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COMMERCIAL METALS Co - Quarter Report: 2020 February (Form 10-Q)


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
___________________________________
FORM 10-Q 
___________________________________
 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended February 29, 2020
OR
 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from             to            
Commission file number 1-4304
___________________________________
COMMERCIAL METALS COMPANY
(Exact Name of Registrant as Specified in Its Charter)
___________________________________ 
Delaware75-0725338
(State or Other Jurisdiction of
Incorporation or Organization)
(I.R.S. Employer
Identification Number)
6565 N. MacArthur Blvd.
Irving, Texas 75039
(Address of Principal Executive Offices) (Zip Code)
(214) 689-4300
(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each ClassTrading Symbol(s)Name of Each Exchange on Which Registered
Common Stock, $0.01 par valueCMCNew York Stock Exchange
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 ("Exchange Act") during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  x    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer  Smaller reporting company
Emerging growth company
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. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  
As of March 24, 2020, 119,061,889 shares of the registrant's common stock, par value $0.01 per share, were outstanding.



COMMERCIAL METALS COMPANY AND SUBSIDIARIES
TABLE OF CONTENTS

 

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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS



COMMERCIAL METALS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
Three Months EndedSix Months Ended
(in thousands, except share data)February 29, 2020February 28, 2019February 29, 2020February 28, 2019
Net sales$1,340,963  $1,402,783  $2,725,671  $2,680,125  
Costs and expenses:
Cost of goods sold1,123,096  1,252,493  2,269,610  2,370,926  
Selling, general and administrative expenses115,538  98,726  227,067  215,943  
Interest expense15,888  18,495  32,466  35,158  
1,254,522  1,369,714  2,529,143  2,622,027  
Earnings from continuing operations before income taxes 86,441  33,069  196,528  58,098  
Income taxes22,845  18,141  50,177  23,750  
Earnings from continuing operations63,596  14,928  146,351  34,348  
Earnings (loss) from discontinued operations before income taxes301  (1,075) 1,196  (618) 
Income taxes99   401  138  
Earnings (loss) from discontinued operations202  (1,078) 795  (756) 
Net earnings$63,798  $13,850  $147,146  $33,592  
Basic earnings per share*
Earnings from continuing operations$0.53  $0.13  $1.23  $0.29  
Earnings (loss) from discontinued operations—  (0.01) 0.01  (0.01) 
Net earnings$0.54  $0.12  $1.24  $0.29  
Diluted earnings per share*
Earnings from continuing operations$0.53  $0.13  $1.22  $0.29  
Earnings (loss) from discontinued operations—  (0.01) 0.01  (0.01) 
Net earnings$0.53  $0.12  $1.22  $0.28  
Average basic shares outstanding118,919,455  117,854,335  118,644,823  117,677,422  
Average diluted shares outstanding120,407,256  118,942,758  120,303,259  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.


3



COMMERCIAL METALS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
Three Months EndedSix Months Ended
(in thousands) February 29, 2020February 28, 2019February 29, 2020February 28, 2019
Net earnings   $63,798  $13,850  $147,146  $33,592  
Other comprehensive income, net of income taxes:  
Foreign currency translation adjustment  (1,066) 514  5,858  (9,143) 
Reclassification for translation gain (loss) realized upon liquidation of investment in foreign entity (2) 936  (2) 837  
Foreign currency translation adjustment  (1,068) 1,450  5,856  (8,306) 
Net unrealized loss on derivatives:  
Unrealized holding loss(3,646) (86) (2,932) (121) 
Reclassification for loss included in net earnings  (83) (42) (172) (84) 
Net unrealized loss on derivatives  (3,729) (128) (3,104) (205) 
Defined benefit obligation:
Amortization of prior services  (8) (8) (16) (15) 
Reclassification for settlement losses  —  —  —  1,316  
Defined benefit obligation  (8) (8) (16) 1,301  
Other comprehensive income (loss) (4,805) 1,314  2,736  (7,210) 
Comprehensive income  $58,993  $15,164  $149,882  $26,382  
See notes to condensed consolidated financial statements.

4



COMMERCIAL METALS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(in thousands, except share data)February 29, 2020August 31, 2019
Assets
Current assets:
Cash and cash equivalents$232,442  $192,461  
Accounts receivable (less allowance for doubtful accounts of $8,388 and $8,403)961,694  1,016,088  
Inventories, net714,842  692,368  
Other current assets176,000  179,088  
Total current assets2,084,978  2,080,005  
Property, plant and equipment, net1,522,342  1,500,971  
Goodwill64,172  64,138  
Other noncurrent assets236,446  113,657  
Total assets$3,907,938  $3,758,771  
Liabilities and stockholders' equity
Current liabilities:
Accounts payable$275,491  $288,005  
Accrued expenses and other payables329,920  353,786  
Acquired unfavorable contract backlog21,008  35,360  
Current maturities of long-term debt and short-term borrowings22,715  17,439  
Total current liabilities649,134  694,590  
Deferred income taxes123,726  79,290  
Other noncurrent liabilities232,450  133,620  
Long-term debt1,144,573  1,227,214  
Total liabilities2,149,883  2,134,714  
Commitments and contingencies (Note 13)
Stockholders' equity:
Common stock, par value $0.01 per share; authorized 200,000,000 shares; issued 129,060,664 shares; outstanding 119,061,889 and 117,924,938 shares
1,290  1,290  
Additional paid-in capital351,481  358,668  
Accumulated other comprehensive loss(121,390) (124,126) 
Retained earnings1,704,045  1,585,379  
Less treasury stock 9,998,775 and 11,135,726 shares at cost
(177,583) (197,350) 
Stockholders' equity1,757,843  1,623,861  
Stockholders' equity attributable to noncontrolling interests212  196  
Total stockholders' equity1,758,055  1,624,057  
Total liabilities and stockholders' equity$3,907,938  $3,758,771  
See notes to condensed consolidated financial statements.

5



COMMERCIAL METALS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
 Six Months Ended
(in thousands)February 29, 2020February 28, 2019
Cash flows from (used by) operating activities:
Net earnings$147,146  $33,592  
Adjustments to reconcile net earnings to cash flows from (used by) operating activities:
Depreciation and amortization82,338  76,430  
Deferred income taxes and other long-term taxes42,142  11,705  
Stock-based compensation15,805  10,007  
Amortization of acquired unfavorable contract backlog(14,328) (34,808) 
Net gain on disposals of subsidiaries, assets and other(5,585) (1,202) 
Other1,571  (281) 
Changes in operating assets and liabilities(15,673) (80,809) 
Beneficial interest in securitized accounts receivable—  (367,521) 
Net cash flows from (used by) operating activities253,416  (352,887) 
Cash flows from (used by) investing activities:
Capital expenditures(96,592) (67,497) 
Proceeds from the sale of property, plant and equipment14,004  2,042  
Acquisitions, net of cash acquired(9,850) (700,982) 
Proceeds from insurance, sale of discontinued operations and other974  5,798  
Beneficial interest in securitized accounts receivable—  367,521  
Net cash flows used by investing activities:(91,464) (393,118) 
Cash flows from (used by) financing activities:
Proceeds from issuance of long-term debt11,299  180,000  
Repayments of long-term debt(106,880) (14,605) 
Proceeds from accounts receivable programs85,686  140,070  
Repayments under accounts receivable programs(81,314) (92,664) 
Dividends(28,480) (28,181) 
Stock issued under incentive and purchase plans, net of forfeitures(2,463) (2,856) 
Contribution from noncontrolling interests16  10  
Net cash flows from (used by) financing activities(122,136) 181,774  
Effect of exchange rate changes on cash337  (221) 
Increase (decrease) in cash, restricted cash and cash equivalents40,153  (564,452) 
Cash, restricted cash and cash equivalents at beginning of period193,729  632,615  
Cash, restricted cash and cash equivalents at end of period$233,882  $68,163  
See notes to condensed consolidated financial statements.

Supplemental information:Six Months Ended
(in thousands)February 29, 2020February 28, 2019
Cash paid for income taxes$27,759  $1,771  
Cash paid for interest29,484  31,518  
Noncash activities:
Liabilities related to additions of property, plant and equipment29,176  26,186  
Cash and cash equivalents$232,442  $66,742  
Restricted cash1,440  1,421  
Total cash, restricted cash and cash equivalents$233,882  $68,163  


6



COMMERCIAL METALS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED)
Three Months Ended February 29, 2020
 Common StockAdditionalAccumulated
Other
 Treasury Stock Non- 
(in thousands, except share data)Number of
Shares
AmountPaid-In
Capital
Comprehensive
Loss
Retained
Earnings
Number of
Shares
Amountcontrolling
Interests
Total
Balance, November 30, 2019129,060,664  $1,290  $347,192  $(116,585) $1,654,489  (10,410,799) $(184,885) $196  $1,701,697  
Net earnings63,798  63,798  
Other comprehensive loss(4,805) (4,805) 
Dividends ($0.12 per share)(14,242) (14,242) 
Issuance of stock under incentive and purchase plans, net of forfeitures(1,948) 412,024  7,302  5,354  
Stock-based compensation6,237  6,237  
Contribution of noncontrolling interests16  16  
Balance, February 29, 2020129,060,664  $1,290  $351,481  $(121,390) $1,704,045  (9,998,775) $(177,583) $212  $1,758,055  
Six Months Ended February 29, 2020
 Common StockAdditionalAccumulated
Other
 Treasury Stock Non- 
(in thousands, except share data)Number of
Shares
AmountPaid-In
Capital
Comprehensive
Loss
Retained
Earnings
Number of
Shares
Amountcontrolling
Interests
Total
Balance, September 1, 2019129,060,664  $1,290  $358,668  $(124,126) $1,585,379  (11,135,726) $(197,350) $196  $1,624,057  
Net earnings147,146  147,146  
Other comprehensive income2,736  2,736  
Dividends ($0.12 per share)(28,480) (28,480) 
Issuance of stock under incentive and purchase plans, net of forfeitures(22,230) 1,136,951  19,767  (2,463) 
Stock-based compensation15,043  15,043  
Contribution of noncontrolling interests16  16  
Balance, February 29, 2020129,060,664  $1,290  $351,481  $(121,390) $1,704,045  (9,998,775) $(177,583) $212  $1,758,055  

7


Three Months Ended February 28, 2019
 Common StockAdditionalAccumulated
Other
 Treasury Stock Non- 
(in thousands, except share data)Number of
Shares
AmountPaid-In
Capital
Comprehensive
Loss
Retained
Earnings
Number of
Shares
Amountcontrolling
Interests
Total
Balance, November 30, 2018129,060,664  $1,290  $342,893  $(102,201) $1,449,374  (11,426,463) $(202,515) $186  $1,489,027  
Net earnings13,850  13,850  
Other comprehensive income1,314  1,314  
Dividends ($0.12 per share)(14,065) (14,065) 
Issuance of stock under incentive and purchase plans, net of forfeitures(1,733) 286,869  5,097  3,364  
Stock-based compensation4,996  4,996  
Contribution of noncontrolling interest10  10  
Balance, February 28, 2019129,060,664  $1,290  $346,156  $(100,887) $1,449,159  (11,139,594) $(197,418) $196  $1,498,496  
Six Months Ended February 28, 2019
 Common StockAdditionalAccumulated
Other
 Treasury Stock Non- 
(in thousands, except share data)Number of
Shares
AmountPaid-In
Capital
Comprehensive
Loss
Retained
Earnings
Number of
Shares
Amountcontrolling
Interests
Total
Balance, September 1, 2018129,060,664  $1,290  $352,674  $(93,677) $1,446,495  (12,045,106) $(213,385) $186  $1,493,583  
Net earnings33,592  33,592  
Other comprehensive loss(7,210) (7,210) 
Dividends ($0.12 per share)(28,181) (28,181) 
Issuance of stock under incentive and purchase plans, net of forfeitures(18,823) 905,512  15,967  (2,856) 
Stock-based compensation12,305  12,305  
Contribution of noncontrolling interest10  10  
Adoption of ASC 606 adjustment(2,747) (2,747) 
Balance, February 28, 2019129,060,664  $1,290  $346,156  $(100,887) $1,449,159  (11,139,594) $(197,418) $196  $1,498,496  
See notes to condensed consolidated financial statements.
8


COMMERCIAL METALS COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1. ACCOUNTING POLICIES

Basis of Presentation

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: $113.4 million of ROU assets, in other noncurrent assets, $30.9 million of lease liabilities in accrued expenses and other payables and $84.9 million of lease liabilities in other noncurrent liabilities. There was 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.
9


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.

Facility Closure

In October 2019, the Company closed the melting operations at its Rancho Cucamonga facility and recorded $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 $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 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 $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. These results are adjusted, where possible, for transaction and integration-related costs.
Three Months Ended February 28,Six Months Ended February 28,
(in thousands)2019201820192018
Pro forma net sales*$1,379,033  $1,470,603  $2,925,007  $2,914,292  
Pro forma net earnings (loss)**10,260  18,786  26,081  (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 $47.5 million.
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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 DerivativesDefined Benefit Obligation  Total AOCI  
Balance, November 30, 2019$(114,574) $1,731  $(3,742) $(116,585) 
Other comprehensive loss before reclassifications(1,066) (4,501) (14) (5,581) 
Amounts reclassified from AOCI(2) (104) —  (106) 
Income taxes —  876   882  
Net other comprehensive income loss(1,068) (3,729) (8) (4,805) 
Balance, February 29, 2020$(115,642) $(1,998) $(3,750) $(121,390) 
Six Months Ended February 29, 2020
(in thousands)Foreign Currency Translation  Unrealized Gain (Loss) on DerivativesDefined Benefit Obligation  Total AOCI  
Balance, August 31, 2019$(121,498) $1,106  $(3,734) $(124,126) 
Other comprehensive income (loss) before reclassifications5,858  (3,619) (24) 2,215  
Amounts reclassified from AOCI(2) (214) —  (216) 
Income taxes—  729   737  
Net other comprehensive income (loss)5,856  (3,104) (16) 2,736  
Balance, February 29, 2020$(115,642) $(1,998) $(3,750) $(121,390) 

Three Months Ended February 28, 2019
(in thousands)Foreign Currency Translation  Unrealized Gain (Loss) on DerivativesDefined Benefit Obligation  Total AOCI  
Balance, November 30, 2018$(102,393) $1,279  $(1,087) $(102,201) 
Other comprehensive income (loss) before reclassifications514  (52) (8) 454  
Amounts reclassified from AOCI936  (107) —  829  
Income taxes—  31  —  31  
Net other comprehensive income (loss)1,450  (128) (8) 1,314  
Balance, February 28, 2019$(100,943) $1,151  $(1,095) $(100,887) 
Six Months Ended February 28, 2019
(in thousands)Foreign Currency Translation  Unrealized Gain (Loss) on DerivativesDefined Benefit Obligation  Total AOCI  
Balance, August 31, 2018$(92,637) $1,356  $(2,396) $(93,677) 
Other comprehensive loss before reclassifications(9,143) (104) (19) (9,266) 
Amounts reclassified from AOCI837  (149) 1,666  2,354  
Income taxes (benefit)—  48  (346) (298) 
Net other comprehensive income (loss)(8,306) (205) 1,301  (7,210) 
Balance, February 28, 2019$(100,943) $1,151  $(1,095) $(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.

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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 27% and 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 25% and 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 48% and 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, 2020August 31, 2019
Contract assets (included in other current assets)$87,801  $103,805  
Contract liabilities (included in accrued expenses and other payables)38,391  37,165  
The amount of revenue reclassified from August 31, 2019 contract liabilities during the six months ended February 29, 2020 was approximately $20.2 million.

Remaining Performance Obligations

As of February 29, 2020, $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: 40% in the first twelve months, 48% in the following twelve months, and 12% thereafter. The duration of contracts in the Americas Mills, Americas Recycling, and International Mill segments are typically less than one year.

12


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 RecyclingAmericas MillsAmericas FabricationInternational MillCorporate and OtherTotal
Steel products$140  $437,648  $441,765  $171,283  $—  $1,050,836  
Ferrous scrap66,040  10,874   159  —  77,074  
Nonferrous scrap112,862  3,535  —  2,249  —  118,646  
Construction materials—  —  66,122  —  —  66,122  
Other493  19,310  2,493  5,965  24  28,285  
Total$179,535  $471,367  $510,381  $179,656  $24  $1,340,963  
Six Months Ended February 29, 2020
(in thousands)Americas RecyclingAmericas MillsAmericas FabricationInternational MillCorporate and OtherTotal
Steel products$255  $878,811  $941,492  $329,227  $—  $2,149,785  
Ferrous scrap124,342  17,622   371  —  142,336  
Nonferrous scrap226,080  6,890  —  4,242  —  237,212  
Construction materials—  —  133,588  —  —  133,588  
Other1,009  42,236  5,677  10,856  2,972  62,750  
Total$351,686  $945,559  $1,080,758  $344,696  $2,972  $2,725,671  

Three Months Ended February 28, 2019
(in thousands)Americas RecyclingAmericas MillsAmericas FabricationInternational MillCorporate and OtherTotal
Steel products$202  $444,327  $462,963  $167,534  $—  $1,075,026  
Ferrous scrap105,253  8,744  —  255  —  114,252  
Nonferrous scrap120,004  3,308  —  2,524  —  125,836  
Construction materials—  —  60,190  —  —  60,190  
Other429  16,416  3,525  4,632  2,477  27,479  
Total$225,888  $472,795  $526,678  $174,945  $2,477  $1,402,783  
Six Months Ended February 28, 2019
(in thousands)Americas RecyclingAmericas MillsAmericas FabricationInternational MillCorporate and Other  Total
Steel products$441  $792,292  $837,770  $385,304  $—  $2,015,807  
Ferrous scrap216,907  17,886  —  530  —  235,323  
Nonferrous scrap248,079  6,488  —  5,465  —  260,032  
Construction materials—  —  117,361  —  —  117,361  
Other642  29,800  6,105  10,319  4,736  51,602  
Total$466,069  $846,466  $961,236  $401,618  $4,736  $2,680,125  

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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 $169.4 million and $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 RecyclingAmericas MillsAmericas FabricationInternational MillConsolidated
Goodwill, gross*$9,543  $4,970  $57,428  $2,420  $74,361  
Accumulated impairment losses*(9,543) —  (493) (153) (10,189) 
Goodwill, net*$—  $4,970  $56,935  $2,267  $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 $20.7 million and $20.8 million, respectively, and the total net carrying amounts were $12.2 million and $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 $0.6 million and $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 $110.2 million. At February 29, 2020 and August 31, 2019, the net carrying amount of the liability was $21.0 million and $35.4 million, respectively. Amortization of the unfavorable contract backlog was $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, and was recorded as an increase to net sales in the Company’s condensed consolidated statements of earnings.

NOTE 7. LEASES

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 SheetFebruary 29, 2020
Assets:
Operating assetsOther noncurrent assets$124,749  
Finance assetsProperty, plant and equipment, net43,647  
Total leased assets$168,396  
Liabilities:
Operating lease liabilities:
CurrentAccrued expenses and other payables$27,900  
Long-termOther noncurrent liabilities99,283  
Total operating lease liabilities127,183  
Finance lease liabilities:
CurrentCurrent maturities of long-term debt and short-term borrowings12,604  
Long-termLong-term debt31,254  
Total finance lease liabilities43,858  
Total lease liabilities$171,041  

14


The components of lease cost were as follows:
(in thousands)Three Months Ended February 29, 2020Six Months Ended February 29, 2020
Operating lease expense$8,815  $17,605  
Finance lease expense:
Amortization of assets2,720  4,885  
Interest on lease liabilities465  866  
Total finance lease expense3,185  5,751  
Variable and short term-lease expense4,381  8,314  
Total lease expense$16,381  $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 leases6.5
Finance leases3.9
Weighted-average discount rate
Operating leases4.160 %
Finance leases4.216 %

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$17,594  
Operating cash outflows from finance leases787  
Financing cash outflows from finance leases6,426  
ROU assets obtained in exchange for lease obligations:
Operating leases28,942  
Finance leases13,040  

Maturities of lease liabilities at February 29, 2020 are presented in the following table:
(in thousands)Operating LeasesFinance Leases
Year 1$32,620  $14,189  
Year 227,531  11,963  
Year 322,156  9,521  
Year 417,563  7,626  
Year 512,455  4,277  
Thereafter34,680  74  
Total lease payments147,005  47,650  
Less: Imputed interest19,822  3,792  
Present value of lease liabilities$127,183  $43,858  

Future maturities of lease liabilities at August 31, 2019, prior to adoption of ASU 2016-02, are presented in the following table:
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Twelve Months Ended August 31,
(in thousands)Total20202021202220232024Thereafter
Capital lease obligations$41,331  13,104  10,004  7,758  5,831  3,904  $730  
Long-term non-cancelable operating leases$124,817  34,511  27,383  22,074  17,433  10,478  $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, 2020February 29, 2020August 31, 2019
2027 Notes5.375%  $300,000  $300,000  
2026 Notes5.750%  350,000  350,000  
2023 Notes4.875%  330,000  330,000  
Term Loan3.409%  110,125  210,125  
Poland credit facilities2.637%  11,290  —  
Short-term borrowings2.400%  8,272  3,929  
Other5.100%  23,168  23,168  
Finance leases43,858  37,699  
Total debt1,176,713  1,254,921  
     Less debt issuance costs9,425  10,268  
Total amounts outstanding1,167,288  1,244,653  
     Less current maturities14,443  13,510  
Less short-term borrowings8,272  3,929  
Current maturities of long-term debt and short-term borrowings22,715  17,439  
Long-term debt$1,144,573  $1,227,214  

The Company had no amounts drawn under the $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 $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") 275.0 million, or $70.0 million. These facilities expire in March 2022. At February 29, 2020, $11.3 million was outstanding under these facilities. 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 $0.8 million and $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 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 220.0 million ($56.0 million at February 29, 2020). The Company had $8.3 million of advance payments outstanding under the Poland accounts receivable facility at February 29, 2020, and $3.9 million at August 31, 2019.
16


NOTE 9. DERIVATIVES

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

The following table provides information regarding the Company's commodity contract commitments at February 29, 2020:
CommodityLong/ShortTotal
AluminumLong2,100   MT
CopperLong318   MT
CopperShort5,454   MT
ElectricityLong2,000,000  MW(h)
_________________
MT = Metric Ton
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 EndedSix Months Ended
Derivatives Not Designated as Hedging Instruments (in thousands)LocationFebruary 29, 2020February 28, 2019February 29, 2020February 28, 2019
CommodityCost of goods sold$1,731  $(2,425) $416  $(3,265) 
Foreign exchangeSG&A expenses(21) (526) 20  (400) 
Gain (loss) before income taxes$1,710  $(2,951) $436  $(3,665) 

NOTE 10. FAIR VALUE

The Company has established a fair value hierarchy which prioritizes the inputs to the valuation techniques used to measure fair value into 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.

The following tables summarize information regarding the Company's financial assets and financial liabilities that were measured at fair value on a recurring basis:
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  Fair Value Measurements at Reporting Date Using
(in thousands)February 29, 2020Quoted 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)
$191,424  $191,424  $—  $—  
Commodity derivative assets (2)
1,631  1,631  —  —  
Foreign exchange derivative assets (2)
374  —  374  —  
Liabilities:
Commodity derivative liabilities (2)
3,663  77  —  3,586  
Foreign exchange derivative liabilities (2)
696  —  696  —  

  Fair Value Measurements at Reporting Date Using
(in thousands)August 31, 2019Quoted 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)
$66,240  $66,240  $—  $—  
Commodity derivative assets (2)
1,269  1,269  —  —  
Foreign exchange derivative assets (2)
569  —  569  —  
Liabilities:
Commodity derivative liabilities (2)
99  99  —  —  
Foreign exchange derivative liabilities (2)
899  —  899  —  
_________________ 
(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, 2020August 31, 2019
(in thousands)Fair Value HierarchyCarrying ValueFair ValueCarrying ValueFair Value
2027 Notes (1)
Level 2  $300,000  $308,151  $300,000  $303,810  
2026 Notes (1)
Level 2  350,000  365,215  350,000  363,444  
2023 Notes (1)
Level 2  330,000  344,177  330,000  342,098  
Term Loan (2)
Level 2  110,125  110,125  210,125  210,125  
Poland credit facilities (2)
Level 2  11,290  11,290  —  —  
Short-term borrowings (2)
Level 2  8,272  8,272  3,929  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.

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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 2020 vest ratably over a period of 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 2020 vest after a period of 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, 2020February 28, 2019
(in thousands, except per share data)Shares GrantedWeighted Average Grant Date Fair ValueShares GrantedWeighted Average Grant Date Fair Value
Equity method1,521  $18.32  1,505  $17.75  
Liability method426  N/A  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 835,546 equivalent shares accounted for under the liability method. The Company expects 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 EndedSix Months Ended
(in thousands)February 29, 2020February 28, 2019February 29, 2020February 28, 2019
Stock-based compensation expense$7,536  $5,790  $15,805  $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 EndedSix Months Ended
(in thousands, except share data)February 29, 2020February 28, 2019February 29, 2020February 28, 2019
Earnings from continuing operations$63,596  $14,928  $146,351  $34,348  
Basic earnings per share:
       Shares outstanding for basic earnings per share118,919,455  117,854,335  118,644,823  117,677,422  
Basic earnings per share from continuing operations$0.53  $0.13  $1.23  $0.29  
Diluted earnings per share:
       Shares outstanding for basic earnings per share118,919,455  117,854,335  118,644,823  117,677,422  
Effect of dilutive securities:
Stock-based incentive/purchase plans1,487,801  1,088,423  1,658,436  1,319,005  
Shares outstanding for diluted earnings per share120,407,256  118,942,758  120,303,259  118,996,427  
Diluted earnings per share from continuing operations$0.53  $0.13  $1.22  $0.29  

Anti-dilutive shares not included above were immaterial for the three and six months ended February 29, 2020, respectively. There were 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 $100.0 million of shares of common stock. During the six months ended February 29, 2020, CMC did not
19


repurchase any shares of common stock. CMC had remaining authorization to repurchase $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 $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 $3.6 million at February 29, 2020 and August 31, 2019, of which $2.7 million and $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 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.

The following is a summary of certain financial information from continuing operations by reportable segment:
20


Three Months Ended February 29, 2020
(in thousands) Americas Recycling Americas Mills Americas Fabrication International Mill Corporate and OtherContinuing Operations
Net sales-unaffiliated customers$179,535  $471,367  $510,381  $179,656  $24  $1,340,963  
Intersegment sales68,549  260,673  1,367  423  (331,012) —  
Net sales248,084  732,040  511,748  180,079  (330,988) 1,340,963  
Adjusted EBITDA5,754  125,691  16,060  13,451  (23,235) 137,721  
Six Months Ended February 29, 2020
(in thousands) Americas Recycling Americas Mills Americas Fabrication International Mill Corporate and OtherContinuing Operations
Net sales-unaffiliated customers$351,686  $945,559  $1,080,758  $344,696  $2,972  $2,725,671  
Intersegment sales118,659  555,374  2,837  772  (677,642) —  
Net sales470,345  1,500,933  1,083,595  345,468  (674,670) 2,725,671  
Adjusted EBITDA9,171  280,716  33,541  24,810  (50,712) 297,526  
Total assets at February 29, 2020*261,611  1,680,295  1,065,676  521,678  378,678  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 OtherContinuing Operations
Net sales-unaffiliated customers$225,888  $472,795  $526,678  $174,945  $2,477  $1,402,783  
Intersegment sales61,187  301,914  4,158  253  (367,512) —  
Net sales287,075  774,709  530,836  175,198  (365,035) 1,402,783  
Adjusted EBITDA10,124  112,396  (49,578) 20,537  (24,146) 69,333  
Six Months Ended February 28, 2019
(in thousands) Americas Recycling Americas Mills Americas Fabrication International Mill Corporate and OtherContinuing Operations
Net sales-unaffiliated customers$466,069  $846,466  $961,236  $401,618  $4,736  $2,680,125  
Intersegment sales123,015  530,096  6,711  604  (660,426) —  
Net sales589,084  1,376,562  967,947  402,222  (655,690) 2,680,125  
Adjusted EBITDA25,558  226,269  (86,574) 53,316  (83,700) 134,869  
Total assets at August 31, 2019*
257,517  1,667,366  1,106,420  464,177  263,291  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:
 Three Months EndedSix Months Ended
(in thousands)February 29, 2020February 28, 2019February 29, 2020February 28, 2019
Earnings from continuing operations$63,596  $14,928  $146,351  $34,348  
Interest expense15,888  18,495  32,466  35,158  
Income taxes22,845  18,141  50,177  23,750  
Depreciation and amortization41,389  41,245  82,330  76,421  
Amortization of acquired unfavorable contract backlog(5,997) (23,476) (14,328) (34,808) 
Impairment of assets—  —  530  —  
Adjusted EBITDA from continuing operations$137,721  $69,333  $297,526  $134,869  

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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

Business Overview

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.
 Three Months EndedSix Months Ended
(in thousands, except per share data)February 29, 2020February 28, 2019February 29, 2020February 28, 2019
Net sales$1,340,963  $1,402,783  $2,725,671  $2,680,125  
Earnings from continuing operations63,596  14,928  146,351  34,348  
Diluted earnings per share$0.53  $0.13  $1.22  $0.29  

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
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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

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.

Income Taxes

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.

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Americas Recycling
 Three Months EndedSix Months Ended
(in thousands)February 29, 2020February 28, 2019February 29, 2020February 28, 2019
Net sales$248,084  $287,075  $470,345  $589,084  
Adjusted EBITDA5,754  10,124  9,171  25,558  
Average selling price (per ton)
 Ferrous$226  $266  $204  $269  
 Nonferrous2,044  1,998  2,014  1,990  
Tons shipped (in thousands)
 Ferrous519  570  1,011  1,149  
 Nonferrous58  59  115  122  
 Total577  629  1,126  1,271  

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.

Americas Mills
 Three Months EndedSix Months Ended
(in thousands)February 29, 2020February 28, 2019February 29, 2020February 28, 2019
Net sales$732,040  $774,709  $1,500,933  $1,376,562  
Adjusted EBITDA125,691  112,396  280,716  226,269  
Average price (per ton)
Total selling price$606  $677  $608  $677  
Cost of ferrous scrap utilized256  303  238  305  
Metal margin350  374  370  372  
Tons (in thousands)
Melted1,117  1,126  2,299  2,035  
Rolled1,084  1,045  2,239  1,889  
Shipped1,147  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
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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
 Three Months EndedSix Months Ended
(in thousands)February 29, 2020February 28, 2019February 29, 2020February 28, 2019
Net sales$511,748  $530,836  $1,083,595  $967,947  
Adjusted EBITDA16,060  (49,578) 33,541  (86,574) 
Average selling price (excluding stock and buyout sales) (per ton)
Rebar and other$984  $845  $979  $856  
Tons shipped (in thousands)
Rebar and other366  396  779  715  

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.
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International Mill
 Three Months EndedSix Months Ended
(in thousands)February 29, 2020February 28, 2019February 29, 2020February 28, 2019
Net sales$180,079  $175,198  $345,468  $402,222  
Adjusted EBITDA13,451  20,537  24,810  53,316  
 Average price (per ton)
Total selling price$449  $545  $455  $546  
Cost of ferrous scrap utilized251  301  248  298  
Metal margin198  244  207  248  
Tons (in thousands)
Melted393  375  738  767  
Rolled333  298  675  561  
Shipped380  304  718  696  

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

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.

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The table below reflects our sources, facilities and available liquidity at February 29, 2020:
(in thousands)Total FacilityAvailability
Cash and cash equivalents$232,442  $232,442  
Notes due from 2023 to 2027980,000  *
Revolver350,000  346,962  
U.S. accounts receivable facility200,000  169,009  
Term Loan110,125  —  
Poland credit facilities70,046  58,005  
Poland accounts receivable facility56,037  42,670  
_________________
* We believe we have access to additional financing and refinancing, if needed.

Cash Flows

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.

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CONTRACTUAL OBLIGATIONS
Our contractual obligations at February 29, 2020 decreased by approximately $157.8 million from August 31, 2019, primarily due to decreases in long-term debt, unconditional purchase obligations and interest obligations. Our estimated contractual obligations for the twelve months ending February 28, 2021 are approximately $391.7 million and primarily consist of expenditures incurred in connection with normal business operations.

Other Commercial Commitments

We maintain stand-by letters of credit to provide support for certain transactions that governmental agencies, our insurance providers and suppliers request. At February 29, 2020, we had committed $27.4 million under these arrangements, of which $3.0 million reduced availability under the Revolver.
OFF-BALANCE SHEET ARRANGEMENTS

We have no off-balance sheet arrangements that may have a current or future material effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
CONTINGENCIES

In the ordinary course of conducting our business, we become involved in litigation, administrative proceedings and governmental investigations, including environmental matters. We may incur settlements, fines, penalties or judgments because of some of these matters. Liabilities and costs associated with litigation-related loss contingencies require estimates and judgments based on our knowledge of the facts and circumstances surrounding each matter and the advice of our legal counsel. We record liabilities for litigation-related losses when a loss is probable and we can reasonably estimate the amount of the loss. We evaluate the measurement of recorded liabilities each reporting period based on the current facts and circumstances specific to each matter. The ultimate losses incurred upon final resolution of litigation-related loss contingencies may differ materially from the estimated liability recorded at a particular balance sheet date. Changes in estimates are recorded in earnings in the period in which such changes occur. We do not believe that any currently pending legal proceedings to which we are a party will have a material adverse effect, individually or in the aggregate, on our results of operations, cash flows or financial condition. See Note 13, Commitments and Contingencies, for more information.
FORWARD-LOOKING STATEMENTS

This Form 10-Q contains or incorporates by reference a number of "forward-looking statements" within the meaning of the federal securities laws with respect to general economic conditions, key macro-economic drivers that impact our business, the effects of ongoing trade actions, the effects of continued pressure on the liquidity of our customers, potential synergies provided by our recent acquisitions, demand for our products, steel margins, the effect of COVID-19 and related governmental and economic responses thereto, the ability to operate our mills at full capacity, future supplies of raw materials and energy for our operations, share repurchases, legal proceedings, the undistributed earnings of our non-U.S. subsidiaries, U.S. non-residential construction activity, international trade, capital expenditures, our liquidity and our ability to satisfy future liquidity requirements, estimated contractual obligations and our expectations or beliefs concerning future events. These forward-looking statements can generally be identified by phrases such as we or our management "expects," "anticipates," "believes," "estimates," "intends," "plans to," "ought," "could," "will," "should," "likely," "appears," "projects," "forecasts," "outlook" or other similar words or phrases. There are inherent risks and uncertainties in any forward-looking statements. We caution readers not to place undue reliance on any forward-looking statements.

Our forward-looking statements are based on management's expectations and beliefs as of the time this Form 10-Q is filed with the SEC or, with respect to any document incorporated by reference, as of the time such document was prepared. Although we believe that our expectations are reasonable, we can give no assurance that these expectations will prove to have been correct, and actual results may vary materially. Except as required by law, we undertake no 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 any other changes. Important factors that could cause actual results to differ materially from our expectations include those described in Part I, Item 1A, Risk Factors, of the 2019 Form 10-K as well as the following:

changes in economic conditions which affect demand for our products or construction activity generally, and the impact of such changes on the highly cyclical steel industry;
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rapid and significant changes in the price of metals, potentially impairing our inventory values due to declines in commodity prices or reducing the profitability of our fabrication contracts due to rising commodity pricing;
impacts from COVID-19 on the economy, demand for our products or our operations, including the responses of governmental authorities to contain COVID-19;
excess capacity in our industry, particularly in China, and product availability from competing steel mills and other steel suppliers including import quantities and pricing;
compliance with and changes in environmental laws and regulations, including increased regulation associated with climate change and greenhouse gas emissions;
involvement in various environmental matters that may result in fines, penalties or judgments;
potential limitations in our or our customers' abilities to access credit and non-compliance by our customers with our contracts;
activity in repurchasing shares of our common stock under our repurchase program;
financial covenants and restrictions on the operation of our business contained in agreements governing our debt;
our ability to successfully identify, consummate and integrate acquisitions and the effects that acquisitions may have on our financial leverage;
risks associated with acquisitions generally, such as the inability to obtain, or delays in obtaining, required approvals under applicable antitrust legislation and other regulatory and third party consents and approvals;
lower than expected future levels of revenues and higher than expected future costs;
failure or inability to implement growth strategies in a timely manner;
impact of goodwill impairment charges;
impact of long-lived asset impairment charges;
currency fluctuations;
global factors, including trade measures, political uncertainties and military conflicts;
availability and pricing of electricity, electrodes and natural gas for mill operations;
ability to hire and retain key executives and other employees;
competition from other materials or from competitors that have a lower cost structure or access to greater financial resources;
information technology interruptions and breaches in security;
ability to make necessary capital expenditures;
availability and pricing of raw materials and other items over which we exert little influence, including scrap metal, energy and insurance;
unexpected equipment failures;
losses or limited potential gains due to hedging transactions;
litigation claims and settlements, court decisions, regulatory rulings and legal compliance risks;
risk of injury or death to employees, customers or other visitors to our operations;
new and clarifying guidance with regard to interpretation of certain provisions of the Tax Cuts and Jobs Act that could impact our assessment; and
increased costs related to health care reform legislation.

You should refer to the “Risk Factors” disclosed in our periodic and current reports filed with the SEC for specific risks which would cause actual results to be significantly different from those expressed or implied by these forward-looking statements. It is not possible to identify all of the risks, uncertainties and other factors that may affect future results. In light of these risks and uncertainties, the forward-looking events and circumstances discussed herein may not occur and actual results could differ materially from those anticipated or implied in the forward-looking statements. Accordingly, readers of this Form 10-Q are cautioned not to place undue reliance on the forward-looking statements.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

During the six months ended February 29, 2020, the U.S. dollar equivalent of the Company's total gross foreign currency exchange contract commitments decreased $9.5 million, or 10%, compared to August 31, 2019. This decrease was primarily due to forward contracts denominated in euro with a Polish zloty functional currency, which decreased $6.1 million compared to August 31, 2019.

During the six months ended February 29, 2020, the change in the Company's total commodity contract commitments was relatively flat compared to August 31, 2019.

There were no other material changes to the information set forth in Item 7A, Quantitative and Qualitative Disclosures about Market Risk, included in the 2019 Form 10-K.
ITEM 4. CONTROLS AND PROCEDURES

The term "disclosure controls and procedures" is defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act. This term refers to the controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within required time periods, and includes controls and procedures designed to ensure that such information is accumulated and communicated to the company's management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. 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 Form 10-Q, and they have concluded that as of that date, our disclosure controls and procedures were effective.
There were no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that occurred during our quarter ended February 29, 2020 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS

The Company is a defendant in lawsuits associated with the normal conduct of its businesses and operations. It is not possible to predict the outcome of the pending actions, and as with any litigation, it is possible that these actions could be decided unfavorably to the Company. We believe that there are meritorious defenses to these actions and that these actions will not have a material adverse effect upon our results of operations, cash flows or financial condition, and where appropriate, these actions are being vigorously contested.

We are the subject of civil actions, or have received notices from the U.S. Environmental Protection Agency ("EPA") or state agencies with similar responsibility, that we and numerous other parties are considered a potentially responsible party ("PRP") and may be obligated under the Comprehensive Environmental Response, Compensation and Liability Act of 1980 ("CERCLA"), or similar state statutes, to pay for the cost of remedial investigation, feasibility studies and ultimately remediation to correct alleged releases of hazardous substances at eleven locations. The actions and notices refer to the following locations, none of which involve real estate we ever owned or upon which we ever conducted operations: 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, the Peak Oil Site in Tampa, Florida, the R&H Oil Site in San Antonio, Texas, the SoGreen/Parramore Site in Tifton, Georgia, the Jensen Drive site in Houston, Texas, the Industrial Salvage site in Corpus Christi, Texas, the Chemetco site in Hartford, Illinois and the Ward Transformer site in Raleigh, North Carolina. 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 have resulted or that we expect will result in agreements to remediate the sites. During 2010, we acquired a 70% interest in the real property at Jensen Drive as part of the remediation of that site. 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, and as of the date of this Form 10-Q, we do not know if any of these inquiries will ultimately result in a demand for payment from us.

The EPA notified us and other alleged PRPs that under Section 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 and SoGreen/Parramore sites 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 EPA's imposition of fines against us in these matters.

We believe that adequate provisions have been made in the financial statements for the potential impact of any loss in connection with the above-described legal proceedings and environmental matters. Management believes that the outcome of the proceedings mentioned, and other miscellaneous litigation and proceedings now pending, will not have a material adverse effect on our business, results of operations or financial condition.
ITEM 1A. RISK FACTORS

Except as set forth below, there were no material changes to the risk factors previously disclosed in Part I, Item 1A, Risk Factors, of the 2019 Form 10-K and Part II, Item 1A, Risk Factors, of the Quarterly Report on Form 10-Q for the period ended November 30, 2019:

Our business, financial condition and results of operations may be adversely affected by global public health epidemics, including the recent COVID-19 outbreak.

Our business, financial condition and results of operations may be adversely affected if a global public health epidemic, including the recent COVID-19 outbreak, interferes with the ability of our employees, suppliers, customers, financing sources or others to conduct business or negatively affects consumer confidence or the global economy. In December 2019, COVID-19 was reported to have surfaced in Wuhan, China. In January 2020, COVID-19 spread to other countries, including the United States, and efforts to contain the spread of COVID-19 intensified. The outbreak is a widespread health crisis that has affected large segments of the global economy. The outbreak and any preventative or protective actions that governments or we may take with respect to COVID-19 may have a material adverse effect on our business or our suppliers, distribution channels, and customers, including business shutdowns or disruptions for an indefinite period of time, reduced operations, restrictions on shipping, fabricating or installing products or reduced consumer demand. Any resulting financial impact cannot be estimated reasonably at this time, but may materially affect our business, financial condition or results of operations. The extent to which
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COVID-19 affects our results will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of COVID-19 and the actions to contain the outbreak or treat its impact, among others.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

There were no purchases of equity securities registered by the Company pursuant to Section 12 of the Exchange Act during the quarter ended February 29, 2020.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.
ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
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ITEM 6. EXHIBITS

3.1(a) 
3.1(b) 
3.1(c) 
3.1(d) 
3.1(e) 
3.1(f) 
3.2  
10.1  
10.2  
31.1  
31.2  
32.1  
32.2  
101.INSInline XBRL Instance Document (filed herewith).
101.SCHInline XBRL Taxonomy Extension Schema Document (filed herewith).
101.CALInline XBRL Taxonomy Extension Calculation Linkbase Document (filed herewith).
101.DEFInline XBRL Taxonomy Extension Definition Linkbase Document (filed herewith).
101.LABInline XBRL Taxonomy Extension Label Linkbase Document (filed herewith).
101.PREInline XBRL Taxonomy Extension Presentation Linkbase Document (filed herewith).
104Cover Page Interactive Data File

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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
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)

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