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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
___________________________________
FORM 10-Q 
___________________________________
☒    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended November 30, 2021
OR
☐    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from             to            
Commission file number 1-4304
___________________________________
COMMERCIAL METALS COMPANY
(Exact Name of Registrant as Specified in Its Charter)
CMC-20211130_G1.JPG  
Delaware 75-0725338
(State or Other Jurisdiction of Incorporation or Organization) (I.R.S. Employer Identification Number)
6565 N. MacArthur Blvd., Irving, Texas 75039
(Address of Principal Executive Offices) (Zip Code)
(214) 689-4300
(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Trading Symbol(s) Name of Each Exchange on Which Registered
Common Stock, $0.01 par value CMC New York Stock Exchange
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 ("Exchange Act") during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  x    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☒ Accelerated filer ☐
Non-accelerated filer  ☐ Smaller reporting company ☐
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). 
Yes  ☐    No  ☒
As of January 7, 2022, 121,481,234 shares of the registrant's common stock, par value $0.01 per share, were outstanding.


COMMERCIAL METALS COMPANY AND SUBSIDIARIES
TABLE OF CONTENTS
 
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2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

COMMERCIAL METALS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
Three Months Ended November 30,
(in thousands, except share and per share data) 2021 2020
Net sales $ 1,981,801  $ 1,391,803 
Costs and expenses:
Cost of goods sold 1,586,410  1,174,819 
Selling, general and administrative expenses 122,595  113,627 
Interest expense 11,035  14,259 
Asset impairments —  3,594 
1,720,040  1,306,299 
Earnings from continuing operations before income taxes 261,761  85,504 
Income taxes 28,872  21,593 
Earnings from continuing operations 232,889  63,911 
Earnings from discontinued operations before income taxes —  250 
Income taxes —  68 
Earnings from discontinued operations —  182 
Net earnings $ 232,889  $ 64,093 
Basic earnings per share*
Earnings from continuing operations $ 1.92  $ 0.53 
Earnings from discontinued operations —  — 
Net earnings $ 1.92  $ 0.54 
Diluted earnings per share*
Earnings from continuing operations $ 1.90  $ 0.53 
Earnings from discontinued operations —  — 
Net earnings $ 1.90  $ 0.53 
Average basic shares outstanding 121,129,679  119,762,706 
Average diluted shares outstanding 122,797,738  121,128,044 
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 (LOSS) (UNAUDITED)
Three Months Ended November 30,
(in thousands) 2021 2020
Net earnings $ 232,889  $ 64,093 
Other comprehensive income (loss), net of income taxes:
Foreign currency translation adjustment after reclassification (39,688) (8,388)
Derivatives:
Unrealized holding gain
 22,254  1,164 
Reclassification for realized gain
 (3,069) (54)
Net unrealized gain on derivatives
 19,185  1,110 
Defined benefit plans loss after amortization of prior service costs and net actuarial losses (6) (13)
Other comprehensive loss
 (20,509) (7,291)
Comprehensive income
 $ 212,380  $ 56,802 
See notes to condensed consolidated financial statements.
4
COMMERCIAL METALS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(in thousands, except share and per share data) November 30, 2021 August 31, 2021
Assets
Current assets:
Cash and cash equivalents $ 415,055  $ 497,745 
Accounts receivable (less allowance for doubtful accounts of $5,550 and $5,553)
 1,095,612  1,105,580 
Inventories, net 1,071,759  935,387 
Prepaid and other current assets 178,867  173,033 
Assets held for sale 25,083  25,083 
Total current assets 2,786,376  2,736,828 
Property, plant and equipment, net 1,587,442  1,566,123 
Goodwill 65,852  66,137 
Other noncurrent assets 285,588  269,583 
Total assets $ 4,725,258  $ 4,638,671 
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 424,919  $ 450,723 
Accrued expenses and other payables 410,305  475,384 
Current maturities of long-term debt and short-term borrowings 56,896  54,366 
Total current liabilities 892,120  980,473 
Deferred income taxes 104,193  112,067 
Other noncurrent liabilities 234,955  235,607 
Long-term debt 1,007,801  1,015,415 
Total liabilities 2,239,069  2,343,562 
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 121,479,939 and 120,586,589 shares
 1,290  1,290 
Additional paid-in capital 357,413  368,064 
Accumulated other comprehensive loss (105,329) (84,820)
Retained earnings 2,378,789  2,162,925 
Less treasury stock 7,580,725 and 8,474,075 shares at cost
 (146,206) (152,582)
Stockholders' equity 2,485,957  2,294,877 
Stockholders' equity attributable to noncontrolling interests 232  232 
Total stockholders' equity 2,486,189  2,295,109 
Total liabilities and stockholders' equity $ 4,725,258  $ 4,638,671 
See notes to condensed consolidated financial statements.
5
COMMERCIAL METALS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
  Three Months Ended November 30,
(in thousands) 2021 2020
Cash flows from (used by) operating activities:
Net earnings $ 232,889  $ 64,093 
Adjustments to reconcile net earnings to cash flows from (used by) operating activities:
Depreciation and amortization 41,226  41,799 
Stock-based compensation 9,619  9,062 
Deferred income taxes and other long-term taxes (5,099) 11,720 
Other (583) (39)
Asset impairments —  3,594 
Amortization of acquired unfavorable contract backlog —  (1,523)
Changes in operating assets and liabilities (252,273) (140,794)
Net cash flows from (used by) operating activities
 25,779  (12,088)
Cash flows from (used by) investing activities:
Capital expenditures (70,150) (37,201)
Proceeds from the sale of property, plant and equipment and other 1,418  743 
Net cash flows used by investing activities
 (68,732) (36,458)
Cash flows from (used by) financing activities:
Proceeds from accounts receivable facilities 150,664  4,487 
Repayments under accounts receivable facilities (144,706) (4,487)
Dividends (17,025) (14,406)
Stock issued under incentive and purchase plans, net of forfeitures (16,371) (10,341)
Repayments of long-term debt (6,556) (3,823)
Treasury stock acquired (5,311) — 
Net cash flows used by financing activities
 (39,305) (28,570)
Effect of exchange rate changes on cash (550) (365)
Decrease in cash, restricted cash and cash equivalents
 (82,808) (77,481)
Cash, restricted cash and cash equivalents at beginning of period 501,129  544,964 
Cash, restricted cash and cash equivalents at end of period $ 418,321  $ 467,483 
See notes to condensed consolidated financial statements.
Supplemental information: Three Months Ended November 30,
(in thousands) 2021 2020
Cash paid for income taxes $ 15,296  $ 4,743 
Cash paid for interest 8,794  18,691 
Noncash activities:
Liabilities related to additions of property, plant and equipment 45,788  20,246 
Cash and cash equivalents $ 415,055  $ 465,162 
Restricted cash 3,266  2,321 
Total cash, restricted cash and cash equivalents $ 418,321  $ 467,483 

6
COMMERCIAL METALS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED)
Three Months Ended November 30, 2021
  Common Stock   Treasury Stock  
(in thousands, except share and per share data) Number of
Shares		 Amount Additional Paid-In
Capital		 Accumulated
Other Comprehensive
Loss		 Retained
Earnings		 Number of
Shares		 Amount  Non-controlling
Interest		 Total
Balance, September 1, 2021 129,060,664  $ 1,290  $ 368,064  $ (84,820) $ 2,162,925  (8,474,075) $ (152,582) $ 232  $ 2,295,109 
Net earnings 232,889  232,889 
Other comprehensive loss (20,509) (20,509)
Dividends ($0.14 per share)
 (17,025) (17,025)
Treasury stock acquired (159,500) (5,311) (5,311)
Issuance of stock under incentive and purchase plans, net of forfeitures (28,058) 1,052,850  11,687  (16,371)
Stock-based compensation 8,316  8,316 
Reclassification of share-based liability awards 9,091  9,091 
Balance, November 30, 2021 129,060,664  $ 1,290  $ 357,413  $ (105,329) $ 2,378,789  (7,580,725) $ (146,206) $ 232  $ 2,486,189 
Three Months Ended November 30, 2020
  Common Stock   Treasury Stock  
(in thousands, except share and per share data) Number of
Shares		 Amount Additional Paid-In
Capital		 Accumulated
Other Comprehensive
Loss		 Retained
Earnings		 Number of
Shares		 Amount Non-controlling
Interest		 Total
Balance, September 1, 2020 129,060,664  $ 1,290  $ 358,912  $ (103,764) $ 1,807,826  (9,839,759) $ (175,063) $ 212  $ 1,889,413 
Net earnings 64,093  64,093 
Other comprehensive loss (7,291) (7,291)
Dividends ($0.12 per share)
 (14,406) (14,406)
Issuance of stock under incentive and purchase plans, net of forfeitures (23,527) 847,116  13,186  (10,341)
Stock-based compensation 8,011  8,011 
Reclassification of share-based liability awards 5,420  5,420 
Balance, November 30, 2020 129,060,664  $ 1,290  $ 348,816  $ (111,055) $ 1,857,513  (8,992,643) $ (161,877) $ 212  $ 1,934,899 
See notes to condensed consolidated financial statements.

7
COMMERCIAL METALS COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1. ACCOUNTING POLICIES

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States ("GAAP") on a basis consistent with that used in the Annual Report on Form 10-K for the year ended August 31, 2021 (the "2021 Form 10-K") filed by Commercial Metals Company ("CMC," and together with its consolidated subsidiaries, the "Company") with the Securities and Exchange Commission (the "SEC") and include all normal recurring adjustments necessary to present fairly the condensed consolidated balance sheets and the condensed consolidated statements of earnings, comprehensive income, cash flows and stockholders' equity for the periods indicated. These notes should be read in conjunction with the consolidated financial statements and notes included in the 2021 Form 10-K. The results of operations for the three month period are not necessarily indicative of the results to be expected for the full fiscal year. Any reference in this Form 10-Q to the "corresponding period" relates to the relevant three month period ended November 30, 2020.

Any reference in this Form 10-Q to a year refers to the fiscal year ended August 31st of that year, unless otherwise noted.

Recently Issued Accounting Pronouncements

In October 2021, the Financial Accounting Standards Board issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. ASU 2021-08 requires that an acquirer recognize and measure contract assets and liabilities acquired in a business combination in accordance with ASU 2014-09, Revenue from Contracts with Customers (Topic 606). This standard is effective for annual periods beginning after December 15, 2022, including interim periods therein, with early adoption permitted. The guidance will be applied prospectively to acquisitions occurring on or after the effective date. The Company will continue to evaluate the impact of this guidance, which will depend on the contract assets and liabilities acquired in future business combinations.

In November 2021, the Financial Accounting Standards Board issued ASU 2021-10, Government Assistance (Topic 832): Disclosures by Business Entities About Government Assistance. ASU 2021-10 aims to increase the transparency of government assistance through the disclosure of the types of assistance, an entity's accounting for the assistance and the effect of the assistance on an entity's financial statements. This standard is effective for annual periods beginning after December 15, 2021, with early adoption permitted. The Company will continue to evaluate the impact of this guidance based on government assistance received.
NOTE 2. CHANGES IN BUSINESS

Facility Closure and Disposition

In October 2019, the Company closed the melting operations at its Rancho Cucamonga facility, which is part of the North America segment, and in August 2020, the Company announced plans to sell the facility. Additionally, in September 2021, the Company ceased operations at a rebar fabrication facility adjacent to the Rancho Cucamonga facility. Due to these closures, the Company recorded $8.0 million of expenses in the three months ended November 30, 2020 related to asset impairments, severance, pension curtailment, environmental obligations and vendor agreement terminations. Expenses recorded in the three months ended November 30, 2021 were immaterial. The closures did not meet the criteria for discontinued operations.

As of August 31, 2021, the associated assets of the Rancho Cucamonga facility and the adjacent rebar fabrication facility, comprised of property, plant and equipment, net, met the criteria for classification as held for sale. As such, the Company classified $24.9 million within assets held for sale in the Company's condensed consolidated balance sheets as of November 30, 2021 and August 31, 2021.

On September 29, 2021, the Company entered into a definitive agreement to sell the assets associated with the facilities. On December 28, 2021, the sale of the assets associated with the facilities was completed for gross proceeds of $313.0 million, subject to customary purchase price adjustments.
8
NOTE 3. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

The following tables reflect the changes in accumulated other comprehensive income (loss) ("AOCI"):
Three Months Ended November 30, 2021
(in thousands) Foreign Currency Translation Unrealized Gain (Loss) on Derivatives Defined Benefit Obligation Total AOCI
Balance, September 1, 2021 $ (105,680) $ 21,781  $ (921) $ (84,820)
Other comprehensive income (loss) before reclassifications
 (39,688) 27,474  (8) (12,222)
Reclassification for gain(1)
 —  (3,789) —  (3,789)
Income tax (expense) benefit
 —  (4,500) 2  (4,498)
Net other comprehensive income (loss)
 (39,688) 19,185  (6) (20,509)
Balance, November 30, 2021 $ (145,368) $ 40,966  $ (927) $ (105,329)
Three Months Ended November 30, 2020
(in thousands) Foreign Currency Translation Unrealized Gain (Loss) on Derivatives Defined Benefit Obligation Total AOCI
Balance, September 1, 2020 $ (87,933) $ (11,334) $ (4,497) $ (103,764)
Other comprehensive income (loss) before reclassifications
 (8,388) 1,437  (20) (6,971)
Reclassification for gain(1)
 —  (67) —  (67)
Income tax (expense) benefit
 —  (260) 7  (253)
Net other comprehensive income (loss)
 (8,388) 1,110  (13) (7,291)
Balance, November 30, 2020 $ (96,321) $ (10,224) $ (4,510) $ (111,055)
_________________ 
(1) Reclassifications for gains on derivatives included in net earnings are recorded in cost of goods sold in the condensed consolidated statements of earnings.
NOTE 4. REVENUE RECOGNITION

Each fabricated product contract sold by the North America segment represents a single performance obligation. Revenue from contracts where the Company provides fabricated product and installation services is recognized over time using an input measure, and these contracts represented 9% and 14% of net sales in the North America segment in the three months ended November 30, 2021 and 2020, respectively. Revenue from contracts where the Company does not provide installation services is recognized over time using an output measure, and these contracts represented 9% of net sales in the North America segment in the three months ended November 30, 2021 and 2020. Remaining net sales in the North America segment were recognized at a point in time concurrent with the transfer of control, or as amounts were billed to the customer under an available practical expedient.

The following table provides information about assets and liabilities from contracts with customers:
(in thousands) November 30, 2021 August 31, 2021
Contract assets (included in accounts receivable) $ 61,888  $ 64,168 
Contract liabilities (included in accrued expenses and other payables) 29,066  23,948 

The amount of revenue reclassified from August 31, 2021 contract liabilities during the three months ended November 30, 2021 was approximately $10.3 million.

Remaining Performance Obligations

Remaining performance obligations represent the transaction price of fabricated product contracts where revenue is recognized using an input or output measure for which work has not yet been performed. As of November 30, 2021, $862.7 million was allocated to remaining performance obligations in the North America segment related to those contracts.
9
NOTE 5. INVENTORIES, NET

The majority of the Company's inventories are in the form of semi-finished and finished goods. Under the Company’s business model, products are sold to external customers in various stages, from semi-finished billets through fabricated steel, leading these categories to be combined. As such, at November 30, 2021 and August 31, 2021, work in process inventories were immaterial. At November 30, 2021 and August 31, 2021, the Company's raw materials inventories were $329.9 million and $286.1 million, respectively.
NOTE 6. GOODWILL AND OTHER INTANGIBLES

Goodwill by reportable segment at November 30, 2021 is detailed in the following table:
(in thousands) North America Europe Consolidated
Goodwill, gross* $ 71,941  $ 4,094  $ 76,035 
Accumulated impairment* (10,036) (147) (10,183)
Goodwill, net* $ 61,905  $ 3,947  $ 65,852 
_________________ 
* The change in balance from August 31, 2021 was immaterial.

The total gross carrying amounts of the Company's intangible assets subject to amortization were $21.3 million and $21.7 million, and the total net carrying amounts were $9.3 million and $10.1 million at November 30, 2021 and August 31, 2021, 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 immaterial for the three months ended November 30, 2021 and 2020. Excluding goodwill, the Company did not have any significant intangible assets with indefinite lives at November 30, 2021.

NOTE 7. LEASES

The following table presents the components of the total leased assets and lease liabilities and their classification in the Company's condensed consolidated balance sheets:
(in thousands) Classification in Condensed Consolidated Balance Sheets November 30, 2021 August 31, 2021
Assets:
Operating assets Other noncurrent assets $ 118,855  $ 112,202 
Finance assets Property, plant and equipment, net 53,221  55,308 
Total leased assets $ 172,076  $ 167,510 
Liabilities:
Operating lease liabilities:
Current Accrued expenses and other payables $ 28,327  $ 26,433 
Long-term Other noncurrent liabilities 97,891  93,409 
Total operating lease liabilities 126,218  119,842 
Finance lease liabilities:
Current Current maturities of long-term debt and short-term borrowings 15,808  16,040 
Long-term Long-term debt 33,128  36,104 
Total finance lease liabilities 48,936  52,144 
Total lease liabilities $ 175,154  $ 171,986 

10
The components of lease expense were as follows:
Three Months Ended November 30,
(in thousands) 2021 2020
Operating lease expense $ 8,584  $ 8,722 
Finance lease expense:
Amortization of assets 3,235  3,239 
Interest on lease liabilities 514  555 
Total finance lease expense 3,749  3,794 
Variable and short-term lease expense 5,162  4,962 
Total lease expense $ 17,495  $ 17,478 

The weighted average remaining lease term and discount rate for operating and finance leases are presented in the following table:
November 30, 2021 August 31, 2021
Weighted average remaining lease term (years)
Operating leases 6.0 6.2
Finance leases 3.4 3.6
Weighted average discount rate
Operating leases 4.275  % 4.451  %
Finance leases 4.045  % 4.079  %

Cash flow and other information related to leases is included in the following table:
Three Months Ended November 30,
(in thousands) 2021 2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash outflows from operating leases $ 8,749  $ 9,047 
Operating cash outflows from finance leases 519  560 
Financing cash outflows from finance leases 4,199  3,795 
Right of use assets obtained in exchange for lease obligations:
Operating leases $ 15,912  $ 12,267 
Finance leases 1,002  6,300 

Future maturities of lease liabilities at November 30, 2021 are presented in the following table:
(in thousands) Operating Leases Finance Leases
Year 1 $ 33,528  $ 17,480 
Year 2 28,441  15,170 
Year 3 22,763  12,163 
Year 4 17,842  5,719 
Year 5 12,984  1,362 
Thereafter 29,033  512 
Total lease payments 144,591  52,406 
Less imputed interest 18,373  3,470 
Present value of lease liabilities $ 126,218  $ 48,936 

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NOTE 8. CREDIT ARRANGEMENTS

Long-term debt was as follows: 
(in thousands) Weighted Average Interest Rate as of November 30, 2021 November 30, 2021 August 31, 2021
2031 Notes 3.875% $ 300,000  $ 300,000 
2027 Notes 5.375% 300,000  300,000 
2023 Notes 4.875% 330,000  330,000 
Poland Term Loan 3.080% 44,055  49,726 
Short-term borrowings 1.161% 29,992  26,560 
Other 5.100% 19,492  19,492 
Finance leases 48,936  52,144 
Total debt 1,072,475  1,077,922 
Less debt issuance costs 7,778  8,141 
Total amounts outstanding 1,064,697  1,069,781 
Less current maturities of long-term debt and short-term borrowings 56,896  54,366 
Long-term debt $ 1,007,801  $ 1,015,415 

The Company had no amounts drawn under its $400.0 million revolving credit facility (the "Revolver") at November 30, 2021 or August 31, 2021. The availability under the Revolver was reduced by outstanding stand-by letters of credit totaling $3.0 million at November 30, 2021 and August 31, 2021.

The Company has a Term Loan facility (the "Poland Term Loan") through its subsidiary, CMC Poland Sp. z.o.o. ("CMCP"). At November 30, 2021, PLN 181.0 million, or $44.1 million, was outstanding, compared to the maximum amount available under the facility, PLN 190.5 million, or $49.7 million, which was outstanding as of August 31, 2021.

The Company also has credit facilities in Poland through its subsidiary, CMCP. At November 30, 2021, CMCP's credit facilities totaled PLN 300.0 million, or $73.0 million. There were no amounts outstanding under these facilities as of November 30, 2021 or August 31, 2021. The available balance of these credit facilities was reduced by outstanding stand-by letters of credit, guarantees, and/or other financial assurance instruments, which totaled $0.9 million and $5.7 million at November 30, 2021 and August 31, 2021, respectively.

The Company's debt agreements require compliance with certain non-financial and financial covenants, including an interest coverage ratio and a debt to capitalization ratio. At November 30, 2021, the Company was in compliance with all covenants contained in its debt agreements.

Accounts Receivable Facilities

The Company had no advance payments outstanding under its U.S. trade accounts receivable facility at November 30, 2021 or August 31, 2021.

The Poland accounts receivable facility had a limit of PLN 288.0 million, or $70.1 million, at November 30, 2021. The Company had PLN 123.2 million, or $30.0 million, advance payments outstanding under the Poland accounts receivable facility at November 30, 2021, and PLN 101.7 million, or $26.6 million, advance payments outstanding at August 31, 2021.
12
NOTE 9. DERIVATIVES

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

At November 30, 2021, the notional values of the Company's foreign currency and commodity contract commitments were $320.2 million and $217.5 million, respectively. At August 31, 2021, the notional values of the Company's foreign currency and commodity contract commitments were $389.5 million and $213.4 million, respectively.

The following table provides information regarding the Company's commodity contract commitments at November 30, 2021:
Commodity Long/Short    Total
Aluminum Long 1,875   MT
Copper Long 612   MT
Copper Short 9,095   MT
Electricity Long 1,817,000  MW(h)
Natural Gas Long 1,631,700  MMBtu
_________________ 
MT = Metric Ton
MW(h) = Megawatt hour
MMBtu = Metric Million British thermal unit

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

Foreign currency derivatives not designated as hedging instruments resulted in a loss, before income taxes, of $8.0 million and $1.9 million in the three months ended November 30, 2021 and 2020, respectively. Commodity derivatives not designated as hedging instruments resulted in a gain, before income taxes, of $2.7 million in the three months ended November 30, 2021, and a loss, before income taxes, of $5.6 million in the three months ended November 30, 2020, primarily recorded in cost of goods sold within the condensed consolidated statements of earnings. Commodity derivatives accounted for as cash flow hedging instruments resulted in net gains of $22.2 million and $1.2 million in the three months ended November 30, 2021 and 2020, respectively, recognized in the condensed consolidated statements of comprehensive income.

The Company's natural gas and electricity commodity derivatives accounted for as cash flow hedging instruments have maturities extending to November 2024 and December 2030, respectively. Included in the AOCI balance as of November 30, 2021 was an estimated net gain of $3.9 million from cash flow hedging instruments that is expected to be reclassified into earnings within the next twelve months. See Note 10, Fair Value, for the fair value of the Company's derivative instruments recorded in the condensed consolidated balance sheets.
NOTE 10. FAIR VALUE

The Company has established a fair value hierarchy which prioritizes the inputs to the valuation techniques used to measure fair value into three levels. These levels are determined based on the lowest level input that is significant to the fair value measurement. Levels within the hierarchy are defined within the Nature of Operations and Summary of Significant Accounting Policies footnote in the 2021 Form 10-K.

The following tables summarize information regarding the Company's financial assets and financial liabilities that were measured at fair value on a recurring basis:
13
    Fair Value Measurements at Reporting Date Using
(in thousands) November 30, 2021 Quoted Prices in
Active Markets for
Identical Assets
(Level 1)		 Significant Other
Observable Inputs
(Level 2)		 Significant
Unobservable Inputs
(Level 3)
Assets:
Investment deposit accounts (1)
 $ 361,387  $ 361,387  $ —  $ — 
Commodity derivative assets (2)
 50,253  2,361  —  47,892 
Foreign exchange derivative assets (2)
 1,207  —  1,207  — 
Liabilities:
Commodity derivative liabilities (2)
 375  375  —  — 
Foreign exchange derivative liabilities (2)
 4,072  —  4,072  — 
    Fair Value Measurements at Reporting Date Using
(in thousands) August 31, 2021 Quoted Prices in
Active Markets for
Identical Assets
(Level 1)		 Significant Other
Observable Inputs
(Level 2)		 Significant
Unobservable Inputs
(Level 3)
Assets:
Investment deposit accounts (1)
 $ 441,297  $ 441,297  $ —  $ — 
Commodity derivative assets (2)
 27,323  910  —  26,413 
Foreign exchange derivative assets (2)
 2,537  —  2,537  — 
Liabilities:
Commodity derivative liabilities (2)
 1,352  1,352  —  — 
Foreign exchange derivative liabilities (2)
 1,880  —  1,880  — 
_________________ 
(1) Investment deposit accounts are short-term in nature, and the value is determined by principal plus interest. The investment portfolio mix can change each period based on the Company's assessment of investment options.
(2) Derivative assets and liabilities classified as Level 1 are commodity futures contracts valued based on quoted market prices in the London Metal Exchange or New York Mercantile Exchange. Amounts in Level 2 are based on broker quotes in the over-the-counter market. Derivatives classified as Level 3 are described below. Further discussion regarding the Company's use of derivative instruments is included in Note 9, Derivatives.

The fair value estimate of the Level 3 commodity derivative is based on an internally developed discounted cash flow model primarily utilizing unobservable inputs in which there is little or no market data. The Company forecasts future energy rates using a range of historical prices ("floating rate"). The floating rate is the only significant unobservable input used in the Company's discounted cash flow model. The following table summarizes the floating rate used to measure the fair value of the commodity derivative at November 30, 2021 and 2020:
Floating rate (PLN)
November 30, Low High Average
2021 252.79  540.39  348.99 
2020 151.66  247.56  203.96 

Below is a reconciliation of the beginning and ending balances of the Level 3 commodity derivative recognized in the condensed consolidated statements of comprehensive income. The fluctuation in energy rates over time may cause volatility in the fair value estimate and is the primary reason for unrealized gains and losses included in other comprehensive income ("OCI") in the three months ended November 30, 2021 and 2020.
14
(in thousands) Three Months Ended November 30, 2021
Balance, September 1, 2021 $ 26,413 
Total gains, realized and unrealized
Unrealized holding gain(1)
 25,208 
Reclassification for gain included in net earnings(2)
 (3,729)
Balance, November 30, 2021 $ 47,892 
(in thousands) Three Months Ended November 30, 2020
Balance, September 1, 2020 $ (15,007)
Total gains, realized and unrealized
Unrealized holding gain(1)
 1,393 
Balance, November 30, 2020 $ (13,614)
________________
(1)    Unrealized holding gains are included in OCI in the condensed consolidated statements of comprehensive income.
(2)    Gains included in net earnings are recorded in cost of goods sold in the condensed consolidated statements of earnings.

There were no material non-recurring fair value remeasurements during the three months ended November 30, 2021 or 2020.

The carrying values of the Company's short-term items, including documentary letters of credit and notes payable, approximate fair value.

The carrying values and estimated fair values of the Company's financial assets and liabilities that are not required to be measured at fair value on the condensed consolidated balance sheets were as follows:
  November 30, 2021 August 31, 2021
(in thousands) Fair Value Hierarchy Carrying Value Fair Value Carrying Value Fair Value
2031 Notes (1)
 Level 2 $ 300,000  $ 297,378  $ 300,000  $ 306,279 
2027 Notes (1)
 Level 2 300,000  309,978  300,000  316,839 
2023 Notes (1)
 Level 2 330,000  341,058  330,000  348,071 
Poland Term Loan(2)
 Level 2 44,055  44,055  49,726  49,726 
Short-term borrowings (2)
 Level 2 29,992  29,992  26,560  26,560 
_________________ 
(1) The fair values of the Notes were determined based on indicated market values.
(2) The Poland Term Loan and short-term borrowings contain variable interest rates, and as a result, the carrying values approximate fair value.
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NOTE 11. STOCK-BASED COMPENSATION PLANS

The Company's stock-based compensation plans are described in Note 13, Stock-Based Compensation Plans, to the consolidated financial statements in the 2021 Form 10-K. In general, restricted stock units vest ratably over a period of three years. Subject to the achievement of performance targets established by the Compensation Committee of CMC's Board of Directors, performance stock units vest after a period of three years.

During the three months ended November 30, 2021 and 2020, the Company granted the following awards under its stock-based compensation plans:
November 30, 2021 November 30, 2020
(in thousands, except share and per share data) Shares Granted Weighted Average Grant Date Fair Value Shares Granted Weighted Average Grant Date Fair Value
Equity method 1,407  $ 27.77  1,399  $ 20.39 
Liability method 261  N/A 324  N/A

The Company recorded immaterial mark-to-market adjustments on liability awards for the three months ended November 30, 2021 and 2020. At November 30, 2021, the Company had outstanding 591,483 equivalent shares accounted for under the liability method. The Company expects 561,908 equivalent shares to vest.

The following table summarizes total stock-based compensation expense, including fair value remeasurements, which was primarily included in selling, general and administrative expenses on the Company's condensed consolidated statements of earnings:
Three Months Ended November 30,
(in thousands) 2021 2020
Stock-based compensation expense $ 9,619  $ 9,062 

NOTE 12. STOCKHOLDERS' EQUITY AND EARNINGS PER SHARE

Basic EPS is computed based on the weighted average shares of common stock outstanding during the period. Diluted EPS is computed based on the weighted average shares of common stock plus the effect of dilutive securities outstanding during the period using the treasury stock method. The effect of dilutive securities includes the impact of outstanding stock-based incentive awards and shares purchased by employees through participation in the Company's employee stock purchase plan.

The calculations of basic and diluted EPS from continuing operations were as follows: 
Three Months Ended November 30,
(in thousands, except share and per share data) 2021 2020
Earnings from continuing operations $ 232,889  $ 63,911 
Average basic shares outstanding 121,129,679  119,762,706 
Effect of dilutive securities 1,668,059  1,365,338 
Average diluted shares outstanding 122,797,738  121,128,044 
Earnings per share from continuing operations:
Basic $ 1.92  $ 0.53 
Diluted $ 1.90  $ 0.53 

Anti-dilutive shares not included above were immaterial for all periods presented.

Restricted stock is included in the number of shares of common stock issued and outstanding, but omitted from the basic EPS calculation until the shares vest.
In October 2021, CMC's Board of Directors authorized a share repurchase program under which CMC may repurchase up to $350.0 million of shares of common stock. During the three months ended November 30, 2021, the Company repurchased
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159,500 shares of CMC common stock, at an average purchase price of $33.28 per share. CMC had remaining authorization to repurchase $344.7 million of shares of common stock at November 30, 2021.
NOTE 13. COMMITMENTS AND CONTINGENCIES

In the ordinary course of conducting its business, the Company becomes involved in litigation, administrative proceedings and governmental investigations, including environmental matters. At November 30, 2021 and August 31, 2021, the amounts accrued for cleanup and remediation costs at certain sites in response to statutes enforced by the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 ("CERCLA") were immaterial. Total accrued environmental liabilities, including CERCLA sites, were $5.2 million and $7.1 million at November 30, 2021 and August 31, 2021, respectively, of which $2.2 million and $2.3 million were classified as other long-term liabilities at November 30, 2021 and August 31, 2021, respectively. These amounts have not been discounted to their present values. Due to evolving remediation technology, changing regulations, possible third-party contributions, the inherent uncertainties of the estimation process and other factors, amounts accrued could vary significantly from amounts paid.
NOTE 14. BUSINESS SEGMENTS

The Company structures its business into two reportable segments: North America and Europe. See Note 1, Nature of Operations and Summary of Significant Accounting Policies, to the consolidated financial statements in the 2021 Form 10-K for more information about the reportable segments, including the types of products and services from which each reportable segment derives its net sales. Corporate and Other contains earnings or losses on assets and liabilities related to the Company's Benefit Restoration Plan assets and short-term investments, expenses of the Company's corporate headquarters, interest expense related to its long-term debt and intercompany eliminations.

The following is a summary of certain financial information from continuing operations by reportable segment and Corporate and Other:
Three Months Ended November 30, 2021
(in thousands) North America Europe Corporate and Other Continuing Operations
Net sales $ 1,653,622  $ 329,056  $ (877) $ 1,981,801 
Adjusted EBITDA 268,524  79,832  (34,334) 314,022 
Total assets at November 30, 2021 3,389,890  736,872  598,496  4,725,258 
Three Months Ended November 30, 2020
(in thousands) North America Europe Corporate and Other Continuing Operations
Net sales $ 1,195,013  $ 194,596  $ 2,194  $ 1,391,803 
Adjusted EBITDA 155,634  14,470  (26,471) 143,633 
Total assets at August 31, 2021 3,221,465  729,766  687,440  4,638,671 

The following table presents a reconciliation of earnings from continuing operations to adjusted EBITDA from continuing operations:
  Three Months Ended November 30,
(in thousands) 2021 2020
Earnings from continuing operations $ 232,889  $ 63,911 
Interest expense 11,035  14,259 
Income taxes 28,872  21,593 
Depreciation and amortization 41,226  41,799 
Asset impairments —  3,594 
Amortization of acquired unfavorable contract backlog —  (1,523)
Adjusted EBITDA from continuing operations $ 314,022  $ 143,633 
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Disaggregation of Revenue

The following tables display revenue by reportable segment and Corporate and Other from external customers, disaggregated by major product:
Three Months Ended November 30, 2021
(in thousands) North America Europe Corporate and Other Total
Major product:
Raw materials $ 353,092  $ 6,960  $ —  $ 360,052 
Steel products 675,042  243,145  —  918,187 
Downstream products 514,396  70,072  —  584,468 
Other 111,092  8,385  (383) 119,094 
Net sales-unaffiliated customers 1,653,622  328,562  (383) 1,981,801 
Intersegment net sales, eliminated on consolidation —  494  (494) — 
Net sales $ 1,653,622  $ 329,056  $ (877) $ 1,981,801 
Three Months Ended November 30, 2020
(in thousands) North America Europe Corporate and Other Total
Major product:
Raw materials $ 210,237  $ 2,830  $ —  $ 213,067 
Steel products 457,657  151,455  —  609,112 
Downstream products 437,029  34,473  —  471,502 
Other 90,090  5,427  2,605  98,122 
Net sales-unaffiliated customers 1,195,013  194,185  2,605  1,391,803 
Intersegment net sales, eliminated on consolidation —  411  (411) — 
Net sales $ 1,195,013  $ 194,596  $ 2,194  $ 1,391,803 
NOTE 15. SUBSEQUENT EVENT
On December 3, 2021, the Company signed a definitive agreement to acquire TAC Acquisition Corp. ("Tensar"), a portfolio company of Castle Harlan Inc.’s fund, Castle Harlan Partners V, L.P., and a leading global provider of engineered solutions for subgrade reinforcement and soil stabilization used in road, infrastructure and commercial construction projects. The transaction is expected to close during the first half of calendar year 2022, and is subject to the satisfaction or waiver of customary closing conditions, including customary regulatory review. Upon closing, the Company will pay a cash purchase price of $550.0 million, subject to customary purchase price adjustments. The transaction is not contingent on any financing arrangements.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

In the following discussion, references to "we," "us," "our" or the "Company" mean Commercial Metals Company ("CMC") and its consolidated subsidiaries, unless the context otherwise requires. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and the notes thereto, which are included in this Quarterly Report on Form 10-Q (the "Form 10-Q"), and our consolidated financial statements and the notes thereto, which are included in our Annual Report on Form 10-K for the year ended August 31, 2021 (the "2021 Form 10-K"). This discussion contains or incorporates by reference "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the Private Securities Litigation Reform Act of 1995. These forward-looking statements are not historical facts, but rather are based on expectations, estimates, assumptions and projections about our industry, business and future financial results, based on information available at the time this Form 10-Q was filed with the Securities and Exchange Commission ("SEC") or, with respect to any document incorporated by reference, available at the time that such document was prepared. Our actual results could differ materially from the results contemplated by these forward-looking statements due to a number of factors, including those identified in the section entitled "Forward-Looking Statements" at the end of Item 2 of this Form 10-Q and in the sections entitled "Risk Factors" in Part I, Item 1A of our 2021 Form 10-K. We do not undertake any obligation to update, amend or clarify any forward-looking statements to reflect changed assumptions, the occurrence of anticipated or unanticipated events, new information or circumstances or otherwise, except as required by law.

Any reference in this Form 10-Q to the "corresponding period" relates to the three month period ended November 30, 2020.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES

There have been no material changes to our critical accounting policies and estimates as set forth in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, included in our 2021 Form 10-K.

RESULTS OF OPERATIONS SUMMARY

Business Overview

As a vertically integrated organization, we manufacture, recycle and fabricate steel and metal products and provide related materials and services through a network of facilities that includes seven electric arc furnace ("EAF") mini mills, two EAF micro mills, one rerolling mill, steel fabrication and processing plants, construction-related product warehouses and metal recycling facilities in the U.S. and Poland. Our operations are conducted through two reportable segments: North America and Europe.

When considering our results for the period, we evaluate our operating performance by comparing net sales, in the aggregate and for both of our segments, in the current period to net sales in the corresponding period. In doing so, we focus on changes in average selling price per ton and tons shipped for each of our product categories as these are the two variables that typically have the greatest impact on our results of operations. We group our products into three categories: raw materials, steel products and downstream products. Raw materials include ferrous and nonferrous scrap, steel products include rebar, merchant and other steel products, such as billets and wire rod, and downstream products include fabricated rebar and steel fence post.

Key Performance Indicators

Adjusted EBITDA from continuing operations ("adjusted EBITDA") is used by management to compare and evaluate the period-over-period underlying business operational performance of our segments. Adjusted EBITDA is the sum of the Company's earnings from continuing operations before interest expense, income taxes, depreciation and amortization and impairment expense. Although there are many factors that can impact a segment’s adjusted EBITDA and, therefore, our overall earnings, changes in steel products metal margin and downstream products margin over scrap costs period-over-period is a consistent area of focus for our Company and industry. Steel products metal margin and downstream products margin over scrap costs are metrics used by management to monitor the results of our vertically integrated organization. Steel products metal margin is the difference between the average selling price per ton of rebar, merchant and other steel products and the cost of ferrous scrap per ton utilized by our steel mills to produce these products. An increase or decrease in input costs can impact profitability of these products when there is no corresponding change in selling prices due to competitive pressures on prices. Downstream products margin over scrap costs is the difference between the average selling price per ton of fabricated rebar and steel fence post products and the scrap input costs to produce these products. The majority of our downstream products selling
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prices per ton are fixed at the beginning of a project and these projects last one to two years on average. Because the selling price generally remains fixed over the life of a project, changes in input costs over the life of the project can significantly impact profitability.

Impact of COVID-19

The impact of the COVID-19 pandemic ("COVID-19" or "pandemic") on our operations was limited during the three months ended November 30, 2021 and 2020. We continue to evaluate the nature and extent of future impacts of the evolving pandemic on our operations and are complying with applicable federal, state and local law and considering relevant guidance, including the guidelines of the U.S. Centers for Disease Control and other authorities, to prioritize the health and safety of our employees, families, suppliers, customers and communities. Given the dynamic and uncertain nature and duration of the pandemic, we cannot reasonably estimate the long-term impact of COVID-19 on our business, results of operations and overall financial performance at this time.

Financial Results Overview

The following discussion of our results of operations is based on our continuing operations.
  Three Months Ended November 30,
(in thousands, except per share data) 2021 2020
Net sales $ 1,981,801  $ 1,391,803 
Earnings from continuing operations 232,889  63,911 
Diluted earnings per share $ 1.90  $ 0.53 

Net sales for the three months ended November 30, 2021 increased $590.0 million, or 42%, compared to the corresponding period. The growth in net sales is largely attributable to rising prices, which have favorably impacted year-over-year selling prices across all major product lines in both of our segments. Continued strong demand in our end-use markets has supported the growth in average selling prices, while volumes across our product lines remained relatively flat in the three months ended November 30, 2021, compared to the corresponding period.

In the first quarter of 2022, we achieved earnings from continuing operations of $232.9 million, an increase of $169.0 million, or 264%, compared to the corresponding period. The increase was driven by the significant expansion of steel products metal margin per ton and raw materials margin over purchase cost per ton, as the increases in selling prices outpaced the rising input costs of ferrous scrap utilized in our steel mill operations and the price paid to purchase obsolete and industrial scrap in our scrap metal recycling operations.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased $9.0 million for the three months ended November 30, 2021 compared to the corresponding period. The increase was driven largely by a $3.6 million increase in labor-related expenses in the three months ended November 30, 2021, compared to the corresponding period, and $3.2 million of acquisition-related costs incurred during the first quarter of 2022, with no such amount in the corresponding period.

Interest Expense

Interest expense for the three months ended November 30, 2021 decreased $3.2 million compared to the corresponding period. The decrease was driven largely by the lower interest rate on the 2031 Notes, which were outstanding during the three months ended November 30, 2021, compared to the interest rate on the 2026 Notes, which were outstanding during the corresponding period.

Income Taxes

The effective income tax rate from continuing operations for the three months ended November 30, 2021 was 11.0%, compared with 25.3% in the corresponding period. The decrease is primarily due to the recognition of a capital loss on a tax restructuring transaction during the three months ended November 30, 2021.
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SEGMENT OPERATING DATA

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

North America
  Three Months Ended November 30,
(in thousands) 2021 2020
Net sales $ 1,653,622  $ 1,195,013 
Adjusted EBITDA 268,524  155,634 
External tons shipped (in thousands)
Raw materials 334  330 
Rebar 442  486 
Merchant and other 257  264 
Steel products 699  750 
Downstream products 400  371 
Average selling price (per ton)
Steel products $ 976  $ 612 
Downstream products 1,092  934 
Cost of ferrous scrap utilized per ton $ 428  $ 266 
Steel products metal margin per ton 548  346 

Net sales for the three months ended November 30, 2021 increased $458.6 million, or 38%, compared to the corresponding period. The year-over-year increase in net sales was primarily due to average selling price increases of 64% for raw materials, 59% for steel products and 17% for downstream products compared to the corresponding period. The rise in selling prices is supported by strengthened demand in our end-use markets due to greater construction and industrial activity compared to the corresponding period. Net sales was impacted to a lesser extent by a 7% decrease in shipments of steel products due to the absence of production from the former Rancho Cucamonga mill operations. This decrease was offset in part by an 8% increase in shipments of downstream products, largely due to growth in downstream products backlog at August 31, 2021 compared to August 31, 2020.

Adjusted EBITDA for the three months ended November 30, 2021 increased $112.9 million, or 73%, compared to the corresponding period. The year-over-year increase in adjusted EBITDA in the three months ended November 30, 2021 was due primarily to expansion of raw materials margin over purchase cost per ton and steel products metal margin per ton. Although ferrous and nonferrous scrap prices increased, and inflationary pressures caused an increase in the cost of freight, energy and other steelmaking inputs, the average selling price for raw materials and steel products increased at a greater rate year-over-year. Adjusted EBITDA included non-cash stock compensation expense of $2.7 million for the three months ended November 30, 2021, and $3.3 million for the corresponding period.

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Europe
  Three Months Ended November 30,
(in thousands) 2021 2020
Net sales $ 329,056  $ 194,596 
Adjusted EBITDA 79,832  14,470 
External tons shipped (in thousands)
Rebar 103  128 
Merchant and other 262  269 
Steel products 365  397 
Average selling price (per ton)
Steel products $ 869  $ 461 
Cost of ferrous scrap utilized per ton $ 434  $ 262 
Steel products metal margin per ton 435  199 

Net sales for the three months ended November 30, 2021 increased $134.5 million, or 69%, compared to the corresponding period. The increase was driven largely by the increase in steel products average selling prices of $408 per ton during the three months ended November 30, 2021, compared to the corresponding period, supported by continued strong demand for steel products from both construction and industrial end markets. Shipments of steel products decreased 8% compared to the corresponding period, primarily as a result of scheduled maintenance during the first quarter of 2022. Net sales for the three months ended November 30, 2021 were also impacted by an unfavorable foreign currency translation adjustment of $13.5 million, due to the increase in the average value of the U.S. dollar relative to the Polish zloty, compared to a favorable foreign currency translation adjustment of $4.7 million during the corresponding period.

Adjusted EBITDA for the three months ended November 30, 2021 increased $65.4 million, or 452%, compared to the corresponding period. The primary driver of the increase in adjusted EBITDA was an expansion in steel products metal margin per ton, which increased 119% compared to the corresponding period, as the growth in average selling price for steel products outpaced the increased costs of ferrous scrap utilized. Additionally, in the first quarter of 2022 we received a $15.5 million energy credit that was recorded as a reduction to cost of goods sold, with no similar credit received in the corresponding period. Adjusted EBITDA for the three months ended November 30, 2021 included an unfavorable foreign currency exchange rate impact of $3.0 million, compared to an immaterial foreign currency translation adjustment during the corresponding period. Adjusted EBITDA included non-cash stock compensation expense of $1.5 million for the three months ended November 30, 2021, and $0.7 million for the corresponding period.

Corporate and Other

Corporate and Other reported adjusted EBITDA loss of $34.3 million for the three months ended November 30, 2021, compared to adjusted EBITDA loss of $26.5 million in the corresponding period. The primary reason for the increase in the adjusted EBITDA loss was a $4.2 million increase in labor-related expenses year-over-year and a $3.2 million increase in acquisition-related costs incurred in the three months ended November 30, 2021, with no such costs in the corresponding period. Additionally, adjusted EBITDA included non-cash stock compensation expense of $5.4 million for the three months ended November 30, 2021, compared to $5.1 million for the corresponding period.

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LIQUIDITY AND CAPITAL RESOURCES

Sources of Liquidity and Capital Resources

Our cash flows from operating activities are our principal sources of liquidity and result primarily from sales of raw materials, steel products, downstream products and related materials and services, as described in Part I, Item 1, Business, of our 2021 Form 10-K. We have a diverse and generally stable customer base, and regularly maintain a substantial amount of accounts receivable. We record allowances for the accounts receivable we estimate will not be collected based on market conditions, customers' financial condition and other factors. Historically, these allowances have not been material. We use credit insurance internationally to mitigate the risk of customer insolvency. We estimate that the amount of credit-insured receivables (and those covered by export letters of credit) was approximately 14% of total trade receivables at November 30, 2021.

We use futures or forward contracts to mitigate the risks from fluctuations in commodity prices, foreign currency exchange rates, interest rates and natural gas, electricity and other energy prices. See Note 9, Derivatives, for further information.

The table below reflects our sources, facilities and availability of liquidity at November 30, 2021. See Note 8, Credit Arrangements, for additional information.
(in thousands) Total Facility Availability
Cash and cash equivalents $ 415,055  $ 415,055 
Notes due from 2023 to 2031 930,000  *
Revolver 400,000  396,954 
U.S. accounts receivable facility 150,000  150,000 
Poland credit facilities 73,039  72,182 
Poland accounts receivable facility 70,117  40,125 
Poland Term Loan 44,055  — 
_________________ 
*We believe we have access to additional financing and refinancing, if needed, although we can make no assurances as to the form or terms of such financing.

We are continually reviewing our capital resources to determine whether we can meet our short and long-term goals. Our cash and cash equivalents position remains strong at $415.1 million as of November 30, 2021. We anticipate our current cash balances, cash flows from operations and available sources of liquidity will be sufficient to maintain operations, make necessary capital expenditures, pay dividends and opportunistically repurchase shares for at least the next twelve months. Additionally, we believe our long-term liquidity position remains strong and expect to meet our long-term liquidity needs with cash flows from operations and financing arrangements. However, in the event of changes in business conditions or other developments, including a sustained market deterioration, unanticipated regulatory developments, significant acquisitions, competitive pressures, or to the extent our liquidity needs prove to be greater than expected or cash generated from operations is less than anticipated, we may need additional liquidity. To the extent we elect to finance our long-term liquidity needs, we believe that the potential financing capital available to us in the future is sufficient to fund such long-term liquidity needs.

As of November 30, 2021 and 2020, we had no off-balance sheet arrangements that may have a current or future material effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Cash Flows

Operating Activities
Net cash flows from operating activities were $25.8 million for the three months ended November 30, 2021, compared to net cash flows used by operating activities of $12.1 million for the three months ended November 30, 2020. Net earnings increased by $168.8 million year-over-year, offset by a $111.5 million year-over-year net increase in cash used by operating assets and liabilities ("working capital"). The increase in cash used by working capital was primarily due to rising scrap prices and greater inventory levels in the three months ended November 30, 2021, compared to the corresponding period. This increase was partially offset by a decrease in accounts payable, accrued expenses and other payables in the three months ended November 30, 2021, compared to the corresponding period, due to the payment of a $32.1 million working capital adjustment related to the fiscal 2019 acquisition from Gerdau S.A. made in the three months ended November 30, 2020, with no such payment in the three months ended November 30, 2021. Operating working capital days decreased four days year-over-year.

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Investing Activities
Net cash flows used by investing activities were $68.7 million and $36.5 million for the three months ended November 30, 2021 and 2020, respectively. The $32.3 million increase in net cash flows used by investing activities was primarily caused by an increase in capital expenditures as a result of the construction of our third micro mill located in Mesa, Arizona.

We estimate that our 2022 capital spending will range from $475 million to $525 million. We regularly assess our capital spending based on current and expected results and the amount is subject to change.

In December 2021, we announced the signing of a definitive agreement to acquire TAC Acquisition Corp. (“Tensar”), a portfolio company of Castle Harlan Inc.’s fund, Castle Harlan Partners V, L.P., for a cash purchase price of $550.0 million, subject to customary purchase price adjustments. We anticipate that the transaction will close during the first half of calendar year 2022. See Note 15, Subsequent Event, for more information about the acquisition.

In addition, in January 2022, we announced the plan to construct a fourth micro mill geographically situated to primarily serve the Northeast, Mid-Atlantic, and Mid-Western United States markets. Following the site selection and receipt of state and local incentives, permitting, and other necessary approvals, the construction of the planned mill is expected to take roughly two years.

Financing Activities
Net cash flows used by financing activities were $39.3 million and $28.6 million for the three months ended November 30, 2021 and 2020, respectively. Net cash flows used by financing activities increased during the first quarter of 2022 as a result of multiple actions, including an increase of $2.6 million in dividends paid compared to the corresponding period, an increase of $6.0 million in stock issued under incentive and purchase plans, net of forfeitures, and $5.3 million of treasury stock acquired under the new share repurchase program which was authorized in October 2021. See Note 12, Stockholders' Equity and Earnings per Share, for more information on the share repurchase program. Partially offsetting the increase in net cash flows used by financing activities were net proceeds from accounts receivable facilities of $6.0 million in the three months ended November 30, 2021, compared to no such net proceeds in the corresponding period.


CONTRACTUAL OBLIGATIONS
Our material cash commitments from known contractual and other obligations primarily consist of obligations for long-term debt and related interest, leases for properties and equipment and purchase obligations as part of normal operations. See Note 8, Credit Arrangements, for more information regarding scheduled maturities of our long-term debt. See Note 7, Leases, for additional information on leases.
Our undiscounted purchase obligations due in the twelve months following November 30, 2021 and August 31, 2021 were $736.3 million and $638.5 million, respectively, with $189.7 million and $228.0 million due thereafter, respectively. The increase in short-term purchase obligations was primarily due to construction of our third micro mill in Mesa, Arizona, and other planned capital expenditures in connection with normal business operations. The decrease in long-term purchase obligations is a result of a decrease in commitments for commodities used in operations, such as electrodes and natural gas, and certain capital expenditure obligations for the construction of our third micro mill which were fulfilled during the first quarter of 2022.

Other Commercial Commitments

We maintain stand-by letters of credit to provide support for certain transactions that governmental agencies, our insurance providers and suppliers request. At November 30, 2021, we had committed $22.8 million under these arrangements, of which $3.0 million reduced availability under the Revolver.
CONTINGENCIES

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

This Form 10-Q contains or incorporates by reference a number of "forward-looking statements" within the meaning of the federal securities laws with respect to general economic conditions, key macro-economic drivers that impact our business, the effects of ongoing trade actions, the effects of continued pressure on the liquidity of our customers, potential synergies and organic growth provided by acquisitions and strategic investments, demand for our products, metal margins, the effect of COVID-19 and related governmental and economic responses thereto, the ability to operate our steel mills at full capacity, future availability and cost of supplies of raw materials and energy for our operations, share repurchases, legal proceedings, the undistributed earnings of our non-U.S. subsidiaries, U.S. non-residential construction activity, international trade, capital expenditures, our liquidity and our ability to satisfy future liquidity requirements, the proposed Tensar acquisition and the timing thereof, estimated contractual obligations, the expected capabilities and benefits of new facilities, the timeline for execution of our growth plan, and our expectations or beliefs concerning future events. The statements in this report that are not historical statements, are forward-looking statements. These forward-looking statements can generally be identified by phrases such as we or our management "expects," "anticipates," "believes," "estimates," "future," "intends," "may," "plans to," "ought," "could," "will," "should," "likely," "appears," "projects," "forecasts," "outlook" or other similar words or phrases, as well as by discussions of strategy, plans, or intentions.

Our forward-looking statements are based on management's expectations and beliefs as of the time this Form 10-Q is filed with the SEC or, with respect to any document incorporated by reference, as of the time such document was prepared. Although we believe that our expectations are reasonable, we can give no assurance that these expectations will prove to have been correct, and actual results may vary materially. Except as required by law, we undertake no obligation to update, amend or clarify any forward-looking statements to reflect changed assumptions, the occurrence of anticipated or unanticipated events, new information or circumstances or any other changes. Important factors that could cause actual results to differ materially from our expectations include those described in Part I, Item 1A, Risk Factors, of our 2021 Form 10-K, as well as the following:

•changes in economic conditions which affect demand for our products or construction activity generally, and the impact of such changes on the highly cyclical steel industry;
•rapid and significant changes in the price of metals, potentially impairing our inventory values due to declines in commodity prices or reducing the profitability of our downstream contracts due to rising commodity pricing;
•impacts from COVID-19 on the economy, demand for our products, global supply chain and on our operations, including the responses of governmental authorities to contain COVID-19 and the impact of various COVID-19 vaccines;
•excess capacity in our industry, particularly in China, and product availability from competing steel mills and other steel suppliers including import quantities and pricing;
•compliance with and changes in existing and future laws, regulations and other legal requirements and judicial decisions that govern our business, including increased environmental regulations associated with climate change and greenhouse gas emissions;
•involvement in various environmental matters that may result in fines, penalties or judgments;
•evolving remediation technology, changing regulations, possible third-party contributions, the inherent uncertainties of the estimation process and other factors that may impact amounts accrued for environmental liabilities;
•potential limitations in our or our customers' abilities to access credit and non-compliance of their contractual obligations, including payment obligations;
•activity in repurchasing shares of our common stock under our repurchase program;
•financial covenants and restrictions on the operation of our business contained in agreements governing our debt;
•our ability to successfully identify, consummate and integrate acquisitions, and the effects that acquisitions may have on our financial leverage;
•risks associated with acquisitions generally, such as the inability to obtain, or delays in obtaining, required approvals under applicable antitrust legislation and other regulatory and third party consents and approvals;
•operating and startup risks, as well as market risks associated with the commissioning of new projects could prevent us from realizing anticipated benefits and could result in a loss of all or a substantial part of our investments;
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•lower than expected future levels of revenues and higher than expected future costs;
•failure or inability to implement growth strategies in a timely manner;
•impact of goodwill impairment charges;
•impact of long-lived asset impairment charges;
•currency fluctuations;
•global factors, such as trade measures, military conflicts and political uncertainties, including changes to current trade regulations, such as Section 232 trade tariffs and quotas, tax legislation and other regulations which might adversely impact our business;
•availability and pricing of electricity, electrodes and natural gas for mill operations;
•ability to hire and retain key executives and other employees;
•competition from other materials or from competitors that have a lower cost structure or access to greater financial resources;
•information technology interruptions and breaches in security;
•ability to make necessary capital expenditures;
•availability and pricing of raw materials and other items over which we exert little influence, including scrap metal, energy and insurance;
•unexpected equipment failures;
•losses or limited potential gains due to hedging transactions;
•litigation claims and settlements, court decisions, regulatory rulings and legal compliance risks;
•risk of injury or death to employees, customers or other visitors to our operations; and
•civil unrest, protests and riots.
You should refer to the "Risk Factors" disclosed in our periodic and current reports filed with the SEC for specific risks which would cause actual results to be significantly different from those expressed or implied by these forward-looking statements. Forward-looking statements involve known and unknown risks, uncertainties, assumptions and other important factors that could cause actual results, performance or our achievements, or industry results, to differ materially from historical results, any future results, or performance or achievements expressed or implied by such forward-looking statements. Accordingly, readers of this Form 10-Q are cautioned not to place undue reliance on any forward-looking statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

During the three months ended November 30, 2021, the U.S. dollar equivalent of the Company's total gross foreign currency exchange contract commitments decreased $69.2 million, or 18%, compared to August 31, 2021. This decrease was primarily due to forward contracts denominated in Polish zloty with a U.S. dollar functional currency, which decreased $101.3 million, partially offset by forward contracts denominated in euros with a Polish zloty functional currency, which increased $30.5 million compared to August 31, 2021.

There were no other material changes to the information set forth in Item 7A, Quantitative and Qualitative Disclosures about Market Risk, included in our 2021 Form 10-K.
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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 Chief Financial Officer have evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Form 10-Q, and they have concluded that as of that date, our disclosure controls and procedures were effective.
There were no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that occurred during our quarter ended November 30, 2021 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

For information regarding our legal proceedings, refer to Note 13, Commitments and Contingencies, to our condensed consolidated financial statements included in Part I, Item 1, Financial Statements, of this Form 10-Q.

With respect to administrative or judicial proceedings arising under any federal, state or local provisions that have been enacted or adopted regulating the discharge of materials into the environment or primarily for the purpose of protecting the environment, we have determined that we will disclose any such proceeding to which a governmental authority is a party if we reasonably believe such proceeding could result in monetary sanctions, exclusive of interest and costs, of at least $1.0 million. We believe that this threshold is reasonably designed to result in disclosure of environmental proceedings that are material to our business or financial condition. Applying this threshold, there were no environmental matters to disclose for this period.
ITEM 1A. RISK FACTORS

There were no material changes to the risk factors previously disclosed in Part I, Item 1A, Risk Factors, of our 2021 Form 10-K.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

The following table provides information about purchases of equity securities registered by the Company pursuant to Section 12 of the Exchange Act, as amended, made by the Company or any affiliated purchasers during the quarter ended November 30, 2021.
Issuer Purchases of Equity Securities(1)
Period Total Number of Shares Purchased Average Price Paid Per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs As of the End of Period
September 1, 2021 - September 30, 2021 —  $ —  —  $ 27,598,706 
October 1, 2021 - October 12, 2021 —  —  —  27,598,706 
October 13, 2021 - October 31, 2021 44,000  31.99  44,000  348,592,440 
November 1, 2021 - November 30, 2021 115,500  33.77  115,500  344,692,005 
159,500  159,500 
_________________ 
(1) On October 13, 2021, the Company announced that the Board of Directors authorized a new share repurchase program under which the Company may repurchase up to $350.0 million of the Company's outstanding common stock. This new program replaces the previously existing $100.0 million program announced on October 27, 2014, which was terminated by the Board of Directors in connection with the approval of the new program. The share repurchase program does not require the Company to purchase any dollar amount or number of shares of CMC common stock and may be modified, suspended, extended or terminated by the Company at any time without prior notice. See Note 12, Stockholders' Equity and Earnings per Share, to our condensed consolidated financial statements included in Part I, Item 1, Financial Statements, of this Form 10-Q for more information on the share repurchase program.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.
ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.
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ITEM 5. OTHER INFORMATION
Not applicable.
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ITEM 6. EXHIBITS
2.1†
3.1(a)
3.1(b)
3.1(c)
3.1(d)
3.1(e)
3.1(f)
3.2
10.1
10.2
10.3
10.4
31.1
31.2
32.1
32.2
101.INS Inline XBRL Instance Document (filed herewith).
101.SCH Inline XBRL Taxonomy Extension Schema Document (filed herewith).
101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document (filed herewith).
101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document (filed herewith).
101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document (filed herewith).
101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document (filed herewith).
104
Cover Page Interactive Data File (formatted as Inline XBRL document and included in Exhibit 101).
30
† Certain of the exhibits and schedules to this Exhibit have been omitted in accordance with Regulation S-K Item 601(a)(5), and Commercial Metals Company agrees to furnish a copy of all omitted exhibits and schedules to the SEC upon its request.

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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
January 10, 2022 /s/ Paul J. Lawrence
Paul J. Lawrence
Senior Vice President and Chief Financial Officer
(Duly authorized officer and principal financial officer of the registrant)

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