| | |
* | | We have not discounted the cash obligations in this table. |
|
(1) | | Total amounts are included in the August 31, 20102013 consolidated balance sheet. See Note 6,11, Credit Arrangements, to the consolidated financial statements.statements included in this report for more information regarding scheduled maturities of our long-term debt. |
| |
(2) | | Interest payments related to our short-term debt are not included in the table as they do not represent a significant obligation as of August 31, 2010.2013. |
| |
(3) | | Includes minimum lease payment obligations for non-cancelablenoncancelable equipment and real-estatereal estate leases in effect as of August 31, 2010.2013. See Note 12,18, Commitments and Contingencies, to the consolidated financial statements.statements included in this report for more information regarding minimum lease commitments payable for noncancelable operating leases. |
| |
(4) | | Approximately 80%74% of these purchase obligations are for inventory items to be sold in the ordinary course of business. Purchase obligations include all enforceable, legally binding agreements to purchase goods or services that specify all significant terms, regardless of the duration of the agreement. Agreements with variable terms are excluded because we are unable to estimate the minimum amounts. Another significant obligation relates to capital expenditures. |
The Company provides certain eligible executives' benefits pursuant to a nonqualified benefit restoration plan ("BRP Plan") equal to amounts that would have been available under the tax qualified plans under the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), but for limitations of ERISA, tax laws and regulations. The deferred compensation liability under the BRP Plan was $78.8 million at August 31, 2013 and is included in other long-term liabilities on the consolidated balance sheets. We generally expect to fund future contributions with cash flows from operating activities. We did not include estimated payments related to BRP in the above contractual obligation table. Refer to Note 17, Employees' Retirement Plans to the consolidated financial Statements included in this report.
A certain number of employees, primarily outside of the U.S., participate in defined benefit plans maintained in accordance with local regulations. At August 31, 2013, the Company's liability related to the unfunded status of the defined benefit plans was $3.5 million. We generally expect to fund future contributions with cash flows from operating activities. We did not include estimated payments related to defined benefit plans in the table above. Refer to Note 17, Employees' Retirement Plans to the consolidated financial statements included in this report.
The Company's other noncurrent liabilities on the consolidated balance sheets include deferred tax liabilities, gross unrecognized tax benefits, and the related gross interest and penalties. As of August 31, 2013, the Company had noncurrent deferred tax liabilities of $46.6 million. In addition, as of August 31, 2013, the Company had gross unrecognized tax benefits of $9.4 million and an additional $2.8 million for gross interest and penalties classified as noncurrent liabilities. At this time, the Company is unable to make a reasonably reliable estimate of the timing of payments in individual years in connection with these tax liabilities; therefore, such amounts are not included in the above contractual obligations table.
Other Commercial Commitments
We maintain stand-by letters of credit to provide support for certain transactions that our insurance providers and suppliers request. At August 31, 2010,2013, we had committed $39.4$28.9 million under these arrangements.
Off-Balance Sheet Arrangements
We provide guarantees and issue standby letters of credit to our vendors, customers, insurance providers and governmental agencies in the normal course of business. These arrangements of which $26.9 million is cash collateralized. All ofdo not have, and we do not expect them to have, a material effect on our liquidity. See Note 18, Commitments and Contingencies, to the commitments expire within one year.consolidated financial statements included in this report.
Contingencies
See Note 18, Commitments and Contingencies, to the consolidated financial statements included in this report.
In the ordinary course of conducting our business, we become involved in litigation, administrative proceedings and governmentgovernmental investigations, including environmental matters. We may incur settlements, fines, penalties or judgments because of some of these matters. While we are unable to estimate precisely the ultimate dollar amount of exposure or loss in connection with these matters, we make accruals as warranted. The amounts we accrue could vary substantially from amounts we payInherent uncertainties exist in these estimates primarily due to several factors including the following: evolving remediation technology, changing regulations, possible third-party contributions the inherent shortcomings of the estimation process, and the uncertainties involved in litigation. Accordingly, we cannot always estimate a meaningful range of possible exposure. We believe that we have adequately provided in our consolidated financial statements for the potential impact of these contingencies. We alsodo not believe that any currently pending legal proceedings to which we are a party will have a material adverse effect, individually or in the outcomes will not significantly affect the long-termaggregate, on our results of operations, ourcash flows or financial position or our liquidity. However, they may have a material impact on operations for a particular quarter.condition.
Environmental and Other Matters
See
The information set forth in Note 12,18, Commitments and Contingencies, to the consolidated financial statements.statements included in this report is hereby incorporated by reference.
39
GeneralWe are subject to Federal, state and local pollution control laws and regulations in all locations where we have operating facilities. We anticipate that compliance with these laws and regulations will involve continuing capital expenditures and operating costs.
Our original business and one of our core businesses for over nine decades is metals recycling. In the present era of conservation of natural resources and ecological concerns, we are committed to sound ecological and business conduct. Certain governmental regulations regarding environmental concerns, however well intentioned, may expose us and theour industry to potentially significant risks. We believe that recycled materials are commodities that are diverted by recyclers, such as us, from the solid waste streams because of their inherent value. Commodities are materials that are purchased and sold in public and private markets and commodities exchanges every day around the world. They are identified, purchased, sorted, processed and sold in accordance with carefully established industry specifications.
Solid and Hazardous WasteWe currently own or lease, and in the past owned or leased, properties that have been used in our operations. Although we used operating and disposal practices that were standard in the industry at the time, wastes may have been disposed of or released on or under the properties or on or under locations where such wastes have been taken for disposal. We are currently involved in the investigation and remediation of several such properties. State and Federal laws applicable to wastes and contaminated properties have gradually become stricter over time. Under new laws, we could be required to remediate properties impacted by previously disposed wastes. We have been named as a potentially responsible party (“PRP”("PRP") at a number of contaminated sites.
We generate wastes, including hazardous wastes, that are subject to the Federal Resource Conservation and Recovery Act (“RCRA”) and comparable state and/orand local statutes where we operate. These statutes, regulations and laws may have limited disposal options for certain wastes.
SuperfundThe U.S. Environmental Protection Agency (“EPA”("EPA"), or an equivalent state agency, has notified us that we are considered a PRP at ten sites, none of which are owned by us. We may be obligated under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (“CERCLA”("CERCLA"), or a similar state statute, to conduct remedial investigation, feasibility studies, remediation and/or removal of alleged releases of hazardous substances or to reimburse the EPA for such activities. We are involved in litigation or administrative proceedings with regard to several of these sites in which we are contesting, or at the appropriate time we may contest, our liability at the sites.liability. In addition, we have received information requests with regard to other sites which may be under consideration by the EPA as potential CERCLA sites. Because of various factors, including the ambiguity of the regulations, the difficulty of identifying the responsible parties for any particular site, the complexity of determining the relative liability among them, the uncertainty as to the most desirable remediation techniques and the amount of damages and cleanup costs and the extended time periods over which such costs may be incurred, we cannot reasonably estimate our ultimate costs of compliance with CERCLA. At August 31, 2010, basedBased on currently available information, which is in many cases preliminary and incomplete, we had $1.1$0.9 million and $1.0 million accrued for cleanupas of August 31, 2013 and remediation costs2012, respectively, in connection with eight of the ten CERCLA sites. We have accrued for these liabilities based upon our best estimates. We are not able to reasonably estimate an amount for the two other CERCLA sites. The amounts paid and the expenses incurred on these sites for the years ended August 31, 2010, 20092013, 2012 and 20082011 were not material. Historically, the amounts that we have ultimately paid for such remediation activities have not been material.
Clean Water ActThe Clean Water Act (“CWA”("CWA") imposes restrictions and strict controls regarding the discharge of wastes into waters of the United States, a term broadly defined, or into publicly owned treatment works. These controls have become more stringent over time and it is probable that additional restrictions will be imposed in the future. Permits must generally be obtained to discharge pollutants into Federal waters or into publicly owned treatment works; comparable permits may be required at the state level. The CWA and many state agencies provide for civil, criminal and administrative penalties for unauthorized discharges of pollutants. In addition, the EPA’sEPA's regulations and comparable state regulations may require us to obtain permits to discharge storm water runoff. In the event of an unauthorized discharge or non-compliance with permit requirements, we may be liable for penalties and costs.
Clean Air ActOur operations are subject to regulations at the Federal, state and local level for the control of emissions from sources of air pollution. New and modified sources of air pollutants are often required to obtain permits prior to commencing construction, modification and/or operations. Major sources of air pollutants are subject to more stringent requirements, including the potential need for additional permits and to increasedincrease scrutiny
40
in the context of enforcement. The EPA has been implementing its stationary emission control program through expanded enforcement of the New Source Review Program. Under this program, new or modified sources may be required to construct emission sources using what is referred to as the Best Available Control Technology, or in any areas that are not meeting national ambient air quality standards, using methods that satisfy requirements for Lowest Achievable Emission Rate. Additionally, the EPA is implementing new, more stringent standards for ozone and fine particulate matter. The EPA recently has promulgated new national emission standards for hazardous air pollutants for steel mills which will require specific sources in this category to meet the standards by reflecting application of maximum achievable control technology. Compliance with the new standards could require additional expenditures.
In 2010, we
We incurred environmental expenses of $22.7 million.$30.1 million, $26.8 million and $32.2 million for 2013, 2012 and 2011, respectively. The expenses included the cost of environmental personnel at various divisions, permit and license fees, accruals and payments
for studies, tests, assessments, remediation, consultant fees, baghouse dust removal and various other expenses. During 2010, $14.1In addition, we spent $10.5 million of our in capital expenditures related to costs directly associated with environmental compliance. At August 31, 2010, $9.8 million wasWe accrued for environmental liabilities of $9.0 million at August 31, 2013 and 2012, respectively, of which $5.9$5.0 million was and $4.9 million were classified as other long-term liabilities.liabilities at August 31, 2013 and 2012, respectively.
Dividends
We have paid quarterly cash dividends in each of the past 184196 consecutive quarters. We paid dividends in 20102013 at the rate of $0.12 per share for each quarter.
Critical Accounting Policies and Estimates
The following discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of the consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses and related disclosure of contingent liabilities. We evaluate the appropriateness of these estimations and assumptions, including those related to the valuation allowances for receivables, the carrying value of non-current assets, reserves for environmental obligations and income taxes, on an ongoing basis. Estimates and assumptions are based on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Accordingly, actual results in future periods could differ materially from these estimates. Significant judgments and estimates used in the preparation of the consolidated financial statements apply to the following critical accounting policies:
Revenue Recognition and Allowance for Doubtful Accounts We recognize sales when title passes to the customer either when goods are shipped or when they are delivered based on the terms of the sale, there is persuasive evidence of an agreement, the price is fixed or determinable and collectability is reasonably assured. When we estimate that a contract with one of our customers will result in a loss, we accrue the calculated loss as soon as it is probable and estimable. We account for fabrication projects based on the percentage of completion accounting method, based primarily on contract cost incurred to date compared to total estimated contract cost. Changes to total estimated contract cost, or loss, if any, are recognized in the period in which they are determined. We maintain an allowance for doubtful accounts to reflect our estimate of the uncollectability of accounts receivable. These reserves are based on historical trends, current market conditions and customers' financial condition.
Income Taxes We periodically assess the likelihood of realizing our deferred tax assets based on the amount of deferred tax assets that we believe is more likely than not to be realized. We base our judgment of the recoverability of our deferred tax asset primarily on historical earnings, our estimate of current and expected future earnings, prudent and feasible tax planning strategies, and current and future ownership changes.
Our effective income tax rate may fluctuate on a quarterly basis due to various factors, including, but not limited to, total earnings and the mix of earnings by jurisdiction, the timing of changes in tax laws, and the amount of tax provided for uncertain tax positions. We establish income tax liabilities to reduce some or all quarters.of the income tax benefit of any of our income tax positions at the time we determine that the positions become uncertain based upon one of the following: (1) the tax position is not "more likely than not" to be sustained, (2) the tax position is "more likely than not" to be sustained, but for a lesser amount, or (3) the tax position is "more likely than not" to be sustained, but not in the financial period in which the tax position was originally taken. Our evaluation of whether or not a tax position is uncertain is based on the following: (1) we presume the tax position will be examined by the relevant taxing authority that has full knowledge of all relevant information, (2) the technical merits of a tax position are derived from authorities such as legislation and statutes, legislative intent, regulations, rulings and case law and their applicability to the facts and circumstances of the tax position, and (3) each tax position is evaluated without considerations of the possibility of offset or aggregation with other tax positions taken. We adjust these income tax liabilities when our judgment changes as a result of new information. Any change will impact income tax expense in the period in which such determination is made.
Inventory Cost We determine inventory cost for most domestic inventories by the last-in, first-out method, or LIFO. We calculate our LIFO reserve by using quantities and costs at period end and recording the resulting LIFO income or expense in its entirety. Inventory cost for international and remaining inventories is determined by the first-in, first-out method, or FIFO. We record all inventories at the lower of their cost or market value.
Elements of cost in finished goods inventory in addition to the cost of material include depreciation, amortization, utilities, consumable production supplies, maintenance, production, wages and transportation costs. Additionally, the costs of departments that support production, including materials management and quality control, are allocated to inventory.
Goodwill We perform our goodwill impairment test in the fourth quarter of each fiscal year or when changes in circumstances indicate an impairment event may have occurred by estimating the fair value of each reporting unit compared to its carrying value. Our reporting units represent an operating segment or a reporting level below an operating segment.
Additionally, the reporting units are aggregated based on similar economic characteristics, nature of products and services, nature of production processes, type of customers and distribution methods. We use a discounted cash flow model and a market approach to calculate the fair value of our reporting units. The model includes a number of significant assumptions and estimates regarding future cash flows including discount rates, volumes, prices, capital expenditures and the impact of current market conditions. These estimates could be materially impacted by adverse changes in market conditions.
As a result of the goodwill impairment tests in 2013, we recorded goodwill impairment charges of $6.4 million, including foreign currency translation gains of $0.6 million, related to our Australian subsidiaries. The annual goodwill impairment analysis did not result in any impairment charges at any of our other reporting units. The fair value of each of our reporting units exceeded carrying value by at least 38%. As of August 31, 2013 and 2012, one of our reporting units within the Americas Fabrication reporting segment comprised $51.3 million of our total goodwill. Goodwill at other reporting units is not material. See Note 7, Goodwill and Other Intangible Assets, to the consolidated financial statements included in this report for additional information.
Long-Lived Assets We evaluate the carrying value of property, plant and equipment and finite-lived intangible assets whenever a change in circumstances indicates that the carrying value may not be recoverable from the undiscounted future cash flows from operations. If an impairment exists, the net book values are reduced to fair values as warranted. Our domestic and international minimills, fabrication and recycling businesses are capital intensive. Some of the estimated values for assets that we currently use in our operations are based upon judgments and assumptions of future undiscounted cash flows that the assets will produce. If these assets were for sale, our estimates of their values could be significantly different because of market conditions, specific transaction terms and a buyer's different viewpoint of future cash flows. Also, we depreciate property, plant and equipment on a straight-line basis over the estimated useful lives of the assets. Depreciable lives are based on our estimate of the assets' economical useful lives. To the extent that an asset's actual life differs from our estimate, there could be an impact on depreciation expense or a gain/loss on the disposal of the asset in a later period. We expense major maintenance costs as incurred.
Contingencies In the ordinary course of conducting our business, we become involved in litigation, administrative proceedings and governmental investigations, including environmental matters. We may incur settlements, fines, penalties or judgments in connection with some of these matters. While we are unable to estimate the ultimate dollar amount of exposure or loss in connection with these matters, we make accruals as warranted. The amounts we accrue could vary substantially from amounts we pay due to several factors including the following: evolving remediation technology, changing regulations, possible third-party contributions, the inherent shortcomings of the estimation process, and the uncertainties involved in litigation. We believe that we have adequately provided in our consolidated financial statements for the impact of these contingencies. We also believe that the outcomes will not materially affect our results of operations, our financial position or our cash flows.
Other Accounting Policies and New Accounting Pronouncements See Note 2, Summary of Significant Accounting Policies, to our consolidated financial statements included in this report.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market Risk
Approach to MinimizingMitigating Market RiskSee Note 7, Financial Instruments, Market12, Derivatives and Credit Risk Management, to the consolidated financial statements included in this report for disclosure regarding our approach to minimizingmitigating market risk.risk and for summarized market risk information for the preceding fiscal year. Also, see Note 1,2, Summary of Significant Accounting Policies, to the consolidated financial statements.statements included in this report. The following types of derivative instruments were outstanding at August 31, 2010,or utilized during 2013, in accordance with our risk management program. All of the instruments are highly liquid, and not entered into for trading purposes.
Currency Exchange ForwardsWe enter into currency exchange forward contracts as economic hedges of international trade commitments denominated in currencies other than the functional currency of the CompanyCMC or its subsidiaries. No single foreign currency poses a primary risk to us. Fluctuations that cause temporary disruptions in one market segment tend to open opportunities in other segments.
Commodity PricesWe base pricing in some of our sales and purchase contracts on metal commodity futures exchange quotes, which we determine at the beginning of the contract. Due to the volatility of the metal commodity indexes, we enter into metal commodity futures contracts for copper, aluminum, nickel and zinc. These futures mitigate the risk of unanticipated declines in gross margin due to the volatility of the commodity prices on these contractual commitments. Physical transaction quantities will not match exactly with standard commodity lot sizes, leading to minimal gains and losses from ineffectiveness.
Natural GasWe enter into natural gas forward contracts as economic hedges of the Company’sCompany's Americas Mills operations based on anticipated consumption of natural gas in order to mitigate the risk of unanticipated increase toincreases in operating cost due to the volatility of natural gas prices. As of August 31, 2013, the Company had no open natural gas forward contract commitments.
FreightWe occasionally enter into freight forward contracts when sales commitments to customers include a fixed price freight component in order to minimizemitigate the effect of the volatility of ocean freight rates. As of August 31, 2013, the Company had no open freight forward contract commitments.
Interest RatesWe enter into interest rate swap contracts to maintain a portion of our debt obligations at variable interest rates. These interest rate swap contracts, under which we have agreed to pay variable rates of interest and receive fixed rates of interest, are designated as fair value hedges of fixed rate debt. OurDuring the third quarter of 2012, the Company terminated its existing interest rate swap contract commitments were $500 million as of August 31, 2010. If interest rates increased or decreased by one percentage point, the impact on interest expense related to our variable-rate debt would be approximately $6 million and the impact on fairtransactions with a notional value of our long-term debt would be$800 million and received cash proceeds of approximately $60$53 million as, net of August 31, 2010.customary finance charges.
The following tables provide certain information regarding the foreign exchange and commodity financial instruments discussed above.
41
Gross foreign currency exchange contract commitments as of August 31, 2010:2013:
| | | | | | | | | | | | | | | | |
Functional Currency | | Foreign Currency | | | | U.S. |
| | Amount | | | | Amount | | Range of | | Equivalent |
Type | | (in thousands) | | Type | | (in thousands) | | Hedge Rates* | | (in thousands) |
|
AUD | | | 917 | | | EUR | | | 642 | | | 0.67 - 0.70 | | $ | 817 | |
AUD | | | 182 | | | GBP | | | 104 | | | 0.57 | | | 161 | |
AUD | | | 134 | | | NZD** | | | 167 | | | 1.24 - 1.27 | | | 120 | |
AUD | | | 103,758 | | | USD | | | 89,967 | | | 0.80 - 0.92 | | | 89,967 | |
EUR | | | 2,669 | | | HRK | | | 19,369 | | | 7.21 - 7.31 | | | 3,425 | |
EUR | | | 3,103 | | | USD | | | 3,992 | | | 1.28 - 1.29 | | | 3,992 | |
GBP | | | 3,864 | | | EUR | | | 4,707 | | | 0.81 - 0.83 | | | 5,998 | |
GBP | | | 4,096 | | | USD | | | 6,342 | | | 1.52 - 1.56 | | | 6,342 | |
PLN | | | 238,150 | | | EUR | | | 58,942 | | | 3.90 - 4.19 | | | 75,748 | |
PLN | | | 5,559 | | | GBP | | | 1,107 | | | 5.02 | | | 1,601 | |
PLN | | | 113,272 | | | USD | | | 35,139 | | | 2.98 - 3.32 | | | 35,139 | |
PLN | | | 1,102 | | | SEK*** | | | 2,642 | | | 0.42 | | | 359 | |
SGD | | | 5,091 | | | USD | | | 3,750 | | | 1.36 | | | 3,750 | |
USD | | | 51,979 | | | EUR | | | 40,963 | | | 1.18 - 1.32 | | | 51,979 | |
USD | | | 27,916 | | | GBP | | | 18,100 | | | 1.54 | | | 27,916 | |
USD | | | 1,887 | | | JPY | | | 159,412 | | | 84.5 | | | 1,887 | |
|
| | | | | | | | | | | | | | $ | 309,201 | |
| | |
* | | Substantially all foreign currency exchange contracts mature within one year. The range of hedge rates represents functional to foreign currency conversion rates. |
|
** | | New Zealand dollar |
|
*** | | Swedish krona |
|
| | | | | | | | | | | | | | |
Functional Currency | | Foreign Currency | | | | |
Type | | Amount (in thousands) | | Type | | Amount (in thousands) | | Range of Hedge Rates (1) | | U.S. Equivalent (in thousands) |
AUD | | 94 |
| | EUR | | 67 |
| | 0.67 — 0.76 | | $ | 89 |
|
AUD | | 1,240 |
| | NZD (2) | | 1,438 |
| | 1.13 — 1.20 | | 1,124 |
|
AUD | | 76,296 |
| | USD | | 69,121 |
| | 0.88 — 1.01 | | 69,121 |
|
AUD | | 240 |
| | CNY (3) | | 1,313 |
| | 5.46 | | 214 |
|
GBP | | 1,437 |
| | EUR | | 1,669 |
| | 0.85 — 0.87 | | 2,213 |
|
GBP | | 18,844 |
| | USD | | 29,039 |
| | 1.51 — 1.57 | | 29,039 |
|
PLN | | 284,936 |
| | EUR | | 66,873 |
| | 4.16 — 4.41 | | 88,954 |
|
PLN | | 1,447 |
| | USD | | 442 |
| | 3.26 — 3.32 | | 442 |
|
SGD | | 7,206 |
| | USD | | 5,654 |
| | 1.27 — 1.28 | | 5,654 |
|
USD | | 38,700 |
| | EUR | | 29,173 |
| | 1.27 — 1.34 | | 38,700 |
|
USD | | 46,879 |
| | GBP | | 30,286 |
| | 1.55 | | 46,879 |
|
USD | | 1,375 |
| | JPY | | 137,974 |
| | 100.33 | | 1,375 |
|
USD | | 10,556 |
| | PLN | | 33,594 |
| | 3.18 — 3.23 | | 10,556 |
|
USD | | 14,610 |
| | SGD | | 18,279 |
| | 1.23 — 1.26 | | 14,610 |
|
USD | | 2,186 |
| | CHF | | 2,055 |
| | 0.92 — 0.96 | | 2,186 |
|
USD | | 19,196 |
| | AUD | | 21,500 |
| | 0.89 — 0.90 | | 19,196 |
|
USD | | 648 |
| | THB | | 20,000 |
| | 30.88 | | 648 |
|
| | | | | | | | | | $ | 331,000 |
|
Gross metal commodity _________________
(1) Substantially all foreign currency exchange contracts mature within one year. The range of hedge rates represents functional to foreign currency conversion rates.
(2) New Zealand dollar
(3) Chinese yuan
Commodity contract commitments as of August 31, 2010:2013:
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | Range or | | Total Contract |
| | | | Long/ | | # of | | Standard | | Total | | Amount of Hedge | | Value at Inception |
Terminal Exchange | | Metal | | Short | | Lots | | Lot Size | | Weight | | Rates Per MT/lb. | | (in thousands) |
|
London Metal Exchange | | Aluminum | | Long | | | 121 | | | 25 MT | | 3,025 MT | | $1,991.50 - 2,087.00 | | $ | 6,131 | |
| | Aluminum | | Short | | | 3 | | | 25 MT | | 75 MT | | 2,045.00 - 2,046.00 | | | 153 | |
| | Copper | | Long | | | 2 | | | 25 MT | | 54 MT | | 6,208.40 - 6,270.00 | | | 340 | |
| | Copper | | Short | | | 2 | | | 25 MT | | 54 MT | | 6,670.09 - 7,304.64 | | | 375 | |
| | Zinc | | Long | | | 1 | | | 25 MT | | 36 MT | | 1,670.00 - 1,730.00 | | | 62 | |
New York Mercantile Exchange | | Copper | | Long | | | 49 | | | 25,000 lbs. | | 1,225,000 lbs. | | 286.50 - 346.80 | | | 4,037 | |
| | Copper | | Short | | | 635 | | | 25,000 lbs. | | 15,875,000 lbs. | | 275.85 - 342.95 | | | 51,192 | |
| | Natural Gas | | Long | | | 14 | | | 10,000 MMBtu | | 140,000 MMBtu | | 4.53 - 4.63 | | | 644 | |
|
| | | | | | | | | | | | | | | | | | | | $ | 62,934 | |
|
| | | | | | | | | | | | | | | | | |
Terminal Exchange | | Metal | | Long/ Short | | # of Lots | | Standard Lot Size | | Total Weight | | Range or Amount of Hedge Rates Per MT/lb. | | Total Contract Value at Inception (in thousands) |
London Metal Exchange | | Aluminum | | Long | | 123 |
| | 25 MT | | 3,063 MT | | 1,895.00 — 2,028.00 | | $ | 5,862 |
|
| | Aluminum | | Short | | 4 |
| | 25 MT | | 100 MT | | 1,896.50 — 1,907.75 | | 190 |
|
| | Copper | | Long | | 1.31 |
| | 25 MT | | 33 MT | | 8,025.00 — 8,055.00 | | 263 |
|
| | Zinc | | Long | | 0.87 |
| | 25 MT | | 22 MT | | 2,247.00 — 2,259.00 | | 49 |
|
New York Mercantile Exchange | | Copper | | Long | | 86 |
| | 25,000 lbs. | | 2,150,000 lbs. | | 309.95 — 350.15 | | 7,098 |
|
| | Copper | | Short | | 441 |
| | 25,000 lbs. | | 11,025,000 lbs. | | 302.45 — 340.70 | | 35,808 |
|
| | | | | | | | | | | | | | $ | 49,270 |
|
_________________
MT = Metric Ton
tonMMBtu = One million British thermal units
42
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF MANAGEMENT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Our management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended. Internal control over financial reporting is a process to provide reasonable assurance regarding the reliability of our financial reporting for external purposes in accordance with accounting principles generally accepted in the United States of America. Internal control over financial reporting includes maintaining records that in reasonable detail accurately and fairly reflect our transactions; providing reasonable assurance that transactions are recorded as necessary for preparation of our financial statements; providing reasonable assurance that receipts and expenditures of company assets are made in accordance with management authorization; and providing reasonable assurance that unauthorized acquisition, use or disposition of company assets that could have a material effect on our financial statements would be prevented or detected on a timely basis. Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that a misstatement of our financial statements would be prevented or detected.
Management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control — Integrated Framework 1992 issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded that the Company’sCompany's internal control over financial reporting was effective as of August 31, 2010.2013. Deloitte & Touche LLP has audited the effectiveness of the Company’sCompany's internal control over financial reporting; their attestation report is included on page 4442 of this Form 10-K.
43
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Commercial Metals Company
Irving, Texas
We have audited the internal control over financial reporting of Commercial Metals Company and subsidiaries (the “Company”"Company") as of August 31, 2010,2013, based on criteria established inInternal Control —- Integrated Framework 1992 issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’sCompany's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Report of Management on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’sCompany's internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’scompany's internal control over financial reporting is a process designed by, or under the supervision of, the company’scompany's principal executive and principal financial officers, or persons performing similar functions, and effected by the company’scompany's board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’scompany's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’scompany's assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of August 31, 2010,2013, based on the criteria established inInternal Control —- Integrated Framework 1992 issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements and financial statement schedule as of and for the year ended August 31, 20102013 of the Company and our report dated October 29, 201028, 2013 expressed an unqualified opinion on those financial statements and financial statement schedule and included an explanatory paragraph regarding the Company’s discontinued operations.schedule.
/s/ Deloitte & Touche LLP
Dallas, Texas
October 29, 201028, 2013
44
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Commercial Metals Company
Irving, Texas
We have audited the accompanying consolidated balance sheets of Commercial Metals Company and subsidiaries (the “Company”"Company") as of August 31, 20102013 and 2009,2012, and the related consolidated statements of operations, stockholders’comprehensive income (loss), stockholders' equity, and cash flows for each of the three years in the period ended August 31, 2010.2013. Our audits also included the financial statement schedule listed in the Index at Item 15. These financial statements and financial statement schedule are the responsibility of the Company’sCompany's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Commercial Metals Company and subsidiaries at August 31, 20102013 and 2009,2012, and the results of their operations and their cash flows for each of the three years in the period ended August 31, 2010,2013, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
As discussed in Note 5 to the consolidated financial statements, on February 26, 2010, the Company’s board approved a plan to exit the Joist and Deck business through the sale of those facilities. The gain on sale and results for all periods presented are included in income from discontinued operations in the accompanying consolidated financial statements.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’sCompany's internal control over financial reporting as of August 31, 2010,2013, based on the criteria established inInternal Control—IntegratedControl-Integrated Framework 1992 issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated October 29, 201028, 2013 expressed an unqualified opinion on the Company’sCompany's internal control over financial reporting.
/s/ Deloitte & Touche LLP
Dallas, Texas
October 29, 201028, 2013
45
COMMERCIAL METALS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS43
| | | | | | | | | | | | |
| | Year ended August 31, |
(in thousands, except share data) | | 2010 | | 2009 | | 2008 |
|
Net sales | | $ | 6,306,102 | | | $ | 6,409,376 | | | $ | 9,896,637 | |
Costs and expenses: | | | | | | | | | | | | |
Cost of goods sold | | | 5,911,065 | | | | 5,712,347 | | | | 8,828,635 | |
Selling, general and administrative expenses | | | 524,135 | | | | 618,131 | | | | 652,290 | |
Interest expense | | | 75,508 | | | | 76,964 | | | | 58,254 | |
|
| | | 6,510,708 | | | | 6,407,442 | | | | 9,539,179 | |
Earnings (loss) from continuing operations before taxes | | | (204,606 | ) | | | 1,934 | | | | 357,458 | |
Income taxes (benefit) | | | (38,118 | ) | | | 747 | | | | 112,275 | |
|
Earnings (loss) from continuing operations | | | (166,488 | ) | | | 1,187 | | | | 245,183 | |
|
Earnings (loss) from discontinued operations before taxes | | | (59,762 | ) | | | 31,991 | | | | (20,148 | ) |
Income taxes (benefit) | | | (21,142 | ) | | | 12,926 | | | | (7,469 | ) |
|
Earnings (loss) from discontinued operations | | | (38,620 | ) | | | 19,065 | | | | (12,679 | ) |
|
Net earnings (loss) | | | (205,108 | ) | | | 20,252 | | | | 232,504 | |
Less net earnings (loss) attributable to noncontrolling interests | | | 236 | | | | (550 | ) | | | 538 | |
|
Net earnings (loss) attributable to CMC | | $ | (205,344 | ) | | $ | 20,802 | | | $ | 231,966 | |
|
| | | | | | | | | | | | |
Basic earnings (loss) per share attributable to CMC: | | | | | | | | | | | | |
Earnings (loss) from continuing operations | | $ | (1.47 | ) | | $ | 0.02 | | | $ | 2.13 | |
Earnings (loss) from discontinued operations | | | (0.34 | ) | | | 0.17 | | | | (0.11 | ) |
|
Net earnings (loss) | | $ | (1.81 | ) | | $ | 0.19 | | | $ | 2.02 | |
| | | | | | | | | | | | |
Diluted earnings (loss) per share attributable to CMC: | | | | | | | | | | | | |
Earnings (loss) from continuing operations | | $ | (1.47 | ) | | $ | 0.02 | | | $ | 2.08 | |
Earnings (loss) from discontinued operations | | | (0.34 | ) | | | 0.16 | | | | (0.11 | ) |
|
Net earnings (loss) | | $ | (1.81 | ) | | $ | 0.18 | | | $ | 1.97 | |
COMMERCIAL METALS COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS |
| | | | | | | | | | | |
| Year Ended August 31, |
(in thousands, except share data) | 2013 | | 2012 | | 2011 |
Net sales | $ | 6,889,575 |
| | $ | 7,656,375 |
| | $ | 7,666,773 |
|
Costs and expenses: |
| |
| | |
Cost of goods sold | 6,227,238 |
| | 6,939,748 |
| | 7,037,446 |
|
Selling, general and administrative expenses | 468,611 |
| | 481,746 |
| | 508,916 |
|
Impairment of assets | 17,270 |
| | 607 |
| | 24,466 |
|
Gain on sale of cost method investment
| (26,088 | ) | | — |
| | — |
|
Interest expense | 69,608 |
| | 69,487 |
| | 69,814 |
|
| 6,756,639 |
| | 7,491,588 |
| | 7,640,642 |
|
Earnings from continuing operations before income taxes | 132,936 |
| | 164,787 |
| | 26,131 |
|
Income taxes (benefit) | 57,979 |
| | (45,762 | ) | | 14,592 |
|
Earnings from continuing operations | 74,957 |
| | 210,549 |
| | 11,539 |
|
| | | | | |
Earnings (loss) from discontinued operations before income taxes | 3,672 |
| | (11,906 | ) | | (139,195 | ) |
Income taxes (benefit) | 1,310 |
| | (8,847 | ) | | 1,748 |
|
Earnings (loss) from discontinued operations | 2,362 |
| | (3,059 | ) | | (140,943 | ) |
| | | | | |
Net earnings (loss) | 77,319 |
| | 207,490 |
| | (129,404 | ) |
Less net earnings attributable to noncontrolling interests | 4 |
| | 6 |
| | 213 |
|
Net earnings (loss) attributable to CMC | $ | 77,315 |
| | $ | 207,484 |
| | $ | (129,617 | ) |
| | | | | |
Basic earnings (loss) per share attributable to CMC: | | | | | |
Earnings from continuing operations | $ | 0.64 |
| | $ | 1.82 |
| | $ | 0.10 |
|
Earnings (loss) from discontinued operations | 0.02 |
| | (0.03 | ) | | (1.23 | ) |
Net earnings (loss) | $ | 0.66 |
| | $ | 1.79 |
| | $ | (1.13 | ) |
| | | | | |
Diluted earnings (loss) per share attributable to CMC: |
| |
| |
|
Earnings from continuing operations | $ | 0.64 |
| | $ | 1.80 |
| | $ | 0.09 |
|
Earnings (loss) from discontinued operations | 0.02 |
| | (0.02 | ) | | (1.21 | ) |
Net earnings (loss) | $ | 0.66 |
| | $ | 1.78 |
| | $ | (1.12 | ) |
See notes to consolidated financial statements.
46
COMMERCIAL METALS COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
| | | | | | | | |
| | August 31, |
(in thousands, except share data) | | 2010 | | 2009 |
|
Assets | | | | | | | | |
Current assets: | | | | | | | | |
Cash and cash equivalents | | $ | 399,313 | | | $ | 405,603 | |
Accounts receivable (less allowance for doubtful accounts of $29,721 and $42,134) | | | 824,339 | | | | 731,282 | |
Inventories | | | 674,680 | | | | 678,541 | |
Other | | | 276,874 | | | | 182,126 | |
|
Total current assets | | | 2,175,206 | | | | 1,997,552 | |
| | | | | | | | |
Property, plant and equipment: | | | | | | | | |
Land | | | 94,426 | | | | 87,530 | |
Buildings and improvements | | | 540,285 | | | | 502,031 | |
Equipment | | | 1,649,723 | | | | 1,395,104 | |
Construction in process | | | 56,124 | | | | 380,185 | |
|
| | | 2,340,558 | | | | 2,364,850 | |
Less accumulated depreciation and amortization | | | (1,108,290 | ) | | | (1,013,461 | ) |
|
| | | 1,232,268 | | | | 1,351,389 | |
Goodwill | | | 71,580 | | | | 74,236 | |
Other assets | | | 227,099 | | | | 264,379 | |
|
Total assets | | $ | 3,706,153 | | | $ | 3,687,556 | |
| | |
|
Liabilities and stockholders’ equity | | | | | | | | |
Current liabilities: | | | | | | | | |
Accounts payable-trade | | $ | 504,388 | | | $ | 344,355 | |
Accounts payable-documentary letters of credit | | | 226,633 | | | | 109,210 | |
Accrued expenses and other payables | | | 324,897 | | | | 327,212 | |
Notes payable | | | 6,453 | | | | 1,759 | |
Commercial paper | | | 10,000 | | | | — | |
Current maturities of long-term debt | | | 30,588 | | | | 32,802 | |
|
Total current liabilities | | | 1,102,959 | | | | 815,338 | |
| | | | | | | | |
Deferred income taxes | | | 43,668 | | | | 44,564 | |
Other long-term liabilities | | | 108,870 | | | | 113,850 | |
Long-term debt | | | 1,197,282 | | | | 1,181,740 | |
|
Total liabilities | | | 2,452,779 | | | | 2,155,492 | |
| | | | | | | | |
Commitments and contingencies | | | | | | | | |
CMC stockholders’ equity | | | | | | | | |
Preferred stock | | | — | | | | — | |
Common stock, par value $0.01 per share; authorized 200,000,000 shares; issued 129,060,664 shares; outstanding 114,325,349 and 112,573,433 shares | | | 1,290 | | | | 1,290 | |
Additional paid-in capital | | | 373,308 | | | | 380,737 | |
Accumulated other comprehensive income (loss) | | | (12,526 | ) | | | 34,257 | |
Retained earnings | | | 1,178,372 | | | | 1,438,205 | |
|
| | | 1,540,444 | | | | 1,854,489 | |
|
Less treasury stock 14,735,315 and 16,487,231 shares at cost | | | (289,708 | ) | | | (324,796 | ) |
|
Stockholders’ equity attributable to CMC | | | 1,250,736 | | | | 1,529,693 | |
Stockholders’ equity attributable to noncontrolling interests | | | 2,638 | | | | 2,371 | |
| | |
Total equity | | | 1,253,374 | | | | 1,532,064 | |
| | |
Total liabilities and stockholders’ equity | | $ | 3,706,153 | | | $ | 3,687,556 | |
| | |
COMMERCIAL METALS COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) |
| | | | | | | | | | | |
| Year Ended August 31, |
(in thousands) | 2013 | | 2012 | | 2011 |
Net earnings (loss) | $ | 77,319 |
| | $ | 207,490 |
| | $ | (129,404 | ) |
Other comprehensive income (loss), net of income taxes: |
| |
| |
|
Foreign currency translation adjustment and other: | | | | | |
Foreign currency translation adjustment and other during the year, net of income taxes of $(925), $(41,752) and $39,301 | (10,108 | ) | | (71,631 | ) | | 72,987 |
|
Reclassification for translation gain realized upon sale of investments in foreign entities, net of income taxes of $0, $664 and $0 | — |
| | (4,675 | ) | | — |
|
Foreign currency translation adjustment and other, net of income taxes of $(925), $(41,088) and $39,301 | (10,108 | ) | | (76,306 | ) | | 72,987 |
|
Net unrealized gain (loss) on derivatives: |
| |
| |
|
Unrealized holding gain (loss), net of income taxes of $2, $(604) and $135 | 221 |
| | (1,545 | ) | | 823 |
|
Reclassification for loss (gain) included in net earnings, net of income taxes of $(128), $132 and $(254) | (337 | ) | | 578 |
| | (1,018 | ) |
Net unrealized loss on derivatives, net of income taxes of $(126), $(472) and $(119) | (116 | ) | | (967 | ) | | (195 | ) |
Defined benefit obligation: |
| |
| |
|
Net loss, net of income taxes of $(51), $(425) and $(48) | (168 | ) | | (410 | ) | | (1,118 | ) |
Prior service credit (cost), net of income taxes of $0, $0 and $(9) | — |
| | — |
| | (34 | ) |
Amortization of net loss, net of income taxes of $45, $40 and $74 | 207 |
| | 188 |
| | 261 |
|
Amortization of prior service credit, net of income taxes of $(38), $(2) and $(2) | (170 | ) | | (15 | ) | | (18 | ) |
Amortization of transition asset, net of income taxes of $0, $0 and $13 | — |
| | — |
| | 116 |
|
Adjustment from plan changes, net of income taxes of $309, $(26) and $0 | 1,315 |
| | (99 | ) | | — |
|
Defined benefit obligation, net of income taxes of $265, $(413) and $28 | 1,184 |
| | (336 | ) | | (793 | ) |
Other comprehensive income (loss) | (9,040 | ) | | (77,609 | ) | | 71,999 |
|
Comprehensive income (loss) | $ | 68,279 |
| | $ | 129,881 |
| | $ | (57,405 | ) |
See notes to consolidated financial statements.
47
COMMERCIAL METALS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS45
| | | | | | | | | | | | |
| | Year ended August 31, |
(in thousands) | | 2010 | | 2009 | | 2008 |
|
Cash flows from (used by) operating activities: | | | | | | | | | | | | |
Net earnings (loss) | | $ | (205,108 | ) | | $ | 20,252 | | | $ | 232,504 | |
Adjustments to reconcile net earnings (loss) to cash flows from (used by) operating activities: | | | | | | | | | | | | |
Depreciation and amortization | | | 168,934 | | | | 154,679 | | | | 135,069 | |
Provision for losses (recoveries) on receivables, net | | | (2,582 | ) | | | 33,733 | | | | 4,478 | |
Share-based compensation | | | 13,132 | | | | 17,475 | | | | 18,996 | |
Deferred income taxes | | | 59,286 | | | | (49,066 | ) | | | (4,379 | ) |
Tax benefits from stock plans | | | (4,033 | ) | | | (926 | ) | | | (10,982 | ) |
Net (gain) loss on sale of assets and other | | | (4,740 | ) | | | 2,795 | | | | 749 | |
Write-down of inventory | | | 53,203 | | | | 127,056 | | | | — | |
Asset impairment | | | 35,041 | | | | 8,468 | | | | 1,004 | |
Changes in operating assets and liabilities, net of acquisitions: | | | | | | | | | | | | |
Decrease (increase) in accounts receivable | | | (106,402 | ) | | | 692,386 | | | | (287,052 | ) |
Accounts receivable sold (repurchased), net | | | 10,239 | | | | (129,227 | ) | | | 45,348 | |
Decrease (increase) in inventories | | | (60,612 | ) | | | 533,896 | | | | (414,556 | ) |
Decrease (increase) in other assets | | | (94,313 | ) | | | 94,183 | | | | (166,528 | ) |
Increase (decrease) in accounts payable, accrued expenses, other payables and income taxes | | | 186,952 | | | | (691,912 | ) | | | 395,987 | |
Increase (decrease) in other long-term liabilities | | | (4,087 | ) | | | (7,256 | ) | | | 5,906 | |
|
Net cash flows from (used by) operating activities | | | 44,910 | | | | 806,536 | | | | (43,456 | ) |
| | | | | | | | | | | | |
Cash flows from (used by) investing activities: | | | | | | | | | | | | |
Capital expenditures | | | (127,121 | ) | | | (369,694 | ) | | | (355,041 | ) |
Proceeds from the sale of property, plant and equipment and other | | | 22,887 | | | | 2,620 | | | | 1,791 | |
Acquisitions, net of cash acquired | | | (2,448 | ) | | | (906 | ) | | | (228,591 | ) |
Increase in deposit for letters of credit | | | (26,930 | ) | | | — | | | | — | |
|
Net cash flows used by investing activities | | | (133,612 | ) | | | (367,980 | ) | | | (581,841 | ) |
| | | | | | | | | | | | |
Cash flows from (used by) financing activities: | | | | | | | | | | | | |
Increase (decrease) in documentary letters of credit | | | 117,423 | | | | (83,282 | ) | | | 39,061 | |
Short-term borrowings, net change | | | 14,636 | | | | (26,244 | ) | | | (1,427 | ) |
Repayments on long-term debt | | | (29,939 | ) | | | (132,496 | ) | | | (6,053 | ) |
Proceeds from issuance of long-term debt | | | 22,438 | | | | 64,014 | | | | 596,669 | |
Stock issued under incentive and purchase plans | | | 10,494 | | | | 3,284 | | | | 8,910 | |
Treasury stock acquired | | | — | | | | (18,514 | ) | | | (172,312 | ) |
Cash dividends | | | (54,489 | ) | | | (54,139 | ) | | | (52,061 | ) |
Tax benefits from stock plans | | | 4,033 | | | | 926 | | | | 10,982 | |
Contribution from noncontrolling interests | | | 21 | | | | — | | | | — | |
|
Net cash flows from (used by) financing activities | | | 84,617 | | | | (246,451 | ) | | | 423,769 | |
Effect of exchange rate changes on cash | | | (2,205 | ) | | | (5,528 | ) | | | 1,279 | |
Increase (decrease) in cash and cash equivalents | | | (6,290 | ) | | | 186,577 | | | | (200,249 | ) |
|
Cash and cash equivalents at beginning of year | | | 405,603 | | | | 219,026 | | | | 419,275 | |
Cash and cash equivalents at end of year | | $ | 399,313 | | | $ | 405,603 | | | $ | 219,026 | |
|
COMMERCIAL METALS COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS |
| | | | | | | |
| August 31, |
(in thousands, except share data) | 2013 | | 2012 |
Assets | | | |
Current assets: | | | |
Cash and cash equivalents | $ | 378,770 |
| | $ | 262,422 |
|
Accounts receivable (less allowance for doubtful accounts of $10,042 and $9,480) | 989,694 |
| | 958,364 |
|
Inventories, net | 757,417 |
| | 807,923 |
|
Other | 240,314 |
| | 211,122 |
|
Total current assets | 2,366,195 |
| | 2,239,831 |
|
Property, plant and equipment: | | | |
Land | 80,764 |
| | 79,123 |
|
Buildings and improvements | 486,494 |
| | 483,708 |
|
Equipment | 1,666,250 |
| | 1,656,328 |
|
Construction in process | 18,476 |
| | 41,036 |
|
| 2,251,984 |
| | 2,260,195 |
|
Less accumulated depreciation and amortization | (1,311,747 | ) | | (1,265,891 | ) |
| 940,237 |
| | 994,304 |
|
Goodwill | 69,579 |
| | 76,897 |
|
Other assets | 118,790 |
| | 130,214 |
|
Total assets | $ | 3,494,801 |
| | $ | 3,441,246 |
|
Liabilities and stockholders’ equity | | | |
Current liabilities: | | | |
Accounts payable-trade | $ | 342,678 |
| | $ | 433,132 |
|
Accounts payable-documentary letters of credit | 112,281 |
| | 95,870 |
|
Accrued expenses and other payables | 314,949 |
| | 343,337 |
|
Notes payable | 5,973 |
| | 24,543 |
|
Current maturities of long-term debt | 5,228 |
| | 4,252 |
|
Total current liabilities | 781,109 |
| | 901,134 |
|
Deferred income taxes | 46,558 |
| | 20,271 |
|
Other long-term liabilities | 118,165 |
| | 116,261 |
|
Long-term debt | 1,278,814 |
| | 1,157,073 |
|
Total liabilities | 2,224,646 |
| | 2,194,739 |
|
Commitments and contingencies |
| |
|
Stockholders’ equity: | | | |
Preferred stock | — |
| | — |
|
Common stock, par value $0.01 per share; authorized 200,000,000 shares; issued 129,060,664 shares; outstanding 117,010,990 and 116,351,424 shares | 1,290 |
| | 1,290 |
|
Additional paid-in capital | 363,772 |
| | 365,778 |
|
Accumulated other comprehensive loss | (27,176 | ) | | (18,136 | ) |
Retained earnings | 1,166,732 |
| | 1,145,445 |
|
Less treasury stock, 12,049,674 and 12,709,240 shares at cost | (234,619 | ) | | (248,009 | ) |
Stockholders’ equity attributable to CMC | 1,269,999 |
| | 1,246,368 |
|
Stockholders’ equity attributable to noncontrolling interests | 156 |
| | 139 |
|
Total equity | 1,270,155 |
| | 1,246,507 |
|
Total liabilities and stockholders’ equity | $ | 3,494,801 |
| | $ | 3,441,246 |
|
See notes to consolidated financial statements.
48
COMMERCIAL METALS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | Accumulated | | | | | | | | | | | | | | |
| | Common Stock | | | Additional | | | Other | | | | | | | Treasury Stock | | | Non- | | | | |
| | Number of | | | | | | | Paid-In | | | Comprehensive | | | Retained | | | Number of | | | | | | | Controlling | | | | |
(in thousands, except share data) | | Shares | | | Amount | | | Capital | | | Income (Loss) | | | Earnings | | | Shares | | | Amount | | | Interests | | | Total | |
|
Balance, September 1, 2007 | | | 129,060,664 | | | $ | 1,290 | | | $ | 356,983 | | | $ | 64,452 | | | $ | 1,296,631 | | | | (10,494,283 | ) | | $ | (170,789 | ) | | $ | 2,900 | | | $ | 1,551,467 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
FIN 48 adjustment | | | | | | | | | | | | | | | | | | | (4,994 | ) | | | | | | | | | | | | | | | (4,994 | ) |
Comprehensive income (loss): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net earnings | | | | | | | | | | | | | | | | | | | 231,966 | | | | | | | | | | | | 538 | | | | 232,504 | |
Other comprehensive income (loss): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Foreign currency translation adjustment, net of taxes ($5,179) | | | | | | | | | | | | | | | 57,245 | | | | | | | | | | | | | | | | 205 | | | | 57,450 | |
Unrealized loss on derivatives, net of taxes ($1,743) | | | | | | | | | | | | | | | (7,866 | ) | | | | | | | | | | | | | | | | | | | (7,866 | ) |
Defined benefit obligation, net of taxes ($366) | | | | | | | | | | | | | | | (1,050 | ) | | | | | | | | | | | | | | | | | | | (1,050 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Comprehensive income | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 281,038 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Cash dividends | | | | | | | | | | | | | | | | | | | (52,061 | ) | | | | | | | | | | | | | | | (52,061 | ) |
Treasury stock acquired | | | | | | | | | | | | | | | | | | | | | | | (6,212,238 | ) | | | (172,312 | ) | | | | | | | (172,312 | ) |
Issuance of stock under incentive and purchase plans | | | | | | | | | | | (11,921 | ) | | | | | | | | | | | 1,277,417 | | | | 20,831 | | | | | | | | 8,910 | |
Issuance of restricted stock | | | | | | | | | | | (3,315 | ) | | | | | | | | | | | 163,770 | | | | 3,315 | | | | | | | | | |
Stock-based compensation | | | | | | | | | | | 19,184 | | | | | | | | | | | | (18,178 | ) | | | (188 | ) | | | | | | | 18,996 | |
Tax benefits from stock plans | | | | | | | | | | | 10,982 | | | | | | | | | | | | | | | | | | | | | | | | 10,982 | |
|
Balance, August 31, 2008 | | | 129,060,664 | | | $ | 1,290 | | | $ | 371,913 | | | $ | 112,781 | | | $ | 1,471,542 | | | | (15,283,512 | ) | | $ | (319,143 | ) | | $ | 3,643 | | | $ | 1,642,026 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Comprehensive income (loss): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net earnings | | | | | | | | | | | | | | | | | | | 20,802 | | | | | | | | | | | | (550 | ) | | | 20,252 | |
Other comprehensive income (loss): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Foreign currency translation adjustment | | | | | | | | | | | | | | | (89,110 | ) | | | | | | | | | | | | | | | (722 | ) | | | (89,832 | ) |
Unrealized gain on derivatives, net of taxes ($2,339) | | | | | | | | | | | | | | | 11,034 | | | | | | | | | | | | | | | | | | | | 11,034 | |
Defined benefit obligation, net of taxes ($90) | | | | | | | | | | | | | | | (448 | ) | | | | | | | | | | | | | | | | | | | (448 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Comprehensive loss | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (58,994 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Cash dividends | | | | | | | | | | | | | | | | | | | (54,139 | ) | | | | | | | | | | | | | | | (54,139 | ) |
Treasury stock acquired | | | | | | | | | | | | | | | | | | | | | | | (1,752,900 | ) | | | (18,514 | ) | | | | | | | (18,514 | ) |
Issuance of stock under incentive and purchase plans | | | | | | | | | | | (9,776 | ) | | | | | | | | | | | 561,800 | | | | 13,060 | | | | | | | | 3,284 | |
Stock-based compensation | | | | | | | | | | | 17,674 | | | | | | | | | | | | (12,619 | ) | | | (199 | ) | | | | | | | 17,475 | |
Tax benefits from stock plans | | | | | | | | | | | 926 | | | | | | | | | | | | | | | | | | | | | | | | 926 | |
|
Balance, August 31, 2009 | | | 129,060,664 | | | $ | 1,290 | | | $ | 380,737 | | | $ | 34,257 | | | $ | 1,438,205 | | | | (16,487,231 | ) | | $ | (324,796 | ) | | $ | 2,371 | | | $ | 1,532,064 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Comprehensive income (loss): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net earnings (loss) | | | | | | | | | | | | | | | | | | | (205,344 | ) | | | | | | | | | | | 236 | | | | (205,108 | ) |
Other comprehensive income (loss): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Foreign currency translation adjustment | | | | | | | | | | | | | | | (45,607 | ) | | | | | | | | | | | | | | | 10 | | | | (45,597 | ) |
Unrealized loss on derivatives, net of taxes ($150) | | | | | | | | | | | | | | | (79 | ) | | | | | | | | | | | | | | | | | | | (79 | ) |
Defined benefit obligation, net of taxes ($620) | | | | | | | | | | | | | | | (1,097 | ) | | | | | | | | | | | | | | | | | | | (1,097 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Comprehensive loss | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (251,881 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Cash dividends | | | | | | | | | | | | | | | | | | | (54,489 | ) | | | | | | | | | | | | | | | (54,489 | ) |
Issuance of stock under incentive and purchase plans | | | | | | | | | | | (24,860 | ) | | | | | | | | | | | 1,766,481 | | | | 35,354 | | | | | | | | 10,494 | |
Stock-based compensation | | | | | | | | | | | 13,398 | | | | | | | | | | | | (14,565 | ) | | | (266 | ) | | | | | | | 13,132 | |
Tax benefits from stock plans | | | | | | | | | | | 4,033 | | | | | | | | | | | | | | | | | | | | | | | | 4,033 | |
Contribution from noncontrolling interests | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 21 | | | | 21 | |
|
Balance, August 31, 2010 | | | 129,060,664 | | | $ | 1,290 | | | $ | 373,308 | | | $ | (12,526 | ) | | $ | 1,178,372 | | | | (14,735,315 | ) | | $ | (289,708 | ) | | $ | 2,638 | | | $ | 1,253,374 | |
|
COMMERCIAL METALS COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS |
| | | | | | | | | | | |
| Year Ended August 31, |
(in thousands) | 2013 | | 2012 | | 2011 |
Cash flows from (used by) operating activities: | | | | | |
Net earnings (loss) | $ | 77,319 |
| | $ | 207,490 |
| | $ | (129,404 | ) |
Adjustments to reconcile net earnings (loss) to cash flows from (used by) operating activities: | | | | | |
Depreciation and amortization | 136,548 |
| | 137,310 |
| | 159,576 |
|
Provision for losses (recoveries) on receivables, net | 4,430 |
| | (2,463 | ) | | 306 |
|
Share-based compensation | 18,693 |
| | 13,125 |
| | 12,893 |
|
Amortization of interest rate swaps termination gain | (12,470 | ) | | (5,815 | ) | | — |
|
Loss on debt extinguishment | 4,758 |
| | — |
| | — |
|
Deferred income taxes (benefit) | 54,655 |
| | (59,999 | ) | | (19,856 | ) |
Tax expense (benefit) from stock plans | 1,444 |
| | (1,968 | ) | | (2,355 | ) |
Net gain on sale of assets and other | (25,371 | ) | | (11,932 | ) | | (1,315 | ) |
Write-down of inventory | 3,003 |
| | 13,917 |
| | 25,503 |
|
Asset impairments | 17,270 |
| | 3,316 |
| | 120,145 |
|
Changes in operating assets and liabilities, net of acquisitions: | | | | | |
Accounts receivable | 11,065 |
| | 68,260 |
| | (168,779 | ) |
Accounts receivable sold (repurchased), net | (80,580 | ) | | (77,116 | ) | | 78,297 |
|
Inventories | 26,459 |
| | 53,449 |
| | (200,204 | ) |
Other assets | 2,894 |
| | 5,001 |
| | 73,382 |
|
Accounts payable, accrued expenses and other payables | (87,375 | ) | | (157,025 | ) | | 82,642 |
|
Other long-term liabilities | (5,010 | ) | | 10,443 |
| | (3,084 | ) |
Net cash flows from operating activities | 147,732 |
| | 195,993 |
| | 27,747 |
|
| | | | | |
Cash flows from (used by) investing activities: | | | | | |
Capital expenditures | (89,035 | ) | | (113,853 | ) | | (73,215 | ) |
Proceeds from the sale of property, plant and equipment and other | 13,904 |
| | 55,360 |
| | 53,394 |
|
Proceeds from the sale of equity method investments | — |
| | — |
| | 10,802 |
|
Proceeds from the sale of cost method investment | 28,995 |
| | — |
| | — |
|
Acquisitions, net of cash acquired | — |
| | — |
| | (48,386 | ) |
Decrease (increase) in deposit for letters of credit | — |
| | 31,053 |
| | (4,123 | ) |
Net cash flows used by investing activities | (46,136 | ) | | (27,440 | ) | | (61,528 | ) |
| | | | | |
Cash flows from (used by) financing activities: | | | | | |
Increase (decrease) in documentary letters of credit | (6,221 | ) | | (74,493 | ) | | (55,950 | ) |
Short-term borrowings, net change | (19,524 | ) | | 18,607 |
| | (10,253 | ) |
Repayments on long-term debt | (204,856 | ) | | (64,801 | ) | | (33,577 | ) |
Proceeds from termination of interest rate swaps | — |
| | 52,733 |
| | — |
|
Proceeds from issuance of long-term debt | 330,000 |
| | — |
| | — |
|
Payments for debt issuance costs | (4,684 | ) | | — |
| | — |
|
Debt extinguishment costs | (4,557 | ) | | — |
| | — |
|
Increase in restricted cash | (18,620 | ) | | — |
| | — |
|
Stock issued under incentive and purchase plans, net of forfeitures | 951 |
| | (81 | ) | | 9,615 |
|
Cash dividends | (56,028 | ) | | (55,617 | ) | | (55,177 | ) |
Tax benefit (expense) from stock plans | (1,444 | ) | | 1,968 |
| | 2,355 |
|
Contribution from (purchase of) noncontrolling interests | 13 |
| | (55 | ) | | (4,027 | ) |
Net cash flows from (used by) financing activities | 15,030 |
| | (121,739 | ) | | (147,014 | ) |
Effect of exchange rate changes on cash | (278 | ) | | (6,782 | ) | | 3,872 |
|
Increase (decrease) in cash and cash equivalents | 116,348 |
| | 40,032 |
| | (176,923 | ) |
Cash and cash equivalents at beginning of year | 262,422 |
| | 222,390 |
| | 399,313 |
|
Cash and cash equivalents at end of year | $ | 378,770 |
| | $ | 262,422 |
| | $ | 222,390 |
|
See notes to consolidated financial statements.
49
COMMERCIAL METALS COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | Additional | Accumulated Other | | Treasury Stock | Non- | |
(in thousands, except share data) | Number of Shares | Amount | Paid-In Capital | Comprehensive Income (Loss) | Retained Earnings | Number of Shares | Amount | Controlling Interests | Total |
Balance at September 1, 2010 | 129,060,664 |
| $ | 1,290 |
| $ | 373,308 |
| $ | (12,526 | ) | $ | 1,178,372 |
| (14,735,315 | ) | $ | (289,708 | ) | $ | 2,638 |
| $ | 1,253,374 |
|
Net earnings (loss) | | | | | (129,617 | ) | | | 213 |
| (129,404 | ) |
Other comprehensive income | | | | 71,999 |
|
|
|
|
| 71,999 |
|
Cash dividends | | | | | (55,177 | ) | | | | (55,177 | ) |
Issuance of stock under incentive and purchase plans, net of forfeitures | | | (14,561 | ) | | | 1,208,414 |
| 24,176 |
| | 9,615 |
|
Share-based compensation | | | 11,913 |
| | | | | | 11,913 |
|
Tax benefits from stock plans | | | 2,355 |
| | | | | |
| 2,355 |
|
Purchase of noncontrolling interest | | | (1,399 | ) | | | | | (2,628 | ) | (4,027 | ) |
Balance at August 31, 2011 | 129,060,664 |
| $ | 1,290 |
| $ | 371,616 |
| $ | 59,473 |
| $ | 993,578 |
| (13,526,901 | ) | $ | (265,532 | ) | $ | 223 |
| $ | 1,160,648 |
|
Net earnings |
|
|
|
| 207,484 |
|
|
| 6 | 207,490 |
|
Other comprehensive loss |
|
|
| (77,609 | ) |
|
|
|
| (77,609 | ) |
Cash dividends |
|
|
|
| (55,617 | ) |
|
|
| (55,617 | ) |
Issuance of stock under incentive and purchase plans, net of forfeitures |
|
| (17,604 | ) |
|
| 817,661 |
| 17,523 |
|
| (81 | ) |
Share-based compensation |
|
| 9,763 |
|
|
|
|
|
| 9,763 |
|
Tax benefits from stock plans |
|
| 1,968 |
|
|
|
|
|
|
| 1,968 |
|
Purchase of noncontrolling interests |
|
| 35 |
|
|
|
|
| (90 | ) | (55 | ) |
Balance at August 31, 2012 | 129,060,664 |
| $ | 1,290 |
| $ | 365,778 |
| $ | (18,136 | ) | $ | 1,145,445 |
| (12,709,240 | ) | $ | (248,009 | ) | $ | 139 |
| $ | 1,246,507 |
|
Net earnings |
|
|
|
| 77,315 |
|
|
| 4 |
| 77,319 |
|
Other comprehensive loss: |
|
|
| (9,040 | ) |
|
|
|
| (9,040 | ) |
Cash dividends |
|
|
|
| (56,028 | ) |
|
|
| (56,028 | ) |
Issuance of stock under incentive and purchase plans, net of forfeitures |
|
| (12,439 | ) |
|
| 659,566 |
| 13,390 |
|
| 951 |
|
Share-based compensation |
|
| 11,877 |
|
|
|
|
|
| 11,877 |
|
Tax benefits from stock plans |
|
| (1,444 | ) |
|
|
|
|
|
| (1,444 | ) |
Purchase of noncontrolling interests |
|
|
|
|
|
|
|
| 13 |
| 13 |
|
Balance at August 31, 2013 | 129,060,664 |
| $ | 1,290 |
| $ | 363,772 |
| $ | (27,176 | ) | $ | 1,166,732 |
| (12,049,674 | ) | $ | (234,619 | ) | $ | 156 |
| $ | 1,270,155 |
|
See notes to consolidated financial statements.
COMMERCIAL METALS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. NATURE OF OPERATIONS
Nature of Operations Through its global operations and marketing offices, Commercial Metals Company ("CMC," and together with its consolidated subsidiaries, the "Company") recycles ferrous and nonferrous scrap metal, operates steel mills, commonly referred to as "minimills", and fabrication shops and trades and distributes steel and nonferrous metal products and other industrial products worldwide.
The Company has five business segments across two geographic divisions, the CMC Americas Division and the CMC International Division. The CMC Americas Division includes three segments: Americas Recycling, Americas Mills and Americas Fabrication. The CMC International Division includes two segments: International Mill and International Marketing and Distribution.
Americas Recycling The Americas Recycling segment processes scrap metals for use as a raw material by manufacturers of new metal products. This segment sells scrap metals to steel mills and foundries, aluminum sheet and ingot manufacturers, brass and bronze ingot makers, copper refineries and mills, secondary lead smelters, specialty steel mills, high temperature alloy manufacturers and other consumers.
Americas Mills The Americas Mills segment manufactures finished long steel products including rebar, merchant bar, light structural, some special bar quality (SBQ) and other special sections as well as semi-finished billets for re-rolling and forging applications. This segment's products are sold to the construction, service center, transportation, steel warehousing, fabrication, energy, petrochemical and original equipment manufacturing industries.
Americas Fabrication The Americas Fabrication segment consists of rebar and structural fabrication operations, fence post manufacturing plants, construction-related product facilities and plants that heat-treat steel to strengthen and provide flexibility. Fabricated steel products are used primarily in the construction of commercial and non-commercial buildings, hospitals, convention centers, industrial plants, power plants, highways, bridges, arenas, stadiums and dams.
International MillThe International Mill segment is comprised of all recycling and fabrication operations and one steel mill located in Poland. Principal products manufactured include rebar and wire rod as well as merchant bar and billets.
International Marketing and Distribution The International Marketing and Distribution segment includes international operations for the sale, distribution and processing of steel products, ferrous and nonferrous metals and other industrial products. Additionally, this segment includes the U.S.-based marketing and distribution divisions and also operates a recycling facility in Singapore. The International Marketing and Distribution segment buys and sells primary and secondary metals, fabricated metals, semi-finished, long and flat steel products and other industrial products. This segment sells its products to customers, primarily manufacturers, in the steel, nonferrous metals, metal fabrication, chemical, refractory, construction and transportation businesses.
NOTE 1.2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of OperationsThe Company recycles, manufactures, and markets steel and metal products and related materials. Its domestic recycling facilities, mills, fabrication facilities, and markets are primarily located in the U.S. Sunbelt from the mid-Atlantic area through the west. Additionally, the Company operates steel minimills in Poland and Croatia, fabrication shops in Poland and Germany and processing facilities in Australia. Through its global marketing offices, the Company markets and distributes steel and nonferrous metal products and other industrial products worldwide. See Note 15, Business Segments.
ConsolidationThe consolidated financial statements include the accounts of the Company and its subsidiaries. The equity method of accounting is used for investments in affiliates in which the Company has the ability to exert significant influence, but does not have effective control. Investments in affiliates which are 20% or less owned are accounted for using the cost method of accounting. The Company currently does not have any investments in affiliates accounted for under the equity method. All significant intercompany transactions and balances are eliminated.
Investments
Use of Estimates The preparation of financial statements in 20%accordance with accounting principles generally accepted in the United States requires management to 50% owned affiliates whichmake estimates and assumptions that affect the Company hasamounts reported in the ability to exercise a significant influence overconsolidated financial statements and accompanying notes. These estimates are based on information available as of the operating anddate of the financial policies are accounted for on the equity method. All investments under 20% are accounted for under the cost method.statements. Actual results could significantly differ from those estimates.
Certain reclassifications have been made to prior year amounts to conform to current period presentation.
Revenue RecognitionSales are recognized The Company recognizes sales when title passes to the customer either when goods are shipped or when they are delivered based upon the terms of the sale, there is persuasive evidence of an agreement, the price is fixed or determinable and collectability is reasonably assured. When the Company estimates that a contract with a customerfirm purchase commitment will result in a loss, the
Company accrues the entire loss is accrued as soon as it is probable and estimable. The Company accounts for fabrication projects based on the percentage of completion accounting method, based primarily on contract cost incurred to date compared to total estimated contract cost. Changes to total estimated contract cost, or loss, if any, are recognized in the period in which they are determined. As of August 31, 20102013 and 2009,2012, the Company recorded in its accounts receivable unbilled revenue related to fabrication projects of $14.3$24.3 million and $27.2$19.2 million respectively, included in accounts receivable in the consolidated financial statements., respectively.
Allowance for Doubtful Accounts.AccountsThe Company maintains an allowance for doubtful accounts to reflect anits estimate of the uncollectability of accounts receivable. These reserves are based on historical trends, current market conditions and customer’scustomers' financial condition.
Credit Risk The Company maintains both corporate and divisional credit departments. Credit limits are set for each customer. Some of the Company's divisions use credit insurance or letters of credit to ensure prompt payment in accordance with the terms of sale. Generally, collateral is not required. Approximately 49% and 60% of total receivables at August 31, 2013 and 2012, respectively, were secured by credit insurance or letters of credit.
Cash and Cash EquivalentsThe Company considers temporary investments that are short termshort-term (with original maturities of three months or less) and highly liquid to be cash equivalents. The Company had restricted cash of $18.0 million serving as collateral for letters of credit obligations for its Australian subsidiary as of August 31, 2013. Restricted cash balances are included in other current assets on the Company's consolidated balance sheets.
InventoriesInventories are stated
Inventory Costs The Company records all inventories at the lower of their cost or market.market value. Inventory cost for most domestic inventories is determined by the last-in, first-out (“LIFO”("LIFO") method; cost of international and remaining inventories is determined by the first-in, first-out (“FIFO”("FIFO") method.
Elements of cost in finished goods inventory in addition to the cost of material include depreciation, amortization, utilities, consumable production supplies, maintenance, production, wages and transportation costs. Additionally, the costs of departments that support production, including materials management and quality control, are allocated to inventory.
Property, Plant and EquipmentProperty, plant and equipment are recorded at cost and are depreciated on a straight-line basis over the estimated useful lives of the assets. ProvisionProvisions for amortization of leasehold improvements are made at annual rates based upon the lesser of the estimated useful lives of the assets or terms of the leases. Major maintenance is expensed as incurred.
At August 31, 2010,2013, the useful lives used for depreciation and amortization were as follows:
| | | | |
|
Buildings | | | 7 to 40 years | |
Land improvements | | | 3 to 25 years | |
Leasehold improvements | | | 3 to 15 years | |
Equipment | | | 2 to 25 years | |
|
| | | | |
Buildings | 7 | to | 40 | years |
Land improvements | 3 | to | 25 | years |
Leasehold improvements | 3 | to | 15 | years |
Equipment | 3 | to | 25 | years |
Goodwill and Other Intangible AssetsThe Company tests forperforms its goodwill impairment test during the fourth quarter of goodwilleach fiscal year or when changes in circumstances indicate an impairment event may have occurred by estimating the fair value of each reporting unit compared to its carrying value. The Company’sCompany's reporting units are based on its internal reporting structure and represent an operating segment or a reporting level below an operating segment.
50
Additionally, the reporting units are aggregated based on similar economic characteristics, nature of products and services, nature of production processes, type of customers and distribution methods. The company has determined its operating units that have a significant amount of goodwill to be in the Americas Recycling and Americas Fabrication segments. The Company uses a discounted cash flow model and a market approach to calculate the fair value of its reporting units. The model includes a number of significant assumptions and estimates regarding future cash flows including discount rates, volumes, prices, capital expenditures and the impact of current market conditions. These estimates could be materially impacted by adverse changes in market conditions. The Company performs
As a result of the goodwill impairment testtests in 2013, the fourth quarter each fiscal year and when changesCompany recorded goodwill impairment charges of $6.4 million, including foreign currency translation gains of $0.6 million, related to its Australian subsidiaries. The annual goodwill impairment analysis did not result in circumstances indicate anany impairment event may have occurred. Based on the Company’s analysis during the fourth quarter of 2010, the estimated fair valuecharges at any of the Company's other reporting units. As of August 31, 2013 and 2012, one of the Company's reporting units substantially exceeded their carrying values.
During the second quarter of 2010, the Company decided to exit the joist and deck business which is included in our Americas Fabrication segment. As a result, the Company wrote-off the entire balance of goodwill in the amount of $1.7 million relating to the joist and deck operations. Additionally, the Company performed a goodwill impairment test on the remaining portion ofwithin the Americas Fabrication segment. Based on the analysis as of February 28, 2010, the estimated fair value substantially exceeded its carrying value. The Company incurred $2.8reporting segment comprised $51.3 million of impairment charges for goodwill for the year ended August 31, 2010 and recorded no impairment charges for the years ended August 31, 2009 and 2008.
The following intangible assets subject to amortization are included within other assets on the consolidated balance sheets as of August 31:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | 2010 | | 2009 |
| | Gross | | | | | | | | | | Gross | | | | |
| | Carrying | | Accumulated | | | | | | Carrying | | Accumulated | | |
(in thousands) | | Amount | | Amortization | | Net | | Amount | | Amortization | | Net |
|
Customer base | | $ | 56,423 | | | $ | 17,453 | | | $ | 38,970 | | | $ | 66,227 | | | $ | 14,107 | | | $ | 52,120 | |
Non-competition agreements | | | 9,984 | | | | 7,211 | | | | 2,773 | | | | 11,200 | | | | 6,016 | | | | 5,184 | |
Favorable land leases | | | 5,728 | | | | 388 | | | | 5,340 | | | | 5,880 | | | | 380 | | | | 5,500 | |
Brand name | | | 1,509 | | | | 557 | | | | 952 | | | | 5,214 | | | | 4,637 | | | | 577 | |
Production backlog | | | — | | | | — | | | | — | | | | 3,198 | | | | 3,198 | | | | — | |
Other | | | 265 | | | | 18 | | | | 247 | | | | 1,596 | | | | 296 | | | | 1,300 | |
|
Total | | $ | 73,909 | | | $ | 25,627 | | | $ | 48,282 | | | $ | 93,315 | | | $ | 28,634 | | | $ | 64,681 | |
|
Excluding goodwill, there are no other significant intangible assets with indefinite lives. Amortization expense for intangible assets, including impairment charges, for the years ended August 31, 2010, 2009, and 2008 was $16.4 million, $18.9 million, and $8.3 million, respectively. At August 31, 2010, the weighted average remaining useful lives of these intangible assets, excluding the favorable land leases in Poland, were five years. The weighted average lives of the favorable land leases were 79 years. Estimated amountsCompany's total goodwill. Goodwill at other reporting units is not material. See Note 7, Goodwill and Other Intangible Assets, for additional details of amortization expense for the next five years are as follows:this impairment.
| | | | |
Year | | (in thousands) |
|
2011 | | $ | 9,475 | |
2012 | | | 8,409 | |
2013 | | | 7,387 | |
2014 | | | 7,331 | |
2015 | | | 7,278 | |
Impairment of Long-Lived AssetsThe Company evaluates the carrying value of property, plant and equipment and finite-lived intangible assets whenever a change in circumstances indicates that the carrying value may not be recoverable from the undiscounted future cash flows from operations. If an impairment exists, the net book values are reduced to fair values as warranted. During the second quarter of 2010, the Company recorded impairment charges to long-lived assets of $29.5 million relating to the joist and deck business. See Note 5, Discontinued Operations, for additional information. Additionally, during the fourth quarter of 2010, the Company recorded an impairment charge of $2.4 million to impair the customer base intangible relating to one acquired business. The Company recorded impairment charges of $8.5 million and $1.0 million during 2009 and 2008, respectively.
Severance ChargesThe Company recorded consolidated severance costs of $21.5 million, $12.5 million and $4.1 million during 2010, 2009 and 2008, respectively. These severance costs related to involuntary employee terminations initiated as part of
51
the Company’s focus on operating expense management and reductions in headcount to meet current production levels. These termination benefits have been included in selling, general and administrative expenses in the Company’s consolidated financial statements. As of August 31, 2010 and 2009, the remaining liability to be paid in the future related to termination benefits was $3.1 million and $2.0 million, respectively.
Deposits for Letters of CreditThe Company purchases insurance for certain exposures including workers’ compensation, auto liability and general liability, as well as property damage and business interruption, which include specified deductibles. The retained or self-insurance components of these programs are secured by letters of credit which are collateralized by cash deposits of $26.9 million at August 31, 2010 and are recorded in other current assets.
Environmental CostsThe Company accrues liabilities for environmental investigation and remediation costs when it isthey are both probable and the amount can be reasonably estimated. Environmental costs are based upon estimates regarding the sites for which the Company will be responsible, the scope and cost of work to be performed at each site, the portion of costs that will be shared with other parties and the timing of remediation. Where timing and amounts cannot be reasonably determined, a range is estimated and the lower end of the range is recorded.
Stock-Based CompensationThe Company recognizes share-based transactionsstock-based equity awards and liability awards at fair value in the financial statements. The fair value of each share-basedstock-based equity award is estimated at the date of grant using either the Black-Scholes pricing model or a binomialMonte Carlo pricing model. Total compensation cost of the stock-based equity award is amortized over the requisite service period using the accelerated method of amortization for grants with graded vesting or using the straight-line method for grants with cliff vesting.
The Company recognized share-based compensation expense of $13.1 million, $17.5 million and $19.0 million as a component of selling, general and administrative expenses for the twelve months ended August 31, 2010, 2009 and 2008, respectively. At August 31, 2010, the Company had $12.1 million of total unrecognized pre-tax compensation cost related to non-vested share-based compensation arrangements. This cost is expected to be recognized over the next 45 months.
The Black-Scholes pricing model was used for stock options and Stock Appreciation rights (“SARs”) and the following weighted average assumptions were used for grants in the years ended August 31:
| | | | | | | | | | | | |
| | 2010 | | 2009 | | 2008 |
|
Risk-free interest rate | | | 0.86 | % | | | 1.24 | % | | | 2.93 | % |
Expected life | | 2.0 years | | 3.9 years | | 4.4 years |
Expected volatility | | | 80 | % | | | 60 | % | | | 43 | % |
Expected dividend yield | | | 3.42 | % | | | 1.1 | % | | | 1.1 | % |
The weighted average per share Stock-based liability awards are measured at fair value at the end of these awards granted in 2010, 2009each reporting period and 2008 was $5.43, $4.69will fluctuate based on the price of CMC common stock and $12.58, respectively.performance relative to the targets.
The binomial model was used for performance-based awards and the following assumptions were used for grants in the years ended August 31:
| | | | | | | | |
| | 2010 | | 2009 |
|
Risk-free interest rate | | | 1.31 | % | | | 1.37 | % |
Expected life | | 3.0 years | | 2.6 years |
Expected volatility | | | 71 | % | | | 69 | % |
Expected dividend yield | | | 0 | % | | | 2.9 | % |
The average per share fair value of these awards granted in 2010 and 2009 was $9.96 and $8.89, respectively.
See Note 10, Capital Stock, for share information on options, SARs and performance-based awards at August 31, 2010.
Accounts Payable — Documentary Letters of CreditIn order to facilitate certain trade transactions, the Company utilizes documentary letters of credit to provide assurance of payment to its suppliers. These letters of credit may be
52
for prompt payment orare typically for payment at a future date conditional upon the bank findingdetermining the documentation presented to be in strict compliance with all terms and conditions of the letter of credit. The banksBanks issue these letters of credit under informal, uncommitted lines of credit, which are in addition to and separate from the Company’sCompany's contractually committed revolving credit agreement. In some cases, if the Company’sCompany's suppliers choose to discount the future dated obligation, the Company may pay the discount cost.
Income TaxesThe Company CMC and its U.S. subsidiaries file a consolidated Federal income tax return. Deferred income taxes are provided for temporary differences between financial statement and tax reporting.bases of asset and liabilities. The principal differences are described in Note 9,14, Income Tax. Benefits from tax credits are reflected currently in earnings. As of August 31, 2009, theThe Company intends to indefinitely reinvest all undistributed earnings of non-U.S. subsidiaries. The Company records income tax positions based on a more likely than not threshold that the tax positions will be sustained on examination by the taxing authorities having full knowledge of all relevant information.
Foreign CurrenciesThe functional currency of most of the Company’sCompany's European marketing and distribution operations and CMCS is the euro. The functional currencies of the Company’sCompany's Australian, CMCZ,Polish, United Kingdom and certain Chinese, MexicanSingaporean and SingaporeanThai operations are their local currencies. The Company's remaining international subsidiaries’subsidiaries' functional currency is the U.S. dollar. Translation adjustments are reported as a component of accumulated other comprehensive income (loss). Transaction gains (losses) from transactions denominated in currencies other than the functional currencies, recorded as a component of selling, general and administrative expenses, were $(2.7)$(5.8) million $(5.3), $2.2 million and $4.4$7.1 million for the years ended August 31, 2010, 20092013, 2012 and 2008,2011, respectively.
Use of EstimatesThe preparation of financial statements in conformity with generally accepted accounting principles requires management to make significant estimates regarding assets and liabilities and associated revenues and expenses. Management believes these estimates to be reasonable; however, actual results may vary.
Derivative Financial InstrumentsThe Company records derivative instruments on the balance sheet as assets or liabilities, measured at fair value. Gains or losses from the changes in the values of the derivative instruments and hedged items are recorded in the statements of operations, or are deferred if they are designated for hedge accounting and are highly effective in achieving offsetting changes in fair values or cash flows of the hedged items during the term of the hedge.
Fair Value The Company has established a fair value hierarchy which prioritizes the inputs to the valuation techniques used to measure fair value into three levels. These levels are determined based on the lowest level input that is significant to the fair value measurement. Level 1 represents unadjusted quoted prices in active markets for identical assets and liabilities. Level 2 represents quoted prices for similar assets and liabilities in active markets (other than those included in Level 1) which are observable, either directly or indirectly. Level 3 represents valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.
Comprehensive Income (Loss)The Company reports comprehensive income (loss) in its consolidated statementstatements of stockholders’ equity.comprehensive income (loss). Comprehensive income (loss) consists of net earnings (loss) plus gains and losses affecting stockholders’stockholders' equity that, under generally accepted accounting principles, are excluded from net earnings (loss), such as gains and losses related to certain derivative instruments, defined benefit plan obligations, and the translation effect of foreign currency assets and liabilities, net of tax. taxes.
Recent Accounting Pronouncements In the fourth quarter of 2013, the Company adopted guidance issued by the Financial Accounting Standards Board ("FASB") requiring an entity to disclose additional information about reclassifications out of
accumulated other comprehensive income (loss), including (1) changes in accumulated other comprehensive income (loss) balances by component and (2) significant items reclassified out of accumulated other comprehensive income (loss) and the effect on the respective line items in net income if the amounts are required to be reclassified in their entirety to net income. For other amounts that are not required to be reclassified in their entirety to net income in the same reporting period, an entity is required to cross-reference to other disclosures that provide additional detail about those amounts. The adoption of this guidance only impacts the Company's disclosures and has no impact on its consolidated financial position, results of operations or cash flows. As a result of the adoption of the new guidance, the Company has disclosed this information within the notes to the consolidated financial statements.
In the first quarter of 2013, the Company adopted guidance issued by the FASB on disclosure requirements for the presentation of comprehensive income (loss). This guidance requires entities to report total comprehensive income (loss), the components of net income (loss), and the components of comprehensive income (loss) in either (1) a continuous statement of comprehensive income (loss) or (2) two separate but consecutive statements. As a result of the adoption, the Company's financial statements now include a separate consolidated statement of comprehensive income (loss) immediately following the consolidated statements of operations.
In the first quarter of 2013, the Company adopted guidance that simplifies how entities test indefinite-lived intangible assets for impairment and improves consistency in impairment testing guidance among long-lived asset categories. The guidance permits entities to first assess qualitative factors to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired as a basis for determining whether it is necessary to perform the quantitative impairment test in accordance with U.S. generally accepted accounting principles. An entity will have an option not to calculate annually the fair value of an indefinite-lived intangible asset if the entity determines that it is not more likely than not that the asset is impaired. The adoption of this guidance did not have a material impact on the Company's consolidated financial statements. The Company did not elect the qualitative option in testing goodwill in 2013.
In July 2013, the FASB issued guidance requiring entities to net an unrecognized tax benefit with a deferred tax asset for a net operating loss carryforward, a similar tax loss or a tax credit carryforward. To the extent a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. The new guidance is effective prospectively for fiscal years, and interim periods within those years, beginning after December 15, 2013. The Company does not expect this guidance to have a material impact on its consolidated financial statements.
In July 2013, the FASB issued guidance permitting the Fed Funds Effective Swap Rate ("Overnight Index Swap Rate" or OIS) to be used as a U.S. benchmark interest rate for hedge accounting purposes in addition to interest rates on direct obligations of the U.S. Treasury (UST) and the London Interbank Offered Rate (LIBOR) swap rate. The guidance also removed the restriction on using different benchmark rates for similar hedges. The new guidance is effective prospectively for qualifying new or redesignated hedging relationships entered into on or after July 17, 2013. The Company had no new or redesignated interest rate hedging transactions during the period from July 17, 2013 to August 31, 2013. The Company will evaluate the impact of this guidance on its consolidated financial statements when applicable.
In April 2013, the FASB issued guidance requiring an entity to prepare its financial statements using the liquidation basis of accounting when liquidation is imminent. In addition, the guidance provides principles for the recognition and measurement of assets and liabilities and requirements for financial statements prepared using the liquidation basis of accounting. The new guidance is effective prospectively for entities that determine liquidation is imminent during fiscal years, and interim reporting periods within those years, beginning after December 15, 2013. The Company does not expect this guidance to have a material impact on its consolidated financial statements.
In March 2013, the FASB issued guidance requiring an entity to release any related cumulative translation adjustment into net income when it either sells a part or all of its investment in a foreign entity or no longer holds a controlling financial interest in a subsidiary or group of assets that is a nonprofit activity or a business within a foreign entity. In addition, the guidance resolves the diversity in practice for the treatment of business combinations achieved in stages involving a foreign entity. The new guidance is effective prospectively for fiscal years, and interim reporting periods within those years, beginning after December 15, 2013. The Company does not expect the adoption of this guidance to have a material impact on its consolidated financial statements.
In February 2013, the FASB issued guidance requiring an entity to measure obligations resulting from joint and several liability arrangements for which the total amount of the obligation is fixed at the reporting date. The guidance also requires entities to disclose the nature and amount of the obligation as well as other information about the obligation. The new guidance is effective
retrospectively for fiscal years, and interim reporting periods within those years, beginning after December 15, 2013. The Company does not expect the adoption of this guidance to have a material impact on its consolidated financial statements.
In December 2011, the FASB issued guidance requiring an entity to disclose the nature of its rights of setoff and related arrangements associated with its financial instruments and derivative instruments. The objective is to make financial statements that are prepared under GAAP more comparable to those prepared under International Financial Reporting Standards. The new disclosures will give financial statement users information about both gross and net exposures. In January 2013, the FASB issued an update and clarified the scope of transactions that are subject to disclosures concerning offsetting. These disclosure requirements are effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods, and should be applied retrospectively for all comparative periods presented. The Company does not expect the adoption of these disclosure requirements to have a material impact on its consolidated financial statements.
NOTE 3. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Accumulated other comprehensive income (loss), net of taxes, is comprised of the following:
| | | | | | | | |
(in thousands) | | 2010 | | 2009 |
|
Foreign currency translation adjustment | | $ | (14,050 | ) | | $ | 31,557 | |
Unrealized gain on derivatives | | | 4,872 | | | | 4,951 | |
Defined benefit obligations | | | (3,348 | ) | | | (2,251 | ) |
|
Total | | $ | (12,526 | ) | | $ | 34,257 | |
|
Recent Accounting PronouncementsIn |
| | | | | | | | | | | | | | | | |
(in thousands) | | Foreign Currency Translation | | Unrealized Gain (Loss) on Derivatives | | Defined Benefit Obligation | | Total Accumulated Other Comprehensive Income (Loss) |
Balance at August 31, 2012 | | $ | (17,369 | ) | | $ | 3,710 |
| | $ | (4,477 | ) | | $ | (18,136 | ) |
Other comprehensive income (loss) before reclassifications | | (10,108 | ) | | 221 |
| | 1,147 |
| | (8,740 | ) |
Amounts reclassified from AOCI | | — |
| | (337 | ) | | 37 |
| | (300 | ) |
Net other comprehensive income (loss) | | (10,108 | ) | | (116 | ) | | 1,184 |
| | (9,040 | ) |
Balance at August 31, 2013 | | $ | (27,477 | ) | | $ | 3,594 |
| | $ | (3,293 | ) | | $ | (27,176 | ) |
The significant items reclassified out of accumulated other comprehensive income (loss) and the first quarter of 2010, the Company adopted accounting guidance on business combinations. The guidance establishes principles for recognizing and measuring the identifiable assets acquired, the liabilities assumed, any noncontrolling interestcorresponding line items in the acquired business and goodwill acquired in a business combination. Additionally,consolidated statements of operations to which the guidance clarifies accounting and disclosure of assets and liabilities arising from contingencies in a business combination. This guidance will be applied to future business combinations.
In the first quarter of 2010, the Company adopted accounting guidance that modifies accounting and reporting for noncontrolling interests. The guidance requires minority interest to be reporteditems were reclassified were as equity on the balance sheet, net earnings (loss) to include both the amounts attributable to the affiliate’s parent and the noncontrolling interest and clarifies the accounting for changes in the parent’s interest in an affiliate. The provisions of the standard were applied prospectively, exceptfollows for the presentation and disclosure requirements, which were applied retrospectively to all periods presented. As a result, previously reported minority interests were reclassified into the noncontrolling interests portion of stockholders’ equity and reported net earnings (loss) was adjusted to reflect the earnings (loss) attributable to the noncontrolling interests.year ended August 31, 2013:
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In the first quarter of 2010, the Company adopted accounting guidance requiring disclosure of the fair value of financial instruments for interim and annual reporting periods. The adoption did not have a material impact on the consolidated financial statements. See Note 8, Fair Value.
In June 2009, new accounting guidance was issued which clarifies the determination of a transferor’s continuing involvement |
| | | | | | |
Components of AOCI | | Location | | (in thousands) |
|
Unrealized gain (loss) on derivatives: | |
| |
|
|
Commodity | | Cost of goods sold | | $ | (260 | ) |
Foreign exchange | | Net sales | | 60 |
|
Foreign exchange | | SG&A expenses | | 48 |
|
Interest rate | | Interest expense | | 617 |
|
| |
| | 465 |
|
Income tax effect | | Income tax (expense) benefit | | (128 | ) |
Net of income taxes | |
| | $ | 337 |
|
Defined benefit obligation: | |
| |
|
|
Amortization of net gain (loss) | | SG&A expenses | | $ | (252 | ) |
Amortization of prior service credit (cost) | | SG&A expenses | | 208 |
|
| |
| | (44 | ) |
Income tax effect | | Income tax (expense) benefit | | 7 |
|
Net of income taxes | |
| | $ | (37 | ) |
Amounts in a transferred financial asset and limits the circumstances in which a financial asset should be derecognized when the transferor has not transferred the entire original financial asset. The Company is required to adopt the provisions of this statement in the first quarter of fiscal 2011. The Company is still in the process of evaluating the impact, if any, this statement will have on the Company’s consolidated financial statements.parentheses reduce income.
NOTE 2.4. ACQUISITIONS
During
For the years ended August 31, 20102013 and 2009,2012, the Company did not have any material business acquisitions.
2008
During the year ended August 31, 2008, the Company acquired the following businesses:
On September 19, 2007, the Company acquired all of the outstanding shares of Valjaonica Cijevi Sisak (“VCS”) from the Croatian Privatization Fund and Croatian government. VCS’s name has been changed to CMC Sisak d.o.o. (“CMCS”). CMCS is an electric arc furnace based steel pipe manufacturer located in Sisak, Croatia with annual capacity estimated at acquisition of 336,000 short tons. CMCS is part of the International Mills segment.
On September 19, 2007, the Company acquired the operating assets of Economy Steel, Inc. of Las Vegas, Nevada. The acquired assets operate under the name of CMC Economy Steel. This operation is a rebar fabricator, placer, construction-related products supplier and steel service center. CMC Economy Steel is part of the Americas Fabrication segment.
On December 31, 2007, the Company acquired a 70% interest in a newly incorporated business, CMC Albedo Metals which acquired an existing metals recycling business in Singapore. On April 16, 2008, the Company acquired the remaining 30% interest in CMC Albedo Metals. CMC Albedo Metals name has been changed to CMC Recycling Singapore and is included in the International Marketing and Distribution segment.
On April 29, 2008, the Company acquired the operating assets of Rebar Services and Supply Company of Fort Worth, Texas. The acquired assets operate under the name of CMC Rebar, as part of CMC Americas Fabrication segment.
On June 5, 2008, the Company’s subsidiary, CMC Poland, completed the acquisition of substantially all the outstanding shares of PHP NIKE S.A. (“PHP Nike”). PHP Nike is a producer of welded steel meshes, cold rolled wire rod and cold rolled rebar in Poland with annual production capacity of 100,000 short tons. PHP Nike is part of the International Mills segment.
On July 1, 2008,2011, the Company completed the purchase of G.A.M. Steel Pty. Ltd. ("G.A.M."), based in Melbourne, Australia for $48.4 million. G.A.M. is a leading distributor and processor of steel long products and plate, servicing the structural fabrication, rural and manufacturing segments in Victoria, Australia. The acquisition of substantially all ofG.A.M. complemented the operating assets of ABC Coating Companies and affiliates (“ABC Coating”). ABC Coating is involvedCompany's existing national long products distribution investments in rebar fabrication and epoxy coated reinforcing bar servicing the Southwest, Midwest and Southeast U.S. with an annual capacity of 150,000 short tons. ABC Coating is included as part of CMC Americas Fabrication segment.Australia.
On August 29, 2008, the Company completed the acquisition of substantially all of the operating assets of Reinforcing Post-Tensioning Services, Inc. and affiliates (“RPS”). RPS is a fabricator and installer of concrete reinforcing steel, post-tensioning cable and related products for commercial and public construction projects with an annual capacity of approximately 150,000 tons. RPS is included as part of CMC Americas Fabrication segment.
These acquisitions were expected to strengthen the Company’s marketing position in the respective regions and product lines. The total purchase price of $231.5 million ($228.4 million in cash and $3.1 million in notes payable) for the acquisitions in 2008 was allocated to the acquired assets and assumed liabilities based on estimates of their
54
respective fair values. The Company also has committed to spend not less than $38 million over five years in capital expenditures for CMCS and increase working capital by approximately $39 million. The following is a summary of the allocation of the total purchase price as of the date of the respective acquisitions:
| | | | |
(in thousands) | | Total |
|
Accounts receivable | | $ | 20,415 | |
Inventories | | | 78,087 | |
Other current assets | | | 7,589 | |
Property, plant and equipment | | | 112,077 | |
Goodwill | | | 53,405 | |
Intangible assets | | | 49,047 | |
Other assets | | | 10,294 | |
Liabilities | | | (99,377 | ) |
|
Net assets acquired | | $ | 231,537 | |
|
The intangible assets acquired include customer bases, trade names and non-competition agreements which are being amortized between four and eight years and backlog, which is being amortized over 12 months.
NOTE 3.5. SALES OF ACCOUNTS RECEIVABLE
On November 25, 2009,
The Company has a domestic sale of accounts receivable program which expires on December 26, 2014. Under the program, the Company renegotiated an existing accounts receivable securitization agreement of $100 million. The agreement extended the maturity date of the facility to November 24, 2010. On February 26, 2010, the Company amended the existing agreement to modify the covenant structure. The covenants contained in this agreement are consistent with the credit facility fully described in Note 6, Credit Arrangements.
The Company’s accounts receivable securitization program is used as a cost-effective, short-term financing alternative. Under this program, the Companyperiodically contributes, and several of its subsidiaries periodically sell without recourse, certain eligible trade accounts receivable to the Company’sCMC Receivables, Inc. ("CMCRV"), a wholly-owned consolidated special purpose subsidiary (“CMCRV”).of CMC. CMCRV is structured to be a bankruptcy-remote entity and was formed for the sole purpose of buying and selling receivables generated by the Company. The Company, irrevocably and without recourse, transfers all eligible trade accounts receivable to CMCRV. Depending on the Company’sCompany's level of financing needs, CMCRV may sell an undivided percentage ownership interestsells the trade accounts receivable in the pool of receivablestheir entirety to affiliates of third partytwo third-party financial institutions.
The third-party financial institutions advance up to a maximum of $200 million for all receivables, and the remaining portion due to the Company is deferred until the ultimate collection of the underlying receivables. The Company accounts for CMCRV’s sales of undivided interests in these receivables to the financial institutions as sales. Attrue sales, and the time an undivided interest in the pool ofcash advances for receivables is sold, the amount isare removed from the consolidated balance sheetsheets and the proceeds from the sale are reflected as cash provided by operating activities. At August 31, 2010 and 2009, accounts receivable of $190 million and $141 million, respectively, had been sold to CMCRV. The Company’s undivided interest in these receivables (representing the Company’s retained interest) was 100% at August 31, 2010 and 2009, respectively. The Company had no sales to third party financial institutional buyers during the year ended August 31, 2010. The average monthly amounts of undivided interests owned by the financial institutional buyers were $20.8 million and $8.3 million for the years ended August 31, 2009 and 2008. The carrying amount of the Company’s retained interest inAdditionally, the receivables approximated fair value due to the short-term nature of the collection period. No other material assumptions are made in determining the fair value of the retained interest. The retained interest is subordinate to, and provides credit enhancement for, the financial institutional buyers’ ownership interest in CMCRV’s receivables, and is available to the financial institution buyers to pay any fees or expenses due to them and to absorb all credit losses incurred on any of the receivables. The Company is responsible for servicing the entire pool of receivables; however, no servicing asset or liability is recorded as these receivables are collected in the normal course of business and the collection of receivables related to any sales to third party institutional buyers are normally short-term in nature. The U.S. securitization program contains certain cross-default provisions whereby a termination event could occur if the Company defaulted under onecertain of its credit arrangements. The covenants contained in the receivables purchase agreement are consistent with the credit facility described in Note 11, Credit Arrangements.
At August 31, 2013 and 2012, the Company sold $358.8 million and $406.9 million of receivables, respectively, to the third-party financial institutions. The Company had no advance payments outstanding on the sales of its receivables at August 31, 2013. At August 31, 2012 the Company had $10.0 million in advance payments outstanding on the sales of its receivables. The remaining amounts at August 31, 2013 and 2012 of $358.8 million and $396.9 million, respectively, are the deferred purchase prices and are included in trade receivables on the Company's consolidated balance sheets.
In addition to the securitizationdomestic sale of accounts receivable program described above, the Company’sCompany's international subsidiaries in Europe and Australia and a domestic subsidiary periodically sell accounts receivable without recourse. These arrangements constitute true sales, and once the accounts are sold, they are no longer available to satisfy the Company’sCompany's creditors in the event of bankruptcy. Uncollected accounts receivable sold under these arrangements, and removed from the Company's consolidated balance sheets, were $103.9$24.5 million and $93.7$95.1 million at as of August 31, 20102013 and 2009,August 31, 2012, respectively. The
55
Company’s Australian subsidiary entered into an agreement with a financial institution to periodically sell certain trade accounts receivable up to a maximum of AUD 110 million ($98 million). This Australian program contains financial covenants in which the subsidiary must meet certain coverage and tangible net worth levels, as defined.levels. At August 31, 2010,2013, the Australian subsidiary was not in compliance with these covenants. The Company provided a guarantee of the Australian subsidiary's performance which resulted in the financial covenants being waived at August 31, 2013.
During 2010
For the years ended August 31, 2013, 2012 and 2009,2011, proceeds from the domestic and international sales of receivables were $831.0 million$1.0 billion, $1.9 billion and $966.5 million,$1.3 billion, respectively, and cash payments to the owners of receivables were $820.8 million$1.1 billion, $1.9 billion, and $1,095.7 million,$1.2 billion, respectively. The Company is responsible for servicing the receivables for a nominal servicing fee. Discounts on domestic and international sales of accounts receivable were $4.0$3.9 million $4.9, $6.4 million and $11.1$5.1 million for the years ended August 31, 2010, 20092013, 2012 and 2008,2011, respectively. These discounts primarily representedrepresent the costscost of funds and wereare included in selling, general and administrative expenses.expenses in the Company's consolidated statements of operations.
NOTE 4.6. INVENTORIES
Inventories are stated at the lower of cost or market. Inventory cost for most domestic inventories is determined by the LIFOlast-in, first-out ("LIFO") method. LIFO inventory reserves were $230.3$185.5 million and $241.7$261.8 million at August 31, 20102013 and 2009,2012, respectively. Inventory cost for international inventories and the remaining domestic inventories are determined by the FIFOfirst-in, first-out ("FIFO") method.
At August 31, 20102013 and 2009, 51%2012, 43% and 62%55%, respectively, of the Company's total inventories were valued at LIFO. The remainder of inventories, valued at FIFO, consisted mainly of material dedicated to CMCZCMC Poland Sp. z.o.o. ("CMCP") (formerly CMC Zawiercie S.A. or "CMCZ") and certain marketing and distribution businesses.
The majority of the Company’sCompany's inventories are in the form of finished goods with minimal work in process. At August 31, 20102013 and 2009, $59.12012, inventories of $66.7 million and $52.9$68.0 million before LIFO reserves, respectively, were in the form of raw materials.
During 2010, 20092013 and 2008,2012, inventory quantities in certain LIFO pools werewas reduced. This reduction resulted in a liquidation of LIFO inventory quantities carried at lower costs prevailing in prior years as compared with the cost of current purchases. The effect for 2010 decreased cost of goods sold by $52.2 million and decreased net loss by $33.9 million. The effect for 2009 decreased cost of goods sold by $75.9 million and2013 increased net earnings by $49.3 million.$3.5 million. The effect on net earnings for 2008 decreased2012 was not material. During 2011, there was no liquidation of LIFO inventory.
NOTE 7. GOODWILL AND OTHER INTANGIBLE ASSETS
The following table details the changes in the carrying amount of goodwill by reportable segment:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Americas | | International | | |
(in thousands) | Recycling | | Mills | | Fabrication | | Mill | | Marketing and Distribution | | Consolidated |
Balance at September 1, 2011 | $ | 7,267 |
| | $ | 295 |
| | $ | 57,144 |
| | $ | 3,092 |
| | $ | 9,840 |
| | $ | 77,638 |
|
Translation | — |
| | — |
| | — |
| | (407 | ) | | (334 | ) | | (741 | ) |
Balance at August 31, 2012 | $ | 7,267 |
| | $ | 295 |
| | $ | 57,144 |
| | $ | 2,685 |
| | $ | 9,506 |
| | $ | 76,897 |
|
Impairment | — |
| | — |
| | — |
| | — |
| | (6,331 | ) | | (6,331 | ) |
Translation | — |
| | — |
| | — |
| | 70 |
| | (1,057 | ) | | (987 | ) |
Balance at August 31, 2013 | $ | 7,267 |
| | $ | 295 |
| | $ | 57,144 |
| | $ | 2,755 |
| | $ | 2,118 |
| | $ | 69,579 |
|
As a result of the Company's annual goodwill impairment analysis in the fourth quarter of 2013, the Company determined that the carrying amount of its Australian reporting unit exceeded its estimated fair value. The resulting impairment charges of $6.4 million, including foreign currency translation gains of $0.6 million, were recorded within the International Marketing and Distribution reporting segment at August 31, 2013. The weakened Australian economy and in particular the demand for construction steel, coupled with continued operating performance below planned levels during 2013 and a weak forecast of future operating results were the contributing factors that lead to the impairment charges recorded in 2013. These goodwill impairment charges represent our accumulated goodwill impairment as of August 31, 2013.
The annual goodwill impairment analysis did not result in any impairment charges at any of the Company's other reporting units. As of August 31, 2013 and 2012, one of the Company's reporting units within the Americas Fabrication reporting segment comprised $51.3 million of the Company's total goodwill.
The following intangible assets subject to amortization are included in other noncurrent assets on the Company's consolidated balance sheets:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| August 31, 2013 | | August 31, 2012 |
(in thousands) | Gross Carrying Amount | | Accumulated Amortization | | Net | | Gross Carrying Amount | | Accumulated Amortization | | Net |
Customer base | $ | 33,625 |
| | $ | 21,408 |
| | $ | 12,217 |
| | $ | 33,928 |
| | $ | 17,133 |
| | $ | 16,795 |
|
Favorable land leases | 6,257 |
| | 612 |
| | 5,645 |
| | 6,133 |
| | 527 |
| | 5,606 |
|
Brand name | 2,942 |
| | 946 |
| | 1,996 |
| | 4,113 |
| | 1,394 |
| | 2,719 |
|
Other | 101 |
| | 38 |
| | 63 |
| | 101 |
| | 31 |
| | 70 |
|
Total | $ | 42,925 |
| | $ | 23,004 |
| | $ | 19,921 |
| | $ | 44,275 |
| | $ | 19,085 |
| | $ | 25,190 |
|
Excluding goodwill, there are no other significant intangible assets with indefinite lives. Amortization expense for intangible assets for the years ended August 31, 2013, 2012, and 2011 was $4.9 million, $5.9 million, and $9.9 million, respectively. At August 31, 2013, the weighted average remaining useful life of these intangible assets, excluding the favorable land leases in Poland, was four years. The weighted average life of the favorable land leases was 76 years. Estimated amounts of amortization expense for the next five years are as follows:
|
| | | | |
| | |
Year Ended August 31, | | (in thousands) |
2014 | | $ | 4,801 |
|
2015 | | 4,748 |
|
2016 | | 3,110 |
|
2017 | | 663 |
|
2018 | | 523 |
|
NOTE 8. IMPAIRMENT AND FACILITY CLOSURE COSTS
The Company evaluates the carrying value of property, plant and equipment and finite-lived intangible assets whenever a change in circumstances indicates that the carrying value may not be recoverable. The fair values include estimated cost to sell the assets. Lease termination costs represent the estimated fair value of future lease payments less any sub-lease income which the Company estimates at the cease use date of the leased property.
During the fourth quarter of 2013, the Company prepared an impairment analysis on its Australian operating unit and determined the carrying value of certain fixed assets exceeded their fair value as determined utilizing market and cost approaches. Determining the fair value is judgmental in nature and requires the use of significant estimates and assumptions, considered to be level 3 inputs. The resulting non-recurring impairment charges of $6.3 million, primarily related to the write-down of long-lived assets, were recorded within the International Marketing and Distribution reporting segment at August 31, 2013. As a result of the $6.3 million non-recurring impairment charges, the fair value of International Marketing and Distribution's fixed assets is $20.4 million at August 31, 2013.
Asset impairment and facility closure costs associated with the Company's other operating units were approximately $4.6 million for the year ended August 31, 2013.
Asset impairment and facility closure costs were not significant in 2012.
During the fourth quarter of 2011, the Company prepared an impairment analysis on its steel pipe manufacturing operation at CMC Sisak, d.o.o. ("CMCS") and recorded charges of $110.6 million to impair the CMCS operation. The impairment of property, plant and equipment was based on the fair values calculated by independent appraisals. Additionally, the Company decided to close certain rebar fabrication and construction services locations in the Americas Fabrication segment and the German fabrication operation in the International Mill segment during the fourth quarter of 2011. The construction services locations were leased properties. As a result, the Company recorded impairment charges for these locations. The Company also determined that one of the Company's rebar fabrication customer base intangible assets was not recoverable; the Company recorded an impairment charge to reduce the customer base intangible to its estimated fair value in 2011. See Note 10, Businesses Held for Sale, Discontinued Operations and Dispositions, for additional details about dispositions of CMCS and the German fabrication operation.
In connection with these actions, the following pre-tax charges were recorded in 2011:
|
| | | | |
| | (in thousands) |
Impairment of property, plant and equipment and other assets | | $ | 106,655 |
|
Impairment of customer list intangible asset | | 12,140 |
|
Write-down of inventory | | 8,500 |
|
Severance costs | | 5,051 |
|
Lease termination costs | | 2,196 |
|
Other closure costs | | 7,700 |
|
NOTE 9. SEVERANCE
The Company recorded consolidated severance cost of goods$6.1 million, $25.6 million and $8.2 million for the years ended August 31, 2013, 2012 and 2011, respectively. The severance cost recorded during 2013 was not individually material to any of the Company's segments. The severance cost recorded during 2012 primarily related to the Company's discontinued operations. During 2011, the Company closed several locations which resulted in involuntary employee termination benefits. These termination benefits have been included in selling, general and administrative expenses in the Company's consolidated statements of operations. As of August 31, 2013 and 2012, the remaining liability to be paid in the future related to termination benefits was $2.8 million and $2.7 million, respectively.
NOTE 10. BUSINESSES HELD FOR SALE, DISCONTINUED OPERATIONS AND DISPOSITIONS
Businesses Held for Sale The assets and liabilities of businesses classified as held for sale are included in other current assets and accrued expenses on the Company's consolidated balance sheets. The components of assets and liabilities of businesses held for sale are as follows.
|
| | | | | | | | |
| | August 31, |
(in thousands) | | 2013 | | 2012 |
Assets: | | | | |
Accounts receivable | | $ | 20,313 |
| | $ | — |
|
Inventories, net | | 8,713 |
| | — |
|
Other current assets | | 3,683 |
| | — |
|
Property, plant and equipment, net of accumulated depreciation and amortization | | 10,459 |
| | 6,601 |
|
Assets of businesses held for sale | | $ | 43,168 |
| | $ | 6,601 |
|
Liabilities: | | | | |
Accounts payable-trade | | $ | 7,615 |
| | $ | — |
|
Accrued expenses and other payables | | 3,251 |
| | — |
|
Liabilities of businesses held for sale | | $ | 10,866 |
| | $ | — |
|
Discontinued Operations During the fourth quarter of 2013, the Company decided to sell all of the stock of its wholly-owned copper tube manufacturing operation, Howell Metal Company ("Howell"). The Company determined that the decision to sell this business met the definition of a discontinued operation. As result, the Company included Howell in discontinued operations for all periods presented. Howell was previously an operating segment included in the Americas Mills reporting segment. On October 17, 2013, the Company sold by $8.4all of the stock of Howell for $58.5 million and increased net earnings by $5.4 million., subject to customary purchase price adjustments.
NOTE 5. DISCONTINUED OPERATIONS
On February 26, 2010,During 2012, the Company’s Board approved a planCompany announced its decision to exit CMCS by closure of the joistfacility and deck business through the sale of those facilities.the assets. The Company determined that the decision to exit this business met the definition of a discontinued operation. As a result, this businessoperation and has been presented as a discontinued operationsuch for all periods.periods presented. The Company recorded $26.8results for 2011 include approximately $110.6 million to impair property, plant of impairment and equipment, $2.8other charges incurred at CMCS. The results for 2012 consist of severance cost of $18.0 million to write-off intangible assets, $1.7 million to write-off goodwill and $7.4 million of inventory valuation adjustments. During 2010, the Company recorded severance expense of $11.7 million associated with exitingclosing the business. The joistfacility and deck business wasa pre-tax gain of $13.8 million for the sale of all of the shares of the CMCS operation, excluding $3.9 million in assets which were sold in the Americas Fabrication segment.first quarter of 2013 with no impact to the consolidated statements of operations.
On August 4, 2010,
Financial information for discontinued operations was as follows:
|
| | | | | | | | | | | | |
| | Year Ended August 31, |
(in thousands) | | 2013 | | 2012 | | 2011 |
Revenue | | $ | 157,780 |
| | $ | 202,632 |
| | $ | 253,426 |
|
Earnings (loss) before taxes | | 3,672 |
| | (11,906 | ) | | (139,195 | ) |
Dispositions During the first quarter of fiscal 2013, the Company completed the sale of the majority of the deck assets and recordedits 11% ownership interest in Trinecke Zelezarny, a.s. ("Trinecke"), a Czech Republic joint-stock company, for $29.0 million resulting in a pre-tax gain of $2.6$26.1 million. The Trinecke investment was included in the International Marketing and LIFO incomeDistribution segment.
During 2012, the Company sold its rebar fabrication shop in Rosslau, Germany for $11.3 million, resulting in a loss of $1.9$3.8 million from. The result of this sale is included in continuing operations in the liquidationconsolidated statements of the LIFO reserve. On September 27, 2010,operations. Additionally during 2012, the Company completed the sale of two properties that were previously joist and deck locations. The result of this sale is included in discontinued operations in the consolidated statements of operations.
During 2011, Construction Services, a division of a subsidiary of the Company, completed the sale of heavy forming and shoring equipment for $35 million. The result of this sale is included in continuing operations in the consolidated statements of operations. Additionally during 2011, the Company sold a majority of theits joist assets resulting in an estimateda gain of $2.0$1.9 million which will be recordedis included in discontinued operations in the first quarterconsolidated statements of 2011.operations.
On August 30, 2007, the Company’s Board approved a plan to offer for sale a division which was involved with the buying, selling and distribution of nonferrous metals, namely copper, aluminum and stainless steel semifinished products. At August 31, 2009, all inventory of this division had been sold or absorbed by other divisions of the Company and the minimal amount of remaining assets and liabilities were transferred to another division effective September 1, 2009. This division was in the International Marketing and Distribution segment.
56
Various financial information for discontinued operations is as follows:
| | | | | | | | | | | | |
(in thousands) | | 2010 | | 2009 | | 2008 |
|
At August 31, | | | | | | | | | | | | |
Current assets | | $ | 10,850 | | | $ | 60,594 | | | $ | 244,050 | |
Noncurrent assets | | | 27,045 | | | | 79,861 | | | | 93,279 | |
Current liabilities | | | 14,723 | | | | 25,885 | | | | 92,638 | |
Noncurrent liabilities | | | 22 | | | | 72 | | | | 952 | |
| | | | | | | | | | | | |
Fiscal Year | | | | | | | | | | | | |
Revenue | | | 122,971 | | | | 474,056 | | | | 867,919 | |
Earnings (loss) before taxes | | | (59,762 | ) | | | 31,991 | | | | (20,148 | ) |
NOTE 6.11. CREDIT ARRANGEMENTS
On November 24, 2009,
In May 2013, the Company renegotiatedissued $330.0 million of 4.875% Senior Notes due May 15, 2023 (the "2023 Notes") and received proceeds of $325.0 million, net of underwriting discounts and debt issuance costs. The Company used $205.3 million of the proceeds from the 2023 Notes to purchase all of its outstanding $200.0 million of 5.625% Notes due 2013 (the "2013 Notes"). The Company intends to use the remaining proceeds for general corporate purposes. Interest on the 2023 Notes is payable semi-annually on May 15 and November 15 of each year, beginning on November 15, 2013. The Company may, at any time, redeem the 2023 Notes at a redemption price equal to 100 percent of the principal amount, plus a "make-whole" premium described in
the indenture. Additionally, if a change of control triggering event occurs, as defined by the terms of the indenture, holders of the 2023 Notes may require the Company to repurchase the 2023 Notes at a purchase price equal to 101 percent of the principal amount, plus accrued and unpaid interest, if any, to the date of purchase. The Company is generally not limited under the indenture governing the 2023 Notes in its ability to incur additional indebtedness provided the Company is in compliance with certain restrictive covenants, including restrictions on liens, sale and leaseback transactions, mergers, consolidations and transfers of substantially all of the Company's assets.
As a result of redeeming the 2013 Notes, the Company recognized expenses of $4.8 million related to loss on early extinguishment of debt and write-off of unamortized debt issuance costs, discounts and premiums, all of which were included in selling, general and administrative expenses in the consolidated statements of operations for the year ended August 31, 2013.
In December 2011, the Company entered into a third amended and restated $300 million revolving credit facility that matures on December 27, 2016. The maximum availability under this facility can be increased to $400 million with the consent of $400both parties. The program's capacity, with a sublimit of $50 million and extended for letters of credit, is reduced by outstanding stand-by letters of credit which totaled $28.3 million at August 31, 2013. Under the maturity date from May 23, 2010 to November 24, 2012. On February 26, 2010,credit facility, the Company amended the existing agreement to modify the covenant structure which requires the Companywas required to maintain a minimum interest coverage ratio (adjusted EBITDA to interest expense, as each is defined in the facility) of not less than 2.503.00 to 1.00 for the sixtwelve month cumulative period ended August 31, 2010, nine month cumulative period ending November 30, 2010, twelve month cumulative period ending February 28, 20112012 and for each fiscal quarter on a rolling twelve month cumulative period thereafter. At August 31, 2010,2013, the Company’sCompany's interest coverage ratio was 3.495.17 to 1.00.1.00. The agreementcredit facility also requires the Company to maintain liquidity of at least $300 million (cash, short-term investments and accounts receivable securitization capacity combined) through November 30, 2010. At August 31, 2010 the Company had liquidity of $499.3 million. The agreement did not change the existinga debt to capitalization ratio covenant which requires the Companythat does not exceed 0.60 to maintain a ratio not greater than 0.60 to 1.00.1.00. At August 31, 2010,2013, the Company’sCompany's debt to capitalization ratio was 0.520.51 to 1.00.1.00. The agreementcredit facility provides for interest based on the LIBOR, the Eurodollar rate or Bank of America’sAmerica's prime rate.
At August 31, 2013, the Company was in compliance with all covenants contained in its debt agreements.
During 2012, the Company terminated its existing interest rate swap transactions and received cash proceeds of approximately $52.7 million, net of customary finance charges. The facility feeresulting gain was deferred and is 60 basis points per annum and no compensating balances are required.
It isbeing amortized as a reduction to interest expense over the Company’s policy to maintain contractual bank credit lines equal to 100%remaining term of the amountrespective debt tranches. At August 31, 2013 and 2012, the unamortized portion was $34.4 million and $46.9 million, respectively, and for the years ended August 31, 2013 and 2012, amortization of the commercial paper program. At August 31, 2010, $10deferred gain was $12.5 million was outstanding under the commercial paper program. There were no amounts outstanding on the commercial paper program at August 31, 2009 or the revolving credit facility at August 31, 2010 and 2009. The availability under the revolving credit agreement is reduced by the outstanding amount under the commercial paper program. At August 31, 2010, $390$5.8 million was available under the revolving credit agreement., respectively.
The Company has numerous uncommitted credit facilities available from domestic and international banks. No commitment fees or compensating balances are required underIn general, these credit facilities. These credit facilities are used in general, to support importtrade letters of credit (including accounts payable settled under bankers’bankers' acceptances as described in Note 1.2, Summary of Significant Accounting Polices)Policies), foreign exchange transactions and short termshort-term advances which are priced at market rates.
Long-term debt, including the net effectdeferred gain from the termination of the interest rate swap revaluation adjustments,swaps, was as follows as of August 31:
| | | | | | | | |
(in thousands) | | 2010 | | 2009 |
|
5.625% notes due November 2013 (weighted average rate of 3.57% at August 31, 2010) | | | 208,253 | | | | 200,000 | |
6.50% notes due July 2017 | | | 400,000 | | | | 400,000 | |
7.35% notes due August 2018 (weighted average rate of 5.50% at August 31, 2010) | | | 524,185 | | | | 500,000 | |
CMCZ term note due May 2013 | | | 69,716 | | | | 104,945 | |
CMCS financing agreement | | | 19,006 | | | | — | |
Other, including equipment notes | | | 6,710 | | | | 9,597 | |
|
| | | 1,227,870 | | | | 1,214,542 | |
Less current maturities | | | 30,588 | | | | 32,802 | |
|
| | $ | 1,197,282 | | | $ | 1,181,740 | |
|
|
| | | | | | | | | |
(in thousands) | Weighted Average Interest Rate as of August 31, 2013 | | 2013 | | 2012 |
$200 million notes at 5.625% due November 2013 | —% | | $ | — |
| | $ | 204,873 |
|
$400 million notes at 6.50% due July 2017 | 5.7% | | 411,518 |
| | 414,491 |
|
$500 million notes at 7.35% due August 2018 | 6.4% | | 522,930 |
| | 527,554 |
|
$330 million notes at 4.875% due May 2023 | 4.9% | | 330,000 |
| | — |
|
Other, including equipment notes | | | 19,594 |
| | 14,407 |
|
| | | 1,284,042 |
| | 1,161,325 |
|
Less current maturities | | | 5,228 |
| | 4,252 |
|
| | | $ | 1,278,814 |
| | $ | 1,157,073 |
|
Interest on thethese notes except for the CMCZ note, is payable semiannually.
57
On CMCP has uncommitted credit facilities of $75.9 million with several banks with expiration dates ranging from September 30, 2013 to March 23, 2010, the Company entered into two interest rate swap transactions (“Swap Transactions”)31, 2014. The Swap Transactions were designated as fair value hedges at inceptionDuring 2013, CMCP had total borrowings of $229.4 million and convert all fixed rate interest to floating rate interest on the Company’s 5.625% notes due 2013 and $300total repayments of $254.0 million on its fixed rate 7.35% notes due 2018. Swap Transactions with regard to the 5.625% notes and the 7.35% notes have notional amounts of $200 million and $300 million and termination dates of November 15, 2013 and August 15, 2018, respectively. The Swap Transactions cost is based on the floating LIBOR plus 303 basis points with respect to the 5.625% notes and LIBOR plus 367 basis points with respect to the 7.35% notes. See Note 7, Financial Instruments, Market and Credit Risk, for additional details.
CMCZ has a five year term note of PLN 220 million ($69.7 million) with a group of four banks. The term note is used to finance operating expenses of CMCZ and the development of a rolling mill. The note has scheduled principal and interest payments in fifteen equal quarterly installments which began in November 2009 with the final installment in May 2013. The weighted average interest rate at under these facilities. At August 31, 2010 was 6.4%. The term note contains four financial covenants for CMCZ. At August 31, 2010, CMCZ was not in compliance with two of the financial covenants which resulted in a guarantee by Commercial Metals Company continuing to be effective. As a result of the guarantee, the financial covenant requirements became void; however, all other terms of the loan remain in effect, including the payment schedule. The guarantee will cease to be effective when CMCZ is in compliance with the financial covenants for two consecutive quarters.
CMC Sisak (“CMCS”)2013, has a five year financing agreement of EUR 40 million ($50.7 million) which allows for disbursements as funds are needed. The loan is used for capital expenditures and other uses. At August 31, 2010, EUR 15.0 million ($19.0 million) wasthere were no amounts outstanding under this note. The note has scheduled principal and interest payments in seven semiannual installments beginning in July 2011 and ending in July 2014. The weighted average interest rate at August 31, 2010 was 5.0%.these facilities.
The scheduled maturities of the Company’sCompany's long-term debt are as follows:
| | | | |
(in thousands) | | | | |
|
2011 | | $ | 30,588 | |
2012 | | | 32,666 | |
2013 | | | 25,651 | |
2014 | | | 214,032 | |
2015 | | | 726 | |
Thereafter | | | 924,207 | |
|
Total | | $ | 1,227,870 | |
|
|
| | | | |
Year Ending August 31, | | (in thousands) |
2014 | | $ | 5,228 |
|
2015 | | 4,948 |
|
2016 | | 3,496 |
|
2017 | | 402,969 |
|
2018 | | 502,195 |
|
Thereafter | | 330,758 |
|
Total excluding deferred gain of interest rate swaps | | 1,249,594 |
|
Deferred gain of interest rate swaps | | 34,448 |
|
Total long-term debt including current maturities | | $ | 1,284,042 |
|
Interest of $4.5$1.0 million $12.6, $1.3 million and $6.9$0.8 million was capitalized in the cost of property, plant and equipment constructed in 2010, 20092013, 2012 and 2008,2011, respectively. Interest of $80.0$82.5 million $91.2, $74.1 million and $63.3$71.4 million was paid in 2010, 20092013, 2012 and 2008,2011, respectively.
NOTE 7. FINANCIAL INSTRUMENTS, MARKET12. DERIVATIVES AND CREDIT RISK MANAGEMENT
Due to near-term maturities, allowances for collection losses, investment grade ratings and security provided, the following financial instruments’ carrying amounts are considered equivalent to fair value; cash and cash equivalents, accounts receivable/payable, commercial paper, notes payable and letters of credit.
The Company’s long-term debt is predominantly publicly held. Fair value was determined by indicated market values:
| | | | | | | | |
| | August 31, |
(in thousands) | | 2010 | | 2009 |
|
Long-Term Debt: | | | | | | | | |
Carrying amount | | $ | 1,227,870 | | | $ | 1,181,740 | |
Estimated fair value | | | 1,291,570 | | | | 1,173,280 | |
The Company maintains both corporate and divisional credit departments. Credit limits are set for each customer. Some of the Company’s divisions use credit insurance or letters of credit to ensure prompt payment in accordance with terms of sale. Generally, collateral is not required. The Company’s accounts receivable were secured by credit insurance and/or letters of credit in the amount of approximately $520 million and $371 million at August 31, 2010 and 2009, respectively.
58
In the normal course of its marketing activities, the Company transacts business with substantially all sectors of the metal industry. Customers are internationally dispersed, cover the spectrum of manufacturing and distribution, deal with various types and grades of metal and have a variety of end markets in which they sell. The Company’s historical experience in collection of accounts receivable falls within the recorded allowances. Due to these factors, no additional credit risk, beyond amounts provided for collection losses, is believed inherent in the Company’s accounts receivable.
The Company’sCompany's worldwide operations and product lines expose it to risks from fluctuations in metalsmetal commodity prices, foreign currency exchange rates, natural gas prices and interest rates. TheOne objective of the Company’sCompany's risk management program is to mitigate these risks using derivative instruments. The Company enters into metal commodity futures and forward contracts to mitigate the risk of unanticipated declineschanges in gross margin due to the volatility of the commodities’commodities' prices, enters into foreign currency forward contracts whichthat match the expected settlements for purchases and sales denominated in foreign currencies and enters into natural gas forward contracts to mitigate the risk of unanticipated changes in operating cost due to the volatility of natural gas prices. When sales commitments to customers include a fixed price freight component, the Company occasionally enters into freight forward contracts to minimizereduce the effecteffects of the volatility of ocean freight rates. The Company enters into interest rate swap contracts to maintain a portion
At August 31, 2013, the Company's notional value of the Company’s debt obligations at variable interest rates. These interest rate swap contracts, under which the Company has agreed to pay variable rates of interest and receive fixed rates of interest, are designated as fair value hedges of fixed rate debt. The Company’s interest rate swapits foreign currency contract commitments were $500and its commodity contract commitments was $331.0 million as of August 31, 2010. and $49.3 million, respectively.
The Company designates only those contracts which closely match the terms of the underlying transaction as hedges for accounting purposes. These hedges resulted in substantially no ineffectiveness in the Company's consolidated statements of operations, and there were no components excluded from the assessment of hedge effectiveness for the yearyears ended August 31, 2010.2013 and 2012. Certain of the foreign currency and commodity contracts were not designated as hedges for accounting purposes, although management believes they are essential economic hedges.
The following tables summarize activities related to the Company’sCompany's derivative instruments and hedged (underlying) items recognized withinin the consolidated statements of operations (in thousands) for the year ended August 31:operations:
| | | | | | | | | | |
Derivatives Not Designated as Hedging Instruments | | Location | | 2010 | | 2009 |
|
Commodity | | Cost of goods sold | | $ | (5,745 | ) | | $ | 14,666 | |
Foreign exchange | | Net sales | | | (898 | ) | | | 532 | |
Foreign exchange | | Cost of goods sold | | | (1,153 | ) | | | 26 | |
Foreign exchange | | SG&A expenses | | | 32 | | | | (9,816 | ) |
Other | | Cost of goods sold | | | — | | | | (941 | ) |
Other | | SG&A expenses | | | — | | | | 97 | |
|
Gain (loss) before taxes | | | | $ | (7,764 | ) | | $ | 4,564 | |
|
|
| | | | | | | | | | | | | | |
| | | | Year Ended August 31, |
Derivatives Not Designated as Hedging Instruments (in thousands) | | Location | | 2013 | | 2012 | | 2011 |
Commodity | | Cost of goods sold | | $ | 2,456 |
| | $ | 4,496 |
| | $ | (10,857 | ) |
Foreign exchange | | Net sales | | — |
| | (199 | ) | | 38 |
|
Foreign exchange | | Cost of goods sold | | — |
| | (537 | ) | | 1,412 |
|
Foreign exchange | | SG&A expenses | | 5,089 |
| | (872 | ) | | (8,025 | ) |
Other
| | Cost of goods sold
| | 9 |
| | — |
| | — |
|
Gain (loss) before taxes | | | | $ | 7,554 |
| | $ | 2,888 |
| | $ | (17,432 | ) |
The Company’sCompany's fair value hedges are designated for accounting purposes with the gains andor losses on the hedged (underlying) items offsetting the gaingains or losslosses on the related derivative transaction.transactions. Hedged (underlying) items relate to firm commitments on commercial sales and purchases and capital expenditures and fixed rate debt obligations. As of August 31, 2010, fair value hedge accounting forexpenditures.
During 2012, the Company terminated its interest rate swap contracts increased the carryingtransactions having a notional value of debt instruments by $32.4 million.
| | | | | | | | | | |
| | | | August 31, |
Derivatives Designated as Fair Value Hedging Instruments | | Location | | 2010 | | 2009 |
|
Foreign exchange | | SG&A expenses | | $ | (4,194 | ) | | $ | 43,185 | |
Interest rate | | Interest expense | | | 32,438 | | | | — | |
|
Gain before taxes | | | | $ | 28,244 | | | $ | 43,185 | |
|
| | | | | | | | | | |
Hedged (Underlying) Items Designated as Fair Value | | | | August 31, |
Hedging Instruments | | Location | | 2010 | | 2009 |
|
Foreign exchange | | Net sales | | $ | 39 | | | $ | 32 | |
Foreign exchange | | SG&A expenses | | | 4,147 | | | | (43,212 | ) |
Interest rate | | Interest expense | | | (32,438 | ) | | | — | |
|
Loss before taxes | | | | $ | (28,252 | ) | | $ | (43,180 | ) |
|
59
$800 million. The Company recognizesrecorded net of the impact of netCompany's periodic settlements of currentvariable-rate interest on our activeobligations and the swap counterparty's fixed-rate interest rate swaps obligations
as adjustmentsa reduction to interest expense. The following table summarizesexpense of $6.5 million and $15.7 million for the impact of periodic settlements of active swap agreements on the results of operations:years ended August 31, 2012 and 2011, respectively. See Note 11, Credit Arrangements for additional information.
| | | | | | |
| | August 31, |
Reductions to Interest Expense Due to Hedge Accounting for Interest Rate Swaps | | 2010 | | 2009 |
|
Periodic estimated and actual settlements of active swap agreements* | | $ | (5,676 | ) | | $ — |
| | |
* | | Amounts represent the net of the Company’s periodic variable-rate interest obligations and the swap counterparty’s fixed-rate interest obligations. The Company’s variable-rate obligations are based on a spread from the six-month LIBOR. |
| | | | | | | | |
Effective Portion of Derivatives Designated as Cash Flow Hedging Instruments | | August 31, |
Recognized in Accumulated Other Comprehensive Income (Loss) | | 2010 | | 2009 |
|
Commodity | | $ | 27 | | | $ | (360 | ) |
Foreign exchange | | | 264 | | | | 11,446 | |
|
Gain, net of taxes | | $ | 291 | | | $ | 11,086 | |
|
|
| | | | | | | | | | | | | | |
Derivatives Designated as Fair Value Hedging Instruments (in thousands) | | | | Year Ended August 31, |
| Location | | 2013 | | 2012 | | 2011 |
Foreign exchange | | Net sales | | $ | (151 | ) | | $ | — |
| | $ | — |
|
Foreign exchange | | Cost of goods sold | | 2,241 |
| | — |
| | — |
|
Foreign exchange | | SG&A expenses | | — |
| | 383 |
| | (15,053 | ) |
Interest rate | | Interest expense | | — |
| | 10,561 |
| | 33,485 |
|
Gain before taxes | |
| | $ | 2,090 |
| | $ | 10,944 |
| | $ | 18,432 |
|
| | | | | | | | | | |
Effective Portion of Derivatives Designated as Cash Flow | | | | | | |
Hedging Instruments Reclassified from | | | | August 31, |
Accumulated Other Comprehensive Income (Loss) | | Location | | 2010 | | 2009 |
|
Commodity | | Cost of goods sold | | $ | (7 | ) | | $ | (284 | ) |
Foreign exchange | | SG&A expenses | | | (81 | ) | | | (122 | ) |
Interest rate | | Interest expense | | | 458 | | | | 458 | |
|
Gain, net of taxes | | | | $ | 370 | | | $ | 52 | |
|
|
| | | | | | | | | | | | | | |
Hedged Items Designated as Fair Value Hedging Instruments (in thousands) | | | | Year Ended August 31, |
| Location | | 2013 | | 2012 | | 2011 |
Foreign exchange | | Net sales | | $ | 153 |
| | $ | — |
| | $ | 91 |
|
Foreign exchange | | Cost of goods sold
| | (2,241 | ) | | — |
| | — |
|
Foreign exchange | | SG&A expenses | | — |
| | (383 | ) | | 14,955 |
|
Interest rate | | Interest expense | | — |
| | (10,561 | ) | | (33,485 | ) |
Loss before taxes | | | | $ | (2,088 | ) | | $ | (10,944 | ) | | $ | (18,439 | ) |
|
| | | | | | | | | | | | |
Effective Portion of Derivatives Designated as Cash Flow Hedging Instruments Recognized in Accumulated Other Comprehensive Income (Loss) (in thousands) | | August 31, |
| 2013 | | 2012 | | 2011 |
Commodity | | $ | (218 | ) | | $ | — |
| | $ | 26 |
|
Foreign exchange | | 439 |
| | (1,545 | ) | | 797 |
|
Gain (loss), net of taxes | | $ | 221 |
| | $ | (1,545 | ) | | $ | 823 |
|
|
| | | | | | | | | | | | | | |
Effective Portion of Derivatives Designated as Cash Flow Hedging Instruments Reclassified from Accumulated Other Comprehensive Income (Loss) (in thousands) | | | | Year Ended August 31, |
| Location | | 2013 | | 2012 | | 2011 |
Commodity | | Cost of goods sold | | $ | (169 | ) | | $ | 27 |
| | $ | 195 |
|
Foreign exchange | | Net sales | | 46 |
| | (826 | ) | | — |
|
Foreign exchange | | Cost of goods sold | | 20 |
| | — |
| | — |
|
Foreign exchange | | SG&A expenses | | 39 |
| | (300 | ) | | 365 |
|
Interest rate | | Interest expense | | 401 |
| | 521 |
| | 458 |
|
Gain (loss), net of taxes | | | | $ | 337 |
| | $ | (578 | ) | | $ | 1,018 |
|
The Company’sCompany's derivative instruments were recorded at their respective fair values as follows on the consolidated balance sheets (in thousands) forsheets:
|
| | | | | | | | |
Derivative Assets (in thousands) | | August 31, |
| 2013 | | 2012 |
Commodity — not designated for hedge accounting | | $ | 1,066 |
| | $ | 407 |
|
Foreign exchange — designated for hedge accounting | | 1,626 |
| | 670 |
|
Foreign exchange — not designated for hedge accounting | | 1,238 |
| | 798 |
|
Derivative assets (other current assets and other assets)* | | $ | 3,930 |
| | $ | 1,875 |
|
|
| | | | | | | | |
Derivative Liabilities (in thousands) | | August 31, |
| 2013 | | 2012 |
Commodity — designated for hedge accounting | | $ | 129 |
| | $ | 2 |
|
Commodity — not designated for hedge accounting | | 1,268 |
| | 993 |
|
Foreign exchange — designated for hedge accounting | | 432 |
| | 1,272 |
|
Foreign exchange — not designated for hedge accounting | | 1,738 |
| | 1,248 |
|
Other — not designated for hedge accounting | | — |
| | 32 |
|
Derivative liabilities (accrued expenses, other payables and long-term liabilities)* | | $ | 3,567 |
| | $ | 3,547 |
|
_________________________
* Derivative assets and liabilities do not include the year ended August 31:hedged items designated as fair value hedges.
| | | | | | | | |
Derivative Assets | | 2010 | | 2009 |
|
Commodity — designated | | $ | 80 | | | $ | 13 | |
Commodity — not designated | | | 911 | | | | 2,948 | |
Foreign exchange — designated | | | 435 | | | | 3,823 | |
Foreign exchange — not designated | | | 1,188 | | | | 4,678 | |
Interest rate — designated | | | 12,173 | | | | — | |
Long-term interest rate — designated | | | 20,265 | | | | — | |
|
Derivative assets (other current assets and other assets)* | | $ | 35,052 | | | $ | 11,462 | |
|
| | | | | | | | |
Derivative Liabilities | | 2010 | | 2009 |
|
Commodity — designated | | $ | 95 | | | $ | 35 | |
Commodity — not designated | | | 2,817 | | | | 8,895 | |
Foreign exchange — designated | | | 1,749 | | | | 6,421 | |
Foreign exchange — not designated | | | 1,097 | | | | 1,420 | |
|
Derivative liabilities (accrued expenses and other payables)* | | $ | 5,758 | | | $ | 16,771 | |
|
| | |
* | | Derivative assets and liabilities do not include the hedged (underlying) items designated as fair value hedges. |
As of August 31, 2010,2013, all of the Company’sCompany's derivative instruments designated to hedge exposure to the variability in future cash flows of the forecasted transactions will mature within twelve months.
All of the instruments are highly liquid, and none arenot entered into for trading purposes.
NOTE 8.13. FAIR VALUE
The Company has established a fair value hierarchy which prioritizes the inputs to the valuation techniques used to measure fair value into three levels. These levels are determined based on the lowest level input that is significant to the fair value measurement. Levels within the hierarchy are defined as follows:
60
Level 1 - Unadjusted quoted prices in active markets for identical assets and liabilities;
Level 2 - Quoted prices for similar assets and liabilities in active markets (other than those included in Level 1) which are observable, either directly or indirectly; and
Level 3 - Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.
The following table summarizestables summarize information regarding the Company’sCompany's financial assets and financial liabilities that were measured at fair value on a recurring basis:
| | | | | | | | | | | | | | | | |
| | | | | | Fair Value Measurements at Reporting Date Using |
| | | | | | Quoted Prices in | | | | |
| | | | | | Active Markets for | | Significant Other | | Significant |
| | August 31, | | Identical Assets | | Observable Inputs | | Unobservable Inputs |
(in thousands) | | 2010 | | (Level 1) | | (Level 2) | | (Level 3) |
|
Money market investments | | $ | 352,881 | | | $ | 352,881 | | | $ | — | | | $ | — | |
Derivative assets | | | 35,052 | | | | 911 | | | | 34,141 | | | | — | |
Nonqualified benefit plan assets * | | | 43,681 | | | | 43,681 | | | | — | | | | — | |
Derivative liabilities | | | 5,758 | | | | 2,817 | | | | 2,941 | | | | — | |
Nonqualified benefit plan liabilities * | | | 86,043 | | | | — | | | | 86,043 | | | | — | |
|
| | August 31, | | | | | | | | | | | | |
(in thousands) | | 2009 | | | | | | | | | | | | |
|
Money market investments | | $ | 357,723 | | | $ | 357,723 | | | $ | — | | | $ | — | |
Derivative assets | | | 11,462 | | | | 2,948 | | | | 8,514 | | | | — | |
Nonqualified benefit plan assets * | | | 55,596 | | | | 55,596 | | | | — | | | | — | |
Derivative liabilities | | | 16,771 | | | | 8,895 | | | | 7,876 | | | | — | |
Nonqualified benefit plan liabilities * | | | 96,904 | | | | — | | | | 96,904 | | | | — | |
| | |
* | | The Company provides a nonqualified benefit restoration plan to certain eligible executives equal to amounts that would have been available under tax qualified ERISA plans but for limitations of ERISA, tax laws and regulations. Though under no obligation to fund this plan, the Company has segregated assets in a trust. The plan assets and liabilities consist of securities included in various mutual funds. The liability for 2009 was previously disclosed as Level 1 and moved to Level 2. |
|
| | | | | | | | | | | | | | | |
| | | Fair Value Measurements at Reporting Date Using |
(in thousands) | August 31, 2013 | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
Assets: | | | | | | | |
Money market investments (1) | $ | 236,727 |
| | $ | 236,727 |
| | $ | — |
| | $ | — |
|
Commodity derivative assets (2) | 1,066 |
| | 1,066 |
| | — |
| | — |
|
Foreign exchange derivative assets (2) | 2,864 |
| | — |
| | 2,864 |
| | — |
|
Liabilities: | | | | | | | |
Commodity derivative liabilities (2) | 1,397 |
| | 1,268 |
| | 129 |
| | — |
|
Foreign exchange derivative liabilities (2) | 2,170 |
| | — |
| | 2,170 |
| | — |
|
|
| | | | | | | | | | | | | | | |
| | | Fair Value Measurements at Reporting Date Using |
(in thousands) | August 31, 2012 | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
Assets: | | | | | | | |
Money market investments (1) | $ | 172,462 |
| | $ | 172,462 |
| | $ | — |
| | $ | — |
|
Commodity derivative assets (2) | 407 |
| | 407 |
| | — |
| | — |
|
Foreign exchange derivative assets (2) | 1,468 |
| | — |
| | 1,468 |
| | — |
|
Liabilities: | | | | | | | |
Commodity derivative liabilities (2) | 995 |
| | 993 |
| | 2 |
| | — |
|
Foreign exchange derivative liabilities (2) | 2,520 |
| | — |
| | 2,520 |
| | — |
|
Other derivative liabilities (2) | 32 |
| | — |
| | 32 |
| | — |
|
_________________
(1) Money market investments are short-term in nature, and the value is determined by broker quoted prices in active markets. The following table summarizes informationinvestment 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 the New York Mercantile Exchange. Amounts in Level 2 are based on broker quotes in the over-the-counter market. Further discussion regarding the Company’s nonfinancialCompany's use of derivatives and the classification of the assets and liabilities is included in Note 12, Derivatives and Risk Management.
Fair value of property, plant and equipment held for sale (Level 3) was $3.8 million at August 31, 2013 and $9.0 million at August 31, 2012 based on appraised values less costs to sell.
During the fourth quarter of 2013, the Company prepared an impairment analysis on its Australian operating unit and determined the carrying value of certain fixed assets exceeded their fair value as determined utilizing market and cost approaches. Determining the fair value is judgmental in nature and requires the use of significant estimates and assumptions, considered to be level 3 inputs. The resulting non-recurring impairment charges of $6.3 million were recorded within the International Marketing and Distribution reporting segment at August 31, 2013. As a result of the non-recurring impairment charges, the fair value of International Marketing and Distribution's fixed assets is $20.4 million at August 31, 2013. CMC does not have other assets or intangible assets measured at fair value on a non-recurring basis:basis at August 31, 2013. The carrying values of the Company's short-term items, including the deferred purchase prices of accounts receivable, documentary letters of credit and notes payable approximate fair value due to their short term nature.
| | | | | | | | | | | | | | | | | | | | |
| | | | | | Fair Value Measurements Using |
| | Year | | Quoted Prices in | | | | | | |
| | Ended | | Active Markets for | | Significant Other | | Significant | | |
| | August 31, | | Identical Assets | | Observable Inputs | | Unobservable Inputs | | Recognized |
(in thousands) | | 2010 | | (Level 1) | | (Level 2) | | (Level 3) | | Loss |
|
Joist and deck assets held for sale | | $ | 27,045 | | | $ | — | | | $ | — | | | $ | 27,045 | | | $ | 24,243 | |
DuringThe carrying values and estimated fair values of the second quarter of 2010,Company's financial assets and liabilities that are not required to be measured at fair value on the Company recorded an impairment on property, plant and equipment relating to our joist and deck business which was classifiedconsolidated balance sheets are as held for sale.follows:
|
| | | | | | | | | | | | | | | | | |
| | | August 31, 2013 | | August 31, 2012 |
(in thousands) | Fair Value Hierarchy | | Carrying Value | | Fair Value | | Carrying Value | | Fair Value |
$200 million notes at 5.625% due November 2013 (1) | Level 2 | | $ | — |
| | $ | — |
| | $ | 204,873 |
| | $ | 212,413 |
|
$400 million notes at 6.50% due July 2017 (1) | Level 2 | | 411,518 |
| | 443,646 |
| | 414,491 |
| | 434,991 |
|
$500 million notes at 7.35% due August 2018 (1) | Level 2 | | 522,930 |
| | 570,429 |
| | 527,554 |
| | 559,894 |
|
$330 million notes at 4.875% due May 2023 (1) | Level 2 | | 330,000 |
| | 298,650 |
| | — |
| | — |
|
_________________
(1) The fair value wasof the notes is calculated based on appraised values less costs to sell.indicated market values.
NOTE 9.14. INCOME TAX
The domestic and foreign components of incomeearnings (loss) from continuing operations before provision for income taxes were(benefit) are as follows (in thousands):follows:
| | | | | | | | | | | | |
| | Year ended August 31, |
(in thousands) | | 2010 | | 2009 | | 2008 |
|
United States | | $ | (148,829 | ) | | $ | 132,027 | | | $ | 192,156 | |
Foreign | | | (55,777 | ) | | | (130,093 | ) | | | 165,302 | |
|
Total | | $ | (204,606 | ) | | $ | 1,934 | | | $ | 357,458 | |
|
|
| | | | | | | | | | | | |
| | Year Ended August 31, |
(in thousands) | | 2013 | | 2012 | | 2011 |
United States | | $ | 147,204 |
| | $ | 116,400 |
| | $ | (33,769 | ) |
Foreign | | (14,268 | ) | | 48,387 |
| | 59,900 |
|
Total | | $ | 132,936 |
| | $ | 164,787 |
| | $ | 26,131 |
|
The provision for income taxes (benefit) included in the consolidated statements of operations is as follows:
|
| | | | | | | | | | | | |
| | Year Ended August 31, |
(in thousands) | | 2013 | | 2012 | | 2011 |
Current: | | | | | | |
United States | | $ | 849 |
| | $ | 1,560 |
| | $ | 23,452 |
|
Foreign | | 1,970 |
| | 419 |
| | 352 |
|
State and local | | 1,815 |
| | 3,411 |
| | 5,226 |
|
Current taxes (benefit) | | $ | 4,634 |
| | $ | 5,390 |
| | $ | 29,030 |
|
Deferred: | | | | | | |
United States | | $ | 45,908 |
| | $ | (65,710 | ) | | $ | (28,048 | ) |
Foreign | | 4,980 |
| | 7,130 |
| | 9,742 |
|
State and local | | 3,767 |
| | (1,419 | ) | | 5,616 |
|
Deferred taxes (benefit) | | $ | 54,655 |
| | $ | (59,999 | ) | | $ | (12,690 | ) |
Total taxes (benefit) on income | | $ | 59,289 |
| | $ | (54,609 | ) | | $ | 16,340 |
|
Taxes (benefit) on discontinued operations | | 1,310 |
| | (8,847 | ) | | 1,748 |
|
Taxes (benefit) on continuing operations | | $ | 57,979 |
| | $ | (45,762 | ) | | $ | 14,592 |
|
A reconciliation of the federal statutory rate to the Company's effective tax rate from continuing operations includesis as follows:
|
| | | | | | | | | | | | |
| | Year Ended August 31, |
| | 2013 | | 2012 | | 2011 |
Tax expense (benefit) at statutory rate of 35% | | $ | 46,528 |
| | $ | 57,675 |
| | $ | 9,146 |
|
State and local taxes | | 3,460 |
| | 4,596 |
| | 6,958 |
|
Section 199 manufacturing deduction | | — |
| | — |
| | (1,105 | ) |
Foreign rate differential | | (3,295 | ) | | (9,909 | ) | | (9,617 | ) |
Change in valuation allowance | | 14,264 |
| | 10,033 |
| | — |
|
Liability for non-US earnings | | — |
| | — |
| | 8,848 |
|
Disposition of CMCS | | 6,292 |
| | (102,104 | ) | | — |
|
Australian reorganization | | (7,245 | ) | | — |
| | — |
|
Research and experimentation tax credits | | — |
| | (11,500 | ) | | — |
|
Other | | (2,025 | ) | | 5,447 |
| | 362 |
|
Tax expense (benefit) on continuing operations | | $ | 57,979 |
| | $ | (45,762 | ) | | $ | 14,592 |
|
Effective tax rates from continuing operations | | 43.6 | % | | (27.8 | )% | | 55.8 | % |
The Company's effective tax rate from discontinued operations for the following:years ended 2013, 2012 and 2011 is 35.7%, 74.3% and (1.3)%, respectively.
| | | | | | | | | | | | |
| | Year ended August 31, |
(in thousands) | | 2010 | | 2009 | | 2008 |
|
Current: | | | | | | | | | | | | |
United States | | $ | (104,135 | ) | | $ | 43,488 | | | $ | 67,556 | |
Foreign | | | (2,684 | ) | | | (4,537 | ) | | | 44,267 | |
State and local | | | (18,581 | ) | | | 20,903 | | | | 17,331 | |
|
Current taxes (benefit) | | $ | (125,400 | ) | | $ | 59,854 | | | $ | 129,154 | |
|
61
| | | | | | | | | | | | |
| | Year ended August 31, |
(in thousands) | | 2010 | | 2009 | | 2008 |
|
Deferred: | | | | | | | | | | | | |
United States | | $ | 39,399 | | | $ | (20,566 | ) | | $ | (9,269 | ) |
Foreign | | | 34,749 | | | | (22,003 | ) | | | (10,582 | ) |
State and local | | | (8,008 | ) | | | (3,612 | ) | | | (4,497 | ) |
|
Deferred taxes | | $ | 66,140 | | | $ | (46,181 | ) | | $ | (24,348 | ) |
|
Total taxes (benefit) on income | | $ | (59,260 | ) | | $ | 13,673 | | | $ | 104,806 | |
Taxes (benefit) on discontinued operations | | | (21,142 | ) | | | 12,926 | | | | (7,469 | ) |
|
Taxes (benefit) on continuing operations | | $ | (38,118 | ) | | $ | 747 | | | $ | 112,275 | |
|
The increase in the effective tax rate to 43.6% for the year ended August 31, 2013 over the statutory tax rate of 35% is due to the mix and amount of pre-tax income in the jurisdictions in which the Company operates and the recognition of valuation allowances on deferred assets in various jurisdictions that are not more likely than not to be realized.
During the year ended August 31, 2012, the Company recognized a tax loss in the amount of $291 million related to its investments in its Croatian subsidiary. As a result, a tax benefit of $102.1 million was recorded from these losses in continuing operations for the year ended August 31, 2012. The Company reported and disclosed the investment loss on its U.S. tax return as ordinary worthless stock and bad debt deductions. This tax benefit was the primary reason for the variance from the statutory tax rate of 35%.
The Company had a net refund of $7.6 million and paid $17.2 million of taxes for the years ended August 31, 2013 and 2012, respectively. The Company had a net tax refundsrefund of $38.4$79.9 million during for the year ended 2010. Taxes of $33.8 million and $155.4 million were paid in 2009 and 2008, respectively.August 31, 2011.
Deferred taxes arise from temporary differences between the tax basis of an asset or liability and its reported amount in the consolidated financial statements.
The tax effects of significant temporary differences giving rise to deferred tax assets and liabilities are as follows:
| | | | | | | | |
| | August 31, |
(in thousands) | | 2010 | | 2009 |
|
Deferred tax assets: | | | | | | | | |
Deferred compensation and employee benefits | | $ | 50,207 | | | $ | 56,703 | |
Net operating losses and credits | | | 75,798 | | | | 52,037 | |
Reserves and other accrued expenses | | | 22,857 | | | | 18,722 | |
Allowance for doubtful accounts | | | 11,561 | | | | 14,563 | |
Inventory | | | — | | | | 10,115 | |
Intangibles | | | 10,335 | | | | — | |
Impaired Assets | | | — | | | | 3,758 | |
Deferred revenue | | | 2,851 | | | | — | |
Other | | | 8,793 | | | | 18,809 | |
|
Total deferred tax assets | | $ | 182,402 | | | $ | 174,707 | |
Valuation Allowance for deferred tax assets | | | (53,860 | ) | | | (9,885 | ) |
|
Deferred tax assets, net | | $ | 128,542 | | | $ | 164,822 | |
|
Deferred tax liabilities: | | | | | | | | |
Fixed Assets | | $ | 110,892 | | | $ | 87,709 | |
Inventory | | | 4,426 | | | | — | |
Deferred Revenue | | | — | | | | 1,673 | |
Other | | | 6,116 | | | | 9,717 | |
|
Total deferred tax liabilities | | $ | 121,434 | | | $ | 99,099 | |
|
Deferred tax assets, net of deferred tax liabilities | | $ | 7,108 | | | $ | 65,723 | |
|
|
| | | | | | | | |
| | August 31, |
(in thousands) | | 2013 | | 2012 |
Deferred tax assets: | | | | |
Deferred compensation and employee benefits | | $ | 56,504 |
| | $ | 52,113 |
|
Net operating losses and credits | | 99,200 |
| | 110,553 |
|
Reserves and other accrued expenses | | 34,375 |
| | 41,516 |
|
Allowance for doubtful accounts | | 5,020 |
| | 5,816 |
|
Inventory | | — |
| | 1,881 |
|
Intangibles | | 8,153 |
| | 9,668 |
|
Other | | 12,879 |
| | 15,062 |
|
Total deferred tax assets | | 216,131 |
| | 236,609 |
|
Valuation allowance for deferred tax assets | | (48,837 | ) | | (25,779 | ) |
Deferred tax assets, net | | $ | 167,294 |
| | $ | 210,830 |
|
Deferred tax liabilities: | | | | |
Fixed assets | | $ | 113,547 |
| | $ | 111,777 |
|
Inventory | | 10,219 |
| | — |
|
Other | | 5,354 |
| | 5,012 |
|
Total deferred tax liabilities | | $ | 129,120 |
| | $ | 116,789 |
|
Deferred tax assets, net of deferred tax liabilities | | $ | 38,174 |
| | $ | 94,041 |
|
Net operating losses giving rise to deferred tax assets consist of $268.2$140.7 million of federal and $319.8 million state net operating losses that expire during the tax years ending from 20112013 to 20302032 and foreign net operating losses of $247.5$119.9 million that expire during the tax years ending from 2011 to 2016.beginning in 2014. These assets will be reduced as tax expense is recognized in future periods. In addition, the
The Company hasmaintains a foreignvaluation allowance to reduce certain deferred tax credit carryforward of $3.0 million which expires in 2020.
assets to amounts that are more likely than not to be realized. During the year ended August 31, 2010,2013, the Company recorded a valuation allowance in the amount of $43.9$23.1 million against deferred tax assets primarily for the benefit of net operating loss carryforwards in certain jurisdictions due to the uncertainty of their realization.
As of
During the year ended August 31, 2009,2012, the Company recorded a decrease to the valuation allowance in the amount of $49.5 million against deferred tax assets as well as the write off of net operating losses related to the disposition of CMCS. The decrease in the valuation allowance was offset by an increase for the benefit of net operating loss carryforwards in certain jurisdictions due to the uncertainty of their realization.
In general, it is the Company’spractice and intention of the Company to indefinitely reinvest all undistributedthe earnings of its non-U.S. subsidiaries which amounts to approximately $340 million dollars.in those operations. As these earnings are considered permanently reinvested, no provisionsof August 31, 2013, the Company has not made a provision for U.S. Federal or state incomeadditional foreign withholding taxes are required.
62
Reconciliationson approximately $489.0 million of the United States statutory ratesexcess of the amount for financial reporting over the tax basis of investments in foreign subsidiaries that is indefinitely reinvested. Generally, such amounts become subject to U.S. taxation upon the effective rates from continuing operationsremittance of dividends and under certain other circumstances. It is not practicable to estimate the amount of deferred tax liability related to investments in these foreign subsidiaries.
The unrecognized tax benefits as of August 31, 2013 and 2012 were as follows:
| | | | | | | | | | | | |
| | Year ended August 31, |
| | 2010 | | 2009 | | 2008 |
|
Statutory rate | | | 35.0 | % | | | 35.0 | % | | | 35.0 | % |
State and local taxes | | | 6.1 | | | | 695.0 | | | | 2.2 | |
Section 199 manufacturing deduction | | | — | | | | (171.3 | ) | | | (1.0 | ) |
Foreign rate differential | | | (4.4 | ) | | | 1,181.9 | | | | (8.0 | ) |
Change in valuation allowance | | | (20.4 | ) | | | 259.3 | | | | 1.2 | |
Liability for non-US earnings | | | — | | | | (1,798.3 | ) | | | 1.6 | |
Other | | | 2.3 | | | | (163.0 | ) | | | 0.4 | |
|
Effective tax rate from continuing operations | | | 18.6 | % | | | 38.6 | % | | | 31.4 | % |
|
The Company’s$28.6 million and $27.4 million, of which $13.3 million and $10.1 million, if recognized, would have impacted the Company's effective tax rate from discontinued operations forat the years ended 2010, 2009, 2008 were 35.4%, 40.4%end of 2013 and 37.1%,2012, respectively.
As of August 31, 2010, gross unrecognized tax benefits totaled $20.4 million and accrued interest and penalties totaled $2.5 million for an aggregate gross amount of $22.9 million.
A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows (in thousands):follows:
| | | | | | | | |
(in thousands) | | 2010 | | 2009 |
|
Balance September 1 | | $ | 1,532 | | | $ | 4,223 | |
Change in tax positions of current year | | | 1,640 | | | | — | |
Change for tax positions of prior years | | | 17,302 | | | | (1,426 | ) |
Reductions due to settlements with taxing authorities | | | — | | | | (122 | ) |
Reductions due to statute of limitations lapse | | | (107 | ) | | | (1,143 | ) |
|
Balance August 31 | | $ | 20,367 | | | $ | 1,532 | |
|
If these tax positions were recognized, the impact on the effective tax rate would not be significant. |
| | | | | | | | | | | | |
(in thousands) | | 2013 | | 2012 | | 2011 |
Balance at September 1 | | $ | 27,384 |
| | $ | 10,762 |
| | $ | 20,367 |
|
Change in tax positions of current year | | 1,255 |
| | — |
| | 2,440 |
|
Change for tax positions of prior years | | — |
| | 18,006 |
| | (12,045 | ) |
Reductions due to settlements with taxing authorities | | (88 | ) | | (600 | ) | | — |
|
Reductions due to statute of limitations lapse | | — |
| | (784 | ) | | — |
|
Balance at August 31 | | $ | 28,551 |
| | $ | 27,384 |
| | $ | 10,762 |
|
The CompanyCompany's policy classifies any interest recognized on an underpayment of income taxes and any statutory penalties recognized on a tax position as tax expense and the balances at the end of a reporting period are recorded as part of the current or non-current reservenoncurrent liability for uncertain income tax positions. For the year ended At August 31, 2010, before any tax benefits,2013 and 2012, the Company recorded an increase ofhad accrued interest and penalties on unrecognizedrelated to uncertain tax benefitspositions of $2.3 million.$2.8 million and $2.0 million, respectively.
During the next twelve months, it is reasonably possible that the statute of limitations may lapse pertaining to positions taken by the Company in prior year tax returns or that income tax audits in various taxing jurisdictions could be finalized. As a result, the total amount of unrecognized tax benefits may decrease, which could reduce the liability for uncertain tax positions by approximately $14 million.$17.9 million.
The Company files income tax returns in the United States and multiple foreign jurisdictions with varying statutes of limitations. In the normal course of business, the Company and its subsidiaries are subject to examination by various taxing authorities. The following is a summary of tax years subject to examination:
U.S
US Federal — 2009 and forward
US States — 2009 and forward
Foreign — 2006 and forward
U.S. States — 2006 and forward
Foreign — 2004 and forward
The Federal tax returns for fiscal years 2006 to 2008 areCompany is under examination by the Internal Revenue Service (“IRS”), and state revenue authorities from 2009 to 2011. Management believes the 2009 tax return of CMCZ is under examination by the Polish Revenue Authority. However, we believe ourCompany's recorded tax liabilities as of August 31, 20102013 sufficiently reflect the anticipated outcome of these examinations.
NOTE 10. CAPITAL STOCK15. SHARE-BASED COMPENSATION PLANS
During 2009
The Company's share-based compensation plans provide for the issuance of incentive and 2008,non-qualified stock options, restricted stock and units, stock appreciation rights and performance-based awards. The Compensation Committee of the Board of Directors approves all awards that are granted under the Company's share-based compensation plans. Share-based compensation expense for the years ended August 31, 2013, 2012 and 2011 of $18.7 million, $13.1 million and $12.9 million, respectively, is included in selling, general and administrative expenses on the Company’s consolidated statements of operations. As of August 31, 2013, total unrecognized compensation cost related to unvested share-based compensation arrangements was $26.5 million, which is expected to be recognized over a three year period.
The following table summarizes the total awards granted:
|
| | | | | | | | | |
| | Stock Options/SARs | | Restricted Stock Awards/Units | | Performance Awards |
2013 Grants | | 244,403 |
| | 1,149,696 |
| | 640,002 |
|
2012 Grants | | 927,312 |
| | 829,001 |
| | 693,472 |
|
2011 Grants | | 112,000 |
| | 690,180 |
| | 686,548 |
|
As of August 31, 2013, the maximum number of shares available for awards under the Company's share-based compensation plans was 19,581,278. As of August 31, 2013, CMC had 17,781,754 shares available for future grants.
Restricted Stock Units Restricted stock units issued under the Company's plans provide that shares awarded may not be sold, transferred, pledged or assigned until service-based restrictions have elapsed. The restricted stock units granted to U.S. employees generally vest and are converted to CMC common stock in three equal installments on each of the first three anniversaries of the date of grant. The restricted stock units granted to non-U.S. employees generally vest and are settled in cash in three equal installments on each of the first three anniversaries of the date of grant. Generally, upon termination of employment, restricted stock awards that have not vested are forfeited. Upon death, disability or qualifying retirement a pro-rata portion of the unvested restricted stock awarded will vest and become payable.
The estimated fair value of the stock-settled restricted stock units is based on the closing price of CMC common stock on the date of grant, discounted for the expected dividend yield through the vesting period. Compensation cost related to the stock-settled restricted stock units is recognized ratably over the service period and is included in equity on the Company’s consolidated balance sheets. The fair value of the cash-settled restricted stock units is remeasured each reporting period and is recognized ratably over the service period. The liability related to the cash-settled restricted stock units is included in accrued expenses and other payables on the Company’s consolidated balance sheets.
Performance Stock Units Performance stock units issued under the Company’s plans provide that shares awarded may not be sold, transferred, pledged or assigned until service-based restrictions have elapsed and any performance objectives have been attained as established by the Compensation Committee. Recipients of these awards generally must be actively employed by and providing services to the Company purchased 1,752,900on the last day of the performance period in order to receive an award payout. Upon death, disability or qualifying retirement a pro-rata portion of the performance stock units will vest and 6,212,238 common sharesbecome payable at the end of the performance period.
Compensation cost for treasury, respectively.performance stock units is accrued based on the probable outcome of specified performance conditions, net of estimated forfeitures. The Company accrues compensation cost if it is probable that the performance conditions will be met. The Company reassesses the probability of meeting the specified performance conditions at the end of each reporting period and adjusts compensation cost, as necessary, based on the probability of achieving the performance conditions. If the performance conditions are not met at the end of the performance period, the Company reverses the related compensation cost.
Performance targets established by the Compensation Committee for performance stock units awarded in fiscal 2013 are weighted 75% based on the Company’s cumulative EBITDA targets for fiscal years 2013, 2014 and 2015, as approved by the Company’s Board of Directors authorizedin the purchaserespective year’s business plan, and 25% based on a three year relative total shareholder return metric. Performance stock units awarded to U.S. participants will be settled in CMC common stock. Award payouts range from a threshold of an additional 10,000,000 shares50% to a maximum of 200% for each portion of the target awards. The performance stock units associated with the cumulative EBITDA targets have been classified as liability awards since the final EBITDA target will not be set until the third year of the performance period. Consequently, these awards are included in accrued expenses and other payables on October 21, 2008the Company’s consolidated balance sheets. The fair value of these performance stock units is remeasured each reporting period and is recognized ratably over the service period. The performance stock units associated with the total shareholder return metric were valued at fair value on the date of grant using the Monte Carlo pricing model and are included in equity on the Company’s consolidated balance sheets.
Performance stock units awarded to non-U.S. participants in fiscal 2013 will be settled in cash. The fair value of the performance stock units is remeasured each reporting period and is recognized ratably over the service period. The liability related to these awards is included in accrued expenses and other payables on the Company’s consolidated balance sheets
Performance targets established by the Compensation Committee for performance stock units awarded in fiscal 2012 are weighted 50% based on the Company’s EBITDA targets and 50% based on Company's RONA targets for fiscal years 2012, 2013 and 2014, as approved by the Company's Board of Directors. Performance stock units awarded in fiscal 2012 will be settled in cash. Consequently, these awards are included in accrued expenses and other payables on the Company’s consolidated balance sheets. The fair value of the fiscal 2012 performance share units is remeasured each reporting period and is recognized ratably over the service period.
Performance targets established by the Compensation Committee for performance stock units awarded in fiscal 2011 are weighted 50% based on the Company’s EBITDA targets and 50% based on Company's RONA targets for fiscal years 2011, 2012 and 2013, as approved by the Company’s Board of Directors. Settlement of the performance stock units awarded in fiscal 2011 is split and upon vesting, award participants will receive one-half in CMC common stock and one-half in cash. The fair value of the portion of the performance stock units associated with the EBITDA target, and are settled in CMC common stock, was based on the closing price of CMC common stock on the date of grant discounted for the expected dividend yield through the vesting period. Compensation cost related to these performance stock units is recognized ratably over the service period and is included in equity on the Company’s consolidated balance sheets. The fair value of the performance share units settled in cash is remeasured each
reporting period and is recognized ratably over the service period. The liability related to the cash settled portion of the performance stock units is included in accrued expenses and other payables on the Company’s consolidated balance sheets. At August 31, 2013, the Company had remaining authorizationreassessed the probability of achieving the specified performance conditions related to purchase 8,259,647performance stock units awarded in fiscal 2011 and determined the Company will not meet the EBITDA and RONA targets at the end of its commonthe service period. As a result, the compensation cost previously recognized for these performance stock units has been reversed as of August 31, 2010.2013.
63
Performance targets established by the Compensation Committee for performance stock units awarded in fiscal 2010 are based on a three year relative total shareholder return metric where 50% of the performance share units will vest if the Company ranks at the 50th percentile of its peer group at the end of the performance period and 100% of the performance share units will vest if the Company ranks at or greater than the 60th percentile of its peer group at the end of the performance period. In 2013, the Compensation Committee determined that the Company did not meet the total shareholder return vesting criteria at the end of the performance period. As a result, the compensation cost previously recognized for these performance stock units has been reversed.
Information for restricted stock units and performance stock units, excluding the cash component, is as follows:
|
| | | | | | |
| Number | | Weighted Average Grant-Date Fair Value |
Outstanding as of August 31, 2012 | 1,683,572 |
| | $ | 13.16 |
|
Granted | 1,159,451 |
| | 13.60 |
|
Vested | (537,303 | ) | | 13.35 |
|
Forfeited | (398,302 | ) | | 12.22 |
|
Outstanding as of August 31, 2013 | 1,907,418 |
| | $ | 13.57 |
|
The weighted-average grant-date fair value per share of restricted stock units and performance stock units was $10.68 and $15.55 for 2012 and 2011, respectively. The total fair value of shares vested during 2013, 2012 and 2011 was $7.2 million, $10.7 million and $2.9 million, respectively.
The Company granted 174,710 equivalent shares of cash-settled restricted stock units and performance stock units during the year ended August 31, 2013. As of August 31, 2013, the Company had 1,670,113 equivalent shares of awards outstanding and expects 1,378,779 equivalent shares to vest.
Stock Appreciation Rights and Stock Options Stock appreciation rights and stock options are awarded to certain employees with an exercise price equal to the market value of CMC common stock on the date of grant. Stock appreciation rights and stock options issued in fiscal 2013, 2012 and 2011 are exercisable ratably over the three year vesting period and have a contractual term of seven years. The estimated fair value of stock appreciation rights and stock options granted under the Company’s plans during the years ended August 31, 2013, 2012 and 2011 was $0.6 million, $3.0 million and $1.9 million, respectively was estimated on the date of grant using the Black-Scholes Option Pricing Model with the following assumptions:
|
| | | | | | | | | | | | |
| | 2013 | | 2012 | | 2011 |
Risk-free interest rate | | 0.41 | % | | 0.43 | % | | 0.59 | % |
Expected life, years | | 3.0 |
| | 3.0 |
| | 2.0 |
|
Expected volatility | | 43 | % | | 59 | % | | 56 | % |
Expected dividend yield | | 3.40 | % | | 4.14 | % | | 2.85 | % |
Weighted average grant-date fair value per share | | $ | 3.38 |
| | $ | 3.67 |
| | $ | 4.63 |
|
Combined activity for the Company’s stock appreciation rights and stock options, excluding the cash component, is as follows:
|
| | | | | | | | | | | | |
| Number | | Weighted Average Exercise Price | | Weighted Average Remaining Contractual Life (Years) | | Aggregate Intrinsic Value |
Outstanding as of September 1, 2010 | 3,922,016 |
| | $ | 23.67 |
| | | | |
Granted | 112,000 |
| | 16.83 |
| | | | |
Exercised | (854,023 | ) | | 8.03 |
| | | | |
Forfeited/Expired | (372,495 | ) | | 28.96 |
| | | | |
Outstanding as of August 31, 2011 | 2,807,498 |
| | $ | 27.45 |
| | 2.8 | | $ | 94,500 |
|
Granted | 828,463 |
| | 11.63 |
| | | | |
Exercised | (361,478 | ) | | 12.34 |
| | | | |
Forfeited/Expired | (343,991 | ) | | 27.78 |
| | | | |
Outstanding as of August 31, 2012 | 2,930,492 |
| | $ | 24.81 |
| | 3.3 | | $ | 1,104,590 |
|
Granted | 185,004 |
| | 14.25 |
| |
| | |
Exercised | (4,105 | ) | | 11.60 |
| |
| | |
Forfeited/Expired | (457,961 | ) | | 24.91 |
| |
| | |
Outstanding as of August 31, 2013 | 2,653,430 |
| | $ | 24.07 |
| | 2.8 | | $ | 2,867,175 |
|
Exercisable at August 31, 2013 | 1,756,862 |
| | $ | 30.15 |
| | 1.5 | | $ | 666,807 |
|
Remaining unvested stock appreciation rights and stock options expected to vest | 851,740 |
| | 12.18 |
| | | | |
There was no intrinsic value of stock appreciation rights and stock options exercised during 2013. The aggregate intrinsic value of stock appreciation rights and stock options exercised during 2012 and 2011 was $0.4 million and $7.4 million, respectively and represents the difference between the market value on the date of exercise and the exercise price.
Information related to stock appreciation rights and stock options as of August 31, 2013 is summarized below:
|
| | | | | | | | | | | | | | | | | | | |
| Stock Appreciation Rights and Stock Options Outstanding | | Stock Appreciation Rights and Stock Options Exercisable |
Range of Exercise Prices | Number Outstanding | | Weighted Average Remaining Contractual Life (In Years) | | Weighted Average Exercise Price | | Number Exercisable | | Weighted Average Remaining Contractual Life (In Years) | | Weighted Average Exercise Price |
$11.00 | - | 14.68 | 1,161,224 |
| | 4.8 | | $ | 12.20 |
| | 274,362 |
| | 3.1 | | $ | 12.45 |
|
$16.54 | - | 16.83 | 121,706 |
| | 4.5 | | $ | 16.81 |
| | 112,000 |
| | 4.4 | | $ | 16.83 |
|
$31.75 | - | 35.38 | 1,370,500 |
| | 1.0 | | $ | 34.78 |
| | 1,370,500 |
| | 1.0 | | $ | 34.78 |
|
|
|
| 2,653,430 |
| | 2.8 | | $ | 24.07 |
| | 1,756,862 |
| | 1.5 | | $ | 30.15 |
|
During the year ended August 31, 2013, the Company awarded 59,399 equivalent shares of stock appreciation rights to non-U.S. employees, which are settled in cash. The fair value of these stock appreciation rights is remeasured each reporting period and is recognized ratably over the service period. The liability related to these awards is included in accrued expenses and other payables on the Company’s consolidated balance sheets. As of August 31, 2013, the Company had 141,340 equivalent shares of stock appreciation rights outstanding and expects 134,273 equivalent shares of stock appreciation rights to vest.
Stock Purchase PlanAlmost all U.S. resident employees with one year of service at the beginning of each calendar year may participate in the Company’sCompany's employee stock purchase plan. Each eligible employee may purchase up to 400 shares annually. The Board of Directors establishes the purchase discount from theof 15% based on market price. The discount was 15%prices on specified dates for the yearyears ended August 31, 20102013, 2012 and 25% for years ended August 31, 2009 and 2008.2011. Yearly activity of the stock purchase plan wasis as follows:
| | | | | | | | | | | | |
| | 2010 | | 2009 | | 2008 |
|
Shares subscribed | | | 526,890 | | | | 1,234,080 | | | | 489,510 | |
Price per share | | $ | 13.63 | | | $ | 7.94 | | | $ | 23.48 | |
Shares purchased | | | 980,940 | | | | 7,530 | | | | 441,770 | |
Price per share | | $ | 7.94 | | | $ | 9.90 | | | $ | 21.69 | |
Shares available for future issuance | | | 4,730,824 | | | | | | | | | |
The Company recorded compensation expense for this plan of $2.2 million, $3.2 million and $3.4 million in 2010, 2009 and 2008, respectively. During 2010, the Company’s Board of Directors approved an additional 5,000,000 |
| | | | | | | | | | | | |
| | 2013 | | 2012 | | 2011 |
Shares subscribed | | 281,460 |
| | 299,210 |
| | 339,620 |
|
Price per share | | $ | 12.61 |
| | $ | 11.85 |
| | $ | 14.34 |
|
Shares purchased | | 211,580 |
| | 198,300 |
| | 357,180 |
|
Price per share | | $ | 11.85 |
| | $ | 11.76 |
| | $ | 13.63 |
|
Shares available for future issuance | | 4,134,634 |
| | | | |
NOTE 16. CAPITAL STOCK
Treasury Stock CMC did not purchase any shares to be available for future issuance under the Company’s stock purchase plan.
Stock Incentive Plans
The 2006 Long-Term Equity Incentive Plan (“2006 Plan”) was approved by shareholders on January 25, 2007. Under the 2006 Plan, stock options, SARs, restricted stock and performance-based restricted units (“PSUs”) may be awarded to employees. During 2010, the Company’s Board of Directors approved an additional 5,000,000 shares to be reserved for future awards. For the year ended August 31, 2010, the Company made two grants of restricted stock units on June 3, 2010. One grant of 545,000 shares vests over a four-year period in increments of one-half at the end of two years and one-half at the end of four years. The second grant of 413,000 shares vests over a three-year period in increments of one-third per year. Prior to vesting, restricted stock unit recipients do not receive an amount equivalent to any dividend declared on the Company’s common stock. For grants made during the years ended August 31, 20082013 and 2007, options, SARs2012 and restrictedhad remaining authorization to purchase 8,259,647 shares of its common stock vest over a three-year period in increments of one-third per year. For grants of PSUs made during the years ended at August 31, 2010 and 2009, such PSUs vest as described below. Options and SARs expire seven years after the grant date. All awards are valued at the fair market value at the date of grant.2013.
On June 3, 2010, The Compensation Committee (the “Committee”) of the Board of Directors of the Company approved an award of PSUs which upon vesting would result in the issuance of 340,000 shares of common stock. The awards vest upon the following performance conditions: (i) 50% of the PSUs shall vest if the Company ranks at the 50th percentile on a total stockholders return basis as compared to its peer group with the total stockholder return based on the average of the closing prices on the principal market for each trading day for the month of June 2010 versus the average of the closing prices on the principal market for each trading day for the month of June 2013; and (ii) 100% of the performance units shall vest if the Company ranks at or greater than the 60th percentile on a total stockholders return basis as compared to its peer group with the total stockholder return based on the average of the closing prices on the principal market for each trading day for the month of June 2010 versus the average of the closing prices on the principal market for each trading day for the month of June 2013. Vesting will be calculated on a straight line interpolation basis for a rank on a total stockholder return basis as compared to our Peer Group between the 50th percentile (at a vesting percentage of 50%) and 60th percentile (with a vesting percentage of 100% with the total stockholder return based on the average of the closing prices for the month of June 2010 versus the average of the closing prices for the month of June 2013. The determination of whether any vesting criteria have been met is to be made by the Committee. The unvested units will be forfeited on the earlier of the date of the participant’s termination of service or June 30, 2013.
On May 19, 2009, The Committee of the Board of Directors of the Company approved an award of PSUs which upon vesting would result in the issuance of 403,000 shares of common stock. The awards vest upon the following performance conditions: (i) for 20 consecutive trading days between the date of grant and May 19, 2012, the closing price of the Company’s common stock is at least $30 per share and the Company ranks at or greater than the 50th percentile on a total stockholder return basis as compared to its peer group with total stockholder return being based on the average of the closing prices for the month of December 2008 versus the average of the closing prices for the month of December 2011; or (ii) for 20 consecutive trading days between the date of grant and May 19, 2012, the closing price of the Company’s common stock is at least $24 per share and the Company ranks at or greater than the 80th percentile on a total stockholder return basis as compared to its peer group with the total stockholder return
64
based on the average of the closing prices for the month of December 2008 versus the average of the closing prices the month of December 2011. The determination of whether any vesting criteria have been met is to be made by the Committee. The unvested units will be forfeited on the earlier of the date of the participant’s termination of service or May 19, 2012.
In January 2000, stockholders approved the 1999 Non-Employee Director Stock Option Plan (“1999 Plan”) and authorized 800,000 shares to be made available for option grants to non-employee directors. The price of these options is the fair market value of the Company’s stock at the date of the grant. The options granted vest 50% after one year and 50% after two years from the grant date. Under the 1999 Plan, any outside director could elect to receive all or part of fees otherwise payable in the form of a stock option. Options granted in lieu of fees are immediately vested. All options expire seven years from the date of grant. The 1999 Plan was amended with stockholder approval in January 2005 and 2007 in order to provide annual grants of either non-qualified options, restricted stock or restricted stock units to non-employee directors. This annual award can either be in the form of a nonqualified stock option or SAR grant for 14,000 shares or a restricted stock or unit award of 4,000 shares. On January 28, 2010, the Company issued SARs which are exercisable into 126,000 shares of common stock to nine non-employee directors. SARs vest over a two-year period. Prior to vesting, restricted stock award recipients receive an amount equivalent to any dividend declared on the Company’s common stock.
Combined information for shares subject to options and SARs for the plans were as follows:
| | | | | | | | | | | | |
| | | | | | Weighted | | |
| | | | | | Average | | Price |
| | | | | | Exercise | | Range |
| | Number | | Price | | Per Share |
|
September 1, 2007 | | | | | | | | | | | | |
Outstanding | | | 6,480,908 | | | $ | 14.74 | | | $ | 2.94-34.28 | |
Exercisable | | | 4,333,089 | | | | 7.65 | | | | 2.94-24.71 | |
Granted | | | 1,062,670 | | | | 35.37 | | | | 32.82-35.38 | |
Exercised | | | (1,247,477 | ) | | | 7.24 | | | | 2.94-34.28 | |
Forfeited | | | (74,695 | ) | | | 29.97 | | | | 12.31-35.38 | |
|
August 31, 2008 | | | | | | | | | | | | |
Outstanding | | | 6,221,406 | | | $ | 19.60 | | | $ | 3.64-35.38 | |
Exercisable | | | 4,057,115 | | | | 11.96 | | | | 3.64-34.28 | |
Granted | | | 126,000 | | | | 11.00 | | | | 11.00 | |
Exercised | | | (813,271 | ) | | | 5.00 | | | | 3.64-12.31 | |
Forfeited | | | (106,583 | ) | | | 30.85 | | | | 7.78-35.38 | |
|
August 31, 2009 | | | | | | | | | | | | |
Outstanding | | | 5,427,552 | | | $ | 21.36 | | | $ | 3.64-35.38 | |
Exercisable | | | 4,240,734 | | | | 18.27 | | | | 3.64-35.38 | |
Granted | | | 126,000 | | | | 14.05 | | | | 14.05 | |
Exercised | | | (1,053,206 | ) | | | 6.59 | | | | 3.64-12.31 | |
Forfeited | | | (578,330 | ) | | | 31.05 | | | | 7.78-35.38 | |
|
August 31, 2010 | | | | | | | | | | | | |
Outstanding | | | 3,922,016 | | | $ | 23.67 | | | $ | 7.53-35.38 | |
Exercisable | | | 3,503,681 | | | | 23.38 | | | | 7.53-35.38 | |
| | |
Share information for options and SARs at August 31, 2010: |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Outstanding | | Exercisable |
| | | | | | | | Weighted | | | | | | | | |
| | | | | | | | Average | | Weighted | | | | | | | | | | Weighted | | |
Range of | | | | | | Remaining | | Average | | Aggregate | | | | | | Average | | Aggregate |
Exercise | | Number | | Contractual | | Exercise | | Intrinsic | | Number | | Exercise | | Intrinsic |
Price | | Outstanding | | Life (Years) | | Price | | Value | | Outstanding | | Price | | Value |
| | |
$ | 7.53 - 7.78 | | | | 807,346 | | | | 0.5 | | | $ | 7.77 | | | | | | | | 807,346 | | | $ | 7.77 | | | | | |
| 11.00 - 14.05 | | | | 764,892 | | | | 3.1 | | | | 12.41 | | | | | | | | 589,892 | | | | 12.17 | | | | | |
| 21.81 - 24.71 | | | | 448,942 | | | | 2.4 | | | | 24.51 | | | | | | | | 448,942 | | | | 24.51 | | | | | |
| 31.75 - 35.38 | | | | 1,900,836 | | | | 3.7 | | | | 34.76 | | | | | | | | 1,657,501 | | | | 34.67 | | | | | |
| | |
$ | 7.53 - 35.38 | | | | 3,922,016 | | | | 2.8 | | | $ | 23.67 | | | $ | 4,849,517 | | | | 3,503,681 | | | $ | 23.38 | | | $ | 4,750,537 | |
| | |
65
The total aggregate intrinsic value of options and SARs outstanding and expected to vest at August 31, 2010 was $4.6 million. The total intrinsic value of options and SARs exercised during 2010, 2009, and 2008 was $9.8 million, $5.6 million and $29.6 million, respectively.
Information for restricted stock awards and PSUs as of August 31, 2010, 2009 and 2008 and changes during each of the three years then ended:
| | | | | | | | |
| | | | | | Weighted Average |
| | | | | | Grant-Date |
| | Shares | | Fair Value |
|
September 1, 2007 | | | 554,424 | | | $ | 24.04 | |
Granted | | | 163,770 | | | $ | 32.90 | |
Vested | | | (327,030 | ) | | | 20.42 | |
Forfeited | | | (18,178 | ) | | | 24.30 | |
|
August 31, 2008 | | | 372,986 | | | $ | 31.09 | |
|
Granted | | | 403,000 | | | $ | 8.89 | |
Vested | | | (213,767 | ) | | | 29.32 | |
Forfeited | | | (12,619 | ) | | | 33.20 | |
|
August 31, 2009 | | | 549,600 | | | $ | 15.45 | |
|
Granted | | | 1,301,518 | | | $ | 12.89 | |
Vested | | | (99,026 | ) | | | 32.79 | |
Forfeited | | | (102,107 | ) | | | 13.03 | |
|
August 31, 2010 | | | 1,649,985 | | | $ | 12.54 | |
|
At August 31, 2010, the Company has 6,566,043 shares available for future grants of options, SARs and restricted stock.
Preferred StockPreferred stock has a par value of $1.00$1.00 a share, with 2,000,000 shares authorized. It may be issued in series, and the shares of each series shall have such rights and preferences as may be fixed by theCMC's Board of Directors when authorizing the issuance of that particular series. There are no shares of preferred stock outstanding.
Stockholder Rights Plan On July 30, 2011, CMC's Board of Directors adopted a stockholder rights plan ("Rights Plan") pursuant to which the Board declared a dividend to stockholders of record as of August 11, 2011, of one Preferred Stock Purchase Right ("Right") on each outstanding share of CMC common stock. On December 6, 2012, the Company terminated the Rights Plan. No Rights were exercised, traded or redeemed under the Rights Plan for the years ended August 31, 2013 and 2012, respectively.
NOTE 11. EMPLOYEES’17. EMPLOYEES' RETIREMENT PLANS
Substantially all employees in the U.S. are covered by a defined contribution profit sharing and savings plan. This tax qualified plan is maintained and contributions are made in accordance with ERISA.the Employee Retirement Income Security Act of 1974, as amended ("ERISA"). The Company also provides certain eligible executives’executives' benefits pursuant to a nonqualified benefit restoration plan (“("BRP Plan”Plan") equal to amounts that would have been available under the tax qualified ERISA plans, but forwere subject to the limitations of ERISA, tax laws and regulations. Company expenses, which are discretionary, for these plans were $19.4$15.9 million $20.8, $13.0 million and $55.1$14.1 million for 2010, 2009the years ended August 31, 2013, 2012 and 2008,2011, respectively.
The deferred compensation liability under the BRP Plan was $86.0$78.8 million and $96.9$77.0 million at August 31, 20102013 and 2009,2012, respectively, and recorded in other long-term liabilities. Though under no obligation to fund the plan, the Company has segregated assets in a trust with a current value at August 31, 20102013 and 20092012 of $43.7$59.4 million and $55.6$52.9 million, respectively, recorded in other long-term assets. The net holding gain (loss) on these segregated assets was $3.2$9.9 million $(12.2), $5.3 million and $(6.5)$6.5 million for the years ended August 31, 2010, 20092013, 2012 and 2008,2011, respectively.
A certain number of employees, primarily outside of the U.S., participate in defined benefit plans maintained in accordance with local regulations. Company expenses for these international plans were $2.4$3.6 million $2.4, $2.2 million and $4.3$3.2 million for the years ended August 31, 2010, 20092013, 2012 and 2008,2011, respectively.
The Company provides post retirement defined benefits to employees at certain divisions and recognizes the unfunded status of defined benefit plans as a liability with a corresponding reduction to accumulated other comprehensive income, net of taxes. During 2010, 2009At August 31, 2013 and 2008,2012, the Company recorded an additionalCompany's liability of $1.7 million, $0.5 million and $1.5 million, respectively, and a corresponding reduction to accumulated other comprehensive income, net of taxes of $1.1 million, $0.4 million and $1.1 million, respectively, related to the unfunded status of the Company’s defined benefit plans.plans was $3.5 million and $5.1 million, respectively.
66
NOTE 12.18. COMMITMENTS AND CONTINGENCIES
Minimum lease commitments payable by the Company and its consolidated subsidiaries for noncancelable operating leases in effect at August 31, 2010, are as follows:
| | | | | | | | |
| | | | | | Real |
(in thousands) | | Equipment | | Estate |
|
2011 | | $ | 17,391 | | | $ | 23,574 | |
2012 | | | 12,892 | | | | 19,878 | |
2013 | | | 7,775 | | | | 17,144 | |
2014 | | | 3,848 | | | | 15,858 | |
2015 | | | 503 | | | | 13,779 | |
|
| | | | |
Year Ending August 31, | | (in thousands) |
2014 | | $ | 35,430 |
|
2015 | | 28,600 |
|
2016 | | 22,943 |
|
2017 | | 15,576 |
|
2018 | | 9,030 |
|
Thereafter | | 11,918 |
|
Total | | $ | 123,497 |
|
Total rental expense was $48.9$46.6 million $68.4, $43.9 million and $63.7$45.9 million in 2010, 20092013, 2012 and 2008,2011, respectively.
Legal and Environmental Matters
In the ordinary course of conducting its business, the Company becomes involved in litigation, administrative proceedings and governmentgovernmental investigations, including environmental matters.
On September 18, 2008, the Company was served with a purported class action antitrust lawsuit alleging violations of Section 1 of the Sherman Act, brought by Standard Iron Works of Scranton, Pennsylvania, against nine steel manufacturing companies, including Commercial Metals Company. The lawsuit, filed in the United States District Court for the Northern District of Illinois, alleges that the defendants conspired to fix, raise, maintain and stabilize the price at which steel products were sold in the United States by artificially restricting the supply of such steel products. The lawsuit, which purports to be brought on behalf of a class consisting of all purchasersparties who purchased of steel products directly from the defendants between January 1, 2005 and September 2008, seeks treble damages and costs, including reasonable attorney fees and pre- and post-judgment interest. Motions for and against class certification have been filed. Oral arguments related to class certification are pending. Discovery on the case merits remains pending. The Company believes the case is without merit and intends to defend it vigorously.
Since the filing of thisthe direct purchaser lawsuit, additional plaintiffs havea case has been filed in federal court in the Northern District of Illinois on behalf of a purported class action lawsuitsof indirect purchasers in approximately 28 states naming the same defendants and containing allegations substantially identical to those of the Standard Iron Works complaint. That case has in effect been stayed. Another indirect purchaser action was filed in Tennessee state court, again naming the same defendants but contending that the conspiracy continued through 2010. The case has been removed to federal court, and plaintiffs have moved to remand. The motion to remand has not yet been decided, and no motion practice or discovery has taken place. The Company believes that the lawsuits are entirely without merit and plans to aggressively defend them vigorously. Due to the actions.uncertainty and the information available as of the date of these financial statements, we cannot reasonably estimate a range of loss relating to these cases.
The Company has received notices from the U.S. Environmental Protection Agency (“EPA”("EPA") or equivalent state agencyagencies with similar responsibility that it is considered a potentially responsible party (“PRP”("PRP") at tenseveral sites, none owned by the Company, and may be obligated under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (“CERCLA”("CERCLA") or similar state statute to conduct remedial investigations, feasibility studies, remediation and/or removal of alleged releases of hazardous substances or to reimburse the EPA for such activities. The Company is involved in litigation or administrative proceedings with regard to several of these sites in which the Company is contesting, or at the appropriate time may contest, its liability at the sites. In addition, the Company has received information requests with regard to other sites which may be under consideration by the EPA as potential CERCLA sites. Some of these environmental matters or other proceedings may result in fines, penalties or judgments being assessed against the Company. At August 31, 20102013 and 2009,2012, the Company had $1.1$0.9 million and $2.2$1.0 million, respectively, accrued for cleanup and remediation costs in connection with eight of the ten CERCLA sites. The estimation process is based on currently available information, which is in many cases preliminary and incomplete. As a result, the Company is unable to reasonably estimate an amount relating to cleanup and remediation costs for two CERCLA sites. Total environmental liabilities, including CERCLA sites, were $9.8$9.0 million at August 31, 2013 and $14.3 million,2012, respectively, of which $5.9$5.0 million and $6.4$4.9 million were classified as other long-term liabilities at August 31, 20102013 and 2009,2012, respectively. Due to evolving remediation technology, changing regulations, possible third-party contributions, the inherent shortcomings of the estimation process and other factors, amounts accrued could vary significantly from amounts paid. Historically, the amounts the Company has ultimately paid for such remediation activities have not been material.
Management believes that adequate provision hasprovisions have been made in the Company's consolidated financial statements for the potential impact of these issues,contingencies, and that the outcomes of the suits and proceedings described above, and other miscellaneous litigation and proceedings now pending, will not significantly impacthave a material adverse effect on the business, results of operations, or financial position or liquiditycondition of the Company.
Guarantees
During 2012, the Company although they may haveentered into a material impact on earnings forguarantee agreement with a particular quarter.bank in connection with a credit facility granted by the bank to a supplier of the Company. The fair value of the guarantee is negligible. The maximum credit facility with the bank was $4.0 million, and the Company's maximum exposure was $3.5 million as of August 31, 2013.
67
NOTE 13.19. EARNINGS (LOSS) PER SHARE ATTRIBUTABLE TO CMC
In calculating earnings (loss) per share, there were no adjustments to net earnings (loss) to arrive at earnings (loss) for any yearsperiods presented. The reconciliation of the denominators of the earnings (loss) per share calculations areis as follows at August 31:follows:
| | | | | | | | | | | | |
| | 2010 | | 2009 | | 2008 |
|
Shares outstanding for basic earnings (loss) per share | | | 113,524,836 | | | | 112,391,180 | | | | 115,048,512 | |
Effect of dilutive securities: | | | | | | | | | | | | |
Stock-based incentive/purchase plans | | | — | | | | 1,489,195 | | | | 2,637,241 | |
|
Shares outstanding for diluted earnings (loss) per share | | | 113,524,836 | | | | 113,880,375 | | | | 117,685,753 | |
|
|
| | | | | | | | | |
| | August 31, |
| | 2013 | | 2012 | | 2011 |
Shares outstanding for basic earnings (loss) per share | | 116,677,836 |
| | 115,861,986 |
| | 114,995,616 |
|
Effect of dilutive securities: | |
| |
| | |
Stock-based incentive/purchase plans | | 875,116 |
| | 921,174 |
| | 1,115,507 |
|
Shares outstanding for diluted earnings (loss) per share | | 117,552,952 |
| | 116,783,160 |
| | 116,111,123 |
|
For the yearyears ended August 31, 2010, no stock options, restricted stock or SARs were included in the calculation of dilutive shares because the Company recorded a loss from continuing operations. All of the Company’s outstanding stock options2013, 2012 and restricted stock were dilutive at August 31, 2009 and 2008 based on the average share price of $16.62 and $32.55, respectively.2011 SARs with total share commitments of 2,879,7071.5 million, 2.8 million and 2,414,0272.3 million respectively, were antidilutive at August 31, 2009 and 2008.therefore excluded from the calculation of diluted earnings per share. All stock options and SARs expire by 2017.2020.
The Company’sCompany's restricted stock is included in the number of shares of common stock issued and outstanding, but omitted from the basic earnings (loss) per share calculation until the shares vest.
NOTE 14.20. ACCRUED EXPENSES AND OTHER PAYABLES
| | | | | | | | |
| | August 31, |
(in thousands) | | 2010 | | 2009 |
|
Salaries and incentive compensation | | $ | 61,260 | | | $ | 67,425 | |
Advance billings on contracts | | | 42,549 | | | | 47,253 | |
Taxes other than income taxes | | | 35,252 | | | | 20,030 | |
Contract losses | | | 28,328 | | | | 24,492 | |
Insurance | | | 27,914 | | | | 17,540 | |
Legal and other professional services | | | 18,098 | | | | 11,493 | |
Unrecognized tax benefits | | | 14,095 | | | | — | |
Freight and other selling expenses | | | 10,924 | | | | 34,007 | |
Interest | | | 9,970 | | | | 9,875 | |
Derivative liability | | | 5,758 | | | | 16,771 | |
Employees’ retirement plans | | | 4,593 | | | | 2,941 | |
Environmental | | | 3,895 | | | | 8,088 | |
Other | | | 62,261 | | | | 67,297 | |
|
| | $ | 324,897 | | | $ | 327,212 | |
|
Significant accrued expenses and other payables were as follows:
|
| | | | | | | | |
| | August 31, |
(in thousands) | | 2013 | | 2012 |
Salaries and incentive compensation | | $ | 77,849 |
| | $ | 88,717 |
|
Advance billings on contracts | | 53,089 |
| | 65,241 |
|
Taxes other than income taxes | | 46,480 |
| | 38,024 |
|
Insurance | | 24,911 |
| | 27,646 |
|
Contract losses | | 5,621 |
| | 3,784 |
|
NOTE 15.21. BUSINESS SEGMENTS
The Company’s reportableCompany's reporting segments are based on strategic business areas, which offer different products and services. These segments have different lines of management responsibility as each business requires different marketing strategies and management expertise.
Prior to December 1, 2009, the Company structured the business into the following five segments: Americas Recycling, Americas Mills, Americas Fabrication and Distribution, International Mills and International Fabrication and Distribution.
Effective December 1, 2009, the Company implemented a new organizational structure. As a result, theThe Company structures the business into the following five segments: Americas Recycling, Americas Mills, Americas Fabrication, International MillsMill and International Marketing and Distribution. All prior period financial information has been recast to be presented in the new organizational structure.
The Americas Recycling segment consistsprocesses scrap metals for use as a raw material by manufacturers of the scrapnew metal processing and sales operations primarily in Texas, Florida and the southern United States including the scrap processing facilities which directly support the Company’s domestic steel mills.products. The Americas Mills segment includes the Company’s domesticmanufactures finished long steel minimills, its micro mill,products including rebar, merchant bar, light structural, some special bar quality (SBQ) and the copper tube minimill. The copper tube minimill is aggregated with the Company’s steel mills because it has similar economic characteristics.other special sections as well as semi-finished billets for re-rolling and forging applications. The Americas Fabrication segment consists of the Company’sCompany's rebar
68
and structural fabrication operations, fence post manufacturing plants, construction-related product facilities and other products facilities.plants that heat-treat steel to strengthen and provide flexibility. The International MillsMill segment includes the minimills in PolandCompany's minimill and Croatia,the Company's recycling operations in Poland and fabrication operations in Europe, which have been presented as a separate segment because the economic characteristics of their markets and the regulatory environment in which they operate are different from that of the Company’s domestic mills and rebar fabrication operations.Poland. The International Marketing and Distribution segment includes international operations for
the sales,sale, distribution and processing of steel products, ferrous and nonferrous metals and other industrial products. Additionally, the International Marketing and Distributionthis segment includes the Company’s two U.S. based tradingCompany's U.S.-based marketing and distribution divisions CMC Cometals and CMC Cometals — Steel (previously CMC Dallas Trading). The international distribution operations consist only of physical transactions and not positions taken for speculation.also operates a recycling facility in Singapore. Corporate contains expenses of the Company’sCompany's corporate headquarters expenses related to its deployment of SAP software, and interest expense relatingrelated to its long-term public debt and commercial paper program.debt.
The financial information presented for the Americas FabricationInternational Mill segment excludes its joist and deck fabricationCMCS operations. Additionally, the financial information presented for the International Marketing and DistributionAmericas Mills segment excludes its copper, aluminum, and stainless steel import operating division.Howell. These operations have been classified as discontinued operations in the consolidated statements of operations. See Note 5,10, Businesses Held for Sale, Discontinued Operations and Dispositions for more detailed information.
The Company uses adjusted operating profit (loss) to measure segment performance.the financial performance of its segments. Intersegment sales are generally priced at prevailing market prices. Certain corporate administrative expenses are allocated to segments based upon the nature of the expense. The accounting policies of the segments are the same as those described in the summary of significant accounting policies.
The following is a summary of certain financial information from continuing operations by reportable segment:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Americas | | International | | | | | | |
| | | | | | | | | | | | | | | | | | Marketing | | | | | | |
| | | | | | | | and | | | | | | |
| | Recycling | | Mills | | Fabrication | | Mills | | Distribution | | Corporate | | Eliminations | | Consolidated |
|
2010 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net sales-unaffiliated customers | | $ | 1,208,651 | | | $ | 872,178 | | | $ | 1,131,928 | | | $ | 650,404 | | | $ | 2,439,018 | | | $ | 3,923 | | | $ | — | | | $ | 6,306,102 | |
Intersegment sales | | | 215,821 | | | | 523,236 | | | | 8,349 | | | | 113,574 | | | | 24,396 | | | | 326 | | | | (885,702 | ) | | | — | |
Net sales | | | 1,424,472 | | | | 1,395,414 | | | | 1,140,277 | | | | 763,978 | | | | 2,463,414 | | | | 4,249 | | | | (885,702 | ) | | | 6,306,102 | |
Adjusted operating profit (loss) | | | 15,196 | | | | 33,295 | | | | (107,800 | ) | | | (73,484 | ) | | | 74,689 | | | | (70,678 | ) | | | 3,636 | | | | (125,146 | ) |
Interest expense* | | | 328 | | | | 11,894 | | | | 9,076 | | | | 11,425 | | | | 3,273 | | | | 39,512 | | | | — | | | | 75,508 | |
Capital expenditures | | | 6,689 | | | | 30,985 | | | | 2,948 | | | | 72,468 | | | | 7,118 | | | | 6,913 | | | | — | | | | 127,121 | |
Depreciation and amortization** | | | 20,590 | | | | 50,527 | | | | 42,777 | | | | 31,010 | | | | 5,021 | | | | 18,512 | | | | — | | | | 168,437 | |
Goodwill | | | 7,467 | | | | 95 | | | | 57,144 | | | | 2,820 | | | | 4,054 | | | | — | | | | — | | | | 71,580 | |
Total assets | | | 265,015 | | | | 586,371 | | | | 660,503 | | | | 703,589 | | | | 732,900 | | | | 1,083,744 | | | | (325,969 | ) | | | 3,706,153 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
2009 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net sales-unaffiliated customers | | $ | 625,858 | | | $ | 773,965 | | | $ | 1,591,058 | | | $ | 655,599 | | | $ | 2,773,505 | | | $ | (10,609 | ) | | $ | — | | | $ | 6,409,376 | |
Intersegment sales | | | 159,530 | | | | 479,433 | | | | 5,424 | | | | 98,360 | | | | 53,179 | | | | — | | | | (795,926 | ) | | | — | |
Net sales | | | 785,388 | | | | 1,253,398 | | | | 1,596,482 | | | | 753,959 | | | | 2,826,684 | | | | (10,609 | ) | | | (795,926 | ) | | | 6,409,376 | |
Adjusted operating profit (loss) | | | (89,576 | ) | | | 263,393 | | | | 145,672 | | | | (96,030 | ) | | | (53,102 | ) | | | (94,813 | ) | | | 8,218 | | | | 83,762 | |
Interest expense* | | | 198 | | | | (6,994 | ) | | | (543 | ) | | | 3,059 | | | | 4,648 | | | | 76,596 | | | | — | | | | 76,964 | |
Capital expenditures | | | 28,281 | | | | 122,719 | | | | 18,602 | | | | 152,194 | | | | 11,487 | | | | 36,411 | | | | — | | | | 369,694 | |
Depreciation and amortization** | | | 21,352 | | | | 38,543 | | | | 46,837 | | | | 25,793 | | | | 3,271 | | | | 15,570 | | | | — | | | | 151,366 | |
Goodwill | | | 7,467 | | | | 95 | | | | 58,878 | | | | 2,920 | | | | 4,876 | | | | — | | | | — | | | | 74,236 | |
Total assets | | | 257,084 | | | | 585,763 | | | | 857,198 | | | | 625,135 | | | | 687,738 | | | | 956,802 | | | | (282,164 | ) | | | 3,687,556 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
2008 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net sales-unaffiliated customers | | $ | 1,820,607 | | | $ | 1,387,290 | | | $ | 1,728,826 | | | $ | 1,100,785 | | | $ | 3,860,984 | | | $ | (1,855 | ) | | $ | — | | | $ | 9,896,637 | |
Intersegment sales | | | 369,112 | | | | 578,980 | | | | 11,770 | | | | 132,588 | | | | 114,281 | | | | — | | | | (1,206,731 | ) | | | — | |
Net sales | | | 2,189,719 | | | | 1,966,270 | | | | 1,740,596 | | | | 1,233,373 | | | | 3,975,265 | | | | (1,855 | ) | | | (1,206,731 | ) | | | 9,896,637 | |
Adjusted operating profit (loss) | | | 145,751 | | | | 207,756 | | | | (8,639 | ) | | | 99,660 | | | | 82,144 | | | | (99,481 | ) | | | (446 | ) | | | 426,745 | |
Interest expense* | | | (5,426 | ) | | | (10,329 | ) | | | 12,941 | | | | 10,740 | | | | 16,435 | | | | 33,893 | | | | — | | | | 58,254 | |
Capital expenditures | | | 52,299 | | | | 78,319 | | | | 45,234 | | | | 112,608 | | | | 4,774 | | | | 61,807 | | | | — | | | | 355,041 | |
Depreciation and amortization** | | | 19,129 | | | | 35,340 | | | | 29,168 | | | | 29,397 | | | | 2,835 | | | | 8,525 | | | | — | | | | 124,394 | |
Goodwill | | | 7,467 | | | | — | | | | 68,398 | | | | 3,805 | | | | 5,167 | | | | — | | | | — | | | | 84,837 | |
Total assets | | | 435,008 | | | | 630,612 | | | | 1,237,448 | | | | 743,654 | | | | 1,267,208 | | | | 983,329 | | | | (550,888 | ) | | | 4,746,371 | |
|
| | |
* | | Includes intercompany interest expense (income) in the segments. |
|
** | | Includes asset impairment charges. |
69
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Americas | | International | | | | | | |
(in thousands) | | Recycling | | Mills | | Fabrication | | Mill | | Marketing and Distribution | | Corporate | | Eliminations | | Continuing Operations |
2013 | | | | | | | | | | | | | | | | |
Net sales-unaffiliated customers | | $ | 1,225,604 |
| | $ | 1,060,337 |
| | $ | 1,427,785 |
| | $ | 819,889 |
| | $ | 2,344,128 |
| | $ | 11,832 |
| | $ | — |
| | $ | 6,889,575 |
|
Intersegment sales | | 166,145 |
| | 759,183 |
| | 14,906 |
| | 6,155 |
| | 11,444 |
| | — |
| | (957,833 | ) | | — |
|
Net sales | | 1,391,749 |
| | 1,819,520 |
| | 1,442,691 |
| | 826,044 |
| | 2,355,572 |
| | 11,832 |
| | (957,833 | ) | | 6,889,575 |
|
Adjusted operating profit (loss) | | 3,170 |
| | 204,333 |
| | 28,033 |
| | 890 |
| | 35,617 |
| | (66,453 | ) | | 848 |
| | 206,438 |
|
Interest expense* | | 9 |
| | (101 | ) | | 83 |
| | 992 |
| | 4,369 |
| | 64,256 |
| | — |
| | 69,608 |
|
Capital expenditures** | | 21,261 |
| | 37,216 |
| | 5,605 |
| | 15,155 |
| | 1,015 |
| | 7,552 |
| | — |
| | 87,804 |
|
Depreciation and amortization*** | | 13,453 |
| | 42,925 |
| | 22,302 |
| | 33,238 |
| | 17,988 |
| | 21,096 |
| | — |
| | 151,002 |
|
Total assets**** | | 309,599 |
| | 598,478 |
| | 631,510 |
| | 487,613 |
| | 838,413 |
| | 1,075,594 |
| | (496,946 | ) | | 3,444,261 |
|
2012 | | | | | | | | | | | | | | | | |
Net sales-unaffiliated customers | | $ | 1,418,717 |
| | $ | 1,206,651 |
| | $ | 1,366,944 |
| | $ | 955,730 |
| | $ | 2,700,300 |
| | $ | 8,033 |
| | $ | — |
| | $ | 7,656,375 |
|
Intersegment sales | | 187,444 |
| | 777,070 |
| | 14,694 |
| | 77,627 |
| | 27,019 |
| | — |
| | (1,083,854 | ) | | — |
|
Net sales | | 1,606,161 |
| | 1,983,721 |
| | 1,381,638 |
| | 1,033,357 |
| | 2,727,319 |
| | 8,033 |
| | (1,083,854 | ) | | 7,656,375 |
|
Adjusted operating profit (loss) | | 39,446 |
| | 235,918 |
| | (15,697 | ) | | 23,044 |
| | 47,287 |
| | (83,035 | ) | | (6,251 | ) | | 240,712 |
|
Interest expense* | | 1,933 |
| | 12,995 |
| | 10,809 |
| | 10,090 |
| | 6,548 |
| | 27,112 |
| | — |
| | 69,487 |
|
Capital expenditures** | | 40,329 |
| | 38,140 |
| | 4,389 |
| | 14,016 |
| | 3,314 |
| | 8,197 |
| | — |
| | 108,385 |
|
Depreciation and amortization*** | | 13,260 |
| | 40,704 |
| | 22,056 |
| | 32,306 |
| | 5,821 |
| | 20,295 |
| | — |
| | 134,442 |
|
Total assets**** | | 285,136 |
| | 615,070 |
| | 629,970 |
| | 529,160 |
| | 870,933 |
| | 961,654 |
| | (494,053 | ) | | 3,397,870 |
|
2011 | | | | | | | | | | | | | | | | |
Net sales-unaffiliated customers | | $ | 1,692,824 |
| | $ | 1,111,483 |
| | $ | 1,208,823 |
| | $ | 1,043,267 |
| | $ | 2,603,494 |
| | $ | 6,882 |
| | $ | — |
| | $ | 7,666,773 |
|
Intersegment sales | | 136,713 |
| | 728,235 |
| | 16,899 |
| | 2,966 |
| | 47,405 |
| | — |
| | (932,218 | ) | | — |
|
Net sales | | 1,829,537 |
| | 1,839,718 |
| | 1,225,722 |
| | 1,046,233 |
| | 2,650,899 |
| | 6,882 |
| | (932,218 | ) | | 7,666,773 |
|
Adjusted operating profit (loss) | | 43,059 |
| | 149,213 |
| | (129,141 | ) | | 47,594 |
| | 76,337 |
| | (84,729 | ) | | (1,275 | ) | | 101,058 |
|
Interest expense* | | 246 |
| | 12,894 |
| | 9,717 |
| | 18,251 |
| | 2,173 |
| | 26,533 |
| | — |
| | 69,814 |
|
Capital expenditures** | | 7,666 |
| | 24,169 |
| | 2,029 |
| | 14,278 |
| | 2,873 |
| | 7,896 |
| | — |
| | 58,911 |
|
Depreciation and amortization*** | | 12,860 |
| | 49,264 |
| | 48,299 |
| | 36,528 |
| | 4,600 |
| | 23,916 |
| | — |
| | 175,467 |
|
Total assets**** | | 278,120 |
| | 587,053 |
| | 590,278 |
| | 643,748 |
| | 990,111 |
| | 1,505,672 |
| | (1,047,716 | ) | | 3,547,266 |
|
________________________
* Includes intercompany interest expense (income) in the segments and is all eliminated within Corporate.
** Excludes capital expenditures from discontinued operations of $1.2 million, $5.5 million and $14.3 million for the years ended August 31, 2013, 2012 and 2011, respectively.
*** Includes asset impairment charges.
**** Excludes total assets from discontinued operations of $50.5 million at August 31, 2013, $43.4 million at August 31, 2012 and $135.9 million at August 31, 2011.
The following table provides a reconciliation of consolidated adjusted operating profit to net earnings (loss) from continuing operations attributable to CMC:
| | | | | | | | | | | | |
| | Year ended August 31, |
(in thousands) | | 2010 | | 2009 | | 2008 |
|
Net earnings (loss) from continuing operations attributable to CMC | | $ | (166,724 | ) | | $ | 1,737 | | | $ | 244,645 | |
Noncontrolling interests | | | 236 | | | | (550 | ) | | | 538 | |
Income taxes (benefit) | | | (38,118 | ) | | | 747 | | | | 112,275 | |
Interest expense | | | 75,508 | | | | 76,964 | | | | 58,254 | |
Discounts on sales of accounts receivable | | | 3,952 | | | | 4,864 | | | | 11,033 | |
|
Adjusted operating profit (loss) from continuing operations | | $ | (125,146 | ) | | $ | 83,762 | | | $ | 426,745 | |
Adjusted operating profit (loss) from discontinued operations | | | (59,755 | ) | | | 32,622 | | | | (18,881 | ) |
|
Adjusted operating profit (loss) | | $ | (184,901 | ) | | $ | 116,384 | | | $ | 407,864 | |
|
|
| | | | | | | | | | | | |
| | Year Ended August 31, |
(in thousands) | | 2013 | | 2012 | | 2011 |
Earnings from continuing operations | | $ | 74,957 |
| | $ | 210,549 |
| | $ | 11,539 |
|
Income taxes (benefit) | | 57,979 |
| | (45,762 | ) | | 14,592 |
|
Interest expense | | 69,608 |
| | 69,487 |
| | 69,814 |
|
Discounts on sales of accounts receivable | | 3,894 |
| | 6,438 |
| | 5,113 |
|
Adjusted operating profit from continuing operations | | $ | 206,438 |
| | $ | 240,712 |
| | $ | 101,058 |
|
Adjusted operating profit (loss) from discontinued operations for the years ended August 31, 2013, 2012 and 2011 was $3.7 million, $(10.7) million and $(138.2) million, respectively.
The following represents the Company’sCompany's external net sales from continuing operations by major product and geographic area:
| | | | | | | | | | | | |
| | Year ended August 31, |
(in thousands) | | 2010 | | 2009 | | 2008 |
|
Steel products | | $ | 3,637,631 | | | $ | 4,351,569 | | | $ | 6,097,107 | |
Industrial materials | | | 913,019 | | | | 885,333 | | | | 1,247,907 | |
Nonferrous scrap | | | 702,467 | | | | 411,490 | | | | 1,006,456 | |
Ferrous scrap | | | 561,119 | | | | 260,755 | | | | 861,106 | |
Construction materials | | | 230,294 | | | | 288,707 | | | | 327,732 | |
Nonferrous products | | | 178,844 | | | | 150,461 | | | | 273,790 | |
Other | | | 82,728 | | | | 61,061 | | | | 82,539 | |
|
Net sales* | | $ | 6,306,102 | | | $ | 6,409,376 | | | $ | 9,896,637 | |
|
| | | | | | | | | | | | |
Geographic area: | | | | | | | | | | | | |
United States | | $ | 3,215,337 | | | $ | 3,678,447 | | | $ | 5,305,658 | |
Europe | | | 1,290,907 | | | | 1,272,621 | | | | 2,399,859 | |
Asia | | | 1,059,673 | | | | 727,681 | | | | 955,800 | |
Australia/New Zealand | | | 531,595 | | | | 533,528 | | | | 636,760 | |
Other | | | 208,590 | | | | 197,099 | | | | 598,560 | |
|
Net sales* | | $ | 6,306,102 | | | $ | 6,409,376 | | | $ | 9,896,637 | |
|
| | |
* | | Excludes divisions classified as discontinued operations. See Note 5. |
|
| | | | | | | | | | | | |
| | Year Ended August 31, |
(in thousands) | | 2013 | | 2012 | | 2011 |
Major product information: | | | | | | |
Steel products | | $ | 4,318,072 |
| | $ | 4,699,226 |
| | $ | 4,412,810 |
|
Industrial materials | | 928,472 |
| | 1,147,386 |
| | 1,134,819 |
|
Nonferrous scrap | | 682,611 |
| | 765,349 |
| | 997,717 |
|
Ferrous scrap | | 646,263 |
| | 763,772 |
| | 805,067 |
|
Construction materials | | 189,046 |
| | 177,827 |
| | 217,741 |
|
Nonferrous products | | 5,674 |
| | 2,689 |
| | 2,573 |
|
Other | | 119,437 |
| | 100,126 |
| | 96,046 |
|
Net sales | | $ | 6,889,575 |
| | $ | 7,656,375 |
| | $ | 7,666,773 |
|
|
| | | | | | | | | | | | |
| | Year Ended August 31, |
(in thousands) | | 2013 | | 2012 | | 2011 |
Geographic area: | | | | | | |
United States | | $ | 4,107,231 |
| | $ | 4,503,786 |
| | $ | 4,166,960 |
|
Europe | | 1,108,196 |
| | 1,313,611 |
| | 1,581,688 |
|
Asia | | 1,094,458 |
| | 1,018,675 |
| | 1,131,332 |
|
Australia/New Zealand | | 488,108 |
| | 617,919 |
| | 564,084 |
|
Other | | 91,582 |
| | 202,384 |
| | 222,709 |
|
Net sales | | $ | 6,889,575 |
| | $ | 7,656,375 |
| | $ | 7,666,773 |
|
The following table represents long-lived assets by geographic area:
| | | | | | | | | | | | |
| | Year ended August 31, |
(in thousands) | | 2010 | | 2009 | | 2008 |
|
United States | | $ | 1,062,080 | | | $ | 1,186,624 | | | $ | 1,132,775 | |
Europe | | | 443,986 | | | | 462,412 | | | | 356,667 | |
Australia/New Zealand | | | 16,725 | | | | 19,286 | | | | 19,164 | |
Other | | | 8,156 | | | | 21,682 | | | | 20,322 | |
|
Total long-lived assets | | $ | 1,530,947 | | | $ | 1,690,004 | | | $ | 1,528,928 | |
|
70
|
| | | | | | | | | | | | |
| | August 31, |
(in thousands) | | 2013 | | 2012 | | 2011 |
United States | | $ | 868,643 |
| | $ | 907,009 |
| | $ | 944,851 |
|
Europe | | 239,899 |
| | 250,392 |
| | 364,207 |
|
Australia/New Zealand | | 12,446 |
| | 36,097 |
| | 38,973 |
|
Other | | 7,618 |
| | 7,917 |
| | 8,847 |
|
Total long-lived assets | | $ | 1,128,606 |
| | $ | 1,201,415 |
| | $ | 1,356,878 |
|
NOTE 16.22. QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data for fiscal 2010, 20092013 and 20082012 are as follows (in thousands except per share data):
| | | | | | | | | | | | | | | | |
| | Three Months Ended 2010 |
| | Nov. 30 | | Feb. 28 | | May 31 | | Aug. 31 |
|
Net sales* | | $ | 1,402,258 | | | $ | 1,322,443 | | | $ | 1,765,154 | | | $ | 1,816,247 | |
Gross profit* | | | 107,763 | | | | 8,614 | | | | 119,904 | | | | 158,756 | |
Net earnings (loss) attributable to CMC | | | (31,229 | ) | | | (173,290 | ) | | | (8,826 | ) | | | 8,001 | |
Basic EPS (loss) attributable to CMC | | | (0.28 | ) | | | (1.53 | ) | | | (0.08 | ) | | | 0.07 | |
Diluted EPS (loss) attributable to CMC | | | (0.28 | ) | | | (1.53 | ) | | | (0.08 | ) | | | 0.07 | |
| | | | | | | | | | | | | | | | |
| | Three Months Ended 2009 |
| | Nov. 30 | | Feb. 29 | | May 31 | | Aug. 31 |
|
Net sales* | | $ | 2,232,230 | | | $ | 1,507,460 | | | $ | 1,258,237 | | | $ | 1,411,449 | |
Gross profit* | | | 235,308 | | | | 134,090 | | | | 179,383 | | | | 148,248 | |
Net earnings (loss) attributable to CMC | | | 62,006 | | | | (35,307 | ) | | | (13,077 | ) | | | 7,180 | |
Basic EPS (loss) attributable to CMC | | | 0.55 | | | | (0.32 | ) | | | (0.12 | ) | | | 0.06 | |
Diluted EPS (loss) attributable to CMC | | | 0.54 | | | | (0.32 | ) | | | (0.12 | ) | | | 0.06 | |
| | | | | | | | | | | | | | | | |
| | Three Months Ended 2008 |
| | Nov. 30 | | Feb. 28 | | May 31 | | Aug. 31 |
|
Net sales* | | $ | 1,970,711 | | | $ | 2,137,744 | | | $ | 2,777,336 | | | $ | 3,010,846 | |
Gross profit* | | | 236,914 | | | | 225,903 | | | | 289,198 | | | | 315,987 | |
Net earnings attributable to CMC | | | 69,164 | | | | 39,775 | | | | 59,484 | | | | 63,543 | |
Basic EPS attributable to CMC | | | 0.59 | | | | 0.35 | | | | 0.52 | | | | 0.56 | |
Diluted EPS attributable to CMC | | | 0.57 | | | | 0.34 | | | | 0.51 | | | | 0.55 | |
| | |
* | | Excludes divisions classified as discontinued operations. See Note 5. |
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended 2013 |
| | Nov. 30 | | Feb. 28 | | May 31 | | Aug. 31 |
Net sales* | | $ | 1,749,515 |
| | $ | 1,688,665 |
| | $ | 1,752,534 |
| | $ | 1,698,861 |
|
Gross profit* | | 186,665 |
| | 139,365 |
| | 175,519 |
| | 160,788 |
|
Net earnings attributable to CMC | | 49,717 |
| | 4,577 |
| | 18,964 |
| | 4,057 |
|
Basic EPS attributable to CMC | | 0.43 |
| | 0.04 |
| | 0.16 |
| | 0.03 |
|
Diluted EPS attributable to CMC | | 0.42 |
| | 0.04 |
| | 0.16 |
| | 0.03 |
|
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended 2012 |
| | Nov. 30 | | Feb. 29 | | May 31 | | Aug. 31 |
Net sales* | | $ | 1,947,473 |
| | $ | 1,918,049 |
| | $ | 1,957,827 |
| | $ | 1,833,026 |
|
Gross profit* | | 171,641 |
| | 179,058 |
| | 186,490 |
| | 179,438 |
|
Net earnings attributable to CMC | | 107,734 |
| | 28,853 |
| | 40,682 |
| | 30,215 |
|
Basic EPS attributable to CMC | | 0.93 |
| | 0.25 |
| | 0.35 |
| | 0.26 |
|
Diluted EPS attributable to CMC | | 0.93 |
| | 0.25 |
| | 0.35 |
| | 0.26 |
|
_________________________
* Excludes divisions classified as discontinued operations. See Note 10, Businesses Held for Sale, Discontinued Operations and Dispositions.
NOTE 17.23. RELATED PARTY TRANSACTIONS
One
The Company had no significant related party transactions for the years ended August 31, 2013 and 2012, respectively.
During the first quarter of fiscal 2013, the Company completed the sale of its 11% ownership interest in Trinecke. See Note 10, Businesses Held for Sale, Discontinued Operations and Disposals.
During 2011, the Company sold two joint ventures for approximately $8.3 million, resulting in a minimal gain. Net sales from related party transactions were $135.3 million and total purchases were $150.9 million for the year ended August 31, 2011.
NOTE 24. SUBSEQUENT EVENTS
On October 17, 2013, the Company sold all of the Company’s international subsidiaries has a marketingstock of Howell, its wholly-owned copper tube manufacturing operation, for $58.5 million, subject to customary purchase price adjustments. See Note 10, Businesses Held for Sale, Discontinued Operations and distribution agreement with a key supplier of which the Company owns an 11% interest. This marketing and distribution agreement expires on December 31, 2010. The following presents related party transactions:Disposals for additional information.
| | | | | | | | | | | | |
| | Year ended August 31, |
(in thousands) | | 2010 | | 2009 | | 2008 |
|
Sales | | $ | 329,380 | | | $ | 275,012 | | | $ | 396,739 | |
Purchases | | | 352,822 | | | | 338,877 | | | | 420,909 | |
| | | | | | | | |
| | Year ended August 31, |
(in thousands) | | 2010 | 2009 |
|
Accounts Receivable | | $ | 10,611 | | | $ | 12,664 | |
Accounts Payable | | | 22,603 | | | | 17,012 | |
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
ITEM 9A. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures.The term “disclosure"disclosure controls and procedures”procedures" is defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, or the Exchange Act. This term refers to the controls and procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files under the Exchange Act is recorded, processed, summarized and reported within required time periods, including controls and disclosures designed to ensure that this information is accumulated and communicated to the Company’scompany's management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Our Chief Executive Officer and our Chief Financial Officer have evaluated the effectiveness of our disclosure controls and procedures as of the end of the
71
ITEM 9B. OTHER INFORMATION
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Our Board of Directors usually elects officers at its first meeting after our annual stockholders meeting. Our executive officers continue to serve for terms set from time to time by the Board of Directors in its discretion.