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

 

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 of organization)		Identification Number)

6565 N. MacArthur Blvd.
Irving, Texas 75039

(Zip Code)

(214) 689-4300

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes þ No o

Indicate by check mark whether the registrant 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 (Do not check if a smaller reporting company)		Smaller reporting company o

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 6, 2009, there were 112,515,039 shares of the Company’s common stock issued and outstanding excluding 16,545,625 shares held in the Company’s treasury.

 

 

COMMERCIAL METALS COMPANY AND SUBSIDIARIES

TABLE OF CONTENTS

		PAGE NO.
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets (Unaudited) — February 28, 2009 and August 31, 2008			3
Consolidated Statements of Operations (Unaudited) — Three months and six months ended February 28, 2009 and February 29, 2008			4
Consolidated Statements of Cash Flows (Unaudited) — Six months ended February 28, 2009 and February 29, 2008			5
Consolidated Statement of Stockholders’ Equity (Unaudited) — Six months ended February 28, 2009			6
Notes to Consolidated Financial Statements (Unaudited)			7-17
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			18-26
Item 3. Quantitative and Qualitative Disclosures About Market Risk			26
Item 4. Controls and Procedures			26
PART II — OTHER INFORMATION
Items 1 — 6			27-29
Signatures			30
Index to Exhibits			31
EX-10.1
EX-31.1
EX-31.2
EX-32.1
EX-32.2

PART 1. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

COMMERCIAL METALS COMPANY AND SUBSIDIARIES

		February 28,				August 31,
(in thousands, except share data)		2009				2008
Assets
Current assets:
Cash and cash equivalents		$	114,458			$	219,026
Accounts receivable (less allowance for collection losses of $35,538 and $17,652)			989,080				1,369,453
Inventories			903,842				1,400,332
Other			185,576				228,632
Total current assets			2,192,956				3,217,443
Property, plant and equipment:
Land			83,121				84,539
Buildings and improvements			422,416				462,186
Equipment			1,271,526				1,292,832
Construction in process			334,503				256,156
			2,111,566				2,095,713
Less accumulated depreciation and amortization			(941,806	)			(941,391	)
			1,169,760				1,154,322
Goodwill			72,124				84,837
Other assets			249,173				289,769
		$	3,684,013			$	4,746,371
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable-trade		$	413,610			$	838,777
Accounts payable-documentary letters of credit			177,732				192,492
Accrued expenses and other payables			333,389				563,424
Income taxes payable and deferred income taxes			—				156
Notes payable			27				31,305
Current maturities of long-term debt			11,498				106,327
Total current liabilities			936,256				1,732,481
Deferred income taxes			51,618				50,160
Other long-term liabilities			91,702				124,171
Long-term debt			1,157,817				1,197,533
Total liabilities			2,237,393				3,104,345
Minority interests			2,804				3,643
Commitments and contingencies
Stockholders’ equity
Capital stock:
Preferred stock			—				—
Common stock, par value $0.01 per share; authorized 200,000,000 shares; issued 129,060,664 shares; outstanding 112,505,772 and 113,777,152 shares			1,290				1,290
Additional paid-in capital			372,164				371,913
Accumulated other comprehensive income (loss)			(74,327	)			112,781
Retained earnings			1,471,107				1,471,542
			1,770,234				1,957,526
Less treasury stock 16,554,892 and 15,283,512 shares at cost			(326,418	)			(319,143	)
Total stockholders’ equity			1,443,816				1,638,383
		$	3,684,013			$	4,746,371

See notes to unaudited consolidated financial statements.

COMMERCIAL METALS COMPANY AND SUBSIDIARIES

		Three Months Ended								Six Months Ended
		February 28,				February 29,				February 28,				February 29,
(in thousands, except share data)		2009				2008				2009				2008
Net sales		$	1,618,170			$	2,254,168			$	3,991,000			$	4,370,172
Costs and expenses:
Cost of goods sold			1,455,225				2,016,397				3,561,371				3,871,777
Selling, general and administrative expenses			172,884				157,411				326,394				307,410
Interest expense			17,763				14,033				43,846				26,458
			1,645,872				2,187,841				3,931,611				4,205,645
Earnings (loss) from continuing operations before income taxes and minority interests			(27,702	)			66,327				59,389				164,527
Income taxes			7,008				22,923				37,774				56,280
Earnings (loss) from continuing operations before minority interests			(34,710	)			43,404				21,615				108,247
Minority interests (benefit)			(163	)			391				(117	)			263
Earnings (loss) from continuing operations			(34,547	)			43,013				21,732				107,984
Earnings (loss) from discontinued operations before taxes			(924	)			(4,229	)			8,189				2,221
Income taxes (benefit)			(164	)			(991	)			3,222				1,266
Earnings (loss) from discontinued operations			(760	)			(3,238	)			4,967				955
Net earnings (loss)		$	(35,307	)		$	39,775			$	26,699			$	108,939
Basic earnings (loss) per share:
Earnings (loss) from continuing operations		$	(0.31	)		$	0.37			$	0.19			$	0.93
Earnings (loss) from discontinued operations			(0.01	)			(0.02	)			0.04				0.01
Net earnings (loss)		$	(0.32	)		$	0.35			$	0.23			$	0.94
Diluted earnings (loss) per share:
Earnings (loss) from continuing operations		$	(0.31	)		$	0.36			$	0.19			$	0.90
Earnings (loss) from discontinued operations			(0.01	)			(0.02	)			0.04				0.01
Net earnings (loss)		$	(0.32	)		$	0.34			$	0.23			$	0.91
Cash dividends per share		$	0.12			$	0.12			$	0.24			$	0.21
Average basic shares outstanding			111,998,128				115,139,693				112,501,326				116,354,030
Average diluted shares outstanding			111,998,128				118,028,571				113,917,263				119,200,422

See notes to unaudited consolidated financial statements.

COMMERCIAL METALS COMPANY AND SUBSIDIARIES

		Six Months Ended
		February 28,				February 29,
(in thousands)		2009				2008
Cash flows from (used by) operating activities:
Net earnings		$	26,699			$	108,939
Adjustments to reconcile net earnings to cash from (used by) operating activities:
Depreciation and amortization			78,575				63,873
Minority interests (benefit)			(117	)			263
Provision for losses on receivables			23,378				1,424
Share-based compensation			8,766				9,068
Net loss on sale of assets and other			495				102
Writedown of inventory			61,325				—
Asset impairment			5,051				409
Changes in operating assets and liabilities, net of acquisitions:
(Increase) decrease in accounts receivable			395,485				(89,404	)
Accounts receivable sold (repurchased)			(118,817	)			37,369
(Increase) decrease in inventories			319,023				(48,403	)
(Increase) decrease in other assets			60,324				(70,486	)
Decrease in accounts payable, accrued expenses, other payables and income taxes			(545,604	)			(59,406	)
Increase (decrease) in deferred income taxes			2,583				(8,051	)
Increase (decrease) in other long-term liabilities			(28,102	)			4,772
Net cash flows from (used by) operating activities			289,064				(49,531	)
Cash flows from (used by) investing activities:
Capital expenditures			(209,617	)			(144,446	)
Purchase of minority interests in CMC Zawiercie			(6	)			(130	)
Proceeds from the sale of property, plant and equipment and other			4,842				663
Acquisitions of other businesses, net of cash acquired			(900	)			(21,040	)
Net cash used by investing activities			(205,681	)			(164,953	)
Cash flows from (used by) financing activities:
Decrease in documentary letters of credit			(14,760	)			(9,392	)
Short-term borrowings, net change			(27,897	)			38,309
Repayments on long-term debt			(102,019	)			(1,201	)
Proceeds from issuance of long term debt			6,544				—
Stock issued under incentive and purchase plans			1,378				12,808
Treasury stock acquired			(18,514	)			(151,530	)
Cash dividends			(27,134	)			(24,629	)
Tax benefits from stock plans			1,346				4,101
Net cash used by financing activities			(181,056	)			(131,534	)
Effect of exchange rate changes on cash			(6,895	)			2,178
Decrease in cash and cash equivalents			(104,568	)			(343,840	)
Cash and cash equivalents at beginning of year			219,026				419,275
Cash and cash equivalents at end of period		$	114,458			$	75,435

See notes to unaudited consolidated financial statements.

COMMERCIAL METALS COMPANY AND SUBSIDIARIES

														Accumulated
		Common Stock								Additional				Other								Treasury Stock
		Number of								Paid-In				Comprehensive				Retained				Number of
(in thousands, except share data)		Shares				Amount				Capital				Income (Loss)				Earnings				Shares				Amount				Total
Balance, September 1, 2008			129,060,664			$	1,290			$	371,913			$	112,781			$	1,471,542				(15,283,512	)		$	(319,143	)		$	1,638,383
Comprehensive income (loss):
Net earnings for six months ended February 28, 2009																			26,699												26,699
Other comprehensive income (loss):
Foreign currency translation adjustment, net of taxes ($19,030)															(198,643	)															(198,643	)
Unrealized gain on derivatives, net of taxes ($2,584)															11,535																11,535
Comprehensive loss																															(160,409	)
Cash dividends																			(27,134	)											(27,134	)
Treasury stock acquired																							(1,752,900	)			(18,514	)			(18,514	)
Issuance of stock under incentive and purchase plans											(9,985	)											489,684				11,363				1,378
Share-based compensation											8,890												(8,164	)			(124	)			8,766
Tax benefits from stock plans											1,346																				1,346
Balance, February 28, 2009			129,060,664			$	1,290			$	372,164			$	(74,327	)		$	1,471,107				(16,554,892	)		$	(326,418	)		$	1,443,816

See notes to unaudited consolidated financial statements.

COMMERCIAL METALS COMPANY AND SUBSIDIARIES

NOTE 1 — QUARTERLY FINANCIAL DATA

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) on a basis consistent with that used in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) for the year ended August 31, 2008, and include all normal recurring adjustments necessary to present fairly the consolidated balance sheets and statements of operations, cash flows and stockholders’ equity for the periods indicated. These notes should be read in conjunction with such Form 10-K. The results of operations for the three and six month periods are not necessarily indicative of the results to be expected for a full year.

NOTE 2 — ACCOUNTING POLICIES

Share-Based Compensation

See Note 9, Capital Stock, to the Company’s consolidated financial statements for the year ended August 31, 2008 for a description of the Company’s stock incentive plans.

The Company recognizes share-based compensation in accordance with SFAS No. 123 (R), Share-Based Payments (“SFAS 123 (R)”), which requires compensation cost relating to share-based transactions be recognized at fair value in the financial statements. The Black-Scholes pricing model was used to calculate total compensation cost which is amortized on a straight-line basis over the vesting period of issued awards. The Company recognized share-based compensation expense of $4.7 million and $4.9 million ($0.03 per basic share and $0.03 per diluted share, respectively) for the three months ended February 28, 2009 and February 29, 2008, respectively, and $8.8 million and $9.1 million ($0.05 and $0.05 per diluted share, respectively) for the six months ended February 28, 2009 and February 29, 2008, respectively, as a component of selling, general and administrative expenses. At February 28, 2009, the Company had $11.0 million of total unrecognized compensation cost related to non-vested share-based compensation arrangements. This cost is expected to be recognized over the next 28 months. See Note 1, Summary of Significant Accounting Policies, to the Company’s consolidated financial statements for the year ended August 31, 2008 for a description of the Company’s assumptions used to calculate share-based compensation.

Combined information for shares subject to options and stock appreciation rights (“SARs”) for the six months ended February 28, 2009 were as follows:

						Weighted
						Average				Price
						Exercise				Range
		Number				Price				Per Share
September 1, 2008
Outstanding			6,221,406			$	19.60				$3.64 – 35.38
Exercisable			4,057,115				11.96				3.64 – 34.28
Granted			126,000				11.00				11.00
Exercised			(648,103	)			4.59				3.64 – 7.78
Forfeited			(36,235	)			33.12				12.31 – 35.38
February 28, 2009
Outstanding			5,663,068			$	21.04				$3.64 – 35.38
Exercisable			3,402,421				13.33				3.64 – 35.38

Share information for options and SARs at February 28, 2009:

Outstanding																		Exercisable
										Weighted
										Average				Weighted								Weighted
Range of										Remaining				Average								Average
Exercise						Number				Contractual				Exercise				Number				Exercise
Price						Outstanding				Life (Yrs.)				Price				Outstanding				Price
$	3.64 – 3.78						524,592				0.9			$	3.65				524,592			$	3.65
	5.36 – 7.78						1,356,192				2.0				7.75				1,356,192				7.75
	11.00 – 13.58						841,729				3.9				12.14				715,729				12.34
	21.81 – 24.71						558,228				4.2				24.52				360,594				24.52
	31.75 – 35.38						2,382,327				5.7				34.76				445,314				34.28
$	3.64 – 35.38						5,663,068				4.0			$	21.04				3,402,421			$	13.33

Of the Company’s previously granted restricted stock awards, 34,892 and 33,986 shares vested during the six months ended February 28, 2009 and February 29, 2008, respectively.

Intangible Assets

The total gross carrying amounts of the Company’s intangible assets that were subject to amortization were $92.0 million and $83.8 million at February 28, 2009 and August 31, 2008, respectively, and are included in other non-current assets. During the six months ended February 28, 2009, the gross carrying value of intangible assets increased due to final purchase price allocations for certain acquisitions acquired in the fourth quarter of fiscal 2008. There were no other significant changes in either the components or the lives of intangible assets during the six months ended February 28, 2009. Aggregate amortization expense for the three months ended February 28, 2009 and February 29, 2008 was $4.1 million and $1.7 million, respectively. Aggregate amortization expense for each of the six months ended February 28, 2009 and February 29, 2008 was $9.2 million and $4.0 million, respectively.

Severance Charges

During the second quarter of 2009, the Company incurred severance costs of $6.5 million related to involuntary employee terminations initiated as part of the Company’s focus on operating expense management and reductions in headcount to meet current production levels. These termination benefits have been included in selling, general and administrative expenses in the Company’s consolidated financial statements. Additionally, during 2008, the Company accrued severance costs related to the division classified as a discontinued operation of $4.1 million. As of February 28, 2009 and August 31, 2008, the remaining liability to be paid in the future related to termination benefits was $6.5 million and $4.1 million, respectively.

Impairment of Long-Lived Assets

In accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (“SFAS 144”), the Company assesses long-lived assets for impairment whenever there is an indication that the carrying amount of the assets may not be recoverable. During the second quarter of 2009, the Company recorded an impairment charge of $5.1 million to write down the value of plant, property and equipment at two divisions. This charge is included in selling, general and administrative expense in the Company’s consolidated financial statements.

NOTE 3 — SALES OF ACCOUNTS RECEIVABLE

The Company has an accounts receivable securitization program which it utilizes as a cost-effective, short-term financing alternative. Under this program, the Company and several of its subsidiaries periodically sell certain eligible trade accounts receivable to the Company’s wholly-owned consolidated special purpose subsidiary (“CMCRV”). CMCRV is structured to be a bankruptcy-remote entity and was formed for the sole purpose of buying and selling receivables generated by the Company. The Company, irrevocably and without recourse, transfers all applicable trade accounts receivable to CMCRV. CMCRV, in turn, sells an undivided percentage ownership interest in the pool of receivables to affiliates of two third party financial institutions. The agreement with the financial institution affiliates expires on April 24, 2009 and is expected to be extended during the third quarter of 2009. CMCRV may sell undivided interests of up to $200 million, depending on the Company’s level of financing needs.

The Company accounts for its transfers of receivables to CMCRV together with CMCRV’s sales of undivided interests in these receivables to the financial institutions as sales in accordance with SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities. Additionally, during the second quarter of 2009, the Company adopted FSP No. 140-4 and FIN 46(R)-8, Disclosures by Public Entities (Enterprises) about Transfers of Financial Assets and Interests in Variable

Interest Entities, to provide additional disclosures about transfers of financial assets and involvement with variable interest entities. At the time an undivided interest in the pool of receivables is sold, the amount is removed from the consolidated balance sheet and the proceeds from the sale are reflected as cash provided by operating activities.

At February 28, 2009 and August 31, 2008, accounts receivable of $322 million and $420 million, respectively, had been sold to CMCRV. The Company’s undivided interest in these receivables (representing the Company’s retained interest) was 100% at February 28, 2009 and August 31, 2008, respectively.

In addition to the securitization program described above, the Company’s international subsidiaries in Australia, Europe, Poland and a domestic subsidiary 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 $104.1 million and $222.9 million at February 28, 2009 and August 31, 2008, respectively. The average monthly amounts of international accounts receivable sold were $132.1 million and $191.8 million for the six months ended February 28, 2009 and February 29, 2008, respectively.

During the six months ended February 28, 2009, proceeds from the sale of receivables were $660.0 million and cash payments to the owners of receivables were $778.8 million. The Company is responsible for servicing the entire pool of receivables, however, no serving asset or liability is recorded as these receivables are collected in the normal course of business and the collection of receivables are normally short term in nature. Discounts on domestic and international sales of accounts receivable were $2.9 million and $5.5 million for the six months ended February 28, 2009 and February 29, 2008, respectively. These losses primarily represented the costs of funds and were included in selling, general and administrative expenses.

NOTE 4 — INVENTORIES

Inventories are stated at the lower of cost or market. Inventory cost for most domestic inventories is determined by the last-in, first-out method (“LIFO”). LIFO inventory reserves were $324.5 million and $562.3 million at February 28, 2009 and August 31, 2008. Inventory cost for international inventories and the remaining inventories are determined by the first-in, first-out method (“FIFO”). Lower of cost or market adjustments reduced inventories by $81.3 million and $13.7 million at February 28, 2009 and August 31, 2008, respectively. The majority of the Company’s inventories are in the form of finished goods, with minimal work in process. At February 28, 2009 and August 31, 2008, $49.7 million and $104.5 million, respectively, were in raw materials.

NOTE 5 — DISCONTINUED OPERATIONS

On August 30, 2007, the Company’s Board approved a plan to sell a division (the “Division”) which is involved with the buying, selling and distribution of nonferrous metals, namely copper, aluminum and stainless steel semi-finished products. The Company expected the sale to be completed in fiscal 2008, however, circumstances changed and the Division was not sold in fiscal 2008 though it did begin the process of curtailing its operations. The Company expects the majority of product lines of this Division to be sold, absorbed by other divisions of the Company or liquidated during fiscal 2009. During the three and six months ended February 28, 2009, the Division recorded LIFO income of $13.2 million and $19.4 million, respectively, as compared to LIFO expense of $0.6 million and LIFO income of $5.9 million for the three and six months ended February 29, 2008, respectively.

The Division is in the International Fabrication and Distribution segment. Financial information for the Division is as follows:

		February 28,				August 31,
		2009				2008
Current assets		$	80,863			$	83,048
Noncurrent assets			2,768				2,650
Current liabilities			24,803				31,258
Noncurrent liabilities			455				580

		Three Months Ended								Six Months Ended
		February 28,				February 29,				February 28,				February 29,
		2009				2008				2009				2008
Revenue			24,417				83,284				81,362				170,147
Earnings (loss) before taxes			(924	)			(4,229	)			8,189				2,221

NOTE 6 — CREDIT ARRANGEMENTS

At February 28, 2009, and August 31, 2008, no borrowings were outstanding under the commercial paper program or related revolving credit agreements. The Company was in compliance with these covenants at February 28, 2009.

The Company has numerous informal credit facilities available from domestic and international banks. No commitment fees or compensating balances are required under these credit facilities. These credit facilities are used in general to support import Letters of Credit (including accounts payable settled under bankers’ acceptances as described in Note 1. Summary of Significant Accounting Polices in the Company’s consolidated financial statements for the year ended August 31, 2008), foreign exchange and short term advances which are priced on a cost of funds basis.

Long-term debt was as follows:

		February 28,				August 31,
(in thousands)		2009				2008
6.75% notes due February 2009		$	––			$	100,000
5.625% notes due November 2013			200,000				200,000
6.50% notes due July 2017			400,000				400,000
7.35% notes due August 2018			500,000				500,000
CMCZ term note due May 2013			47,806				77,037
CMCP term note due August 2013			13,659				17,608
Other, including equipment notes			7,850				9,215
			1,169,315				1,303,860
Less current maturities			11,498				106,327
		$	1,157,817			$	1,197,533

As of February 28, 2009, the Company was in compliance with all debt requirements for these notes. Interest on the notes, except for the CMC Zawiercie (“CMCZ”) and CMC Poland (“CMCP”) notes, is payable semiannually.

In February 2009, the Company repaid the $100 million of 6.75% coupon rate notes.

CMCZ has a revolving credit facility with maximum borrowings of PLN 100 million ($27.3 million) bearing interest at the Warsaw Interbank Offered Rate (“WIBOR”) plus 0.5%. This facility expires on June 3, 2009 and is expected to be extended during the third quarter of 2009. At February 28, 2009, no amounts were outstanding under this facility. The revolving credit facility contains certain financial covenants for CMCZ. CMCZ was in compliance with these covenants at February 28, 2009. There are no guarantees by the Company or any of its subsidiaries for any of CMCZ’s debt.

CMCZ has a five year term note of PLN 400 million ($109.3 million) with a group of four banks. At February 28, 2009, the notes had an outstanding balance of PLN 175 million ($47.8 million). The note has scheduled principal and interest payments in 15 equal quarterly installments beginning in November 2009. Interest is accrued at WIBOR plus 0.79%. The weighted average rate at February 28, 2009 was 6.47%. There are no guarantees by the Company or any of its subsidiaries for any of CMCZ’s debt.

CMCP has a five year term note of PLN 80 million ($21.9 million) with two banks. At February 28, 2009, the notes had an outstanding balance of PLN 50 million ($13.7 million). The note has scheduled principal and interest payments in 17 equal quarterly installments beginning in August 2009. The interest rate is variable based on the WIBOR, plus an applicable margin. The weighted average rate at February 28, 2009 was 6.9%. The term note is guaranteed by Commercial Metals International.

CMCP owns and operates equipment at the CMCZ mill site. In connection with the equipment purchase, CMCP issued equipment notes under a term agreement dated September 2005 with PLN 8.9 million ($2.4 million) outstanding at February 28, 2009. Installment payments under these notes are due through 2010. Interest rates are variable based on the Poland Monetary Policy Council’s rediscount rate, plus an applicable margin. The weighted average rate at February 28, 2009 was 5.7%. The notes are secured by shredder equipment.

CMC Sisak had current notes to banks with maximum borrowings of HRK 140 million ($24.9 million). The outstanding balance in the amount of $24.8 million was repaid in December 2008.

Interest of $4.7 million and $1.9 million was capitalized in the cost of property, plant and equipment constructed in the six months ended February 28, 2009 and February 29, 2008, respectively. Interest of $49.6 million and $27.5 million was paid in the six months ended February 28, 2009 and February 29, 2008, respectively.

NOTE 7 — INCOME TAXES

The Company paid $10.8 million and $74.7 million in income taxes during the six months ended February 28, 2009 and February 29, 2008, 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 29,				February 28,				February 29,
		2009				2008				2009				2008
Statutory rate			35.0	%			35.0	%			35.0	%			35.0	%
State and local taxes			(24.5	)			3.5				15.4				2.3
Foreign rate differential			(45.3	)			(2.6	)			18.7				(2.0	)
Domestic production activity deduction			4.2				(0.8	)			(3.4	)			(1.0	)
Other			5.3				(0.5	)			(2.1	)			(0.1	)
Effective rate			(25.3	)%			34.6	%			63.6	%			34.2	%

The tax rate for the three and six months ended February 28, 2009 varies significantly from the Company’s statutory rate due to lower tax rate jurisdictions (predominately International) incurring losses, higher tax rate jurisdictions generating income and the effect of permanent differences having a greater impact at lower levels of pre-tax income (loss).

On September 1, 2007, the Company adopted FIN 48, Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement 109 (“FIN 48”), for accounting for uncertainty in income taxes recognized in the financial statements. FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. As a result of the adoption of FIN 48, the Company recognized an asset of $0.8 million and an increase to reserves of $5.8 million related to uncertain tax positions, including $1.6 million in interest and penalties, which were accounted for as a net reduction of $5.0 million to the September 1, 2007 balance of retained earnings.

As of February 28, 2009, the reserve for unrecognized tax benefits was $4.8 million exclusive of interest and penalties. If recognized, $2.4 million would impact the Company’s effective tax rate. The difference between the total amount of unrecognized tax benefits and the amounts that would impact the effective tax rate relates to amounts attributable to deferred income tax assets and liabilities. These amounts are net of federal and state income taxes. During the second quarter of 2009, the Company recorded a decrease in FIN 48 liabilities of approximately $10.3 million, of which $10.1 million was a decrease related to the timing of compensation deductions. In addition, the corresponding deferred tax asset associated with the benefit relating to the timing of compensation deductions was also reduced by $10.1 million in the consolidated balance sheet.

The Company classifies any interest recognized on an underpayment of income taxes as interest expense and classifies any statutory penalties recognized on a tax position taken as selling, general and administrative expense. At February 28, 2009, before any tax benefits, the Company had $2.0 million of accrued interest and penalties on unrecognized tax benefits. During the six months ended February 28, 2009, the Company recognized a reduction to interest expense of $2.6 million and statutory penalties of $1.5 million.

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 up to $1.2 million.

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

U.S Federal — 2006 and forward
U.S. States — 2004 and forward
Foreign — 2001 and forward

During the six months ended February 28, 2009, the Company received a refund from the Internal Revenue Service (“IRS”) relating to the fiscal year ended August 31, 2002 in the amount of $2.1 million which included interest of $0.4 million. The IRS is examining the Company’s federal tax return for fiscal year 2006. The Company believes the recorded tax liabilities as of February 28, 2009 are sufficient, and the Company does not anticipate material adjustments to be made by the IRS upon the completion of their examination.

NOTE 8 — STOCKHOLDERS’ EQUITY AND EARNINGS PER SHARE

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

		Three Months Ended								Six Months Ended
		February 28,				February 29,				February 28,				February 29,
		2009				2008				2009				2008
Shares outstanding for basic earnings per share			111,998,128				115,139,693				112,501,326				116,354,030
Effect of dilutive securities:
Stock based incentive/purchase plans			—				2,888,878				1,415,937				2,846,392
Shares outstanding for diluted earnings per share			111,998,128				118,028,571				113,917,263				119,200,422

For the three months ended February 28, 2009, no stock options, restricted stock, or Stock Appreciation Rights (“SARs”) were included in the calculation of dilutive shares because the Company reported a loss from continuing operations.  For the six months ended February 28, 2009 and February 29, 2008, stock options and SARs of 3.8 million and 1.4 million were antidilutive and therefore excluded from the calculation of diluted earnings per share. All stock options and SARs expire by 2016.

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

For the six months ended February 28, 2009, the Company purchased 1,752,900 common shares for treasury. The Company’s board of directors authorized the purchase of an additional 10,000,000 shares on October 21, 2008 and the Company had remaining authorization to purchase 8,259,647 of its common stock at February 28, 2009.

NOTE 9 — DERIVATIVES AND RISK MANAGEMENT

On December 1, 2008, the Company adopted SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133 (“SFAS 161”), which requires enhanced disclosures about a company’s derivative instruments and hedging activities. The adoption of SFAS 161 did not have any financial impact on the Company’s consolidated financial statements.

The Company’s worldwide operations and product lines expose it to risks from fluctuations in metals commodity prices, foreign currency exchange rates and natural gas. The objective of the Company’s risk management program is to mitigate these risks using futures or forward contracts (derivative instruments). The Company enters into metal commodity futures 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 increase of operating cost due to the volatility of natural gas prices. Also, 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 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, 2009 (in thousands):

Functional Currency						Contract Currency
Type		Amount				Type		Amount
AUD			96			EUR			49
AUD			27			GBP			12
AUD			223,448			USD			145,108
EUR			2,637			USD			3,410
GBP			4,419			EUR			4,931
GBP			4,352			USD			6,031
HRK*			57,652			USD			10,122
PLN			268,317			EUR			65,438
PLN			11,888			USD			3,139
SGD**			1,964			USD			1,315
USD			208,890			EUR			164,568
USD			23,589			GBP			16,600
USD			1,220			JPY			116,275
USD			5,733			SGD**			8,800

Commodity contract commitments as of February 28, 2009:

Commodity		Long/ Short		Total
Aluminum		Long		9,675 MT
Aluminum		Short		2,325 MT
Copper		Long		2,700 MT
Copper		Short		3,733 MT
Natural Gas		Long		240,000 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 and six months ended February 28, 2009. Certain of the foreign currency and commodity contracts were not designated as hedges for accounting purposes, although management believes they are essential economic hedges.

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

Derivatives Not Designated as Hedging				Three Months Ended				Six Months Ended
Instruments		Location		February 28, 2009				February 28, 2009
Commodity		Cost of goods sold		$	(14,260	)		$	10,387
Foreign exchange		Net sales			13,317				62,771
Foreign exchange		Cost of goods sold			11				(5	)
Foreign exchange		SG&A expenses			(5,450	)			(8,283	)
Other		SG&A expenses			(696	)			(862	)
Gain (loss) recognized into operations before taxes				$	(7,078	)		$	64,008

The Company’s fair value hedges are designated for accounting purposes with gains and losses on the hedged item (underlying) items offsetting the gain or loss on the related derivative transaction. Hedged (underlying) items mainly relate to firm commitments on commercial sales and purchases and capital expenditures.

Derivatives Designated as Fair Value Hedging				Three Months Ended				Six Months Ended
Instruments		Location		February 28, 2009				February 28, 2009
Foreign exchange		Net sales		$	54			$	55
Foreign exchange		Cost of goods sold			(12,706	)			17
Gain (loss) recognized into operations before taxes				$	(12,652	)		$	72

Hedged (Underlying) Items Designated as Fair				Three Months Ended				Six Months Ended
Value Hedging Instruments		Location		February 28, 2009				February 28, 2009
Foreign exchange		Net sales		$	103			$	(55	)
Foreign exchange		Cost of goods sold			12,708				(17	)
Gain (loss) recognized into operations before taxes				$	12,811			$	(72	)

Effective Portion of Derivatives Designated as		Three Months Ended				Six Months Ended
Cash Flow Hedging Instruments		February 28, 2009				February 28, 2009
Commodity		$	115			$	(694	)
Foreign exchange			7,501				13,662
Gain recognized in other comprehensive loss, net of taxes		$	7,616			$	12,968

Effective Portion of Derivatives Designated as				Three Months Ended				Six Months Ended
Cash Flow Hedging Instruments		Location		February 28, 2009				February 28, 2009
Commodity		Cost of goods sold		$	(435	)		$	113
Foreign exchange		Net sales			(36	)			(80	)
Interest rate		Interest expense			115				229
Gain (loss) reclassified from other comprehensive loss into operations, net of taxes				$	(356	)		$	262

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

		February 28, 2009
Commodity – designated		$	16
Commodity – not designated			712
Foreign exchange – designated			9,761
Foreign exchange – not designated			2,559
Derivative assets (other current assets)*		$	13,048

		February 28, 2009
Commodity – designated		$	144
Commodity – not designated			14,594
Foreign exchange – designated			656
Foreign exchange – not designated			2,806
Derivative liabilities (accrued expenses and other payables)*		$	18,200

During the twelve months following February 28, 2009, $0.7 million in gains related to commodity hedges and capital expenditures are anticipated to be reclassified into net earnings (loss) as the related transactions mature and the assets are placed into service, respectively. Also, an additional $0.5 million in gains will be reclassified as interest expense related to an interest rate lock.

As of February 28, 2009, 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 six months.

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

NOTE 10 — FAIR VALUE

On September 1, 2008, the Company adopted SFAS No. 159, The Fair Value Option for Financial Assets and Liabilities (“SFAS 159”), which permits entities to choose to measure certain financial assets and liabilities at fair value. The adoption of SFAS 159 had no impact on the consolidated financial statements because the Company did not elect the fair value option for any financial assets or financial liabilities that were not already recorded at fair value.

On September 1, 2008, the Company adopted SFAS No. 157, Fair Value Measurements (“SFAS 157”), which defines fair value, establishes a framework for measuring fair value in GAAP, and expands disclosure about fair value measurements. The adoption of SFAS 157 did not have a material impact on the Company’s consolidated financial statements. In February 2008, the Financial Accounting Standards Board (“FASB”) issued Staff Position No. FAS 157-2, Effective Date of FASB Statement No. 157, which delayed the effective date of SFAS 157 for nonfinancial assets and nonfinancial liabilities. The Company is currently evaluating the potential impact of SFAS 157 as it relates to nonfinancial assets and nonfinancial liabilities on the consolidated financial statements which is effective for the first quarter of fiscal 2010.

SFAS 157 establishes 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 are measured at fair value:

						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)		2009				(Level 1)				(Level 2)				(Level 3)
Cash equivalents		$	81,186			$	81,186			$	—			$	—
Derivative assets			13,048				—				13,048				—
Nonqualified benefit plan assets *			43,171				—				43,171				—
Derivative liabilities			18,200				—				18,200				—
Nonqualified benefit plan liabilities *			71,235				—				71,235				—

NOTE 11 — COMMITMENTS AND CONTINGENCIES

See Note 11, Commitments and Contingencies, to the consolidated financial statements for the year ended August 31, 2008 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 provision has 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 for a particular quarter.

Guarantees In February 2007, the Company entered into a guarantee agreement with a bank in connection with a credit facility granted by the bank to a supplier of the Company. The fair value of the guarantee is negligible. As of February 28, 2009, the maximum credit facility with the bank was $80 million and the maximum Company exposure was $3.3 million.

NOTE 12 — 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.

The Company structures the business into the following five segments: Americas Recycling, Americas Mills, Americas Fabrication and Distribution, International Mills and International Fabrication and Distribution.

The Americas Recycling segment consists of the scrap metal processing and sales operations primarily in Texas, Florida and the southern United States including the scrap processing facilities which directly support the Company’s domestic steel mills. The Americas Mills segment includes the Company’s domestic steel minimills and the copper tube minimill. The copper tube minimill is aggregated with the Company’s steel minimills because it has similar economic characteristics. The Americas Fabrication and Distribution segment consists of the Company’s rebar and joist and deck fabrication operations, fence post manufacturing plants, construction-related and other products facilities. Additionally, the Americas Fabrication and Distribution consists of the CMC Dallas Trading division which markets and distributes steel semi-finished long and flat products into the Americas from a diverse base of international and domestic sources. The International Mills segment includes the minimills in Poland and Croatia and subsidiaries in Poland which have been presented as a separate segment because the economic characteristics of their markets and the regulatory environment in which they operate are different from that of the Company’s domestic minimills. International Fabrication and Distribution includes international operations for the sales, distribution and processing of both ferrous and nonferrous metals and other industrial products in addition to rebar fabrication operations in Europe. The domestic and international distribution operations consist only of physical transactions and not positions taken for speculation. Corporate contains expenses of the Company’s corporate headquarters, expenses related to its deployment of SAP, and interest expense relating to its long-term public debt and commercial paper program.

The financial information presented for the International Fabrication and Distribution segment includes its copper, aluminum, and stainless steel import operating division. This division has been classified as a discontinued operation in the consolidated financial statements. Net sales of this division have been removed in the eliminations/discontinued operations column in the table below to reconcile net sales by segment to net sales in the consolidated financial statements. See Note 5 for more detailed information.

The Company uses adjusted operating profit 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 in the Company’s 10-K for the year ended August 31, 2008.

The following is a summary of certain financial information by reportable segment:

		Three Months Ended February 28, 2009
		Americas												International
										Fabrication								Fabrication								Eliminations/
										and								and								Discontinued
(in thousands)		Recycling				Mills				Distribution				Mills				Distribution				Corporate				Operations				Consolidated
Net sales-unaffiliated customers		$	106,375			$	176,252			$	681,370			$	107,631			$	574,278			$	(3,319	)		$	(24,417	)		$	1,618,170
Intersegment sales			32,416				105,038				4,168				29,035				13,471				—				(184,128	)			—
Net sales			138,791				281,290				685,538				136,666				587,749				(3,319	)			(208,545	)			1,618,170
Adjusted operating profit (loss)			(36,178	)			73,085				16,972				(24,324	)			(11,838	)			(21,713	)			(5,685	)			(9,681	)

		Three Months Ended February 29, 2008
		Americas												International
										Fabrication								Fabrication								Eliminations/
										and								and								Discontinued
(in thousands)		Recycling				Mills				Distribution				Mills				Distribution				Corporate				Operations				Consolidated
Net sales-unaffiliated customers		$	400,108			$	326,486			$	634,446			$	233,520			$	749,142			$	(6,250	)		$	(83,284	)		$	2,254,168
Intersegment sales			77,922				141,304				2,456				12,366				3,391				—				(237,439	)			—
Net sales			478,030				467,790				636,902				245,886				752,533				(6,250	)			(320,723	)			2,254,168
Adjusted operating profit (loss)			25,634				55,263				(7,638	)			9,651				21,708				(31,360	)			5,567				78,825

		Six Months Ended February 28, 2009
		Americas												International
										Fabrication								Fabrication								Eliminations/
										and								and								Discontinued
(in thousands)		Recycling				Mills				Distribution				Mills				Distribution				Corporate				Operations				Consolidated
Net sales-unaffiliated customers		$	323,050			$	412,831			$	1,594,455			$	278,431			$	1,492,353			$	(28,758	)		$	(81,362	)		$	3,991,000
Intersegment sales			76,191				255,943				7,820				82,306				25,989				—				(448,249	)			—
Net sales			399,241				668,774				1,602,275				360,737				1,518,342				(28,758	)			(529,611	)			3,991,000
Adjusted operating profit (loss)			(64,131	)			191,785				83,600				(41,059	)			3,047				(42,593	)			(15,760	)			114,889
Goodwill			7,467				—				58,422				544				5,691				—				—				72,124
Total assets			217,946				579,425				1,327,464				398,624				846,438				314,116				—				3,684,013

		Six Months Ended February 29, 2008
		Americas												International
										Fabrication								Fabrication								Eliminations/
										and								and								Discontinued
(in thousands)		Recycling				Mills				Distribution				Mills				Distribution				Corporate				Operations				Consolidated
Net sales-unaffiliated customers		$	769,370			$	607,575			$	1,272,246			$	400,257			$	1,490,955			$	(84	)		$	(170,147	)		$	4,370,172
Intersegment sales			134,025				263,025				5,944				13,807				18,970				—				(435,771	)			—
Net sales			903,395				870,600				1,278,190				414,064				1,509,925				(84	)			(605,918	)			4,370,172
Adjusted operating profit (loss)			42,511				124,476				22,798				9,074				48,267				(45,641	)			(2,863	)			198,622
Goodwill			7,467				—				28,623				—				5,419				—				—				41,509
Total assets			340,682				549,584				1,097,517				524,087				868,070				217,172				—				3,597,112

The following table provides a reconciliation of consolidated adjusted operating profit to net earnings (loss):

		Three Months Ended								Six Months Ended
		February 28,				February 29,				February 28,				February 29,
(in thousands)		2009				2008				2009				2008
Net earnings (loss)		$	(35,307	)		$	39,775			$	26,699			$	108,939
Minority interests (benefit)			(163	)			391				(117	)			263
Income taxes			6,844				21,932				40,996				57,546
Interest expense			17,944				13,990				44,392				26,368
Discounts on sales of accounts receivable			1,001				2,737				2,919				5,506
Adjusted operating profit (loss)		$	(9,681	)		$	78,825			$	114,889			$	198,622
Adjusted operating profit (loss) from discontinued operations			(743	)			(3,972	)			8,735				2,829
Adjusted operating profit (loss) from continuing operations		$	(8,938	)		$	82,797			$	106,154			$	195,793

The following presents external net sales by major product and geographic area for the Company:

		Three Months Ended								Six Months Ended
		February 28,				February 29,				February 28,				February 29,
(in thousands)		2009				2008				2009				2008
Major product information:
Steel products		$	1,124,150			$	1,440,186			$	2,782,619			$	2,768,939
Industrial materials			273,724				257,310				612,638				494,947
Construction materials			73,442				67,039				155,419				140,656
Ferrous scrap			57,013				171,393				145,677				334,503
Nonferrous scrap			54,537				234,155				188,945				441,811
Non-ferrous products			24,666				69,339				77,107				147,458
Other			10,638				14,746				28,595				41,858
Net sales*		$	1,618,170			$	2,254,168			$	3,991,000			$	4,370,172

		Three Months Ended								Six Months Ended
		February 28,				February 29,				February 28,				February 29,
(in thousands)		2009				2008				2009				2008
Geographic area:
United States		$	1,032,030			$	1,300,568			$	2,499,512			$	2,549,760
Europe			266,201				534,914				757,481				976,029
Asia			173,408				207,486				318,577				389,573
Australia/New Zealand			116,896				124,091				307,166				272,899
Other			29,635				87,109				108,264				181,911
Net sales*		$	1,618,170			$	2,254,168			$	3,991,000			$	4,370,172

NOTE 13 — RELATED PARTY TRANSACTIONS

One of the Company’s international subsidiaries has an agreement with a key supplier of which the Company owns an 11% interest. Net sales to this related party were $165 million and $172 million for the six months ended February 28, 2009 and February 29, 2008, respectively. Total purchases from this supplier were $195 million and $184 million for the six months ended February 28, 2009 and February 29, 2008, respectively. Accounts receivable from the affiliated company were $33 million and $47 million at February 28, 2009 and August 31, 2008, respectively. Accounts payable to the affiliated company were $18 million and $35 million at February 28, 2009 and August 31, 2008, respectively.

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

This Management’s Discussion and Analysis should be read in conjunction with our Form 10-K filed with the Securities and Exchange Commission (“SEC”) for the year ended August 31, 2008.

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 Form 10-K filed with the SEC for the year ended August 31, 2008 and are, therefore, not presented herein.

CONSOLIDATED RESULTS OF OPERATIONS

		Three Months Ended												Six Months Ended
		February 28,				February 29,				Decrease				February 28,				February 29,				Decrease
(in millions)		2009				2008				%				2009				2008				%
Net sales*		$	1,618.2			$	2,254.2				(28	%)		$	3,991.0			$	4,370.2				(9	%)
Net earnings (loss)			(35.3	)			39.8				(189	%)			26.7				108.9				(75	%)
EBITDA			26.8				108.0				(75	%)			190.7				256.7				(26	%)

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 EBITDA (earnings (loss) before interest expense, income taxes, depreciation and amortization) as a non-GAAP performance measure. In calculating EBITDA, we exclude our largest recurring non-cash charge, depreciation and amortization. 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 EBITDA. The results are, therefore, without consideration of financing alternatives of capital employed. We use EBITDA as one guideline to assess our unleveraged performance return on our investments. EBITDA is also the target benchmark for our long-term cash incentive performance plan for management. Reconciliations to net earnings (loss) are provided below:

		Three Months Ended								Increase				Six Months Ended								Increase
		February 28,				February 29,				(Decrease)				February 28,				February 29,				(Decrease)
(in millions)		2009				2008				%				2009				2008				%
Net earnings (loss)		$	(35.3	)		$	39.8				(189	%)		$	26.7			$	108.9				(75	%)
Interest expense			18.0				14.0				29	%			44.4				26.4				68	%
Income taxes			6.8				21.9				(69	%)			41.0				57.5				(29	%)
Depreciation and amortization			37.3				32.3				15	%			78.6				63.9				23	%
EBITDA		$	26.8			$	108.0				(75	%)		$	190.7			$	256.7				(26	%)
EBITDA from discontinued operations			(0.6	)			(4.0	)			85	%			8.9				2.9				207	%
EBITDA from continuing operations		$	27.4			$	112.0				(76	%)		$	181.8			$	253.8				(28	%)

Our EBITDA does not include interest expense, income taxes and depreciation and amortization. Because we have borrowed money in order to finance our operations, interest expense is a necessary element of our costs and our ability to generate revenues. Because we use capital assets, depreciation and amortization are also necessary elements of our costs. Also, the payment of income taxes is a necessary element of our operations. Therefore, any measures that exclude these elements have material limitations. To compensate for these limitations, we believe that it is appropriate to consider both net earnings (loss) determined under GAAP, as well as EBITDA, to evaluate our performance. Also, we separately analyze any significant fluctuations in interest expense, depreciation and amortization and income taxes.

The following events and performances had a significant impact during our second quarter ended February 28, 2009:

	•		In response to price declines, demand destruction, and a global liquidity and credit crisis, we recorded the following consolidated expenses during the second quarter: lower of cost or market inventory adjustments of $61.3 million, other charges relating to contractual noncompliance exposures, environmental exposures, and discontinued operations of $15.6 million, bad debt expense of $14.6 million, severance costs of $6.5 million and impairment charges of $5.1 million.
	•		We experienced volatile foreign exchange rates during the second quarter of 2009 which resulted in a decrease in adjusted operating loss of approximately $9 million. Additionally, the strengthening U.S. dollar during the six months ended February

			28, 2009 caused significant translation adjustments of $199 million, net of taxes, which reduced our total stockholders’ equity from our fiscal year end of 2008.
	•		We recorded a quarterly record of pre-tax LIFO income of $124.2 million (after tax of $0.72 per diluted share) for the second quarter of 2009 compared to pre-tax LIFO expense of $59.0 million (after tax of $0.32 per diluted share) for the second quarter of 2008.
	•		Net sales of the Americas Recycling segment decreased 71% compared to the prior year’s second quarter and this segment experienced an adjusted operating loss of $36.2 million primarily due to a combined decline in scrap prices and shipments during the quarter.
	•		Adjusted operating profit of the Americas Mills segment increased 32% to $73.1 million compared to the prior year’s second quarter primarily due to $52.6 million of pre-tax LIFO income. Even though the average selling price increased during the quarter, net sales decreased 40% due to product mix and a decline in shipments.
	•		Our Americas Fabrication and Distribution segment showed strong results as net sales rose 8% over the prior year’s second quarter and adjusted operating profit increased to $17.0 million mainly due to margin expansion from the deflation in material costs coupled with a 22% increase in average selling prices.
	•		Our International Mills segment showed a 44% decline in net sales compared to the prior year’s second quarter and adjusted operating loss increased to $24.3 million caused primarily from deteriorating financial conditions in Poland and market adjustments on inventory and continued high production costs in Croatia.
	•		Our International Fabrication and Distribution segment showed a 22% decrease in net sales compared to the prior year’s second quarter and adjusted operating loss increased to $11.8 million caused by reductions in market demand and inventory valuation adjustments due to declining prices.
	•		Expense of $14.6 million and capital expenditures of $6.8 million were recorded as compared to expense of $14.7 million and capital expenditures of $9.2 million during the second quarter of 2008 related to the global implementation of SAP.

SEGMENT OPERATING DATA

Unless otherwise indicated, all dollar amounts below are calculated before minority interests and 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 12, Business Segments, to the consolidated financial statements.

We use adjusted operating profit (loss) to compare and evaluate the financial performance of our segments. Adjusted operating profit (loss) is the sum of our earnings (loss) before income taxes and financing costs. Adjusted operating profit (loss) is equal to earnings (loss) before income taxes for Americas Mills and Americas Fabrication and Distribution segments because these segments require minimal outside financing.

The following table shows net sales and adjusted operating profit (loss) by business segment:

		Three Months Ended								Increase				Six Months Ended								Increase
		February 28,				February 29,				(Decrease)				February 28,				February 29,				(Decrease)
(in thousands)		2009				2008				%				2009				2008				%
Net sales:
Americas Recycling		$	138,791			$	478,030				(71	%)		$	399,241			$	903,395				(56	%)
Americas Mills			281,290				467,790				(40	%)			668,774				870,600				(23	%)
Americas Fabrication and Distribution			685,538				636,902				8	%			1,602,275				1,278,190				25	%
International Mills			136,666				245,886				(44	%)			360,737				414,064				(13	%)
International Fabrication and Distribution			587,749				752,533				(22	%)			1,518,342				1,509,925				1	%
Corporate			(3,319	)			(6,250	)			47	%			(28,758	)			(84	)			(34,136	%)
Eliminations/Discontinued Operations			(208,545	)			(320,723	)			35	%			(529,611	)			(605,918	)			13	%
		$	1,618,170			$	2,254,168				(28	%)		$	3,991,000			$	4,370,172				(9	%)