NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. NATURE OF OPERATIONS
Nature of Operations
As a vertically integrated organization, Commercial Metals Company ("CMC," and together with its consolidated subsidiaries, the "Company") manufactures, recycles, and markets steel and metal products, related materials and services through a network including four electric arc furnace ("EAF") mini mills, an EAF micro mill, a rerolling mill, steel fabrication and processing facilities, construction-related product warehouses, metal recycling facilities and marketing and distribution offices in the United States ("U.S.") and in strategic international markets.
The Company has
five
business segments across
two
geographic divisions. The CMC Americas Division includes
three
segments: Americas Recycling, Americas Mills and Americas Fabrication. The CMC International Division includes
two
segments: International Mill and International Marketing and Distribution.
Americas Recycling
The Americas Recycling segment processes scrap metals for use as a raw material by manufacturers of new metal products. This segment sells scrap metals to steel mills and foundries, aluminum sheet and ingot manufacturers, brass and bronze ingot makers, copper refineries and mills, secondary lead smelters, specialty steel mills, high temperature alloy manufacturers and other consumers.
Americas Mills
The Americas Mills segment, through our three EAF mini mills, micro mill, and rerolling mill, manufactures finished long steel products including reinforcing bar ("rebar"), merchant bar, light structural, and other special sections as well as semi-finished billets for re-rolling and forging applications. This segment's products are sold to the construction, service center, transportation, steel warehousing, fabrication, energy, petrochemical and original equipment manufacturing industries. The Americas Mills segment also includes
nine
scrap processing facilities and two scrap metal shredders that directly support the steel mills.
Americas Fabrication
The Americas Fabrication segment consists of the Company's rebar and structural fabrication operations, fence post manufacturing facilities, construction-related product facilities and facilities that heat-treat steel to strengthen and provide flexibility. Fabricated steel products are used primarily in the construction of commercial and non-commercial buildings, hospitals, convention centers, industrial plants, power plants, highways, bridges, arenas, stadiums and dams.
International Mill
The International Mill segment is comprised of the Company's mill operations in Poland as well as the Company's recycling and fabrication operations located in Poland. This segment manufactures rebar, merchant bar, and wire rod as well as semi-finished billets. In addition, this segment's fabrication operations sell fabricated rebar, fabricated mesh, assembled rebar cages and other rebar by-products. The International Mill's products are sold primarily to fabricators, manufacturers, distributors and construction companies.
International Marketing and Distribution
The International Marketing and Distribution segment includes international operations for the sale, distribution and processing of steel products, ferrous and nonferrous metals and other industrial products. Additionally, this segment includes the Company's steel marketing and distribution division headquartered in the U.S. ("CMC Cometals Steel") and a recycling facility in Singapore. Prior to August 31, 2017, this segment also included the Company's raw materials marketing and distribution division headquartered in the U.S. ("CMC Cometals"). See Note 3, Changes in Business, for additional details. The International Marketing and Distribution segment buys and sells primary and secondary metals, fabricated metals, semi-finished, long and flat steel products and other industrial products. This segment sells its products to customers, primarily manufacturers, in the steel, nonferrous metals, metal fabrication, chemical, refractory, construction and transportation industries.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation
The consolidated financial statements include the accounts of the Company and its wholly-owned and majority owned subsidiaries and certain variable interest entities ("VIEs") for which the Company is the primary beneficiary. Intercompany account balances and transactions have been eliminated.
Upon inception of an arrangement with a potential VIE, the Company performs an assessment of the contractual agreements that define the ownership structure, risks, responsibilities, indebtedness, voting rights and board representation of the respective parties when determining whether it is the primary beneficiary of the entity. The Company concludes that it is the primary beneficiary and consolidates the VIE if it has both (a) the power to direct the activities that most significantly impact the economic performance of the VIE and (b) the obligation to absorb losses of, or the right to receive benefits from, the variable interest entity that potentially could be significant to the VIE. The Company's assessment of whether it is the primary beneficiary of the VIE is continuously performed.
Use of Estimates
The preparation of the Company's consolidated financial statements in accordance with accounting principles generally accepted in the United States ("GAAP") requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and reported amounts of net sales and expenses during the reporting period. Significant items subject to such estimates and assumptions include the valuation of assets received in acquisitions; the carrying value of inventory and long-lived assets, including goodwill; valuation allowances for receivables and deferred income taxes; percentage of completion accounting method for revenue recognition; share-based compensation; potential litigation claims and settlements; environmental liabilities; and the carrying value of assets held for sale. Actual results could differ significantly from these estimates and assumptions.
Cash and Cash Equivalents
Cash and cash equivalents include cash on deposit and short-term, highly-liquid investments with original maturities of three months or less at the date of purchase.
Revenue Recognition and Allowance for Doubtful Accounts
The Company recognizes sales when title passes to the customer either when goods are shipped or when they are delivered based upon the terms of the sale, there is persuasive evidence of an arrangement, the price is fixed or determinable and collectability is reasonably assured. When the Company estimates that a firm purchase commitment from a customer will result in a loss, the Company accrues the entire loss as soon as it is probable and estimable. The Company accounts for certain fabrication projects based on the percentage of completion accounting method, based primarily on contract cost incurred to date compared to total estimated contract cost. Changes to total estimated contract cost, or loss, if any, are recognized in the period in which they are determined. Sales recognized in excess of amounts billed of
$34.7 million
and
$19.4 million
are classified as current assets and are reflected in accounts receivable on the Company's consolidated balances sheets as of
August 31, 2017
and
2016
, respectively. Accounts receivable included retainage of
$43.2 million
and
$38.7 million
as of
August 31, 2017
and
2016
, respectively. Shipping and other transportation costs billed to customers are included in net sales and the related costs incurred are reflected in cost of goods sold in the Company's consolidated statements of earnings. The Company maintains an allowance for doubtful accounts to reflect its estimate of the uncollectability of accounts receivable. These reserves are based on historical trends, current market conditions and customers' financial condition. The Company reviews and sets credit limits for each customer. Some of the Company's divisions use credit insurance or letters of credit to ensure prompt payment in accordance with the terms of sale. Generally, collateral is not required. Approximately
28%
and
30%
of total receivables at
August 31, 2017
and
2016
, respectively, were secured by credit insurance or letters of credit.
Inventories
At
August 31, 2017
, inventories were stated at the lower of cost or net realizable value. Inventory cost for operations in the CMC Americas division and the International Mill segment is determined by the weighted average cost method. Inventory cost for the International Marketing and Distribution segment is determined by the specific identification method. At
August 31, 2017
and
2016
,
80%
and
60%
of the Company's inventories were valued using the weighted average cost method, respectively, and
20%
and
40%
of the Company's inventories were valued using the specific identification method, respectively.
Elements of cost in finished goods inventory in addition to the cost of material include depreciation, amortization, utilities, consumable production supplies, maintenance, production, wages and transportation costs. Additionally, the costs of departments that support production, including materials management and quality control, are allocated to inventory.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost. Maintenance is expensed as incurred. Leasehold improvements are amortized over the shorter of their estimated useful lives or the lease term. Depreciation and amortization is recorded on a straight-line basis over the following estimated useful lives:
|
|
|
|
|
|
Buildings
|
7
|
to
|
40
|
years
|
Land improvements
|
3
|
to
|
25
|
years
|
Leasehold improvements
|
3
|
to
|
15
|
years
|
Equipment
|
3
|
to
|
25
|
years
|
The Company evaluates impairment of its property, plant and equipment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. For each asset or group of assets held for use with indicators of impairment, the Company compares the sum of the expected future cash flows generated by the asset or group of assets with its associated net carrying value. If the net carrying value of the asset or group of assets exceeds expected undiscounted future cash flows, the excess of the net book value over estimated fair value is charged to impairment loss in the accompanying consolidated statements of earnings. Properties held for sale are reported at the lower of their carrying amount or their estimated sales price, less estimated costs to sell.
Government Assistance
Government assistance, including non-monetary grants, herein collectively referred to as grants, are not recognized until there is reasonable assurance that the Company will comply with the conditions of the grant and the Company will receive the grant.
Generally, government grants fall into two categories: grants related to assets and grants related to income. Grants related to assets are government grants for the purchase, construction or other acquisition of long-term assets. The Company accounts for grants related to assets as deferred income with the offset to an asset account, such as fixed assets, on the Consolidated Balance Sheets. Non-monetary grants are recognized at fair value. The Company recognizes the deferred income in profit or loss on a systematic basis over the useful life of the asset; which, consistent with the Company's fixed assets policy, is straight-line. The period over which grants are recognized depends on the terms of the agreement. Grants related to specific expenses already incurred are recognized in profit or loss in the period in which the grant becomes receivable. A grant related to depreciable assets is recognized in profit or loss over the life of the depreciable asset. Grants related to non-depreciable assets may require the fulfillment of certain obligations. In such cases, these grants are recognized in profit or loss over the periods that bear the cost of meeting the obligations.
Grants related to income are any grants that are not considered grants related to assets, such as grants to compensate for certain expenses. Grants related to income are recognized as a reduction in the related expense in the period that the recognition criteria are met. See Note 11, New Markets Tax Credits.
Goodwill and Other Intangible Assets
Goodwill is tested for impairment at the reporting unit level annually and whenever events or circumstances indicate that the carrying value may not be recoverable. During fiscal 2017, the Company prospectively changed its annual quantitative goodwill impairment testing date from the last day of the fourth quarter to the first day of the fourth quarter. The change in the goodwill impairment testing date alleviates fiscal year end resource and timing constraints. This change does not represent a material change in accounting principle, and did not delay, accelerate or avoid a goodwill impairment charge.
The Company utilizes a quantitative test that compares the fair value of a reporting unit with its carrying amount, including goodwill, to evaluate goodwill for impairment. If the carrying amount of a reporting unit exceeds its fair value, an impairment loss is indicated in the amount that the carrying value exceeds the fair value of the reporting unit, not to exceed the goodwill value for the reporting unit. The Company's reporting units represent an operating segment or one level below an operating segment.
The fair value of each reporting unit is estimated using an income approach based on the present value of expected future cash flows and a market approach based on valuation metrics of comparable peer companies and a reconciliation of the Company's
estimate of the aggregate fair value of the reporting units to the Company's market capitalization, including a control premium. The determination of fair value involves a number of significant assumptions and estimates, including discount rates, volumes, prices, capital expenditures and the impact of current market conditions. These estimates could be materially impacted by adverse changes in these assumptions.
For fiscal
2017
, the Company recorded a goodwill impairment charge of
$2.0 million
related to a reporting unit in its International Marketing and Distribution segment. For fiscal 2016, the annual goodwill impairment analysis did not result in any impairment charges at any of the Company's reporting units. For fiscal 2015, the Company recorded a goodwill impairment charge of
$7.3 million
related to its Americas Recycling segment. See Note 7, Goodwill and Other Intangible Assets, for additional details of the impairment charges. As of
August 31, 2017
and
2016
, one of the Company's reporting units within its Americas Fabrication segment comprised
$51.6 million
and
51.3 million
, respectively, of the Company's total goodwill. Goodwill at the Company's other reporting units was not material at
August 31, 2017
and
2016
.
Intangible assets with finite lives are amortized on a straight-line basis over their estimated useful lives and are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Impairment charges are recorded on finite-lived intangible assets when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amounts.
Contingencies
The Company accrues for claims and litigation, including environmental investigation and remediation costs, when they are both probable and the amount can be reasonably estimated. Environmental costs are based upon estimates regarding the sites for which the Company will be responsible, the scope and cost of work to be performed at each site, the portion of costs that will be shared with other parties and the timing of remediation. Where timing and amounts cannot be reasonably determined, a range is estimated and the lower end of the range is typically recorded.
Stock-Based Compensation
The Company recognizes stock-based equity awards and liability awards at fair value in the financial statements. The fair value of each stock-based equity award is estimated at the date of grant using the Black-Scholes or Monte Carlo pricing model. Total compensation cost of the stock-based equity award is amortized over the requisite service period using the accelerated method of amortization for grants with graded vesting or using the straight-line method for grants with cliff vesting. Stock-based liability awards are measured at fair value at the end of each reporting period and will fluctuate based on the price of CMC common stock and performance relative to the targets.
Accounts Payable — Documentary Letters of Credit
In order to facilitate certain trade transactions, the Company utilizes documentary letters of credit to provide assurance of payment to its suppliers. These letters of credit are typically for payment at a future date conditional upon the bank determining the documentation presented to be in strict compliance with all terms and conditions of the letters of credit. Banks issue these letters of credit under uncommitted lines of credit, which are in addition to and separate from the Company's contractually committed revolving credit agreement. In some cases, if the Company's suppliers choose to discount the future dated obligation, the Company may pay the fee associated with the discount.
Income Taxes
CMC and its U.S. subsidiaries file a consolidated federal income tax return. Deferred income taxes are provided for temporary differences between financial statement and income tax bases of assets and liabilities. The principal differences are described in Note 14, Income Tax. Benefits from income tax credits are reflected currently in earnings. The Company intends to indefinitely reinvest all undistributed earnings of non-U.S. subsidiaries. The Company records income tax positions based on a more likely than not threshold that the tax positions will be sustained on examination by the taxing authorities having full knowledge of all relevant information.
Foreign Currencies
The functional currencies of the Company's Australian, German, Polish, United Kingdom and certain Chinese, Singaporean and Thai operations are their local currencies. The Company's remaining international subsidiaries' functional currency is the U.S. dollar. Translation adjustments are reported as a component of accumulated other comprehensive loss. Transaction gains (losses) from transactions denominated in currencies other than the functional currencies were
$5.5 million
,
$(13.9) million
and
$(45.4) million
for the years ended
August 31, 2017
,
2016
and
2015
, respectively, and are primarily included in selling, general and administrative expenses in the Company's consolidated statements of earnings.
Derivative Financial Instruments
The Company recognizes all derivatives as either assets or liabilities in the consolidated balance sheets and measures those instruments at fair value. Derivatives that are not designated as hedges are adjusted to fair value through net earnings. Changes in the fair value of derivatives that are designated as hedges are recognized in two fashions depending on the nature of the hedge. In the case of fair value hedges, changes are recognized as an offset against the change in fair value of the hedged balance sheet item. When the derivative is designated as a cash flow hedge and is highly effective, changes are recognized as other comprehensive income. The ineffective portion of a change in fair value for derivatives designated as hedges is recognized in net earnings.
When a derivative instrument is sold, terminated, exercised, or expires, the gain or loss is recorded in the consolidated statement of earnings for fair value hedges, and the cumulative unrealized gain or loss, which had been recognized in the statement of comprehensive income, is reclassified to the consolidated statement of earnings for cash flow hedges. Additionally, when hedged items are sold or extinguished, or the anticipated transaction being hedged is no longer expected to occur, the Company recognizes the gain or loss on the designated hedged financial instrument.
Fair Value
The Company has established a fair value hierarchy which prioritizes the inputs to the valuation techniques used to measure fair value into
three
levels. These levels are determined based on the lowest level input that is significant to the fair value measurement. Level 1 represents unadjusted quoted prices in active markets for identical assets and liabilities. Level 2 represents quoted prices for similar assets and liabilities in active markets (other than those included in Level 1) which are observable, either directly or indirectly. Level 3 represents valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.
Recently Adopted Accounting Pronouncements
In the fourth quarter of fiscal 2017, the Company early adopted Accounting Standards Update ("ASU") 2017-04, Intangibles - Goodwill and Other: Simplifying the Test for Goodwill Impairment (Topic 805), issued by the Financial Accounting Standards Board ("FASB"). The standard simplifies the subsequent measurement of goodwill by removing the second step of the two-step impairment test. The standard was applied on a prospective basis. The adoption of this guidance did not have a material impact on the Company's consolidated financial statements.
In the second quarter of fiscal 2017, the Company adopted ASU 2016-09, Compensation - Stock Compensation (Topic 718), issued by the FASB requiring that the Company recognize all excess tax benefits and tax deficiencies as an income tax expense or benefit when stock awards vest or are settled. Additionally, the guidance allows for an increase in the threshold for net share settlement up to the maximum statutory rate in employees’ applicable jurisdictions without triggering liability classification. The adoption of this guidance had an immaterial impact on income taxes on the Company’s consolidated statement of earnings for the year ended August 31, 2017. Additionally, the Company has elected to continue to estimate forfeitures. As such, this adoption has no cumulative effect on retained earnings. The Company elected to apply the presentation requirements for cash flows related to excess tax benefits prospectively, which had an immaterial impact on both net cash from operating activities and net cash used in financing activities for the year ended August 31, 2017. The presentation requirements for cash flows related to employee taxes paid for withheld shares had no impact on any of the periods presented on the Company’s consolidated statements of cash flows since such cash flows have historically been presented as a financing activity.
In the first quarter of fiscal 2017, the Company adopted ASU 2015-16, Business Combinations (Topic 805), issued by the FASB requiring the acquirer in a business combination to recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The guidance was adopted on a prospective basis and did not have an impact on the Company's consolidated financial statements.
In the first quarter of fiscal 2017, the Company adopted ASU 2015-05, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40), issued by the FASB requiring an entity to account for fees paid in a cloud computing arrangement as a license of internal-use software. The guidance was adopted on a prospective basis and did not have an impact on the Company's consolidated financial statements.
In the first quarter of fiscal 2017, the Company adopted ASU 2015-02, Consolidation (Topic 810), issued by the FASB modifying the evaluation of whether limited partnerships and similar legal entities are voting interest entities. The guidance was adopted on a retrospective basis and did not have an impact on the Company's consolidated financial statements.
In the first quarter of fiscal 2017, the Company adopted ASU 2015-01, Income Statement - Extraordinary and Unusual Items (Subtopic 225-20), issued by the FASB eliminating the concept of extraordinary items. Under this guidance, an entity is no longer allowed to separately disclose extraordinary items, net of tax, in the income statement after income from continuing operations. The guidance was adopted on a prospective basis and did not have an impact on the Company's consolidated financial statements.
In the first quarter of fiscal 2017, the Company adopted ASU 2014-13, Consolidation (Topic 810), issued by the FASB providing a measurement alternative to the existing fair value measurement guidance. When the measurement alternative is elected, the financial assets and liabilities are measured using the more observable of the fair value of the financial assets and the fair value of the financial liabilities. The guidance was adopted on a retrospective basis and did not have an impact on the Company's consolidated financial statements.
In the first quarter of fiscal 2017, the Company adopted ASU 2014-12, Compensation - Stock Compensation (Topic 718), issued by the FASB requiring entities to account for a performance target as a performance condition if the target affects vesting and could be achieved after the requisite service period. The guidance was followed by the Company prior to its adoption and therefore had no impact on the Company's consolidated financial statements upon adoption.
Recently Issued Accounting Pronouncements
In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging - Targeted Improvements to Accounting for Hedging Activities (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 within those periods, with early adoption permitted. 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 is currently evaluating the impact of this guidance on its consolidated financial statements as well as determining the Company's planned adoption date.
In January 2017, the FASB issued ASU 2017-01, Business Combinations: Clarifying the Definition of a Business. The standard clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. For public companies, this standard is effective for annual periods beginning after December 15, 2017, including interim periods within those periods. The standard must be applied prospectively on or after the effective date. Early application of the standard is allowed with certain restrictions. The adoption of this guidance is not expected to have a material impact on the consolidated financial statements.
In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230), requiring that the statement of cash flows explain the change in the total cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. This guidance is effective for fiscal years, and interim reporting periods therein, beginning after December 15, 2017 with early adoption permitted. The provisions of this guidance are to be applied using a retrospective approach, which requires application of the guidance for all periods presented. The Company is currently evaluating the impact of this guidance on its consolidated financial statements as well as determining the Company's planned adoption date.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), requiring a lessee to recognize a right-of-use asset and a lease liability on its balance sheet for all leases with terms of twelve months or longer. This guidance is effective for fiscal years, and interim reporting periods therein, beginning after December 15, 2018 and will be effective for the Company beginning September 1, 2019, at which point the Company plans to adopt the standard. The provisions of this guidance are to be applied using a modified retrospective approach, with elective reliefs, which requires application of the guidance for all periods presented. The Company is currently evaluating the impact of this guidance on its consolidated financial statements.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), and has modified the standard thereafter. Under the standard, revenue is recognized when a customer obtains control of promised goods or services and is recognized in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This guidance is effective for annual and interim reporting periods beginning after December 15, 2017 and will be effective for the Company beginning September 1, 2018, at which point the Company plans to adopt the standard. The standard permits the use of either the retrospective or cumulative effect transition method. The Company currently expects to adopt the standard using the modified retrospective approach. As part of the adoption of the standard, management assembled a cross-functional implementation team which has reviewed representative samples of contracts to analyze the impact of the standard. As
a result of these analyses, the Company does not anticipate that there will be a material impact on its statement of financial position, results of operations or cash flows in its Americas Mills, Americas Recycling or International Mill segments. The Company is still in the process of examining contract specific terms within the Americas Fabrication segment. In addition, the standard includes expanded disclosure requirements, which the Company continues to analyze. As part of the overall evaluation of the standard, the Company is also identifying and preparing to implement changes to its accounting policies, practices, and internal controls over financial reporting to support the standard both in the transition period as well as on an on-going basis.
NOTE 3. CHANGES IN BUSINESS
Acquisitions
On December 12, 2016, the Company completed the purchase of substantially all of the assets of Continental Concrete Structures, Inc. ("CCS"), a fabricator of post-tensioning cable and related products for commercial and public construction projects with a facility in Alpharetta, Georgia. In addition, CCS provides professional design and value engineering services to the construction industry throughout North America. This acquisition complements the Company’s current rebar fabrication business and continues its strategy of creating value for customers. The operating results of this facility are included in the Americas Fabrication reporting segment.
On January 9, 2017, the Company completed the purchase of substantially all of the assets of Associated Steel Workers, Limited ("ASW"), a steel fabrication facility in Kapolei, Hawaii. This acquisition continues the vertical integration model of the Company by extending its geographic reach, establishing a fabrication operation in Hawaii and expanding its presence in the Hawaiian market. The operating results of this facility are included in the Americas Fabrication reporting segment.
On March 6, 2017, the Company completed the purchase of certain assets from OmniSource Corporation, a wholly-owned subsidiary of Steel Dynamics, Inc., consisting of seven recycling facilities located in the southeast United States (the "Recycling Assets"), which are in close proximity to CMC’s mini mill in Cayce, South Carolina. These facilities provide synergies with CMC's other operations in the region. The operating results of these facilities are included in the Americas Recycling reporting segment.
The acquisitions of CCS, ASW and the Recycling Assets are not material, individually or in the aggregate, to the Company's financial position or results of operations; therefore, pro forma operating results for the acquisitions are not presented since the results would not be significantly different than reported results.
For the years ended
August 31, 2016
and
2015
, the Company did not have any business acquisitions.
Businesses Held for Sale
The Company did not have any businesses classified as held for sale at
August 31, 2017
. As of
August 31, 2016
, CMC Cometals was classified as held for sale. Assets and liabilities of the business held for sale on the Company’s consolidated balance sheet consisted of the following:
|
|
|
|
|
|
|
|
Year Ended August 31,
|
(in thousands)
|
|
2016
|
Assets:
|
|
|
Accounts receivable
|
|
$
|
76,402
|
|
Inventories
|
|
112,740
|
|
Other current assets
|
|
1,579
|
|
Current assets of business held for sale
|
|
190,721
|
|
Property, plant and equipment, net of accumulated depreciation and amortization
|
|
4
|
|
Long-term assets of business held for sale*
|
|
$
|
4
|
|
Liabilities:
|
|
|
Accounts payable-trade
|
|
$
|
35,662
|
|
Accrued expenses and other payables
|
|
1,026
|
|
Current liabilities of business held for sale
|
|
$
|
36,688
|
|
* Included in other assets on the consolidated balance sheet.
Discontinued Operations
On June 13, 2017, the Company announced a plan to exit its International Marketing and Distribution segment. As an initial step in this plan, on August 31, 2017, the Company completed the sale of CMC Cometals, subject to customary post-closing adjustments. In addition, on June 13, 2017, the Company announced its plan to pursue a restructuring and sale of the remaining trading operations located in the U.S., Asia and Australia. The results of the sale and the activity related to CMC Cometals are included in discontinued operations in the consolidated statements of earnings for all periods presented. The remainder of the International Marketing and Distribution segment is expected to be classified in discontinued operations either upon meeting the criteria to be classified as held for sale or upon the wind-down of each operation.
The major classes of line items constituting earnings before income taxes for CMC Cometals, which are included in earnings (loss) from discontinued operations before income taxes in the consolidated statements of earnings for all periods presented, are presented in the table below. CMC Cometals is the only component that qualified for discontinued operations post-adoption of ASU 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended August 31,
|
(in thousands)
|
|
2017
|
|
2016
|
|
2015
|
Net sales
|
|
$
|
429,462
|
|
|
$
|
433,008
|
|
|
$
|
564,192
|
|
Costs and expenses:
|
|
|
|
|
|
|
Cost of goods sold
|
|
389,276
|
|
|
393,895
|
|
|
484,196
|
|
Selling, general and administrative expenses
|
|
22,774
|
|
|
22,523
|
|
|
29,179
|
|
Net loss on sale of CMC Cometals
|
|
6,950
|
|
—
|
|
—
|
|
|
—
|
|
Interest expense
|
|
—
|
|
|
109
|
|
|
1,304
|
|
|
|
419,000
|
|
|
416,527
|
|
|
514,679
|
|
Earnings before income taxes
|
|
10,462
|
|
|
16,481
|
|
|
49,513
|
|
Income taxes (benefit)
|
|
(2,935
|
)
|
|
3
|
|
|
—
|
|
Earnings from CMC Cometals
|
|
$
|
13,397
|
|
|
$
|
16,478
|
|
|
$
|
49,513
|
|
Depreciation, amortization and capital expenditures for CMC Cometals were not material for fiscal
2017
,
2016
and
2015
, respectively. Stock-based compensation was
$(0.9) million
,
$2.5 million
and
$2.2 million
for fiscal
2017
,
2016
and
2015
, respectively. Inventory write-downs were
$1.0 million
,
$1.2 million
and
$9.2 million
for fiscal
2017
,
2016
and
2015
, respectively. There were no other significant operating or investing non-cash items for CMC Cometals for fiscal
2017
,
2016
and
2015
.
During the first quarter of fiscal 2015, the Company decided to exit and sell its steel distribution business in Australia and determined that the decision to exit this business met the definition of a discontinued operation. As a result, this business has been presented as a discontinued operation for all periods presented. The Australian steel distribution business was previously included in the International Marketing and Distribution reporting segment.
Financial information for discontinued operations was as follows:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended August 31,
|
(in thousands)
|
|
2017
|
|
2016
|
|
2015
|
Net sales
|
|
$
|
429,440
|
|
|
$
|
474,422
|
|
|
$
|
737,258
|
|
Earnings (loss) before income taxes
|
|
10,607
|
|
|
(1,469
|
)
|
|
29,389
|
|
Dispositions
During the fourth quarter of fiscal 2017, the Company completed the sale of CMC Cometals for proceeds of
$170.9 million
, subject to customary post-closing adjustments. A portion of the proceeds totaling
$8.0 million
were deferred and recorded in accounts receivable in the consolidated balance sheet for the year ended August 31, 2017. The Company recognized a
$7.0 million
loss on the sale, which was included in discontinued operations in the consolidated statement of earnings for the year ended August 31, 2017.
During the fourth quarter of fiscal 2015, the Company completed the sale of
six
locations that were a part of the Australian steel distribution business for proceeds of
$26.4 million
. The Company recognized an
$8.1 million
pre-tax gain on the sale, which included a currency translation gain of
$10.1 million
. Additionally, all operations ceased at
three
other locations that were part of the Australian steel distribution business. In the fourth quarter of fiscal 2016, the Company completed the sale of the one remaining Australian steel distribution location, excluding accounts receivable, for proceeds of
$4.4 million
, resulting in an immaterial impact to earnings from discontinued operations for fiscal year 2016. The results of the sales and the activity related to the Australian steel distribution business were included in discontinued operations in the consolidated statements of earnings for all periods presented.
NOTE 4. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Accumulated other comprehensive income (loss) ("AOCI") was comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Foreign Currency Translation
|
|
Unrealized Gain (Loss) on Derivatives
|
|
Defined Benefit Obligation
|
|
Total AOCI
|
Balance at September 1, 2014
|
|
$
|
(19,891
|
)
|
|
$
|
3,014
|
|
|
$
|
(2,632
|
)
|
|
$
|
(19,509
|
)
|
Other comprehensive loss before reclassifications
|
|
(83,063
|
)
|
|
(3,702
|
)
|
|
(270
|
)
|
|
(87,035
|
)
|
Amounts reclassified from AOCI
|
|
(10,127
|
)
|
|
2,707
|
|
|
63
|
|
|
(7,357
|
)
|
Income taxes
|
|
—
|
|
|
286
|
|
|
80
|
|
|
366
|
|
Net other comprehensive loss
|
|
(93,190
|
)
|
|
(709
|
)
|
|
(127
|
)
|
|
(94,026
|
)
|
Balance at August 31, 2015
|
|
(113,081
|
)
|
|
2,305
|
|
|
(2,759
|
)
|
|
(113,535
|
)
|
Other comprehensive income (loss) before reclassifications
|
|
(11,771
|
)
|
|
2,006
|
|
|
(186
|
)
|
|
(9,951
|
)
|
Amounts reclassified from AOCI
|
|
12,597
|
|
|
(2,233
|
)
|
|
68
|
|
|
10,432
|
|
Income taxes
|
|
—
|
|
|
108
|
|
|
32
|
|
|
140
|
|
Net other comprehensive income (loss)
|
|
826
|
|
|
(119
|
)
|
|
(86
|
)
|
|
621
|
|
Balance at August 31, 2016
|
|
(112,255
|
)
|
|
2,186
|
|
|
(2,845
|
)
|
|
(112,914
|
)
|
Other comprehensive income before reclassifications
|
|
30,509
|
|
|
1,003
|
|
|
678
|
|
|
32,190
|
|
Amounts reclassified from AOCI
|
|
968
|
|
|
(1,845
|
)
|
|
115
|
|
|
(762
|
)
|
Income taxes
|
|
—
|
|
|
243
|
|
|
(270
|
)
|
|
(27
|
)
|
Net other comprehensive income (loss)
|
|
31,477
|
|
|
(599
|
)
|
|
523
|
|
|
31,401
|
|
Balance at August 31, 2017
|
|
$
|
(80,778
|
)
|
|
$
|
1,587
|
|
|
$
|
(2,322
|
)
|
|
$
|
(81,513
|
)
|
The significant items reclassified out of accumulated other comprehensive loss and the corresponding line items in the consolidated statements of earnings to which the items were reclassified were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended August 31,
|
Components of AOCI (in thousands)
|
|
Location
|
|
2017
|
|
2016
|
|
2015
|
Foreign currency translation adjustments and other:
|
|
|
|
|
|
|
|
|
|
|
|
Translation loss realized upon liquidation of investment in foreign entity
|
|
SG&A expenses
|
|
$
|
(968
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
Translation (loss) gain realized upon sale of investment in foreign entity
|
|
Earnings (loss) from discontinued operations before income taxes
|
|
—
|
|
|
(12,597
|
)
|
|
10,127
|
|
|
|
|
|
$
|
(968
|
)
|
|
$
|
(12,597
|
)
|
|
$
|
10,127
|
|
Unrealized gain (loss) on derivatives:
|
|
|
|
|
|
|
|
|
|
|
|
Commodity
|
|
Cost of goods sold
|
|
$
|
37
|
|
|
$
|
(443
|
)
|
|
$
|
(645
|
)
|
Foreign exchange
|
|
Net sales
|
|
369
|
|
|
(380
|
)
|
|
124
|
|
Foreign exchange
|
|
Cost of goods sold
|
|
158
|
|
|
2,283
|
|
|
(2,774
|
)
|
Foreign exchange
|
|
SG&A expenses
|
|
446
|
|
|
291
|
|
|
76
|
|
Interest rate
|
|
Interest expense
|
|
789
|
|
|
532
|
|
|
532
|
|
Commodity
|
|
Earnings (loss) from discontinued operations before income taxes
|
|
46
|
|
|
(50
|
)
|
|
(20
|
)
|
|
|
|
|
1,845
|
|
|
2,233
|
|
|
(2,707
|
)
|
Income tax effect
|
|
Income taxes from continuing operations
|
|
(506
|
)
|
|
(478
|
)
|
|
956
|
|
Income tax effect
|
|
Income taxes (benefit) from discontinued operations
|
|
16
|
|
|
(18
|
)
|
|
(7
|
)
|
|
|
|
|
(490
|
)
|
|
(496
|
)
|
|
949
|
|
Net of income taxes
|
|
|
|
$
|
1,355
|
|
|
$
|
1,737
|
|
|
$
|
(1,758
|
)
|
Defined benefit obligation:
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of net loss
|
|
SG&A expenses
|
|
$
|
(201
|
)
|
|
$
|
(140
|
)
|
|
$
|
(134
|
)
|
Amortization of prior service credit
|
|
SG&A expenses
|
|
86
|
|
|
72
|
|
|
71
|
|
|
|
|
|
(115
|
)
|
|
(68
|
)
|
|
(63
|
)
|
Income tax effect
|
|
Income taxes
|
|
31
|
|
|
22
|
|
|
21
|
|
Net of income taxes
|
|
|
|
$
|
(84
|
)
|
|
$
|
(46
|
)
|
|
$
|
(42
|
)
|
Amounts in parentheses reduce earnings.
NOTE 5. SALES OF ACCOUNTS RECEIVABLE
During the fourth quarter of fiscal 2016, the Company entered into a fifth amended
$200.0 million
U.S. sale of trade accounts receivable program which expires on August 15, 2019. In June 2017, the Company entered into a sixth amendment, which withdrew CMC Cometals and CMC Cometals Steel from the program. Under the program, CMC contributes, and certain of its subsidiaries sell 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 buying and selling trade accounts receivable generated by the Company. CMCRV sells the trade accounts receivable in their entirety to
two
financial institutions. Under the amended U.S. sale of trade accounts receivable 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 sold. 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 Company accounts for sales of the trade accounts receivable as true sales, and the trade accounts receivable balances that are sold are removed from the consolidated balance sheets. The cash advances received are reflected as cash provided by operating activities on the Company's consolidated statements of cash flows. Additionally, the U.S. sale of trade accounts receivable program contains certain cross-default provisions whereby a termination event could occur if the Company defaulted under certain of its credit arrangements. The covenants contained in the receivables purchase agreement are consistent with the credit facility described in Note 10, Credit Arrangements.
At
August 31, 2017
and
2016
, under its U.S. sale of accounts receivable program, the Company had sold
$226.9 million
and
$215.9 million
of trade accounts receivable, respectively, to the financial institutions. At
August 31, 2017
, the Company had
$90.0 million
in advance payments outstanding on the sale of its trade accounts receivable and
none
at
August 31, 2016
.
In addition to the U.S. sale of trade accounts receivable program described above, the Company's international subsidiaries in Poland sell, and previously in Australia have sold, trade accounts receivable to financial institutions without recourse. These arrangements constitute true sales, and once the trade accounts receivable are sold, they are no longer available to the Company's creditors in the event of bankruptcy and are removed from the consolidated balance sheets. The Polish program has a facility limit of
220.0 million
Polish zloty (
$61.7 million
as of
August 31, 2017
) and allows the Company's Polish subsidiaries to obtain an advance of up to
90%
of eligible trade accounts receivable sold under the terms of the arrangement. Under the Polish and Australian programs, the cash advances received were reflected as cash provided by operating activities on the Company's consolidated statements of cash flows. During the first quarter of fiscal 2017, the Company's existing Australian program expired, and the Company did not enter into a new program.
At
August 31, 2017
, under its Polish program, the Company had sold
$79.5 million
of trade accounts receivable to the third-party financial institution and had
no
advance payments outstanding on the sale of its trade accounts receivable. At
August 31, 2016
, under its Polish and Australian programs, the Company had sold
$85.7 million
of trade accounts receivable to third-party financial institutions and had
$8.3 million
in advance payments outstanding.
For the years ended
August 31, 2017
,
2016
and
2015
, cash proceeds from the U.S. and international sale of trade accounts receivable programs were
$375.4 million
,
$400.8 million
and
$596.4 million
, respectively, and cash payments to the owners of trade accounts receivable were
$293.6 million
,
$420.3 million
and
$714.2 million
, respectively. For a nominal servicing fee, the Company is responsible for servicing the trade accounts receivable for the U.S. and Australian programs. Discounts on U.S. and international sales of trade accounts receivable were
$0.9 million
,
$1.7 million
and
$2.4 million
for the years ended
August 31, 2017
,
2016
and
2015
, respectively, and are included in selling, general and administrative expenses in the Company's consolidated statements of earnings.
The deferred purchase price on the Company's U.S. and international sale of trade accounts receivable programs was included in accounts receivable on the Company's consolidated balance sheets, with the exception of the deferred purchase price related to the Company's businesses classified as held for sale, which were included in assets of businesses held for sale on the Company's consolidated balance sheet at August 31, 2016. The following table summarizes the activity of the deferred purchase price receivables for the U.S. and international sale of trade accounts receivable programs.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Total
|
|
U.S.*
|
|
Australia**
|
|
Poland
|
Balance at September 1, 2014
|
|
$
|
385,169
|
|
|
$
|
329,797
|
|
|
$
|
34,071
|
|
|
$
|
21,301
|
|
Transfers of trade accounts receivable
|
|
3,574,283
|
|
|
2,944,627
|
|
|
298,179
|
|
|
331,477
|
|
Collections
|
|
(3,619,905
|
)
|
|
(3,004,646
|
)
|
|
(314,212
|
)
|
|
(301,047
|
)
|
Balance at August 31, 2015
|
|
$
|
339,547
|
|
|
$
|
269,778
|
|
|
$
|
18,038
|
|
|
$
|
51,731
|
|
Transfers of trade accounts receivable
|
|
2,389,297
|
|
|
1,933,477
|
|
|
175,593
|
|
|
280,227
|
|
Collections
|
|
(2,439,096
|
)
|
|
(1,990,493
|
)
|
|
(166,969
|
)
|
|
(281,634
|
)
|
Balance at August 31, 2016
|
|
$
|
289,748
|
|
|
$
|
212,762
|
|
|
$
|
26,662
|
|
|
$
|
50,324
|
|
Transfers of trade accounts receivable
|
|
2,646,513
|
|
|
2,251,118
|
|
|
16,914
|
|
|
378,481
|
|
Collections
|
|
(2,596,836
|
)
|
|
(2,237,872
|
)
|
|
(9,659
|
)
|
|
(349,305
|
)
|
Exit from Programs
|
|
(124,302
|
)
|
|
(90,385
|
)
|
|
(33,917
|
)
|
|
—
|
|
Balance at August 31, 2017
|
|
$
|
215,123
|
|
|
$
|
135,623
|
|
|
$
|
—
|
|
|
$
|
79,500
|
|
_________________________
* Includes the sale of trade accounts receivable activities related to CMC Cometals. See Note 3, Changes to Business, for further discussion. For the year ended
August 31, 2017
, with respect to CMC Cometals, transfers of trade accounts receivable were
$141.0 million
, collections were
$125.6 million
and redemptions of trade accounts receivable associated with the exit from the program were
$40.4 million
. For the years ended
August 31, 2016
and
2015
, with respect to CMC Cometals, transfers of trade accounts receivable were
$173.2 million
and
$286.6 million
, respectively, and collections were
$174.4 million
and
$311.4 million
, respectively.
**Includes the sale of trade accounts receivable activities related to the Australian steel distribution business. See Note 3, Changes to Business, for further discussion. For the year ended
August 31, 2017
, there were
no
transfers of trade accounts receivable, collections were
$3.7 million
and redemptions of trade accounts receivable associated with the exit from the program were
$1.6 million
. For
August 31, 2016
and
2015
, transfers of accounts receivable were
$45.8 million
and
$180.0 million
, respectively, and collections were
$61.7 million
and
$209.2 million
, respectively.
NOTE 6. INVENTORIES
The majority of the Company's inventories are in the form of semi-finished and finished goods. The Company’s business model, with the exception of the International Marketing and Distribution segment, is such that products are sold to external customers in various stages, from semi-finished billets through fabricated steel, leading these categories to be combined. Inventories in the International Marketing and Distribution segment are sold as finished goods. As such, work in process inventories were
not material
at
August 31, 2017
and
2016
. At
August 31, 2017
and
2016
,
$116.8 million
and
$77.9 million
, respectively, of the Company's inventories were in the form of raw materials.
Inventory write-downs were
$21.5 million
,
$15.6 million
, and
$37.7 million
for the years ended August 31, 2017, 2016, and 2015.
NOTE 7. GOODWILL AND OTHER INTANGIBLE ASSETS
The following table details the changes in the carrying amount of goodwill by reportable segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
International
|
|
|
(in thousands)
|
|
Recycling
|
|
Mills
|
|
Fabrication
|
|
Mill
|
|
Marketing and Distribution
|
|
Consolidated
|
Goodwill, gross
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 1, 2015
|
|
$
|
9,751
|
|
|
$
|
4,970
|
|
|
$
|
57,637
|
|
|
$
|
2,517
|
|
|
$
|
1,912
|
|
|
$
|
76,787
|
|
|
Foreign currency translation
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(85
|
)
|
|
70
|
|
|
(15
|
)
|
Balance at August 31, 2016
|
|
9,751
|
|
|
4,970
|
|
|
57,637
|
|
|
2,432
|
|
|
1,982
|
|
|
76,772
|
|
|
Acquisitions
|
|
—
|
|
|
—
|
|
|
306
|
|
|
—
|
|
|
—
|
|
|
306
|
|
|
Foreign currency translation
|
|
—
|
|
|
—
|
|
|
—
|
|
|
232
|
|
|
—
|
|
|
232
|
|
Balance at August 31, 2017
|
|
$
|
9,751
|
|
|
$
|
4,970
|
|
|
$
|
57,943
|
|
|
$
|
2,664
|
|
|
$
|
1,982
|
|
|
$
|
77,310
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated impairment losses
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 1, 2015
|
|
$
|
(9,751
|
)
|
|
$
|
—
|
|
|
$
|
(493
|
)
|
|
$
|
(160
|
)
|
|
$
|
—
|
|
|
$
|
(10,404
|
)
|
|
Foreign currency translation
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5
|
|
|
—
|
|
|
5
|
|
Balance at August 31, 2016
|
|
(9,751
|
)
|
|
—
|
|
|
(493
|
)
|
|
(155
|
)
|
|
—
|
|
|
(10,399
|
)
|
|
Foreign currency translation
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(14
|
)
|
|
—
|
|
|
(14
|
)
|
|
Impairment
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,982
|
)
|
|
(1,982
|
)
|
Balance at August 31, 2017
|
|
$
|
(9,751
|
)
|
|
$
|
—
|
|
|
$
|
(493
|
)
|
|
$
|
(169
|
)
|
|
$
|
(1,982
|
)
|
|
$
|
(12,395
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill, net
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 1, 2015
|
|
$
|
—
|
|
|
$
|
4,970
|
|
|
$
|
57,144
|
|
|
$
|
2,357
|
|
|
$
|
1,912
|
|
|
$
|
66,383
|
|
|
Foreign currency translation
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(80
|
)
|
|
70
|
|
|
(10
|
)
|
Balance at August 31, 2016
|
|
—
|
|
|
4,970
|
|
|
57,144
|
|
|
2,277
|
|
|
1,982
|
|
|
66,373
|
|
|
Acquisitions
|
|
—
|
|
|
—
|
|
|
306
|
|
|
—
|
|
|
—
|
|
|
306
|
|
|
Foreign currency translation
|
|
—
|
|
|
—
|
|
|
—
|
|
|
218
|
|
|
—
|
|
|
218
|
|
|
Impairment
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,982
|
)
|
|
(1,982
|
)
|
Balance at August 31, 2017
|
|
$
|
—
|
|
|
$
|
4,970
|
|
|
$
|
57,450
|
|
|
$
|
2,495
|
|
|
$
|
—
|
|
|
$
|
64,915
|
|
In the fourth quarter of
2017
, the Company recorded a
$2.0 million
goodwill impairment charge related to a reporting unit in its International Marketing and Distribution segment due to management's decision to wind-down the associated operations. For fiscal
2016
, the annual goodwill impairment analysis did not result in any impairment charges at any of the Company's reporting units. For fiscal
2015
, the Company recorded a
$7.3 million
goodwill impairment charge related to its Americas Recycling segment due to weakened demand for ferrous scrap exports coupled with a lower near term forecast of future operating results.
The Company estimates the fair value of its reporting units using a weighting of fair values derived from the income and market approaches. Under the income approach, the Company determines the fair value of a reporting unit based on the present value of estimated future cash flows. Cash flow projections are based on management's estimates of revenue growth rates and operating margins, taking into account industry and market conditions. The discount rate is based on a weighted average cost of capital adjusted for the relevant risk associated with the characteristics of the Company. The market approach, on the other hand, estimates fair value based on market multiples of revenue and earnings derived from comparable publicly-traded companies with similar operating and investment characteristics as the reporting unit.
As of
August 31, 2017
and
2016
, one of the Company's reporting units within the Americas Fabrication reporting unit comprised
$51.6 million
and
$51.3 million
, respectively, of the Company's total goodwill. As a result of our annual testing, the fair value of this reporting unit exceeded the carrying value by
13.5%
. The assumptions that have the most significant impact on determination of the fabrication reporting unit fair value are the estimates of gross margin expansion, value of the terminal year, and the weighted average cost of capital (discount rate). A change in any of these assumptions, individually or in the aggregate, or future financial performance that is below management expectations may result in the carrying value of this reporting unit exceeding its fair value,
and goodwill could be impaired. For all other reporting units, the excess of the fair value over carrying value of each reporting unit was substantial. The future occurrence of a potential indicator of impairment could include matters such as: a decrease in expected net earnings, adverse equity market conditions, a decline in current market multiples, a decline in CMC's common stock price, a significant adverse change in legal factors or the general business climate, an adverse action or assessment by a regulator, a significant downturn in non-residential construction markets in the United States, and continued levels of imported steel into the United States. In the event of significant adverse changes of the nature described above, it may be necessary for the Company to recognize a non-cash impairment of goodwill, which could have a material adverse effect on the Company's consolidated business, results of operations and financial condition.
The following intangible assets subject to amortization are included in other noncurrent assets on the Company's consolidated balance sheets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August 31, 2017
|
|
August 31, 2016
|
(in thousands)
|
|
Gross
Carrying Amount
|
|
Accumulated Amortization
|
|
Net
|
|
Gross
Carrying Amount
|
|
Accumulated Amortization
|
|
Net
|
Customer base
|
|
$
|
6,334
|
|
|
$
|
2,660
|
|
|
$
|
3,674
|
|
|
$
|
6,160
|
|
|
$
|
2,714
|
|
|
$
|
3,446
|
|
Favorable land leases
|
|
10,189
|
|
|
2,849
|
|
|
7,340
|
|
|
10,081
|
|
|
2,518
|
|
|
7,563
|
|
Non-competition agreements
|
|
1,750
|
|
|
578
|
|
|
1,172
|
|
|
1,600
|
|
|
371
|
|
|
1,229
|
|
Brand name
|
|
1,328
|
|
|
770
|
|
|
558
|
|
|
628
|
|
|
328
|
|
|
300
|
|
Other
|
|
101
|
|
|
65
|
|
|
36
|
|
|
101
|
|
|
58
|
|
|
43
|
|
Total
|
|
$
|
19,702
|
|
|
$
|
6,922
|
|
|
$
|
12,780
|
|
|
$
|
18,570
|
|
|
$
|
5,989
|
|
|
$
|
12,581
|
|
Excluding goodwill, there are no other significant intangible assets with indefinite lives. Amortization expense for intangible assets for the years ended
August 31, 2017
,
2016
and
2015
was
$2.3 million
,
$3.6 million
, and
$6.9 million
, respectively. At
August 31, 2017
, the weighted average remaining useful life of these intangible assets, excluding the favorable land leases was
seven years
. The weighted average life of the favorable land leases was
48 years
. Estimated amounts of amortization expense for the next five years are as follows.
|
|
|
|
|
|
|
|
|
Year Ended August 31,
|
|
(in thousands)
|
2018
|
|
$
|
1,578
|
|
2019
|
|
1,342
|
|
2020
|
|
1,105
|
|
2021
|
|
1,082
|
|
2022
|
|
804
|
|
NOTE 8. LONG-LIVED ASSET IMPAIRMENT AND FACILITY CLOSURE COSTS
See Note 3, Changes in Business, for discussion on the Company's plan to exit its International Marketing and Distribution segment. Expenses associated with exiting this business included severance pay in fiscal 2017. See Note 9, Severance for additional information. Also refer to Note 7, Goodwill and Other Intangible Assets, and Note 13, Fair Value, for a discussion of other impairments. There were no material long-lived asset impairment charges recorded during the year ended August 31, 2017.
During fiscal
2016
and
2017
, the Company exited its steel trading and distribution businesses headquartered in Cardiff, Wales, United Kingdom. These operations were included in the Company's International Marketing and Distribution reporting segment. The expenses associated with exiting these businesses were not material in each respective fiscal year and were included in selling, general and administrative expenses in the Company's consolidated statements of earnings.
During the first quarter of fiscal 2015, the Company decided to exit and sell its steel distribution business in Australia, which met the definition of a discontinued operation. As a result, this business is presented as a discontinued operation for all periods presented. During the third quarter of fiscal 2016, the Company recorded an impairment charge of
$15.8 million
, including the impact of an approximate
$13.5 million
accumulated foreign currency translation loss, on its remaining component of the Australian steel distribution business that was classified as held for sale
at May 31, 2016. See Note 13, Fair Value, for further discussion of this impairment charge. Other expenses associated with exiting this business were not material for the years ended
August 31, 2017
,
2016
, and
2015
.
Based on continued margin and volume pressure in the Company's Americas Recycling segment, which caused the Company to revise its estimate as to the timing of improvement in these metrics, during the fourth quarter of fiscal 2016, management concluded a triggering event occurred. As a result, the Company reviewed the undiscounted future cash flows for its Americas Recycling long-lived asset groups. The results of the undiscounted future cash flow analyses indicated the carrying amounts for certain long-lived asset groups subject to testing were not expected to be recovered. The Company estimated the fair value for these long-lived asset groups using market and income approaches. The fair value was then compared to the carrying values of the long-lived asset groups. The resulting impairment charges of
$38.9 million
were recorded within the Americas Recycling segment at August 31, 2016.
NOTE 9. SEVERANCE
The Company recorded consolidated severance cost of
$25.0 million
,
$3.2 million
and
$5.8 million
for the years ended
August 31, 2017
,
2016
and
2015
, respectively. The severance cost recorded during fiscal
2017
related primarily to the Company's discontinued operations, as the closure of marketing and distribution offices resulted in involuntary employee termination benefits. As of
August 31, 2017
and 2016, the remaining liability to be paid in the future related to termination benefits was
$16.9 million
and
$0.9 million
, respectively, and is included in accrued expenses and other payables on the Company's consolidated balance sheets.
NOTE 10. CREDIT ARRANGEMENTS
Long-term debt, which as of
August 31, 2016
included the deferred gain from the termination of the interest rate swaps, was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
Interest Rate as of August 31, 2017
|
|
August 31,
|
(in thousands)
|
|
|
2017
|
|
2016
|
2027 Notes
|
|
5.375%
|
|
$
|
300,000
|
|
|
$
|
—
|
|
2023 Notes
|
|
4.875%
|
|
330,000
|
|
|
330,000
|
|
Term Loan (Due 2022)
|
|
2.804%
|
|
150,000
|
|
|
—
|
|
2018 Notes
|
|
6.400%
|
|
—
|
|
|
408,874
|
|
2017 Notes
|
|
5.740%
|
|
—
|
|
|
302,601
|
|
Other, including equipment notes
|
|
|
|
52,077
|
|
|
34,166
|
|
Total long-term debt
|
|
|
|
832,077
|
|
|
1,075,641
|
|
Less: Debt issuance costs
|
|
|
|
7,315
|
|
|
4,224
|
|
Total long-term debt outstanding
|
|
|
|
824,762
|
|
|
1,071,417
|
|
Less: Current maturities of long-term debt
|
|
|
|
19,182
|
|
|
313,469
|
|
Long-term debt
|
|
|
|
$
|
805,580
|
|
|
$
|
757,948
|
|
In July 2017, the Company issued
$300.0 million
of
5.375%
Senior Notes due July 15, 2027 (the "2027 Notes"). Interest on these 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 these notes is payable semiannually.
On
June 26, 2014
, the Company entered into a fourth amended and restated credit agreement (the "Credit Agreement") with a revolving credit facility of
$350.0 million
and a maturity date of
June 26, 2019
. On June 23, 2017, the Company entered into a second amendment to the Credit Agreement. Among other things, the second amendment extends the maturity of the Credit Agreement to June 23, 2022 and provides for a senior secured term loan in the maximum principal amount of
$150.0 million
(the "Term Loan"). The Term Loan will mature in June 2022 and was drawn upon on July 13, 2017. The Company is required to make quarterly payments on the Term Loan equal to
1.25%
of the original principal amount. The maximum availability under the Credit Agreement, including the Term Loan, can be increased to
$750.0 million
with bank approval. The Company had no amounts drawn under the revolving portion of its Credit Agreement at
August 31, 2017
or
2016
. The Company's obligation under the Credit Agreement is collateralized by its U.S. inventory and U.S. fabrication receivables. The Credit Agreement's capacity includes
$50.0 million
for the issuance of stand-by letters of credit and was reduced by outstanding stand-by letters of credit which totaled
$3.0 million
at both
August 31, 2017
and
2016
.
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, as each is 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, as each is defined in the Credit Agreement) that does not exceed
0.60
to
1.00
. Loans under the Credit Agreement bear interest based on the Eurocurrency rate, a base rate, or the LIBOR rate. At
August 31, 2017
, the Company's interest coverage ratio was
5.29
to
1.00
and the Company's debt to capitalization ratio was
0.37
to
1.00
.
In
August 2008
, the Company issued
$500.0 million
of
7.35%
senior unsecured notes due
August 2018
(the "2018 Notes"). During the third quarter of fiscal 2010, the Company entered into hedging transactions which reduced the Company's effective interest rate on these notes to
6.40%
per annum. Interest on these notes is payable semiannually. In February 2016, the Company accepted for purchase approximately
$100.2 million
of the outstanding principal amount of its 2018 Notes through a cash tender offer. The Company recognized expenses of approximately
$6.1 million
related to the early extinguishment of this debt, which are included in loss on debt extinguishment in the consolidated statement of earnings for the year ended
August 31, 2016
.
In
July 2007
, the Company issued
$400.0 million
of
6.50%
senior unsecured notes due
July 2017
(the "2017 Notes"). During the third quarter of fiscal 2011, the Company entered into hedging transactions which reduced the Company's effective interest rate on these notes to
5.74%
per annum. Interest on these notes is payable semiannually. In February 2016, the Company accepted for purchase
$100.0 million
of the outstanding principal amount of its 2017 Notes though a cash tender offer. The Company recognized expenses of approximately
$5.4 million
related to the early extinguishment of this debt, which are included in loss on debt extinguishment in the consolidated statement of earnings for the year ended
August 31, 2016
.
During the
fourth
quarter of fiscal
2017
, the Company redeemed the full outstanding principal amount of its 2017 and 2018 Notes. The Company recognized expenses of
$22.7 million
related to the early extinguishment of the 2018 Notes, which are included in loss on debt extinguishment in the consolidated statements of earnings for the year ended
August 31, 2017
.
During fiscal 2012, the Company terminated its existing interest rate swap transactions and received cash proceeds of approximately
$52.7 million
, net of customary finance charges. The resulting gain was deferred and was being amortized as a reduction to interest expense over the remaining term of the respective debt tranches. At
August 31, 2016
,
$11.6 million
of the deferred gain remained unamortized, and at
August 31, 2017
,
no
gain remained unamortized. Amortization of the deferred gain was
$11.6 million
for the year ended
August 31, 2017
and
$7.6 million
for each of the years ended
August 31, 2016
and
2015
.
The Company has uncommitted credit facilities available from U.S. and international banks. In general, these credit facilities are used to support trade letters of credit (including accounts payable settled under bankers' acceptances as described in Note 2, Summary of Significant Accounting Policies), foreign exchange transactions and short-term advances which are priced at market rates.
At
August 31, 2017
and
2016
, CMC Poland Sp. z.o.o. ("CMCP") had uncommitted credit facilities with several banks of PLN
175.0 million
(
$49.1 million
) and PLN
175.0 million
(
$44.8 million
), respectively. As of
August 31, 2017
, the uncommitted credit facilities have expiration dates ranging from
November 2017
to March 2018, which CMCP intends to renew upon expiration. At
August 31, 2017
and
2016
,
no
amounts were outstanding under these facilities. During fiscal
2017
and fiscal
2016
, CMCP had
no
borrowings or repayments under its uncommitted credit facilities. During fiscal
2015
, CMCP had total borrowing and total repayments of
$49.6 million
each under its uncommitted credit facilities.
At
August 31, 2017
, the Company was in compliance with all of the covenants contained in our credit arrangements.
The scheduled maturities of the Company's long-term debt are as follows:
|
|
|
|
|
|
Year Ending August 31,
|
|
(in thousands)
|
|
2018
|
|
$
|
19,182
|
|
2019
|
|
18,276
|
|
2020
|
|
13,560
|
|
2021
|
|
10,648
|
|
2022
|
|
122,346
|
|
Thereafter
|
|
648,065
|
|
Total long-term debt
|
|
832,077
|
|
Less: Debt issuance costs
|
|
7,315
|
|
Total long-term debt outstanding
|
|
$
|
824,762
|
|
The Company capitalized
$9.8 million
and
$3.6 million
of interest in the cost of property, plant and equipment during fiscal years
2017
and 2016, and an immaterial amount during fiscal year
2015
. Cash paid for interest for the years ended
August 31, 2017
,
2016
and
2015
was
$65.7 million
,
$74.7 million
and
$86.7 million
, respectively.
NOTE 11. NEW MARKETS TAX CREDIT TRANSACTIONS
The Company, through its wholly-owned subsidiary, CMC Steel Oklahoma, LLC ("CMC Steel OK"), is in the process of constructing a micro mill with an expected commissioning date in the second quarter of fiscal 2018 and a separate project to install a spooler with an expected commissioning date in the spring of 2018. Additionally, the Company, through its wholly-owned subsidiary, CMC Post Oklahoma, LLC ("CMC Post OK"), is in the process of constructing a T-post shop with an expected commissioning date in the summer of 2018. These projects are located in Durant, Oklahoma. In connection with these projects, the Company entered into transactions that qualified through the New Markets Tax Credit program provided for in the Community Renewal Tax Relief Act of 2000 (the "NMTC Program"), as the micro mill, spooler and T-post shop will be located in a zone designated by the IRS as eligible for the NMTC Program and are considered eligible business activities for the NMTC Program. Under the NMTC Program, an investor that makes a capital investment, which, in turn, together with leverage loan sources, is used to make a Qualifying Equity Investment (a "QEI") in an entity that (a) qualifies as a Community Development Entity ("CDE"), (b) has applied for and been granted an allocation of a portion of the total federal funds available to fund the credits (an "NMTC Allocation") and (c) uses a minimum specified portion of the QEI to make a Qualified Low Income Community Investment up to the maximum amount of the CDE’s NMTC Allocation will be entitled to claim, over a period of seven years, federal nonrefundable tax credits in an amount equal to 39% of the QEI amount (an "NMTC"). NMTCs are subject to 100% recapture for a period of seven years as provided in the Internal Revenue Code.
Micro Mill NMTC Transaction
In the second quarter of fiscal 2016, certain of the Company's subsidiaries entered into an NMTC transaction with U.S. Bancorp Community Development Corporation, a Minnesota corporation ("USBCDC"), related to the construction, development and equipping of a new micro mill in Durant, Oklahoma (the "Micro Mill Project"). To effect the transaction, USBCDC made a
$17.7 million
capital contribution ("the USBCDC Equity") to USBCDC Investment Fund 156, LLC, a Missouri limited liability company (the "Investment Fund"). Additionally, Commonwealth Acquisition Holdings, Inc., a wholly-owned subsidiary of the Company ("Commonwealth"), made a
$35.3 million
loan to the Investment Fund at an interest rate of approximately
1.08%
per year with a maturity date of December 24, 2045 (the "Commonwealth Mill Loan"). The Investment Fund used
$51.5 million
of the proceeds received from the Commonwealth Mill Loan and the USBCDC Equity to make QEIs into CDEs, which, in turn, used
$50.7 million
of the QEIs to make loans to CMC Steel OK with terms similar to the Commonwealth Mill Loan and as partial financing for the Micro Mill Project. The proceeds of the loans from the CDEs were recorded as restricted cash and included in other current assets in the accompanying consolidated balance sheets. In connection with this NMTC transaction, CMC Steel OK spent
$21.0 million
for qualified construction, development and equipping activities and for fees and costs incurred for the Micro Mill Project, including construction period interest for loan servicing, audit and tax expenses and management fees paid to the CDEs during the fiscal year ended August 31, 2017. The balance remaining in restricted cash was
$0.7 million
at August 31, 2017.
Post Shop NMTC Transaction
In the third quarter of fiscal 2017, certain of the Company's subsidiaries entered into a second NMTC transaction with USBCDC, related to the construction, development and equipping of a new T-post shop in Durant, Oklahoma (the "Post Shop Project"). To
effect the transaction, USBCDC made capital contributions to Twain Investment Fund 219, LLC (the "Fund 219"), and Twain Investment Fund 222 (the "Fund 222"), both Missouri limited liability companies, in the amounts of
$2.8 million
(the "USBCDC Fund 219 Equity") and
$2.2 million
(the "USBCDC Fund 222 Equity"), respectively. Additionally, Commonwealth made a
$10.4 million
loan to Fund 219 at an interest rate of approximately
1.16%
per year with a maturity date of March 23, 2047 (the "Commonwealth Post Shop Loan"). Fund 219 used
$12.8 million
of the proceeds received from the Commonwealth Post Shop Loan and the USBCDC Fund 219 Equity to make a QEI into a CDE, which, in turn, used
$12.6 million
of the QEI to make a loan to CMC Post OK with terms similar to the Commonwealth Post Shop Loan and as partial financing for the Post Shop Project. Additionally, Fund 222 used
$2.2 million
of the proceeds received from the USBCDC Fund 222 Equity to make a QEI into a CDE, which, in turn, used
$2.1 million
of the QEI to make a loan to CMC Post OK. The proceeds of the loans from the CDEs were recorded as restricted cash and included in other current assets in the accompanying consolidated balance sheet. In connection with this NMTC transaction, CMC Post OK spent
$0.8 million
for qualified construction, development and equipping activities and for fees and costs incurred for the Post Shop Project, including construction period interest for loan servicing, audit and tax expenses and management fees paid to the CDEs during the year ended August 31, 2017. The balance remaining in restricted cash was
$13.3
million at August 31, 2017.
Spooler NMTC Transaction
In the fourth quarter of fiscal 2017, certain of the Company's subsidiaries entered into a third NMTC transaction with USBCDC, related to the procurement and installation of equipment that will produce spooled rebar in the new micro mill in Durant, Oklahoma (the "Spooler Project"). To effect the transaction, USBCDC made capital contributions to Twain Investment Fund 249, LLC (the "Fund 249"), a Missouri limited liability company, in the amount of
$6.7 million
(the "USBCDC Fund 249 Equity"). Additionally, Commonwealth made a
$14.0 million
loan to Fund 249 at an interest rate of approximately
1.39%
per year with a maturity date of July 26, 2042 (the "Commonwealth Spooler Loan"). Fund 249 used
$20.0 million
of the proceeds received from the Commonwealth Spooler Loan and the USBCDC Fund 249 Equity to make a QEI into a CDE, which, in turn, used
$19.4 million
of the QEI to make loans to CMC Steel OK with terms similar to the Commonwealth Spooler Loan and as partial financing for the Spooler Project. The proceeds of the loans from the CDE, less certain transaction costs, were recorded as restricted cash and included in other current assets in the accompanying consolidated balance sheet. In connection with this NMTC transaction, CMC Steel OK had no spending for qualified procurement activities for the Spooler Project during the year ended August 31, 2017. The balance remaining in restricted cash was
$18.8 million
at August 31, 2017.
Variable Interest Entities
By virtue of its capital contributions to the Investment Fund, Fund 219, and Fund 249, (collectively the "Funds") USBCDC is entitled to substantially all of the benefits derived from the NMTCs. These transactions include a put/call provision whereby the Company may be obligated or entitled to repurchase USBCDC’s interest in the Funds at the end of a
seven
-year period, in the case of the Investment Fund and Fund 249 or an
eight
-year period, in the case of Fund 219 (each of such periods an "Exercise Period"). The Company believes USBCDC will exercise the put options following the end of the respective Exercise Periods. The value attributed to the put/call is de minimis. The Company is required to be in compliance with various regulations and contractual provisions that apply to the NMTC transactions. Non-compliance with applicable requirements could result in unrealized projected tax benefits and, therefore, could require the Company to indemnify USBCDC for any loss or recapture of NMTCs related to the financing until such time as the Company's obligation to deliver tax benefits is relieved. The Company does not anticipate any credit recaptures will be required in connection with these transactions.
The Company has determined that the Funds are VIEs, of which the Company is the primary beneficiary and has consolidated them in accordance with Accounting Standards Codification Topic 810, Consolidation. USBCDC’s contributions are included in other long-term liabilities in the accompanying consolidated balance sheets. Direct costs incurred in structuring the transactions were deferred and are recognized as expense over each Exercise Period. Incremental costs to maintain the structures during the compliance periods are recognized as incurred.
The Company has determined that Fund 222 is a VIE, of which the Company is not the primary beneficiary and has therefore not consolidated Fund 222 and treated the QEI of
$2.1 million
from Fund 222 as debt. The determination that the Company is not the primary beneficiary was partially based on the fact that no put/call provision exists whereby the Company is able to repurchase USBCDC's interest in the Fund following the end of the Exercise Period. The debt is included in long-term debt in the accompanying consolidated balance sheet as of August 31, 2017, and represents the Company's maximum exposure to loss as a result of its involvement with the VIE.
NOTE 12. 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, natural gas prices and interest rates. 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 the volatility of the commodities' prices and (ii) foreign currency forward contracts that match the expected settlements for purchases and sales denominated in foreign currencies.
The Company considers the total notional value of its futures and forward contracts as the best measure of the volume of derivative transactions. At
August 31, 2017
, the notional values of the Company's foreign currency contract commitments and its commodity contract commitments were
$300.4 million
and
$59.3 million
, respectively. At
August 31, 2016
, the notional values of the Company's foreign currency contract commitments and its commodity contract commitments were
$258.3 million
and
$19.8 million
, respectively.
The Company designates only those contracts which closely match the terms of the underlying transaction as hedges for accounting purposes. These hedges resulted in substantially no ineffectiveness in the Company's consolidated statements of earnings, and there were no components excluded from the assessment of hedge effectiveness for the years ended
August 31, 2017
and
2016
. 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 activities related to the Company's derivative instruments and hedged items recognized in the consolidated statements of earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended August 31,
|
Derivatives Not Designated as Hedging Instruments (in thousands)
|
|
Location
|
|
2017
|
|
2016
|
|
2015
|
Commodity
|
|
Cost of goods sold
|
|
$
|
(9,095
|
)
|
|
$
|
2,675
|
|
|
$
|
7,746
|
|
Foreign exchange
|
|
Net sales
|
|
—
|
|
|
—
|
|
|
3,005
|
|
Foreign exchange
|
|
Cost of goods sold
|
|
(47
|
)
|
|
19
|
|
|
4,996
|
|
Foreign exchange
|
|
SG&A expenses
|
|
(5,400
|
)
|
|
11,732
|
|
|
23,105
|
|
Gain (loss) from continuing operations before income taxes
|
|
|
|
$
|
(14,542
|
)
|
|
$
|
14,426
|
|
|
$
|
38,852
|
|
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of gain (loss) recognized in income on derivatives for the year ended August 31,
|
|
|
Amount of gain (loss) recognized in income on related hedge items for the year ended August 31,
|
|
Location of gain (loss) recognized in income on derivatives
|
2017
|
|
2016
|
|
2015
|
|
Location of gain (loss) recognized in income on related hedged items
|
2017
|
|
2016
|
|
2015
|
Foreign exchange
|
Net sales
|
$
|
25
|
|
|
$
|
(38
|
)
|
|
$
|
(236
|
)
|
|
Net sales
|
$
|
(25
|
)
|
|
$
|
38
|
|
|
$
|
236
|
|
Foreign exchange
|
Cost of goods sold
|
(1,436
|
)
|
|
(1,075
|
)
|
|
888
|
|
|
Cost of goods sold
|
1,436
|
|
|
1,075
|
|
|
(888
|
)
|
Gain (loss) from continuing operations before income taxes
|
|
$
|
(1,411
|
)
|
|
$
|
(1,113
|
)
|
|
$
|
652
|
|
|
|
$
|
1,411
|
|
|
$
|
1,113
|
|
|
$
|
(652
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective Portion of Derivatives Designated as Cash Flow Hedging Instruments Recognized in Accumulated Other Comprehensive Income (Loss) (in thousands)
|
|
August 31,
|
|
2017
|
|
2016
|
|
2015
|
Commodity
|
|
$
|
210
|
|
|
$
|
(204
|
)
|
|
$
|
(635
|
)
|
Foreign exchange
|
|
546
|
|
|
1,822
|
|
|
(1,832
|
)
|
Gain (loss), net of income taxes
|
|
$
|
756
|
|
|
$
|
1,618
|
|
|
$
|
(2,467
|
)
|
Refer to Note 4, Accumulated Other Comprehensive Income (Loss), for the effective portion of derivatives designated as cash flow hedging instruments reclassified from AOCI.
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 consolidated balance sheets. The asset and liability balances in the tables below reflect the gross amounts of derivative instruments at
August 31, 2017
and
2016
. The fair value of the Company's derivative instruments on the consolidated balance sheets was as follows:
|
|
|
|
|
|
|
|
|
|
Derivative Assets (in thousands)
|
|
August 31,
|
|
2017
|
|
2016
|
Commodity — not designated for hedge accounting
|
|
$
|
767
|
|
|
$
|
584
|
|
Foreign exchange — designated for hedge accounting
|
|
81
|
|
|
1,398
|
|
Foreign exchange — not designated for hedge accounting
|
|
1,286
|
|
|
750
|
|
Derivative assets (other current assets)*
|
|
$
|
2,134
|
|
|
$
|
2,732
|
|
|
|
|
|
|
Commodity — designated for hedge accounting
|
|
$
|
—
|
|
|
$
|
4
|
|
Derivative assets (assets held for sale - current)*
|
|
$
|
—
|
|
|
$
|
4
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Liabilities (in thousands)
|
|
August 31,
|
|
2017
|
|
2016
|
Commodity — not designated for hedge accounting
|
|
3,251
|
|
|
117
|
|
Foreign exchange — designated for hedge accounting
|
|
1,549
|
|
|
902
|
|
Foreign exchange — not designated for hedge accounting
|
|
3,710
|
|
|
1,161
|
|
Derivative liabilities (accrued expenses and other payables)*
|
|
$
|
8,510
|
|
|
$
|
2,180
|
|
|
|
|
|
|
Commodity — designated for hedge accounting
|
|
$
|
—
|
|
|
$
|
5
|
|
Derivative liabilities (liabilities held for sale - current)*
|
|
$
|
—
|
|
|
$
|
5
|
|
_________________________
* Derivative assets and liabilities do not include the hedged items designated as fair value hedges.
As of
August 31, 2017
and
2016
, all 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.
NOTE 13. FAIR VALUE
The Company has established a fair value hierarchy which prioritizes the inputs to the valuation techniques used to measure fair value into
three
levels. These levels are determined based on the lowest level input that is significant to the fair value measurement. Levels within the hierarchy are defined as follows:
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at Reporting Date Using
|
(in thousands)
|
|
August 31, 2017
|
|
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)
|
|
$
|
43,553
|
|
|
$
|
43,553
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Commodity derivative assets
(2)
|
|
767
|
|
|
767
|
|
|
—
|
|
|
—
|
|
Foreign exchange derivative assets
(2)
|
|
1,367
|
|
|
—
|
|
|
1,367
|
|
|
—
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Commodity derivative liabilities
(2)
|
|
3,251
|
|
|
3,251
|
|
|
—
|
|
|
—
|
|
Foreign exchange derivative liabilities
(2)
|
|
5,259
|
|
|
—
|
|
|
5,259
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at Reporting Date Using
|
(in thousands)
|
|
August 31, 2016
|
|
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)
|
|
$
|
278,759
|
|
|
$
|
278,759
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Commodity derivative assets
(2)
|
|
588
|
|
|
584
|
|
|
4
|
|
|
—
|
|
Foreign exchange derivative assets
(2)
|
|
2,148
|
|
|
—
|
|
|
2,148
|
|
|
—
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Commodity derivative liabilities
(2)
|
|
122
|
|
|
117
|
|
|
5
|
|
|
—
|
|
Foreign exchange derivative liabilities
(2)
|
|
2,063
|
|
|
—
|
|
|
2,063
|
|
|
—
|
|
_________________
(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 the New York Mercantile Exchange. Amount in Level 2 are based on broker quotes in the over-the-counter market. Further discussion regarding the Company's use of derivative instruments and the classification of the assets and liabilities is included in Note 13, Derivatives and Risk Management.
In the fourth quarter of fiscal 2017, as a result of the Company's plan to pursue a restructuring and sale of the steel trading business in Australia, the Company prepared an impairment analysis on the asset disposal groups in Australia. As a result, during the fourth quarter of fiscal 2017, the Company recorded an impairment charge of
$4.2 million
related to accumulated foreign currency translation loss. Indicators of value from other recent sales of similar businesses within the segment (Level 3) were the basis for the determination of fair value of this component. This loss was recorded within earnings from continuing operations during the year ended August 31, 2017 and is included in the asset impairments line as a non-cash add back to net earnings on the Company's consolidated statement of cash flows. See Note 3, Changes in Business, for additional discussion of the Company's plans for its International Marketing and Distribution segment.
On June 10, 2016, the Company, through its wholly-owned Australian subsidiary, G.A.M. Steel Pty. Ltd., signed a definitive asset sale agreement to sell its remaining steel distribution assets located in Australia. During the third quarter of fiscal 2016, the Company recorded an impairment charge of
$15.8 million
, including the impact of an approximate
$13.5 million
accumulated foreign currency translation loss, on this remaining component of the Australian steel distribution business that was classified as held for sale
at May 31, 2016. The signed definitive asset sale agreement (Level 3) was the basis for the determination of fair value of this component. This impairment charge was recorded in loss from discontinued operations during the year ended August 31, 2016.
In the fourth quarter of fiscal 2016, the Company prepared an impairment analysis on long-lived asset groups within the Americas Recycling segment and determined the carrying value of certain fixed assets exceeded their fair value as determined using market
and income approaches. Determining the fair value is judgmental in nature and requires the use of significant estimates and assumptions, considered to be level 3 inputs, including projected cash flows over the estimated projection period and the discount rate. The resulting
$38.9 million
non-cash, pre-tax impairment charges were recorded within the Americas Recycling segment. See Note 8, Long-Lived Asset Impairment and Facility Closure Costs, for additional information. After consideration of the impairment charges, the fair value of the Americas Recycling segment's fixed assets was
$82.8 million
at August 31, 2016. There were no other material non-recurring fair value remeasurements during fiscal years ended
August 31, 2017
and
2016
.
The carrying values of the Company's short-term items, including the deferred purchase price of accounts receivable, documentary letters of credit and notes payable, approximate fair value due to their short-term nature.
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 consolidated balance sheets are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August 31, 2017
|
|
August 31, 2016
|
(in thousands)
|
|
Fair Value Hierarchy
|
|
Carrying Value
|
|
Fair Value
|
|
Carrying Value
|
|
Fair Value
|
2027 Notes
(1)
|
|
Level 2
|
|
$
|
300,000
|
|
|
$
|
314,286
|
|
|
$
|
—
|
|
|
$
|
—
|
|
2023 Notes
(1)
|
|
Level 2
|
|
330,000
|
|
|
340,052
|
|
|
330,000
|
|
|
332,010
|
|
2022 Term Loan
(2)
|
|
Level 2
|
|
150,000
|
|
|
150,000
|
|
|
—
|
|
|
—
|
|
2018 Notes
(1)
|
|
Level 2
|
|
—
|
|
|
—
|
|
|
408,874
|
|
|
432,303
|
|
2017 Notes
(1)
|
|
Level 2
|
|
—
|
|
|
—
|
|
|
302,601
|
|
|
311,250
|
|
_________________
(1) The fair value of the Notes is determined based on indicated market values.
(2) The Term Loan contains variable interest rates and its carrying value approximates fair value.
NOTE 14. INCOME TAX
The components of earnings from continuing operations before income taxes are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended August 31,
|
(in thousands)
|
|
2017
|
|
2016
|
|
2015
|
United States
|
|
$
|
15,739
|
|
|
$
|
47,076
|
|
|
$
|
81,619
|
|
Foreign
|
|
29,265
|
|
|
21,634
|
|
|
14,843
|
|
Total
|
|
$
|
45,004
|
|
|
$
|
68,710
|
|
|
$
|
96,462
|
|
The income taxes (benefit) included in the consolidated statements of earnings are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended August 31,
|
(in thousands)
|
|
2017
|
|
2016
|
|
2015
|
Current:
|
|
|
|
|
|
|
United States
|
|
$
|
11,345
|
|
|
$
|
5,224
|
|
|
$
|
53,258
|
|
Foreign
|
|
9,464
|
|
|
6,991
|
|
|
3,329
|
|
State and local
|
|
2,654
|
|
|
4,130
|
|
|
2,830
|
|
Current taxes
|
|
$
|
23,463
|
|
|
$
|
16,345
|
|
|
$
|
59,417
|
|
Deferred:
|
|
|
|
|
|
|
United States
|
|
$
|
(13,548
|
)
|
|
$
|
(4,423
|
)
|
|
$
|
(14,219
|
)
|
Foreign
|
|
(917
|
)
|
|
254
|
|
|
722
|
|
State and local
|
|
281
|
|
|
303
|
|
|
488
|
|
Deferred taxes
|
|
$
|
(14,184
|
)
|
|
$
|
(3,866
|
)
|
|
$
|
(13,009
|
)
|
Total income taxes on income
|
|
$
|
9,279
|
|
|
$
|
12,479
|
|
|
$
|
46,408
|
|
Income taxes (benefit) on discontinued operations
|
|
(3,175
|
)
|
|
1,669
|
|
|
12,950
|
|
Income taxes on continuing operations
|
|
$
|
12,454
|
|
|
$
|
10,810
|
|
|
$
|
33,458
|
|
A reconciliation of the federal statutory rate to the Company's effective income tax rate from continuing operations is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended August 31,
|
(in thousands)
|
|
2017
|
|
2016
|
|
2015
|
Income tax expense at statutory rate of 35%
|
|
$
|
15,751
|
|
|
$
|
24,050
|
|
|
$
|
33,761
|
|
Change in valuation allowance
|
|
113,089
|
|
|
75,076
|
|
|
16,194
|
|
Foreign tax impairment on valuation of subsidiaries
|
|
(92,321
|
)
|
|
(60,204
|
)
|
|
—
|
|
Nontaxable foreign interest
|
|
(19,259
|
)
|
|
(16,063
|
)
|
|
(16,712
|
)
|
Foreign rate differential
|
|
(5,534
|
)
|
|
(1,522
|
)
|
|
(1,872
|
)
|
Deferred compensation
|
|
(2,101
|
)
|
|
(1,375
|
)
|
|
772
|
|
State and local taxes
|
|
1,698
|
|
|
1,950
|
|
|
1,802
|
|
Section 199 manufacturing deduction
|
|
(1,407
|
)
|
|
(4,694
|
)
|
|
(4,017
|
)
|
Audit settlement
|
|
(659
|
)
|
|
(10,264
|
)
|
|
—
|
|
Other
|
|
3,197
|
|
|
3,856
|
|
|
3,530
|
|
Income tax expense on continuing operations
|
|
$
|
12,454
|
|
|
$
|
10,810
|
|
|
$
|
33,458
|
|
Effective income tax rates from continuing operations
|
|
27.7
|
%
|
|
15.7
|
%
|
|
34.7
|
%
|
The Company's effective income tax rate from continuing operations was
27.7%
for the year ended
August 31, 2017
, compared to the statutory rate of
35%
. Several factors influence the effective tax rate. Items that benefited the effective tax rate include:
(i) benefit for domestic production activity income under Section 199 of the Internal Revenue Code ("Section 199"),
(ii) a non-taxable gain on assets related to the Company's nonqualified Benefits Restoration Plan ("BRP"), and
(iii) 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%
.
Items negatively impacting the effective tax rate include:
(a) U.S. state and local taxes imposed on income from domestic operations, and
(b) losses from operations in certain jurisdictions where the Company maintains a valuation allowance, thus providing no benefit for such losses.
For the year ended
August 31, 2016
, the effective income tax rate from continuing operations was
15.7%
compared to the statutory rate of
35%
. Items that benefited the effective tax rate include:
(i) net favorable adjustments resulting from the settlement of an audit, including the release of certain unrecognized tax benefits for which the accruals were greater than the amount assessed,
(ii) benefit for domestic production activity income under Section 199,
(iii) a non-taxable gain on assets related to the Company's nonqualified BRP, and
(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%
.
Items negatively impacting the effective tax rate include:
(a) U.S. state and local taxes imposed on the release of unrecognized tax benefits, and
(b) losses from operations in certain jurisdictions where the Company maintains a valuation allowance, thus providing no benefit for such losses.
For the year ended
August 31, 2015
, the effective income tax rate from continuing operations was
34.7%
compared to the statutory rate of
35%
. Items that benefited the effective tax rate include:
(i) income from operations in jurisdictions with lower statutory tax rates than the U.S., including Poland, and
(ii) benefit for domestic production activity under Section 199.
Items negatively impacting the effective tax rate include:
(a) U.S. state and local taxes imposed on income from domestic operations,
(b) losses from operations in certain jurisdictions where the Company maintains a valuation allowance, thus providing no benefit for such losses, and
(c) a non-deductible loss on nonqualified BRP assets.
The Company's tax benefit from discontinued operations for the year ended
August 31, 2017
was
$3.2 million
, or an effective income tax rate of
(29.9)%
. The tax benefit in discontinued operations is largely attributed to domestic operations losses related to CMC Cometals. Additionally, income in discontinued operations from the International Marketing and Distribution segment was primarily earned in foreign jurisdictions that benefit from group loss sharing provisions. Such losses, which carry a full
valuation allowance, are utilized to absorb the International Marketing and Distribution income; thus there is no tax expense or benefit associated with the income from discontinued operations earned in foreign jurisdictions.
The Company’s tax expense from discontinued operations for the year ended
August 31, 2016
was
$1.7 million
, or an effective income tax rate of
(113.6)%
. The International Marketing and Distribution segment's incurred net pre-tax losses in foreign jurisdictions in excess of the pre-tax income earned in the U.S., producing a nominal pre-tax loss in discontinued operations. The tax expense associated with discontinued operations is primarily related to the tax effect of income earned in the U.S.
The Company’s tax expense from discontinued operations for the year ended
August 31, 2015
was
$13.0 million
, or an effective income tax rate of
44.1%
. Pre-tax income from CMC Cometals operations in the U.S., subject to tax at the statutory rate of 35%, is offset by net pre-tax losses in the International Marketing and Distribution segment's foreign operations. Such foreign pre-tax losses were recorded in jurisdictions where the Company maintains a full valuation allowance, thus providing no tax benefit for such losses.
The Company made net payments of
$31.0 million
,
$50.2 million
and
$61.0 million
for income taxes for the years ended
August 31, 2017
,
2016
and
2015
, respectively.
The income tax effects of significant temporary differences giving rise to deferred tax assets and liabilities are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
August 31,
|
(in thousands)
|
|
2017
|
|
2016
|
Deferred tax assets:
|
|
|
|
|
Deferred compensation and employee benefits
|
|
$
|
46,898
|
|
|
$
|
45,496
|
|
Net operating losses and credits
|
|
273,549
|
|
|
154,606
|
|
Reserves and other accrued expenses
|
|
21,727
|
|
|
18,831
|
|
Allowance for doubtful accounts
|
|
3,223
|
|
|
2,438
|
|
Intangibles
|
|
3,924
|
|
|
6,214
|
|
Other
|
|
2,314
|
|
|
768
|
|
Total deferred tax assets
|
|
351,635
|
|
|
228,353
|
|
Valuation allowance for deferred tax assets
|
|
(273,991
|
)
|
|
(153,011
|
)
|
Deferred tax assets, net
|
|
$
|
77,644
|
|
|
$
|
75,342
|
|
Deferred tax liabilities:
|
|
|
|
|
Fixed assets
|
|
$
|
101,707
|
|
|
$
|
96,100
|
|
Inventory
|
|
12,731
|
|
|
30,822
|
|
Other
|
|
2,455
|
|
|
2,799
|
|
Total deferred tax liabilities
|
|
$
|
116,893
|
|
|
$
|
129,721
|
|
Net deferred tax liabilities
|
|
$
|
(39,249
|
)
|
|
$
|
(54,379
|
)
|
Net operating losses giving rise to deferred tax assets consist of
$382.9 million
of state net operating losses that expire during the tax years ending from 2018 to 2037 and foreign net operating losses of
$840.4 million
that expire in varying amounts beginning in 2018 (with certain amounts having indefinite lives). These assets will be reduced as income tax expense is recognized in future periods.
The Company maintains a valuation allowance to reduce certain deferred tax assets to amounts that are more likely than not to be realized. During the years ended
August 31, 2017
and
August 31, 2016
, the Company recorded valuation allowances of
$121.0 million
and
$73.0 million
, respectively, related to net operating loss carryforwards in certain state and foreign jurisdictions due to the uncertainty of their realization. Such valuation allowances are largely attributed to losses generated by foreign tax impairment charges on valuation of subsidiaries.
In general, it is the practice and intention of the Company to reinvest the earnings of its non-U.S. subsidiaries in those operations. As of
August 31, 2017
, the Company had not made a provision for U.S. or additional foreign withholding taxes on approximately
$578.1 million
of undistributed earnings and profits associated with the excess of the amount for financial reporting over the income tax basis of investments in foreign subsidiaries that is indefinitely reinvested. Generally, such amounts become subject to U.S. taxation upon the remittance of dividends and under certain other circumstances. It is not practicable to estimate the amount of deferred tax liability related to investments in these foreign subsidiaries.
The unrecognized income tax benefits as of
August 31, 2017
and
August 31, 2016
were
$9.3 million
and
$9.5 million
, respectively, all of which, if recognized, would have impacted the Company's effective income tax rate at the end of fiscal
2017
and
2016
, respectively. The unrecognized income tax benefits as of
August 31, 2015
were
$27.3 million
, of which
$12.0 million
, if recognized, would have impacted the Company's effective tax rate for the end of fiscal
2015
.
A reconciliation of the beginning and ending amounts of unrecognized income tax benefits is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August 31,
|
(in thousands)
|
|
2017
|
|
2016
|
|
2015
|
Balance at September 1
|
|
$
|
9,522
|
|
|
$
|
27,349
|
|
|
$
|
27,349
|
|
Change in tax positions of current year
|
|
—
|
|
|
—
|
|
|
—
|
|
Change for tax positions of prior years
|
|
—
|
|
|
—
|
|
|
—
|
|
Reductions due to settlements with taxing authorities
|
|
(239
|
)
|
|
(17,827
|
)
|
|
—
|
|
Balance at August 31
|
|
$
|
9,283
|
|
|
$
|
9,522
|
|
|
$
|
27,349
|
|
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, and the balances at the end of a reporting period are recorded as part of the current or noncurrent liability for uncertain income tax positions. At
August 31, 2017
and
2016
, the Company had accrued interest and penalties related to uncertain tax positions of
$1.2 million
and
$1.0 million
, respectively.
During the twelve months ending
August 31,
2018
, we anticipate that the statute of limitations pertaining to positions of the Company in prior year income tax returns may lapse or that income tax audits in various taxing jurisdictions will be finalized. As a result of such statute lapses or audit settlements, it is reasonably possibly that the amount of unrecognized tax benefits may decrease by $9.3 million.
The Company files income tax returns in the U.S. and multiple foreign jurisdictions with varying statutes of limitations. In the normal course of business, the Company and its subsidiaries are subject to examination by various taxing authorities. The following is a summary of tax years subject to examination:
U.S. Federal — 2009 and forward
U.S. States — 2009 and forward
Foreign — 2011 and forward
During the fiscal year ended August 31, 2016, the Company completed an IRS exam for the years 2009 through 2011 and received confirmation from the United States Congress Joint Committee on Taxation that all matters were settled with the exception of R&D credits, which are still under review as of August 31, 2017. In addition, the Company is under examination with certain state revenue authorities for the years 2009 to 2015. Management believes the Company's recorded income tax liabilities as of
August 31, 2017
sufficiently reflect the anticipated outcome of these examinations.
NOTE 15. STOCK-BASED COMPENSATION PLANS
The Company's stock-based compensation plans provide for the issuance of incentive and nonqualified stock options, restricted stock and units, stock appreciation rights and performance-based awards. The Compensation Committee of CMC's Board of Directors (the "Compensation Committee") approves all awards that are granted under the Company's stock-based compensation plans. Stock-based compensation expense for the years ended
August 31, 2017
,
2016
and
2015
of
$30.3 million
,
$26.4 million
and
$23.5 million
, respectively, is mainly included in selling, general and administrative expenses on the Company's consolidated statements of earnings. As of
August 31, 2017
, total unrecognized compensation cost related to unvested stock-based compensation arrangements was
$19.3 million
, which is expected to be recognized over a weighted-average period of
three
years, except for certain restricted stock units granted during fiscal 2014, which are expected to vest over a weighted-average period of
four
years.
The following table summarizes the total awards granted:
|
|
|
|
|
|
|
|
|
|
Restricted Stock
Awards/Units
|
|
Performance
Awards
|
2017 Grants
|
|
1,303,976
|
|
|
576,286
|
|
2016 Grants
|
|
1,137,000
|
|
|
540,295
|
|
2015 Grants
|
|
987,574
|
|
|
462,496
|
|
As of
August 31, 2017
, CMC had
11,144,004
shares available for future grants.
Restricted Stock Units
Restricted stock units issued under the Company's stock-based compensation plans provide that units awarded may not be sold, transferred, pledged or assigned until service-based restrictions lapse. The restricted stock units granted to U.S. employees generally vest and are converted to CMC common stock in
three
equal installments on each of the first
three
anniversaries of the date of grant. The restricted stock units granted to non-U.S. employees generally vest and are settled in cash in
three
equal installments on each of the first
three
anniversaries of the date of grant. Generally, upon termination of employment, restricted stock units that have not vested are forfeited. Upon death, disability or qualifying retirement, a pro-rata portion of the unvested restricted stock awarded will vest and become payable.
Certain restricted stock units granted during fiscal 2014 will vest and either convert to CMC common stock or settle in cash after a specified service period;
25%
vest
two years
from the date of grant;
25%
vest
three years
from the date of grant; and the remaining
50%
vest
four years
from the date of grant.
The estimated fair value of the stock-settled restricted stock units is based on the closing price of CMC common stock on the date of grant, discounted for the expected dividend yield through the vesting period. Compensation cost related to the stock-settled restricted stock units is recognized ratably over the service period and is included in equity on the Company's consolidated balance sheets. During the first quarter of fiscal 2017, certain restricted stock units and performance stock units (the "modified stock units") that were previously accounted for under the equity method were modified to allow optionality related to the net share settlement feature, which resulted in accounting for these awards under the liability method. The fair value of the cash-settled restricted stock units as well as the modified stock units is remeasured each reporting period and is recognized ratably over the service period. The liability related to the cash-settled restricted stock units and modified stock units is included in accrued expenses and other payables on the Company's consolidated balance sheets. For the year ended August 31, 2017, the Company recorded expense of
$2.8 million
as a result of the modification and the impact of the change in stock value on liability-treated awards, compared to immaterial mark-to-market adjustments for the year ended August 31, 2016.
Performance Stock Units
Performance stock units issued under the Company's stock-based compensation plans provide that units awarded may not be sold, transferred, pledged or assigned until service-based restrictions lapse and any performance objectives have been attained as established by the Compensation Committee. Recipients of these awards generally must be actively employed by and providing services to the Company on the last day of the performance period in order to receive an award payout. Upon death, disability or qualifying retirement, a pro-rata portion of the performance stock units will vest and become payable at the end of the performance period.
Compensation cost for performance stock units is accrued based on the probable outcome of specified performance conditions, net of estimated forfeitures. The Company accrues compensation cost if it is probable that the performance conditions will be met. The Company reassesses the probability of meeting the specified performance conditions at the end of each reporting period and adjusts compensation cost, as necessary, based on the probability of achieving the performance conditions. If the performance conditions are not met at the end of the performance period, the Company reverses the related compensation cost.
Performance targets established by the Compensation Committee for performance stock units awarded in fiscal years
2017
,
2016
and
2015
are weighted
75%
based on the Company's cumulative EBITDA targets and positive return on invested capital for the fiscal year in which the awards were granted and the succeeding two fiscal years, as approved by CMC's Board of Directors in the respective year's business plan, and
25%
based on a three year relative total stockholder return metric. Performance stock units awarded to U.S. participants will be settled in CMC common stock. Award payouts range from a threshold of
50%
to a maximum of
200%
for each portion of the target awards. The performance stock units awarded in fiscal years
2017
and
2016
associated with the cumulative EBITDA targets have been classified as liability awards since the final EBITDA target will not be set until the
third year of the performance period. Consequently, these awards are included in accrued expenses and other payables on the Company's consolidated balance sheets. The fair value of these performance stock units is remeasured each reporting period and is recognized ratably over the service period. The performance stock units associated with the total stockholder return metric were valued at fair value on the date of grant using the Monte Carlo pricing model and are included in equity on the Company's consolidated balance sheets.
Performance stock units awarded to non-U.S. participants in fiscal
2017
,
2016
and
2015
will be settled in cash. The fair value of the performance stock units is remeasured each reporting period and is recognized ratably over the service period. The liability related to these awards is included in accrued expenses and other payables on the Company's consolidated balance sheets.
Information for restricted stock units and performance stock units, excluding those expected to settle in cash, is as follows:
|
|
|
|
|
|
|
|
|
Number
|
|
Weighted Average
Grant-Date
Fair Value
|
Outstanding as of September 1, 2014
|
2,080,580
|
|
|
$
|
15.37
|
|
Granted
|
1,468,696
|
|
|
15.79
|
|
Vested
|
(712,279
|
)
|
|
14.33
|
|
Forfeited
|
(103,663
|
)
|
|
15.51
|
|
Outstanding as of August 31, 2015
|
2,733,334
|
|
|
15.86
|
|
Granted
|
1,612,772
|
|
|
15.83
|
|
Vested
|
(1,471,436
|
)
|
|
14.47
|
|
Forfeited
|
(174,440
|
)
|
|
17.60
|
|
Outstanding as of August 31, 2016
|
2,700,230
|
|
|
16.49
|
|
Granted
|
1,462,442
|
|
|
16.17
|
|
Vested
|
(1,385,753
|
)
|
|
17.62
|
|
Forfeited
|
(323,339
|
)
|
|
16.58
|
|
Outstanding as of August 31, 2017
|
2,453,580
|
|
|
$
|
15.65
|
|
The total fair value of shares vested during fiscal years
2017
,
2016
and
2015
was
$24.4 million
,
$21.3 million
and
$10.2 million
, respectively.
The Company granted
914,545
and
464,782
equivalent shares of restricted stock units and performance stock units accounted for as liability awards during the years ended
August 31, 2017
and
2016
, respectively. As of
August 31, 2017
, the Company had
1,752,492
equivalent shares of awards outstanding and expects
1,671,441
equivalent shares to vest.
Stock Appreciation Rights
Stock appreciation rights are awarded to certain employees with an exercise price equal to the market value of CMC common stock on the date of grant.
No
stock appreciation rights were granted during the years ended
August 31, 2017
,
2016
, and
2015
.
Combined activity for the Company's stock appreciation rights, excluding the cash component, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
|
|
Weighted
Average
Exercise
Price
|
|
Weighted
Average
Remaining
Contractual Life
(Years)
|
|
Aggregate
Intrinsic Value
|
Outstanding as of September 1, 2014
|
1,437,031
|
|
|
$
|
19.85
|
|
|
|
|
|
Exercised
|
(142,604
|
)
|
|
11.80
|
|
|
|
|
|
Forfeited/Expired
|
(452,210
|
)
|
|
35.10
|
|
|
|
|
|
Outstanding as of August 31, 2015
|
842,217
|
|
|
$
|
13.04
|
|
|
2.7
|
|
$
|
2,243,765
|
|
Exercised
|
(418,378
|
)
|
|
12.10
|
|
|
|
|
|
Forfeited/Expired
|
(64,845
|
)
|
|
11.60
|
|
|
|
|
|
Outstanding as of August 31, 2016
|
358,994
|
|
|
$
|
14.39
|
|
|
1.7
|
|
$
|
405,864
|
|
Exercised
|
(235,687
|
)
|
|
14.72
|
|
|
|
|
|
Forfeited/Expired
|
(14,000
|
)
|
|
14.05
|
|
|
|
|
|
Outstanding as of August 31, 2017
|
109,307
|
|
|
$
|
13.72
|
|
|
1.3
|
|
$
|
564,826
|
|
Exercisable at August 31, 2017
|
109,307
|
|
|
$
|
13.72
|
|
|
1.3
|
|
$
|
564,826
|
|
Remaining unvested stock appreciation rights expected to vest
|
—
|
|
|
$
|
—
|
|
|
|
|
|
The total intrinsic value of stock appreciation rights exercised during fiscal
2017
and
2016
was
$1.4 million
and
$2.2 million
, respectively. The total intrinsic value of stock appreciation rights exercised during fiscal
2015
was not material.
Information related to stock appreciation rights as of August 31,
2017
is summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Appreciation Rights Outstanding and Exercisable
|
Range of Exercise Prices
|
|
Number Outstanding and Exercisable
|
|
Weighted Average Remaining Contractual Life (In Years)
|
|
Weighted Average Exercise Price
|
$11.60
|
-
|
14.12
|
|
81,307
|
|
|
1.6
|
|
$
|
12.65
|
|
$16.83
|
-
|
16.83
|
|
28,000
|
|
|
0.4
|
|
$
|
16.83
|
|
|
|
|
|
109,307
|
|
|
1.3
|
|
$
|
13.72
|
|
As of August 31,
2017
, the Company had
6,367
equivalent shares of cash-settled stock appreciation rights outstanding and expects
6,048
equivalent shares of cash-settled stock appreciation rights to vest.
Stock Purchase Plan
Almost all U.S. resident employees with one year of service at the beginning of each calendar year may participate in the Company's employee stock purchase plan. Each eligible employee may purchase up to
400
shares annually. The Board of Directors established the purchase discount of 15% based on market prices on specified dates for the years ended
August 31, 2017
,
2016
and
2015
. Yearly activity of the stock purchase plan is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
2015
|
Shares subscribed
|
|
173,420
|
|
|
212,370
|
|
|
198,710
|
|
Price per share
|
|
$
|
18.99
|
|
|
$
|
12.03
|
|
|
$
|
13.73
|
|
Shares purchased
|
|
166,220
|
|
|
156,860
|
|
|
172,170
|
|
Price per share
|
|
$
|
12.04
|
|
|
$
|
13.71
|
|
|
$
|
16.96
|
|
Shares available for future issuance
|
|
3,517,604
|
|
|
|
|
|
NOTE 16. CAPITAL STOCK
Treasury Stock
During the first quarter of fiscal 2015, CMC's Board of Directors authorized a share repurchase program under which the Company may repurchase up to
$100.0 million
of the outstanding shares of CMC common stock. The share repurchase program does not require the Company to acquire any dollar amount or number of shares of CMC common stock and may be modified, suspended, extended or terminated at any time without prior notice. During the year ended
August 31, 2017
, the Company
did not purchase any
shares of CMC common stock. During the year ended August 31,
2016
, the Company purchased
2.3 million
shares of CMC common stock at an average purchase price of
$13.57
per share. The Company had remaining authorization to purchase $
27.6 million
of CMC common stock at
August 31, 2017
.
Preferred Stock
Preferred stock has a par value of
$1.00
per share, with
2,000,000
shares authorized. It may be issued in series, and the shares of each series have such rights and preferences as may be fixed by CMC's Board of Directors when authorizing the issuance of that particular series. There are
no
shares of preferred stock outstanding.
NOTE 17. EMPLOYEES' RETIREMENT PLANS
Substantially all employees in the U.S. are covered by a defined contribution retirement plan. This tax qualified plan is maintained and contributions are made in accordance with the Employee Retirement Income Security Act of 1974, as amended ("ERISA"). The Company also provides certain eligible executives benefits pursuant to its BRP equal to amounts that would have been available under the tax qualified ERISA plan, but were subject to the limitations of ERISA, tax laws and regulations. Company expenses for these plans, a portion of which are discretionary, are primarily recorded in both cost of goods sold and selling, general and administrative expenses, with an immaterial portion included in earnings (loss) from discontinued operations before income taxes, and totaled
$28.3 million
,
$25.0 million
and
$9.7 million
for the years ended August 31,
2017
,
2016
and
2015
, respectively.
The deferred compensation liability under the BRP was
$73.1 million
and
$71.0 million
at
August 31, 2017
and
2016
, with
$50.1 million
and
$71.0 million
, respectively, included in other long-term liabilities on the Company's consolidated balance sheets. At August 31, 2017,
$23.0 million
of the deferred compensation liability related to the BRP was included in accrued expenses and other payables on the Company's consolidated balance sheets. Though under no obligation to fund the BRP, the Company has segregated assets in a trust with a current value of
$75.7 million
and
$69.7 million
at
August 31, 2017
and
2016
, respectively, and such assets were included in other long-term assets on the Company's consolidated balance sheets. The net holding gain on these segregated assets was
$7.5 million
and
$5.4 million
for the years ended
August 31, 2017
and 2016, respectively, and was included in net sales in the Company's consolidated statements of earnings. The net holding loss on these segregated assets was immaterial for the year ended
August 31, 2015
.
A certain number of employees, primarily outside of the U.S., participate in defined benefit plans that are maintained in accordance with local regulations. The Company's expenses for these plans were not material for the years ended
August 31, 2017
,
2016
and
2015
, respectively, and are primarily included in selling, general and administrative expenses in the Company's consolidated statements of earnings. The Company recognizes the unfunded status of the defined benefit plans as a liability with a corresponding reduction to accumulated other comprehensive income, net of income taxes. At
August 31, 2017
and
2016
, the Company's liability related to the unfunded status of the defined benefit plans was not material and was included in other long-term liabilities on the Company's consolidated balance sheets.
Because the defined benefit pension plans are not material to the Company's consolidated financial statements, disclosures that would have otherwise been required by GAAP have been omitted.
NOTE 18. COMMITMENTS AND CONTINGENCIES
Lease Commitments
The Company has operating leases principally relating to transportation and other equipment and real estate with varying terms. Certain of the Company's lease agreements include renewal options to extend the agreements as necessary and certain leases include escalation clauses and/or purchase options. These leases do not contain any financial covenants for the Company. Minimum lease commitments payable by the Company for noncancelable operating leases are as follows:
|
|
|
|
|
|
Year Ending August 31,
|
|
(in thousands)
|
2018
|
|
$
|
21,473
|
|
2019
|
|
15,889
|
|
2020
|
|
10,009
|
|
2021
|
|
7,392
|
|
2022
|
|
5,330
|
|
Thereafter
|
|
6,350
|
|
Total
|
|
$
|
66,443
|
|
Total rental expense was
$37.3 million
,
$40.7 million
and
$52.8 million
in fiscal years
2017
,
2016
and
2015
, respectively.
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.
On April 28, 2016, the Company was served with a lawsuit filed by Ector County, Texas and the State of Texas by and through the Texas Commission on Environmental Quality ("TCEQ") alleging violations of the Texas Solid Waste Disposal Act, the Texas Water Code, the Texas Clean Air Act, and TCEQ rules on spill prevention and control. The Plaintiffs amended their petition in February 2017 to include violations of TCEQ rules on recycling and storm water permits. The Plaintiffs further amended their petition in April 2017, broadening their allegations. The lawsuit, filed in the 201
st
Judicial District Court of Travis County, Texas, alleges improper disposal of solid waste and unauthorized outdoor burning activity at CMC’s recycling facility located in Odessa, Texas. The lawsuit seeks a penalty for each day of alleged violation under the Texas Health & Safety Code, the Texas Water Code, or the Texas Administrative Code. While the Company does not believe that it is probable that a loss has been incurred, the ultimate resolution of the matter could potentially result in a loss. Management’s best estimate of the low end of the range of the potential loss is
zero
. At this time, it is not possible to reasonably estimate the high end of the range of the potential loss, which could be material to the Company’s results of operations. Accordingly, the Company has not accrued a loss related to this matter. The Company believes that the lawsuit is without merit and is aggressively defending the action.
The Company has received notices from the U.S. Environmental Protection Agency ("EPA") or state agencies with similar responsibility that it is considered a potentially responsible party at several sites, none owned by the Company, and may be obligated under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 ("CERCLA") or similar state statutes to conduct remedial investigations, feasibility studies, remediation and/or removal of alleged releases of hazardous substances or to reimburse the EPA for such activities. The Company is involved in litigation or administrative proceedings with regard to several of these sites in which the Company is contesting, or at the appropriate time may contest, its liability at the sites. In addition, the Company has received information requests with regard to other sites which may be under consideration by the EPA as potential CERCLA sites. Some of these environmental matters or other proceedings may result in fines, penalties or judgments being assessed against the Company. At both
August 31, 2017
and
2016
, the Company had
$0.7 million
accrued for cleanup and remediation costs in connection with CERCLA sites. The estimation process is based on currently available information, which is in many cases preliminary and incomplete. Total environmental liabilities, including CERCLA sites, were
$4.3 million
and
$3.3 million
as of
August 31, 2017
and
2016
, respectively, of which
$2.1 million
were classified as other long-term liabilities as of
August 31, 2017
and
2016
. 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.
In the third quarter of fiscal 2015, the Company recorded a
$45.5 million
benefit as a result of a termination of a contract with a customer, which is included in earnings (loss) from discontinued operations before income taxes on the Company's consolidated statements of earnings for fiscal 2015.
Management believes that adequate provisions have been made in the Company's 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 19. EARNINGS PER SHARE
The calculations of basic and diluted earnings per share from continuing operations were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August 31,
|
|
|
2017
|
|
2016
|
|
2015
|
Earnings from continuing operations
|
|
$
|
32,550
|
|
|
$
|
57,900
|
|
|
$
|
63,004
|
|
|
|
|
|
|
|
|
Basic earnings per share:
|
|
|
|
|
|
|
Shares outstanding for basic earnings per share
|
|
115,654,466
|
|
|
115,211,490
|
|
|
116,527,265
|
|
|
|
|
|
|
|
|
Basic earnings per share from continuing operations
|
|
$
|
0.28
|
|
|
$
|
0.50
|
|
|
$
|
0.54
|
|
|
|
|
|
|
|
|
Diluted earnings per share:
|
|
|
|
|
|
|
Shares outstanding for basic earnings per share
|
|
115,654,466
|
|
|
115,211,490
|
|
|
116,527,265
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
Stock-based incentive/purchase plans
|
|
1,709,942
|
|
|
1,412,336
|
|
|
1,422,633
|
|
Shares outstanding for diluted earnings per share
|
|
117,364,408
|
|
|
116,623,826
|
|
|
117,949,898
|
|
|
|
|
|
|
|
|
Diluted earnings per share from continuing operations
|
|
$
|
0.27
|
|
|
$
|
0.50
|
|
|
$
|
0.53
|
|
|
|
|
|
|
|
|
Anti-dilutive shares not included above
|
|
—
|
|
|
274,251
|
|
|
371,273
|
|
Shares of CMC restricted stock is included in the number of shares of common stock issued and outstanding, but omitted from the basic earnings per share calculation until the shares vest.
NOTE 20. ACCRUED EXPENSES AND OTHER PAYABLES
Significant accrued expenses and other payables were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
August 31,
|
(in thousands)
|
|
2017
|
|
2016
|
Salaries and incentive compensation
|
|
$
|
95,488
|
|
|
$
|
107,507
|
|
Advance billings on contracts
|
|
38,449
|
|
|
28,056
|
|
Taxes other than income taxes
|
|
37,279
|
|
|
26,721
|
|
Insurance
|
|
23,540
|
|
|
23,480
|
|
BRP liability
|
|
23,000
|
|
|
—
|
|
Utilities
|
|
14,862
|
|
|
13,207
|
|
NOTE 21. BUSINESS SEGMENTS
The Company's operating segments engage in business activities from which they may earn revenues and incur expenses and 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. 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
five
reporting segments: Americas Recycling, Americas Mills, Americas Fabrication, International Mill and International Marketing and Distribution. See Note 1, Nature of Operations, for more information about the reporting segments, including the types of products and services from which each reporting segment derives its net sales.
Corporate contains earnings on BRP assets and short-term investments as well as expenses of the Company's corporate headquarters and interest expense related to its long-term debt.
The financial information presented for the International Marketing and Distribution segment excludes the operations of the Australian steel distribution and CMC Cometals. These operations have been classified as discontinued operations in the consolidated statements of earnings. See Note 3, Changes in Business, for more information.
The Company uses adjusted operating profit from continuing operations to compare and to evaluate the financial performance of its segments. Adjusted operating profit is the sum of the Company's earnings from continuing operations before interest expense, income taxes and discounts on sales of accounts receivable. 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.
The following is a summary of certain financial information from continuing operations by reportable segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
International
|
|
|
|
|
|
|
(in thousands)
|
|
Recycling
|
|
Mills
|
|
Fabrication
|
|
Mill
|
|
Marketing and Distribution
|
|
Corporate
|
|
Eliminations
|
|
Continuing Operations
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales-unaffiliated customers
|
|
$
|
865,462
|
|
|
$
|
917,689
|
|
|
$
|
1,364,826
|
|
|
$
|
635,691
|
|
|
$
|
776,382
|
|
|
$
|
9,625
|
|
|
$
|
—
|
|
|
$
|
4,569,675
|
|
Intersegment sales
|
|
146,038
|
|
|
647,765
|
|
|
11,102
|
|
|
871
|
|
|
4,982
|
|
|
—
|
|
|
(810,758
|
)
|
|
—
|
|
Net sales
|
|
1,011,500
|
|
|
1,565,454
|
|
|
1,375,928
|
|
|
636,562
|
|
|
781,364
|
|
|
9,625
|
|
|
(810,758
|
)
|
|
4,569,675
|
|
Adjusted operating profit (loss)
|
|
14,822
|
|
|
168,805
|
|
|
4,097
|
|
|
46,977
|
|
|
(24,324
|
)
|
|
(119,629
|
)
|
|
(834
|
)
|
|
89,914
|
|
Interest expense (income)*
|
|
2,979
|
|
|
(3,394
|
)
|
|
9,899
|
|
|
3,073
|
|
|
2,804
|
|
|
28,686
|
|
|
—
|
|
|
44,047
|
|
Capital expenditures**
|
|
7,148
|
|
|
172,738
|
|
|
15,495
|
|
|
12,603
|
|
|
141
|
|
|
4,949
|
|
|
—
|
|
|
213,074
|
|
Depreciation and amortization
|
|
15,497
|
|
|
49,419
|
|
|
13,399
|
|
|
25,822
|
|
|
941
|
|
|
19,975
|
|
|
—
|
|
|
125,053
|
|
Asset impairment charges
|
|
559
|
|
|
—
|
|
|
—
|
|
|
150
|
|
|
6,742
|
|
|
713
|
|
|
—
|
|
|
8,164
|
|
Total assets***
|
|
234,350
|
|
|
933,022
|
|
|
683,609
|
|
|
462,190
|
|
|
351,716
|
|
|
677,691
|
|
|
(394,006
|
)
|
|
2,948,572
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales-unaffiliated customers
|
|
$
|
594,275
|
|
|
$
|
839,432
|
|
|
$
|
1,479,125
|
|
|
$
|
516,643
|
|
|
$
|
740,961
|
|
|
$
|
7,082
|
|
|
$
|
—
|
|
|
$
|
4,177,518
|
|
Intersegment sales
|
|
111,479
|
|
|
659,416
|
|
|
10,330
|
|
|
543
|
|
|
13,997
|
|
|
—
|
|
|
(795,765
|
)
|
|
—
|
|
Net sales
|
|
705,754
|
|
|
1,498,848
|
|
|
1,489,455
|
|
|
517,186
|
|
|
754,958
|
|
|
7,082
|
|
|
(795,765
|
)
|
|
4,177,518
|
|
Adjusted operating profit (loss)
|
|
(61,284
|
)
|
|
209,751
|
|
|
68,602
|
|
|
28,892
|
|
|
(23,690
|
)
|
|
(95,085
|
)
|
|
5,333
|
|
|
132,519
|
|
Interest expense*
|
|
2,210
|
|
|
1,942
|
|
|
8,356
|
|
|
2,608
|
|
|
1,547
|
|
|
45,458
|
|
|
—
|
|
|
62,121
|
|
Capital expenditures**
|
|
4,891
|
|
|
110,375
|
|
|
14,958
|
|
|
27,155
|
|
|
94
|
|
|
5,587
|
|
|
—
|
|
|
163,060
|
|
Depreciation and amortization
|
|
17,919
|
|
|
47,924
|
|
|
13,620
|
|
|
25,902
|
|
|
1,279
|
|
|
20,273
|
|
|
—
|
|
|
126,917
|
|
Asset impairment charges
|
|
38,900
|
|
|
—
|
|
|
—
|
|
|
208
|
|
|
726
|
|
|
194
|
|
|
—
|
|
|
40,028
|
|
Total assets***
|
|
188,873
|
|
|
798,481
|
|
|
659,165
|
|
|
372,492
|
|
|
390,969
|
|
|
1,034,053
|
|
|
(474,656
|
)
|
|
2,969,377
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales-unaffiliated customers
|
|
$
|
887,068
|
|
|
$
|
1,048,063
|
|
|
$
|
1,612,084
|
|
|
$
|
626,219
|
|
|
$
|
1,250,127
|
|
|
$
|
852
|
|
|
$
|
—
|
|
|
$
|
5,424,413
|
|
Intersegment sales
|
|
135,553
|
|
|
793,749
|
|
|
12,154
|
|
|
32
|
|
|
82,237
|
|
|
—
|
|
|
(1,023,725
|
)
|
|
—
|
|
Net sales
|
|
1,022,621
|
|
|
1,841,812
|
|
|
1,624,238
|
|
|
626,251
|
|
|
1,332,364
|
|
|
852
|
|
|
(1,023,725
|
)
|
|
5,424,413
|
|
Adjusted operating profit (loss)
|
|
(29,157
|
)
|
|
255,507
|
|
|
22,424
|
|
|
17,555
|
|
|
(15,443
|
)
|
|
(77,832
|
)
|
|
1,411
|
|
|
174,465
|
|
Interest expense*
|
|
2,628
|
|
|
4,207
|
|
|
8,864
|
|
|
2,620
|
|
|
6,078
|
|
|
52,059
|
|
|
—
|
|
|
76,456
|
|
Capital expenditures**
|
|
12,811
|
|
|
67,203
|
|
|
14,883
|
|
|
15,413
|
|
|
257
|
|
|
5,194
|
|
|
—
|
|
|
115,761
|
|
Depreciation and amortization
|
|
17,460
|
|
|
46,780
|
|
|
17,509
|
|
|
28,087
|
|
|
1,903
|
|
|
20,739
|
|
|
—
|
|
|
132,478
|
|
Asset impairment charges
|
|
7,494
|
|
|
—
|
|
|
1,585
|
|
|
124
|
|
|
623
|
|
|
13
|
|
|
—
|
|
|
9,839
|
|
Total assets***
|
|
261,676
|
|
|
738,669
|
|
|
713,860
|
|
|
403,706
|
|
|
551,886
|
|
|
1,049,815
|
|
|
(514,496
|
)
|
|
3,205,116
|
|
________________________
* Includes intercompany interest expense (income) in the segments, which is eliminated within Corporate.
** Excludes capital expenditures from discontinued operations that were immaterial for the years ended
August 31, 2017
,
2016
and
2015
.
*** Excludes total assets from discontinued operations of
$26.6 million
at
August 31, 2017
,
$161.5 million
at
August 31, 2016
, and
$240.5 million
at
August 31, 2015
.
Reconciliations of earnings from continuing operations to adjusted operating profit from continuing operations are provided below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended August 31,
|
(in thousands)
|
|
2017
|
|
2016
|
|
2015
|
Earnings from continuing operations
|
|
$
|
32,550
|
|
|
$
|
57,900
|
|
|
$
|
63,004
|
|
Interest expense
|
|
44,047
|
|
|
62,121
|
|
|
76,456
|
|
Income taxes
|
|
12,454
|
|
|
10,810
|
|
|
33,458
|
|
Discounts on sales of accounts receivable
|
|
863
|
|
|
1,688
|
|
|
1,547
|
|
Adjusted operating profit from continuing operations
|
|
$
|
89,914
|
|
|
$
|
132,519
|
|
|
$
|
174,465
|
|
The following represents the Company's external net sales from continuing operations by major product and geographic area:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended August 31,
|
(in thousands)
|
|
2017
|
|
2016
|
|
2015
|
Major product information:
|
|
|
|
|
|
|
Steel products
|
|
$
|
3,262,364
|
|
|
$
|
3,156,028
|
|
|
$
|
4,084,092
|
|
Nonferrous scrap
|
|
506,220
|
|
|
364,690
|
|
|
536,856
|
|
Ferrous scrap
|
|
433,312
|
|
|
287,713
|
|
|
428,192
|
|
Construction materials
|
|
228,910
|
|
|
234,513
|
|
|
215,927
|
|
Nonferrous products
|
|
15,062
|
|
|
13,456
|
|
|
10,443
|
|
Other
|
|
123,807
|
|
|
121,118
|
|
|
148,903
|
|
Net sales
|
|
$
|
4,569,675
|
|
|
$
|
4,177,518
|
|
|
$
|
5,424,413
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended August 31,
|
(in thousands)
|
|
2017
|
|
2016
|
|
2015
|
Geographic area:
|
|
|
|
|
|
|
United States
|
|
$
|
3,268,466
|
|
|
$
|
2,939,630
|
|
|
$
|
3,808,757
|
|
Europe
|
|
668,796
|
|
|
658,352
|
|
|
871,071
|
|
Asia
|
|
399,600
|
|
|
403,628
|
|
|
559,279
|
|
Australia/New Zealand
|
|
187,128
|
|
|
125,069
|
|
|
121,403
|
|
Other
|
|
45,685
|
|
|
50,839
|
|
|
63,903
|
|
Net sales
|
|
$
|
4,569,675
|
|
|
$
|
4,177,518
|
|
|
$
|
5,424,413
|
|
The following table represents long-lived assets, net of accumulated depreciation and amortization, by geographic area:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August 31,
|
(in thousands)
|
|
2017
|
|
2016
|
|
2015
|
United States
|
|
$
|
968,361
|
|
|
$
|
803,245
|
|
|
$
|
860,784
|
|
Europe
|
|
183,025
|
|
|
177,778
|
|
|
189,796
|
|
Other
|
|
3,852
|
|
|
6,397
|
|
|
8,984
|
|
Total long-lived assets
|
|
$
|
1,155,238
|
|
|
$
|
987,420
|
|
|
$
|
1,059,564
|
|
NOTE 22. QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data for fiscal
2017
and
2016
was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended Fiscal 2017
|
(in thousands except per share data)
|
|
Nov. 30
|
|
Feb. 28
|
|
May 31
|
|
Aug. 31
|
Net sales*
|
|
$
|
994,091
|
|
|
$
|
1,053,903
|
|
|
$
|
1,260,700
|
|
|
$
|
1,260,981
|
|
Gross profit*
|
|
123,814
|
|
|
148,239
|
|
|
162,772
|
|
|
111,585
|
|
Net earnings (loss)
|
|
6,275
|
|
|
30,332
|
|
|
39,266
|
|
|
(29,540
|
)
|
Basic EPS
|
|
0.05
|
|
|
0.26
|
|
|
0.34
|
|
|
(0.25
|
)
|
Diluted EPS
|
|
0.05
|
|
|
0.26
|
|
|
0.34
|
|
|
(0.25
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended Fiscal 2016
|
(in thousands except per share data)
|
|
Nov. 30
|
|
Feb. 29
|
|
May 31
|
|
Aug. 31
|
Net sales*
|
|
$
|
1,050,188
|
|
|
$
|
913,894
|
|
|
$
|
1,110,790
|
|
|
$
|
1,102,646
|
|
Gross profit*
|
|
148,221
|
|
|
125,935
|
|
|
164,339
|
|
|
158,405
|
|
Net earnings (loss)
|
|
25,063
|
|
|
10,502
|
|
|
19,328
|
|
|
(131
|
)
|
Basic EPS
|
|
0.22
|
|
|
0.09
|
|
|
0.17
|
|
|
—
|
|
Diluted EPS
|
|
0.21
|
|
|
0.09
|
|
|
0.17
|
|
|
—
|
|
_________________________
* Excludes divisions classified as discontinued operations. See Note 3, Changes in Business.
NOTE 23. RELATED PARTY TRANSACTIONS
The Company had no significant related party transactions for the years ended
August 31, 2017
,
2016
and
2015
.