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Table of Contents

 
 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
     
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended February 28, 2011
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
(Address of principal executive offices)(Zip Code)
(214) 689-4300
(Registrant’s telephone number, including area code)
 
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 April 4, 2011 there were 115,435,301 shares of the Company’s common stock issued and outstanding excluding 13,625,363 shares held in the Company’s treasury.
 
 

 


 

COMMERCIAL METALS COMPANY AND SUBSIDIARIES
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 EX-101 DEFINITION LINKBASE DOCUMENT

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PART 1. FINANCIAL INFORMATION
ITEM 1.   FINANCIAL STATEMENTS
COMMERCIAL METALS COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
                 
    February 28,     August 31,  
(in thousands, except share data)   2011     2010  
Assets
               
Current assets:
               
Cash and cash equivalents
  $ 265,021     $ 399,313  
Accounts receivable (less allowance for collection losses of $29,041 and $29,721)
    849,363       824,339  
Inventories
    826,539       674,680  
Other
    230,954       276,874  
 
           
Total current assets
    2,171,877       2,175,206  
Property, plant and equipment:
               
Land
    93,596       94,426  
Buildings and improvements
    555,566       540,285  
Equipment
    1,685,632       1,649,723  
Construction in process
    33,363       56,124  
 
           
 
    2,368,157       2,340,558  
Less accumulated depreciation and amortization
    (1,164,010 )     (1,108,290 )
 
           
 
    1,204,147       1,232,268  
Goodwill
    72,296       71,580  
Other assets
    174,011       227,099  
 
           
Total assets
  $ 3,622,331     $ 3,706,153  
 
           
 
               
Liabilities and stockholders’ equity
               
Current liabilities:
               
Accounts payable-trade
  $ 539,519     $ 504,388  
Accounts payable-documentary letters of credit
    106,609       226,633  
Accrued expenses and other payables
    341,404       324,897  
Notes payable
    7,110       6,453  
Commercial paper
    10,000       10,000  
Current maturities of long-term debt
    36,569       30,588  
 
           
Total current liabilities
    1,041,211       1,102,959  
Deferred income taxes
    43,648       43,668  
Other long-term liabilities
    120,162       108,870  
Long-term debt
    1,159,523       1,197,282  
 
           
Total liabilities
    2,364,544       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 115,408,109 and 114,325,349 shares
    1,290       1,290  
Additional paid-in capital
    368,574       373,308  
Accumulated other comprehensive income (loss)
    50,038       (12,526 )
Retained earnings
    1,105,401       1,178,372  
Treasury stock 13,652,555 and 14,735,315 shares at cost
    (268,210 )     (289,708 )
 
           
Stockholders’ equity attributable to CMC
    1,257,093       1,250,736  
Stockholders’ equity attributable to noncontrolling interests
    694       2,638  
 
           
Total equity
    1,257,787       1,253,374  
 
           
Total liabilities and stockholders’ equity
  $ 3,622,331     $ 3,706,153  
 
           
See notes to unaudited consolidated financial statements.

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COMMERCIAL METALS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
                                 
    Three Months Ended     Six Months Ended  
    February 28,     February 28,  
(in thousands, except share data)   2011     2010     2011     2010  
Net sales
  $ 1,791,766     $ 1,322,443     $ 3,574,246     $ 2,724,701  
Costs and expenses:
                               
Cost of goods sold
    1,710,580       1,313,829       3,344,072       2,608,324  
Selling, general and administrative expenses
    121,575       147,488       245,175       280,673  
Interest expense
    18,278       20,236       36,603       39,687  
 
                       
 
    1,850,433       1,481,553       3,625,850       2,928,684  
 
                               
Loss from continuing operations before income taxes
    (58,667 )     (159,110 )     (51,604 )     (203,983 )
Income tax benefit
    (12,535 )     (23,858 )     (5,805 )     (40,053 )
 
                       
Loss from continuing operations
    (46,132 )     (135,252 )     (45,799 )     (163,930 )
 
                               
Earnings (loss) from discontinued operations before taxes
    (21 )     (62,356 )     647       (66,514 )
Income taxes (benefit)
    (8 )     (24,227 )     251       (25,840 )
 
                       
Earnings (loss) from discontinued operations
    (13 )     (38,129 )     396       (40,674 )
 
                       
 
                               
Net loss
  $ (46,145 )   $ (173,381 )   $ (45,403 )   $ (204,604 )
Less net earnings (loss) attributable to noncontrolling interests
    17       (91 )     108       (85 )
 
                       
Net loss attributable to CMC
  $ (46,162 )   $ (173,290 )   $ (45,511 )   $ (204,519 )
 
                       
 
                               
Basic earnings (loss) per share attributable to CMC:
                               
Loss from continuing operations
  $ (0.40 )   $ (1.19 )   $ (0.40 )   $ (1.45 )
Loss from discontinued operations
          (0.34 )           (0.36 )
 
                       
Net loss
  $ (0.40 )   $ (1.53 )   $ (0.40 )   $ (1.81 )
Diluted earnings (loss) per share attributable to CMC:
                               
Loss from continuing operations
  $ (0.40 )   $ (1.19 )   $ (0.40 )   $ (1.45 )
Loss from discontinued operations
          (0.34 )           (0.36 )
 
                       
Net loss
  $ (0.40 )   $ (1.53 )   $ (0.40 )   $ (1.81 )
Cash dividends per share
  $ 0.12     $ 0.12     $ 0.24     $ 0.24  
 
                       
Average basic and diluted shares outstanding
    114,736,984       113,275,457       114,528,001       112,885,377  
 
                       
See notes to unaudited consolidated financial statements.

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COMMERCIAL METALS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
                 
    Six Months Ended  
    February 28,  
(in thousands)   2011     2010  
Cash flows from (used by) operating activities:
               
Net loss
  $ (45,403 )   $ (204,604 )
Adjustments to reconcile net loss to cash from (used by) operating activities:
               
Depreciation and amortization
    81,631       88,376  
Provision for losses on receivables, net
    197       916  
Share-based compensation
    6,026       5,575  
Deferred income taxes
    (727 )     11,783  
Tax benefits from stock plans
    (2,302 )     (2,607 )
(Gain) loss on sale of assets and other
    (1,498 )     27  
Write-down of inventory
    5,224       36,493  
Asset impairment
          32,371  
Changes in operating assets and liabilities, net of acquisitions:
               
Decrease (increase) in accounts receivable
    (41,780 )     67,483  
Accounts receivable sold (repurchased), net
    35,088       (13,542 )
Increase in inventories
    (129,245 )     (19,178 )
Decrease (increase) in other assets
    40,742       (58,119 )
Increase in accounts payable, accrued expenses, other payables and income taxes
    26,060       68,994  
Increase (decrease) in other long-term liabilities
    10,573       (497 )
 
           
Net cash flows from (used by) operating activities
    (15,414 )     13,471  
 
               
Cash flows from (used by) investing activities:
               
Capital expenditures
    (23,067 )     (87,346 )
Proceeds from the sale of property, plant and equipment and other
    51,872       456  
Proceeds from the sale of equity method investments
    4,224        
Acquisitions, net of cash acquired
          (2,448 )
Increase in deposit for letters of credit
    (2,393 )     (27,167 )
 
           
Net cash flows from (used by) investing activities
    30,636       (116,505 )
 
               
Cash flows from (used by) financing activities:
               
Decrease in documentary letters of credit
    (120,024 )     (79,544 )
Short-term borrowings, net change
    603       82,459  
Repayments on long-term debt
    (14,987 )     (14,458 )
Proceeds from issuance of long-term debt
    639       21,493  
Stock issued under incentive and purchase plans
    9,957       9,289  
Cash dividends
    (27,460 )     (27,070 )
Purchase of noncontrolling interests
    (3,573 )      
Tax benefits from stock plans
    2,302       2,607  
 
           
Net cash flows used by financing activities
    (152,543 )     (5,224 )
 
               
Effect of exchange rate changes on cash
    3,029       (192 )
 
           
Decrease in cash and cash equivalents
    (134,292 )     (108,450 )
Cash and cash equivalents at beginning of year
    399,313       405,603  
 
           
Cash and cash equivalents at end of period
  $ 265,021     $ 297,153  
 
           
See notes to unaudited consolidated financial statements.

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COMMERCIAL METALS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)
                                                                         
    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 loss for the six months ended February 28, 2010
                                    (204,519 )                     (85 )     (204,604 )
Other comprehensive income (loss):
                                                                       
Foreign currency translation adjustment
                            (4,504 )                             10       (4,494 )
Unrealized gain on derivatives, net of taxes ($1)
                            222                                       222  
Defined benefit obligation, net of taxes ($267)
                            (508 )                                     (508 )
 
                                                                     
Comprehensive loss
                                                                    (209,384 )
Cash dividends
                                    (27,070 )                             (27,070 )
Issuance of stock under incentive and purchase plans, net
                    (21,589 )                     1,547,434       30,878               9,289  
Share-based compensation
                    5,575                                               5,575  
Tax benefits from stock plans
                    2,607                                               2,607  
 
                                                     
Balance, February 28, 2010
    129,060,664     $ 1,290     $ 367,330     $ 29,467     $ 1,206,616       (14,939,797 )   $ (293,918 )   $ 2,296     $ 1,313,081  
 
                                                     
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
                                                                         
    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 (loss) for the six months ended February 28, 2011
                                    (45,511 )                     108       (45,403 )
Other comprehensive income:
                                                                       
Foreign currency translation adjustment
                            62,266                                       62,266  
Unrealized gain on derivatives, net of taxes ($159)
                            298                                       298  
 
                                                                     
Comprehensive income
                                                                    17,161  
Cash dividends
                                    (27,460 )                             (27,460 )
Issuance of stock under incentive and purchase plans, net
                    (11,541 )                     1,082,760       21,498               9,957  
Share-based compensation
                    6,026                                               6,026  
Purchase of noncontrolling interests
                    (1,521 )                                     (2,052 )     (3,573 )
Tax benefits from stock plans
                    2,302                                               2,302  
 
                                                     
Balance, February 28, 2011
    129,060,664     $ 1,290     $ 368,574     $ 50,038     $ 1,105,401       (13,652,555 )   $ (268,210 )   $ 694     $ 1,257,787  
 
                                                     
See notes to unaudited consolidated financial statements.

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COMMERCIAL METALS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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 Commercial Metals Company’s (the “Company” or “CMC”) 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 six 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.
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
The Company’s existing accounts receivable securitization agreement of $100 million expired on January 31, 2011. On April 5, 2011, the Company entered into a $100 million accounts receivable sale agreement. See note 17, Subsequent Events, for more information.
The Company’s accounts receivable securitization program was used as a short-term financing alternative. Under this program, the Company and several of its subsidiaries periodically sold 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, transferred all eligible trade accounts receivable to CMCRV. Depending on the Company’s level of financing needs, CMCRV would sell an undivided percentage ownership interest in the pool of receivables to affiliates of third party financial institutions. At August 31, 2010, accounts receivable of $190 million had been sold to CMCRV. The Company’s undivided interest in these receivables (representing the Company’s retained interest) was 100% at August 31, 2010.
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 $139.0 million and $103.9 million at February 28, 2011 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 February 28, 2011, the Australian subsidiary was in compliance with these covenants.
During the six months ended February 28, 2011 and 2010, proceeds from the sales of receivables were $499.8 million and $309.4 million, respectively, and cash payments to the owners of receivables were $464.7 million and $322.9 million, respectively. Discounts on sales of accounts receivable were $2.1 million and $1.7 million for the six months ended February 28, 2011 and 2010, respectively. These discounts primarily represented the costs of funds and were included in selling, general and administrative expenses.

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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 $291.7 million and $230.3 million at February 28, 2011 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 February 28, 2011 and August 31, 2010, $130.1 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 $72.7 million and $73.9 million at February 28, 2011 and August 31, 2010, respectively, and are included in other noncurrent assets. Aggregate amortization expense for intangible assets for the three months ended February 28, 2011 and 2010 was $2.5 million and $5.6 million, respectively. Aggregate amortization expense for intangible assets for the six months ended February 28, 2011 and 2010 was $5.0 million and $8.6 million, respectively.
NOTE 6 — SEVERANCE
During the three and six months ended February 28, 2011, the Company recorded severance costs of $0.9 million and $1.3 million, respectively. During the three and six months ended February 28, 2010, the Company recorded severance costs of $14.4 million and $16.6 million, respectively. These severance costs relate to involuntary employee terminations initiated as part of the Company’s focus on operating expense management and reductions in headcount. Additionally, during the second quarter of 2010, the Company incurred severance costs associated with exiting the joist and deck business.
NOTE 7 — 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 Company recorded $26.8 million to impair plant, property and equipment, $4.5 million to write-off intangible assets, $7.4 million of inventory valuation adjustments and $6.7 million of severance during the second quarter of 2010. 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 and during the first quarter of 2011, 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:
                 
    February 28,   August 31,
(in thousands)   2011   2010
Current assets
  $ 1,449     $ 10,850  
Noncurrent assets
    12,125       27,045  
Current liabilities
    9,378       14,723  
Noncurrent liabilities
          22  

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    Three Months Ended     Six Months Ended  
    February 28,     February 28,  
    2011     2010     2011     2010  
Revenue
    204       28,815       1,119       73,415  
Earnings (loss) before taxes
    (21 )     (62,356 )     647       (66,514 )
During the first quarter of 2011, CMC Construction Services, a subsidiary of the Company included in the Americas Fabrication segment, 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 8 — 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 twelve month cumulative period ended February 28, 2011 and for each fiscal quarter on a rolling twelve month cumulative period thereafter. At February 28, 2011, the Company’s interest coverage ratio was 2.65 to 1.00. The agreement also requires the Company to maintain a debt to capitalization ratio covenant not greater than 0.60 to 1.00. At February 28, 2011, the Company’s debt to capitalization ratio was 0.52 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. The Company had $10 million outstanding at February 28, 2011 and August 31, 2010 under the commercial paper program. There were no amounts outstanding on the revolving credit facility at February 28, 2011 and August 31, 2010. The availability under the revolving credit agreement is reduced by the outstanding amount under the commercial paper program. At February 28, 2011, $390 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, 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:
                 
    February 28,     August 31,  
(in thousands)   2011     2010  
5.625% notes due November 2013 (weighted average rate of 3.5% at February 28, 2011)
  $ 203,758     $ 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 February 28, 2011)
    502,484       524,185  
CMCZ term note due May 2013
    62,803       69,716  
CMCS financing agreement
    20,705       19,006  
Other, including equipment notes
    6,342       6,710  
 
           
 
    1,196,092       1,227,870  
Less current maturities
    36,569       30,588  
 
           
 
  $ 1,159,523     $ 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.
CMCZ has a five year term note of PLN 180 million ($62.8 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 February 28, 2011 was 6.4%. The term note contains four financial covenants for CMCZ. At February 28, 2011, CMCZ was not in compliance with one 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

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effect, including the payment schedule. The guarantee will cease to be effective when CMCZ is in compliance with the financial covenant for two consecutive quarters.
CMC Sisak (“CMCS”) has a five year financing agreement of EUR 40 million ($55.2 million) which allows for disbursements as funds are needed. The loan is intended to be used for capital expenditures and other uses. At February 28, 2011, EUR 15.0 million ($20.7 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 February 28, 2011 was 5.0%.
Interest of $0.4 million and $3.2 million was capitalized in the cost of property, plant and equipment constructed for the six months ended February 28, 2011 and 2010, respectively. Interest of $36.6 million and $42.6 million was paid for the six months ended February 28, 2011 and 2010, respectively.
NOTE 9 — 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 February 28, 2011.
The following tables provide certain information regarding the foreign exchange and commodity financial instruments discussed above.
Gross foreign currency exchange contract commitments as of February 28, 2011 (in thousands):
                     
Functional Currency   Contract Currency
Type   Amount   Type   Amount
AUD
    470     EUR     344  
AUD
    429     NZD     577  
AUD
    66,783     USD     66,345  
AUD
    303     CNY     2,000  
EUR
    1,293     HRK*     9,591  
EUR
    15,413     USD     20,995  
GBP
    1,059     EUR     1,250  
GBP
    12,101     USD     19,244  
PLN
    362,168     EUR     91,443  
PLN
    101,284     USD     34,474  
PLN
    774     SEK**     1,813  
SGD
    8,811     USD     6,900  
USD
    42,125     EUR     30,663  
USD
    27,834     GBP     17,165  
USD
    1,166     JPY     97,010  
USD
    13,800     SGD***     17,622  
 
*   Croatian kuna
 
**   Swedish krona
 
***   Singapore dollar

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Commodity contract commitments as of February 28, 2011:
                 
Commodity   Long/Short   Total
Aluminum
  Long   6,525  MT
Aluminum
  Short   3,200  MT
Copper
  Long   1,632  MT
Copper
  Short   5,659  MT
Zinc
  Long   15  MT
Natural Gas
  Long   20,000  MMBtu
 
  MT = Metric Ton
 
  MMBtu = One million British thermal units
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 and six months ended February 28, 2011 and 2010. 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     Six Months Ended  
Derivatives Not Designated as Hedging       February 28,     February 28,  
Instruments   Location   2011     2010     2011     2010  
Commodity
  Cost of goods sold   $ (5,754 )   $ (5,924 )   $ (16,040 )   $ (4,748 )
Foreign exchange
  Net sales     14       (304 )     (4 )     (40 )
Foreign exchange
  Cost of goods sold     289       (469 )     869       (385 )
Foreign exchange
  SG&A expenses     2,485       1,218       (839 )     37  
 
                           
Loss before taxes
      $ (2,966 )   $ (5,479 )   $ (16,014 )   $ (5,136 )
 
                           
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 February 28, 2011, fair value hedge accounting for interest rate swap contracts increased the carrying value of debt instruments by $6.2 million.
                                     
        Three Months Ended     Six Months Ended  
Derivatives Designated as Fair Value Hedging       February 28,     February 28,  
Instruments   Location   2011     2010     2011     2010  
Foreign exchange
  SG&A expenses   $ (888 )   $ 2,646     $ (8,775 )   $ (6,041 )
Interest rate
  Interest expense     (15,315 )           6,240        
 
                           
Gain (loss) before taxes
      $ (16,203 )   $ 2,646     $ (2,535 )   $ (6,041 )
 
                           
                                         
            Three Months Ended     Six Months Ended  
Hedged (Underlying) Items Designated as Fair Value Hedging           February 28,     February 28,  
Instruments   Location     2011     2010     2011     2010  
Foreign exchange
  Net sales   $ 11     $ (55 )   $ 49     $ 6  
Foreign exchange
  SG&A expenses     884       (2,587 )     8,732       6,035  
Interest rate
  Interest expense     15,314             (6,241 )      
 
                               
Gain (loss) before taxes
          $ 16,209     $ (2,642 )   $ 2,540     $ 6,041  
 
                               
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   Six Months Ended
    February 28,   February 28,
Hedge Accounting for Interest Rate Swaps   2011   2010   2011   2010
Reductions to interest expense from periodic estimated and actual settlements of active swap agreements*
  $ 3,508     $     $ 6,792     $  
 
*   Amounts represent the net of the Company’s periodic variable-rate interest obligations and the swap counterparty’s fixed-rate interest obligations. The Company’s variable-rate obligations are based on a spread from the six-month LIBOR in arrears.

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Effective Portion of Derivatives            
Designated as Cash Flow Hedging Instruments   Three Months Ended     Six Months Ended  
Recognized in Accumulated   February 28,     February 28,  
Other Comprehensive Income (Loss)   2011     2010     2011     2010  
Commodity
  $ 355     $ (6 )   $ 392     $ 54  
Foreign exchange
    154       (60 )     171       265  
 
                       
Gain (loss), net of taxes
  $ 509     $ (66 )   $ 563     $ 319  
 
                       
                                         
Effective Portion of Derivatives                    
Designated as Cash Flow Hedging Instruments           Three Months Ended     Six Months Ended  
Reclassified from Accumulated           February 28,     February 28,  
Other Comprehensive Income (Loss)   Location     2011     2010     2011     2010  
Commodity
  Cost of goods sold   $ 53     $ 13     $ (30 )   $ (15 )
Foreign exchange
  SG&A expenses     33       (87 )     66       (117 )
Interest rate
  Interest expense     115       115       229       229  
 
                               
Gain, net of taxes
          $ 201     $ 41     $ 265     $ 97  
 
                               
The Company’s derivative instruments were recorded at their respective fair values as follows on the consolidated balance sheets (in thousands):
                 
Derivative Assets   February 28, 2011     August 31, 2010  
Commodity — designated
  $ 393     $ 80  
Commodity — not designated
    2,687       911  
Foreign exchange — designated
    359       435  
Foreign exchange — not designated
    618       1,188  
Interest rate — designated
    11,760       12,173  
Long-term interest rate — designated
    372       20,265  
 
           
Derivative assets (other current assets and other assets)*
  $ 16,189     $ 35,052  
 
           
                 
Derivative Liabilities   February 28, 2011     August 31, 2010  
Commodity — designated
  $ 17     $ 95  
Commodity — not designated
    2,819       2,817  
Foreign exchange — designated
    1,404       1,749  
Foreign exchange — not designated
    1,766       1,097  
Long-term interest rate — designated
    5,890        
 
           
Derivative liabilities (accrued expenses, other payables and long-term liabilities)*
  $ 11,896     $ 5,758  
 
           
 
*   Derivative assets and liabilities do not include the hedged (underlying) items designated as fair value hedges.
As of February 28, 2011, 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.

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NOTE 10 — 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
    February 28,   Identical Assets   Observable Inputs   Unobservable Inputs
(in thousands)   2011   (Level 1)   (Level 2)   (Level 3)
Money market investments
  $ 228,880     $ 228,880     $     $  
Derivative assets
    16,189       2,687       13,502        
Nonqualified benefit plan assets *
    54,872       54,872              
Derivative liabilities
    11,896       2,819       9,077        
Nonqualified benefit plan liabilities *
    91,080             91,080        
                                 
    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 provides a nonqualified benefit restoration plan to certain eligible executives equal to amounts that would have been available under tax qualified ERISA plans but for limitations of ERISA, tax laws and regulations. Though under no obligation to fund this plan, the Company has segregated assets in a trust. The plan assets and liabilities consist of securities included in various mutual funds.
The Company’s long-term debt is predominantly publicly held. The fair value was approximately $1.23 billion at February 28, 2011 and $1.29 billion at August 31, 2010. Fair value was determined by indicated market values.
NOTE 11 — INCOME TAXES
The Company had net refunds of $75.7 million and paid $8.7 million in income taxes during the six months ended February 28, 2011 and 2010, respectively.
Reconciliations of the United States statutory rates to the Company’s effective tax rates from continuing operations were as follows:
                                 
    Three Months Ended   Six Months Ended
    February 28,   February 28,
    2011   2010   2011   2010
Statutory rate
    35.0 %     35.0 %     35.0 %     35.0 %
State and local taxes
    0.6       2.2       0.3       2.7  
Foreign rate differential
    (11.3 )     (6.6 )     (13.0 )     (5.4 )
Increase in valuation allowance due to foreign losses without benefit (predominately Croatia)
    (4.3 )     (15.0 )     (11.6 )     (11.7 )
Domestic production activity deduction
    (1.3 )           (1.0 )      
Other
    2.7       (0.6 )     1.5       (1.0 )
 
                               
Effective rate from continuing operations
    21.4 %     15.0 %     11.2 %     19.6 %
 
                               
The Company’s effective tax rate from discontinued operations for the three and six months ended February 28, 2011 was 38.1% and 38.8%, respectively, and for the three and six months ended February 28, 2010 was 38.9% and 38.8%, respectively.
The reserve for unrecognized tax benefits relating to the accounting for uncertainty in income taxes was $20.4 million, exclusive of interest and penalties, as of February 28, 2011 and August 31, 2010.
The 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 and six months ended February 28, 2011, 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.

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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 February 28, 2011 sufficiently reflect the anticipated outcome of these examinations.
NOTE 12 — SHARE-BASED COMPENSATION
The Company recognized share-based compensation expense of $3.9 million and $3.2 million for the three months ended February 28, 2011 and 2010, respectively, and $6.0 million and $5.6 million for the six months ended February 28, 2011 and 2010, respectively, as a component of selling, general and administrative expenses. At February 28, 2011, the Company had $23.1 million of total unrecognized pre-tax compensation cost related to non-vested share-based compensation arrangements, of which, $15.1 million related to share-based awards granted during the second quarter of 2011. This cost is expected to be recognized over the next 39 months.
Combined information for shares subject to options and stock appreciation rights (“SARs”) for the six months ended February 28, 2011 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  
Granted
    112,000       16.83     16.83
Exercised
    (791,123 )     7.84       7.53 — 13.58  
Forfeited
    (36,520 )     33.54       24.57 — 35.38  
 
                 
February 28, 2011
                       
Outstanding
    3,206,373     $ 27.22     $ 7.78 — 35.38  
Exercisable
    2,793,255       27.24       7.78 — 35.38  
Share information for options and SARs at February 28, 2011:
                                         
Outstanding     Exercisable  
            Weighted                      
            Average     Weighted             Weighted  
Range of           Remaining     Average             Average  
Exercise   Number     Contractual     Exercise     Number     Exercise  
Price   Outstanding     Life (Yrs.)     Price     Outstanding     Price  
$7.78
    27,300           $ 7.78       27,300     $ 7.78  
11.00 — 14.05
    753,815       2.6       12.40       690,815       12.25  
16.83 — 24.71
    556,742       2.9       22.96       444,742       24.51  
31.75 — 35.38
    1,868,516       3.2       34.76       1,630,398       34.67  
 
                             
$7.78 — 35.38
    3,206,373       3.0     $ 27.22       2,793,255     $ 27.24  
 
                             
Of the Company’s previously granted restricted stock awards 1,934 and 19,584 shares vested during the six months ended February 28, 2011 and February 28, 2010, respectively.
During the second quarter of 2011, the Compensation Committee (the “Committee”) of the Board of Directors approved a grant to employees of approximately 670,000 restricted stock units. These awards vest over a three-year period in increments of one-third per year. The Committee also approved a grant of performance stock units. The performance awards will vest upon the achievement of certain target levels of the performance goals and objectives of the Company over the performance period of approximately three

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years. The actual number of performance awards granted will be based on the level of achievement. Upon achievement of any of the performance goals, the awards will be paid out 50% in shares of common stock of the Company and 50% in cash. The Company has accounted for the cash component of the performance award as a liability award and the value will be adjusted to fair market value each period. All equity awards are valued at the fair market value at the date of grant. Prior to vesting, the restricted stock unit and the performance stock unit recipients do not receive an amount equivalent to any dividend declared on the Company’s common stock.
NOTE 13 — 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.
                                 
    Three Months Ended   Six Months Ended
    February 28,   February 28,
    2011   2010   2011   2010
Shares outstanding for basic and diluted earnings (loss) per share
    114,736,984       113,275,457       114,528,001       112,885,377  
For the three and six months ended February 28, 2011 and 2010, 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 2018.
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 six months of 2011 and had remaining authorization to purchase 8,259,647 shares of its common stock at February 28, 2011.
NOTE 14 — 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 15 — 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

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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 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 7, 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 February 28, 2011
    Americas   International            
                                    Marketing            
                                    and            
(in thousands)   Recycling   Mills   Fabrication   Mills   Distribution   Corporate   Eliminations   Consolidated
Net sales-unaffiliated customers
  $ 411,979     $ 303,460     $ 248,410     $ 211,736     $ 610,772     $ 5,409     $     $ 1,791,766  
Intersegment sales
    38,583       174,461       3,560       9,619       11,903             (238,126 )      
Net sales
    450,562       477,921       251,970       221,355       622,675       5,409       (238,126 )     1,791,766  
Adjusted operating profit (loss)
    10,865       10,945       (49,566 )     (7,378 )     12,372       (16,468 )     (232 )     (39,462 )
                                                                 
    Three Months Ended February 28, 2010
    Americas   International            
                                    Marketing            
                                    and            
(in thousands)   Recycling   Mills   Fabrication   Mills   Distribution   Corporate   Eliminations   Consolidated
Net sales-unaffiliated customers
  $ 263,663     $ 193,836     $ 230,544     $ 107,122     $ 524,954     $ 2,324     $     $ 1,322,443  
Intersegment sales
    26,946       139,987       1,744       26,139       4,257             (199,073 )      
Net sales
    290,609       333,823       232,288       133,261       529,211       2,324       (199,073 )     1,322,443  
Adjusted operating profit (loss)
    (6,834 )     (17,860 )     (57,317 )     (54,396 )     11,079       (18,960 )     6,295       (137,993 )
                                                                 
    Six Months Ended February 28, 2011
    Americas   International            
                                    Marketing            
                                    and            
(in thousands)   Recycling   Mills   Fabrication   Mills   Distribution   Corporate   Eliminations   Consolidated
Net sales-unaffiliated customers
  $ 759,148     $ 584,241     $ 532,353     $ 435,657     $ 1,251,180     $ 11,667     $     $ 3,574,246  
Intersegment sales
    67,209       329,077       7,370       18,494       17,401             (439,551 )      
Net sales
    826,357       913,318       539,723       454,151       1,268,581       11,667       (439,551 )     3,574,246  
Adjusted operating profit (loss)
    19,057       45,088       (71,574 )     (15,044 )     36,610       (27,071 )     71       (12,863 )
Goodwill
    7,267       295       57,144       3,105       4,485                   72,296  
Total assets
    301,688       648,973       602,598       812,943       724,045       887,469       (355,385 )     3,622,331  
                                                                 
    Six Months Ended February 28, 2010
    Americas   International            
                                    Marketing            
                                    and            
(in thousands)   Recycling   Mills   Fabrication   Mills   Distribution   Corporate   Eliminations   Consolidated
Net sales-unaffiliated customers
  $ 504,161     $ 373,452     $ 490,985     $ 259,244     $ 1,090,976     $ 5,883     $     $ 2,724,701  
Intersegment sales
    51,976       267,906       3,776       57,286       11,321             (392,265 )      
Net sales
    556,137       641,358       494,761       316,530       1,102,297       5,883       (392,265 )     2,724,701  
Adjusted operating profit (loss)
    (8,044 )     (17,879 )     (66,233 )     (73,488 )     31,217       (39,164 )     10,961       (162,630 )
Goodwill
    6,961       601       57,144       2,841       4,000                   71,547  
Total assets
    235,336       599,187       707,614       641,173       678,873       966,292       (293,627 )     3,534,848  

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The following table provides a reconciliation of net loss from continuing operations attributable to CMC to adjusted operating profit (loss):
                                 
    Three Months Ended     Six Months Ended  
    February 28,     February 28,  
(in thousands)   2011     2010     2011     2010  
Net loss from continuing operations attributable to CMC
  $ (46,149 )   $ (135,161 )   $ (45,907 )   $ (163,845 )
Noncontrolling interests
    17       (91 )     108       (85 )
Income tax benefit
    (12,535 )     (23,858 )     (5,805 )     (40,053 )
Interest expense
    18,278       20,236       36,603       39,687  
Discounts on sales of accounts receivable
    927       881       2,138       1,666  
 
                       
Adjusted operating loss from continuing operations
  $ (39,462 )   $ (137,993 )   $ (12,863 )   $ (162,630 )
Adjusted operating profit (loss) from discontinued operations
    (18 )     (62,353 )     650       (66,508 )
 
                       
Adjusted operating loss
  $ (39,480 )   $ (200,346 )   $ (12,213 )   $ (229,138 )
 
                       
The following represents the Company’s external net sales from continuing operations by major product and geographic area:
                                 
    Three Months Ended     Six Months Ended  
    February 28,     February 28,  
(in thousands)   2011     2010     2011     2010  
Major product information:
                               
Steel products
  $ 963,815     $ 757,906     $ 2,018,586     $ 1,616,219  
Industrial materials
    278,062       170,060       491,908       354,685  
Non-ferrous scrap
    254,199       160,263       474,471       310,872  
Ferrous scrap
    180,968       116,651       341,387       216,752  
Construction materials
    44,236       49,816       102,463       102,317  
Non-ferrous products
    45,913       45,717       90,980       79,740  
Other
    24,573       22,030       54,451       44,116  
 
                       
Net sales
  $ 1,791,766     $ 1,322,443     $ 3,574,246     $ 2,724,701  
 
                       
                                 
    Three Months Ended     Six Months Ended  
    February 28,     February 28,  
(in thousands)   2011     2010     2011     2010  
Geographic area:
                               
United States
  $ 1,001,263     $ 702,458     $ 1,961,084     $ 1,348,024  
Europe
    362,724       246,177       779,583       533,628  
Asia
    159,399       210,219       372,995       477,824  
Australia/New Zealand
    228,316       114,807       366,917       262,141  
Other
    40,064       48,782       93,667       103,084  
 
                       
Net sales
  $ 1,791,766     $ 1,322,443     $ 3,574,246     $ 2,724,701  
 
                       

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NOTE 16 — RELATED PARTY TRANSACTIONS
One of the Company’s international subsidiaries had 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 Company owned a 50% interest in two joint ventures related to this agreement. During the second quarter of 2011, the Company sold the interest in one joint venture for approximately $1.7 million resulting in a minimal gain. The interest in the remaining joint venture is expected to be sold during the third quarter of 2011. The following presents related party transactions:
                 
    Six Months Ended
    February 28,
(in thousands)   2011   2010
Sales
  $ 131,361     $ 138,906  
Purchases
    146,407       150,314  
                 
    February 28,   August 31,
(in thousands)   2011   2010
Accounts receivable
  $ 2,613     $ 10,611  
Accounts payable
    1,075       22,603  
NOTE 17, SUBSEQUENT EVENTS
On April 5, 2011, the Company and several of its subsidiaries (together with the Company, the “Originators”) entered into a two year sale of accounts receivable program (the “Receivables Program”). Pursuant to the Receivables Program, the Company periodically contributes and the Originators periodically sell certain trade accounts receivable (the “Receivables”) to a special purpose wholly-owned subsidiary of the Company, CMC Receivables, Inc. (“CMCRV”), in accordance with a Receivables Sale Agreement between the Originators and CMCRV. CMCRV, in turn, sells the receivables in their entirety to purchasers (collectively, the “Purchasers”) pursuant to a Receivables Purchase Agreement between CMCRV, the Company, as servicer, Wells Fargo Bank, N.A., as administrative agent for the Purchasers, and the Purchasers. The Company has guaranteed the performance by the Originators of their obligations under the Receivables Sale Agreement in favor of CMCRV in accordance with a Performance Undertaking.
The Company, as servicer, and the other Originators, as sub-servicers, retain collection and administrative responsibilities for the Receivables. The continuation of the Receivables Program is subject to the performance of certain obligations and covenants by CMCRV. The maximum facility is $100 million; however, subject to certain conditions, the maximum facility may be increased up to $200 million.
The proceeds from the Receivables Program will be used to pay transactions costs, for working capital, and for other corporate purposes.

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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   Increase   Six Months Ended   Increase
    February 28,   (Decrease)   February 28,   (Decrease)
(in millions)   2011   2010   %   2011   2010   %
Net sales*
  $ 1,791.7     $ 1,322.4       35 %   $ 3,574.2     $ 2,724.7       31 %
Net loss from continuing operations attributable to CMC
    (46.2 )     (135.3 )     (66 %)     (45.9 )     (163.9 )     (72 %)
Adjusted EBITDA
    0.6       (124.1 )     100 %     67.2       (110.0 )     161 %
 
*   Excludes divisions classified as discontinued operations.
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 and amortization as well as 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. Reconciliations from net loss from continuing operations attributable to CMC to adjusted EDITDA are provided below:
                                                 
    Three Months Ended     Increase     Six Months Ended     Increase  
    February 28,     (Decrease)     February 28,     (Decrease)  
(in millions)   2011     2010     %     2011     2010     %  
Net loss from continuing operations attributable to CMC
  $ (46.2 )   $ (135.3 )     (66 %)   $ (45.9 )   $ (163.9 )     (72 %)
Interest expense
    18.3       20.2       (9 %)     36.6       39.7       (8 %)
Income tax benefit
    (12.5 )     (23.9 )     (48 %)     (5.8 )     (40.1 )     (86 %)
Depreciation, amortization and impairment charges
    41.0       40.3       2 %     81.6       81.9        
 
                                   
Adjusted EBITDA from continuing operations
  $ 0.6     $ (98.7 )     101 %   $ 66.5     $ (82.4 )     181 %
Adjusted EBITDA from discontinued operations
          (25.4 )     100 %     0.7       (27.6 )     103 %
 
                                   
Adjusted EBITDA
  $ 0.6     $ (124.1 )     100 %   $ 67.2     $ (110.0 )     161 %
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

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generate revenues. Because we use capital assets, depreciation and amortization are also necessary elements of our costs. Impairment charges, when necessary, accelerate the write-off of fixed assets that would otherwise have been accomplished by periodic depreciation charges. 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 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 second 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 55% and adjusted operating results increased $17.7 million during the second quarter of 2011 as compared to the prior year’s second quarter primarily from improved demand which drove an increase in prices and volumes.
 
    Net sales of the Americas Mills segment increased 43% and adjusted operating results increased $28.8 million from the prior year’s second quarter primarily due to higher shipments and a 16% increase in metal margins.
 
    Our Americas Fabrication segment continues to experience unfavorable market conditions due to weak commercial construction. However, this segment did show improvement over the second quarter of 2010 as sales increased 8% and adjusted operating loss decreased $7.8 million.
 
    Our International Mills segment showed a 66% increase in net sales and a $47.0 million decrease in adjusted operating loss as compared to the second quarter of 2010 primarily from strong results from our Polish mill offset by continuing losses from our mill in Croatia.
 
    Our International Marketing and Distribution segment continues its trend of positive results and reported an 18% increase in net sales and a $1.3 million increase in adjusted operating profit as compared to the second quarter of 2010.
 
    We recorded consolidated pre-tax LIFO expense of $55.7 million for the second quarter of 2011 compared to pre-tax LIFO expense of $7.4 million for the second quarter of 2010.
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 15, 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 profit (loss) before income taxes and financing costs. The following tables show net sales and adjusted operating profit (loss) by business segment:
                                 
    Three Months Ended     Six Months Ended  
    February 28,     February 28,  
(in thousands)   2011     2010     2011     2010  
Net sales:
                               
Americas Recycling
  $ 450,562     $ 290,609     $ 826,357     $ 556,137  
Americas Mills
    477,921       333,823       913,318       641,358  
Americas Fabrication
    251,970       232,288       539,723       494,761  
International Mills
    221,355       133,261       454,151       316,530  
International Marketing and Distribution
    622,675       529,211       1,268,581       1,102,297  
Corporate
    5,409       2,324       11,667       5,883  
Eliminations
    (238,126 )     (199,073 )     (439,551 )     (392,265 )
 
                       
 
  $ 1,791,766     $ 1,322,443     $ 3,574,246     $ 2,724,701  
 
                       

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    Three Months Ended   Six Months Ended
    February 28,   February 28,
(in thousands)   2011   2010   2011   2010
Adjusted operating profit (loss):
                               
Americas Recycling
  $ 10,865     $ (6,834 )   $ 19,057     $ (8,044 )
Americas Mills
    10,945       (17,860 )     45,088       (17,879 )
Americas Fabrication
    (49,566 )     (57,317 )     (71,574 )     (66,233 )
International Mills
    (7,378 )     (54,396 )     (15,044 )     (73,488 )
International Marketing and Distribution
    12,372       11,079       36,610       31,217  
Corporate
    (16,468 )     (18,960 )     (27,071 )     (39,164 )
Eliminations
    (232 )     6,295       71       10,961  
Discontinued Operations
    (18 )     (62,353 )     650       (66,508 )
LIFO Impact on Adjusted Operating Profit (Loss) LIFO is an inventory costing method that assumes the most recent inventory purchases or goods manufactured are sold first. This results in current sales prices offset against current inventory costs. In periods of rising prices it has the effect of eliminating inflationary profits from operations. In periods of declining prices it has the effect of eliminating deflationary losses from operations. In either case the goal is to reflect economic profit. The table below reflects LIFO income or (expense) representing decreases or (increases) in the LIFO inventory reserve. International Mills is not included in this table as it uses FIFO valuation exclusively for its inventory:
                                 
    Three Months Ended     Six Months Ended  
    February 28,     February 28,  
(in thousands)   2011     2010     2011     2010  
Americas Recycling
  $ (6,865 )   $ (6,686 )   $ (9,114 )   $ (6,704 )
Americas Mills
    (39,712 )     (13,903 )     (51,795 )     (16,888 )
Americas Fabrication
    (7,645 )     (5,659 )     (1,484 )     5,647  
International Marketing and Distribution
    (1,534 )     21,209       577       25,859  
Discontinued Operations
    56       (2,410 )     447       1,906  
 
                       
Consolidated pre-tax LIFO income (expense)
  $ (55,700 )   $ (7,449 )   $ (61,369 )   $ 9,820  
 
                       
Americas Recycling During the second quarter of 2011, this segment reported an increase in net sales of 55% and an improvement in operating results of $17.7 million to achieve adjusted operating profit of $10.9 million. The improvement in adjusted operating profit is primarily from increased demand and higher trending prices during the quarter. Ferrous pricing was stronger due to increased export demand, lower seasonal flows, stable U.S. mill operating rates and low user inventories. Nonferrous pricing continued to be driven by export demand, with copper prices hitting all-time highs and strong aluminum prices. We exported 5% of our ferrous scrap tonnage and 38% of our nonferrous scrap tonnage during the quarter. LIFO expense of $6.9 million in the second quarter of 2011 was consistent with the amount recorded in the second quarter of 2010.
The following table reflects our Americas Recycling segment’s average selling prices per ton and tons shipped (in thousands):
                                                                 
    Three Months Ended                   Six Months Ended    
    February 28,   Increase   February 28,   Increase
    2011   2010   Amount   %   2011   2010   Amount   %
Average ferrous sales price
  $ 352     $ 256     $ 96       38 %   $ 318     $ 235     $ 83       35 %
Average nonferrous sales price
  $ 3,385     $ 2,634     $ 751       29 %   $ 3,167     $ 2,494     $ 673       27 %
Ferrous tons shipped
    509       412       97       24 %     1,004       849       155       18 %
Nonferrous tons shipped
    64       54       10       19 %     127       112       15       13 %
Americas Mills We include our five domestic steel mills, including the scrap locations which directly support the steel mills, and our copper tube minimill in our Americas Mills segment.
Within the segment, adjusted operating profit for our five domestic steel mills was $6.9 million for the second quarter of 2011 compared to an adjusted operating loss of $18.5 million from the prior year’s second quarter. The positive results for the second quarter of 2011 were after this segment absorbed LIFO expense of $38.5 million as compared to LIFO expense of $9.3 million in the second quarter of 2010. Adjusted operating results were driven by margin expansion as selling prices remained ahead of scrap price

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increases and higher shipments, which were partially attributable to customers buying in anticipation of price increases. Commercial construction remains weak and needs a rebound from the residential construction market. Demand in the nonresidential construction market remains in infrastructure, health care and education. Our mills ran at 73% of capacity in the second quarter of 2011, an increase from the 58% utilization in the second quarter of 2010. Higher production volumes as well as price increases in alloy rates resulted in an overall increase of $7.0 million in electrode, alloys and energy costs for the second quarter in 2011 as compared to the same period in the prior year. Shipments included 98 thousand tons of billets in the second quarter of 2011 as compared to 101 thousand tons of billets in the second quarter of the prior year.
The table below reflects steel and ferrous scrap prices per ton:
                                                                 
    Three Months Ended                   Six Months Ended    
    February 28,   Increase   February 28,   Increase
    2011   2010   Amount   %   2011   2010   Amount   %
Average mill selling price (finished goods)*
  $ 689     $ 558     $ 131       23 %   $ 659     $ 555     $ 104       19 %
Average mill selling price (total sales)*
    661       526       135       26 %     633       516       117       23 %
Average cost of ferrous scrap consumed
    372       277       95       34 %     343       271       72       27 %
Average FIFO metal margin
    289       249       40       16 %     290       245       45       18 %
Average ferrous scrap purchase price
    339       251       88       35 %     312       233       79       34 %
 
*   Prior year domestic selling prices revised to eliminate net freight costs.
The table below reflects our domestic steel mills’ operating statistics (short tons in thousands):
                                                                 
    Three Months Ended                   Six Months Ended    
    February 28,   Increase   February 28,   Increase
    2011   2010   Amount   %   2011   2010   Amount   %
Tons melted
    598       486       112       23 %     1,187       965       222       23 %
Tons rolled
    514       399       115       29 %     1,020       754       266       35 %
Tons shipped
    606       521       85       16 %     1,178       1,019       159       16 %
Our copper tube minimill’s adjusted operating profit for the second quarter of 2011 increased $3.4 million to $4.0 million compared to the second quarter of 2010 primarily due to a decrease in LIFO expense of $3.4 million.
The table below reflects our copper tube minimill’s operating statistics:
                                                                 
    Three Months Ended                   Six Months Ended    
    February 28,   Increase (Decrease)   February 28,   Increase (Decrease)
(pounds in millions)   2011   2010   Amount   %   2011   2010   Amount   %
Pounds shipped
    9.7       9.7                   20.3       19.6       0.7       4 %
Pounds produced
    8.5       10.3       (1.8 )     (17 %)     18.2       19.0       (0.8 )     (4 %)
Americas Fabrication During the second quarter of 2011, this segment reported an increase in net sales of 8% and an improvement in operating results of $7.8 million to record an adjusted operating loss of $49.6 million. This segment continues to face unfavorable market conditions for downstream operations as finished goods price increases led to margin compression on contracts in backlog. The upward trend in finished goods pricing had a negative impact on results but is expected to lay a foundation for profitability as prices stabilize in the future. Additionally, backlogs are building at higher prices, allowing our integrated supply chain in recycling and mill operations to benefit. Infrastructure and public works demand continues while commercial work remains weak, especially in the West. Results were also negatively impacted by an increase in LIFO expense of $2.0 million in the second quarter of 2011 as compared to 2010. The composite average fabrication selling price was $775 per ton, 7% higher than last year’s second quarter price.

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The tables below show our average fabrication selling prices per short ton and total fabrication plant shipments:
                                                                 
    Three Months Ended                   Six Months Ended    
    February 28,   Increase   February 28,   Increase
Average selling price*   2011   2010   Amount   %   2011   2010   Amount   %
Rebar
  $ 723     $ 667     $ 56       8 %   $ 726     $ 714     $ 12       2 %
Structural
    1,995       1,861       134       7 %     1,881       1,843       38       2 %
Post
    896       868       28       3 %     901       869       32       4 %
 
* Excludes stock and buyout sales.
 
    Three Months Ended                   Six Months Ended    
    February 28,   Increase   February 28,   Increase
Tons shipped (in thousands)   2011   2010   Amount   %   2011   2010   Amount   %
Rebar
    177       165       12       7 %     390       361       29       8 %
Structural
    13       11       2       18 %     27       23       4       17 %
Post
    26       22       4       18 %     46       42       4       10 %
International Mills CMC Zawiercie (“CMCZ”) had adjusted operating profit of $4.0 million in the second quarter of 2011 as compared to an adjusted operating loss of $38.4 million in the second quarter of last year. The improvement in adjusted operating results was driven by higher prices and margin expansion as the prior year results were significantly impacted by recessionary pricing resulting in the lowest metal margins since the acquisition of the mill. Prices were also positively impacted from a better product mix from our new rolling mills. The Polish economy remained vibrant resulting in strong markets in infrastructure, engineering applications and consumer goods. Shipments included 45 thousand tons of billets in the second quarter of 2011 as compared to 59 thousand tons of billets in the second quarter of the prior year.
The table below reflects CMCZ’s operating statistics (in thousands) and average prices per short ton:
                                                                 
    Three Months Ended                   Six Months Ended    
    February 28,   Increase   February 28,   Increase
    2011   2010   Amount   %   2011   2010   Amount   %
Tons melted
    359       293       66       23 %     720       692       28       4 %
Tons rolled
    285       236       49       21 %     592       502       90       18 %
Tons shipped
    314       282       32       11 %     670       637       33       5 %
Average mill selling price (total sales)
    1,768  PLN     1,186  PLN     582  PLN     49 %     1,706  PLN     1,205  PLN     501  PLN     42 %
Average ferrous scrap production cost
    1,131  PLN     778  PLN     353  PLN     45 %     1,058  PLN     782  PLN     276  PLN     35 %
Average metal margin
    637  PLN     408  PLN     229  PLN     56 %     648  PLN     423  PLN     225  PLN     53 %
Average ferrous scrap purchase price
    958  PLN     638  PLN     320  PLN     50 %     884  PLN     635  PLN     249  PLN     39 %
Average mill selling price (total sales)
  $ 603     $ 413     $ 190       46 %   $ 583     $ 423     $ 160       38 %
Average ferrous scrap production cost
  $ 386     $ 271     $ 115       42 %   $ 362     $ 274     $ 88       32 %
Average metal margin
  $ 217     $ 142     $ 75       53 %   $ 221     $ 149     $ 72       48 %
Average ferrous scrap purchase price
  $ 328     $ 222     $ 106       48 %   $ 303     $ 223     $ 80       36 %
 
PLN   — Polish zlotys
CMC Sisak (“CMCS”) reported an adjusted operating loss of $11.3 million for the second quarter of 2011 as compared to an adjusted operating loss of $16.0 million in the second quarter of 2010. During the quarter, technical teams began to make progress in several essential operating areas. The operations for the second quarter of 2011 were negatively impacted by scheduled downtime for maintenance. The initial progress of CMCS is being achieved in quality of personnel and training, efficiency in processes and opening of markets to the sale of blooms, which is expected to be reflected in future results. CMCS melted 34 thousand tons, rolled 18 thousand tons and sold 19 thousand tons during the second quarter as compared to 19 thousand tons melted, 14 thousand tons rolled and 16 thousand tons sold during the prior year’s second quarter.

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Our fabrication operations in Poland and Germany were breakeven during the second quarter of 2011 compared to an adjusted operating loss of $4.7 million in the second quarter of 2010. These results are included in the overall results of CMCZ discussed above.
International Marketing and Distribution This segment reported its sixth consecutive profitable quarter and reported an increase in sales of 18% and an increase in adjusted operating profit of 12% to $12.4 million as compared to the second quarter of 2011. These results were achieved even though this segment recorded an increase in LIFO expense of $22.7 million in the second quarter of 2011 as compared to the second quarter of 2010. Each major geographic operation was profitable, with the Asian operations performing particularly well and a strong U.S. customer sentiment for raw material consumption. During the quarter, the U.S. steel import business benefitted from higher value products. The Australian operations were marginally profitable given the weakened state of the economy and recent weather devastations.
Corporate Our corporate expenses decreased $2.5 million and $12.1 million for the three and six months ended February 28, 2011 compared to the same periods from the prior year primarily due to cost containment initiatives and lower information technology costs.
Consolidated Data The LIFO method of inventory valuation increased our net loss from continuing operations by approximately $36 million and approximately $3 million for the second quarter of 2011 and 2010, respectively. The LIFO method of inventory valuation increased our net loss from continuing operations by approximately $40 million for the six months ended February 28, 2011 as compared to decreasing our net loss by approximately $5 million for the same period in the prior year. Our overall selling, general and administrative (“SG&A”) expenses decreased by $25.9 million, or 18%, and $35.5 million, or 13%, for the three and six months ended February 28, 2011, respectively, as compared to the same periods last year. SG&A expenses primarily declined from our cost containment initiatives and lower information technology costs.
Our interest expense decreased by $2.0 million and $3.1 million for the three and six months ended February 28, 2011, respectively, as compared to the same periods from the prior year. The decrease primarily relates to the favorable impact of interest rate swaps transactions of $3.5 million and $6.8 million for the three and six months ended February 28, 2011, respectively, offset by less capitalized interest as a result of completed capital projects during 2010.
Our effective tax rate from continuing operations for the three and six months ended February 28, 2011 was 21.4% and 11.2% as compared to 15.0% and 19.6% in the same periods of the prior year. Our effective tax rate for the three and six months ended February 28, 2011 varies from our statutory rate primarily from losses in Croatia not being tax benefitted as we may not be able to utilize them in the allowed carryforward period.
Discontinued Operations Our division classified as a discontinued operation was breakeven for the second quarter of 2011 as compared to an adjusted operating loss of $62.4 million in the second quarter of 2010. During the second quarter of 2010, we decided to exit the joist and deck business which resulted in $45.4 million in closure cost including impairment of fixed assets and intangibles, severance costs and inventory valuation charges. The results for the second quarter of 2011 include carrying costs as all locations have either been sold or ceased operations.
OUTLOOK
For the third quarter of 2011, there appears to be optimism in the world metal market. As the spring construction season begins, we expect pricing to shift from cost to demand driven. Effective sales prices should rise as previously implemented price increases take effect; with scrap pricing stabilizing, metal margins should improve. In the current environment, we expect our Americas Recycling and Mills segments to improve. We expect our Americas Fabrication segment to get some relief, but not enough to achieve profitability. We expect that sustainable growth in Northern and Central Europe, particularly Germany, will benefit our Polish operations and drive higher earnings. As management is implementing a revised operating strategy in Croatia, we expect losses at our Croatian operations to be reduced as margins improve and cost reduction efforts take effect. Our operating plan, based on assumptions we believe to be reasonable given the current economic environment, does not require any impairment charges. However, management will continuously assess performance against plan for any possible indication of impairment. We expect our raw materials operations in the U.S., Asia and Europe to maintain profitability. Absent LIFO considerations, we anticipate earnings per share between $0.15 and $0.25 for the third quarter of 2011.

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LIQUIDITY AND CAPITAL RESOURCES
See Note 8 — Credit Arrangements, to the consolidated financial statements.
We believe we have adequate access to several sources of contractually committed borrowings and other available credit facilities, however, we could be adversely affected if our banks, the potential buyers of our commercial paper or other of the traditional sources supplying our short term borrowing requirements refuse to honor their contractual commitments, cease lending or declare bankruptcy. While we believe the lending institutions participating in our credit arrangements are financially capable, recent events in the global credit markets, including the failure, takeover or rescue by various government entities of major financial institutions, have created uncertainty of credit availability to an extent not experienced in recent decades.
The table below reflects our sources, facilities and availability of liquidity and capital resources as of February 28, 2011 (dollars in thousands):
                 
    Total Facility   Availability
Cash and cash equivalents
  $ 265,021     $ N/A  
Commercial paper program*
    400,000       390,000  
International accounts receivable sales facilities
    194,838       55,815  
Bank credit facilities — uncommitted
    811,411       452,980  
Notes due from 2013 to 2018
    1,100,000       **
CMCZ term note
    62,803        
CMCS term facility
    55,214       34,509  
Trade financing arrangements
    **   As required  
Equipment notes
    6,342       **
 
*   The commercial paper program is supported by our $400 million unsecured revolving credit agreement. The availability under the revolving credit agreement is reduced by $10.0 million of commercial paper outstanding as of February 28, 2011.
 
**   With our investment grade credit ratings, we believe we have access to additional financing and refinancing, if needed.
We utilize uncommitted credit facilities to meet short-term working capital needs. Our uncommitted credit facilities primarily support import letters of credit (including accounts payable settled under bankers’ acceptances), foreign exchange transactions and short term advances.
Our 5.625% $200 million notes due November 2013, 6.50% $400 million notes due July 2017 and our 7.35% $500 million notes due August 2018 require interest only payments until maturity. Our CMCZ note requires quarterly interest and principal payments and our CMCS facility requires quarterly interest and principal payments beginning in July 2011. We expect cash from operations to be sufficient to meet all interest and principal payments due within the next twelve months, and we believe we will be able to get additional financing or refinance these notes when they mature.
Certain of our financing agreements include various financial covenants. The revolving credit facility required us to maintain a minimum interest coverage ratio (adjusted EBITDA to interest expense) of not less than 2.50 to 1.00 for the twelve month cumulative period ended February 28, 2011 and for each fiscal quarter on a rolling twelve month cumulative period thereafter. At February 28, 2011, our interest coverage ratio was 2.65 to 1.00. The debt to capitalization ratio covenant under the agreement requires us to maintain a ratio not greater than 0.60 to 1.00. At February 28, 2011, our debt to capitalization ratio was 0.52 to 1.00. Current market conditions, including volatility of metal prices, LIFO adjustments, mark to market adjustments on inventories, reserves for future job losses, the level of allowance for doubtful accounts, the amount of interest capitalized on capital projects and the effect of interest rate changes on our interest rate swaps could impact our ability to meet the interest coverage ratio for the third quarter of fiscal 2011. The revolving credit facility is used as an alternative source of liquidity. Our public debt does not contain these covenants.
The CMCZ term note contains certain financial covenants. The agreement requires a debt to equity ratio of not greater than 0.80 to 1.00, a tangible net worth to exceed PLN 600 million ($209.3 million) and a debt to EBITDA ratio not greater than 3.50 to 1.00. At February 28, 2011, CMCZ was in compliance with these covenants with a debt to equity ratio at 0.69 to 1.00, tangible net worth of PLN 674 million ($235.2 million) and a debt to EBITDA ratio at 2.95 to 1.00. Additionally, the agreement requires an interest coverage ratio of not less than 1.20 to 1.00. At February 28, 2011, CMCZ was not in compliance with this covenant which resulted in a guarantee by the Company continuing to be effective. As a result of the guarantee, the financial covenant requirements became void;

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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 this financial covenant for two consecutive quarters.
We regularly maintain a substantial amount of accounts receivable. We actively monitor our accounts receivable and record allowances as soon as we believe they are uncollectible based on current market conditions and customers’ financial condition. Continued pressure on the liquidity of our customers could result in additional reserves as we make our assessments in the future. We use credit insurance both in the U.S. and internationally to mitigate the risk of customer insolvency. We estimate the amount of credit insured receivables (and those covered by export letters of credit) was approximately 67% of total receivables at February 28, 2011.
For added flexibility, we may sell certain accounts receivable internationally. Our domestic securitization program expired on January 31, 2011. On April 5, 2011, the Company entered into a $100 million accounts receivable sale agreement. See Note 17, Subsequent Events, to the consolidated financial statements for additional information.
Cash Flows Our cash flows from operating activities primarily result from sales of steel and related products, and to a lesser extent, sales of nonferrous metal products. We also sell and rent construction-related products and accessories. We have a diverse and generally stable customer base. We use futures or forward contracts as needed to mitigate the risks from fluctuations in foreign currency exchange rates and nonferrous metals commodity prices.
During the six months ended February 28, 2011, we used $15.4 million of net cash flows from operating activities as compared to generating $13.5 million in the first six months of 2010. We generated less cash in fiscal 2011 than the same period in 2010 from fluctuations in working capital offset by a reduction in net loss. Significant fluctuations in working capital were as follows:
    Accounts receivable — accounts receivable increased for the first six months of 2011 as sales and prices continued to improve as compared to the same period in the prior year;
 
    Inventory — more cash was used in the first six months of 2011 as demand increased and we increased inventories as compared to the same period in 2010;
 
    Other Assets — more cash was generated in the first six months of 2011 due to net income tax refunds received of approximately $76 million consisting primarily of federal tax refunds.
During the six months ended February 28, 2011, we generated $30.6 million of net cash flows from investing activities as compared to using $116.5 million during the same period in the prior year. We invested $23.1 million in property, plant and equipment during 2011, a decrease of $64.2 million over 2010. Additionally, we had proceeds from the sale of property, plant and equipment and other assets of $51.9 million, an increase of $51.4 million over 2010, primarily related to the sale of certain assets of our joist business and forms from our heavy forms rental business.
We expect our total capital budget for fiscal 2011 to be approximately $125 million. We continually assess our capital spending and reevaluate our requirements based on current and expected results.
During the six months ended February 28, 2011, we used $152.5 million of net cash flows from financing activities as compared to $5.2 million during the six months ended February 28, 2010. The increase in cash used was primarily due to decreased net borrowings on short-term debt of $81.9 million and decreased documentary letters of credit of $40.5 million in the first six months of 2011. Our cash dividends have remained consistent at approximately $27 million for both periods.
Our contractual obligations for the next twelve months of approximately $905 million are typically expenditures with normal revenue producing activities. We believe our cash flows from operating activities and debt facilities are adequate to fund our ongoing operations and planned capital expenditures.

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CONTRACTUAL OBLIGATIONS
The following table represents our contractual obligations as of February 28, 2011 (dollars in thousands):
                                         
    Payments Due By Period*  
            Less than                     More than  
    Total     1 Year     1-3 Years     3-5 Years     5 Years  
Contractual obligations:
                                       
Long-term debt(1)
  $ 1,196,092     $ 36,569     $ 49,427     $ 207,593     $ 902,503  
Notes payable
    7,110       7,110                    
Interest(2)
    397,092       64,998       122,065       106,920       103,109  
Commercial paper
    10,000       10,000                    
Operating leases(3)
    142,196       40,300       54,706       28,394       18,796  
Purchase obligations(4)
    888,781       746,182       89,867       42,530       10,202  
 
                             
Total contractual cash obligations
  $ 2,641,271     $ 905,159     $ 316,065     $ 385,437     $ 1,034,610  
 
                             
 
*   We have not discounted the cash obligations in this table.
 
(1)   Total amounts are included in the February 28, 2011 consolidated balance sheet. See Note 8, Credit Arrangements, to the consolidated financial statements.
 
(2)   Interest payments related to our short-term debt are not included in the table as they do not represent a significant obligation as of February 28, 2011. Also, includes the effect of our interest rate swaps based on the LIBOR forward rate at February 28, 2011.
 
(3)   Includes minimum lease payment obligations for non-cancelable equipment and real estate leases in effect as of February 28, 2011.
 
(4)   Approximately 74% of these purchase obligations are for inventory items to be sold in the ordinary course of business. Purchase obligations include all enforceable, legally binding agreements to purchase goods or services that specify all significant terms, regardless of the duration of the agreement. Agreements with variable terms are excluded because we are unable to estimate the minimum amounts. Another significant obligation relates to capital expenditures.
Other Commercial Commitments We maintain stand-by letters of credit to provide support for certain transactions that our insurance providers and suppliers request. At February 28, 2011, we had committed $34.3 million under these arrangements, of which $29.3 million is cash collateralized. All of the commitments expire within one year.
CONTINGENCIES
See Note 14 — Commitments and Contingencies, to the consolidated financial statements.
In the ordinary course of conducting our business, we become involved in litigation, administrative proceedings and government investigations, including environmental matters. We may incur settlements, fines, penalties or judgments because of some of these matters. While we are unable to estimate precisely the ultimate dollar amount of exposure or loss in connection with these matters, we make accruals as warranted. The amounts we accrue could vary substantially from amounts we pay due to several factors including the following: evolving remediation technology, changing regulations, possible third-party contributions, the inherent shortcomings of the estimation process, and the uncertainties involved in litigation. Accordingly, we cannot always estimate a meaningful range of possible exposure. We believe that we have adequately provided in our consolidated financial statements for the potential impact of these contingencies. We also believe that the outcomes will not significantly affect the long-term results of operations or our financial position. However, they may have a material impact on operations for a particular quarter.
We are subject to Federal, state and local pollution control laws and regulations in all locations where we have operating facilities. We anticipate that compliance with these laws and regulations will involve continuing capital expenditures and operating costs.

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FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains “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, with respect to our financial condition, results of operations, cash flows and business, and our expectations or beliefs concerning future events, including net earnings (loss), economic conditions, credit availability, product pricing and demand, currency valuation, production rates, energy expense, interest rates, inventory levels, acquisitions, construction and operation of new facilities and general market conditions. These forward-looking statements can generally be identified by phrases such as we or our management “expects,” “anticipates,” “believes,” “estimates,” “intends,” “plans to,” “ought,” “could,” “will,” “should,” “likely,” “appears,” “projects,” “forecasts,” “outlook” or other similar words or phrases. There are inherent risks and uncertainties in any forward-looking statements. Variances will occur and some could be materially different from our current opinion. Developments that could impact our expectations include the following:
  absence of global economic recovery or possible recession relapse;
 
  solvency of financial institutions and their ability or willingness to lend;
 
  success or failure of governmental efforts to stimulate the economy, including restoring credit availability and confidence in a recovery;
 
  continued debt problems within the eurozone and other foreign zones;
 
  customer non-compliance with contracts;
 
  construction activity, including residential, commercial and industrial;
 
  decisions by governments affecting the level of steel imports, including tariffs and duties;
 
  litigation claims and settlements;
 
  difficulties or delays in the execution of construction contracts resulting in cost overruns or contract disputes;
 
  metals pricing over which we exert little influence;
 
  increased capacity and product availability from competing steel minimills and other steel suppliers, including import quantities and pricing;
 
  execution of cost minimization strategies;
 
  ability to retain key executives;
 
  court decisions and regulatory rulings;
 
  industry consolidation or changes in production capacity or utilization;
 
  global factors, including political and military uncertainties and acts of nature;
 
  currency fluctuations;
 
  interest rate changes;
 
  availability and pricing of raw materials, including scrap metal and energy;
 
  insurance and supply prices;

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  passage of new, or interpretation of existing, environmental laws and regulations;
 
  severe weather, especially in Poland; and
 
  the pace of overall economic activity, particularly in China.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required hereunder for the Company is not materially different from the information set forth in Item 7a. Quantitative and Qualitative Disclosures about Market Risk included in the Company’s Annual Report on Form 10-K for the year ended August 31, 2010, filed with the SEC and is, therefore, not presented herein.
Additionally, see Note 9 — Derivatives and Risk Management, to the consolidated financial statements.
ITEM 4. 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 procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files under the Exchange Act is recorded, processed, summarized and reported within required time periods, including controls and disclosures designed to ensure that this information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Our Chief Executive Officer and our Chief Financial Officer have evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this quarterly report, and they have concluded that as of that date, our disclosure controls and procedures were effective.
No change to our internal control over financial reporting occurred during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, internal control over financial reporting.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Reference is made to the information incorporated by reference from Item 3. Legal Proceedings in the Company’s Annual Report on Form 10-K filed with the SEC for the year ended August 31, 2010.
ITEM 1A. RISK FACTORS
There have been no material changes from the risk factors previously disclosed in Item 1A. Risk Factors in the Company’s Annual Report on Form 10-K filed with the SEC for the fiscal year ended August 31, 2010.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
                                 
                    Total    
                    Number of   Maximum
                    Shares   Number of
                    Purchased   Shares that
                    As Part of   May Yet Be
    Total           Publicly   Purchased
    Number of   Average   Announced   Under the
    Shares   Price Paid   Plans or   Plans or
    Purchased   Per Share   Programs   Programs
As of November 30, 2010
                            8,259,647  (1)
December 1 — December 31, 2010
    13,279  (2)     16.41             8,259,647  (1)
January 1 — January 31, 2011
    29,392  (2)     16.15             8,259,647  (1)
February 1 — February 28, 2011
    3,672  (2)     16.96             8,259,647  (1)
As of February 28, 2011
    46,343  (2)     16.29             8,259,647  (1)
 
(1)   Shares available to be purchased under the Company’s Share Repurchase Program publicly announced October 21, 2008.
 
(2)   Shares tendered to the Company by employee stock option holders in payment of the option purchase price due upon exercise.

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ITEM 3. DEFAULTS UPON SENIOR SECURITIES
     Not Applicable.
ITEM 4. (RESERVED)
ITEM 5. OTHER INFORMATION
     Not Applicable.
ITEM 6. EXHIBITS
Exhibits required by Item 601 of Regulation S-K:
     
10.1
  Form of Long-Term Cash and Equity Award Agreement (filed herewith).
 
   
10.2
  Form of Long-Term Equity Award Agreement (filed herewith).
 
   
10.3
  Receivables Sale Agreement, by and between Commercial Metals Company and several of its subsidiaries and CMC Receivables, Inc. (a special purpose wholly-owned subsidiary of Commercial Metals Company), dated as of April 5, 2011 (filed herewith).
 
   
10.4
  Receivables Purchase Agreement, by and among Commercial Metals Company, CMC Receivables, Inc. (a special purpose wholly-owned subsidiary of Commercial Metals Company), certain purchasers and Wells Fargo Bank, N.A., as administrative agent for the purchasers, dated as of April 5, 2011 (filed herewith).
 
   
10.5
  Performance Undertaking executed by Commercial Metals Company in favor of CMC Receivables, Inc. (a special purpose wholly-owned subsidiary of Commercial Metals Company), dated as of April 5, 2011 (filed herewith).
 
   
31.1
  Certification of Murray R. McClean, Chairman of the Board and Chief Executive Officer of Commercial Metals Company, pursuant to Section 302 to the Sarbanes-Oxley Act of 2002 (filed herewith).
 
   
31.2
  Certification of William B. Larson, Senior Vice President and Chief Financial Officer of Commercial Metals Company, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
 
   
32.1
  Certification of Murray R. McClean, Chairman of the Board and Chief Executive Officer of Commercial Metals Company, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).
 
   
32.2
  Certification of William B. Larson, Senior Vice President and Chief Financial Officer of Commercial Metals Company, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).
 
   
101*
  Financial statements from the quarterly report on Form 10-Q of Commercial Metals Company for the quarter ended February 28, 2011, filed on April 8, 2011, formatted in XBRL: (i) the Consolidated Balance Sheets (Unaudited), (ii) the Consolidated Statements of Operations (Unaudited), (iii) the Consolidated Statements of Cash Flows (Unaudited), (iv) the Consolidated Statements of Stockholders’ Equity (Unaudited) and (v) the Notes to Consolidated Financial Statements tagged as blocks of text (submitted electronically herewith).
 
*   In accordance with Rule 406T of Regulation S-T, the XBRL information in Exhibit 101 to this quarterly report on Form 10-Q shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (Exchange Act), or otherwise subject to the liability of that section, and shall not be incorporated by reference into any registration statement or other document filed under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.

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SIGNATURES
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
 
 
April 8, 2011  /s/ William B. Larson    
  William B. Larson   
  Senior Vice President & Chief Financial Officer   
 
     
April 8, 2011  /s/ Leon K. Rusch    
  Leon K. Rusch   
  Vice President & Controller   

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INDEX TO EXHIBITS
     
Exhibit No.   Description of Exhibit
 
   
10.1
  Form of Long-Term Cash and Equity Award Agreement (filed herewith).
 
   
10.2
  Form of Long-Term Equity Award Agreement (filed herewith).
 
   
10.3
  Receivables Sale Agreement, by and between Commercial Metals Company and several of its subsidiaries and CMC Receivables, Inc. (a special purpose wholly-owned subsidiary of Commercial Metals Company), dated as of April 5, 2011 (filed herewith).
 
   
10.4
  Receivables Purchase Agreement, by and among Commercial Metals Company, CMC Receivables, Inc. (a special purpose wholly-owned subsidiary of Commercial Metals Company), certain purchasers and Wells Fargo Bank, N.A., as administrative agent for the purchasers, dated as of April 5, 2011 (filed herewith).
 
   
10.5
  Performance Undertaking executed by Commercial Metals Company in favor of CMC Receivables, Inc. (a special purpose wholly-owned subsidiary of Commercial Metals Company), dated as of April 5, 2011 (filed herewith).
 
   
31.1
  Certification of Murray R. McClean, Chairman of the Board and Chief Executive Officer of Commercial Metals Company, pursuant to Section 302 to the Sarbanes-Oxley Act of 2002 (filed herewith).
 
   
31.2
  Certification of William B. Larson, Senior Vice President and Chief Financial Officer of Commercial Metals Company, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
 
   
32.1
  Certification of Murray R. McClean, Chairman of the Board and Chief Executive Officer of Commercial Metals Company, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).
 
   
32.2
  Certification of William B. Larson, Senior Vice President and Chief Financial Officer of Commercial Metals Company, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).
 
   
101*
  Financial statements from the quarterly report on Form 10-Q of Commercial Metals Company for the quarter ended February 28, 2011, filed on April 8, 2011, formatted in XBRL: (i) the Consolidated Balance Sheets (Unaudited), (ii) the Consolidated Statements of Operations (Unaudited), (iii) the Consolidated Statements of Cash Flows (Unaudited), (iv) the Consolidated Statements of Stockholders’ Equity (Unaudited) and (v) the Notes to Consolidated Financial Statements tagged as blocks of text (submitted electronically herewith).
 
*   In accordance with Rule 406T of Regulation S-T, the XBRL information in Exhibit 101 to this quarterly report on Form 10-Q shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (Exchange Act), or otherwise subject to the liability of that section, and shall not be incorporated by reference into any registration statement or other document filed under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.