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 incorporation of organization)		(I.R.S. Employer 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 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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes o 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 July 6, 2009, there were 112,530,648 shares of the Company’s common stock issued and outstanding excluding 16,530,016 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) — May 31, 2009 and August 31, 2008			3
Consolidated Statements of Operations (Unaudited) — Three months and nine months ended May 31, 2009 and May 31, 2008			4
Consolidated Statements of Cash Flows (Unaudited) — Nine months ended May 31, 2009 and May 31, 2008			5
Consolidated Statement of Stockholders’ Equity (Unaudited) — Nine months ended May 31, 2009			6
Notes to Consolidated Financial Statements (Unaudited)			7-18
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			19-28
Item 3. Quantitative and Qualitative Disclosures About Market Risk			28
Item 4. Controls and Procedures			28
PART II — OTHER INFORMATION
Items 1 — 6			28-30
Signatures			31
Index to Exhibits			32
EX-31.1
EX-31.2
EX-32.1
EX-32.2

PART 1. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

		May 31,				August 31,
(in thousands, except share data)		2009				2008
Assets
Current assets:
Cash and cash equivalents		$	441,389			$	219,026
Accounts receivable (less allowance for collection losses of $43,189 and $17,652)			710,330				1,369,453
Inventories			745,949				1,400,332
Other			181,329				228,632
Total current assets			2,078,997				3,217,443
Property, plant and equipment:
Land			84,059				84,539
Buildings and improvements			483,788				462,186
Equipment			1,356,851				1,292,832
Construction in process			329,078				256,156
			2,253,776				2,095,713
Less accumulated depreciation and amortization			(984,615	)			(941,391	)
			1,269,161				1,154,322
Goodwill			73,700				84,837
Other assets			260,103				289,769
		$	3,681,961			$	4,746,371
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable-trade		$	301,459			$	838,777
Accounts payable-documentary letters of credit			190,001				192,492
Accrued expenses and other payables			321,648				563,424
Income taxes payable and deferred income taxes			—				156
Notes payable			2,105				31,305
Current maturities of long-term debt			23,647				106,327
Total current liabilities			838,860				1,732,481
Deferred income taxes			50,473				50,160
Other long-term liabilities			111,407				124,171
Long-term debt			1,184,599				1,197,533
Total liabilities			2,185,339				3,104,345
Minority interests			2,434				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 112,513,917 and 113,777,152 shares			1,290				1,290
Additional paid-in capital			375,345				371,913
Accumulated other comprehensive income (loss)			(822	)			112,781
Retained earnings			1,444,528				1,471,542
			1,820,341				1,957,526
Less treasury stock 16,546,747 and 15,283,512 shares at cost			(326,153	)			(319,143	)
Total stockholders’ equity			1,494,188				1,638,383
		$	3,681,961			$	4,746,371

See notes to unaudited consolidated financial statements.

COMMERCIAL METALS COMPANY AND SUBSIDIARIES

		Three Months Ended								Nine Months Ended
		May 31,				May 31,				May 31,				May 31,
(in thousands, except share data)		2009				2008				2009				2008
Net sales		$	1,340,580			$	2,910,730			$	5,331,580			$	7,280,902
Costs and expenses:
Cost of goods sold			1,147,844				2,617,232				4,709,215				6,489,009
Selling, general and administrative expenses			169,974				190,882				496,368				498,292
Interest expense			18,464				15,827				62,310				42,285
			1,336,282				2,823,941				5,267,893				7,029,586
Earnings from continuing operations before income taxes and minority interests			4,298				86,789				63,687				251,316
Income taxes			15,341				27,980				53,115				84,260
Earnings (loss) from continuing operations before minority interests			(11,043	)			58,809				10,572				167,056
Minority interests (benefit)			(370	)			277				(487	)			540
Earnings (loss) from continuing operations			(10,673	)			58,532				11,059				166,516
Earnings (loss) from discontinued operations before taxes			(4,165	)			1,501				4,024				3,722
Income taxes (benefit)			(1,761	)			549				1,461				1,815
Earnings (loss) from discontinued operations			(2,404	)			952				2,563				1,907
Net earnings (loss)		$	(13,077	)		$	59,484			$	13,622			$	168,423
Basic earnings (loss) per share:
Earnings (loss) from continuing operations		$	(0.10	)		$	0.51			$	0.10			$	1.44
Earnings (loss) from discontinued operations			(0.02	)			0.01				0.02				0.02
Net earnings (loss)		$	(0.12	)		$	0.52			$	0.12			$	1.46
Diluted earnings (loss) per share:
Earnings (loss) from continuing operations		$	(0.10	)		$	0.50			$	0.10			$	1.41
Earnings (loss) from discontinued operations			(0.02	)			0.01				0.02				0.02
Net earnings (loss)		$	(0.12	)		$	0.51			$	0.12			$	1.43
Cash dividends per share		$	0.12			$	0.12			$	0.36			$	0.33
Average basic shares outstanding			112,191,349				113,607,049				112,398,000				115,438,369
Average diluted shares outstanding			112,191,349				116,090,369				113,855,406				118,163,737

See notes to unaudited consolidated financial statements.

COMMERCIAL METALS COMPANY AND SUBSIDIARIES

		Nine Months Ended
		May 31,				May 31,
(in thousands)		2009				2008
Cash flows from (used by) operating activities:
Net earnings		$	13,622			$	168,423
Adjustments to reconcile net earnings to cash from (used by) operating activities:
Depreciation and amortization			116,045				96,594
Minority interests (benefit)			(487	)			540
Provision for losses on receivables			33,615				4,246
Share-based compensation			12,369				14,802
Net loss on sale of assets and other			388				372
Writedown of inventory			110,411				—
Asset impairment			5,051				530
Changes in operating assets and liabilities, net of acquisitions:
(Increase) decrease in accounts receivable			677,602				(308,168	)
Accounts receivable sold, net			(107,978	)			47,746
(Increase) decrease in inventories			473,423				(238,663	)
(Increase) decrease in other assets			64,683				(109,523	)
Increase (decrease) in accounts payable, accrued expenses, other payables and income taxes			(716,579	)			272,022
Decrease in deferred income taxes			(4,099	)			(13,161	)
Increase (decrease) in other long-term liabilities			(9,242	)			10,671
Net cash flows from (used by) operating activities			668,824				(53,569	)
Cash flows from (used by) investing activities:
Capital expenditures			(290,318	)			(227,241	)
Purchase of minority interests in CMC Zawiercie			(6	)			(169	)
Proceeds from the sale of property, plant and equipment and other			2,292				1,460
Acquisitions, net of cash acquired			(900	)			(30,646	)
Net cash used by investing activities			(288,932	)			(256,596	)
Cash flows from (used by) financing activities:
Increase (decrease) in documentary letters of credit			(2,491	)			58,625
Short-term borrowings, net change			(25,611	)			34,563
Repayments on long-term debt			(102,804	)			(1,704	)
Proceeds from issuance of long term debt			36,365				35,138
Stock issued under incentive and purchase plans			1,095				12,569
Treasury stock acquired			(18,514	)			(151,530	)
Cash dividends			(40,636	)			(38,322	)
Tax benefits from stock plans			1,472				6,674
Net cash flows used by financing activities			(151,124	)			(43,987	)
Effect of exchange rate changes on cash			(6,405	)			3,455
Increase (decrease) in cash and cash equivalents			222,363				(350,697	)
Cash and cash equivalents at beginning of year			219,026				419,275
Cash and cash equivalents at end of period		$	441,389			$	68,578

See notes to unaudited consolidated financial statements.

														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 nine months ended May 31, 2009																			13,622												13,622
Other comprehensive income (loss):
Foreign currency translation adjustment, net of taxes ($6,025)															(125,253	)															(125,253	)
Unrealized gain on derivatives, net of taxes ($2,541)															11,650																11,650
Comprehensive loss																															(99,981	)
Cash dividends																			(40,636	)											(40,636	)
Treasury stock acquired																							(1,752,900	)			(18,514	)			(18,514	)
Issuance of stock under incentive and purchase plans											(10,560	)											499,575				11,655				1,095
Share-based compensation											12,520												(9,910	)			(151	)			12,369
Tax benefits from stock plans											1,472																				1,472
Balance, May 31, 2009			129,060,664			$	1,290			$	375,345			$	(822	)		$	1,444,528				(16,546,747	)		$	(326,153	)		$	1,494,188

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 nine 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 $3.6 million and $5.7 million ($0.02 and $0.03 per diluted share, respectively) for the three months ended May 31, 2009 and May 31, 2008, respectively, and $12.4 million and $14.8 million ($0.07 and $0.08 per diluted share, respectively) for the nine months ended May 31, 2009 and May 31, 2008, respectively, as a component of selling, general and administrative expenses. At May 31, 2009, the Company had $9.2 million of total unrecognized compensation cost related to non-vested share-based compensation arrangements. This cost is expected to be recognized over the next 35 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 nine months ended May 31, 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			(692,103	)			4.72				3.64 – 12.31
Forfeited			(51,849	)			29.20				7.78 – 35.38
May 31, 2009
Outstanding			5,603,454			$	21.15			$	3.64 – 35.38
Exercisable			3,890,947				15.95				3.64 – 35.38

Share information for options and SARs at May 31, 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			508,392				0.7			$	3.65				508,392			$	3.65
7.53 – 7.78			1,331,892				1.7				7.76				1,331,892				7.76
11.00 – 13.58			829,929				3.6				12.14				703,929				12.34
21.81 – 24.71			556,444				3.9				24.52				552,977				24.54
31.75 – 35.38			2,376,797				5.4				34.76				793,757				34.76
$3.64 – 35.38			5,603,454				3.7			$	21.15				3,890,947			$	15.95

Of the Company’s previously granted restricted stock awards, 147,050 and 113,479 shares vested during the nine months ended May 31, 2009 and May 31, 2008, respectively.

Intangible Assets

The total gross carrying amounts of the Company’s intangible assets that were subject to amortization were $94.2 million and $83.8 million at May 31, 2009 and August 31, 2008, respectively, and are included in other non-current assets. During the nine months ended May 31, 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 nine months ended May 31, 2009. Aggregate amortization expense for the three months ended May 31, 2009 and May 31, 2008 was $2.8 million and $1.6 million, respectively. Aggregate amortization expense for each of the nine months ended May 31, 2009 and May 31, 2008 was $12.0 million and $5.2 million, respectively.

Severance Charges

During the three and nine months ended May 31, 2009, the Company incurred severance costs of $2.8 million and $9.3 million, respectively, 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 May 31, 2009 and August 31, 2008, the remaining liability to be paid in the future related to termination benefits was $1.4 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.

Recent Accounting Pronouncements

In April 2009, the FASB issued FSP FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial Instruments (“FSP 107-1”). FSP 107-1 requires disclosures regarding fair value of financial instruments for interim and annual reporting periods of publicly traded companies to provide financial statement users with more timely and transparent information. The Company is required to adopt the provisions of this statement in the first quarter of 2010. The adoption is not expected to have any impact on the Company’s consolidated financial statements.

In April 2009, the FASB issued FSP FAS 141(R)-1, Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies (“FSP 141(R)-1”). FSP 141(R)-1 amends and clarifies SFAS 141 (revised 2007), Business Combinations, to address application issues raised on initial recognition and measurement, subsequent measurement and accounting, and disclosure of assets and liabilities arising from contingencies in a business combination. The Company is required to

adopt the provisions of this statement in the first quarter of 2010. This standard will impact our accounting treatment for future business combinations.

In May 2009, the FASB issued Statement of Financial Accounting Standards No. 165, Subsequent Events (“SFAS 165”). SFAS 165 establishes general standards of accounting for and disclosure of events after the balance sheet date but before financial statements are issued or are available to be issued. The provisions of this statement are effective for the Company’s fourth quarter of 2009. The adoption is not expected to have a material impact on 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. On June 12, 2009, the agreement with the financial institution affiliates was amended and extended to December 18, 2009. The amended agreement reduced the total facility from $200 million to $100 million.

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 May 31, 2009 and August 31, 2008, accounts receivable of $217 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 May 31, 2009 and August 31, 2008, respectively.

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 $122.0 million and $222.9 million at May 31, 2009 and August 31, 2008, respectively. The average monthly amounts of international accounts receivable sold were $122.5 million and $197.1 million for the nine months ended May 31, 2009 and May 31, 2008, respectively.

During the nine months ended May 31, 2009, proceeds from the sale of receivables were $819.9 million and cash payments to the owners of receivables were $920.8 million. The Company is responsible for servicing the entire pool of receivables; however, no servicing 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 $3.9 million and $8.3 million for the nine months ended May 31, 2009 and May 31, 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 $279.2 million and $562.3 million at May 31, 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 $62.3 million and $13.7 million at May 31, 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 May 31, 2009 and August 31, 2008, $45.6 million and $104.5 million, respectively, were in raw materials.

NOTE 5 — DISCONTINUED OPERATIONS

On August 30, 2007, the Company’s board of directors 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. In connection with the closure, the Division established a $2.4 million reserve for the termination of the office lease during the third quarter of 2009. During the three and nine months ended May 31, 2009, the Division recorded LIFO income of $5.5 million and $24.9 million, respectively, as compared to LIFO income of $0.4 million and $6.3 million for the three and nine months ended May 31, 2008, respectively.

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

		May 31,				August 31,
(in thousands)		2009				2008
Current assets		$	9,275			$	83,048
Noncurrent assets			2,643				2,650
Current liabilities			11,209				31,258
Noncurrent liabilities			438				580

		Three Months Ended								Nine Months Ended
		May 31,				May 31,				May 31,				May 31,
(in thousands)		2009				2008				2009				2008
Revenue		$	9,085			$	85,716			$	90,447			$	255,863
Earnings (loss) before taxes			(4,165	)			1,501				4,024				3,722

NOTE 6 — CREDIT ARRANGEMENTS

At May 31, 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 the covenants related to the revolving credit facility at May 31, 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:

		May 31,				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			78,444				77,037
CMCP term note due August 2013			18,827				17,608
Other, including equipment notes			10,975				9,215
			1,208,246				1,303,860
Less current maturities			23,647				106,327
		$	1,184,599			$	1,197,533

The 5.625% notes due November 2013, 6.50% notes due July 2017 and the 7.35% notes due August 2018 require compliance with debt covenants on a quarterly basis. As of May 31, 2009, the Company was in compliance with all debt requirements for these notes. The CMC Zawiercie (“CMCZ”) and CMC Poland (“CMCP”) notes require compliance with debt covenants on a semiannual basis, every February and August. Interest on the notes is payable quarterly, except for the CMCZ and CMCP notes, which is payable semiannually.

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

CMCZ had a revolving credit facility with maximum borrowings of PLN 100 million. As of May 31, 2009, no amounts were outstanding under this facility. This facility expired on June 3, 2009. CMCZ intends to enter into a new revolving credit facility in fiscal 2010.

CMCZ has a five year term note of PLN 400 million ($125.5 million) with a group of four banks. At May 31, 2009, the notes had an outstanding balance of PLN 250 million ($78.4 million). The note has scheduled principal and interest payments in 15 equal quarterly installments beginning in November 2009. Interest is accrued at the Warsaw Interbank Offered Rate (“WIBOR”) plus 0.79%. The weighted average rate at May 31, 2009 was 6.1%. 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 ($25.1 million) with two banks. At May 31, 2009, the notes had an outstanding balance of PLN 60 million ($18.8 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 May 31, 2009 was 6.3%. 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 ($2.8 million) outstanding at May 31, 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 May 31, 2009 was 5.2%. The notes are secured by shredder equipment.

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

Interest of $8.2 million and $4.4 million was capitalized in the cost of property, plant and equipment constructed in the nine months ended May 31, 2009 and May 31, 2008, respectively. Interest of $59.0 million and $40.6 million was paid in the nine months ended May 31, 2009 and May 31, 2008, respectively.

NOTE 7 — INCOME TAXES

The Company paid $25.5 million and $104.0 million in income taxes during the nine months ended May 31, 2009 and May 31, 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								Nine Months Ended
		May 31,				May 31,				May 31,				May 31,
		2009				2008				2009				2008
Statutory rate			35.0	%			35.0	%			35.0	%			35.0	%
State and local taxes			138.2				1.2				23.7				1.9
Foreign rate differential			197.0				(3.1	)			30.8				(2.4	)
Domestic production activity deduction			(77.5	)			(0.7	)			(8.4	)			(0.9	)
Other			64.2				(0.2	)			2.3				(0.1	)
Effective rate			356.9	%			32.2	%			83.4	%			33.5	%

The tax rate for the three and nine months ended May 31, 2009 varies significantly from the Company’s statutory rate due to the global downturn where our lower tax rate jurisdictions (predominately international) are incurring losses and our higher tax rate jurisdictions are generating income. Other items impacting the rate include permanent differences of nondeductible items and discrete items that have a greater impact at lower levels of pre-tax income.

The Company accounts for uncertainty in income taxes in accordance with FIN 48, Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement 109 (“FIN 48”). As of May 31, 2009, the reserve for unrecognized tax benefits was $4.1 million exclusive of interest and penalties. If recognized, $1.9 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 third quarter of 2009, the Company recorded a decrease in FIN 48 liabilities of $0.8 million, which related to state income tax filings. In addition, the corresponding deferred tax asset associated with the benefit relating to state income tax expense was also reduced by $0.3 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 May 31, 2009, before any tax benefits, the Company had $1.9 million of accrued interest and penalties on unrecognized tax benefits. During the nine months ended May 31, 2009, the Company recognized an increase to interest expense of $0.8 million and statutory penalties of $0.4 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 $2.0 million.

Open tax years subject to examination are as follows:

U.S Federal — 2006 and forward
U.S. States — 2005 and forward
Foreign — 2001 and forward

During the nine months ended May 31, 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. In addition, the Company filed an amended return for the fiscal year ended August 31, 2005 reflecting a $0.8 million refund due to the Company. The IRS is currently examining the Company’s federal tax return for fiscal year 2006. The Company believes the recorded tax liabilities as of May 31, 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 (loss) per share calculations is as follows:

		Three Months Ended								Nine Months Ended
		May 31,				May 31,				May 31,				May 31,
		2009				2008				2009				2008
Shares outstanding for basic earnings per share			112,191,349				113,607,049				112,398,000				115,438,369
Effect of dilutive securities:
Stock based incentive/purchase plans			—				2,483,320				1,457,406				2,725,368
Shares outstanding for diluted earnings per share			112,191,349				116,090,369				113,855,406				118,163,737

For the three months ended May 31, 2009, no stock options, restricted stock, or SARs were included in the calculation of dilutive shares because the Company reported a loss from continuing operations. For the nine months ended May 31, 2009 and May 31, 2008, stock options and SARs of 2.9 million and 2.4 million, respectively, 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 nine months ended May 31, 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 May 31, 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 prices. 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 May 31, 2009 (in thousands):

Functional Currency						Contract Currency
Type		Amount				Type		Amount
AUD			34			EUR			19
AUD			110,363			USD			82,444
EUR			13			USD			18
GBP			1,091			EUR			1,237
GBP			46			USD			74
HRK*			69,152			USD			11,950
PLN			386,165			EUR			93,639
PLN			143,058			USD			43,321
SGD**			5,961			USD			4,100
USD			19,368			EUR			13,799
USD			33,087			GBP			20,500
USD			1,183			JPY			113,456
USD			998			PLN			3,318
USD			827			SGD**			1,200

Commodity contract commitments as of May 31, 2009:

Commodity		Long/Short		Total
Aluminum		Long		8,225 MT
Aluminum		Short		650 MT
Copper		Long		1,225 MT
Copper		Short		6,602 MT
Natural Gas		Long		130,000 MMBtu

The Company designates only those contracts which closely match the terms of the underlying transaction as hedges for accounting purposes. These hedges resulted in substantially no ineffectiveness in the statements of operations, and there were no components excluded from the assessment of hedge effectiveness for the three and nine months ended May 31, 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				Nine Months Ended
Instruments		Location		May 31, 2009				May 31, 2009
Commodity		Cost of goods sold		$	6,164			$	16,551
Foreign exchange		Net sales			(12,794	)			86
Foreign exchange		Cost of goods sold			(66	)			(66	)
Foreign exchange		SG&A expenses			1,475				(6,770	)
Other		Cost of goods sold			(366	)			(702	)
Other		SG&A expenses			287				(220	)
Gain (loss) recognized into operations before taxes				$	(5,300	)		$	8,879

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				Nine Months Ended
Instruments		Location		May 31, 2009				May 31, 2009
Foreign exchange		Cost of goods sold		$	(857	)		$	3,954
Foreign exchange		SG&A expenses			4,672				54,355
Gain recognized into operations before taxes				$	3,815			$	58,309

Hedged (Underlying) Items Designated as Fair				Three Months Ended				Nine Months Ended
Value Hedging Instruments		Location		May 31, 2009				May 31, 2009
Foreign exchange		Net sales		$	233			$	(3,947	)
Foreign exchange		SG&A expenses			(3,895	)			(54,288	)
Loss recognized into operations before taxes				$	(3,662	)		$	(58,235	)

Effective Portion of Derivatives Designated as		Three Months Ended				Nine Months Ended
Cash Flow Hedging Instruments		May 31, 2009				May 31, 2009
Commodity		$	403			$	(291	)
Foreign exchange			(3,502	)			10,160
Gain (loss) recognized in accumulated other comprehensive income (loss), net of taxes		$	(3,099	)		$	9,869

Effective Portion of Derivatives Designated as				Three Months Ended				Nine Months Ended
Cash Flow Hedging Instruments		Location		May 31, 2009				May 31, 2009
Commodity		Cost of goods sold		$	(482	)		$	(369	)
Foreign exchange		Net sales			(12	)			(92	)
Foreign exchange		SG&A expenses			(689	)			(689	)
Interest rate		Interest expense			115				344
Loss reclassified from accumulated other comprehensive income (loss) into operations, net of taxes				$	(1,068	)		$	(806	)

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

		May 31, 2009
Commodity — not designated		$	733
Foreign exchange — designated			7,567
Foreign exchange — not designated			3,513
Derivative assets (other current assets)*		$	11,813

		May 31, 2009
Commodity — designated		$	7
Commodity — not designated			11,360
Foreign exchange — designated			7,688
Foreign exchange — not designated			2,513
Derivative liabilities (accrued expenses and other payables)*		$	21,568

During the twelve months following May 31, 2009, $0.3 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. Also, an additional $0.5 million in gains will be reclassified as interest income related to an interest rate lock.

As of May 31, 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 five 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 any 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
		May 31,				Identical Assets				Observable Inputs				Unobservable Inputs
(in thousands)		2009				(Level 1)				(Level 2)				(Level 3)
Cash equivalents		$	401,445			$	401,445			$	—			$	—
Derivative assets			11,813				—				11,813				—
Nonqualified benefit plan assets *			52,958				—				52,958				—
Derivative liabilities			21,568				—				21,568				—
Nonqualified benefit plan liabilities *			90,353				—				90,353				—

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 May 31, 2009, the maximum credit facility with the bank was $80 million and the maximum Company exposure was $2.7 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 includes 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 includes 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 May 31, 2009
		Americas												International
										Fabrication								Fabrication								Eliminations/
										and								and								Discontinued
(in thousands)		Recycling				Mills				Distribution				Mills				Distribution				Corporate				Operations				Consolidated
Net sales-unaffiliated customers		$	116,818			$	162,806			$	482,976			$	103,258			$	470,533			$	13,274			$	(9,085	)		$	1,340,580
Intersegment sales			35,621				114,021				1,438				44,524				4,290				—				(199,894	)			—
Net sales			152,439				276,827				484,414				147,782				474,823				13,274				(208,979	)			1,340,580
Adjusted operating profit (loss)			(6,712	)			42,066				17,714				(17,687	)			(10,126	)			(17,824	)			12,177				19,608

		Three Months Ended May 31, 2008
		Americas												International
										Fabrication								Fabrication								Eliminations/
										and								and								Discontinued
(in thousands)		Recycling				Mills				Distribution				Mills				Distribution				Corporate				Operations				Consolidated
Net sales-unaffiliated customers		$	507,881			$	387,197			$	749,007			$	269,664			$	1,078,072			$	4,625			$	(85,716	)		$	2,910,730
Intersegment sales			120,736				132,355				2,862				71,810				12,325				—				(340,088	)			—
Net sales			628,617				519,552				751,869				341,474				1,090,397				4,625				(425,804	)			2,910,730
Adjusted operating profit (loss)			50,371				34,044				(22,291	)			30,656				40,342				(30,792	)			4,684				107,014

		Nine Months Ended May 31, 2009
		Americas												International
										Fabrication								Fabrication								Eliminations/
										and								and								Discontinued
(in thousands)		Recycling				Mills				Distribution				Mills				Distribution				Corporate				Operations				Consolidated
Net sales-unaffiliated customers		$	439,868			$	575,637			$	2,077,431			$	381,689			$	1,962,886			$	(15,484	)		$	(90,447	)		$	5,331,580
Intersegment sales			111,812				369,964				9,258				126,830				30,279				—				(648,143	)			—
Net sales			551,680				945,601				2,086,689				508,519				1,993,165				(15,484	)			(738,590	)			5,331,580
Adjusted operating profit (loss)			(70,843	)			233,851				101,314				(58,746	)			(7,079	)			(60,417	)			(3,583	)			134,497
Goodwill			7,467				—				58,878				857				6,498				—				—				73,700
Total assets (1)			228,175				569,335				1,105,982				492,237				633,105				653,127				—				3,681,961

		Nine Months Ended May 31, 2008
		Americas												International
										Fabrication								Fabrication								Eliminations/
										and								and								Discontinued
(in thousands)		Recycling				Mills				Distribution				Mills				Distribution				Corporate				Operations				Consolidated
Net sales-unaffiliated customers		$	1,277,251			$	994,772			$	2,021,253			$	669,921			$	2,569,027			$	4,541			$	(255,863	)		$	7,280,902
Intersegment sales			254,761				395,380				8,806				85,617				31,295				—				(775,859	)			—
Net sales			1,532,012				1,390,152				2,030,059				755,538				2,600,322				4,541				(1,031,722	)			7,280,902
Adjusted operating profit (loss)			92,882				158,520				507				39,730				88,609				(76,433	)			1,821				305,636
Goodwill			7,467				—				29,830				—				4,421				—				—				41,718
Total assets			416,995				605,456				1,188,925				617,775				1,040,205				249,320				—				4,118,676

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

		Three Months Ended								Nine Months Ended
		May 31,				May 31,				May 31,				May 31,
(in thousands)		2009				2008				2009				2008
Net earnings (loss)		$	(13,077	)		$	59,484			$	13,622			$	168,423
Minority interests (benefit)			(370	)			277				(487	)			540
Income taxes			13,580				28,529				54,576				86,075
Interest expense			18,482				15,909				62,874				42,278
Discounts on sales of accounts receivable			993				2,815				3,912				8,320
Adjusted operating profit		$	19,608			$	107,014			$	134,497			$	305,636
Adjusted operating profit (loss) from discontinued operations			(4,148	)			1,786				4,587				4,615
Adjusted operating profit from continuing operations		$	23,756			$	105,228			$	129,910			$	301,021

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

		Three Months Ended								Nine Months Ended
		May 31,				May 31,				May 31,				May 31,
(in thousands)		2009				2008				2009				2008
Major product information:
Steel products		$	944,470			$	1,780,301			$	3,727,089			$	4,542,625
Industrial materials			125,805				409,239				738,443				904,186
Nonferrous scrap			99,228				286,856				288,173				728,637
Construction materials			70,130				85,758				225,549				232,930
Ferrous scrap			36,008				239,140				181,685				573,643
Non-ferrous products			35,157				71,190				112,264				218,678
Other			29,782				38,246				58,377				80,203
Net sales*		$	1,340,580			$	2,910,730			$	5,331,580			$	7,280,902

		Three Months Ended								Nine Months Ended
		May 31,				May 31,				May 31,				May 31,
(in thousands)		2009				2008				2009				2008
Geographic area:
United States		$	770,123			$	1,594,965			$	3,269,635			$	4,144,725
Europe			242,485				682,390				999,966				1,658,419
Asia			169,955				297,199				488,532				686,772
Australia/New Zealand			104,790				161,175				411,956				434,074
Other			53,227				175,001				161,491				356,912
Net sales*		$	1,340,580			$	2,910,730			$	5,331,580			$	7,280,902

NOTE 13 — RELATED PARTY TRANSACTIONS

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

		Nine Months Ended
		May 31,				May 31,
(in thousands)		2009				2008
Sales		$	229,565			$	278,695
Purchases			266,741				300,230

		May 31,				August 31,
(in thousands)		2009				2008
Accounts Receivable		$	30,412			$	46,594
Accounts Payable			19,451				35,314

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												Nine Months Ended
		May 31,				May 31,				Decrease				May 31,				May 31,				Decrease
(in millions)		2009				2008				%				2009				2008				%
Net sales*		$	1,340.6			$	2,910.7				(54	%)		$	5,331.6			$	7,280.9				(27	%)
Net earnings (loss)			(13.1	)			59.5				(122	%)			13.6				168.4				(92	%)
EBITDA			56.4				136.6				(59	%)			247.1				393.4				(37	%)

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				Nine Months Ended								Increase
		May 31,				May 31,				(Decrease)				May 31,				May 31,				(Decrease)
(in millions)		2009				2008				%				2009				2008				%
Net earnings (loss)		$	(13.1	)		$	59.5				(122	%)		$	13.6			$	168.4				(92	%)
Interest expense			18.5				15.9				16	%			62.9				42.3				49	%
Income taxes			13.6				28.5				(52	%)			54.6				86.1				(37	%)
Depreciation and amortization			37.4				32.7				14	%			116.0				96.6				20	%
EBITDA		$	56.4			$	136.6				(59	%)		$	247.1			$	393.4				(37	%)
EBITDA from discontinued operations			(4.1	)			1.9				(316	%)			4.8				4.8				0	%
EBITDA from continuing operations		$	60.5			$	134.7				(55	%)		$	242.3			$	388.6				(38	%)

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 third quarter ended May 31, 2009:

•

In response to price declines, demand destruction, and a global liquidity and credit crisis, we recorded the following consolidated expenses during the third quarter: lower of cost or market inventory adjustments of $27.0 million, other charges relating to contractual noncompliance of $8.9 million, bad debt expense of $10.2 million and severance costs of $2.8 million.

	•		We experienced volatile foreign exchange rates during the third quarter of 2009 which resulted in a decrease in operating loss of approximately $9 million.
	•		We continued to focus on liquidity and working capital which resulted in cash flows provided by operating activities of $380 million during the third quarter of 2009 and an increase in our cash and cash equivalents to $441 million.
	•		We recorded pre-tax LIFO income of $45.3 million (after tax of $0.26 per share) for the third quarter of 2009 compared to pre-tax LIFO expense $127.2 million (after tax of $0.71 per diluted share) for the third quarter of 2008.
	•		Net sales of the Americas Recycling segment decreased 76% and adjusted operating profit (loss) decreased by $57.1 million compared to the prior year’s third quarter primarily due to weak demand resulting in a decline in both prices and shipments during the quarter.
	•		Net sales of the Americas Mills segment decreased 47% from the prior year’s third quarter due to the decrease in the average selling price and a decline in shipments, while adjusted operating profit increased 24% from the prior year’s third quarter primarily due to pre-tax LIFO income.
	•		Our Americas Fabrication and Distribution segment showed a 36% decrease in sales primarily from a decline in shipments but a $40.0 million increase in adjusted operating profit (loss) over the prior year’s third quarter attributable to pre-tax LIFO income and margin expansion from the deflation in material costs.
	•		Our International Mills segment showed a 57% decline in net sales and a $48.3 million decrease in adjusted operating profit (loss) compared to the prior year’s third quarter due primarily from rapidly falling sales prices within weak international steel markets, metal margin compression, mill start-up costs and lower of cost or market inventory adjustments.
	•		Our International Fabrication and Distribution segment showed a 56% decline in net sales and a $50.5 million decrease in adjusted operating profit (loss) compared to the prior year’s third quarter due primarily from reductions in market demand and inventory valuation adjustments due to declining prices.
	•		Expense of $10.8 million and capital expenditures of $5.6 million were recorded as compared to expense of $18.2 million and capital expenditures of $8.7 million during the third quarter of 2008 related to the global implementation of SAP.

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				Nine Months Ended								Increase
		May 31,				May 31,				(Decrease)				May 31,				May 31,				(Decrease)
(in thousands)		2009				2008				%				2009				2008				%
Net sales:
Americas Recycling		$	152,439			$	628,617				(76	%)		$	551,680			$	1,532,012				(64	%)
Americas Mills			276,827				519,552				(47	%)			945,601				1,390,152				(32	%)
Americas Fabrication and Distribution			484,414				751,869				(36	%)			2,086,689				2,030,059				3	%
International Mills			147,782				341,474				(57	%)			508,519				755,538				(33	%)
International Fabrication and Distribution			474,823				1,090,397				(56	%)			1,993,165				2,600,322				(23	%)
Corporate			13,274				4,625				187	%			(15,484	)			4,541				(441	%)
Eliminations/Discontinued Operations			(208,979	)			(425,804	)			51	%			(738,590	)			(1,031,722	)			28	%
		$	1,340,580			$	2,910,730				(54	%)		$	5,331,580			$	7,280,902				(27	%)