UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q 

xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended May 31,November 30, 2019
OR
¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from             to            
Commission file number 1-4304

COMMERCIAL METALS COMPANY
(Exact Name of Registrant as Specified in Its Charter)
___________________________________ 
Delaware75-0725338
(State or Other Jurisdiction of
Incorporation or Organization)
(I.R.S. Employer
Identification Number)
6565 N. MacArthur Blvd.
Irving, Texas 75039
(Address of Principal Executive Offices) (Zip Code)
(214) 689-4300
(Registrant's Telephone Number, Including Area Code)
___________________________________Securities registered pursuant to Section 12(b) of the Act:
Title of Each ClassTrading Symbol(s)Name of Each Exchange on Which Registered
Common Stock, $0.01 par valueCMCNew York Stock Exchange
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 ("Exchange Act") during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  x    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filerx
Accelerated filer ¨
Non-accelerated filer ¨
Smaller reporting company¨
 
Emerging growth company¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x
Securities registered pursuant to Section 12(b) of the Exchange Act:

Title of each classTrading Symbol(s)Name of each exchange on which registered
Common StockCMCNew York Stock Exchange

As of June 25, 2019,January 6, 2020, 117,924,115118,650,173 shares of the registrant's common stock, par value $0.01 per share, were outstanding.




COMMERCIAL METALS COMPANY AND SUBSIDIARIES
TABLE OF CONTENTS

  
  
  
  

2




PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

COMMERCIAL METALS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
COMMERCIAL METALS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
COMMERCIAL METALS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
 Three Months Ended May 31, Nine Months Ended May 31, Three Months Ended November 30,
(in thousands, except share data) 2019 2018 2019 2018 2019 2018
Net sales $1,605,872
 $1,204,484
 $4,285,997

$3,335,285
 $1,384,708

$1,277,342
Costs and expenses:     


 


Cost of goods sold 1,364,242
 1,035,914
 3,735,168

2,896,531
 1,146,514

1,118,433
Selling, general and administrative expenses 115,461
 101,422
 331,404

306,009
 111,529

117,217
Interest expense 18,513
 11,511
 53,671
 25,303
 16,578
 16,663
 1,498,216
 1,148,847
 4,120,243

3,227,843
 1,274,621

1,252,313
            
Earnings from continuing operations before income taxes 107,656
 55,637
 165,754

107,442
 110,087

25,029
Income taxes 29,105
 13,312
 52,855

23,465
 27,332

5,609
Earnings from continuing operations 78,551
 42,325
 112,899

83,977
 82,755

19,420
     




 




Earnings (loss) from discontinued operations before income taxes (190) (3,389) (808) 5,021
Income taxes (benefit) (29) (1,029) 109
 2,052
Earnings (loss) from discontinued operations (161) (2,360) (917) 2,969
Earnings from discontinued operations before income taxes 895
 457
Income taxes 302
 135
Earnings from discontinued operations 593
 322
     




 




Net earnings $78,390
 $39,965
 $111,982
 $86,946
 $83,348
 $19,742
     


 


Basic earnings (loss) per share*     


Basic earnings per share* 


Earnings from continuing operations $0.67
 $0.36
 $0.96

$0.72
 $0.70

$0.17
Earnings (loss) from discontinued operations 
 (0.02) (0.01)
0.03
Earnings from discontinued operations 0.01


Net earnings $0.66
 $0.34
 $0.95

$0.74
 $0.70

$0.17
     


 


Diluted earnings (loss) per share*     


Diluted earnings per share* 


Earnings from continuing operations $0.66
 $0.36
 $0.95

$0.71
 $0.69

$0.16
Earnings (loss) from discontinued operations 
 (0.02) (0.01)
0.03
Earnings from discontinued operations 


Net earnings $0.66
 $0.34
 $0.94

$0.74
 $0.70

$0.17
     




 




Average basic shares outstanding 118,045,362
 117,111,799
 117,762,945

116,722,504
 118,370,191

117,387,038
Average diluted shares outstanding 119,145,566
 118,254,791
 119,013,014

118,050,864
 119,773,538

118,682,473
See notes to condensed consolidated financial statements.
 _________________
*Earnings Per Share ("EPS") is calculated independently for each component and may not sum to Net EPS due to rounding.


3





COMMERCIAL METALS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
COMMERCIAL METALS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
COMMERCIAL METALS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

 Three Months Ended May 31, Nine Months Ended May 31, Three Months Ended November 30,
(in thousands) 2019 2018 2019 2018 2019 2018
Net earnings $78,390
 $39,965
 $111,982
 $86,946
 $83,348
 $19,742
Other comprehensive income (loss), net of income taxes:        
Other comprehensive income, net of income taxes:    
Foreign currency translation adjustment (5,135) (26,434) (14,278) (11,656) 6,924
 (9,657)
Reclassification for translation loss realized upon liquidation of investment in foreign entity 19
 1,328
 856
 1,328
 
 (99)
Foreign currency translation adjustment (5,116) (25,106) (13,422) (10,328) 6,924
 (9,756)
Net unrealized gain (loss) on derivatives:            
Unrealized holding gain (loss) (145) 13
 (267) 38
 714
 (35)
Reclassification for gain included in net earnings (71) (56) (154) (236)
Net unrealized loss on derivatives (216) (43) (421) (198)
Reclassification for loss included in net earnings (89) (42)
Net unrealized gain (loss) on derivatives 625
 (77)
Defined benefit obligation:            
Amortization of prior services (6) (7) (21) (20) (8) (7)
Reclassification for settlement losses 
 
 1,316
 437
 
 1,316
Defined benefit obligation (6) (7) 1,295
 417
 (8) 1,309
Other comprehensive loss (5,338) (25,156) (12,548) (10,109)
Other comprehensive income (loss) 7,541
 (8,524)
Comprehensive income $73,052
 $14,809
 $99,434
 $76,837
 $90,889
 $11,218
See notes to condensed consolidated financial statements.

4




COMMERCIAL METALS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
COMMERCIAL METALS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
COMMERCIAL METALS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(in thousands, except share data) May 31, 2019 August 31, 2018 November 30, 2019 August 31, 2019
Assets        
Current assets:        
Cash and cash equivalents $120,315
 $622,473
 $224,797
 $192,461
Accounts receivable (less allowance for doubtful accounts of $8,584 and $4,489) 1,014,157
 749,484
Accounts receivable (less allowance for doubtful accounts of $8,348 and $8,403) 961,458
 1,016,088
Inventories, net 807,593
 589,005
 649,681
 692,368
Other current assets 172,007
 116,243
 178,647
 179,088
Total current assets 2,114,072
 2,077,205
 2,014,583
 2,080,005
Property, plant and equipment, net 1,473,568
 1,075,038
 1,504,308
 1,500,971
Goodwill 64,226
 64,310
 64,178
 64,138
Other noncurrent assets 115,144
 111,751
 225,282
 113,657
Total assets $3,767,010
 $3,328,304
 $3,808,351
 $3,758,771
Liabilities and stockholders' equity        
Current liabilities:        
Accounts payable-trade $278,390
 $261,258
Accounts payable $243,857
 $288,005
Accrued expenses and other payables 318,975
 260,939
 317,455
 353,786
Acquired unfavorable contract backlog 51,998
 
 26,935
 35,360
Current maturities of long-term debt and short-term borrowings 54,895
 19,746
 13,717
 17,439
Total current liabilities 704,258
 541,943
 601,964
 694,590
Deferred income taxes 63,413
 37,834
 107,069
 79,290
Other noncurrent liabilities 128,281
 116,325
 218,178
 133,620
Long-term debt 1,306,863
 1,138,619
 1,179,443
 1,227,214
Total liabilities 2,202,815
 1,834,721
 2,106,654
 2,134,714
Commitments and contingencies (Note 16) 

 

Commitments and contingencies (Note 13) 

 

Stockholders' equity:        
Common stock, par value $0.01 per share; authorized 200,000,000 shares; issued 129,060,664 shares; outstanding 117,924,115 and 117,015,558 shares 1,290
 1,290
Common stock, par value $0.01 per share; authorized 200,000,000 shares; issued 129,060,664 shares; outstanding 118,649,865 and 117,924,938 shares 1,290
 1,290
Additional paid-in capital 352,881
 352,674
 347,192
 358,668
Accumulated other comprehensive loss (106,225) (93,677) (116,585) (124,126)
Retained earnings 1,513,418
 1,446,495
 1,654,489
 1,585,379
Less treasury stock, 11,136,549 and 12,045,106 shares at cost (197,365) (213,385)
Less treasury stock, 10,410,799 and 11,135,726 shares at cost (184,885) (197,350)
Stockholders' equity 1,563,999
 1,493,397
 1,701,501
 1,623,861
Stockholders' equity attributable to noncontrolling interests 196
 186
 196
 196
Total stockholders' equity 1,564,195
 1,493,583
 1,701,697
 1,624,057
Total liabilities and stockholders' equity $3,767,010
 $3,328,304
 $3,808,351
 $3,758,771
See notes to condensed consolidated financial statements.

5




COMMERCIAL METALS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
COMMERCIAL METALS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
COMMERCIAL METALS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
 Nine Months Ended May 31, Three Months Ended November 30,
(in thousands) 2019 2018 2019 2018
Cash flows from (used by) operating activities:        
Net earnings $111,982
 $86,946
 $83,348
 $19,742
Adjustments to reconcile net earnings to cash flows from (used by) operating activities:        
Depreciation and amortization 117,617
 99,443
 40,947
 35,182
Deferred income taxes 27,939
 (352)
Amortization of acquired unfavorable contract backlog (58,202) 
 (8,331) (11,332)
Stock-based compensation 17,350
 18,247
 8,269
 4,217
Net gain on disposals of subsidiaries, assets and other (1,334) (1,578) (6,733) (1,271)
Deferred income taxes and other long-term taxes 36,367
 5,829
Write-down of inventories 551
 1,358
Provision for losses on receivables, net 100
 2,193
Asset impairment 15
 14,265
Other 1,175
 45
Changes in operating assets and liabilities (75,422) (65,612) (196) (36,333)
Beneficial interest in securitized accounts receivable (367,521) (491,577) 
 (367,521)
Net cash flows used by operating activities (218,497) (330,486)
Net cash flows from (used by) operating activities 146,418
 (357,623)
        
Cash flows from (used by) investing activities:        
Capital expenditures (45,559) (37,914)
Proceeds from the sale of property, plant and equipment 9,651
 1,953
Proceeds from insurance, sale of discontinued operations and other 784
 5,798
Acquisitions, net of cash acquired (700,941) (6,980) 
 (694,802)
Capital expenditures (91,753) (144,268)
Proceeds from insurance 4,405
 25,000
Proceeds from the sale of property, plant and equipment 2,503
 6,315
Proceeds from the sale of discontinued operations and other 1,893
 75,483
Advances under accounts receivable programs 
 132,979
Repayments under accounts receivable programs 
 (202,423)
Beneficial interest in securitized accounts receivable 367,521
 491,577
 
 367,521
Net cash flows from (used by) investing activities: (416,372) 377,683
Net cash flows used by investing activities: (35,124) (357,444)
        
Cash flows from (used by) financing activities:        
Proceeds from issuance of long-term debt 180,000
 350,000
 
 180,000
Repayments of long-term debt (24,138) (15,382) (53,298) (7,175)
Proceeds from accounts receivable programs 223,143
 
 27,050
 33,439
Repayments under accounts receivable programs (209,363) 
 (31,057) (45,586)
Dividends (42,387) (42,036) (14,238) (14,116)
Stock issued under incentive and purchase plans, net of forfeitures (2,364) (9,836) (7,817) (6,220)
Debt issuance costs 
 (5,254)
Other 10
 31
Net cash flows from financing activities 124,901
 277,523
Net cash flows from (used by) financing activities (79,360) 140,342
Effect of exchange rate changes on cash (341) (461) 196
 (353)
Increase (decrease) in cash, restricted cash and cash equivalents (510,309) 324,259
 32,130
 (575,078)
Cash, restricted cash and cash equivalents at beginning of period 632,615
 285,881
 193,729
 632,615
Cash, restricted cash and cash equivalents at end of period $122,306
 $610,140
 $225,859
 $57,537
See notes to condensed consolidated financial statements.



6




Supplemental information: Nine Months Ended May 31, Three Months Ended November 30,
(in thousands) 2019 2018 2019 2018
Cash paid for income taxes $6,852
 $14,802
 $2,119
 $4,879
Cash paid for interest 53,773
 30,201
 20,031
 19,807
        
Noncash activities:        
Liabilities related to additions of property, plant and equipment 37,602
 28,252
 17,569
 19,676
        
Cash and cash equivalents $120,315
 $600,444
 $224,797
 $52,352
Restricted cash 1,991
 9,696
 1,062
 5,185
Total cash, restricted cash and cash equivalents $122,306
 $610,140
 $225,859
 $57,537


76




COMMERCIAL METALS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED)
 Three Months Ended May 31, 2019
 Common StockAdditionalAccumulated
Other
 Treasury Stock Non- 
(in thousands, except share data)Number of
Shares
AmountPaid-In
Capital
Comprehensive
Loss
Retained
Earnings
Number of
Shares
Amountcontrolling
Interests
Total
Balance, February 28, 2019129,060,664
$1,290
$346,156
$(100,887)$1,449,159
(11,139,594)$(197,418)$196
$1,498,496
Net earnings    78,390
   78,390
Other comprehensive loss   (5,338)    (5,338)
Dividends ($0.12 per share)    (14,206)   (14,206)
Issuance of stock under incentive and purchase plans, net of forfeitures  439
  3,045
53
 492
Stock-based compensation and other  6,286
 75
   6,361
Balance, May 31, 2019129,060,664
$1,290
$352,881
$(106,225)$1,513,418
(11,136,549)$(197,365)$196
$1,564,195
          
 Nine Months Ended May 31, 2019
 Common StockAdditionalAccumulated
Other
 Treasury Stock Non- 
(in thousands, except share data)Number of
Shares
AmountPaid-In
Capital
Comprehensive
Loss
Retained
Earnings
Number of
Shares
Amountcontrolling
Interests
Total
Balance, September 1, 2018129,060,664
$1,290
$352,674
$(93,677)$1,446,495
(12,045,106)$(213,385)$186
$1,493,583
Net earnings    111,982
   111,982
Other comprehensive loss   (12,548)    (12,548)
Dividends ($0.36 per share)    (42,387)   (42,387)
Issuance of stock under incentive and purchase plans, net of forfeitures  (18,384)  908,557
16,020
 (2,364)
Stock-based compensation and other  18,591
 75
   18,666
Contribution of noncontrolling interests       10
10
Adoption of ASC 606 adjustment    (2,747)   (2,747)
Balance, May 31, 2019129,060,664
$1,290
$352,881
$(106,225)$1,513,418
(11,136,549)$(197,365)$196
$1,564,195
COMMERCIAL METALS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED)
 Three Months Ended November 30, 2019
 Common StockAdditionalAccumulated
Other
 Treasury Stock Non- 
(in thousands, except share data)Number of
Shares
AmountPaid-In
Capital
Comprehensive
Loss
Retained
Earnings
Number of
Shares
Amountcontrolling
Interests
Total
Balance, September 1, 2019129,060,664
$1,290
$358,668
$(124,126)$1,585,379
(11,135,726)$(197,350)$196
$1,624,057
Net earnings    83,348
   83,348
Other comprehensive income   7,541
    7,541
Dividends ($0.12 per share)    (14,238)   (14,238)
Issuance of stock under incentive and purchase plans, net of forfeitures  (20,282)  724,927
12,465
 (7,817)
Stock-based compensation  8,806
     8,806
Balance, November 30, 2019129,060,664
$1,290
$347,192
$(116,585)$1,654,489
(10,410,799)$(184,885)$196
$1,701,697


8




Three Months Ended May 31, 2018Three Months Ended November 30, 2018
Common StockAdditionalAccumulated
Other
 Treasury Stock Non- Common StockAdditionalAccumulated
Other
 Treasury Stock Non- 
(in thousands, except share data)Number of
Shares
AmountPaid-In
Capital
Comprehensive
Loss
Retained
Earnings
Number of
Shares
Amountcontrolling
Interests
TotalNumber of
Shares
AmountPaid-In
Capital
Comprehensive
Loss
Retained
Earnings
Number of
Shares
Amountcontrolling
Interests
Total
Balance, February 28, 2018129,060,664
$1,290
$349,454
$(66,466)$1,382,791
(12,234,996)$(215,782)$186
$1,451,473
Balance, September 1, 2018129,060,664
$1,290
$352,674
$(93,677)$1,446,495
(12,045,106)$(213,385)$186
$1,493,583
Net earnings  39,965
  39,965
  19,742
  19,742
Other comprehensive loss  (25,156)   (25,156)  (8,524)   (8,524)
Dividends ($0.12 per share)  (14,041)  (14,041)  (14,116)  (14,116)
Issuance of stock under incentive and purchase plans, net of forfeitures  (4,814) 188,351
2,371
 (2,443)  (17,090) 618,643
10,870
 (6,220)
Stock-based compensation  3,104
   3,104
  7,309
   7,309
Balance, May 31, 2018129,060,664
$1,290
$347,744
$(91,622)$1,408,715
(12,046,645)$(213,411)$186
$1,452,902
    
Nine Months Ended May 31, 2018
Common StockAdditionalAccumulated
Other
 Treasury Stock Non- 
(in thousands, except share data)Number of
Shares
AmountPaid-In
Capital
Comprehensive
Loss
Retained
Earnings
Number of
Shares
Amountcontrolling
Interests
Total
Balance, September 1, 2017129,060,664
$1,290
$349,258
$(81,513)$1,363,806
(13,266,928)$(232,084)$173
$1,400,930
Net earnings  86,946
  86,946
Other comprehensive loss  (10,109)   (10,109)
Dividends ($0.36 per share)  (42,037)  (42,037)
Issuance of stock under incentive and purchase plans, net of forfeitures  (28,509) 1,220,283
18,673
 (9,836)
Stock-based compensation  11,747
   11,747
Contribution of noncontrolling interest    13
13
Reclassification of share-based liability awards  15,248
   15,248
Balance, May 31, 2018129,060,664
$1,290
$347,744
$(91,622)$1,408,715
(12,046,645)$(213,411)$186
$1,452,902
Adoption of ASC 606 adjustment  (2,747)  (2,747)
Balance, November 30, 2018129,060,664
$1,290
$342,893
$(102,201)$1,449,374
(11,426,463)$(202,515)$186
$1,489,027
See notes to condensed consolidated financial statements.

97





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

Accounting PrinciplesBasis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States ("GAAP") on a basis consistent with that used in the Annual Report on Form 10-K for the fiscal year ended August 31, 20182019 ("20182019 Form 10-K") filed by Commercial Metals Company ("CMC," and together with its consolidated subsidiaries, the "Company") with the Securities and Exchange Commission (the "SEC") and include all normal recurring adjustments necessary to present fairly the condensed consolidated balance sheets and the condensed consolidated statements of earnings, comprehensive income, cash flows and stockholders' equity for the periods indicated. These notes should be read in conjunction with the consolidated financial statements included in the 20182019 Form 10-K. The results of operations for the three and nine month periodsperiod are not necessarily indicative of the results to be expected for the full fiscal year.

Recently Adopted Accounting Pronouncements

In August 2016, the Financial Accounting Standards Board (the "FASB") issued Accounting Standards Update ("ASU") 2016-15, Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments (Topic 230).  ASU 2016-15 is intended to reduce diversity in practice in how certain cash receipts and cash payments are presented in the statement of cash flows. The new standard provides guidance on eight specific cash flow issues, including the statement of cash flows treatment of beneficial interests in securitized financial transactions, which encompasses activities under the Company's accounts receivable programs in the U.S. and Poland. The Company adopted the standard, which requires retrospective application to all periods presented, in the first quarter of fiscal 2019. As a result of adoption, the Company reported reductions in operating cash flows of $367.5 million and $491.6 million, with offsetting increases in investing cash flows related to the collection of previously sold trade accounts receivable in the condensed consolidated statements of cash flows for the nine months ended May 31, 2019 and 2018, respectively. Additionally, upon adoption, the $90.0 million repayment during the first quarter of fiscal 2018 of advances outstanding at August 31, 2017, originally recorded as an outflow from operating activities, was reclassified to investing activities.

On September 1, 2018,2019, the Company adopted Accounting Standards Codification ("ASC"Update (“ASU”) 606, Revenue from Contracts with Customers, including the related amendments. The Company adopted ASC 606 under the modified retrospective approach and applied the guidance only to contracts that were not completed as of the date of adoption. The Company recognized a total cumulative effect of $2.7 million, net of tax, as a reduction to the opening balance of retained earnings as of September 1, 2018. There was no impact to the condensed consolidated statement of cash flows or other comprehensive income.
In accordance with ASC 606, the disclosure below reflects the impact of adoption to the condensed consolidated statement of earnings, as compared to what the results would have been under ASC 605, Revenue Recognition. The impact to the condensed consolidated balance sheet was immaterial.

 Three Months Ended May 31, 2019
(in thousands) As Reported Balances Without Adoption of ASC 606 Effect of Change - Higher (Lower)
Net sales $1,605,872
 $1,607,214
 $(1,342)
Net earnings 78,390
 79,506
 (1,116)
  Nine Months Ended May 31, 2019
(in thousands) As Reported Balances Without Adoption of ASC 606 Effect of Change - Higher (Lower)
Net sales $4,285,997
 $4,291,986
 $(5,989)
Net earnings 111,982
 116,630
 (4,648)


10




Recently Issued Accounting Pronouncements

In August 2018, the FASB issued ASU No. 2018-15, Intangibles - Goodwill and Other - Internal-Use Software. The amendments in this ASU align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). Accordingly, the amendments require a customer in a hosting arrangement that is a service contract to follow the internal-use software guidance in ASC 350-40, Internal-Use Software, to determine which implementation costs to capitalize or to expense as incurred. This ASU is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, and will be effective for the Company beginning September 1, 2020. The Company will apply this ASU prospectively to all implementation costs incurred after the date of adoption. The Company concluded the impact of this ASU on its consolidated financial statements and disclosures will be immaterial.

In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815). The ASU better aligns accounting rules with a company's risk management activities, better reflects economic results of hedging in financial statements, and simplifies hedge accounting treatment. For public companies, this standard is effective for annual periods beginning after December 15, 2018, including interim periods. The standard must be applied to hedging relationships existing on the date of adoption, and the effect of adoption should be reflected as of the beginning of the fiscal year of adoption. The Company concluded the impact of this guidance on its consolidated financial statements and disclosures will be immaterial.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), and hasas amended, (“ASU 2016-02”), using the modified the standard thereafter. The standardretrospective transition approach. ASU 2016-02 requires a lessee to recognize a right-of-use ("ROU") asset and a lease liability on its balance sheet for all leases with terms longer than twelve months. The Company’s financial statements for periods prior to September 1, 2019 were not modified for the application of twelve months or longer. Thethis ASU. Upon adoption of ASU 2016-02, the Company plans to applyrecorded the new standard using a modified retrospective approach that allows entities to recognize a cumulative-effect adjustmentfollowing amounts associated with operating leases in its condensed consolidated balance sheet at September 1, 2019: $113.4 million of ROU assets, in other noncurrent assets, $30.9 million in accrued expenses and other payables and $84.9 million in other noncurrent liabilities. There was 0 impact to the opening balance of retained earnings inas a result of implementing ASU 2016-02. The Company elected the periodpackage of adoption without restating prior periods, and to elect the three packaged transition practical expedients available under ASC 842-10-65-1(f). This guidance is effective for fiscal years, and interim reporting periods therein, beginning after December 15, 2018 and will be effective forthe ASU. Additionally, the Company beginning September 1, 2019. Although evaluation and implementation procedures are ongoing, the Company currently estimates the ROU assets and lease liabilities will represent less than 5% of the Company's total assets and total liabilities, respectively, as of September 1, 2019. The Company is in the process of implementing a new lease management, accounting, and administration system and determiningimplemented appropriate changes to internal processes and controls to support recognition, subsequent measurement and disclosure under the new standard.
NOTE 2. ACQUISITION

On November 5, 2018 (the "Acquisition Date"), the Company completed the acquisition of 33 rebar fabrication facilities in the United States, as well as four electric arc furnace mini mills located in Knoxville, Tennessee; Jacksonville, Florida; Sayreville, New Jersey and Rancho Cucamonga, California from Gerdau S.A., hereinafter collectively referred to as the "Acquired Businesses." The total cash purchase price, including working capital adjustments, was $701.2 million, subject to customary purchase price adjustments, and was funded through a combination of domestic cash on-hand and borrowings under the 2018 Term Loan, as defined in Note 9, Credit Arrangements.disclosures.

The Company's leases are primarily for office space, land and equipment. The Company accountsdetermines if an arrangement is a lease at inception of a contract if the terms state the Company has the right to direct the use of and obtain substantially all the economic benefits from a specific asset identified in the contract. The ROU assets represent the Company's right to use the underlying assets for business combinations by recognizing the assets acquiredlease term and its lease liabilities assumed atrepresent the Acquisition Date fair value. In valuing acquiredobligation to make lease payments arising from the leases. ROU assets and lease liabilities fairare recognized at commencement date based on the present value estimates were determined using Level 3 inputs, including expected future cash flowsof lease payments to be made over the lease term. Certain of the Company's lease agreements contain options to extend the lease. The Company evaluates these options on a lease-by-lease basis, and, discount rates. Whileif the Company determines it is reasonably certain to be exercised, the lease term includes the extension. The Company uses its best estimatesincremental borrowing rate at lease commencement to determine the present value of lease payments, and assumptions aslease expense is recognized on a partstraight-line basis over the lease term. The incremental borrowing rate is the rate of interest the Company could borrow on a collateralized basis over a similar term with similar payments. The Company does not record leases with an initial term of twelve months or less (“short-term leases”) in its condensed consolidated balance sheets.

Certain of the purchase price allocation process to accurately value assets acquiredCompany's lease agreements include payments for certain variable costs not determinable upon lease commencement including mileage, utilities, fuel and liabilities assumed at the Acquisition Date, the Company’s estimatesinflation adjustments. These variable lease payments are inherently uncertain and subject to refinement. The results of operations of the Acquired Businesses are reflectedrecognized in the Company’s condensed consolidated financial statements from the Acquisition Date. The financial statements were not retrospectively adjusted for any measurement-period adjustments that occurred in subsequent periods. Rather, any adjustments to provisional amounts identified during the allowable one year measurement period (the "Measurement Period") are recorded in the reporting period in which the adjustment was determined.

The table below presents the preliminary fair value that was allocated to the Acquired Businesses' assets and liabilities based upon fair values as determined by the Company, as well as any Measurement Period adjustments made during the third quarter of fiscal 2019. Final determination of the fair values may result in further adjustments to the values presented in the following table:

11




(in thousands) 
Estimated Fair Value*
Cash and cash equivalents $6,399
Accounts receivable 301,740
Inventories 202,082
Other current assets 26,290
Property, plant and equipment 414,237
Deferred income taxes 11,606
Accounts payable-trade, accrued expenses and other payables (134,702)
Acquired unfavorable contract backlog (110,166)
Other long-term liabilities (9,920)
Pension and other post retirement employment benefits (6,365)
Total assets acquired and liabilities assumed $701,201
 _________________ 
*As previously reported in the Company's Quarterly Report on Form 10-Q for the period ended February 28, 2019. No measurement period adjustments occurred in the third quarter of fiscal 2019.

Inventories

The acquired inventory is comprised of finished goods, work in process and raw materials. The fair value of finished goods was preliminarily calculated as the estimated selling price, adjusted for the selling costs and a reasonable profit margin. The fair value of semi-finished goods was preliminarily calculated as the estimated selling price, adjusted for estimated costs to complete manufacturing, estimated selling costs, and a reasonable profit margin. The fair value of raw materials was determined to approximate the historical carrying value as it represented market cost. The inventory step up recognized for the nine months ended May, 31, 2019 was $10.3 million, which has been reflected in the Company's Americas Mills segment as cost of goods sold as the related inventory has been sold.

Property, Plant and Equipment

The fair value of real property was preliminarily calculated using the cost approach for buildingsselling, general and improvements and either a sales comparison or market approach for land. The fair value of personal property was preliminarily calculated using the cost approach. The cost approach measures the value by estimating the cost to acquire or construct comparable assets and adjusts for age and condition. The Company assigned real property a useful life ranging from 1 to 35 years and personal property a useful life ranging from 1 to 25 years.

Deferred Income Taxes

Deferred income tax assets include the expected future federal and state tax consequences associated with temporary differences between the preliminary fair values of the assets acquired and liabilities assumed and the respective tax bases. Tax rates utilized in calculating the deferred tax assets represent a preliminary consolidated tax rate which may be adjusted during the Measurement Period as the Company applies the appropriate tax rate for each legal entity.

Pension and Other Postretirement Liabilities

The Company recognized a net liability of $6.4 million, representing the unfunded portion of the acquired defined-benefit pension plan and other postretirement-benefit plan.

Acquired Unfavorable Contract Backlog

The Company determined that the backlog associated with existing contracts at the acquired fabrication facilities in which the selling price was less than estimated costs to fulfill using market participant assumptions represented a separable intangible liability. The unfavorable contract backlog was valued using the income approach. Amortization of the backlog will correspond with completion of the acquired contracts, which is estimated to be between 1 to 2 years.

12





Other Assets Acquired and Liabilities Assumed

The Company used historical carrying values for trade accounts receivable and payables, as well as certain other current and non-current assets and liabilities, as their carrying values represented the fair value of those items as of the Acquisition Date.

Financial Results

The following table summarizes the financial results of the Acquired Businesses from the Acquisition Date for the three and nine months ended May 31, 2019administrative expenses, but are not included in the Company’s condensed consolidated statement of earnings and condensed consolidated statement of comprehensive income.
(in thousands) Three Months Ended May 31, 2019 Nine Months Ended May 31, 2019
Net sales $453,479
 $958,550
Earnings before income taxes 42,951
 78,047

Pro Forma Supplemental Information

Supplemental information on an unaudited pro forma basis is presented below as if the acquisition of the Acquired Businesses occurred on September 1, 2017.ROU asset or lease liability balances. The pro forma financial information is presented for comparative purposes only, based on certain estimates and assumptions, which the Company believes to be reasonable, butCompany's lease agreements do not necessarily indicative of future results of operationscontain any material residual value guarantees, restrictions or the results that would have been reported if the acquisition of the Acquired Businesses had been completed on September 1, 2017. These results were not used as part of management analysis of the financial results and performance of the Company. These results are adjusted, where possible, for transaction and integration related costs. These results involve a significant amount of estimates.
  Three Months Ended May 31, Nine Months Ended May 31,
(in thousands) 2019 2018 2019 2018
Pro forma net sales (1)
 $1,582,478
 $1,648,962
 $4,507,485
 $4,560,929
Pro forma net earnings (2)
 63,018
 49,402
 88,987
 40,311
 _________________ 
(1) Pro forma net sales for the three and nine months ended May 31, 2018 includes estimated fair value adjustments related to amortization of unfavorable contract backlog. The impact of the amortization of unfavorable contract backlog has been removed from the pro forma net sales for the three and nine months ended May 31, 2019.
(2) Pro forma net earnings for the three and nine months ended May 31, 2018 reflects the impact of fair value adjustments related to the amortization of unfavorable contract backlog described above. Pro forma net earnings for the nine months ended May 31, 2018 includes estimated fair value adjustments related to inventory step-up, as well as non-recurring acquisition and integration costs of approximately $49.8 million.covenants.
NOTE 3.2. CHANGES IN BUSINESS

During fiscalAcquisition

On November 5, 2018 (the "Acquisition Date"), the Company completed the exitacquisition of its trading operations33 rebar fabrication facilities in the United States ("U.S."), Asia,as well as four electric arc furnace ("EAF") mini mills located in Knoxville, Tennessee; Jacksonville, Florida; Sayreville, New Jersey and Australia.Rancho Cucamonga, California from Gerdau S.A., hereinafter collectively referred to as the "Acquired Businesses." The resultstotal cash purchase price, including working capital adjustments, was $701.2 million, and was funded through a combination of these activities are included in discontinued operations in the condensed consolidated statements of earnings for all periods presented. The major classes of line items constituting earnings from discontinued operations in the condensed consolidated statements of earnings are presented in the table below.domestic cash on-hand and borrowings under a term loan (the "Term Loan").


138




The purchase price paid was allocated between the acquired mills and fabrication facilities. The results of operations of the Acquired Businesses are reflected in the Company’s condensed consolidated financial statements from the Acquisition Date. The purchase price was allocated among assets acquired and liabilities assumed at fair value and was finalized on November 5, 2019. There were no changes during the quarter ended November 30, 2019 from the amounts disclosed in Note 3, Acquisition, to the consolidated financial statements in the 2019 Form 10-K.
  Three Months Ended May 31, Nine Months Ended May 31,
(in thousands) 2018 2018
Net sales $3,262
 $304,384
Costs and expenses:    
Cost of goods sold 4,233
 276,371
Selling, general and administrative expenses 2,418
 23,078
Interest expense 
 (86)
Earnings (loss) before income taxes (3,389) 5,021
Income taxes (benefit) (1,029) 2,052
Earnings (loss) from discontinued operations $(2,360) $2,969


Pro Forma Supplemental Information

ThereSupplemental information on an unaudited pro forma basis is presented below as if the acquisition of the Acquired Businesses (the "Acquisition") occurred on September 1, 2017. The pro forma financial information is presented for comparative purposes only, based on significant estimates and assumptions, which the Company believes to be reasonable, but not necessarily indicative of future results of operations or the results that would have been reported if the Acquisition had been completed on September 1, 2017. These results were no material operatingnot used as part of management analysis of the financial results and performance of the Company or investing non-cash itemsthe Acquired Businesses. These results are adjusted, where possible, for discontinued operationstransaction and integration-related costs.
  Three Months Ended November 30,
(in thousands) 2018 2017*
Pro forma net sales $1,557,032
 $1,417,583
Pro forma net earnings (loss) 38,059
 (4,749)
_________________ 
*Non-recurring acquisition and integration costs of approximately $43.3 million incurred have been included in pro forma net earnings for the three and nine months ended May 31, 2019 and 2018.November 30, 2017.

The assetsFacility Closure

In October 2019, the Company decided to close the melting operations at its Rancho Cucamonga facility. Due to this decision, the Company recorded $6.3 million of expense in the three months ended November 30, 2019 related to severance, pension curtailment and liabilities ofvendor agreement terminations. At November 30, 2019, the businesses classified as held for saleremaining liability to be paid related to these expenses was $3.9 million and discontinued operations were immaterial at both May 31, 2019was included in accrued expenses and August 31, 2018.other payables on the Company's condensed consolidated balance sheets.
NOTE 4.3. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

The following tables reflect the changes in accumulated other comprehensive income (loss) ("AOCI"):
  Three Months Ended May 31, 2019
(in thousands) Foreign Currency Translation Unrealized Gain (Loss) on Derivatives Defined Benefit Obligation Total AOCI
Balance, February 28, 2019 $(100,943) $1,151
 $(1,095) $(100,887)
Other comprehensive loss before reclassifications (5,135) (86) (6) (5,227)
Amounts reclassified from AOCI 19
 (181) 
 (162)
Income taxes 
 51
 
 51
Net other comprehensive loss (5,116) (216) (6) (5,338)
Balance, May 31, 2019 $(106,059) $935
 $(1,101) $(106,225)
  Three Months Ended November 30, 2019
(in thousands) Foreign Currency Translation Unrealized Gain (Loss) on Derivatives Defined Benefit Obligation Total AOCI
Balance, August 31, 2019 $(121,498) $1,106
 $(3,734) $(124,126)
Other comprehensive income (loss) before reclassifications 6,924
 882
 (10) 7,796
Amounts reclassified from AOCI 
 (110) 
 (110)
Income taxes 
 (147) 2
 (145)
Net other comprehensive income (loss) 6,924
 625
 (8) 7,541
Balance, November 30, 2019 $(114,574) $1,731
 $(3,742) $(116,585)
  Nine Months Ended May 31, 2019
(in thousands) Foreign Currency Translation Unrealized Gain (Loss) on Derivatives Defined Benefit Obligation Total AOCI
Balance, August 31, 2018 $(92,637) $1,356
 $(2,396) $(93,677)
Other comprehensive loss before reclassifications (14,278) (190) (25) (14,493)
Amounts reclassified from AOCI 856
 (330) 1,666
 2,192
Income taxes (benefit) 
 99
 (346) (247)
Net other comprehensive income (loss) (13,422) (421) 1,295
 (12,548)
Balance, May 31, 2019 $(106,059) $935
 $(1,101) $(106,225)

 Three Months Ended May 31, 2018 Three Months Ended November 30, 2018
(in thousands) Foreign Currency Translation Unrealized Gain (Loss) on Derivatives Defined Benefit Obligation Total AOCI Foreign Currency Translation Unrealized Gain (Loss) on Derivatives Defined Benefit Obligation Total AOCI
Balance, February 28, 2018 $(66,000) $1,432
 $(1,898) $(66,466)
Balance, August 31, 2018 $(92,637) $1,356
 $(2,396) $(93,677)
Other comprehensive income (loss) before reclassifications (26,434) 16
 
 (26,418) (9,657) (52) (11) (9,720)
Amounts reclassified from AOCI 1,328
 (70) (9) 1,249
 (99) (42) 1,666
 1,525
Income taxes 
 11
 2
 13
 
 17
 (346) (329)
Net other comprehensive loss (25,106) (43) (7) (25,156)
Balance, May 31, 2018 $(91,106) $1,389
 $(1,905) $(91,622)
Net other comprehensive income (loss) (9,756) (77) 1,309
 (8,524)
Balance, November 30, 2018 $(102,393) $1,279
 $(1,087) $(102,201)


149




  Nine Months Ended May 31, 2018
(in thousands) Foreign Currency Translation Unrealized Gain (Loss) on Derivatives Defined Benefit Obligation Total AOCI
Balance, August 31, 2017 $(80,778) $1,587
 $(2,322) $(81,513)
Other comprehensive income (loss) before reclassifications (11,656) 47
 
 (11,609)
Amounts reclassified from AOCI 1,328
 (314) 647
 1,661
Income taxes (benefit) 
 69
 (230) (161)
Net other comprehensive income (loss) (10,328) (198) 417
 (10,109)
Balance, May 31, 2018 $(91,106) $1,389
 $(1,905) $(91,622)


Items reclassified out of AOCI were not materialimmaterial for the three and nine months ended May 31,November 30, 2019 and 2018, thus2018. Thus, the corresponding line items in the condensed consolidated statements of earnings to which the items were reclassified are not presented.
NOTE 5.4. REVENUE RECOGNITION

Revenue from Contracts with Customers
Revenue is recognized when control of the promised goods or services is transferred to the customer in an amount that reflects the consideration received or expected to be received in exchange for those goods or services. The Company's performance obligations arise from (i) sales of steel products, ferrous and nonferrous scrap metals, and construction materials and (ii) services such as steel fabrication and installation. The shipment of products to customers is considered a fulfillment activity and amounts billed to customers for shipping and freight are included in net sales, and the related costs are included in cost of goods sold. Net sales is presented net of taxes.
In the Americas Mills, Americas Recycling, and International Mill segments, revenue is recognized at a point in time concurrent with the transfer of control, which usually occurs, depending on shipping terms, upon shipment or customer receipt.

In the Americas Fabrication segment, each contract represents a single performance obligation. Revenue is either recognized over time or equal to billing under an available practical expedient. WhenFor contracts where the Company provides fabricated product and installation services, revenue is recognized over time using an input method. For the three and nine months ended May 31,November 30, 2019, these contracts represent approximately 27%26% of net sales in the Americas Fabrication segment. For these contracts, the measure of progress is based on contract costs incurred to date compared to total estimated contract costs, which provides a reasonable depiction of the Company’s progress towards satisfaction of the performance obligation as there is a direct relationship between costs incurred by the Company and the transfer of the fabricated product and installation services. Revenue from contracts where the Company does not provide installation services is recognized over time using an output method. For the three and nine months ended May 31,November 30, 2019, these contracts represent approximately 19% and 22%, respectively,23% of total revenuenet sales in the Americas Fabrication segment. For these contracts, the Company uses tons shipped compared to total estimated tons, which provides a reasonable depiction of the transfer of contract value to the customer, as there is a direct relationship between the units shipped by the Company and the transfer of the fabricated product. Significant judgment is required to evaluate total estimated costs used in the input method and total estimated tons in the output method. If estimated total consolidated costs on any contract are greater than the net contract revenues, the Company recognizes the entire estimated loss in the period the loss becomes known. The cumulative effect of revisions to estimates related to net contract revenues, costs to complete or total planned quantity is recorded in the period in which such revisions are identified. The Company does not exercise significant judgment in determining the transaction price. For the three and nine months ended May 31,November 30, 2019, the remaining 54% and 51%, respectively, of revenuenet sales in the Americas Fabrication segment is recognized as amounts are billed to the customercustomer.

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

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

15




(in thousands) May 31, 2019 August 31, 2018 November 30, 2019 August 31, 2019
Contract assets (included in other current assets) $96,842
 $49,221
 $89,507
 $103,805
Contract liabilities (included in accrued expenses and other payables) 35,812
 6,679
 34,037
 37,165

The majorityamount of the increase in contract asset and liability balances was attributable to the acquisition of the Acquired Businesses. The entire contract liability as ofrevenue reclassified from August 31, 2018 was recognized as revenue2019 contract liabilities during the ninethree months ended May 31, 2019.November 30, 2019 was approximately $14.5 million.

Remaining Performance Obligations

As of May 31,November 30, 2019, a total of $853.1$799.1 million has been allocated to remaining performance obligations in the Americas Fabrication segment, excluding those contracts where revenue is recognized equal to billing under an available practical expedient.billing. Of this amount, the Company estimates the remaining performance obligations will be recognized as revenue as follows: 40% in the first twelve months, 49%48% in the following twelve months, and 11%12% thereafter. The duration of contracts in the Americas Mills, Americas Recycling, and International Mill segments are typically less than one year.


10




Disaggregation of Revenue

The following tables display revenue by reportable segment from external customers, disaggregated by major source. The Company believes disaggregating by these categories depicts how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors.
  Three Months Ended November 30, 2019
(in thousands) Americas Recycling Americas Mills Americas Fabrication International Mill Corporate and Other Total
Steel products $115
 $441,163
 $499,727
 $157,944
 $
 $1,098,949
Ferrous scrap 58,302
 6,748
 
 212
 
 65,262
Nonferrous scrap 113,218
 3,355
 
 1,993
 
 118,566
Construction materials 
 
 67,466
 
 
 67,466
Other 516
 22,926
 3,184
 4,891
 2,948
 34,465
Total $172,151
 $474,192
 $570,377
 $165,040
 $2,948
 $1,384,708
  Three Months Ended May 31, 2019
(in thousands) Americas Recycling Americas Mills Americas Fabrication International Mill Corporate and Other Total
Steel products $238
 $501,925
 $554,672
 $199,431
 $
 $1,256,266
Ferrous scrap 106,404
 8,916
 2
 525
 
 115,847
Nonferrous scrap 121,581
 4,080
 
 3,212
 
 128,873
Construction materials 
 
 71,228
 
 
 71,228
Other 563
 21,114
 3,608
 5,854
 2,519
 33,658
Total $228,786
 $536,035
 $629,510
 $209,022
 $2,519
 $1,605,872
             
  Nine Months Ended May 31, 2019
(in thousands) Americas Recycling Americas Mills Americas Fabrication International Mill Corporate and Other Total
Steel products $679
 $1,294,217
 $1,392,442
 $584,735
 $
 $3,272,073
Ferrous scrap 323,311
 26,802
 2
 1,055
 
 351,170
Nonferrous scrap 369,660
 10,568
 
 8,677
 
 388,905
Construction materials 
 
 188,589
 
 
 188,589
Other 1,205
 50,914
 9,713
 16,173
 7,255
 85,260
Total $694,855
 $1,382,501
 $1,590,746
 $610,640
 $7,255
 $4,285,997

16




  Three Months Ended May 31, 2018*
(in thousands) Americas Recycling Americas Mills Americas Fabrication International Mill Corporate and Other Total
Steel products $319
 $305,390
 $303,363
 $193,114
 $
 $802,186
Ferrous scrap 144,398
 8,462
 2
 351
 
 153,213
Nonferrous scrap 147,683
 4,851
 
 3,286
 
 155,820
Construction materials 
 
 70,436
 
 
 70,436
Other 279
 13,756
 1,382
 4,687
 2,725
 22,829
Total $292,679
 $332,459
 $375,183
 $201,438
 $2,725
 $1,204,484
             
  Nine Months Ended May 31, 2018*
(in thousands) Americas Recycling Americas Mills Americas Fabrication International Mill Corporate and Other Total
Steel products $894
 $766,976
 $830,172
 $605,152
 $
 $2,203,194
Ferrous scrap 383,358
 24,605
 2
 970
 
 408,935
Nonferrous scrap 447,060
 12,734
 
 10,427
 
 470,221
Construction materials 
 
 180,641
 
 
 180,641
Other 1,136
 37,580
 5,119
 16,585
 11,874
 72,294
Total $832,448
 $841,895
 $1,015,934
 $633,134
 $11,874
 $3,335,285
 _________________ 
* Prior period amounts have been reported under ASC 605.

17




NOTE 6. ACCOUNTS RECEIVABLE PROGRAMS

As an additional source of liquidity, the Company sells certain trade accounts receivable both in the U.S. and Poland (hereinafter referred to as the “Programs”). For years prior to fiscal 2019, the Company accounted for transfers of trade accounts receivable under the Programs as sales of financial assets, and the trade accounts receivable balances sold were removed from the consolidated balance sheets. On September 1, 2018, the Company amended certain terms of the Programs, disqualifying the sale of such receivables from being accounted for as sales of financial assets. For activity in the Programs occurring prior to the September 1, 2018 amendment, disclosures required under ASC 860-20-50 are provided below. See Note 9, Credit Arrangements, for further details regarding the Programs.

Prior to September 1, 2018, in exchange for trade receivables transferred into the Programs, the Company received either cash (referred to as a cash purchase price or “CPP”) or a deferred purchase price (“DPP”). Upon adoption of ASU 2016-15, the CPP received was reflected as cash provided by operating activities in the Company's consolidated statements of cash flows, and cash received to settle the DPP related to the transfer of receivables was included as part of investing activities in the Company's consolidated statement of cash flows. For periods prior to fiscal 2019, DPP on the Programs was included in accounts receivable on the Company's condensed consolidated balance sheets.

  Nine Months Ended May 31, 2018
(in thousands) Total U.S. Poland
Deferred purchase price      
Balance, August 31, 2017 $215,123
 $135,623
 $79,500
Transfers of trade receivables 2,116,243
 1,741,451
 374,792
Less: CPP (1,576,579) (1,311,705) (264,874)
Non-cash increase to DPP 539,664
 429,746
 109,918
Cash collections of DPP (491,577) (383,955) (107,622)
Net repayments (advances) 69,444
 90,000
 (20,556)
Net collections of DPP (422,133) (293,955) (128,178)
Balance, May 31, 2018 $332,654
 $271,414
 $61,240
  Three Months Ended November 30, 2018
(in thousands) Americas Recycling Americas Mills Americas Fabrication International Mill Corporate and Other Total
Steel products $239
 $347,965
 $374,807
 $217,770
 $
 $940,781
Ferrous scrap 111,654
 9,142
 
 275
 
 121,071
Nonferrous scrap 128,075
 3,180
 
 2,941
 
 134,196
Construction materials 
 
 57,171
 
 
 57,171
Other 213
 13,384
 2,580
 5,687
 2,259
 24,123
Total $240,181
 $373,671
 $434,558
 $226,673
 $2,259
 $1,277,342


At May 31, 2018, the Company transferred $352.2 million of trade accounts receivable to the financial institutions and had no advance payments outstanding under the U.S. Program and $18.1 million outstanding under the Polish Program.

Discounts related to the Programs were immaterial for the three and nine months ended May 31, 2018.
NOTE 7.5. INVENTORIES, NET

The majority of the Company's inventories are in the form of semi-finished and finished goods. Under the Company’s business model, products are sold to external customers in various stages, from semi-finished billets through fabricated steel, leading these categories to be combined as finished goods. Workcombined. As such, at November 30, 2019 and August 31, 2019, work in process inventories were not material at May 31,immaterial. At November 30, 2019 and August 31, 2018. At May 31, 2019, and August 31, 2018, $185.1the Company's raw materials inventories were $129.5 million and $177.7$143.7 million, respectively, of the Company's inventories were in the form of raw materials.respectively.
NOTE 8.6. GOODWILL AND OTHER INTANGIBLES

Goodwill by reportable segment at May 31,November 30, 2019 is detailed in the following table:
(in thousands) Americas Recycling Americas Mills Americas Fabrication International Mill Consolidated Americas Recycling Americas Mills Americas Fabrication International Mill Consolidated
Goodwill, gross* $9,543
 $4,970
 $57,428
 $2,478
 $74,419
 $9,543
 $4,970
 $57,428
 $2,426
 $74,367
Accumulated impairment losses* (9,543) 
 (493) (157) (10,193) (9,543) 
 (493) (153) (10,189)
Goodwill, net* $
 $4,970
 $56,935
 $2,321
 $64,226
 $
 $4,970
 $56,935
 $2,273
 $64,178
_________________ 
* The change in balance from August 31, 20182019 was immaterial.


18





The total gross carrying amounts of the Company's intangible assets subject to amortization were $21.8$21.0 million and $20.5$20.8 million, and the total net carrying amount was $12.8 million and $13.3 million at May 31,November 30, 2019 and August 31, 2018, respectively, and2019, respectively. These assets were included in other noncurrent assets on the Company's condensed consolidated balance sheets. Intangible amortization expense from continuing operations related to such intangible assets was $0.6$0.5 million for both the three months ended May 31,November 30, 2019 and May 31, 2018, and $1.7 million and $1.6 million for the nine months ended May 31, 2019 and 2018, respectively.2018. Excluding goodwill, the Company did not have any significant intangible assets with indefinite lives as of May 31,at November 30, 2019.

The amortizable intangible (liabilities) acquired consisted of:
11



(in thousands, except life in years) Life in Years Estimated Fair Value
Net unfavorable lease contracts Various $(2,705)
Unfavorable contract backlog 1-2 years* $(110,166)

 _________________ 
* Amortization will correspond with completion of the acquired contracts, which is estimated to occur over the next 1 to 2 years.

In connection with the acquisition of the Acquired Businesses,Acquisition, the Company recorded a preliminaryan unfavorable contract backlog liability of $110.2 million. At November 30, 2019 and August 31, 2019, the net carrying amount of the liability was $26.9 million and $35.4 million, respectively. Amortization of the unfavorable contract backlog for the three and nine months ended May 31,November 30, 2019 and 2018 was $23.4$8.3 million and $58.2$11.3 million, respectively, and was recorded as an increase to net sales in the Company’s condensed consolidated statements of earnings.

NOTE 7. LEASES

The following table presents the components of the total leased assets and lease liabilities and their classification in the Company's condensed consolidated statementbalance sheet at November 30, 2019:
(in thousands) Classification in Condensed Consolidated Balance Sheet November 30, 2019
Assets:    
Operating assets Other noncurrent assets $111,230
Finance assets Property, plant and equipment, net 39,226
Total leased assets   150,456
     
Liabilities:    
Operating lease liabilities:    
Current Accrued expenses and other payables 28,614
Long-term Other noncurrent liabilities 84,843
Total operating lease liabilities   113,457
Finance lease liabilities:    
Current Current maturities of long-term debt and short-term borrowings 11,878
Long-term Long-term debt 27,835
Total finance lease liabilities   39,713
Total lease liabilities   $153,170


The components of earnings.lease cost were as follows:
(in thousands) Three Months Ended November 30, 2019
Operating lease expense $8,790
Finance lease expense:  
Amortization of assets 2,165
Interest on lease liabilities 401
Total finance lease expense 2,566
Variable and short term-lease expense 3,933
Total lease expense $15,289

The weighted-average remaining lease term and discount rate for operating and finance leases are presented in the following table:
November 30, 2019
Weighted-average remaining lease term (years)
Operating leases5.3
Finance leases3.9
Weighted-average discount rate
Operating leases3.769%
Finance leases4.222%



12




Cash flow and other information related to leases is included in the following table:
(in thousands) Three Months Ended November 30, 2019
Cash paid for amounts included in the measurement of lease liabilities  
Operating cash outflows from operating leases $8,746
Operating cash outflows from finance leases 336
Financing cash outflows from finance leases 3,298
   
ROU assets obtained in exchange for lease obligations:  
Operating leases 6,369
Finance leases 5,312

Maturities of lease liabilities at November 30, 2019 are presented in the following table:
(in thousands) Operating Leases Finance Leases
Year 1 $32,436
 $13,300
Year 2 27,186
 10,712
Year 3 21,872
 8,260
Year 4 17,542
 6,488
Year 5 9,494
 4,124
Thereafter 18,342
 267
Total lease payments 126,872
 43,151
Less: Imputed interest 13,415
 3,438
Present value of lease liabilities $113,457
 $39,713


Future maturities of lease liabilities at August 31, 2019, prior to adoption of ASU 2016-02, are presented in the following table:
    Twelve Months Ended August 31,  
(in thousands) Total 2020 2021 2022 2023 2024 Thereafter
Capital lease obligations $41,331
 13,104
 10,004
 7,758
 5,831
 3,904
 730
Long-term non-cancelable operating leases $124,817
 34,511
 27,383
 22,074
 17,433
 10,478
 12,938



13




NOTE 9.8. CREDIT ARRANGEMENTS

Long-term debt as of May 31,at November 30, 2019 and August 31, 20182019 was as follows: 
(in thousands) Weighted Average Interest Rate as of May 31, 2019 May 31, 2019 August 31, 2018 Weighted Average Interest Rate at November 30, 2019 November 30, 2019 August 31, 2019
2027 Notes 5.375% $300,000
 $300,000
 5.375% $300,000
 $300,000
2026 Notes 5.750% 350,000
 350,000
 5.750% 350,000
 350,000
2023 Notes 4.875% 330,000
 330,000
 4.875% 330,000
 330,000
Term loans 4.115% 310,125
 142,500
Term Loan 3.624% 160,125
 210,125
Short-term borrowings * 25,327
 
 2.403% 
 3,929
Other, including equipment notes 56,996
 47,629
Finance leases 39,713
 37,699
Other 23,168
 23,168
Total debt 1,372,448
 1,170,129
 1,203,006
 1,254,921
Less debt issuance costs 10,690
 11,764
 9,846
 10,268
Total amounts outstanding 1,361,758
 1,158,365
 1,193,160
 1,244,653
Less current maturities 29,568
 19,746
 13,717
 13,510
Less short-term borrowings 25,327
 
 
 3,929
Current maturities of long-term debt and short-term borrowings 54,895
 19,746
 13,717
 17,439
Long-term debt $1,306,863
 $1,138,619
 $1,179,443
 $1,227,214

 _________________ 
* As of May 31, 2019, the weighted average interest rates associated with the U.S. Program and Poland Program were 3.120% and 2.410%, respectively.

In July 2017, the Company issued $300.0 million of 5.375% Senior Notes due July 2027 (the "2027 Notes"). Interest on the 2027 Notes is payable semiannually.

In May 2018, the Company issued $350.0 million of 5.75% Senior Notes due April 2026 (the "2026 Notes"). Interest on the 2026 Notes is payable semiannually.

In May 2013, the Company issued $330.0 million of 4.875% Senior Notes due May 2023 (the "2023 Notes"). Interest on the 2023 Notes is payable semiannually.


19




The Company has a $350.0 million revolving credit facility (the "Revolver") pursuant to the Fourth Amended and Restated Credit Agreement (the "Credit Agreement"), and two senior secured term loans: one drawn on July 13, 2017 with an original principal amount of $150.0 million (the "2022 Term Loan"), and one drawn on November 1, 2018 with an original principal amount of $180.0 million (the "2018 Term Loan"). These term loans are hereinafter collectively referred to as the "Term Loans." The Credit Agreement and the Term Loans are coterminous with a maturity date in June 2022. The Company is required to make quarterly payments on the Term Loans equal to 1.25% of the original principal amount. The maximum availability under the Revolver can be increased to $600.0 million with bank approval. The Company's obligations under the Credit Agreement are collateralized by its U.S. inventory and U.S. fabrication receivables. The Credit Agreement's capacity includes a $50.0 million sub-limit for the issuance of stand-by letters of credit.

The Company had no amounts drawn under the Revolver$350.0 million revolving credit facility (the "Revolver") at May 31,November 30, 2019 and August 31, 2018.2019. The Company's availability under the Revolver was reduced by outstanding stand-by letters of credit of $3.0 million and $3.3 million at May 31,November 30, 2019 and August 31, 2018.

Under the Credit Agreement, the Company is required to comply with certain financial and non-financial covenants, including covenants to maintain: (i) an interest coverage ratio (consolidated EBITDA to consolidated interest expense, each as defined in the Credit Agreement) of not less than 2.50 to 1.00 and (ii) a debt to capitalization ratio (consolidated funded debt to total capitalization, each as defined in the Credit Agreement) that does not exceed 0.60 to 1.00. At May 31, 2019, the Company's interest coverage ratio was 5.53 to 1.00, and the Company's debt to capitalization ratio was 0.47 to 1.00. Loans under the Credit Agreement bear interest based at the Eurocurrency rate, a base rate, or the London Interbank Offered Rate ("LIBOR").

At May 31, 2019, the Company was in compliance with all covenants contained in its debt agreements.2019.

The Company also has credit facilities in Poland primarily through its subsidiary, CMC Poland Sp. z.o.o. ("CMCP"), available to support global working capital, short-term cash needs, letters of credit, financial assurance and other trade finance-related matters.. At May 31,November 30, 2019, CMCP's credit facilities totaled Polish zloty ("PLN") 275.0 million, or $71.7$70.2 million. These facilities will expire in March 2022. At May 31,November 30, 2019 and August 31, 2018,2019, no amounts were outstanding under these facilities. The available balance of these credit facilities was reduced by outstanding stand-by letters of credit, guarantees, and/or other financial assurance instruments, which totaled $1.3 million and $1.1 million at May 31,November 30, 2019 and August 31, 2018, respectively.2019. During the ninethree months ended May 31,November 30, 2019 and 2018, CMCP had no borrowings and no repayments under its credit facilities.

Accounts Receivable Programs

CMC has a $200.0 million U.S. trade accounts receivable program (the "U.S. Program"), which expires in August 2020. Under the U.S. Program, CMC contributes, and certain of its subsidiaries transfer without recourse, certain eligible trade accounts receivable to CMC Receivables, Inc. ("CMCRV"), a wholly-owned subsidiary of CMC. CMCRV is structured to be a bankruptcy-remote entity formed for the sole purpose of facilitating transfers of trade accounts receivable generated by the Company. CMCRV transfers the trade accounts receivable in their entirety to two financial institutions. Under the U.S. Program, with the consent of both CMCRV and the program's administrative agent, the amount advanced by the financial institutions can be increased to a maximum of $300.0 million for all trade accounts receivable. The remaining portion of the purchase price of the trade accounts receivable takes the form of subordinated notes from the respective financial institutions. These notes will be satisfied from the ultimate collection of the trade accounts receivable after payment of certain fees and other costs. The U.S. Program contains certain cross-default provisions whereby a termination event could occur ifAt November 30, 2019, the Company defaulted under certain of its credit arrangements. Thewas in compliance with all covenants contained in its debt agreements. The Company's debt agreements require the receivables purchase agreement are consistentCompany to comply with the Credit Agreement. Advances taken under the U.S. Program incurcertain non-financial and financial covenants, including an interest based on LIBOR pluscoverage ratio and a margin. debt to capitalization ratio.

Accounts Receivable Facilities

The Company had no0 advance payments outstanding under the U.S. Programaccounts receivable facility at MayNovember 30, 2019 and August 31, 2019.

In addition to the U.S. Program, the Company's international subsidiary inThe Poland transfers trade accounts receivable to financial institutions without recourse (the "Poland Program"). The Poland Programfacility has a facility limit of PLN 220.0 million ($57.456.2 million as of May 31,at November 30, 2019) and allows the Company's Polish subsidiaries to obtain an advance of up to 90% of eligible trade accounts receivable transferred under the terms of the arrangement. Advances taken under the Poland Program incur interest based on the Warsaw Interbank Offered Rate ("WIBOR") plus a margin.. The Company had 0 advance payments outstanding of $25.3 million and $12.1 million under the Poland Program at May 31,November 30, 2019, and $3.9 million at August 31, 2018, respectively.2019.

Prior to fiscal 2019, the Company accounted for transfers of trade accounts receivable as sales, and the trade accounts receivable balances transferred were removed from the condensed consolidated balance sheets. On September 1, 2018, the Company amended certain terms of both the U.S. and Poland Programs, disqualifying the accounting of the transfer of such receivables as sales. As a result of the amendments, beginning in fiscal 2019, any advances outstanding under the U.S. and Poland Programs are recorded as debt on the Company's condensed consolidated balance sheets.

20




NOTE 10.9. DERIVATIVES AND RISK MANAGEMENT

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


14




At MayNovember 30, 2019, the notional values of the Company's foreign currency and commodity commitments were $79.2 million and $53.1 million, respectively. At August 31, 2019, the notional values of the Company's foreign currency contract commitments and its commodity contract commitments were $112.0 million and $49.7 million, respectively. At May 31, 2018, the notional values of the Company's foreign currency contract commitments and its commodity contract commitments were $140.4$94.1 million and $64.8$42.6 million, respectively.

The following table provides information regarding the Company's commodity contract commitments as of May 31,at November 30, 2019:
Commodity Long/Short Total
Aluminum Long 4,500
 MT
AluminumShort2,3501,975
 MT
Copper Long 669987
 MT
Copper Short 5,3417,178
 MT
ElectricityLong2,000,000
MW(h)
_________________
MT = Metric Ton
MW(h) = Megawatt hour

The Company designates only those contracts which closely match the terms of the underlying transaction as hedges for accounting purposes. These hedges resulted in substantially no ineffectiveness in the Company's condensed consolidated statements of earnings, and there were no components excluded from the assessment of hedge effectiveness for the three and nine months ended May 31, 2019 and 2018. Certain 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 activitiestable summarizes activity related to the Company's derivative instruments not designated as hedging instruments recognized in the condensed consolidated statements of earnings. All other activity related to the Company's derivative instruments and hedged items recognized inwas immaterial for the condensed consolidated statements of earnings (amounts in thousands):periods presented. 
 Three Months Ended May 31, Nine Months Ended May 31, Three Months Ended November 30,
Derivatives Not Designated as Hedging Instruments Location 2019 2018 2019 2018
Derivatives Not Designated as Hedging Instruments (in thousands) Location 2019 2018
Commodity Cost of goods sold $3,408
 $1,498
 $143
 $2,071
 Cost of goods sold $(1,315) $(840)
Foreign exchange Cost of goods sold 
 
 
 (50) SG&A expenses 41
 126
Foreign exchange SG&A expenses (72) 518
 (472) 1,169
Gain (loss) before income taxes $3,336
 $2,016
 $(329) $3,190
Loss before income taxes $(1,274) $(714)



21




The Company's fair value hedges are designated for accounting purposes with the gains or losses on the hedged items offsetting the gains or losses on the related derivative transactions. Hedged items relate to firm commitments on commercial sales and purchases and capital expenditures.
  Location of Gain (Loss) Recognized in Income on Derivatives Amount of Gain (Loss) Recognized in Income on Derivatives for the Three Months Ended May 31, Location of Gain (Loss) Recognized in Income on Related Hedged Items Amount of Gain (Loss) Recognized in Income on Related Hedge Items for the Three Months Ended May 31,
  2019 2018  2019 2018
Foreign exchange Net sales $
 $163
 Net sales $
 $(163)
Foreign exchange Cost of goods sold 
 (429) Cost of goods sold 
 429
Gain (loss) before income taxes   $
 $(266)   $
 $266
             
  Location of Gain (Loss) Recognized in Income on Derivatives Amount of Gain (Loss) Recognized in Income on Derivatives for the Nine Months Ended May 31, Location of Gain (Loss) Recognized in Income on Related Hedged Items Amount of Gain (Loss) Recognized in Income on Related Hedge Items for the Nine Months Ended May 31,
  2019 2018  2019 2018
Foreign exchange Net sales $
 $(66) Net sales $
 $66
Foreign exchange Cost of goods sold 
 1,596
 Cost of goods sold 
 (1,596)
Gain (loss) before income taxes   $
 $1,530
   $
 $(1,530)


Effective Portion of Derivatives Designated as Cash Flow Hedging Instruments Recognized in AOCI Three Months Ended May 31, Nine Months Ended May 31,
 2019 2018 2019 2018
Foreign exchange, net of income taxes $(145) $13
 $(267) $38


The Company enters into derivative agreements that include provisions to allow the set-off of certain amounts. Derivative instruments are presented on a gross basis on the Company's condensed consolidated balance sheets. The asset and liability balances in the tables below reflect the gross amounts of derivative instruments at May 31, 2019 and August 31, 2018. The fair value of the Company's derivative instruments on the condensed consolidated balance sheets was as follows:

Derivative Assets (in thousands) May 31, 2019 August 31, 2018
Commodity — not designated for hedge accounting $2,088
 $1,881
Foreign exchange — designated for hedge accounting 
 
Foreign exchange — not designated for hedge accounting 221
 407
Derivative assets (other current assets) (1)
 $2,309
 $2,288

Derivative Liabilities (in thousands) May 31, 2019 August 31, 2018
Commodity — not designated for hedge accounting $322
 $301
Foreign exchange — designated for hedge accounting 373
 
Foreign exchange — not designated for hedge accounting 581
 1,095
Derivative liabilities (accrued expenses and other payables) (1)
 $1,276
 $1,396
 _________________ 
(1) Derivative assets and liabilities do not include the hedged items designated as fair value hedges.
As of May 31, 2019, most of the Company'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 were not entered into for trading purposes.

22




NOTE 11.10. FAIR VALUE

The Company has established a fair value hierarchy which prioritizes the inputs to the valuation techniques used to measure fair value into three3 levels. These levels are determined based on the lowest level input that is significant to the fair value measurement. Levels within the hierarchy are defined as follows:

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

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

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

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

15




   Fair Value Measurements at Reporting Date Using   Fair Value Measurements at Reporting Date Using
(in thousands) May 31, 2019 Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
 Significant Other
Observable Inputs
(Level 2)
 Significant
Unobservable  Inputs
(Level 3)
 November 30, 2019 Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
 Significant Other
Observable Inputs
(Level 2)
 Significant
Unobservable  Inputs
(Level 3)
Assets:                
Investment deposit accounts (1)
 $2,792
 $2,792
 $
 $
 $76,553
 $76,553
 $
 $
Commodity derivative assets (2)
 2,088
 2,088
 
 
 1,277
 194
 
 1,083
Foreign exchange derivative assets (2)
 221
 
 221
 
 289
 
 289
 
Liabilities:                
Commodity derivative liabilities (2)
 322
 322
 
 
 404
 404
 
 
Foreign exchange derivative liabilities (2)
 954
 
 954
 
 567
 
 567
 

   Fair Value Measurements at Reporting Date Using   Fair Value Measurements at Reporting Date Using
(in thousands) August 31, 2018 Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
 Significant Other
Observable Inputs
(Level 2)
 Significant
Unobservable  Inputs
(Level 3)
 August 31, 2019 Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
 Significant Other
Observable Inputs
(Level 2)
 Significant
Unobservable  Inputs
(Level 3)
Assets:                
Investment deposit accounts (1)
 $541,101
 $541,101
 $
 $
 $66,240
 $66,240
 $
 $
Commodity derivative assets (2)
 1,881
 1,881
 
 
 1,269
 1,269
 
 
Foreign exchange derivative assets (2)
 407
 
 407
 
 569
 
 569
 
Liabilities:                
Commodity derivative liabilities (2)
 301
 301
 
 
 99
 99
 
 
Foreign exchange derivative liabilities (2)
 1,095
 
 1,095
 
 899
 
 899
 
_________________ 
(1) Investment deposit accounts are short-term in nature, and the value is determined by principal plus interest. The investment portfolio mix can change each period based on the Company's assessment of investment options.

(2) Derivative assets and liabilities classified as Level 1 are commodity futures contracts valued based on quoted market prices in the London Metal Exchange or New York Mercantile Exchange. Amounts in Level 2 are based on broker quotes in the over-the-counter market. Fair value of Level 3 derivative assets is based on unobservable inputs in which there is little or no market data, which requires management’s own assumptions within an internally developed cash flow model. Further discussion regarding the Company's use of derivative instruments and the classification of the assets and liabilities is included in Note 10, Derivatives and Risk Management.9, Derivatives.

In connection with the sale of assets related to the Company's structural steel fabrication operations, the Company recorded impairment charges of $0.9 million and $13.0 million for the three and nine months ended May 31, 2018, respectively. The signed definitive asset sale agreement (Level 2) was the basis of the determination of fair value of these operations. There were no other material non-recurring fair value remeasurements during the three and nine months ended May 31, 2019 and 2018.November 30, 2019.


23




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

The carrying values and estimated fair values of the Company's financial assets and liabilities that are not required to be measured at fair value on the condensed consolidated balance sheets were as follows:
 May 31, 2019 August 31, 2018 November 30, 2019 August 31, 2019
(in thousands) Fair Value Hierarchy Carrying Value Fair Value Carrying Value Fair Value Fair Value Hierarchy Carrying Value Fair Value Carrying Value Fair Value
2027 Notes (1)
 Level 2 $300,000
 $279,195
 $300,000
 $281,655
 Level 2 $300,000
 $310,398
 $300,000
 $303,810
2026 Notes (1)
 Level 2 350,000
 345,769
 350,000
 339,238
 Level 2 350,000
 365,159
 350,000
 363,444
2023 Notes (1)
 Level 2 330,000
 328,964
 330,000
 326,090
 Level 2 330,000
 344,061
 330,000
 342,098
Short-term borrowings (2)
 Level 2 25,327
 25,327
 
 
 Level 2 
 
 3,929
 3,929
Term loans (2)
 Level 2 310,125
 310,125
 142,500
 142,500
Term Loan (2)
 Level 2 160,125
 160,125
 210,125
 210,125
_________________
(1) The fair value of the notes was determined based on indicated market values.
(2) ContainsThe short-term borrowings and Term Loan contain variable interest rates and carrying value approximates fair value.
NOTE 12. INCOME TAX

For the three and nine months ended May 31, 2019, the Company's effective tax rates from continuing operations were 27.0% and 31.9%, respectively, as compared to the U.S. statutory income tax rate of 21.0%. The effective tax rate is determined by computing the estimated annual effective tax rate, adjusted for discrete items, if any, which are taken into account in the appropriate period. Items that impacted the effective tax rates included:

i.a global intangible low-taxed income (“GILTI”) tax;
ii.a valuation allowance on foreign tax credits from the one-time toll charge on certain undistributed earnings of non-U.S. subsidiaries as a result of the Tax Cuts and Jobs Act ("TCJA");
iii.an uncertain tax position related to the one-time toll charge on certain undistributed earnings of non-U.S. subsidiaries as a result of the TCJA;
iv.non-deductible compensation expense; and
v.state and local taxes.

For the three and nine months ended May 31, 2018, the Company's effective tax rates from continuing operations were 23.9% and 21.8%, respectively, as compared to the blended U.S. statutory income tax rate of 25.7%. Items that impacted the effective tax rates included:

i.the one-time toll charge on certain undistributed earnings of non-U.S. subsidiaries with associated foreign tax credits as a result of the TCJA;
ii.the remeasurement of the Company’s deferred tax balances to the applicable reduced statutory income tax rates as a result of the TCJA;
iii.a permanent tax benefit related to a worthless stock deduction from the reorganization and exit of the steel trading business headquartered in the United Kingdom;
iv.the proportion of the Company's global income from operations in jurisdictions with lower statutory tax rates than the U.S., including Poland, which has a statutory income tax rate of 19.0%;
v.a permanent tax benefit recorded for stock awards that vested during the first nine months of fiscal 2018; and
vi.a non-taxable gain on assets related to the Company's non-qualified benefits restoration plan.

For the three and nine months ended May 31, 2018, the Company's effective income tax rates from discontinued operations of 30.4% and 40.9%, respectively, were greater than the blended U.S. statutory income tax rate of 25.7%, primarily as a result of losses from operations in certain jurisdictions in which the Company maintains a valuation allowance, thus providing no benefit for such losses. Additionally, the effective income tax rates were unfavorably impacted by state taxes imposed on income earned by the Company’s steel trading operations headquartered in the U.S.

As of May 31, 2019 and August 31, 2018, the reserve for unrecognized income tax benefits related to the accounting for uncertainty in income taxes was $6.2 million and $3.1 million, respectively, which, if recognized, would have decreased the Company’s effective income tax rate at the end of each respective period. The Company's policy classifies interest recognized on an underpayment of income taxes and any statutory penalties recognized on a tax position as income tax expense. For the three and

2416




nine months ended May 31, 2019, the Company recorded immaterial amounts of accrued interest and penalties on unrecognized income tax benefits.

The Company is subject to varying statutes of limitation in the U.S. and foreign jurisdictions. In the normal course of business, CMC and its subsidiaries are subject to examination by various taxing authorities. The following summarizes tax years subject to examination:

U.S. Federal — 2016 and forward
U.S. States — 2015 and forward
Foreign — 2012 and forward

In addition, the Company is under examination by certain state revenue authorities for fiscal years 2015 through 2017. The Company believes the recorded income tax liabilities as of May 31, 2019 reflect the anticipated outcome of these examinations.

Beginning in fiscal 2019, the Company is subject to the following provisions of the TCJA: (i) a new tax on GILTI; (ii) a new deduction for foreign-derived intangible income (“FDII”); (iii) deductibility limitations on compensation for covered employees; and (iv) deductibility limitations on business interest expense. The U.S. Department of Treasury continues to release new and clarifying guidance with regard to interpretation of certain provisions of the TCJA, which the Company evaluates during the period of enactment. Based on enacted legislation through the third quarter of fiscal 2019, the Company has included in the estimated annual effective tax rate estimates of the tax impacts related to GILTI and the deductibility limitations on compensation for covered employees. The Company has elected to treat the new GILTI tax as a current period cost. The Company’s current assessment of FDII and the deductibility limitations on business interest expense did not result in an impact to the estimated annual effective tax rate.

In general, it is the practice and intention of the Company to indefinitely reinvest earnings of non-U.S. subsidiaries. Based on the provisions of the TCJA, future distributions of earnings of non-U.S. subsidiaries are not expected to be subject to U.S. income tax. However, such distributions may be subject to other global income tax considerations, such as withholding taxes, but are not expected to materially impact the Company’s financial statements.
NOTE 13.11. STOCK-BASED COMPENSATION PLANS

The Company's stock-based compensation plans are described and informational disclosures provided, in Note 15, Stock-Based Compensation Plans, to the consolidated financial statements in the 20182019 Form 10-K. In general, restricted stock units granted during fiscal 20192020 vest ratably over a period of three years. However, certain restricted stock units granted during fiscal 2019 cliff vest after a period of three years. Subject to the achievement of performance targets established by the Compensation Committee of CMC's Board of Directors, performance stock units granted during fiscal 20192020 vest after a period of three years.

During the ninethree months ended May 31,November 30, 2019 and 2018, the Company granted the following awards under its stock-based compensation plans:
 May 31, 2019 May 31, 2018 November 30, 2019 November 30, 2018
(in thousands, except per share data) Shares Granted Weighted Average Grant Date Fair Value Shares Granted Weighted Average Grant Date Fair Value Shares Granted Weighted Average Grant Date Fair Value Shares Granted Weighted Average Grant Date Fair Value
Equity method 1,505
 $17.75
 1,216
 $20.69
 1,465
 $18.15
 1,454
 $17.81
Liability method 374
 N/A
 323
 N/A
 426
 N/A
 374
 N/A


During the three and nine months ended May 31,November 30, 2019, and 2018, the Company recorded immaterial amounts for mark-to-market adjustments on liability awards. As of May 31,At November 30, 2019, the Company had outstanding 718,223836,546 equivalent shares accounted for under the liability method. The Company expects 683,922794,719 equivalent shares to vest.

The following table summarizes total stock-based compensation expense, including fair value remeasurements, which was mainly included in selling, general and administrative expenses on the Company's condensed consolidated statements of earnings:
 Three Months Ended May 31, Nine Months Ended May 31, Three Months Ended November 30,
(in thousands) 2019 2018 2019 2018 2019 2018
Stock-based compensation expense $7,342
 $4,910
 $17,350
 $18,247
 $8,269
 $4,217


25




NOTE 14. EMPLOYEES' RETIREMENT PLANS

Following the acquisition of the Acquired Businesses, the Company sponsors a single employer defined-benefit pension plan (“Plan”) covering certain hourly union employees. The Plan is closed to new entrants. The Plan provides benefits based on length of service. The Company’s funding policy for the Plan is to contribute annually the amount necessary to provide for benefits based on accrued service and to contribute at least the minimum required by the Employee Retirement Income Security Act rules. Service cost is recorded in costs of goods sold, while other components of the net periodic benefit costs are recorded as selling, general and administrative expenses. Net periodic pension expense was immaterial for the three and nine months ended May 31, 2019.
NOTE 15.12. STOCKHOLDERS' EQUITY AND EARNINGS PER SHARE

The calculations of basic and diluted earnings per share from continuing operations for the three and nine months ended May 31, 2019 and 2018 were as follows: 
 Three Months Ended May 31, Nine Months Ended May 31, Three Months Ended November 30,
(in thousands, except share data) 2019 2018 2019 2018 2019 2018
Earnings from continuing operations $78,551
 $42,325
 $112,899
 $83,977
 $82,755
 $19,420
Basic earnings per share:            
Shares outstanding for basic earnings per share 118,045,362
 117,111,799
 117,762,945
 116,722,504
 118,370,191
 117,387,038
Basic earnings per share from continuing operations $0.67
 $0.36
 $0.96
 $0.72
 $0.70
 $0.17
Diluted earnings per share:            
Shares outstanding for basic earnings per share 118,045,362
 117,111,799
 117,762,945
 116,722,504
 118,370,191
 117,387,038
Effect of dilutive securities:            
Stock-based incentive/purchase plans 1,100,204
 1,142,992
 1,250,069
 1,328,360
 1,403,347
 1,295,435
Shares outstanding for diluted earnings per share 119,145,566
 118,254,791
 119,013,014
 118,050,864
 119,773,538
 118,682,473
Diluted earnings per share from continuing operations $0.66
 $0.36
 $0.95
 $0.71
 $0.69
 $0.16

  
CMC had 32,623 and 26,886 shares that were anti-dilutive for the three months ended May 31, 2019 and 2018, respectively. There are no0 anti-dilutive shares for the other periods presented.

CMC's restrictedRestricted stock is included in the number of shares of common stock issued and outstanding but is omitted from the basic earnings per share calculation until the shares vest.
During the first quarter of fiscal 2015, CMC's Board of Directors authorized a share repurchase program under which CMC may repurchase up to $100.0 million of shares of common stock. The timing and the amount of repurchases, if any, are determined by management based on an evaluation of market conditions, capital allocation alternatives and other factors. The share repurchase program does not require the Company to purchase any dollar amount or number of shares of common stock and may be modified, suspended, extended or terminated at any time without prior notice. During the ninethree months ended May 31,November 30, 2019, CMC did not repurchase any shares of common stock. CMC had remaining authorization to repurchase $27.6 million shares of common stock at May 31,November 30, 2019.

17




NOTE 16.13. COMMITMENTS AND CONTINGENCIES

Legal and Environmental Matters

In the ordinary course of conducting its business, the Company becomes involved in litigation, administrative proceedings and governmental investigations, including environmental matters. See Note 18,19, Commitments and Contingencies, to the consolidated financial statements in the 20182019 Form 10-K.

The Company has received notices from the U.S. Environmental Protection Agency ("EPA") or state agencies with similar responsibility that it is considered a potentially responsible party ("PRP") at several sites, (nonenone of which are owned by the Company)Company, and may be obligated under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 ("CERCLA") or similar state statutestatutes 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

26




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 both May 31,November 30, 2019 and August 31, 2018,2019, the Company had accrued $0.7 million accrued for estimated cleanup and remediation costs in connection with CERCLA sites. The estimation process is based on currently available information, which is in many cases preliminary and incomplete. As of May 31,Total environmental liabilities, including CERCLA sites, were $3.5 million and $3.6 million at November 30, 2019 and August 31, 2018, total environmental liabilities with respect to CERCLA sites, were $3.8 million and $4.0 million,2019, respectively, of which $1.9$1.8 million waswere classified as other long-term liabilities.liabilities at November 30, 2019 and August 31, 2019. These amounts have not been discounted to their present values. Due to evolving remediation technology, changing regulations, possible third-party contributions, the inherent shortcomings of the estimation process and other factors, amounts accrued could vary significantly from amounts paid. Historically, the amounts the Company has ultimately paid for such remediation activities have not been material.

Management believes that adequate provisions have been made in the Company's condensed consolidated financial statements for the potential impact of these contingencies, and that the outcomes of the suits and proceedings described above, and other miscellaneous litigation and proceedings now pending, will not have a material adverse effect on the business, results of operations or financial condition of the Company.
NOTE 17.14. BUSINESS SEGMENTS

The Company's operating segments earn revenuesCompany structures its business into the following 4 reporting segments: Americas Recycling, Americas Mills, Americas Fabrication and incur expenses for which discrete financial information is available. Operating results for the operating segments are regularly reviewed by the Company's chief operating decision maker to make decisions about resources to be allocated to the segments and to assess performance. The Company's chief operating decision maker is identified as the Chief Executive Officer. Operating segments are aggregated for reporting purposes when the operating segments are identified as similar in accordance with the basic principles and aggregation criteria in the accounting standards.International Mill. The Company's reporting segments are based primarily on product lines and secondarily on geographic area. The reporting segments have different lines of management responsibility as each business requires different marketing strategies and management expertise.

The Company structures its business into the following four reporting segments: Americas Recycling, Americas Mills, Americas Fabrication, and International Mill. See Note 1, Nature of Operations, of the consolidated financial statements included in the 20182019 Form 10-K for more information about the reporting segments, including the types of products and services from which each reporting segment derives its net sales. Corporate and Other contains earnings or losses on assets and liabilities related to the Company's Benefit Restoration Plan assets and short-term investments, expenses of the Company's corporate headquarters, interest expense related to its long-term debt and intercompany eliminations.

The Company uses adjusted EBITDA from continuing operations to compare and evaluate the financial performance of its segments. Adjusted EBITDA is the sum of the Company's earnings from continuing operations before interest expense, income taxes, depreciation and amortization expense and impairment expense. Intersegment sales are generally priced at prevailing market prices. Certain corporate administrative expenses are allocated to the segments based upon the nature of the expense. The accounting policies of the segments are the same as those described in Note 2, Summary of Significant Accounting Policies, of the consolidated financial statements included in the 20182019 Form 10-K.

The following is a summary of certain financial information from continuing operations by reportable segment:
 Three Months Ended May 31, 2019 Three Months Ended November 30, 2019
(in thousands)  Americas Recycling  Americas Mills  Americas Fabrication  International Mill  Corporate and Other Continuing Operations  Americas Recycling  Americas Mills  Americas Fabrication  International Mill  Corporate and Other Continuing Operations
Net sales-unaffiliated customers $228,786
 $536,035
 $629,510
 $209,022
 $2,519
 $1,605,872
 $172,151
 $474,192
 $570,377
 $165,040
 $2,948
 $1,384,708
Intersegment sales 60,229
 330,868
 3,537
 343
 (394,977) 
 50,110
 294,701
 1,470
 349
 (346,630) 
Net sales 289,015
 866,903
 633,047
 209,365
 (392,458) 1,605,872
 222,261
 768,893
 571,847
 165,389
 (343,682) 1,384,708
Adjusted EBITDA 12,331
 158,114
 (23,289) 24,120
 (27,305) 143,971
 3,417
 155,025
 17,481
 11,359
 (27,477) 159,805
Total assets at November 30, 2019*
 251,115
 1,632,290
 1,123,785
 483,718
 317,443
 3,808,351

2718




  Nine Months Ended May 31, 2019
(in thousands)  Americas Recycling  Americas Mills  Americas Fabrication  International Mill  Corporate and Other Continuing Operations
Net sales-unaffiliated customers $694,855
 $1,382,501
 $1,590,746
 $610,640
 $7,255
 $4,285,997
Intersegment sales 183,244
 860,964
 10,248
 947
 (1,055,403) 
Net sales 878,099
 2,243,465
 1,600,994
 611,587
 (1,048,148) 4,285,997
Adjusted EBITDA 37,889
 384,383
 (109,863) 77,436
 (111,005) 278,840
Total assets as of May 31, 2019 (1)
 262,620
 1,682,255
 1,136,996
 501,079
 184,060
 3,767,010
_________________ 
(1) *Total assets listed in Corporate and Other includes assets from discontinued operations.
  Three Months Ended May 31, 2018
(in thousands)  Americas Recycling  Americas Mills  Americas Fabrication  International Mill  Corporate and Other Continuing Operations
Net sales-unaffiliated customers $292,679
 $332,459
 $375,183
 $201,438
 $2,725
 $1,204,484
Intersegment sales 71,419
 220,604
 3,058
 299
 (295,380) 
Net sales 364,098
 553,063
 378,241
 201,737
 (292,655) 1,204,484
Adjusted EBITDA 19,477
 89,590
 (8,208) 31,987
 (31,814) 101,032
 Nine Months Ended May 31, 2018 Three Months Ended November 30, 2018
(in thousands)  Americas Recycling  Americas Mills  Americas Fabrication  International Mill  Corporate and Other Continuing Operations  Americas Recycling  Americas Mills  Americas Fabrication  International Mill  Corporate and Other Continuing Operations
Net sales-unaffiliated customers $832,448
 $841,895
 $1,015,934
 $633,134
 $11,874
 $3,335,285
 $240,181
 $373,671
 $434,558
 $226,673
 $2,259
 $1,277,342
Intersegment sales 171,618
 550,573
 8,059
 846
 (731,096) 
 61,828
 228,182
 2,553
 351
 (292,914) 
Net sales 1,004,066
 1,392,468
 1,023,993
 633,980
 (719,222) 3,335,285
 302,009
 601,853
 437,111
 227,024
 (290,655) 1,277,342
Adjusted EBITDA 51,698
 194,975
 (14,787) 95,066
 (81,777) 245,175
 15,434
 113,873
 (36,996) 32,779
 (59,554) 65,536
Total assets as of August 31, 2018 (1)
 291,838
 1,115,339
 739,151
 485,548
 696,428
 3,328,304
Total assets at August 31, 2019*
 257,517
 1,667,366
 1,106,420
 464,177
 263,291
 3,758,771
 _________________ 
_________________ 
(1) *Total assets listed in Corporate and Other includes assets from discontinued operations.

The following table presents a reconciliation of earnings from continuing operations to adjusted EBITDA from continuing operations:
 Three Months Ended May 31, Nine Months Ended May 31, Three Months Ended November 30,
(in thousands) 2019 2018 2019 2018 2019 2018
Earnings from continuing operations $78,551
 $42,325
 $112,899

$83,977
 $82,755

$19,420
Interest expense 18,513
 11,511
 53,671

25,303
 16,578

16,663
Income taxes 29,105
 13,312
 52,855

23,465
 27,332

5,609
Depreciation and amortization 41,181
 32,949
 117,602
 98,898
 40,941
 35,176
Amortization of acquired unfavorable contract backlog (23,394) 
 (58,202) 
 (8,331) (11,332)
Impairment of assets 15
 935
 15

13,532
 530


Adjusted EBITDA from continuing operations $143,971
 $101,032
 $278,840

$245,175
 $159,805

$65,536


19





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

In the following discussion, references to "we," "us," "our" or the "Company" mean Commercial Metals Company ("CMC") and its consolidated subsidiaries, unless the context otherwise requires. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and the notes thereto, which are included in this Quarterly Report on Form 10-Q (the "Form 10-Q"), and our consolidated financial statements and the notes thereto, which are included in our Annual Report on Form 10-K for the fiscal year ended August 31, 20182019 (the "2018"2019 Form

28





10-K"). This discussion contains or incorporates by reference "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the Private Securities Litigation Reform Act of 1995. These forward-looking statements are not historical facts, but rather are based on expectations, estimates, assumptions and projections about our industry, business and future financial results, based on information available at the time this Form 10-Q is filed with the Securities and Exchange Commission ("SEC") or, with respect to any document incorporated by reference, available at the time that such document was prepared. Our actual results could differ materially from the results contemplated by these forward-looking statements due to a number of factors, including those identified in the section entitled "Forward-Looking Statements" at the end of this Item 2 of this Form 10-Q and in the section entitled "Risk Factors" in Item 1A of the 20182019 Form 10-K and this Form 10-Q. We do not undertake any obligation to update, amend or clarify any forward-looking statements to reflect changed assumptions, the occurrence of anticipated or unanticipated events, new information or circumstances or otherwise, except as required by law.
CRITICAL ACCOUNTING POLICIES

There have been no material changes to our critical accounting policies as set forth in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, included in the 20182019 Form 10-K, except for the change in revenue recognition as described in Note 1, Accounting Policies, of this Form 10-Q.10-K.

RESULTS OF OPERATIONS SUMMARY

Business Overview

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

Financial Results Overview

The following discussion of our results of operations is based on our continuing operations and excludes any results of our discontinued operations.
 Three Months Ended May 31, Nine Months Ended May 31, Three Months Ended November 30,
(in thousands, except per share data) 2019 2018 2019 2018 2019 2018
Net sales $1,605,872
 $1,204,484
 $4,285,997
 $3,335,285
 $1,384,708
 $1,277,342
Earnings 78,551
 42,325
 112,899
 83,977
Earnings from continuing operations 82,755
 19,420
Diluted earnings per share $0.66
 $0.36
 $0.95
 $0.71
 0.69
 0.16

Net sales from continuing operations for the three and nine months ended May 31,November 30, 2019 increased 33% and 29%$107.4 million, or 8%, respectively, compared to the same periods for fiscal 2018. Our results for the three and nine months ended May 31, 2019 includeNovember 30, 2018 due to the Acquired Businesses, as discussedsuccessful execution of our growth strategy and strength in Note 2, Acquisition, which contributed net sales of $453.5 million quarter-to-date and $958.6 million year-to-date. Third quarter and year-to-date netour core markets. Net sales in our Americas Mills segmentand Americas Fabrication segments increased in fiscalthe three months ended November 30, 2019, as compared to the same periodsthree months ended November 30, 2018. The increase in 2018,the Americas Mills segment was primarily due to an increase in year-over-year tons shipped, and the Acquired Businesses andincrease in the Americas Fabrication segment was due to an increase in year-over-year average selling prices per ton and tons shipped. Tons shipped increased in both fiscal periods. Third quartersegments year-over-year as the three months ended November 30, 2019 included two additional months of shipments related to acquisition of the Acquired Businesses (the "Acquisition"). In our Americas Recycling segment, ferrous average selling prices per ton and tons shipped were down leading to a year-over-year decrease in fiscalnet sales in the three months ended November 30, 2019, as compared to the same period in fiscal 2018,three months ended November 30, 2018. Average selling prices per ton and tons shipped were also down in our Americas Recycling and International Mill segments,segment leading to

20




a year-over-year reductionsdecrease in net sales in the Americas Recycling segment on both a quarter and year-to-date basis and in the International Mill segment on a year-to-date basis. Quarter-to-date net sales in the International Mill segment, however, increasedthree months ended November 30, 2019, as compared to the same period in fiscal 2018 due to an increase in tons shipped. In our Americas Fabrication segment, third quarter average selling prices were up in fiscal 2019, compared to the same period in fiscal 2018, as we have shipped the majority of the lower priced work in our backlog leading to year-over-year increases in net sales on both a quarter and year-to-date basis.three months ended November 30, 2018.

Earnings from continuing operations for the three and nine months ended May 31,November 30, 2019 increased $36.2$63.3 million, and $28.9 million, respectively, compared to the same periods for fiscalthree months ended November 30, 2018. The increase in earnings was primarily driven by the Acquired Businesses and year-over-year increases in quarter-to-date and year-to-date metal margins and tons shipped in our Americas Mills segment.and Americas Fabrication segments.


29




Selling, General and Administrative Expenses
 
Selling, general and administrative expenses increased $14.0 million and $25.4 million for the three and nine months ended May 31,November 30, 2019 respectively.decreased $5.7 million compared to the three months ended November 30, 2018. The year-over-year increase in expensesdecrease was driven primarily by a $6.2 million pre-tax gain related to a land sale. In addition, there was a $22.4 million increase in employee-related expenses offset by a $24.7 million decrease in professional fees and legal expenses in the acquisition ofthree months ended November 30, 2019 compared to the Acquired Businesses.three months ended November 30, 2018, primarily related to the Acquisition.

Interest Expense

Interest expense for the three and nine months ended May 31,November 30, 2019 increased $7.0 million and $28.4 million, respectively,remained flat, as compared to the same periods in fiscal 2018. The increase was primarily the result of financing activities in connection with the acquisition of the Acquired Businesses, including issuance of the 2026 Notes and a draw under the 2018 Term Loan (both defined in Note 9, Credit Arrangements), which drove increases of $5.4 million and $18.2 million for the three and nine months ended May 31, 2019, respectively. Also contributing to the increase in the nine months ended May 31, 2019 were year-over-year reductions in capitalized interest of $7.2 million, principally due to the completion of the Oklahoma micro mill in fiscalNovember 30, 2018.

Income Taxes

Our effective income tax rate from continuing operations for the three and nine months ended May 31,November 30, 2019 was 27.0% and 31.9%24.8%, respectively, compared with 23.9% and 21.8%,22.4% for the three and nine months ended May 31, 2018, respectively.November 30, 2018. The effective tax rate for the current period was greater thanincrease in the effective tax rate for the corresponding period of the prior fiscal yearwas primarily due to the recognition ofan increase in state income tax expense in the current year compared to benefits recognized in the prior year, both as a result of the TCJA. See Note 12, Income Tax, for further details of the impacts of the TCJA to each comparative period.expense.
SEGMENT OPERATING DATA

Unless otherwise indicated, all dollar amounts below are from continuing operations and calculated before income taxes. Financial results for our reportable segments are consistent with the basis in which we internally disaggregate financial information for the purpose of making operating decisions. See Note 17,14, Business Segments. The operational data presented in the tables below is calculated using averages and, therefore, it is not meaningful to quantify the effect that any individual component had on the segment's net sales or adjusted EBITDA.

Americas Recycling
 Three Months Ended May 31, Nine Months Ended May 31, Three Months Ended November 30,
(in thousands) 2019 2018 2019 2018 2019 2018
Net sales $289,015
 $364,098
 $878,099
 $1,004,066
 $222,261
 $302,009
Adjusted EBITDA 12,331
 19,477
 37,889
 51,698
 3,417
 15,434
            
Average selling price (per short ton)        
Average selling price (per ton)    
Ferrous $252
 $314
 $263
 $286
 $182
 $273
Nonferrous 2,047
 2,252
 2,009
 2,267
 1,983
 1,982
            
Short tons shipped (in thousands)        
Tons shipped (in thousands)    
Ferrous 597
 642
 1,746
 1,791
 492
 579
Nonferrous 60
 65
 182
 194
 57
 63
Total 657
 707
 1,928
 1,985
 549
 642

Net sales for the three and nine months ended May 31,November 30, 2019 decreased $75.1$79.7 million, or 21%26%, and $126.0 million, or 13%, respectively, compared to the corresponding periods in fiscal 2018. For the three and nine months ended May 31, 2019, theNovember 30, 2018. The primary drivers for the year-over-year decreasesdecrease in net sales were reductionsa reduction in the ferrous and nonferrous scrap pricing environment.and a decrease in tons shipped. Average ferrous and nonferrous selling prices per ton and total tons shipped decreased approximately 20%33% and 9%14%, respectively, for the three months ended May 31, 2019, and decreased approximately 8% and 11%, respectively, for the nine months ended May 31,November 30, 2019, as compared to the same periods in fiscalthree months ended November 30, 2018.
 
Adjusted EBITDA for the three and nine months ended May 31,November 30, 2019 decreased $7.1$12.0 million and $13.8 million, respectively, as third quarter nonferrous margins, though still strong, have declined approximately 5% on a year-over-year basiscompared to the three months ended November 30, 2018, primarily due to a decreasedeclining price environment, which compressed margins and constrained scrap flows. Conversion costs increased approximately 18% per ton in the three months ended November 30, 2019, as compared to the three

3021




in the scrap pricing environment in fiscal 2019 which compressed margins.months ended November 30, 2018, due to decreased production levels. Adjusted EBITDA included non-cash stock compensation expense of $0.3$0.4 million and $1.0$0.3 million for the three and nine months ended May 31,November 30, 2019 and 2018, respectively.

Americas Mills
 Three Months Ended May 31, Nine Months Ended May 31, Three Months Ended November 30,
(in thousands) 2019 2018 2019 2018 2019 2018
Net sales $866,903
 $553,063
 $2,243,465
 $1,392,468
 $768,893
 $601,853
Adjusted EBITDA 158,114
 89,590
 384,383
 194,975
 155,025
 113,873
            
Average price (per short ton)        
Average price (per ton)    
Total selling price $670
 $632
 $674
 $587
 $611
 $682
Cost of ferrous scrap utilized 284
 329
 297
 293
 226
 307
Metal margin 386
 303
 377
 294
 385
 375
            
Short tons (in thousands)        
Tons (in thousands)    
Melted 1,164
 790
 3,199
 2,108
 1,182
 909
Rolled 1,118
 737
 3,007
 1,936
 1,155
 844
Shipped 1,236
 811
 3,178
 2,172
 1,206
 847

Net sales for the three and nine months ended May 31,November 30, 2019 increased $313.8$167.0 million, or 57%28%, and $851.0 million, or 61%, respectively, compared to the corresponding periods in fiscalthree months ended November 30, 2018. The increase in net sales was primarily due to a year-over-year increase of 359 thousand tons shipped due to continued strength in non-residential spending as well as two additional months of shipments from the Acquired Businesses of 469 thousand short tons and 974 thousand short tons for the three and nine months ended May 31, 2019, respectively. Also contributing to increased net sales were increasedBusinesses. This increase was partially offset by an approximately 10% year-over-year decrease in average selling prices of $38 per short ton and $87 per short ton for the three and nine months ended May 31, 2019, respectively, as trade actions recently implemented in the U.S., aimed at unfairly priced steel imports, have favorably impacted the pricing environment.ton.

Adjusted EBITDA for the three and nine months ended May 31,November 30, 2019 increased $68.5$41.2 million and $189.4 million, respectively, compared to the corresponding periods in fiscal 2018, with the Acquired Businesses contributing $53.6 million and $87.9 million, respectively.three months ended November 30, 2018. The year-over-year increase in adjusted EBITDA for the three and nine months ended May 31, 2019 was primarily driven by the Acquired Businessesincreased shipments and metal margin expansion of 27% and 28%, respectively, due to decreases in ferrous scrap prices and manufacturing costs due to higher production levels.3%. Adjusted EBITDA included non-cash stock compensation expense of $1.1$1.8 million and $3.6$1.0 million for the three and nine months ended May 31,November 30, 2019 respectively, and $1.1 million and $3.9 million for the three and nine months ended May 31, 2018, respectively.

Americas Fabrication
 Three Months Ended May 31, Nine Months Ended May 31, Three Months Ended November 30,
(in thousands) 2019 2018 2019 2018 2019 2018
Net sales $633,047
 $378,241
 $1,600,994
 $1,023,993
 $571,847
 $437,111
Adjusted EBITDA (23,289) (8,208) (109,863) (14,787) 17,481
 (36,996)
            
Average selling price (excluding stock and buyout sales) (per short ton)        
Average selling price (excluding stock and buyout sales) (per ton)    
Rebar and other $925
 $777
 $886
 $784
 $976
 $868
            
Total short tons shipped        
Tons shipped (in thousands)    
Rebar and other 469
 302
 1,184
 808
 413
 319


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Net sales for the three and nine months ended May 31,November 30, 2019 increased $254.8$134.7 million, or 67%31%, and $577.0 million, or 56%, respectively, compared to the same periods in fiscalthree months ended November 30, 2018. The increase in net sales for the three and nine months ended May 31, 2019 was driven by increases in short tons shipped of 167 thousand and 376 thousand for the three and nine months ended May 31, 2019, respectively, due to shipments by the Acquired Businesses during fiscal 2019, and by increasesa year-over-year increase in average selling prices of $148 and $102$108 per ton respectively, comparedand in tons shipped of 94 thousand. Average selling prices per ton have increased year-over-year reflecting higher contract pricing over approximately the last six quarters. Tons shipped also increased year-over-year as the three months ended November 30, 2019 included two additional months of shipments related to the same period in fiscal 2018, as selling prices have increased in response to rising input costs.Acquired Businesses. Net sales for the three and nine months ended May 31,November 30, 2019 and 2018 included amortization benefit of $23.4$8.3 million and $58.2$11.3 million, respectively, related to the unfavorable contract backlog of the Acquired Businesses.

ForAdjusted EBITDA for the three and nine months ended May 31,November 30, 2019 Americas Fabrication reported an adjusted EBITDA loss of $23.3increased $54.5 million and $109.9 million, respectively, compared to an adjusted EBITDA loss of $8.2 million and $14.8 million in the corresponding periods in fiscalthree months ended November 30, 2018. The primary driverdrivers for the year-over-year increase in adjusted EBITDA loss for the threewere a 29% increase in tons shipped and nine months ended May 31, 2019 was the additional volume and loss associated with the Acquired Businesses and compressionsignificant metal margin expansion due to an increase in metal margins as average selling prices haveper ton, as discussed above, and a decrease in

22




input costs. Adjusted EBITDA does not increased as much as rebar prices. Asinclude the majority$8.3 million or $11.3 million benefit of our rebar fabrication projects in this segment are fixed price, there is a lag between current market prices and average selling pricethe amortization of material we ship as we work through the project backlog. However, in the third quarter of fiscal 2019, the existing business approached break-even levels at current rebar selling prices, while the unfavorable contract backlog associated with the Acquired Businesses had a lower per ton value and is expected to turn profitable in fiscal 2020.reserve described above. Adjusted EBITDA included non-cash stock compensation expense of $0.4$0.7 million and $1.7$0.6 million for the three and nine months ended May 31,November 30, 2019 respectively, and $0.3 million and $1.7 million for the three and nine months ended May 31, 2018, respectively.
 
International Mill
 Three Months Ended May 31, Nine Months Ended May 31, Three Months Ended November 30,
(in thousands) 2019 2018 2019 2018 2019 2018
Net sales $209,365
 $201,737
 $611,587
 $633,980
 $165,389
 $227,024
Adjusted EBITDA 24,120
 31,987
 77,436
 95,066
 11,359
 32,779
            
Average price (per short ton)        
Average price (per ton)    
Total selling price $524
 $599
 $539
 $562
 $461
 $547
Cost of ferrous scrap utilized 288
 329
 295
 317
 244
 295
Metal margin 236
 270
 244
 245
 217
 252
            
Short tons (in thousands)        
Tons (in thousands)    
Melted 368
 389
 1,135
 1,137
 345
 392
Rolled 341
 316
 902
 974
 342
 263
Shipped 376
 320
 1,072
 1,066
 338
 392

Net sales for the three and nine months ended May 31,November 30, 2019 increased $7.6decreased $61.6 million, or 4%27%, and decreased $22.4 million, or 4%, respectively, compared to the corresponding periods in fiscal 2018. For the three months ended May 31, 2019, the increaseNovember 30, 2018. The year-over-year decrease in net sales was due to a year-over-year increase in shipments of 18%, as compared to the same period in fiscal 2018, partially offset by a 13%16% decrease in average selling prices.prices per ton coupled with a 14% decrease in tons shipped. The reduction in year-over-year average selling prices per ton was primarily the result of increased imports into the European Union. For the nine months ended May 31, 2019, the decrease in net sales compared to the same period in fiscal 2018 wasTons shipped also declined on a year-over-year basis, primarily due to a 4% decreasethe absence of opportunistic billets sales that were made in average selling price while shipments remained relatively flat.the three months ended November 30, 2018. Net sales for the three and nine months ended May 31,November 30, 2019 were also impacted by unfavorable foreign currency translation adjustments of approximately $20.2$7.3 million and $46.9 million, respectively, due to the fluctuationsincrease in the average value of the U.S. dollar in relationrelative to the Polish zloty.

Adjusted EBITDA for the three months ended May 31,November 30, 2019 decreased $7.9$21.4 million compared to the corresponding period in fiscalthree months ended November 30, 2018, primarily due todriven by a $35 per ton, or 14%, decrease in metal margins. Adjusted EBITDA for the nine months ended May 31, 2019 decreased $17.6 million compared to the corresponding period in fiscal 2018, driven, in part, by the decrease in average selling prices described above and an increase in manufacturing costs on a per ton basis due to a decrease in melt shop volumes. Adjusted EBITDA included non-cash stock compensation expense of $0.4$0.5 million and $0.7$0.1 million for the three and nine months ended May 31,November 30, 2019 respectively, and $0.2 million and $1.2 million for the three and nine months ended May 31, 2018, respectively. AdjustedForeign currency translation impact to adjusted EBITDA for the three and nine months ended May 31,November 30, 2019 reflected unfavorable foreign currency translation impacts of approximately $2.3 million and $5.7 million, respectively, due to the fluctuations of the U.S. dollar in relation to the Polish zloty.was immaterial.


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Corporate and Other

Corporate and Other reported an adjusted EBITDA loss of $27.3 million and $111.0$27.5 million for the three and nine months ended May 31,November 30, 2019, respectively,as compared to an adjusted EBITDA loss of $31.8 million and $81.8$59.6 million for the corresponding periods in fiscal 2018, respectively. For the ninethree months ended May 31, 2019, the increaseNovember 30, 2018. The year-over-year decrease in adjusted EBITDA loss as compared to the same period in fiscal 2018, was largely driven by a $25.3$25.6 million increase in corporate expenses due to an increasedecrease in professional fees relatedand legal expenses incurred in the three months ended November 30, 2019, compared to professional fees and legal expenses incurred in the three months ended November 30, 2018 primarily due to the acquisitionAcquisition. Adjusted EBITDA included non-cash stock compensation expense of $4.8 million and $2.3 million for the Acquired Businessesthree months ended November 30, 2019 and other legal expenses.2018, respectively.

LIQUIDITY AND CAPITAL RESOURCES

While we believe the lending institutions participating in our credit arrangements are financially capable, it is important to note that the banking and capital markets periodically experience volatility that may limit our ability to raise capital in a cost efficient manner. In addition, our financing costs associated with raising capital may be affected by changes to our credit rating made by any rating agency.

Sources of Liquidity and Capital Resources

We have access to the $350.0 million revolving credit facility (the "Revolver") and availability under our sale of accounts receivable programs,facility, as described in Note 9,8, Credit Arrangements.

We actively monitor our accounts receivable and, based on market conditions and customers' financial condition, we record allowances as soon as we believe accounts are uncollectible. Continued pressure on the liquidity of our customers could result in additional allowances as we make our assessments in the future. We use credit insurance internationallyin Poland to mitigate the risk of customer insolvency. We estimate that the amount of credit insured receivables (and those covered by export letters of credit) was approximately 12%11% of total trade receivables at May 31,November 30, 2019.


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The table below showsreflects our sources, facilities and available liquidity as of May 31,at November 30, 2019:
(in thousands) Total Facility Availability Total Facility Availability
Cash and cash equivalents $120,315
 $120,315
 $224,797
 $224,797
Notes due from 2023 to 2027 980,000
 *
 980,000
 *
Revolving credit facility 350,000
 346,971
Revolver 350,000
 346,962
U.S. accounts receivable facility 200,000
 172,975
 200,000
 192,695
Term loans 310,125
 
Term Loan 160,125
 
Poland accounts receivable facility 57,375
 26,833
 56,174
 51,067
Poland credit facilities 71,719
 70,464
 70,218
 69,159
Other, including equipment notes 56,996
 *
Finance leases 39,713
 *
Other 23,168
 *
_________________
* We believe we have access to additional financing and refinancing, if needed.

Cash Flows

Operating Activities
Our cash flows from operating activities result primarily from the sale of steel, nonferrous metals and related products. We have a diverse and generally stable customer base. From time to time, we use futures or forward contracts to mitigate the risks from fluctuations in commodity prices, foreign currency exchange rates, interest rates and natural gas, priceselectricity and interest rates.other energy prices. See Note 10,9, Derivatives, and Risk Management, for further information.

Net cash flows from operating activities were $146.4 million for the three months ended November 30, 2019 compared to $357.6 million of net cash flows used by operating activities were $218.5 million for the ninethree months ended May 31, 2019, comparedNovember 30, 2018. Due to $330.5 million for the nineadoption of ASU 2016-15 in the three months ended May 31, 2018. TheNovember 30, 2018, $367.5 million of cash collections of the U.S. and Poland accounts receivable facilities were reflected in investing activities as described in Note 7, Accounts Receivable Programs, of the 2019 Form 10-K. In addition, the Company had a $63.6 million year-over-year increase in net earnings, a $28.3 million year-over-year increase in deferred income taxes, and a $36.1 million year-over-year decrease in cash used by operating activities was primarily due to a $124.1 million decrease in cash collections of the DPP from the Programs described in Note 6, Accounts Receivable Programs, for the nine months ended May 31, 2019, as compared to the same period in 2018. This decrease was partially offset by a $9.8 million year-over-year increase in cash used in operating assets and liabilities ("working capital") forin the ninethree months ended May 31, 2019.November 30, 2019 compared to the three months ended November 30, 2018. For continuing operations, operating working capital days deteriorated four days on a year-over-year basis.decreased one day year-over-year.


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Investing Activities
Net cash flows used by investing activities increased $794.1were $35.1 million and $357.4 million for the ninethree months ended May 31,November 30, 2019 as compared to the nine months ended May 31, 2018. The year-over-year increase in cashand 2018, respectively. Cash used by investing activities in the three months ended November 30, 2018 was higher than in the three months ended November 30, 2019 primarily due to cash used for the acquisitionAcquisition of the Acquired Businesses,$694.8 million, as described in Note 2, Acquisition. Partially offsetting this increase was a year-over-year decreaseChanges in capital expendituresBusiness, partially offset by the $367.5 million in cash collections of $52.5 million.the U.S. and Poland accounts receivable facilities as described above.

We estimate that our fiscal 20192020 capital spending will range between $150from $160 million to $175$185 million. We regularly assess our capital spending based on current and expected results.

Financing Activities
Net year-over-yearcash flows used by financing activities were $79.4 million for the three months ended November 30, 2019 compared to net cash flows from financing activities during fiscalof $140.3 million for the three months ended November 30, 2018. In the three months ended November 30, 2019, decreased by $152.6we repaid debt and net borrowings under the accounts receivable facilities of $57.3 million, compared to net increases in debt and our accounts receivable facilities of $160.7 million, which was used to fund the nineAcquisition, in the three months ended May 31,November 30, 2018. The decrease was primarily due to a $170 million reduction in issuance of long-term debt in fiscal 2019 as compared to fiscal 2018.

We regularly evaluate the use of our cash in efforts to maximize total shareholder return, including debt repayment, capital deployment, share repurchases and dividends.

We anticipate our current cash balances, cash flows from operations and our available sources of liquidity will be sufficient to meet our cash requirements, including our scheduled debt repayments, payments for our contractual obligations, capital expenditures, working capital needs, share repurchases, dividends and other prudent uses of capital, such as future acquisitions. However, in the event of sustained market deterioration, we may need additional liquidity, which would require us to evaluate available alternatives and take appropriate actions.

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CONTRACTUAL OBLIGATIONS
    
Our contractual obligations at May 31,November 30, 2019 increaseddecreased by approximately $316$103.6 million from August 31, 2018,2019, primarily due to the acquisition of the Acquired Businesses. The increase includes financinga $51.9 million decrease in long-term debt, a $30.7 million decrease in unconditional purchase obligations and relateda $24.9 million decrease in interest obligations as well as incremental open purchase ordersdue to interest payments and a reduction in interest payable due to repayments of debt in the Acquired Businesses related to the ordinary course of business.three months ended November 30, 2019. Our estimated contractual obligations for the twelve months ending May 31,November 30, 2020 are approximately $527$393.2 million and primarily consist of expenditures incurred in connection with normal revenue producing activities.

Other Commercial Commitments

We maintain stand-by letters of credit to provide support for certain transactions that governmental agencies, our insurance providers and suppliers request. At May 31,November 30, 2019, we had committed $28.1$28.0 million under these arrangements, of which $3.0 million reduced availability under the Revolver, as defined in Note 9, Credit Arrangements.Revolver.
OFF-BALANCE SHEET ARRANGEMENTS

As described in Note 9, Credit Arrangements, weWe have trade accounts receivable programs in both the U.S. and Poland. As of September 1, 2018, the Programs were amended such that they no longer qualify for off-balance sheet treatment. For periods prior to September 1, 2018, we accounted for transfers of the trade accounts receivable as sales. Trade accounts receivable balances transferred were removed from the condensed consolidated balance sheets, and cash advances received were reflected as cash provided by operating activitiesarrangements that may have a current or future material effect on our condensed consolidated statementsfinancial condition, revenues or expenses, results of cash flows.operations, liquidity, capital expenditures or capital resources.
CONTINGENCIES

In the ordinary course of conducting our business, we become involved in litigation, administrative proceedings and governmental investigations, including environmental matters. We may incur settlements, fines, penalties or judgments as a resultbecause of some of these matters. Liabilities and costs associated with litigation-related loss contingencies require estimates and judgments based on our knowledge of the facts and circumstances surrounding each matter and the advice of our legal counsel. We record liabilities for litigation-related losses when a loss is probable and we can reasonably estimate the amount of the loss. We evaluate the measurement of recorded liabilities each reporting period based on the current facts and circumstances specific to each matter. The ultimate losses incurred upon final resolution of litigation-related loss contingencies may differ materially from the estimated liability recorded at a particular balance sheet date. Changes in estimates are recorded in earnings in the period in which such changes occur. We do not believe that any currently pending legal proceedings to which we are a party will have a material adverse effect, individually or in the aggregate, on our results of operations, cash flows or financial condition. See Note 16,13, Commitments and Contingencies, for more information.

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FORWARD-LOOKING STATEMENTS

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

Our forward-looking statements are based on management's expectations and beliefs as of the time this Form 10-Q is filed with the SEC or, with respect to any document incorporated by reference, into this Form 10-Q, as of the time such document was prepared. Although we believe that our expectations are reasonable, we can give no assurance that these expectations will prove to have been correct, and actual results may vary materially. Except as required by law, we undertake no obligation to update, amend or clarify any forward-looking statements to reflect changed assumptions, the occurrence of anticipated or unanticipated events, new information or circumstances or any other changes. Important factors that could cause actual results to differ materially from our expectations include those described in Part I, Item 1A, Risk Factors, of the 20182019 Form 10-K as well as the following:


25




changes in economic conditions which affect demand for our products or construction activity generally, and the impact of such changes on the highly cyclical steel industry;
rapid and significant changes in the price of metals, potentially impairing our inventory values due to declines in commodity prices or reducing the profitability of our fabrication contracts due to rising commodity pricing;
excess capacity in our industry, particularly in China, and product availability from competing steel mills and other steel suppliers including import quantities and pricing;
compliance with and changes in environmental laws and regulations, including increased regulation associated with climate change and greenhouse gas emissions;
involvement in various environmental matters that may result in fines, penalties or judgments;
potential limitations in our or our customers' abilities to access credit and non-compliance by our customers with our contracts;
activity in repurchasing shares of our common stock under our repurchase program;
financial covenants and restrictions on the operation of our business contained in agreements governing our debt;
our ability to successfully identify, consummate and integrate acquisitions and the effects that acquisitions may have on our financial leverage;
risks associated with acquisitions generally, such as the inability to obtain, or delays in obtaining, required approvals under applicable antitrust legislation and other regulatory and third party consents and approvals;
failure to retain key management and employees of the Acquired Businesses;
issues or delays in the successful integration of the Acquired Businesses’ operations, systems and personnel with those of the Company, including the inability to substantially increase utilization of the Acquired Businesses' steel mini mills, and incurring or experiencing unanticipated costs and/or delays or difficulties;
difficulties or delays in the successful transition of the Acquired Businesses to the information technology systems of the Company as well as risks associated with other integration or transition of the operations, systems and personnel of the Acquired Businesses;
unfavorable reaction to the acquisition of the Acquired BusinessesAcquisition by customers, competitors, suppliers and employees;
lower than expected future levels of revenues and higher than expected future costs;
failure or inability to implement growth strategies in a timely manner;
impact of goodwill impairment charges;

35




impact of long-lived asset impairment charges;
currency fluctuations;
global factors, including trade measures, political uncertainties and military conflicts;
availability and pricing of electricity, electrodes and natural gas for mill operations;
ability to hire and retain key executives and other employees;
competition from other materials or from competitors that have a lower cost structure or access to greater financial resources;
information technology interruptions and breaches in security;
ability to make necessary capital expenditures;
availability and pricing of raw materials and other items over which we exert little influence, including scrap metal, energy and insurance;
unexpected equipment failures;
ability to realize the anticipated benefits of our investment in our new micro mill in Durant, Oklahoma;
losses or limited potential gains due to hedging transactions;
litigation claims and settlements, court decisions, regulatory rulings and legal compliance risks;
risk of injury or death to employees, customers or other visitors to our operations;
impactsnew and clarifying guidance with regard to interpretation of certain provisions of the TCJA;Tax Cuts and Jobs Act that could impact our assessment; and
increased costs related to health care reform legislation.


26




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

The U.S. dollar equivalent of the Company's total gross foreign currency exchange contract commitments decreased $7.5$14.9 million, or 6%16%, compared to August 31, 2018. Forward2019. This decrease was primarily due to forward contracts denominated in Euro with a Polish zloty functional currency forward contracts denominated in U.S. dollars with a Polish zloty functional currency, and forward contracts denominated in Euro with a U.S. dollar functional currency increased $11.8 million, $4.0 million, and $5.1 million, respectively, compared to August 31, 2018. Forward contracts denominated in Australian dollar with a U.S. dollar functional currencywhich decreased $28.5$13.4 million compared to August 31, 2018. As of May 31, 2019, the Company had no forward contracts denominated in Australian dollar.2019.

The Company's total commodity contract commitments decreased $5.6increased $10.5 million, or 10%25%, compared to August 31, 2018.2019.

There were no other material changes to the information set forth in Item 7A, Quantitative and Qualitative Disclosures about Market Risk, included in the 20182019 Form 10-K.


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ITEM 4. CONTROLS AND PROCEDURES

The term "disclosure controls and procedures" is defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act. This term refers to the controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within required time periods, and includes controls and procedures designed to ensure that such information is accumulated and communicated to the company's management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. Our Chief Executive Officer and our Chief Financial Officer have evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Form 10-Q, and they have concluded that as of that date, our disclosure controls and procedures were effective.
There were no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that occurred during our fiscal quarter ended May 31,November 30, 2019 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS

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

We are the subject of civil actions, or have received notices from the EPAU.S. Environmental Protection Agency ("EPA") or state agencies with similar responsibility, that we and numerous other parties are considered a potentially responsible party ("PRP") and may be obligated under CERCLA,the Comprehensive Environmental Response, Compensation and Liability Act of 1980 ("CERCLA"), or similar state statutes, to pay for the cost of remedial investigation, feasibility studies and ultimately remediation to correct alleged releases of hazardous substances at eleven locations. The actions and notices refer to the following locations, none of which involve real estate we ever owned or upon which we ever conducted operations: the Sapp Battery Site in Cottondale, Florida, the Interstate Lead Company Site in Leeds, Alabama, the Ross Metals Site in Rossville, Tennessee, the Li Tungsten Site in Glen Cove, New York, the Peak Oil Site in Tampa, Florida, the R&H Oil Site in San Antonio, Texas, the SoGreen/Parramore Site in Tifton, Georgia, the Jensen Drive site in Houston, Texas, the Industrial Salvage site in Corpus Christi, Texas, Chemetco site in Hartford, Illinois and the Ward Transformer site in Raleigh, North Carolina. We may contest our designation as a PRP with regard to certain sites, while at other sites we are participating with other named PRPs in agreements or negotiations that have resulted or that we expect will result in agreements to remediate the sites. During 2010, we acquired a 70% interest in the real property at Jensen Drive as part of the remediation of that site. We have periodically received information requests from government environmental agencies with regard to other sites that are apparently under consideration for designation as listed sites under CERCLA or similar state statutes. Often we do not receive any further communication with regard to these sites, and as of the date of this Form 10-Q, we do not know if any of these inquiries will ultimately result in a demand for payment from us.

The EPA notified us and other alleged PRPs that under Section 106 of CERCLA, we and the other PRPs could be subject to a maximum fine of $25,000 per day and the imposition of treble damages if we and the other PRPs refuse to clean up the Peak Oil, Sapp Battery and SoGreen/Parramore sites as ordered by the EPA. We are presently participating in PRP organizations at these sites, which are paying for certain site remediation expenses. We do not believe that the EPA will pursue any fines against us if we continue to participate in the PRP groups or if we have adequate defenses to the EPA's imposition of fines against us in these matters.

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

There have been no material changes to the risk factors previously disclosed in Part I, Item 1A, Risk Factors, of the 20182019 Form 10-K and Part II, Item 1A, Risk Factors, of the Quarterly Report on Form 10-Q for the period ended February 28, 2019.10-K.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

There were no purchases of equity securities registered by the Company pursuant to Section 12 of the Exchange Act during the quarter ended May 31,November 30, 2019.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.
ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

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ITEM 5. OTHER INFORMATION
Not applicable.

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ITEM 6. EXHIBITS

3.1(a)
  
3.1(b)
  
3.1(c)
  
3.1(d)
  
3.1(e)
  
3.1(f)
  
3.2
  
31.1
  
31.2
  
32.1
  
32.2
  
101101.INS
The following financial information from Commercial Metals Company's Quarterly Report on Form 10-Q for the quarter ended May 31, 2019, formatted inInline XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Statements of Earnings (Unaudited), (ii) the Condensed Consolidated Statements of Comprehensive Income (Unaudited), (iii) the Condensed Consolidated Balance Sheets (Unaudited), (iv) the Condensed Consolidated Statements of Cash Flows (Unaudited), (v) the Condensed Consolidated Statements of Stockholders' Equity (Unaudited) and (vi) the Notes to Condensed Consolidated Financial Statements (Unaudited) (submitted electronicallyInstance Document (filed herewith).
101.SCHInline XBRL Taxonomy Extension Schema Document (filed herewith).
101.CALInline XBRL Taxonomy Extension Calculation Linkbase Document (filed herewith).
101.DEFInline XBRL Taxonomy Extension Definition Linkbase Document (filed herewith).
101.LABInline XBRL Taxonomy Extension Label Linkbase Document (filed herewith).
101.PREInline XBRL Taxonomy Extension Presentation Linkbase Document (filed herewith).
104Cover Page Interactive Data File


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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 COMMERCIAL METALS COMPANY
  
June 27, 2019January 7, 2020/s/ Mary A. LindseyPaul J. Lawrence
 Mary A. LindseyPaul J. Lawrence
 Senior Vice President and Chief Financial Officer
 (Duly authorized officer and principal financial officer of the registrant)





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