COMMERCIAL METALS COMPANY 
In the following discussion, references to "we," "us," "our" or the "Company"
mean
Any reference in this Form 10-Q to the "corresponding period" relates to the
three-month period ended
COVID-19 UPDATE
We continue to closely monitor the impact of the COVID-19 pandemic ("COVID-19") on the Company, employees, customers and supply chain. The impact of COVID-19 on the broader economy has impacted the Company as uncertainty in the market has lowered demand and delayed customers in awarding new contracts which has resulted in a decline in our backlog. However, we are not able to specifically quantify the impact related to COVID-19. While COVID-19 may continue to have a negative impact on our results of operations, cash flows and financial position, the current level of uncertainty over the economic and operational impacts of COVID-19, the actions to contain the outbreak or treat its impact, and the timing of distribution of one or more COVID-19 vaccines and the economic response thereto means the related financial impact cannot be reasonably estimated at this time. CRITICAL ACCOUNTING POLICIES
There have been no material changes to our critical accounting policies as set forth in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, included in the 2020 Form 10-K.
RESULTS OF OPERATIONS SUMMARY
Business Overview
As a vertically integrated organization, we manufacture, recycle and fabricate
steel and metal products, related materials and services through a network
including 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
When considering our results for the period, we evaluate our operating performance by comparing net sales, in the aggregate and for both of our segments, in the current period to net sales in the corresponding period. In doing so, we focus on changes in average selling price per ton and tons shipped for each of our product categories as these are the two variables that typically have the greatest impact on our results of operations. We group our products into three categories: raw materials, steel products and downstream products. Raw materials include ferrous and nonferrous scrap, steel products include rebar, merchant and other steel products, such as billets and wire rod, and downstream products include fabricated rebar and steel fence post.
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 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-
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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.
Financial Results Overview
The following discussion of our results of operations is based on our continuing operations and excludes any results of our discontinued operations.
Three Months Ended November 30,
(in thousands, except per share data) 2020 2019
Net sales $ 1,391,803 $ 1,384,708
Earnings from continuing operations 63,911 82,755
Diluted earnings per share $ 0.53 $ 0.69 Net sales for the three months ended
Earnings from continuing operations for the three months ended
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased
Interest Expense
Interest expense for the three months ended
Income Taxes
The effective income tax rate from continuing operations remained relatively
flat at 25.3% for the three months ended
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SEGMENT OPERATING DATA
Unless otherwise indicated, all dollar amounts below are from continuing operations and calculated before income taxes. See Note 14, Business Segments. The operational data presented in the tables below is calculated using averages and, therefore, it is not meaningful to quantify the effect that any individual component had on the segment's net sales or adjusted EBITDA.
North America Three Months Ended November 30, (in thousands) 2020 2019 Net sales$ 1,195,013 $ 1,216,720 Adjusted EBITDA 155,634 174,732 External tons shipped (in thousands) Raw materials 330 320 Rebar 486 475 Merchant and other 264 236 Steel products 750 711 Downstream products 371 413 Average selling price (per ton) Steel products $ 612$ 626 Downstream products 934 976 Cost of ferrous scrap utilized per ton $ 266$ 226 Steel products metal margin per ton 346 400
Net sales for the three months ended
Adjusted EBITDA for the three months ended
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Europe Three Months Ended November 30, (in thousands) 2020 2019 Net sales$ 194,596 $ 165,389 Adjusted EBITDA 14,470 11,359 External tons shipped (in thousands) Rebar 128 122 Merchant and other 269 216 Steel products 397 338 Average selling price (per ton) Steel products $ 461$ 461 Cost of ferrous scrap utilized per ton $ 262$ 244 Steel products metal margin per ton 199 217
Net sales for the three months ended
Adjusted EBITDA in the three months ended
Corporate and Other
Corporate and Other reported adjusted EBITDA loss of
LIQUIDITY AND CAPITAL RESOURCES
Sources of Liquidity and Capital Resources
Our cash flows from operating activities result primarily from the sale of
steel, nonferrous metals and related products. We have a diverse and generally
stable customer base, and regularly maintain a substantial amount of accounts
receivable. We record allowances for the accounts receivable we estimate will
not be collected based on market conditions, customers' financial condition, and
other factors. Historically, these allowances have not been material. We use
credit insurance internationally to mitigate the risk of customer insolvency. We
estimate that the amount of credit-insured receivables (and those covered by
export letters of credit) was approximately 13% of total trade receivables at
From time to time, we use futures or forward contracts to mitigate the risks from fluctuations in commodity prices, foreign currency exchange rates, interest rates and natural gas, electricity and other energy prices. See Note 9, Derivatives, for further information.
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The table below reflects our sources, facilities and available liquidity at
Total Facility Availability
Cash and cash equivalents $ 465,162 $ 465,162
Notes due from 2023 to 2027 980,000 *
Revolver 350,000 346,958
U.S. accounts receivable facility 200,000 179,436
Poland credit facilities 73,230 72,419
Poland accounts receivable facility 58,584 53,258
Poland Term Loan 66,573 26,629
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* We believe we have access to additional financing and refinancing, if needed.
Cash Flows
Operating Activities
Net cash flows used by operating activities were
Investing Activities
Net cash flows used by investing activities were
We estimate that our 2021 capital spending will range from
Financing Activities
Net cash flows used by financing activities were
COVID-19 has not had a material impact on our operations to date, and our cash
and cash equivalents position remains strong at
CONTRACTUAL OBLIGATIONS
Our contractual obligations at
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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
We have 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 13, Commitments and Contingencies, for more information. FORWARD-LOOKING STATEMENTS
This Form 10-Q contains or incorporates by reference a number of
"forward-looking statements" within the meaning of the federal securities laws
with respect to general economic conditions, key macro-economic drivers that
impact our business, the effects of ongoing trade actions, the effects of
continued pressure on the liquidity of our customers, potential synergies and
organic growth provided by acquisitions and strategic investments, demand for
our products, metal margins, the effect of COVID-19 and related governmental and
economic responses thereto, the ability to operate our steel mills at full
capacity, future supplies of raw materials and energy for our operations, share
repurchases, legal proceedings, the undistributed earnings of our non-
Our forward-looking statements are based on management's expectations and
beliefs as of the time this Form 10-Q is filed with the
•changes in economic conditions which affect demand for our products or
construction activity generally, and the impact of such changes on the highly
cyclical steel industry;
•rapid and significant changes in the price of metals, potentially impairing our
inventory values due to declines in commodity prices or reducing the
profitability of our downstream contracts due to rising commodity pricing;
•impacts from COVID-19 on the economy, demand for our products and on our
operations, including the responses of governmental authorities to contain
COVID-19 and the impact from the distribution of various COVID-19 vaccines;
•excess capacity in our industry, particularly in
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•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; •global factors, such as trade measures, military conflicts and political uncertainties, including the impact of the 2020 U.S. election on current trade regulations, such as Section 232 trade tariffs, tax legislation and other regulations which might adversely impact our business; •availability and pricing of electricity, electrodes and natural gas for mill operations; •ability to hire and retain key executives and other employees; •competition from other materials or from competitors that have a lower cost structure or access to greater financial resources; •information technology interruptions and breaches in security; •ability to make necessary capital expenditures; •availability and pricing of raw materials and other items over which we exert little influence, including scrap metal, energy and insurance; •unexpected equipment failures; •losses or limited potential gains due to hedging transactions; •litigation claims and settlements, court decisions, regulatory rulings and legal compliance risks; •risk of injury or death to employees, customers or other visitors to our operations; •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. You should refer to the "Risk Factors" disclosed in our periodic and current reports filed with theSEC for specific risks which would cause actual results to be significantly different from those expressed or implied by these forward-looking statements. It is not possible to identify all of the risks, uncertainties and other factors that may affect future results. In light of these risks and uncertainties, the forward-looking events and circumstances discussed herein may not occur and actual results could differ materially from those anticipated or implied in the forward-looking statements. Accordingly, readers of this Form 10-Q are cautioned not to place undue reliance on the forward-looking statements.
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