2020 Annual Report
Commercial Metals Company and its subsidiaries
manufacture, recycle and fabricate steel and metal products,
related materials and services through a network of facilities
that includes seven electric arc furnace (“EAF”) mini mills,
two EAF micro mills, two rerolling mills, steel fabrication and
2
LETTER TO STOCKHOLDERS
7
FINANCIAL HIGHLIGHTS
8 NORTH AMERICA
10 EUROPE
12 BOARD & EXECUTIVE MANAGEMENT
processing plants, construction-related product warehouses,
16 SELECTED FINANCIAL DATA
and metal recycling facilities in the United States and Poland.
18 10-K
Optimized over the last decade to
capitalize on our core strengths, Commercial Metals
Company realized a landmark year in fiscal 2020.
Among the numbers that speak to our achievement this past fiscal year:
RETURN ON
INVESTED CAPITAL:
12%
FREE CASH FLOW:
$604
M I L L I O N
Our numbers point to how we continue to optimize production between our
steel mills and our downstream fabrication activities, maximizing earnings, and
how effective we have been as stewards of shareholder capital, with a strong
balance sheet that positions us to pursue opportunities for further growth in
the years ahead.
Our strong fiscal 2020 results validate our efforts over the last several years,
as we divested non-core assets and acquired new ones that enhance our ability
to focus on our core strengths: providing exceptional service to customers
in construction and industrial markets across North America and Europe. In
addition to major acquisitions — acquiring four steel mills and 33 fabrication
facilities in fiscal 2019 — our efforts include reducing our operating costs and
further strengthening our balance sheet.
By optimizing our enterprise to perform in all market climates, we look
forward to the years ahead with well-earned optimism.
1
To Our Stockholders,
Fiscal 2020 was an exceptional year for CMC. We improved our earnings,
increased our cash flow, enhanced our operational flexibility and strengthened our balance sheet.
These results attest to the success of the strategic transformation we have realized over the last
several years. By focusing on our core strengths and optimizing our operations, we have become a
better, stronger steelmaker.
While we are duly proud of our results in 2020, we must also acknowledge what an unsettling year it
was, a year of unprecedented challenges that altered the work and home life of every CMC employee.
Our employees did everything in their power to protect each other and our customers in the course of
a global pandemic. I could not be prouder of how CMC employees responded, meeting our customers’
needs and delivering a banner year for our company despite the difficulties presented by COVID-19.
REPORTING OUR RESULTS
NORTH AMERICA
In fiscal 2020, the Company realigned its
The North America segment generated
reporting structure to include two operating
adjusted EBITDA of $661.2 million,
segments: North America and Europe. North
compared to $456.3 million the prior year. The
America comprises the Company’s former
improvement reflects strong management
Americas Recycling, Americas Mills, and
of non-raw-material costs at each stage of
Americas Fabrication business segments.
our vertically integrated value chain. Cost
Europe comprises the Company’s former
performance at the mills was particularly
International Mill segment, with no other
strong. Lower operating costs at downstream
changes. The decision to realign CMC’s
locations also contributed to the improved
operating segment structure was made to
performance. Shipment volumes of finished
reflect: (i) its vertically integrated operating
goods, which includes steel products and
model in North America, which is now
downstream products, were 4.5 million tons,
supported by a National Sales, Inventory and
compared to 4.3 million tons in fiscal 2019.
Operations Planning function created in fiscal
2020, (ii) changes to its operating model
and geographic footprint following the full
integration of the rebar assets acquired in fiscal
2019 into its North America operations, and (iii)
the way management now uses the integrated
North America data to manage the business,
assess performance and allocate resources.
EUROPE
The Europe segment reported adjusted
EBITDA of $62.0 million, down from $100.1
million the prior year. While shipment volumes
were flat compared to fiscal 2019, they
remain supported by resilience in the Polish
construction sector. The Central European
2
BARBARA R. SMITH
Chairman of the Board, President,
and Chief Executive Officer
market for long products continues to
be challenged by ongoing incursions of
imported material, which led to a $38 per
ton reduction in steel product margin over
scrap compared to the prior year.
A STRONG BALANCE SHEET
CMC’s structurally enhanced earnings and
financial flexibility to execute our growth
initiatives, navigate economic volatility, and
pursue strategic acquisition opportunities that
may arise.
OPTIMIZING FOR THE FUTURE
Though these are uncertain times, we continue
to build for the future, with initiatives including:
Optimizing our network, by improving logistics,
increasing our capabilities in higher-margin
products, and leveraging our enhanced production
flexibility to drive down costs. Through these
efforts, we expect improved margins and lower
investment in working capital.
Expanding our European operations, with a
third rolling line at our mini mill in Poland, to be
commissioned in fiscal 2021, which will increase
capacity and enable us to serve more customers
with an optimized high-value product line.
Building a new micro mill in Mesa, Arizona, due
to be complete in 2023, which will be the world’s
first such facility capable of producing merchant
bar quality (MBQ) products.
cash flow capabilities, that resulted from
Though no one can predict the future, we believe
our multi-year strategic transformation,
we have optimized our company to perform in
have supported the creation of one of the
challenging markets, and we remain optimistic
strongest balance sheets in our sector. At
about our ability to profitably serve our customers
the close of fiscal 2020, our cash balance
and stockholders in the years ahead. My thanks
stood at $542.1 million, while net debt was
to all the employees and stakeholders of CMC for
below $550 million, giving CMC ample
another successful year.
NE T SALES BY REGION 1
North America: 83%
Europe: 11%
Other: 6%
1 Excludes divisions classified as discontinued operations
3
BARBARA R. SMITHChairman of the Board, President and Chief Executive OfficerDecember 1, 2020 Optimization through
Integrating Acquisitions
Throughout our history, CMC has demonstrated an
ability to quickly and successfully optimize acquired
assets into the CMC way of doing business. In our
recent major rebar acquisition, which added both mills
and fabrication facilities to our portfolio, we leveraged
best practices of both legacy and acquired talent and
instilled our customer service focus and safety culture
expeditiously. We concentrated rebar production in
underutilized mills and created additional production
capacity for merchant bar opportunities.
In the wake of this transformational acquisition,
we achieved improved utilization, reduced mill
production costs per ton, and are optimistic
improvements will continue.
4
Optimization through
Strategic Expansion
In late fiscal 2020, CMC announced plans for a new environmentally-
friendly micro mill in Mesa, Arizona, known internally as AZ2. Slated to be
commissioned in 2023 with an expected annual capacity of 500,000 tons,
AZ2 will be our third micro mill and first with the ability to use renewable
solar and wind power for a large portion of its energy needs. AZ2 will replace
a higher cost rebar facility in California, whose real estate value we are
leveraging to lower overall project costs. Unlike any other micro mill in the
world, AZ2 will have the ability to produce merchant quality bar as well
as rebar. We are also expanding our operations in Europe, adding a third
rolling mill at our Polish mini mill, which we expect to be operational in 2021,
increasing finished product capacity by 200,000 tons.
We are optimistic about the payoff for both expansion projects. They will
enhance our ability to serve more construction and industrial customers on
the West Coast in North America and throughout Central Europe.
5
Optimization through
Network Improvements
With a significantly larger number of mills and fabrication facilities after
recent acquisitions, CMC has changed its mindset from operating individual
mills to serve specific regions to optimizing a network that balances output
across multiple facilities and maximizes margins, while minimizing working
capital. CMC’s network optimization includes an aggressive Sales Inventory
& Operations Planning (SIOP) initiative that will enable us to more efficiently
utilize assets, maintain high levels of service and avoid lost sales. Through
SIOP, we are supporting expansion into the MBQ market, better utilizing
logistics lanes, increasing the production of higher margin products, and
improving in-stock availability.
Early in our SIOP efforts, we are already seeing reduced conversion costs
and higher margins. We are optimistic about achieving improved working
capital management, growth in MBQ tonnage, higher mill utilization rates
and other benefits going forward.
6
(in thousands, except share and per share data)
FINANCIAL HIGHLIGHTS 2020
Net sales1
Earnings from continuing operations
Net earnings
Adjusted earnings from continuing operations2
Diluted earnings per share
Adjusted earnings from continuing operations per diluted share2
Adjusted EBITDA from continuing operations2
Core EBITDA from continuing operations2
Net working capital
Cash dividends per share
Cash dividends paid
Stockholders’ equity
Stockholders’ equity attributable to CMC per share
Total assets
Average diluted shares outstanding
EXTERNAL FINISHED TONS SHIPPED BY YEAR3 (in millions)
Years Ended August 31
2020
2019
$ 5,476,486
$ 5,829,002
278,302
279,503
317,033
2.32
2.64
576,608
650,479
198,779
198,093
247,625
1.66
2.08
424,085
501,465
1,468,840
1,385,415
0.48
57,056
0.48
56,537
1,889,201
1,623,861
15.85
13.77
$ 4,081,728
$ 3,758,771
120,309,621
119,124,628
2016
2017
2018
2019
2020
NET EARNINGS ($ in millions)
55
46
2016
2017
2018
2019
2020
3.7
4.0
4.3
139
198
5.8
5.9
280
1 Excludes divisions classified as discontinued operations
2 For a reconciliation of non-GAAP financial measures, see the supplemental information posted to the investor relations section of our website at www.cmc.com
3 External Finished Steel Tons Shipped equal to shipments of Steel Products plus Downstream Products.
7
North America
Fiscal 2020
North America Highlights
ADJUSTED EBITDA
(in thousands)
$661,176
FINISHED STEEL SHIPMENTS
(in thousands)
4,451
tons
8
8
RECYCLING OPERATIONS
MILL OPERATIONS
DOWNSTREAM OPERATIONS
A Vertically Integrated Steel Company
CMC is unique within our industry. We manage our multiple lines of business as an integration
organization, allowing us to optimize the financial performance and returns of the entire value chain.
Recycling Operations
CMC’s recycling operations in North America include more than 40 scrap metal processing plants,
concentrated largely in Texas, South Carolina, Florida and the southern United States. CMC is one of
the largest processors of both ferrous and non-ferrous scrap in the United States. These recycling
operations have an annual capacity of 4.9 million tons.
CMC recycling operations provide a low-cost source of scrap for our mills.
Mill Operations
CMC’s six mini mills, two micro mills and two rerolling mills have the capacity to produce 5.4 million
tons of steel products every year. CMC mills focus on long products, such as reinforcing bar (rebar),
MBQ and wire rod products, to meet the needs of customers in the construction, industrial and
agricultural markets. CMC is one of the leading producers of rebar in the U.S.
CMC’s mills are among the lowest cost and most environmentally friendly
in the world.
Downstream Operations
CMC conducts downstream activities at 62 North American locations, including rebar fabrication
and fence post facilities. These facilities have an annual capacity of 2.4 million tons, and in
fiscal 2020 shipped 1.6 million tons of downstream products to customers mainly in the U.S.
construction, industrial and agricultural markets. Downstream locations provide a baseload for
our mills, protect CMC volumes from imports and offer an internal price hedge. CMC is one of the
leading rebar fabricators in the United States.
CMC’s downstream operations extend our value chain directly to the end
user, and provide unique insight into market demand and developments.
9
Europe
Fiscal 2020
Europe Highlights
ADJUSTED EBITDA
(in thousands)
$62,007
FINISHED STEEL SHIPMENTS
(in thousands)
1,472
tons
810
RECYCLING OPERATIONS
MILL OPERATIONS
DOWNSTREAM OPERATIONS
Vertical Integration
As with our North America operations, CMC’s Europe division is vertically integrated, with nearby
scrap yards providing raw materials for our steel mill and downstream facilities delivering finished
products to customers in Central Europe. CMC’s Europe segment is anchored by an electric arc
furnace (EAF) mini mill in Zawiercie, Poland, supported by 12 scrap yards, a mesh plant and four
rebar fabrication shops in southern and central Poland. Going forward, demand is expected to
continue to grow, particularly from construction and infrastructure customers in Germany and Poland.
Europe Facilities RECYCLING YARDS: 12 EAF STEEL MILL: 1 DOWNSTREAM OPERATIONS: 5
Expanding Our Operations
As part of CMC’s growth strategy, we are expanding our mini mill in Poland with the addition of a
third rolling mill, due to be up and running in fiscal 2021. The new rolling mill will add 200,000 tons
of capacity, increasing our flexibility to meet growing customer demand.
Projected Mill Capacity: 1.5 MILLION TONS
Adjusting Our Product Mix
By increasing our finishing capacity, CMC adds flexibility to continue optimizing our product
mix so that we can focus on more value-added products and supply new products, such as wire mesh.
Since 2016, CMC’s Europe
segment has adjusted its
product mix to produce more
profitable value-added products.
HISTORICAL FINISHED PRODUCTS MIX
100%
80%
60%
40%
20%
21%
30%
28%
29%
48%
44%
2016
2020
Value-add products
Wire Rod
Merchant
Rebar
A Green Advantage
In the European Union, 58 percent of all steel produced is still made with the traditional blast furnace
method. One-hundred percent of the steel products CMC produces in Europe are manufactured with
the more environmentally friendly EAF method. Non-EAF steelmakers produce eight times the amount
of CO2 per ton of steel, compared to EAF steelmakers. This means CMC impacts the environment far
less than many other European steelmakers, and it also gives us a competitive edge in addressing any
potential future carbon-tax regulations in Europe.
11
CMC BOARD OF DIRECTORS
Barbara R. Smith
Vicki Avril-Groves
Lisa M. Barton
Rhys J. Best
Richard B. Kelson
Peter R. Matt
Chairman of the Board,
President and Chief
Executive Officer of
Commercial Metals
Company
Retired – Former
President and Chief
Executive Officer of
IPSCO Tubulars, Inc.
Executive Vice President
and Chief Operating
Officer – Utilities for
American Electric
Power Co., Inc.
Retired – Former
Chairman, President
and CEO of Lone Star
Technologies, Inc.
Chairman, President
and CEO of ServCo, LLC
Executive Vice
President and Chief
Financial Officer,
Constellium N.V.
Rick J. Mills
Sarah Raiss
J. David Smith
Charles L. Szews
Joseph C. Winkler
Retired – Former
Corporate Vice
President and President
of Components Group
of Cummins, Inc.
Retired – Former
Executive Vice
President, Corporate
Services, TransCanada
Corporation
Retired – Former
Chairman, President
and CEO, Euramax
International, Inc..
Retired – Former
President and CEO of
Oshkosh Corporation
Lead Director; Retired
– Former Chairman
and CEO of Complete
Production Services,
Inc.
CMC EXECUTIVE MANAGEMENT
Barbara R. Smith
Tracy L. Porter
Paul Lawrence
Jody Absher
Jennifer Durbin
Chairman of the Board,
President and Chief
Executive Officer
Executive Vice
President and Chief
Operating Officer
Vice President and
Chief Financial Officer
Vice President, General
Counsel and Corporate
Secretary
Vice President, Human
Resources
12
it’s what’s
it’s what’s
inside
that countss
that counts
Look beneath the surface and you’ll see all that
CMC offers — Strength. Integrity. Dependability.
That’s not just a description of our products, but
also our people.
CMC steel forms the backbone of our modern
infrastructure just about everywhere you look.
Our steel can be found in highways, bridges and
buildings all over the world.
But at CMC, we also work hard to build something
far more important — lasting relationships.
The kind of partnerships that keep our customers
returning to us time and again for their most
important and challenging projects.
13
Projects
CMC steel reinforces hundreds of roads, bridges and buildings, playing a
key role in meeting infrastructure and construction needs. Here are a few
notable projects and the CMC products that make them stronger.
Arlington, TX | Built with CMC Rebar
GLOBE LIFE FIELD
BAYLOR SCOTT & WHITE AT THE STAR
Frisco, TX | Built with CMC Rebar
ROLEX BUILDING
Dallas, TX | Built with CMC Rebar
14
LESNER BRIDGE
Virginia Beach, VA | Built with ChromX 9100
ROUTE 460 CONNECTOR BRIDGE
Southwest VA | Built with ChromX 9100
FORD CENTER AT THE STAR
Frisco, TX | Built with CMC Rebar
15
SELECTED FINANCIAL DATA 2020
OPERATIONS
Net sales1
Earnings from continuing operations
Earnings before income taxes
Income taxes
Net earnings attributable to CMC
Effective tax rate
Interest expense1
Depreciation, amortization and impairment charges
Adjusted EBITDA from continuing operations2
BALANCE SHEET INFORMATION
Cash and cash equivalents
Accounts receivable
Inventories
Total current assets
Property, plant and equipment
Original cost
Net of depreciation and amortization
Capital expenditures
Total assets
Total current liabilities
Net working capital
Long-term debt3
Long-term deferred income tax liability
Total stockholders’ equity attributable to CMC
Return on beginning stockholders’ equity attributable to CMC
Stockholders’ equity attributable to CMC per share
SHARE INFORMATION
Diluted earnings per share
Cash dividends per share of common stock
Total cash dividends paid
Average diluted common shares
OTHER DATA
Number of employees at year-end
Stockholders of record at year-end
2020
$ 5,476,486
278,302
372,685
93,182
279,503
25.0%
61,837
173,369
576,608
542,103
880,728
625,393
2,214,103
3,399,086
1,571,067
187,618
4,081,728
745,263
1,468,840
1,065,536
130,810
1,889,201
17.2%
15.85
2.32
0.48
57,056
120,309,621
11,297
2,500
1 Excludes divisions classified as discontinued operations
2 Adjusted EBITDA from continuing operations = earnings
from continuing operations before interest expense, income
taxes, depreciation, amortization and impairment charges
3 Excludes current maturities of long-term debt
16
For a reconciliation of non-GAAP financial measures to the most directly
comparable GAAP financial measures, see the supplemental information
posted to the investor relations section of our website at www.cmc.com.
2019
2018
2017
$ 5,829,002
$ 4,643,723
$ 3,844,069
$ 3,596,068
2,077,205
1,713,900
2,048,125
198,779
267,932
69,839
198,093
26.1%
71,373
159,055
424,085
192,461
1,016,088
692,368
2,080,005
3,196,585
1,500,971
138,836
3,758,771
694,590
1,385,415
1,227,214
79,290
1,623,861
13.3%
13.77
1.66
0.48
56,537
11,524
2,731
135,237
168,619
30,113
138,506
17.9%
40,957
146,712
352,221
622,473
749,484
589,005
2,670,872
1,075,038
174,655
3,328,304
541,943
1,535,262
1,138,619
37,834
1,493,397
9.9%
12.76
1.17
0.48
56,076
8,900
2,878
50,175
55,611
9,279
46,332
16.7%
44,151
133,309
235,822
252,595
561,411
462,648
2,572,693
1,051,677
213,120
2,975,131
608,438
1,105,462
805,580
49,160
1,400,757
3.4%
12.10
0.39
0.48
55,514
8,797
3,424
2016
62,001
67,241
12,479
54,762
18.6%
62,973
182,733
305,237
517,544
689,382
540,014
2,322,980
895,045
163,332
3,130,869
821,118
1,227,007
757,948
63,021
1,367,272
4.0%
11.93
0.47
0.48
55,342
8,388
3,498
119,124,628
118,145,848
117,364,408
116,623,826
(in thousands, except share and per share data and ratios) OPERATIONS
Net sales1
Earnings from continuing operations
Earnings before income taxes
Income taxes
Net earnings attributable to CMC
Effective tax rate
Interest expense1
Depreciation, amortization and impairment charges
Adjusted EBITDA from continuing operations2
BALANCE SHEET INFORMATION
Cash and cash equivalents
Accounts receivable
Inventories
Total current assets
Property, plant and equipment
Original cost
Net of depreciation and amortization
Capital expenditures
Total assets
Total current liabilities
Net working capital
Long-term debt3
Long-term deferred income tax liability
Total stockholders’ equity attributable to CMC
Return on beginning stockholders’ equity attributable to CMC
Stockholders’ equity attributable to CMC per share
SHARE INFORMATION
Diluted earnings per share
Cash dividends per share of common stock
Total cash dividends paid
Average diluted common shares
OTHER DATA
Number of employees at year-end
Stockholders of record at year-end
2020
$ 5,476,486
278,302
372,685
93,182
279,503
25.0%
61,837
173,369
576,608
542,103
880,728
625,393
2,214,103
3,399,086
1,571,067
187,618
4,081,728
745,263
1,468,840
1,065,536
130,810
1,889,201
17.2%
15.85
2.32
0.48
57,056
120,309,621
11,297
2,500
2019
2018
2017
2016
$ 5,829,002
$ 4,643,723
$ 3,844,069
$ 3,596,068
198,779
267,932
69,839
198,093
26.1%
71,373
159,055
424,085
192,461
1,016,088
692,368
2,080,005
3,196,585
1,500,971
138,836
3,758,771
694,590
1,385,415
1,227,214
79,290
1,623,861
13.3%
13.77
1.66
0.48
56,537
135,237
168,619
30,113
138,506
17.9%
40,957
146,712
352,221
622,473
749,484
589,005
50,175
55,611
9,279
46,332
16.7%
44,151
133,309
235,822
252,595
561,411
462,648
62,001
67,241
12,479
54,762
18.6%
62,973
182,733
305,237
517,544
689,382
540,014
2,077,205
1,713,900
2,048,125
2,670,872
1,075,038
174,655
3,328,304
541,943
1,535,262
1,138,619
37,834
1,493,397
9.9%
12.76
1.17
0.48
56,076
2,572,693
1,051,677
213,120
2,975,131
608,438
1,105,462
805,580
49,160
1,400,757
3.4%
12.10
0.39
0.48
55,514
2,322,980
895,045
163,332
3,130,869
821,118
1,227,007
757,948
63,021
1,367,272
4.0%
11.93
0.47
0.48
55,342
119,124,628
118,145,848
117,364,408
116,623,826
11,524
2,731
8,900
2,878
8,797
3,424
8,388
3,498
17
2020
FINANCIAL REVIEW
18
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
Í ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended August 31, 2020
‘ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from
to
Commission file number 1-4304
Commercial Metals Company
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
75-0725338
(I.R.S. Employer
Identification No.)
6565 N. MacArthur Blvd.
Irving, Texas 75039
(Address of Principal Executive Office) (Zip Code)
(214) 689-4300
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Trading Symbol(s)
Name of Each Exchange on Which Registered
Common Stock, $0.01 par value
CMC
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant
Act. Yes Í No ‘
is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act. Yes ‘ No Í
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes Í No ‘
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be
submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter
period that the registrant was required to submit such files). Yes Í No ‘
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller
reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller
reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer Í
Non-accelerated filer ‘
Accelerated filer ‘
Smaller reporting company ‘
Emerging growth company ‘
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period
for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ‘
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the
effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C 7262(b)) by
the registered public accounting firm that prepared or issued its audit report. Í
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ‘ No Í
The aggregate market value of the Company’s common stock on February 29, 2020 held by non-affiliates of the registrant
based on the closing price per share on February 29, 2020 on the New York Stock Exchange was approximately $2.2 billion.
As of October 14, 2020, 119,580,359 shares of the registrant’s common stock, par value $0.01 per share, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the following document are incorporated by reference into the listed Part of Form 10-K:
Registrant’s definitive proxy statement for the 2021 annual meeting of stockholders — Part III
COMMERCIAL METALS COMPANY AND SUBSIDIARIES
TABLE OF CONTENTS
PART I
Item 1: Business
Item 1A: Risk Factors
Item 1B: Unresolved Staff Comments
Item 2: Properties
Item 3: Legal Proceedings
Item 4: Mine Safety Disclosure
PART II
Item 5: Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Item 6: Selected Financial Data
Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 7A: Quantitative and Qualitative Disclosures about Market Risk
Item 8: Financial Statements and Supplementary Data
Item 9: Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A: Controls and Procedures
Item 9B: Other Information
PART III
Item 10: Directors, Executive Officers and Corporate Governance
Item 11: Executive Compensation
Item 12: Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13: Certain Relationships and Related Transactions and Director Independence
Item 14: Principal Accountant Fees and Services
PART IV
Item 15: Exhibits and Financial Statement Schedules
Signatures
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1
ITEM 1. BUSINESS
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
PART I
This Annual Report on Form 10-K (hereinafter referred to as the "Annual Report") contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). Actual results, performance or achievements could differ materially
from those projected in the forward-looking statements as a result of a number of risks, uncertainties and other factors. For a
discussion of important factors that could cause our results, performance or achievements to differ materially from any future
results, performance or achievements expressed or implied by our forward-looking statements, please refer to Part I, Item 1A,
"Risk Factors" and Part II, Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations" in
this Annual Report.
OVERVIEW
Commercial Metals Company ("CMC") and its subsidiaries (collectively, the "Company," "we," "our" or "us") manufacture,
recycle and fabricate steel and metal products, related materials and services through a network of facilities that includes seven
electric arc furnace ("EAF") mini mills, two EAF micro mills, two rerolling mills, steel fabrication and processing plants,
construction-related product warehouses and metal recycling facilities in the United States ("U.S.") and Poland.
We were incorporated in 1946 in the state of Delaware. Our predecessor company, a metals recycling business, has existed since
1915. We maintain our corporate office at 6565 North MacArthur Boulevard, Irving, Texas, 75039. Our telephone number is
(214) 689-4300, and our website is http://www.cmc.com. Our fiscal year ends August 31st, and any reference in this Annual
Report to any year refers to the fiscal year ended August 31st of that year, unless otherwise noted. Any reference in this Annual
Report to a ton refers to the U.S. short ton, a unit of weight equal to 2,000 pounds.
Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all amendments to these
reports are made available free of charge through the Investors section of our website as soon as reasonably practicable after such
material is electronically filed with, or furnished to, the Securities and Exchange Commission ("SEC"). The information contained
on our website or available by hyperlink from our website is not incorporated into this Annual Report or other documents we file
with, or furnish to, the SEC.
Acquisition
On November 5, 2018 (the "Acquisition Date"), the Company completed the acquisition (the "Acquisition") of 33 reinforcing bar
("rebar") fabrication facilities in the U.S., as well as four EAF mini mills located in Knoxville, Tennessee, Jacksonville, Florida,
Sayreville, New Jersey and Rancho Cucamonga, California from Gerdau S.A., hereinafter collectively referred to as the
"Acquired Businesses". For further details, refer to Note 3, Changes in Business, in Part II, Item 8 of this Annual Report.
Segment Reporting
Segment information is prepared on the same basis as the financial information management reviews for operational decision-
making purposes. In the fourth quarter of 2020, the Company realigned its segment reporting structure to reflect: (i) its vertically
integrated operating model in North America, which is now supported by a National Sales, Inventory and Operations Planning
function created in 2020, (ii) changes to its operating model and geographic footprint following the full integration of the Acquired
Businesses into its North America operations and (iii) the way the Chief Operating Decision Maker now uses integrated North
America data to manage the business, assess performance and allocate resources. As a result of this realignment, the Company
now has two operating and reportable segments: North America and Europe. North America comprises our former Americas
Recycling, Americas Mills and Americas Fabrication business segments. Europe comprises our former International Mill
segment, with no resulting change to the reporting approach. Segment financial information has been retrospectively adjusted to
reflect these changes.
2
NORTH AMERICA SEGMENT
Our North America segment is a vertically integrated network of recycling facilities, steel mills and fabrication operations. Our
strategy in North America is to optimize our vertically integrated value chain to maximize profitability. To execute our strategy,
we seek to (i) obtain the lowest possible input costs, primarily from our recycling facilities that we operate to provide low-cost
scrap to our steel mills and (ii) enhance operational efficiency by utilizing our fabrication operations to optimize our steel mill
volumes and obtain the highest possible selling prices to maximize metal margin. We strive to maximize cash flow generation
through increased productivity, capacity utilization and product mix. To remain competitive, we regularly make substantial capital
expenditures. We have invested approximately 68%, 64% and 82% of our total capital expenditures in our North America segment
during 2020, 2019 and 2018, respectively. For logistics, we utilize a fleet of trucks we own or lease as well as private haulers,
railcars, export containers and barges.
Our 41 scrap metal recycling facilities, primarily located in the southeast and central U.S., process ferrous and nonferrous scrap
metals. Our recycling facilities are operated to lower the cost of scrap used by our steel mills. These facilities purchase processed
and unprocessed ferrous and nonferrous metals from a variety of sources including manufacturing and industrial plants, metal
fabrication plants, electric utilities, machine shops, factories, railroads, refineries, shipyards, demolition businesses, automobile
salvage firms, wrecking companies and retail individuals. Our recycling facilities utilize specialized equipment to efficiently
process large volumes of ferrous material, including eight large machines capable of shredding obsolete automobiles or other
sources of scrap metal. Certain facilities also have nonferrous downstream equipment, including extensive equipment at three of
our facilities that reclaim metal from insulated copper wire, to allow us to capture more metal content. With the exception of
precious metals, our scrap metal processing facilities recycle and process almost all types of metal. We sell ferrous and nonferrous
scrap metals (collectively referred to as "raw materials") 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. Raw material sales accounted for 13%, 16%, and 25% of consolidated net sales in 2020,
2019 and 2018.
Our steel mill operations consist of six EAF mini mills, two EAF micro mills and two rerolling mills. Our steel mills manufacture
finished long steel products including rebar, merchant bar, light structural and other special sections as well as semi-finished
billets for re-rolling and forging applications (collectively referred to as "steel products"). Each EAF mini mill consists of:
•
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•
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a melt shop with an electric arc furnace;
continuous casting equipment that shapes molten metal into billets;
a reheating furnace that prepares billets for rolling;
a rolling mill that forms products from heated billets;
a mechanical cooling bed that receives hot products from the rolling mill;
finishing facilities that shear, straighten, bundle and prepare products for shipping; and
supporting facilities such as maintenance, warehouse and office areas.
Our EAF micro mills utilize similar equipment and processes as described above; however, these facilities utilize unique
continuous process technology where metal flows uninterrupted from melting to casting to rolling. In addition, CMC has two
facilities capable of producing spooled rebar. Our rerolling mills do not utilize a melt shop. The process begins by reheating
billets or reclaimed rail to roll into finished steel products. The estimated annual capacity for our steel mills, which assumes a
typical product mix and does not represent the quantity of likely production or shipments in each fiscal year, is approximately
5.4 million tons of finished steel products. Descriptions of mill capacity, particularly rolling capacity, are highly dependent on
the specific product mix manufactured. Our mills roll many different types and sizes of products depending on market conditions,
including pricing and demand.
In August 2020, we announced the construction of a third micro mill in Mesa, Arizona. This micro mill will be the first in the
world to produce merchant bar quality products through a continuous production process, and will employ the latest technology
in EAF power supply systems which will allow us to directly connect the EAF and the ladle furnace to renewable energy sources
such as solar and wind. The new facility will replace higher cost rebar capacity at our Rancho Cucamonga, California mill, which
the Company intends to sell, and will allow us to more efficiently meet West Coast demand for steel products. We expect this
micro mill to start-up in 2023.
Ferrous scrap is the primary raw material used by our steel mills. Although ferrous scrap has historically been subject to significant
price fluctuations, we believe the supply is adequate to meet our future needs. Our mills consume large amounts of electricity and
natural gas. We have not had any significant curtailments, and we believe that energy supplies are adequate. The supply and
demand of regional and national energy, and the extent of applicable regulatory oversight of rates charged by providers, affect
the prices we pay for electricity and natural gas. Our mills ship to a broad range of customers and end markets across the U.S.
The primary end markets are construction and fabricating industries, steel service centers, original equipment manufacturers and
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agricultural, energy and petrochemical industries. Steel products sales accounted for 32%, 30%, and 24% of consolidated net
sales in 2020, 2019 and 2018.
Our fabrication operations include 62 facilities engaged in various aspects of steel fabrication. Most of these facilities engage in
general fabrication of reinforcing steel. Four of these facilities fabricate steel fence posts. Our fabricated rebar and steel fence
posts (collectively referred to as "downstream products") operations shear, bend, weld and fabricate steel. Fabricated rebar is used
to reinforce concrete primarily in the construction of commercial and non-commercial buildings, hospitals, convention centers,
industrial plants, power plants, highways, bridges, arenas, stadiums and dams, and is generally sold in response to a competitive
bid solicitation. The majority of the resulting projects are fixed price over the life of the project. We also provide installation
services in certain markets. We obtain steel for our fabrication operations primarily from our own steel mills, and the demand
created by our fabrication operations optimizes the production from our steel mills. Downstream products sales accounted for
35%, 33%, and 25% of consolidated net sales in 2020, 2019 and 2018.
We also operate Construction Services and CMC Impact Metals businesses. Our Construction Services business sells and rents
construction-related products and equipment to concrete installers and other businesses in the construction industry. CMC Impact
Metals manufactures high strength bar for the truck trailer industry, special bar quality steel for the energy market and armor
plate for military vehicles and is one of North America's premier producers of high strength steel products.
The North America segment's backlog, defined as the total value of unfulfilled orders, was approximately $1.4 billion at both
August 31, 2020 and 2019. At both August 31, 2020 and 2019, $1.1 billion of the total backlog related to downstream products,
with the rest related to steel products. Due to the nature of our steel products, we do not have a long lead time between order
receipt and delivery. We generally fill orders for steel products from inventory or with products near completion. As a result, we
do not believe our steel product backlog is a significant factor in the evaluation of our North America operations.
EUROPE SEGMENT
Our Europe segment is a vertically integrated network of recycling facilities, an EAF mini mill and fabrication operations located
in Poland. Our strategy in Europe is to optimize profitability of the products manufactured by our mini mill, and we execute this
strategy in the same way in our Europe segment as we do in our North America segment.
Our 12 scrap metal recycling facilities, located throughout Poland, process ferrous scrap metals for use as a raw material for our
mini mill. These facilities provide material almost exclusively to our mini mill and operate in order to lower the cost of scrap
used by our mini mill. The equipment utilized at these facilities is similar to our North America recycling operations and includes
one large capacity scrap metal shredding facility similar to the largest shredder we operate in North America. Nonferrous scrap
metal is not material to this segment’s operations.
Our mini mill is a significant manufacturer of steel products including rebar, merchant bar and wire rod in Eastern Europe. One
of the two rolling mills includes a flexible rolling mill designed to allow efficient and flexible production of a range of medium
section merchant bar products. This rolling mill complements the facility's other rolling mill dedicated primarily to rebar
production. Either rolling mill can feed an alternative rod block designed to produce high grade wire rod. Our mini mill sells steel
products primarily to fabricators, manufacturers, distributors and construction companies, primarily to customers located within
Poland. However, the mini mill also exports steel products to the Czech Republic, Germany, Hungary, Slovakia and other
countries. Ferrous metal, the principal raw material used by our mini mill, electricity, natural gas and other necessary raw
materials for the steel manufacturing process are generally readily available, although they can be subject to significant price
fluctuations. We are currently constructing a third rolling mill in Poland to feed the rod rolling block independently. The third
rolling mill will take advantage of current excess melting capacity and further expand our overall rolling capacity and product
mix flexibility. We expect the mill to start-up in late 2021.
Our fabrication operations consist of five steel fabrication facilities located in Poland which produce downstream products,
primarily fabricated rebar and wire mesh. Three of our facilities have expanded captive uses for a portion of the rebar and wire
rod manufactured at the mini mill. They are similar to the facilities operated by our North America segment and sell fabricated
rebar primarily to contractors for incorporation into construction projects. In addition to fabricated rebar, our fabrication
operations sell other downstream products including fabricated mesh, assembled rebar cages and other fabricated rebar by-
products. Additionally, we operate two other fabrication facilities in Poland that produce welded steel mesh, cold rolled wire rod
and cold rolled rebar. These facilities supplement sales of fabricated rebar by offering wire mesh to customers, which include
metals service centers and construction contractors. We are the largest manufacturer of wire mesh in Poland. In addition to sales
of downstream products in the Polish market, we also export our downstream products to neighboring countries such as the Czech
Republic, Germany and Slovakia.
4
Our mini mill generally fills orders for steel products from inventory or with products near completion. As a result, we do not
believe that backlog levels are a significant factor in evaluating the operations of our Europe segment. The downstream product
backlog for our Europe segment was approximately $28.1 million at August 31, 2020 compared to $33.9 million at August 31,
2019.
SEASONALITY
Many of our facilities serve customers in the construction industry. Due to the increase in construction activities during the spring
and summer months, our net sales are generally higher in our third and fourth quarters than in our first and second quarters.
COMPETITION
Our North America and Europe segments compete with national and international scrap metal processors and primary nonferrous
metal producers and local, regional, national and international manufacturers and suppliers of steel. We compete primarily on the
services we provide to our customers and on the quality and price of our products. The nonferrous recycling industry is highly
fragmented in the U.S.; however, we believe our recycling operations are one of the largest engaged in the recycling of nonferrous
metals in the U.S. We are also a major regional processor of ferrous metal. We produce a significant percentage of the total U.S.
output of rebar and merchant bar. We also believe we are the largest manufacturer, and among the largest fabricators, of rebar in
the U.S, as well as the largest manufacturer of steel fence posts in the U.S. In Poland, we believe we are the largest producer of
merchant bars for the products we produce and the second largest producer of rebar and wire rod.
No single customer accounted for 10% or more of our consolidated net sales in 2020, 2019 or 2018.
See Part I, Item 1A, "Risk Factors — Risks Related to Our Industry" below.
ENVIRONMENTAL MATTERS
A significant factor in our business is our compliance with environmental laws and regulations. See Part I, Item 1A, "Risk Factors
— Risks Related to Our Industry" in this Annual Report. Compliance with and changes in various environmental requirements
and environmental risks applicable to our industry may adversely affect our business, results of operations and financial condition.
Occasionally, we may be required to clean up or take remedial action with regard to sites we operate or formerly operated. We
may also be required to pay for a portion of the cleanup or remediation cost at sites we never owned or at sites which we never
operated, if we are found to have arranged for treatment or disposal of hazardous substances on the sites. Under the
Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA" or "Superfund") and analogous state
statutes, we could be responsible for both the costs of cleanup as well as for associated natural resource damages. The U.S.
Environmental Protection Agency ("EPA"), or equivalent state agency, has named us as a potentially responsible party ("PRP")
at several federal Superfund sites or similar state sites. In some cases, these agencies allege that we are one of many PRPs
responsible for the cleanup of a site because we sold scrap metals to, or otherwise disposed of materials at, the site. With respect
to the sale of scrap metals, we contend that an arm's length sale of valuable scrap metal for use as a raw material in a manufacturing
process that we do not control should not constitute "an arrangement for disposal or treatment of hazardous substances" as defined
under federal law. Subject to the satisfaction of certain conditions, the Superfund Recycling Equity Act provides legitimate sellers
of scrap metal for recycling with some relief from Superfund liability under federal law. Despite Congress' clarification of the
intent of the federal law, some state laws and environmental agencies still seek to impose such liability. We believe efforts to
impose such liability are contrary to public policy objectives and legislation encouraging recycling and promoting the use of
recycled materials, and we continue to support clarification of state laws and regulations consistent with Congress' action.
New federal, state and local laws, regulations and the varying interpretations of such laws by regulatory agencies and the judiciary
impact how much money we spend on environmental compliance. In addition, uncertainty regarding adequate control levels,
testing and sampling procedures, new pollution control technology and cost benefit analysis based on market conditions impact
our future expenditures in order to comply with environmental requirements. We cannot predict the total amount of capital
expenditures or increases in operating costs or other expenses that may be required as a result of environmental compliance. We
also do not know if we can pass such costs on to our customers through product price increases. During 2020, we incurred
environmental costs, including disposal, permits, license fees, tests, studies, remediation, consultant fees and environmental
personnel expense of $46.6 million. In addition, we spent approximately $2.7 million on capital expenditures for environmental
projects in 2020. We believe that our facilities are in material compliance with currently applicable environmental laws and
regulations. We anticipate capital expenditures for new environmental control facilities during 2021 to be approximately $4.3
million.
5
EMPLOYEES
As of August 31, 2020, the Company employed the following numbers of employees in each reportable segment and Corporate:
Number of Employees
Segment
8,580
North America
2,351
Europe
366
Corporate
11,297
Total
Approximately 17% of the employees in our North America segment belong to unions. In addition, approximately 34% of the
employees in our Europe segment belong to unions. We believe that our labor relations are generally good to excellent and that
our work force is highly motivated.
INFORMATION ABOUT OUR EXECUTIVE OFFICERS
Our Board of Directors typically elects officers at its first meeting after our annual meeting of stockholders. Our executive officers
continue to serve for terms set by our Board of Directors in its discretion. The table below sets forth the name, current position
and offices, age and period served for each of our executive officers as of October 15, 2020.
NAME
Barbara R. Smith
Tracy L. Porter
Paul J. Lawrence
Jody K. Absher
Jennifer J. Durbin
CURRENT POSITION & OFFICES
Chairman of the Board, President and Chief Executive Officer
Executive Vice President and Chief Operating Officer
Vice President and Chief Financial Officer
Vice President, General Counsel and Corporate Secretary
Vice President of Human Resources
AGE
61
63
50
43
39
EXECUTIVE
OFFICER SINCE
2011
2010
2016
2020
2020
Barbara R. Smith joined the Company in May 2011 as Senior Vice President and Chief Financial Officer. Ms. Smith was
appointed Chief Operating Officer in January 2016, President and Chief Operating Officer in January 2017 and President and
Chief Executive Officer in September 2017. She was appointed to our Board of Directors on September 1, 2017 and was named
Chairman of the Board of Directors on January 11, 2018. Prior to joining the Company, Ms. Smith served as Vice President and
Chief Financial Officer of Gerdau Ameristeel Corporation, a mini mill steel producer, from July 2007 to May 2011, after joining
Gerdau Ameristeel as Treasurer in July 2006. From February 2005 to July 2006, she served as Senior Vice President and Chief
Financial Officer of FARO Technologies, Inc., a developer and manufacturer of 3-D measurement and imaging systems. From
1981 to 2005, Ms. Smith was employed by Alcoa Inc., a producer of primary aluminum, fabricated aluminum and alumina, where
she held various financial leadership positions, including Vice President of Finance for Alcoa's Aerospace, Automotive &
Commercial Transportation Group, Vice President and Chief Financial Officer for Alcoa Fujikura Ltd. and Director of Internal
Audit.
Tracy L. Porter joined the Company in 1991 and has held various positions within the Company, including General Manager of
CMC Steel Arkansas in Magnolia, Arkansas, head of the Company's former Rebar Fabrication Division, and Interim President
of the former CMC Americas Division. Mr. Porter served as Vice President of the Company and President of the former CMC
Americas Division from April 2010 to July 2010. Mr. Porter was appointed Senior Vice President of the Company and President
of the former CMC Americas Division in July 2010, Executive Vice President, CMC Operations in September 2016, and
Executive Vice President and Chief Operating Officer in April 2018.
Paul J. Lawrence joined the Company in February 2016 as Vice President of Finance. He was appointed Vice President of Finance
and Treasurer in September 2016; Treasurer, Vice President of Financial Planning and Analysis in January 2017; Vice President
of Finance in June 2018; and Vice President and Chief Financial Officer in September 2019. Prior to joining the Company, Mr.
Lawrence served as North American Information Technology Leader of Gerdau Long Steel North America, a U.S. steel producer,
from 2014 to 2016, and from 2010 to 2014, he served as Gerdau Template Deployment Leader at Gerdau Long Steel North
America. From 2003 to 2010, Mr. Lawrence held a variety of financial roles at Gerdau Ameristeel Corporation, including
Assistant Vice President and Corporate Controller, and Deputy Corporate Controller. From 1998 to 2002, Mr. Lawrence held
several financial positions with Co-Steel Inc., which was acquired by Gerdau SA.
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Jody K. Absher joined the Company in May 2011 as Legal Counsel. She was appointed Senior Counsel and Assistant Corporate
Secretary in October 2013; Lead Counsel and Assistant Corporate Secretary in November 2014; Interim General Counsel in
February 2020; and Vice President, General Counsel and Corporate Secretary in May 2020. From August 2007 to May 2011, Ms.
Absher was an attorney at Haynes and Boone, LLP, a global law firm.
Jennifer J. Durbin joined the Company in May 2010 as Legal Counsel. She was appointed Senior Counsel in January 2013; Lead
Counsel in November 2014; and Vice President of Human Resources in January 2020. From August 2006 to May 2010, Ms.
Durbin was an attorney at Sidley Austin, LLP, a global law firm.
ITEM 1A. RISK FACTORS
There are inherent risks and uncertainties associated with our business that could adversely affect our business, results of
operations and financial condition. Set forth below are descriptions of those risks and uncertainties that we currently believe to
be material, but the risks and uncertainties described below are not the only risks and uncertainties that could adversely affect our
business, results of operations and financial condition. If any of these risks actually occurs, our business, results of operations
and financial condition could be materially adversely affected.
RISKS RELATED TO OUR INDUSTRY
Our industry and the industries we serve are vulnerable to global economic conditions.
Metals industries and commodity products have historically been vulnerable to significant declines in consumption, global
overcapacity and depressed product pricing during prolonged periods of economic downturn. Our business supports cyclical
industries such as commercial, government and residential construction, energy, metals service center, petrochemical and original
equipment manufacturing. We may experience significant fluctuations in demand for our products from these industries based on
global or regional economic conditions, energy prices, consumer demand and decisions by governments to fund infrastructure
projects such as highways, schools, energy plants and airports. Although the residential housing market is not a significant direct
factor in our business, related commercial and infrastructure construction activities, such as shopping centers, schools and roads,
could be adversely impacted by a prolonged slump in new housing construction. Our business, results of operations and financial
condition are adversely affected when the industries we serve suffer a prolonged downturn or anemic growth. Because we do not
have unlimited backlogs, our business, results of operations and financial condition are promptly affected by short-term economic
fluctuations.
Although we believe that the long-term prospects for the steel industry remain bright, we are unable to predict the duration of
current economic conditions that are contributing to current demand for our products. Future economic downturns or a prolonged
period of slow growth or economic stagnation could materially adversely affect our business, results of operations and financial
condition.
We are vulnerable to the economic conditions in the regions in which our operations are concentrated.
Economic downturns in the U.S. and Central Europe, or decisions by governments that have an impact on the level and pace of
overall economic activity in one of these regions, could adversely affect demand for our products and, consequently, our sales
and profitability. As a result, our financial results are substantially dependent upon the overall economic conditions in these areas.
Rapid and significant changes in the price of metals could adversely impact our business, results of operations and
financial condition.
Prices for most metals in which we deal have experienced increased volatility over the last several years, and such increased price
volatility impacts us in several ways. While our downstream products may benefit from metal margin expansion as rapidly
decreasing input costs for previously contracted fixed price work declines, our steel products would likely experience reduced
metal margin and may be forced to liquidate high cost inventory at reduced metal margins or losses until prices stabilize. Sudden
increases in input costs could have the opposite effect in each case. Overall, we believe that rapid substantial price changes are
not to our industry's benefit. Our customer and supplier base would be impacted due to uncertainty as to future prices. A reluctance
to purchase inventory in the face of extreme price decreases or to sell quickly during a period of rapid price increases would likely
reduce our volume of business. Marginal industry participants or speculators may attempt to participate to an unhealthy extent
during a period of rapid price escalation with a substantial risk of contract default if prices suddenly reverse. Risks of default in
contract performance by customers or suppliers as well as an increased risk of bad debts and customer credit exposure could
increase during periods of rapid and substantial price changes.
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Excess capacity and over-production by foreign producers in our industry as well as the startup of new steel-making
capacity in the U.S. could result in lower domestic prices, which would adversely affect our sales, margins and
profitability.
Global steel-making capacity exceeds demand for steel products in some regions around the world. Rather than reducing
employment by rationalizing capacity with consumption, steel manufacturers in these countries (often with local government
assistance or subsidies in various forms) have traditionally periodically exported steel at prices significantly below their home
market prices, which prices may not reflect their costs of production or capital. For example, steel production in China, the world's
largest producer and consumer of steel, has continued to exceed Chinese demand. This rising excess capacity in China has resulted
in a further increase in imports of artificially low-priced steel and steel products to the U.S. and world steel markets. A
continuation of this trend or a significant decrease in China's rate of economic expansion could result in increasing steel imports
from China. Excessive imports of steel into the U.S. have exerted, and may continue to exert, downward pressure on U.S. steel
prices, which negatively affects our ability to increase our sales, margins, and profitability. The excess capacity may create
downward pressure on our steel prices and lead to reduced sales volumes as imports absorb market share that would otherwise
be filled by domestic supply, all of which would adversely affect our sales, margins and profitability and could subject us to
possible renegotiation of contracts or increases in bad debt. Excess capacity has also led to greater protectionism as is evident in
raw material and finished product border tariffs put in place by China, Brazil and other countries.
We believe the downward pressure on, and periodically depressed levels of, U.S. steel prices in some recent years have been
further exacerbated by imports of steel involving dumping and subsidy abuses by foreign steel producers. While some tariffs and
quotas are periodically put into effect for certain steel products imported from a number of countries that have been found to have
been unfairly pricing steel imports to the U.S., there is no assurance that tariffs and quotas will always be levied, even if otherwise
justified, and even when imposed many of these are short-lived or ineffective.
On March 8, 2018, President Trump signed a proclamation imposing a 25% tariff on all imported steel products for an indefinite
period of time under Section 232 of the Trade Expansion Act of 1962 ("Section 232"). The tariff is imposed on all steel imports
with the exception of steel imports originating from Argentina, Australia, Brazil, Canada, Mexico and South Korea, and the
administration is considering exemption requests from other countries. When this or other tariffs or duties expire or if others are
further relaxed or repealed, or if relatively higher U.S. steel prices make it attractive for foreign steelmakers to export their steel
products to the U.S., despite the presence of duties or tariffs, the resurgence of substantial imports of foreign steel could create
downward pressure on U.S. steel prices.
The adverse effects of excess capacity and over-production by foreign producers could be exacerbated by the startup of new steel-
making capacity in the U.S. Any of these adverse effects could have a material adverse effect on our business, results of operations
and financial condition.
Compliance with and changes in environmental compliance requirements and remediation requirements could result in
substantially increased capital requirements and operating costs; violations of environmental requirements could result
in costs that have a material adverse effect on our business, results of operations and financial condition.
Existing environmental laws or regulations, as currently interpreted or reinterpreted in the future, and future laws and regulations,
may have a material adverse effect on our business, results of operations and financial condition. Compliance with environmental
laws and regulations is a significant factor in our business. We are subject to local, state, federal and international environmental
laws and regulations concerning, among other matters, waste disposal, air emissions, waste and storm water effluent and disposal
and employee health. Federal and state regulatory agencies can impose administrative, civil and criminal penalties and may seek
injunctive relief impacting continuing operations for non-compliance with environmental requirements.
New facilities that we may build, especially steel mills, are required to obtain several environmental permits before significant
construction or commencement of operations. Delays in obtaining permits or unanticipated conditions in such permits could delay
the project or increase construction costs or operating expenses. Our manufacturing and recycling operations produce significant
amounts of by-products, some of which are handled as industrial waste or hazardous waste. For example, our EAF mills generate
electric arc furnace dust ("EAF dust"), which the EPA and other regulatory authorities classify as hazardous waste. EAF dust and
other industrial waste and hazardous waste require special handling, recycling or disposal.
In addition, the primary feed materials for the shredders operated by our recycling facilities are automobile hulks and obsolete
household appliances. Approximately 20% of the weight of an automobile hull consists of unrecyclable material known as
shredder fluff. After the segregation of ferrous and saleable nonferrous metals, shredder fluff remains. We, along with others in
the recycling industry, interpret federal regulations to require shredder fluff to meet certain criteria and pass a toxic leaching test
to avoid classification as a hazardous waste. We also endeavor to remove hazardous contaminants from the feed material prior to
8
shredding. As a result, we believe the shredder fluff we generate is not normally considered or properly classified as hazardous
waste. If the laws, regulations or testing methods change with regard to EAF dust or shredder fluff or other by-products, we may
incur additional significant costs.
Changes to National Ambient Air Quality Standards ("NAAQS") or other requirements on our air emissions could make it more
difficult to obtain new permits or to modify existing permits and could require changes to our operations or emissions control
equipment. Such difficulties and changes could result in operational delays and capital and ongoing compliance expenditures.
Legal requirements are changing frequently and are subject to interpretation. New laws, regulations and changing interpretations
by regulatory authorities, together with uncertainty regarding adequate pollution control levels, testing and sampling procedures,
new pollution control technology and cost/benefit analysis based on market conditions are all factors that may increase our future
expenditures to comply with environmental requirements. Accordingly, we are unable to predict the ultimate cost of future
compliance with these requirements or their effect on our operations. We cannot predict whether such costs would be able to be
passed on to customers through product price increases. Competitors in various regions or countries where environmental
regulation is less restrictive, subject to different interpretation or generally not enforced, may enjoy a competitive advantage.
We may also be required to conduct additional cleanup (and pay for associated natural resource damages) at sites where we have
already participated in remediation efforts or take remediation action with regard to sites formerly used in connection with our
operations. We may be required to pay for a portion or all of the costs of cleanup or remediation at sites we never owned or on
which we never operated if we are found to have arranged for treatment or disposal of hazardous substances on the sites. In cases
of joint and several liability, we may be obligated to pay a disproportionate share of cleanup costs if other responsible parties are
financially insolvent.
We are involved, and may in the future become involved, in various environmental matters that may result in fines,
penalties or judgments being assessed against us or liability imposed upon us which we cannot presently estimate or
reasonably foresee and which may have a material impact on our business, results of operations and financial condition.
Under CERCLA or similar state statutes, we may have obligations to conduct investigation and remediation activities associated
with alleged releases of hazardous substances or to reimburse the EPA (or state agencies as applicable) for such activities and to
pay for natural resource damages associated with alleged releases. We have been named a PRP at several federal and state
Superfund sites because the EPA or an equivalent state agency contends that we and other potentially responsible scrap metal
suppliers are liable for the cleanup of those sites as a result of having sold scrap metal to unrelated manufacturers for recycling
as a raw material in the manufacture of new products. We are involved in litigation or administrative proceedings with regard to
several of these sites in which we are contesting, or at the appropriate time may contest, our liability. In addition, we have received
information requests with regard to other sites which may be under consideration by the EPA as potential CERCLA sites.
We are presently participating in PRP organizations at several sites, which are paying for certain remediation expenses. Although
we are unable to estimate precisely the ultimate dollar amount of exposure to loss in connection with various environmental
matters or the effect on our consolidated financial position, we make accruals as warranted. In addition, although we do not
believe that a reasonably possible range of loss in excess of amounts accrued for pending lawsuits, claims or proceedings would
be material to our financial statements, additional developments may occur, and due to inherent uncertainties, including evolving
remediation technology, changing regulations, possible third-party contributions, the inherent uncertainties of the estimation
process, the uncertainties involved in litigation and other factors, the amounts we ultimately are required to pay could vary
significantly from the amounts we accrue, and this could have a material adverse effect on our business, results of operations and
financial condition.
Increased regulation associated with climate change and greenhouse gas emissions could impose significant additional
costs on both our steelmaking and metals recycling operations.
The U.S. government and various governmental agencies have introduced or are contemplating regulatory changes in response
to the potential impact of climate change. International treaties or agreements may also result in increasing regulation of
greenhouse gas ("GHG") emissions, including the introduction of carbon emissions trading mechanisms. Any such regulation
regarding climate change and GHG emissions could impose significant costs on our steelmaking and metals recycling operations
and on the operations of our customers and suppliers, including increased energy, capital equipment, environmental monitoring
and reporting and other costs in order to comply with current or future laws or regulations and limitations imposed on our
operations by virtue of climate change and GHG emissions laws and regulations. The potential costs of "allowances," "offsets"
or "credits" that may be part of potential cap-and-trade programs or similar future regulatory measures are still uncertain. Any
adopted future climate change and GHG regulations could negatively impact our ability (and that of our customers and suppliers)
to compete with companies situated in areas not subject to such limitations. From a medium and long-term perspective, as a result
9
of these regulatory initiatives, we may see an increase in costs relating to our assets that emit significant amounts of GHGs. These
regulatory initiatives will be either voluntary or mandatory and may impact our operations directly or through our suppliers or
customers. Until the timing, scope and extent of any future regulation becomes known, we cannot predict the effect on our
business, results of operations or financial condition, but such effect could be materially adverse to our business, results of
operations and financial condition.
Physical impacts of climate change could have a material adverse effect on our costs and operations.
There has been public discussion that climate change may be associated with rising sea levels as well as extreme weather
conditions such as more intense hurricanes, thunderstorms, tornadoes and snow or ice storms. Extreme weather conditions may
increase our costs or cause damage to our facilities, and any damage resulting from extreme weather may not be fully insured.
Many of our facilities are located near coastal areas or waterways where rising sea levels or flooding could disrupt our operations
or adversely impact our facilities. Furthermore, periods of extended inclement weather or associated flooding may inhibit
construction activity utilizing our products, delay or hinder shipments of our products to customers or reduce scrap metal inflows
to our recycling facilities. Any such events could have a material adverse effect on our costs or results of operations.
RISKS RELATED TO OUR COMPANY
Our business, financial condition, results of operations, cash flows, liquidity and stock price may be adversely affected by
global public health epidemics, including the recent COVID-19 pandemic.
The recent outbreak of COVID-19 has affected, and may continue to adversely affect, our business, financial condition, results
of operations, cash flows, liquidity and stock price. Other pandemics, epidemics, widespread illness or other health issues that
interfere with the ability of our employees, suppliers, customers, financing sources or others to conduct business, or negatively
affects consumer confidence or the global economy, could also adversely affect us.
In March 2020, the World Health Organization characterized the outbreak of COVID-19 as a pandemic, and the President of the
United States declared COVID-19 a national emergency. COVID-19 has resulted in various government actions globally,
including governmental actions in both the U.S. and Poland designed to slow the spread of the virus. Shelter-in-place or stay-at-
home orders were implemented in many of the jurisdictions where we operate. However, because we operate in a critical
infrastructure industry, our operations were allowed to remain open in the U.S. Our facilities in Poland have also remained open.
In spite of our continued operations, COVID-19 may have negative impacts on our operations, supply chain, transportation
networks and customers, which may compress our margins, including as a result of preventative and precautionary measures that
we, other businesses and governments are taking. COVID-19 is a widespread public health crisis that is adversely affecting
financial markets and the economies of many countries. Any resulting economic downturn could adversely affect demand for our
products and contribute to volatile supply and demand conditions affecting prices and volumes in the markets for our products
and raw materials. The progression of COVID-19 could also negatively impact our business or results of operations through the
temporary closure of our operating facilities or those of our customers or suppliers.
In addition, the ability of our suppliers and customers to work may be significantly impacted by individuals contracting or being
exposed to COVID-19 or as a result of the control measures noted above, which may negatively impact our production throughout
the supply chain and constrict sales channels. Our customers may be directly impacted by business interruptions or weak market
conditions and may not be willing or able to fulfill their contractual obligations. Furthermore, the progression of and global
response to COVID-19 increases the risk of delays in construction activities and equipment deliveries related to our capital
projects, including potential delays in obtaining permits from government agencies. The extent of such delays and other effects
of COVID-19 on our capital projects, certain of which are outside of our control, is unknown, but they could impact or delay the
timing of anticipated benefits on capital projects. COVID-19 has also caused volatility in the financial and capital markets and
may adversely affect our ability to access, and the costs associated with accessing, the debt or equity capital markets, which could
adversely affect our liquidity.
The extent to which COVID-19 may adversely impact our business depends on future developments, which are highly uncertain
and unpredictable, including new information concerning the severity of the pandemic and the effectiveness of actions globally
to contain or mitigate its effects. While we expect COVID-19 to negatively impact our results of operations, cash flows and
financial position, the current level of uncertainty over the economic and operational impacts of COVID-19 and the actions to
contain the outbreak or treat its impact means the related financial impact cannot be reasonably estimated at this time.
10
Potential limitations on our ability to access credit, or the ability of our customers and suppliers to access credit, may
adversely affect our business, results of operations and financial condition.
If our access to credit is limited or impaired, our business, results of operations and financial condition could be adversely
impacted. Our senior unsecured debt is rated by Standard & Poor's Corporation, Moody's Investors Service and Fitch Group, Inc.
In determining our credit ratings, the rating agencies consider a number of both quantitative and qualitative factors. These factors
include earnings (loss), fixed charges such as interest, cash flows, total debt outstanding, off-balance sheet obligations and other
commitments, total capitalization and various ratios calculated from these factors. The rating agencies also consider predictability
of cash flows, business strategy and diversity, industry conditions and contingencies. Any downgrades in our credit ratings may
make raising capital more difficult, increase the cost and affect the terms of future borrowings, affect the terms under which we
purchase goods and services and limit our ability to take advantage of potential business opportunities. We could also be adversely
affected if our banks refused to honor their contractual commitments or cease lending.
We are also exposed to risks associated with the creditworthiness of our customers and suppliers. In certain markets, we have
experienced a consolidation among those entities to whom we sell. This consolidation has resulted in an increased credit risk
spread among fewer customers, often without a corresponding strengthening of their financial status. If the availability of credit
to fund or support the continuation and expansion of our customers' business operations is curtailed or if the cost of that credit is
increased, the resulting inability of our customers or of their customers to either access credit or absorb the increased cost of that
credit could adversely affect our business by reducing our sales or by increasing our exposure to losses from uncollectible
customer accounts. The consequences of such adverse effects could include the interruption of production at the facilities of our
customers, the reduction, delay or cancellation of customer orders, delays or interruptions of the supply of raw materials we
purchase and bankruptcy of customers, suppliers or other creditors. Any of these events may adversely affect our business, results
of operations and financial condition.
The potential impact of our customers' non-compliance with existing commercial contracts and commitments, due to
insolvency or for any other reason, may adversely affect our business, results of operations and financial condition.
From time to time in the past, some of our customers have sought to renegotiate or cancel their existing purchase commitments
with us. In addition, some of our customers have breached previously agreed upon contracts to buy our products by refusing
delivery of the products.
Where appropriate, we have and will in the future pursue litigation to recover our damages resulting from customer contract
defaults and bankruptcy filings. We use credit assessments in the U.S. and credit insurance in Poland to mitigate the risk of
customer insolvency. However, a large number of our customers defaulting on existing contractual obligations to purchase our
products could have a material adverse effect on our business, results of operations and financial condition.
The agreements governing our notes and our other debt contain financial covenants and impose restrictions on our
business.
The indenture governing our 4.875% senior notes due 2023, our 5.750% senior notes due 2026, and our 5.375% senior notes due
2027 contains restrictions on our ability to create liens, sell assets, enter into sale and leaseback transactions and consolidate or
merge. In addition to these restrictions, our credit facility contains covenants that restrict our ability to, among other things, enter
into transactions with affiliates and guarantee the debt of some of our subsidiaries. Our credit facility also requires that we meet
certain financial tests and maintain certain financial ratios, including maximum debt to capitalization and interest coverage ratios.
Other agreements that we may enter into in the future may contain covenants imposing significant restrictions on our business
that are similar to, or in addition to, the covenants under our existing agreements. These restrictions may affect our ability to
operate our business and may limit our ability to take advantage of potential business opportunities as they arise.
Our ability to comply with these covenants may be affected by events beyond our control, including prevailing economic,
financial and industry conditions. The breach of any of these covenants could result in a default under the indenture governing
our notes or under our other debt agreements. An event of default under our debt agreements would permit our lenders to declare
all amounts borrowed from them to be due and payable, together with accrued and unpaid interest. If we were unable to repay
debt to our secured lenders or if we incur secured debt in the future, these lenders could proceed against the collateral securing
that debt. In addition, acceleration of our other indebtedness may cause us to be unable to make interest payments on our notes.
11
We may not be able to successfully identify, consummate or integrate acquisitions, and acquisitions may adversely affect
our financial leverage.
Part of our business strategy includes pursuing synergistic acquisitions. We have expanded, and plan to continue to expand, our
business by making strategic acquisitions and regularly seeking suitable acquisition targets to enhance our growth. We may fund
such acquisitions using cash on hand, drawing under our credit facility or accessing the capital markets. To the extent we finance
such acquisitions with additional debt, the incurrence of such debt may result in a significant increase in our interest expense and
financial leverage, which could be further exacerbated by volatility in the debt capital markets. Further, an increase in our leverage
could lead to deterioration in our credit ratings.
The pursuit of acquisitions may pose certain risks to us. We may not be able to identify acquisition candidates that fit our criteria
for growth and profitability. Even if we are able to identify such candidates, we may not be able to acquire them on terms or
financing satisfactory to us. We will incur expenses and dedicate attention and resources associated with the review of acquisition
opportunities, whether or not we consummate such acquisitions.
Additionally, even if we are able to acquire suitable targets on agreeable terms, we may not be able to successfully integrate their
operations with ours. Achieving the anticipated benefits of any acquisition will depend in significant part upon whether we
integrate such acquired businesses in an efficient and effective manner. We may not be able to achieve the anticipated operating
and cost synergies or long-term strategic benefits of our acquisitions within the anticipated timing or at all. For example,
elimination of duplicative costs may not be fully achieved or may take longer than anticipated. The benefits from any acquisition
will be offset by the costs incurred in integrating the businesses and operations. We may also assume liabilities in connection
with acquisitions to which we would not otherwise be exposed. An inability to realize any or all of the anticipated synergies or
other benefits of an acquisition as well as any delays that may be encountered in the integration process, which may delay the
timing of such synergies or other benefits, could have an adverse effect on our business, results of operations and financial
condition.
New and clarifying guidance with regard to interpretation of certain provisions of the Tax Cuts and Jobs Act may
adversely affect our business, results of operations, financial condition and cash flow.
On December 22, 2017, the President signed into law Public Law No. 115-97, commonly referred to as the Tax Cuts and Jobs
Act ("TCJA"), following its passage by the United States Congress, which significantly changed the U.S. corporate income tax
system. The TCJA requires complex computations to be performed, which require significant judgments, estimates and
calculations to be made in interpreting its provisions. The U.S. Department of Treasury continues to release new and clarifying
guidance on certain provisions of the TCJA, which the Company evaluates during the period of enactment. This new guidance
could require us to make adjustments to amounts we have previously recorded, which may adversely impact our results of
operations and financial condition.
Goodwill impairment charges in the future could have a material adverse effect on our business, results of operations
and financial condition.
We review the recoverability of goodwill annually, as of the first day of our fourth quarter, and whenever events or circumstances
indicate that the carrying value of a reporting unit may not be recoverable.
The impairment tests require us to make an estimate of the fair value of our reporting units. An impairment could be recorded as
a result of changes in assumptions, estimates or circumstances, some of which are beyond our control. Factors which could result
in an impairment include, but are not limited to: (i) reduced demand for our products; (ii) our cost of capital; (iii) higher material
prices; (iv) slower growth rates in our industry; and (v) changes in the market based discount rates. Since a number of factors
may influence determinations of fair value of goodwill, we are unable to predict whether impairments of goodwill will occur in
the future, and there can be no assurance that continued conditions will not result in future impairments of goodwill. The future
occurrence of a potential indicator of impairment could include matters such as (i) a decrease in expected net earnings; (ii) adverse
equity market conditions; (iii) a decline in current market multiples; (iv) a decline in our common stock price; (v) a significant
adverse change in legal factors or the general business climate; (vi) an adverse action or assessment by a regulator; (vii) a
significant downturn in non-residential construction markets in the U.S.; and (viii) levels of imported steel into the U.S. Any such
impairment would result in us recognizing a non-cash charge in our consolidated statements of earnings, which could adversely
affect our business, results of operations and financial condition.
12
Impairment of long-lived assets in the future could have a material adverse effect on our business, results of operations
and financial condition.
We have a significant amount of property, plant and equipment, finite-lived intangible assets and right of use assets that may be
subject to impairment testing. Long-lived assets are subject to an impairment assessment when certain triggering events or
circumstances indicate that their carrying value may be impaired. If the net carrying value of the asset or group of assets exceeds
our estimate of future undiscounted cash flows of the operations related to the asset, the excess of the net book value over
estimated fair value is charged to impairment loss in the consolidated statements of earnings. The primary factors that affect
estimates of future cash flows for these long-lived asset groups are (i) management's raw material price outlook; (ii) market
demand; (iii) working capital changes; (iv) capital expenditures; and (v) selling, general and administrative expenses. There can
be no assurance that continued market conditions, demand for our products, or facility utilization levels or other factors will not
result in future impairment charges.
Increases in the value of the U.S. dollar relative to other currencies may adversely affect our business, results of operations
and financial condition.
An increase in the value of the U.S. dollar may adversely affect our business, results of operations and financial condition, and
in particular, the increased strength of the U.S. dollar as compared to China's renminbi or the euro could adversely affect our
business, results of operations and financial condition. A strong U.S. dollar makes imported metal products less expensive,
resulting in more imports of steel products into the U.S. by our foreign competitors, while a weak U.S. dollar may have the
opposite impact on imports. With the exception of exports of nonferrous scrap metal by the recycling facilities in our North
America segment, we have not recently been a significant exporter of metal products. Economic difficulties in some large steel-
producing regions of the world, resulting in lower local demand for steel products, have historically encouraged greater steel
exports to the U.S. at depressed prices which can be exacerbated by a strong U.S. dollar. As a result, our products that are made
in the U.S. may become relatively more expensive as compared to imported steel, which has had, and in the future could have, a
negative impact on our business, results of operations and financial condition.
There can be no assurance that we will repurchase shares of our common stock at all or in any particular amounts.
During the first quarter of 2015, we announced that our Board of Directors had authorized the Company to repurchase up to
$100.0 million of shares of our common stock. The stock markets in general have experienced substantial price and trading
fluctuations, which have resulted in volatility in the market prices of securities that often are unrelated or disproportionate to
changes in operating performance. These broad market fluctuations may adversely affect the trading price of our common stock.
Price volatility over a given period may also cause the average price at which we repurchase our own common stock to exceed
the stock's price at a given point in time. In addition, significant changes in the trading price of our common stock and our ability
to access capital on terms favorable to us could impact our ability to repurchase shares of our common stock. The timing and
amount of any repurchases will be determined by the Company's management based on its evaluation of market conditions,
capital allocation alternatives and other factors beyond our control. Our share repurchase program may be modified, suspended,
extended or terminated by the Company at any time and without notice.
Operating internationally carries risks and uncertainties which could adversely affect our business, results of operations
and financial condition.
We have significant facilities in Poland. Our Polish operations generated approximately 13% of our 2020 net sales. Our stability,
growth and profitability are subject to a number of risks inherent in doing business internationally in addition to the currency
exchange risk and operating risks discussed above, including:
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political, military, terrorist or major pandemic events;
local labor and social issues;
legal and regulatory requirements or limitations imposed by foreign governments (particularly those with significant steel
consumption or steel-related production including China, Brazil, Russia and India), including quotas, tariffs or other
protectionist trade barriers, adverse tax law changes, nationalization or currency restrictions;
disruptions or delays in shipments caused by customs compliance or government agencies; and
potential difficulties in staffing and managing local operations.
13
These factors may adversely affect our business, results of operations and financial condition.
Scrap and other supplies for our business are subject to significant price fluctuations and limited availability, which may
adversely affect our business, results of operations and financial condition.
At any given time, we may be unable to obtain an adequate supply of critical raw materials at a price and other terms acceptable
to us. We depend on ferrous scrap, the primary raw material used by our steel mills, and other supplies such as graphite electrodes
and ferroalloys for our steel mill operations. The price of scrap and other supplies has historically been subject to significant
fluctuation, and we may not be able to adjust our product prices to recover the costs of rapid increases in material prices, especially
over the short-term and in our fixed price contracts. The profitability of our operations would be adversely affected if we are
unable to pass increased raw material and supply costs on to our customers. Changing processes could potentially impact the
volume of scrap metal available to us and the volume and realized margins of processed metal we sell.
The purchase prices for automobile bodies and various other grades of obsolete and industrial scrap, as well as the selling prices
for processed and recycled scrap metals we utilize in our own manufacturing process or resell to others, are highly volatile. A
prolonged period of low scrap prices or a fall in scrap prices could reduce our ability to obtain, process and sell recycled material,
which could have a material adverse effect on our metals recycling operations business, results of operations and financial
condition. Our ability to respond to changing recycled metal selling prices may be limited by competitive or other factors during
periods of low scrap prices, when the supply of scrap may decline considerably, as scrap generators hold onto their scrap in the
hope of getting higher prices later. Conversely, increased foreign demand for scrap due to economic expansion in countries such
as China, India, Brazil and Turkey can result in an outflow of available domestic scrap as well as higher scrap prices that cannot
always be passed on to domestic scrap consumers, further reducing the available domestic scrap flows and scrap margins, all of
which could adversely affect our sales and profitability.
The availability and process of raw materials may also be negatively affected by new laws and regulations, allocations by
suppliers, interruptions in production, accidents or natural disasters, changes in exchange rates, global price fluctuations, and the
availability and cost of transportation. If we were unable to obtain adequate and timely deliveries of our required raw materials,
we may be unable to timely manufacture significant quantities of our products.
We rely on the availability of large amounts of electricity and natural gas. Disruptions in delivery or substantial increases
in energy costs, including crude oil prices, could adversely affect our business, results of operations and financial
condition.
Our EAF mills melt steel scrap in electric arc furnaces and use natural gas to heat steel billets for rolling into finished steel
products. As large consumers of electricity and gas, often the largest in the geographic area where our mills are located, we must
have dependable delivery of electricity and natural gas in order to operate. Accordingly, we are at risk in the event of an energy
disruption. Prolonged black-outs or brown-outs or disruptions caused by natural disasters such as hurricanes would substantially
disrupt our production. While we have not suffered prolonged production delays due to our inability to access electricity or natural
gas, several of our competitors have experienced such occurrences. Prolonged substantial increases in energy costs would have
an adverse effect on the costs of operating our mills and would negatively impact our gross margins unless we were able to fully
pass through the additional expense to our customers. Our finished steel products are typically delivered by truck. Rapid increases
in the price of fuel attributable to increases in crude oil prices would increase our costs and adversely affect many of our customers'
financial results, which in turn could result in reduced margins and declining demand for our products.
The loss of, or inability to hire, key employees may adversely affect our ability to successfully manage our operations and
meet our strategic objectives.
Our future success depends, in large part, on the continued service of our officers and other key employees and our ability to
continue to attract and retain additional highly qualified personnel. These employees are integral to our success based on their
expertise and knowledge of our business and products. We compete for such personnel with other companies, including public
and private company competitors who may periodically offer more favorable terms of employment. The loss or interruption of
the services of a number of our key employees could reduce our ability to effectively manage our operations due to the fact that
we may not be able to find appropriate replacement personnel in a timely manner should the need arise.
14
We may have difficulty competing with companies that have a lower cost structure or access to greater financial resources.
We compete with regional, national and foreign manufacturers and traders. Consolidation among participants in the steel
manufacturing and recycling industries has resulted in fewer competitors, and several of our competitors are significantly larger
than us and have greater financial resources and more diverse businesses than us. Some of our foreign competitors may be able
to pursue business opportunities without regard to certain of the laws and regulations with which we must comply, such as
environmental regulations. These companies may have a lower cost structure and more operating flexibility, and consequently
they may be able to offer better prices and more services than we can. There is no assurance that we will be able to compete
successfully with these companies. Any of these factors could have a material adverse effect on our business, results of operations
and financial condition.
Information technology interruptions and breaches in data security could adversely impact our business, results of
operations and financial condition.
We rely on computers, information and communications technology and related systems and networks in order to operate our
business, including to store sensitive data such as intellectual property, our own proprietary business information and that of our
customers, suppliers and business partners and personally identifiable information of our employees. Increased global information
technology security requirements, vulnerabilities, threats and a rise in sophisticated and targeted computer crime pose a risk to
the security of our systems, networks and the confidentiality, availability and integrity of our data. Our systems and networks are
also subject to damage or interruption from power outages, telecommunications failures, employee error and other similar events.
Any of these or other events could result in system interruption, the disclosure, modification or destruction of proprietary and
other key information, legal claims or proceedings, production delays or disruptions to operations including processing
transactions and reporting financial results and could adversely impact our reputation and our operating results. We have taken
steps to address these concerns and have implemented internal control and security measures to protect our systems and networks
from security breaches; however, there can be no assurance that a system or network failure, or security breach, will not impact
our business, results of operations and financial condition.
Our mills require continual capital investments that we may not be able to sustain.
We must make regular substantial capital investments in our steel mills to maintain the mills, lower production costs and remain
competitive. We cannot be certain that we will have sufficient internally generated cash or acceptable external financing to make
necessary substantial capital expenditures in the future. The availability of external financing depends on many factors outside of
our control, including capital market conditions and the overall performance of the economy. If funding is insufficient, we may
be unable to develop or enhance our mills, take advantage of business opportunities and respond to competitive pressures.
Unexpected equipment failures may lead to production curtailments or shutdowns, which may adversely affect our
business, results of operations and financial condition.
Interruptions in our production capabilities would adversely affect our production costs, steel available for sale and earnings for
the affected period. Our manufacturing processes are dependent upon critical pieces of steel-making equipment, such as our
furnaces, continuous casters and rolling equipment, as well as electrical equipment, such as transformers. This equipment may,
on occasion, be out of service as a result of unanticipated failures. We have experienced, and may in the future experience,
material plant shutdowns or periods of reduced production as a result of such equipment failures. In addition to equipment failures,
our facilities are also subject to the risk of catastrophic loss due to unanticipated events such as fires, explosions or violent weather
conditions.
Competition from other materials may have a material adverse effect on our business, results of operations and financial
condition.
In many applications, steel competes with other materials, such as aluminum and plastics (particularly in the automobile industry),
cement, composites, glass and wood. Increased use of or additional substitutes for steel products could adversely affect future
market prices and demand for steel products.
15
Hedging transactions may expose us to losses or limit our potential gains.
Our product lines and global operations expose us to risks associated with fluctuations in foreign currency exchange rates,
commodity prices and interest rates. As part of our risk management program, we sometimes use financial instruments, including
metals commodity futures, natural gas, electricity and other energy forward contracts, freight forward contracts, foreign currency
exchange forward contracts and interest rate swap contracts. While intended to reduce the effects of fluctuations in these prices
and rates, these transactions may limit our potential gains or expose us to losses. If our counterparties to such transactions or the
sponsors of the exchanges through which these transactions are offered, such as the London Metal Exchange, fail to honor their
obligations due to financial distress, we would be exposed to potential losses or the inability to recover anticipated gains from
these transactions.
We enter into the foreign currency exchange forward contracts as economic hedges of trade commitments or anticipated
commitments denominated in currencies other than the functional currency to mitigate the effects of changes in currency rates.
These foreign exchange commitments are dependent on timely performance by our counterparties. Their failure to perform could
result in our having to close these hedges without the anticipated underlying transaction and could result in losses if foreign
currency exchange rates have changed.
We are subject to litigation and legal compliance risks which could adversely affect our business, results of operations
and financial condition.
We are involved in various litigation matters, including regulatory proceedings, administrative proceedings, governmental
investigations, environmental matters and construction contract disputes. The nature of our operations also exposes us to possible
litigation claims in the future. Because of the uncertain nature of litigation and coverage decisions, we cannot predict the outcome
of these matters. These matters could have a material adverse effect on our business, results of operations and financial condition.
Litigation is very costly, and the costs associated with prosecuting and defending litigation matters could have a material adverse
effect on our business, results of operations and financial condition. Although we are unable to estimate precisely the ultimate
dollar amount of exposure to loss in connection with litigation matters, we make accruals as warranted. However, the amounts
that we accrue could vary significantly from the amounts we actually pay, due to inherent uncertainties, including the inherent
uncertainties of the estimation process, the uncertainties involved in litigation and other factors. See Part I, Item 3, "Legal
Proceedings" of this Annual Report, for a description of our current significant legal proceedings.
As noted above, existing laws or regulations, as currently interpreted or reinterpreted in the future, and future laws and regulations,
may have a material adverse effect on our business, results of operations and financial condition. See the risk factor "Compliance
with and changes in environmental compliance requirements and remediation requirements could result in substantially increased
capital requirements and operating costs; violations of environmental requirements could result in costs that have a material
adverse effect on our business, results of operations, and financial condition" above for a description of such risks relating to
environmental laws and regulations. In addition to such environmental laws and regulations, complex foreign and U.S. laws and
regulations that apply to our international operations, including without limitation the Foreign Corrupt Practices Act and similar
laws in other countries, which generally prohibit companies and those acting on their behalf from making improper payments to
foreign government officials for the purpose of obtaining or retaining business, regulations related to import-export controls, the
Office of Foreign Assets Control sanctions program and antiboycott provisions, may increase our cost of doing business in
international jurisdictions and expose us and our employees to elevated risk. While we believe that we have adopted appropriate
risk management and compliance programs, the nature of our operations means that legal and compliance risks will continue to
exist. A negative outcome in an unusual or significant legal proceeding or compliance investigation could adversely affect our
business, results of operations and financial condition.
Our operations present significant risk of injury or death.
The industrial activities conducted at our facilities present significant risk of serious injury or death to our employees, customers
or other visitors to our operations, notwithstanding our safety precautions, including our material compliance with federal, state
and local employee health and safety regulations, and we may be unable to avoid material liabilities for injuries or deaths. We
maintain workers' compensation insurance to address the risk of incurring material liabilities for injuries or deaths, but there can
be no assurance that the insurance coverage will be adequate or will continue to be available on the terms acceptable to us, or at
all, which could result in material liabilities to us for any injuries or deaths.
Health care legislation could result in substantially increased costs and adversely affect our workforce.
The health care mandates enacted in connection with the 2010 Patient Protection and Affordable Care Act may cause us to
evaluate the scope of health benefits offered to our workforce and the method in which they are delivered, and increase our and
16
our employees' costs. If we are not able to offer a competitive level of benefits, our ability to hire and retain qualified personnel
may be adversely affected. Higher health care costs may result in (i) an inability to reinvest sufficient capital in our operations,
(ii) an inability to sustain dividends, (iii) lowered debt ratings and (iv) an increase in the cost of capital, all of which may have a
negative effect on the price of our common stock and a material adverse effect on our business, results of operations and financial
condition.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
17
4.9
5.4
2.4
0.6
1.3
0.3
ITEM 2. PROPERTIES
The following table describes our principal properties as of August 31, 2020. These properties are either owned by us and not
subject to any significant encumbrances, or are leased by us. We consider all properties to be appropriately utilized, suitable and
adequate to meet the requirements of our present and foreseeable future operations. Refer to Part I, Item 1, "Business", included
in this Annual Report for a discussion of the nature of our operations.
Location
Site Acreage
Owned
Site Acreage
Leased
Approximate
Building Square
Footage
Capacity
(Millions of
Tons)(3)
Segment and Operation
North America
Recycling facilities
(1)
Steel mills
Mini mill
Mini mill
Mini mill
Mini mill
Mini mill
Mini mill
Micro mill
Micro mill
Rerolling mill
Rerolling mill
Birmingham, Alabama
Cayce, South Carolina
Jacksonville, Florida
Knoxville, Tennessee
Sayreville, New Jersey
Seguin, Texas
Durant, Oklahoma
Mesa, Arizona
Magnolia, Arkansas
Rancho Cucamonga, California
802
90
1,580,000
71
142
600
72
116
661
402
229
123
80
1
—
—
—
—
—
4
—
—
—
580,000
760,000
440,000
460,000
340,000
870,000
290,000
320,000
280,000
260,000
Fabrication operations
(2)
781
53
3,420,000
Europe
Recycling facilities
Steel mini mill
Fabrication operations
Twelve locations in Poland
Zawiercie, Poland
Five locations in Poland
108
486
24
5
—
1
190,000
2,870,000
260,000
__________________________________
(1) Consists of 41 recycling facilities, with 18 locations in Texas, seven locations in South Carolina, four locations in Florida,
two locations in each of Alabama, Georgia, Missouri, and North Carolina, and one location in each of Kansas, Louisiana,
Oklahoma and Tennessee. The individual recycling facilities associated with the North America segment are not individually
material.
(2) Consists of 62 fabrication operations, with 12 locations in Texas, six locations in California, five locations in Florida, four
locations in Georgia, three locations in each of Illinois, Missouri, Oklahoma, and Tennessee, two locations in each of
Arizona, Colorado, Louisiana, North Carolina, New Jersey, South Carolina, Utah, and Virginia, and one location in each of
Alabama, Hawaii, Kentucky, New Mexico, Nevada, Ohio, and Washington. The individual fabrication operations associated
with the North America segment are not individually material.
(3) Refer to Part I, Item 1, Business, included in this Annual Report for a discussion of the calculation of capacity for our steel
mills.
We lease the 105,916 square foot office space occupied by our corporate headquarters in Irving, Texas.
We lease certain facilities as described above. These leases expire on various dates over the next six years, with the exception of
the leased facilities in our Europe segment. Several of the leases have renewal options. We have generally been able to renew
leases prior to their expiration. We estimate our minimum annual rental obligation for our real estate operating leases in effect at
August 31, 2020, to be paid during 2021, to be approximately $12.1 million.
18
ITEM 3. LEGAL PROCEEDINGS
The Company is a defendant in lawsuits associated with the normal conduct of its businesses and operations. It is not possible to
predict the outcome of the pending actions, and as with any litigation, it is possible that these actions could be decided unfavorably
to the Company. We believe that there are meritorious defenses to these actions and that these actions will not have a material
adverse effect upon our results of operations, cash flows or financial condition, and where appropriate, these actions are being
vigorously contested.
We are the subject of civil actions, or have received notices from the EPA or state agencies with similar responsibility, that we
and numerous other parties are considered a PRP and may be obligated under CERCLA, or similar state statutes, to pay for the
cost of remedial investigation, feasibility studies and ultimately remediation to correct alleged releases of hazardous substances
at eleven locations. The actions and notices refer to the following locations, none of which involve real estate we ever owned or
upon which we ever conducted operations: the Sapp Battery Site in Cottondale, Florida, the Interstate Lead Company Site in
Leeds, Alabama, the Ross Metals Site in Rossville, Tennessee, the Li Tungsten Site in Glen Cove, New York, the Peak Oil Site
in Tampa, Florida, the R&H Oil Site in San Antonio, Texas, the SoGreen/Parramore Site in Tifton, Georgia, the Jensen Drive
site in Houston, Texas, the Industrial Salvage site in Corpus Christi, Texas, the Chemetco site in Hartford, Illinois and the Ward
Transformer site in Raleigh, North Carolina. We may contest our designation as a PRP with regard to certain sites, while at other
sites we are participating with other named PRPs in agreements or negotiations that have resulted or that we expect will result in
agreements to remediate the sites. During 2010, we acquired a 70% interest in the real property at Jensen Drive as part of the
remediation of that site. We have periodically received information requests from government environmental agencies with regard
to other sites that are apparently under consideration for designation as listed sites under CERCLA or similar state statutes. Often
we do not receive any further communication with regard to these sites, and as of the date of this Annual Report, we do not know
if any of these inquiries will ultimately result in a demand for payment from us.
The EPA notified us and other alleged PRPs that under Section 106 of CERCLA, we and the other PRPs could be subject to a
maximum fine of $25,000 per day and the imposition of treble damages if we and the other PRPs refuse to clean up the Peak Oil,
Sapp Battery and SoGreen/Parramore sites as ordered by the EPA. We are presently participating in PRP organizations at these
sites, which are paying for certain site remediation expenses. We do not believe that the EPA will pursue any fines against us if
we continue to participate in the PRP groups or if we have adequate defenses to the EPA's imposition of fines against us in these
matters.
We believe that adequate provisions have been made in the financial statements for the potential impact of any loss in connection
with the above-described legal proceedings and environmental matters. Management believes that the outcome of the proceedings
mentioned, and other miscellaneous litigation and proceedings now pending, will not have a material adverse effect on our
business, results of operations or financial condition.
ITEM 4. MINE SAFETY DISCLOSURE
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
MARKET, STOCKHOLDERS AND DIVIDENDS
Our common stock is traded on the New York Stock Exchange under the symbol CMC. The number of stockholders of record of
CMC common stock at October 14, 2020 was 2,500.
We have paid quarterly cash dividends for 224 consecutive quarters. We paid quarterly dividends in 2020 and 2019 at the rate of
$0.12 per share of CMC common stock. While the Company’s Board of Directors currently intends to continue regular quarterly
cash dividend payments, the Board of Directors’ determination with respect to any future dividends will depend upon our
profitability and financial condition, contractual restrictions, restrictions imposed by applicable law and other factors that the
Board of Directors deems relevant at the time of such determination. Based on its evaluation of these factors, the Board of
Directors may determine not to declare a dividend, or declare dividends at rates that are less than currently anticipated.
19
STOCK PERFORMANCE GRAPH
The graph below compares the Company's cumulative 5-Year total shareholder return on common stock with the cumulative total
returns of the Standard & Poor's 500 Composite Stock Price Index (the "S&P 500") and the Standard & Poor's Steel Industry
Group Index (the "S&P Steel"). The graph tracks the performance of a $100 investment in our common stock and in each index
(with the reinvestment of all dividends) from August 31, 2015 to August 31, 2020.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Commercial Metals Company, the S&P 500 Index
and the S&P Steel Index
$250
$200
$150
$100
$50
$0
8/15
8/16
8/17
8/18
8/19
8/20
Commercial Metals Company
S&P 500
S&P Steel
*$100 invested on 8/31/15 in stock or index, including reinvestment of dividends.
Fiscal year ending August 31.
Copyright© 2020 Standard & Poor's, a division of S&P Global. All rights reserved.
Commercial Metals Company
S&P 500
S&P Steel
8/31/16
8/31/15
8/31/2017 8/31/2018 8/31/2019 8/31/2020
$ 100.00 $ 102.03 $ 127.35 $ 149.00 $ 111.03 $ 151.71
100.00 112.55 130.82 156.55 161.12 196.47
100.00 116.05 135.38 157.43 126.87 122.13
PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
There were no purchases of equity securities registered by the Company pursuant to Section 12 of the Exchange Act during the
quarter or year ended August 31, 2020.
20
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected consolidated financial data derived from our audited financial statements for each of the
five years in the period ended August 31, 2020. The data presented below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" set forth in Part II, Item 7 of this Annual Report and
the consolidated financial statements and the accompanying notes set forth in Part II, Item 8 of this Annual Report.
(in thousands, except per share data)
Net sales*
Earnings from continuing operations
Basic earnings per share from continuing operations
Diluted earnings per share from continuing
Cash dividends per share
Capital expenditures
Total assets
Long-term debt (includes current maturities)
Stockholders' equity
i
2017
2016
2020
2019**
Year Ended August 31,
2018
$ 5,476,486 $ 5,829,002 $ 4,643,723 $ 3,844,069 $ 3,596,068
62,001
0.54
0.53
0.48
163,332
4,081,728 3,758,771 3,328,304 2,975,131 3,130,869
1,083,685 1,244,653 1,158,365
824,762 1,071,417
1,889,201 1,623,861 1,493,397 1,400,757 1,367,272
135,237
1.16
1.14
0.48
174,655
50,175
0.43
0.43
0.48
213,120
278,302
2.34
2.31
0.48
187,618
198,779
1.69
1.67
0.48
138,836
__________________________________
* Excludes divisions classified as discontinued operations. For additional information on discontinued operations, see Note 3,
Changes in Business, in Part II, Item 8 of this Annual Report.
** 2019 results include 10 months of the Acquired Businesses' results and assets acquired as part of the Acquisition.
21
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
This Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with
our consolidated financial statements and the accompanying notes contained in this Annual Report.
OVERVIEW
As a vertically integrated organization, we manufacture, recycle and fabricate steel and metal products, related materials and
services through a network including seven EAF mini mills, two EAF micro mills, two rerolling mills, steel fabrication and
processing plants, construction-related product warehouses and metal recycling facilities in the U.S. and Poland. Our operations
are conducted through two reportable segments: North America and Europe. See Part I, Item 1, "Business", for further information
regarding our business and reportable segments.
When considering our results for the period, we evaluate our operating performance by comparing our net sales, in the aggregate
and for both of our segments, in the current period to net sales in the corresponding period in the prior year. In doing so, we focus
on changes in average selling price per ton and tons shipped for each of our product categories as these are the two variables that
typically have the greatest impact on our results of operations. We group our products into three categories: raw materials, steel
products and downstream products. Raw materials include ferrous and nonferrous scrap, steel products include rebar, merchant
and other steel products, such as billets and wire rod, and downstream products include fabricated rebar and steel fence post.
We use adjusted EBITDA from continuing operations to compare and evaluate the financial performance of our segments.
Adjusted EBITDA is the sum of the Company's earnings from continuing operations before interest expense, income taxes,
depreciation and amortization expense and impairment expense. Although there are many factors that can impact a segment’s
adjusted EBITDA and, therefore, our overall earnings, changes in metal margin of our steel products and downstream products
period-over-period is a consistent area of focus for our Company and industry. Metal margin is an important metric used by
management to monitor the results of our vertically integrated organization. For our steel products, metal margin is the difference
between the average selling price per ton of rebar, merchant and other steel products and the cost of ferrous scrap per ton utilized
by our steel mills to produce these products. An increase or decrease in input costs can impact profitability of these products
when there is no corresponding change in selling prices due to competitive pressures on prices. The metal margin for our
downstream products is the difference between the average selling price per ton of fabricated rebar and steel fence post products
and the cost of material utilized by our fabrication facilities to produce these products. The majority of our downstream products
selling prices per ton are fixed at the beginning of a project and these projects last one to two years on average. Because the
selling price generally remains fixed over the life of a project, changes in input costs over the life of the project can significantly
impact profitability.
Impact of COVID-19
In March 2020, the World Health Organization characterized the outbreak of COVID-19 as a pandemic, and the President of the
United States declared the COVID-19 pandemic a national emergency. COVID-19 resulted in various government actions
globally, including governmental actions in both the U.S. and Poland designed to slow the spread of the virus. Shelter-in-place
or stay-at-home orders ("COVID-19 restrictions") were implemented in many of the jurisdictions where we operated in 2020.
However, because we operate in a critical infrastructure industry, our facilities were allowed to remain open in the U.S in 2020.
Our facilities in Poland also remained open. Accordingly, COVID-19 had limited impact on our operations. Due to the impact of
COVID-19 on the broader economy, average selling prices per ton and volumes decreased for certain product categories in 2020
compared to 2019. However, net sales and volumes in the second half of 2020 were relatively consistent with, or higher than, net
sales and volumes in the first half of 2020. While we implemented new procedures to support the safety of our employees, the
costs were not material.
While COVID-19 may negatively impact our results of operations, cash flows and financial position in the future, the current
level of uncertainty over the economic and operational impacts of COVID-19 and the actions to contain the outbreak or treat its
impact means the related financial impact cannot be reasonably estimated at this time.
22
RESULTS OF OPERATIONS SUMMARY
The following discussion of our results of operations is based on our continuing operations and excludes any results of our
discontinued operations.
(in thousands, except per share data)
Net sales
Earnings from continuing operations
Diluted earnings per share
2020 Compared to 2019
2020
Year Ended August 31,
2019
$ 5,476,486 $ 5,829,002 $ 4,643,723
135,237
1.14
278,302
2.31
198,779
1.67
2018
Net sales for 2020 decreased $0.4 billion, or 6%, compared to 2019. Net sales in our North America segment decreased in 2020,
as compared to the same period in 2019, primarily due to a year-over-year decrease in raw material shipments and a year-over-
year decline in steel products average selling prices. This decrease was partially offset by two additional months of shipments
from the Acquired Businesses in 2020 compared to 2019. Net sales in our Europe segment also decreased due to a decline in steel
products average selling prices in 2020 compared to 2019.
Earnings from continuing operations for 2020 increased by $79.5 million, or 40%, compared to 2019. Earnings increased in 2020
compared to 2019 primarily due to a year-over-year increase in downstream products metal margin in our North America segment.
This increase was partially offset by a year-over-year decrease in steel products metal margin in our Europe segment.
Selling, General and Administrative Expenses
Selling, general and administrative expenses in 2020 increased $41.3 million compared to 2019. The year-over-year increase was
driven primarily by a $49.2 million year-over-year increase in employee-related expenses due, in part, to two additional months
of employee-related expenses related to the Acquired Businesses, and a $32.1 million charge recorded in 2020 due to a working
capital adjustment related to the Acquisition, which was recorded subsequent to the end of the allowable one-year measurement
period. This increase was partially offset by a $23.3 million year-over-year decrease in professional fees and legal expenses,
primarily related to the Acquisition, a $5.3 million year-over-year decrease in lease expense as we have closed certain facilities
in 2020 as part of the integration of the Acquired Businesses, as described in Note 3, Changes in Business, in Part II, Item 8 of
this Annual Report, and a $3.2 million year-over-year decrease in travel-related expenses primarily due to COVID-19 restrictions
which limited travel in 2020.
Interest Expense
Interest expense in 2020 decreased $9.5 million compared to 2019. The year-over-year decrease was the result of a reduction in
interest on long-term debt primarily due to total prepayments of $210.1 million in 2020 on the Term Loan (as defined in Note 10,
Credit Arrangements, in Part II, Item 8 of this Annual Report).
Income Taxes
Our effective income tax rate for 2020 was 24.9% compared to 26.0% for 2019. The year-over-year decrease was primarily due
to tax expense recorded during 2019 as a result of the TCJA which did not recur during 2020. See Note 14, Income Tax, in Part
II, Item 8 of this Annual Report, for further discussion of our effective tax rate.
2019 Compared to 2018
Net sales for 2019 increased $1.2 billion, or 26%, compared to 2018 due to the successful execution of our growth strategy and
strength in our core markets. The Acquisition, which was completed in the first quarter of 2019, contributed net sales of $1.4
billion in 2019. See Note 3, Changes in Business, in Part II, Item 8 of this Annual Report, for further information related to the
Acquisition. Net sales in our North America segment increased in 2019, as compared to the same period in 2018, primarily due
to increased shipments from the Acquired Businesses and an increase in year-over-year steel products and downstream products
average selling prices. This increase was partially offset by a reduction in net sales in our Europe segment as steel products
average selling prices and volumes were down in 2019, as compared to 2018.
23
Earnings from continuing operations for 2019 increased by $63.5 million, or 47%, compared to 2018. The increase in earnings
was primarily due to the Acquired Businesses.
Selling, General and Administrative Expenses
Selling, general and administrative expenses in 2019 increased $61.8 million compared to 2018, due to $51.0 million of costs
associated with the Acquisition and with the expenses related to the operation of the Acquired Businesses.
Interest Expense
Interest expense in 2019 increased $30.4 million compared to 2018. The increase was primarily the result of financing activities
in connection with the Acquisition, including issuance of the 2026 Notes and a draw under the 2018 Term Loan (both defined in
Note 10, Credit Arrangements, in Part II, Item 8 of this Annual Report), which increased interest expense by $19.8 million in
2019 as compared to 2018. Also contributing to the increase was a year-over-year reduction in capitalized interest of $6.9 million
in 2019 compared to 2018.
Income Taxes
Our effective income tax rate for 2019 was 26.0% compared to 18.2% for 2018. Our effective tax rate for 2019 included non-
recurring expense of approximately $7.4 million related to the final measurement of our U.S. federal tax expense associated with
repatriation tax provisions of the TCJA. Excluding the impacts of the TCJA, the year-over-year increase was primarily due to
certain tax benefits recorded during 2018 which did not recur during 2019. See Note 14, Income Tax, in Part II, Item 8 of this
Annual Report, for further discussion of our effective tax rate.
SEGMENTS
All amounts are computed and presented in a manner that is consistent with the basis in which we internally disaggregate financial
information for the purpose of making operating decisions. See Note 21, Business Segments, in Part II, Item 8 of this Annual
Report, for further information on how we evaluate financial performance of our segments.
2020 Compared to 2019
North America
(in thousands)
Net sales
Adjusted EBITDA
External tons shipped (in thousands)
Raw materials
Rebar
Merchant and other
Steel products
Downstream products
Average selling price per ton
Steel products
Downstream products
Cost of ferrous scrap utilized per ton
Steel products metal margin per ton
24
Year Ended August 31,
2019
2020
$ 4,769,933 $ 5,001,116
456,296
661,176
1,229
1,897
919
2,816
1,635
$
$
618 $
975
238 $
380
1,662
1,726
973
2,699
1,632
681
905
284
397
Net sales in 2020 decreased $231.2 million, or 5%, compared to 2019. The net sales decrease for 2020 compared to 2019 was
due, in part, to a 433 thousand ton decrease in raw materials shipped due to (i) lower availability of raw materials as a result of
the declining price environment, (ii) COVID-19 restrictions, which resulted in the temporary idling of many industrial accounts,
such as auto manufacturers and (iii) reduced demand from certain of our customers, many of which produce flat rolled steel. A
$63 per ton year-over-year decline in steel products average selling prices also contributed to the net sales decrease. This decrease
was partially offset by a 117 thousand ton year-over-year increase in steel products shipped due to two additional months of
shipments from the Acquired Businesses, and a $70 per ton year-over-year increase in downstream products average selling
prices. Net sales for 2020 and 2019 included amortization benefit of $29.4 million and $74.8 million, respectively, related to the
unfavorable contract backlog of the Acquired Businesses.
Adjusted EBITDA in 2020 increased $204.9 million compared to 2019. The year-over-year increase in adjusted EBITDA was
due to significant expansion in downstream products metal margin. As the majority of the downstream products are fixed price,
the project backlog reflects a lag between current market prices and average selling prices of material shipped. This is beneficial
during a time of economic slowdown as the average selling prices per ton fixed at the beginning of a project are typically higher
than current market input costs, resulting in metal margin expansion for downstream products. The expansion in downstream
products metal margin in 2020 compared to 2019 was partially offset by the year-over-year decrease in raw material volumes
discussed above and a $17 per ton year-over-year decrease in steel products metal margin. Adjusted EBITDA did not include the
$29.4 million or $74.8 million benefit of the amortization of the unfavorable contract backlog in 2020 or 2019, respectively.
Adjusted EBITDA included non-cash stock compensation expense of $12.4 million and $9.4 million in 2020 and 2019,
respectively.
Europe
(in thousands)
Net sales
Adjusted EBITDA
External tons shipped (in thousands)
Rebar
Merchant and other
Steel products
Average selling price per ton
Steel products
Cost of ferrous scrap utilized per ton
Steel products metal margin per ton
Year Ended August 31,
2020
2019
699,140 $ 817,048
100,102
62,007
$
539
933
1,472
$
$
448 $
246 $
202
423
1,037
1,460
528
288
240
Net sales in 2020 decreased $117.9 million, or 14%, compared to 2019. The decrease in net sales was primarily driven by an $80
per ton decline in steel products average selling price primarily due to continued pricing pressure as a result of high levels of
imports. Net sales were also impacted by an unfavorable foreign currency translation adjustment of $25.1 million due to the
increase in the average value of the U.S. dollar relative to the Polish zloty in 2020, as compared to 2019.
Adjusted EBITDA in 2020 decreased $38.1 million compared to 2019, primarily driven by a $38 per ton, or 16%, compression
in steel products metal margin as the input cost of ferrous scrap utilized has not decreased as much as the average selling price of
steel products. This decrease was partially offset by a $10.7 million carbon credit received in the fourth quarter of 2020. The
impact of foreign currency translation to adjusted EBITDA for 2020 compared to 2019 was immaterial. Adjusted EBITDA
included non-cash stock compensation expense of $2.0 million and $1.2 million in 2020 and 2019, respectively.
Corporate and Other
(in thousands)
Adjusted EBITDA loss
Year Ended August 31,
2019
2020
$ (146,575) $ (132,313)
25
Corporate and Other adjusted EBITDA loss in 2020 increased by $14.3 million compared to 2019. The year-over-year increase
was driven by a $32.1 million charge recorded in 2020 due to a working capital adjustment related to the Acquisition, which was
recorded subsequent to the end of the allowable one-year measurement period and an $11.7 million increase in employee-related
expenses in 2020 compared to 2019. These increases were partially offset by a $25.1 million year-over-year decrease in
professional services and legal fees, primarily due to the Acquisition in 2019, coupled with a $2.9 million year-over-year increase
in other revenue primarily due to an increase in gains on Benefit Restoration Plan ("BRP") assets year-over-year. Adjusted
EBITDA included non-cash stock compensation expense of $17.5 million and $14.4 million for 2020 and 2019, respectively.
Discontinued Operations
See Note 3, Changes in Business, in Part II, Item 8 of this Annual Report, for information regarding discontinued operations.
2019 Compared to 2018
North America
(in thousands)
Net sales
Adjusted EBITDA
External tons shipped (in thousands)
Raw materials
Rebar
Merchant and other
Steel products
Downstream products
Average selling price per ton
Steel products
Downstream products
Cost of ferrous scrap utilized per ton
Steel products metal margin per ton
Year Ended August 31,
2018
2019
$ 5,001,116 $ 3,738,493
323,993
456,296
1,662
1,726
973
2,699
1,632
$
$
681 $
905
284 $
397
1,877
798
910
1,708
1,114
640
800
303
337
Net sales in 2019 increased $1.3 billion, or 34%, compared to 2018. The year-over-year increase in net sales was driven by a 991
thousand and 518 thousand ton increase in steel products and downstream products shipped, respectively, due to shipments by
the Acquired Businesses. Year-over-year increases in downstream products and steel products average selling prices of $105 per
ton and $41 per ton, respectively, also contributed to the increase in net sales in 2019 compared to 2018, as the Section 232 trade
actions implemented in the U.S., aimed at unfairly priced steel imports, favorably impacted the pricing environment in 2019.
These increases were partially offset by a 215 thousand ton decrease in raw material shipments, coupled with a decrease in raw
materials average selling prices year-over-year. Net sales for 2019 included amortization benefit of $74.8 million related to the
unfavorable contract backlog of the Acquired Businesses.
Adjusted EBITDA in 2019 increased $132.3 million compared to 2018. This increase was due, in part, to the Acquired Businesses,
which contributed $98.2 million to adjusted EBITDA in 2019. Adjusted EBITDA in 2019 also increased, compared to 2018, due
to an 18% expansion in steel products metal margin. Partially offsetting steel products metal margin expansion were increases in
conversion costs due to increased electrode prices and repairs and maintenance expenses in 2019 compared to 2018, as well as
increases due to the Acquired Businesses. The increase in adjusted EBITDA was partially offset by downstream products metal
margin compression in 2019 compared to 2018, as the implementation of Section 232 trade actions resulted in increased input
costs, while the projects included in our downstream products backlog were fixed at lower average selling prices agreed upon
when the projects began. Adjusted EBITDA did not include the $74.8 million benefit related to the amortization of the unfavorable
26
contract backlog in 2019. Adjusted EBITDA included $4.2 million of costs related to the closure of certain facilities in 2019 and
also included non-cash stock compensation expense of $9.4 million and $8.7 million in 2019 and 2018, respectively.
Europe
(in thousands)
Net sales
Adjusted EBITDA
External tons shipped (in thousands)
Rebar
Merchant and other
Steel products
Average selling price per ton
Steel products
Cost of ferrous scrap utilized per ton
Steel products metal margin per ton
Year Ended August 31,
2019
2018
817,048 $ 887,038
131,720
100,102
$
423 $
1,037
1,460
459
1,041
1,500
$
$
528 $
288 $
240
560
314
246
Net sales in 2019 decreased $70.0 million, or 8%, compared to 2018. The decrease in net sales was primarily related to an
unfavorable foreign currency exchange rate impact of $53.9 million due to the increase in the average value of the U.S. dollar
relative to the Polish zloty in 2019, as compared to 2018. Excluding the foreign exchange impact, net sales decreased by
approximately 2% on a year-over-year basis due to a high volume of steel imports into the European Union which drove prices
down.
Adjusted EBITDA in 2019 decreased $31.6 million compared to 2018, primarily driven by a $6 per ton, or 2%, decrease in steel
products metal margin and a $7 per ton, or 4%, increase in conversion costs. Adjusted EBITDA for 2019 included an unfavorable
foreign currency exchange rate impact of approximately $6.4 million in 2019, as compared to 2018. Adjusted EBITDA included
non-cash stock compensation expense of $1.2 million and $1.4 million in 2019 and 2018, respectively.
Corporate and Other
(in thousands)
Adjusted EBITDA loss
Year Ended August 31,
2018
2019
$ (132,313) $ (103,492)
Corporate and Other adjusted EBITDA loss in 2019 increased by $28.8 million compared to 2018. The increase in adjusted
EBITDA loss in 2019 was driven by a $10.2 million decrease in other revenue primarily as a result of a decrease in gains on BRP
assets year-over-year and a $12.2 million increase in acquisition and integration-related costs arising from the Acquisition.
Discontinued Operations
See Note 3, Changes in Business, in Part II, Item 8 of this Annual Report, for information regarding discontinued operations.
27
LIQUIDITY AND CAPITAL RESOURCES
Sources of Liquidity and Capital Resources
Our cash and cash equivalents position remained strong in 2020 with $542.1 million at August 31, 2020 compared to $192.5
million at August 31, 2019. Our cash flows from operations result primarily from sales of steel products and downstream products
as described in Part I, Item 1, "Business". Historically, our North America operations have generated the majority of our cash.
Our foreign operations generated approximately 13% of our net sales in 2020. At August 31, 2020, cash and cash equivalents of
$27.4 million were held by our non-U.S. subsidiaries. From time to time, we use futures or forward contracts to mitigate the risks
from fluctuations in metal commodity prices, foreign currency exchange rates, interest rates and natural gas, electricity and other
energy commodity prices. See Note 12, Derivatives, in Part II, Item 8 of this Annual Report for further information.
We have a diverse and generally stable customer base, and regularly maintain a substantial amount of accounts receivable. We
actively monitor our accounts receivable and, based on market conditions and customers' financial condition, record allowances
when we believe accounts are uncollectible. We use credit insurance internationally to mitigate the risk of customer insolvency.
We estimate that the amount of credit-insured receivables (and those covered by export letters of credit) was approximately 13%
of total receivables at August 31, 2020.
The table below reflects our sources, facilities and availability of liquidity as of August 31, 2020. See Note 10, Credit
Arrangements, in Part II, Item 8 of this Annual Report, for additional information.
(in thousands)
Cash and cash equivalents
Notes due from 2023 to 2027
Revolver
U.S. accounts receivables facility
Poland Term Loan
Poland credit facilities
Poland accounts receivables facility
542,103 $
980,000
350,000
200,000
67,855
74,641
59,713
Availability
542,103
*
346,958
159,705
27,142
73,814
54,284
Total Facility
$
__________________________________
* We believe we have access to additional financing and refinancing, if needed.
COVID-19 has not had a material impact on our operations to date. We anticipate our current cash balances, cash flows from
operations and our available sources of liquidity will be sufficient to meet our cash requirements, including our scheduled debt
repayments, payments for our contractual obligations, capital expenditures, working capital needs, dividends and other prudent
uses of our capital, as needed, for the next twelve months. However, as the impact of COVID-19 on the economy, and our
operations, evolves, we will continue to assess our liquidity needs. In the event of sustained market deterioration, we may need
additional liquidity, which would require us to evaluate available alternatives and take appropriate actions.
Stock Repurchase Program
During the first quarter of 2015, our Board of Directors authorized a share repurchase program under which we may repurchase
up to $100.0 million of outstanding common stock. As of August 31, 2020, $27.6 million of our common stock was available to
be purchased under this program. We may repurchase shares from time to time for cash in the open market or privately negotiated
transactions in accordance with applicable federal securities laws. The timing and the amount of repurchases, if any, will be
determined by management based on an evaluation of market conditions, capital allocation alternatives and other factors. The
share repurchase program does not require us to purchase any dollar amount or number of shares of our common stock and may
be modified, suspended, extended or terminated at any time without prior notice. We did not purchase any shares of common
stock during 2020, 2019 or 2018.
28
2020 Compared to 2019
Operating Activities
With the adoption of Accounting Standards Update ("ASU") 2016-15 effective September 1, 2018, cash receipts related to the
collection of the deferred purchase price ("DPP") from our accounts receivable programs in the U.S. and Poland (the "Programs"),
previously recorded as cash flows from operating activities, were recorded as cash flows from investing activities in the statement
of cash flows. Upon the adoption of ASU 2016-15, coupled with amendments made to the Programs as described in Note 6,
Accounts Receivable Programs, in Part II, Item 8 of this Annual Report, cash collections related to our outstanding DPP balance
at August 31, 2018 were reflected as cash flows from investing activities. As a result of the amendments to the Programs,
excluding collections related to the outstanding DPP balance at August 31, 2018, cash collections of trade receivables under the
Programs are classified as operating activities, and cash advances, including repayment of such advances, are classified as
financing activities.
Net cash flows from operating activities were $791.2 million during 2020 compared to $37.0 million in 2019. Due to the adoption
of ASU 2016-15 described above, $367.5 million of cash collections of the Programs were reflected in investing activities in
2019 rather than operating activities. Also contributing to the increase in net cash flows from operating activities in 2020
compared to 2019 was an $81.4 million year-over-year increase in net earnings, a $237.4 million year-over-year increase in cash
from operating assets and liabilities ("working capital"), and a $45.4 million year-over-year decrease in amortization of acquired
unfavorable contract backlog. The increase in cash from working capital was primarily due to lower volumes and values of steel
inventory and lower selling prices reflected in accounts receivable as of August 31, 2020 compared to 2019. For continuing
operations, operating working capital days decreased 4 days year-over-year.
Investing Activities
Net cash flows used by investing activities were $192.9 million and $462.0 million during 2020 and 2019, respectively. Cash
used by investing activities during 2020 was lower than the corresponding period primarily due to cash used for the Acquisition
in 2019 of $700.9 million, as described in Note 3, Changes in Business, in Part II, Item 8 of this Annual Report, partially offset
by $367.5 million in cash collections of the Programs in 2019, as described above.
We estimate that our 2021 capital spending will range from $200 million to $225 million. We regularly assess our capital spending
based on current and expected results.
Financing Activities
Net cash flows used by financing activities were $247.8 million during 2020 compared to $13.2 million during 2019. During
2020, we had net debt repayments of $187.3 million, compared to net borrowings of $45.2 million in the corresponding period
which were used to fund the Acquisition. See Note 10, Credit Arrangements, in Part II, Item 8 of this Annual Report, for additional
information regarding long-term debt transactions.
2019 Compared to 2018
Operating Activities
Net cash flows from operating activities increased by $470.9 million during 2019 compared to 2018. Working capital generated
$48.7 million net cash inflows in 2019 compared to $89.6 million of net cash outflows in 2018. This was primarily due to $89.7
million of cash inflows related to inventories in 2019, excluding the inventory purchased as part of the Acquisition which is
reflected in investing activities, compared to $43.2 million of cash outflows in 2018, due to decreases in the raw materials pricing
environment and inventory levels at August 31, 2019. The adoption of ASU 2016-15 on September 1, 2018, as described above,
also contributed to the increase in net cash flows from operating activities as the beneficial interest in securitized accounts
receivable decreased $302.9 million year-over year. For continuing operations, operating working capital days increased one day
on a year-over-year basis.
29
Investing Activities
Net cash flows used by investing activities increased by $984.0 million during 2019 compared to 2018. The year-over-year
increase in cash used by investing activities was primarily due to the $700.9 million cash outflows related to the Acquisition.
Also contributing to the net increase in cash flows used by investing activities, the adoption of ASU 2016-15, and subsequent
amendment to the Programs, resulted in a $302.9 million decrease in cash inflows related to the cash collections of the DPP from
the Programs. These increases in cash flows used by investing activities were partially offset by a $35.8 million decrease in cash
outflows related to capital expenditures in 2019 compared to 2018.
Financing Activities
Net cash flows used by financing activities increased $272.7 million during 2019 compared to 2018. In 2019, we borrowed $180.0
million of long-term debt to fund the Acquisition and repaid $127.7 million, compared to 2018 when we borrowed $350.0 million
in long-term debt and repaid $20.0 million.
Contractual Obligations
The following table represents our contractual obligations as of August 31, 2020:
Contractual Obligations (in thousands)
Long-term debt(1)
Interest (2)
Operating leases(3)
Finance leases(3)
Purchase obligations(4)
U.S. federal repatriation tax liability
Total contractual cash obligations
Payments Due By Period
Less than
1 Year
1-3 Years
3-5 Years
More than
5 Years
Total
$ 1,042,042 $
288,922
142,525
54,545
419,156
23,275
21,262 $ 667,863
53,819
74,104
32,312
28,813
69
12,537
3,993
18,391
6,927
9,698
$ 1,970,465 $ 391,865 $ 648,812 $ 164,805 $ 764,983
3,776 $ 349,141 $
53,861
32,350
16,227
283,434
2,217
107,138
49,050
25,712
113,338
4,433
__________________________________
(1) Total amounts are included in the August 31, 2020 consolidated balance sheet. See Note 10, Credit Arrangements, in Part
II, Item 8 of this Annual Report, for more information regarding scheduled maturities of our long-term debt. These amounts
exclude any obligation related to finance leases as those are disclosed separately.
(2) Excludes imputed interest related to operating and finance leases.
(3) Includes maturities of lease liabilities, including imputed interest, for real property and equipment leases in effect as of
August 31, 2020. See Note 9, Leases, in Part II, Item 8 of this Annual Report for additional information.
(4) Approximately 28% of these purchase obligations are for inventory items to be sold in the normal course of business.
Purchase obligations include all enforceable, legally binding agreements to purchase goods or services that specify all
significant terms, regardless of the duration of the agreement. Agreements with variable terms are excluded because we are
unable to estimate the minimum amounts. We have not discounted the contractual obligations related to purchase obligations
included in the table.
We provide certain eligible employees benefits pursuant to our nonqualified BRP equal to amounts that would have been available
under our tax qualified plans under the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), but for
limitations of ERISA, tax laws and regulations. We did not include estimated payments related to the BRP in the above contractual
obligation table. Refer to Note 16, Employees' Retirement Plans, in Part II, Item 8 of this Annual Report, for more information
on the BRP.
Other Commercial Commitments
We maintain stand-by letters of credit to provide support for certain transactions that governmental agencies, our insurance
providers and suppliers request. At August 31, 2020, we had committed $27.4 million under these arrangements, of which $3.0
million reduced availability under the Credit Agreement (as defined in Note 10, Credit Arrangements, in Part II, Item 8 of this
Annual Report).
30
Off-Balance Sheet Arrangements
As of August 31, 2020 and 2019, we had no off-balance sheet arrangements that may have a current or future material effect on
our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
CONTINGENCIES
In the ordinary course of conducting our business, we become involved in litigation, administrative proceedings and governmental
investigations, including environmental matters. We may incur settlements, fines, penalties or judgments because of some of
these matters. Liabilities and costs associated with litigation-related loss contingencies require estimates and judgments based on
our knowledge of the facts and circumstances surrounding each matter and the advice of our legal counsel. We record liabilities
for litigation-related losses when a loss is probable and we can reasonably estimate the amount of the loss. We evaluate the
measurement of recorded liabilities each reporting period based on the current facts and circumstances specific to each matter.
The ultimate losses incurred upon final resolution of litigation-related loss contingencies may differ materially from the estimated
liability recorded at a particular balance sheet date. Changes in estimates are recorded in earnings in the period in which such
changes occur. We do not believe that any currently pending legal proceedings to which we are a party will have a material
adverse effect, individually or in the aggregate, on our results of operations, cash flows or financial condition. See Note 19,
Commitments and Contingencies, in Part II, Item 8 of this Annual Report, for more information.
Environmental and Other Matters
The information set forth in Note 19, Commitments and Contingencies, in Part II, Item 8 of this Annual Report is hereby
incorporated by reference.
General
We are subject to federal, state and local pollution control laws and regulations in all locations where we have operating facilities.
We anticipate that compliance with these laws and regulations will involve continuing capital expenditures and operating costs.
Metals recycling was our original business, and it has been one of our core businesses for over a century. In the present era of
conservation of natural resources and ecological concerns, we are committed to sound ecological and business conduct. Certain
governmental regulations regarding environmental concerns, however well-intentioned, may expose us and our industry to
potentially significant risks. We believe that recycled materials are commodities that are diverted by recyclers, such as us, from
the solid waste streams because of their inherent value. Commodities are materials that are purchased and sold in public and
private markets and commodities exchanges every day around the world. They are identified, purchased, sorted, processed and
sold in accordance with carefully established industry specifications.
Solid and Hazardous Waste
We currently own or lease, and in the past we have owned or leased, properties that have been used in our operations. Although
we have used operating and disposal practices that were standard in the industry at the time, wastes may have been disposed of
or released on or under the properties or on or under locations where such wastes have been taken for disposal. We are currently
involved in the investigation and remediation of several such properties. State and federal laws applicable to wastes and
contaminated properties have gradually become more strict over time. Under new laws, we could be required to remediate
properties impacted by previously disposed wastes. We have been named as a PRP at a number of contaminated sites, none of
which involve real estate we ever owned or upon which we have ever conducted operations. There is no guarantee that the EPA
or individual states will not adopt more stringent requirements for the handling of, or make changes to the exemptions upon which
we rely for, the wastes that we generate. Any such change could result in an increase in our costs to manage and dispose of waste
which could have a material adverse effect on our business, results of our operations and financial condition.
We generate wastes, including hazardous wastes, that are subject to the Federal Resource Conservation and Recovery Act and
comparable state and local statutes where we operate. These statutes, regulations and laws may limit our disposal options with
respect to certain wastes.
31
Superfund
The EPA, or an equivalent state agency, has notified us that we are considered a PRP at several sites, none of which involve real
estate we ever owned or upon which we have ever conducted operations. We may be obligated under CERCLA, or similar state
statutes, to conduct remedial investigation, feasibility studies, remediation and/or removal of alleged releases of hazardous
substances or to reimburse the EPA for such activities and pay costs for associated damages to natural resources. We are involved
in litigation or administrative proceedings with regard to several of these sites in which we are contesting, or at the appropriate
time may contest, our liability. In addition, we have received information requests with regard to other sites which may be under
consideration by the EPA as potential CERCLA sites. Because of various factors, including the ambiguity of the regulations, the
difficulty of identifying the responsible parties for any particular site, the complexity of determining the relative liability among
them, the uncertainty as to the most desirable remediation techniques and the amount of damages and cleanup costs and the
extended time periods over which such costs may be incurred, we cannot reasonably estimate our ultimate costs of compliance
with CERCLA. Based on currently available information, which is in many cases preliminary and incomplete, we had $0.7 million
accrued as of August 31, 2020 and 2019 in connection with CERCLA sites. We have accrued for these liabilities based upon our
best estimates. The amounts paid and the expenses incurred on these sites for 2020, 2019 and 2018 were not material. Historically,
the amounts that we have ultimately paid for such remediation activities have not been material.
Clean Water Act
The Clean Water Act ("CWA") imposes restrictions and strict controls regarding the discharge of wastes into waters of the U.S.,
a term broadly defined, or into publicly owned treatment works. These controls have become more stringent over time, and it is
probable that additional restrictions will be imposed in the future. Permits must generally be obtained to discharge pollutants into
federal waters or into publicly owned treatment works and comparable permits may be required at the state level. The CWA and
many state statutes provide for civil, criminal and administrative penalties for unauthorized discharges of pollutants. In addition,
the EPA's regulations and comparable state statutes may require us to obtain permits to discharge storm water runoff. In the event
of an unauthorized discharge or non-compliance with permit requirements, we may be liable for penalties, costs and injunctive
relief.
Clean Air Act
Our operations are subject to regulations at the federal, state and local level for the control of emissions from sources of air
pollution. New and modified sources of air pollutants are often required to obtain permits prior to commencing construction,
modification or operations. Major sources of air pollutants are subject to more stringent requirements, including the potential
need for additional permits and to increase scrutiny in the context of enforcement. The EPA has been implementing its stationary
emission control program through expanded enforcement of the New Source Review Program. Under this program, new or
modified sources may be required to construct emission sources using what is referred to as the Best Available Control
Technology, or in any areas that are not meeting NAAQS, using methods that satisfy requirements for the Lowest Achievable
Emission Rate. Additionally, the EPA has implemented, and is continuing to implement, new, more stringent standards for
NAAQS, including fine particulate matter. Compliance with new standards could require additional expenditures.
We incurred environmental expenses of $46.6 million, $42.5 million and $32.0 million for 2020, 2019 and 2018, respectively.
The expenses included the cost of disposal, environmental personnel at various divisions, permit and license fees, accruals and
payments for studies, tests, assessments, remediation, consultant fees, baghouse dust removal and various other expenses. In
addition, during 2020, we spent approximately $2.7 million in capital expenditures related to costs directly associated with
environmental compliance. Our accrued environmental liabilities were $3.4 million and $3.6 million, of which $2.7 million and
$1.8 million, respectively, were classified as other long-term liabilities, as of August 31, 2020 and 2019, respectively.
DIVIDENDS
We have paid quarterly cash dividends for 224 consecutive quarters. We paid quarterly dividends in 2020 and 2019 at the rate of
$0.12 per share of CMC common stock.
32
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preceding discussion and analysis of our financial condition and results of operations is based upon our consolidated financial
statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The
preparation of the consolidated financial statements requires us to make estimates and assumptions that affect the reported
amounts of assets, liabilities, revenue and expenses and related disclosure of contingent liabilities. We evaluate the
appropriateness of these estimates and assumptions, including those related to revenue recognition, income taxes, carrying value
of inventory, acquisitions, goodwill, long-lived assets and contingencies, on an ongoing basis. Estimates and assumptions are
based on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent
from other sources. Accordingly, actual results in future periods could differ materially from these estimates. Judgments and
estimates related to critical accounting policies used in the preparation of the consolidated financial statements include the
following.
Revenue Recognition
Revenue from contracts where the Company provides fabricated product and installation services is recognized over time using
an input method based on costs incurred compared to estimated total costs. Revenue from contracts where the Company does not
provide installation services is recognized over time using an output method based on tons shipped compared to estimated total
tons. Significant judgment is required to evaluate total estimated costs used in the input method and total estimated tons in the
output method. If estimated total consolidated costs on any contract are greater than the net contract revenues, the Company
recognizes the entire estimated loss in the period the loss becomes known. The cumulative effect of revisions to estimates related
to net contract revenues, costs to complete or total planned quantity is recorded in the period in which such revisions are identified.
The Company does not exercise significant judgment in determining the transaction price. See Note 5, Revenue Recognition, in
Part II, Item 8 of this Annual Report, for further details.
Income Taxes
We periodically assess the likelihood of realizing our deferred tax assets based on the amount of deferred tax assets that we
believe is more likely than not to be realized. We base our judgment of the recoverability of our deferred tax assets primarily on
historical earnings, our estimate of current and expected future earnings, prudent and feasible tax planning strategies and current
and future ownership changes.
Our effective income tax rate may fluctuate on a quarterly basis due to various factors, including, but not limited to, total earnings
and the mix of earnings by jurisdiction, the timing of changes in tax laws and the amount of income tax provided for uncertain
income tax positions. We establish income tax liabilities to reduce some or all of the income tax benefit of any of our income tax
positions at the time we determine that the positions become uncertain based upon one of the following: (i) the tax position is not
"more likely than not" to be sustained, (ii) the tax position is "more likely than not" to be sustained, but for a lesser amount or
(iii) the tax position is "more likely than not" to be sustained, but not in the financial period in which the tax position was originally
taken. Our evaluation of whether or not a tax position is uncertain is based on the following: (i) we presume the tax position will
be examined by the relevant taxing authority that has full knowledge of all relevant information, (ii) the technical merits of a tax
position are derived from authorities such as legislation and statutes, legislative intent, regulations, rulings and case law and their
applicability to the facts and circumstances of the tax position and (iii) each tax position is evaluated without consideration of the
possibility of offset or aggregation with other tax positions taken. We adjust these income tax liabilities when our judgment
changes as a result of new information. Any change will impact income tax expense in the period in which such determination is
made.
Inventory Cost
We state inventories at the lower of cost or net realizable value, which is defined as estimated selling prices in the ordinary course
of business, less reasonably predictable costs of completion, disposal and transportation. Adjustments to inventory may be due to
changes in price levels, obsolescence, damage, physical deterioration and other causes. Any adjustments required to reduce the
carrying value of inventory to net realizable value are recorded as a charge to cost of goods sold.
Acquisitions
The Company accounts for business combinations under the acquisition method of accounting, which requires assets acquired
and liabilities assumed to be recorded at their estimated fair value at the date of acquisition. The fair value is estimated by the
Company using valuation techniques and Level 3 inputs, including expected future cash flows and discount rates. The excess of
33
purchase price over the fair value amounts assigned to the assets acquired and liabilities assumed, if any, is recorded as goodwill.
Determining the fair value of assets acquired and liabilities assumed involves the use of significant estimates and assumptions.
Goodwill
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.
Our reporting units represent an operating segment or one level below an operating segment. Additionally, the reporting units are
aggregated based on similar economic characteristics, nature of products and services, nature of production processes, type of
customers and distribution methods. We use an income and a market approach to calculate the fair value of our reporting units.
To calculate the fair value of our reporting units using the income approach, management uses a discounted cash flow model
which includes a number of significant assumptions and estimates regarding future cash flows such as discount rates, volumes,
prices, capital expenditures and the impact of current market conditions. These estimates could be materially impacted by adverse
changes in market conditions.
For 2020 and 2019, the annual goodwill impairment analysis did not result in any impairment charges. Management does not
believe that it is reasonably likely that our reporting units will fail the goodwill impairment test in the near term, as the determined
fair value of the reporting units with goodwill substantially exceeded their carrying value.
See Note 8, Goodwill and Other Intangible Assets, in Part II, Item 8 of this Annual Report, for additional information.
Long-Lived Assets
We evaluate the carrying value of property, plant and equipment and finite-lived intangible assets whenever a change in
circumstances indicates that the carrying value may not be recoverable from the undiscounted future cash flows from operations.
Events or circumstances that could trigger an impairment review of a long-lived asset or asset group include, but are not limited
to: (i) a significant decrease in the market price of the asset, (ii) a significant adverse change in the extent or manner that the asset
is used or in its physical condition, (iii) a significant adverse change in legal factors or in the business climate that could affect
the value of the asset, (iv) an accumulation of costs significantly in excess of original expectation for the acquisition or
construction of the asset, (v) a current period operating or cash flow loss combined with a history of operating or cash flow losses
or a forecast of continuing losses associated with the use of the asset and (vi) a more-likely-than-not expectation that the asset
will be sold or disposed of significantly before the end of its previously estimated useful life. If an impairment exists, the net
book values are reduced to fair values. Our operations are capital intensive. Some of the estimated values for assets that we
currently use in our operations are based upon judgments and assumptions of future undiscounted cash flows that the assets will
produce. If these assets were for sale, our estimates of their values could be significantly different because of market conditions,
specific transaction terms and a buyer's perspective on future cash flows. Also, we depreciate property, plant and equipment on
a straight-line basis over the estimated useful lives of the assets. Depreciable lives are based on our estimate of the assets'
economical useful lives. To the extent that an asset's actual life differs from our estimate, there could be an impact on depreciation
expense or a gain/loss on the disposal of the asset in a later period. We expense major maintenance costs as incurred.
Contingencies
In the ordinary course of conducting our business, we become involved in litigation, administrative proceedings and governmental
investigations, including environmental matters. We may incur settlements, fines, penalties or judgments in connection with some
of these matters. While we are unable to estimate the ultimate dollar amount of exposure or loss in connection with these matters,
we make accruals when a loss is probable and the amount can be reasonably estimated. The amounts we accrue could vary
substantially from amounts we pay due to several factors including the following: evolving remediation technology, changing
regulations, possible third-party contributions, the inherent uncertainties of the estimation process and the uncertainties involved
in litigation. We believe that we have adequately provided for these contingencies in our consolidated financial statements. We
also believe that the outcomes will not materially affect our results of operations, our financial position or our cash flows.
Other Accounting Policies and New Accounting Pronouncements
See Note 2, Summary of Significant Accounting Policies, in Part II, Item 8 of this Annual Report.
34
FORWARD-LOOKING STATEMENTS
This Annual Report contains "forward-looking statements" within the meaning of the federal securities laws with respect to
general economic conditions, key macro-economic drivers that impact our business, the effects of ongoing trade actions, the
effects of continued pressure on the liquidity of our customers, potential synergies and organic growth provided by our recent
acquisitions and strategic investments, demand for our products, metal margins, the effect of COVID-19 and related governmental
and economic responses thereto, the ability to operate our steel mills at full capacity, future supplies of raw materials and energy
for our operations, share repurchases, legal proceedings, the undistributed earnings of our non-U.S. subsidiaries, U.S. non-
residential construction activity, international trade, capital expenditures, our liquidity and our ability to satisfy future liquidity
requirements, estimated contractual obligations and our expectations or beliefs concerning future events. These forward-looking
statements can generally be identified by phrases such as we or our management "expects," "anticipates," "believes," "estimates,"
"intends," "plans to," "ought," "could," "will," "should," "likely," "appears," "projects," "forecasts," "outlook" or other similar
words or phrases. There are inherent risks and uncertainties in any forward-looking statements. We caution readers not to place
undue reliance on any forward-looking statements.
Our forward-looking statements are based on management's expectations and beliefs as of the time this Annual Report is filed
with the SEC. Although we believe that our expectations are reasonable, we can give no assurance that these expectations will
prove to have been correct, and actual results may vary materially. Except as required by law, we undertake no obligation to
update, amend or clarify any forward-looking statements to reflect changed assumptions, the occurrence of anticipated or
unanticipated events, new information or circumstances or any other changes. Important factors that could cause actual results to
differ materially from our expectations include those described in Part I, Item 1A, "Risk Factors" of this Annual Report as well
as the following:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
changes in economic conditions which affect demand for our products or construction activity generally, and the impact of
such changes on the highly cyclical steel industry;
rapid and significant changes in the price of metals, potentially impairing our inventory values due to declines in commodity
prices or reducing the profitability of our downstream products contracts due to rising commodity pricing;
impacts from COVID-19 on the economy, demand for our products and on our operations, including the responses of
governmental authorities to contain COVID-19;
excess capacity in our industry, particularly in China, and product availability from competing steel mills and other steel
suppliers including import quantities and pricing;
compliance with and changes in environmental laws and regulations, including increased regulation associated with climate
change and greenhouse gas emissions;
involvement in various environmental matters that may result in fines, penalties or judgments;
potential limitations in our or our customers' abilities to access credit and non-compliance by our customers with our
contracts;
activity in repurchasing shares of our common stock under our repurchase program;
financial covenants and restrictions on the operation of our business contained in agreements governing our debt;
our ability to successfully identify, consummate and integrate acquisitions, and the effects that acquisitions may have on
our financial leverage;
risks associated with acquisitions generally, such as the inability to obtain, or delays in obtaining, required approvals
under applicable antitrust legislation and other regulatory and third party consents and approvals;
lower than expected future levels of revenues and higher than expected future costs;
failure or inability to implement growth strategies in a timely manner;
impact of goodwill impairment charges;
impact of long-lived asset impairment charges;
currency fluctuations;
35
•
•
•
•
•
•
•
•
•
•
•
•
•
global factors, including trade measures, political uncertainties and military conflicts;
availability and pricing of electricity, electrodes and natural gas for mill operations;
ability to hire and retain key executives and other employees;
competition from other materials or from competitors that have a lower cost structure or access to greater financial
resources;
information technology interruptions and breaches in security;
ability to make necessary capital expenditures;
availability and pricing of raw materials and other items over which we exert little influence, including scrap metal,
energy and insurance;
unexpected equipment failures;
losses or limited potential gains due to hedging transactions;
litigation claims and settlements, court decisions, regulatory rulings and legal compliance risks;
risk of injury or death to employees, customers or other visitors to our operations;
civil unrest, protests and riots;
new and clarifying guidance with regard to interpretation of certain provisions of the Tax Cuts and Jobs Act that could
impact our assessment; and
•
increased costs related to health care reform legislation.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market Risk
Approach to Mitigating Market Risk
See Note 12, Derivatives, in Part II, Item 8 of this Annual Report, for disclosure regarding our approach to mitigating market risk
and for summarized market risk information by year. Also, see Note 2, Summary of Significant Accounting Policies, in Part II,
Item 8 of this Annual Report, for additional information. We utilized the following types of derivative instruments during 2020
in accordance with our risk management program. None of the instruments were entered into for trading purposes.
Currency Exchange Forward Contracts
The Company's global operations expose it to risks from fluctuations in foreign currency exchange rates. We enter into currency
exchange forward contracts as economic hedges of trade commitments denominated in currencies other than the functional
currency of CMC or its subsidiaries. No single foreign currency poses a material risk to us.
Commodity Futures Contracts
The Company's product lines expose it to risks from fluctuations in metal commodity prices and natural gas, electricity and other
energy commodity prices. We base pricing in some of our sales and purchase contracts on metal commodity futures exchange
quotes, which we determine at the beginning of the contract. Due to the volatility of the metal commodity indices, we enter into
metal commodity futures contracts for copper and aluminum. These futures contracts mitigate the risk of unanticipated declines
in gross margin due to the price volatility of the underlying commodities. We also enter into energy derivatives to mitigate the
risk of unanticipated declines in gross margin due to the price volatility of electricity and natural gas.
The following tables provide certain information regarding the foreign exchange forward contracts and commodity futures
contracts discussed above.
36
The fair value of our foreign currency exchange forward contract commitments as of August 31, 2020 were as follows:
Functional Currency
Foreign Currency
Type
PLN
PLN
USD
USD
Amount
(in thousands)
287,592
42,536
1,282
51,044
Type
EUR
USD
EUR
PLN
Amount
(in thousands)
Range of
Hedge Rates (1)
Total Contract
Fair Value
(in thousands)
64,636
11,374
1,132
190,000
4.33 —
3.74 —
1.09 —
0.27 —
4.60 $
3.81
1.18
0.27
$
33
148
71
773
1,025
__________________________________
(1) Most foreign currency exchange forward contracts mature within one year. The range of hedge rates represents functional
to foreign currency conversion rates.
The fair value of our commodity futures contract commitments as of August 31, 2020 were as follows:
Commodity
Aluminum
Copper
Copper
Electricity(2)
Terminal Exchange
London Metal Exchange Long
Long/
Short
New York Mercantile
Exchange
New York Mercantile
Exchange
—
Long
Short
Long
Total Contract
Volumes
Range or
Amount of Hedge
Rates per unit
1,675 MT $ 1,775.00 — $ 1,802.00
556 MT $ 253.05 — $ 306.15
8,346 MT $ 238.80 — $ 307.70
230.00 —
2,000,000 MW(h)
274.87 PLN $
$
Total Contract
Fair Value(1)
(in thousands)
37
$
165
(3,993)
(15,007)
(18,798)
__________________________________
MT = Metric ton
MW(h) = Megawatt hour
(1) All commodity futures contract commitments mature within one year, except for the electricity contract commitment which
has a maturity date of December 31, 2030.
(2) There is no terminal exchange for electricity as it is a bilateral agreement with a counterparty.
37
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and Board of Directors of Commercial Metals Company
Opinion on Internal Control Over Financial Reporting
We have audited the internal control over financial reporting of Commercial Metals Company and subsidiaries (the “Company”)
as of August 31, 2020, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee
of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as of August 31, 2020, based on criteria established in Internal Control
— Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the consolidated financial statements as of and for the year ended August 31, 2020, of the Company and our report
dated October 15, 2020, expressed an unqualified opinion on those financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report
on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over
financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be
independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all
material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the
assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit
provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that
(1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions
of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation
of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Deloitte & Touche LLP
Dallas, Texas
October 15, 2020
38
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and Board of Directors of Commercial Metals Company
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Commercial Metals Company and subsidiaries (the
“Company”) as of August 31, 2020 and 2019, the related consolidated statements of earnings, comprehensive income,
stockholders’ equity, and cash flows, for each of the three years in the period ended August 31, 2020, and the related notes and
the schedule listed in the Index at Item 15 (collectively referred to as the “financial statements”). In our opinion, the financial
statements present fairly, in all material respects, the financial position of the Company as of August 31, 2020 and 2019, and the
results of its operations and its cash flows for each of the three years in the period ended August 31, 2020, in conformity with
accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the Company’s internal control over financial reporting as of August 31, 2020, based on criteria established in Internal
Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission
and our report dated October 15, 2020, expressed an unqualified opinion on the Company’s internal control over financial
reporting.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on
the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to
error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements,
whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a
test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the
accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the
financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that
were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are
material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The
communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and
we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the
accounts or disclosures to which they relate.
Revenue Recognition — Revenue from Fabricated Product Contracts with Customers in the
North America Segment — Refer to Notes 2 and 5 to the Financial Statements
Critical Audit Matter Description
The Company has certain fabricated product contracts with customers in its North America segment for delivering fabricated
steel products, which may also include providing installation services. Each fabricated product contract represents a single
performance obligation and revenue is recognized over time as fabricated steel products are delivered and installation services
are provided, if applicable. Revenue from contracts where the Company provides fabricated product and installation services is
recognized over time using an input method in which the measure of progress is based on contract costs incurred to date compared
to total estimated contract costs. Revenue from contracts where the Company provides fabricated product only is recognized
over time using an output method in which the measure of progress is based on tons shipped compared to total estimated tons.
The accounting for these contracts involves significant judgment by management to estimate total costs used in the input method
and total tons used in the output method. For the year ended August 31, 2020, North America segment revenue was $4.8 billion;
of which 12% represents revenue recognized over time using an input method and 11% represents revenue recognized over time
using an output method. The remaining 77% of revenue in the North America segment was recognized concurrent with the
transfer of control or as amounts are billed to the customer.
39
We identified revenue recognized over time for certain fabricated product contracts in the North America segment as a critical
audit matter because of the significant judgments made by management to estimate total costs for the input method and total tons
for the output method. Auditing such estimates required extensive audit effort due to the volume and complexity of contracts
and required a high degree of auditor judgment to evaluate the reasonableness of management’s estimates used to recognize
revenue over time.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to management’s estimates of total costs and total tons used to recognize revenue over time for
certain fabricated product contracts in the North America segment included the following, among others:
• We tested the effectiveness of management’s controls over the calculation of contract costs incurred to date compared
to total estimated contract costs for the input method, and management’s controls over the calculation of tons shipped
compared to total estimated tons for the output method.
• We selected a sample of fabricated product contracts with customers that were recognized over time, for both the input
method and the output method, and we performed the following:
(cid:405) Obtained the contracts, including any change orders, management’s estimated contract costs or tons, including
any revisions to date, and evaluated whether the contracts were properly included in management’s calculation
of revenue based on the terms and conditions of each contract.
(cid:405) Obtained a schedule of costs or tons incurred to date by contract and tested such schedule for completeness and
accuracy by obtaining supporting documents for fabricated steel products delivered and installation services
provided, if applicable, and evaluated whether the costs or tons were properly included in the costs incurred to
date.
(cid:405) Evaluated management’s estimated cost to complete the contract, including remaining quantities and costs, by
comparing the estimates to management’s job cost forecasts, and performing corroborating inquiries with the
Company’s project managers.
(cid:405) Tested the mathematical accuracy of management’s calculation of revenue recognized over time for each
selection.
•
For a sample of contracts, we evaluated management’s ability to accurately estimate total costs and total tons by
comparing actual costs and actual tons at completion to management’s previous estimates for such contracts.
Goodwill — A Reporting Unit within the North America Segment — Refer to Notes 2 and 8 to the Financial Statements
Critical Audit Matter Description
The Company has goodwill of $64.3 million, of which $61.9 million relates to the North America segment. 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. The Company’s goodwill impairment assessment involves comparing the fair value of each reporting unit to
its carrying value. The Company estimates the fair value of its reporting units using a weighting of fair values derived from the
income and market approaches. The determination of fair value using the income approach is based on the present value of
estimated future cash flows, which requires management to make significant estimates and assumptions of revenue growth rates
and operating margins, and selection of the discount rate. The determination of the fair value using the market approach requires
management to make significant assumptions related to market multiples of revenue and earnings derived from comparable
publicly-traded companies with similar operating and investment characteristics as the reporting unit.
At August 31, 2020, based on the results of the Company’s annual impairment testing, no impairment was recognized as the fair
value of this reporting unit exceeded its carrying value.
We identified the Company’s goodwill impairment assessment for this reporting unit as a critical audit matter because of the
significant estimates and assumptions management makes to estimate the fair value of this reporting unit. This required a high
degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists, when
performing audit procedures to evaluate the reasonableness of management’s estimates and assumptions of future cash flows
based on estimates of revenue growth rates and operating margins and selection of the discount rate for the income approach, and
multiples of revenue and earnings for the market approach.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the goodwill impairment assessment for the reporting unit within the North America segment
included the following, among others:
40
• We tested the effectiveness of controls over the goodwill impairment assessment, including management’s controls over
forecasts of future cash flows based on estimates of revenue growth rates and operating margins and the selection of the
discount rate for the income approach, and determination of multiples of revenue and earnings for the market approach.
• We evaluated the reasonableness of management’s forecasts of future cash flows based on revenue growth rates and
operating margins by comparing the forecasts to (1) historical revenues and operating margins, (2) internal
communications to management and the Board of Directors, and (3) forecasted information included in analyst and
industry reports for the Company and certain of its peer companies.
• With the assistance of our fair value specialists:
(cid:405) We evaluated the reasonableness of the valuation methodologies.
(cid:405) We evaluated the reasonableness of the discount rate used in the income approach by testing the underlying
source information and the mathematical accuracy of the calculations, and developing an independent range of
estimated discount rates and comparing that range to the discount rate used in the Company’s valuation.
(cid:405) We evaluated the multiples of revenue and earnings used in the market approach, including testing the
underlying source information and mathematical accuracy of the calculations.
/s/ Deloitte & Touche LLP
Dallas, Texas
October 15, 2020
We have served as the Company’s auditor since 1959.
41
COMMERCIAL METALS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(in thousands, except share data)
Net sales
Costs and expenses:
Cost of goods sold
Selling, general and administrative expenses
Asset impairments
Interest expense
Earnings from continuing operations before income taxes
Income taxes
Earnings from continuing operations
Earnings (loss) from discontinued operations before income taxes
Income taxes (benefit)
Earnings (loss) from discontinued operations
Year Ended August 31,
2019
$ 5,476,486 $ 5,829,002 $ 4,643,723
2018
2020
4,531,688
504,572
7,611
61,837
5,105,708
370,778
92,476
278,302
1,907
706
1,201
5,025,514
463,271
384
71,373
5,560,542
268,460
69,681
198,779
(528)
158
(686)
4,021,558
401,452
14,372
40,957
4,478,339
165,384
30,147
135,237
3,235
(34)
3,269
Net earnings
$
279,503 $
198,093 $
138,506
Basic earnings (loss) per share(1)
Earnings from continuing operations
Earnings (loss) from discontinued operations
Net earnings
Diluted earnings (loss) per share(1)
Earnings from continuing operations
Earnings (loss) from discontinued operations
Net earnings
$
$
$
$
2.34 $
0.01
2.35 $
2.31 $
0.01
2.32 $
1.69 $
(0.01)
1.68 $
1.67 $
(0.01)
1.66 $
1.16
0.03
1.19
1.14
0.03
1.17
See notes to consolidated financial statements.
__________________________________
(1) Earnings Per Share ("EPS") is calculated independently for each component and may not sum to Net EPS due to rounding
42
COMMERCIAL METALS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
Net earnings
Other comprehensive income (loss), net of income taxes:
Foreign currency translation adjustment:
Foreign currency translation adjustment
Reclassification for translation loss realized upon liquidation of investment in
foreign entity
Foreign currency translation adjustment
Net unrealized gain (loss) on derivatives:
Unrealized holding gain (loss)
Reclassification for gain included in net earnings
Net unrealized loss on derivatives
Defined benefit obligation:
Net loss
Amortization of net loss
Amortization of prior services
Reclassification for settlement losses
Defined benefit obligation
Other comprehensive income (loss)
Comprehensive income
Year Ended August 31,
2019
$ 279,503 $ 198,093 $ 138,506
2018
2020
33,559
(29,718)
(13,938)
6
33,565
857
(28,861)
2,079
(11,859)
(12,136)
(304)
(12,440)
(6)
(244)
(250)
48
(279)
(231)
(796)
86
(53)
—
(763)
20,362
(138)
126
(62)
—
(74)
(12,164)
$ 299,865 $ 167,644 $ 126,342
(2,629)
—
(25)
1,316
(1,338)
(30,449)
See notes to consolidated financial statements.
43
COMMERCIAL METALS COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
Assets
Current assets:
Cash and cash equivalents
Accounts receivable (less allowance for doubtful accounts of $9,597 and $8,403)
Inventories
Prepaid and other current assets
$
Total current assets
Property, plant and equipment:
Land
Buildings and improvements
Equipment
Construction in process
Less accumulated depreciation and amortization
Property, plant and equipment, net
Goodwill
Other noncurrent assets
Total assets
Liabilities and stockholders' equity
Current liabilities:
Accounts payable
Accrued expenses and other payables
Acquired unfavorable contract backlog
Current maturities of long-term debt and short-term borrowings
Total current liabilities
Deferred income taxes
Other noncurrent liabilities
Long-term debt
Total liabilities
Commitments and contingencies (Note 19)
Stockholders' equity:
$
$
August 31,
2020
2019
542,103 $
880,728
625,393
165,879
2,214,103
143,567
786,820
2,364,923
103,776
3,399,086
(1,828,019)
1,571,067
64,321
232,237
4,081,728 $
192,461
1,016,088
692,368
179,088
2,080,005
142,825
750,381
2,234,800
68,579
3,196,585
(1,695,614)
1,500,971
64,138
113,657
3,758,771
266,102 $
454,977
6,035
18,149
745,263
130,810
250,706
1,065,536
2,192,315
288,005
353,786
35,360
17,439
694,590
79,290
133,620
1,227,214
2,134,714
Common stock, par value $0.01 per share; authorized 200,000,000 shares; issued
129,060,664 shares; outstanding 119,220,905 and 117,924,938 shares
Additional paid-in capital
Accumulated other comprehensive loss
Retained earnings
Less treasury stock, 9,839,759 and 11,135,726 shares at cost
Stockholders' equity
Stockholders' equity attributable to noncontrolling interests
Total equity
Total liabilities and stockholders' equity
1,290
358,912
(103,764)
1,807,826
(175,063)
1,889,201
212
1,889,413
4,081,728 $
1,290
358,668
(124,126)
1,585,379
(197,350)
1,623,861
196
1,624,057
3,758,771
$
See notes to consolidated financial statements.
44
COMMERCIAL METALS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Cash flows from (used by) operating activities:
Net earnings
Adjustments to reconcile net earnings to cash flows from (used by)
operating activities:
Depreciation and amortization
Deferred income taxes and other long-term taxes
Share-based compensation
Amortization of acquired unfavorable contract backlog
Asset impairments
Net gain on sales of a subsidiary, assets and other
Write-down of inventory and other
Loss on debt extinguishment
Provision for losses on receivables, net
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable
Inventories
Accounts payable, accrued expenses and other payables
Other operating assets and liabilities
Beneficial interest in securitized accounts receivable
Net cash flows from (used by) operating activities
Cash flows from (used by) investing activities:
Capital expenditures
Acquisitions, net of cash acquired
Proceeds from the sale of property, plant and equipment
Proceeds from insurance, sale of discontinued operations and other
Advances under accounts receivable programs
Repayments under accounts receivable programs
Beneficial interest in securitized accounts receivable
Net cash flows from (used by) investing activities
Cash flows from (used by) financing activities:
Proceeds from issuance of long-term debt
Repayments of long-term debt
Proceeds from accounts receivable programs
Repayments under accounts receivable programs
Cash dividends
Stock issued under incentive and purchase plans, net of forfeitures
Debt issuance costs
Other
Net cash flows from (used by) financing activities
Effect of exchange rate changes on cash
Increase (decrease) in cash and cash equivalents
Cash, restricted cash and cash equivalents at beginning of year
Cash, restricted cash and cash equivalents at end of year
2020
Year Ended August 31,
2019
2018
$
279,503 $
198,093 $
138,506
165,758
49,580
31,850
(29,367)
7,611
(4,213)
2,065
1,778
578
146,375
78,903
45,718
15,065
—
791,204
(187,618)
(18,137)
11,843
974
—
—
—
(192,938)
62,539
(246,523)
234,482
(237,828)
(57,056)
(3,420)
—
16
(247,790)
759
351,235
193,729
544,964
$
158,671
49,523
25,106
(74,784)
384
(2,281)
723
—
388
27,204
89,664
(15,315)
(52,851)
(367,521)
37,004
(138,836)
(700,941)
3,910
6,298
—
—
367,521
(462,048)
180,000
(127,704)
288,896
(296,033)
(56,537)
(1,876)
—
10
(13,244)
(598)
(438,886)
632,615
193,729
$
131,659
14,377
23,929
—
15,053
(1,322)
1,407
—
2,510
(10,802)
(43,198)
(20,163)
(15,423)
(670,457)
(433,924)
(174,655)
(6,980)
8,103
102,857
226,325
(304,178)
670,457
521,929
350,000
(19,967)
—
—
(56,076)
(9,302)
(5,254)
31
259,432
(703)
346,734
285,881
632,615
$
See notes to consolidated financial statements.
45
(in thousands)
Supplemental information:
Cash paid for income taxes
Cash paid for interest
Noncash activities:
Liabilities related to additions of property, plant and equipment
Cash and cash equivalents
Restricted cash
Total cash, cash equivalents and restricted cash
2020
Year Ended August 31,
2019
2018
$
44,499 $
59,711
7,977 $
65,190
7,198
39,972
25,100
57,640
32,274
542,103
2,861
544,964 $
192,461
1,268
193,729
$
622,473
10,142
632,615
$
46
COMMERCIAL METALS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Common Stock
Additional
Amount Paid-In
Capital
Number of
Shares
129,060,664 $ 1,290 $ 349,258 $
Accumulated
Other
Comprehensive
Loss
(81,513) $ 1,363,806 (13,266,928) $ (232,084) $
Number of
Shares
Retained
Earnings
Treasury Stock
Amount Controlling
Interests
Non-
(in thousands, except share data)
Balance at September 1, 2017
Net earnings
Other comprehensive loss
Dividends ($0.48 per share)
Issuance of stock under incentive and
purchase plans, net of forfeitures
Stock-based compensation
Contribution of noncontrolling interests
Adoption of ASU 2018-02 -
Reclassification of taxes
Reclassification of share-based liability
awards
Balance, August 31, 2018
Net earnings
Other comprehensive loss
Dividends ($0.48 per share)
Issuance of stock under incentive and
purchase plans, net of forfeitures
Stock-based compensation and other
Contribution of noncontrolling interests
Adoption of ASC 606 adjustment
Reclassification of share-based liability
awards
Balance at August 31, 2019
Net earnings
Other comprehensive income
Dividends ($0.48 per share)
Issuance of stock under incentive and
purchase plans, net of forfeitures
Stock-based compensation
Contribution of noncontrolling interests
Reclassification of share-based liability
awards
Balance at August 31, 2020
(12,164)
138,506
(56,076)
259
(28,000)
16,168
15,248
1,221,822
18,699
129,060,664 $ 1,290 $ 352,674 $
(93,677) $ 1,446,495 (12,045,106) $ (213,385) $
(30,449)
198,093
(56,537)
75
(2,747)
(17,910)
20,977
2,927
909,380
16,035
129,060,664 $ 1,290 $ 358,668 $
(124,126) $ 1,585,379 (11,135,726) $ (197,350) $
20,362
279,503
(57,056)
1,295,967
22,287
(25,707)
23,441
2,510
129,060,664 $ 1,290 $ 358,912 $
(103,764) $ 1,807,826
(9,839,759) $ (175,063) $
Total
173 $ 1,400,930
138,506
(12,164)
(56,076)
13
(9,301)
16,168
13
259
15,248
186 $ 1,493,583
198,093
(30,449)
(56,537)
(1,875)
21,052
10
(2,747)
10
2,927
196 $ 1,624,057
279,503
20,362
(57,056)
(3,420)
23,441
16
16
2,510
212 $ 1,889,413
See notes to consolidated financial statements.
47
COMMERCIAL METALS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. NATURE OF OPERATIONS
Nature of Operations
Commercial Metals Company ("CMC") and its subsidiaries (collectively, the "Company," "we," "our" or "us") manufacture,
recycle and fabricate steel and metal products, related materials and services through a network of facilities that includes seven
electric arc furnace ("EAF") mini mills, two EAF micro mills, two rerolling mills, steel fabrication and processing plants,
construction-related product warehouses and metal recycling facilities in the United States ("U.S.") and Poland.
The Company has two reportable segments: North America and Europe.
North America
The North America segment is a vertically integrated network of recycling facilities, steel mills and fabrication operations located
in the U.S. The recycling facilities process ferrous and nonferrous scrap metals (collectively known as "raw materials") for use
by manufacturers of new metal products. The steel mills manufacture finished long steel products including reinforcing bar
("rebar"), merchant bar, light structural and other special sections as well as semi-finished billets for rerolling and forging
applications (collectively known as "steel products"). The fabrication operations primarily manufacture fabricated rebar and steel
fence posts (collectively known as "downstream products"). The strategy in North America is to optimize the Company's
vertically integrated value chain to maximize profitability by obtaining the lowest possible input costs and highest possible selling
prices. The Company operates the recycling facilities to provide low-cost scrap to the steel mills and the fabrication operations
to optimize the steel mill volumes. The North America segment's products are sold primarily to steel mills and foundries,
construction, fabrication and other manufacturing industries.
Europe
The Europe segment is a vertically integrated network of recycling facilities, an EAF mini mill, and fabrication operations located
in Poland. The steel products manufactured by this segment include rebar, merchant bar and wire rod as well as semi-finished
billets. In addition, the downstream products manufactured by this segment's fabrication operations include fabricated rebar,
fabricated mesh, assembled rebar cages and other fabricated rebar by-products. The Europe segment's products are sold primarily
to fabricators, manufacturers, distributors and construction companies.
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.
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
revenue recognition, income taxes, carrying value of inventory, acquisitions, goodwill, long-lived assets and contingencies.
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.
48
Revenue Recognition and Allowance for Doubtful Accounts
Revenue is recognized when control of the promised goods or services is transferred to the customer in an amount that reflects
the consideration received or expected to be received in exchange for those goods or services. The Company's performance
obligations arise from (i) sales of raw materials, steel products and downstream products and (ii) services such as steel fabrication
and installation by its fabrication operations. The shipment of products to customers is considered a fulfillment activity and
amounts billed to customers for shipping and freight are included in net sales, and the related costs are included in cost of goods
sold. Net sales are presented net of taxes. Revenue related to raw materials and steel products is recognized at a point in time
concurrent with the transfer of control, which usually occurs, depending on shipping terms, upon shipment or customer receipt.
Revenue related to steel fence posts and other downstream products not described below is recognized equal to billing under an
available practical expedient.
Each fabrication product contract sold by the North America segment represents a single performance obligation and revenue is
recognized over time. For contracts where the Company provides fabricated product and installation services, revenue is
recognized over time using an input measure of progress based on contract costs incurred to date compared to total estimated
contract costs ("input measure"). This input measure provides a reasonable depiction of the Company’s progress towards
satisfaction of the performance obligation as there is a direct relationship between costs incurred by the Company and the transfer
of the fabricated product and installation services. Revenue from contracts where the Company does not provide installation
services is recognized over time using an output measure of progress based on tons shipped compared to total estimated tons
("output measure"). This output measure provides a reasonable depiction of the transfer of contract value to the customer, as there
is a direct relationship between the units shipped by the Company and the transfer of the fabricated product. If estimated total
consolidated costs on any contract are greater than the net contract revenues, the Company recognizes the entire estimated loss
in the period the loss becomes known. The cumulative effect of revisions to estimates related to net contract revenues, costs to
complete or total planned quantity is recorded in the period in which such revisions are identified.
The timing of revenue recognition may differ from the timing of invoicing to customers. The Company records an asset when
revenue is recognized prior to invoicing and a liability when revenue is recognized subsequent to invoicing. Payment terms and
conditions vary by contract type, although the Company generally requires customers to pay 30 days after the Company satisfies
the performance obligations. In instances where the timing of revenue recognition differs from the timing of invoicing, the
Company has determined the contracts do not include a significant financing component.
The 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. The Europe segment uses credit insurance to ensure payment in accordance with the
terms of sale. Generally, collateral is not required. Approximately 13% of total receivables at August 31, 2020 and 2019 were
secured by credit insurance.
Inventories
Inventories are stated at the lower of cost or net realizable value determined by the weighted average cost method.
Elements of cost in finished goods inventory in addition to the cost of material include depreciation, amortization, utilities,
consumable production supplies, maintenance, production, wages and transportation costs. Additionally, the costs of departments
that support production, including materials management and quality control, are allocated to inventory.
Property, Plant and 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
Land improvements
Leasehold improvements
Equipment
7
3
3
3
to
to
to
to
40
25
15
25
years
years
years
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
49
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. Properties held for sale are reported at the
lower of their carrying amount or their estimated sales price, less estimated costs to sell.
Leases
The Company's leases are primarily for real property and equipment. The Company determines if an arrangement is a lease at
inception of a contract if the terms state the Company has the right to direct the use of, and obtain substantially all the economic
benefits from, a specific asset identified in the contract. The right-of-use ("ROU") assets represent the Company's right to use the
underlying assets for the lease term, and the lease liabilities represent the obligation to make lease payments arising from the
leases. The Company records its ROU assets in other noncurrent assets, its current lease liabilities in accrued expenses and other
payables and its noncurrent lease liabilities in other noncurrent liabilities. ROU assets and lease liabilities are recognized at
commencement date based on the present value of lease payments to be made over the lease term. Certain of the Company's lease
agreements contain options to extend the lease. The Company evaluates these options on a lease-by-lease basis, and if the
Company determines it is reasonably certain to be exercised, the lease term includes the extension. The Company uses its
incremental borrowing rate at lease commencement to determine the present value of lease payments, and lease expense is
recognized on a straight-line basis over the lease term. The incremental borrowing rate is the rate of interest the Company could
borrow on a collateralized basis over a similar term with similar payments. The Company does not record leases with an initial
term of twelve months or less (“short-term leases”).
Certain of the Company's lease agreements include payments for certain variable costs not determinable upon lease
commencement, including mileage, utilities, fuel and inflation adjustments. These variable lease payments are recognized in cost
of goods sold and selling, general and administrative expenses, but are not included in the ROU asset or lease liability balances.
The Company's lease agreements do not contain any material residual value guarantees, restrictions or covenants.
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-lived 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 Credit Transactions.
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.
To evaluate goodwill for impairment, the Company utilizes a quantitative test that compares the fair value of a reporting unit with
its carrying amount, including goodwill. 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 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
50
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 reporting unit. The market approach 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. See Note 8, Goodwill and Other Intangible Assets, for additional information
on the Company's annual goodwill impairment analysis.
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 recorded.
Stock-Based Compensation
The Company recognizes stock-based equity and liability awards at fair value. The fair value of each stock-based equity award
is estimated at the grant date 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 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.
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 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. The Company classifies interest and any statutory penalties recognized on a
tax position as income tax expense.
Foreign Currencies
The functional currency of the Company's Polish operations is the local currency, the Polish zloty ("PLN"). Translation
adjustments are reported as a component of accumulated other comprehensive income or loss. Transaction gains (losses) from
transactions denominated in currencies other than the functional currency related to continuing operations were immaterial for
2020, 2019 and 2018.
Derivative Financial Instruments
The Company recognizes 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 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 in 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.
51
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
On September 1, 2019, the Company adopted Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842), as amended,
(“ASU 2016-02”), using the modified retrospective transition approach. ASU 2016-02 requires a lessee to recognize a ROU asset
and a lease liability on its balance sheet for all leases with terms longer than twelve months. The Company’s financial statements
for periods prior to September 1, 2019 were not modified for the application of this ASU. Upon adoption of ASU 2016-02, the
Company recorded the following amounts associated with operating leases in its consolidated balance sheet at September 1, 2019:
$113.4 million of ROU assets in other noncurrent assets, $30.9 million of lease liabilities in accrued expenses and other payables
and $84.9 million of lease liabilities in other noncurrent liabilities. There was no impact to the opening balance of retained
earnings as a result of implementing ASU 2016-02. The Company elected the package of three practical expedients available
under the ASU. Additionally, the Company implemented appropriate changes to internal processes and controls to support
recognition, subsequent measurement and disclosures.
Recently Issued Accounting Pronouncements
In December 2019, the Financial Accounting Standards Board issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the
Accounting for Income Taxes ("ASU 2019-12"). ASU 2019-12 eliminates certain exceptions to the general principles in
Accounting Standards Codification 740 and also clarifies and amends existing guidance to improve consistent application. This
standard is effective for annual periods beginning after December 15, 2020, including interim periods therein. The Company
currently does not expect ASU 2019-12 to have a material effect on its consolidated financial statements; however, the Company
will continue to evaluate the impact of this guidance.
NOTE 3. CHANGES IN BUSINESS
2019 Acquisition
On November 5, 2018 (the "Acquisition Date"), the Company completed the acquisition (the "Acquisition") of 33 rebar
fabrication facilities in the U.S., as well as four EAF mini mills located in Knoxville, Tennessee, Jacksonville, Florida, Sayreville,
New Jersey and Rancho Cucamonga, California from Gerdau S.A., hereinafter collectively referred to as the "Acquired
Businesses." The total cash purchase price, including working capital adjustments made within the allowable one-year
measurement period, was $701.2 million, and was funded through a combination of domestic cash on-hand and borrowings under
the Term Loan (as defined in Note 10, Credit Arrangements).
The results of operations of the Acquired Businesses were reflected in the Company’s consolidated financial statements from the
Acquisition Date. The Acquired Businesses' net sales and earnings before income taxes included in the Company's consolidated
statement of earnings and consolidated statement of comprehensive income in 2019 were $1.4 billion and $132.7 million,
respectively.
The purchase price paid was allocated between the acquired mills and fabrication facilities' assets acquired and liabilities assumed
at fair value and was finalized on November 5, 2019. The table below presents the allocation of the fair value to the Acquired
Businesses' assets and liabilities as determined by the Company:
52
(in thousands)
Cash and cash equivalents
Accounts receivable
Inventories
Other current assets
Property, plant and equipment
Deferred income taxes
Accounts payable-trade, accrued expenses and other payables
Acquired unfavorable contract backlog
Other long-term liabilities
Pension and other post retirement employment benefits
Total assets acquired and liabilities assumed
Fair Value
6,399
296,459
202,082
26,290
421,969
9,155
(134,702)
(110,166)
(9,920)
(6,365)
701,201
$
$
The Company recorded a $32.1 million charge due to a working capital adjustment related to the Acquisition. This charge was
recorded subsequent to the end of the allowable one-year measurement period in selling, general and administrative expenses on
the consolidated statements of earnings in 2020. The related liability was recorded in accrued expenses and other payables as of
August 31, 2020.
Pro Forma Supplemental Information
Supplemental information on an unaudited pro forma basis is presented below as if the Acquisition occurred on September 1,
2017. The pro forma financial information is presented for comparative purposes only, based on significant estimates and
assumptions, which the Company believes to be reasonable, but not necessarily indicative of future results of operations or the
results that would have been reported if the Acquisition had been completed on September 1, 2017. These results were not used
as part of management analysis of the financial results and performance of the Company or the Acquired Businesses. These
results are adjusted, where possible, for transaction and integration-related costs.
(in thousands)
Pro forma net sales (1)
Pro forma net earnings (2)
Year Ended August 31,
2019
6,033,908 $
162,255
2018
6,303,812
105,377
$
__________________________________
(1) Pro forma net sales for the year ended August 31, 2018 includes estimated fair value adjustments related to amortization of
unfavorable contract backlog. The impact of the amortization of unfavorable contract backlog has been removed from the pro
forma net sales for the year ended August 31, 2019.
(2) Pro forma net earnings for the year ended August 31, 2018 reflects the impact of fair value adjustments related to the
amortization of unfavorable contract backlog described above and includes estimated fair value adjustments related to
inventory step-up, as well as non-recurring acquisition and integration costs of approximately $51.7 million.
Other Acquisitions
On July 21, 2020, the Company acquired substantially all of the assets of AZZ's Continuous Galvanized Rebar business
("GalvaBar") located in Tulsa, Oklahoma. GalvaBar manufactures galvanized rebar with a zinc alloy coating produced through
a proprietary process to provide corrosion protection and post-fabrication formability. This acquisition complements the
Company's existing concrete reinforcement capabilities. The operating results of GalvaBar are included in the North America
segment.
On February 3, 2020, the Company's subsidiary CMC Poland Sp. z.o.o. ("CMCP") acquired P.P.U. Ecosteel Sp. z.o.o.
("Ecosteel"), a steel mesh producer located in Zawiercie, Poland. This acquisition complements CMCP's existing mesh production
and increases sales to other markets in Europe. The operating results of Ecosteel are included in the Europe segment.
53
On October 26, 2017, the Company completed the purchase of substantially all of the assets of MMFX Technologies Corporation
("MMFX"). MMFX markets, sells and licenses the production of proprietary specialty steel products. The operating results of
MMFX are included in the North America segment.
The acquisitions of GalvaBar, Ecosteel and MMFX were not material individually, or in the aggregate, to the Company's financial
position or results of operations; therefore pro-forma operating results and other disclosures for the acquisitions are not presented
as the results would not be significantly different than reported results.
Facility Closures and Dispositions
In October 2019, the Company closed the melting operations at its Rancho Cucamonga facility, which is part of the North America
segment. In August 2020, the Company announced plans to sell its Rancho Cucamonga facility. This disposition does not meet
the criteria for discontinued operations or held for sale accounting. Due to these announcements, the Company recorded $9.8
million of expense related to severance, pension curtailment and vendor agreement terminations.
In 2020, the Company idled six facilities in its North America segment and recorded $6.2 million of expense related to severance
and ROU and other long-lived asset impairments.
In the third quarter of 2018, the Company sold substantially all of the assets of its structural steel fabrication operations, which
were part of the North America segment. The disposition did not meet the criteria for discontinued operations. Proceeds associated
with the sale were $20.3 million. As a result of the sale of these assets, the Company recorded impairment charges of $13.7
million. The signed definitive asset sale agreement and subsequent post-closing adjustments (Level 2) were the basis for the
determination of fair value of these operations.
Discontinued Operations
In 2018, the remaining operations related to the Company's steel trading businesses in the U.S. and Asia were substantially wound
down and the Company sold certain assets and liabilities of its Australian steel trading business. As a result of the Company's
exit of its trading and distribution businesses in Australia, the Company prepared an impairment analysis on the asset disposal
groups. 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. As a result of this analysis, the Company recorded impairment charges of $2.1
million in 2018 resulting in an overall transaction loss, including selling costs, of $5.3 million. This loss was primarily due to
accumulated foreign currency translation losses. The results of these activities are included in discontinued operations in the
consolidated statements of earnings.
The major classes of line items constituting earnings from discontinued operations in the consolidated statements of earnings for
2018 are presented in the table below. Earnings (loss) from discontinued operations in the consolidated statements of earnings
were immaterial in 2020 and 2019.
(in thousands)
Net sales
Costs and expenses:
Cost of goods sold
Selling, general and administrative expenses
Interest expense
Earnings before income taxes
Income taxes benefit
Earnings from discontinued operations
Year Ended August 31, 2018
304,650
$
276,184
25,317
(86)
3,235
(34)
3,269
$
There were no material non-cash operating or investing items related to discontinued operations for the periods ended August 31,
2020, 2019 and 2018.
The Company recorded $6.7 million of severance expense related to discontinued operations for 2018. These costs related to the
Company's closure of marketing and distribution offices that resulted in involuntary employee termination benefits. Severance
expense recorded in 2020 and 2019 related to discontinued operations was immaterial.
54
NOTE 4. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Accumulated other comprehensive income (loss) ("AOCI") was comprised of the following:
Foreign
Currency
Translation
Unrealized
Gain (Loss) on
Derivatives
Defined Benefit
Obligation
(in thousands)
Balance at September 1, 2017
$
Other comprehensive income (loss) before reclassifications
Amounts reclassified from AOCI
Income taxes (benefit)
Net other comprehensive loss
Balance at August 31, 2018
Other comprehensive loss before reclassifications
Amounts reclassified from AOCI
Income taxes
Net other comprehensive loss
Balance at August 31, 2019
Other comprehensive income (loss) before reclassifications
Amounts reclassified from AOCI
Income taxes
Net other comprehensive income (loss)
Balance at August 31, 2020
$
(80,778) $
(13,938)
2,079
—
(11,859)
(92,637)
(29,718)
857
—
(28,861)
(121,498)
33,559
6
—
33,565
(87,933) $
1,587 $
59
(365)
75
(231)
1,356
(7)
(301)
58
(250)
1,106
(14,983)
(375)
2,918
(12,440)
(11,334) $
(2,322) $
(575)
849
(348)
(74)
(2,396)
(3,346)
1,666
342
(1,338)
(3,734)
(952)
—
189
(763)
Total AOCI
(81,513)
(14,454)
2,563
(273)
(12,164)
(93,677)
(33,071)
2,222
400
(30,449)
(124,126)
17,624
(369)
3,107
20,362
(4,497) $ (103,764)
The items reclassified out of AOCI were not material for 2020, 2019 and 2018.
NOTE 5. REVENUE RECOGNITION
Revenue from Contracts with Customers
Each fabricated product contract sold by the North America segment represents a single performance obligation. Revenue from
contracts where the Company provides fabricated product and installation services is recognized over time using an input measure
and these contracts represented approximately 12% of net sales in the North America segment in 2020 and 2019. Revenue from
contracts where the Company does not provide installation services is recognized over time using an output measure and these
contracts represented approximately 11% and 9% of net sales in the North America segment in 2020 and 2019, respectively. The
remaining 77% and 79% of net sales in the North America segment were recognized at a point in time concurrent with the transfer
of control or as amounts were billed to the customer under an available practical expedient in 2020 and 2019, respectively.
The following table provides information about assets and liabilities from contracts with customers.
(in thousands)
Contract assets (included in accounts receivable)
Contract liabilities (included in accrued expenses and other payables)
Year Ended August 31,
2020
53,275 $
25,450
2019
103,805
37,165
$
The decrease in contract assets was primarily due to timing of invoicing in 2020 compared to 2019. The entire contract liability
as of August 31, 2019 was recognized in 2020.
Remaining Performance Obligations
As of August 31, 2020, a total of $723.4 million has been allocated to remaining performance obligations in the North America
segment, related to those contracts where revenue is recognized using an input or output measure. Of this amount, the Company
estimates the remaining performance obligations will be recognized as revenue as follows: 40% in the first twelve months, 48%
in the following twelve months, and 12% thereafter. The duration of all other contracts in the North America and Europe segments
are typically less than one year.
55
NOTE 6. ACCOUNTS RECEIVABLE PROGRAMS
As an additional source of liquidity, the Company sells certain trade accounts receivable both in the U.S. and Poland (hereinafter
referred to as the "Programs"). Prior to September 1, 2018, the Company accounted for transfers of the trade accounts receivable
under the Programs as sales of financial assets, and the trade accounts receivable balances sold were removed from the
consolidated balance sheets. On September 1, 2018, the Company amended certain terms of the Programs, disqualifying the sale
of such receivables from being accounted for as sales of financial assets. For activity in the Programs occurring prior to the
September 1, 2018 amendment, disclosures required under ASC 860-20-50 are provided below. See Note 10, Credit
Arrangements for further details regarding the Programs after September 1, 2018.
Prior to September 1, 2018, in exchange for trade receivables transferred into the Programs, the Company received either cash
(referred to as a cash purchase prior or "CPP") or a deferred purchase price ("DPP"). Upon adoption of ASU 2016-15, the CPP
received was reflected as cash provided by operating activities in the Company's consolidated statements of cash flows, and cash
received to settle the DPP related to the transfer of receivables was included as part of investing activities in the Company's
consolidated statement of cash flows.
(in thousands)
Deferred purchase price
Balance at September 1, 2017
Transfers of trade receivables
Less: CPP
Non-cash increase to DPP
Cash collections of DPP
Net repayments (advances)
Net collections of DPP
Balance at August 31, 2018
Total
U.S.
Poland
$
215,123 $
135,623 $
2,932,379
(2,187,377)
745,002
(670,457)
77,853
(592,604)
367,521 $
2,396,780
(1,818,781)
577,999
(531,541)
90,000
(441,541)
272,081 $
$
79,500
535,599
(368,596)
167,003
(138,916)
(12,147)
(151,063)
95,440
At August 31, 2018, the Company transferred $381.1 million of trade accounts receivable to the financial institutions and had no
advance payments outstanding under the U.S. Facility and $12.1 million outstanding under the Poland Facility (as defined in
Note 10, Credit Arrangements).
NOTE 7. INVENTORIES
The majority of the Company's inventories are in the form of semi-finished and finished goods. Under the Company’s business
model, products are sold to external customers in various stages, from semi-finished billets through fabricated steel, leading these
categories to be combined. As such, at August 31, 2020 and 2019, work in process inventories were not material. At August 31,
2020 and 2019, the Company's raw materials inventories were $123.9 million and $143.7 million, respectively.
Inventory write-downs were immaterial for 2020, 2019 and 2018.
56
NOTE 8. GOODWILL AND OTHER INTANGIBLE ASSETS
The following table details the changes in the carrying amount of goodwill by reportable segment:
(in thousands)
Goodwill, gross
Balance at September 1, 2018
Foreign currency translation
Balance at August 31, 2019
Foreign currency translation
Balance at August 31, 2020
Accumulated impairment losses
Balance at September 1, 2018
Foreign currency translation
Balance at August 31, 2019
Foreign currency translation
Balance at August 31, 2020
Goodwill, net
Balance at September 1, 2018
Foreign currency translation
Balance at August 31, 2019
Foreign currency translation
Balance at August 31, 2020
North America
Europe
Consolidated
$
$
71,941 $
—
71,941
—
71,941
(10,036)
—
(10,036)
—
(10,036)
61,905
—
61,905
—
61,905 $
2,568 $
(184)
2,384
195
2,579
(163)
12
(151)
(12)
(163)
2,405
(172)
2,233
183
2,416 $
74,509
(184)
74,325
195
74,520
(10,199)
12
(10,187)
(12)
(10,199)
64,310
(172)
64,138
183
64,321
As of August 31, 2020 and 2019, the excess of the fair value over the carrying value of each reporting unit was substantial. There
were no goodwill impairment charges in 2020, 2019, or 2018.
The following intangible assets subject to amortization are included in other noncurrent assets on the Company's consolidated
balance sheets:
August 31, 2020
August 31, 2019
(in thousands)
Patents
Customer base
Perpetual lease rights
Non-compete agreements
Brand name
Other
Total
Gross
Carrying
Amount
Accumulated
Amortization
Gross
Carrying
Amount
Accumulated
Amortization
2,647 $
4,900
866
422
501
85
Net
4,556 $
1,211
3,900
2,628
337
16
9,421 $ 12,648 $ 20,766 $
6,993 $
6,088
4,146
2,810
628
101
1,709 $
4,081
749
382
454
79
Net
5,284
2,007
3,397
2,428
174
22
7,454 $ 13,312
$
7,203 $
6,111
4,766
3,050
838
101
$ 22,069 $
57
In connection with the Acquisition, the Company recorded an unfavorable contract backlog liability of $110.2 million. At
August 31, 2020 and 2019, the net carrying amount of the liability was $6.0 million and $35.4 million, respectively. Amortization
of the unfavorable contract backlog was $29.4 million and $74.8 million for the twelve months ended August 31, 2020 and 2019,
respectively, and was recorded as an increase to net sales in the Company's consolidated statements of earnings.
Perpetual lease rights at August 31, 2020 have an estimated useful life of 85 years. All other intangible assets with definitive lives
are amortized over estimated useful lives ranging from 3 to 15 years. Excluding goodwill, the Company does not have any other
significant intangible assets with indefinite lives. Amortization expense for intangible assets was $2.1 million for 2020 and $2.2
million for 2019 and 2018. Estimated amounts of amortization expense for the next five years are as follows.
Year Ended August 31,
2021
2022
2023
2024
2025
2,030
1,755
1,296
1,259
922
(in thousands)
$
NOTE 9. LEASES
The following table presents the components of the total leased assets and lease liabilities and their classification in the Company's
consolidated balance sheet at August 31, 2020:
(in thousands)
Assets:
Classification in Consolidated Balance Sheet
August 31, 2020
Operating assets
Finance assets
Total leased assets
Liabilities:
Operating lease liabilities:
Current
Long-term
Total operating lease liabilities
Finance lease liabilities:
Current
Long-term
Total finance lease liabilities
Total lease liabilities
Other noncurrent assets
Property, plant and equipment, net
Accrued expenses and other payables
Other noncurrent liabilities
Current maturities of long-term debt and short-term borrowings
Long-term debt
$
$
$
$
114,905
50,642
165,547
27,604
95,810
123,414
14,373
35,851
50,224
173,638
The components of lease cost were as follows:
(in thousands)
Operating lease expense
Finance lease expense:
Amortization of assets
Interest on lease liabilities
Total finance lease expense
Variable and short term-lease expense
Total lease expense
Year Ended August 31, 2020
35,611
11,445
1,792
13,237
17,020
65,868
$
$
58
The weighted average remaining lease term and discount rate for operating and finance leases are presented in the following
table:
August 31, 2020
Weighted average remaining lease term (years)
Operating leases
Finance leases
Weighted average discount rate
Operating leases
Finance leases
6.3
3.8
4.283 %
4.270 %
Cash flow and other information related to leases is included in the following table:
(in thousands)
Cash paid for amounts included in the measurement of lease liabilities
Year Ended August 31, 2020
Operating cash outflows from operating leases
Operating cash outflows from finance leases
Financing cash outflows from finance leases
ROU assets obtained in exchange for lease obligations:
Operating leases
Finance leases
$
Maturities of lease liabilities at August 31, 2020 are presented in the following table:
(in thousands)
2021
2022
2023
2024
2025
Thereafter
$
Total lease payments
Less: Imputed interest
Present value of lease liabilities
$
Operating Leases
32,350 $
27,015
22,035
16,761
12,052
32,312
142,525
19,111
123,414 $
36,063
1,720
12,774
43,642
26,573
Finance Leases
16,227
14,037
11,675
8,968
3,569
69
54,545
4,321
50,224
Future maturities of lease liabilities at August 31, 2019, prior to adoption of ASU 2016-02, are presented in the following table:
(in thousands)
Capital lease obligations
Long-term non-cancelable
operating leases
$ 41,331 $ 13,104 $ 10,004 $ 7,758 $
Twelve Months Ended August 31,
2023
2022
2021
5,831 $ 3,904 $
2024
Thereafter
730
Total
2020
124,817
34,511
27,383
22,074
17,433
10,478
12,938
59
NOTE 10. CREDIT ARRANGEMENTS
Long-term debt was as follows:
(in thousands)
2027 Notes
2026 Notes
2023 Notes
Poland Term Loan
Other
Term Loan
Short-term borrowings
Finance leases
Total debt
Less debt issuance costs
Total amounts outstanding
$
Weighted Average
Interest Rate as of
August 31, 2020
5.375%
5.750%
4.875%
1.730%
5.100%
3.148%
0.980%
Year Ended August 31,
2020
300,000 $
350,000
330,000
40,713
21,329
—
—
50,224
1,092,266
8,581
1,083,685
2019
300,000
350,000
330,000
—
23,168
210,125
3,929
37,699
1,254,921
10,268
1,244,653
Less current maturities of long-term debt and short-term
borrowings
Long-term debt
18,149
1,065,536 $
17,439
1,227,214
$
In July 2017, the Company issued $300.0 million of 5.375% Senior Notes due July 2027 (the "2027 Notes"). Interest on these
notes is payable semiannually.
In May 2018, the Company issued $350.0 million of 5.750% Senior Notes due April 2026 (the "2026 Notes"). Interest on the
2026 Notes is payable semiannually.
In May 2013, the Company issued $330.0 million of 4.875% Senior Notes due May 2023 (the "2023 Notes"). Interest on these
notes is payable semiannually.
The Company has a $350.0 million revolving credit facility (the "Revolver") pursuant to the Fourth Amended and Restated Credit
Agreement (as amended, the "Credit Agreement"). The Credit Agreement has a maturity date in June 2022. The maximum
availability under the Revolver can be increased to $600.0 million with bank approval. The Company's obligations under the
Credit Agreement are collateralized by its North America inventory and certain of its North America receivables. The Credit
Agreement's capacity includes a $50.0 million sub-limit for the issuance of stand-by letters of credit. The Company had no
amounts drawn under the Revolver at August 31, 2020 or 2019. The availability under the Revolver was reduced by outstanding
stand-by letters of credit of $3.0 million at August 31, 2020 and 2019.
The Company also had a term loan (the "Term Loan") contemplated under the Credit Agreement. The Term Loan was funded in
two tranches: one drawn on July 13, 2017 with an original principal amount of $150.0 million, and one drawn on November 1,
2018 with an original principal amount of $180.0 million. The Company repaid the remaining Term Loan balance in 2020, and
recognized $1.8 million of expense related to early extinguishment of this debt, which is included in selling, general and
administrative expenses in the Company's consolidated statement of earnings for the year ended August 31, 2020.
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, 2020, the Company's interest coverage
ratio was 9.36 to 1.00 and the Company's debt to capitalization ratio was 0.37 to 1.00.
In August 2020, the Company entered into an agreement through its subsidiary, CMCP, which allowed for a delayed draw Term
Loan facility ("Poland Term Loan") in the maximum aggregate principal amount of up to PLN 250.0 million, or $67.9 million at
August 31, 2020. The proceeds of the Poland Term Loan will be used to finance the third rolling mill in Poland. At August 31,
2020, PLN 150.0 million, or $40.7 million, was outstanding. CMCP is required to make quarterly interest and principal payments
60
on the Poland Term Loan with interest based on the Warsaw Interbank Offer Rate ("WIBOR") plus a margin. The Poland Term
Loan has a maturity date of August 2026.
The Company also has credit facilities in Poland, through its subsidiary, CMCP, available to support working capital, short-term
cash needs, letters of credit, financial assurance and other trade finance-related matters. At August 31, 2020 and 2019, CMCP's
credit facilities totaled PLN 275.0 million, or $74.6 million and $69.0 million, respectively. These facilities expire in March 2022.
At August 31, 2020 and 2019, no amounts were outstanding under these facilities. In 2020, CMCP had $22.4 million borrowings
and $22.4 million repayments under its credit facilities. CMCP had no borrowings or repayments under its credit facilities in 2019
and 2018. The available balance of these credit facilities was reduced by outstanding stand-by letters of credit, guarantees and/or
other financial assurance instruments, which totaled $0.8 million and $1.1 million at August 31, 2020 and August 31, 2019,
respectively.
At August 31, 2020, the Company was in compliance with all of the covenants contained in its credit arrangements.
The scheduled maturities of the Company's long-term debt, excluding obligations related to finance leases, are included in the
table below. See Note 9, Leases, for scheduled maturities of finance leases.
Year Ended August 31,
2021
2022
2023
2024
2025
Thereafter
Total long-term debt, excluding finance leases
$
(in thousands)
3,776
9,576
339,565
11,706
9,556
667,863
1,042,042
8,581
$ 1,033,461
Less debt issuance costs
Total long-term debt outstanding, excluding finance leases
The Company capitalized $2.5 million, $0.3 million and $7.3 million of interest in the cost of property, plant and equipment
during 2020, 2019 and 2018, respectively.
Accounts Receivable Facilities
CMC has a $200.0 million U.S. trade accounts receivable facility (the "U.S. Facility"), which expires in November 2021. Under
the U.S. Facility, CMC contributes, and certain of its subsidiaries transfer without recourse, certain eligible trade accounts
receivable to CMC Receivables, Inc. ("CMCRV"), a wholly-owned subsidiary of CMC. CMCRV is structured to be a bankruptcy-
remote entity formed for the sole purpose of facilitating transfers of trade accounts receivable generated by the Company.
CMCRV transfers the trade accounts receivable in their entirety to two financial institutions. Under the U.S. Facility, with the
consent of both CMCRV and the program's administrative agent, the amount advanced by the financial institutions can be
increased to a maximum of $300.0 million for all trade accounts receivable. The remaining portion of the purchase price of the
trade accounts receivable takes the form of subordinated notes from the respective financial institutions. These notes will be
satisfied from the ultimate collection of the trade accounts receivable after payment of certain fees and other costs. The U.S.
Facility 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
Agreement. Advances taken under the U.S. Facility incur interest based on LIBOR plus a margin. The Company had no advance
payments outstanding under the U.S. Facility at August 31, 2020 and August 31, 2019.
In addition to the U.S. Facility, the Company's subsidiary in Poland transfers trade accounts receivable to financial institutions
without recourse (the "Poland Facility"). The Poland Facility has a facility limit of PLN 220.0 million ($59.7 million and $55.2
million as of August 31, 2020 and 2019, respectively) and allows the Company's Polish subsidiaries to obtain an advance of up
to 90% of eligible trade accounts receivable transferred under the terms of the arrangement. Advances taken under the Poland
Program incur interest based on the WIBOR plus a margin. The Company had no advance payments outstanding under the Poland
Facility at August 31, 2020, compared to $3.9 million at August 31, 2019.
The transfer of receivables under the U.S. and Poland Facilities do not qualify to be accounted for as sales. Therefore, any
advances outstanding under these programs are recorded as debt on the Company's consolidated balance sheets.
61
NOTE 11. NEW MARKETS TAX CREDIT TRANSACTIONS
During 2016 and 2017, the Company entered into three New Markets Tax Credit (“NMTC”) transactions with U.S. Bancorp
Community Development Corporation, a Minnesota corporation ("USBCDC"). The NMTC transactions relate to the construction
and equipping of the micro mill in Durant, Oklahoma, as well as a rebar spooler and automated T-post shop located on the same
site.
The transactions 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 are located in an eligible zone designated by the
Internal Revenue Service ("IRS") 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 (i) qualifies as a Community Development Entity ("CDE"), (ii) 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 (iii) 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. NMTCs are subject to 100% recapture for a period of
seven years as provided in the Internal Revenue Code.
In general, the three NMTC transactions were structured similarly. USBCDC made a capital contribution to an investment fund
and Commonwealth Acquisition Holdings, Inc., a wholly-owned subsidiary of the Company (“Commonwealth”), made a loan to
the investment fund. The investment fund used the proceeds from the capital contribution and the loan to make a QEI into a CDE,
which, in turn, makes loans of the QEIs to the operating subsidiaries of the Company with terms similar to the loans by
Commonwealth.
The following table summarizes the key terms and conditions for each of the three NMTC transactions ($ in millions):
Project
Micro
mill
USBCDC
Capital
Contribution
Commonwealth
Loan
$17.7
$35.3
Spooler
6.7
14.0
Commonwealth
Loan Rate /
Maturity
1.08% /
December 24,
2045
1.39% / July 26,
2042
Investment Fund(s)
QEI to CDE
CDE Loan
USBCDC Investment Fund 156, LLC
$51.5
Twain Investment Fund 249, LLC
$50.7
19.4
14.7
20.0
15.0
T-post
shop
5.0
10.4
1.16% / March
23, 2047
Twain Investment Fund 219, LLC
Twain Investment Fund 222, LLC
By its capital contributions to the investment funds (exclusive of Twain Investment Fund 222) (collectively the "Funds"),
USBCDC is entitled to substantially all 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 USBCDC Investment Fund 156, LLC and Twain Investment Fund 249, LLC or an eight-year period, in
the case of Twain Investment Fund 219, LLC (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 immaterial.
The Company is required to follow 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 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 ASC Topic 810, Consolidation. USBCDC’s contributions are included in other noncurrent 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 Twain Investment Fund 222 is a VIE, of which the Company is not the primary beneficiary
and has therefore treated the QEI of $2.1 million as debt. The obligation represents the Company's maximum exposure to loss
and is included in long-term debt in the accompanying consolidated balance sheets.
62
NOTE 12. DERIVATIVES
The Company's global operations and product lines expose it to risks from fluctuations in metal commodity prices, foreign
currency exchange rates, interest rates and natural gas, electricity and other energy commodity prices. One objective of the
Company's risk management program is to mitigate these risks using derivative instruments. The Company enters into (i) metal
commodity futures and forward contracts to mitigate the risk of unanticipated changes in gross margin due to price volatility in
these commodities, (ii) foreign currency forward contracts that match the expected settlements for purchases and sales
denominated in foreign currencies and (iii) energy derivatives to mitigate the risk related to price volatility of electricity and
natural gas.
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, 2020, the notional values of the Company's foreign currency and commodity contract
commitments were $138.5 million and $195.8 million, respectively. At August 31, 2019, the notional values of the Company's
foreign currency contract commitments and its commodity contract commitments were $94.1 million and $42.6 million,
respectively.
The following table provides information regarding the Company's commodity contract commitments as of August 31, 2020:
Commodity
Aluminum
Copper
Copper
Electricity
Total
1,675 MT
556 MT
8,346 MT
2,000,000 MW(h)
Long
Long
Short
Long
Long/Short
__________________________________
MT = Metric Ton
MW(h) = Megawatt hour
The Company designates only those contracts which closely match the terms of the underlying transaction as hedges for
accounting purposes. Certain foreign currency and commodity contracts were not designated as hedges for accounting purposes,
although management believes they are essential economic hedges.
Commodity derivatives not designated as hedging instruments resulted in a loss, before income taxes, of $6.0 million in 2020,
and a gain, before income taxes, of $1.7 million and $7.0 million in 2019 and 2018, respectively, recorded in cost of goods sold
within the consolidated statements of earnings. Commodity derivatives accounted for as cash flow hedging instruments resulted
in net loss of $12.1 million recognized in accumulated other comprehensive income in 2020. As these derivatives were new in
2020, there were no amounts recorded in 2019 and 2018. See Note 13, Fair Value, for the fair value of the Company's derivative
instruments recorded in the consolidated balance sheets.
63
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(cid:87)(cid:75)(cid:72)(cid:3) (cid:82)(cid:89)(cid:72)(cid:85)(cid:16)(cid:87)(cid:75)(cid:72)(cid:16)(cid:70)(cid:82)(cid:88)(cid:81)(cid:87)(cid:72)(cid:85)(cid:3) (cid:80)(cid:68)(cid:85)(cid:78)(cid:72)(cid:87)(cid:17)(cid:3) (cid:39)(cid:72)(cid:85)(cid:76)(cid:89)(cid:68)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3) (cid:79)(cid:76)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3) (cid:70)(cid:79)(cid:68)(cid:86)(cid:86)(cid:76)(cid:73)(cid:76)(cid:72)(cid:71)(cid:3) (cid:68)(cid:86)(cid:3) (cid:47)(cid:72)(cid:89)(cid:72)(cid:79)(cid:3) (cid:22)(cid:15)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:80)(cid:72)(cid:87)(cid:75)(cid:82)(cid:71)(cid:82)(cid:79)(cid:82)(cid:74)(cid:92)(cid:3) (cid:88)(cid:86)(cid:72)(cid:71)(cid:3) (cid:87)(cid:82)(cid:3) (cid:71)(cid:72)(cid:87)(cid:72)(cid:85)(cid:80)(cid:76)(cid:81)(cid:72)(cid:3) (cid:87)(cid:75)(cid:72)(cid:76)(cid:85)(cid:3) (cid:73)(cid:68)(cid:76)(cid:85)
(cid:89)(cid:68)(cid:79)(cid:88)(cid:72)(cid:15)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:71)(cid:72)(cid:86)(cid:70)(cid:85)(cid:76)(cid:69)(cid:72)(cid:71)(cid:3)(cid:69)(cid:72)(cid:79)(cid:82)(cid:90)(cid:17)(cid:3)(cid:41)(cid:88)(cid:85)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:71)(cid:76)(cid:86)(cid:70)(cid:88)(cid:86)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3)(cid:85)(cid:72)(cid:74)(cid:68)(cid:85)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:10)(cid:86)(cid:3)(cid:88)(cid:86)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:71)(cid:72)(cid:85)(cid:76)(cid:89)(cid:68)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:76)(cid:81)(cid:86)(cid:87)(cid:85)(cid:88)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:76)(cid:86)(cid:3)(cid:76)(cid:81)(cid:70)(cid:79)(cid:88)(cid:71)(cid:72)(cid:71)(cid:3)(cid:76)(cid:81)(cid:3)(cid:49)(cid:82)(cid:87)(cid:72)(cid:3)(cid:20)(cid:21)(cid:15)
(cid:39)(cid:72)(cid:85)(cid:76)(cid:89)(cid:68)(cid:87)(cid:76)(cid:89)(cid:72)(cid:86)(cid:17)
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(cid:83)(cid:85)(cid:76)(cid:80)(cid:68)(cid:85)(cid:76)(cid:79)(cid:92)(cid:3)(cid:88)(cid:87)(cid:76)(cid:79)(cid:76)(cid:93)(cid:76)(cid:81)(cid:74)(cid:3)(cid:88)(cid:81)(cid:82)(cid:69)(cid:86)(cid:72)(cid:85)(cid:89)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:76)(cid:81)(cid:83)(cid:88)(cid:87)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3)(cid:87)(cid:75)(cid:72)(cid:85)(cid:72)(cid:3)(cid:76)(cid:86)(cid:3)(cid:79)(cid:76)(cid:87)(cid:87)(cid:79)(cid:72)(cid:3)(cid:82)(cid:85)(cid:3)(cid:81)(cid:82)(cid:3)(cid:80)(cid:68)(cid:85)(cid:78)(cid:72)(cid:87)(cid:3)(cid:71)(cid:68)(cid:87)(cid:68)(cid:17)(cid:3)(cid:55)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:3)(cid:73)(cid:82)(cid:85)(cid:72)(cid:70)(cid:68)(cid:86)(cid:87)(cid:86)(cid:3)(cid:73)(cid:88)(cid:87)(cid:88)(cid:85)(cid:72)(cid:3)(cid:72)(cid:81)(cid:72)(cid:85)(cid:74)(cid:92)(cid:3)(cid:85)(cid:68)(cid:87)(cid:72)(cid:86)(cid:3)
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(cid:56)(cid:81)(cid:82)(cid:69)(cid:86)(cid:72)(cid:85)(cid:89)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:44)(cid:81)(cid:83)(cid:88)(cid:87)(cid:86)
(cid:41)(cid:79)(cid:82)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:85)(cid:68)(cid:87)(cid:72)(cid:3)(cid:11)(cid:51)(cid:47)(cid:49)(cid:12)(cid:3)
(cid:36)(cid:88)(cid:74)(cid:88)(cid:86)(cid:87)(cid:3)(cid:22)(cid:20)(cid:15)(cid:3)(cid:21)(cid:19)(cid:21)(cid:19)
(cid:47)(cid:82)(cid:90)
(cid:20)(cid:24)(cid:20)(cid:17)(cid:25)(cid:25)(cid:3)
(cid:43)(cid:76)(cid:74)(cid:75)
(cid:36)(cid:89)(cid:72)(cid:85)(cid:68)(cid:74)(cid:72)
(cid:21)(cid:23)(cid:22)(cid:17)(cid:27)(cid:27)(cid:3)
(cid:21)(cid:19)(cid:19)(cid:17)(cid:26)(cid:19)(cid:3)
(cid:37)(cid:72)(cid:79)(cid:82)(cid:90)(cid:3) (cid:76)(cid:86)(cid:3) (cid:68)(cid:3) (cid:85)(cid:72)(cid:70)(cid:82)(cid:81)(cid:70)(cid:76)(cid:79)(cid:76)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3) (cid:82)(cid:73)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:69)(cid:72)(cid:74)(cid:76)(cid:81)(cid:81)(cid:76)(cid:81)(cid:74)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:72)(cid:81)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3) (cid:69)(cid:68)(cid:79)(cid:68)(cid:81)(cid:70)(cid:72)(cid:86)(cid:3) (cid:82)(cid:73)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:47)(cid:72)(cid:89)(cid:72)(cid:79)(cid:3) (cid:22)(cid:3) (cid:70)(cid:82)(cid:80)(cid:80)(cid:82)(cid:71)(cid:76)(cid:87)(cid:92)(cid:3) (cid:71)(cid:72)(cid:85)(cid:76)(cid:89)(cid:68)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3) (cid:85)(cid:72)(cid:70)(cid:82)(cid:74)(cid:81)(cid:76)(cid:93)(cid:72)(cid:71)(cid:3) (cid:76)(cid:81)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3)
(cid:70)(cid:82)(cid:81)(cid:86)(cid:82)(cid:79)(cid:76)(cid:71)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3) (cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3) (cid:82)(cid:73)(cid:3) (cid:70)(cid:82)(cid:80)(cid:83)(cid:85)(cid:72)(cid:75)(cid:72)(cid:81)(cid:86)(cid:76)(cid:89)(cid:72)(cid:3) (cid:76)(cid:81)(cid:70)(cid:82)(cid:80)(cid:72)(cid:17)(cid:3) (cid:55)(cid:75)(cid:72)(cid:3) (cid:73)(cid:79)(cid:88)(cid:70)(cid:87)(cid:88)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3) (cid:76)(cid:81)(cid:3) (cid:72)(cid:81)(cid:72)(cid:85)(cid:74)(cid:92)(cid:3) (cid:85)(cid:68)(cid:87)(cid:72)(cid:86)(cid:3) (cid:82)(cid:89)(cid:72)(cid:85)(cid:3) (cid:87)(cid:76)(cid:80)(cid:72)(cid:3) (cid:80)(cid:68)(cid:92)(cid:3) (cid:70)(cid:68)(cid:88)(cid:86)(cid:72)(cid:3) (cid:89)(cid:82)(cid:79)(cid:68)(cid:87)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3) (cid:76)(cid:81)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:73)(cid:68)(cid:76)(cid:85)(cid:3)
(cid:89)(cid:68)(cid:79)(cid:88)(cid:72)(cid:3)(cid:72)(cid:86)(cid:87)(cid:76)(cid:80)(cid:68)(cid:87)(cid:72)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:76)(cid:86)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:83)(cid:85)(cid:76)(cid:80)(cid:68)(cid:85)(cid:92)(cid:3)(cid:85)(cid:72)(cid:68)(cid:86)(cid:82)(cid:81)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:88)(cid:81)(cid:85)(cid:72)(cid:68)(cid:79)(cid:76)(cid:93)(cid:72)(cid:71)(cid:3)(cid:79)(cid:82)(cid:86)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:82)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:85)(cid:72)(cid:75)(cid:72)(cid:81)(cid:86)(cid:76)(cid:89)(cid:72)(cid:3)(cid:76)(cid:81)(cid:70)(cid:82)(cid:80)(cid:72)(cid:3)(cid:11)(cid:5)(cid:50)(cid:38)(cid:44)(cid:5)(cid:12)(cid:3)(cid:76)(cid:81)(cid:3)(cid:21)(cid:19)(cid:21)(cid:19)(cid:17)(cid:3)
(cid:25)(cid:23)(cid:3)
(in thousands)
Beginning balance
New commodity contract
Total gains (losses), realized and unrealized
Recognized in earnings(1)
Recognized in OCI(2)
Ending balance
August 31, 2020
—
1,083
—
(16,090)
(15,007)
$
$
__________________________________
(1) Gains (losses) recognized in earnings are included in cost of goods sold on the consolidated statements of earnings. As the
derivative will not begin to settle until 2021, no gains or losses were recorded in earnings in 2020.
(2) Gains (losses) recognized in OCI are included in the unrealized holding gain (loss) on the consolidated statements of
comprehensive income.
Other than adjustments made to the preliminary fair value allocated to the Acquired Businesses' assets and liabilities made in the
allowable one-year measurement period from November 5, 2018 to November 4, 2019, there were no other material non-recurring
fair value remeasurements in 2020, 2019 and 2018.
The carrying values of the Company's short-term items, including 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 were as follows:
August 31, 2020
August 31, 2019
(in thousands)
2027 Notes (1)
2026 Notes (1)
2023 Notes (1)
Poland Term Loan (2)
Term Loan (2)
Short-term borrowings (2)
Carrying
Value
Fair Value
Hierarchy
Carrying
Value
Fair Value
Fair Value
Level 2 $ 300,000 $ 319,377 $ 300,000 $ 303,810
363,444
Level 2
342,098
Level 2
—
Level 2
210,125
Level 2
3,929
Level 2
350,000
330,000
—
210,125
3,929
350,000
330,000
40,713
—
—
367,374
345,335
40,713
—
—
__________________________________
(1) The fair value of the notes was determined based on indicated market values.
(2) The Poland Term Loan, Term Loan and short-term borrowings contain variable interest rates and carrying value approximates
fair value.
65
NOTE 14. INCOME TAX
The components of earnings from continuing operations before income taxes were as follows:
(in thousands)
United States
Foreign
Total
Year Ended August 31,
2019
2020
$ 334,170 $ 194,986 $
2018
86,731
78,653
$ 370,778 $ 268,460 $ 165,384
73,474
36,608
The income taxes (benefit) included in the consolidated statements of earnings were as follows:
(in thousands)
Current:
United States
Foreign
State and local
Current taxes
Deferred:
United States
Foreign
State and local
Deferred taxes
Total income taxes on income
Income taxes (benefit) on discontinued operations
Income taxes on continuing operations
Year Ended August 31,
2019
2020
2018
$
26,901 $
7,588
7,133
41,622
621 $
14,006
2,892
17,519
20,210
18,308
2,263
40,781
45,771
(43)
5,832
51,560
93,182
706
92,476 $
46,922
490
4,908
52,320
69,839
158
69,681 $
(11,501)
(169)
1,002
(10,668)
30,113
(34)
30,147
$
A reconciliation of the federal statutory rate to the Company's effective income tax rate from continuing operations, including
material items impacting the effective income tax rate, is as follows:
(in thousands)
Federal statutory rate
Income tax expense at statutory rate
State and local taxes
Foreign tax impairment on valuation of subsidiaries (1)
Foreign rate differential (2)
Research and experimentation benefits
Change in valuation allowance
Nontaxable foreign interest (1)
TCJA - Toll charge and related foreign tax credits
TCJA - Remeasurement of deferred tax balances
Audit settlement
Gain on international restructure (1)
Worthless stock deduction (3)
Other
Income tax expense on continuing operations
Effective income tax rate from continuing operations
66
Year Ended August 31,
2019
2020
21.0 %
77,863 $
9,895
5,084
(1,346)
(1,085)
968
8
—
—
—
—
—
1,089
92,476 $
24.9 %
21.0 %
56,377 $
6,085
(29,697)
(1,466)
(580)
36,167
(9,799)
7,410
(586)
120
—
—
5,650
69,681 $
26.0 %
2018
25.7 %
42,471
2,317
22,315
(5,973)
(4,707)
(20,839)
(17,414)
29,466
(25,515)
(3,187)
18,926
(6,084)
(1,629)
30,147
18.2 %
$
$
(1) Fully offset by a valuation allowance.
(2) The impact of global income from operations in jurisdictions with lower statutory tax rates than the U.S., including Poland,
which has a statutory income tax rate of 19.0%.
(3) Permanent tax benefit related to a worthless stock deduction from the reorganization and exit of the Company's steel trading
business headquartered in the United Kingdom.
Beginning in fiscal 2020, the Company plans to repatriate the current and future earnings from the Europe segment and recorded
an immaterial amount of tax expense related to such future distributions. The Company considers all undistributed earnings of its
non-U.S. subsidiaries prior to August 31, 2019 to be indefinitely reinvested and has not recorded deferred tax liabilities on such
earnings.
The income tax effects of significant temporary differences giving rise to deferred tax assets and liabilities were as follows:
(in thousands)
Deferred tax assets:
Net operating losses and credits
Deferred compensation and employee benefits
Reserves and other accrued expenses
ROU operating lease liabilities
Other
Total deferred tax assets
Valuation allowance for deferred tax assets
Deferred tax assets, net
Deferred tax liabilities:
Property, plant and equipment
ROU operating lease assets
Other
Total deferred tax liabilities
Net deferred tax liabilities
Year Ended August 31,
2020
2019
283,416 $
32,293
30,371
29,619
3,315
379,014
(281,849)
97,165
(185,595)
(28,201)
(2,420)
(216,216)
(119,051) $
295,241
24,432
42,833
—
19,526
382,032
(283,560)
98,472
(168,701)
—
(1,182)
(169,883)
(71,411)
$
$
Net operating losses giving rise to deferred tax assets consist of $447.5 million of state net operating losses that expire during the
tax years ending from 2021 to 2040 and foreign net operating losses of $816.9 million that expire in varying amounts beginning
in 2021 (with certain amounts having indefinite carryforward periods). 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. The Company's valuation allowances primarily relate to net operating loss carryforwards in certain state and foreign
jurisdictions and certain credit carryforwards for which utilization is uncertain.
A reconciliation of the beginning and ending amounts of unrecognized income tax benefits is as follows:
(in thousands)
Balance at September 1,
Change for tax positions of prior years
Reductions due to settlements with taxing authorities
Reductions due to lapse of statute of limitations
Balance at August 31, (1)
Year Ended August 31,
2019
2018
2020
8,652 $
—
—
—
8,652 $
3,121 $
5,531
—
—
8,652 $
9,283
3,121
(8,028)
(1,255)
3,121
$
$
__________________________________
(1) The full balance of unrecognized income tax benefits in each year, if recognized, would have impacted the Company’s
effective income tax rate at the end of each respective year.
At August 31, 2020 and 2019, accrued interest and penalties related to uncertain tax positions was not material.
67
During the twelve months ending August 31, 2021, we anticipate that the statute of limitations pertaining to positions of the
Company in prior year income tax returns may lapse. As a result, it is reasonably possible that the amount of unrecognized tax
benefits may decrease by $3.1 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
Company is currently under examination with certain state revenue authorities for fiscal years 2015 through 2018. The following
is a summary of all tax years that are open to examination.
U.S. Federal — 2016 and forward
U.S. States — 2015 and forward
Foreign — 2013 and forward
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 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 2020, 2019 and 2018 of $31.9 million, $25.1 million and $23.9 million, respectively, was primarily
included in selling, general and administrative expenses on the Company's consolidated statements of earnings. As of August 31,
2020, total unrecognized compensation cost related to unvested stock-based compensation arrangements was $16.7 million,
which is expected to be recognized over a weighted average period of three years.
The following table summarizes the total awards granted:
2020 grants
2019 grants
2018 grants
Restricted Stock
Awards/Units
Performance
Awards
997,454
889,238
667,341
536,022
483,984
367,514
As of August 31, 2020, the Company had 5,669,972 shares of common stock available for future grants.
Restricted Stock Units
Restricted stock units issued under the Company's stock-based compensation plans 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 shares of the Company's 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 in 2020 and 2019 generally vest and are converted to shares of
the Company's common stock in three equal installments on each of the first three anniversaries of the date of grant. Restricted
stock units granted to non-U.S. employees in 2018 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.
The estimated fair value of the stock-settled restricted stock units is based on the closing price of the Company's common stock
on the date of grant, discounted for the expected dividend yield through the vesting period. Compensation cost related to the
stock-settled restricted stock units is recognized ratably over the service period and is included in equity on the Company's
consolidated balance sheets. The liability related to the cash-settled restricted stock units was included in accrued expenses and
other payables on the Company's consolidated balance sheets. Mark-to-market adjustments recorded to liability-treated awards
in 2020, 2019 and 2018 were immaterial. The fair value of the cash-settled restricted stock units is remeasured each reporting
period and is recognized ratably over the service period.
Performance Stock Units
Performance stock units issued under the Company's stock-based compensation plans 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
68
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 2020, 2019 and 2018
were 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 shares of the Company's 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 2020 and 2019
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 were 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 were included
in equity on the Company's consolidated balance sheets.
Performance stock units awarded to non-U.S. participants in 2020 and 2019 will be settled in stock while the performance stock
units awarded to non-U.S. participants in 2018 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 was 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:
Outstanding as of September 1, 2017
Granted
Vested
Forfeited
Outstanding as of August 31, 2018
Granted
Vested
Forfeited
Outstanding as of August 31, 2019
Granted
Vested
Forfeited
Outstanding as of August 31, 2020
Weighted Average
Grant-Date
Fair Value
Number
2,453,580 $
1,216,461
(1,685,898)
(183,425)
1,800,718
1,505,449
(992,167)
(34,432)
2,279,568
1,529,212
(1,417,552)
(145,591)
2,245,637 $
15.65
20.69
18.00
15.89
16.82
17.75
20.09
17.90
15.99
18.32
18.80
21.35
18.79
The total fair value of shares vested during 2020, 2019 and 2018 was $26.7 million, $19.9 million and $30.3 million, respectively.
The Company granted 425,915 and 374,281 equivalent shares of restricted stock units and performance stock units accounted for
as liability awards during 2020 and 2019, respectively. As of August 31, 2020, the Company had 773,757 equivalent shares of
awards outstanding and expects 735,069 equivalent shares to vest.
69
Stock Purchase Plan
Almost all U.S. resident employees may participate in the Company's employee stock purchase plan. Beginning in 2020, each
eligible employee may purchase up to 500 shares annually. The Board of Directors established a 15% purchase discount based
on market prices on specified dates for 2020, 2019 and 2018. Yearly activity of the stock purchase plan was as follows:
Shares subscribed
Price per share
Shares purchased
Price per share
Shares available for future issuance
NOTE 16. EMPLOYEES' RETIREMENT PLANS
2020
347,870
2019
446,950
$
$
18.80 $
13.80 $
365,990
226,860
13.80 $
17.84 $
2018
289,040
17.84
123,930
18.99
2,338,304
Substantially all employees in the U.S. are covered by a defined contribution 401(k) retirement plan. The tax qualified defined
contribution 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 Benefit
Restoration Plan ("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 recorded in both cost of goods sold and selling, general and administrative expenses, and totaled $37.3 million, $32.9 million
and $27.3 million for 2020, 2019 and 2018, respectively.
The deferred compensation liability under the BRP was $47.0 million and $45.7 million at August 31, 2020 and 2019,
respectively, with $40.6 million and $39.9 million, respectively, included in other long-term liabilities on the Company's
consolidated balance sheets. At August 31, 2020 and 2019, $6.4 million and $5.8 million, respectively, 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 value of $60.8
million and $56.3 million at August 31, 2020 and 2019, respectively, and such assets were included in other noncurrent assets on
the Company's consolidated balance sheets. The net holding gain on these segregated assets was $6.0 million, $3.3 million and
$9.3 million for 2020, 2019 and 2018, respectively, and was included in net sales in the Company's consolidated statements of
earnings.
In 2019, the Company acquired certain assets, including a partially funded defined benefit pension plan, from Gerdau S.A., (the
"Plan") as part of the Acquisition. Upon closing of the Acquisition, the excess of projected Plan benefit obligations over the Plan
assets was recognized as a liability and previously existing deferred actuarial gains and losses and unrecognized service costs or
benefits were eliminated. Pension benefits associated with the Plan are generally based on each participant’s years of service,
compensation and age at retirement or termination. The Plan was closed to new participants prior to the Acquisition.
In 2020, the Company announced its decision to close the melting operations at its Rancho Cucamonga facility and then
subsequently announced its decision to sell this same facility. As a result of these announcements, the Company recorded a
pension curtailment of $3.2 million in 2020.
The following tables include a reconciliation of the beginning and ending balances of pension benefit obligation and the fair value
of Plan assets and the related amounts recognized in the Company’s consolidated balance sheets as of August 31, 2020 and 2019.
70
(in thousands)
Benefit obligation at beginning of year
Acquisition
Service cost
Interest cost
Curtailment loss
Special termination benefits
Actuarial loss
Benefits paid
Benefit obligation at end of year
Fair value of Plan assets at beginning of year
Acquisition
Actual return on Plan assets
Administrative expenses
Employer contributions
Benefits paid
$
$
Fair value of Plan assets at end of year
Funded status at end of year (net liability recognized in balance sheet as of August
31,)
$
2020
2019
31,661 $
—
335
892
1,314
1,918
1,280
(1,270)
36,130
23,435 $
—
2,248
(496)
5,284
(1,270)
29,201
(6,929) $
—
26,336
354
926
—
—
4,883
(838)
31,661
—
21,023
2,887
(69)
432
(838)
23,435
(8,226)
Amounts recognized in accumulated other comprehensive income as of August 31,
Net actuarial loss
$
3,234 $
2,823
The pension accumulated benefit obligation represents the actuarial present value of benefits based on employee service and
compensation as of the measurement date and does not include an assumption about future compensation levels.
The service cost component of net periodic benefit cost is recorded in cost of goods sold. Components of net periodic benefit cost
and other supplemental information are detailed below.
(in thousands)
2020
2019
Service cost
Expected administrative expenses
Interest cost
Expected return on Plan assets
Special termination benefits
Settlements, curtailments and other
$
Total net periodic benefit cost
Other changes in Plan assets and benefit obligations recognized in other
comprehensive income
Net actuarial loss arising during measurement period
Amortization of net actuarial gain
Total recognized in other comprehensive income
Total recognized in net periodic benefit cost and other comprehensive income
$
335 $
450
892
(1,334)
1,918
1,314
3,575
3,642
(3,232)
410
3,985 $
354
250
926
(1,008)
—
—
522
2,823
—
2,823
3,345
Weighted average assumptions used to determine benefit obligations as of August 31, 2020 and 2019 are detailed below.
2019
2020
Effective discount rate for benefit obligations
2.8 %
3.2 %
71
Weighted average assumptions used to determine net periodic benefit cost for 2020 and 2019 are detailed below.
Effective rate for interest on benefit obligations
Effective rate for service cost
Expected long-term rate of return
2020(1)
2019
2.8 %
3.3 %
6.0 %
4.3 %
4.7 %
6.0 %
__________________________________
(1) Certain weighted average assumptions used to determine net periodic benefit cost for 2020 were remeasured at an interim
date. This remeasurement resulted in an effective rate for interest on benefit obligations of 2.9% and an effective rate for
service cost of 3.5%.
The Company determines the discount rate used to measure liabilities as of the August 31 measurement date for the Plan, which
is also the date used for the related annual measurement assumptions. The discount rate reflects the current rate at which the
associated liabilities could be effectively settled at the end of the year. The Company sets its rate to reflect the yield of a portfolio
of high quality corporate bonds that would produce cash flows sufficient in timing and amount to settle projected future benefits.
The Company measures service cost and interest cost separately using the full yield curve approach applied to each corresponding
obligation. Service costs are determined based on duration-specific spot rates applied to the service cost cash flows. The interest
cost calculation is determined by applying duration-specific spot rates to the year-by-year projected benefit payments. The full
yield curve approach does not affect the measurement of the total benefit obligations.
The Company’s assumption for the expected return on Plan assets was 6% in 2020. Projected returns are based primarily on
broad, publicly traded equity and fixed income indices and forward-looking estimates. As of August 31, 2020, the Company’s
expected long-term rate of return on Plan assets for 2021 is 5%. The expected return assumption is based on the strategic asset
allocation of the Plan and long-term capital market return expectations.
The Company does not expect to make any contributions in 2021. Future contributions will depend on market conditions, interest
rates and other factors.
Plan Assets
Plan assets consist primarily of public equity and corporate bonds. The principal investment objectives are to maximize total
return without assuming undue risk exposure. Each asset class has broadly diversified characteristics. Asset and benefit obligation
forecasting studies are conducted periodically, generally every two to three years, or when significant changes have occurred in
market conditions, benefits, participant demographics or funded status.
The Plan's weighted average asset targets and actual allocations as a percentage of Plan assets, including the notional exposure
of future contracts by asset categories, are detailed below.
Fixed income securities
Equity securities:
Domestic
International
Mutual funds
Cash
Total
Investment Valuation
Pension Assets
Target Percent
—
45%
25.0
10.0
5.0
—
—
—
—
—
50%
30.0
15.0
10.0
5.0
2020
48.1%
26.9
13.1
10.1
1.8
100.0%
2019
50.1%
26.0
12.7
9.5
1.7
100.0%
Investments are stated at fair value. Fair value is the price that would be received to sell an asset or paid to transfer a liability at
the measurement date.
72
Investments in securities traded on a national securities exchange are valued at the last reported sales price on the final business
day of the year.
Fixed income securities are valued at the yields currently available on comparable securities of issues with similar credit ratings.
Purchases and sales of securities are recorded as of the trade date. Realized gains and losses on sales of securities are determined
based on average cost. Interest income is recognized on the accrual basis. Dividend income is recognized on the ex-dividend date.
Non-interest bearing cash is valued at cost, which approximates fair value.
Fair Value Measurements
The following table sets forth the Plan assets by asset class as of August 31, 2020 and 2019. All securities are traded on a national
securities exchange and therefore are Level 1 assets in the fair value hierarchy.
(in thousands)
Asset Class
Fixed income securities
Equity securities:
Domestic
International
Mutual funds
Total equity securities
Cash
Total
Other
Fair value of Plan assets
Future Pension Benefit Payments
Fair Value at Measurement Date
August 31, 2020 August 31, 2019
11,738
$
14,084 $
7,849
3,816
2,937
14,602
553
29,239
(38)
29,201 $
6,090
2,981
2,232
11,303
411
23,452
(17)
23,435
$
The table provides the estimated pension benefit payments that are payable from the Plan to participants in the following years:
Year Ended August 31,
2021
2022
2023
2024
2025
Next five years
2,082
1,856
1,843
1,830
1,790
8,701
(in thousands)
$
NOTE 17. CAPITAL STOCK
Treasury Stock
During the first quarter of 2015, the Board of Directors authorized a share repurchase program under which the Company may
repurchase up to $100.0 million of the Company's common stock. The share repurchase program does not require the Company
to acquire any dollar amount or number of shares of common stock and may be modified, suspended, extended or terminated at
any time without prior notice. During 2020, 2019 and 2018, the Company did not purchase any shares of common stock. The
Company had remaining authorization to purchase $27.6 million of common stock at August 31, 2020.
73
Preferred Stock
The Company has 2,000,000 shares of preferred stock, par value of $1.00 per share, authorized. The Company may issue
preferred stock in series, and the shares of each series may have such rights and preferences as are fixed by the Board of
Directors when authorizing the issuance of that particular series. There are no shares of preferred stock outstanding.
NOTE 18. EARNINGS PER SHARE
The calculations of basic and diluted earnings per share from continuing operations were as follows:
Earnings from continuing operations
Basic earnings per share:
Shares outstanding for basic earnings per share
Basic earnings per share from continuing operations
Diluted earnings per share:
Shares outstanding for basic earnings per share
Effect of dilutive securities:
Stock-based incentive/purchase plans
Shares outstanding for diluted earnings per share
Diluted earnings per share from continuing operations
Year Ended August 31,
2019
198,779 $
2020
278,302 $
$
2018
135,237
118,921,854 117,834,558 116,822,583
$
1.16
2.34 $
1.69 $
118,921,854 117,834,558 116,822,583
1,387,767
1,290,070
1,323,265
120,309,621 119,124,628 118,145,848
$
1.14
2.31 $
1.67 $
Anti-dilutive shares not included in the table above were immaterial for all periods presented. Shares of the Company's
restricted stock are 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.
74
NOTE 19. COMMITMENTS AND CONTINGENCIES
Legal and Environmental Matters
In the ordinary course of conducting its business, the Company becomes involved in litigation, administrative proceedings and
governmental investigations, including environmental matters.
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 of which are 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 Environmental Protection Agency ("EPA") for such activities. The Company is involved
in litigation or administrative proceedings with regard to several of these sites in which the Company is contesting, or at the
appropriate time may contest, its liability at the sites. In addition, the Company has received information requests with regard to
other sites which may be under consideration by the EPA as potential CERCLA sites. Some of these environmental matters or
other proceedings may result in fines, penalties or judgments being assessed against the Company. At August 31, 2020 and 2019,
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 $3.4 million and $3.6 million as of August 31, 2020 and 2019, respectively, of which
$2.7 million and $1.8 million were classified as other long-term liabilities as of August 31, 2020 and 2019, respectively. These
amounts have not been discounted to their present values. Due to evolving remediation technology, changing regulations, possible
third-party contributions, the inherent uncertainties of the estimation process and other factors, amounts accrued could vary
significantly from amounts paid. Historically, the amounts the Company has ultimately paid for such remediation activities have
not been material.
Management believes that adequate provisions have been made in the Company's 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 20. ACCRUED EXPENSES AND OTHER PAYABLES
Significant accrued expenses and other payables were as follows:
(in thousands)
Salaries and incentive compensation
Taxes other than income taxes
Worker's compensation and general liability insurance
Year Ended August 31,
2019
2020
$ 164,442 $ 133,705
38,660
38,485
43,362
39,375
75
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 ("CODM") to make decisions about resources to be allocated to the segments and
to assess performance. The Company's CODM is identified as the Chief Executive Officer, the Chief Operating Officer and the
Chief Financial Officer. In the fourth quarter of 2020, the Company realigned its segment reporting structure to reflect: (i) its
vertically integrated operating model in North America, which is now supported by a National Sales, Inventory and Operations
Planning function created in 2020, (ii) changes to its operating model and geographic footprint following the full integration of
the Acquired Businesses into its North America operations and (iii) the way the CODM now uses integrated North America data
to manage the business, assess performance and allocate resources.
The Company structures its business into the following two operating and reportable segments: North America and Europe. The
reportable segments have different lines of management responsibility, as each requires different marketing strategies and
management expertise. Segment financial information has been retrospectively adjusted to reflect these changes. See Note 1,
Nature of Operations, for more information about the reporting segments, including the types of products and services from which
each reportable segment derives its net sales.
Corporate and Other contains earnings or losses on assets and liabilities related to the Company's BRP and short-term investments,
expenses of the Company's corporate headquarters, interest expense related to its long-term debt and intercompany eliminations.
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 CODM uses adjusted EBITDA from continuing operations to evaluate segment performance and allocate resources. Adjusted
EBITDA is the sum of the Company's earnings from continuing operations before interest expense, income taxes, depreciation
and amortization expense and impairment expense.
The following table summarizes certain financial information from continuing operations by reportable segment:
(in thousands)
2020
Net sales
Adjusted EBITDA
Interest expense(1)
Capital expenditures
Depreciation and amortization
Asset impairments
Total assets(2)
2019
Net sales
Adjusted EBITDA
Interest expense(1)
Capital expenditures
Depreciation and amortization
Asset impairments
Total assets(2)
2018
Net sales
Adjusted EBITDA
Interest expense(1)
Capital expenditures
Depreciation and amortization
Asset impairments
Total assets(2)
North America
Europe
Corporate and
Other
Continuing
Operations
$
$
$
4,769,933 $
661,176
48,413
127,982
132,492
7,606
2,862,805
5,001,116 $
456,296
46,939
89,119
125,718
369
2,991,996
3,738,493 $
323,993
23,217
144,007
92,295
14,345
2,115,049
699,140 $
62,007
982
48,895
25,674
5
532,850
817,048 $
100,102
2,493
40,337
25,993
15
464,177
887,038 $
131,720
2,699
23,552
27,255
27
485,548
7,413 $
(146,575)
12,442
10,741
7,583
—
686,073
10,838 $
(132,313)
21,941
9,380
6,941
—
302,598
18,192 $
(103,492)
15,041
3,808
11,958
—
727,707
5,476,486
576,608
61,837
187,618
165,749
7,611
4,081,728
5,829,002
424,085
71,373
138,836
158,652
384
3,758,771
4,643,723
352,221
40,957
171,367
131,508
14,372
3,328,304
76
__________________________________
(1) Includes intercompany interest expense in the segments, which is eliminated within Corporate and Other.
(2) Total assets listed in Corporate and Other includes assets from discontinued operations.
The following table presents a reconciliation of earnings from continuing operations to adjusted EBITDA from continuing
operations:
(in thousands)
Earnings from continuing operations
Interest expense
Income taxes
Depreciation and amortization
Amortization of acquired unfavorable contract backlog
Asset impairments
Adjusted EBITDA from continuing operations
2018
2020
Year Ended August 31,
2019
$ 278,302 $ 198,779 $ 135,237
40,957
30,147
131,508
—
14,372
$ 576,608 $ 424,085 $ 352,221
61,837
92,476
165,749
(29,367)
7,611
71,373
69,681
158,652
(74,784)
384
The following tables present net sales by reportable segment disaggregated by major product and geographic area:
(in thousands)
Major product:
Raw material products
Steel products
Downstream products
Other
Net sales-unaffiliated customers
Intersegment net sales, eliminated on consolidation
Net sales
(in thousands)
Major product:
Raw material products
Steel products
Downstream products
Other
Net sales-unaffiliated customers
Intersegment net sales, eliminated on consolidation
Net sales
North America
Year Ended August 31, 2020
Corporate
Europe
Total
$
718,513 $
9,692 $
1,738,556
1,943,126
369,738
4,769,933
—
$ 4,769,933 $
547,047
119,232
21,660
697,631
1,509
699,140 $
— $
728,205
2,285,603
—
2,062,358
—
400,320
8,922
5,476,486
8,922
—
(1,509)
7,413 $ 5,476,486
North America
Year Ended August 31, 2019
Corporate
Europe
Total
$
953,858 $
1,763,017
1,936,994
347,247
5,001,116
—
$ 5,001,116 $
12,359 $
646,974
133,823
22,567
815,723
1,325
817,048 $
— $
966,217
2,409,991
—
2,070,817
—
381,977
12,163
5,829,002
12,163
—
(1,325)
10,838 $ 5,829,002
77
(in thousands)
Major product:
Raw material products
Steel products
Downstream products
Other
Net sales-unaffiliated customers
Intersegment net sales, eliminated on consolidation
Net sales
(in thousands)
Geographic area:
United States
Poland
China
Germany
Other
Net sales
North America
Year Ended August 31, 2018*
Corporate
Europe
Total
$ 1,165,998 $
1,099,286
1,160,373
312,810
3,738,467
26
$ 3,738,493 $
15,213 $
710,657
142,745
17,304
885,919
1,119
887,038 $
— $ 1,181,211
1,809,943
—
1,303,118
—
349,451
19,337
4,643,723
19,337
—
(1,145)
18,192 $ 4,643,723
Year Ended August 31,
2019
2020
2018*
$ 4,562,351 $ 4,771,164 $ 3,460,018
702,540
163,622
70,754
246,789
$ 5,476,486 $ 5,829,002 $ 4,643,723
510,610
74,638
103,762
368,828
549,983
76,909
65,846
221,397
__________________________________
* Prior period amounts have been reported under ASC 605.
The following table presents long-lived assets, net of accumulated depreciation and amortization, by geographic area:
(in thousands)
United States
Poland
Other
Total long-lived assets
NOTE 22. QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data for 2020 and 2019 was as follows:
2020
August 31,
2019
$ 1,483,127 $ 1,426,131 $ 1,001,102
171,460
45
$ 1,708,344 $ 1,599,218 $ 1,172,607
173,045
42
225,166
51
2018
(in thousands, except per share data)
Net sales(1)
Gross profit(1)
Net earnings from continuing operations(2)
Net earnings(2)
Basic EPS from continuing operations
Diluted EPS from continuing operations
Basic EPS
Diluted EPS
Three Months Ended Fiscal 2020
Nov. 30
Feb. 29
May 31
Aug. 31
$ 1,384,708 $ 1,340,963 $ 1,341,683 $ 1,409,132
263,407
67,782
67,623
0.57
0.56
0.57
0.56
238,194
82,755
83,348
0.70
0.69
0.70
0.70
225,330
64,169
64,734
0.54
0.53
0.54
0.54
217,867
63,596
63,798
0.53
0.53
0.54
0.53
78
(in thousands, except per share data)
Net sales(1)
Gross profit(1)
Net earnings from continuing operations
Net earnings
Basic EPS from continuing operations
Diluted EPS from continuing operations
Basic EPS
Diluted EPS
Three Months Ended Fiscal 2019
Nov. 30
Feb. 28
May 31
Aug. 31
$ 1,277,342 $ 1,402,783 $ 1,605,872 $ 1,543,005
252,659
85,880
86,111
0.73
0.72
0.73
0.72
158,909
19,420
19,742
0.17
0.16
0.17
0.17
241,630
78,551
78,390
0.67
0.66
0.66
0.66
150,290
14,928
13,850
0.13
0.13
0.12
0.12
__________________________________
(1) Excludes discontinued operations.
(2) Fourth quarter results include a $32.1 million charge for a working capital adjustment related to the Acquisition, which was
recorded subsequent to the end of the allowable one-year measurement period.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
Not applicable.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures. Under the supervision and with the participation of our management,
including the Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of our disclosure controls
and procedures as required by Rules 13a-15(b) and 15d-15(b) under the Exchange Act as of the end of the period covered by this
report. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures. Accordingly, even
effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Based
on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that these disclosure controls and
procedures were effective at the reasonable assurance level as of August 31, 2020.
Management's Report on Internal Control Over Financial Reporting. Management is responsible for establishing and maintaining
adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Exchange Act. Internal control over
financial reporting is a process designed to provide reasonable assurance regarding the reliability of our financial reporting and
the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the
United States of America.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of the effectiveness of internal control over financial reporting to future periods are subject to the
risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or
procedures may deteriorate over time.
Management, including our Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of
our internal control over financial reporting as of August 31, 2020 based on the guidelines established in Internal Control-
Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
Based on the results of our evaluation, our management concluded that our internal control over financial reporting was effective
as of August 31, 2020.
CMC's internal control over financial reporting as of August 31, 2020 has been audited by Deloitte & Touche LLP, an
independent registered public accounting firm, as stated in its report which is included in Item 8 of this Annual Report.
Changes in Internal Control Over Financial Reporting. No change to our internal control over financial reporting occurred during
the quarter ended August 31, 2020 that has materially affected, or is reasonably likely to materially affect, our internal control
over financial reporting.
79
ITEM 9B. OTHER INFORMATION
None.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
PART III
Information required in response to this item with regard to directors is incorporated by reference into this Annual Report from
our definitive proxy statement for our 2021 annual meeting of stockholders (such proxy statement, the "2021 Proxy Statement").
Such information will be included in the 2021 Proxy Statement under the captions "Proposal 1: Election of Directors," "Certain
Relationships and Related Person Transactions," "Delinquent Section 16(a) Reports," "Audit Committee Report" and "Corporate
Governance; Board and Committee Matters." Information regarding the Company's executive officers is set forth under the
caption "Information About Our Executive Officers" in Part I, Item 1, "Business" of this Annual Report and incorporated herein
by reference.
Code of Ethics
We have adopted a Financial Code of Ethics that applies to our Chief Executive Officer, Chief Financial Officer and Chief
Accounting Officer. Our Financial Code of Ethics is available on our website (www.cmc.com), and we intend to post any
amendments to or waivers from our Financial Code of Ethics on our website to the extent applicable to our Chief Executive
Officer, Chief Financial Officer and Chief Accounting Officer. We hereby undertake to provide to any person without charge,
upon request, a copy of our Financial Code of Ethics. Requests may be directed to Commercial Metals Company, 6565 N.
MacArthur Blvd., Suite 800, Irving, Texas 75039, Attention: Corporate Secretary, or by calling 214.689.4300.
ITEM 11. EXECUTIVE COMPENSATION
Information required in response to this Item 11 is incorporated by reference into this Annual Report from our 2021 Proxy
Statement. Such information will be included in the 2021 Proxy Statement under the caption "Executive Compensation,"
"Compensation Committee Interlocks and Insider Participation" and "Compensation Committee Report."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
The following table presents information about our equity compensation plans as of August 31, 2020:
Plan Category
Equity
Compensation plans approved by
security holders
Equity
Compensation plans not approved
by security holders
Total
(A)
Number of Securities
to be Issued Upon Exercise of
Outstanding Options,
Warrants and Rights
(B)
Weighted Average
Exercise Price of Outstanding
Options,
Warrants and Rights
(C)
Number of Securities Remaining
Available for Future Issuance
Under Equity
Compensation Plans (Excluding
Securities
Reflected in Column
(A))
2,245,637
—
2,245,637
$18.79
—
$18.79
5,669,972
—
5,669,972
The other information required in response to this Item 12 is incorporated by reference into this Annual Report from the 2021
Proxy Statement. Such information will be included in the 2021 Proxy Statement under the caption "Security Ownership of
Certain Beneficial Owners and Management."
80
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
To the extent applicable, information required in response to this Item 13 is incorporated by reference into this Annual Report
from the 2021 Proxy Statement. Such information will be included in the 2021 Proxy Statement under the caption "Certain
Relationships and Related Person Transactions."
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required in response to this Item 14 is incorporated by reference into this Annual Report from the 2021 Proxy
Statement. Such information will be included in the 2021 Proxy Statement under the caption "Ratification of Appointment of
Independent Registered Public Accounting Firm."
81
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULE
(a) The following documents are filed as a part of this Annual Report:
1. All financial statements are included in Item 8 above.
2. Financial statement schedule: The following financial statement schedule is attached to this Annual Report.
Schedule II — Valuation and Qualifying Accounts
All other financial statement schedules have been omitted because they are not applicable, they are not required or the required
information is shown in the financial statements or notes thereto.
3. Exhibits:
82
EXHIBIT
NO.
2(a)
3(i)(a)
3(i)(b)
3(i)(c)
3(i)(d)
3(i)(e)
3(i)(f)
3(ii)
4(i)(a)
4(i)(b)
4(i)(c)
4(i)(d)
4(i)(e)
4(i)(f)
4(i)(g)
4(ii)(a)
10(i)(a)
DESCRIPTION
Stock and Asset Purchase Agreement, dated as of December 29, 2017, by and among Commercial Metals
Company, CMC Steel Fabricators, Inc., CMC Steel US, LLC, GNA Financing, Inc., Gerdau Ameristeel US,
Inc., Gerdau Ameristeel Sayreville Inc. and Gerdau Ameristeel WC, Inc. (filed as Exhibit 2.1 to Commercial
Metals Company’s Current Report on Form 8-K filed January 2, 2018 and incorporated herein by reference).
Restated Certificate of Incorporation dated March 2, 1989 (filed as Exhibit 3(i) to Commercial Metals
Company's Annual Report on Form 10-K for the fiscal year ended August 31, 2009 and incorporated herein by
reference).
Certificate of Amendment of Restated Certificate of Incorporation dated February 1, 1994 (filed as
Exhibit 3(i)(a) to Commercial Metals Company's Annual Report on Form 10-K for the fiscal year ended
August 31, 2009 and incorporated herein by reference).
Certificate of Amendment of Restated Certificate of Incorporation dated February 17, 1995 (filed as
Exhibit 3(i)(b) to Commercial Metals Company's Annual Report on Form 10-K for the fiscal year ended
August 31, 2009 and incorporated herein by reference).
Certificate of Amendment of Restated Certificate of Incorporation dated January 30, 2004 (filed as Exhibit
3(i)(d) to Commercial Metals Company's Quarterly Report on Form 10-Q for the quarter ended February 29,
2004 and incorporated herein by reference).
Certificate of Amendment of Restated Certificate of Incorporation dated January 26, 2006 (filed as Exhibit 3(i)
to Commercial Metals Company's Quarterly Report on Form 10-Q for the quarter ended February 28, 2006 and
incorporated herein by reference).
Certificate of Designation, Preferences and Rights of Series A Preferred Stock (filed as Exhibit 2 to Commercial
Metals Company's Form 8-A filed August 3, 1999 and incorporated herein by reference).
Fourth Amended and Restated Bylaws (filed as Exhibit 3.1 to Commercial Metals Company's Current Report
on Form 8-K dated September 23, 2019 and incorporated herein by reference).
Indenture, dated May 6, 2013, by and between Commercial Metals Company and U.S. Bank National
Association, as trustee (filed as Exhibit 4.1 to Commercial Metals Company's Registration Statement on Form
S-3 filed May 6, 2013 and incorporated herein by reference).
First Supplemental Indenture, dated May 20, 2013, to Indenture, dated May 6, 2013, by and between
Commercial Metals Company and U.S. Bank National Association, as trustee (filed as Exhibit 4.1 to
Commercial Metals Company's Current Report on Form 8-K filed May 20, 2013 and incorporated herein by
reference).
Second Supplemental Indenture, dated July 11, 2017, to Indenture, dated May 6, 2013, by and between
Commercial Metals Company and U.S. Bank National Association, as trustee (filed as Exhibit 4.1 to
Commercial Metals Company's Current Report on Form 8-K filed July 11, 2017 and incorporated herein by
reference).
Form of 4.875% Senior Note due 2023 (filed as Exhibit 4.2 to Commercial Metals Company's Current Report
on Form 8-K filed May 20, 2013 and incorporated herein by reference).
Form of 5.375% Senior Note due 2027 (filed as Exhibit 4.2 to Commercial Metals Company's Current Report
on Form 8-K filed July 11, 2017 and incorporated herein by reference).
Third Supplemental Indenture, dated May 3, 2018, by and among Commercial Metals Company and U.S. Bank
National Association, as trustee (filed as Exhibit 4.1 to Commercial Metals Company’s Current Report on Form
8-K filed May 3, 2018 and incorporated herein by reference).
Form of 5.750% Senior Note due 2026 (filed as Exhibit 4.2 to Commercial Metals Company’s Current Report
on Form 8-K filed May 3, 2018 and incorporated herein by reference).
The description of Commercial Metals Company's Common Stock (filed herewith).
Fourth Amended and Restated Credit Agreement, dated June 26, 2014, by and among Commercial Metals
Company, CMC International Finance, S.à R.L., the lenders party thereto and Bank of America, N.A., as
administrative agent (filed as Exhibit 10.1 to Commercial Metals Company's Quarterly Report on Form 10-Q
for the quarterly period ended May 31, 2014 and incorporated herein by reference).
83
10(i)(b)
10(i)(c)
10(i)(d)
10(i)(e)
10(i)(f)
10(i)(g)
10(i)(h)
10(i)(i)
10(i)(j)
10(i)(k)
10(i)(l)
Second Amendment to the Fourth Amended and Restated Credit Agreement, dated June 23, 2017, by and
among Commercial Metals Company, CMC International Finance, S.à R.L., the lenders party thereto and Bank
of America, N.A., as administrative agent (filed as Exhibit 10.1 to Commercial Metals Company's Current
Report on Form 8-K filed June 26, 2017 and incorporated herein by reference).
Third Amendment to the Fourth Amended and Restated Credit Agreement, dated June 23, 2017, by and among
Commercial Metals Company, CMC International Finance, S.à R.L., the lenders party thereto and Bank of
America, N.A., as administrative agent (filed as Exhibit 10.2 to Commercial Metals Company's Current Report
on Form 8-K filed June 26, 2017 and incorporated herein by reference).
Receivables Sale Agreement, dated April 5, 2011, by and between Commercial Metals Company and several
of its subsidiaries and CMC Receivables, Inc. (a special purpose wholly-owned subsidiary of Commercial
Metals Company) (filed as Exhibit 10.3 to Commercial Metals Company's Quarterly Report on Form 10-Q for
the quarterly period ended February 28, 2011 and incorporated herein by reference).
Receivables Purchase Agreement, dated April 5, 2011, by and among Commercial Metals Company, CMC
Receivables, Inc. (a special purpose wholly-owned subsidiary of Commercial Metals Company), certain
purchasers and Wells Fargo Bank, N.A., as administrative agent for the purchasers (filed as Exhibit 10.4 to
Commercial Metals Company's Quarterly Report on Form 10-Q for the quarterly period ended February 28,
2011 and incorporated herein by reference).
Fourth Amendment to the Fourth Amended and Restated Credit Agreement, dated December 29, 2017, by and
among Commercial Metals Company, CMC International Finance, S.à R.L., the lenders party thereto and Bank
of America, N.A., as administrative agent (filed as Exhibit 10.1 to Commercial Metals Company's Current
Report on Form 8-K filed January 2, 2018 and incorporated herein by reference).
Joinder Agreement and Fifth Amendment to the Fourth Amended and Restated Credit Agreement, dated
February 21, 2018, by and among Commercial Metals Company, CMC International Finance, S.à R.L., the
lenders party thereto and Bank of America, N.A., as administrative agent (filed as Exhibit 10.1 to Commercial
Metals Company's Current Report on Form 8-K filed February 23, 2018 and incorporated herein by reference).
Performance Undertaking, dated April 5, 2011, executed by Commercial Metals Company in favor of CMC
Receivables, Inc. (a special purpose wholly-owned subsidiary of Commercial Metals Company) (filed as
Exhibit 10.5 to Commercial Metals Company's Quarterly Report on Form 10-Q for the quarterly period ended
February 28, 2011 and incorporated herein by reference).
Amendment No. 1 to Receivables Purchase Agreement, dated December 28, 2011, by and among Commercial
Metals Company, CMC Receivables, Inc., Wells Fargo Bank, N.A., The Bank of Nova Scotia and Liberty
Street Funding LLC (filed as Exhibit 10.2 to Commercial Metals Company's Current Report on Form 8-K filed
January 3, 2012 and incorporated herein by reference).
Omnibus Amendment No. 1 (Amendment No. 2 to Receivables Sale Agreement, Amendment No. 2 to
Receivables Purchase Agreement, and Amendment No. 2 to Performance Undertaking), dated May 3, 2013, by
and among Commercial Metals Company, individually and as provider of the Performance Undertaking, CMC
Cometals Processing, Inc., Howell Metal Company, Structural Metals, Inc., CMC Steel Fabricators, Inc., SMI
Steel LLC, SMI-Owen Steel Company, Inc., Owen Electric Steel Company of South Carolina, AHT, Inc., CMC
Receivables, Inc., Liberty Street Funding LLC, The Bank of Nova Scotia, individually and in its capacity as
administrator of the Liberty Street Funding Group, and Wells Fargo Bank, N.A., individually and as
administrative agent (filed as Exhibit 10.3 to Commercial Metals Company's Quarterly Report on Form 10-Q
for the quarter ended May 31, 2013 and incorporated herein by reference).
Omnibus Amendment No. 2, (Amendment No. 3 to Receivables Sale Agreement, Amendment No. 3 to
Receivables Purchase Agreement, and Amendment No. 3 to Performance Undertaking), dated August 15, 2014,
by and among the Company, as servicer and provider of the Performance Undertaking, certain subsidiaries of
the Company parties thereto, as originators, CMC Receivables, Inc., the conduit purchasers party thereto, the
committed purchasers party thereto, Coöperatieve Centrale Raiffeisen-Boerenleenbank B.A., "Rabobank
Nederland", New York Branch in its capacity as administrator of the Nieuw Amsterdam Funding Group, BMO
Capital Markets Corp. in its capacity as administrator of the Fairway Funding Group and Wells Fargo Bank,
N.A., as a committed purchaser and as administrative agent (filed as Exhibit 10.1 to Commercial Metals
Company's Current Report on Form 8-K filed August 21, 2014 and incorporated herein by reference).
Amendment No. 5 to Receivables Purchase Agreement, dated July 29, 2016, by and among Commercial Metals
Company, CMC Receivables, Inc., Wells Fargo Bank, N.A., Coöperatieve Rabobank U.A., and Nieuw
Amsterdam Receivables Corporation B.V. (filed as Exhibit 10.1 to Commercial Metals Company's Current
Report on Form 8-K filed August 2, 2016 and incorporated herein by reference).
84
10(i)(m)
10(i)(n)
10(i)(o)
10(i)(p)
10(i)(q)
10(i)(r)
10(i)(s)
10(i)(t)
10(i)(u)
10(ii)(a)
10(iii)(a)*
10(iii)(b)*
10(iii)(c)*
10(iii)(d)*
10(iii)(e)*
Omnibus Amendment No. 3 (Amendment No. 4 to Receivables Sale Agreement, Amendment No. 6 to
Receivables Purchase Agreement, and Amendment No. 4 to Performance Undertaking), dated June 23, 2017,
by and among the Company, as servicer and provider of the Performance Undertaking, certain subsidiaries of
the Company parties thereto, as originators, CMC Receivables, Inc., the conduit purchasers party thereto, the
committed purchasers party thereto, Coöperatieve Rabobank U.A., in its capacity as administrator of the
funding group, and Wells Fargo Bank, N.A., as administrative agent for the purchasers party thereto (filed as
Exhibit 10.3 to Commercial Metals Company's Current Report on Form 8-K filed June 26, 2017 and
incorporated herein by reference).
Sixth Amendment to the Fourth Amended and Restated Credit Agreement, dated October 23, 2018, by and
among Commercial Metals Company, CMC International Finance, S.à R.L., the lenders party thereto and Bank
of America, N.A., as administrative agent (filed as Exhibit 10(i)(n) to Commercial Metals Company's Annual
Report on Form 10-K for the fiscal year ended August 31, 2018 and incorporated herein by reference).
Seventh Amendment to the Fourth Amended and Restated Credit Agreement, dated October 22, 2019, by and
among Commercial Metals Company, CMC International Finance, S.à R.L., the lenders party thereto and Bank
of America, N.A., as administrative agent (filed as Exhibit 10(i)(o) to Commercial Metals Company’s Annual
Report on Form 10-K for the fiscal year ended August 31, 2019 and incorporated herein by reference).
Amendment No. 7 to Receivables Purchase Agreement, dated August 31, 2018, by and among Commercial
Metals Company, CMC Receivables, Inc., Wells Fargo Bank, N.A., Coöperatieve Rabobank U.A., and Nieuw
Amsterdam Receivables Corporation B.V. (filed as Exhibit 10.1 to Commercial Metals Company's Current
Report on Form 8-K filed on September 4, 2018 and incorporated herein by reference).
Joinder and Amendment No. 5 to Receivables Sale Agreement and Performance Undertaking, dated September
1, 2018, by and among Commercial Metals Company, as servicer and provider of the Performance Undertaking,
certain subsidiaries of Commercial Metals Company, as originators, and CMC Receivables, Inc. (filed as
Exhibit 10.2 to Commercial Metals Company's Current Report on Form 8-K filed on September 4, 2018 and
incorporated herein by reference).
Amendment No. 8 to Receivables Purchase Agreement, dated October 22, 2019, by and among Commercial
Metals Company, CMC Receivables, Inc., Wells Fargo Bank, N.A., Coöperatieve Rabobank U.A., and Nieuw
Amsterdam Receivables Corporation B.V. (filed herewith).
Joinder and Amendment No. 6 to Receivables Sale Agreement and Performance Undertaking, dated October
22, 2019, by and among Commercial Metals Company, individually and as provider of the Performance
Undertaking, certain subsidiaries of Commercial Metals Company, as originators, and CMC Receivables, Inc.
(filed herewith).
Consulting Agreement, dated as of March 1, 2020, by and between Mary A. Lindsey and Commercial Metals
Company (filed as Exhibit 10.1 to Commercial Metals Company’s Current Report on Form 8-K filed on March
2, 2020 and incorporated herein by reference).
Separation and Release Agreement, dated as of February 28, 2020, by and between Commercial Metals
Company and Paul K. Kirkpatrick (filed as Exhibit 10.1 to Commercial Metals Company’s Current Report on
Form 8-K filed March 3, 2020 and incorporated herein by reference).
Intercreditor Agreement, dated June 23, 2017, by and among Commercial Metals Company, Wells Fargo Bank,
N.A., as securitization agent, and Bank of America, N.A., as bank agent (filed as Exhibit 10.4 to Commercial
Metals Company's Current Report on Form 8-K filed June 26, 2017 and incorporated herein by reference).
Commercial Metals Company Employee Stock Purchase Plan as Amended and Restated effective January 1,
2020 (filed as Exhibit 10.1 to Commercial Metals Company's Quarterly Report on Form 10-Q for the quarter
ended May 31, 2020 and incorporated herein by reference).
Form of Amended and Restated Executive Employment Continuity Agreement (filed herewith).
Terms and Conditions of Employment, dated May 3, 2011, by and between Barbara R. Smith and Commercial
Metals Company (filed as Exhibit 10.3 to Commercial Metals Company's Quarterly Report on Form 10-Q for
the quarter ended May 31, 2011 and incorporated herein by reference).
Amendment to Terms and Conditions of Employment, dated May 29, 2015, by and between Barbara R. Smith
and Commercial Metals Company (filed herewith).
Second Amendment to Terms and Conditions of Employment, dated January 18, 2016, by and between Barbara
R. Smith and Commercial Metals Company (filed as Exhibit 99.1 to Commercial Metals Company's Current
Report on Form 8-K filed January 19, 2016 and incorporated herein by reference).
85
10(iii)(f)*
10(iii)(g)*
10(iii)(h)*
10(iii)(i)*
10(iii)(j)*
10(iii)(k)*
10(iii)(l)*
10(iii)(m)*
10(iii)(n)*
10(iii)(o)*
10(iii)(p)*
10(iii)(q)*
10(iii)(r)*
10(iii)(s)*
21
23
31(a)
31(b)
32(a)
32(b)
101.INS
101.SCH
101.CAL
101.DEF
Third Amendment to Terms and Conditions of Employment, dated November 28, 2016, by and between
Barbara R. Smith and Commercial Metals Company (filed as Exhibit 99.1 to Commercial Metals Company's
Current Report on Form 8-K filed November 29, 2016 and incorporated herein by reference).
Fourth Amendment to Terms and Conditions of Employment, dated August 31, 2017, by and between Barbara
R. Smith and Commercial Metals Company (filed as Exhibit 10.1 to Commercial Metals Company's Current
Report on Form 8-K filed September 1, 2017 and incorporated herein by reference).
Employment Agreement, dated April 19, 2010, by and between Tracy L. Porter and Commercial Metals
Company (filed herewith).
Amendment to Employment Agreement, dated May 27, 2015, by and between Tracy L. Porter and Commercial
Metals Company (filed herewith).
Second Amendment to Employment Agreement, dated September 30, 2016, by and between Tracy L. Porter
and Commercial Metals Company (filed herewith).
Third Amendment to Employment Agreement, dated April 1, 2018, by and between Tracy L. Porter and
Commercial Metals Company (filed herewith).
Commercial Metals Company 2013 Long-Term Equity Incentive Plan as Amended and Restated effective
November 19, 2019 (filed as Exhibit 10.2 to Commercial Metals Company's Quarterly Report on Form 10-Q
for the quarter ended May 31, 2020 and incorporated herein by reference).
Terms and Conditions of Stock Award, Employment and Separation dated August 13, 2019, by and between
Paul J. Lawrence and Commercial Metals Company (filed herewith).
Terms and Conditions of Employment, dated June 16, 2020, by and between Jody Absher and Commercial
Metals Company (filed herewith).
Terms and Conditions of Employment, dated June 16, 2020, by and between Jennifer J. Durbin and Commercial
Metals Company (filed herewith).
Form of Restricted Stock Unit Award Agreement (Filed as Exhibit 10.3 to Commercial Metals Company's
Quarterly Report on Form 10-Q for the quarter ended May 31, 2020 and incorporated herein by reference).
Form of Performance Award Agreement (Filed as Exhibit 10.4 to Commercial Metals Company's Quarterly
Report on Form 10-Q for the quarter ended May 31, 2020 and incorporated herein by reference).
Form of Non-Employee Director Restricted Stock Award Agreement (Filed as Exhibit 10.5 to Commercial
Metals Company's Quarterly Report on Form 10-Q for the quarter ended May 31, 2020 and incorporated herein
by reference).
Form of Non-Employee Director Restricted Stock Unit Award Agreement (Filed as Exhibit 10.6 to Commercial
Metals Company's Quarterly Report on Form 10-Q for the quarter ended May 31, 2020 and incorporated herein
by reference).
Subsidiaries of Commercial Metals Company (filed herewith).
Consent of Deloitte & Touche LLP (filed herewith).
Certification of Barbara R. Smith, President and Chief Executive Officer of Commercial Metals Company,
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
Certification of Paul J. Lawrence, Vice President and Chief Financial Officer of Commercial Metals Company,
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
Certification of Barbara R. Smith, President and Chief Executive Officer of Commercial Metals Company,
pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished
herewith).
Certification of Paul J. Lawrence, Vice President and Chief Financial Officer of Commercial Metals Company,
pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished
herewith).
Inline XBRL Instance Document (filed herewith).
Inline XBRL Taxonomy Extension Schema Document (filed herewith).
Inline XBRL Taxonomy Extension Calculation Linkbase Document (filed herewith).
Inline XBRL Taxonomy Extension Definition Linkbase Document (filed herewith).
86
101.LAB
101.PRE
104
Inline XBRL Taxonomy Extension Label Linkbase Document (filed herewith).
Inline XBRL Taxonomy Extension Presentation Linkbase Document (filed herewith).
Cover Page Interactive Data File
* Denotes management contract or compensatory plan.
87
SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS
Additions
Deductions
Description (in thousands)
Year Ended August 31, 2020
Allowance for doubtful accounts
Deferred tax valuation allowance
Year Ended August 31, 2019
Allowance for doubtful accounts
Deferred tax valuation allowance
Year Ended August 31, 2018
Allowance for doubtful accounts
Deferred tax valuation allowance
Balance at
Beginning of
Period
Charged to
Costs and
Expenses
Charged to
Other
Accounts (1)
Charged to
Costs and
Expenses
Charged to
Other
Accounts (2)
Balance at
End of
Period
$ 8,403 $
283,560
1,079 $
4,733
2,220 $
— $ (2,105) $
4,489
268,554
1,820
22,220
4,718
(6,444)
(75)
(7,214)
(2,549)
4,146
273,991
2,645
31,471
(165)
(136)
(36,908)
(2,001)
9,597
281,849
8,403
283,560
4,489
268,554
__________________________________
(1) Recoveries and translation adjustments.
(2) Uncollectable accounts charged to the allowance.
88
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
COMMERCIAL METALS COMPANY
By /s/ Barbara R. Smith
Barbara R. Smith
Chairman of the Board, President and Chief
Executive Officer
Date: October 15, 2020
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the dates indicated:
/s/ Barbara R. Smith
Barbara R. Smith, October 15, 2020
Chairman of the Board, President and Chief
Executive Officer
/s/ Joseph C. Winkler
Joseph C. Winkler, October 15, 2020
Lead Director
/s/ Vicki L. Avril-Groves
Vicki L. Avril-Groves, October 15, 2020
Director
/s/ Lisa M. Barton
Lisa M. Barton, October 15, 2020
Director
/s/ Rhys J. Best
Rhys J. Best, October 15, 2020
Director
/s/ Richard B. Kelson
Richard B. Kelson, October 15, 2020
Director
/s/ Peter R. Matt
Peter R. Matt, October 15, 2020
Director
/s/ Rick J. Mills
Rick J. Mills, October 15, 2020
Director
/s/ Sarah E. Raiss
Sarah E. Raiss, October 15, 2020
Director
/s/ J. David Smith
J. David Smith, October 15, 2020
Director
/s/ Charles L. Szews
Charles L. Szews, October 15, 2020
Director
/s/ Paul J. Lawrence
Paul J. Lawrence, October 15, 2020
Vice President and Chief Financial Officer
/s/ Adam R. Hickey
Adam R. Hickey, October 15, 2020
Vice President and Chief Accounting Officer
89
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CORPORATE INFORMATION
CORPORATE HEADQUARTERS
FORM 10-K
Commercial Metals Company
6565 N. MacArthur Blvd.
Suite 800
Irving, Texas 75039
214.689.4300
Website
www.cmc.com
Copies of the Corporation’s Form 10-K
are available from:
Corporate Secretary
Commercial Metals Company
P.O. Box 1046
Dallas, Texas 75221-1046
STOCK EXCHANGE LISTING
New York Stock Exchange Symbol:
CMC
Deloitte & Touche LLP
Dallas, Texas
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
EXECUTIVE CERTIFICATIONS
Commercial Metals Company has included, as Exhibit
31 to its 2020 Annual Report on Form 10-K filed with
the Securities and Exchange Commission, certificates
of the principal executive officer and principal financial
officer of the Company regarding the quality of the
Company’s public disclosure as required by Section
302 of the Sarbanes-Oxley Act. The Company has also
submitted to the New York Stock Exchange (NYSE) a
certificate of the CEO certifying that she is not aware
of any violation by the Company of NYSE corporate
governance listing standard.
SHAREHOLDER SERVICES
Shareholder inquiries should be addressed
to our Transfer Agent:
Broadridge Corporate Issuer Solutions, Inc.
1155 Long Island Avenue
Attn: IWS
Edgewood, New York 11717
877.830.4928
or email to
shareholder@broadridge.com
or online at
www.shareholder.broadridge.com
ANNUAL MEETING OF STOCKHOLDERS
INVESTOR RELATIONS
When
Wednesday, January 13, 2021
10:00 A.M., Central Standard Time
Where
Online at www.proxydocs.com/CMC
Record Date
November 18, 2020
Additional corporate information is available from our website at
www.cmc.com.
This annual report to stockholders contains “forward-looking
statements” within the meaning of the federal securities laws, with
respect to economic conditions, our financial condition, results of
operations, cash flows and business, and our expectations or beliefs
concerning future events. See the discussion of risk factors in Part I
Item 1A, and the discussion of forward-looking statements in Part II
Item 7, of our accompanying Annual Report on Form 10-K, each of
which is incorporated herein by reference.
it’s what’s inside that counts
Commercial Metals Company | 6565 N. MacArthur Blvd., Suite 800 | Irving, Texas 75039 | 214.689.4300