COMMERCIAL METALS Co: Form 10-Q for the period ended Feb 28, 2025

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 (this "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, 2024 (the "2024 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 United States ("U.S.") Securities and Exchange Commission (the "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 2024 Form 10-K and Part II, Item 1A of this Form 10-Q. 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 relevant three or six month period ended February 29, 2024. Any reference in this Form 10-Q to a year refers to the fiscal year ended August 31st of that year, unless otherwise stated.

Certain trademarks or service marks of CMC appearing in this Form 10-Q are the property of CMC and are protected under applicable intellectual property laws. Solely for convenience, our trademarks and tradenames referred to in this Form 10-Q may appear without the ® or ™ symbols, but such references are not intended to indicate in any way that we will not assert, to the fullest extent under applicable law, our rights to these trademarks and tradenames.

BUSINESS CONDITIONS AND DEVELOPMENTS

Transform, Advance and Grow Initiative

In 2024, we implemented our Transform, Advance and Grow ("TAG") operational and commercial excellence program, which is a key component of our long-term strategic growth plan. Through a disciplined and structured approach, execution of the TAG program is intended to enhance the value of our operations through sustained margin enhancement, reduced working capital needs and greater invested capital efficiency. We have begun executing the first wave of initiatives related to the TAG program, and it is positively contributing to 2025 performance.

Capital Expenditures

During the fourth quarter of 2023, our third micro mill was placed into service, and ramp up of the third micro mill continued in the first half of 2025. The new facility, located in Mesa, Arizona, allows us to meet underlying West Coast and Pacific Northwest demand for steel products. Designed to produce both rebar and merchant bar, this micro mill is the first in the world to produce merchant bar quality products through a continuous production process. Rebar production and merchant bar production commenced during the fourth quarter of 2023 and second quarter of 2024, respectively. The merchant bar products produced at this facility consist of a wide variety of shapes and sizes of long steel, and, combined with rebar production, the capacity of this micro mill is approximately 40% greater than that of the other micro mills we have constructed. The micro mill was designed with the latest technology in electric arc furnace ("EAF") power supply systems, which allows us to directly connect the EAF and the ladle furnace to renewable energy sources such as solar and wind. Additionally, this micro mill is the Company’s first micro mill to utilize Q-ONE technology on an EAF, which provides energy efficiencies and precise electrical control during production, creating a stable and consistent output.

In December 2022, we announced that our planned fourth micro mill will be in Berkeley County, West Virginia. This new micro mill will be geographically situated to serve the Northeast, Mid-Atlantic and Mid-Western U.S. markets and will be supported by our existing network of downstream fabrication plants. Site improvements, foundation work and large portions of supporting infrastructure for the micro mill are complete, and the construction of structural components for multiple process buildings and equipment is underway. We expect commissioning to start in late calendar 2025.

During 2023, the Company entered into an agreement with the West Virginia Economic Development Authority to permanently finance a portion of the costs to construct the Company's fourth micro mill, which is under development in Berkeley County, West Virginia. During the three months ended February 28, 2025, the Company received $25.0 million as a result of meeting certain investment thresholds. Amounts received were recognized in the North America Steel Group segment and reduced property, plant and equipment, net, in the Company's condensed consolidated balance sheets as of February 28, 2025. See Note 1, Nature of Operations and Summary of Significant Accounting Policies, to the consolidated financial statements in the 2024 Form 10-K, for more information.

Macroeconomic Trends and Uncertainties

We are subject to risks and exposures from the evolving macroeconomic environment, including uncertainty and volatility in financial markets, efforts of governments to stimulate or stabilize the economy and other changes in economic conditions, such as an increase in trade tensions and related tariffs with U.S. trading partners. On February 10, 2025, President Trump issued an executive order re-imposing Section 232's 25% tariffs on steel imports from all sources, effective March 12, 2025, ending country and product exemptions, and broadening the application of the tariffs to fabricated steel products. Although the elimination of Section 232 tariff exemptions should provide a favorable backdrop to the domestic long steel market, there remains uncertainty regarding the duration and scope of this and other potential executive actions related to tariffs. If the Section 232 or other import tariffs, quotas or duties expire, if others are further relaxed or repealed or if relatively higher U.S. steel prices make it attractive for foreign steelmakers to export their steel products to the U.S., despite the presence of import tariffs, quotas or duties, a resurgence of substantial imports of foreign steel could occur. This would put downward pressure on U.S. steel prices.

Russian Invasion of Ukraine

The Russian invasion of Ukraine did not have a direct material adverse impact on our business, financial condition or results of operations during the three or six months ended February 28, 2025 or February 29, 2024. Our Europe Steel Group segment has not experienced an interruption in energy supply and was able to identify alternate sources for a limited number of materials previously procured through Russia. However, the Russian invasion of Ukraine has led to economic slowdowns in Europe, including significant volatility in commodity prices and credit markets, reductions in demand, supply chain interruptions and higher global inflation. We will continue to monitor disruptions in supply of energy and materials and the indirect effects on our operations of inflationary pressures, reductions in demand, foreign exchange rate fluctuations, commodity pricing, potential cybersecurity risks and sanctions resulting from the invasion.

See sections entitled "Risk Factors" in Part I, Item 1A of our 2024 Form 10-K and Part II, Item 1A of this Form 10-Q for further discussion related to the above business conditions and developments.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

There have been no material changes to our critical accounting policies and estimates as set forth in Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, included in our 2024 Form 10-K.

RESULTS OF OPERATIONS SUMMARY

Business Overview

CMC is an innovative solutions provider helping build a stronger, safer and more sustainable world. Through an extensive manufacturing network principally located in the U.S. and Central Europe, the Company offers products and technologies to meet the critical reinforcement needs of the global construction sector. CMC’s solutions support early-stage construction across a wide variety of applications, including infrastructure, non-residential, residential, industrial and energy generation and transmission. Our operations are conducted through three reportable segments: North America Steel Group, Europe Steel Group and Emerging Businesses Group.

Key Performance Indicators

When evaluating our results for the period, we compare net sales, in the aggregate and for each of our reportable segments, in the current period to net sales in the corresponding period. Specifically, for the North America Steel Group and the Europe Steel Group segments, we focus on changes in average selling price per ton and tons shipped compared to the prior period for each of our vertically integrated product categories as these are the two variables that typically have the greatest impact on our net sales for those reportable segments. Of the products evaluated by changes in average selling price per ton and tons shipped within the North America Steel Group and Europe Steel Group segments, raw materials include ferrous and nonferrous scrap, steel products include rebar, merchant bar and other steel products, such as billets and wire rod, and downstream products include fabricated rebar, steel fence posts and wire mesh. The evaluations of average selling price per ton and tons shipped for downstream products exclude post-tension cable, which is not measured on a per ton basis.

Adjusted EBITDA is used by management to compare and evaluate the period-over-period underlying business operational performance of our reportable segments. Adjusted EBITDA is the sum of the Company's earnings or losses 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 or losses, changes in metal margins of our steel products and downstream products period-over-period in the North America Steel Group and Europe Steel Group segments are a consistent area of focus for our Company and industry. Metal margin is a metric used by management to monitor the results of our vertically integrated organization. For our steel products, metal margin is the difference between the average selling price per ton of rebar, merchant bar and other steel products and the cost of ferrous scrap per ton utilized by our steel mills to produce these products. The metal margin for the North America Steel Group and Europe Steel Group segments' downstream products is the difference between the average selling price per ton of our downstream products and the scrap input costs to produce these products. An increase or decrease in input costs can impact profitability of steel products and downstream products when there is no corresponding change in selling prices. The majority of the North America Steel Group and Europe Steel Group segments' downstream products selling prices per ton are fixed at the beginning of a project and these projects last one to two years on average. The selling price generally remains fixed over the life of a project; therefore, changes in input costs over the life of the project can significantly impact profitability.

Financial Results Overview

(in thousands, except per share data)

Net sales decreased $93.9 million, or 5%, for the three months ended February 28, 2025, compared to the corresponding period, and decreased $187.4 million, or 5%, for the six months ended February 28, 2025, compared to the corresponding period. See discussions below, labeled North America Steel Group, Europe Steel Group and Emerging Businesses Group within our Segment Operating Data section, for further information on our period-over-period net sales results.

During the three and six months ended February 28, 2025, we achieved net earnings of $25.5 million and incurred a net loss of $150.2 million, respectively, compared to net earnings of $85.8 million and $262.1 million, respectively, during the corresponding periods. The change in net earnings in the three months ended February 28, 2025, compared to the corresponding period, was due to compression in steel and downstream products metal margins in our North America Steel Group segment. The year-over-year decrease in net earnings was primarily due to an approximately $268.0 million litigation expense, net of estimated tax, due to a contingent litigation-related loss, and compression in steel and downstream products metal margins in our North America Steel Group segment in the six months ended February 28, 2025, compared to the corresponding period.

Selling, General and Administrative Expenses

Selling, general and administrative ("SG&A") expenses remained relatively flat during the three months ended February 28, 2025, compared to the corresponding period, and increased $15.4 million during the six months ended February 28, 2025, compared to the corresponding period. Contributing to the period-over-period increase was $12.1 million of incremental labor-related expenses and $5.4 million of additional legal expenses in the six months ended February 28, 2025, compared to the corresponding period.

Interest Expense

Interest expense remained relatively flat during the three and six months ended February 28, 2025, compared to the corresponding periods.

Litigation Expense

Litigation expense related to the Pacific Steel Group ("PSG") litigation of $4.7 million and $354.7 million was recorded during the three and six months ended February 28, 2025, respectively. For more information about the contingent litigation-related loss, see Note 12, Commitments and Contingencies.

Income Taxes

The effective income tax rates for the three and six months ended February 28, 2025 were 29.4% and 23.0%, respectively, compared to 26.6% and 23.3%, in the corresponding periods. The increase for the three months ended February 28, 2025, compared with the corresponding period, is due to multiple factors of which no single item was material. The effective income tax rate remained relatively flat for the six months ended February 28, 2025 when compared to the corresponding period.

SEGMENT OPERATING DATA

The operating data by product category presented in the North America Steel Group and Europe Steel Group tables below is calculated using averages for each period presented. See Note 13, Segment Information, in Part I, Item 1, Financial Statements, of this Form 10-Q for more information on our reportable segments.

North America Steel Group

(in thousands, except per ton amounts)

Net sales to external customers in our North America Steel Group segment decreased 7% and 6% during the three and six months ended February 28, 2025, respectively, compared to the corresponding periods. The decreases primarily resulted from reductions in steel products average selling prices per ton of 10% and 9% during the three and six months ended February 28, 2025, respectively, compared to the corresponding periods, and a 10% reduction in downstream products average selling prices per ton during both the three and six months ended February 28, 2025, compared to the corresponding periods, in both cases due to increased competitive pricing in our key markets. The reductions in net sales from external customers driven by lower average selling prices were partially offset by increased shipments of steel products in both periods due to resilient construction activity and demand in our end-use markets.

During the three and six months ended February 28, 2025, we achieved adjusted EBITDA of $128.8 million and $317.0 million, respectively, compared to adjusted EBITDA of $222.3 million and $489.1 million, during the respective corresponding periods. The decreases in adjusted EBITDA during the three and six months ended February 28, 2025, compared to the corresponding periods, was primarily due to a 10% erosion of steel and downstream products metal margins over scrap per ton. The cost of ferrous scrap utilized per ton, the largest single driver of cost of goods sold for both steel and downstream products, decreased $41 and $31, respectively, during the three and six months ended February 28, 2025, compared to the corresponding periods. However, these decreases did not keep pace with the declines in average selling prices per ton for steel and downstream products, resulting in metal margin compression, as compared to the corresponding periods.

Europe Steel Group

(in thousands, except per ton amounts)

Net sales to external customers in our Europe Steel Group segment increased $5.5 million, or 3%, during the three months ended February 28, 2025, compared to the corresponding period, and decreased $10.2 million, or 2%, during the six months ended February 28, 2025, compared to the corresponding period. During the three months ended February 28, 2025, steel products shipment volumes rose 13%, exceeding the impact of a $61 per ton decrease in steel products average selling price, compared to the corresponding period. Net sales to external customers in the six months ended February 28, 2025 decreased due to a $25 per ton decline in steel products average selling price, compared to the corresponding period. On average, compared to the Polish zloty, the U.S. dollar was stronger during the three months ended February 28, 2025 and was weaker during the six months ended February 28, 2025, compared to the corresponding periods. The effect of foreign currency translation on net sales to external customers was a decrease of approximately $3.2 million for the three months ended February 28, 2025 and an increase of approximately $10.2 million for the six months ended February 28, 2025.

Adjusted EBITDA increased $9.4 million during the three months ended February 28, 2025, compared to the corresponding period, and decreased $3.7 million during the six months ended February 28, 2025, compared to the corresponding period. During the three months ended February 28, 2025, steel products shipment volumes rose 13%, while steel products metal margin per ton remained relatively flat and conversion costs were lower, compared to the corresponding period. During the six months ended February 28, 2025, government assistance of $48.1 million, compared to $66.3 million in the corresponding period, was recognized related to programs established to offset the rising costs of electricity and natural gas and the indirect costs of rising carbon emission rights included in energy costs. The $18.2 million decrease in government assistance received in the six months ended February 28, 2025, compared to the corresponding period, offset the benefit from the year-over-year decrease in conversion costs. The effect of foreign currency translation on adjusted EBITDA was immaterial for the three and six months ended February 28, 2025.

Emerging Businesses Group

(in thousands)

Net sales to external customers in our Emerging Businesses Group segment were relatively flat during the three and six months ended February 28, 2025, compared to the corresponding periods. For the three and six months ended February 28, 2025, our performance reinforcing steel offerings experienced 86% and 48% increases in shipment volumes, respectively, compared to the corresponding periods, due to increased demand. However, the increases in net sales to external customers from our performance reinforcing steel offerings were offset by decreases in net sales to external customers by CMC Impact Metals due to decreases in shipment volumes related to a slowing truck and trailer market for the three and six months ended February 28, 2025, compared to the corresponding periods.

Adjusted EBITDA increased $5.6 million, or 31%, during the three months ended February 28, 2025, compared to the corresponding period, and decreased $2.6 million, or 5%, during the six months ended February 28, 2025, compared to the corresponding period. Adjusted EBITDA for our performance reinforcing steel offerings increased $7.2 million and $10.7 million during the three and six months ended February 28, 2025, respectively, compared to the corresponding periods, due to the increases in shipment volumes described above. For the six months ended February 28, 2025, the increase was offset by decreases in adjusted EBITDA for our Tensar division and our CMC Impact Metals business.

Corporate and Other

(in thousands)

Corporate and Other adjusted EBITDA loss remained relatively flat during the three months ended February 28, 2025, compared to the corresponding period, and increased $355.6 million during the six months ended February 28, 2025, compared to the corresponding period. The increase in adjusted EBITDA loss during the six months ended February 28, 2025 was due to a $354.7 million contingent litigation-related loss related to the PSG litigation. For more information about the contingent litigation-related loss, see Note 12, Commitments and Contingencies.

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 products offered by the vertically integrated operations in the North America Steel Group and the Europe Steel Group segments, and products and solutions offered by our Emerging Businesses Group segment and related materials and services, as described in Part I, Item 1, Business, of our 2024 Form 10-K.

We have a diverse and generally stable customer base, and regularly maintain a substantial amount of accounts receivable. We actively monitor our accounts receivable and, based on market conditions and customers' financial condition, record allowances when we believe accounts are uncollectible. We use credit insurance internationally to mitigate the risk of customer insolvency. We estimate that the amount of credit-insured or financially assured receivables was approximately 14% of total receivables at February 28, 2025.

We use futures and 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 8, Derivatives, in Part I, Item 1, Financial Statements, of this Form 10-Q for further information.

The table below reflects our sources, facilities and availability of liquidity at February 28, 2025. See Note 7, Credit Arrangements, in Part I, Item 1, Financial Statements, of this Form 10-Q for additional information.

(in thousands)

(1) 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 continually review our capital resources to determine whether we can meet our short and long-term goals. For at least the next twelve months, 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 for litigation-related expenses, invest in the development of our fourth micro mill, pay dividends and opportunistically repurchase shares. Additionally, we expect our long-term liquidity position will be sufficient 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 or legal 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 will be sufficient.

We aim to execute a capital allocation strategy that prioritizes both value-accretive growth and competitive cash returns to stockholders. We estimate that our 2025 capital spending will range from $550 million to $600 million. We regularly assess our capital spending based on current and expected results and the amount is subject to change.

During the six months ended February 28, 2025 and February 29, 2024, we repurchased $98.4 million and $76.3 million, respectively, of shares of CMC common stock. Under the share repurchase program, we had remaining authorization to repurchase $305.3 million of shares of CMC common stock at February 28, 2025. See Note 11, Stockholders' Equity and Earnings (Loss) per Share, in Part I, Item 1, Financial Statements, of this Form 10-Q, and Note 15, Capital Stock, to the consolidated financial statements in the 2024 Form 10-K, for more information on the share repurchase program.

During the six months ended February 28, 2025 and February 29, 2024, we paid $41.0 million and $37.4 million, respectively, of cash dividends to our stockholders.

Our credit arrangements require compliance with certain non-financial and financial covenants, including an interest coverage ratio and a debt to capitalization ratio. At February 28, 2025, we believe we were in compliance with all covenants contained in our credit arrangements.

As of February 28, 2025 and August 31, 2024, 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.

As described in Note 12, Commitments and Contingencies, on November 5, 2024, a jury returned a verdict in favor of PSG in the amount of $110.0 million, which the U.S. District Court for the Northern District of California (the “Northern District Court”), in entering its judgment on the verdict, subsequently trebled as a matter of law. PSG will also be entitled to petition for and recover its attorneys' fees, costs and post-judgment interest. We are confident that we conducted our business appropriately and intend to vigorously pursue all reasonably available avenues to have the verdict and judgment overturned. Nonetheless, unless the verdict and judgment are overturned or the judgment is significantly reduced, the losses incurred in connection with this litigation would have a material adverse effect on our liquidity and financial condition.

Cash Flows

Operating Activities

Net cash flows from operating activities were $245.5 million and $350.0 million for the six months ended February 28, 2025 and February 29, 2024, respectively. Contributing to the year-over-year change was a decrease in net earnings, excluding the impacts of non-cash items such as the contingent litigation-related loss recorded during the six months ended February 28, 2025. Also, there was a $45.9 million year-over-year net decrease in cash used by operating assets and liabilities primarily driven by a $91.1 million year-over-year decrease in cash used by inventory due to both lower inventory volumes and a lower scrap price environment in the second quarter of 2025, compared to the second quarter of 2024. This decrease was partially offset by a year-over-year decrease in cash provided by accounts receivable of $58.1 million, which was in line with the fluctuations in net sales to external customers described in the Segment Operating Data section. See the section titled "Results of Operations Summary" above for more information regarding the changes in net earnings. See Note 12, Commitments and Contingencies for more information about the contingent litigation-related loss.

Investing Activities

Net cash flows used by investing activities were $175.1 million and $158.5 million for the six months ended February 28, 2025 and February 29, 2024, respectively. The year-over-year increase was primarily due to $43.7 million of incremental capital expenditures driven by the construction of our fourth micro mill, which was partially offset by $25.0 million of government assistance pursuant to an agreement with the West Virginia Economic Development Authority. See Note 1, Nature of Operations and Accounting Policies, in Part I, Item 1, Financial Statements, of this Form 10-Q for more information regarding the government assistance received during 2025 related to the construction of our fourth micro mill.

Financing Activities

Net cash flows used by financing activities were $169.9 million and $147.8 million for the six months ended February 28, 2025 and February 29, 2024, respectively. The increase in net cash flows used by financing activities during the six months ended February 28, 2025, compared to the corresponding period, included a $22.1 million increase in treasury stock acquired under the share repurchase program and a $3.6 million increase in dividends paid, partially offset by a $7.6 million decrease in net repayments under our Polish accounts receivable facility. See Note 7, Credit Arrangements, in Part I, Item 1, Financial Statements, of this Form 10-Q for more information regarding our Polish accounts receivable facility. See Note 11, Stockholders' Equity and Earnings (Loss) per Share, in Part I, Item 1, Financial Statements, of this Form 10-Q, and Note 15, Capital Stock, to the consolidated financial statements in the 2024 Form 10-K, for more information on the share repurchase program.

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, construction of our fourth micro mill and other purchase obligations as part of normal operations. The amount and composition of our material cash commitments have not changed materially since those disclosed in the 2024 Form 10-K.

Other Commercial Commitments

We maintain stand-by letters of credit to provide support for certain transactions that governmental agencies, our insurance providers and suppliers require. At February 28, 2025, we had committed $35.4 million under these arrangements, of which $1.0 million reduced availability under the Revolver (as defined in Note 7, Credit Arrangements, in Part I, Item 1, Financial Statements, of this Form 10-Q).

CONTINGENCIES

In the ordinary course of conducting our business, we become involved in litigation, administrative proceedings and governmental investigations, including environmental matters. We have in the past, and may in the future, incur settlements, fines, penalties or judgments in connection with some of these 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 a loss is probable, and we can reasonably estimate the amount of the loss. For example, in the six months ended February 28, 2025, the Company reported $354.7 million of litigation expense in the condensed consolidated statement of earnings (loss), which amount represents the Company's estimate based on its understanding of the PSG judgment, PSG's attorneys' fees and other related costs, including post-judgment interest. This amount was classified as a current liability in the condensed consolidated balance sheet as of February 28, 2025 because the timing of the potential payment is uncertain. 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 date. Changes in estimates are recorded in earnings in the period in which such changes occur. See Note 12, Commitments and Contingencies, in Part I, Item 1, Financial Statements, of this Form 10-Q for more information on pending litigation and other matters.

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 growth provided by acquisitions and strategic investments, demand for our products, shipment volumes, metal margins, the ability to operate our steel mills at full capacity, future availability and cost of supplies of raw materials and energy for our operations, growth rates in certain reportable segments, product margins within our Emerging Businesses Group segment, share repurchases, legal proceedings, construction activity, international trade, the impact of geopolitical conditions, capital expenditures, tax credits, our liquidity and our ability to satisfy future liquidity requirements, estimated contractual obligations, the expected capabilities and benefits of new facilities, the anticipated benefits and timeline for execution of our growth plan and initiatives 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 was 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, among others, include 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 downstream contracts within our vertically integrated steel operations due to rising commodity pricing;
• excess capacity in our industry, particularly in China, and product availability from competing steel mills and other steel suppliers including import quantities and pricing;
• the impact of geopolitical conditions, including political turmoil and volatility, regional conflicts, terrorism and war on the global economy, inflation, energy supplies and raw materials;
• increased attention to environmental, social and governance ("ESG") matters, including any targets or other ESG, environmental justice or regulatory initiatives;
• 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;
• impacts from global public health crises on the economy, demand for our products, global supply chain and on our operations;
• 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 with their contractual obligations, including payment obligations;
• activity in repurchasing shares of our common stock under our share repurchase program;
• financial and non-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 realize any or all of the anticipated synergies or other benefits of acquisitions;
• 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;
• lower than expected future levels of revenues and higher than expected future costs;
• failure or inability to implement growth strategies in a timely manner;
• the impact of goodwill or other indefinite-lived intangible asset impairment charges;
• the 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;
• our 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;
• our 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, including those related to the PSG litigation and other legal proceedings discussed in Note 12, Commitments and Contingencies, in Part I, Item 1, Financial Statements and in Part II, Item 1, Legal Proceedings of this Form 10-Q;
• risk of injury or death to employees, customers or other visitors to our operations; and
• civil unrest, protests and riots.

Refer to the "Risk Factors" disclosed in the sections entitled "Risk Factors" in Part I, Item 1A of our 2024 Form 10-K and Part II, Item 1A of this Form 10-Q for specific information regarding additional risks that would cause actual results to differ 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.

As of February 28, 2025, the U.S. dollar equivalent of the Company's total gross foreign currency exchange contract commitments increased $34.4 million, or 15%, compared to August 31, 2024. This increase was primarily due to forward contracts denominated in euro with a Polish zloty functional currency, which increased $30.3 million as of February 28, 2025, compared to August 31, 2024.

There have been no other material changes to the information set forth in Part II, Item 7A, Quantitative and Qualitative Disclosures about Market Risk, included in our 2024 Form 10-K.

Evaluation of Disclosure Controls and Procedures

The term "disclosure controls and procedures" is defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act. This term refers to the controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within required time periods, and includes controls and procedures designed to ensure that such information is accumulated and communicated to the company's management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. Our Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Form 10-Q, and they have concluded that as of that date, our disclosure controls and procedures were effective.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that occurred during the quarter ended February 28, 2025 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Except as set forth below, there were no material changes to the risk factors previously disclosed in Part I, Item 1A, Risk Factors, of our 2024 Form 10-K.

Enhanced U.S. tariffs, import/export restrictions or other trade barriers may have a negative effect on global economic conditions, financial markets and our business.

There is currently significant uncertainty about the future relationship between the U.S. and various other countries with respect to trade policies, treaties, tariffs and taxes. Current or future tariffs imposed by the U.S. may negatively impact our customers’ businesses, thereby causing an indirect negative impact on our sales. For example, in early 2025, the U.S. presidential administration threatened or imposed tariffs on imports from various countries, including China, Mexico and Canada. In response, some of these countries threatened or announced tariffs on imports from the U.S. The extent to which these threats will be enacted and the duration for which enacted tariffs will be in place remain uncertain and could lead to economic decline, which could negatively impact demand for our products and adversely affect our results of operations.