UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

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		(I.R.S. Employer
incorporation or organization)		Identification Number)

6565 N. MacArthur Blvd.
Irving, Texas 75039

(214) 689-4300

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer þ		Accelerated filer o		Non-accelerated filer o		Smaller reporting company o
				(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act). Yes o No þ

As of January 3, 2011 there were 114,474,266 shares of the Company’s common stock issued and outstanding excluding 14,586,398 shares held in the Company’s treasury.

 

 

COMMERCIAL METALS COMPANY AND SUBSIDIARIES

TABLE OF CONTENTS

		PAGE NO.
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets (Unaudited) — November 30, 2010 and August 31, 2010			3
Consolidated Statements of Operations (Unaudited) — Three months ended November 30, 2010 and 2009			4
Consolidated Statements of Cash Flows (Unaudited) — Three months ended November 30, 2010 and 2009			5
Consolidated Statements of Stockholders’ Equity (Unaudited) — Three months ended November 30, 2010 and 2009			6
Notes to Consolidated Financial Statements (Unaudited)			7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			18
Item 3. Quantitative and Qualitative Disclosures About Market Risk			27
Item 4. Controls and Procedures			27
PART II — OTHER INFORMATION
Items 1 — 6			27
Signatures			29
Index to Exhibits			30
EX-31.1
EX-31.2
EX-32.1
EX-32.2
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

PART 1. FINANCIAL INFORMATION

ITEM 1.		FINANCIAL STATEMENTS

COMMERCIAL METALS COMPANY AND SUBSIDIARIES

		November 30,				August 31,
(in thousands, except share data)		2010				2010
Assets
Current assets:
Cash and cash equivalents		$	382,800			$	399,313
Accounts receivable (less allowance for collection losses of $28,550 and $29,721)			818,985				824,339
Inventories			695,950				674,680
Other			275,121				276,874
Total current assets			2,172,856				2,175,206
Property, plant and equipment:
Land			92,872				94,426
Buildings and improvements			538,139				540,285
Equipment			1,643,568				1,649,723
Construction in process			42,054				56,124
			2,316,633				2,340,558
Less accumulated depreciation and amortization			(1,118,400	)			(1,108,290	)
			1,198,233				1,232,268
Goodwill			71,859				71,580
Other assets			186,666				227,099
Total assets		$	3,629,614			$	3,706,153
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable-trade		$	438,893			$	504,388
Accounts payable-documentary letters of credit			118,019				226,633
Accrued expenses and other payables			350,685				324,897
Notes payable			35,787				6,453
Commercial paper			60,000				10,000
Current maturities of long-term debt			31,131				30,588
Total current liabilities			1,034,515				1,102,959
Deferred income taxes			43,624				43,668
Other long-term liabilities			110,249				108,870
Long-term debt			1,180,901				1,197,282
Total liabilities			2,369,289				2,452,779
Commitments and contingencies
CMC stockholders’ equity:
Preferred stock			—				—
Common stock, par value $0.01 per share; authorized 200,000,000 shares; issued 129,060,664 shares; outstanding 114,375,664 and 114,325,349 shares			1,290				1,290
Additional paid-in capital			374,911				373,308
Accumulated other comprehensive income (loss)			4,810				(12,526	)
Retained earnings			1,165,301				1,178,372
Treasury stock 14,685,000 and 14,735,315 shares at cost			(288,716	)			(289,708	)
Stockholders’ equity attributable to CMC			1,257,596				1,250,736
Stockholders’ equity attributable to noncontrolling interests			2,729				2,638
Total equity			1,260,325				1,253,374
Total liabilities and stockholders’ equity		$	3,629,614			$	3,706,153

See notes to unaudited consolidated financial statements.

COMMERCIAL METALS COMPANY AND SUBSIDIARIES

		Three Months Ended
		November 30,
(in thousands, except share data)		2010				2009
Net sales		$	1,782,480			$	1,402,258
Costs and expenses:
Cost of goods sold			1,633,492				1,294,495
Selling, general and administrative expenses			123,600				133,185
Interest expense			18,325				19,451
			1,775,417				1,447,131
Earnings (loss) from continuing operations before taxes			7,063				(44,873	)
Income taxes (benefit)			6,730				(16,195	)
Earnings (loss) from continuing operations			333				(28,678	)
Earnings (loss) from discontinued operations before taxes			668				(4,158	)
Income taxes (benefit)			259				(1,613	)
Earnings (loss) from discontinued operations			409				(2,545	)
Net earnings (loss)		$	742			$	(31,223	)
Less net earnings attributable to noncontrolling interests			91				6
Net earnings (loss) attributable to CMC		$	651			$	(31,229	)
Basic earnings (loss) per share attributable to CMC:
Earnings (loss) from continuing operations		$	0.01			$	(0.26	)
Loss from discontinued operations			—				(0.02	)
Net earnings (loss)		$	0.01			$	(0.28	)
Diluted earnings (loss) per share attributable to CMC:
Earnings (loss) from continuing operations		$	0.01			$	(0.26	)
Loss from discontinued operations			—				(0.02	)
Net earnings (loss)		$	0.01			$	(0.28	)
Cash dividends per share		$	0.12			$	0.12
Average basic shares outstanding			114,319,017				112,495,297
Average diluted shares outstanding			115,223,693				112,495,297

See notes to unaudited consolidated financial statements.

COMMERCIAL METALS COMPANY AND SUBSIDIARIES

		Three Months Ended
		November 30,
(in thousands)		2010				2009
Cash flows from (used by) operating activities:
Net earnings (loss)		$	742			$	(31,223	)
Adjustments to reconcile net earnings (loss) to cash from (used by) operating activities:
Depreciation and amortization			40,643				43,695
Recoveries on receivables			(522	)			(2,526	)
Share-based compensation			2,135				2,422
Deferred income taxes			72				(8,933	)
Tax benefits from stock plans			(71	)			(705	)
Gain on sale of assets and other			(1,527	)			—
Write-down of inventory			3,815				12,931
Changes in operating assets and liabilities, net of acquisitions:
Decrease (increase) in accounts receivable			(16,233	)			58,328
Accounts receivable sold (repurchased), net			21,994				(10,456	)
Decrease (increase) in inventories			(22,428	)			15,010
Decrease (increase) in other assets			291				(11,450	)
Decrease in accounts payable, accrued expenses, other payables and income taxes			(35,710	)			(37,242	)
Increase in other long-term liabilities			1,208				2,040
Net cash flows from (used by) operating activities			(5,591	)			31,891
Cash flows from (used by) investing activities:
Capital expenditures			(11,904	)			(46,514	)
Proceeds from the sale of property, plant and equipment and other			51,518				183
Acquisitions, net of cash acquired			—				(2,448	)
Increase in deposit for letters of credit			(1,523	)			—
Net cash flows from (used by) investing activities			38,091				(48,779	)
Cash flows from (used by) financing activities:
Decrease in documentary letters of credit			(108,614	)			(37,850	)
Short-term borrowings, net change			79,127				1,491
Repayments on long-term debt			(7,390	)			(7,567	)
Proceeds from issuance of long-term debt			45				694
Stock issued under incentive and purchase plans			389				960
Cash dividends			(13,722	)			(13,515	)
Tax benefits from stock plans			71				705
Net cash flows used by financing activities			(50,094	)			(55,082	)
Effect of exchange rate changes on cash			1,081				397
Decrease in cash and cash equivalents			(16,513	)			(71,573	)
Cash and cash equivalents at beginning of year			399,313				405,603
Cash and cash equivalents at end of period		$	382,800			$	334,030

See notes to unaudited consolidated financial statements.

COMMERCIAL METALS COMPANY AND SUBSIDIARIES

		CMC Stockholders’ Equity
														Accumulated
		Common Stock								Additional				Other								Treasury Stock
		Number of								Paid-In				Comprehensive				Retained				Number of								Noncontrolling
(in thousands, except share data)		Shares				Amount				Capital				Income (Loss)				Earnings				Shares				Amount				Interests				Total
Balance, September 1, 2009			129,060,664			$	1,290			$	380,737			$	34,257			$	1,438,205				(16,487,231	)		$	(324,796	)		$	2,371			$	1,532,064
Comprehensive income (loss):
Net earnings (loss) for the three months ended November 30, 2009																			(31,229	)											6				(31,223	)
Other comprehensive income (loss):
Foreign currency translation adjustment															33,378																10				33,388
Unrealized gain on derivatives, net of taxes ($57)															329																				329
Defined benefit obligation, net of taxes ($267)															(508	)																			(508	)
Comprehensive income																																			1,986
Cash dividends																			(13,515	)															(13,515	)
Issuance of stock under incentive and purchase plans											(2,664	)											182,770				3,624								960
Share-based compensation											2,422																								2,422
Tax benefits from stock plans											705																								705
Balance, November 30, 2009			129,060,664			$	1,290			$	381,200			$	67,456			$	1,393,461				(16,304,461	)		$	(321,172	)		$	2,387			$	1,524,622

		CMC Stockholders’ Equity
														Accumulated
		Common Stock								Additional				Other								Treasury Stock
		Number of								Paid-In				Comprehensive				Retained				Number of								Noncontrolling
(in thousands, except share data)		Shares				Amount				Capital				Income (Loss)				Earnings				Shares				Amount				Interests				Total
Balance, September 1, 2010			129,060,664			$	1,290			$	373,308			$	(12,526	)		$	1,178,372				(14,735,315	)		$	(289,708	)		$	2,638			$	1,253,374
Comprehensive income (loss):
Net earnings for the three months ended November 30, 2010																			651												91				742
Other comprehensive income (loss):
Foreign currency translation adjustment															17,417																				17,417
Unrealized loss on derivatives, net of taxes ($26)															(10	)																			(10	)
Defined benefit obligation, net of taxes ($16)															(71	)																			(71	)
Comprehensive income																																			18,078
Cash dividends																			(13,722	)															(13,722	)
Issuance of stock under incentive and purchase plans											(603	)											50,315				992								389
Share-based compensation											2,135																								2,135
Tax benefits from stock plans											71																								71
Balance, November 30, 2010			129,060,664			$	1,290			$	374,911			$	4,810			$	1,165,301				(14,685,000	)		$	(288,716	)		$	2,729			$	1,260,325

See notes to unaudited consolidated financial statements.

COMMERCIAL METALS COMPANY AND SUBSIDIARIES

NOTE 1 — QUARTERLY FINANCIAL DATA

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States on a basis consistent with that used in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) for the year ended August 31, 2010, and include all normal recurring adjustments necessary to present fairly the consolidated balance sheets and statements of operations, cash flows and stockholders’ equity for the periods indicated. These notes should be read in conjunction with such Form 10-K. The results of operations for the three month period are not necessarily indicative of the results to be expected for a full year.

NOTE 2 — ACCOUNTING POLICIES

Recently Adopted Accounting Pronouncements

In the first quarter of 2011, the Company adopted accounting guidance related to the accounting for transfers of financial assets. The guidance clarifies the determination of a transferor’s continuing involvement in a transferred financial asset and limits the circumstances in which a financial asset should be removed from the balance sheet when the transferor has not transferred the entire original financial asset. As a result of the new guidance, sales of receivables under the Company’s U.S. securitization program no longer qualify as sales and are recorded as a secured borrowing. The Company did not have any sales under the U.S. securitization program during the first quarter of 2011 or 2010. See Note 3, Sales of Accounts Receivable, for additional details.

In the first quarter of 2011, the Company adopted accounting guidance related to the accounting for variable interest entities (“VIE”). The guidance requires a qualitative analysis to determine whether the interest in a VIE gives it a controlling financial interest and requires ongoing reassessments of whether an entity is the primary beneficiary of a VIE. The adoption had no impact on the Company’s consolidated financial statements.

NOTE 3 — SALES OF ACCOUNTS RECEIVABLE

On November 29, 2010, the Company renegotiated an existing accounts receivable securitization agreement of $100 million. The agreement extended the maturity date of the facility to January 31, 2011. The covenants contained in this agreement are consistent with the credit facility fully described in Note 7, Credit Arrangements.

The Company’s accounts receivable securitization program is used as a cost-effective, short-term financing alternative. Under this program, the Company and several of its subsidiaries periodically sell certain eligible trade accounts receivable to the Company’s wholly-owned consolidated special purpose subsidiary (“CMCRV”). CMCRV is structured to be a bankruptcy-remote entity and was formed for the sole purpose of buying and selling receivables generated by the Company. The Company, irrevocably and without recourse, transfers all eligible trade accounts receivable to CMCRV. Depending on the Company’s level of financing needs, CMCRV may sell an undivided percentage ownership interest in the pool of receivables to affiliates of third party financial institutions. At November 30, 2010 and August 31, 2010, accounts receivable of $212 million and $190 million, respectively, had been sold to CMCRV. The Company’s undivided interest in these receivables (representing the Company’s retained interest) was 100% at November 30, 2010 and August 31, 2010, respectively. The U.S. securitization program contains certain cross-default provisions whereby a termination event could occur if the Company defaulted under one of its credit arrangements.

In addition to the securitization program described above, the Company’s international subsidiaries in Europe and Australia periodically sell accounts receivable without recourse. These arrangements constitute true sales, and once the accounts are sold, they are no longer available to satisfy the Company’s creditors in the event of bankruptcy. Uncollected accounts receivable sold under these arrangements and removed from the consolidated balance sheets were $125.9 million and $103.9 million at November 30, 2010

and August 31, 2010, respectively. The Australian program contains financial covenants in which the subsidiary must meet certain coverage and tangible net worth levels, as defined. At November 30, 2010, the Australian subsidiary was in compliance with these covenants.

During the three months ended November 30, 2010 and 2009, proceeds from the sales of receivables were $285.5 million and $189.7 million, respectively, and cash payments to the owners of receivables were $263.5 million and $200.2 million, respectively. Discounts on domestic and international sales of accounts receivable were $1.2 million and $0.8 million for the three months ended November 30, 2010 and 2009, respectively. These discounts primarily represented the costs of funds and were included in selling, general and administrative expenses.

NOTE 4 — INVENTORIES

Inventories are stated at the lower of cost or market. Inventory cost for most domestic inventories is determined by the last-in, first-out method (“LIFO”). LIFO inventory reserves were $236.0 million and $230.3 million at November 30, 2010 and August 31, 2010, respectively. Inventory cost for international inventories and the remaining domestic inventories are determined by the first-in, first-out method (“FIFO”). The majority of the Company’s inventories are in the form of finished goods, with minimal work in process. At November 30, 2010 and August 31, 2010, $77.9 million and $59.1 million, respectively, were in raw materials.

NOTE 5 — GOODWILL AND OTHER INTANGIBLE ASSETS

The Company tests for impairment of goodwill by estimating the fair value of each reporting unit compared to its carrying value. The Company’s reporting units are based on its internal reporting structure and represent an operating segment or a reporting level below an operating segment. Additionally, the reporting units are aggregated based upon similar economic characteristics, nature of products and services, nature of production processes, type of customers and distribution methods. The Company has determined its operating units that have a significant amount of goodwill to be in the Americas Recycling and Americas Fabrication segments. The Company uses a discounted cash flow model to calculate the fair value of its reporting units. The model includes a number of significant assumptions and estimates regarding future cash flows including discount rates, volumes, prices, capital expenditures and the impact of current market conditions. These estimates could be materially impacted by adverse changes in market conditions. The Company performs the goodwill impairment test in the fourth quarter each fiscal year and when changes in circumstances indicate an impairment event may have occurred.

The total gross carrying amounts of the Company’s intangible assets that were subject to amortization were $73.2 million and $73.9 million at November 30, 2010 and August 31, 2010, respectively, and are included in other noncurrent assets. Aggregate amortization expense for intangible assets for the three months ended November 30, 2010 and 2009 was $2.5 million and $3.0 million, respectively.

NOTE 6 — DISCONTINUED OPERATIONS AND DISPOSITIONS

On February 26, 2010, the Company’s Board of Directors approved a plan to exit the joist and deck business through the sale of those facilities. The Company determined that the decision to exit this business met the definition of a discontinued operation. As a result, this business has been presented as a discontinued operation for all periods. The joist and deck business was in the Americas Fabrication segment.

During the fourth quarter of 2010, the Company completed the sale of the majority of the deck assets. On September 27, 2010, the Company completed the sale of the majority of the joist assets resulting in a gain of $1.9 million.

Various financial information for discontinued operations is as follows:

		November 30,				August 31,
(in thousands)		2010				2010
Current assets		$	2,430			$	10,850
Noncurrent assets			12,133				27,045
Current liabilities			10,489				14,723
Noncurrent liabilities			21				22

		Three Months Ended
		November 30,
		2010				2009
Revenue			915				44,600
Earnings (loss) before taxes			668				(4,158	)

On November 23, 2010, CMC Construction Services, a subsidiary of the Company, completed the sale of heavy forming and shoring equipment for approximately $35 million. The Company recorded a loss on sale of approximately $0.5 million in connection with this transaction.

NOTE 7 — CREDIT ARRANGEMENTS

The Company’s revolving credit facility of $400 million has a maturity date of November 24, 2012 and includes certain covenants. The Company is required to maintain a minimum interest coverage ratio of not less than 2.50 to 1.00 for the nine month cumulative period ended November 30, 2010, twelve month cumulative period ending February 28, 2011 and for each fiscal quarter on a rolling twelve month cumulative period thereafter. At November 30, 2010, the Company’s interest coverage ratio was 3.54 to 1.00. The agreement required the Company to maintain liquidity of at least $300 million (cash, short-term investments and accounts receivable securitization capacity combined) through November 30, 2010. At November 30, 2010, the Company had liquidity of $482.8 million. The agreement requires the Company to maintain a debt to capitalization ratio covenant not greater than 0.60 to 1.00. At November 30, 2010, the Company’s debt to capitalization ratio was 0.53 to 1.00. The agreement provides for interest based on LIBOR, Eurodollar or Bank of America’s prime rate. The facility fee is 60 basis points per annum and no compensating balances are required.

It is the Company’s policy to maintain contractual bank credit lines equal to 100% of the amount of the commercial paper program. At November 30, 2010 and August 31, 2010, $60 million and $10 million were outstanding under the commercial paper program, respectively. There were no amounts outstanding on the revolving credit facility at November 30, 2010 and August 31, 2010. The availability under the revolving credit agreement is reduced by the outstanding amount under the commercial paper program. At November 30, 2010, $340 million was available under the revolving credit agreement.

The Company has numerous uncommitted credit facilities available from domestic and international banks. No commitment fees or compensating balances are required under these credit facilities. These credit facilities are used, in general, to support import letters of credit (including accounts payable settled under bankers’ acceptances as described in Note 1, Summary of Significant Accounting Polices in the Company’s consolidated financial statements in its Annual Report on Form 10-K for the year ended August 31, 2010), foreign exchange transactions and short term advances which are priced at market rates.

Long-term debt, including the net effect of interest rate swap revaluation adjustments, is as follows:

		November 30,				August 31,
(in thousands)		2010				2010
5.625% notes due November 2013 (weighted average rate of 3.8% at November 30, 2010)		$	206,555			$	208,253
6.50% notes due July 2017			400,000				400,000
7.35% notes due August 2018 (weighted average rate of 5.5% at November 30, 2010)			515,000				524,185
CMCZ term note due May 2013			64,656				69,716
CMCS financing agreement			19,514				19,006
Other, including equipment notes			6,307				6,710
			1,212,032				1,227,870
Less current maturities			31,131				30,588
		$	1,180,901			$	1,197,282

Interest on the notes, except for the CMC Zawiercie (“CMCZ”) note, is payable semiannually.

On March 23, 2010, the Company entered into two interest rate swap transactions (“Swap Transactions”). The Swap Transactions were designated as fair value hedges at inception and convert all fixed rate interest to floating rate interest on the Company’s 5.625% notes due 2013 and $300 million on its fixed rate 7.35% notes due 2018. Swap Transactions with regard to the 5.625% notes and the 7.35% notes have notional amounts of $200 million and $300 million and termination dates of November 15, 2013 and August 15, 2018, respectively. The Swap Transactions costs are based on the floating LIBOR plus 303 basis points with respect to the 5.625% notes and LIBOR plus 367 basis points with respect to the 7.35% notes. See Note 8, Derivatives and Risk Management, for additional details.

CMCZ has a five year term note of PLN 200 million ($64.7 million) with a group of four banks. The term note is used to finance operating expenses of CMCZ and the development of a rolling mill. The note has scheduled principal and interest payments in fifteen

equal quarterly installments which began in November 2009 with the final installment in May 2013. The weighted average interest rate at November 30, 2010 was 6.4%. The term note contains four financial covenants for CMCZ. At November 30, 2010, CMCZ was not in compliance with two of the financial covenants which resulted in a guarantee by Commercial Metals Company continuing to be effective. As a result of the guarantee, the financial covenant requirements became void; however, all other terms of the loan remain in effect, including the payment schedule. The guarantee will cease to be effective when CMCZ is in compliance with the financial covenants for two consecutive quarters.

CMC Sisak (“CMCS”) has a five year financing agreement of EUR 40 million ($52.0 million) which allows for disbursements as funds are needed. The loan is intended to be used for capital expenditures and other uses. At November 30, 2010, EUR 15.0 million ($19.5 million) was outstanding under this note. The note has scheduled principal and interest payments in seven semiannual installments beginning in July 2011 and ending in July 2014. The weighted average interest rate at November 30, 2010 was 5.0%.

Interest of $0.2 million and $2.1 million was capitalized in the cost of property, plant and equipment constructed for the three months ended November 30, 2010 and 2009, respectively. Interest of $5.0 million and $8.6 million was paid for the three months ended November 30, 2010 and 2009, respectively.

NOTE 8 — DERIVATIVES AND RISK MANAGEMENT

The Company’s worldwide operations and product lines expose it to risks from fluctuations in metals commodity prices, foreign currency exchange rates, natural gas prices and interest rates. The objective of the Company’s risk management program is to mitigate these risks using derivative instruments. The Company enters into metal commodity futures and forward contracts to mitigate the risk of unanticipated declines in gross margin due to the volatility of the commodities’ prices, enters into foreign currency forward contracts which match the expected settlements for purchases and sales denominated in foreign currencies and enters into natural gas forward contracts to mitigate the risk of unanticipated changes in operating cost due to the volatility of natural gas prices. When sales commitments to customers include a fixed price freight component, the Company occasionally enters into freight forward contracts to minimize the effect of the volatility of ocean freight rates. The Company enters into interest rate swap contracts to maintain a portion of the Company’s debt obligations at variable interest rates. These interest rate swap contracts, under which the Company has agreed to pay variable rates of interest and receive fixed rates of interest, are designated as fair value hedges of fixed rate debt. The Company’s interest rate swap contract commitments were $500 million as of November 30, 2010.

The following tables provide certain information regarding the foreign exchange and commodity financial instruments discussed above.

Gross foreign currency exchange contract commitments as of November 30, 2010 (in thousands):

Functional Currency						Contract Currency
Type		Amount				Type		Amount
AUD			378			EUR			268
AUD			125			NZD			161
AUD			77,299			USD			73,834
EUR			3,121			HRK*			22,988
EUR			328			USD			448
GBP			2,647			EUR			3,120
GBP			2,023			USD			3,204
PLN			251,816			EUR			63,333
PLN			104,579			USD			32,845
PLN			1,546			SEK**			3,626
SGD			8,812			USD			6,800
USD			24,295			EUR			18,353
USD			23,823			GBP			15,340
USD			3,052			JPY			256,422
USD			1,600			SGD***			2,091
USD			2,400			CNY****			15,914

Commodity contract commitments as of November 30, 2010:

Commodity		Long/Short		Total
Aluminum		Long		2,925 MT
Aluminum		Short		650 MT
Copper		Long		2,116 MT
Copper		Short		8,865 MT
Zinc		Long		29 MT
Natural Gas		Long		80,000 MMBtu

The Company designates only those contracts which closely match the terms of the underlying transaction as hedges for accounting purposes. These hedges resulted in substantially no ineffectiveness in the statements of operations, and there were no components excluded from the assessment of hedge effectiveness for the three months ended November 30, 2010 and 2009. Certain of the foreign currency and commodity contracts were not designated as hedges for accounting purposes, although management believes they are essential economic hedges.

The following tables summarize activities related to the Company’s derivative instruments and hedged (underlying) items recognized within the statements of operations (in thousands):

				Three Months Ended
Derivatives Not Designated as Hedging				November 30,
Instruments		Location		2010				2009
Commodity		Cost of goods sold		$	(10,286	)		$	1,176
Foreign exchange		Net sales			(18	)			264
Foreign exchange		Cost of goods sold			580				84
Foreign exchange		SG&A expenses			(3,324	)			(1,181	)
Gain (loss) before taxes				$	(13,048	)		$	343

The Company’s fair value hedges are designated for accounting purposes with gains and losses on the hedged (underlying) items offsetting the gain or loss on the related derivative transaction. Hedged (underlying) items relate to firm commitments on commercial sales and purchases, capital expenditures and fixed rate debt obligations. As of November 30, 2010, fair value hedge accounting for interest rate swap contracts increased the carrying value of debt instruments by $21.6 million.

				Three Months Ended
Derivatives Designated as Fair Value Hedging				November 30,
Instruments		Location		2010				2009
Foreign exchange		SG&A expenses		$	(7,887	)		$	(8,687	)
Interest rate		Interest expense			21,555				—
Gain (loss) before taxes				$	13,668			$	(8,687	)

				Three Months Ended
Hedged (Underlying) Items Designated as Fair Value				November 30,
Hedging Instruments		Location		2010				2009
Foreign exchange		Net sales		$	38			$	61
Foreign exchange		SG&A expenses			7,848				8,622
Interest rate		Interest expense			(21,555	)			—
Gain (loss) before taxes				$	(13,669	)		$	8,683

The Company recognizes the impact of actual and estimated net periodic settlements of current interest on our active interest rate swaps as adjustments to interest expense. The following table summarizes the impact of actual and estimated periodic settlements of active swap agreements on the results of operations:

		Three Months Ended
Reductions to Interest Expense Due to		November 30,
Hedge Accounting for Interest Rate Swaps		2010				2009
Periodic estimated and actual settlements of active swap agreements*		$	(3,284	)		$	—

Effective Portion of Derivatives
Designated as Cash Flow Hedging Instruments		Three Months Ended
Recognized in		November 30,
Accumulated Other Comprehensive Income (Loss)		2010				2009
Commodity		$	37			$	60
Foreign exchange			17				325
Gain, net of taxes		$	54			$	385

Effective Portion of Derivatives
Designated as Cash Flow Hedging Instruments				Three Months Ended
Reclassified from				November 30,
Accumulated Other Comprehensive Income (Loss)		Location		2010				2009
Commodity		Cost of goods sold		$	(83	)		$	(28	)
Foreign exchange		SG&A expenses			33				(30	)
Interest rate		Interest expense			114				114
Gain, net of taxes				$	64			$	56

The Company’s derivative instruments were recorded at their respective fair values as follows on the consolidated balance sheets (in thousands):

Derivative Assets		November 30, 2010					August 31, 2010
Commodity — designated			$	116				$	80
Commodity — not designated				2,323					911
Foreign exchange — designated				620					435
Foreign exchange — not designated				580					1,188
Interest rate — designated				11,515					12,173
Long-term interest rate — designated				10,040					20,265
Derivative assets (other current assets and other assets)*			$	25,194				$	35,052

Derivative Liabilities		November 30, 2010					August 31, 2010
Commodity — designated			$	98				$	95
Commodity — not designated				2,625					2,817
Foreign exchange — designated				713					1,749
Foreign exchange — not designated				3,234					1,097
Derivative liabilities (accrued expenses and other payables)*			$	6,670				$	5,758

As of November 30, 2010, all of the Company’s derivative instruments designated to hedge exposure to the variability in future cash flows of the forecasted transactions will mature within twelve months.

All of the instruments are highly liquid, and none are entered into for trading purposes.

NOTE 9 — FAIR VALUE

The Company has established a fair value hierarchy which prioritizes the inputs to 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.

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
						Quoted Prices in
						Active Markets for				Significant Other				Significant
		November 30,				Identical Assets				Observable Inputs				Unobservable Inputs
(in thousands)		2010				(Level 1)				(Level 2)				(Level 3)
Money market investments		$	337,503			$	337,503			$	—			$	—
Derivative assets			25,194				2,323				22,871				—
Nonqualified benefit plan assets *			49,850				49,850				—				—
Derivative liabilities			6,670				2,625				4,045				—
Nonqualified benefit plan liabilities *			87,140				—				87,140				—
		August 31,
		2010
Money market investments		$	352,881			$	352,881			$	—			$	—
Derivative assets			35,052				911				34,141				—
Nonqualified benefit plan assets *			43,681				43,681				—				—
Derivative liabilities			5,758				2,817				2,941				—
Nonqualified benefit plan liabilities *			86,043				—				86,043				—

The Company’s long-term debt is predominantly publicly held. The fair value was approximately $1.23 billion at November 30, 2010 and $1.29 billion at August 31, 2010. Fair value was determined by indicated market values.

NOTE 10 — INCOME TAXES

The Company had net refunds of $1.9 million and paid $6.3 million in income taxes during the three months ended November 30, 2010 and 2009, respectively.

Reconciliations of the United States statutory rates to the Company’s effective tax rates from continuing operations were as follows:

		Three Months Ended
		November 30,
		2010				2009
Statutory rate			35.0	%			35.0	%
State and local taxes			2.8				4.4
Foreign rate differential			1.3				(1.1	)
Increase in valuation allowance due to foreign losses without benefit (predominately Croatia)			48.7				—
Domestic production activity deduction			(3.6	)			—
Other			11.1				(2.2	)
Effective rate from continuing operations			95.3	%			36.1	%

The Company’s effective tax rate from discontinued operations for the three months ended November 30, 2010 and 2009 was 38.8%.

As of November 30, 2010, the reserve for unrecognized tax benefits relating to the accounting for uncertainty in income taxes was $20.4 million, exclusive of interest and penalties. During the three months ended November 30, 2010, the Company recorded no change to the liability.

The current Company policy classifies interest recognized on an underpayment of income taxes and any statutory penalties recognized on a tax position as tax expense and the balances at the end of a reporting period are recorded as part of the current or non-current reserve for uncertain income tax positions. For the three months ended November 30, 2010, before any tax benefits, the Company recorded immaterial amounts of accrued interest and penalties on unrecognized tax benefits.

During the next twelve months, it is reasonably possible that the statute of limitations may lapse pertaining to positions taken by the Company in prior year tax returns or that income tax audits in various taxing jurisdictions could be finalized. As a result, the total amount of unrecognized tax benefits may decrease, which would reduce the provision for taxes on earnings by an immaterial amount.

The following is a summary of tax years subject to examination:

U.S Federal — 2006 and forward

U.S. States — 2006 and forward

Foreign — 2004 and forward

The Federal tax returns for fiscal years 2006 to 2008 are under examination by the Internal Revenue Service. However, we believe our recorded tax liabilities as of November 30, 2010 sufficiently reflect the anticipated outcome of these examinations.

NOTE 11 — SHARE-BASED COMPENSATION

See Note 10, Capital Stock, to the Company’s consolidated financial statements for the year ended August 31, 2010 for a description of the Company’s stock incentive plans.

The Company recognizes share-based compensation at fair value in the financial statements. The fair value of each share-based award is estimated at the date of grant using either the Black-Scholes pricing model or a binomial model. Total compensation cost is amortized over the requisite service period using the accelerated method of amortization for grants with graded vesting or using the straight-line method for grants with cliff vesting. The Company recognized share-based compensation of $2.1 million and $2.4 million for the three months ended November 30, 2010 and 2009, respectively, as a component of selling, general and administrative expenses. At November 30, 2010, the Company had $10.0 million of total unrecognized pre-tax compensation cost related to non-vested share-based compensation arrangements. This cost is expected to be recognized over the next 42 months. See Note 1, Summary of Significant Accounting Policies, to the Company’s consolidated financial statements in its Annual Report on Form 10-K for the year ended August 31, 2010 for a description of the Company’s assumptions used to calculate share-based compensation.

Combined information for shares subject to options and stock appreciation rights (“SARs”) for the three months ended November 30, 2010 were as follows:

						Weighted
						Average				Price
						Exercise				Range
		Number				Price				Per Share
September 1, 2010
Outstanding			3,922,016			$	23.67			$	7.53 — 35.38
Exercisable			3,503,681				23.38				7.53 — 35.38
Exercised			(54,667	)			8.03				7.53 — 12.31
Forfeited			(30,700	)			33.33				24.57 — 35.38
November 30, 2010
Outstanding			3,836,649			$	23.82			$	7.53 — 35.38
Exercisable			3,422,320				23.55				7.53 — 35.38

Share information for options and SARs at November 30, 2010:

Outstanding														Exercisable
						Weighted
						Average				Weighted								Weighted
Range of						Remaining				Average								Average
Exercise		Number				Contractual				Exercise				Number				Exercise
Price		Outstanding				Life (Yrs.)				Price				Outstanding				Price
$ 7.53 —   7.78			756,346				0.3			$	7.77				756,346			$	7.77
11.00 — 14.05			761,225				2.9				12.41				586,225				12.17
21.81 — 24.71			444,742				2.2				24.51				444,742				24.51
31.75 — 35.38			1,874,336				3.5				34.76				1,635,007				34.67
$  7.53 — 35.38			3,836,649				2.6			$	23.82				3,422,320			$	23.55

Of the Company’s previously granted restricted stock awards, 1,134 shares vested during the three months ended November 30, 2010. None of the Company’s previously granted restricted stock awards vested during the three months ended November 30, 2009.

NOTE 12 — STOCKHOLDERS’ EQUITY AND EARNINGS (LOSS) PER SHARE ATTRIBUTABLE TO CMC

In calculating earnings (loss) per share, there were no adjustments to net earnings (loss) to arrive at earnings (loss) for any years presented. The reconciliation of the denominators of the earnings (loss) per share calculations was as follows:

		Three Months Ended
		November 30,
		2010				2009
Shares outstanding for basic earnings (loss) per share			114,319,017				112,495,297
Effect of dilutive securities:
Stock based incentive/purchase plans			904,676				—
Shares outstanding for diluted earnings (loss) per share			115,223,693				112,495,297

For the three months ended November 30, 2010, SARs with total share commitments of 2.3 million were antidilutive and therefore excluded from the calculation of diluted earnings per share. For the three months ended November 30, 2009, no stock options, restricted stock or SARs were included in the calculation of dilutive shares because the Company reported a loss from continuing operations. All stock options and SARs expire by 2017.

The Company’s restricted stock is included in the number of shares of common stock issued and outstanding, but omitted from the basic earnings (loss) per share calculation until the shares vest.

The Company purchased no shares during the first quarter of 2011 and had remaining authorization to purchase 8,259,647 shares of its common stock at November 30, 2010.

NOTE 13 — COMMITMENTS AND CONTINGENCIES

See Note 12, Commitments and Contingencies, to the consolidated financial statements in the Annual Report on Form 10-K for the year ended August 31, 2010 relating to environmental and other matters. There have been no significant changes to the matters noted therein. In the ordinary course of conducting its business, the Company becomes involved in litigation, administrative proceedings and governmental investigations, including environmental matters. Management believes that adequate provisions have been made in the consolidated financial statements for the potential impact of these issues, and that the outcomes will not significantly impact the results of operations or the financial position of the Company, although they may have a material impact on earnings (loss) for a particular quarter.

NOTE 14 — BUSINESS SEGMENTS

The Company’s reportable segments are based on strategic business areas, which offer different products and services. These segments have different lines of management responsibility as each business requires different marketing strategies and management expertise.

Effective September 1, 2010, the Company’s scrap metal processing facilities which directly support the domestic mills are included as part of the Americas Mills segment. Prior to September 1, 2010, these facilities were included as part of the Americas Recycling segment. All prior period financial information has been recast to the current segment reporting structure.

The Company structures the business into the following five segments: Americas Recycling, Americas Mills, Americas Fabrication, International Mills and International Marketing and Distribution. The Americas Recycling segment consists of the scrap metal processing and sales operations primarily in Texas, Florida and the southern United States. The Americas Mills segment includes the Company’s domestic steel mills, including the scrap processing facilities which directly support these mills, and the copper tube minimill. The copper tube minimill is aggregated with the Company’s steel mills because it has similar economic characteristics. The Americas Fabrication segment consists of the Company’s rebar fabrication operations, fence post manufacturing plants, construction-related and other products facilities. The International Mills segment includes the minimills in Poland and Croatia, recycling operations in Poland and fabrication operations in Europe, which have been presented as a separate segment because the economic characteristics of their markets and the regulatory environment in which they operate are different from that of the Company’s domestic mills and rebar fabrication operations. International Marketing and Distribution includes international operations for the sales, distribution and processing of steel products, ferrous and nonferrous metals and other industrial products. Additionally, the International Marketing and Distribution segment includes the Company’s two U.S. based trading and distribution divisions, CMC Cometals and CMC Cometals Steel (previously CMC Dallas Trading). The international distribution operations consist only of physical transactions and not positions taken for speculation. Corporate contains expenses of the Company’s corporate headquarters, expenses related to its deployment of SAP software, and interest expense relating to its long-term public debt and commercial paper program.

The financial information presented for the Americas Fabrication segment excludes its joist and deck fabrication operations. This operation has been classified as discontinued operations in the consolidated statements of operations. See Note 6, Discontinued Operations and Dispositions, for more detailed information.

The Company uses adjusted operating profit (loss) to measure segment performance. Intersegment sales are generally priced at prevailing market prices. Certain corporate administrative expenses are allocated to segments based upon the nature of the expense. The accounting policies of the segments are the same as those described in the summary of significant accounting policies. The following is a summary of certain financial information from continuing operations by reportable segment:

		Three Months Ended November 30, 2010
		Americas												International
																		Marketing
																		and
(in thousands)		Recycling				Mills				Fabrication				Mills				Distribution				Corporate				Eliminations				Consolidated
Net sales-unaffiliated customers		$	347,169			$	280,781			$	283,943			$	223,921			$	640,408			$	6,258			$	—			$	1,782,480
Intersegment sales			28,626				154,616				3,810				8,875				5,498				—				(201,425	)			—
Net sales			375,795				435,397				287,753				232,796				645,906				6,258				(201,425	)			1,782,480
Adjusted operating profit (loss)			8,192				34,143				(22,008	)			(7,666	)			24,238				(10,603	)			303				26,599
Goodwill			7,267				295				57,144				2,877				4,276				—				—				71,859
Total assets			251,332				612,574				593,596				726,837				716,498				1,075,944				(347,167	)			3,629,614

		Three Months Ended November 30, 2009
		Americas												International
																		Marketing
																		and
(in thousands)		Recycling				Mills				Fabrication				Mills				Distribution				Corporate				Eliminations				Consolidated
Net sales-unaffiliated customers		$	240,498			$	179,616			$	260,441			$	152,122			$	566,022			$	3,559			$	—			$	1,402,258
Intersegment sales			25,030				127,919				2,032				31,147				7,064				—				(193,192	)			—
Net sales			265,528				307,535				262,473				183,269				573,086				3,559				(193,192	)			1,402,258
Adjusted operating profit (loss)			(1,210	)			(19	)			(8,916	)			(19,092	)			20,138				(20,204	)			4,666				(24,637	)
Goodwill			6,961				601				58,878				2,991				5,205				—				—				74,636
Total assets			212,479				608,203				789,085				753,862				632,881				895,084				(271,812	)			3,619,782

The following table provides a reconciliation of net loss from continuing operations attributable to CMC to adjusted operating profit (loss):

		Three Months Ended
		November 30,
(in thousands)		2010				2009
Net earnings (loss) from continuing operations attributable to CMC		$	242			$	(28,684	)
Noncontrolling interests			91				6
Income taxes (benefit)			6,730				(16,195	)
Interest expense			18,325				19,451
Discounts on sales of accounts receivable			1,211				785
Adjusted operating profit (loss) from continuing operations		$	26,599			$	(24,637	)
Adjusted operating profit (loss) from discontinued operations			668				(4,155	)
Adjusted operating profit (loss)		$	27,267			$	(28,792	)

The following represents the Company’s external net sales from continuing operations by major product and geographic area:

		Three Months Ended
		November 30,
(in thousands)		2010				2009
Major product information:
Steel products		$	1,054,770			$	858,313
Nonferrous scrap			220,273				150,609
Industrial materials			213,845				184,625
Ferrous scrap			160,418				100,101
Construction materials			58,227				52,501
Nonferrous products			45,067				34,023
Other			29,880				22,086
Net sales		$	1,782,480			$	1,402,258

		Three Months Ended
		November 30,
(in thousands)		2010				2009
Geographic area:
United States		$	959,820			$	645,566
Europe			416,859				287,451
Asia			213,597				267,605
Australia/New Zealand			138,600				147,334
Other			53,604				54,302
Net sales		$	1,782,480			$	1,402,258

NOTE 15 — RELATED PARTY TRANSACTIONS

One of the Company’s international subsidiaries has a marketing and distribution agreement with a key supplier of which the Company owns an 11% interest. This marketing and distribution agreement expired on December 31, 2010. The following presents related party transactions:

		Three Months Ended
		November 30,
(in thousands)		2010				2009
Sales		$	98,050			$	76,300
Purchases			106,962				81,733
		November 30,				August 31,
(in thousands)		2010				2010
Accounts receivable		$	43,785			$	10,611
Accounts payable			24,432				22,603

ITEM 2.		MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our Annual Report on Form 10-K filed with the SEC for the year ended August 31, 2010.

CRITICAL ACCOUNTING POLICIES

Our critical accounting policies are not different from the information set forth in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, included in our Annual Report on Form 10-K filed with the SEC for the year ended August 31, 2010 and are, therefore, not presented herein.

CONSOLIDATED RESULTS OF OPERATIONS

		Three Months Ended
		November 30,								Increase
(in millions)		2010				2009				%
Net sales*		$	1,782.5			$	1,402.3				27	%
Net earnings (loss) from continuing operations attributable to CMC			0.3				(28.6	)			101	%
Adjusted EBITDA			66.6				14.1				372	%

In the table above, we have included a financial statement measure that was not derived in accordance with accounting principles generally accepted in the United States (“GAAP”). We use adjusted EBITDA (earnings before interest expense, income taxes, depreciation, amortization and impairment charges) as a non-GAAP performance measure. In calculating adjusted EBITDA, we exclude our largest recurring non-cash charge, depreciation, amortization and impairment charges. Adjusted EBITDA provides a core operational performance measurement that compares results without the need to adjust for Federal, state and local taxes which have considerable variation between domestic jurisdictions. Tax regulations in international operations add additional complexity. Also, we exclude interest cost in our calculation of adjusted EBITDA. The results are, therefore, without consideration of financing alternatives of capital employed. We use adjusted EBITDA as one guideline to assess our unleveraged performance return on our investments. Adjusted EBITDA is also the target benchmark for our long-term cash incentive performance plan for management and part of a debt compliance test for our revolving credit agreement and our accounts receivable securitization program. Reconciliations from net earnings (loss) from continuing operations attributable to CMC to adjusted EDITDA are provided below:

		Three Months Ended								Increase
		November 30,								(Decrease)
(in millions)		2010				2009				%
Net earnings (loss) from continuing operations attributable to CMC		$	0.3			$	(28.6	)			101	%
Interest expense			18.3				19.5				(6	%)
Income taxes (benefit)			6.7				(16.2	)			141	%
Depreciation, amortization and impairment charges			40.6				41.6				(2	%)
Adjusted EBITDA from continuing operations		$	65.9			$	16.3				304	%
Adjusted EBITDA from discontinued operations			0.7				(2.2	)			132	%
Adjusted EBITDA		$	66.6			$	14.1				372	%

Our adjusted EBITDA does not include interest expense, income taxes, depreciation, amortization and impairment charges. Because we have borrowed money in order to finance our operations, interest expense is a necessary element of our costs and our ability to generate revenues. Because we use capital assets, depreciation, amortization and impairment charges are also necessary elements of our costs. Also, the payment of income taxes is a necessary element of our operations. Therefore, any measures that exclude these elements have material limitations. To compensate for these limitations, we believe that it is appropriate to consider both net earnings

(loss) determined under GAAP, as well as adjusted EBITDA, to evaluate our performance. Also, we separately analyze any significant fluctuations in interest expense, depreciation, amortization, impairment charges and income taxes.

The following events and performances had a significant impact during our first quarter of 2011 as compared to the same period of 2010 or are expected to be significant for our future operations:

	•		Net sales of the Americas Recycling segment increased 42% and adjusted operating profit increased $9.4 million during the first quarter of 2011 as compared to the prior year’s first quarter primarily from improved demand which drove an increase in prices and volumes.
	•		Net sales of the Americas Mills segment increased 42% and adjusted operating profit increased $34.2 million from the prior year’s first quarter primarily due to higher shipments and a 22% increase in metal margins.
	•		Our Americas Fabrication segment showed a 10% increase in sales but a $13.1 million increase in adjusted operating loss as compared to the first quarter of 2010 due to rising steel costs and weak commercial construction markets.
	•		Our International Mills segment showed a 27% increase in net sales and an $11.4 million decrease in adjusted operating loss as compared to the first quarter of 2010 from increased demand and pricing in construction markets in Poland offset by continuing losses in Croatia.
	•		Our International Marketing and Distribution segment reported a 13% increase in net sales and a $4.1 million increase in adjusted operating profit as compared to the first quarter of 2010, including approximately $7 million in recoveries of prior year inventory contract claims.
	•		We recorded consolidated pre-tax LIFO expense of $5.7 million for the first quarter of 2011 compared to pre-tax LIFO income of $17.3 million for the first quarter of 2010.
	•		We commissioned a new ladle metallurgical station at CMCS (Croatia), which was the last component of the melt shop upgrade and began sequence casting trials.
	•		We received approximately $51 million from the sale of certain joist assets, included in discontinued operations, and the sale of forms from our heavy forms rental unit, included in the Americas Fabrication segment.

SEGMENT OPERATING DATA

Unless otherwise indicated, all dollar amounts below are calculated before income taxes. Financial results for our reportable segments are consistent with the basis and manner in which we internally disaggregate financial information for making operating decisions. See Note 14, Business Segments, to the consolidated financial statements.

We use adjusted operating profit (loss) to compare and evaluate the financial performance of our segments. Adjusted operating profit (loss) is the sum of our earnings (loss) before income taxes and financing costs. The following tables show net sales and adjusted operating profit (loss) by business segment:

		Three Months Ended
		November 30,
(in thousands)		2010				2009
Net sales:
Americas Recycling		$	375,795			$	265,528
Americas Mills			435,397				307,535
Americas Fabrication			287,753				262,473
International Mills			232,796				183,269
International Marketing and Distribution			645,906				573,086
Corporate			6,258				3,559
Eliminations			(201,425	)			(193,192	)
		$	1,782,480			$	1,402,258