Edgar Filing: COMMERCIAL METALS CO

CMC-02.28-2013-10Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

___________________________________

FORM 10-Q

___________________________________


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

For the quarterly period ended February 28, 2013


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

For the transition period from to

Commission File Number 1-4304

___________________________________

COMMERCIAL METALS COMPANY

(Exact name of registrant as specified in its charter)

___________________________________



Delaware	75-0725338
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)

6565 N. MacArthur Blvd.

Irving, Texas 75039

(Address of principal executive offices)(Zip Code)

(214) 689-4300

(Registrant's telephone number, including area code)

___________________________________

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

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 x No ¨

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 x	Accelerated filer ¨	Non-accelerated filer ¨ (Do not check if a smaller reporting company)	Smaller reporting company ¨

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

The number of shares outstanding of common stock as of March 28, 2013 was 116,878,209.

COMMERCIAL METALS COMPANY AND SUBSIDIARIES

TABLE OF CONTENTS




PART I — FINANCIAL INFORMATION	3

Item 1. Financial Statements	3
Consolidated Statements of Operations (Unaudited) - Three and six months ended February 28, 2013 and February 29, 2012	3
Consolidated Statements of Comprehensive Income (Unaudited) - Three and six months ended February 28, 2013 and February 29, 2012	4
Consolidated Balance Sheets (Unaudited) - February 28, 2013 and August 31, 2012	5
Consolidated Statements of Cash Flows (Unaudited) - Six months ended February 28, 2013 and February 29, 2012	6
Consolidated Statements of Stockholders' Equity (Unaudited) - Six months ended February 28, 2013 and February 29, 2012	7
Notes to Consolidated Financial Statements (Unaudited)	8
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	20
Item 3. Quantitative and Qualitative Disclosures About Market Risk	30
Item 4. Controls and Procedures	30

PART II — OTHER INFORMATION	30

Item 1. Legal Proceedings	30
Item 1A. Risk Factors	30
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	30
Item 3. Defaults Upon Senior Securities	31
Item 4. Mine Safety Disclosures	31
Item 5. Other Information	31
Item 6. Exhibits	32
Signature	33
Index to Exhibits	34


PART I.	FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

COMMERCIAL METALS COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

	Three Months Ended					Six Months Ended
(in thousands, except share data)	February 28, 2013			February 29, 2012		February 28, 2013			February 29, 2012
Net sales	$	1,729,674		$	1,956,744	$	3,518,900		$	3,943,564
Costs and expenses:
Cost of goods sold	1,588,016			1,773,966		3,188,343			3,588,250
Selling, general and administrative expenses	115,844			123,891		241,825			250,412
Gain on sale of cost method investment	—			—		(26,088		)	—
Interest expense	16,490			16,043		33,514			32,340
	1,720,350			1,913,900		3,437,594			3,871,002
Earnings from continuing operations before taxes	9,324			42,844		81,306			72,562
Income taxes (benefit)	4,717			15,015		27,232			(80,312		)
Earnings from continuing operations	4,607			27,829		54,074			152,874

Earnings (loss) from discontinued operations before taxes	(46		)	1,794		342			(25,209		)
Income taxes (benefit)	(16		)	770		120			(8,924		)
Earnings (loss) from discontinued operations	(30		)	1,024		222			(16,285		)

Net earnings	4,577			28,853		54,296			136,589
Less net earnings (loss) attributable to noncontrolling interests	—			—		2			2
Net earnings attributable to CMC	$	4,577		$	28,853	$	54,294		$	136,587

Basic earnings (loss) per share attributable to CMC:
Earnings from continuing operations	$	0.04		$	0.24	$	0.47		$	1.32
Earnings (loss) from discontinued operations	—			0.01		—			(0.14		)
Net earnings	$	0.04		$	0.25	$	0.47		$	1.18

Diluted earnings (loss) per share attributable to CMC:
Earnings from continuing operations	$	0.04		$	0.24	$	0.46		$	1.31
Earnings (loss) from discontinued operations	—			0.01		—			(0.14		)
Net earnings	$	0.04		$	0.25	$	0.46		$	1.17

Cash dividends per share	$	0.12		$	0.12	$	0.24		$	0.24
Average basic shares outstanding	116,586,100			115,703,142		116,461,302			115,616,844
Average diluted shares outstanding	117,573,052			116,843,456		117,333,339			116,646,469

See notes to unaudited consolidated financial statements.

COMMERCIAL METALS COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

	Three Months Ended						Six Months Ended
(in thousands)	February 28, 2013			February 29, 2012			February 28, 2013			February 29, 2012
Net earnings	$	4,577		$	28,853		$	54,296		$	136,589
Other comprehensive income (loss), net of taxes:
Foreign currency translation adjustment and other, net of taxes (benefit) of $(3,396) and $22,654, $8,396 and $(18,013)	(6,308		)	42,073			15,592			(33,452		)
Net unrealized gain (loss) on derivatives:
Unrealized holding gain (loss), net of taxes (benefit) of $1 and $(989), $89 and $(665)	57			(423		)	374			(1,609		)
Less: Reclassification for gain (loss) included in net earnings, net of taxes (benefit) of $125 and $(532), $174 and $(368)	274			(3		)	396			(1,136		)
Net unrealized gain (loss) on derivatives, net of taxes (benefit) of $(124) and $(457), $(85) and $(297)	(217		)	(420		)	(22		)	(473		)
Defined benefit obligation:
Amortization of prior service cost, net of taxes (benefit) of $1 and $0, $1 and $0	2			—			4			—
Adjustment from plan changes, net of taxes (benefit) of $0 and $0, $308 and $0	—			—			1,315			—
Defined benefit obligation, net of taxes (benefit) of $1 and $0, $309 and $0	2			—			1,319			—
Other comprehensive income (loss)	(6,523		)	41,653			16,889			(33,925		)
Comprehensive income (loss)	$	(1,946	)	$	70,506		$	71,185		$	102,664

See notes to unaudited consolidated financial statements.

COMMERCIAL METALS COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(in thousands, except share data)	February 28, 2013			August 31, 2012
Assets
Current assets:
Cash and cash equivalents	$	170,097		$	262,422
Accounts receivable (less allowance for doubtful accounts of $10,650 and $9,480)	988,482			958,364
Inventories, net	892,688			807,923
Other	172,229			211,122
Total current assets	2,223,496			2,239,831
Property, plant and equipment:
Land	78,210			79,123
Buildings and improvements	490,260			483,708
Equipment	1,687,390			1,656,328
Construction in process	54,310			41,036
	2,310,170			2,260,195
Less accumulated depreciation and amortization	(1,329,704		)	(1,265,891		)
	980,466			994,304
Goodwill	76,959			76,897
Other assets	128,544			130,214
Total assets	$	3,409,465		$	3,441,246
Liabilities and stockholders' equity
Current liabilities:
Accounts payable-trade	$	412,592		$	433,132
Accounts payable-documentary letters of credit	90,038			95,870
Accrued expenses and other payables	269,619			343,337
Notes payable	47,403			24,543
Current maturities of long-term debt	204,072			4,252
Total current liabilities	1,023,724			901,134
Deferred income taxes	27,363			20,271
Other long-term liabilities	111,089			116,261
Long-term debt	950,407			1,157,073
Total liabilities	2,112,583			2,194,739
Commitments and contingencies
Stockholders' equity:
Common stock, par value $0.01 per share; authorized 200,000,000 shares; issued 129,060,664 shares; outstanding 116,878,209 and 116,351,424 shares	1,290			1,290
Additional paid-in capital	362,273			365,778
Accumulated other comprehensive income (loss)	(1,247		)	(18,136		)
Retained earnings	1,171,776			1,145,445
Less treasury stock, 12,182,455 and 12,709,240 shares at cost	(237,365		)	(248,009		)
Stockholders' equity attributable to CMC	1,296,727			1,246,368
Stockholders' equity attributable to noncontrolling interests	155			139
Total equity	1,296,882			1,246,507
Total liabilities and stockholders' equity	$	3,409,465		$	3,441,246

See notes to unaudited consolidated financial statements.

COMMERCIAL METALS COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

	Six Months Ended
(in thousands)	February 28, 2013			February 29, 2012
Cash flows from (used by) operating activities:
Net earnings	$	54,296		$	136,589
Adjustments to reconcile net earnings to cash flows from (used by) operating activities:
Depreciation and amortization	68,037			69,064
Provision for losses (recoveries) on receivables, net	2,463			(616		)
Share-based compensation	7,185			5,973
Amortization of interest rate swaps termination gain	(5,815		)	—
Deferred income taxes	29,362			(107,818		)
Tax benefits from stock plans	(1		)	(32		)
Net (gain) loss on sale of cost method investment and other	(26,522		)	104
Write-down of inventory	1,784			8,460
Asset impairment	3,028			1,028
Changes in operating assets and liabilities:
Accounts receivable	4,785			(25,620		)
Accounts receivable sold (repurchased), net	(37,297		)	104,495
Inventories	(84,840		)	7,939
Other assets	11,461			22,441
Accounts payable, accrued expenses, other payables and income taxes	(99,312		)	(184,090		)
Other long-term liabilities	(5,326		)	1,157
Net cash flows from (used by) operating activities	(76,712		)	39,074

Cash flows from (used by) investing activities:
Capital expenditures	(41,849		)	(53,373		)
Proceeds from the sale of property, plant and equipment and other	6,897			8,097
Proceeds from the sale of cost method investment	28,995			—
Decrease in deposit for letters of credit	—			30,404
Net cash flows from (used by) investing activities	(5,957		)	(14,872		)

Cash flows from (used by) financing activities:
Increase (decrease) in documentary letters of credit	(5,268		)	6,121
Short-term borrowings, net change	21,870			40,270
Repayments on long-term debt	(2,402		)	(48,202		)
Stock issued under incentive and purchase plans, net of forfeitures	2,353			1,559
Cash dividends	(27,963		)	(27,752		)
Tax benefits from stock plans	1			32
Contribution from (purchase of) noncontrolling interests	10			(41		)
Net cash flows from (used by) financing activities	(11,399		)	(28,013		)

Effect of exchange rate changes on cash	1,743			(2,397		)
Decrease in cash and cash equivalents	(92,325		)	(6,208		)
Cash and cash equivalents at beginning of year	262,422			222,390
Cash and cash equivalents at end of period	$	170,097		$	216,182

See notes to unaudited consolidated financial statements.

COMMERCIAL METALS COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)

	Common Stock			Additional			Accumulated Other						Treasury Stock					Non-
(in thousands, except share data)	Number of Shares	Amount		Paid-In Capital			Comprehensive Income (Loss)			Retained Earnings			Number of Shares		Amount			controlling Interests			Total
Balance, September 1, 2011	129,060,664	$	1,290	$	371,616		$	59,473		$	993,578		(13,526,901	)	$	(265,532	)	$	223		$	1,160,648
Comprehensive income (loss):
Net earnings										136,587								2			136,589
Other comprehensive loss							(33,925		)												(33,925		)
Comprehensive income																					102,664
Cash dividends										(27,752		)									(27,752		)
Issuance of stock under incentive and purchase plans, net of forfeitures				(7,355		)							429,284		8,914						1,559
Share-based compensation				5,007																	5,007
Tax benefits from stock plans				32																	32
Purchase of noncontrolling interests				26														(67		)	(41		)
Balance, February 29, 2012	129,060,664	$	1,290	$	369,326		$	25,548		$	1,102,413		(13,097,617	)	$	(256,618	)	$	158		$	1,242,117

	Common Stock			Additional			Accumulated Other						Treasury Stock					Non-
(in thousands, except share data)	Number of Shares	Amount		Paid-In Capital			Comprehensive Income (Loss)			Retained Earnings			Number of Shares		Amount			controlling Interests			Total
Balance, September 1, 2012	129,060,664	$	1,290	$	365,778		$	(18,136	)	$	1,145,445		(12,709,240	)	$	(248,009	)	$	139		$	1,246,507
Comprehensive income:
Net earnings										54,294								2			54,296
Other comprehensive income							16,889														16,889
Comprehensive income																					71,185
Cash dividends										(27,963		)									(27,963		)
Issuance of stock under incentive and purchase plans, net of forfeitures				(8,291		)							526,785		10,644						2,353
Share-based compensation				4,785																	4,785
Tax benefits from stock plans				1																	1
Contribution of noncontrolling interests																		14			14
Balance, February 28, 2013	129,060,664	$	1,290	$	362,273		$	(1,247	)	$	1,171,776		(12,182,455	)	$	(237,365	)	$	155		$	1,296,882

See notes to unaudited consolidated financial statements.

COMMERCIAL METALS COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 1. ACCOUNTING POLICIES

Accounting Principles 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 Annual Report on Form 10-K filed by Commercial Metals Company ("CMC," and together with its consolidated subsidiaries, the "Company") with the Securities and Exchange Commission ("SEC") for the year ended August 31, 2012, and include all normal recurring adjustments necessary to present fairly the consolidated balance sheets, statements of operations, comprehensive income, cash flows and stockholders' equity for the periods indicated. Certain amounts in fiscal 2012 have been reclassified to conform to the fiscal 2013 presentation. These notes should be read in conjunction with the audited consolidated financial statements and notes included in the Annual Report on Form 10-K for the year ended August 31, 2012. The results of operations for the three and six month periods are not necessarily indicative of the results to be expected for the full year.

Recent Accounting Pronouncements In the first quarter of 2013, the Company adopted guidance issued by the Financial Accounting Standards Board ("FASB") on disclosure requirements for the presentation of comprehensive income. This guidance requires entities to report components of comprehensive income in either (1) a continuous statement of comprehensive income or (2) two separate but consecutive statements. As a result of the adoption, the Company's financial statements now include a separate consolidated statement of comprehensive income immediately following the consolidated statement of operations.

In the first quarter of 2013, the Company adopted guidance that simplifies how entities test indefinite-lived intangible assets for impairment and improves consistency in impairment testing guidance among long-lived asset categories. The guidance permits entities to first assess qualitative factors to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired as a basis for determining whether it is necessary to perform the quantitative impairment test in accordance with U.S. generally accepted accounting principles. An entity will have an option not to calculate annually the fair value of an indefinite-lived intangible asset if the entity determines that it is not more likely than not that the asset is impaired. The adoption of this guidance did not have a material impact on the Company's consolidated financial statements.

In March 2013, the FASB issued guidance requiring an entity to release any related cumulative translation adjustment into net income when it either sells a part or all of its investment in a foreign entity or no longer holds a controlling financial interest in a subsidiary or group of assets that is a nonprofit activity or a business within a foreign entity. In addition, the guidance resolves the diversity in practice for the treatment of business combinations achieved in stages involving a foreign entity. The new guidance is effective prospectively for fiscal years, and interim reporting periods within those years, beginning after December 15, 2013. The Company does not expect the adoption of this guidance to have a material impact on its consolidated financial statements.

In February 2013, the FASB issued guidance requiring an entity to disclose additional information about reclassifications out of accumulated other comprehensive income, including (1) changes in accumulated other comprehensive income balances by component and (2) significant items reclassified out of accumulated other comprehensive income and the effect on the respective line items in net income if the amounts are required to be reclassified in their entirety to net income. For other amounts that are not required to be reclassified in their entirety to net income in the same reporting period, an entity is required to cross-reference to other disclosures that provide additional detail about those amounts. The new guidance is effective prospectively for fiscal years, and interim reporting periods within those years, beginning after December 15, 2012. The Company does not expect the adoption of these disclosure requirements to have a material impact on its consolidated financial statements.

In February 2013, the FASB issued guidance requiring an entity to measure obligations resulting from joint and several liability arrangements for which the total amount of the obligation is fixed at the reporting date. The guidance also requires entities to disclose the nature and amount of the obligation as well as other information about the obligation. The new guidance is effective retrospectively for fiscal years, and interim reporting periods within those years, beginning after December 15, 2013. The Company does not expect the adoption of this guidance to have a material impact on its consolidated financial statements.

In December 2011, the FASB issued guidance requiring an entity to disclose the nature of its rights of setoff and related arrangements associated with its financial instruments and derivative instruments. The objective is to make financial statements

that are prepared under GAAP more comparable to those prepared under International Financial Reporting Standards. The new disclosures will give financial statement users information about both gross and net exposures. In January 2013, the FASB issued an update and clarified the scope of transactions that are subject to disclosures concerning offsetting. These disclosure requirements are effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods, and should be applied retrospectively for all comparative periods presented. The Company does not expect the adoption of these disclosure requirements to have a material impact on its consolidated financial statements.

NOTE 2. SALES OF ACCOUNTS RECEIVABLE

The Company has a domestic sale of accounts receivable program which expires on December 26, 2014. Under the program, the Company periodically contributes, and several of its subsidiaries periodically sell without recourse, certain eligible trade accounts receivable to CMC Receivables, Inc. ("CMCRV"), a wholly-owned subsidiary of the Company. 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. Depending on the Company's level of financing needs, CMCRV sells the trade accounts receivable in their entirety to two third-party financial institutions. The third-party financial institutions advance up to a maximum of $200 million for all receivables, and the remaining portion due to the Company is deferred until the ultimate collection of the underlying receivables. The Company accounts for sales to the financial institutions as true sales, and the cash advances for receivables are removed from the consolidated balance sheets and are reflected as cash provided by operating activities. Additionally, the receivables program contains certain cross-default provisions whereby a termination event could occur if the Company defaulted under certain of its credit arrangements. The covenants contained in the receivables purchase agreement are consistent with the credit facility described in Note 8, Credit Arrangements.

At February 28, 2013 and August 31, 2012, the Company sold $407.0 million and $406.9 million of receivables, respectively, to the third-party financial institutions and received $15.0 million and $10.0 million, respectively, as advance payments. The remaining amounts of $392.0 million and $396.9 million, respectively, are the deferred purchase prices and are included in trade receivables on the Company's consolidated balance sheets.

In addition to the domestic sale of accounts receivable 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 the Company's creditors in the event of bankruptcy. Uncollected accounts receivable sold under these arrangements and removed from the consolidated balance sheets were $52.8 million and $95.1 million as of February 28, 2013 and August 31, 2012, respectively. The Australian program contains financial covenants in which the subsidiary must meet certain coverage and tangible net worth levels, as defined. At February 28, 2013, the Australian subsidiary was not in compliance with these covenants. The Company provided a guarantee of the Australian subsidiary's performance which resulted in the financial covenants being waived at February 28, 2013.

During the six months ended February 28, 2013 and February 29, 2012, proceeds from the domestic and international sales of receivables were $603.0 million and $988.7 million, respectively, and cash payments to the owners of receivables were $640.3 million and $884.2 million, respectively. The Company is responsible for servicing the receivables for a nominal servicing fee. Discounts on domestic and international sales of accounts receivable were $0.9 million and $2.1 million for the three and six months ended February 28, 2013, respectively, and $1.8 million and $3.5 million for the three and six months ended February 29, 2012, respectively. These discounts primarily represent the cost of funds and are included in selling, general and administrative expenses in the Company's consolidated statements of operations.

NOTE 3. 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 ("LIFO") method. LIFO inventory reserves were $238.1 million and $261.8 million at February 28, 2013 and August 31, 2012, respectively. Inventory cost for international inventories and the remaining domestic inventories are determined by the first-in-first-out ("FIFO") method.

At February 28, 2013 and August 31, 2012, 42% and 55%, respectively, of the Company's total inventories were valued at LIFO. The remainder of inventories, valued at FIFO, consisted mainly of material dedicated to CMC Poland Sp. z o.o. ("CMCP") (formerly CMC Zawiercie S.A. or CMCZ) and certain marketing and distribution businesses.

The majority of the Company's inventories are in the form of finished goods with minimal work in process. At February 28, 2013 and August 31, 2012, $97.2 million and $68.0 million, respectively, were in raw materials.

NOTE 4. GOODWILL AND OTHER INTANGIBLE ASSETS

The following table details the changes in the carrying amount of goodwill by reportable segment:



	Americas						International
(in thousands)	Recycling		Mills		Fabrication		Mill		Marketing and Distribution			Consolidated
Balance at August 31, 2012	$	7,267	$	295	$	57,144	$	2,685	$	9,506		$	76,897
Foreign currency translation	—		—		—		116		(54		)	62
Balance at February 28, 2013	$	7,267	$	295	$	57,144	$	2,801	$	9,452		$	76,959

The total gross carrying amounts of the Company's intangible assets that were subject to amortization were $43.9 million and $44.3 million at February 28, 2013 and August 31, 2012, respectively, and are included in other noncurrent assets on the Company's consolidated balance sheets. Excluding goodwill, there are no other significant intangible assets with indefinite lives. Amortization expense for intangible assets was $1.2 million and $2.5 million for the three and six months ended February 28, 2013, respectively, and $1.5 million and $3.0 million for the three and six months ended February 29, 2012, respectively.

NOTE 5. SEVERANCE

Severance cost recorded by the Company during the three and six months ended February 28, 2013 was not material. During the three and six months ended February 29, 2012, the Company recorded severance cost of $2.5 million and $22.3 million, respectively. The severance cost recorded during fiscal 2012 primarily related to the Company's discontinued operations. See Note 7, Discontinued Operations, for additional details.

NOTE 6. DISPOSITIONS

During the first quarter of fiscal 2013, the Company completed the sale of its 11% ownership interest in Trinecke Zelezarny, a.s. ("Trinecke"), a Czech Republic joint-stock company, for $29.0 million resulting in a pre-tax gain of $26.1 million. The Trinecke investment was included in the International Marketing and Distribution segment. During the first quarter of fiscal 2012, the Company completed the sale of two properties that were previously joist & deck locations.

NOTE 7. DISCONTINUED OPERATIONS

During the first quarter of fiscal 2012, the Company announced its decision to exit the steel pipe manufacturing operations in Croatia ("CMCS") by closure of the facility and sale of the assets. The Company determined that the decision to exit this business met the definition of a discontinued operation. As a result, the Company recorded severance cost of $18.0 million and this business has been presented as a discontinued operation for all periods presented. The Company sold a majority of CMCS' assets during fiscal 2012. The remaining assets were sold during the first quarter of fiscal 2013 for $3.9 million with no impact to the consolidated statements of operations.

As of February 28, 2013, the assets of discontinued operations have been presented as held for sale and are included in other current assets on the Company's consolidated balance sheets. Financial information for discontinued operations was as follows:



(in thousands)	February 28, 2013			August 31, 2012
Current assets	$	3,858		$	6,601

	Three Months Ended					Six Months Ended
(in thousands)	February 28, 2013			February 29, 2012		February 28, 2013		February 29, 2012
Revenue	$	—		$	9,858	$	—	$	24,002
Earnings (loss) before taxes	(46		)	1,794		342		(25,209		)

NOTE 8. CREDIT ARRANGEMENTS

On December 27, 2011, the Company entered into a third amended and restated $300 million revolving credit facility that matures on December 27, 2016. The maximum availability under this facility can be increased to $400 million with the consent of both parties. The program's capacity, with a sublimit of $50 million for letters of credit, is reduced by outstanding stand-by letters of credit which totaled $29.3 million at February 28, 2013. Under the credit facility, the Company was required to maintain a minimum interest coverage ratio (adjusted EBITDA to interest expense, as each is defined in the facility) of not less than 3.00 to 1.00 for the twelve month cumulative period ended November 30, 2012 and for each fiscal quarter on a rolling twelve month cumulative period thereafter. At February 28, 2013, the Company's interest coverage ratio was 5.64 to 1.00. The credit facility also requires the Company to maintain a debt to capitalization ratio that does not exceed 0.60 to 1.00. At February 28, 2013, the Company's debt to capitalization ratio was 0.50 to 1.00. The credit facility provides for interest based on the LIBOR, the Eurodollar rate or Bank of America's prime rate.

During the third quarter of fiscal 2012, the Company terminated its existing interest rate swap transactions and received cash proceeds of approximately $53 million, net of customary finance charges. The resulting gain was deferred and is being amortized as a reduction to interest expense over the remaining term of the respective debt tranches. At February 28, 2013, the unamortized portion was $41.1 million and the amortization of the deferred gain was $2.9 million and $5.8 million for the three and six months ended February 28, 2013, respectively.

The Company has uncommitted credit facilities available from domestic and international banks. In general, these credit facilities are used to support trade letters of credit (including accounts payable settled under bankers' acceptances), foreign exchange transactions and short-term advances which are priced at market rates.

Long-term debt, including the deferred gain from the termination of the interest rate swaps, was as follows:



(in thousands)	Weighted Average Interest Rate as of February 28, 2013	February 28, 2013		August 31, 2012
$200 million notes at 5.625% due November 2013	3.5%	$	202,857	$	204,873
$400 million notes at 6.50% due July 2017	5.7%	413,005		414,491
$500 million notes at 7.35% due August 2018	6.4%	525,241		527,554
Other, including equipment notes		13,376		14,407
		1,154,479		1,161,325
Less current maturities		204,072		4,252
		$	950,407	$	1,157,073

Interest on the notes is payable semiannually.

CMCP has uncommitted credit facilities of $77.1 million with several banks with expiration dates ranging from March 31, 2013 to November 30, 2013. At February 28, 2013, $47.4 million was outstanding under these facilities and is included in notes payable on the Company's consolidated balance sheets. The weighted average interest rate on these facilities was 5.4% at February 28, 2013.

Interest of $0.3 million and $0.8 million was capitalized in the cost of property, plant and equipment constructed for the three and six months ended February 28, 2013, respectively, and $0.1 million and $0.5 million for the three and six months ended February 29, 2012, respectively. Interest of $33.7 million and $38.3 million was paid during the three and six months ended February 28, 2013, respectively, and $30.2 million and $34.6 million during the three and six months ended February 29, 2012, respectively.

NOTE 9. DERIVATIVES AND RISK MANAGEMENT

The Company's worldwide operations and product lines expose it to risks from fluctuations in metal commodity prices, foreign currency exchange rates, natural gas prices and interest rates. One objective of the Company's risk management program is to mitigate these risks using derivative instruments. The Company enters into metal commodity futures and forward contracts to mitigate the risk of unanticipated changes in gross margin due to the volatility of the commodities' prices, enters into foreign currency forward contracts that match the expected settlements for purchases and sales denominated in foreign currencies and enters into natural gas forward contracts to mitigate the risk of unanticipated changes in operating cost due to the volatility of natural gas prices. When sales commitments to customers include a fixed price freight component, the Company occasionally enters into freight forward contracts to reduce the effects of the volatility of ocean freight rates.

At February 28, 2013, the Company's notional value of its foreign currency contract commitments was $239 million.

The following table provides information regarding the Company's commodity contract commitments as of February 28, 2013:



Commodity	Long/Short	Total
Aluminum	Long	6,338	MT
Aluminum	Short	3,125	MT
Copper	Long	872	MT
Copper	Short	3,810	MT
Natural Gas	Long	10,000	MMBtu
Zinc	Long	22	MT

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 Company's consolidated statements of operations, and there were no components excluded from the assessment of hedge effectiveness for the three and six months ended February 28, 2013 and February 29, 2012. Certain 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 items recognized in the consolidated statements of operations:



		Three Months Ended						Six Months Ended
Derivatives Not Designated as Hedging Instruments (in thousands)	Location	February 28, 2013			February 29, 2012			February 28, 2013			February 29, 2012
Commodity	Cost of goods sold	$	717		$	(3,336	)	$	306		$	241
Commodity	SG&A expenses	588			—			—			—
Foreign exchange	Net sales	—			(73		)	(11		)	(181		)
Foreign exchange	Cost of goods sold	—			(304		)	—			(537		)
Foreign exchange	SG&A expenses	2,916			6,465			2,880			(694		)
Other	Cost of goods sold	(10		)	—			5			—
Gain (loss) before taxes		$	4,211		$	2,752		$	3,180		$	(1,171	)

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



Derivatives Designated as Fair Value Hedging Instruments (in thousands)		Three Months Ended						Six Months Ended
	Location	February 28, 2013			February 29, 2012			February 28, 2013			February 29, 2012
Foreign exchange	Net sales	$	(228	)	$	—		$	(228	)	$	—
Foreign exchange	Cost of goods sold	777			—			548			—
Foreign exchange	SG&A expenses	—			(4,120		)	—			(1,550		)
Interest rate	Interest expense	—			15,969			—			17,174
Gain before taxes		$	549		$	11,849		$	320		$	15,624



Hedged Items Designated as Fair Value Hedging Instruments (in thousands)		Three Months Ended						Six Months Ended
	Location	February 28, 2013			February 29, 2012			February 28, 2013			February 29, 2012
Foreign exchange	Net sales	$	274		$	—		$	251		$	—
Foreign exchange	Cost of goods sold	(705		)	—			(548		)	—
Foreign exchange	SG&A expenses	—			4,120			—			1,550
Interest rate	Interest expense	—			(15,969		)	—			(17,174		)
Loss before taxes		$	(431	)	$	(11,849	)	$	(297	)	$	(15,624	)



Effective Portion of Derivatives Designated as Cash Flow Hedging Instruments Recognized in Accumulated Other Comprehensive Income (Loss) (in thousands)	Three Months Ended						Six Months Ended
	February 28, 2013			February 29, 2012			February 28, 2013		February 29, 2012
Commodity	$	(13	)	$	44		$	1	$	19
Foreign exchange	70			(467		)	373		(1,628		)
Gain (loss), net of taxes	$	57		$	(423	)	$	374	$	(1,609	)



Effective Portion of Derivatives Designated as Cash Flow Hedging Instruments Reclassified from Accumulated Other Comprehensive Income (Loss) (in thousands)		Three Months Ended					Six Months Ended
	Location	February 28, 2013		February 29, 2012			February 28, 2013		February 29, 2012
Commodity	Cost of goods sold	$	6	$	28		$	6	$	15
Foreign exchange	Net sales	10		(36		)	61		(1,193		)
Foreign exchange	Cost of goods sold	91		—			50		—
Foreign exchange	SG&A expenses	66		(97		)	76		(161		)
Interest rate	Interest expense	101		102			203		203
Gain (loss), net of taxes		$	274	$	(3	)	$	396	$	(1,136	)

The Company's derivative instruments were recorded at their respective fair values as follows on the consolidated balance sheets:



Derivative Assets (in thousands)	February 28, 2013		August 31, 2012
Commodity — not designated for hedge accounting	$	1,923	$	407
Foreign exchange — designated for hedge accounting	674		670
Foreign exchange — not designated for hedge accounting	430		798
Derivative assets (other current assets and other assets)*	$	3,027	$	1,875



Derivative Liabilities (in thousands)	February 28, 2013		August 31, 2012
Commodity — designated for hedge accounting	$	8	$	2
Commodity — not designated for hedge accounting	1,052		993
Foreign exchange — designated for hedge accounting	250		1,272
Foreign exchange — not designated for hedge accounting	179		1,248
Other — not designated for hedge accounting	4		32
Derivative liabilities (accrued expenses, other payables and long-term liabilities)*	$	1,493	$	3,547

_________________

* Derivative assets and liabilities do not include the hedged items designated as fair value hedges.

As of February 28, 2013, all of the Company's derivative instruments designated to hedge exposure to the variability in future cash flows of the forecasted transactions will mature within twelve months.

All of the instruments are highly liquid and not entered into for trading purposes.

NOTE 10. FAIR VALUE

The Company has established a fair value hierarchy which prioritizes the inputs to the 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. Levels within the hierarchy are defined as follows:

Level 1 - Unadjusted quoted prices in active markets for identical assets and liabilities;

Level 2 - Quoted prices for similar assets and liabilities in active markets (other than those included in Level 1) which are observable, either directly or indirectly; and

Level 3 - Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

The following tables summarize information regarding the Company's financial assets and financial liabilities that were measured at fair value on a recurring basis:



			Fair Value Measurements at Reporting Date Using
(in thousands)	February 28, 2013		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Money market investments (1)	$	82,885	$	82,885	$	—	$	—
Commodity derivative assets (2)	1,923		1,923		—		—
Foreign exchange derivative assets (2)	1,104		—		1,104
Liabilities:
Commodity derivative liabilities (2)	1,060		1,052		8		—
Foreign exchange derivative liabilities (2)	429		—		429		—
Other derivative liabilities (2)	4		—		4		—



			Fair Value Measurements at Reporting Date Using
(in thousands)	August 31, 2012		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Money market investments (1)	$	172,462	$	172,462	$	—	$	—
Commodity derivative assets (2)	407		407		—		—
Foreign exchange derivative assets (2)	1,468		—		1,468		—
Liabilities:
Commodity derivative liabilities (2)	995		993		2		—
Foreign exchange derivative liabilities (2)	2,520		—		2,520		—
Other derivative liabilities (2)	32		—		32		—

_________________

(1) Money market investments are short-term in nature, and the value is determined by broker quoted prices in active markets. The investment portfolio mix can change each period based on the Company's assessment of investment options.

(2) Derivative assets and liabilities classified as Level 1 are commodity futures contracts valued based on quoted market prices in the London Metal Exchange or the New York Mercantile Exchange. Amounts in Level 2 are based on broker quotes in the over-the-counter market. Further discussion regarding the Company's use of derivatives and the classification of the assets and liabilities is included in Note 9. Derivatives and Risk Management.

Fair value of property, plant and equipment held for sale (Level 3) was $3.9 million based on appraised values less costs to sell at February 28, 2013. CMC does not have other assets or intangible assets measured at fair value on a non-recurring basis at February 28, 2013. Impairment charges for property, plant and equipment were $3.0 million for the six months ended February 28, 2013.

The carrying values of the Company's short-term items, including the deferred purchase prices of accounts receivable, documentary letters of credit and notes payable approximate fair value due to their short term nature.

The carrying values and estimated fair values of the Company's financial assets and liabilities that are not required to be measured at fair value are as follows:



		February 28, 2013		August 31, 2012
(in thousands)	Fair Value Hierarchy	Carrying Value	Fair Value	Carrying Value	Fair Value
$200 million notes at 5.625% due November 2013 (1)	Level 2	202,857	208,607	204,873	212,413
$400 million notes at 6.50% due July 2017 (1)	Level 2	413,005	444,341	414,491	434,991
$500 million notes at 7.35% due August 2018 (1)	Level 2	525,241	569,791	527,554	559,894

(1) The fair value of the notes is calculated based on indicated market values.

NOTE 11. INCOME TAX

The Company's effective income tax rate from continuing operations for the three and six months ended February 28, 2013 was 50.6% and 33.5%, respectively, compared with 35.0% and (110.7)% for the three and six months ended February 29, 2012, respectively. The increase in the effective tax rate to 50.6% for the three months ended February 28, 2013 compared to 35.0% for the three months ended February 29, 2012 is due to a change in the mix and amount of pre-tax income in the jurisdictions in which the Company operates. The Company's effective tax rate from discontinued operations for the three and six months ended February 28, 2013 was 34.8% and 35.1%, respectively, compared with 42.9% and 35.4% for the three and six months ended February 29, 2012, respectively.

During the first quarter of fiscal 2012, the Company recognized a tax loss in the amount of $291 million related to its investment in its Croatian subsidiary. As a result of this loss, a tax benefit of $102.1 million was recorded in continuing operations in the first quarter of 2012. The Company will report and disclose the investment loss on its U.S. tax return as ordinary worthless stock and bad debt deductions. This tax benefit was the primary reason for the variance from the statutory tax rate of 35%.

The Company received net refunds of $2.2 million and made net payments of $13.7 million for income taxes during the six months ended February 28, 2013 and February 29, 2012, respectively.

The reserve for unrecognized tax benefits related to the accounting for uncertainty in income taxes was $27.4 million and $12.4 million, exclusive of interest and penalties, as of February 28, 2013 and February 29, 2012, respectively.

The Company's policy classifies interest recognized on an underpayment of income taxes and any statutory penalties recognized on a tax position as tax expense and the balances at the end of a reporting period are recorded as part of the current or noncurrent reserve for uncertain income tax positions. For the three and six months ended February 28, 2013, before any tax benefits, the Company recorded immaterial amounts of accrued interest and penalties on unrecognized tax benefits.

During the next twelve months, it is reasonably possible that the statute of limitations may lapse pertaining to positions taken by the Company in prior year tax returns or that income tax audits in various taxing jurisdictions could be finalized. As a result, the total amount of unrecognized tax benefits may decrease by approximately $17.8 million, which would reduce the provision for taxes on earnings by an immaterial amount.

The Company files income tax returns in the United States and multiple foreign jurisdictions with varying statutes of limitations. In the normal course of business, the Company and its subsidiaries are subject to examination by various taxing authorities. The following is a summary of tax years subject to examination:

US Federal — 2008 and forward

US States — 2008 and forward

Foreign — 2005 and forward

The Company is currently under examination by the Internal Revenue Service and state revenue authorities from 2009 to 2011. Management believes the Company's recorded tax liabilities as of February 28, 2013 sufficiently reflect the anticipated outcome of these examinations.

NOTE 12. SHARE-BASED COMPENSATION PLANS

The interim information below should be read in conjunction with the disclosures included in CMC's Annual Report on Form 10-K for the year ended August 31, 2012. Restricted stock units ("RSUs") and performance stock units ("PSUs") totaling 1.6 million and 0.5 million, respectively, were granted during the six months ended February 28, 2013 and February 29, 2012, respectively, at a weighted-average fair value of $13.44 and $10.64, respectively. The Company granted 0.2 million and 0.8 million in stock appreciation rights ("SARs") at a weighted average exercise price of $14.25 and $11.63 during the six months ended February 28, 2013 and February 29, 2012, respectively. The RSUs, PSUs and SARs granted during fiscal 2013 and 2012 will vest over a period of three years.

Total share-based compensation expense recognized as a component of selling, general and administrative expenses was $3.6 million and $7.2 million for the three and six months ended February 28, 2013, respectively, and $2.1 million and $6.0 million for the three and six months ended February 29, 2012, respectively.

Share-Based Liability Awards The Company granted 234,109 and 1,132,204 equivalent shares of cash-settled RSUs, PSUs and stock appreciation rights ("SARs") during the six months ended February 28, 2013 and February 29, 2012, respectively . The PSUs vest upon the achievement of performance goals and objectives of the Company over the performance period. The RSUs and SARs vest over a three year period. The Company has accounted for these cash-settled awards as a liability and the value is adjusted to the current share price of CMC's common stock at each reporting period. As of February 28, 2013, the Company had 1,475,580 equivalent shares in awards outstanding. The Company expects 1,117,350 equivalent shares to vest.

NOTE 13. CAPITAL STOCK

On December 6, 2012, the Company amended the stockholder rights plan (the "Rights Agreement") dated as of July 30, 2011. As a result of the amendment, the rights to purchase Series B Junior Participating Preferred Stock of the Company pursuant to the Rights Agreement expired at 5:00 p.m. (Dallas, Texas time) on December 6, 2012 (the "Final Expiration Date"), and the Rights Agreement effectively terminated as of such time.

NOTE 14. EARNINGS PER SHARE ATTRIBUTABLE TO CMC

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



	Three Months Ended		Six Months Ended
	February 28, 2013	February 29, 2012	February 28, 2013	February 29, 2012
Shares outstanding for basic earnings per share	116,586,100	115,703,142	116,461,302	115,616,844
Effect of dilutive securities:
Stock-based incentive/purchase plans	986,952	1,140,314	872,037	1,029,625
Shares outstanding for diluted earnings per share	117,573,052	116,843,456	117,333,339	116,646,469

At February 28, 2013 and February 29, 2012, SARs with total share commitments of 2.0 million and 2.2 million, respectively, were antidilutive and therefore were excluded from the calculation of diluted earnings per share. All stock options and SARs expire by 2022.

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

The Company did not purchase any shares during the first six months of 2013 and had remaining authorization to purchase 8,259,647 shares of its common stock at February 28, 2013.

NOTE 15. COMMITMENTS AND CONTINGENCIES

In the ordinary course of conducting its business, the Company becomes involved in litigation, administrative proceedings and government investigations, including environmental matters. See Note 17, Commitments and Contingencies, to the consolidated financial statements in the Annual Report on Form 10-K for the year ended August 31, 2012.

On September 18, 2008, the Company was served with a class action antitrust lawsuit alleging violations of Section 1 of the Sherman Act, brought by Standard Iron Works of Scranton, Pennsylvania, against nine steel manufacturing companies, including CMC. The lawsuit, filed in the United States District Court for the Northern District of Illinois, alleges that the defendants conspired to fix, raise, maintain and stabilize the price at which steel products were sold in the United States by artificially restricting the supply of such steel products. The lawsuit, which purports to be brought on behalf of a class consisting of all purchasers of steel products directly from the defendants between January 1, 2005 and September 2008, seeks treble damages and costs, including reasonable attorney fees and pre- and post-judgment interest. Motions for and against class certification have been filed. Oral arguments related to class certification are pending. Discovery on the case merits remains pending. The Company believes the case is without merit and intends to defend it vigorously.

Since the filing of the direct purchaser lawsuit, a case has been filed in federal court in the Northern District of Illinois on behalf of a class of indirect purchasers in approximately 28 states naming the same defendants and containing allegations substantially identical to those of the Standard Iron Works complaint. That case has in effect been stayed. Another indirect purchaser action was filed in Tennessee state court, again naming the same defendants but contending that the conspiracy continued through 2010. The case has been removed to federal court, and plaintiffs have moved to remand. The motion to remand has not yet been decided, and no motion practice or discovery has taken place. The Company believes that the lawsuits are without merit and plans to defend them vigorously. Due to the uncertainty and the information available at this time, we cannot reasonably estimate a range of loss relating to these cases.

Guarantees During the fourth quarter of 2012, 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, 2013, the maximum credit facility with the bank was $4.0 million, and the Company's maximum exposure was $4.0 million.

NOTE 16. BUSINESS SEGMENTS

The Company's reporting 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 reporting segments are the Company's operating segments except for the Americas Mills reporting segment, which includes the domestic steel mills operating segment, and the domestic copper tube minimill operating segment. The domestic copper tube minimill is aggregated with the domestic steel mills because of similar economic characteristics, products, production processes, customers and distribution methods.

The Company structures its business into the following five segments: Americas Recycling, Americas Mills, Americas Fabrication, International Mill and International Marketing and Distribution. The Americas Recycling segment consists of the scrap metal processing and sales operations primarily in Texas, Florida and the southern United States. The Americas Mills segment includes the Company's domestic steel mills, including the scrap processing facilities that directly support these mills, and the domestic copper tube minimill. The Americas Fabrication segment consists of the Company's rebar fabrication operations, fence post manufacturing plants and construction-related and other products facilities. The International Mill segment includes the minimill, recycling and fabrication operations in Poland. International Marketing and Distribution includes international operations for the sales, distribution and processing of steel products, ferrous and nonferrous metals and other industrial products. Additionally, the International Marketing and Distribution segment includes the Company's U.S.-based trading and distribution divisions, CMC Cometals and CMC Cometals Steel. Corporate contains expenses of the Company's corporate headquarters and interest expense related to its long-term public debt.

The financial information presented for the International Mill segment excludes CMCS operations. These operations have been classified as discontinued operations in the consolidated statements of operations. See Note 7, Discontinued Operations, for more information.

The Company uses adjusted operating profit (loss) to measure segment performance. Intersegment sales are generally priced at prevailing market prices. Certain corporate administrative expenses are allocated to segments based upon the nature of the expense. The accounting policies of the segments are the same as those described in Note 2, Summary of Significant Accounting Policies, to the consolidated financial statements in the Annual Report on Form 10-K for the year ended August 31, 2012.

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



	Three Months Ended February 28, 2013
	Americas							International
(in thousands)	Recycling		Mills		Fabrication			Mill			Marketing and Distribution		Corporate			Eliminations			Continuing Operations
Net sales-unaffiliated customers	$	301,035	$	285,302	$	314,389		$	179,842		$	645,445	$	3,661		$	—		$	1,729,674
Intersegment sales	50,339		191,292		3,577			(77		)	4,491		—			(249,622		)	—
Net sales	351,374		476,594		317,966			179,765			649,936		3,661			(249,622		)	1,729,674
Adjusted operating profit (loss)	2,243		48,769		(3,812		)	(4,153		)	3,948		(19,194		)	(1,084		)	26,717

	Three Months Ended February 29, 2012
	Americas							International
(in thousands)	Recycling		Mills		Fabrication			Mill			Marketing and Distribution		Corporate			Eliminations			Continuing Operations
Net sales-unaffiliated customers	$	376,597	$	344,625	$	298,226		$	216,177		$	715,828	$	5,291		$	—		$	1,956,744
Intersegment sales	43,047		181,260		3,367			913			7,527		—			(236,114		)	—
Net sales	419,644		525,885		301,593			217,090			723,355		5,291			(236,114		)	1,956,744
Adjusted operating profit (loss)	6,389		54,401		(9,969		)	6,592			26,554		(20,936		)	(2,346		)	60,685

	Six Months Ended February 28, 2013
	Americas							International
(in thousands)	Recycling		Mills		Fabrication			Mill			Marketing and Distribution		Corporate			Eliminations			Continuing Operations
Net sales-unaffiliated customers	$	608,506	$	592,118	$	667,136		$	395,700		$	1,248,980	$	6,460		$	—		$	3,518,900
Intersegment sales	94,829		380,925		7,422			6,132			9,544		—			(498,852		)	—
Net sales	703,335		973,043		674,558			401,832			1,258,524		6,460			(498,852		)	3,518,900
Adjusted operating profit (loss)	6,737		101,291		6,380			(3,277		)	44,109		(36,564		)	(1,744		)	116,932
Total assets*	297,604		664,628		631,393			513,525			913,921		916,921			(532,385		)	3,405,607

	Six Months Ended February 29, 2012
	Americas							International
(in thousands)	Recycling		Mills		Fabrication			Mill			Marketing and Distribution		Corporate			Eliminations			Continuing Operations
Net sales-unaffiliated customers	$	749,990	$	689,191	$	613,743		$	469,098		$	1,416,191	$	5,351		$	—		$	3,943,564
Intersegment sales	84,459		362,190		7,618			44,173			17,235		—			(515,675		)	—
Net sales	834,449		1,051,381		621,361			513,271			1,433,426		5,351			(515,675		)	3,943,564
Adjusted operating profit (loss)	27,205		112,332		(17,349		)	16,414			22,453		(44,204		)	(8,491		)	108,360
Total assets at August 31, 2012*	285,136		676,909		629,970			529,160			870,933		961,654			(519,117		)	3,434,645

* Excludes total assets from discontinued operations of $3.9 million at February 28, 2013 and $6.6 million at August 31, 2012.

The following table provides a reconciliation of consolidated adjusted operating profit to net earnings from continuing operations:



	Three Months Ended					Six Months Ended
(in thousands)	February 28, 2013			February 29, 2012		February 28, 2013		February 29, 2012
Earnings from continuing operations	$	4,607		$	27,829	$	54,074	$	152,874
Income taxes (benefit)	4,717			15,015		27,232		(80,312		)
Interest expense	16,490			16,043		33,514		32,340
Discounts on sales of accounts receivable	903			1,798		2,112		3,458
Adjusted operating profit from continuing operations	26,717			60,685		116,932		108,360
Adjusted operating profit (loss) from discontinued operations	(46		)	2,387		342		(24,165		)
Adjusted operating profit	$	26,671		$	63,072	$	117,274	$	84,195

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

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited consolidated financial statements and the notes thereto, which are included in this report, and our audited consolidated financial statements and the notes thereto, which are included in our Annual Report on Form 10-K for the fiscal year ended August 31, 2012. This discussion contains or incorporates by reference "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the Private Securities Litigation Reform Act of 1995. These forward-looking statements are not historical facts, but rather are based on expectations, estimates, assumptions and projections about our industry, business and future financial results, based on information available at the time this report is filed with the Securities and Exchange Commission ("SEC") or, with respect to any document incorporated by reference, available at the time that such document was prepared. Our actual results could differ materially from the results contemplated by these forward-looking statements due to a number of factors, including those identified in the section entitled "Forward-Looking Statements" in this Item 2 of this Quarterly Report on Form 10-Q and in the section entitled "Risk Factors" in Item 1A of our Annual Report on Form 10-K for the fiscal year ended August 31, 2012. We do not assume any obligation to update or revise any forward-looking statements to reflect changed assumptions, the occurrence of anticipated or unanticipated events, new information or circumstances or otherwise, except as required by law.

CRITICAL ACCOUNTING POLICIES

There have been no material changes to our critical accounting policies as set forth in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, included in our Annual Report on Form 10-K filed with the SEC for the year ended August 31, 2012.

CONSOLIDATED RESULTS OF OPERATIONS



	Three Months Ended				Increase (Decrease)		Six Months Ended				Increase (Decrease)
(in thousands)	February 28, 2013		February 29, 2012		%		February 28, 2013		February 29, 2012		%
Net sales*	$	1,729,674	$	1,956,744	(12	)%	$	3,518,900	$	3,943,564	(11	)%
Earnings from continuing operations	4,607		27,829		(83	)%	54,074		152,874		(65	)%
Adjusted EBITDA	60,054		95,294		(37	)%	186,225		150,827		23	%

_______________________________________

* Excludes divisions classified as discontinued operations.

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



	Three Months Ended					Increase (Decrease)		Six Months Ended					Increase (Decrease)
(in thousands)	February 28, 2013			February 29, 2012		%		February 28, 2013		February 29, 2012			%
Earnings from continuing operations	$	4,607		$	27,829	(83	)%	$	54,074	$	152,874		(65	)%
Less net earnings (loss) attributable to noncontrolling interests	—			—		—	%	2		2			—	%
Interest expense	16,490			16,043		3	%	33,514		32,340			4	%
Income taxes (benefit) from continuing operations	4,717			15,015		(69	)%	27,232		(80,312		)	(134	)%
Depreciation, amortization and impairment charges	34,286			34,122		—	%	71,065		68,601			4	%
Adjusted EBITDA from continuing operations	60,100			93,009		(35	)%	185,883		173,501			7	%
Adjusted EBITDA from discontinued operations	(46		)	2,285		(102	)%	342		(22,674		)	(102	)%
Adjusted EBITDA	$	60,054		$	95,294	(37	)%	$	186,225	$	150,827		23	%

Our adjusted EBITDA does not include interest expense, income taxes, depreciation, amortization and impairment charges. Because we have borrowed money in order to finance our operations, interest expense is a necessary element of our costs and our ability to generate revenues. Because we use capital assets, depreciation and amortization are also necessary elements of our costs. Impairment charges, when necessary, accelerate the write-off of fixed assets that otherwise would have been accomplished by periodic depreciation charges. Additionally, 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 in accordance with GAAP, as well as adjusted EBITDA, to evaluate our performance. Further, we separately analyze any significant fluctuations in interest expense, depreciation, amortization, impairment charges and income taxes.

The following are the significant factors that impacted our financial performance during the second quarter of 2013 compared with the same period during fiscal 2012:

- Our sales for the second quarter of 2013 were down across most of our segments, with the International Marketing and Distribution segment having the most significant sales decline when compared to the second quarter of 2012.

- Our International Marketing and Distribution segment's net sales declined $73.4 million or 10% and adjusted operating profit decreased $22.7 million during the second quarter of 2013 as compared to the prior year's second quarter. The decline in this segment's results is primarily due to declining volumes and margins as market conditions in Europe continued to erode.

- Our International Mill segment's net sales decreased 17% and adjusted operating profit decreased $10.7 million to an adjusted operating loss of $4.2 million during the second quarter of 2013 as compared to the prior year's second quarter. The decline in adjusted operating profit is primarily due to a 16% or 54 thousand ton decrease in volumes.

- Partially offsetting these declines, our Americas Fabrication segment's net sales increased 5% and adjusted operating loss narrowed by $6.2 million during the second quarter of fiscal year 2013 as compared to the prior year's second quarter. The results were primarily due to stable input pricing, improved backlog margins and higher shipments.

SEGMENT OPERATING DATA

Unless otherwise indicated, all dollar amounts below are calculated before income taxes. Financial results for our reportable segments are consistent with the basis and manner in which we internally disaggregate financial information for the purpose of making operating decisions. See Note 16, Business Segments, to the unaudited consolidated financial statements included in this report.

We use adjusted operating profit (loss) to compare and to evaluate the financial performance of our segments. Adjusted operating profit (loss) is the sum of our earnings (loss) before income taxes and financing costs.

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



	Three Months Ended						Six Months Ended
(in thousands)	February 28, 2013			February 29, 2012			February 28, 2013			February 29, 2012
Net sales:
Americas Recycling	$	351,374		$	419,644		$	703,335		834,449
Americas Mills	476,594			525,885			973,043			1,051,381
Americas Fabrication	317,966			301,593			674,558			621,361
International Mill	179,765			217,090			401,832			513,271
International Marketing and Distribution	649,936			723,355			1,258,524			1,433,426
Corporate	3,661			5,291			6,460			5,351
Eliminations	(249,622		)	(236,114		)	(498,852		)	(515,675	)
	$	1,729,674		$	1,956,744		$	3,518,900		3,943,564
Adjusted operating profit (loss):