☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended November 30, 2024
OR
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-4304
___________________________________
COMMERCIAL METALS COMPANY
(Exact Name of Registrant as Specified in Its Charter)
Delaware
75-0725338
(State or Other Jurisdiction of Incorporation or Organization)
(I.R.S. Employer Identification Number)
6565 N. MacArthur Blvd., Irving, Texas75039
(Address of Principal Executive Offices) (Zip Code)
(214)689-4300
(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Trading Symbol(s)
Name of Each Exchange on Which Registered
Common Stock, $0.01 par value
CMC
New York Stock Exchange
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 (the "Exchange Act") during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yesx 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). Yesx No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
☒
Accelerated filer
☐
Non-accelerated filer
☐
Smaller reporting company
☐
Emerging growth company
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☒
As of December 31, 2024, 113,641,513 shares of the registrant's common stock, par value $0.01 per share, were outstanding.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1. NATURE OF OPERATIONS AND ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States ("GAAP") on a basis consistent with that used in the Annual Report on Form 10-K for the year ended August 31, 2024 (the "2024 Form 10-K") filed by Commercial Metals Company ("CMC," and together with its consolidated subsidiaries, the "Company") with the United States ("U.S.") Securities and Exchange Commission (the "SEC") and include all normal recurring adjustments necessary to present fairly the condensed consolidated balance sheets and the condensed consolidated statements of earnings (loss), comprehensive income (loss), cash flows and stockholders' equity for the periods indicated. These notes should be read in conjunction with the consolidated financial statements and notes included in the 2024 Form 10-K. The results of operations for the three month period ended November 30, 2024 are not necessarily indicative of the results expected for the full fiscal year. Any reference in this Quarterly Report on Form 10-Q for the quarter ended November 30, 2024 ("Form 10-Q") to the "corresponding period" or "comparable period" relates to the relevant three month period ended November 30, 2023. Any reference in this Form 10-Q to a year refers to the fiscal year ended August 31st of that year, unless otherwise stated.
Nature of Operations
CMC is an innovative solutions provider helping build a stronger, safer and more sustainable world. Through an extensive manufacturing network principally located in the U.S. and Central Europe, CMC offers products and technologies to meet the critical reinforcement needs of the global construction sector. CMC’s solutions support early-stage construction across a wide variety of applications, including infrastructure, non-residential, residential, industrial and energy generation and transmission.
Recently Issued Accounting Pronouncements
In November 2024, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update ("ASU") 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses ("ASU 2024-03"). ASU 2024-03 requires disaggregated income statement expense disclosures related to functional or natural expense line items within continuing operations. ASU 2024-03 is effective for fiscal years beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027, and requires either prospective or retrospective adoption. Early adoption is permitted. The Company is evaluating the impact of this guidance on its consolidated financial statements and related disclosures.
NOTE 2. CHANGES IN BUSINESS
On November 22, 2024, the Company completed the sale of a rebar fabrication facility within the North America Steel Group segment for gross consideration of $6.9 million, which consisted of $5.0 million in cash proceeds and $1.9 million in the form of a seller financing receivable, subject to working capital adjustments. The sale resulted in an immaterial impact to selling, general and administrative ("SG&A") expenses in the condensed consolidated statements of earnings (loss) during the three months ended November 30, 2024.
NOTE 3. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The following tables reflect the changes in accumulated other comprehensive income (loss) ("AOCI"):
Three Months Ended November 30, 2024
(in thousands)
Foreign Currency Translation
Derivatives
Defined Benefit Pension Plans
Total AOCI
Balance, September 1, 2024
$
(76,854)
$
3,614
$
(12,712)
$
(85,952)
Other comprehensive income (loss) before reclassifications(1)
(34,957)
420
(10)
(34,547)
Reclassification for gain(2)
—
(1,356)
—
(1,356)
Net other comprehensive loss
(34,957)
(936)
(10)
(35,903)
Balance, November 30, 2024
$
(111,811)
$
2,678
$
(12,722)
$
(121,855)
Three Months Ended November 30, 2023
(in thousands)
Foreign Currency Translation
Derivatives
Defined Benefit Pension Plans
Total AOCI
Balance, September 1, 2023
$
(126,045)
$
135,257
$
(12,990)
$
(3,778)
Other comprehensive income (loss) before reclassifications(1)
23,493
(42,945)
(9)
(19,461)
Reclassification for gain(2)
—
(1,499)
—
(1,499)
Net other comprehensive income (loss)
23,493
(44,444)
(9)
(20,960)
Balance, November 30, 2023
$
(102,552)
$
90,813
$
(12,999)
$
(24,738)
__________________________________
(1) Other comprehensive income (loss) ("OCI") before reclassifications from derivatives is presented net of an immaterial income tax impact for the three months ended November 30, 2024 and net of income tax benefit of $10.1 million for the three months ended November 30, 2023. OCI before reclassifications from defined benefit pension plans is presented net of immaterial income tax impacts for each period presented.
(2) Reclassifications for gains from derivatives included in net earnings (loss) are primarily recorded in cost of goods sold in the condensed consolidated statements of earnings (loss) and are presented net of immaterial income tax impacts.
NOTE 4. REVENUE RECOGNITION
The majority of the Company's revenue is recognized at a point in time concurrent with the transfer of control, which usually occurs, depending on shipping terms, upon shipment or customer receipt. See Note 13, Segment Information, for further information about disaggregated revenue by the Company's major product lines.
Certain revenue from the Company's downstream products in the North America Steel Group segment is not recognized at a point in time. Revenue resulting from sales of fabricated rebar in the North America Steel Group segment is recognized over time, as discussed below. Revenue resulting from sales of other downstream products in the North America Steel Group segment is recognized at the time of billing under an available practical expedient.
Each of the North America Steel Group segment's fabrication contracts represents a single performance obligation. Revenue from certain fabrication contracts for which the Company provides fabricated product and installation services is recognized over time using an input measure, and these contracts represented 8% and 9% of net sales in the North America Steel Group segment in the three months ended November 30, 2024 and 2023, respectively. Revenue from fabrication contracts for which the Company does not provide installation services is recognized over time using an output measure, and these contracts represented 10% and 11% of net sales in the North America Steel Group segment in the three months ended November 30, 2024 and 2023, respectively.
The following table provides information about assets and liabilities from contracts with customers:
(in thousands)
November 30, 2024
August 31, 2024
Contract assets (included in accounts receivable)
$
43,713
$
57,007
Contract liabilities (included in other accrued expenses and payables)
41,314
35,356
The amount of revenue reclassified from August 31, 2024 contract liabilities during the three months ended November 30, 2024 was approximately $17.6 million.
As of November 30, 2024, revenue totaling $888.9 million has been allocated to remaining performance obligations in the North America Steel Group segment related to contracts for which revenue is recognized using an input or output measure. Of this amount, the Company estimates that approximately 81% of the remaining performance obligations will be recognized in the twelve months following November 30, 2024, and the remainder will be recognized during the subsequent twelve months. The duration of all other contracts in the North America Steel Group, Europe Steel Group and Emerging Businesses Group segments is typically less than one year.
NOTE 5. INVENTORIES, NET
The majority of the Company's inventories are in the form of semi-finished and finished steel products. Under the Company’s vertically integrated business models in the North America Steel Group segment and the Europe Steel Group segment, steel products are sold to external customers in various stages, from semi-finished billets through fabricated steel, leading these categories to be combined as finished goods.
The components of inventories were as follows:
(in thousands)
November 30, 2024
August 31, 2024
Raw materials
$
255,036
$
232,982
Work in process
7,712
5,390
Finished goods
697,340
733,383
Total
$
960,088
$
971,755
Inventory write-down expense was $9.0 million and $10.7 million during the three months ended November 30, 2024 and 2023, respectively, and primarily impacted the Europe Steel Group segment. The inventory write-downs were recorded in cost of goods sold in the condensed consolidated statements of earnings (loss).
NOTE 6. GOODWILL AND OTHER INTANGIBLES
Goodwill by reportable segment is detailed in the table below:
(in thousands)
North America Steel Group
Europe Steel Group
Emerging Businesses Group
Consolidated
Goodwill, gross
Balance, September 1, 2024
$
126,915
$
4,337
$
264,568
$
395,820
Foreign currency translation
—
(200)
(1,188)
(1,388)
Balance, November 30, 2024
126,915
4,137
263,380
394,432
Accumulated impairment
Balance, September 1, 2024
(9,542)
(155)
(493)
(10,190)
Foreign currency translation
—
7
—
7
Balance, November 30, 2024
(9,542)
(148)
(493)
(10,183)
Goodwill, net
Balance, September 1, 2024
117,373
4,182
264,075
385,630
Foreign currency translation
—
(193)
(1,188)
(1,381)
Balance, November 30, 2024
$
117,373
$
3,989
$
262,887
$
384,249
Other indefinite-lived intangible assets consisted of the following:
The change in the balance of intangible assets with indefinite lives from August 31, 2024 to November 30, 2024 was due to foreign currency translation adjustments.
Other intangible assets subject to amortization are detailed in the following table:
November 30, 2024
August 31, 2024
(in thousands)
Gross Carrying Amount
Accumulated Amortization
Net
Gross Carrying Amount
Accumulated Amortization
Net
Developed technologies
$
152,375
$
47,614
$
104,761
$
152,659
$
43,540
$
109,119
Customer relationships
74,641
18,116
56,525
75,000
16,118
58,882
Patents
8,055
6,850
1,205
7,970
6,595
1,375
Perpetual lease rights
6,108
1,019
5,089
6,404
1,049
5,355
Trade names
3,445
1,550
1,895
3,413
1,474
1,939
Non-compete agreements
2,300
1,948
352
2,300
1,859
441
Other
224
158
66
224
147
77
Total
$
247,148
$
77,255
$
169,893
$
247,970
$
70,782
$
177,188
The foreign currency translation adjustments related to the intangible assets subject to amortization were immaterial for all periods presented above.
Amortization expense for intangible assets was $6.8 million and $7.5 million in the three months ended November 30, 2024 and 2023, respectively, of which $4.3 million and $4.7 million, respectively, was recorded in cost of goods sold and the remainder was recorded in SG&A expenses in the condensed consolidated statements of earnings (loss). Estimated amortization expense for intangible assets for the next five years is as follows:
Weighted Average Interest Rate as of November 30, 2024
November 30, 2024
August 31, 2024
2030 Notes
4.125%
$
300,000
$
300,000
2031 Notes
3.875%
300,000
300,000
2032 Notes
4.375%
300,000
300,000
Series 2022 Bonds, due 2047
4.000%
145,060
145,060
Other
5.100%
11,910
11,910
Finance leases
5.230%
138,352
141,271
Total debt
1,195,322
1,198,241
Less unamortized debt issuance costs
(12,631)
(13,073)
Plus unamortized bond premium
4,406
4,453
Total amounts outstanding
1,187,097
1,189,621
Less current maturities of long-term debt
(38,561)
(38,786)
Long-term debt
$
1,148,536
$
1,150,835
The Company's credit arrangements require compliance with certain covenants, including an interest coverage ratio and a debt to capitalization ratio. At November 30, 2024, the Company was in compliance with all financial covenants in its credit arrangements.
Capitalized interest was immaterial during the three months ended November 30, 2024 and 2023.
Credit Facilities
On October 30, 2024, the Company entered into the First Amendment to the Sixth Amended and Restated Credit Agreement (as amended, the "Credit Agreement"), which, among other things, extended the maturity date of the Credit Agreement from October 26, 2027 to October 26, 2029. The Credit Agreement provides for a $600.0 million revolving credit facility (the "Revolver"). The Company had no amounts drawn under the Revolver at November 30, 2024 or August 31, 2024. The availability under the Revolver was reduced by outstanding stand-by letters of credit totaling $0.9 million at November 30, 2024 and August 31, 2024.
The Company also has credit facilities in Poland through its subsidiary, CMC Poland Sp. z.o.o. ("CMCP"). At November 30, 2024 and August 31, 2024, CMCP's credit facilities totaled PLN 600.0 million, or $147.6 million and $154.8 million, respectively. There were no amounts outstanding under these facilities as of November 30, 2024 or August 31, 2024. 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 $2.3 million and $2.4 million at November 30, 2024 and August 31, 2024, respectively.
Accounts Receivable Facility
The Poland accounts receivable facility had a limit of PLN 288.0 million, or $70.9 million and $74.3 million, at November 30, 2024 and August 31, 2024, respectively. The Company had no advance payments outstanding under the Poland accounts receivable facility at November 30, 2024 or August 31, 2024.
At November 30, 2024 and August 31, 2024, the notional values of the Company's commodity contract commitments were $467.0 million and $480.1 million, respectively. At November 30, 2024 and August 31, 2024, the notional values of the Company's foreign currency contract commitments were $236.0 million and $225.1 million, respectively.
The following table provides information regarding the Company's commodity contract commitments at November 30, 2024:
Commodity
Position
Total
Aluminum
Long
2,775
MT
Aluminum
Short
1,275
MT
Copper
Long
181
MT
Copper
Short
9,741
MT
Electricity
Long
3,056,000
MW(h)
Natural Gas
Long
5,070,750
MMBtu
__________________________________
MT = Metric ton
MW(h) = Megawatt hour
MMBtu = Million British thermal unit
The following table summarizes the location and amounts of the fair value of the Company's derivative instruments reported in the condensed consolidated balance sheets:
(in thousands)
Primary Location
November 30, 2024
August 31, 2024
Derivative assets:
Commodity
Prepaid and other current assets
$
11,254
$
9,823
Commodity
Other noncurrent assets
26,945
30,402
Foreign exchange
Prepaid and other current assets
1,746
419
Derivative liabilities:
Commodity
Other accrued expenses and payables
$
1,932
$
3,445
Commodity
Other noncurrent liabilities
38
157
Foreign exchange
Other accrued expenses and payables
441
1,885
The following table summarizes activities related to the Company's derivatives not designated as hedging instruments recognized in the condensed consolidated statements of earnings (loss). All other activity related to the Company's derivatives not designated as hedging instruments was immaterial for the periods presented.
Gain (Loss) on Derivatives Not Designated as Hedging Instruments (in thousands)
Three Months Ended November 30,
Primary Location
2024
2023
Commodity
Cost of goods sold
$
3,742
$
(72)
Foreign exchange
SG&A expenses
(3,172)
3,539
The following tables summarize activities related to the Company's derivatives designated as cash flow hedging instruments recognized in the condensed consolidated statements of comprehensive income (loss) and condensed consolidated statements of earnings (loss). Amounts presented do not include the effects of foreign currency translation adjustments.
Effective Portion of Derivatives Designated as Cash Flow Hedging Instruments Gain (Loss) Recognized in OCI, Net of Income Taxes (in thousands)
Gain on Derivatives Designated as Cash Flow Hedging Instruments Reclassified from AOCI into Net Earnings (Loss) (in thousands)
Three Months Ended November 30,
Primary Location
2024
2023
Commodity
Cost of goods sold
$
1,573
$
1,765
Foreign exchange
SG&A expenses
65
61
The Company's natural gas commodity derivatives accounted for as cash flow hedging instruments have maturities extending to November 2027. The Company's electricity commodity derivatives accounted for as cash flow hedging instruments have maturities extending to December 2034. Included in the AOCI balance as of November 30, 2024 was an estimated net gain of $5.9 million from cash flow hedging instruments that is expected to be reclassified into net earnings (loss) within the twelve months following November 30, 2024. Cash flows associated with the cash flow hedging instruments are recorded as a component of cash flows from operating activities in the condensed consolidated statements of cash flows. See Note 9, Fair Value, for the fair value of the Company's derivative instruments recorded in the condensed consolidated balance sheets.
NOTE 9. FAIR VALUE
The Company has established a fair value hierarchy which prioritizes the inputs to the valuation techniques used to measure fair value into three levels. These levels are determined based on the lowest level input that is significant to the fair value measurement. Levels within the hierarchy are defined within Note 1, Nature of Operations and Summary of Significant Accounting Policies, to the consolidated financial statements in the 2024 Form 10-K.
The Company presents the fair value of its derivative contracts on a net-by-counterparty basis when a legal right to offset exists under an enforceable netting agreement. The following table summarizes information regarding the Company's financial assets and financial liabilities that were measured at fair value on a recurring basis:
Fair Value Measurements at Reporting Date Using
(in thousands)
Total
Quoted Prices in Active Markets for Identical Assets (Level 1)
Significant Other Observable Inputs (Level 2)
Significant Unobservable Inputs (Level 3)
As of November 30, 2024:
Assets:
Investment deposit accounts(1)
$
709,450
$
709,450
$
—
$
—
Commodity derivative assets(2)
38,199
4,896
—
33,303
Foreign exchange derivative assets(2)
1,746
—
1,746
—
Liabilities:
Commodity derivative liabilities(2)
1,970
1,970
—
—
Foreign exchange derivative liabilities(2)
441
—
441
—
As of August 31, 2024:
Assets:
Investment deposit accounts(1)
$
718,110
$
718,110
$
—
$
—
Commodity derivative assets(2)
40,225
2,196
—
38,029
Foreign exchange derivative assets(2)
419
—
419
—
Liabilities:
Commodity derivative liabilities(2)
3,602
3,602
—
—
Foreign exchange derivative liabilities(2)
1,885
—
1,885
—
__________________________________
(1) Investment deposit accounts are short-term in nature, and the value is determined by principal plus interest. The investment portfolio mix can change each period based on the Company's assessment of investment options.
(2) Derivative assets and liabilities classified as Level 1 are commodity futures contracts valued based on quoted market prices in the London Metal Exchange or New York Mercantile Exchange. Amounts in Level 2 are based on broker quotes in the over-the-counter market. Derivatives classified as Level 3 are described below. Further discussion regarding the Company's use of derivative instruments is included in Note 8, Derivatives.
The fair value estimate of the Level 3 commodity derivatives is based on internally developed discounted cash flow models primarily utilizing unobservable inputs for which there is little or no market data. The Company forecasts future energy rates using a range of historical prices (the "floating rate"), which is the only significant unobservable input used in the Company's discounted cash flow models. Significantly higher or lower floating rates could have resulted in a material difference in the fair value measurement. The following table summarizes the range of floating rates used to measure the fair value of the Level 3 commodity derivatives at November 30, 2024 and August 31, 2024, which are applied uniformly across each of our Level 3 commodity derivatives:
Floating rate (PLN)
Low
High
Average
November 30, 2024
324
518
406
August 31, 2024
324
510
405
Below is a reconciliation of the beginning and ending balances of the Level 3 commodity derivatives recognized in the condensed consolidated statements of comprehensive income (loss). Amounts presented are before income taxes. The fluctuation in energy rates over time may cause volatility in the fair value estimate and is the primary reason for unrealized gains and losses in OCI in the three months ended November 30, 2024 and 2023.
(in thousands)
Three Months Ended November 30, 2024
Balance, September 1, 2024
$
38,029
Total activity, realized and unrealized:
Unrealized holding loss before reclassification(1)
(1,691)
Reclassification for gain included in net loss(2)
(3,035)
Balance, November 30, 2024
$
33,303
(in thousands)
Three Months Ended November 30, 2023
Balance, September 1, 2023
$
194,425
Total activity, realized and unrealized:
Unrealized holding loss before reclassification(1)
(47,277)
Reclassification for gain included in net earnings(2)
(2,791)
Balance, November 30, 2023
$
144,357
__________________________________
(1) Unrealized holding losses, net of foreign currency translation, less amounts reclassified are included in net unrealized holding gain (loss) on derivatives in the condensed consolidated statements of comprehensive income (loss).
(2) Gains included in net earnings (loss) are recorded in cost of goods sold in the condensed consolidated statements of earnings (loss).
There were no material non-recurring fair value remeasurements during the three months ended November 30, 2024 or 2023.
The carrying values of the Company's short-term items, including documentary letters of credit and notes payable, approximate fair value.
The carrying value and fair value of the Company's long-term debt, including current maturities, excluding other borrowings and finance leases, was $1.0 billion and $965.6 million, respectively, at November 30, 2024, and $1.0 billion and $962.8 million, respectively, at August 31, 2024. The Company estimates these fair values based on Level 2 of the fair value hierarchy using indicated market values. The Company's other borrowings contain variable interest rates, and as a result, their carrying values approximate fair values.
The Company's stock-based compensation plans are described in Note 13, Stock-Based Compensation Plans, to the consolidated financial statements in the 2024 Form 10-K. In general, restricted stock units awarded to executive officers and other employees vest ratably over a period of three years. Subject to the achievement of performance targets established by the Compensation Committee of the Company's Board of Directors (the "Board"), performance stock units vest after a period of three years.
Information for restricted stock units and performance stock units accounted for as equity awards during the three months ended November 30, 2024 is as follows:
Shares
Weighted Average Fair Value
Outstanding as of August 31, 2024
1,548,586
$
43.52
Granted
1,028,463
48.05
Vested
(1,095,813)
38.87
Forfeited
(41,545)
46.64
Outstanding as of November 30, 2024
1,439,691
$
50.20
The Company granted 172,992 equivalent shares in the form of restricted stock units and performance stock units accounted for as liability awards during the three months ended November 30, 2024. At November 30, 2024, the Company had outstanding 360,393 equivalent shares accounted for under the liability method. The Company expects 341,851 equivalent shares to vest.
Total stock-based compensation expense, including fair value remeasurements, which was primarily included in SG&A expenses in the Company's condensed consolidated statements of earnings (loss), was $10.2 million and $8.1 million for the three months ended November 30, 2024 and 2023, respectively.
NOTE 11. STOCKHOLDERS' EQUITY AND EARNINGS (LOSS) PER SHARE
The Company's calculation of basic earnings (loss) per share ("EPS") and diluted EPS are described in Note 16, Earnings Per Share, to the consolidated financial statements in the 2024 Form 10-K.
The calculations of basic and diluted EPS were as follows:
Three Months Ended November 30,
(in thousands, except share and per share data)
2024
2023
Net earnings (loss)
$
(175,718)
$
176,273
Average basic shares outstanding
114,053,455
116,771,939
Effect of dilutive securities
—
1,582,974
Average diluted shares outstanding
114,053,455
118,354,913
Earnings (loss) per share:
Basic
$
(1.54)
$
1.51
Diluted
(1.54)
1.49
For the three months ended November 30, 2024, there were 1,413,248 shares that could potentially dilute basic EPS in the future that were not included in the computation of average diluted shares outstanding due to the Company's net loss position. For the three months ended November 30, 2023, the Company had immaterial anti-dilutive shares, which were not included in the computation of average diluted shares outstanding.
In October 2021, the Board approved a share repurchase program under which the Company was authorized to repurchase up to $350.0 million of shares of CMC common stock. In January 2024, the Board authorized an increase of $500.0 million to the existing share repurchase program. The share repurchase program does not require the Company to purchase any dollar amount or number of shares of CMC common stock and may be modified, suspended, extended or terminated by the Company at any time without prior notice. During the three months ended November 30, 2024, the Company repurchased 919,481 shares of
CMC common stock, at an average purchase price of $54.83 per share. The Company had remaining authorization to repurchase $353.4 million of shares of CMC common stock at November 30, 2024.
NOTE 12. COMMITMENTS AND CONTINGENCIES
In the ordinary course of conducting its business, the Company becomes involved in litigation, administrative proceedings and governmental investigations, including environmental matters.
Legal Proceedings
On October 30, 2020, plaintiff Pacific Steel Group ("PSG") filed a suit in the United States District Court for the Northern District of California (the "Northern District Court") alleging that CMC, CMC Steel Fabricators, Inc. and CMC Steel US, LLC violated the federal and California state antitrust laws and California common law by entering into an exclusivity agreement for certain steel mill equipment manufactured by one of the Company’s equipment suppliers. On November 5, 2024, a jury returned a verdict in favor of PSG in the amount of $110.0 million, which the Northern District Court, in entering its judgment on the verdict, subsequently trebled as a matter of law. PSG will also be entitled to petition for and recover its attorneys' fees, costs and post-judgment interest. The Company is confident it conducted its business appropriately and intends to vigorously pursue all reasonably available avenues to have the verdict and judgment overturned. On December 20, 2024, CMC, CMC Steel Fabricators, Inc. and CMC Steel US, LLC filed a motion with the Northern District Court challenging the jury’s verdict and requesting a new trial. However, as a judgment in favor of PSG was rendered, it was determined that there was a probable and reasonably estimable loss, which was recorded as an expense within the condensed consolidated financial statements. This $350.0 million expense, which represents the Company's estimate of its current understanding of the PSG judgment, PSG's attorneys' fees and other related costs, was included within litigation expense in the condensed consolidated statements of earnings (loss) and was classified as a current liability in the condensed consolidated balance sheets because the timing of the potential payment is uncertain. All other legal expenses for the three months ended November 30, 2024 and 2023 are reported within SG&A expenses. If the verdict and judgment are overturned either as a result of post-trial motions or through the appeals process, the expense and related liability will be reversed in the same period the verdict and judgment are overturned. The Company's litigation defense costs are expensed as incurred. Although the Company is vigorously pursuing a reversal of the jury’s verdict and the judgment, the ultimate resolution is uncertain.
On March 13, 2022, PSG filed a second suit in the San Diego County Superior Court of California alleging that CMC Steel Fabricators, Inc., CMC Steel US, LLC, and CMC Rebar West (which later merged into CMC Steel Fabricators, Inc.) violated California state antitrust and unfair competition laws by bidding below their costs for rebar furnish-and-install projects in California to hamper PSG's ability to win jobs and to reduce PSG’s profitability. These allegations were initially brought in PSG's lawsuit in the Northern District Court, but were dismissed without prejudice by the Northern District Court for lack of jurisdiction. This second lawsuit was later removed to the United States District Court for the Southern District of California. There, PSG seeks, among other things, a jury trial on its claims in addition to injunctive relief, compensatory damages, fees and costs. Fact and expert discovery are complete. On November 12, 2024, CMC Steel Fabricators, Inc., CMC Steel US, LLC and CMC Rebar West filed a motion for summary judgment, and briefing remains ongoing. As of the date of this Form 10-Q, no trial has been scheduled. The Company is confident it conducted its business appropriately, believes it has substantial defenses and intends to vigorously defend against PSG's claims. The Company has not recorded any liability for this matter as it does not believe a loss is probable, and it cannot estimate any reasonably possible loss or range of possible loss. It is possible that an unfavorable resolution to this matter could have an adverse effect on the Company’s results of operations, financial position or cash flows.
Other Matters
At November 30, 2024 and August 31, 2024, the amounts accrued for cleanup and remediation costs at certain sites in response to notices, actions and agreements under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 ("CERCLA") and analogous state and local statutes were immaterial. Total accrued environmental liabilities, including CERCLA sites, were $3.5 million and $3.4 million at November 30, 2024 and August 31, 2024, respectively, of which $2.1 million and $1.9 million was classified as other noncurrent liabilities at November 30, 2024 and August 31, 2024, 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.
The Company structures its business into three reportable segments: North America Steel Group, Europe Steel Group and Emerging Businesses Group. See Note 1, Nature of Operations and Summary of Significant Accounting Policies to the consolidated financial statements in the 2024 Form 10-K, for more information about the reportable segments, including the types of products and services from which each reportable segment derives its net sales.
Corporate and Other contains earnings or losses on assets and liabilities related to the Company's benefit restoration plan assets and short-term investments, expenses of the Company's corporate headquarters, litigation-related expenses, interest expense related to long-term debt and intercompany eliminations. Certain corporate administrative expenses are allocated to the segments based upon the nature of the expense.
The following table summarizes certain financial information by reportable segment and Corporate and Other, as applicable:
Three Months Ended November 30,
(in thousands)
2024
2023
Net sales to external customers:
North America Steel Group
$
1,518,637
$
1,592,650
Europe Steel Group
209,407
225,175
Emerging Businesses Group
169,415
177,239
Reportable segments total
1,897,459
1,995,064
Corporate and Other
12,143
7,987
Total
$
1,909,602
$
2,003,051
Adjusted EBITDA:
North America Steel Group
$
188,205
$
266,820
Europe Steel Group
25,839
38,942
Emerging Businesses Group
22,660
30,862
Reportable segments total
$
236,704
$
336,624
November 30, 2024
August 31, 2024
Total assets:
North America Steel Group
$
4,243,560
$
4,219,603
Europe Steel Group
661,365
677,697
Emerging Businesses Group
841,310
861,025
Reportable segments total
5,746,235
5,758,325
Corporate and Other
1,026,164
1,059,514
Total
$
6,772,399
$
6,817,839
The following table presents a reconciliation of net earnings (loss) to adjusted EBITDA for the reportable segments:
The following tables display net sales to external customers by reportable segment and Corporate and Other, disaggregated by major product:
Three Months Ended November 30, 2024
(in thousands)
North America Steel Group
Europe Steel Group
Emerging Businesses Group
Corporate and Other
Total
Major product:
Raw materials
$
310,119
$
5,285
$
—
$
—
$
315,404
Steel products
625,465
162,137
—
—
787,602
Downstream products
527,598
33,634
32,378
—
593,610
Construction products
—
—
75,981
—
75,981
Ground stabilization solutions
—
—
56,512
—
56,512
Other
55,455
8,351
4,544
12,143
80,493
Net sales to external customers
1,518,637
209,407
169,415
12,143
1,909,602
Intersegment net sales, eliminated in consolidation
16,112
617
11,793
(28,522)
—
Net sales
$
1,534,749
$
210,024
$
181,208
$
(16,379)
$
1,909,602
Three Months Ended November 30, 2023
(in thousands)
North America Steel Group
Europe Steel Group
Emerging Businesses Group
Corporate and Other
Total
Major product:
Raw materials
$
313,655
$
3,714
$
—
$
—
$
317,369
Steel products
657,760
175,532
—
—
833,292
Downstream products
577,002
38,628
37,546
—
653,176
Construction products
—
—
77,759
—
77,759
Ground stabilization solutions
—
—
57,323
—
57,323
Other
44,233
7,301
4,611
7,987
64,132
Net sales to external customers
1,592,650
225,175
177,239
7,987
2,003,051
Intersegment net sales, eliminated in consolidation
19,637
576
4,787
(25,000)
—
Net sales
$
1,612,287
$
225,751
$
182,026
$
(17,013)
$
2,003,051
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
In the following discussion, references to "we," "us," "our" or the "Company" mean Commercial Metals Company ("CMC") and its consolidated subsidiaries, unless the context otherwise requires. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and the notes thereto, which are included in this Quarterly Report on Form 10-Q (this "Form 10-Q"), and our consolidated financial statements and the notes thereto, which are included in our Annual Report on Form 10-K for the year ended August 31, 2024 (the "2024 Form 10-K"). This discussion contains or incorporates by reference "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the Private Securities Litigation Reform Act of 1995. These forward-looking statements are not historical facts, but rather are based on expectations, estimates, assumptions and projections about our industry, business and future financial results, based on information available at the time this Form 10-Q was filed with the United States ("U.S.") Securities and Exchange Commission (the "SEC") or, with respect to any document incorporated by reference, available at the time that such document was prepared. Our actual results could differ materially from the results contemplated by these forward-looking statements due to a number of factors, including those identified in the section entitled "Forward-Looking Statements" at the end of Item 2 of this Form 10-Q and in the section entitled "Risk Factors" in Part I, Item 1A of our 2024 Form 10-K. We do not undertake any obligation to update, amend or clarify any forward-looking statements to reflect changed
assumptions, the occurrence of anticipated or unanticipated events, new information or circumstances or otherwise, except as required by law.
Any reference in this Form 10-Q to the "corresponding period" or "comparable period" relates to the relevant three month period ended November 30, 2023. Any reference in this Form 10-Q to a year refers to the fiscal year ended August 31st of that year, unless otherwise stated.
Certain trademarks or service marks of CMC appearing in this Form 10-Q are the property of CMC and are protected under applicable intellectual property laws. Solely for convenience, our trademarks and tradenames referred to in this Form 10-Q may appear without the ® or ™ symbols, but such references are not intended to indicate in any way that we will not assert, to the fullest extent under applicable law, our rights to these trademarks and tradenames.
BUSINESS CONDITIONS AND DEVELOPMENTS
Transform, Advance and Grow Initiative
In 2024, we implemented our Transform, Advance and Grow ("TAG") operational and commercial excellence program, which is a key component of our long-term strategic growth plan. Through a disciplined and structured approach, execution of the TAG program is intended to enhance the value of our operations through sustained margin enhancement, reduced working capital needs and greater invested capital efficiency. We have begun executing the first wave of initiatives related to the TAG program, and we expect our efforts will drive financial benefits in 2025.
Capital Expenditures
During the fourth quarter of 2023, our third micro mill was placed into service, and ramp up of the third micro mill continued in the first quarter of 2025. The new facility, located in Mesa, Arizona, allows us to meet underlying West Coast and Pacific Northwest demand for steel products. Designed to produce both rebar and merchant bar, this micro mill is the first in the world to produce merchant bar quality products through a continuous production process. Initial commercial production of rebar commenced prior to the startup of merchant bar production, which commenced during the second quarter of 2024. The merchant bar products produced at this facility consist of a wide variety of shapes and sizes of long steel, and, combined with rebar production, the capacity of this micro mill is approximately 40% greater than that of the other micro mills we have constructed. The micro mill was designed with the latest technology in electric arc furnace ("EAF") power supply systems, which allows us to directly connect the EAF and the ladle furnace to renewable energy sources such as solar and wind. Additionally, this micro mill is the Company’s first micro mill to utilize Q-ONE technology on an EAF, which provides energy efficiencies and precise electrical control during production, creating a stable and consistent output.
In December 2022, we announced that our planned fourth micro mill will be located in Berkeley County, West Virginia. This new micro mill will be geographically situated to serve the Northeast, Mid-Atlantic and Mid-Western U.S. markets and will be supported by our existing network of downstream fabrication plants. Site improvements and foundation work for the micro mill are complete, large portions of supporting infrastructure have been installed and equipment installation is underway. We expect an operational start-up in late calendar 2025.
Russian Invasion of Ukraine
The Russian invasion of Ukraine did not have a direct material adverse impact on our business, financial condition or results of operations during the three months ended November 30, 2024 or 2023. Our Europe Steel Group segment has not experienced an interruption in energy supply and was able to identify alternate sources for a limited number of materials previously procured through Russia. However, the Russian invasion of Ukraine has led to economic slowdowns in Europe, including significant volatility in commodity prices and credit markets, reductions in demand, supply chain interruptions and higher global inflation. We will continue to monitor disruptions in supply of energy and materials and the indirect effects on our operations of inflationary pressures, reductions in demand, foreign exchange rate fluctuations, commodity pricing, potential cybersecurity risks and sanctions resulting from the invasion.
See Part I, Item 1A, Risk Factors, of our 2024 Form 10-K for further discussion related to the above business conditions and developments.
There have been no material changes to our critical accounting policies and estimates as set forth in Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, included in our 2024 Form 10-K.
RESULTS OF OPERATIONS SUMMARY
Business Overview
CMC is an innovative solutions provider helping build a stronger, safer and more sustainable world. Through an extensive manufacturing network principally located in the U.S. and Central Europe, the Company offers products and technologies to meet the critical reinforcement needs of the global construction sector. CMC’s solutions support early-stage construction across a wide variety of applications, including infrastructure, non-residential, residential, industrial and energy generation and transmission. Our operations are conducted through three reportable segments: North America Steel Group, Europe Steel Group and Emerging Businesses Group.
Key Performance Indicators
When evaluating our results for the period, we compare net sales, in the aggregate and for each of our reportable segments, in the current period to net sales in the corresponding period. Specifically, for the North America Steel Group segment and the Europe Steel Group segment, we focus on changes in average selling price per ton and tons shipped compared to the prior period for each of our vertically integrated product categories as these are the two variables that typically have the greatest impact on our net sales for those reportable segments. Of the products evaluated by changes in average selling price per ton and tons shipped within the North America Steel Group and Europe Steel Group segments, raw materials include ferrous and nonferrous scrap, steel products include rebar, merchant bar and other steel products, such as billets and wire rod, and downstream products include fabricated rebar, steel fence posts and wire mesh. The evaluations of average selling price per ton and tons shipped for downstream products exclude post-tension cable, which is not measured on a per ton basis.
Adjusted EBITDA is used by management to compare and evaluate the period-over-period underlying business operational performance of our reportable segments. Adjusted EBITDA is the sum of the Company's earnings or losses before interest expense, income taxes, depreciation and amortization and impairment expense. Although there are many factors that can impact a segment’s adjusted EBITDA and, therefore, our overall earnings or losses, changes in metal margins of our steel products and downstream products period-over-period in the North America Steel Group and Europe Steel Group segments are a consistent area of focus for our Company and industry. Metal margin is a 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 bar and other steel products and the cost of ferrous scrap per ton utilized by our steel mills to produce these products. The metal margin for the North America Steel Group and Europe Steel Group segments' downstream products is the difference between the average selling price per ton of our downstream products and the scrap input costs to produce these products. An increase or decrease in input costs can impact profitability of steel products and downstream products when there is no corresponding change in selling prices. The majority of the North America Steel Group and Europe Steel Group segments' 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.
Financial Results Overview
Three Months Ended November 30,
(in thousands, except per share data)
2024
2023
Net sales
$
1,909,602
$
2,003,051
Net earnings (loss)
(175,718)
176,273
Diluted earnings (loss) per share
$
(1.54)
$
1.49
Net sales decreased $93.4 million, or 5%, for the three months ended November 30, 2024, compared to the corresponding period. See discussions below, labeled North America Steel Group, Europe Steel Group and Emerging Businesses Group within our Segment Operating Data section, for further information on our period-over-period net sales results.
During the three months ended November 30, 2024, we incurred a net loss of $175.7 million compared to net earnings of $176.3 million during the corresponding period. The year-over-year change was primarily due to an approximately $265.0 million litigation expense, net of estimated tax, due to a contingent litigation-related loss recorded during the three months ended November 30, 2024. For more information about the contingent litigation-related loss, see Note 12, Commitments and Contingencies.
Selling, General and Administrative Expenses
Selling, general and administrative ("SG&A") expenses increased $15.3 million during the three months ended November 30, 2024, compared to the corresponding period. Contributing to the period-over-period increase during the three months ended November 30, 2024 was $8.7 million of increased employee-related expenses and $6.9 million of increased legal expenses. The remaining fluctuation in SG&A expenses during the three months ended November 30, 2024, compared to the corresponding period, was due to multiple factors of which no single category was material.
Interest Expense
Interest expense remained relatively flat during the three months ended November 30, 2024, compared to the corresponding period.
Litigation Expense
A $350.0 million litigation expense associated with the Pacific Steel Group ("PSG") litigation was accrued during the three months ended November 30, 2024. For more information about the contingent litigation-related loss, see Note 12, Commitments and Contingencies.
Income Taxes
The effective income tax rate for the three months ended November 30, 2024 was 24.0%, which includes a benefit related to the contingent litigation-related loss associated with the PSG litigation that was accrued during the three months ended November 30, 2024. The effective income tax rate for the corresponding period was 21.6%. The remaining fluctuation in income taxes for the three months ended November 30, 2024, compared to the corresponding period, was due to multiple factors of which no single item was material. For more information about the contingent litigation-related loss, see Note 12, Commitments and Contingencies.
The operating data by product category presented in the North America Steel Group and Europe Steel Group tables below is calculated using averages for each period presented. See Note 13, Segment Information, in Part I, Item 1, Financial Statements, of this Form 10-Q for more information on our reportable segments.
North America Steel Group
Three Months Ended November 30,
(in thousands, except per ton amounts)
2024
2023
Net sales to external customers
$
1,518,637
$
1,592,650
Adjusted EBITDA
188,205
266,820
External tons shipped
Raw materials
339
374
Rebar
549
522
Merchant bar and other
241
230
Steel products
790
752
Downstream products
356
346
Average selling price per ton
Raw materials
$
874
$
783
Steel products
812
892
Downstream products
1,259
1,389
Cost of ferrous scrap utilized per ton
$
323
$
343
Steel products metal margin per ton
489
549
Net sales to external customers in our North America Steel Group segment decreased $74.0 million, or 5%, during the three months ended November 30, 2024, compared to the corresponding period. The decrease primarily resulted from a 9% year-over-year reduction in average selling prices per ton for both steel products and downstream products, partially offset by a 12% year-over-year increase in raw materials average selling prices per ton and a 4% year-over-year increase in total steel products and downstream products volumes. The decrease in average selling prices per ton for steel products and downstream products was driven by an increased competitive environment in our key markets in the three months ended November 30, 2024, compared to the corresponding period.
Adjusted EBITDA decreased $78.6 million, or 29%, during the three months ended November 30, 2024, compared to the corresponding period. The year-over-year decrease in adjusted EBITDA was caused by metal margin compression for both steel products and downstream products. The cost of ferrous scrap utilized per ton, the largest single driver of cost of goods sold for both steel products and downstream products, decreased $20 year-over-year. However, average selling prices per ton for steel products and downstream products decreased $80 and $130, respectively, year-over-year, resulting in metal margin compression.
Net sales to external customers in our Europe Steel Group segment decreased $15.8 million, or 7%, during the three months ended November 30, 2024, compared to the corresponding period. The decrease was primarily due to a 9% year-over-year reduction in steel products shipment volumes. Although macroeconomic factors affecting demand in certain end markets in Poland improved during the three months ended November 30, 2024, compared to the corresponding period, lower construction and industrial activity in neighboring European countries resulted in elevated import levels that saturated the Polish market, thus driving a decrease in the segment's steel products shipment volumes. During the three months ended November 30, 2024, on average, the U.S. dollar was weaker compared to the Polish zloty, compared to the corresponding period. The effect of foreign currency translation was an increase in net sales to external customers of approximately $13.4 million for the three months ended November 30, 2024.
Adjusted EBITDA decreased $13.1 million, or 34%, during the three months ended November 30, 2024, compared to the corresponding period. In the three months endedNovember 30, 2024, the Europe Steel Group received $44.1 million in government assistance related to a program established to offset the indirect costs of carbon emission rights included in energy costs, compared to $27.7 million received related to this program in the three months ended November 30, 2023. In the three months ended November 30, 2023, the Europe Steel Group also received $38.6 million in government assistance related to a program established to offset the rising costs of electricity and natural gas. The $22.2 million decrease in government assistance received in the three months endedNovember 30, 2024, compared to the corresponding period, was partially offset by a year-over-year decrease in conversion costs. The effect of foreign currency translation was immaterial for the three months ended November 30, 2024.
Emerging Businesses Group
Three Months Ended November 30,
(in thousands)
2024
2023
Net sales to external customers
$
169,415
$
177,239
Adjusted EBITDA
22,660
30,862
Net sales to external customers in our Emerging Businesses Group segment decreased $7.8 million, or 4%, during the three months ended November 30, 2024, compared to the corresponding period. For the three months ended November 30, 2024, results were negatively impacted by an increased sales mix of lower value products and project delays within CMC's Tensar division, which are now expected to commence later in 2025. Additionally, CMC Impact Metals experienced a decline in net sales to external customers due to a decrease in shipment volumes related to a slowing truck and trailer market for the three months ended November 30, 2024, compared to the corresponding period. These decreases were partially offset by a 31% year-over-year increase in shipment volumes of our performance reinforcing steel offerings for the three months ended November 30, 2024, compared to the corresponding period.
Adjusted EBITDA decreased $8.2 million, or 27%, during the three months ended November 30, 2024, compared to the corresponding period. CMC's Tensar division experienced project delays and recorded a loss reserve related to a project, which
drove the year-over-year decrease. Pricing pressure and decreased shipments of higher margin products within our CMC Impact Metals business also contributed to the year-over-year decrease. These decreases were partially offset by increases in adjusted EBITDA for our performance reinforcing steel offerings for the three months ended November 30, 2024, compared to the corresponding period.
Corporate and Other
Three Months Ended November 30,
(in thousands)
2024
2023
Adjusted EBITDA loss
$
(386,245)
$
(30,987)
Corporate and Other adjusted EBITDA loss increased $355.3 million during the three months ended November 30, 2024, compared to the corresponding period. The increase in adjusted EBITDA loss during the three months ended November 30, 2024 was primarily due to the $350.0 million contingent litigation-related loss associated with the PSG litigation that was accrued during the three months ended November 30, 2024. The remaining fluctuations in Corporate and Other adjusted EBITDA loss during the three months ended November 30, 2024, compared to the corresponding period, were due to multiple factors of which no single category was material.For more information about the contingent litigation-related loss, see Note 12, Commitments and Contingencies.
LIQUIDITY AND CAPITAL RESOURCES
Sources of Liquidity and Capital Resources
Our cash flows from operating activities are our principal sources of liquidity and result primarily from sales of products offered by the vertically integrated operations in the North America Steel Group and the Europe Steel Group segments, and products and solutions offered by our Emerging Businesses Group segment and related materials and services, as described in Part I, Item 1, Business, of our 2024 Form 10-K.
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 or financially assured receivables was approximately 12% of total receivables at November 30, 2024.
We use futures and forward contracts to mitigate the risks from fluctuations in commodity prices, foreign currency exchange rates, interest rates and natural gas, electricity and other energy prices. See Note 8, Derivatives, in Part I, Item 1, Financial Statements, of this Form 10-Q for further information.
The table below reflects our sources, facilities and availability of liquidity at November 30, 2024. See Note 7, Credit Arrangements, in Part I, Item 1, Financial Statements, of this Form 10-Q for additional information.
(in thousands)
Liquidity Sources and Facilities
Availability
Cash and cash equivalents
$
856,104
$
856,104
Notes due from 2030 to 2032
900,000
(1)
Revolver
600,000
599,053
Series 2022 Bonds, due 2047
145,060
—
Poland credit facilities
147,645
145,390
Poland accounts receivable facility
70,870
70,870
__________________________________
(1) We believe we have access to additional financing and refinancing, if needed, although we can make no assurances as to the form or terms of such financing.
We continually review our capital resources to determine whether we can meet our short and long-term goals. For at least the next twelve months, we anticipate our current cash balances, cash flows from operations and available sources of liquidity will be sufficient to maintain operations, make necessary capital expenditures, pay for litigation-related expenses, invest in the development of our fourth micro mill, pay dividends and opportunistically repurchase shares. Additionally, we expect our long-term liquidity position will be sufficient to meet our long-term liquidity needs with cash flows from operations and financing
arrangements. However, in the event of changes in business conditions or other developments, including a sustained market deterioration, unanticipated regulatory or legal developments, significant acquisitions, competitive pressures, or to the extent our liquidity needs prove to be greater than expected or cash generated from operations is less than anticipated, we may need additional liquidity. To the extent we elect to finance our long-term liquidity needs, we believe that the potential financing capital available to us in the future will be sufficient.
We aim to execute a capital allocation strategy that prioritizes both value-accretive growth and competitive cash returns to stockholders. We estimate that our 2025 capital spending will range from $630 million to $680 million. We regularly assess our capital spending based on current and expected results and the amount is subject to change.
In January 2024, our Board authorized an increase of $500.0 million to the existing share repurchase program. During the three months ended November 30, 2024 and 2023, we repurchased $50.4 million and $28.4 million, respectively, of shares of CMC common stock. We had remaining authorization to repurchase $353.4 million of shares of CMC common stock at November 30, 2024. See Note 11, Stockholders' Equity and Earnings (Loss) per Share, in Part I, Item 1, Financial Statements, of this Form 10-Q for more information on the share repurchase program.
During the three months ended November 30, 2024 and 2023, we paid $20.6 million and $18.7 million, respectively, of cash dividends to our stockholders.
Our credit arrangements require compliance with certain non-financial and financial covenants, including an interest coverage ratio and a debt to capitalization ratio. At November 30, 2024, we believe we were in compliance with all covenants contained in our credit arrangements.
As of November 30, 2024 and August 31, 2024, 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.
As described in Note 12, Commitments and Contingencies, on November 5, 2024, a jury returned a verdict in favor of PSG in the amount of $110.0 million, which the United States District Court for the Northern District of California (the “Northern District Court”), in entering its judgment on the verdict, subsequently trebled as a matter of law. PSG will also be entitled to petition for and recover its attorneys' fees, costs and post-judgment interest. We are confident that we conducted our business appropriately and intend to vigorously pursue all reasonably available avenues to have the verdict and judgment overturned. Nonetheless, unless the verdict and judgment are overturned or the judgment is significantly reduced, the losses incurred in connection with this litigation would have a material adverse effect on our liquidity and financial condition.
Cash Flows
Operating Activities
Net cash flows from operating activities were $213.0 million and $261.1 million for the three months ended November 30, 2024 and 2023, respectively. Contributing to the year-over-year decrease was a $352.0 million decrease in net earnings, mainly due to a $350.0 million litigation expense associated with the PSG litigation that was accrued during the three months ended November 30, 2024, and a $98.3 million decrease in deferred income taxes and other long-term taxes. Additionally, there was a $51.8 million year-over-year net increase in cash from operating assets and liabilities due to a year-over-year increase in cash from other accrued expenses and payables of $44.1 million, primarily due to reduced payroll-related cash outflows, and an increase in cash collections of accounts receivable of $23.4 million. Cash from accounts receivable increased year-over-year, in line with the fluctuations in net sales to external customers described in the Segment Operating Data section. These working capital fluctuations were offset, in part, by increases in cash used by other operating assets and liabilities. See Note 12, Commitments and Contingencies for more information about the contingent litigation-related loss.
Investing Activities
Net cash flows used by investing activities were$113.5 million and $66.5 million for the three months ended November 30, 2024 and 2023, respectively. The year-over-year increase was primarily due to $51.2 million of incremental capital expenditures driven by the construction of our fourth micro mill.
Financing Activities
Net cash flows used by financing activities were$101.5 million and $84.0 million for the three months ended November 30, 2024 and 2023, respectively. The increase in net cash flows used by financing activities during the three months ended November 30, 2024, compared to the corresponding period, included a $22.0 million increase in treasury stock acquired under the share repurchase program, partially offset by an $8.1 million decrease in net repayments under our Polish accounts
receivable facility. See Note 7, Credit Arrangements, in Part I, Item 1, Financial Statements, of this Form 10-Q for more information regarding our Polish accounts receivable facility and Note 11, Stockholders' Equity and Earnings (Loss) per Share, in Part I, Item 1, Financial Statements, of this Form 10-Q for more information on the share repurchase program.
CONTRACTUAL OBLIGATIONS
Our material cash commitments from known contractual and other obligations primarily consist of obligations for long-term debt and related interest, leases for properties and equipment, construction of our fourth micro mill and other purchase obligations as part of normal operations. The amount and composition of our material cash commitments have not changed materially since those disclosed in the 2024 Form 10-K.
Other Commercial Commitments
We maintain stand-by letters of credit to provide support for certain transactions that governmental agencies, our insurance providers and suppliers require. At November 30, 2024, we had committed $47.0 million under these arrangements, of which $0.9 million reduced availability under the Revolver (as defined in Note 7, Credit Arrangements, in Part I, Item 1, Financial Statements, of this Form 10-Q).
CONTINGENCIES
In the ordinary course of conducting our business, we become involved in litigation, administrative proceedings and governmental investigations, including environmental matters. We have in the past, and may in the future, incur settlements, fines, penalties or judgments in connection with 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. For example, during the three months ended November 30, 2024, we recorded a $350.0 million contingent litigation-related loss, which is the Company's current estimate of potential costs to be incurred with respect to the PSG litigation. 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. See Note 12, Commitments and Contingencies, in Part I, Item 1, Financial Statements, of this Form 10-Q for more information on pending litigation and other matters.
FORWARD-LOOKING STATEMENTS
This Form 10-Q contains or incorporates by reference a number of "forward-looking statements" within the meaning of the federal securities laws with respect to general economic conditions, key macro-economic drivers that impact our business, the effects of ongoing trade actions, the effects of continued pressure on the liquidity of our customers, potential synergies and growth provided by acquisitions and strategic investments, demand for our products, shipment volumes, metal margins, the ability to operate our steel mills at full capacity, future availability and cost of supplies of raw materials and energy for our operations, growth rates in certain reportable segments, product margins within our Emerging Businesses Group segment, share repurchases, legal proceedings, construction activity, international trade, the impact of geopolitical conditions, capital expenditures, tax credits, our liquidity and our ability to satisfy future liquidity requirements, estimated contractual obligations, the expected capabilities and benefits of new facilities, the anticipated benefits and timeline for execution of our growth plan and initatives and our expectations or beliefs concerning future events. The statements in this report that are not historical statements, are forward-looking statements. These forward-looking statements can generally be identified by phrases such as we or our management "expects," "anticipates," "believes," "estimates," "future," "intends," "may," "plans to," "ought," "could," "will," "should," "likely," "appears," "projects," "forecasts," "outlook" or other similar words or phrases, as well as by discussions of strategy, plans or intentions.
Our forward-looking statements are based on management's expectations and beliefs as of the time this Form 10-Q was filed with the SEC or, with respect to any document incorporated by reference, as of the time such document was prepared. Although we believe that our expectations are reasonable, we can give no assurance that these expectations will prove to have been correct, and actual results may vary materially. Except as required by law, we undertake no obligation to update, amend or clarify any forward-looking statements to reflect changed assumptions, the occurrence of anticipated or unanticipated events, new information or circumstances or any other changes. Important factors that could cause actual results to differ materially from our expectations, among others, include 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 downstream contracts within our vertically integrated steel operations due to rising commodity pricing;
•excess capacity in our industry, particularly in China, and product availability from competing steel mills and other steel suppliers including import quantities and pricing;
•the impact of geopolitical conditions, including political turmoil and volatility, regional conflicts, terrorism and war on the global economy, inflation, energy supplies and raw materials;
•increased attention to environmental, social and governance ("ESG") matters, including any targets or other ESG, environmental justice or regulatory initiatives;
•operating and startup risks, as well as market risks associated with the commissioning of new projects could prevent us from realizing anticipated benefits and could result in a loss of all or a substantial part of our investments;
•impacts from global public health crises on the economy, demand for our products, global supply chain and on our operations;
•compliance with and changes in existing and future laws, regulations and other legal requirements and judicial decisions that govern our business, including increased environmental regulations associated with climate change and greenhouse gas emissions;
•involvement in various environmental matters that may result in fines, penalties or judgments;
•evolving remediation technology, changing regulations, possible third-party contributions, the inherent uncertainties of the estimation process and other factors that may impact amounts accrued for environmental liabilities;
•potential limitations in our or our customers' abilities to access credit and non-compliance with their contractual obligations, including payment obligations;
•activity in repurchasing shares of our common stock under our share repurchase program;
•financial and non-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 realize any or all of the anticipated synergies or other benefits of acquisitions;
•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;
•the impact of goodwill or other indefinite-lived intangible asset impairment charges;
•the impact of long-lived asset impairment charges;
•currency fluctuations;
•global factors, such as trade measures, military conflicts and political uncertainties, including changes to current trade regulations, such as Section 232 trade tariffs and quotas, tax legislation and other regulations which might adversely impact our business;
•availability and pricing of electricity, electrodes and natural gas for mill operations;
•our 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;
•our 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;
•losses or limited potential gains due to hedging transactions;
•litigation claims and settlements, court decisions, regulatory rulings and legal compliance risks, including those related to the PSG litigation and other legal proceedings discussed in Note 12, Commitments and Contingencies, in Part I, Item 1, Financial Statements and in Part II, Item 1, Legal Proceedings of this Form 10-Q;
•risk of injury or death to employees, customers or other visitors to our operations; and
•civil unrest, protests and riots.
Refer to the "Risk Factors" disclosed in the section entitled "Risk Factors" in Part I, Item 1A of our 2024 Form 10-K for specific information regarding additional risks that would cause actual results to differ from those expressed or implied by these forward-looking statements. Forward-looking statements involve known and unknown risks, uncertainties, assumptions and other important factors that could cause actual results, performance or our achievements, or industry results, to differ materially from historical results, any future results, or performance or achievements expressed or implied by such forward-looking statements. Accordingly, readers of this Form 10-Q are cautioned not to place undue reliance on any forward-looking statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes to the information set forth in Part II, Item 7A, Quantitative and Qualitative Disclosures about Market Risk, included in our 2024 Form 10-K.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
The term "disclosure controls and procedures" is defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act. This term refers to the controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within required time periods, and includes controls and procedures designed to ensure that such information is accumulated and communicated to the company's management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. Our Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Form 10-Q, and they have concluded that as of that date, our disclosure controls and procedures were effective.
Changes in Internal Control over Financial Reporting
During the first quarter of 2025, we completed the final portion of a phased implementation of a new information system for our scrap metal recycling facilities, which replaced our existing information system for this line of business. There were changes in our internal control over financial reporting as this information system became operational at each scrap metal recycling facility. We took the necessary steps to monitor and maintain appropriate internal control over financial reporting during this period of change. Additionally, we provided training related to this application to individuals using the information system to carry out their job responsibilities. This information system change was not undertaken in response to any deficiencies in our internal control over financial reporting.
There were no other changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that occurred during the quarter ended November 30, 2024 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
On October 30, 2020, plaintiff Pacific Steel Group ("PSG") filed a suit in the United States District Court for the Northern District of California (the "Northern District Court") alleging that CMC, CMC Steel Fabricators, Inc. and CMC Steel US, LLC violated the federal and California state antitrust laws and California common law by entering into an exclusivity agreement for certain steel mill equipment manufactured by one of the Company’s equipment suppliers. On November 5, 2024, a jury returned a verdict in favor of PSG in the amount of $110.0 million, which the Northern District Court, in entering its judgment on the verdict, subsequently trebled as a matter of law. PSG will also be entitled to petition for and recover its attorneys' fees, costs, and post-judgment interest. The Company is confident it conducted its business appropriately and intends to vigorously pursue all reasonably available avenues to have the verdict and judgment overturned. On December 20, 2024, CMC, CMC Steel Fabricators, Inc. and CMC Steel US, LLC filed a motion with the Northern District Court challenging the jury’s verdict and requesting a new trial. However, as a judgment in favor of PSG was rendered, it was determined that there was a probable and reasonably estimable loss, which was recorded as an expense within the condensed consolidated financial statements. This $350.0 million expense, which represents the Company's estimate of its current understanding of the PSG judgment, PSG's attorneys' fees and other related costs, is included within litigation expense in the condensed consolidated statements of earnings (loss) and is classified as a current liability in the condensed consolidated balance sheets because the timing of the potential payment is uncertain. If the verdict and judgment are overturned either as a result of post-trial motions or through the appeals process, the expense and related liability will be reversed in the period this occurs. The Company's litigation defense costs are expensed as incurred. Although we are vigorously pursuing a reversal of the jury’s verdict and the judgment, the ultimate resolution is uncertain.
On March 13, 2022, PSG filed a second suit in the San Diego County Superior Court of California alleging that CMC Steel Fabricators, Inc., CMC Steel US, LLC, and CMC Rebar West (which later merged into CMC Steel Fabricators, Inc.) violated California state antitrust and unfair competition laws by bidding below their costs for rebar furnish-and-install projects in California to hamper PSG's ability to win jobs and to reduce PSG’s profitability. These allegations were initially brought in PSG's lawsuit in the Northern District Court but were dismissed without prejudice by the Northern District Court for lack of jurisdiction. This second lawsuit was later removed to the United States District Court for the Southern District of California. There, PSG seeks, among other things, a jury trial on its claims in addition to injunctive relief, compensatory damages, fees and costs. Fact and expert discovery are complete. On November 12, 2024, CMC Steel Fabricators, Inc., CMC Steel US, LLC and CMC Rebar West filed a motion for summary judgment, and briefing remains ongoing. As of the date of this Form 10-Q, no trial has been scheduled. The Company is confident it conducted its business appropriately, believes it has substantial defenses and intends to vigorously defend against PSG's claims. The Company has not recorded any liability for this matter as it does not believe a loss is probable, and it cannot estimate any reasonably possible loss or range of possible loss. It is possible that an unfavorable resolution to this matter could have an adverse effect on the Company’s results of operations, financial position or cash flows.
With respect to administrative or judicial proceedings arising under any federal, state or local provisions that have been enacted or adopted regulating the discharge of materials into the environment or primarily for the purpose of protecting the environment, the Company has determined that it will disclose any such proceeding to which a governmental authority is a party if it reasonably believes such proceeding could result in monetary sanctions, exclusive of interest and costs, of at least $1.0 million. The Company believes that this threshold is reasonably designed to result in disclosure of environmental proceedings that are material to the Company's business or financial condition. Applying this threshold, there were no environmental matters to disclose for this period.
ITEM 1A. RISK FACTORS
There were no material changes to the risk factors previously disclosed in Part I, Item 1A, Risk Factors, of our 2024 Form 10-K.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
The following table provides information about purchases of equity securities registered by the Company pursuant to Section 12 of the Exchange Act made by the Company or any affiliated purchasers during the quarter ended November 30, 2024.
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs as of the End of Period
September 1, 2024 - September 30, 2024
308,581
$
51.87
308,581
$
387,775,061
October 1, 2024 - October 31, 2024
342,159
53.79
342,159
369,368,771
November 1, 2024 - November 30, 2024
268,741
59.55
268,741
353,363,945
919,481
919,481
__________________________________
(1) On October 13, 2021, the Company announced that the Board authorized a share repurchase program under which the Company may repurchase up to $350.0 million of the Company's outstanding common stock. On January 10, 2024, the Company announced that the Board authorized an increase of $500.0 million to the existing share repurchase program. The share repurchase program does not require the Company to purchase any dollar amount or number of shares of CMC common stock and may be modified, suspended, extended or terminated by the Company at any time without prior notice. See Note 11, Stockholders' Equity and Earnings (Loss) per Share, in Part I, Item 1, Financial Statements, of this Form 10-Q for more information on the share repurchase program.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
During the three months ended November 30, 2024, none of the Company’s directors or executive officers adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.
ITEM 6. EXHIBITS
Pursuant to Item 601(b)(4)(iii) of Regulation S-K, certain long-term debt instruments are omitted because the total amount of securities authorized thereunder does not exceed 10% of the total assets of CMC and its subsidiaries on a consolidated basis. The Company agrees to furnish copies of such instruments to the SEC upon its request.
Cover Page Interactive Data File (formatted as Inline XBRL document and included in Exhibit 101).
†
Certain of the exhibits and schedules to this Exhibit have been omitted in accordance with Regulation S-K Item 601(a)(5), and the Company agrees to furnish a copy of all omitted exhibits and schedules to the SEC upon its request.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
COMMERCIAL METALS COMPANY
January 6, 2025
/s/ Paul J. Lawrence
Paul J. Lawrence
Senior Vice President and Chief Financial Officer
(Duly authorized officer and principal financial officer of the registrant)
