:
|
|
|
On August 16, 2005, the Company acquired substantially all of the operating assets of a
Juarez, Mexico joist manufacturing facility from a subsidiary of Canam Group, Inc. of
Quebec, Canada. This facility will operate as part of the Companys domestic fabrication
segment and allow the Company to achieve production synergies with its existing plants and
expand the territory for its joist operations in the southwestern United States and
northern Mexico. |
|
|
|
|
On November 4, 2004, the Company acquired substantially all of the operating assets of
the J.L. Davidson Companys rebar fabricating facility located in Rialto, California. The
acquisition will allow the Company to expand its supply of fabricated rebar to fab
customers and to expand its supply of niche specialty and accessory products. |
The total purchase price of $14.6 million ($12.3 million in cash and $2.3 million in notes payable)
for these acquisitions was allocated to the acquired assets and assumed liabilities based on
estimates of their respective fair values. The following is a summary of the allocation of the
total purchase price as of the date of the respective acquisitions (in thousands) presented in
conformity with U.S. GAAP:
|
|
|
|
|
|
|
Total |
|
Inventories |
|
$ |
3,041 |
|
Property, plant and equipment |
|
|
11,478 |
|
Backlog |
|
|
63 |
|
Other assets |
|
|
113 |
|
Liabilities |
|
|
(104 |
) |
Net assets acquired |
|
$ |
14,591 |
|
|
The pro forma impact of these acquisitions on consolidated net earnings would not have materially
changed reported net earnings.
Fiscal 2004
During the twelve months ended August 31, 2004, the Company acquired the following significant
businesses:
|
|
|
On December 23, 2003, the Company acquired 100% of the stock of Lofland Acquisition,
Inc. (Lofland). Lofland was the sole stockholder of the Lofland Company and subsidiaries
which operate steel reinforcing bar fabrication and construction-related product sales
facilities. |
|
|
|
|
On December 3, 2003, the Companys Swiss subsidiary acquired 71.1% of the outstanding
shares of Huta Zawiercie, S.A. (CMCZ), of Zawiercie, Poland. In connection with the
acquisition, the Company also assumed debt of 176 million PLN ($45.7 million) and acquired
$3.8 million in cash. CMCZ operates a steel minimill which manufactures rebar, wire rod
and merchant bar products. |
The total purchase price of $99.4 million ($96.6 million in net cash and $2.8 million in external
costs incurred) for these acquisitions was allocated to the acquired assets and assumed liabilities
based on estimates of their respective fair values. The following is a summary of the allocation
of the total purchase price as of the date of the respective acquisitions (in thousands) presented
in conformity with U.S. GAAP (the minority interest in CMCZ was recorded at historical cost):
50
|
|
|
|
|
|
|
Total |
|
Accounts receivable |
|
$ |
61,249 |
|
Inventories |
|
|
35,499 |
|
Property, plant and equipment |
|
|
95,249 |
|
Goodwill |
|
|
23,405 |
|
Intangible assets |
|
|
13,251 |
|
Other assets |
|
|
9,660 |
|
Liabilities |
|
|
(64,094 |
) |
Debt |
|
|
(45,717 |
) |
Minority Interest |
|
|
(29,101 |
) |
|
Net assets acquired |
|
$ |
99,401 |
|
|
The results of operations from these acquisitions are included in the consolidated statement of
earnings from the dates of their acquisition. The following unaudited pro forma financial
information reflects the consolidated results of operations of the Company as if the acquisitions
of CMCZ and Lofland had taken place at the beginning of the period. The pro forma information
includes primarily adjustments for amortization of acquired intangible assets, depreciation expense
based upon the new basis of property, plant and equipment, and interest expense for new and assumed
debt. The pro forma financial information is not necessarily indicative of the results of
operations as they would have been had the transactions been effected on the assumed dates.
|
|
|
|
|
|
|
(Unaudited) |
|
|
Year ended August 31, |
(in thousands, except per share data) |
|
2004 |
Net sales |
|
$ |
4,882,421 |
|
Net earnings |
|
|
133,007 |
|
Diluted earnings per share |
|
|
1.12 |
|
NOTE 3. SALES OF ACCOUNTS RECEIVABLE
The Company has an accounts receivable securitization program which it utilizes as a
cost-effective, short-term financing alternative. Under this program, the Company and several of
its subsidiaries periodically sell certain eligible trade accounts receivable to the Companys
wholly-owned consolidated special purpose subsidiary (CMCRV). CMCRV is structured to be a
bankruptcy-remote entity and was formed for the sole purpose of buying and selling receivables
generated by the Company. The Company, irrevocably and without recourse, transfers all applicable
trade accounts receivable to CMCRV. CMCRV, in turn, sells an undivided percentage ownership
interest in the pool of receivables to affiliates of two third party financial institutions. On
April 20, 2006, the agreement with the financial institution affiliates was extended to April 14,
2007. CMCRV may sell undivided interests of up to $130 million, depending on the Companys level of
financing needs.
The Company accounts for its transfers of receivables to CMCRV together with CMCRVs sales of
undivided interests in these receivables to the financial institutions as sales. At the time an
undivided interest in the pool of receivables is sold, the amount is removed from the consolidated
balance sheet and the proceeds from the sale are reflected as cash provided by operating
activities.
At August 31, 2006 and 2005, uncollected accounts receivable of $351 million and $275 million,
respectively, had been sold to CMCRV. The Companys undivided interest in these receivables
(representing the Companys retained interest) was 100% at August 31, 2006 and 2005. The average
monthly amounts of undivided interests owned by the financial institution buyers were $833
thousand, $32.8 million and $22.1 million for the years ended August 31, 2006, 2005 and 2004,
respectively. The carrying amount of the Companys 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. This retained interest is subordinate to, and provides credit enhancement for,
the financial institution buyers ownership interest in CMCRVs receivables, and is available to
the financial institution buyers to pay any fees or expenses due to them and to absorb all credit
losses incurred on any of the receivables. The Company is responsible for servicing the entire pool
of receivables. This U.S. securitization program contains certain cross-default provisions whereby
a termination event could occur if the Company defaulted under one of its credit arrangements.
In addition to the securitization program described above, the Companys international subsidiaries
in Europe and Australia periodically sell accounts receivable. These arrangements also constitute
true sales and, once the accounts are sold, they are no longer available to satisfy the Companys
creditors in the event of bankruptcy. In August 2004, the Companys Australian subsidiary entered
51
into an agreement with a financial institution to periodically sell certain trade accounts
receivable up to a maximum of 50 million AUD ($38.1 million). This Australian program contains
covenants in which our subsidiary must meet certain coverage and tangible net worth levels (as
defined). At August 31, 2006, our Australian subsidiary was in compliance with these covenants.
Uncollected accounts receivable that had been sold under these international arrangements and
removed from the consolidated balance sheets were $61.9 million and $63.2 million at August 31,
2006 and 2005, respectively. The average monthly amounts of international accounts receivable sold
were $61.8 million, $65.3 million and $27.7 million for the years ended August 31, 2006, 2005 and
2004, respectively.
Discounts (losses) on domestic and international sales of accounts receivable were $3.2 million,
$4.1 million and $1.6 million for the years ended August 31, 2006, 2005 and 2004, respectively.
These losses primarily represented the costs of funds and were included in selling, general and
administrative expenses.
NOTE 4. INVENTORIES
Before deduction of last-in, first-out (LIFO) inventory valuation reserves of $189.3 million and
$111.4 million at August 31, 2006 and 2005, respectively, inventories valued under the first-in,
first-out method (FIFO) approximated market value.
At August 31, 2006 and 2005, 69% and 56%, respectively, of total inventories were valued at LIFO.
The remainder of inventories, valued at FIFO, consisted mainly of material dedicated to CMCZ and
certain marketing and distribution businesses.
The majority of the Companys inventories are in the form of finished goods, with minimal work in
process. Approximately $54.6 million and $39.9 million were in raw materials at August 31, 2006 and
2005, respectively.
NOTE 5. ASSET IMPAIRMENT CHARGES
The Company recognized non-cash asset impairment charges of $6.6 million in its domestic
fabrication segment during the year ended August 31, 2004. These impairment charges were recorded
in selling, general and administrative expenses. Asset impairment charges during the years ended
August 31, 2006 and 2005 were not material.
NOTE 6. CREDIT ARRANGEMENTS
The Companys commercial paper program permits maximum borrowings of up to $400 million. The
programs capacity is reduced by outstanding standby letters of credit which totaled $24.6 million
at August 31, 2006. It is the Companys policy to maintain contractual bank credit lines equal to
100% of the amount of the commercial paper program. The $400 million unsecured revolving credit
agreement matures on May 23, 2010, has a minimum interest coverage ratio (as defined) requirement
of two and one-half times and a maximum debt capitalization (as defined) requirement of 60%. The
agreement provides for interest based on Bank of Americas prime rate and facility fees of 12.5
basis points per annum. No compensating balances are required. The Company was in compliance with
these requirements at August 31, 2006. At August 31, 2006 and 2005, no borrowings were outstanding
under the commercial paper program or the related revolving credit agreements.
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. Amounts
outstanding on these facilities relate to accounts payable settled under bankers acceptances as
described in Note 1, Summary of Significant Accounting Policies.
At August 31, 2005, the Company had $1.7 million (1.4 million Euro) of related-party debt recorded
as short-term trade financing arrangements. The outstanding balance on the financing arrangement
was paid in September 2005.
52
Long-term debt and amounts due within one year are as follows, as of August 31:
|
|
|
|
|
|
|
|
|
(in thousands) |
|
2006 |
|
2005 |
|
6.80% notes due August 2007 |
|
$ |
50,000 |
|
|
$ |
50,000 |
|
6.75% notes due February 2009 |
|
|
100,000 |
|
|
|
100,000 |
|
CMCZ term note due March 2009 |
|
|
18,322 |
|
|
|
39,773 |
|
5.625% notes due November 2013 |
|
|
200,000 |
|
|
|
200,000 |
|
Other, including equipment notes |
|
|
13,926 |
|
|
|
4,191 |
|
|
|
|
|
382,248 |
|
|
|
393,964 |
|
Less current maturities |
|
|
60,162 |
|
|
|
7,223 |
|
|
|
|
$ |
322,086 |
|
|
$ |
386,741 |
|
|
At August 31, 2006 the Company was in compliance with all debt requirements for these notes.
Interest on these notes is payable semiannually, excluding CMCZ which is paid quarterly.
Interest on CMCZs term note is accrued at the Warsaw Interbank Offered Rate (WIBOR) plus 1.1% and
the average effective annual rate was 5.46% for the year ended August 31, 2006. The term note has
scheduled semi-annual payments and is collateralized by CMCZs property, plant and equipment. On
May 12, 2006 CMCZ entered into a revolving credit facility agreement with maximum borrowings of 100
million PLN ($32.6 million) and secured by CMCZ receivables. It has an expiration date of May 11,
2007 and interest is accrued at the WIBOR plus 0.55%. At August 31, 2006 no amounts were
outstanding under this credit agreement. The term note and the revolving credit facility contain
certain financial covenants for CMCZ. CMCZ was in compliance with these covenants at August 31,
2006. There are no guarantees by the Company or any of its subsidiaries for any of CMCZs debt.
CMC Poland, a wholly-owned subsidiary of the Company, owns and operates equipment at the CMCZ mill
site. In connection with the equipment purchase, CMC Poland issued equipment notes under a term
agreement dated September 2005 with 34 million PLN ($11.1 million) outstanding at August 31, 2006.
Installment payments under these notes are due from 2006 through 2010. Interest rates are variable
based on the Poland Monetary Policy Councils rediscount rate, plus an applicable margin. The
weighted average rate as of August 31, 2006 was 4.25%. The notes are substantially secured by the
shredder equipment.
On August 29, 2006, CMC International, a subsidiary of CMC, borrowed $60 million under five
short-term notes maturing in December 2006. The interest rate on the notes ranges from 5.8% to
6.0%. The notes are not collateralized and do not contain any financial covenants.
The aggregate amounts of all long-term debt maturities for the five years following August 31, 2006
are (in thousands): 2007-$60,162; 2008-$16,057; 2009-$103,088; 2010-$2,888; 2011 and
thereafter-$200,063.
Interest of $2.3 million, $1.3 million, and $372 thousand was capitalized in the cost of property,
plant and equipment constructed in 2006, 2005 and 2004, respectively. Interest of $29.9 million,
$31.7 million, and $25.1 million was paid in 2006, 2005 and 2004, respectively.
NOTE 7. FINANCIAL INSTRUMENTS, MARKET AND CREDIT RISK
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:
|
|
|
Cash and cash equivalents |
|
|
|
|
Accounts receivable/payable |
|
|
|
|
Notes payable CMCZ |
|
|
|
|
Trade financing arrangements |
The Companys long-term debt is predominantly publicly held. Fair value was determined by
indicated market values.
53
|
|
|
|
|
|
|
|
|
|
|
August 31, |
(in thousands) |
|
2006 |
|
2005 |
|
Long-Term Debt: |
|
|
|
|
|
|
|
|
Carrying amount |
|
$ |
322,085 |
|
|
$ |
386,741 |
|
Estimated fair value |
|
|
319,261 |
|
|
|
396,351 |
|
The Company maintains both corporate and divisional credit departments. Credit limits are set for
customers. Credit insurance is used for some of the Companys 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. Approximately $471 million
and $260 million of the Companys accounts receivable at August 31, 2006 and 2005, respectively,
were secured by credit insurance and/or letters of credit.
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 Companys 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 Companys accounts
receivable.
The Companys worldwide operations and product lines expose it to risks from fluctuations in
foreign currency exchange rates and metals commodity prices. The objective of the Companys 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. Also, when its sales commitments to customers include a
fixed price freight component, the Company occasionally enters into freight forward contracts to
minimize the effect of the volatility of ocean freight rates. The Company designates only those
contracts which closely match the terms of the underlying transaction as hedges for accounting
purposes. These hedges resulted in substantially no ineffectiveness in the statements of earnings,
and there were no components excluded from the assessment of hedge effectiveness for the years
ended August 31, 2006, 2005 and 2004.
Certain of the foreign currency and all of the commodity and freight contracts were not designated
as hedges for accounting purposes, although management believes they are essential economic hedges.
All of the instruments are highly liquid and none are entered into for trading purposes.
The following chart shows the impact on the consolidated statements of earnings of the changes in
fair value of these economic hedges included in determining net earnings (in thousands) for the
year ended August 31. Settlements are recorded within the same line item as the related unrealized
gains (losses).
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (Expense) |
|
2006 |
|
2005 |
|
2004 |
|
Net sales (foreign currency instruments) |
|
$ |
(30 |
) |
|
$ |
(293 |
) |
|
$ |
377 |
|
Cost of goods sold (commodity instruments) |
|
|
2,261 |
|
|
|
(400 |
) |
|
|
670 |
|
The Companys derivative instruments were recorded as follows on the consolidated balance sheets
(in thousands) at August 31:
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
2005 |
|
Derivative assets (other current assets) |
|
$ |
5,633 |
|
|
$ |
2,563 |
|
Derivative liabilities (other payables) |
|
|
8,323 |
|
|
|
2,151 |
|
The following table summarizes activities in other comprehensive income (losses) related to
derivatives classified as cash flow hedges held by the Company during the years ended August 31 (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
2005 |
|
2004 |
|
Change in market value (net of taxes) |
|
$ |
(4,689 |
) |
|
$ |
(785 |
) |
|
$ |
1,164 |
|
(Gain) reclassified into net earnings, net |
|
|
(70 |
) |
|
|
(112 |
) |
|
|
(98 |
) |
|
Other comprehensive income (loss)-unrealized gain (loss) on derivatives |
|
$ |
(4,759 |
) |
|
$ |
(897 |
) |
|
$ |
1,066 |
|
|
54
During the twelve months following August 31, 2006, $4.3 million in losses related to commodity
hedges and capital expenditures are anticipated to be reclassified into net earnings as the related
transactions mature and the assets are placed into service, respectively. Also, an additional $112
thousand in gains will be reclassified as interest expense related to an interest rate lock.
All of the instruments are highly liquid and none are entered into for trading purposes.
The FASB has issued SFAS No. 157, Fair Value Measurements, which defines fair value, establishes
a framework for measuring fair value in generally accepted accounting principles (GAAP), and
expands disclosure about fair value measurements. We are required to adopt the provisions of this
statement in the first quarter of fiscal 2008. Management is reviewing the potential effects of
this statement; however, it does not expect the adoption of SFAS No. 157 to have a material impact
on the Companys consolidated financial statements.
55
NOTE 8. INCOME TAXES
The provisions for income taxes include the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended August 31, |
(in thousands) |
|
2006 |
|
2005 |
|
2004 |
|
Current: |
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
$ |
178,259 |
|
|
$ |
137,118 |
|
|
$ |
41,005 |
|
Foreign |
|
|
22,875 |
|
|
|
3,196 |
|
|
|
18,050 |
|
State and local |
|
|
18,960 |
|
|
|
9,257 |
|
|
|
4,317 |
|
|
|
|
|
220,094 |
|
|
|
149,571 |
|
|
|
63,372 |
|
Deferred |
|
|
(32,157 |
) |
|
|
8,425 |
|
|
|
1,683 |
|
|
|
|
$ |
187,937 |
|
|
$ |
157,996 |
|
|
$ |
65,055 |
|
|
Taxes of $204.6 million, $118.8 million and $33.9 million were paid in 2006, 2005 and 2004,
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 tax liabilities (assets)
associated with these differences are:
|
|
|
|
|
|
|
|
|
|
|
August 31, |
(in thousands) |
|
2006 |
|
2005 |
|
Deferred tax assets: |
|
|
|
|
|
|
|
|
Deferred compensation |
|
$ |
32,088 |
|
|
$ |
19,907 |
|
Net operating losses (less allowances of $2,549 and $720) |
|
|
1,092 |
|
|
|
3,885 |
|
Reserves and other accrued expenses |
|
|
7,707 |
|
|
|
9,381 |
|
Impaired assets |
|
|
2,326 |
|
|
|
2,361 |
|
Allowance for doubtful accounts |
|
|
5,059 |
|
|
|
5,594 |
|
Other |
|
|
7,437 |
|
|
|
4,341 |
|
|
Deferred tax assets |
|
$ |
55,709 |
|
|
$ |
45,469 |
|
|
Deferred tax liabilities: |
|
|
|
|
|
|
|
|
Deferred revenue |
|
$ |
4,421 |
|
|
$ |
2,010 |
|
Tax on difference between tax and book depreciation |
|
|
42,851 |
|
|
|
45,144 |
|
U.S. taxes provided on foreign income and foreign taxes |
|
|
22,811 |
|
|
|
20,841 |
|
Inventory |
|
|
8,158 |
|
|
|
36,260 |
|
Other |
|
|
5,860 |
|
|
|
4,091 |
|
|
Deferred tax liabilities |
|
$ |
84,101 |
|
|
$ |
108,346 |
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax liability |
|
$ |
28,392 |
|
|
$ |
62,877 |
|
|
Amounts recognized in the consolidated balance sheets consist of:
|
|
|
|
|
|
|
|
|
|
|
August 31, |
(in thousands) |
|
2006 |
|
2005 |
|
Deferred tax asset current |
|
$ |
5,187 |
|
|
$ |
2,895 |
|
Deferred tax asset long term |
|
|
8,718 |
|
|
|
6,947 |
|
Deferred liability current |
|
|
7,747 |
|
|
|
27,090 |
|
Deferred tax liability long term |
|
|
34,550 |
|
|
|
45,629 |
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax liability |
|
$ |
28,392 |
|
|
$ |
62,877 |
|
|
56
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. The Company provides United
States taxes on unremitted foreign earnings except for its operations in CMCZ and Australia, which
it considers to be permanently invested. The amounts of these permanently invested earnings at
August 31, 2006 were $88.0 million and $54.1 million for CMCZ and Australia, respectively. In the
event that the Company repatriated these earnings, incremental U.S. taxes may be incurred. The
Company has determined that it is not practicable to determine the amount of these incremental U.S.
taxes. Net operating losses consist of $42.3 million of state net operating losses that expire
during the tax years ending from 2008 to 2026. These assets will be reduced as tax expense is
recognized in future periods.
Reconciliations of the United States statutory rates to the effective rates are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended August 31, |
|
|
2006 |
|
2005 |
|
2004 |
|
Statutory rate |
|
|
35.0 |
% |
|
|
35.0 |
% |
|
|
35.0 |
% |
State and local taxes |
|
|
2.5 |
|
|
|
1.4 |
|
|
|
1.3 |
|
Manufacturing deduction |
|
|
(0.7 |
) |
|
|
|
|
|
|
|
|
Extraterritorial income deduction |
|
|
(0.4 |
) |
|
|
(0.4 |
) |
|
|
(1.3 |
) |
Foreign rate differential |
|
|
(1.5 |
) |
|
|
(0.3 |
) |
|
|
(4.4 |
) |
Tax repatriation charge (benefit) |
|
|
(0.7 |
) |
|
|
|
|
|
|
|
|
Other |
|
|
(0.3 |
) |
|
|
|
|
|
|
0.1 |
|
|
|
|
Effective tax rate |
|
|
33.9 |
% |
|
|
35.7 |
% |
|
|
30.7 |
% |
|
|
|
On October 22, 2004, the American Jobs Creation Act of 2004 (the AJCA) was signed into law. The
AJCA created a temporary incentive for U.S. corporations to repatriate accumulated income earned
abroad by providing an 85% dividends received deduction for certain dividends from controlled
foreign corporations. On August 28, 2006, our Chief Executive Officer approved our domestic
reinvestment plan pursuant to the Foreign Earnings Repatriation Provision of the AJCA which was
ratified by the Board of Directors on August 31, 2006. As a result, we repatriated $18.7 million
in unremitted foreign earnings net of Swiss withholding tax from a Swiss subsidiary during the
fourth quarter of fiscal 2006, the majority of which was eligible to be taxed at a reduced
effective tax rate (as reflected in the statutory rate reconciliation table above). Accordingly,
the Company recognized a related income tax expense for federal and state taxes of $1.4 million.
Moreover, there was a $1.0 million foreign withholding tax expense pursuant to the dividend
payment. In adopting the plan, which was implemented in fiscal year 2006, we considered the goals
of the AJCA, and we have invested the repatriated funds consistent with the requirements of the
AJCA and in a manner that we believe will achieve the benefits intended under the AJCA. Among the
types of permissible investments of these repatriated funds are capital expenditures, worker
hiring, training and non-executive compensation in the US.
On May 18, 2006 the State of Texas passed a bill to replace the current franchise tax with a new
margin tax to be effective January 1, 2008. The Company estimates the new margin tax will not have
a significant impact on tax expense for deferred tax assets and liabilities.
In June 2006, the FASB issued FIN 48, ''Accounting for Uncertainty in Income Taxes an
interpretation of FASB Statement 109, which clarifies the accounting for uncertainty in income
taxes recognized in an enterprises financial statements in accordance with FAS No. 109,
''Accounting for Income Taxes. FIN 48 prescribes a recognition threshold and measurement
attribute for the financial statement recognition and measurement of a tax position taken or
expected to be taken in a tax return. FIN 48 is effective for fiscal years beginning after December
15, 2006. The Company is currently evaluating the impact of FIN 48 on the Companys consolidated
financial statements.
NOTE 9. CAPITAL STOCK
On April 24, 2006, the Company declared a two-for-one stock split in the form of a 100% stock
dividend on the Companys common stock payable May 22, 2006 to shareholders of record on May 8,
2006. The stock dividend resulted in the issuance of 64,530,332 additional shares of common stock
and a transfer of $0.6 million from additional paid-in capital at the record date. All per share
and weighted average share amounts in the accompanying consolidated financial statements have been
restated to reflect the stock split. The Company also instituted a quarterly cash dividend of $0.06
cents per share on the increased number of shares resulting from the stock dividend effective with
the July, 2006 dividend payment.
57
On January 26, 2006, the shareholders of the Company voted to increase the authorized shares of
common stock from 100,000,000 to 200,000,000 shares. The shareholders also voted to change the par
value of the Companys common stock from $5.00 to $0.01 per share. As a result, $322 million was
transferred from common stock to additional paid-in capital.
On July 19, 2006, the Companys Board of Directors authorized the purchase of up to 5,000,000
shares of the Companys common stock. During fiscal 2006, the Company purchased 1,658,240 common
shares for treasury under this authorization and 1,811,000 common shares under a prior
authorization. At August 31, 2006, the company had remaining authorization to purchase 3,341,760 of
its common shares.
Stock Purchase Plan Almost all U.S. resident employees with a year of service at the beginning of
each calendar year may participate in the Companys employee stock purchase plan. Each eligible
employee may purchase up to 400 shares annually. The Board of
Directors establishes the purchase
discount from the market price. The discount was 25% for each of the three years ended August 31,
2006, 2005 and 2004. Yearly activity of the stock purchase plan was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
2005 |
|
2004 |
|
Shares subscribed |
|
|
761,620 |
|
|
|
1,454,520 |
|
|
|
1,191,480 |
|
Price per share |
|
$ |
13.44 |
|
|
$ |
7.94 |
|
|
$ |
5.03 |
|
Shares purchased |
|
|
1,316,720 |
|
|
|
1,048,080 |
|
|
|
909,360 |
|
Price per share |
|
$ |
7.97 |
|
|
$ |
5.04 |
|
|
$ |
3.09 |
|
Shares available |
|
|
1,563,384 |
|
|
|
|
|
|
|
|
|
The Company recorded compensation expense for this plan of $3.2 million, $3.0 million and $1.5
million in 2006, 2005 and 2004, respectively.
Stock Incentive Plans The 1986 Stock Incentive Plan (1986 Plan) terminated November 23, 1996,
except for awards then outstanding. Under the 1986 Plan, stock options were awarded to full-time
salaried employees. The option price was the fair market value of the Companys stock at the date
of grant, and the options are exercisable two years from date of grant. There are no outstanding
awards under this plan as of August 31, 2006.
The 1996 Long-Term Incentive Plan (1996 Plan) was approved in December 1996. Under the 1996 Plan,
stock options, SARs, and restricted stock may be awarded to employees. The option price for both
the stock options and the SARs will not be less than the fair market value of the Companys stock
at the date of grant. The outstanding option 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 shares being reserved for issuance of 2,632,656 in 2005 and
3,739,880 in 2004. During fiscal year 2006, the Company issued 264,150 shares of restricted stock
to employees and issued SARs relating to the appreciation in 639,030 shares of its common stock at
a weighted average exercise price of $24.53 per share (the exercise price equaled the market price
on the date of grant). These SARs and the restricted stock vest over a three-year period in
increments of one-third. The Companys Board of Directors voted to terminate the 1996 Plan
effective August 31, 2006, except for awards then outstanding. As a result of this action, no
additional shares will be available for grants under this plan.
In January 2000, the Companys stockholders approved the 1999 Non-Employee Director Stock Option
Plan and authorized 800,000 shares to be made available for grant. The price of these options is
the fair market value of the Companys stock at the date of the grant. The options granted vest 50%
after one year and 50% after two years from the grant date. Under this Plan, any outside director
could elect to receive all or part of fees otherwise payable in the form of a stock option. Options
granted in lieu of fees are immediately vested. All options expire seven years from the date of
grant. The 1999 Non-Employee Director Stock Plan was amended with stockholder approval in January
2005 in order to provide annual grants of either options or restricted stock to non-employee
directors. This annual award can either be in the form of a nonqualified stock option grant for
24,000 shares or a restricted stock award of 4,000 shares. On January 26, 2006, the Company issued
an aggregate of 32,000 shares of common stock to eight non-employee directors. Restricted stock
award vests over a two-year period.
Prior to vesting, restricted stock award recipients receive an amount equivalent to any dividend
declared on the Companys common stock.
58
Combined information for shares subject to options and SARs for the three plans was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
Average |
|
Price |
|
|
|
|
|
|
Exercise |
|
Range |
|
|
Number |
|
Price |
|
Per Share |
|
September 1, 2003 |
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding |
|
|
15,379,672 |
|
|
$ |
3.65 |
|
|
$ |
2.75-5.36 |
|
Exercisable |
|
|
10,623,212 |
|
|
|
3.56 |
|
|
|
2.75-5.36 |
|
Granted |
|
|
3,570,288 |
|
|
|
7.77 |
|
|
|
7.53-7.79 |
|
Exercised |
|
|
(5,155,580 |
) |
|
|
3.58 |
|
|
|
2.94-4.30 |
|
Forfeited |
|
|
(117,320 |
) |
|
|
4.05 |
|
|
|
2.95-7.79 |
|
Increase authorized |
|
|
3,739,880 |
|
|
|
|
|
|
|
|
|
|
August 31, 2004 |
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding |
|
|
13,677,060 |
|
|
$ |
4.75 |
|
|
$ |
2.75-7.79 |
|
Exercisable |
|
|
8,557,496 |
|
|
|
3.72 |
|
|
|
2.75-7.53 |
|
Granted |
|
|
1,056,990 |
|
|
|
12.33 |
|
|
|
12.31-13.58 |
|
Exercised |
|
|
(3,929,792 |
) |
|
|
3.86 |
|
|
|
2.75-7.78 |
|
Forfeited |
|
|
(56,000 |
) |
|
|
4.35 |
|
|
|
2.94-7.78 |
|
Increase authorized |
|
|
2,632,656 |
|
|
|
|
|
|
|
|
|
|
August 31, 2005 |
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding |
|
|
10,748,258 |
|
|
$ |
5.82 |
|
|
$ |
2.74-13.58 |
|
Exercisable |
|
|
7,959,758 |
|
|
|
4.54 |
|
|
|
2.74-13.58 |
|
Granted |
|
|
639,030 |
|
|
|
24.53 |
|
|
|
21.81-24.71 |
|
Exercised |
|
|
(3,834,740 |
) |
|
|
4.50 |
|
|
|
2.74-7.78 |
|
Forfeited |
|
|
(67,200 |
) |
|
|
9.51 |
|
|
|
3.41-12.31 |
|
|
August 31, 2006 |
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding |
|
|
7,485,348 |
|
|
$ |
8.06 |
|
|
$ |
2.75-24.71 |
|
Exercisable |
|
|
6,178,200 |
|
|
|
5.90 |
|
|
|
2.75-13.58 |
|
Available for grant* |
|
|
677,434 |
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Includes shares available for options, SARs and restricted stock grants. |
Share information for options and SARs at August 31, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding |
|
|
|
|
|
Exercisable |
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remain- |
|
Weighted |
|
|
|
|
|
|
|
|
|
Weighted |
|
|
Range of |
|
|
|
|
|
ing Con- |
|
Average |
|
Aggregate |
|
|
|
|
|
Average |
|
Aggregate |
Exercise |
|
Number |
|
tractual |
|
Exercise |
|
Intrinsic |
|
Number |
|
Exercise |
|
Intrinsic |
Price |
|
Outstanding |
|
Life (Yrs) |
|
Price |
|
Value |
|
Outstanding |
|
Price |
|
Value |
|
$ 2.75-3.99 |
|
|
2,142,548 |
|
|
|
2.6 |
|
|
$ |
3.48 |
|
|
|
|
|
|
|
2,142,548 |
|
|
$ |
3.48 |
|
|
|
|
|
4.29-5.36 |
|
|
1,177,788 |
|
|
|
2.4 |
|
|
|
4.34 |
|
|
|
|
|
|
|
1,177,788 |
|
|
|
4.34 |
|
|
|
|
|
7.53-7.78 |
|
|
2,496,992 |
|
|
|
4.5 |
|
|
|
7.77 |
|
|
|
|
|
|
|
2,496,992 |
|
|
|
7.77 |
|
|
|
|
|
12.31-13.58 |
|
|
1,028,990 |
|
|
|
5.8 |
|
|
|
12.33 |
|
|
|
|
|
|
|
360,872 |
|
|
|
12.37 |
|
|
|
|
|
21.81-24.71 |
|
|
639,030 |
|
|
|
6.7 |
|
|
|
24.53 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$2.75-24.71 |
|
|
7,485,348 |
|
|
|
4.0 |
|
|
$ |
8.06 |
|
|
$ |
103,146,561 |
|
|
|
6,178,200 |
|
|
$ |
5.90 |
|
|
$ |
96,946,426 |
|
|
Information for restricted stock awards as of August 31, 2006 and 2005, and changes during
each of the two years then ended (no restricted stock awards were outstanding as of August 31, 2004
or issued during the year then ended):
59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average |
|
|
|
|
|
|
Grant - Date |
Restricted Stock Awards |
|
Shares |
|
Fair Value |
|
At September 1, 2004 |
|
|
|
|
|
|
|
|
Granted |
|
|
544,000 |
|
|
$ |
12.38 |
|
Vested |
|
|
|
|
|
|
|
|
Forfeited |
|
|
(400 |
) |
|
|
12.31 |
|
|
At August 31, 2005 |
|
|
543,600 |
|
|
$ |
12.38 |
|
|
|
|
|
|
|
|
|
|
|
At September 1, 2005 |
|
|
543,600 |
|
|
$ |
12.38 |
|
Granted |
|
|
296,150 |
|
|
|
24.17 |
|
Vested |
|
|
(184,983 |
) |
|
|
12.42 |
|
Forfeited |
|
|
(17,800 |
) |
|
|
12.31 |
|
|
At August 31, 2006 |
|
|
636,967 |
|
|
$ |
17.86 |
|
|
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 Companys 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 Companys 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 Companys common stock. Rights were distributed to stockholders of
record as of August 9, 1999. The Rights Agreement provides that the number of Rights associated
with each share of common stock shall be adjusted in the event of a stock split. After giving
effect to subsequent stock splits, each share of common stock now carries with it one-eighth of a
Right.
The Rights are represented by and traded with the Companys 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 Companys stock or
shares of the acquirers stock at a 50% discount. The Companys 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 10. EMPLOYEES RETIREMENT PLANS
Substantially all employees in the U.S. are covered by a defined contribution profit sharing and
savings plan. This tax qualified plan is maintained and contributions made in accordance with
ERISA. The Company also provides certain eligible executives benefits pursuant to a nonqualified
benefit restoration plan (BRP Plan) equal to amounts that would have been available under the tax
qualified ERISA plans, save for limitations of ERISA, tax laws and regulations. Company
contributions, which are discretionary, to all plans were
$62.5 million, $47.0 million and $32.8 million
for 2006, 2005 and 2004, respectively. These costs were recorded in selling, general and
administrative expenses.
The deferred compensation liability under the BRP Plan was $53.0 million and $37.4 million at
August 31, 2006 and 2005, respectively, and recorded in other long-term liabilities. Though under
no obligation to fund the plan, the Company has segregated assets in a trust with a current value
at August 31, 2006 and 2005 of $51.2 million and $34.5 million, respectively, and recorded in other
long-term assets. The net unrealized holding gain on these segregated assets was $4.0 million and
$4.8 million for the years ended August 31, 2006 and 2005, respectively. The amount recognized in
earnings for 2004 was not material.
60
A certain number of employees outside of the U.S. participate in defined contribution plans
maintained in accordance with local regulations. Company contributions to these international plans
were $2.8 million, $2.7 million and $1.4 million for the years ended August 31, 2006, 2005, and
2004, respectively.
The Company has no significant postretirement obligations. The Companys historical costs for
postemployment benefits have not been significant and are not expected to be in the future.
NOTE 11. COMMITMENTS AND CONTINGENCIES
Minimum lease commitments payable by the Company and its consolidated subsidiaries for
noncancelable operating leases in effect at August 31, 2006, are as follows for the fiscal periods
specified:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real |
(in thousands) |
|
Equipment |
|
Estate |
|
2007 |
|
$ |
12,928 |
|
|
$ |
12,686 |
|
2008 |
|
|
11,186 |
|
|
|
10,373 |
|
2009 |
|
|
10,105 |
|
|
|
5,752 |
|
2010 |
|
|
8,224 |
|
|
|
4,111 |
|
2011 and thereafter |
|
|
13,754 |
|
|
|
10,260 |
|
|
|
|
$ |
56,197 |
|
|
$ |
43,182 |
|
|
Total rental expense was $24.9 million, $18.8 million and $16.0 million in 2006, 2005 and 2004,
respectively.
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.
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 thirteen 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. At
August 31, 2006, based on currently available information, which is in many cases preliminary and
incomplete, management estimates that the Companys aggregate liability for cleanup and remediation
costs in connection with nine of the thirteen sites will be between $2.2 million and $2.8 million.
The Company has accrued for these liabilities based upon managements best estimates. At August 31,
2006, $6.2 million was accrued for environmental liabilities of which $3.7 million was classified
as other long-term liabilities. 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. Historically, the amounts that we
have ultimately paid for such remediation activities have not been material.
In general, state escheat statutes allow the examination for unclaimed property to extend back ten
or more years. Although no audits are currently in process, the Company has recorded liabilities
for the estimated minimum potential unclaimed property. The Company is unable to estimate a
meaningful range for such exposure.
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.
Insurance Claims On August 18, 2003, the Companys new electric arc furnace transformer failed at
its CMC-South Carolina melt shop after only six days in operation. After the failure of the new
transformer, the Companys former transformer was reinstalled. Costs for repairing the transformer
were covered by the equipment manufacturer. In May and June 2004, the Companys primary and
secondary transformers at CMC-Texas melt shop failed. In August 2005, the Company settled all of
its insurance claims (primarily for business interruption) relating to these transformer failures.
Total settlement amounts (net of deductibles) were $10.3 million and
61
$9.8 million for the CMC-Texas and CMC-South Carolina claims, respectively. These amounts were
recorded in net sales for the year ended August 31, 2005.
Guarantees In January 2005, one of the Companys international subsidiaries entered into a
guarantee agreement with a bank in connection with a $30 million advance by an affiliate of the
bank to one of the subsidiarys suppliers. The subsidiary has entered into an offtake agreement
with the supplier with a total purchase commitment of $45 million. As of August 31, 2006, the
subsidiarys maximum exposure under the guarantee is $1.5 million (except in an event of default by
the subsidiary under the offtake agreement). The fair value of the guarantee is negligible.
In May 2006, one of the Companys international subsidiaries entered into a guarantee agreement
with a bank in connection with a maximum $15 million credit facility extended to one of the
subsidiarys suppliers. As of August 31, 2006, the subsidiarys maximum exposure under the
guarantee is $1.4 million. The fair value of the guarantee is negligible.
NOTE 12. EARNINGS PER SHARE
In calculating earnings per share, there were no adjustments to net earnings to arrive at earnings
for any years presented. The reconciliation of the denominators of the earnings per share
calculations are as follows at August 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
2005 |
|
2004 |
|
Shares outstanding for basic earnings per share |
|
|
117,989,877 |
|
|
|
118,048,880 |
|
|
|
115,071,828 |
|
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based incentive/purchase plans |
|
|
5,469,192 |
|
|
|
5,331,294 |
|
|
|
4,305,528 |
|
|
Shares outstanding for diluted earnings per share |
|
|
123,459,069 |
|
|
|
123,380,174 |
|
|
|
119,377,356 |
|
|
SARs with total share commitments of 637,673 were anti-dilutive at August 31, 2006 based on the
average share price of $23.65. All of the Companys outstanding stock options, restricted stock
and SARs were dilutive at August 31, 2005 and 2004 based on the average share prices of $13.58 and
$8.26, respectively. All stock options and SARs expire by 2013.
The Companys restricted stock is included in the number of shares of common stock issued and
outstanding, but omitted from the basic earnings per share calculation until the shares vest as
required by Financial Accounting Standards.
NOTE 13. ACCRUED EXPENSES AND OTHER PAYABLES
|
|
|
|
|
|
|
|
|
|
|
August 31, |
(in thousands) |
|
2006 |
|
2005 |
|
Salaries, bonuses and commissions |
|
$ |
148,137 |
|
|
$ |
117,615 |
|
Employees retirement plans |
|
|
58,087 |
|
|
|
44,282 |
|
Freight |
|
|
33,419 |
|
|
|
20,034 |
|
Advance billings on contracts |
|
|
29,907 |
|
|
|
22,966 |
|
Taxes other than income taxes |
|
|
18,397 |
|
|
|
14,644 |
|
Insurance |
|
|
15,089 |
|
|
|
11,779 |
|
Software purchases |
|
|
10,745 |
|
|
|
|
|
Litigation accruals |
|
|
6,650 |
|
|
|
6,650 |
|
Interest |
|
|
4,759 |
|
|
|
5,047 |
|
Contract losses |
|
|
4,095 |
|
|
|
4,222 |
|
Environmental |
|
|
2,494 |
|
|
|
2,807 |
|
Other |
|
|
47,985 |
|
|
|
43,552 |
|
|
|
|
$ |
379,764 |
|
|
$ |
293,598 |
|
|
NOTE 14. BUSINESS SEGMENTS
The Companys 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 five reportable segments: domestic mills, CMCZ, domestic fabrication, recycling and
marketing and distribution.
62
The domestic mills segment includes the Companys domestic steel minimills (including the scrap
metal processing facilities which directly support these mills) and the copper tube minimill. The
copper tube minimill is aggregated with the Companys steel minimills because it has similar
economic characteristics. The CMCZ minimill and subsidiaries in Poland have been presented as a
separate segment because the economic characteristics of their markets and the regulatory
environment in which they operate are different from that of the Companys domestic minimills. The
domestic fabrication segment consists of the Companys rebar and joist fabrication operations,
fence post manufacturing plants, construction-related and other products facilities. The recycling
segment consists of the CMC Recycling divisions scrap metal 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, distribution and processing of both
ferrous and nonferrous metals and other industrial products. The segments activities consist only
of physical transactions and not position taking for speculation. The corporate segment contains
expenses of the Companys corporate headquarters and interest expense relating to its long-term
public debt and commercial paper program.
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.
The Company has refined its method of overhead allocation for fiscal 2006 as compared to 2005 and
2004. Overhead costs of $15.9 million and $10.7 million were reclassified in fiscal 2005 and 2004,
respectively, from the domestic mills to the domestic fabrication segment to ensure comparability
with current year amounts reported.
63
The following is a summary of certain financial information by reportable segment (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketing |
|
|
|
|
|
|
|
|
Domestic |
|
|
|
|
|
Domestic |
|
|
|
|
|
and |
|
|
|
|
|
|
|
|
Mills |
|
CMCZ |
|
Fabrication |
|
Recycling |
|
Distribution |
|
Corporate |
|
Eliminations |
|
Consolidated |
|
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales-unaffiliated
customers |
|
$ |
1,149,714 |
|
|
$ |
553,576 |
|
|
$ |
1,770,310 |
|
|
$ |
1,253,059 |
|
|
$ |
2,824,640 |
|
|
$ |
4,625 |
|
|
$ |
|
|
|
$ |
7,555,924 |
|
Intersegment sales |
|
|
450,541 |
|
|
|
20,144 |
|
|
|
1,480 |
|
|
|
107,398 |
|
|
|
128,937 |
|
|
|
19,684 |
|
|
|
(728,184 |
) |
|
|
|
|
Net sales |
|
|
1,600,255 |
|
|
|
573,720 |
|
|
|
1,771,790 |
|
|
|
1,360,457 |
|
|
|
2,953,577 |
|
|
|
24,309 |
|
|
|
(728,184 |
) |
|
|
7,555,924 |
|
Adjusted operating profit
(loss) |
|
|
301,113 |
|
|
|
52,791 |
|
|
|
95,999 |
|
|
|
99,963 |
|
|
|
69,755 |
|
|
|
(32,367 |
) |
|
|
|
|
|
|
587,254 |
|
Interest expense* |
|
|
(7,112 |
) |
|
|
1,658 |
|
|
|
13,234 |
|
|
|
(2,070 |
) |
|
|
15,433 |
|
|
|
9,870 |
|
|
|
(1,444 |
) |
|
|
29,569 |
|
Capital expenditures |
|
|
47,942 |
|
|
|
36,508 |
|
|
|
27,045 |
|
|
|
13,230 |
|
|
|
5,735 |
|
|
|
775 |
|
|
|
|
|
|
|
131,235 |
|
Depreciation and amortization |
|
|
34,702 |
|
|
|
24,113 |
|
|
|
15,257 |
|
|
|
8,176 |
|
|
|
2,252 |
|
|
|
878 |
|
|
|
|
|
|
|
85,378 |
|
Goodwill |
|
|
306 |
|
|
|
|
|
|
|
27,006 |
|
|
|
6,669 |
|
|
|
1,768 |
|
|
|
|
|
|
|
|
|
|
|
35,749 |
|
|
Total assets |
|
|
503,605 |
|
|
|
315,384 |
|
|
|
703,127 |
|
|
|
293,779 |
|
|
|
872,808 |
|
|
|
210,165 |
|
|
|
|
|
|
|
2,898,868 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales-unaffiliated
customers |
|
$ |
1,014,021 |
|
|
$ |
466,529 |
|
|
$ |
1,472,858 |
|
|
$ |
820,984 |
|
|
$ |
2,813,462 |
|
|
$ |
4,843 |
|
|
$ |
|
|
|
$ |
6,592,697 |
|
Intersegment sales |
|
|
284,400 |
|
|
|
11,726 |
|
|
|
828 |
|
|
|
75,962 |
|
|
|
112,863 |
|
|
|
|
|
|
|
(485,779 |
) |
|
|
|
|
Net sales |
|
|
1,298,421 |
|
|
|
478,255 |
|
|
|
1,473,686 |
|
|
|
896,946 |
|
|
|
2,926,325 |
|
|
|
4,843 |
|
|
|
(485,779 |
) |
|
|
6,592,697 |
|
Adjusted operating profit
(loss) |
|
|
232,812 |
|
|
|
(188 |
) |
|
|
101,919 |
|
|
|
70,828 |
|
|
|
90,417 |
|
|
|
(17,463 |
) |
|
|
|
|
|
|
478,325 |
|
Interest expense* |
|
|
1,622 |
|
|
|
3,602 |
|
|
|
9,993 |
|
|
|
(1,738 |
) |
|
|
9,330 |
|
|
|
9,379 |
|
|
|
(1,001 |
) |
|
|
31,187 |
|
Capital expenditures |
|
|
52,041 |
|
|
|
25,730 |
|
|
|
17,487 |
|
|
|
12,021 |
|
|
|
2,331 |
|
|
|
604 |
|
|
|
|
|
|
|
110,214 |
|
Depreciation and amortization |
|
|
33,669 |
|
|
|
17,808 |
|
|
|
13,383 |
|
|
|
7,858 |
|
|
|
2,810 |
|
|
|
1,082 |
|
|
|
|
|
|
|
76,610 |
|
Goodwill |
|
|
306 |
|
|
|
|
|
|
|
27,006 |
|
|
|
3,230 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,542 |
|
|
Total assets |
|
|
468,532 |
|
|
|
276,219 |
|
|
|
594,000 |
|
|
|
146,620 |
|
|
|
746,951 |
|
|
|
100,600 |
|
|
|
|
|
|
|
2,332,922 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales-unaffiliated
customers |
|
$ |
845,348 |
|
|
$ |
354,328 |
|
|
$ |
1,041,690 |
|
|
$ |
717,557 |
|
|
$ |
1,809,276 |
|
|
$ |
128 |
|
|
$ |
|
|
|
$ |
4,768,327 |
|
Intersegment sales |
|
|
263,888 |
|
|
|
72,813 |
|
|
|
5,631 |
|
|
|
56,618 |
|
|
|
72,507 |
|
|
|
|
|
|
|
(471,457 |
) |
|
|
|
|
Net sales |
|
|
1,109,236 |
|
|
|
427,141 |
|
|
|
1,047,321 |
|
|
|
774,175 |
|
|
|
1,881,783 |
|
|
|
128 |
|
|
|
(471,457 |
) |
|
|
4,768,327 |
|
Adjusted operating profit
(loss) |
|
|
94,856 |
|
|
|
69,318 |
|
|
|
(3,412 |
) |
|
|
67,887 |
|
|
|
39,427 |
|
|
|
(26,394 |
) |
|
|
|
|
|
|
241,682 |
|
Interest expense* |
|
|
2,370 |
|
|
|
3,175 |
|
|
|
5,135 |
|
|
|
(93 |
) |
|
|
4,056 |
|
|
|
13,833 |
|
|
|
(372 |
) |
|
|
28,104 |
|
Capital expenditures |
|
|
25,734 |
|
|
|
7,913 |
|
|
|
7,954 |
|
|
|
8,688 |
|
|
|
1,214 |
|
|
|
386 |
|
|
|
|
|
|
|
51,889 |
|
Depreciation and amortization |
|
|
36,324 |
|
|
|
10,098 |
|
|
|
13,369 |
|
|
|
7,705 |
|
|
|
2,665 |
|
|
|
883 |
|
|
|
|
|
|
|
71,044 |
|
Goodwill |
|
|
306 |
|
|
|
|
|
|
|
27,006 |
|
|
|
3,230 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,542 |
|
|
Total assets |
|
|
421,517 |
|
|
|
242,547 |
|
|
|
497,044 |
|
|
|
143,504 |
|
|
|
569,220 |
|
|
|
114,214 |
|
|
|
|
|
|
|
1,988,046 |
|
|
|
|
|
* |
|
Includes intercompany interest expense (income) in the segments. |
The following table provides a reconciliation of consolidated adjusted operating profit to net
earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended August 31, |
(in thousands) |
|
2006 |
|
2005 |
|
2004 |
|
Net earnings |
|
$ |
356,347 |
|
|
$ |
285,781 |
|
|
$ |
132,021 |
|
Minority interests (benefit) |
|
|
10,209 |
|
|
|
(744 |
) |
|
|
14,871 |
|
Income taxes |
|
|
187,937 |
|
|
|
157,996 |
|
|
|
65,055 |
|
Interest expense |
|
|
29,569 |
|
|
|
31,187 |
|
|
|
28,104 |
|
Discounts on sales of accounts receivable |
|
|
3,192 |
|
|
|
4,105 |
|
|
|
1,631 |
|
|
Adjusted operating profit |
|
$ |
587,254 |
|
|
$ |
478,325 |
|
|
$ |
241,682 |
|
|
64
The following represents the Companys external net sales by major product and geographic area:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended August 31, |
(in thousands) |
|
2006 |
|
2005 |
|
2004 |
|
Major product information: |
|
|
|
|
|
|
|
|
|
|
|
|
Steel products |
|
$ |
4,457,707 |
|
|
$ |
4,276,086 |
|
|
$ |
2,959,208 |
|
Nonferrous scrap |
|
|
840,870 |
|
|
|
427,652 |
|
|
|
328,357 |
|
Industrial materials |
|
|
831,726 |
|
|
|
816,322 |
|
|
|
519,967 |
|
Nonferrous products |
|
|
572,746 |
|
|
|
455,043 |
|
|
|
361,721 |
|
Ferrous scrap |
|
|
406,113 |
|
|
|
387,963 |
|
|
|
384,196 |
|
Construction materials |
|
|
390,294 |
|
|
|
192,167 |
|
|
|
155,881 |
|
Other |
|
|
56,468 |
|
|
|
37,464 |
|
|
|
58,997 |
|
|
Net sales |
|
$ |
7,555,924 |
|
|
$ |
6,592,697 |
|
|
$ |
4,768,327 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Geographic area: |
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
$ |
4,803,220 |
|
|
$ |
3,876,683 |
|
|
$ |
2,989,554 |
|
Europe |
|
|
1,221,589 |
|
|
|
1,237,551 |
|
|
|
827,249 |
|
Asia |
|
|
809,501 |
|
|
|
853,317 |
|
|
|
493,609 |
|
Australia/New Zealand |
|
|
446,481 |
|
|
|
403,696 |
|
|
|
315,442 |
|
Other |
|
|
275,133 |
|
|
|
221,450 |
|
|
|
142,473 |
|
|
Net sales |
|
$ |
7,555,924 |
|
|
$ |
6,592,697 |
|
|
$ |
4,768,327 |
|
|
The following represents long-lived assets by geographic area:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended August 31, |
(in thousands) |
|
2006 |
|
2005 |
|
2004 |
|
United States |
|
$ |
586,068 |
|
|
$ |
491,528 |
|
|
$ |
437,170 |
|
Europe |
|
|
139,270 |
|
|
|
119,378 |
|
|
|
95,057 |
|
Australia |
|
|
12,068 |
|
|
|
13,199 |
|
|
|
11,346 |
|
Other |
|
|
16,670 |
|
|
|
7,900 |
|
|
|
20,241 |
|
|
Total long-lived assets |
|
$ |
754,076 |
|
|
$ |
632,005 |
|
|
$ |
563,814 |
|
|
NOTE 15. QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data for fiscal 2006, 2005 and 2004 are as follows (in thousands
except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended 2006 |
|
|
Nov. 30 |
|
Feb. 28 |
|
May 31 |
|
Aug. 31 |
|
Net sales |
|
$ |
1,645,698 |
|
|
$ |
1,639,487 |
|
|
$ |
2,021,299 |
|
|
$ |
2,249,440 |
|
Gross profit |
|
|
220,968 |
|
|
|
250,604 |
|
|
|
264,565 |
|
|
|
342,954 |
|
Net earnings |
|
|
69,624 |
|
|
|
80,103 |
|
|
|
77,960 |
|
|
|
128,660 |
|
Basic EPS |
|
|
0.60 |
|
|
|
0.68 |
|
|
|
0.65 |
|
|
|
1.08 |
|
Diluted EPS |
|
|
0.57 |
|
|
|
0.65 |
|
|
|
0.62 |
|
|
|
1.04 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended 2005 |
|
|
Nov. 30 |
|
Feb. 28 |
|
May 31 |
|
Aug. 31 |
|
Net sales |
|
$ |
1,529,072 |
|
|
$ |
1,597,313 |
|
|
$ |
1,726,251 |
|
|
$ |
1,740,061 |
|
Gross profit |
|
|
232,964 |
|
|
|
208,521 |
|
|
|
229,532 |
|
|
|
228,196 |
|
Net earnings |
|
|
73,725 |
|
|
|
56,575 |
|
|
|
71,741 |
|
|
|
83,740 |
|
Basic EPS |
|
|
0.63 |
|
|
|
0.48 |
|
|
|
0.60 |
|
|
|
0.72 |
|
Diluted EPS |
|
|
0.61 |
|
|
|
0.45 |
|
|
|
0.57 |
|
|
|
0.69 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended 2004 |
|
|
Nov. 30 |
|
Feb. 29 |
|
May 31 |
|
Aug. 31 |
|
Net sales |
|
$ |
830,007 |
|
|
$ |
1,068,060 |
|
|
$ |
1,407,206 |
|
|
$ |
1,463,054 |
|
Gross profit |
|
|
92,519 |
|
|
|
128,615 |
|
|
|
202,169 |
|
|
|
184,298 |
|
Net earnings |
|
|
12,628 |
|
|
|
21,155 |
|
|
|
50,884 |
|
|
|
47,354 |
|
Basic EPS |
|
|
0.11 |
|
|
|
0.18 |
|
|
|
0.44 |
|
|
|
0.40 |
|
Diluted EPS |
|
|
0.11 |
|
|
|
0.18 |
|
|
|
0.42 |
|
|
|
0.39 |
|
65
During the fourth quarter of 2005, the Company reached a formal settlement with its insurance
carrier and recorded $11.6 million representing the final settlement of its insurance claims for
property damage and business interruption relating to its prior year transformer failures at CMC
Steel Texas and CMC South Carolina. All funds were received in September 2005.
Also, during the fourth quarter of 2005, the Company reduced its accrued discretionary incentive
compensation accrual by $6.9 million following finalization and approval by its Board of Directors.
The final determination of LIFO inventory quantities and prices (after tax) resulted in $10.5
million expense, $10.8 million income and $25.3 million expense in the fourth quarters of 2006,
2005, and 2004, respectively. Also, during the fourth quarter of 2005, the Company incurred charges
of $6.5 million to write-down its FIFO inventories to current market value.
NOTE 16. RELATED PARTY TRANSACTIONS
One of the Companys international subsidiaries has an agreement for steel purchases with a key
supplier of which the Company owns an 11% interest. The total amounts of purchases from this
supplier were $286 million, $251 million and $146 million for the years ended August 31, 2006, 2005
and 2004, respectively.
ITEM 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
ITEM 9A. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures. The term disclosure controls and
procedures is defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, or
the Exchange Act. This term refers to the controls and procedures of a company that are designed to
ensure that information required to be disclosed by a company in the reports that it files under
the Exchange Act is recorded, processed, summarized and reported within required time periods. Our
Chief Executive Officer and our Chief Financial Officer have evaluated the effectiveness of our
disclosure controls and procedures as of the end of the period covered by this annual report, and
they have concluded that as of that date, our disclosure controls and procedures were effective at
ensuring that required information will be disclosed on a timely basis in our reports filed under
the Exchange Act.
(b) Changes in Internal Control Over Financial Reporting. During our most recent fiscal
quarter, there was no change in our internal control over financial reporting (as that term is
defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that has materially affected, or
is reasonably likely to materially affect, our internal control over financial reporting.
(c) Managements Report on Internal Control Over Financial Reporting. Management concluded
that, as of August 31, 2006, our internal control over financial reporting was effective. Our
Managements Report on Internal Control Over Financial Reporting, as of August 31, 2006, can be
found on page 38 of this Form 10-K, and the related Report of Our Independent Registered Public
Accounting Firm, Deloitte & Touche LLP, on Internal Control Over Financial Reporting can be found
on page 40 of this Form 10-K, each of which is incorporated by reference into this Item 9A.
ITEM 9B. OTHER INFORMATION
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Some of the information required in response to this item with regard to directors is
incorporated by reference into this annual report from our definitive proxy statement for the
annual meeting of stockholders to be held January 25, 2007, which will be filed no later than 120
days after the close of our fiscal year. The following is a listing of employees we believe to be
our Executive Officers as of November 1, 2006, as defined under Rule 3b-7 of the Securities
Exchange Act of 1934:
66
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT TITLE & |
|
|
|
|
NAME |
|
POSITION |
|
AGE |
|
OFFICER SINCE |
Louis A. Federle
|
|
Treasurer
|
|
|
58 |
|
|
|
1979 |
|
William B. Larson
|
|
Vice President and Chief Financial Officer
|
|
|
53 |
|
|
|
1995 |
|
Murray R. McClean
|
|
President, Chief Executive Officer and Director
|
|
|
58 |
|
|
|
1995 |
|
Malinda G. Passmore
|
|
Vice President and Chief Information Officer
|
|
|
47 |
|
|
|
1999 |
|
Allan R. Postel
|
|
Vice President and CMC Recycling President
|
|
|
58 |
|
|
|
2004 |
|
Stanley A. Rabin
|
|
Chairman of the Board and Director
|
|
|
68 |
|
|
|
1974 |
|
Russell B. Rinn
|
|
Vice President and CMC Steel Group President &
Chief Executive Officer
|
|
|
48 |
|
|
|
2002 |
|
Leon K. Rusch
|
|
Controller
|
|
|
55 |
|
|
|
2006 |
|
David M. Sudbury
|
|
Vice President, Secretary and General Counsel
|
|
|
61 |
|
|
|
1976 |
|
Hanns Zoellner
|
|
Vice President and Marketing and Distribution
|
|
|
58 |
|
|
|
2004 |
|
|
|
Segment President |
|
|
|
|
|
|
|
|
Our board of directors usually elects the executive officers at its first meeting after our
annual stockholders meeting. Our executive officers continue to serve for terms set from time to
time by the board of directors in its discretion.
In July, 2006, Mr. McClean was elected a director and, effective September 1, 2006, we
appointed Mr. McClean as our Chief Executive Officer. Mr. McClean served as President and Chief
Operating Officer from September 20, 2004 to September 1, 2006, and as President of the Marketing
and Distribution Segment from September 1, 1999 to September 20, 2004. Mr. McClean will continue in
his capacity as President in addition to his new positions as Chief Executive Officer and Director.
Mr. Zoellner replaced Mr. McClean as President of the Marketing and Distribution Segment. Mr.
Zoellner had previously served as President of the International Division Europe, having been
employed by the division initially in 1981 and continuously since 1991. Mr. Rabin served as Chief
Executive Officer from 1979 to September 1, 2006, and will continue in his role as Chairman of the
Board. Mr. Postel was named President of the CMC Recycling Segment in September, 2004. Mr. Postel
had served as Chief Operating Officer of the segment since March, 2004 and has been employed in
positions of increasing responsibility in the CMC Recycling Segment since 1974. On January 11,
2006, we appointed Leon K. Rusch as Controller of the Company. Mr. Rusch replaced Malinda G.
Passmore who was appointed to the position of Vice President and Chief Information Officer of the
Company. Ms. Passmore had previously served as Controller of the Company since 1999. Mr. Rusch
joined the Company in December, 2003 as Director of Internal Audit and had previously been employed
for more than five years at CNH Global N.V. as Financial Director and previously Audit Director.
We have employed all of our other executive officers in the positions indicated above or in
positions of similar responsibility for more than five years. There are no family relationships
among our officers or among the executive officers and directors.
We have adopted a Financial Code of Ethics that applies to our Chief Executive Officer, Chief
Financial Officer, Corporate Controller and any of our other officers that may function as a Chief
Accounting Officer. We hereby undertake to provide to any person without charge, upon request, a
copy of our Financial Code of Ethics. Requests may be directed to Commercial Metals Company, 6565
N. MacArthur Blvd., Suite 800, Irving, Texas 75039, Attention: Corporate Secretary, or by calling
(214) 689-4300.
67
ITEM 11. EXECUTIVE COMPENSATION
Information required in response to this Item 11 is incorporated by reference into this annual
report from our definitive proxy statement for the annual meeting of stockholders to be held
January 25, 2007. We will file our definitive proxy statement no later than 120 days after the
close of our fiscal year.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
The information required in response to this Item 12 is incorporated by reference into this
annual report from our definitive proxy statement for the annual meeting of stockholders to be held
January 25, 2007. We will file our definitive proxy statement no later than 120 days after the
close of our fiscal year.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
To the extent applicable, information required in response to this Item 13 is incorporated by
reference into this annual report from our definitive proxy statement for the annual meeting of
stockholders to be held January 25, 2007. We will file our definitive proxy statement no later than
120 days after the close of our fiscal year.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required in response to this Item 14 is incorporated by reference into this
annual report from our definitive proxy statement for the annual meeting of stockholders to be held
January 25, 2007. We will file our definitive proxy statement no later than 120 days after the
close of our fiscal year.
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a) The following documents are filed as a part of this report:
|
1. |
|
All financial statements are included at Item 8 above. |
|
|
2. |
|
All financial statement 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: |
|
|
|
EXHIBIT |
|
|
NO. |
|
DESCRIPTION |
2(a)
|
|
Agreement and Plan of Merger among Commercial Metals Company, LAI Acquisition
Company, Lofland Acquisition, Inc., The Lofland Company, E.F. Private Equity
Partners (Americas) L.P. and the Texas Growth Fund-1995 Trust dated December 23,
2003 (filed as Exhibit 2(b) to Commercial Metals Form S-4 filed January 27, 2004
(File NO. 3333-112243) and incorporated herein by reference). |
|
|
|
2(b)
|
|
Share Purchase Agreement dated July 22, 2003, between Impexmetal, S.A. and
Commercial Metals (International) AG (filed as Exhibit 2.1 to Commercial Metals
Form 10-Q for the quarter ending November 30, 2003 and incorporated herein by
reference). |
|
|
|
3(i)
|
|
Restated Certificate of Incorporation (filed as Exhibit 3(i) to Commercial Metals
Form 10-K/A for the fiscal year ended August 31, 2002 and incorporated herein by
reference). |
|
|
|
3(i)(a)
|
|
Certificate of Amendment of Restated Certificate of Incorporation dated February 1,
1994 (filed as Exhibit 3(i)a to Commercial Metals Form 10-K/A for the fiscal year
ended August 31, 2002 and incorporated herein by reference). |
|
|
|
3(i)(b)
|
|
Certificate of Amendment of Restated Certificate of Incorporation dated February 17,
1995 (filed as Exhibit 3(i)b to Commercial Metals Form 10-K/A for the fiscal year
ended August 31, 2002 and incorporated herein by reference). |
68
|
|
|
EXHIBIT |
|
|
NO. |
|
DESCRIPTION |
3(i)(c)
|
|
Certificate of Amendment of Restated Certificate of Incorporation dated January 26,
2006 (filed as Exhibit 3(i) to Commercial Metals Form 10-Q for the quarter ended
February 28, 2006 and incorporated herein by reference). |
|
|
|
3(i)(d)
|
|
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)
|
|
Amended and Restated Bylaws (filed as Exhibit 3(ii) to Commercial Metals Form 10-K
for the fiscal year ended August 31, 2004 and incorporated herein by reference). |
|
|
|
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 as Exhibit
4(i)c to Commercial Metals Form 10-K/A for the fiscal year ended August 31, 2002
and incorporated herein by reference). |
|
|
|
4(i)(d)
|
|
Form of Note for Commercial Metals 6.80% Senior Notes due 2007 (filed as Exhibit
4(i)d to Commercial Metals Form 10-K/A for the fiscal year ended August 31, 2002
and incorporated herein by reference). |
|
|
|
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 as Exhibit 4(i)e
to Commercial Metals Form 10-K/A for the fiscal year ended August 31, 2002 and
incorporated herein by reference). |
|
|
|
4(i)(f)
|
|
Form of Note for Commercial Metals 6.75% Senior Notes due 2009 (filed as Exhibit
4(i)f to Commercial Metals Form 10-K/A for the fiscal year ended August 31, 2002
and incorporated herein by reference). |
|
|
|
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 as Exhibit
4(i)g to Commercial Metals Form 10-K/A for the fiscal year ended August 31, 2002
and incorporated herein by reference). |
|
|
|
4(i)(h)**
|
|
Exchange and Registration Rights Agreement, dated November 13, 2003, by and among
Goldman, Sachs & Co., Banc of America Securities LLC, Tokyo-Mitsubishi International
plc, ABN AMRO Incorporated and Commercial Metals (filed as Exhibit 4(i)h to
Commercial Metals Form 10-K for the fiscal year ended August 31, 2003 and
incorporated herein by reference). |
|
|
|
4(i)(i)**
|
|
Supplemental Indenture, dated as of November 12, 2003, to Indenture dated as of July
31, 1995, by and between Commercial Metals and JPMorgan Chase Bank (filed as Exhibit
4(i)i to Commercial Metals Form 10-K for the fiscal year ended August 31, 2003 and
incorporated herein by reference). |
|
|
|
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)**
|
|
Purchase Agreement, dated November 7, 2003, by and among Goldman, Sachs & Co., Banc
of America Securities LLC, Tokyo-Mitsubishi International plc, ABN AMRO Incorporated
and Commercial Metals (filed as Exhibit 10(i)c to Commercial Metals Form 10-K for
the fiscal year ended August 31, 2003 and incorporated herein by reference). |
|
|
|
10(i)(c)
|
|
$129,500,000 Amended and Restated 364-Day Revolving Credit Agreement dated as of
August 8, 2002 which terminated August 8, 2003 (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(i)(d)**
|
|
$275,000,000 3 Year Credit Agreement, dated August 8, 2003, by and among Commercial
Metals, Bank of America, N.A., The Bank of Tokyo-Mitsubishi, Ltd., ABN AMRO Bank
N.V., Mellon Bank, N.A., BNP Paribas, Banc of America Securities LLC and the other
lending parties listed therein (filed as Exhibit 10(i)e to Commercial Metals Form
10-K for the fiscal year ended August 31, 2003 and incorporated herein by
reference). |
69
|
|
|
EXHIBIT |
|
|
NO. |
|
DESCRIPTION |
10(i)(e)
|
|
First Amendment dated March 15, 2004, to the $275,000,000 3 Year Credit Agreement,
dated August 8, 2003, by and among Commercial Metals, Bank of America, N.A., The
Bank of Tokyo-Mitsubishi, Ltd., ABN AMRO Bank N.V., Mellon Bank, N.A., BNP Paribas,
Banc of America Securities LLC and the other lending parties listed therein (filed
as Exhibit 10(i)e to Commercial Metals Form 10-K for the fiscal year ended August
31, 2004 and incorporated herein by reference). |
|
|
|
10(i)(f)
|
|
Second Amendment dated October 7, 2004, to the $275,000,000 3 Year Credit Agreement,
dated August 8, 2003, by and among Commercial Metals, Bank of America, N.A., The
Bank of Tokyo-Mitsubishi, Ltd., ABN AMRO Bank N.V., Mellon Bank, N.A., BNP Paribas,
Banc of America Securities LLC and the other lending parties listed therein (filed
as Exhibit 10(i)(f) to Commercial Metals Form 10-K for the fiscal year ended August
31, 2004 and incorporated herein by reference). |
|
|
|
10(i)(g)
|
|
Amended and Restated Receivables Purchase Agreement dated as of April 22, 2004,
among CMC Receivables, Inc., as Sellers, Liberty Street Funding Corp. and Three
Rivers Funding Corporation, as Buyers, The Bank of Nova Scotia and Mellon Bank,
N.A., as Managing Agents, Mellon Bank, N.A., as Administrative Agent and Commercial
Metals Company as Servicer (filed as Exhibit 10(i)f to Commercial Metals Form 10-Q
for the quarter ending May 31, 2004 and incorporated herein by reference). |
|
|
|
10(i)(h)
|
|
Amendment to Purchase and Sale Agreement dated April 22, 2004, among CMC
Receivables, Inc., CMC Steel Fabricators, Inc., Commercial Metals Company, Howell
Metal Company, Owen Electric Steel Company of South Carolina, SMI Steel Inc. and
Structural Metals, Inc. (filed as Exhibit 10(i)g to Commercial Metals Form 10-Q for
the quarter ending May 31, 2004 and incorporated herein by reference). |
|
|
|
10(i)(i)
|
|
Amendment to Amended and Restated Receivables Purchase Agreement dated as of April
20, 2005, among CMC Receivables, Inc., as Sellers, Liberty Street Funding Corp. and
Three Rivers Funding Corporation, as Buyers, The Bank of Nova Scotia and Mellon
Bank, N.A., as Managing Agents, Mellon Bank, N.A., as Administrative Agent and
Commercial Metals Company as Servicer (filed as Exhibit 10.1 to Commercial Metals
Form 8-K filed April 21, 2005 and incorporated herein by reference). |
|
|
|
10(i)(j)
|
|
Amendment to Amended and Restated Receivables Purchase Agreement dated as of
December 1, 2005, among CMC Receivables, Inc., as Sellers, Liberty Street Funding
Corp. and Three Rivers Funding Corporation, as Buyers, The Bank of Nova Scotia and
Mellon Bank, N.A., as Managing Agents, Mellon Bank, N.A., as Administrative Agent
and Commercial Metals Company as Servicer (filed as Exhibit 10.1 to Commercial
Metals Form 10-Q for the quarter ended November 30, 2005 and incorporated herein by
reference). |
|
|
|
10(i)(k)
|
|
Amendment to Amended and Restated Receivables Purchase Agreement dated as of April
14, 2006, among CMC Receivables, Inc., as Sellers, Liberty Street Funding Corp. and
Three Rivers Funding Corporation, as Buyers, The Bank of Nova Scotia and Mellon
Bank, N.A., as Managing Agents, Mellon Bank, N.A., as Administrative Agent and
Commercial Metals Company as Servicer (filed as Exhibit 10(i) to Commercial Metals
Form 10-Q for the quarter ended May 31, 2006 and incorporated herein by reference). |
|
|
|
10(i)(l)
|
|
First Amended and Restated $400,000,000 3 Year Credit Agreement, dated May 23, 2005,
by and among Commercial Metals, Bank of America, N.A., The Bank of Tokyo-Mitsubishi,
Ltd., ABN AMRO Bank N.V., Mellon Bank, N.A., BNP Paribas, Banc of America Securities
LLC and the other lending parties listed therein (filed as Exhibit 10.4 to
Commercial Metals Form 8-K filed May 26, 2005 and incorporated herein by
reference). |
|
|
|
10(iii)(a)*
|
|
Employment Agreement of Murray R. McClean dated May 23, 2005 (filed as Exhibit 10.1
to Commercial Metals Form 8-K filed May 26, 2005 and incorporated herein by
reference). |
|
|
|
10(iii)(b)*
|
|
First Amendment to Employment
Agreement, dated September 1, 2006 (filed as Exhibit 99.1 to
Commercial Metals Form 8-K filed September 1, 2006 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). |
70
|
|
|
EXHIBIT |
|
|
NO. |
|
DESCRIPTION |
10(iii)(f)*
|
|
Amended and Restated 1999 Non-Employee Director Stock Option Plan (filed as Exhibit
10(iii)(f) to Commercial Metals Form 10-K for the fiscal year ended August 31, 2004
and incorporated herein by reference). |
|
|
|
10(iii)(g)*
|
|
Consulting and Non-Competition Agreement, between Commercial Metals Company and
Harry J. Heinkele dated as of September 24, 2004 (filed as Exhibit 10.1 to
Commercial Metals Form 8-K filed September 29, 2004 and incorporated herein by
reference). |
|
|
|
10(iii)(h)*
|
|
Employment Agreement between Commercial Metals (International) AG and Hanns Zoellner
dated January 2, 1998 (filed as Exhibit 10(iii)h to Commercial Metals Form 10-K for
the fiscal year ended August 31, 2004 and incorporated herein by reference). |
|
|
|
10(iii)(i)*
|
|
Commercial Metals Company 1996 Long-Term Incentive Plan (filed as Exhibit 10.1 to
Commercial Metals Form 10-Q for the quarter ending February 28, 2005 and
incorporated herein by reference). |
|
|
|
10(iii)(j)*
|
|
Form of Commercial Metals Company 1996 Long-Term Incentive Plan Restricted Stock
Award Agreement (filed as Exhibit 10.2 to Commercial Metals Form 8-K filed May 26,
2005 and incorporated herein by reference). |
|
|
|
10(iii)(k)*
|
|
Form of Commercial Metals Company 1996 Long-Term Incentive Plan Stock Appreciation
Rights Agreement (filed as Exhibit 10.3 to Commercial Metals Form 8-K filed May 26,
2005 and incorporated herein by reference). |
|
|
|
10(iii)(l)*
|
|
Form of Non-Employee Director Restricted Stock Award Agreement (filed as Exhibit
10.1to Commercial Metals Form 8-K filed January 27, 2005 and incorporated herein by
reference). |
|
|
|
10(iii)(m)*
|
|
Form of Executive Employment Continuity Agreement (filed as Exhibit 10.1 to
Commercial Metals Form 10-Q for the quarter ended February 28, 2006 and
incorporated herein by reference) |
|
|
|
10(iii)(n)* |
|
Employment Agreement between
Commercial Metals Company and Clyde P. Selig, dated February 6, 2006
(filed as Exhibit 10.1 to Commercial Metals Form 8-K filed
February 7, 2006 and incorporated herein by reference). |
|
|
|
12
|
|
Statement re computation of earnings to fixed charges (filed herewith). |
|
|
|
21
|
|
Subsidiaries of Registrant (filed herewith). |
|
|
|
23
|
|
Consent of Independent Registered Public Accounting Firm to incorporation by
reference of report dated November 6, 2006, accompanying the consolidated
financial statements of Commercial Metals Company and subsidiaries for the year
ended August 31, 2006, 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 Murray R. McClean, 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 Murray R. McClean, 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. |
|
** |
|
Does not contain Schedules or exhibits. A copy of any such Schedules or exhibits will be
furnished to the Securities and Exchange Commission upon request. |
71
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/ Murray R. McClean
|
|
|
|
|
By: Murray R. McClean |
|
|
|
|
President and Chief Executive Officer |
|
|
|
|
|
|
|
|
|
Date: November 6, 2006 |
|
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant and in the capacities and on the
dates indicated:
|
|
|
/s/ Murray R. McClean
|
|
/s/ Robert D. Neary |
|
|
|
Murray R. McClean, November 6, 2006
|
|
Robert D. Neary, November 6, 2006 |
President and Chief Executive Officer
|
|
Director |
|
|
|
/s/ Stanley A. Rabin
|
|
/s/ Dorothy G. Owen |
|
|
|
Stanley A. Rabin, November 6, 2006
|
|
Dorothy G. Owen, November 6, 2006 |
Chairman of the Board
|
|
Director |
|
|
|
/s/ Harold L. Adams
|
|
/s/ J. David Smith |
|
|
|
Harold L. Adams, November 6, 2006
|
|
J. David Smith, November 6, 2006 |
Director
|
|
Director |
|
|
|
/s/ Moses Feldman
|
|
/s/ Robert R. Womack |
|
|
|
Moses Feldman, November 6, 2006
|
|
Robert R. Womack, November 6, 2006 |
Director
|
|
Director |
|
|
|
/s/ Ralph E. Loewenberg
|
|
/s/ William B. Larson |
|
|
|
Ralph E. Loewenberg, November 6, 2006
|
|
William B. Larson, November 6, 2006 |
Director
|
|
Vice President and Chief Financial Officer |
|
|
|
/s/ Anthony A. Massaro
|
|
/s/ Leon K. Rusch |
|
|
|
Anthony A. Massaro, November 6, 2006
|
|
Leon K. Rusch, November 6, 2006 |
Director
|
|
Controller |
72
Index to Exhibits
|
|
|
EXHIBIT |
|
|
NO. |
|
DESCRIPTION |
2(a)
|
|
Agreement and Plan of Merger among Commercial Metals Company, LAI Acquisition
Company, Lofland Acquisition, Inc., The Lofland Company, E.F. Private Equity
Partners (Americas) L.P. and the Texas Growth Fund-1995 Trust dated December 23,
2003 (filed as Exhibit 2(b) to Commercial Metals Form S-4 filed January 27, 2004
(File NO. 3333-112243) and incorporated herein by reference). |
|
|
|
2(b)
|
|
Share Purchase Agreement dated July 22, 2003, between Impexmetal, S.A. and
Commercial Metals (International) AG (filed as Exhibit 2.1 to Commercial Metals
Form 10-Q for the quarter ending November 30, 2003 and incorporated herein by
reference). |
|
|
|
3(i)
|
|
Restated Certificate of Incorporation (filed as Exhibit 3(i) to Commercial Metals
Form 10-K/A for the fiscal year ended August 31, 2002 and incorporated herein by
reference). |
|
|
|
3(i)(a)
|
|
Certificate of Amendment of Restated Certificate of Incorporation dated February 1,
1994 (filed as Exhibit 3(i)a to Commercial Metals Form 10-K/A for the fiscal year
ended August 31, 2002 and incorporated herein by reference). |
|
|
|
3(i)(b)
|
|
Certificate of Amendment of Restated Certificate of Incorporation dated February 17,
1995 (filed as Exhibit 3(i)b to Commercial Metals Form 10-K/A for the fiscal year
ended August 31, 2002 and incorporated herein by reference). |
|
|
|
3(i)(c)
|
|
Certificate of Amendment of Restated Certificate of Incorporation dated January 26,
2006 (filed as Exhibit 3(i) to Commercial Metals Form 10-Q for the quarter ended
February 28, 2006 and incorporated herein by reference). |
|
|
|
3(i)(d)
|
|
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)
|
|
Amended and Restated Bylaws (filed as Exhibit 3(ii) to Commercial Metals Form 10-K
for the fiscal year ended August 31, 2004 and incorporated herein by reference). |
|
|
|
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 as Exhibit
4(i)c to Commercial Metals Form 10-K/A for the fiscal year ended August 31, 2002
and incorporated herein by reference). |
|
|
|
4(i)(d)
|
|
Form of Note for Commercial Metals 6.80% Senior Notes due 2007 (filed as Exhibit
4(i)d to Commercial Metals Form 10-K/A for the fiscal year ended August 31, 2002
and incorporated herein by reference). |
|
|
|
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 as Exhibit 4(i)e
to Commercial Metals Form 10-K/A for the fiscal year ended August 31, 2002 and
incorporated herein by reference). |
|
|
|
4(i)(f)
|
|
Form of Note for Commercial Metals 6.75% Senior Notes due 2009 (filed as Exhibit
4(i)f to Commercial Metals Form 10-K/A for the fiscal year ended August 31, 2002
and incorporated herein by reference). |
|
|
|
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 as Exhibit
4(i)g to Commercial Metals Form 10-K/A for the fiscal year ended August 31, 2002
and incorporated herein by reference). |
|
|
|
4(i)(h)**
|
|
Exchange and Registration Rights Agreement, dated November 13, 2003, by and among
Goldman, Sachs & Co., Banc of America Securities LLC, Tokyo-Mitsubishi International
plc, ABN AMRO Incorporated and Commercial Metals (filed as Exhibit 4(i)h to
Commercial Metals Form 10-K for the fiscal year ended August 31, 2003 and
incorporated herein by reference). |
73
|
|
|
EXHIBIT |
|
|
NO. |
|
DESCRIPTION |
4(i)(i)**
|
|
Supplemental Indenture, dated as of November 12, 2003, to Indenture dated as of July
31, 1995, by and between Commercial Metals and JPMorgan Chase Bank (filed as Exhibit
4(i)i to Commercial Metals Form 10-K for the fiscal year ended August 31, 2003 and
incorporated herein by reference). |
|
|
|
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)**
|
|
Purchase Agreement, dated November 7, 2003, by and among Goldman, Sachs & Co., Banc
of America Securities LLC, Tokyo-Mitsubishi International plc, ABN AMRO Incorporated
and Commercial Metals (filed as Exhibit 10(i)c to Commercial Metals Form 10-K for
the fiscal year ended August 31, 2003 and incorporated herein by reference). |
|
|
|
10(i)(c)
|
|
$129,500,000 Amended and Restated 364-Day Revolving Credit Agreement dated as of
August 8, 2002 which terminated August 8, 2003 (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(i)(d)**
|
|
$275,000,000 3 Year Credit Agreement, dated August 8, 2003, by and among Commercial
Metals, Bank of America, N.A., The Bank of Tokyo-Mitsubishi, Ltd., ABN AMRO Bank
N.V., Mellon Bank, N.A., BNP Paribas, Banc of America Securities LLC and the other
lending parties listed therein (filed as Exhibit 10(i)e to Commercial Metals Form
10-K for the fiscal year ended August 31, 2003 and incorporated herein by
reference). |
|
|
|
10(i)(e)
|
|
First Amendment dated March 15, 2004, to the $275,000,000 3 Year Credit Agreement,
dated August 8, 2003, by and among Commercial Metals, Bank of America, N.A., The
Bank of Tokyo-Mitsubishi, Ltd., ABN AMRO Bank N.V., Mellon Bank, N.A., BNP Paribas,
Banc of America Securities LLC and the other lending parties listed therein (filed
as Exhibit 10(i)e to Commercial Metals Form 10-K for the fiscal year ended August
31, 2004 and incorporated herein by reference). |
|
|
|
10(i)(f)
|
|
Second Amendment dated October 7, 2004, to the $275,000,000 3 Year Credit Agreement,
dated August 8, 2003, by and among Commercial Metals, Bank of America, N.A., The
Bank of Tokyo-Mitsubishi, Ltd., ABN AMRO Bank N.V., Mellon Bank, N.A., BNP Paribas,
Banc of America Securities LLC and the other lending parties listed therein (filed
as Exhibit 10(i)(f) to Commercial Metals Form 10-K for the fiscal year ended August
31, 2004 and incorporated herein by reference). |
|
|
|
10(i)(g)
|
|
Amended and Restated Receivables Purchase Agreement dated as of April 22, 2004,
among CMC Receivables, Inc., as Sellers, Liberty Street Funding Corp. and Three
Rivers Funding Corporation, as Buyers, The Bank of Nova Scotia and Mellon Bank,
N.A., as Managing Agents, Mellon Bank, N.A., as Administrative Agent and Commercial
Metals Company as Servicer (filed as Exhibit 10(i)f to Commercial Metals Form 10-Q
for the quarter ending May 31, 2004 and incorporated herein by reference). |
|
|
|
10(i)(h)
|
|
Amendment to Purchase and Sale Agreement dated April 22, 2004, among CMC
Receivables, Inc., CMC Steel Fabricators, Inc., Commercial Metals Company, Howell
Metal Company, Owen Electric Steel Company of South Carolina, SMI Steel Inc. and
Structural Metals, Inc. (filed as Exhibit 10(i)g to Commercial Metals Form 10-Q for
the quarter ending May 31, 2004 and incorporated herein by reference). |
|
|
|
10(i)(i)
|
|
Amendment to Amended and Restated Receivables Purchase Agreement dated as of April
20, 2005, among CMC Receivables, Inc., as Sellers, Liberty Street Funding Corp. and
Three Rivers Funding Corporation, as Buyers, The Bank of Nova Scotia and Mellon
Bank, N.A., as Managing Agents, Mellon Bank, N.A., as Administrative Agent and
Commercial Metals Company as Servicer (filed as Exhibit 10.1 to Commercial Metals
Form 8-K filed April 21, 2005 and incorporated herein by reference). |
|
|
|
10(i)(j)
|
|
Amendment to Amended and Restated Receivables Purchase Agreement dated as of
December 1, 2005, among CMC Receivables, Inc., as Sellers, Liberty Street Funding
Corp. and Three Rivers Funding Corporation, as Buyers, The Bank of Nova Scotia and
Mellon Bank, N.A., as Managing Agents, Mellon Bank, N.A., as Administrative Agent
and Commercial Metals Company as Servicer (filed as Exhibit 10.1 to Commercial
Metals Form 10-Q for the quarter ended November 30, 2005 and incorporated herein by
reference). |
74
|
|
|
EXHIBIT |
|
|
NO. |
|
DESCRIPTION |
10(i)(k)
|
|
Amendment to Amended and Restated Receivables Purchase Agreement dated as of April
14, 2006, among CMC Receivables, Inc., as Sellers, Liberty Street Funding Corp. and
Three Rivers Funding Corporation, as Buyers, The Bank of Nova Scotia and Mellon
Bank, N.A., as Managing Agents, Mellon Bank, N.A., as Administrative Agent and
Commercial Metals Company as Servicer (filed as Exhibit 10(i) to Commercial Metals
Form 10-Q for the quarter ended May 31, 2006 and incorporated herein by reference). |
|
|
|
10(i)(l)
|
|
First Amended and Restated $400,000,000 3 Year Credit Agreement, dated May 23, 2005,
by and among Commercial Metals, Bank of America, N.A., The Bank of Tokyo-Mitsubishi,
Ltd., ABN AMRO Bank N.V., Mellon Bank, N.A., BNP Paribas, Banc of America Securities
LLC and the other lending parties listed therein (filed as Exhibit 10.4 to
Commercial Metals Form 8-K filed May 26, 2005 and incorporated herein by
reference). |
|
|
|
10(iii)(a)*
|
|
Employment Agreement of Murray R. McClean dated May 23, 2005 (filed as Exhibit 10.1
to Commercial Metals Form 8-K filed May 26, 2005 and incorporated herein by
reference). |
|
|
|
10(iii)(b)* |
|
First Amendment to Employment
Agreement, dated September 1, 2006 (filed as Exhibit 99.1 to
Commercial Metals Form 8-K filed September 1, 2006 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)*
|
|
Amended and Restated 1999 Non-Employee Director Stock Option Plan (filed as Exhibit
10(iii)(f) to Commercial Metals Form 10-K for the fiscal year ended August 31, 2004
and incorporated herein by reference). |
|
|
|
10(iii)(g)*
|
|
Consulting and Non-Competition Agreement, between Commercial Metals Company and
Harry J. Heinkele dated as of September 24, 2004 (filed as Exhibit 10.1 to
Commercial Metals Form 8-K filed September 29, 2004 and incorporated herein by
reference). |
|
|
|
10(iii)(h)*
|
|
Employment Agreement between Commercial Metals (International) AG and Hanns Zoellner
dated January 2, 1998 (filed as Exhibit 10(iii)h to Commercial Metals Form 10-K for
the fiscal year ended August 31, 2004 and incorporated herein by reference). |
|
|
|
10(iii)(i)*
|
|
Commercial Metals Company 1996 Long-Term Incentive Plan (filed as Exhibit 10.1 to
Commercial Metals Form 10-Q for the quarter ending February 28, 2005 and
incorporated herein by reference). |
|
|
|
10(iii)(j)*
|
|
Form of Commercial Metals Company 1996 Long-Term Incentive Plan Restricted Stock
Award Agreement (filed as Exhibit 10.2 to Commercial Metals Form 8-K filed May 26,
2005 and incorporated herein by reference). |
|
|
|
10(iii)(k)*
|
|
Form of Commercial Metals Company 1996 Long-Term Incentive Plan Stock Appreciation
Rights Agreement (filed as Exhibit 10.3 to Commercial Metals Form 8-K filed May 26,
2005 and incorporated herein by reference). |
|
|
|
10(iii)(l)*
|
|
Form of Non-Employee Director Restricted Stock Award Agreement (filed as Exhibit
10.1to Commercial Metals Form 8-K filed January 27, 2005 and incorporated herein by
reference). |
|
|
|
10(iii)(m)*
|
|
Form of Executive Employment Continuity Agreement (filed as Exhibit 10.1 to
Commercial Metals Form 10-Q for the quarter ended February 28, 2006 and
incorporated herein by reference) |
|
|
|
10(iii)(n)* |
|
Employment Agreement between
Commercial Metals Company and Clyde P. Selig, dated February 6, 2006
(filed as Exhibit 10.1 to Commercial Metals Form 8-K filed
February 7, 2006 and incorporated herein by reference). |
|
|
|
12
|
|
Statement re computation of earnings to fixed charges (filed herewith). |
|
|
|
21
|
|
Subsidiaries of Registrant (filed herewith). |
|
|
|
23
|
|
Consent of Independent Registered Public Accounting Firm to incorporation by
reference of report dated November 6, 2006, accompanying the consolidated
financial statements of Commercial Metals Company and subsidiaries for the year
ended August 31, 2006, 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 Murray R. McClean, President and Chief Executive Officer of
Commercial Metals Company, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
(filed herewith). |
75
|
|
|
EXHIBIT |
|
|
NO. |
|
DESCRIPTION |
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)
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Certification of Murray R. McClean, 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). |
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32(b)
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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). |
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* |
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Denotes management contract or compensatory plan. |
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** |
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Does not contain Schedules or exhibits. A copy of any such Schedules or exhibits will be
furnished to the Securities and Exchange Commission upon request. |
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