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 November 30, 2021February 28, 2022
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)
| | | | | |
| Delaware | 75-0725338 |
| (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 Class | | Trading Symbol(s) | | Name of Each Exchange on Which Registered |
| Common Stock, $0.01 par value | | CMC | | New 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 January 7,March 22, 2022, 121,481,234121,495,868 shares of the registrant's common stock, par value $0.01 per share, were outstanding.
COMMERCIAL METALS COMPANY AND SUBSIDIARIES
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
| COMMERCIAL METALS COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED) | COMMERCIAL METALS COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED) | COMMERCIAL METALS COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED) |
| | Three Months Ended November 30, | | | Three Months Ended February 28, | | Six Months Ended February 28, |
| (in thousands, except share and per share data) | (in thousands, except share and per share data) | | 2021 | | 2020 | | (in thousands, except share and per share data) | | 2022 | | 2021 | | 2022 | | 2021 |
| Net sales | Net sales | | $ | 1,981,801 | | | $ | 1,391,803 | | | Net sales | | $ | 2,008,888 | | | $ | 1,462,270 | | | $ | 3,990,689 | | | $ | 2,854,073 | |
| Costs and expenses: | | | |
| Costs and operating expenses (income): | | Costs and operating expenses (income): | |
| Cost of goods sold | Cost of goods sold | | 1,586,410 | | | 1,174,819 | | | Cost of goods sold | | 1,614,965 | | | 1,228,343 | | | 3,201,375 | | | 2,403,162 | |
| Selling, general and administrative expenses | Selling, general and administrative expenses | | 122,595 | | | 113,627 | | | Selling, general and administrative expenses | | 127,985 | | | 120,829 | | | 251,563 | | | 234,525 | |
| Loss on debt extinguishment | | Loss on debt extinguishment | | 16,052 | | | 16,841 | | | 16,052 | | | 16,841 | |
| Interest expense | Interest expense | | 11,035 | | | 14,259 | | | Interest expense | | 12,011 | | | 14,021 | | | 23,046 | | | 28,280 | |
| | Asset impairments | Asset impairments | | — | | | 3,594 | | | Asset impairments | | 1,228 | | | 474 | | | 1,228 | | | 4,068 | |
| Gain on sale of assets | | Gain on sale of assets | | (273,099) | | | (5,412) | | | (274,082) | | | (5,481) | |
| | 1,720,040 | | | 1,306,299 | | | | 1,499,142 | | | 1,375,096 | | | 3,219,182 | | | 2,681,395 | |
| Earnings from continuing operations before income taxes | Earnings from continuing operations before income taxes | | 261,761 | | | 85,504 | | | Earnings from continuing operations before income taxes | | 509,746 | | | 87,174 | | | 771,507 | | | 172,678 | |
| Income taxes | Income taxes | | 28,872 | | | 21,593 | | | Income taxes | | 126,432 | | | 20,941 | | | 155,304 | | | 42,534 | |
| Earnings from continuing operations | Earnings from continuing operations | | 232,889 | | | 63,911 | | | Earnings from continuing operations | | 383,314 | | | 66,233 | | | 616,203 | | | 130,144 | |
| | Earnings from discontinued operations before income taxes | Earnings from discontinued operations before income taxes | | — | | | 250 | | | Earnings from discontinued operations before income taxes | | — | | | 197 | | | — | | | 447 | |
| Income taxes | Income taxes | | — | | | 68 | | | Income taxes | | — | | | 73 | | | — | | | 141 | |
| Earnings from discontinued operations | Earnings from discontinued operations | | — | | | 182 | | | Earnings from discontinued operations | | — | | | 124 | | | — | | | 306 | |
| | Net earnings | Net earnings | | $ | 232,889 | | | $ | 64,093 | | | Net earnings | | $ | 383,314 | | | $ | 66,357 | | | $ | 616,203 | | | $ | 130,450 | |
| | Basic earnings per share* | | | |
Basic earnings per share (1) | | Basic earnings per share (1) | |
| Earnings from continuing operations | Earnings from continuing operations | | $ | 1.92 | | | $ | 0.53 | | | Earnings from continuing operations | | $ | 3.16 | | | $ | 0.55 | | | $ | 5.08 | | | $ | 1.08 | |
| Earnings from discontinued operations | Earnings from discontinued operations | | — | | | — | | | Earnings from discontinued operations | | — | | | — | | | — | | | — | |
| Net earnings | Net earnings | | $ | 1.92 | | | $ | 0.54 | | | Net earnings | | $ | 3.16 | | | $ | 0.55 | | | $ | 5.08 | | | $ | 1.09 | |
| | Diluted earnings per share* | | | |
Diluted earnings per share (1) | | Diluted earnings per share (1) | |
| Earnings from continuing operations | Earnings from continuing operations | | $ | 1.90 | | | $ | 0.53 | | | Earnings from continuing operations | | $ | 3.12 | | | $ | 0.54 | | | $ | 5.02 | | | $ | 1.07 | |
| Earnings from discontinued operations | Earnings from discontinued operations | | — | | | — | | | Earnings from discontinued operations | | — | | | — | | | — | | | — | |
| Net earnings | Net earnings | | $ | 1.90 | | | $ | 0.53 | | | Net earnings | | $ | 3.12 | | | $ | 0.55 | | | $ | 5.02 | | | $ | 1.07 | |
| | Average basic shares outstanding | Average basic shares outstanding | | 121,129,679 | | | 119,762,706 | | | Average basic shares outstanding | | 121,458,196 | | | 120,345,432 | | | 121,293,030 | | | 120,052,459 | |
| Average diluted shares outstanding | Average diluted shares outstanding | | 122,797,738 | | | 121,128,044 | | | Average diluted shares outstanding | | 122,852,410 | | | 121,751,859 | | | 122,747,981 | | | 121,672,194 | |
See notes to condensed consolidated financial statements.
_________________
*(1) Earnings Per Share ("EPS") is calculated independently for each component and may not sum to Net EPS due to rounding.
| COMMERCIAL METALS COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED) | |
COMMERCIAL METALS COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) | | COMMERCIAL METALS COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) |
| | Three Months Ended November 30, | | | Three Months Ended February 28, | | Six Months Ended February 28, |
| (in thousands) | (in thousands) | | 2021 | | 2020 | | (in thousands) | | 2022 | | 2021 | | 2022 | | 2021 |
| Net earnings | Net earnings | | $ | 232,889 | | | $ | 64,093 | | | Net earnings | | $ | 383,314 | | | $ | 66,357 | | | $ | 616,203 | | | $ | 130,450 | |
| Other comprehensive income (loss), net of income taxes: | Other comprehensive income (loss), net of income taxes: | | | Other comprehensive income (loss), net of income taxes: | |
| | Foreign currency translation adjustment after reclassification | Foreign currency translation adjustment after reclassification | | (39,688) | | | (8,388) | | | Foreign currency translation adjustment after reclassification | | (14,461) | | | 1,465 | | | (54,149) | | | (6,923) | |
| Derivatives: | Derivatives: | | | Derivatives: | |
| Unrealized holding gain | Unrealized holding gain | | 22,254 | | | 1,164 | | | Unrealized holding gain | | 33,197 | | | 7,723 | | | 55,451 | | | 8,887 | |
| Reclassification for realized gain | Reclassification for realized gain | | (3,069) | | | (54) | | | Reclassification for realized gain | | (5,277) | | | (259) | | | (8,346) | | | (313) | |
| Net unrealized gain on derivatives | Net unrealized gain on derivatives | | 19,185 | | | 1,110 | | | Net unrealized gain on derivatives | | 27,920 | | | 7,464 | | | 47,105 | | | 8,574 | |
| | Defined benefit plans loss after amortization of prior service costs and net actuarial losses | Defined benefit plans loss after amortization of prior service costs and net actuarial losses | | (6) | | | (13) | | | Defined benefit plans loss after amortization of prior service costs and net actuarial losses | | (6) | | | (14) | | | (12) | | | (27) | |
| Other comprehensive loss | | (20,509) | | | (7,291) | | | |
| Total other comprehensive income (loss), net of income taxes | | Total other comprehensive income (loss), net of income taxes | | 13,453 | | | 8,915 | | | (7,056) | | | 1,624 | |
| Comprehensive income | Comprehensive income | | $ | 212,380 | | | $ | 56,802 | | | Comprehensive income | | $ | 396,767 | | | $ | 75,272 | | | $ | 609,147 | | | $ | 132,074 | |
See notes to condensed consolidated financial statements.
| COMMERCIAL METALS COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) | COMMERCIAL METALS COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) | COMMERCIAL METALS COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) |
| (in thousands, except share and per share data) | (in thousands, except share and per share data) | | November 30, 2021 | | August 31, 2021 | (in thousands, except share and per share data) | | February 28, 2022 | | August 31, 2021 |
| Assets | Assets | | | | | Assets | | | | |
| Current assets: | Current assets: | | Current assets: | |
| Cash and cash equivalents | Cash and cash equivalents | | $ | 415,055 | | | $ | 497,745 | | Cash and cash equivalents | | $ | 846,587 | | | $ | 497,745 | |
| Accounts receivable (less allowance for doubtful accounts of $5,550 and $5,553) | | 1,095,612 | | | 1,105,580 | | |
| Restricted cash | | Restricted cash | | 153,113 | | | 3,384 | |
| Accounts receivable (less allowance for doubtful accounts of $5,446 and $5,553) | | Accounts receivable (less allowance for doubtful accounts of $5,446 and $5,553) | | 1,153,868 | | | 1,105,580 | |
| Inventories, net | Inventories, net | | 1,071,759 | | | 935,387 | | Inventories, net | | 1,142,446 | | | 935,387 | |
| Prepaid and other current assets | Prepaid and other current assets | | 178,867 | | | 173,033 | | Prepaid and other current assets | | 192,096 | | | 169,649 | |
| Assets held for sale | Assets held for sale | | 25,083 | | | 25,083 | | Assets held for sale | | 2,138 | | | 25,083 | |
| Total current assets | Total current assets | | 2,786,376 | | | 2,736,828 | | Total current assets | | 3,490,248 | | | 2,736,828 | |
| Property, plant and equipment, net | Property, plant and equipment, net | | 1,587,442 | | | 1,566,123 | | Property, plant and equipment, net | | 1,649,264 | | | 1,566,123 | |
| Goodwill | Goodwill | | 65,852 | | | 66,137 | | Goodwill | | 65,775 | | | 66,137 | |
| Other noncurrent assets | Other noncurrent assets | | 285,588 | | | 269,583 | | Other noncurrent assets | | 298,933 | | | 269,583 | |
| Total assets | Total assets | | $ | 4,725,258 | | | $ | 4,638,671 | | Total assets | | $ | 5,504,220 | | | $ | 4,638,671 | |
| Liabilities and stockholders' equity | Liabilities and stockholders' equity | | | | | Liabilities and stockholders' equity | | | | |
| Current liabilities: | Current liabilities: | | Current liabilities: | |
| Accounts payable | Accounts payable | | $ | 424,919 | | | $ | 450,723 | | Accounts payable | | $ | 414,025 | | | $ | 450,723 | |
| Accrued expenses and other payables | Accrued expenses and other payables | | 410,305 | | | 475,384 | | Accrued expenses and other payables | | 383,622 | | | 475,384 | |
| Current maturities of long-term debt and short-term borrowings | Current maturities of long-term debt and short-term borrowings | | 56,896 | | | 54,366 | | Current maturities of long-term debt and short-term borrowings | | 27,554 | | | 54,366 | |
| Total current liabilities | Total current liabilities | | 892,120 | | | 980,473 | | Total current liabilities | | 825,201 | | | 980,473 | |
| Deferred income taxes | Deferred income taxes | | 104,193 | | | 112,067 | | Deferred income taxes | | 146,179 | | | 112,067 | |
| Other noncurrent liabilities | Other noncurrent liabilities | | 234,955 | | | 235,607 | | Other noncurrent liabilities | | 217,138 | | | 235,607 | |
| Long-term debt | Long-term debt | | 1,007,801 | | | 1,015,415 | | Long-term debt | | 1,445,755 | | | 1,015,415 | |
| Total liabilities | Total liabilities | | 2,239,069 | | | 2,343,562 | | Total liabilities | | 2,634,273 | | | 2,343,562 | |
| Commitments and contingencies (Note 13) | Commitments and contingencies (Note 13) | | 0 | | 0 | Commitments and contingencies (Note 13) | | 0 | | 0 |
| Stockholders' equity: | Stockholders' equity: | | Stockholders' equity: | |
| Common stock, par value $0.01 per share; authorized 200,000,000 shares; issued 129,060,664 shares; outstanding 121,479,939 and 120,586,589 shares | | 1,290 | | | 1,290 | | |
| Common stock, par value $0.01 per share; authorized 200,000,000 shares; issued 129,060,664 shares; outstanding 121,495,868 and 120,586,589 shares | | Common stock, par value $0.01 per share; authorized 200,000,000 shares; issued 129,060,664 shares; outstanding 121,495,868 and 120,586,589 shares | | 1,290 | | | 1,290 | |
| Additional paid-in capital | Additional paid-in capital | | 357,413 | | | 368,064 | | Additional paid-in capital | | 366,162 | | | 368,064 | |
| Accumulated other comprehensive loss | Accumulated other comprehensive loss | | (105,329) | | | (84,820) | | Accumulated other comprehensive loss | | (91,876) | | | (84,820) | |
| Retained earnings | Retained earnings | | 2,378,789 | | | 2,162,925 | | Retained earnings | | 2,745,117 | | | 2,162,925 | |
| Less treasury stock 7,580,725 and 8,474,075 shares at cost | | (146,206) | | | (152,582) | | |
| Less treasury stock 7,564,796 and 8,474,075 shares at cost | | Less treasury stock 7,564,796 and 8,474,075 shares at cost | | (150,978) | | | (152,582) | |
| Stockholders' equity | Stockholders' equity | | 2,485,957 | | | 2,294,877 | | Stockholders' equity | | 2,869,715 | | | 2,294,877 | |
| Stockholders' equity attributable to noncontrolling interests | | 232 | | | 232 | | |
| Stockholders' equity attributable to non-controlling interests | | Stockholders' equity attributable to non-controlling interests | | 232 | | | 232 | |
| Total stockholders' equity | Total stockholders' equity | | 2,486,189 | | | 2,295,109 | | Total stockholders' equity | | 2,869,947 | | | 2,295,109 | |
| Total liabilities and stockholders' equity | Total liabilities and stockholders' equity | | $ | 4,725,258 | | | $ | 4,638,671 | | Total liabilities and stockholders' equity | | $ | 5,504,220 | | | $ | 4,638,671 | |
See notes to condensed consolidated financial statements.
| COMMERCIAL METALS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) | COMMERCIAL METALS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) | COMMERCIAL METALS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) |
| | | | Three Months Ended November 30, | | | Six Months Ended February 28, |
| (in thousands) | (in thousands) | | 2021 | | 2020 | (in thousands) | | 2022 | | 2021 |
| Cash flows from (used by) operating activities: | Cash flows from (used by) operating activities: | | | | | Cash flows from (used by) operating activities: | | | | |
| Net earnings | Net earnings | | $ | 232,889 | | | $ | 64,093 | | Net earnings | | $ | 616,203 | | | $ | 130,450 | |
| Adjustments to reconcile net earnings to cash flows from (used by) operating activities: | Adjustments to reconcile net earnings to cash flows from (used by) operating activities: | | Adjustments to reconcile net earnings to cash flows from (used by) operating activities: | |
| Depreciation and amortization | Depreciation and amortization | | 41,226 | | | 41,799 | | Depreciation and amortization | | 82,360 | | | 83,372 | |
| Stock-based compensation | Stock-based compensation | | 9,619 | | | 9,062 | | Stock-based compensation | | 25,870 | | | 21,758 | |
| Deferred income taxes and other long-term taxes | Deferred income taxes and other long-term taxes | | (5,099) | | | 11,720 | | Deferred income taxes and other long-term taxes | | 34,980 | | | (8,129) | |
| | Loss on debt extinguishment | | Loss on debt extinguishment | | 16,052 | | | 16,841 | |
| Asset impairments | | Asset impairments | | 1,228 | | | 4,068 | |
| Other | Other | | (583) | | | (39) | | Other | | 835 | | | (105) | |
| Asset impairments | | — | | | 3,594 | | |
| Amortization of acquired unfavorable contract backlog | Amortization of acquired unfavorable contract backlog | | — | | | (1,523) | | Amortization of acquired unfavorable contract backlog | | — | | | (3,032) | |
| Net gain on disposals of assets and other | | Net gain on disposals of assets and other | | (274,082) | | | (5,481) | |
| Changes in operating assets and liabilities | Changes in operating assets and liabilities | | (252,273) | | | (140,794) | | Changes in operating assets and liabilities | | (449,078) | | | (238,539) | |
| Net cash flows from (used by) operating activities | | 25,779 | | | (12,088) | | |
| Net cash flows from operating activities | | Net cash flows from operating activities | | 54,368 | | | 1,203 | |
| | Cash flows from (used by) investing activities: | Cash flows from (used by) investing activities: | | | | | Cash flows from (used by) investing activities: | | | | |
| Proceeds from the sale of property, plant and equipment and other | | Proceeds from the sale of property, plant and equipment and other | | 309,563 | | | 20,338 | |
| Capital expenditures | Capital expenditures | | (70,150) | | | (37,201) | | Capital expenditures | | (191,562) | | | (87,688) | |
| Proceeds from the sale of property, plant and equipment and other | | 1,418 | | | 743 | | |
| Proceeds from insurance | | Proceeds from insurance | | 3,081 | | | — | |
| | Net cash flows used by investing activities | | (68,732) | | | (36,458) | | |
| Net cash flows from (used by) investing activities | | Net cash flows from (used by) investing activities | | 121,082 | | | (67,350) | |
| | Cash flows from (used by) financing activities: | Cash flows from (used by) financing activities: | | | | | Cash flows from (used by) financing activities: | | | | |
| | Proceeds from issuance of long-term debt, net | | Proceeds from issuance of long-term debt, net | | 740,403 | | | 296,250 | |
| Repayments of long-term debt | | Repayments of long-term debt | | (313,174) | | | (357,792) | |
| Debt extinguishment costs | | Debt extinguishment costs | | (13,642) | | | (13,051) | |
| Debt issuance costs | | Debt issuance costs | | (2,977) | | | (1,124) | |
| Proceeds from accounts receivable facilities | Proceeds from accounts receivable facilities | | 150,664 | | | 4,487 | | Proceeds from accounts receivable facilities | | 190,730 | | | 8,848 | |
| Repayments under accounts receivable facilities | Repayments under accounts receivable facilities | | (144,706) | | | (4,487) | | Repayments under accounts receivable facilities | | (215,196) | | | (8,848) | |
| Dividends | Dividends | | (17,025) | | | (14,406) | | Dividends | | (34,011) | | | (28,833) | |
| Treasury stock acquired | | Treasury stock acquired | | (17,010) | | | — | |
| Stock issued under incentive and purchase plans, net of forfeitures | Stock issued under incentive and purchase plans, net of forfeitures | | (16,371) | | | (10,341) | | Stock issued under incentive and purchase plans, net of forfeitures | | (10,719) | | | (4,536) | |
| Repayments of long-term debt | | (6,556) | | | (3,823) | | |
| Treasury stock acquired | | (5,311) | | | — | | |
| Net cash flows used by financing activities | | (39,305) | | | (28,570) | | |
| Contribution from non-controlling interest | | Contribution from non-controlling interest | | — | | | 19 | |
| Net cash flows from (used by) financing activities | | Net cash flows from (used by) financing activities | | 324,404 | | | (109,067) | |
| Effect of exchange rate changes on cash | Effect of exchange rate changes on cash | | (550) | | | (365) | | Effect of exchange rate changes on cash | | (1,283) | | | (419) | |
| Decrease in cash, restricted cash and cash equivalents | | (82,808) | | | (77,481) | | |
| Increase (decrease) in cash, restricted cash and cash equivalents | | Increase (decrease) in cash, restricted cash and cash equivalents | | 498,571 | | | (175,633) | |
| Cash, restricted cash and cash equivalents at beginning of period | Cash, restricted cash and cash equivalents at beginning of period | | 501,129 | | | 544,964 | | Cash, restricted cash and cash equivalents at beginning of period | | 501,129 | | | 544,964 | |
| Cash, restricted cash and cash equivalents at end of period | Cash, restricted cash and cash equivalents at end of period | | $ | 418,321 | | | $ | 467,483 | | Cash, restricted cash and cash equivalents at end of period | | $ | 999,700 | | | $ | 369,331 | |
See notes to condensed consolidated financial statements. | | | | | | | | | | | | | | |
| Supplemental information: | | Three Months Ended November 30, |
| (in thousands) | | 2021 | | 2020 |
| Cash paid for income taxes | | $ | 15,296 | | | $ | 4,743 | |
| Cash paid for interest | | 8,794 | | | 18,691 | |
| | | | |
| Noncash activities: | | | | |
| Liabilities related to additions of property, plant and equipment | | 45,788 | | | 20,246 | |
| | | | |
| Cash and cash equivalents | | $ | 415,055 | | | $ | 465,162 | |
| Restricted cash | | 3,266 | | | 2,321 | |
| Total cash, restricted cash and cash equivalents | | $ | 418,321 | | | $ | 467,483 | |
| | | | | | | | | | | | | | |
| Supplemental information: | | Six Months Ended February 28, |
| (in thousands) | | 2022 | | 2021 |
| Cash paid for income taxes | | $ | 133,194 | | | $ | 48,757 | |
| Cash paid for interest | | 24,916 | | | 34,094 | |
| | | | |
| Noncash activities: | | | | |
| Liabilities related to additions of property, plant and equipment | | 35,781 | | | 16,252 | |
| | | | |
| Cash and cash equivalents | | $ | 846,587 | | | $ | 367,347 | |
| Restricted cash | | 153,113 | | | 1,984 | |
| Total cash, restricted cash and cash equivalents | | $ | 999,700 | | | $ | 369,331 | |
| COMMERCIAL METALS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED) | COMMERCIAL METALS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED) | COMMERCIAL METALS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED) |
| | | Three Months Ended February 28, 2022 |
| | | | Common Stock | | | Treasury Stock | | |
| (in thousands, except share and per share data) | | (in thousands, except share and per share data) | Number of
Shares | Amount | Additional Paid-In
Capital | Accumulated
Other Comprehensive
Loss | Retained
Earnings | Number of
Shares | Amount | Non-controlling
Interest | Total |
| Balance, December 1, 2021 | | Balance, December 1, 2021 | 129,060,664 | | $ | 1,290 | | $ | 357,413 | | $ | (105,329) | | $ | 2,378,789 | | (7,580,725) | | $ | (146,206) | | $ | 232 | | $ | 2,486,189 | |
| Net earnings | | Net earnings | | 383,314 | | | 383,314 | |
| Other comprehensive income | | Other comprehensive income | | 13,453 | | | 13,453 | |
| Dividends ($0.14 per share) | | Dividends ($0.14 per share) | | (16,986) | | | (16,986) | |
| Treasury stock acquired | | Treasury stock acquired | | (335,500) | | (11,699) | | | (11,699) | |
| Issuance of stock under incentive and purchase plans, net of forfeitures | | Issuance of stock under incentive and purchase plans, net of forfeitures | | (1,275) | | | 351,429 | | 6,927 | | | 5,652 | |
| Stock-based compensation | | Stock-based compensation | | 10,024 | | | 10,024 | |
| Balance, February 28, 2022 | | Balance, February 28, 2022 | 129,060,664 | | $ | 1,290 | | $ | 366,162 | | $ | (91,876) | | $ | 2,745,117 | | (7,564,796) | | $ | (150,978) | | $ | 232 | | $ | 2,869,947 | |
| | | Three Months Ended November 30, 2021 | | Six Months Ended February 28, 2022 |
| | | Common Stock | | | Treasury Stock | | | | Common Stock | | | Treasury Stock | | |
| (in thousands, except share and per share data) | (in thousands, except share and per share data) | Number of
Shares | Amount | Additional Paid-In
Capital | Accumulated
Other Comprehensive
Loss | Retained
Earnings | Number of
Shares | Amount | Non-controlling
Interest | Total | (in thousands, except share and per share data) | Number of
Shares | Amount | Additional Paid-In
Capital | Accumulated
Other Comprehensive
Loss | Retained
Earnings | Number of
Shares | Amount | Non-controlling
Interest | Total |
| Balance, September 1, 2021 | Balance, September 1, 2021 | 129,060,664 | | $ | 1,290 | | $ | 368,064 | | $ | (84,820) | | $ | 2,162,925 | | (8,474,075) | | $ | (152,582) | | $ | 232 | | $ | 2,295,109 | | Balance, September 1, 2021 | 129,060,664 | | $ | 1,290 | | $ | 368,064 | | $ | (84,820) | | $ | 2,162,925 | | (8,474,075) | | $ | (152,582) | | $ | 232 | | $ | 2,295,109 | |
| Net earnings | Net earnings | | 232,889 | | | 232,889 | | Net earnings | | 616,203 | | | 616,203 | |
| Other comprehensive loss | Other comprehensive loss | | (20,509) | | | (20,509) | | Other comprehensive loss | | (7,056) | | | (7,056) | |
| Dividends ($0.14 per share) | | (17,025) | | | (17,025) | | |
| Dividends ($0.28 per share) | | Dividends ($0.28 per share) | | (34,011) | | | (34,011) | |
| Treasury stock acquired | Treasury stock acquired | | (159,500) | | (5,311) | | | (5,311) | | Treasury stock acquired | | (495,000) | | (17,010) | | | (17,010) | |
| Issuance of stock under incentive and purchase plans, net of forfeitures | Issuance of stock under incentive and purchase plans, net of forfeitures | | (28,058) | | | 1,052,850 | | 11,687 | | | (16,371) | | Issuance of stock under incentive and purchase plans, net of forfeitures | | (29,333) | | | 1,404,279 | | 18,614 | | | (10,719) | |
| Stock-based compensation | Stock-based compensation | | 8,316 | | | 8,316 | | Stock-based compensation | | 18,340 | | | 18,340 | |
| | Reclassification of share-based liability awards | Reclassification of share-based liability awards | | 9,091 | | | 9,091 | | Reclassification of share-based liability awards | | 9,091 | | | 9,091 | |
| Balance, November 30, 2021 | 129,060,664 | | $ | 1,290 | | $ | 357,413 | | $ | (105,329) | | $ | 2,378,789 | | (7,580,725) | | $ | (146,206) | | $ | 232 | | $ | 2,486,189 | | |
| | | | | Balance, February 28, 2022 | | Balance, February 28, 2022 | 129,060,664 | | $ | 1,290 | | $ | 366,162 | | $ | (91,876) | | $ | 2,745,117 | | (7,564,796) | | $ | (150,978) | | $ | 232 | | $ | 2,869,947 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended November 30, 2020 |
| | Common Stock | | | | Treasury Stock | | |
| (in thousands, except share and per share data) | Number of
Shares | Amount | Additional Paid-In
Capital | Accumulated
Other Comprehensive
Loss | Retained
Earnings | Number of
Shares | Amount | Non-controlling
Interest | Total |
| Balance, September 1, 2020 | 129,060,664 | | $ | 1,290 | | $ | 358,912 | | $ | (103,764) | | $ | 1,807,826 | | (9,839,759) | | $ | (175,063) | | $ | 212 | | $ | 1,889,413 | |
| Net earnings | | | | | 64,093 | | | | | 64,093 | |
| Other comprehensive loss | | | | (7,291) | | | | | | (7,291) | |
| Dividends ($0.12 per share) | | | | | (14,406) | | | | | (14,406) | |
| Issuance of stock under incentive and purchase plans, net of forfeitures | | | (23,527) | | | | 847,116 | | 13,186 | | | (10,341) | |
| Stock-based compensation | | | 8,011 | | | | | | | 8,011 | |
| Reclassification of share-based liability awards | | | 5,420 | | | | | | | 5,420 | |
| Balance, November 30, 2020 | 129,060,664 | | $ | 1,290 | | $ | 348,816 | | $ | (111,055) | | $ | 1,857,513 | | (8,992,643) | | $ | (161,877) | | $ | 212 | | $ | 1,934,899 | |
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| Three Months Ended February 28, 2021 |
| | Common Stock | | | | Treasury Stock | | |
| (in thousands, except share and per share data) | Number of
Shares | Amount | Additional Paid-In
Capital | Accumulated
Other Comprehensive
Loss | Retained
Earnings | Number of
Shares | Amount | Non-controlling
Interest | Total |
| Balance, December 1, 2020 | 129,060,664 | | $ | 1,290 | | $ | 348,816 | | $ | (111,055) | | $ | 1,857,513 | | (8,992,643) | | $ | (161,877) | | $ | 212 | | $ | 1,934,899 | |
| Net earnings | | | | | 66,357 | | | | | 66,357 | |
| Other comprehensive income | | | | 8,915 | | | | | | 8,915 | |
| Dividends ($0.12 per share) | | | | | (14,427) | | | | | (14,427) | |
| Issuance of stock under incentive and purchase plans, net of forfeitures | | | (2,120) | | | | 440,194 | | 7,925 | | | 5,805 | |
| Stock-based compensation | | | 7,924 | | | | | | | 7,924 | |
| Contribution of non-controlling interest | | | | | | | | 19 | | 19 | |
| | | | | | | | | |
| Balance, February 28, 2021 | 129,060,664 | | $ | 1,290 | | $ | 354,620 | | $ | (102,140) | | $ | 1,909,443 | | (8,552,449) | | $ | (153,952) | | $ | 231 | | $ | 2,009,492 | |
| | | | | | | | | |
| Six Months Ended February 28, 2021 |
| | Common Stock | | | | Treasury Stock | | |
| (in thousands, except share and per share data) | Number of
Shares | Amount | Additional Paid-In
Capital | Accumulated
Other Comprehensive
Loss | Retained
Earnings | Number of
Shares | Amount | Non-controlling
Interest | Total |
| Balance, September 1, 2020 | 129,060,664 | | $ | 1,290 | | $ | 358,912 | | $ | (103,764) | | $ | 1,807,826 | | (9,839,759) | | $ | (175,063) | | $ | 212 | | $ | 1,889,413 | |
| Net earnings | | | | | 130,450 | | | | | 130,450 | |
| Other comprehensive income | | | | 1,624 | | | | | | 1,624 | |
| Dividends ($0.24 per share) | | | | | (28,833) | | | | | (28,833) | |
| Issuance of stock under incentive and purchase plans, net of forfeitures | | | (25,647) | | | | 1,287,310 | | 21,111 | | | (4,536) | |
| Stock-based compensation | | | 15,935 | | | | | | | 15,935 | |
| Contribution of non-controlling interest | | | | | | | | 19 | | 19 | |
| Reclassification of share-based liability awards | | | 5,420 | | | | | | | 5,420 | |
| Balance, February 28, 2021 | 129,060,664 | | $ | 1,290 | | $ | 354,620 | | $ | (102,140) | | $ | 1,909,443 | | (8,552,449) | | $ | (153,952) | | $ | 231 | | $ | 2,009,492 | |
See notes to condensed consolidated financial statements.
COMMERCIAL METALS COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1. ACCOUNTING POLICIES
Basis of Presentation
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, 2021 (the "2021 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 and notes included in the 2021 Form 10-K. The results of operations for the three and six month periodperiods are not necessarily indicative of the results to be expected for the full fiscal year. Any reference in this Form 10-Q to the "corresponding period" relates to the relevant three or six month period ended November 30, 2020.February 28, 2021.
Any reference in this Form 10-Q to a year refers to the fiscal year ended August 31st of that year, unless otherwise noted.
Recently Issued Accounting Pronouncements
In October 2021, the Financial Accounting Standards Board issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. ASU 2021-08 requires that an acquirer recognize and measure contract assets and liabilities acquired in a business combination in accordance with ASU 2014-09, Revenue from Contracts with Customers (Topic 606). This standard is effective for annual periods beginning after December 15, 2022, including interim periods therein, with early adoption permitted. The guidance will be applied prospectively to acquisitions occurring on or after the effective date. The Company will continue to evaluate the impact of this guidance, which will depend on the contract assets and liabilities acquired in future business combinations.
In November 2021, the Financial Accounting Standards Board issued ASU 2021-10, Government Assistance (Topic 832): Disclosures by Business Entities About Government Assistance. ASU 2021-10 aims to increase the transparency of government assistance through the disclosure of the types of assistance, an entity's accounting for the assistance and the effect of the assistance on an entity's financial statements. This standard is effective for annual periods beginning after December 15, 2021, with early adoption permitted. The Company will continue to evaluate the impact of this guidance based on government assistance received.
NOTE 2. CHANGES IN BUSINESS
Pending Acquisition
On December 3, 2021, the Company signed a definitive agreement to acquire TAC Acquisition Corp. ("Tensar"), a portfolio company of Castle Harlan Inc.’s fund, Castle Harlan Partners V, L.P., and a leading global provider of engineered solutions for subgrade reinforcement and soil stabilization used in road, infrastructure and commercial construction projects. The transaction is expected to close during the third quarter of 2022, and is subject to the satisfaction or waiver of customary closing conditions, including customary regulatory review. Upon closing, the Company will pay a cash purchase price of approximately $550.0 million, subject to customary purchase price adjustments. The transaction is not contingent on any financing arrangements.
Facility Closure and Disposition
In October 2019, the Company closed the melting operations at its Rancho Cucamonga facility, which iswas part of the North America segment, and in August 2020, the Company announced plans to sell the facility. Additionally, in September 2021, the Company ceased operations at a rebar fabrication facility adjacent to the Rancho Cucamonga facility. Due to these closures, the Company recorded $8.0$5.4 million and $13.4 million of expenses in the three and six months ended November 30, 2020February 28, 2021 related to asset impairments, severance, pension curtailment, environmental obligations and vendor agreement terminations. Expenses
recorded in the three and six months ended November 30, 2021February 28, 2022 were immaterial. The closures did not meet the criteria for discontinued operations.
As of August 31, 2021, the associated assets of the Rancho Cucamonga facility and the adjacent rebar fabrication facility ("the Rancho Cucamonga facilities"), comprised of property, plant and equipment, net, met the criteria for classification as held for sale. As such, the Company classified $24.9 million within assets held for sale in the Company's condensed consolidated balance sheets as of November 30, 2021 and August 31, 2021.
On September 29, 2021, the Company entered into a definitive agreement to sell the assets associated with the Rancho Cucamonga facilities. On December 28, 2021, the sale of the assets associated with theRancho Cucamonga facilities was completed for gross proceeds of $313.0 million. A portion of the gross proceeds amounting to $39.0 million subjectwere set aside in a restricted cash account to customaryfacilitate the purchase price adjustments.of like-kind assets. In January 2022, the Company used $7.5 million of the restricted cash on a purchase of a like-kind asset. The remaining balance of $31.5 million was included in restricted cash as of February 28, 2022.
NOTE 3. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The following tables reflect the changes in accumulated other comprehensive income (loss) ("AOCI"):
| | | | Three Months Ended February 28, 2022 |
| (in thousands) | | (in thousands) | | Foreign Currency Translation | | Derivatives | | Defined Benefit Obligation | | Total AOCI |
| Balance, December 1, 2021 | | Balance, December 1, 2021 | | $ | (145,368) | | | $ | 40,966 | | | $ | (927) | | | $ | (105,329) | |
| Other comprehensive income (loss) before reclassifications | | Other comprehensive income (loss) before reclassifications | | (14,461) | | | 41,044 | | | (8) | | | 26,575 | |
Reclassification for gain (1) | | Reclassification for gain (1) | | — | | | (6,536) | | | — | | | (6,536) | |
| Income tax (expense) benefit | | Income tax (expense) benefit | | — | | | (6,588) | | | 2 | | | (6,586) | |
| Net other comprehensive income (loss) | | Net other comprehensive income (loss) | | (14,461) | | | 27,920 | | | (6) | | | 13,453 | |
| Balance, February 28, 2022 | | Balance, February 28, 2022 | | $ | (159,829) | | | $ | 68,886 | | | $ | (933) | | | $ | (91,876) | |
| | | Three Months Ended November 30, 2021 | | Six Months Ended February 28, 2022 |
| (in thousands) | (in thousands) | | Foreign Currency Translation | | Unrealized Gain (Loss) on Derivatives | | Defined Benefit Obligation | | Total AOCI | (in thousands) | | Foreign Currency Translation | | Derivatives | | Defined Benefit Obligation | | Total AOCI |
| Balance, September 1, 2021 | Balance, September 1, 2021 | | $ | (105,680) | | | $ | 21,781 | | | $ | (921) | | | $ | (84,820) | | Balance, September 1, 2021 | | $ | (105,680) | | | $ | 21,781 | | | $ | (921) | | | $ | (84,820) | |
| Other comprehensive income (loss) before reclassifications | Other comprehensive income (loss) before reclassifications | | (39,688) | | | 27,474 | | | (8) | | | (12,222) | | Other comprehensive income (loss) before reclassifications | | (54,149) | | | 68,518 | | | (16) | | | 14,353 | |
Reclassification for gain(1) | Reclassification for gain(1) | | — | | | (3,789) | | | — | | | (3,789) | | Reclassification for gain (1) | | — | | | (10,325) | | | — | | | (10,325) | |
| Income tax (expense) benefit | Income tax (expense) benefit | | — | | | (4,500) | | | 2 | | | (4,498) | | Income tax (expense) benefit | | — | | | (11,088) | | | 4 | | | (11,084) | |
| Net other comprehensive income (loss) | Net other comprehensive income (loss) | | (39,688) | | | 19,185 | | | (6) | | | (20,509) | | Net other comprehensive income (loss) | | (54,149) | | | 47,105 | | | (12) | | | (7,056) | |
| Balance, November 30, 2021 | | $ | (145,368) | | | $ | 40,966 | | | $ | (927) | | | $ | (105,329) | | |
| | | | Balance, February 28, 2022 | | Balance, February 28, 2022 | | $ | (159,829) | | | $ | 68,886 | | | $ | (933) | | | $ | (91,876) | |
| | | | Three Months Ended February 28, 2021 |
| (in thousands) | | (in thousands) | | Foreign Currency Translation | | Derivatives | | Defined Benefit Obligation | | Total AOCI |
| Balance, December 1, 2020 | | Balance, December 1, 2020 | | $ | (96,321) | | | $ | (10,224) | | | $ | (4,510) | | | $ | (111,055) | |
| Other comprehensive income (loss) before reclassifications | | Other comprehensive income (loss) before reclassifications | | 1,465 | | | 9,535 | | | (14) | | | 10,986 | |
Reclassification for gain (1) | | Reclassification for gain (1) | | — | | | (320) | | | — | | | (320) | |
| Income tax expense | | Income tax expense | | — | | | (1,751) | | | — | | | (1,751) | |
| Net other comprehensive income (loss) | | Net other comprehensive income (loss) | | 1,465 | | | 7,464 | | | (14) | | | 8,915 | |
| Balance, February 28, 2021 | | Balance, February 28, 2021 | | $ | (94,856) | | | $ | (2,760) | | | $ | (4,524) | | | $ | (102,140) | |
| | | Three Months Ended November 30, 2020 | | Six Months Ended February 28, 2021 |
| (in thousands) | (in thousands) | | Foreign Currency Translation | | Unrealized Gain (Loss) on Derivatives | | Defined Benefit Obligation | | Total AOCI | (in thousands) | | Foreign Currency Translation | | Derivatives | | Defined Benefit Obligation | | Total AOCI |
| Balance, September 1, 2020 | Balance, September 1, 2020 | | $ | (87,933) | | | $ | (11,334) | | | $ | (4,497) | | | $ | (103,764) | | Balance, September 1, 2020 | | $ | (87,933) | | | $ | (11,334) | | | $ | (4,497) | | | $ | (103,764) | |
| Other comprehensive income (loss) before reclassifications | Other comprehensive income (loss) before reclassifications | | (8,388) | | | 1,437 | | | (20) | | | (6,971) | | Other comprehensive income (loss) before reclassifications | | (6,923) | | | 10,972 | | | (34) | | | 4,015 | |
Reclassification for gain(1) | Reclassification for gain(1) | | — | | | (67) | | | — | | | (67) | | Reclassification for gain (1) | | — | | | (387) | | | — | | | (387) | |
| Income tax (expense) benefit | Income tax (expense) benefit | | — | | | (260) | | | 7 | | | (253) | | Income tax (expense) benefit | | — | | | (2,011) | | | 7 | | | (2,004) | |
| Net other comprehensive income (loss) | Net other comprehensive income (loss) | | (8,388) | | | 1,110 | | | (13) | | | (7,291) | | Net other comprehensive income (loss) | | (6,923) | | | 8,574 | | | (27) | | | 1,624 | |
| Balance, November 30, 2020 | | $ | (96,321) | | | $ | (10,224) | | | $ | (4,510) | | | $ | (111,055) | | |
| | | | Balance, February 28, 2021 | | Balance, February 28, 2021 | | $ | (94,856) | | | $ | (2,760) | | | $ | (4,524) | | | $ | (102,140) | |
_________________
(1) Reclassifications for gains on derivatives included in net earnings are recorded in cost of goods sold in the condensed consolidated statements of earnings.
NOTE 4. REVENUE RECOGNITION
Each fabricated product contract sold by the North America segment represents a single performance obligation. Revenue from contracts where the Company provides fabricated product and installation services is recognized over time using an input measure, and these contracts represented 9%8% and 14%9% of net sales in the North America segment in the three and six months ended November 30,February 28, 2022, respectively, and 11% and 12% of net sales in the North America segment in the three and six months ended February 28, 2021, and 2020, respectively. Revenue from contracts where the Company does not provide installation services is recognized over time using an output measure, and these contracts represented 8% and 9% of net sales in the North America segment in the three and six months ended November 30, 2021February 28, 2022, respectively, and 2020.9% of net sales in the North America segment in the three and six months ended February 28, 2021. Remaining net sales in the North America segment were recognized at a point in time concurrent with the transfer of control, or as amounts were billed to the customer under an available practical expedient.
The following table provides information about assets and liabilities from contracts with customers:
| | (in thousands) | (in thousands) | | November 30, 2021 | | August 31, 2021 | (in thousands) | | February 28, 2022 | | August 31, 2021 |
| Contract assets (included in accounts receivable) | Contract assets (included in accounts receivable) | | $ | 61,888 | | | $ | 64,168 | | Contract assets (included in accounts receivable) | | $ | 61,884 | | | $ | 64,168 | |
| Contract liabilities (included in accrued expenses and other payables) | Contract liabilities (included in accrued expenses and other payables) | | 29,066 | | | 23,948 | | Contract liabilities (included in accrued expenses and other payables) | | 25,302 | | | 23,948 | |
The amount of revenue reclassified from August 31, 2021 contract liabilities during the threesix months ended November 30, 2021February 28, 2022 was approximately $10.3$16.8 million.
Remaining Performance Obligations
Remaining performance obligations represent the transaction price of fabricated product contracts where revenue is recognized using an input or output measure for which work has not yet been performed. As of November 30, 2021, $862.7February 28, 2022, $805.9 million was allocated to remaining performance obligations in the North America segment related to those contracts.
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 November 30, 2021February 28, 2022 and August 31, 2021, work in process inventories were immaterial. At November 30, 2021February 28, 2022 and August 31, 2021, the Company's raw materials inventories were $329.9$319.2 million and $286.1 million, respectively.
NOTE 6. GOODWILL AND OTHER INTANGIBLES
Goodwill by reportable segment at November 30, 2021February 28, 2022 is detailed in the following table: | | | | | | | | | | | | | | | | | | | | |
| | | | | |
| (in thousands) | | North America | | Europe | | Consolidated |
| Goodwill, gross* | | $ | 71,941 | | | $ | 4,094 | | | $ | 76,035 | |
| Accumulated impairment* | | (10,036) | | | (147) | | | (10,183) | |
| Goodwill, net* | | $ | 61,905 | | | $ | 3,947 | | | $ | 65,852 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | |
| (in thousands) | | North America | | Europe | | Consolidated |
Goodwill, gross (1) | | $ | 71,941 | | | $ | 4,014 | | | $ | 75,955 | |
Accumulated impairment (1) | | (10,036) | | | (144) | | | (10,180) | |
Goodwill, net (1) | | $ | 61,905 | | | $ | 3,870 | | | $ | 65,775 | |
_________________
*(1) The change in balance from August 31, 2021 was immaterial.
The total gross carrying amounts of the Company's intangible assets subject to amortization were $21.3$20.2 million and $21.7 million, and the total net carrying amounts were $9.3$8.7 million and $10.1 million at November 30, 2021February 28, 2022 and August 31, 2021, respectively. These assets were included in other noncurrent assets on the Company's condensed consolidated balance sheets. Intangible amortizationAmortization expense from continuing operations related to such intangible assets was immaterial for the three and six months ended November 30, 2021February 28, 2022 and 2020.2021. Excluding goodwill, the Company did not have any significant intangible assets with indefinite lives at November 30, 2021.February 28, 2022.
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 sheets:
| | (in thousands) | (in thousands) | | Classification in Condensed Consolidated Balance Sheets | | November 30, 2021 | | August 31, 2021 | (in thousands) | | Classification in Condensed Consolidated Balance Sheets | | February 28, 2022 | | August 31, 2021 |
| Assets: | Assets: | | | | | | | Assets: | | | | | | |
| Operating assets | Operating assets | | Other noncurrent assets | | $ | 118,855 | | | $ | 112,202 | | Operating assets | | Other noncurrent assets | | $ | 113,446 | | | $ | 112,202 | |
| Finance assets | Finance assets | | Property, plant and equipment, net | | 53,221 | | | 55,308 | | Finance assets | | Property, plant and equipment, net | | 54,793 | | | 55,308 | |
| Total leased assets | Total leased assets | | $ | 172,076 | | | $ | 167,510 | | Total leased assets | | $ | 168,239 | | | $ | 167,510 | |
| | Liabilities: | Liabilities: | | Liabilities: | |
| Operating lease liabilities: | Operating lease liabilities: | | Operating lease liabilities: | |
| Current | Current | | Accrued expenses and other payables | | $ | 28,327 | | | $ | 26,433 | | Current | | Accrued expenses and other payables | | $ | 28,229 | | | $ | 26,433 | |
| Long-term | Long-term | | Other noncurrent liabilities | | 97,891 | | | 93,409 | | Long-term | | Other noncurrent liabilities | | 93,272 | | | 93,409 | |
| Total operating lease liabilities | Total operating lease liabilities | | 126,218 | | | 119,842 | | Total operating lease liabilities | | 121,501 | | | 119,842 | |
| Finance lease liabilities: | Finance lease liabilities: | | Finance lease liabilities: | |
| Current | Current | | Current maturities of long-term debt and short-term borrowings | | 15,808 | | | 16,040 | | Current | | Current maturities of long-term debt and short-term borrowings | | 16,639 | | | 16,040 | |
| Long-term | Long-term | | Long-term debt | | 33,128 | | | 36,104 | | Long-term | | Long-term debt | | 33,762 | | | 36,104 | |
| Total finance lease liabilities | Total finance lease liabilities | | 48,936 | | | 52,144 | | Total finance lease liabilities | | 50,401 | | | 52,144 | |
| Total lease liabilities | Total lease liabilities | | $ | 175,154 | | | $ | 171,986 | | Total lease liabilities | | $ | 171,902 | | | $ | 171,986 | |
The components of lease expense were as follows: | | | Three Months Ended November 30, | | | Three Months Ended February 28, | | Six Months Ended February 28, |
| (in thousands) | (in thousands) | | 2021 | | 2020 | | (in thousands) | | 2022 | | 2021 | | 2022 | | 2021 |
| Operating lease expense | Operating lease expense | | $ | 8,584 | | | $ | 8,722 | | | Operating lease expense | | $ | 8,748 | | | $ | 8,651 | | | $ | 17,332 | | | $ | 17,373 | |
| Finance lease expense: | Finance lease expense: | | | Finance lease expense: | |
| Amortization of assets | Amortization of assets | | 3,235 | | | 3,239 | | | Amortization of assets | | 3,219 | | | 3,219 | | | 6,454 | | | 6,458 | |
| Interest on lease liabilities | Interest on lease liabilities | | 514 | | | 555 | | | Interest on lease liabilities | | 498 | | | 563 | | | 1,012 | | | 1,118 | |
| Total finance lease expense | Total finance lease expense | | 3,749 | | | 3,794 | | | Total finance lease expense | | 3,717 | | | 3,782 | | | 7,466 | | | 7,576 | |
| Variable and short-term lease expense | Variable and short-term lease expense | | 5,162 | | | 4,962 | | | Variable and short-term lease expense | | 4,989 | | | 4,324 | | | 10,151 | | | 9,286 | |
| Total lease expense | Total lease expense | | $ | 17,495 | | | $ | 17,478 | | | Total lease expense | | $ | 17,454 | | | $ | 16,757 | | | $ | 34,949 | | | $ | 34,235 | |
The weighted average remaining lease term and discount rate for operating and finance leases are presented in the following table: | | | November 30, 2021 | | August 31, 2021 | | February 28, 2022 | | August 31, 2021 |
| Weighted average remaining lease term (years) | Weighted average remaining lease term (years) | | | | | Weighted average remaining lease term (years) | | | | |
| Operating leases | Operating leases | | 6.0 | | 6.2 | Operating leases | | 5.8 | | 6.2 |
| Finance leases | Finance leases | | 3.4 | | 3.6 | Finance leases | | 3.3 | | 3.6 |
| | Weighted average discount rate | Weighted average discount rate | | Weighted average discount rate | |
| Operating leases | Operating leases | | 4.275 | % | | 4.451 | % | Operating leases | | 4.262 | % | | 4.451 | % |
| Finance leases | Finance leases | | 4.045 | % | | 4.079 | % | Finance leases | | 3.903 | % | | 4.079 | % |
Cash flow and other information related to leases is included in the following table:
| | | Three Months Ended November 30, | | Six Months Ended February 28, |
| (in thousands) | (in thousands) | | 2021 | | 2020 | (in thousands) | | 2022 | | 2021 |
| Cash paid for amounts included in the measurement of lease liabilities: | Cash paid for amounts included in the measurement of lease liabilities: | | | | | Cash paid for amounts included in the measurement of lease liabilities: | | | | |
| Operating cash outflows from operating leases | Operating cash outflows from operating leases | | $ | 8,749 | | | $ | 9,047 | | Operating cash outflows from operating leases | | $ | 17,720 | | | $ | 17,812 | |
| Operating cash outflows from finance leases | Operating cash outflows from finance leases | | 519 | | | 560 | | Operating cash outflows from finance leases | | 1,019 | | | 1,125 | |
| Financing cash outflows from finance leases | Financing cash outflows from finance leases | | 4,199 | | | 3,795 | | Financing cash outflows from finance leases | | 8,445 | | | 7,761 | |
| | Right of use assets obtained in exchange for lease obligations: | Right of use assets obtained in exchange for lease obligations: | | Right of use assets obtained in exchange for lease obligations: | |
| Operating leases | Operating leases | | $ | 15,912 | | | $ | 12,267 | | Operating leases | | $ | 19,009 | | | $ | 20,249 | |
| Finance leases | Finance leases | | 1,002 | | | 6,300 | | Finance leases | | 6,716 | | | 8,784 | |
Future maturities of lease liabilities at November 30, 2021February 28, 2022 are presented in the following table:
| | | | | | | | | | | | | | |
| (in thousands) | | Operating Leases | | Finance Leases |
| Year 1 | | $ | 33,528 | | | $ | 17,480 | |
| Year 2 | | 28,441 | | | 15,170 | |
| Year 3 | | 22,763 | | | 12,163 | |
| Year 4 | | 17,842 | | | 5,719 | |
| Year 5 | | 12,984 | | | 1,362 | |
| Thereafter | | 29,033 | | | 512 | |
| Total lease payments | | 144,591 | | | 52,406 | |
| Less imputed interest | | 18,373 | | | 3,470 | |
| Present value of lease liabilities | | $ | 126,218 | | | $ | 48,936 | |
| | | | | | | | | | | | | | |
| (in thousands) | | Operating Leases | | Finance Leases |
| Year 1 | | $ | 32,908 | | | $ | 18,354 | |
| Year 2 | | 27,741 | | | 15,949 | |
| Year 3 | | 22,178 | | | 12,047 | |
| Year 4 | | 17,363 | | | 5,232 | |
| Year 5 | | 11,850 | | | 1,719 | |
| Thereafter | | 26,761 | | | 410 | |
| Total lease payments | | 138,801 | | | 53,711 | |
| Less imputed interest | | (17,300) | | | (3,310) | |
| Present value of lease liabilities | | $ | 121,501 | | | $ | 50,401 | |
NOTE 8. CREDIT ARRANGEMENTS
Long-term debt was as follows:
| | (in thousands) | (in thousands) | | Weighted Average Interest Rate as of November 30, 2021 | | November 30, 2021 | | August 31, 2021 | (in thousands) | | Weighted Average Interest Rate as of February 28, 2022 | | February 28, 2022 | | August 31, 2021 |
| 2032 Notes | | 2032 Notes | | 4.375% | | $ | 300,000 | | | $ | — | |
| 2031 Notes | 2031 Notes | | 3.875% | | $ | 300,000 | | | $ | 300,000 | | 2031 Notes | | 3.875% | | 300,000 | | | 300,000 | |
| 2030 Notes | | 2030 Notes | | 4.125% | | 300,000 | | | — | |
| 2027 Notes | 2027 Notes | | 5.375% | | 300,000 | | | 300,000 | | 2027 Notes | | 5.375% | | — | | | 300,000 | |
| | 2023 Notes | 2023 Notes | | 4.875% | | 330,000 | | | 330,000 | | 2023 Notes | | 4.875% | | 330,000 | | | 330,000 | |
| Series 2022 Bonds, due 2047 | | Series 2022 Bonds, due 2047 | | 4.000% | | 145,060 | | | — | |
| Poland Term Loan | Poland Term Loan | | 3.080% | | 44,055 | | | 49,726 | | Poland Term Loan | | 4.780% | | 40,923 | | | 49,726 | |
| Short-term borrowings | Short-term borrowings | | 1.161% | | 29,992 | | | 26,560 | | Short-term borrowings | | 2.750% | | — | | | 26,560 | |
| Other | Other | | 5.100% | | 19,492 | | | 19,492 | | Other | | 5.100% | | 19,492 | | | 19,492 | |
| Finance leases | Finance leases | | 48,936 | | | 52,144 | | Finance leases | | 50,401 | | | 52,144 | |
| Total debt | Total debt | | 1,072,475 | | | 1,077,922 | | Total debt | | 1,485,876 | | | 1,077,922 | |
| Less debt issuance costs | | 7,778 | | | 8,141 | | |
| Less unamortized debt issuance costs | | Less unamortized debt issuance costs | | (17,503) | | | (8,141) | |
| Plus unamortized bond premium | | Plus unamortized bond premium | | 4,936 | | | — | |
| Total amounts outstanding | Total amounts outstanding | | 1,064,697 | | | 1,069,781 | | Total amounts outstanding | | 1,473,309 | | | 1,069,781 | |
| | Less current maturities of long-term debt and short-term borrowings | Less current maturities of long-term debt and short-term borrowings | | 56,896 | | | 54,366 | | Less current maturities of long-term debt and short-term borrowings | | (27,554) | | | (54,366) | |
| Long-term debt | Long-term debt | | $ | 1,007,801 | | | $ | 1,015,415 | | Long-term debt | | $ | 1,445,755 | | | $ | 1,015,415 | |
The Company's credit arrangements require compliance with certain non-financial and financial covenants, including an interest coverage ratio and a debt to capitalization ratio. At February 28, 2022, the Company was in compliance with all covenants contained in its credit arrangements.
Senior Notes Activity
In January 2022, the Company issued $300.0 million of 4.125% Senior Notes due January 2030 (the "2030 Notes") and $300.0 million of 4.375% Senior Notes due March 2032 (the "2032 Notes"). Aggregate issuance costs associated with the 2030 Notes and 2032 Notes were approximately $9.4 million. Interest on the 2030 Notes is payable semiannually on January 15 and July 15. Interest on the 2032 Notes is payable semiannually on March 15 and September 15.
In July 2017, the Company issued $300.0 million of 5.375% Senior Notes due July 2027 (the “2027 Notes”). In February 2022, the Company redeemed all of the 2027 Notes and recognized a $16.1 million loss on debt extinguishment.
Series 2022 Bonds
In February 2022, the Company announced the issuance of $145.1 million in original aggregate principal amount of tax-exempt bonds (the “Series 2022 Bonds”) by the Industrial Development Authority of the County of Maricopa (the "MCIDA"). The Series 2022 Bonds were priced to yield 3.5% and provided gross proceeds of $150.0 million. The proceeds were loaned to the Company pursuant to a loan agreement between the Company and the MCIDA, and will be used to fund a portion of the acquisition, construction, equipping and/or operation, as applicable, of the Company’s third micro mill, to be located in Mesa, Arizona. Proceeds from the Series 2022 Bonds are being held in a trust account and will be disbursed as qualified expenditures are made for the construction of the micro mill. As of February 28, 2022, $31.0 million of proceeds were disbursed from the trust account. Remaining proceeds from the Series 2022 Bonds were recorded as restricted cash in the condensed consolidated balance sheet as of February 28, 2022.
Issuance costs associated with the Series 2022 Bonds were $3.1 million. The Series 2022 Bonds accrue interest at 4.0%, payable semiannually, and have a maturity date in October 2047.
Credit Facilities
The Company had no amounts drawn under its $400.0 million revolving credit facility (the "Revolver") at November 30, 2021February 28, 2022 or August 31, 2021. The availability under the Revolver was reduced by outstanding stand-by letters of credit totaling $1.4 million and $3.0 million at November 30, 2021February 28, 2022 and August 31, 2021.2021, respectively.
The Company has a Term Loan facility (the "Poland Term Loan") through its subsidiary, CMC Poland Sp. z.o.o. ("CMCP"). At November 30, 2021,February 28, 2022, PLN 181.0171.4 million, or $44.1$40.9 million, was outstanding, compared to the maximum amount available under the facility, PLN 190.5 million, or $49.7 million, which was outstanding as of August 31, 2021.
The Company also has credit facilities in Poland through its subsidiary, CMCP. At November 30,February 28, 2022 and August 31, 2021, CMCP's credit facilities totaled PLN 300.0 million, or $73.0 million.$71.6 million and $78.3 million, respectively. There were 0 amounts outstanding under these facilities as of November 30, 2021February 28, 2022 or August 31, 2021. The available balance of these credit facilities was reduced by outstanding stand-by letters of credit, guarantees and/or other financial assurance instruments, which totaled $0.9$4.1 million and $5.7 million at November 30, 2021February 28, 2022 and August 31, 2021, respectively.
The Company's debt agreements require compliance with certain non-financial and financial covenants, including an interest coverage ratio and a debt to capitalization ratio. At November 30, 2021, the Company was in compliance with all covenants contained in its debt agreements.
Accounts Receivable Facilities
The Company had no advance payments outstanding under its U.S. trade accounts receivable facility at November 30, 2021February 28, 2022 or August 31, 2021.
The Poland accounts receivable facility had a limit of PLN 288.0 million, or $70.1$68.8 million, at November 30, 2021.February 28, 2022. The Company had PLN 123.2 million, or $30.0 million,0 advance payments outstanding under the Poland accounts receivable facility at November 30, 2021, andFebruary 28, 2022, compared to PLN 101.7 million, or $26.6 million, advance payments outstanding at August 31, 2021.
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 net earnings 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) natural gas and electricity commodity derivatives to mitigate the risk related to price volatility of these commodities.
At November 30, 2021,February 28, 2022, the notional values of the Company's foreign currency and commodity contract commitments were $320.2$324.5 million and $217.5$243.2 million, respectively. At August 31, 2021, the notional values of the Company's foreign currency and commodity contract commitments were $389.5 million and $213.4 million, respectively.
The following table provides information regarding the Company's commodity contract commitments at November 30, 2021:February 28, 2022: | | | | | | | | | | | | | | | | | |
| Commodity | | Long/Short | | Total |
| Aluminum | | Long | | 1,8753,675 | | MT |
| Aluminum | | Short | | 2,150 | | MT |
| Copper | | Long | | 612431 | | MT |
| Copper | | Short | | 9,0959,662 | | MT |
| Electricity | | Long | | 1,817,0001,767,000 | | MW(h) |
| Natural Gas | | Long | | 1,631,7004,890,200 | | MMBtu |
_________________
MT = Metric Ton
MW(h) = Megawatt hour
MMBtu = Metric Million British thermal unit
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.
Foreign currency derivatives not designated as hedgingThe following tables summarize activities related to the Company's derivative instruments resulted in a loss, before income taxes, of $8.0 million and $1.9 million in the three months ended November 30, 2021 and 2020, respectively. Commodity derivatives not designated as hedging instruments resulted in a gain, before income taxes, of $2.7 million in the three months ended November 30, 2021, and a loss, before income taxes, of $5.6 million in the three months ended November 30, 2020, primarily recorded in cost of goods sold within the condensed consolidated statements of earnings. Commodity derivatives accounted for as cash flow hedging instruments resulted in net gains of $22.2 million and $1.2 million in the three months ended November 30, 2021 and 2020, respectively, hedged items recognized in the condensed consolidated statements of comprehensive income.earnings. All other activity related to the Company's derivative instruments and hedged items was immaterial for the periods presented.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Three Months Ended February 28, | | Six Months Ended February 28, |
| Gain (Loss) on Derivatives Not Designated as Hedging Instruments (in thousands) | | Primary Location | | 2022 | | 2021 | | 2022 | | 2021 |
| Commodity | | Cost of goods sold | | $ | (2,214) | | | $ | (11,025) | | | $ | 532 | | | $ | (16,614) | |
| Foreign exchange | | SG&A expenses | | (1,048) | | | (125) | | | (9,043) | | | (1,990) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Effective Portion of Derivatives Designated as Cash Flow Hedging Instruments Recognized in Accumulated Other Comprehensive Loss (in thousands) | | Three Months Ended February 28, | | Six Months Ended February 28, |
| | 2022 | | 2021 | | 2022 | | 2021 |
| Commodity | | $ | 33,190 | | | $ | 7,723 | | | $ | 55,365 | | | $ | 8,887 | |
| | | | | | | | |
The Company's natural gas and electricity commodity derivatives accounted for as cash flow hedging instruments have maturities extending to November 2024February 2025 and December 2030, respectively. Included in the AOCI balance as of November 30, 2021February 28, 2022 was an estimated net gain of $3.9$7.7 million from cash flow hedging instruments that is expected to be reclassified into earnings within the next twelve months. See Note 10, Fair Value, for the fair value of the Company's derivative instruments recorded in the condensed consolidated balance sheets.
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 3 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 within the Nature of Operations and Summary of Significant Accounting Policies footnote in the 2021 Form 10-K.
The following tables summarize information regarding the Company's financial assets and financial liabilities that were measured at fair value on a recurring basis:
| | | | | | | Fair Value Measurements at Reporting Date Using | | | | | Fair Value Measurements at Reporting Date Using |
| (in thousands) | (in thousands) | | November 30, 2021 | | Quoted Prices in
Active Markets for
Identical Assets
(Level 1) | | Significant Other
Observable Inputs
(Level 2) | | Significant
Unobservable Inputs
(Level 3) | (in thousands) | | February 28, 2022 | | Quoted Prices in
Active Markets for
Identical Assets
(Level 1) | | Significant Other
Observable Inputs
(Level 2) | | Significant
Unobservable Inputs
(Level 3) |
| Assets: | Assets: | | | | | | | | | Assets: | | | | | | | | |
Investment deposit accounts (1) | Investment deposit accounts (1) | | $ | 361,387 | | | $ | 361,387 | | | $ | — | | | $ | — | | Investment deposit accounts (1) | | $ | 809,220 | | | $ | 809,220 | | | $ | — | | | $ | — | |
Commodity derivative assets (2) | Commodity derivative assets (2) | | 50,253 | | | 2,361 | | | — | | | 47,892 | | Commodity derivative assets (2) | | 82,672 | | | 3,793 | | | — | | | 78,879 | |
Foreign exchange derivative assets (2) | Foreign exchange derivative assets (2) | | 1,207 | | | — | | | 1,207 | | | — | | Foreign exchange derivative assets (2) | | 1,983 | | | — | | | 1,983 | | | — | |
| Liabilities: | Liabilities: | | Liabilities: | |
Commodity derivative liabilities (2) | Commodity derivative liabilities (2) | | 375 | | | 375 | | | — | | | — | | Commodity derivative liabilities (2) | | 2,043 | | | 2,043 | | | — | | | — | |
Foreign exchange derivative liabilities (2) | Foreign exchange derivative liabilities (2) | | 4,072 | | | — | | | 4,072 | | | — | | Foreign exchange derivative liabilities (2) | | 8,104 | | | — | | | 8,104 | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Fair Value Measurements at Reporting Date Using |
| (in thousands) | | August 31, 2021 | | Quoted Prices in
Active Markets for
Identical Assets
(Level 1) | | Significant Other
Observable Inputs
(Level 2) | | Significant
Unobservable Inputs
(Level 3) |
| Assets: | | | | | | | | |
Investment deposit accounts (1) | | $ | 441,297 | | | $ | 441,297 | | | $ | — | | | $ | — | |
Commodity derivative assets (2) | | 27,323 | | | 910 | | | — | | | 26,413 | |
Foreign exchange derivative assets (2) | | 2,537 | | | — | | | 2,537 | | | — | |
| Liabilities: | | | | | | | | |
Commodity derivative liabilities (2) | | 1,352 | | | 1,352 | | | — | | | — | |
Foreign exchange derivative liabilities (2) | | 1,880 | | | — | | | 1,880 | | | — | |
_________________
(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. Derivatives classified as Level 3 are described below. Further discussion regarding the Company's use of derivative instruments is included in Note 9, Derivatives.
The fair value estimate of the Level 3 commodity derivative is based on an internally developed discounted cash flow model primarily utilizing unobservable inputs in which there is little or no market data. The Company forecasts future energy rates using a range of historical prices ("floating rate"). The floating rate is the only significant unobservable input used in the Company's discounted cash flow model. The following table summarizes the floating rate used to measure the fair value of the commodity derivative at November 30, 2021February 28, 2022 and 2020:2021:
| | | | | | | | | | | | | | | | | | | | |
| | Floating rate (PLN) |
| November 30, | | Low | | High | | Average |
| 2021 | | 252.79 | | | 540.39 | | | 348.99 | |
| 2020 | | 151.66 | | | 247.56 | | | 203.96 | |
| | | | | | | | | | | | | | | | | | | | |
| | Floating rate (PLN) |
| February 28, | | Low | | High | | Average |
| 2022 | | 271.87 | | | 815.64 | | | 451.69 | |
| 2021 | | 151.74 | | | 264.53 | | | 221.74 | |
Below is a reconciliation of the beginning and ending balances of the Level 3 commodity derivative recognized in the condensed consolidated statements of comprehensive income. The fluctuation in energy rates over time may causecauses volatility in the
fair value estimate and is the primary reason for unrealized gains and losses included in other comprehensive income ("OCI") in the three and six months ended November 30, 2021February 28, 2022 and 2020.2021.
| | | | | | | | |
| (in thousands) | | Three Months Ended November 30,February 28, 2022 |
| Balance, December 1, 2021 | | $ | 47,892 | |
| | |
| Total gains, realized and unrealized | | |
Unrealized holding gain before reclassification (1) | | 36,630 | |
Reclassification for gain included in net earnings (2) | | (5,643) | |
| Balance, February 28, 2022 | | $ | 78,879 | |
| | |
| (in thousands) | | Six Months Ended February 28, 2022 |
| Balance, September 1, 2021 | | $ | 26,413 | |
| | |
| Total gains, realized and unrealized | | |
Unrealized holding gain before reclassification (1) | | 25,20861,838 | |
Reclassification for gain included in net earnings(2) | | (3,729)(9,372) | |
Balance, November 30, 2021February 28, 2022 | | $ | 47,89278,879 | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| (in thousands) | | Three Months Ended November 30,February 28, 2021 |
| Balance, December 1, 2020 | | $ | (13,614) | |
| | |
| Total gains, realized and unrealized | | |
Unrealized holding gain before reclassification (1) | | 9,582 | |
Reclassification for gain included in net earnings (2) | | (253) | |
| Balance, February 28, 2021 | | $ | (4,285) | |
| | |
| (in thousands) | | Six Months Ended February 28, 2021 |
| Balance, September 1, 2020 | | $ | (15,007) | |
| | |
Total gains,losses, realized and unrealized | | |
Unrealized holding gain before reclassification (1) | | 1,39310,975 | |
Reclassification for gain included in net earnings (2) | | (253) | |
Balance, November 30, 2020February 28, 2021 | | $ | (13,614)(4,285) | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
________________
(1) Unrealized holding gains, less amounts reclassified, are included in OCI in the condensed consolidated statements of comprehensive income.
(2) Gains included in net earnings are recorded in cost of goods sold in the condensed consolidated statements of earnings.
There were no material non-recurring fair value remeasurements during the three and six months ended November 30, 2021February 28, 2022 or 2020.2021.
The carrying values of the Company's short-term items, including documentary letters of credit and notes payable, 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:
| | | | | November 30, 2021 | | August 31, 2021 | | | February 28, 2022 | | August 31, 2021 |
| (in thousands) | (in thousands) | | Fair Value Hierarchy | | Carrying Value | | Fair Value | | Carrying Value | | Fair Value | (in thousands) | | Fair Value Hierarchy | | Carrying Value | | Fair Value | | Carrying Value | | Fair Value |
2032 Notes (1) | | 2032 Notes (1) | | Level 2 | | $ | 300,000 | | | $ | 289,962 | | | $ | — | | | $ | — | |
2031 Notes (1) | 2031 Notes (1) | | Level 2 | | $ | 300,000 | | | $ | 297,378 | | | $ | 300,000 | | | $ | 306,279 | | 2031 Notes (1) | | Level 2 | | 300,000 | | | 282,312 | | | 300,000 | | | 306,279 | |
2030 Notes (1) | | 2030 Notes (1) | | Level 2 | | 300,000 | | | 291,018 | | | — | | | — | |
2027 Notes (1) | 2027 Notes (1) | | Level 2 | | 300,000 | | | 309,978 | | | 300,000 | | | 316,839 | | 2027 Notes (1) | | Level 2 | | — | | | — | | | 300,000 | | | 316,839 | |
2023 Notes (1) | 2023 Notes (1) | | Level 2 | | 330,000 | | | 341,058 | | | 330,000 | | | 348,071 | | 2023 Notes (1) | | Level 2 | | 330,000 | | | 337,055 | | | 330,000 | | | 348,071 | |
Series 2022 Bonds, due 2047 (1) | | Series 2022 Bonds, due 2047 (1) | | Level 2 | | 145,060 | | | 150,430 | | | — | | | — | |
Poland Term Loan(2) | Poland Term Loan(2) | | Level 2 | | 44,055 | | | 44,055 | | | 49,726 | | | 49,726 | | Poland Term Loan (2) | | Level 2 | | 40,923 | | | 40,923 | | | 49,726 | | | 49,726 | |
Short-term borrowings (2) | Short-term borrowings (2) | | Level 2 | | 29,992 | | | 29,992 | | | 26,560 | | | 26,560 | | Short-term borrowings (2) | | Level 2 | | — | | | — | | | 26,560 | | | 26,560 | |
|
_________________
(1) The fair values of the Notesnotes and the Series 2022 Bonds were determined based on indicated market values.
(2) The Poland Term Loan and short-term borrowings contain variable interest rates, and as a result, the carrying values approximate fair value.
NOTE 11. STOCK-BASED COMPENSATION PLANS
The Company's stock-based compensation plans are described in Note 13, Stock-Based Compensation Plans, to the consolidated financial statements in the 2021 Form 10-K. In general, restricted stock units 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 vest after a period of three years.
During the threesix months ended November 30,February 28, 2022 and 2021, and 2020, the Company granted the following awards under its stock-based compensation plans:
| | | November 30, 2021 | | November 30, 2020 | | February 28, 2022 | | February 28, 2021 |
| (in thousands, except share and per share data) | (in thousands, except share and per share data) | | Shares Granted | | Weighted Average Grant Date Fair Value | | Shares Granted | | Weighted Average Grant Date Fair Value | (in thousands, except share and per share data) | | Shares Granted | | Weighted Average Grant Date Fair Value | | Shares Granted | | Weighted Average Grant Date Fair Value |
| Equity method | Equity method | | 1,407 | | | $ | 27.77 | | | 1,399 | | | $ | 20.39 | | Equity method | | 1,440 | | | $ | 27.95 | | | 1,512 | | | $ | 20.51 | |
| Liability method | Liability method | | 261 | | | N/A | | 324 | | | N/A | Liability method | | 261 | | | N/A | | 324 | | | N/A |
The Company recorded immaterial mark-to-market adjustments on liability awards for the three and six months ended November 30, 2021February 28, 2022 and 2020.2021. At November 30, 2021,February 28, 2022, the Company had outstanding 591,483 equivalent shares accounted for under the liability method. The Company expects 561,908 equivalent shares to vest.
The following table summarizes total stock-based compensation expense, including fair value remeasurements, which was primarily included in selling, general and administrative expenses on the Company's condensed consolidated statements of earnings: | | | Three Months Ended November 30, | | | Three Months Ended February 28, | | Six Months Ended February 28, |
| (in thousands) | (in thousands) | | 2021 | | 2020 | | (in thousands) | | 2022 | | 2021 | | 2022 | | 2021 |
| Stock-based compensation expense | Stock-based compensation expense | | $ | 9,619 | | | $ | 9,062 | | | Stock-based compensation expense | | $ | 16,251 | | | $ | 12,696 | | | $ | 25,870 | | | $ | 21,758 | |
NOTE 12. STOCKHOLDERS' EQUITY AND EARNINGS PER SHARE
Basic EPS is computed based on the weighted average shares of common stock outstanding during the period. Diluted EPS is computed based on the weighted average shares of common stock plus the effect of dilutive securities outstanding during the period using the treasury stock method. The effect of dilutive securities includes the impact of outstanding stock-based incentive awards and shares purchased by employees through participation in the Company's employee stock purchase plan.
The calculations of basic and diluted EPS from continuing operations were as follows:
| | | Three Months Ended November 30, | | | Three Months Ended February 28, | | Six Months Ended February 28, |
| (in thousands, except share and per share data) | (in thousands, except share and per share data) | | 2021 | | 2020 | | (in thousands, except share and per share data) | | 2022 | | 2021 | | 2022 | | 2021 |
| Earnings from continuing operations | Earnings from continuing operations | | $ | 232,889 | | | $ | 63,911 | | | Earnings from continuing operations | | $ | 383,314 | | | $ | 66,233 | | | $ | 616,203 | | | $ | 130,144 | |
| | Average basic shares outstanding | Average basic shares outstanding | | 121,129,679 | | | 119,762,706 | | | Average basic shares outstanding | | 121,458,196 | | | 120,345,432 | | | 121,293,030 | | | 120,052,459 | |
| Effect of dilutive securities | Effect of dilutive securities | | 1,668,059 | | | 1,365,338 | | | Effect of dilutive securities | | 1,394,214 | | | 1,406,427 | | | 1,454,951 | | | 1,619,735 | |
| Average diluted shares outstanding | Average diluted shares outstanding | | 122,797,738 | | | 121,128,044 | | | Average diluted shares outstanding | | 122,852,410 | | | 121,751,859 | | | 122,747,981 | | | 121,672,194 | |
| | Earnings per share from continuing operations: | Earnings per share from continuing operations: | | | Earnings per share from continuing operations: | |
| Basic | Basic | | $ | 1.92 | | | $ | 0.53 | | | Basic | | $ | 3.16 | | | $ | 0.55 | | | $ | 5.08 | | | $ | 1.08 | |
| Diluted | Diluted | | $ | 1.90 | | | $ | 0.53 | | | Diluted | | $ | 3.12 | | | $ | 0.54 | | | $ | 5.02 | | | $ | 1.07 | |
Anti-dilutive shares not included above were immaterial for all periods presented.
Restricted stock is included in the number of shares of common stock issued and outstanding, but omitted from the basic EPS calculation until the shares vest.
In October 2021, CMC's Board of Directors authorized a share repurchase program under which CMC may repurchase up to $350.0 million of shares of common stock. During the three and six months ended November 30, 2021,February 28, 2022, the Company repurchased
159,500 335,500 and 495,000 shares of CMC common stock, respectively, at an average purchase price of $33.28$34.85 and $34.34 per share.share, respectively. CMC had remaining authorization to repurchase $344.7$333.0 million of shares of common stock at November 30, 2021.February 28, 2022.
NOTE 13. COMMITMENTS AND CONTINGENCIES
In the ordinary course of conducting its business, the Company becomes involved in litigation, administrative proceedings and governmental investigations, including environmental matters. At November 30, 2021February 28, 2022 and August 31, 2021, the amounts accrued for cleanup and remediation costs at certain sites in response to statutes enforced by the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 ("CERCLA") were immaterial. Total accrued environmental liabilities, including CERCLA sites, were $5.2$4.3 million and $7.1 million at November 30, 2021February 28, 2022 and August 31, 2021, respectively, of which $2.2 million and $2.3 million were classified as other long-term liabilities at November 30, 2021February 28, 2022 and August 31, 2021, respectively. These amounts have not been discounted to their present values. Due to evolving remediation technology, changing regulations, possible third-party contributions, the inherent uncertainties of the estimation process and other factors, amounts accrued could vary significantly from amounts paid.
NOTE 14. BUSINESS SEGMENTS
The Company structures its business into 2 reportable segments: North America and Europe. See Note 1, Nature of Operations and Summary of Significant Accounting Policies, to the consolidated financial statements in the 2021 Form 10-K for more information about the reportable segments, including the types of products and services from which each reportable 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 following is a summary of certain financial information from continuing operations by reportable segment and Corporate and Other:
| | | Three Months Ended November 30, 2021 | | Three Months Ended February 28, 2022 |
| (in thousands) | (in thousands) | | North America | | Europe | | Corporate and Other | | Continuing Operations | (in thousands) | | North America | | Europe | | Corporate and Other | | Continuing Operations |
| Net sales | Net sales | | $ | 1,653,622 | | | $ | 329,056 | | | $ | (877) | | | $ | 1,981,801 | | Net sales | | $ | 1,614,224 | | | $ | 395,758 | | | $ | (1,094) | | | $ | 2,008,888 | |
| Adjusted EBITDA | Adjusted EBITDA | | 268,524 | | | 79,832 | | | (34,334) | | | 314,022 | | Adjusted EBITDA | | 535,463 | | | 81,149 | | | (52,493) | | | 564,119 | |
| | | | Six Months Ended February 28, 2022 |
| | Total assets at November 30, 2021 | | 3,389,890 | | | 736,872 | | | 598,496 | | | 4,725,258 | | |
| (in thousands) | | (in thousands) | | North America | | Europe | | Corporate and Other | | Continuing Operations |
| Net sales | | Net sales | | $ | 3,267,846 | | | $ | 724,814 | | | $ | (1,971) | | | $ | 3,990,689 | |
| Adjusted EBITDA | | Adjusted EBITDA | | 803,987 | | | 160,981 | | | (86,827) | | | 878,141 | |
| Total assets at February 28, 2022 | | Total assets at February 28, 2022 | | 3,553,719 | | | 823,127 | | | 1,127,374 | | | 5,504,220 | |
| | | Three Months Ended November 30, 2020 | | Three Months Ended February 28, 2021 |
| (in thousands) | (in thousands) | | North America | | Europe | | Corporate and Other | | Continuing Operations | (in thousands) | | North America | | Europe | | Corporate and Other | | Continuing Operations |
| Net sales | Net sales | | $ | 1,195,013 | | | $ | 194,596 | | | $ | 2,194 | | | $ | 1,391,803 | | Net sales | | $ | 1,257,486 | | | $ | 202,066 | | | $ | 2,718 | | | $ | 1,462,270 | |
| Adjusted EBITDA | Adjusted EBITDA | | 155,634 | | | 14,470 | | | (26,471) | | | 143,633 | | Adjusted EBITDA | | 171,612 | | | 16,107 | | | (45,986) | | | 141,733 | |
| | | | Six Months Ended February 28, 2021 |
| | (in thousands) | | (in thousands) | | North America | | Europe | | Corporate and Other | | Continuing Operations |
| Net sales | | Net sales | | $ | 2,452,499 | | | $ | 396,662 | | | $ | 4,912 | | | $ | 2,854,073 | |
| Adjusted EBITDA | | Adjusted EBITDA | | 327,246 | | | 30,577 | | | (72,457) | | | 285,366 | |
| Total assets at August 31, 2021 | Total assets at August 31, 2021 | | 3,221,465 | | | 729,766 | | | 687,440 | | | 4,638,671 | | Total assets at August 31, 2021 | | 3,221,465 | | | 729,766 | | | 687,440 | | | 4,638,671 | |
The following table presents a reconciliation of earnings from continuing operations to adjusted EBITDA from continuing operations: | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended November 30, | | |
| (in thousands) | | 2021 | | 2020 | | | | |
| Earnings from continuing operations | | $ | 232,889 | | | $ | 63,911 | | | | | |
| Interest expense | | 11,035 | | | 14,259 | | | | | |
| Income taxes | | 28,872 | | | 21,593 | | | | | |
| Depreciation and amortization | | 41,226 | | | 41,799 | | | | | |
| Asset impairments | | — | | | 3,594 | | | | | |
| Amortization of acquired unfavorable contract backlog | | — | | | (1,523) | | | | | |
| Adjusted EBITDA from continuing operations | | $ | 314,022 | | | $ | 143,633 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended February 28, | | Six Months Ended February 28, |
| (in thousands) | | 2022 | | 2021 | | 2022 | | 2021 |
| Earnings from continuing operations | | $ | 383,314 | | | $ | 66,233 | | | $ | 616,203 | | | $ | 130,144 | |
| Interest expense | | 12,011 | | | 14,021 | | | 23,046 | | | 28,280 | |
| Income taxes | | 126,432 | | | 20,941 | | | 155,304 | | | 42,534 | |
| Depreciation and amortization | | 41,134 | | | 41,573 | | | 82,360 | | | 83,372 | |
| Asset impairments | | 1,228 | | | 474 | | | 1,228 | | | 4,068 | |
| Amortization of acquired unfavorable contract backlog | | — | | | (1,509) | | | — | | | (3,032) | |
| Adjusted EBITDA from continuing operations | | $ | 564,119 | | | $ | 141,733 | | | $ | 878,141 | | | $ | 285,366 | |
Disaggregation of Revenue
The following tables display revenue by reportable segment and Corporate and Other from external customers, disaggregated by major product:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended November 30, 2021 |
| (in thousands) | | North America | | Europe | | Corporate and Other | | Total |
| Major product: | | | | | | | | |
| Raw materials | | $ | 353,092 | | | $ | 6,960 | | | $ | — | | | $ | 360,052 | |
| Steel products | | 675,042 | | | 243,145 | | | — | | | 918,187 | |
| Downstream products | | 514,396 | | | 70,072 | | | — | | | 584,468 | |
| Other | | 111,092 | | | 8,385 | | | (383) | | | 119,094 | |
| Net sales-unaffiliated customers | | 1,653,622 | | | 328,562 | | | (383) | | | 1,981,801 | |
| Intersegment net sales, eliminated on consolidation | | — | | | 494 | | | (494) | | | — | |
| Net sales | | $ | 1,653,622 | | | $ | 329,056 | | | $ | (877) | | | $ | 1,981,801 | |
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| | | Three Months Ended November 30, 2020 | | Three Months Ended February 28, 2022 |
| (in thousands) | (in thousands) | | North America | | Europe | | Corporate and Other | | Total | (in thousands) | | North America | | Europe | | Corporate and Other | | Total |
| Major product: | Major product: | | | | | | | | | Major product: | | | | | | | | |
| Raw materials | Raw materials | | $ | 210,237 | | | $ | 2,830 | | | $ | — | | | $ | 213,067 | | Raw materials | | $ | 366,941 | | | $ | 5,864 | | | $ | — | | | $ | 372,805 | |
| Steel products | Steel products | | 457,657 | | | 151,455 | | | — | | | 609,112 | | Steel products | | 666,047 | | | 320,414 | | | — | | | 986,461 | |
| Downstream products | Downstream products | | 437,029 | | | 34,473 | | | — | | | 471,502 | | Downstream products | | 459,753 | | | 59,541 | | | — | | | 519,294 | |
| Other | Other | | 90,090 | | | 5,427 | | | 2,605 | | | 98,122 | | Other | | 121,483 | | | 9,530 | | | (685) | | | 130,328 | |
| Net sales-unaffiliated customers | | 1,195,013 | | | 194,185 | | | 2,605 | | | 1,391,803 | | |
| Net sales from external customers | | Net sales from external customers | | 1,614,224 | | | 395,349 | | | (685) | | | 2,008,888 | |
| Intersegment net sales, eliminated on consolidation | Intersegment net sales, eliminated on consolidation | | — | | | 411 | | | (411) | | | — | | Intersegment net sales, eliminated on consolidation | | — | | | 409 | | | (409) | | | — | |
| Net sales | Net sales | | $ | 1,195,013 | | | $ | 194,596 | | | $ | 2,194 | | | $ | 1,391,803 | | Net sales | | $ | 1,614,224 | | | $ | 395,758 | | | $ | (1,094) | | | $ | 2,008,888 | |
| | | | Six Months Ended February 28, 2022 |
| | (in thousands) | | (in thousands) | | North America | | Europe | | Corporate and Other | | Total |
| Major product: | | Major product: | | | | | | | | |
| Raw materials | | Raw materials | | $ | 720,033 | | | $ | 12,824 | | | $ | — | | | $ | 732,857 | |
| Steel products | | Steel products | | 1,341,089 | | | 563,559 | | | — | | | 1,904,648 | |
| Downstream products | | Downstream products | | 974,149 | | | 129,613 | | | — | | | 1,103,762 | |
| Other | | Other | | 232,575 | | | 17,915 | | | (1,068) | | | 249,422 | |
| Net sales from external customers | | Net sales from external customers | | 3,267,846 | | | 723,911 | | | (1,068) | | | 3,990,689 | |
| Intersegment net sales, eliminated on consolidation | | Intersegment net sales, eliminated on consolidation | | — | | | 903 | | | (903) | | | — | |
| Net sales | | Net sales | | $ | 3,267,846 | | | $ | 724,814 | | | $ | (1,971) | | | $ | 3,990,689 | |
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| | Three Months Ended February 28, 2021 |
| (in thousands) | | North America | | Europe | | Corporate and Other | | Total |
| Major product: | | | | | | | | |
| Raw materials | | $ | 255,012 | | | $ | 4,775 | | | $ | — | | | $ | 259,787 | |
| Steel products | | 514,201 | | | 157,482 | | | — | | | 671,683 | |
| Downstream products | | 400,397 | | | 33,762 | | | — | | | 434,159 | |
| Other | | 87,876 | | | 5,540 | | | 3,225 | | | 96,641 | |
| Net sales from external customers | | 1,257,486 | | | 201,559 | | | 3,225 | | | 1,462,270 | |
| Intersegment net sales, eliminated on consolidation | | — | | | 507 | | | (507) | | | — | |
| Net sales | | $ | 1,257,486 | | | $ | 202,066 | | | $ | 2,718 | | | $ | 1,462,270 | |
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| | Six Months Ended February 28, 2021 |
| (in thousands) | | North America | | Europe | | Corporate and Other | | Total |
| Major product: | | | | | | | | |
| Raw materials | | $ | 465,249 | | | $ | 7,605 | | | $ | — | | | $ | 472,854 | |
| Steel products | | 971,858 | | | 308,937 | | | — | | | 1,280,795 | |
| Downstream products | | 837,426 | | | 68,235 | | | — | | | 905,661 | |
| Other | | 177,966 | | | 10,967 | | | 5,830 | | | 194,763 | |
| Net sales from external customers | | 2,452,499 | | | 395,744 | | | 5,830 | | | 2,854,073 | |
| Intersegment net sales, eliminated on consolidation | | — | | | 918 | | | (918) | | | — | |
| Net sales | | $ | 2,452,499 | | | $ | 396,662 | | | $ | 4,912 | | | $ | 2,854,073 | |
NOTE 15. SUBSEQUENT EVENT
On December 3, 2021, the Company signed a definitive agreement to acquire TAC Acquisition Corp. ("Tensar"), a portfolio company of Castle Harlan Inc.’s fund, Castle Harlan Partners V, L.P., and a leading global provider of engineered solutions for subgrade reinforcement and soil stabilization used in road, infrastructure and commercial construction projects. The transaction is expected to close during the first half of calendar year 2022, and is subject to the satisfaction or waiver of customary closing conditions, including customary regulatory review. Upon closing, the Company will pay a cash purchase price of $550.0 million, subject to customary purchase price adjustments. The transaction is not contingent on any financing arrangements.
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(this "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, 2021 (the "2021 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 was 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 Item 2 of this Form 10-Q and in the sections entitled "Risk Factors" in Part I, Item 1A of our 2021 Form 10-K.10-K and Part II, Item 1A of 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 "corresponding period" relates to the relevant three or six month period ended November 30, 2020.February 28, 2021.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
There have been no material changes to our critical accounting policies and estimates as set forth in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, included in our 2021 Form 10-K.
RESULTS OF OPERATIONS SUMMARY
Business Overview
As a vertically integrated organization, we manufacture, recycle and fabricate steel and metal products and provide related materials and services through a network of facilities that includes seven electric arc furnace ("EAF") mini mills, two EAF micro mills, one rerolling mill, steel fabrication and processing plants, construction-related product warehouses and metal recycling facilities in the U.S.United States and Poland. Our operations are conducted through two reportable segments: North America and Europe.
When considering our results for the period, we evaluate our operating performance by comparing net sales, in the aggregate and for both of our segments, in the current period to net sales in the corresponding period. In doing so, we focus on changes in average selling price per ton and tons shipped for each of our product categories as these are the two variables that typically have the greatest impact on our results of operations. We group our products into three categories: raw materials, steel products and downstream products. Raw materials include ferrous and nonferrous scrap, steel products include rebar, merchant and other steel products, such as billets and wire rod, and downstream products include fabricated rebar and steel fence post.
Key Performance Indicators
Adjusted EBITDA from continuing operations ("adjusted EBITDA") is used by management to compare and evaluate the period-over-period underlying business operational performance of our segments. Adjusted EBITDA is the sum of the Company's earnings from continuing operations before interest expense, income taxes, depreciation and amortization and impairment expense. Although there are many factors that can impact a segment’s adjusted EBITDA and, therefore, our overall earnings, changes in steel products metal margin and downstream products margin over scrap costs period-over-period is aare consistent areaareas of focus for our Company and industry. Steel products metal margin and downstream products margin over scrap costs are metrics used by management to monitor the results of our vertically integrated organization. Steel products metal margin is the difference between the average selling price per ton of rebar, merchant and other steel products and the cost of ferrous scrap per ton utilized by our steel mills to produce these products. An increase or decrease in input costs can impact profitability of these products when there is no corresponding change in selling prices due to competitive pressures on prices.
Downstream products margin over scrap costs is the difference between the average selling price per ton of fabricated rebar and steel fence post products and the scrap input costs to produce these products. The majority of our downstream products selling
prices per ton are fixed at the beginning of a project and these projects last one to two years on average. Because the selling price generally remains fixed over the life of a project, changes in input costs over the life of the project can significantly impact profitability.
Impact of COVID-19
The impact of the COVID-19 pandemic ("COVID-19" or "pandemic") on our operations was limited during the threesix months ended November 30, 2021February 28, 2022 and 2020.2021. We continue to evaluate the nature and extent of future impacts of the evolving pandemic on our operations and are complying with applicable federal, state and local law and considering relevant guidance, including the guidelines of the U.S. Centers for Disease Control and other authorities, to prioritize the health and safety of our employees, families, suppliers, customers and communities. Given the dynamic and uncertain nature and duration of the pandemic, we cannot reasonably estimate the long-term impact of COVID-19 on our business, results of operations and overall financial performance at this time.
Financial Results Overview
The following discussion of our results of operations is based on our continuing operations.
| | | | | Three Months Ended November 30, | | | | Three Months Ended February 28, | | Six Months Ended February 28, |
| (in thousands, except per share data) | (in thousands, except per share data) | | 2021 | | 2020 | | (in thousands, except per share data) | | 2022 | | 2021 | | 2022 | | 2021 |
| Net sales | Net sales | | $ | 1,981,801 | | | $ | 1,391,803 | | | Net sales | | $ | 2,008,888 | | | $ | 1,462,270 | | | $ | 3,990,689 | | | $ | 2,854,073 | |
| Earnings from continuing operations | Earnings from continuing operations | | 232,889 | | | 63,911 | | | Earnings from continuing operations | | 383,314 | | | 66,233 | | | 616,203 | | | 130,144 | |
| Diluted earnings per share | Diluted earnings per share | | $ | 1.90 | | | $ | 0.53 | | | Diluted earnings per share | | $ | 3.12 | | | $ | 0.54 | | | $ | 5.02 | | | $ | 1.07 | |
Net sales for the three and six months ended November 30, 2021February 28, 2022 increased $590.0$546.6 million, or 42%37%, and $1.1 billion, or 40%, respectively, compared to the corresponding period.periods. The growth in net sales is largely attributable to rising prices, which have favorably impacted year-over-year selling prices across all major product lines in both of our segments. Continued strong demand in our end-use markets has supported the growth in average selling prices, while volumes across our product lines remained relatively flat insegments for the three and six months ended November 30, 2021,February 28, 2022, compared to the corresponding period.periods. Continued strong demand from robust construction activity in all of our North America and Europe end-use markets was the primary driver for the increase in average selling prices.
InDuring the first quarter ofthree and six months ended February 28, 2022, we achieved earnings from continuing operations of $232.9$383.3 million an increaseand $616.2 million, respectively. Included in earnings from continuing operations during the three and six months ended February 28, 2022 was a $273.3 million gain on the sale of $169.0 million, or 264%,the Rancho Cucamonga facilities. See Note 2, Changes in Business, for more information on the sale of the Rancho Cucamonga facilities. Earnings from continuing operations, less the gain on the sale of the Rancho Cucamonga facilities, increased 66% and 163% during the three and six months ended February 28, 2022, respectively, compared to the corresponding period. The increase wasperiods. These increases were driven by the significant expansion of steel products metal margin per ton in both of our segments and raw materials margin over purchase cost per ton as the increases in sellingour North America segment. Selling prices for steel products and raw materials outpaced the rising input costs of ferrous scrap utilized in our steel mill operations and the price paid to purchase obsoleteferrous and industrialnonferrous scrap in our scrap metal recycling operations.operations, as well as increases in the cost of freight, energy and other steelmaking inputs.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $9.0$7.2 million and $17.0 million for the three and six months ended November 30, 2021February 28, 2022, respectively, compared to the corresponding period.periods. The increase wasincreases were driven largelyin part by a $3.6increases in expenses related to labor, professional services and travel of $1.5 million, increase in labor-related expenses in$2.2 million and $1.0 million during the three months ended November 30, 2021,February 28, 2022, respectively, and $5.1 million, $4.9 million and $2.3 million during the six months ended February 28, 2022, respectively, compared to the corresponding period, andperiods. Contributing to the year-over-year increase in professional services expenses during the six months ended February 28, 2022 were $3.2 million of acquisition-related costs incurred during the first quarter of 2022, with no such amountcosts in the corresponding period.
Interest Expense
Interest expense fordecreased $2.0 million and $5.2 million during the three and six months ended November 30, 2021 decreased $3.2 millionFebruary 28, 2022, respectively, compared to the corresponding period.periods. The decrease wasdecreases were driven largelyin part by the lower interest rateexpense on the $300.0 million of 3.875% Senior Notes due 2031, Notes, which were outstanding during the three and six months ended November 30, 2021,February 28, 2022, compared to the interest rateexpense on the $350.0 million of 5.750% Senior Notes due 2026, Notes, which were outstanding during the corresponding period.periods before their redemption in February 2021. Additionally, total capitalized interest of $2.6 million and $4.2 million was recorded during the three and six months ended February 28, 2022, respectively. Total capitalized interest increased $1.9 million and $3.0 million during the three and six months ended February 28, 2022, compared to the corresponding periods, due to the construction of the third micro mill, to be located in Mesa, Arizona.
Income Taxes
The effective income tax raterates from continuing operations for the three and six months ended November 30, 2021 was 11.0%February 28, 2022 were 24.8% and 20.1%, respectively, compared with 25.3%to 24.0% and 24.6% in the corresponding period.periods. The effective income tax rate from continuing operations remained relatively flat for the three months ended February 28, 2022 when compared with the corresponding period ending February 28, 2021. The decrease for the six months ended February 28, 2022 is primarily due to the recognition of a capital loss on a tax restructuring transaction during the three months ended November 30, 2021.first quarter of fiscal 2022.
SEGMENT OPERATING DATA
Unless otherwise indicated, all dollar amounts below are from continuing operations and calculated before income taxes. See Note 14, Business Segments, for more information. 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.
North America | | | | | Three Months Ended November 30, | | | | Three Months Ended February 28, | | Six Months Ended February 28, |
| (in thousands) | (in thousands) | | 2021 | | 2020 | | (in thousands) | | 2022 | | 2021 | | 2022 | | 2021 |
| Net sales | Net sales | | $ | 1,653,622 | | | $ | 1,195,013 | | | Net sales | | $ | 1,614,224 | | | $ | 1,257,486 | | | $ | 3,267,846 | | | $ | 2,452,499 | |
| Adjusted EBITDA | Adjusted EBITDA | | 268,524 | | | 155,634 | | | Adjusted EBITDA | | 535,463 | | | 171,612 | | | 803,987 | | | 327,246 | |
| | External tons shipped (in thousands) | External tons shipped (in thousands) | | | External tons shipped (in thousands) | |
| Raw materials | Raw materials | | 334 | | | 330 | | | Raw materials | | 329 | | | 302 | | | 663 | | | 632 | |
| Rebar | Rebar | | 442 | | | 486 | | | Rebar | | 407 | | | 472 | | | 849 | | | 958 | |
| Merchant and other | Merchant and other | | 257 | | | 264 | | | Merchant and other | | 245 | | | 268 | | | 502 | | | 532 | |
| Steel products | Steel products | | 699 | | | 750 | | | Steel products | | 652 | | | 740 | | | 1,351 | | | 1,490 | |
| Downstream products | Downstream products | | 400 | | | 371 | | | Downstream products | | 327 | | | 343 | | | 727 | | | 714 | |
| | Average selling price (per ton) | Average selling price (per ton) | | | Average selling price (per ton) | |
| Steel products | Steel products | | $ | 976 | | | $ | 612 | | | Steel products | | $ | 1,041 | | | $ | 695 | | | $ | 1,007 | | | $ | 653 | |
| Downstream products | Downstream products | | 1,092 | | | 934 | | | Downstream products | | 1,169 | | | 929 | | | 1,126 | | | 931 | |
| | Cost of ferrous scrap utilized per ton | Cost of ferrous scrap utilized per ton | | $ | 428 | | | $ | 266 | | | Cost of ferrous scrap utilized per ton | | $ | 436 | | | $ | 344 | | | $ | 432 | | | $ | 304 | |
| Steel products metal margin per ton | Steel products metal margin per ton | | 548 | | | 346 | | | Steel products metal margin per ton | | 605 | | | 351 | | | 575 | | | 349 | |
Net sales for the three and six months ended November 30, 2021February 28, 2022 increased $458.6$356.7 million, or 38%28%, and $815.3 million, or 33%, respectively, compared to the corresponding period.periods. The year-over-year increase in net sales during the three months ended February 28, 2022 was primarily due to average selling price increases of 64%30% for raw materials, 59%50% for steel products and 17%26% for downstream products compared to the corresponding period. Similarly, during the six months ended February 28, 2022, we experienced average selling price increases of 46% for raw materials, 54% for steel products and 21% for downstream products compared to the corresponding period. The rise in average selling prices is supported by strengthened demand in our end-use markets due to greater construction and industrial activity compared to the corresponding period. Net sales was impactedperiods. While shipment volumes of raw materials and downstream products remained relatively flat during the three and six months ended February 28, 2022, compared to a lesser extent by a 7% decrease inthe corresponding periods, shipments of steel products due to the absence of production from the former Rancho Cucamonga mill operations. This decrease was offset in part by an 8% increasedeclined 12% and 9%, respectively. The decreases in shipments in the three and six months ended February 28, 2022 was a result of downstream products, largely due to growth in downstream products backlog at August 31, 2021 compared to August 31, 2020.planned maintenance activities during the second quarter of 2022, coupled with stronger than normal shipment levels during the corresponding periods.
Adjusted EBITDA for the three and six months ended November 30, 2021February 28, 2022 increased $112.9$363.9 million or 73%,and $476.7 million respectively, compared to the corresponding period. The year-over-year increaseperiods. Included in adjusted EBITDA induring the three and six months ended November 30, 2021February 28, 2022 was a $273.3 million gain on the sale of the Rancho Cucamonga facilities. The remaining growth in adjusted EBITDA during the three and six months ended February 28, 2022 was primarily due primarily to expansion of steel products metal margin per ton and raw materials margin over purchase cost per ton, and steel products metal margin per ton.compared to the corresponding periods. Although ferrous and nonferrous scrap prices increased and inflationary pressures caused an increase in the cost of freight, energy and other steelmaking inputs, the average selling price for steel products and raw materials and steel products increased at a greater rate year-over-year. Adjusted EBITDA included non-cash stock compensation expense of $2.7$4.0 million and $6.7 million for the three and six months ended November 30, 2021,February 28, 2022, respectively, and $3.3$3.8 million and $7.1 million for the corresponding period.periods.
Europe | | | | | Three Months Ended November 30, | | | | Three Months Ended February 28, | | Six Months Ended February 28, |
| (in thousands) | (in thousands) | | 2021 | | 2020 | | (in thousands) | | 2022 | | 2021 | | 2022 | | 2021 |
| Net sales | Net sales | | $ | 329,056 | | | $ | 194,596 | | | Net sales | | $ | 395,758 | | | $ | 202,066 | | | $ | 724,814 | | | $ | 396,662 | |
| Adjusted EBITDA | Adjusted EBITDA | | 79,832 | | | 14,470 | | | Adjusted EBITDA | | 81,149 | | | 16,107 | | | 160,981 | | | 30,577 | |
| | External tons shipped (in thousands) | External tons shipped (in thousands) | | | External tons shipped (in thousands) | |
| Rebar | Rebar | | 103 | | | 128 | | | Rebar | | 172 | | | 78 | | | 275 | | | 206 | |
| Merchant and other | Merchant and other | | 262 | | | 269 | | | Merchant and other | | 278 | | | 275 | | | 540 | | | 544 | |
| Steel products | Steel products | | 365 | | | 397 | | | Steel products | | 450 | | | 353 | | | 815 | | | 750 | |
| | Average selling price (per ton) | Average selling price (per ton) | | | Average selling price (per ton) | |
| Steel products | Steel products | | $ | 869 | | | $ | 461 | | | Steel products | | $ | 851 | | | $ | 532 | | | $ | 859 | | | $ | 495 | |
| | Cost of ferrous scrap utilized per ton | Cost of ferrous scrap utilized per ton | | $ | 434 | | | $ | 262 | | | Cost of ferrous scrap utilized per ton | | $ | 444 | | | $ | 328 | | | $ | 439 | | | $ | 296 | |
| Steel products metal margin per ton | Steel products metal margin per ton | | 435 | | | 199 | | | Steel products metal margin per ton | | 407 | | | 204 | | | 420 | | | 199 | |
Net sales for the three and six months ended November 30, 2021February 28, 2022 increased $134.5$193.7 million, or 69%96%, and $328.2 million, or 83%, respectively, compared to the corresponding period.periods. The increase wasincreases were driven largely by the increaseincreases in steel products average selling prices of $408$319 per ton, or 60%, and $364 per ton, or 74%, during the three and six months ended November 30, 2021,February 28, 2022, respectively, compared to the corresponding period, supported by continued strongperiods. Increased demand for steel products from both construction and industrial end markets. Shipmentsmarkets supported the increases in average selling prices. Additionally, shipments of steel products decreased 8%increased 27% and 9% during the three and six months ended February 28, 2022, respectively, compared to the corresponding period, primarily as a resultperiods. The growth in shipments of scheduled maintenancesteel products during the firstthree and six months ended February 28, 2022 was due in part to the absence of a maintenance program that was completed during the second quarter of 2022.2021, reducing shipments during the corresponding periods, coupled with the increased demand for steel products described above. Net sales for the three and six months ended November 30, 2021February 28, 2022 were also impacted by an unfavorable foreign currency translation adjustmentadjustments of $13.5$35.2 million and $48.7 million, respectively, due to the increase in the average value of the U.S. dollar relative to the Polish zloty, compared to a favorable foreign currency translation adjustmentadjustments of $4.7$8.3 million and $13.0 million, respectively, during the corresponding period.periods.
Adjusted EBITDA for the three and six months ended November 30, 2021February 28, 2022 increased $65.4$65.0 million, or 452%404%, and $130.4 million, or 426%, compared to the corresponding period.periods. The primary driver of the increaseincreases in adjusted EBITDA was an expansion in steel products metal margin per ton, which increased 119%100% during the three months ended February 28, 2022, compared to the corresponding period, asand increased 111% during the six months ended February 28, 2022, compared to the corresponding period. During the three and six months ended February 28, 2022, the cost of ferrous scrap utilized per ton increased 35% and 48%, respectively, compared to the corresponding periods, and inflationary pressures caused increases to the cost of freight, energy and other steelmaking inputs. However, the growth in average selling priceprices for steel products outpaced these increased costs in each period. Also offsetting the increased costscost of ferrous scrap utilized.energy were realized gains of $5.6 million and $9.4 million during the three and six months ended February 28, 2022, respectively, from a commodity derivative designated as a cash flow hedging instrument, compared to immaterial gains recorded in the corresponding periods. Additionally, in the first quarter of 2022, we received a $15.5 million energy credit that was recorded as a reduction to cost of goods sold, with no similar credit received in the corresponding period. Adjusted EBITDA for the three and six months ended November 30, 2021February 28, 2022 included an unfavorable foreign currency exchange rate impactimpacts of $3.0$7.3 million and $10.3 million, respectively, compared to an immaterial foreign currency translation adjustmentadjustments during the corresponding period.periods. Adjusted EBITDA included non-cash stock compensation expense of $1.5$1.1 million and $2.6 million for the three and six months ended November 30, 2021,February 28, 2022, respectively, and $0.7 million and $1.4 million for the corresponding period.periods.
Corporate and Other
Corporate and Other reported adjusted EBITDA loss of $34.3$52.5 million and $86.8 million for the three and six months ended November 30, 2021,February 28, 2022, respectively, compared to adjusted EBITDA loss of $26.5$46.0 million and $72.5 million in the corresponding period. The primary reason forperiods. Contributing to the increaseincreases in the adjusted EBITDA loss was a $4.2were $5.7 million increaseand $9.9 million increases in labor-related expenses year-over-yearduring the three and asix months ended February 28, 2022, respectively, compared to the corresponding periods, and $3.2 million increase inof acquisition-related costs incurred in the three months ended November 30, 2021,first quarter of 2022, with no such costs in the corresponding period. Additionally, adjusted EBITDA included non-cash stock compensation expense of $5.4$11.2 million and $16.6 million for the three and six months ended November 30, 2021,February 28, 2022, respectively, compared to $5.1$8.2 million and $13.3 million for the corresponding period.periods.
LIQUIDITY AND CAPITAL RESOURCES
Sources of Liquidity and Capital Resources
Our cash flows from operating activities are our principal sources of liquidity and result primarily from sales of raw materials, steel products, downstream products and related materials and services, as described in Part I, Item 1, Business, of our 2021 Form 10-K. We have a diverse and generally stable customer base, and regularly maintain a substantial amount of accounts receivable. We record allowances for the accounts receivable we estimate will not be collected based on market conditions, customers' financial condition and other factors. Historically, these allowances have not been material. We use credit insurance internationally 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 14%18% of total trade receivables at November 30, 2021.February 28, 2022.
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.
The table below reflects our sources, facilities and availability of liquidity at November 30, 2021.February 28, 2022. See Note 8, Credit Arrangements, for additional information.
| | (in thousands) | (in thousands) | | Total Facility | | Availability | (in thousands) | | Liquidity Sources and Facilities | | Availability |
| Cash and cash equivalents | Cash and cash equivalents | | $ | 415,055 | | | $ | 415,055 | | Cash and cash equivalents | | $ | 846,587 | | | $ | 846,587 | |
| Notes due from 2023 to 2031 | | 930,000 | | | * | |
| Notes due from 2023 to 2032 | | Notes due from 2023 to 2032 | | 1,230,000 | | | * |
| Revolver | Revolver | | 400,000 | | | 396,954 | | Revolver | | 400,000 | | | 398,604 | |
| U.S. accounts receivable facility | U.S. accounts receivable facility | | 150,000 | | | 150,000 | | U.S. accounts receivable facility | | 150,000 | | | 150,000 | |
| Series 2022 Bonds, due 2047 ** | | Series 2022 Bonds, due 2047 ** | | 145,060 | | | — | |
| Poland credit facilities | Poland credit facilities | | 73,039 | | | 72,182 | | Poland credit facilities | | 71,614 | | | 67,560 | |
| Poland accounts receivable facility | Poland accounts receivable facility | | 70,117 | | | 40,125 | | Poland accounts receivable facility | | 68,750 | | | 68,750 | |
| Poland Term Loan | Poland Term Loan | | 44,055 | | | — | | Poland Term Loan | | 40,923 | | | — | |
_________________
*We believe we have access to additional financing and refinancing, if needed, although we can make no assurances as to the form or terms of such financing.
**See Note 8, Credit Arrangements, for additional information regarding the restrictions on the proceeds from the Series 2022 Bonds.
We are continually reviewing our capital resources to determine whether we can meet our short and long-term goals. Our cash and cash equivalents position remains strong at $415.1$846.6 million as of November 30, 2021.February 28, 2022. We anticipate our current cash balances, cash flows from operations and available sources of liquidity will be sufficient to maintain operations, make necessary capital expenditures, acquire Tensar during the third quarter of 2022, pay dividends and opportunistically repurchase shares for at least the next twelve months. Additionally, we believeexpect our long-term liquidity position remains strong and expectwill be sufficient to meet our long-term liquidity needs with cash flows from operations and financing arrangements. However, in the event of changes in business conditions or other developments, including a sustained market deterioration, unanticipated regulatory developments, significant acquisitions, competitive pressures, or to the extent our liquidity needs prove to be greater than expected or cash generated from operations is less than anticipated, we may need additional liquidity. To the extent we elect to finance our long-term liquidity needs, we believe that the potential financing capital available to us in the future is sufficient to fund such long-term liquidity needs.
As of November 30,February 28, 2022 and August 31, 2021, and 2020, we had 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.
Cash Flows
Operating Activities
Net cash flows from operating activities were $25.8$54.4 million for the threesix months ended November 30, 2021,February 28, 2022, compared to net cash flows used byfrom operating activities of $12.1$1.2 million for the threesix months ended November 30, 2020.February 28, 2021. Net earnings increased by $168.8$485.8 million year-over-year, including an increase in net gain on disposals of assets and other of $268.6 million, offset by a $111.5$210.5 million year-over-year net increase in cash used by operating assets and liabilities ("working capital"). The increase in cash used by working capital was primarily due in part to rising scrap prices and greater inventory levels, in the three months ended November 30, 2021, compared to the corresponding period. Thiswhich corresponded with an increase was partially offset by a decrease in accounts payable, accrued expenses and other payables in the threesix months ended November 30, 2021,February 28, 2022, compared to the corresponding period, dueperiod. Additionally, the growth in sales period-over-period led to a rise in accounts receivable during the six months ended February 28, 2022, compared to the payment of a $32.1 million working capital adjustment related to the fiscal 2019 acquisition from Gerdau S.A. made in the three months ended November 30, 2020, with no such payment in the three months ended November 30, 2021.corresponding period. Operating working capital days, decreased fourwhich represents the number of days to convert accounts receivable and inventory, less accounts payable, into net sales, were consistent year-over-year.
Investing Activities
Net cash flows used byfrom investing activities were $68.7 million and $36.5$121.1 million for the threesix months ended November 30, 2021 and 2020, respectively. The $32.3 million increase inFebruary 28, 2022, compared to net cash flows used by investing activities of $67.4 million for the six months ended February 28, 2021. The $188.4 million increase in net cash flows from investing activities was primarily caused by the proceeds from the sale of the Rancho Cucamonga facilities, offset by an increase in capital expenditures as a result of the construction of our third micro mill located in Mesa, Arizona. See Note 2, Changes in Business, for more information on the sale of the Rancho Cucamonga facilities.
We estimate that our 2022 capital spending will range from $475 million to $525 million. We regularly assess our capital spending based on current and expected results and the amount is subject to change.
In December 2021, we announced the signing of a definitive agreement to acquire TAC Acquisition Corp. (“Tensar”), a portfolio company of Castle Harlan Inc.’s fund, Castle Harlan Partners V, L.P., for a cash purchase price of approximately $550.0 million, subject to customary purchase price adjustments. We anticipate that the transaction will close during the first halfthird quarter of calendar year 2022. See Note 15, Subsequent Event,2, Changes in Business, for more information about the pending acquisition.
In addition, in January 2022, we announced the plan to construct a fourth micro mill geographically situated primarily to primarily serve the Northeast, Mid-Atlantic, and Mid-Western United States markets. Following the site selection and receipt of state and local incentives, permitting, and other necessary approvals, the construction of the planned mill is expected to take roughly two years.
Financing Activities
Net cash flows used byfrom financing activities were $39.3 million and $28.6$324.4 million for the threesix months ended November 30, 2021 and 2020, respectively. NetFebruary 28, 2022, compared to net cash flows used by financing activities increased duringof $109.1 million for the first quarter of 2022 assix months ended February 28, 2021. The $433.5 million increase in net cash flows from financing activities was a result of multiplemany actions, including an increasenet proceeds from long-term debt of $2.6$427.2 million in dividends paidduring the six months ended February 28, 2022, compared to net long-term debt repayments of $61.5 million during the six months ended February 28, 2021. Offsetting the cash flows from long-term debt, net repayments under our accounts receivable facilities increased $24.5 million during the six months ended February 28, 2022, compared to the corresponding period. See Note 8, Credit Arrangements, for more information regarding our credit arrangements. Additionally, compared to the corresponding period, an increase of $6.0we increased dividend payments by $5.2 million, inincreased stock issued under incentive and purchase plans, net of forfeitures, by $6.2 million and $5.3acquired $17.0 million of treasury stock acquired under the new share repurchase program which was authorized in October 2021. See Note 12, Stockholders' Equity and Earnings per Share, for more information on the share repurchase program. Partially offsetting the increase in net cash flows used by financing activities were net proceeds from accounts receivable facilities of $6.0 million in the three months ended November 30, 2021, compared to no such net proceeds in the corresponding period.
CONTRACTUAL OBLIGATIONS
Our material cash commitments from known contractual and other obligations primarily consist of obligations for long-term debt and related interest, leases for properties and equipment and purchase obligations as part of normal operations. See Note 8, Credit Arrangements, for more information regarding scheduled maturities of our long-term debt. See Note 7, Leases, for additional information on leases.
Our undiscounted purchase obligations due in the twelve months following November 30, 2021February 28, 2022 and August 31, 2021 were $736.3$854.8 million and $638.5 million, respectively, with $189.7196.4 million and $228.0 million due thereafter, respectively. The increase in short-term purchase obligations was primarily due to construction of our third micro mill in Mesa, Arizona, purchases of inventory and other planned maintenance and capital expenditures in connection with normal business operations. The decrease in long-term purchase obligations is a result of a decrease in commitments for commodities used in operations, such as electrodes and natural gas, and certain capital expenditure obligations for the construction of our third micro mill which were fulfilled during the first quarter ofsix months ended February 28, 2022.
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 November 30, 2021,February 28, 2022, we had committed $22.8$24.4 million under these arrangements, of which $3.0$1.4 million reduced availability under the Revolver.
CONTINGENCIES
We may incur settlements, fines, penalties or judgments due to our involvement in litigation, administrative proceedings and governmental investigations, including environmental 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 we believe a material 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 materially affect, individually or in the aggregate, 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 impact of the Russian invasion of Ukraine, the effects of ongoing trade actions, the effects of continued pressure on the liquidity of our customers, potential synergies and organic growth provided by acquisitions and strategic investments, demand for our products, metal margins, the effect of COVID-19 and related governmental and economic responses thereto, the ability to operate our steel mills at full capacity, future availability and cost of 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, the proposed Tensar acquisition and the timing thereof, estimated contractual obligations, the expected capabilities and benefits of new facilities, the timeline for execution of our growth plan, and our expectations or beliefs concerning future events. The statements in this report that are not historical statements, are forward-looking statements. These forward-looking statements can generally be identified by phrases such as we or our management "expects," "anticipates," "believes," "estimates," "future," "intends," "may," "plans to," "ought," "could," "will," "should," "likely," "appears," "projects," "forecasts," "outlook" or other similar words or phrases, as well as by discussions of strategy, plans, or intentions.
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 our 2021 Form 10-K and Part II, Item 1A, Risk Factors of this Form 10-Q, 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;
•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 downstream contracts due to rising commodity pricing;
•impacts from COVID-19 on the economy, demand for our products, global supply chain and on our operations, including the responses of governmental authorities to contain COVID-19 and the impact of various COVID-19 vaccines;
•excess capacity in our industry, particularly in China, and product availability from competing steel mills and other steel suppliers including import quantities and pricing;
•the impact of the Russian invasion of Ukraine on the global economy, energy supplies and raw materials, which is uncertain, but may prove to negatively impact our business and operations;
•compliance with and changes in existing and future laws, regulations and other legal requirements and judicial decisions that govern our business, including increased environmental regulations associated with climate change and greenhouse gas emissions;
•involvement in various environmental matters that may result in fines, penalties or judgments;
•evolving remediation technology, changing regulations, possible third-party contributions, the inherent uncertainties of the estimation process and other factors that may impact amounts accrued for environmental liabilities;
•potential limitations in our or our customers' abilities to access credit and non-compliance of their contractual obligations, including payment obligations;
•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;
•operating and startup risks, as well as market risks associated with the commissioning of new projects could prevent us from realizing anticipated benefits and could result in a loss of all or a substantial part of our investments;
•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, such as trade measures, military conflicts and political uncertainties, including changes to current trade regulations, such as Section 232 trade tariffs and quotas, tax legislation and other regulations which might adversely impact our business;
•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; and
•civil unrest, protests and riots.
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. Forward-looking statements involve known and unknown risks, uncertainties, assumptions and other important factors that could cause actual results, performance or our achievements, or industry results, to differ materially from historical results, any future results, or performance or achievements expressed or implied by such forward-looking statements. Accordingly, readers of this Form 10-Q are cautioned not to place undue reliance on any forward-looking statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
During the threesix months ended November 30, 2021,February 28, 2022, the U.S. dollar equivalent of the Company's total gross foreign currency exchange contract commitments decreased $69.2$65.0 million, or 18%17%, compared to August 31, 2021. This decrease was primarily due to forward contracts denominated in Polish zloty with a U.S. dollar functional currency, which decreased $101.3$95.0 million, partially offset by forward contracts denominated in euros with a Polish zloty functional currency, which increased $30.5$28.5 million compared to August 31, 2021.
There were no other material changes to the information set forth in Item 7A, Quantitative and Qualitative Disclosures about Market Risk, included in our 2021 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 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 November 30, 2021February 28, 2022 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
For information regarding our legal proceedings, refer to Note 13, Commitments and Contingencies, to our condensed consolidated financial statements included in Part I, Item 1, Financial Statements, of this Form 10-Q.
With respect to administrative or judicial proceedings arising under any federal, state or local provisions that have been enacted or adopted regulating the discharge of materials into the environment or primarily for the purpose of protecting the environment, we have determined that we will disclose any such proceeding to which a governmental authority is a party if we reasonably believe such proceeding could result in monetary sanctions, exclusive of interest and costs, of at least $1.0 million. We believe that this threshold is reasonably designed to result in disclosure of environmental proceedings that are material to our business or financial condition. Applying this threshold, there were no environmental matters to disclose for this period.
ITEM 1A. RISK FACTORS
ThereExcept as set forth below, there were no material changes to the risk factors previously disclosed in Part I, Item 1A, Risk Factors, of our 2021 Form 10-K.10-K:
The impact of the Russian invasion of Ukraine on the global economy, energy supplies and raw materials is uncertain, but may prove to negatively impact our business and operations.
The short and long-term implications of Russia’s invasion of Ukraine are difficult to predict at this time. We continue to monitor any adverse impact that the outbreak of war in Ukraine and the subsequent institution of sanctions against Russia by the United States and several European and Asian countries may have on the global economy in general, on our business and operations and on the businesses and operations of our suppliers and customers. For example, a prolonged conflict may result in increased inflation, escalating energy prices and constrained availability, and thus increasing costs, of raw materials. Further, if the conflict intensifies or expands beyond Ukraine, it could have an adverse impact on our operations in Poland. We will continue to monitor this fluid situation and develop contingency plans as necessary to address any disruptions to our business operations as they develop. To the extent the war in Ukraine may adversely affect our business as discussed above, it may also have the effect of heightening many of the other risks described in Part I, Item 1A of our 2021 Form 10-K, such as those relating to data security, supply chain, volatility in prices of scrap and other inputs, and market conditions, any of which could negatively affect our business and financial condition.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
The following table provides information about purchases of equity securities registered by the Company pursuant to Section 12 of the Exchange Act, as amended, made by the Company or any affiliated purchasers during the quarter ended November 30, 2021.February 28, 2022.
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Issuer Purchases of Equity Securities(1) |
| Period | | Total Number of Shares Purchased | | Average Price Paid Per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs As of the End of Period |
| September 1, 2021 - September 30, 2021 | | — | | | $ | — | | | — | | | $ | 27,598,706 | |
| October 1, 2021 - October 12, 2021 | | — | | | — | | | — | | | 27,598,706 | |
| October 13, 2021 - October 31, 2021 | | 44,000 | | | 31.99 | | | 44,000 | | | 348,592,440 | |
| November 1, 2021 - November 30, 2021 | | 115,500 | | | 33.77 | | | 115,500 | | | 344,692,005 | |
| | 159,500 | | | | | 159,500 | | | |
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Issuer Purchases of Equity Securities(1) |
| Period | | Total Number of Shares Purchased | | Average Price Paid Per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs As of the End of Period |
| December 1, 2021 - December 31, 2021 | | 121,000 | | | $ | 33.34 | | | 121,000 | | | $ | 340,658,218 | |
| January 1, 2022 - January 31, 2022 | | 110,000 | | | 36.05 | | | 110,000 | | | 336,692,716 | |
| February 1, 2022 - February 28, 2022 | | 104,500 | | | 35.35 | | | 104,500 | | | 332,998,974 | |
| | 335,500 | | | | | 335,500 | | | |
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(1) On October 13, 2021, the Company announced that the Board of Directors authorized a new share repurchase program under which the Company may repurchase up to $350.0 million of the Company's outstanding common stock. This new program replaces the previously existing $100.0 million program announced on October 27, 2014, which was terminated by the Board of Directors in connection with the approval of the new program. The share repurchase program does not require the Company to purchase any dollar amount or number of shares of CMC common stock and may be modified, suspended, extended or terminated by the Company at any time without prior notice. See Note
12, Stockholders' Equity and Earnings per Share, to our condensed consolidated financial statements included in Part I, Item 1, Financial Statements, of this Form 10-Q for more information on the share repurchase program.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS
Pursuant to Item 601(b)(4)(iii) of Regulation S-K, certain long-term debt instruments are omitted because the total amount of securities authorized thereunder does not exceed 10% of the total assets of Commercial Metals Company and its subsidiaries on a consolidated basis. Commercial Metals Company agrees to furnish copies of such instruments to the SEC upon its request.
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| 2.1† | | | | | | |
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| 3.1(a) | | | | | | |
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| 3.1(b) | | | | | | |
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| 3.1(c) | | | | | | |
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| 3.1(d) | | | | | | |
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| 3.1(e) | | | | | | |
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| 3.1(f) | | | | | | |
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| 3.2 | | | | | | |
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10.14.1 | Purchase and Sale Agreement and Joint Escrow Instructions,Fifth Supplemental Indenture, dated September 29, 2021,January 28, 2022, by and among TAMCO, CMC Steel Fabricators, Inc.,between Commercial Metals Company and U.S. Bank National Association, as sellers, and BTC III Acquisitions LLC, as buyertrustee (filed as exhibit 10.1Exhibit 4.1 to Commercial Metals Company'sCompany’s Current Report on Form 8-K filed September 30, 2021dated January 28, 2022 and incorporated herein by reference). | | | | | |
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10.24.2 | | | | | | |
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10.34.3 | | | | | | |
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10.44.4 | | | | | | |
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| 10.1 | | | | | | |
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| 31.1 | | | | | | |
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| 31.2 | | | | | | |
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| 32.1 | | | | | | |
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| 32.2 | | | | | | |
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| 101.INS | Inline XBRL Instance Document (filed herewith). | | | | | |
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| 101.SCH | Inline XBRL Taxonomy Extension Schema Document (filed herewith). | | | | | |
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| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document (filed herewith). | | | | | |
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| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document (filed herewith). | | | | | |
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| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document (filed herewith). | | | | | |
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| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document (filed herewith). | | | | | |
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| 104 | Cover Page Interactive Data File (formatted as Inline XBRL document and included in Exhibit 101). | | | | | |
† Certain of the exhibits and schedules to this Exhibit have been omitted in accordance with Regulation S-K Item 601(a)(5), and Commercial Metals Company agrees to furnish a copy of all omitted exhibits and schedules to the SEC upon its request.
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.
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| COMMERCIAL METALS COMPANY |
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January 10,March 23, 2022 | /s/ Paul J. Lawrence |
| Paul J. Lawrence |
| Senior Vice President and Chief Financial Officer |
| (Duly authorized officer and principal financial officer of the registrant) |