In the following discussion, references to "we," "us," "our" or the "Company" mean Commercial Metals Company ("CMC") and its consolidated subsidiaries, unless the context otherwise requires. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and the notes thereto, which are included in this Quarterly Report on Form 10-Q (the "Form 10-Q"), and our consolidated financial statements and the notes thereto, which are included in our Annual Report on Form 10-K for the year ended August 31, 2021 (the "2021 Form 10-K"). This discussion contains or incorporates by reference "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the Private Securities Litigation Reform Act of 1995. 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 Form 10-Q was 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" at the end of Item 2 of this Form 10-Q and in the sections entitled "Risk Factors" in Part I, Item 1A of our 2021 Form 10-K. We do not undertake any obligation to update, amend or clarify 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.

Any reference in this Form 10-Q to the "corresponding period" relates to the three month period ended November 30, 2020. CRITICAL ACCOUNTING POLICIES AND ESTIMATES

There have been no material changes to our critical accounting policies and estimates as set forth in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, included in our 2021 Form 10-K.

RESULTS OF OPERATIONS SUMMARY

Business Overview

As a vertically integrated organization, we manufacture, recycle and fabricate steel and metal products and provide related materials and services through a network of facilities that includes seven electric arc furnace ("EAF") mini mills, two EAF micro mills, one rerolling mill, steel fabrication and processing plants, construction-related product warehouses and metal recycling facilities in the U.S. and Poland. Our operations are conducted through two reportable segments: North America and Europe.

When considering our results for the period, we evaluate our operating performance by comparing net sales, in the aggregate and for both of our segments, in the current period to net sales in the corresponding period. In doing so, we focus on changes in average selling price per ton and tons shipped for each of our product categories as these are the two variables that typically have the greatest impact on our results of operations. We group our products into three categories: raw materials, steel products and downstream products. Raw materials include ferrous and nonferrous scrap, steel products include rebar, merchant and other steel products, such as billets and wire rod, and downstream products include fabricated rebar and steel fence post.

Key Performance Indicators

Adjusted EBITDA from continuing operations ("adjusted EBITDA") is used by management to compare and evaluate the period-over-period underlying business operational performance of our segments. Adjusted EBITDA is the sum of the Company's earnings from continuing operations before interest expense, income taxes, depreciation and amortization and impairment expense. Although there are many factors that can impact a segment's adjusted EBITDA and, therefore, our overall earnings, changes in steel products metal margin and downstream products margin over scrap costs period-over-period is a consistent area of focus for our Company and industry. Steel products metal margin and downstream products margin over scrap costs are metrics used by management to monitor the results of our vertically integrated organization. Steel products metal margin is the difference between the average selling price per ton of rebar, merchant and other steel products and the cost of ferrous scrap per ton utilized by our steel mills to produce these products. An increase or decrease in input costs can impact profitability of these products when there is no corresponding change in selling prices due to competitive pressures on prices. Downstream products margin over scrap costs is the difference between the average selling price per ton of fabricated rebar and steel fence post products and the scrap input costs to produce these products. The majority of our downstream products selling


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Table of Contents prices per ton are fixed at the beginning of a project and these projects last one to two years on average. Because the selling price generally remains fixed over the life of a project, changes in input costs over the life of the project can significantly impact profitability.

Impact of COVID-19

The impact of the COVID-19 pandemic ("COVID-19" or "pandemic") on our operations was limited during the three months ended November 30, 2021 and 2020. We continue to evaluate the nature and extent of future impacts of the evolving pandemic on our operations and are complying with applicable federal, state and local law and considering relevant guidance, including the guidelines of the U.S. Centers for Disease Control and other authorities, to prioritize the health and safety of our employees, families, suppliers, customers and communities. Given the dynamic and uncertain nature and duration of the pandemic, we cannot reasonably estimate the long-term impact of COVID-19 on our business, results of operations and overall financial performance at this time.

Financial Results Overview

The following discussion of our results of operations is based on our continuing operations.


                                                  Three Months Ended November 30,
(in thousands, except per share data)                  2021                    2020
Net sales                                  $       1,981,801               $ 1,391,803
Earnings from continuing operations                  232,889                    63,911
Diluted earnings per share                 $            1.90               $      0.53

Net sales for the three months ended November 30, 2021 increased $590.0 million, or 42%, compared to the corresponding period. The growth in net sales is largely attributable to rising prices, which have favorably impacted year-over-year selling prices across all major product lines in both of our segments. Continued strong demand in our end-use markets has supported the growth in average selling prices, while volumes across our product lines remained relatively flat in the three months ended November 30, 2021, compared to the corresponding period.

In the first quarter of 2022, we achieved earnings from continuing operations of $232.9 million, an increase of $169.0 million, or 264%, compared to the corresponding period. The increase was driven by the significant expansion of steel products metal margin per ton and raw materials margin over purchase cost per ton, as the increases in selling prices outpaced the rising input costs of ferrous scrap utilized in our steel mill operations and the price paid to purchase obsolete and industrial scrap in our scrap metal recycling operations.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased $9.0 million for the three months ended November 30, 2021 compared to the corresponding period. The increase was driven largely by a $3.6 million increase in labor-related expenses in the three months ended November 30, 2021, compared to the corresponding period, and $3.2 million of acquisition-related costs incurred during the first quarter of 2022, with no such amount in the corresponding period.

Interest Expense

Interest expense for the three months ended November 30, 2021 decreased $3.2 million compared to the corresponding period. The decrease was driven largely by the lower interest rate on the 2031 Notes, which were outstanding during the three months ended November 30, 2021, compared to the interest rate on the 2026 Notes, which were outstanding during the corresponding period.

Income Taxes

The effective income tax rate from continuing operations for the three months ended November 30, 2021 was 11.0%, compared with 25.3% in the corresponding period. The decrease is primarily due to the recognition of a capital loss on a tax restructuring transaction during the three months ended November 30, 2021.


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SEGMENT OPERATING DATA

Unless otherwise indicated, all dollar amounts below are from continuing operations and calculated before income taxes. See Note 14, Business Segments, for more information. The operational data presented in the tables below is calculated using averages and, therefore, it is not meaningful to quantify the effect that any individual component had on the segment's net sales or adjusted EBITDA.

North America
                                                   Three Months Ended November 30,
(in thousands)                                          2021                    2020
Net sales                                   $       1,653,622               $ 1,195,013
Adjusted EBITDA                                       268,524                   155,634

External tons shipped (in thousands)
Raw materials                                             334                       330
Rebar                                                     442                       486
Merchant and other                                        257                       264
Steel products                                            699                       750
Downstream products                                       400                       371

Average selling price (per ton)
Steel products                              $             976               $       612
Downstream products                                     1,092                       934

Cost of ferrous scrap utilized per ton      $             428               $       266
Steel products metal margin per ton                       548                       346

Net sales for the three months ended November 30, 2021 increased $458.6 million, or 38%, compared to the corresponding period. The year-over-year increase in net sales was primarily due to average selling price increases of 64% for raw materials, 59% for steel products and 17% for downstream products compared to the corresponding period. The rise in selling prices is supported by strengthened demand in our end-use markets due to greater construction and industrial activity compared to the corresponding period. Net sales was impacted to a lesser extent by a 7% decrease in shipments of steel products due to the absence of production from the former Rancho Cucamonga mill operations. This decrease was offset in part by an 8% increase in shipments of downstream products, largely due to growth in downstream products backlog at August 31, 2021 compared to August 31, 2020.

Adjusted EBITDA for the three months ended November 30, 2021 increased $112.9 million, or 73%, compared to the corresponding period. The year-over-year increase in adjusted EBITDA in the three months ended November 30, 2021 was due primarily to expansion of raw materials margin over purchase cost per ton and steel products metal margin per ton. Although ferrous and nonferrous scrap prices increased, and inflationary pressures caused an increase in the cost of freight, energy and other steelmaking inputs, the average selling price for raw materials and steel products increased at a greater rate year-over-year. Adjusted EBITDA included non-cash stock compensation expense of $2.7 million for the three months ended November 30, 2021, and $3.3 million for the corresponding period.



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Europe
                                                   Three Months Ended November 30,
(in thousands)                                           2021                     2020
Net sales                                   $        329,056                   $ 194,596
Adjusted EBITDA                                       79,832                      14,470

External tons shipped (in thousands)
Rebar                                                    103                         128
Merchant and other                                       262                         269
Steel products                                           365                         397

Average selling price (per ton)
Steel products                              $            869                   $     461

Cost of ferrous scrap utilized per ton      $            434                   $     262
Steel products metal margin per ton                      435                         199

Net sales for the three months ended November 30, 2021 increased $134.5 million, or 69%, compared to the corresponding period. The increase was driven largely by the increase in steel products average selling prices of $408 per ton during the three months ended November 30, 2021, compared to the corresponding period, supported by continued strong demand for steel products from both construction and industrial end markets. Shipments of steel products decreased 8% compared to the corresponding period, primarily as a result of scheduled maintenance during the first quarter of 2022. Net sales for the three months ended November 30, 2021 were also impacted by an unfavorable foreign currency translation adjustment of $13.5 million, due to the increase in the average value of the U.S. dollar relative to the Polish zloty, compared to a favorable foreign currency translation adjustment of $4.7 million during the corresponding period.

Adjusted EBITDA for the three months ended November 30, 2021 increased $65.4 million, or 452%, compared to the corresponding period. The primary driver of the increase in adjusted EBITDA was an expansion in steel products metal margin per ton, which increased 119% compared to the corresponding period, as the growth in average selling price for steel products outpaced the increased costs of ferrous scrap utilized. Additionally, in the first quarter of 2022 we received a $15.5 million energy credit that was recorded as a reduction to cost of goods sold, with no similar credit received in the corresponding period. Adjusted EBITDA for the three months ended November 30, 2021 included an unfavorable foreign currency exchange rate impact of $3.0 million, compared to an immaterial foreign currency translation adjustment during the corresponding period. Adjusted EBITDA included non-cash stock compensation expense of $1.5 million for the three months ended November 30, 2021, and $0.7 million for the corresponding period.

Corporate and Other

Corporate and Other reported adjusted EBITDA loss of $34.3 million for the three months ended November 30, 2021, compared to adjusted EBITDA loss of $26.5 million in the corresponding period. The primary reason for the increase in the adjusted EBITDA loss was a $4.2 million increase in labor-related expenses year-over-year and a $3.2 million increase in acquisition-related costs incurred in the three months ended November 30, 2021, with no such costs in the corresponding period. Additionally, adjusted EBITDA included non-cash stock compensation expense of $5.4 million for the three months ended November 30, 2021, compared to $5.1 million for the corresponding period.



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LIQUIDITY AND CAPITAL RESOURCES

Sources of Liquidity and Capital Resources

Our cash flows from operating activities are our principal sources of liquidity and result primarily from sales of raw materials, steel products, downstream products and related materials and services, as described in Part I, Item 1, Business, of our 2021 Form 10-K. We have a diverse and generally stable customer base, and regularly maintain a substantial amount of accounts receivable. We record allowances for the accounts receivable we estimate will not be collected based on market conditions, customers' financial condition and other factors. Historically, these allowances have not been material. We use credit insurance internationally to mitigate the risk of customer insolvency. We estimate that the amount of credit-insured receivables (and those covered by export letters of credit) was approximately 14% of total trade receivables at November 30, 2021.

We use futures or forward contracts to mitigate the risks from fluctuations in commodity prices, foreign currency exchange rates, interest rates and natural gas, electricity and other energy prices. See Note 9, Derivatives, for further information.



The table below reflects our sources, facilities and availability of liquidity
at November 30, 2021. See Note 8, Credit Arrangements, for additional
information.
(in thousands)                            Total Facility       Availability
Cash and cash equivalents                $       415,055      $     415,055
Notes due from 2023 to 2031                      930,000                    *
Revolver                                         400,000            396,954
U.S. accounts receivable facility                150,000            150,000
Poland credit facilities                          73,039             72,182
Poland accounts receivable facility               70,117             40,125
Poland Term Loan                                  44,055                  -

_________________

*We believe we have access to additional financing and refinancing, if needed, although we can make no assurances as to the form or terms of such financing.

We are continually reviewing our capital resources to determine whether we can meet our short and long-term goals. Our cash and cash equivalents position remains strong at $415.1 million as of November 30, 2021. We anticipate our current cash balances, cash flows from operations and available sources of liquidity will be sufficient to maintain operations, make necessary capital expenditures, pay dividends and opportunistically repurchase shares for at least the next twelve months. Additionally, we believe our long-term liquidity position remains strong and expect to meet our long-term liquidity needs with cash flows from operations and financing arrangements. However, in the event of changes in business conditions or other developments, including a sustained market deterioration, unanticipated regulatory developments, significant acquisitions, competitive pressures, or to the extent our liquidity needs prove to be greater than expected or cash generated from operations is less than anticipated, we may need additional liquidity. To the extent we elect to finance our long-term liquidity needs, we believe that the potential financing capital available to us in the future is sufficient to fund such long-term liquidity needs.

As of November 30, 2021 and 2020, we had no off-balance sheet arrangements that may have a current or future material effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.



Cash Flows

Operating Activities Net cash flows from operating activities were $25.8 million for the three months ended November 30, 2021, compared to net cash flows used by operating activities of $12.1 million for the three months ended November 30, 2020. Net earnings increased by $168.8 million year-over-year, offset by a $111.5 million year-over-year net increase in cash used by operating assets and liabilities ("working capital"). The increase in cash used by working capital was primarily due to rising scrap prices and greater inventory levels in the three months ended November 30, 2021, compared to the corresponding period. This increase was partially offset by a decrease in accounts payable, accrued expenses and other payables in the three months ended November 30, 2021, compared to the corresponding period, due to the payment of a $32.1 million working capital adjustment related to the fiscal 2019 acquisition from Gerdau S.A. made in the three months ended November 30, 2020, with no such payment in the three months ended November 30, 2021. Operating working capital days decreased four days year-over-year.



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Investing Activities
Net cash flows used by investing activities were $68.7 million and $36.5 million
for the three months ended November 30, 2021 and 2020, respectively. The $32.3
million increase in net cash flows used by investing activities was primarily
caused by an increase in capital expenditures as a result of the construction of
our third micro mill located in Mesa, Arizona.

We estimate that our 2022 capital spending will range from $475 million to $525 million. We regularly assess our capital spending based on current and expected results and the amount is subject to change.

In December 2021, we announced the signing of a definitive agreement to acquire TAC Acquisition Corp. ("Tensar"), a portfolio company of Castle Harlan Inc.'s fund, Castle Harlan Partners V, L.P., for a cash purchase price of $550.0 million, subject to customary purchase price adjustments. We anticipate that the transaction will close during the first half of calendar year 2022. See Note 15, Subsequent Event, for more information about the acquisition.

In addition, in January 2022, we announced the plan to construct a fourth micro mill geographically situated to primarily serve the Northeast, Mid-Atlantic, and Mid-Western United States markets. Following the site selection and receipt of state and local incentives, permitting, and other necessary approvals, the construction of the planned mill is expected to take roughly two years.

Financing Activities Net cash flows used by financing activities were $39.3 million and $28.6 million for the three months ended November 30, 2021 and 2020, respectively. Net cash flows used by financing activities increased during the first quarter of 2022 as a result of multiple actions, including an increase of $2.6 million in dividends paid compared to the corresponding period, an increase of $6.0 million in stock issued under incentive and purchase plans, net of forfeitures, and $5.3 million of treasury stock acquired under the new share repurchase program which was authorized in October 2021. See Note 12, Stockholders' Equity and Earnings per Share, for more information on the share repurchase program. Partially offsetting the increase in net cash flows used by financing activities were net proceeds from accounts receivable facilities of $6.0 million in the three months ended November 30, 2021, compared to no such net proceeds in the corresponding period.




CONTRACTUAL OBLIGATIONS
Our material cash commitments from known contractual and other obligations
primarily consist of obligations for long-term debt and related interest, leases
for properties and equipment and purchase obligations as part of normal
operations. See Note 8, Credit Arrangements, for more information regarding
scheduled maturities of our long-term debt. See Note 7, Leases, for additional
information on leases.
Our undiscounted purchase obligations due in the twelve months following
November 30, 2021 and August 31, 2021 were $736.3 million and $638.5 million,
respectively, with $189.7 million and $228.0 million due thereafter,
respectively. The increase in short-term purchase obligations was primarily due
to construction of our third micro mill in Mesa, Arizona, and other planned
capital expenditures in connection with normal business operations. The decrease
in long-term purchase obligations is a result of a decrease in commitments for
commodities used in operations, such as electrodes and natural gas, and certain
capital expenditure obligations for the construction of our third micro mill
which were fulfilled during the first quarter of 2022.

Other Commercial Commitments

We maintain stand-by letters of credit to provide support for certain transactions that governmental agencies, our insurance providers and suppliers request. At November 30, 2021, we had committed $22.8 million under these arrangements, of which $3.0 million reduced availability under the Revolver. CONTINGENCIES

We may incur settlements, fines, penalties or judgments due to our involvement in litigation, administrative proceedings and governmental investigations, including environmental matters. Liabilities and costs associated with litigation-related loss contingencies require estimates and judgments based on our knowledge of the facts and circumstances surrounding each matter and the advice of our legal counsel. We record liabilities for litigation-related losses when we believe a material loss is probable and we can reasonably estimate the amount of the loss. We evaluate the measurement of recorded liabilities each reporting period based on the current facts and circumstances specific to each matter. The ultimate losses incurred upon final resolution of litigation-related loss contingencies may differ materially from the estimated liability recorded at a particular balance sheet


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Table of Con tents date. Changes in estimates are recorded in earnings in the period in which such changes occur. We do not believe that any currently pending legal proceedings to which we are a party will materially affect, individually or in the aggregate, our results of operations, cash flows or financial condition. See Note 13, Commitments and Contingencies, for more information. FORWARD-LOOKING STATEMENTS

This Form 10-Q contains or incorporates by reference a number of "forward-looking statements" within the meaning of the federal securities laws with respect to general economic conditions, key macro-economic drivers that impact our business, the effects of ongoing trade actions, the effects of continued pressure on the liquidity of our customers, potential synergies and organic growth provided by acquisitions and strategic investments, demand for our products, metal margins, the effect of COVID-19 and related governmental and economic responses thereto, the ability to operate our steel mills at full capacity, future availability and cost of supplies of raw materials and energy for our operations, share repurchases, legal proceedings, the undistributed earnings of our non-U.S. subsidiaries, U.S. non-residential construction activity, international trade, capital expenditures, our liquidity and our ability to satisfy future liquidity requirements, the proposed Tensar acquisition and the timing thereof, estimated contractual obligations, the expected capabilities and benefits of new facilities, the timeline for execution of our growth plan, and our expectations or beliefs concerning future events. The statements in this report that are not historical statements, are forward-looking statements. These forward-looking statements can generally be identified by phrases such as we or our management "expects," "anticipates," "believes," "estimates," "future," "intends," "may," "plans to," "ought," "could," "will," "should," "likely," "appears," "projects," "forecasts," "outlook" or other similar words or phrases, as well as by discussions of strategy, plans, or intentions.

Our forward-looking statements are based on management's expectations and beliefs as of the time this Form 10-Q is filed with the SEC or, with respect to any document incorporated by reference, as of the time such document was prepared. Although we believe that our expectations are reasonable, we can give no assurance that these expectations will prove to have been correct, and actual results may vary materially. Except as required by law, we undertake no obligation to update, amend or clarify any forward-looking statements to reflect changed assumptions, the occurrence of anticipated or unanticipated events, new information or circumstances or any other changes. Important factors that could cause actual results to differ materially from our expectations include those described in Part I, Item 1A, Risk Factors, of our 2021 Form 10-K, as well as the following:



•changes in economic conditions which affect demand for our products or
construction activity generally, and the impact of such changes on the highly
cyclical steel industry;
•rapid and significant changes in the price of metals, potentially impairing our
inventory values due to declines in commodity prices or reducing the
profitability of our downstream contracts due to rising commodity pricing;
•impacts from COVID-19 on the economy, demand for our products, global supply
chain and on our operations, including the responses of governmental authorities
to contain COVID-19 and the impact of various COVID-19 vaccines;
•excess capacity in our industry, particularly in China, and product
availability from competing steel mills and other steel suppliers including
import quantities and pricing;
•compliance with and changes in existing and future laws, regulations and other
legal requirements and judicial decisions that govern our business, including
increased environmental regulations associated with climate change and
greenhouse gas emissions;
•involvement in various environmental matters that may result in fines,
penalties or judgments;
•evolving remediation technology, changing regulations, possible third-party
contributions, the inherent uncertainties of the estimation process and other
factors that may impact amounts accrued for environmental liabilities;
•potential limitations in our or our customers' abilities to access credit and
non-compliance of their contractual obligations, including payment obligations;
•activity in repurchasing shares of our common stock under our repurchase
program;
•financial covenants and restrictions on the operation of our business contained
in agreements governing our debt;
•our ability to successfully identify, consummate and integrate acquisitions,
and the effects that acquisitions may have on our financial leverage;
•risks associated with acquisitions generally, such as the inability to obtain,
or delays in obtaining, required approvals under applicable antitrust
legislation and other regulatory and third party consents and approvals;
•operating and startup risks, as well as market risks associated with the
commissioning of new projects could prevent us from realizing anticipated
benefits and could result in a loss of all or a substantial part of our
investments;
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  Table of Con    tents
•lower than expected future levels of revenues and higher than expected future
costs;
•failure or inability to implement growth strategies in a timely manner;
•impact of goodwill impairment charges;
•impact of long-lived asset impairment charges;
•currency fluctuations;
•global factors, such as trade measures, military conflicts and political
uncertainties, including changes to current trade regulations, such as Section
232 trade tariffs and quotas, tax legislation and other regulations which might
adversely impact our business;
•availability and pricing of electricity, electrodes and natural gas for mill
operations;
•ability to hire and retain key executives and other employees;
•competition from other materials or from competitors that have a lower cost
structure or access to greater financial resources;
•information technology interruptions and breaches in security;
•ability to make necessary capital expenditures;
•availability and pricing of raw materials and other items over which we exert
little influence, including scrap metal, energy and insurance;
•unexpected equipment failures;
•losses or limited potential gains due to hedging transactions;
•litigation claims and settlements, court decisions, regulatory rulings and
legal compliance risks;
•risk of injury or death to employees, customers or other visitors to our
operations; and
•civil unrest, protests and riots.
You should refer to the "Risk Factors" disclosed in our periodic and current
reports filed with the SEC for specific risks which would cause actual results
to be significantly different from those expressed or implied by these
forward-looking statements. Forward-looking statements involve known and unknown
risks, uncertainties, assumptions and other important factors that could cause
actual results, performance or our achievements, or industry results, to differ
materially from historical results, any future results, or performance or
achievements expressed or implied by such forward-looking statements.
Accordingly, readers of this Form 10-Q are cautioned not to place undue reliance
on any forward-looking statements.

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