SEC Info - Commercial Metals Co - ‘10-Q’ for 2/29/20

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		Alternative Formats (Word, et al.) And August 31, 2019 Condensed Consolidated Balance Sheets Condensed Consolidated Statements of Cash Flows -- Six months ended February 29, 2020 and February 28, 2019 Condensed Consolidated Statements of Comprehensive Income -- Three and six months ended February 29, 2020 and February 28, 2019 Condensed Consolidated Statements of Earnings -- Three and six months ended February 29, 2020 and February 28, 2019 Condensed Consolidated Statements of Stockholders' Equity Controls and Procedures Defaults Upon Senior Securities Exhibits February 29 Financial Information Financial Statements (Unaudited) Ix months ended February 29, 2020 and February 28, 2019 Legal Proceedings Management's Discussion and Analysis of Financial Condition and Results of Operations Mine Safety Disclosures Notes to Condensed Consolidated Financial Statements Other Information Part I -- Financial Information Part Ii -- Other Information Quantitative and Qualitative Disclosures About Market Risk Risk Factors Signature Six months ended February 29, 2020 and February 28, 2019 Three and Three and six months ended February 29, 2020 and February 28, 2019 Unregistered Sales of Equity Securities and Use of Proceeds
1	1st Page – Filing Submission
"	Part I -- Financial Information
"	Item 1. Financial Statements (Unaudited)
"	Condensed Consolidated Statements of Earnings -- Three and six months ended February 29, 2020 and February 28, 2019
"	Condensed Consolidated Statements of Comprehensive Income -- Three and six months ended February 29, 2020 and February 28, 2019
"	Condensed Consolidated Balance Sheets
"	February 29
"	And
"	August 31, 2019
"	Condensed Consolidated Statements of Cash Flows -- Six months ended February 29, 2020 and February 28, 2019
"	Condensed Consolidated Statements of Stockholders' Equity
"	Three and
"	Ix months ended February 29, 2020 and February 28, 2019
"	Notes to Condensed Consolidated Financial Statements
"	Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
"	Item 3. Quantitative and Qualitative Disclosures About Market Risk
"	Item 4. Controls and Procedures
"	Part Ii -- Other Information
"	Item 1. Legal Proceedings
"	Item 1A. Risk Factors
"	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
"	Item 3. Defaults Upon Senior Securities
"	Item 4. Mine Safety Disclosures
"	Item 6. Exhibits
"	Signature

i 0000022444 i false i 2020 i Q2 i 119,061,889 i --08-31 i 8,388 i 8,403 i 232,442 i 66,742 i 1,440 i 1,421 i 233,882 i 68,163 i 0.12 i 0.12 i 0.12 i 0.12 i 1 i 1 i i 0.6 i 0.6 i 1.1 i 1.1 i 350.0 i 350.0 i 3.0 i 3.0 i 0.8 i three years i three years i three years i three years i — i — i 2.7 i 1.8 i 0.7 i 0.7 i 0.7 i 3.6 i 3.6 i 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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

___________________________________

i ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number i 1-4304

___________________________________

i COMMERCIAL METALS COMPANY

(Exact Name of Registrant as Specified in Its Charter)

___________________________________

i Irving, i Texas i 75039

(Address of Principal Executive Offices) (Zip Code)

(Registrant's Telephone Number, Including Area Code)

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

As of March 24, 2020, i 119,061,889 shares of the registrant's common stock, par value $0.01 per share, were outstanding.

COMMERCIAL METALS COMPANY AND SUBSIDIARIES

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

COMMERCIAL METALS COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)

Three Months Ended

Six Months Ended

(in thousands, except share data)

Net sales

i 1,340,963

i 1,402,783

i 2,725,671

i 2,680,125

Costs and expenses:

Cost of goods sold

i 1,123,096

i 1,252,493

i 2,269,610

i 2,370,926

Selling, general and administrative expenses

i 115,538

i 98,726

i 227,067

i 215,943

Interest expense

i 15,888

i 18,495

i 32,466

i 35,158

i 1,254,522

i 1,369,714

i 2,529,143

i 2,622,027

Earnings from continuing operations before income taxes

i 86,441

i 33,069

i 196,528

i 58,098

Income taxes

i 22,845

i 18,141

i 50,177

i 23,750

Earnings from continuing operations

i 63,596

i 14,928

i 146,351

i 34,348

Earnings (loss) from discontinued operations before income taxes

i 301

( i 1,075)

i 1,196

( i 618)

Income taxes

i 99

i 3

i 401

i 138

Earnings (loss) from discontinued operations

i 202

( i 1,078)

i 795

( i 756)

Net earnings

i 63,798

i 13,850

i 147,146

i 33,592

Basic earnings per share*

Earnings from continuing operations

i 0.53

i 0.13

i 1.23

i 0.29

Earnings (loss) from discontinued operations

i —

( i 0.01)

i 0.01

( i 0.01)

Net earnings

i 0.54

i 0.12

i 1.24

i 0.29

Diluted earnings per share*

Earnings from continuing operations

i 0.53

i 0.13

i 1.22

i 0.29

Earnings (loss) from discontinued operations

i —

( i 0.01)

i 0.01

( i 0.01)

Net earnings

i 0.53

i 0.12

i 1.22

i 0.28

Average basic shares outstanding

i 118,919,455

i 117,854,335

i 118,644,823

i 117,677,422

Average diluted shares outstanding

i 120,407,256

i 118,942,758

i 120,303,259

i 118,996,427

See notes to condensed consolidated financial statements.

*Earnings Per Share ("EPS") is calculated independently for each component and may not sum to Net EPS due to rounding.

COMMERCIAL METALS COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

See notes to condensed consolidated financial statements.

COMMERCIAL METALS COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

Common stock, par value $ i i 0.01 / per share; authorized i i 200,000,000 / shares; issued i i 129,060,664 / shares; outstanding i 119,061,889 and i 117,924,938 shares

Less treasury stock i 9,998,775 and i 11,135,726 shares at cost

See notes to condensed consolidated financial statements.

Supplemental information:

Six Months Ended

(in thousands)

February 29, 2020

February 28, 2019

Cash paid for income taxes

i 27,759

i 1,771

Cash paid for interest

i 29,484

i 31,518

Noncash activities:

Liabilities related to additions of property, plant and equipment

i 29,176

i 26,186

Cash and cash equivalents

i 232,442

i 66,742

Restricted cash

i 1,440

i 1,421

Total cash, restricted cash and cash equivalents

i 233,882

i 68,163

COMMERCIAL METALS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED)

Three Months Ended February 29, 2020

Common Stock

Additional

Accumulated
Other

Treasury Stock

Non-

(in thousands, except share data)

Number of
Shares

Amount

Paid-In
Capital

Comprehensive
Loss

Retained
Earnings

Number of
Shares

Amount

controlling
Interests

Total

Balance, November 30, 2019

i 129,060,664

i 1,290

i 347,192

( i 116,585)

i 1,654,489

( i 10,410,799)

( i 184,885)

i 196

i 1,701,697

Net earnings

i 63,798

Other comprehensive loss

( i 4,805)

Dividends ($0.12 per share)

( i 14,242)

Issuance of stock under incentive and purchase plans, net of forfeitures

( i 1,948)

i 412,024

i 7,302

i 5,354

Stock-based compensation

i 6,237

Contribution of noncontrolling interests

i 16

Balance, February 29, 2020

i 129,060,664

i 1,290

i 351,481

( i 121,390)

i 1,704,045

( i 9,998,775)

( i 177,583)

i 212

i 1,758,055

Six Months Ended February 29, 2020

Common Stock

Additional

Accumulated
Other

Treasury Stock

Non-

(in thousands, except share data)

Number of
Shares

Amount

Paid-In
Capital

Comprehensive
Loss

Retained
Earnings

Number of
Shares

Amount

controlling
Interests

Total

Balance, September 1, 2019

i 129,060,664

i 1,290

i 358,668

( i 124,126)

i 1,585,379

( i 11,135,726)

( i 197,350)

i 196

i 1,624,057

Net earnings

i 147,146

Other comprehensive income

i 2,736

Dividends ($0.12 per share)

( i 28,480)

Issuance of stock under incentive and purchase plans, net of forfeitures

( i 22,230)

i 1,136,951

i 19,767

( i 2,463)

Stock-based compensation

i 15,043

Contribution of noncontrolling interests

i 16

Balance, February 29, 2020

i i 129,060,664 /

i 1,290

i 351,481

( i 121,390)

i 1,704,045

( i 9,998,775)

( i 177,583)

i 212

i 1,758,055

Three Months Ended February 28, 2019

Common Stock

Additional

Accumulated
Other

Treasury Stock

Non-

(in thousands, except share data)

Number of
Shares

Amount

Paid-In
Capital

Comprehensive
Loss

Retained
Earnings

Number of
Shares

Amount

controlling
Interests

Total

Balance, November 30, 2018

i 129,060,664

i 1,290

i 342,893

( i 102,201)

i 1,449,374

( i 11,426,463)

( i 202,515)

i 186

i 1,489,027

Net earnings

i 13,850

Other comprehensive income

i 1,314

Dividends ($0.12 per share)

( i 14,065)

Issuance of stock under incentive and purchase plans, net of forfeitures

( i 1,733)

i 286,869

i 5,097

i 3,364

Stock-based compensation

i 4,996

Contribution of noncontrolling interest

i 10

Balance, February 28, 2019

i 129,060,664

i 1,290

i 346,156

( i 100,887)

i 1,449,159

( i 11,139,594)

( i 197,418)

i 196

i 1,498,496

Six Months Ended February 28, 2019

Common Stock

Additional

Accumulated
Other

Treasury Stock

Non-

(in thousands, except share data)

Number of
Shares

Amount

Paid-In
Capital

Comprehensive
Loss

Retained
Earnings

Number of
Shares

Amount

controlling
Interests

Total

Balance, September 1, 2018

i 129,060,664

i 1,290

i 352,674

( i 93,677)

i 1,446,495

( i 12,045,106)

( i 213,385)

i 186

i 1,493,583

Net earnings

i 33,592

Other comprehensive loss

( i 7,210)

Dividends ($0.12 per share)

( i 28,181)

Issuance of stock under incentive and purchase plans, net of forfeitures

( i 18,823)

i 905,512

i 15,967

( i 2,856)

Stock-based compensation

i 12,305

Contribution of noncontrolling interest

i 10

Adoption of ASC 606 adjustment

( i 2,747)

Balance, February 28, 2019

i 129,060,664

i 1,290

i 346,156

( i 100,887)

i 1,449,159

( i 11,139,594)

( i 197,418)

i 196

i 1,498,496

See notes to condensed consolidated financial statements.

COMMERCIAL METALS COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 1. ACCOUNTING POLICIES

Basis of Presentation

i The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States ("GAAP") on a basis consistent with that used in the Annual Report on Form 10-K for the year ended August 31, 2019 ("2019 Form 10-K") filed by Commercial Metals Company ("CMC," and together with its consolidated subsidiaries, the "Company") with the Securities and Exchange Commission (the "SEC") and include all normal recurring adjustments necessary to present fairly the condensed consolidated balance sheets and the condensed consolidated statements of earnings, comprehensive income, cash flows and stockholders' equity for the periods indicated. These notes should be read in conjunction with the consolidated financial statements included in the 2019 Form 10-K. The results of operations for the three and six month periods are not necessarily indicative of the results to be expected for the full fiscal year. Any reference in this Form 10-Q to the "comparable period" or "corresponding period" relates to the relevant three-month or six-month period ended February 28, 2019.

Recently Adopted Accounting Pronouncements

On September 1, 2019, the Company adopted Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842), as amended, (“ASU 2016-02”), using the modified retrospective transition approach. ASU 2016-02 requires a lessee to recognize a right-of-use ("ROU") asset and a lease liability on its balance sheet for all leases with terms longer than twelve months. The Company’s financial statements for periods prior to September 1, 2019 were not modified for the application of this ASU. Upon adoption of ASU 2016-02, the Company recorded the following amounts associated with operating leases in its condensed consolidated balance sheet at September 1, 2019: $ i 113.4 million of ROU assets, in other noncurrent assets, $ i 30.9 million of lease liabilities in accrued expenses and other payables and $ i 84.9 million of lease liabilities in other noncurrent liabilities. There was i no impact to the opening balance of retained earnings as a result of implementing ASU 2016-02. The Company elected the package of three practical expedients available under the ASU. Additionally, the Company implemented appropriate changes to internal processes and controls to support recognition, subsequent measurement and disclosures.

The Company's leases are primarily for office space, land and equipment. The Company determines if an arrangement is a lease at inception of a contract if the terms state the Company has the right to direct the use of and obtain substantially all the economic benefits from a specific asset identified in the contract. The ROU assets represent the Company's right to use the underlying assets for the lease term, and the lease liabilities represent the obligation to make lease payments arising from the leases. ROU assets and lease liabilities are recognized at commencement date based on the present value of lease payments to be made over the lease term. Certain of the Company's lease agreements contain options to extend the lease. The Company evaluates these options on a lease-by-lease basis, and, if the Company determines it is reasonably certain to be exercised, the lease term includes the extension. The Company uses its incremental borrowing rate at lease commencement to determine the present value of lease payments, and lease expense is recognized on a straight-line basis over the lease term. The incremental borrowing rate is the rate of interest the Company could borrow on a collateralized basis over a similar term with similar payments. The Company does not record leases with an initial term of twelve months or less (“short-term leases”) in its condensed consolidated balance sheets.

Certain of the Company's lease agreements include payments for certain variable costs not determinable upon lease commencement including mileage, utilities, fuel and inflation adjustments. These variable lease payments are recognized in cost of goods sold and selling, general and administrative expenses, but are not included in the ROU asset or lease liability balances. The Company's lease agreements do not contain any material residual value guarantees, restrictions or covenants.

Recently Issued Accounting Pronouncements

In December 2019, the Financial Accounting Standards Board issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes ("ASU 2019-12"). ASU 2019-12 eliminates certain exceptions to the general principles in Accounting Standards Codification 740 and also clarifies and amends existing guidance to improve consistent application. This standard is effective for annual periods beginning after December 15, 2020, including interim periods therein. The Company currently does not expect ASU 2019-12 to have a material effect on its consolidated financial statements; however, the Company will continue to evaluate the impact of this guidance.

NOTE 2. CHANGES IN BUSINESS

Fiscal 2020 Acquisition

On February 3, 2020, the Company's subsidiary CMC Poland Sp. z.o.o. ("CMCP") acquired P.P.U. Ecosteel Sp. z.o.o. ("Ecosteel"), a steel mesh producer located in Zawiercie, Poland. This acquisition complements CMCP's existing mesh production and increases sales to other markets in Europe. The operating results of this facility are included in the International Mill reporting segment.

In October 2019, the Company closed the melting operations at its Rancho Cucamonga facility and recorded $ i 6.3 million of expense in the first quarter of 2020 related to severance, pension curtailment and vendor agreement terminations. At February 29, 2020, the remaining liability to be paid related to these expenses was $ i 3.8 million and was included in accrued expenses and other payables on the Company's condensed consolidated balance sheets.

Fiscal 2019 Acquisition

On November 5, 2018 (the "Acquisition Date"), the Company completed the acquisition of i 33 rebar fabrication facilities in the United States ("U.S."), as well as four electric arc furnace ("EAF") mini mills located in Knoxville, Tennessee; Jacksonville, Florida; Sayreville, New Jersey and Rancho Cucamonga, California from Gerdau S.A., hereinafter collectively referred to as the "Acquired Businesses." The total cash purchase price, including working capital adjustments, was $ i 701.2 million, and was funded through a combination of domestic cash on-hand and borrowings under a term loan (the "Term Loan").

The purchase price paid was allocated between the acquired mills and fabrication facilities. The results of operations of the Acquired Businesses are reflected in the Company’s condensed consolidated financial statements from the Acquisition Date. The purchase price was allocated among assets acquired and liabilities assumed at fair value and was finalized on November 5, 2019.

Pro Forma Supplemental Information

Supplemental information on an unaudited pro forma basis is presented below as if the acquisition of the Acquired Businesses (the "Acquisition") occurred on September 1, 2017. The pro forma financial information is presented for comparative purposes only, based on significant estimates and assumptions, which the Company believes to be reasonable, but not necessarily indicative of future results of operations or the results that would have been reported if the Acquisition had been completed on September 1, 2017. These results were not used as part of management analysis of the financial results and performance of the Company or the Acquired Businesses. i These results are adjusted, where possible, for transaction and integration-related costs.

Three Months Ended February 28,

Six Months Ended February 28,

(in thousands)

2019

2018

2019

2018

Pro forma net sales*

i 1,379,033

i 1,470,603

i 2,925,007

i 2,914,292

Pro forma net earnings (loss)**

i 10,260

i 18,786

i 26,081

( i 2,187)

*Pro forma net sales for the three and six months ended February 28, 2018 includes estimated fair value adjustments related to amortization of unfavorable contract backlog. The impact of the amortization of unfavorable contract backlog has been removed from the pro forma net sales for the three and six months ended February 28, 2019.

** Pro forma net earnings (loss) for the three and six months ended February 28, 2018 reflects the impact of fair value adjustments related to the amortization of unfavorable contract backlog described above. Pro forma net loss for the six months ended February 28, 2018 includes estimated fair value adjustments related to inventory step-up, as well as non-recurring acquisition and integration costs of approximately $ i 47.5 million.

NOTE 3. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

The following tables reflect the changes in accumulated other comprehensive income (loss) ("AOCI"):

Three Months Ended February 29, 2020

(in thousands)

Foreign Currency Translation

Unrealized Gain (Loss) on Derivatives

Defined Benefit Obligation

Total AOCI

Balance, November 30, 2019

( i 114,574)

i 1,731

( i 3,742)

( i 116,585)

Other comprehensive loss before reclassifications

( i 1,066)

( i 4,501)

( i 14)

( i 5,581)

Amounts reclassified from AOCI

( i 2)

( i 104)

i —

( i 106)

Income taxes

i —

i 876

i 6

i 882

Net other comprehensive income loss

( i 1,068)

( i 3,729)

( i 8)

( i 4,805)

Balance, February 29, 2020

( i 115,642)

( i 1,998)

( i 3,750)

( i 121,390)

Six Months Ended February 29, 2020

(in thousands)

Foreign Currency Translation

Unrealized Gain (Loss) on Derivatives

Defined Benefit Obligation

Total AOCI

Balance, August 31, 2019

( i 121,498)

i 1,106

( i 3,734)

( i 124,126)

Other comprehensive income (loss) before reclassifications

i 5,858

( i 3,619)

( i 24)

i 2,215

Amounts reclassified from AOCI

( i 2)

( i 214)

i —

( i 216)

Income taxes

i —

i 729

i 8

i 737

Net other comprehensive income (loss)

i 5,856

( i 3,104)

( i 16)

i 2,736

Balance, February 29, 2020

( i 115,642)

( i 1,998)

( i 3,750)

( i 121,390)

Three Months Ended February 28, 2019

(in thousands)

Foreign Currency Translation

Unrealized Gain (Loss) on Derivatives

Defined Benefit Obligation

Total AOCI

Balance, November 30, 2018

( i 102,393)

i 1,279

( i 1,087)

( i 102,201)

Other comprehensive income (loss) before reclassifications

i 514

( i 52)

( i 8)

i 454

Amounts reclassified from AOCI

i 936

( i 107)

i —

i 829

Income taxes

i —

i 31

i —

i 31

Net other comprehensive income (loss)

i 1,450

( i 128)

( i 8)

i 1,314

Balance, February 28, 2019

( i 100,943)

i 1,151

( i 1,095)

( i 100,887)

Six Months Ended February 28, 2019

(in thousands)

Foreign Currency Translation

Unrealized Gain (Loss) on Derivatives

Defined Benefit Obligation

Total AOCI

Balance, August 31, 2018

( i 92,637)

i 1,356

( i 2,396)

( i 93,677)

Other comprehensive loss before reclassifications

( i 9,143)

( i 104)

( i 19)

( i 9,266)

Amounts reclassified from AOCI

i 837

( i 149)

i 1,666

i 2,354

Income taxes (benefit)

i —

i 48

( i 346)

( i 298)

Net other comprehensive income (loss)

( i 8,306)

( i 205)

i 1,301

( i 7,210)

Balance, February 28, 2019

( i 100,943)

i 1,151

( i 1,095)

( i 100,887)

Items reclassified out of AOCI were immaterial for the three and six months ended February 29, 2020 and the comparable periods. Thus, the corresponding line items in the condensed consolidated statements of earnings to which the items were reclassified are not presented.

NOTE 4. REVENUE RECOGNITION

In the Americas Mills, Americas Recycling, and International Mill segments, revenue is recognized at a point in time concurrent with the transfer of control, which usually occurs, depending on shipping terms, upon shipment or customer receipt.

In the Americas Fabrication segment, each contract represents a single performance obligation. Revenue is either recognized over time or equal to billing under an available practical expedient. For contracts where the Company provides fabricated product and installation services, revenue is recognized over time using an input method. For the three and six months ended February 29, 2020, these contracts represented approximately i 27% and i 26%, respectively, of net sales in the Americas Fabrication segment. For these contracts, the measure of progress is based on contract costs incurred to date compared to total estimated contract costs, which provides a reasonable depiction of the Company’s progress towards satisfaction of the performance obligation as there is a direct relationship between costs incurred by the Company and the transfer of the fabricated product and installation services. Revenue from contracts where the Company does not provide installation services is recognized over time using an output method. For the three and six months ended February 29, 2020, these contracts represented approximately i 25% and i 24%, respectively, of net sales in the Americas Fabrication segment. For these contracts, the Company uses tons shipped compared to total estimated tons, which provides a reasonable depiction of the transfer of contract value to the customer, as there is a direct relationship between the units shipped by the Company and the transfer of the fabricated product. Significant judgment is required to evaluate total estimated costs used in the input method and total estimated tons in the output method. If estimated total consolidated costs on any contract are greater than the net contract revenues, the Company recognizes the entire estimated loss in the period the loss becomes known. The cumulative effect of revisions to estimates related to net contract revenues, costs to complete or total planned quantity is recorded in the period in which such revisions are identified. The Company does not exercise significant judgment in determining the transaction price. For the three and six months ended February 29, 2020, the remaining i 48% and i 50%, respectively, of net sales in the Americas Fabrication segment was recognized as amounts were billed to the customer.

Payment terms and conditions vary by contract type, although the Company generally requires customers to pay within 30 days of invoice date. The timing of revenue recognition for certain Americas Fabrication contracts, as described above, differ from the timing of invoicing to customers. The Company records an asset when revenue is recognized prior to invoicing and a liability when revenue is recognized after invoicing. In instances where the timing of revenue recognition differs from the timing of invoicing, the Company has determined the contracts do not include a significant financing component.

The following table provides information about assets and liabilities from contracts with customers.

(in thousands)

February 29, 2020

August 31, 2019

Contract assets (included in other current assets)

i 87,801

i 103,805

Contract liabilities (included in accrued expenses and other payables)

i 38,391

i 37,165

The amount of revenue reclassified from August 31, 2019 contract liabilities during the six months ended February 29, 2020 was approximately $ i 20.2 million.

Remaining Performance Obligations

As of February 29, 2020, $ i 819.4 million has been allocated to remaining performance obligations in the Americas Fabrication segment, excluding those contracts where revenue is recognized equal to billing. Of this amount, the Company estimates the remaining performance obligations will be recognized as revenue after February 29, 2020 as follows: i 40% in the first twelve months, i 48% in the following twelve months, and i 12% thereafter. The duration of contracts in the Americas Mills, Americas Recycling, and International Mill segments are typically less than one year.

Disaggregation of Revenue

The following tables display revenue by reportable segment from external customers, disaggregated by major source. The Company believes disaggregating by these categories depicts how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors.

Three Months Ended February 29, 2020

(in thousands)

Americas Recycling

Americas Mills

Americas Fabrication

International Mill

Corporate and Other

Total

Steel products

i 140

i 437,648

i 441,765

i 171,283

i —

i 1,050,836

Ferrous scrap

i 66,040

i 10,874

i 1

i 159

i —

i 77,074

Nonferrous scrap

i 112,862

i 3,535

i —

i 2,249

i —

i 118,646

Construction materials

i —

i 66,122

i —

i 66,122

Other

i 493

i 19,310

i 2,493

i 5,965

i 24

i 28,285

Total

i 179,535

i 471,367

i 510,381

i 179,656

i 24

i 1,340,963

Six Months Ended February 29, 2020

(in thousands)

Americas Recycling

Americas Mills

Americas Fabrication

International Mill

Corporate and Other

Total

Steel products

i 255

i 878,811

i 941,492

i 329,227

i —

i 2,149,785

Ferrous scrap

i 124,342

i 17,622

i 1

i 371

i —

i 142,336

Nonferrous scrap

i 226,080

i 6,890

i —

i 4,242

i —

i 237,212

Construction materials

i —

i 133,588

i —

i 133,588

Other

i 1,009

i 42,236

i 5,677

i 10,856

i 2,972

i 62,750

Total

i 351,686

i 945,559

i 1,080,758

i 344,696

i 2,972

i 2,725,671

Three Months Ended February 28, 2019

(in thousands)

Americas Recycling

Americas Mills

Americas Fabrication

International Mill

Corporate and Other

Total

Steel products

i 202

i 444,327

i 462,963

i 167,534

i —

i 1,075,026

Ferrous scrap

i 105,253

i 8,744

i —

i 255

i —

i 114,252

Nonferrous scrap

i 120,004

i 3,308

i —

i 2,524

i —

i 125,836

Construction materials

i —

i 60,190

i —

i 60,190

Other

i 429

i 16,416

i 3,525

i 4,632

i 2,477

i 27,479

Total

i 225,888

i 472,795

i 526,678

i 174,945

i 2,477

i 1,402,783

Six Months Ended February 28, 2019

(in thousands)

Americas Recycling

Americas Mills

Americas Fabrication

International Mill

Corporate and Other

Total

Steel products

i 441

i 792,292

i 837,770

i 385,304

i —

i 2,015,807

Ferrous scrap

i 216,907

i 17,886

i —

i 530

i —

i 235,323

Nonferrous scrap

i 248,079

i 6,488

i —

i 5,465

i —

i 260,032

Construction materials

i —

i 117,361

i —

i 117,361

Other

i 642

i 29,800

i 6,105

i 10,319

i 4,736

i 51,602

Total

i 466,069

i 846,466

i 961,236

i 401,618

i 4,736

i 2,680,125

NOTE 5. INVENTORIES, NET

The majority of the Company's inventories are in the form of semi-finished and finished goods. Under the Company’s business model, products are sold to external customers in various stages, from semi-finished billets through fabricated steel, leading these categories to be combined. As such, at February 29, 2020 and August 31, 2019, work in process inventories were immaterial. At February 29, 2020 and August 31, 2019, the Company's raw materials inventories were $ i 169.4 million and $ i 143.7 million, respectively.

NOTE 6. GOODWILL AND OTHER INTANGIBLES

Goodwill by reportable segment at February 29, 2020 is detailed in the following table:

(in thousands)

Americas Recycling

Americas Mills

Americas Fabrication

International Mill

Consolidated

Goodwill, gross*

i 9,543

i 4,970

i 57,428

i 2,420

i 74,361

Accumulated impairment losses*

( i 9,543)

i —

( i 493)

( i 153)

( i 10,189)

Goodwill, net*

i —

i 4,970

i 56,935

i 2,267

i 64,172

* The change in balance from August 31, 2019 was immaterial.

The total gross carrying amounts of the Company's intangible assets subject to amortization were $ i 20.7 million and $ i 20.8 million, respectively, and the total net carrying amounts were $ i 12.2 million and $ i 13.3 million at February 29, 2020 and August 31, 2019, respectively. These assets were included in other noncurrent assets on the Company's condensed consolidated balance sheets. Intangible amortization expense from continuing operations related to such intangible assets was $ i 0.6 million and $ i 1.1 million for the three and six months ended February 29, 2020, respectively, and for the comparable periods. Excluding goodwill, the Company did not have any significant intangible assets with indefinite lives at February 29, 2020.

In connection with the Acquisition, the Company recorded an unfavorable contract backlog liability of $ i 110.2 million. At February 29, 2020 and August 31, 2019, the net carrying amount of the liability was $ i 21.0 million and $ i 35.4 million, respectively. Amortization of the unfavorable contract backlog was $ i 6.0 million and $ i 14.3 million for the three and six months ended February 29, 2020, respectively, and $ i 23.5 million and $ i 34.8 million for the comparable periods, and was recorded as an increase to net sales in the Company’s condensed consolidated statements of earnings.

The following table presents the components of the total leased assets and lease liabilities and their classification in the Company's condensed consolidated balance sheet at February 29, 2020:

(in thousands)

Classification in Condensed Consolidated Balance Sheet

February 29, 2020

Assets:

Operating assets

Other noncurrent assets

i 124,749

Finance assets

Property, plant and equipment, net

i 43,647

Total leased assets

i 168,396

Liabilities:

Operating lease liabilities:

Current

Accrued expenses and other payables

i 27,900

Long-term

Other noncurrent liabilities

i 99,283

Total operating lease liabilities

i 127,183

Finance lease liabilities:

Current

Current maturities of long-term debt and short-term borrowings

i 12,604

Long-term

Long-term debt

i 31,254

Total finance lease liabilities

i 43,858

Total lease liabilities

i 171,041

The components of lease cost were as follows:

(in thousands)

Three Months Ended February 29, 2020

Six Months Ended February 29, 2020

Operating lease expense

i 8,815

i 17,605

Finance lease expense:

Amortization of assets

i 2,720

i 4,885

Interest on lease liabilities

i 465

i 866

Total finance lease expense

i 3,185

i 5,751

Variable and short term-lease expense

i 4,381

i 8,314

Total lease expense

i 16,381

i 31,670

The weighted-average remaining lease term and discount rate for operating and finance leases are presented in the following table:


	February 29, 2020
Weighted-average remaining lease term (years)
Operating leases	i 6.5
Finance leases	i 3.9

Weighted-average discount rate
Operating leases	i 4.160	%
Finance leases	i 4.216	%

Cash flow and other information related to leases is included in the following table:


(in thousands)	Six Months Ended February 29, 2020
Cash paid for amounts included in the measurement of lease liabilities
Operating cash outflows from operating leases	$	i 17,594
Operating cash outflows from finance leases	i 787
Financing cash outflows from finance leases	i 6,426

ROU assets obtained in exchange for lease obligations:
Operating leases	i 28,942
Finance leases	i 13,040

Maturities of lease liabilities at February 29, 2020 are presented in the following table:

(in thousands)

Operating Leases

Finance Leases

Year 1

i 32,620

i 14,189

Year 2

i 27,531

i 11,963

Year 3

i 22,156

i 9,521

Year 4

i 17,563

i 7,626

Year 5

i 12,455

i 4,277

Thereafter

i 34,680

i 74

Total lease payments

i 147,005

i 47,650

Less: Imputed interest

i 19,822

i 3,792

Present value of lease liabilities

i 127,183

i 43,858

i Future maturities of lease liabilities at August 31, 2019, prior to adoption of ASU 2016-02, are presented in the following table:

Twelve Months Ended August 31,

(in thousands)

Total

2020

2021

2022

2023

2024

Thereafter

Capital lease obligations

i 41,331

i 13,104

i 10,004

i 7,758

i 5,831

i 3,904

i 730

Long-term non-cancelable operating leases

i 124,817

i 34,511

i 27,383

i 22,074

i 17,433

i 10,478

i 12,938

NOTE 8. CREDIT ARRANGEMENTS

Long-term debt at February 29, 2020 and August 31, 2019 was as follows:

(in thousands)

Weighted Average Interest Rate at February 29, 2020

February 29, 2020

August 31, 2019

2027 Notes

i 5.375%

i 300,000

2026 Notes

i 5.750%

i 350,000

2023 Notes

i 4.875%

i 330,000

Term Loan

i 3.409%

i 110,125

i 210,125

Poland credit facilities

i 2.637%

i 11,290

i —

Short-term borrowings

i 2.400%

i 8,272

i 3,929

Other

i 5.100%

i 23,168

Finance leases

i 43,858

i 37,699

Total debt

i 1,176,713

i 1,254,921

Less debt issuance costs

i 9,425

i 10,268

Total amounts outstanding

i 1,167,288

i 1,244,653

Less current maturities

i 14,443

i 13,510

Less short-term borrowings

i 8,272

i 3,929

Current maturities of long-term debt and short-term borrowings

i 22,715

i 17,439

Long-term debt

i 1,144,573

i 1,227,214

The Company had i i no / amounts drawn under the $ i i 350.0 / million revolving credit facility (the "Revolver") at February 29, 2020 and August 31, 2019. The availability under the Revolver was reduced by outstanding stand-by letters of credit of $ i i 3.0 / million at February 29, 2020 and August 31, 2019.

The Company also has credit facilities in Poland through its subsidiary CMCP. At February 29, 2020, CMCP's credit facilities totaled Polish zloty ("PLN") i 275.0 million, or $ i 70.0 million. These facilities expire in March 2022. At February 29, 2020, $ i 11.3 million was outstanding under these facilities. i No amounts were outstanding as of August 31, 2019. The available balance of these credit facilities was further reduced by outstanding stand-by letters of credit, guarantees, and/or other financial assurance instruments, which totaled $ i 0.8 million and $ i 1.1 million at February 29, 2020 and August 31, 2019, respectively.

The Company's debt agreements require the Company to comply with certain non-financial and financial covenants, including an interest coverage ratio and a debt to capitalization ratio. At February 29, 2020, the Company was in compliance with all covenants contained in its debt agreements.

Accounts Receivable Facilities

The Company had i i no / advance payments outstanding under the U.S. accounts receivable facility at February 29, 2020 or August 31, 2019.

The Poland accounts receivable facility has a limit of PLN i 220.0 million ($ i 56.0 million at February 29, 2020). The Company had $ i 8.3 million of advance payments outstanding under the Poland accounts receivable facility at February 29, 2020, and $ i 3.9 million at August 31, 2019.

The Company's global operations and product lines expose it to risks from fluctuations in metal commodity prices, foreign currency exchange rates, interest rates and natural gas, electricity and other energy prices. One objective of the Company's risk management program is to mitigate these risks using derivative instruments. The Company enters into (i) metal commodity futures and forward contracts to mitigate the risk of unanticipated changes in gross margin due to price volatility in these commodities, (ii) foreign currency forward contracts that match the expected settlements for purchases and sales denominated in foreign currencies and (iii) energy derivatives to mitigate the risk related to price volatility of electricity and natural gas.

At February 29, 2020, the notional values of the Company's foreign currency and commodity commitments were $ i 84.6 million and $ i 42.0 million, respectively. At August 31, 2019, the notional values of the Company's foreign currency and commodity contract commitments were $ i 94.1 million and $ i 42.6 million, respectively.

The following table provides information regarding the Company's commodity contract commitments at February 29, 2020:

Commodity

Long/Short

Total

Aluminum

Long

i 2,100

Copper

Long

i 318

Copper

Short

i 5,454

Electricity

Long

i 2,000,000

MW(h)

MW(h) = Megawatt hour

The Company designates only those contracts which closely match the terms of the underlying transaction as hedges for accounting purposes. Certain foreign currency and commodity contracts were not designated as hedges for accounting purposes, although management believes they are essential economic hedges.

The following table summarizes activity related to the Company's derivative instruments not designated as hedging instruments recognized in the condensed consolidated statements of earnings. All other activity related to the Company's derivative instruments and hedged items was immaterial for the periods presented.

Three Months Ended

Six Months Ended

Derivatives Not Designated as Hedging Instruments (in thousands)

Location

Commodity

Cost of goods sold

i 1,731

( i 2,425)

i 416

( i 3,265)

Foreign exchange

SG&A expenses

( i 21)

( i 526)

i 20

( i 400)

Gain (loss) before income taxes

i 1,710

( i 2,951)

i 436

( i 3,665)

The Company has established a fair value hierarchy which prioritizes the inputs to the valuation techniques used to measure fair value into i three levels. These levels are determined based on the lowest level input that is significant to the fair value measurement. Levels within the hierarchy are defined as follows:

Level 1 - Unadjusted quoted prices in active markets for identical assets and liabilities;

Level 2 - Quoted prices for similar assets and liabilities in active markets (other than those included in Level 1) which are observable, either directly or indirectly; and

Level 3 - Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

i The following tables summarize information regarding the Company's financial assets and financial liabilities that were measured at fair value on a recurring basis:

Fair Value Measurements at Reporting Date Using

(in thousands)

February 29, 2020

Quoted Prices in
Active Markets for
Identical Assets
(Level 1)

Significant Other
Observable Inputs
(Level 2)

Significant
Unobservable Inputs
(Level 3)

Assets:

Investment deposit accounts ⁽¹⁾

i 191,424

i —

Commodity derivative assets ⁽²⁾

i 1,631

i —

Foreign exchange derivative assets ⁽²⁾

i 374

i —

i 374

i —

Liabilities:

Commodity derivative liabilities ⁽²⁾

i 3,663

i 77

i —

i 3,586

Foreign exchange derivative liabilities ⁽²⁾

i 696

i —

i 696

i —

Fair Value Measurements at Reporting Date Using

(in thousands)

August 31, 2019

Quoted Prices in
Active Markets for
Identical Assets
(Level 1)

Significant Other
Observable Inputs
(Level 2)

Significant
Unobservable Inputs
(Level 3)

Assets:

Investment deposit accounts ⁽¹⁾

i 66,240

i —

Commodity derivative assets ⁽²⁾

i 1,269

i —

Foreign exchange derivative assets ⁽²⁾

i 569

i —

i 569

i —

Liabilities:

Commodity derivative liabilities ⁽²⁾

i 99

i —

Foreign exchange derivative liabilities ⁽²⁾

i 899

i —

i 899

i —

(1) Investment deposit accounts are short-term in nature, and the value is determined by principal plus interest. The investment portfolio mix can change each period based on the Company's assessment of investment options.

(2) Derivative assets and liabilities classified as Level 1 are commodity futures contracts valued based on quoted market prices in the London Metal Exchange or New York Mercantile Exchange. Amounts in Level 2 are based on broker quotes in the over-the-counter market. Fair value of Level 3 derivative liabilities is based on unobservable inputs in which there is little or no market data, which requires management’s own assumptions within an internally developed cash flow model. Further discussion regarding the Company's use of derivative instruments is included in Note 9, Derivatives.

There were no material non-recurring fair value remeasurements during the three and six months ended February 29, 2020.

The carrying values of the Company's short-term items approximate fair value.

The carrying values and estimated fair values of the Company's financial assets and liabilities that are not required to be measured at fair value on the condensed consolidated balance sheets were as follows:

February 29, 2020

August 31, 2019

(in thousands)

Fair Value Hierarchy

Carrying Value

Fair Value

Carrying Value

Fair Value

2027 Notes ⁽¹⁾

Level 2

i 300,000

i 308,151

i 300,000

i 303,810

2026 Notes ⁽¹⁾

Level 2

i 350,000

i 365,215

i 350,000

i 363,444

2023 Notes ⁽¹⁾

Level 2

i 330,000

i 344,177

i 330,000

i 342,098

Term Loan ⁽²⁾

Level 2

i 110,125

i 210,125

Poland credit facilities ⁽²⁾

Level 2

i 11,290

i —

Short-term borrowings ⁽²⁾

Level 2

i 8,272

i 3,929

(1) The fair value of the notes was determined based on indicated market values.

(2) The Term Loan, Poland credit facilities and short-term borrowings contain variable interest rates and carrying value approximates fair value.

NOTE 11. STOCK-BASED COMPENSATION PLANS

The Company's stock-based compensation plans are described in Note 15, Stock-Based Compensation Plans, to the consolidated financial statements in the 2019 Form 10-K. In general, restricted stock units granted during i 2020 vest ratably over a period of i three years. Subject to the achievement of performance targets established by the Compensation Committee of CMC's Board of Directors, performance stock units granted during i 2020 vest after a period of i three years.

During the six months ended February 29, 2020 and the comparable period, the Company granted the following awards under its stock-based compensation plans:

February 29, 2020

February 28, 2019

(in thousands, except per share data)

Shares Granted

Weighted Average Grant Date Fair Value

Shares Granted

Weighted Average Grant Date Fair Value

Equity method

i 1,521

i 18.32

i 1,505

i 17.75

Liability method

i 426

N/A

i 374

N/A

During the three and six months ended February 29, 2020 and the comparable periods, the Company recorded immaterial mark-to-market adjustments on liability awards. At February 29, 2020, the Company had outstanding i 835,546 equivalent shares accounted for under the liability method. The Company expects i 793,769 equivalent shares to vest.

The following table summarizes total stock-based compensation expense, including fair value remeasurements, which was mainly included in selling, general and administrative expenses on the Company's condensed consolidated statements of earnings:

Three Months Ended

Six Months Ended

(in thousands)

Stock-based compensation expense

i 7,536

i 5,790

i 15,805

i 10,007

NOTE 12. STOCKHOLDERS' EQUITY AND EARNINGS PER SHARE

The calculations of basic and diluted earnings per share from continuing operations were as follows:

Three Months Ended

Six Months Ended

(in thousands, except share data)

Earnings from continuing operations

i 63,596

i 14,928

i 146,351

i 34,348

Basic earnings per share:

Shares outstanding for basic earnings per share

i 118,919,455

i 117,854,335

i 118,644,823

i 117,677,422

Basic earnings per share from continuing operations

i 0.53

i 0.13

i 1.23

i 0.29

Diluted earnings per share:

Shares outstanding for basic earnings per share

i 118,919,455

i 117,854,335

i 118,644,823

i 117,677,422

Effect of dilutive securities:

Stock-based incentive/purchase plans

i 1,487,801

i 1,088,423

i 1,658,436

i 1,319,005

Shares outstanding for diluted earnings per share

i 120,407,256

i 118,942,758

i 120,303,259

i 118,996,427

Diluted earnings per share from continuing operations

i 0.53

i 0.13

i 1.22

i 0.29

Anti-dilutive shares not included above were immaterial for the three and six months ended February 29, 2020, respectively. There were i no anti-dilutive shares for the three and six months ended February 28, 2019.

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.

During the first quarter of fiscal 2015, CMC's Board of Directors authorized a share repurchase program under which CMC may repurchase up to $ i 100.0 million of shares of common stock. During the six months ended February 29, 2020, CMC did not

repurchase any shares of common stock. CMC had remaining authorization to repurchase $ i 27.6 million of common stock at February 29, 2020.

NOTE 13. COMMITMENTS AND CONTINGENCIES

Legal and Environmental Matters

In the ordinary course of conducting its business, the Company becomes involved in litigation, administrative proceedings and governmental investigations, including environmental matters. See Note 19, Commitments and Contingencies, to the consolidated financial statements in the 2019 Form 10-K.

The Company has received notices from the U.S. Environmental Protection Agency ("EPA") or state agencies with similar responsibility that it is considered a potentially responsible party at several sites, none of which are owned by the Company, and may be obligated under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 ("CERCLA") or similar state statutes 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 February 29, 2020 and August 31, 2019, the Company had $ i i 0.7 / million accrued for cleanup and remediation costs in connection with CERCLA sites. The estimation process is based on currently available information, which is in many cases preliminary and incomplete. Total environmental liabilities, including CERCLA sites, were $ i i 3.6 / million at February 29, 2020 and August 31, 2019, of which $ i 2.7 million and $ i 1.8 million were classified as other long-term liabilities at February 29, 2020 and August 31, 2019, respectively. These amounts have not been discounted to their present values. 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. Historically, the amounts the Company has ultimately paid for such remediation activities have not been material.

Management believes that adequate provisions have been made in the Company's condensed consolidated financial statements for the potential impact of these contingencies, and that the outcomes of the suits and proceedings described above, and other miscellaneous litigation and proceedings now pending, will not have a material adverse effect on the business, results of operations or financial condition of the Company.

NOTE 14. BUSINESS SEGMENTS

The Company structures its business into the following i four reporting segments: Americas Recycling, Americas Mills, Americas Fabrication and International Mill. The Company's reporting segments are based primarily on product lines and secondarily on geographic area. See Note 1, Nature of Operations, of the consolidated financial statements included in the 2019 Form 10-K for more information about the reporting segments, including the types of products and services from which each reporting segment derives its net sales. Corporate and Other contains earnings or losses on assets and liabilities related to the Company's Benefit Restoration Plan assets and short-term investments, expenses of the Company's corporate headquarters, interest expense related to its long-term debt and intercompany eliminations.

The Company uses adjusted EBITDA from continuing operations to compare and evaluate the financial performance of its segments. Adjusted EBITDA is the sum of the Company's earnings from continuing operations before interest expense, income taxes, depreciation and amortization expense and impairment expense. Intersegment sales are generally priced at prevailing market prices. Certain corporate administrative expenses are allocated to the segments based upon the nature of the expense. The accounting policies of the segments are the same as those described in Note 2, Summary of Significant Accounting Policies, of the consolidated financial statements included in the 2019 Form 10-K.

i The following is a summary of certain financial information from continuing operations by reportable segment:

Three Months Ended February 29, 2020

(in thousands)

Americas Recycling

Americas Mills

Americas Fabrication

International Mill

Corporate and Other

Continuing Operations

Net sales-unaffiliated customers

i 179,535

i 471,367

i 510,381

i 179,656

i 24

i 1,340,963

Intersegment sales

i 68,549

i 260,673

i 1,367

i 423

( i 331,012)

i —

Net sales

i 248,084

i 732,040

i 511,748

i 180,079

( i 330,988)

i 1,340,963

Adjusted EBITDA

i 5,754

i 125,691

i 16,060

i 13,451

( i 23,235)

i 137,721

Six Months Ended February 29, 2020

(in thousands)

Americas Recycling

Americas Mills

Americas Fabrication

International Mill

Corporate and Other

Continuing Operations

Net sales-unaffiliated customers

i 351,686

i 945,559

i 1,080,758

i 344,696

i 2,972

i 2,725,671

Intersegment sales

i 118,659

i 555,374

i 2,837

i 772

( i 677,642)

i —

Net sales

i 470,345

i 1,500,933

i 1,083,595

i 345,468

( i 674,670)

i 2,725,671

Adjusted EBITDA

i 9,171

i 280,716

i 33,541

i 24,810

( i 50,712)

i 297,526

Total assets at February 29, 2020*

i 261,611

i 1,680,295

i 1,065,676

i 521,678

i 378,678

i 3,907,938

*Total assets listed in Corporate and Other includes assets from discontinued operations.

Three Months Ended February 28, 2019

(in thousands)

Americas Recycling

Americas Mills

Americas Fabrication

International Mill

Corporate and Other

Continuing Operations

Net sales-unaffiliated customers

i 225,888

i 472,795

i 526,678

i 174,945

i 2,477

i 1,402,783

Intersegment sales

i 61,187

i 301,914

i 4,158

i 253

( i 367,512)

i —

Net sales

i 287,075

i 774,709

i 530,836

i 175,198

( i 365,035)

i 1,402,783

Adjusted EBITDA

i 10,124

i 112,396

( i 49,578)

i 20,537

( i 24,146)

i 69,333

Six Months Ended February 28, 2019

(in thousands)

Americas Recycling

Americas Mills

Americas Fabrication

International Mill

Corporate and Other

Continuing Operations

Net sales-unaffiliated customers

i 466,069

i 846,466

i 961,236

i 401,618

i 4,736

i 2,680,125

Intersegment sales

i 123,015

i 530,096

i 6,711

i 604

( i 660,426)

i —

Net sales

i 589,084

i 1,376,562

i 967,947

i 402,222

( i 655,690)

i 2,680,125

Adjusted EBITDA

i 25,558

i 226,269

( i 86,574)

i 53,316

( i 83,700)

i 134,869

Total assets at August 31, 2019^*

i 257,517

i 1,667,366

i 1,106,420

i 464,177

i 263,291

i 3,758,771

*Total assets listed in Corporate and Other includes assets from discontinued operations.

The following table presents a reconciliation of earnings from continuing operations to adjusted EBITDA from continuing operations:

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

In the following discussion, references to "we," "us," "our" or the "Company" mean Commercial Metals Company ("CMC") and its consolidated subsidiaries, unless the context otherwise requires. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and the notes thereto, which are included in this Quarterly Report on Form 10-Q (the "Form 10-Q"), and our consolidated financial statements and the notes thereto, which are included in our Annual Report on Form 10-K for the year ended August 31, 2019 (the "2019 Form 10-K"). This discussion contains or incorporates by reference "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the Private Securities Litigation Reform Act of 1995. These forward-looking statements are not historical facts, but rather are based on expectations, estimates, assumptions and projections about our industry, business and future financial results, based on information available at the time this Form 10-Q is filed with the Securities and Exchange Commission ("SEC") or, with respect to any document incorporated by reference, available at the time that such document was prepared. Our actual results could differ materially from the results contemplated by these forward-looking statements due to a number of factors, including those identified in the section entitled "Forward-Looking Statements" at the end of this Item 2 of this Form 10-Q and in the section entitled "Risk Factors" in Item 1A of the 2019 Form 10-K and this Form 10-Q. We do not undertake any obligation to update, amend or clarify any forward-looking statements to reflect changed assumptions, the occurrence of anticipated or unanticipated events, new information or circumstances or otherwise, except as required by law.

Any reference in this Form 10-Q to the "comparable period" or "corresponding period" relates to the relevant three-month or six-month period ended February 28, 2019.

CRITICAL ACCOUNTING POLICIES

There have been no material changes to our critical accounting policies as set forth in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, included in the 2019 Form 10-K.

RESULTS OF OPERATIONS SUMMARY

As a vertically integrated organization, we manufacture, recycle and market steel and metal products, related materials and services through a network including seven electric arc furnace ("EAF") mini mills, two EAF micro mills, two rerolling mills, steel fabrication and processing plants, construction-related product warehouses, and metal recycling facilities in the United States ("U.S.") and Poland. On November 5, 2018, the Company completed the acquisition (the "Acquisition") of 33 rebar fabrication facilities in the U.S., as well as four EAF mini mills located in Knoxville, Tennessee; Jacksonville, Florida; Sayreville, New Jersey and Rancho Cucamonga, California from Gerdau S.A., hereinafter collectively referred to as the "Acquired Businesses." Our operations are conducted through four reportable segments: Americas Recycling, Americas Mills, Americas Fabrication and International Mill.

Financial Results Overview

The following discussion of our results of operations is based on our continuing operations and excludes any results of our discontinued operations.

Net sales for the three and six months ended February 29, 2020 decreased $61.8 million, or 4%, and increased $45.5 million, or 2%, respectively, compared to the corresponding periods in 2019. For the three months ended February 29, 2020, net sales decreased year-over-year in our Americas Recycling, Americas Mills and Americas Fabrication segments primarily due to a reduction in the ferrous scrap pricing environment, a decrease in average selling prices per ton and a decrease in tons shipped, respectively. These decreases were partially offset by an increase in year-over-year net sales in our International Mill segment due to an increase in tons shipped. Year-to-date net sales increased year-over-year in our Americas Mills and Americas

Fabrication segments primarily due to an increase in tons shipped in both segments, coupled with an increase in average selling prices per ton in our Americas Fabrication segment, as a result of strong demand in our core markets and two additional months of shipments from the Acquired Businesses. These increases were partially offset by decreases in year-over-year net sales in our Americas Recycling segment, due to continued reductions in the ferrous scrap pricing environment and constrained scrap flow, and in our International Mill segment due to a decrease in average selling prices per ton.

Earnings from continuing operations for the three and six months ended February 29, 2020 increased $48.7 million and $112.0 million, respectively, from the comparable periods in 2019. The increase was primarily driven by year-over-year expansion in second quarter and year-to-date metal margins in our Americas Fabrication segment, an increase in second quarter tons shipped in our Americas Mills segment and an increase in year-to-date tons shipped in our Americas Fabrication and Americas Mills segments.

Selling, General and Administrative Expenses

Selling, general and administrative expenses for the three and six months ended February 29, 2020 increased $16.8 million and $11.1 million, respectively, from the comparable periods in 2019. For the three months ended February 29, 2020, the year-over-year increase primarily related to a $24.2 million increase in employee-related expenses, partially offset by $1.5 million, $1.3 million and $1.2 million decreases in professional services, rent, and insurance expense, respectively. The year-to-date increase was driven primarily by a $46.6 million year-over-year increase in employee-related expenses, partially offset by a $26.1 million year-over-year decrease in professional fees and legal expenses, primarily related to the Acquisition. In addition, there was a $4.9 million increase in gains on the sale of fixed assets in the six months ended February 29, 2020, compared to the corresponding period.

Interest expense for the three and six months ended February 29, 2020 decreased $2.6 million and $2.7 million, respectively, compared to the corresponding periods in 2019. The year-over-year decreases were the result of a decrease in interest payable on long-term debt due to a decline in the floating LIBOR market, coupled with total prepayments of $200 million on the Term Loan (as defined in Note 8, Credit Arrangements) over the past four quarters.

Our effective income tax rate from continuing operations for the three and six months ended February 29, 2020 was 26.4% and 25.5%, respectively, compared with 54.9% and 40.9% in the corresponding periods in 2019. The decrease in the effective income tax rate is primarily attributable to discrete tax expense recorded during the second quarter of 2019 as a result of the Tax Cuts and Jobs Act.

SEGMENT OPERATING DATA

Unless otherwise indicated, all dollar amounts below are from continuing operations and calculated before income taxes. See Note 14, Business Segments. The operational data presented in the tables below is calculated using averages and, therefore, it is not meaningful to quantify the effect that any individual component had on the segment's net sales or adjusted EBITDA.

Net sales for the three and six months ended February 29, 2020 decreased $39.0 million, or 14%, and $118.7 million, or 20%, respectively, as compared to the corresponding periods in 2019. For the three and six months ended February 29, 2020, the primary drivers for the year-over-year decreases in net sales were lower average ferrous selling prices and ferrous tons shipped due to a declining price environment which also constrained scrap flows as there was less scrap available to purchase while prices were falling. Average ferrous selling prices per ton decreased approximately 15% and 24%, respectively, and ferrous tons shipped decreased approximately 9% and 12%, respectively, for the three and six months ended February 29, 2020, in relation to the comparable periods.

Adjusted EBITDA for the three and six months ended February 29, 2020 decreased $4.4 million and $16.4 million, respectively, as compared to the corresponding periods in 2019, as the declining price environment compressed margins and constrained scrap flows, as discussed above. Conversion costs increased approximately $4 and $7 per ton in the three and six months ended February 29, 2020, respectively, as compared to the corresponding periods in 2019, due to decreased production levels. Adjusted EBITDA included non-cash stock compensation expense of $0.4 million and $0.8 million for the three and six months ended February 29, 2020, respectively, and $0.3 million and $0.6 million for the comparable periods.


	Three Months Ended						Six Months Ended
(in thousands)	February 29, 2020		February 28, 2019		February 29, 2020		February 28, 2019
Net sales	$	732,040	$	774,709	$	1,500,933	$	1,376,562
Adjusted EBITDA	125,691		112,396		280,716		226,269

Average price (per ton)
Total selling price	$	606	$	677	$	608	$	677
Cost of ferrous scrap utilized	256		303		238		305
Metal margin	350		374		370		372

Tons (in thousands)
Melted	1,117		1,126		2,299		2,035
Rolled	1,084		1,045		2,239		1,889
Shipped	1,147		1,095		2,353		1,942

Net sales for the three and six months ended February 29, 2020 decreased $42.7 million, or 6%, and increased $124.4 million, or 9%, respectively, as compared to the corresponding periods in 2019. For the three months ended February 29, 2020, the decrease in year-over-year net sales was due to a 10% decrease in average selling prices per ton, partially offset by an increase of 52 thousand tons shipped. Despite a 10% decrease in year-over-year average selling prices per ton in the six months ended February 29, 2020, year-to-date net sales increased due to an increase of 411 thousand tons shipped as a result of continued

strength in our core markets and two additional months of shipments from the Acquired Businesses, as well as targeted merchant bar growth opportunities.

Adjusted EBITDA for the three and six months ended February 29, 2020 increased $13.3 million and $54.4 million, respectively, as compared to the corresponding periods in 2019. The year-over-year increases in adjusted EBITDA for the three and six months ended February 29, 2020 were due, in part, to increased shipments in both periods year-over-year. Although there were metal margin compressions of 6% and 1% during the three and six months ended February 29, 2020, respectively, the impact was offset by 6% and 4% year-over-year decreases, respectively, in conversion costs as a result of increased production levels and synergies from the integration of the Acquired Businesses. Adjusted EBITDA included non-cash stock compensation expense of $1.7 million and $3.5 million for the three and six months ended February 29, 2020, respectively, and $1.1 million and $2.3 million for the comparable periods.

Americas Fabrication

Net sales for the three and six months ended February 29, 2020 decreased $19.1 million, or 4%, and increased $115.6 million, or 12%, respectively, as compared to the corresponding periods in 2019. The year-over-year decrease in net sales for the three months ended February 29, 2020 was driven by an approximately 8% decrease in tons shipped, partially offset by a 16% increase in average selling prices per ton. The year-over-year increase in net sales for the six months ended February 29, 2020 was driven by 9% and 14% year-over-year increases in tons shipped and average selling prices per ton, respectively. Tons shipped increased year-over-year due, in part, to two additional months of shipments related to the Acquired Businesses. Net sales included amortization benefit of $6.0 million and $14.3 million for the three and six months ended February 29, 2020, respectively, and $23.5 million and $34.8 million for the comparable periods, respectively, related to the unfavorable contract backlog of the Acquired Businesses.

Adjusted EBITDA for the three and six months ended February 29, 2020 increased $65.6 million and $120.1 million, respectively, as compared to the corresponding periods in 2019. The primary driver for the year-over-year increases in adjusted EBITDA for the three and six months ended February 29, 2020 was metal margin expansion due to increased average selling prices per ton, as discussed above, and decreased input and conversion costs. Adjusted EBITDA does not include the $6.0 million or $14.3 million benefit of the amortization of the unfavorable contract backlog reserve described above. Adjusted EBITDA included non-cash stock compensation expense of $0.6 million and $1.3 million for the three and six months ended February 29, 2020, respectively, and $0.4 million and $1.1 million for the comparable periods.

Net sales for the three and six months ended February 29, 2020 increased $4.9 million, or 3%, and decreased $56.8 million, or 14%, respectively, as compared to the corresponding periods in 2019. For the three months ended February 29, 2020, the year-over-year increase in net sales was driven by an approximately 25% year-over-year increase in tons shipped due to strong demand in the Polish construction sector, partially offset by an approximately 18% year-over-year decrease in average selling prices per ton primarily due to elevated import levels. The year-over-year decrease in year-to-date net sales was primarily driven by an approximately 17% year-over-year decrease in average selling prices per ton. Net sales for the three and six months ended February 29, 2020 were also impacted by unfavorable foreign currency translation adjustments of approximately $4.2 million and $11.5 million, respectively, due to the increase in the average value of the U.S. dollar relative to the Polish zloty.

Adjusted EBITDA for the three and six months ended February 29, 2020 decreased $7.1 million and $28.5 million, respectively, as compared to the corresponding periods in 2019, primarily driven by $46 per ton, or 19%, and $41 per ton, or 17%, year-over-year decreases in metal margins, respectively. Elevated import levels in the third quarter of calendar 2019 saturated the market, resulting in lower average selling prices per ton and compressed margins. Adjusted EBITDA included non-cash stock compensation expense of $0.3 million and $0.8 million for the three and six months ended February 29, 2020, respectively, and $0.2 million and $0.3 million for the comparable periods. Foreign currency translation impact to adjusted EBITDA for the three and six months ended February 29, 2020 was immaterial.

Corporate and Other reported adjusted EBITDA losses of $23.2 million and $50.7 million for the three and six months ended February 29, 2020, respectively, as compared to adjusted EBITDA losses of $24.1 million and $83.7 million in the corresponding periods. For the three months ended February 29, 2020, adjusted EBITDA was relatively flat on a year-over-year basis. For the six months ended February 29, 2020, the decrease in adjusted EBITDA loss was primarily driven by a $27.9 million year-over-year decrease in professional fees and legal expenses incurred primarily due to the Acquisition in 2019. Adjusted EBITDA included non-cash stock compensation expense of $4.6 million and $9.4 million for the three and six months ended February 29, 2020, respectively, and $3.7 million and $5.7 million for the comparable periods.

LIQUIDITY AND CAPITAL RESOURCES

Sources of Liquidity and Capital Resources

We actively monitor our accounts receivable and, based on market conditions and customers' financial condition, we record allowances as soon as we believe accounts are uncollectible. We use credit insurance in Poland to mitigate the risk of customer insolvency. We estimate that the amount of credit insured receivables (and those covered by export letters of credit) was approximately 13% of total trade receivables at February 29, 2020.

The table below reflects our sources, facilities and available liquidity at February 29, 2020:

* We believe we have access to additional financing and refinancing, if needed.

Operating Activities

Our cash flows from operating activities result primarily from the sale of steel, nonferrous metals and related products. We have a diverse and generally stable customer base. From time to time, we use futures or forward contracts to mitigate the risks from fluctuations in commodity prices, foreign currency exchange rates, interest rates and natural gas, electricity and other energy prices. See Note 9, Derivatives, for further information.

Net cash flows from operating activities were $253.4 million for the six months ended February 29, 2020 compared to $352.9 million of net cash flows used by operating activities for the comparable period in 2019. Due to the adoption of Accounting Standards Update 2016-15 on September 1, 2018 as described in Note 7, Accounts Receivable Programs of the 2019 Form 10-K, $367.5 million of cash collections of the U.S. and Poland accounts receivable facilities were reflected in investing activities in 2019. In addition, for the six months ended February 29, 2020, the Company had a $113.6 million year-over-year increase in net earnings, a $30.4 million year-over-year increase in deferred income taxes and a $65.1 million year-over-year decrease in cash used by operating assets and liabilities ("working capital"). For continuing operations, operating working capital days decreased five days year-over-year.

Investing Activities

Net cash flows used by investing activities were $91.5 million and $393.1 million for the six months ended February 29, 2020 and the comparable period in 2019, respectively. Cash used by investing activities in the six months ended February 29, 2020 was lower than the comparable period primarily due to cash used for the Acquisition in 2019 of $701.2 million, as described in Note 2, Changes in Business, partially offset by $367.5 million in cash collections of the U.S. and Poland accounts receivable facilities in 2019, as described above.

We estimate that our 2020 capital spending will range from $160 million to $185 million. We regularly assess our capital spending based on current and expected results.

Financing Activities

Net cash flows used by financing activities were $122.1 million for the six months ended February 29, 2020 compared to net cash flows from financing activities of $181.8 million for the comparable period in 2019. During the six months ended February 29, 2020, we had net debt repayments of $91.2 million, as compared to net borrowings of $212.8 million in the corresponding period which was used to fund the Acquisition.

At this time, the coronavirus (“COVID-19”) has not had a material impact on our operations, and we anticipate our current cash balances, cash flows from operations and our available sources of liquidity will be sufficient to meet our cash requirements. However, as the impact of COVID-19 on the economy and our operations evolves, we will continue to assess our liquidity needs. In the event of a sustained market deterioration, we may need additional liquidity, which would require us to evaluate available alternatives and take appropriate actions.


i Delaware			i 75-0725338
(State or Other Jurisdiction of Incorporation or Organization)			(I.R.S. Employer Identification Number)


i Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	i ☐
		Emerging growth company	i ☐


3.1(a)			Restated Certificate of Incorporation dated March 2, 1989 (filed as Exhibit 3(i) to Commercial Metals Company's Annual Report on Form 10-K for the fiscal year ended August 31, 2009 and incorporated herein by reference).

3.1(b)			Certificate of Amendment of Restated Certificate of Incorporation dated February 1, 1994 (filed as Exhibit 3(i)(a) to Commercial Metals Company's Annual Report on Form 10-K for the fiscal year ended August 31, 2009 and incorporated herein by reference).

3.1(c)			Certificate of Amendment of Restated Certificate of Incorporation dated February 17, 1995 (filed as Exhibit 3(i)(b) to Commercial Metals Company's Annual Report on Form 10-K for the fiscal year ended August 31, 2009 and incorporated herein by reference).

3.1(d)			Certificate of Amendment of Restated Certificate of Incorporation dated January 30, 2004 (filed as Exhibit 3(i)(d) to Commercial Metals Company's Quarterly Report on Form 10-Q for the quarter ended February 29, 2004 and incorporated herein by reference).

3.1(e)			Certificate of Amendment of Restated Certificate of Incorporation dated January 26, 2006 (filed as Exhibit 3(i) to Commercial Metals Company's Quarterly Report on Form 10-Q for the quarter ended February 28, 2006 and incorporated herein by reference).

3.1(f)			Certificate of Designation, Preferences and Rights of Series A Preferred Stock (filed as Exhibit 2 to Commercial Metals Company's Form 8-A filed August 3, 1999 and incorporated herein by reference).

3.2			Fourth Amended and Restated Bylaws (filed as Exhibit 3.1 to Commercial Metals Company's Current Report on Form 8-K dated September 23, 2019 and incorporated herein by reference).

10.1			Consulting Agreement, dated as of March 1, 2020, by and between Mary A. Lindsey and Commercial Metals Company (filed as Exhibit 10.1 to Commercial Metals Company's Current Report on Form 8-K dated March 2, 2020 and incorporated her e in by reference).

10.2			Separation and Release Agreement, dated as of February 28, 2020, by and between Commercial Metals Company and Paul K. Kirkpatrick (filed as Exhibit 10.1 to Commercial Metals Company's Current Report on Form 8-K dated March 3, 2020 and incorporated her e in by reference).

31.1			Certification of Barbara R. Smith, President and Chief Executive Officer of Commercial Metals Company, pursuant to Section 302 to the Sarbanes-Oxley Act of 2002 (filed herewith).

31.2			Certification of Paul J. Lawrence, Vice President and Chief Financial Officer of Commercial Metals Company, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).

32.1			Certification of Barbara R. Smith, 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 (furnished herewith).

32.2			Certification of Paul J. Lawrence, 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).

101.INS			Inline XBRL Instance Document (filed herewith).

101.SCH			Inline XBRL Taxonomy Extension Schema Document (filed herewith).

101.CAL			Inline XBRL Taxonomy Extension Calculation Linkbase Document (filed herewith).

101.DEF			Inline XBRL Taxonomy Extension Definition Linkbase Document (filed herewith).

101.LAB			Inline XBRL Taxonomy Extension Label Linkbase Document (filed herewith).

101.PRE			Inline XBRL Taxonomy Extension Presentation Linkbase Document (filed herewith).

104			Cover Page Interactive Data File


			COMMERCIAL METALS COMPANY

March 25, 2020			/s/ *Paul J. Lawrence*
			Paul J. Lawrence
			Vice President and Chief Financial Officer
			(Duly authorized officer and principal financial officer of the registrant)

This ‘10-Q’ Filing	Date	Other Filings

	2/28/21
	12/15/20
Filed on:	3/25/20
	3/24/20
For Period end:	2/29/20
	2/3/20	4
	11/30/19	10-Q
	11/5/19
	9/1/19	4
	8/31/19	10-K, 10-K/A, 5
	2/28/19	10-Q
	11/30/18	10-Q, CORRESP, S-4
	11/5/18	8-K, 8-K/A
	9/1/18	4
	8/31/18	10-K, 5, 8-K
	2/28/18	10-Q, 4
	9/1/17	4, 8-K
		List all Filings

Commercial Metals Co – ‘10-Q’ for 2/29/20

On: Wednesday, 3/25/20, at 11:57am ET · For: 2/29/20 · Accession #: 22444-20-19 · File #: 1-04304

Previous ‘10-Q’: ‘10-Q’ on 1/7/20 for 11/30/19 · Next: ‘10-Q’ on 6/25/20 for 5/31/20 · Latest: ‘10-Q’ on 3/26/24 for 2/29/24

Quarterly Report — Form 10-Q — Sect. 13 / 15(d) – SEA’34
Filing Table of Contents

‘10-Q’ — Quarterly Report
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PART I — FINANCIAL INFORMATION			3

Item 1. Financial Statements (Unaudited)			3
Condensed Consolidated Statements of Earnings - Three and six months ended February 29, 2020 and February 28, 2019			3
Condensed Consolidated Statements of Comprehensive Income - Three and six months ended February 29, 2020 and February 28, 2019			4
Condensed Consolidated Balance Sheets - February 29 , 20 20 and August 31, 2019			5
Condensed Consolidated Statements of Cash Flows - Six months ended February 29, 2020 and February 28, 2019			6
Condensed Consolidated Statements of Stockholders' Equity - Three and s ix months ended February 29, 2020 and February 28, 2019			7
Notes to Condensed Consolidated Financial Statements			9
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations			22
Item 3. Quantitative and Qualitative Disclosures About Market Risk			30
Item 4. Controls and Procedures			30

PART II — OTHER INFORMATION			31

Item 1. Legal Proceedings			31
Item 1A. Risk Factors			31
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			32
Item 3. Defaults Upon Senior Securities			32
Item 4. Mine Safety Disclosures			32
Item 5. Other Information			32
Item 6. Exhibits			33
Signature			34


(in thousands)	Total Facility		Availability
Cash and cash equivalents	$	232,442	$	232,442
Notes due from 2023 to 2027	980,000		*
Revolver	350,000		346,962
U.S. accounts receivable facility	200,000		169,009
Term Loan	110,125		—
Poland credit facilities	70,046		58,005
Poland accounts receivable facility	56,037		42,670

Commercial Metals Co – ‘10-Q’ for 2/29/20

On: Wednesday, 3/25/20, at 11:57am ET · For: 2/29/20 · Accession #: 22444-20-19 · File #: 1-04304

Previous ‘10-Q’: ‘10-Q’ on 1/7/20 for 11/30/19 · Next: ‘10-Q’ on 6/25/20 for 5/31/20 · Latest: ‘10-Q’ on 3/26/24 for 2/29/24

Quarterly Report — Form 10-Q — Sect. 13 / 15(d) – SEA’34Filing Table of Contents

‘10-Q’ — Quarterly ReportDocument Table of Contents

This is an HTML Document rendered as filed. [ Alternative Formats ]

Dates Referenced Herein and Documents Incorporated by Reference

Quarterly Report — Form 10-Q — Sect. 13 / 15(d) – SEA’34
Filing Table of Contents

‘10-Q’ — Quarterly Report
Document Table of Contents