CMC US Equity☆

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our consolidated financial statements and the accompanying notes contained in this Annual Report.

Our discussion and analysis of fiscal year 2022 compared to fiscal year 2021 is included herein. Our discussion and analysis of fiscal year 2021 compared to fiscal year 2020 can be found in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, in our Annual Report on Form 10-K for the year ended August 31, 2021, which was filed with the SEC on October 14, 2021.

OVERVIEW

Our vertically integrated steel-related operations 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 United States and Poland. Through our Tensar operations, CMC is a leading global provider of innovative ground and soil stabilization solutions selling into more than 80 national markets through two major product lines: Tensar® geogrids and Geopier® foundation systems. Our operations are conducted through two reportable segments: North America and Europe. See Part I, Item 1, Business for further information regarding our business and reportable segments.

Key Performance Indicators

When evaluating our results for the period, we compare net sales, in the aggregate and for both of our segments, in the current period to net sales in the corresponding period of the prior year. In doing so, 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 (raw materials, steel products and downstream products) as these are the two variables that typically have the greatest impact on our net sales. Raw

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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 posts.

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 metal margin of our steel products and downstream products period-over-period is 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 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. The metal margin for our downstream products 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 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.

BUSINESS CONDITIONS AND DEVELOPMENTS

Tensar Acquisition

On April 25, 2022 (the "Acquisition Date"), we completed the acquisition of TAC Acquisition Corp. ("Tensar") for approximately $550 million, net of cash acquired. Through its patented foundation systems, Tensar produces ground stabilization and soil reinforcement solutions that complement our existing concrete reinforcement product lines and broaden our ability to address multiple early phases of commercial and infrastructure construction, including subgrade, foundation and structures. End customers for these products include commercial, industrial and residential site developers, mining and oil and gas companies, transportation authorities, coastal and waterway authorities and waste management companies. The acquired operations within North America are presented within our North America reportable segment and the remaining acquired operations are presented within our Europe reportable segment, in each case since the Acquisition Date. See Note 2, Acquisition, in Item 8 of this Annual Report for more information about the Tensar acquisition.

Capital Expenditures

In January 2022, we announced the plan to construct a fourth micro mill geographically situated with the intention of primarily serving the Northeast, Mid-Atlantic and Mid-Western U.S. markets. This new micro mill will enhance our steel production capabilities in the U.S. and create meaningful synergies within the existing network of mills and downstream fabrication plants. Following site selection, permitting and other necessary approvals, the construction and commissioning of the planned mill is expected to take roughly two years.

In July 2021, we completed the construction of and commissioned a third rolling line at our mini mill in Poland. The third rolling line takes advantage of historical excess melting capacity in Poland, expands our overall rolling capacity and allows the rolling lines to operate independently for each steel product produced by the mini mill (rebar, merchant bar and wire rod).

In August 2020, we announced the construction of a third micro mill. This micro mill will be the first in the world with the capability to produce merchant bar quality products through a continuous production process and will employ the latest technology in EAF power supply systems which will allow us to directly connect the EAF and the ladle furnace to renewable energy sources such as solar and wind. The new facility, located in Mesa, Arizona, will replace the rebar capacity at our Rancho Cucamonga, California mill, which was sold during fiscal 2022, and will allow us to more efficiently meet West Coast demand for steel products. We began construction of the third micro mill in 2021 and expect this micro mill to be commissioned in early calendar 2023. For further details on the sale of the Rancho Cucamonga, California mill, refer to Note 3, Changes in Business, in Item 8 of this Annual Report.

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 2022. Our Europe segment has not had an interruption in energy supply and was able to identify alternate sources for a limited number of materials previously procured through Russia. However, we will continue to monitor

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disruptions in supply of energy and materials and the indirect effects on our operations of inflationary pressures, foreign exchange rate fluctuations, commodity pricing, potential cybersecurity risks and sanctions resulting from the invasion.

COVID-19

The impact of the COVID-19 pandemic ("COVID-19" or "pandemic") on our operations was limited during 2022, 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 U.S. 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. At this time, 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.

See Part I, Item 1A, Risk Factors, in this Annual Report for further discussion related to the above business conditions and developments.

RESULTS OF OPERATIONS SUMMARY

Year Ended August 31,

(in thousands, except per share data) 2022 2021

Diluted earnings per share 9.95 3.38

2022 Compared to 2021

Net sales during 2022 increased $2.2 billion, or 32%, compared to 2021. Net sales in our North America segment increased in 2022 compared to 2021 primarily due to a year-over-year increase in average selling prices across all of our major product lines. In North America, shipments of raw materials and downstream products increased slightly year-over-year, while shipments of steel products decreased slightly in 2022 compared to 2021. Net sales in our Europe segment also increased in 2022 compared to 2021 due to a year-over-year increase in steel products average selling prices, coupled with increased shipments of steel products. Further, the acquired Tensar operations contributed $102.1 million to the increase in net sales in 2022.

During 2022, we achieved net earnings of $1.2 billion, an increase of $804.4 million, or 195%, compared to 2021. Included in net earnings during 2022 was a $273.3 million gain on the sale of the Rancho Cucamonga facilities. See Note 3, Changes in Business, in Item 8 of this Annual Report for more information on the sale of the Rancho Cucamonga facilities. The remaining increase was primarily due to the significant margin expansion experienced on all of our major product lines. Increases in selling prices for all of our major product lines outpaced the rising input costs associated with scrap, freight, energy and other steelmaking inputs.

Selling, General and Administrative Expenses

Selling, general and administrative expenses in 2022 increased $39.9 million compared to 2021. Included in selling, general and administrative expenses in 2022 were $30.3 million of selling, general and administrative expenses resulting from Tensar's operations. The largest components of selling, general and administrative expenses from Tensar's operations were $19.4 million of labor-related expense, $2.8 million of professional services expense and $2.5 million of amortization expense resulting from acquired intangible assets. Additionally, we incurred $8.7 million of acquisition and integration expenses during 2022 with no such expenses during 2021.

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Interest Expense

Interest expense decreased $1.2 million in 2022 compared to 2021. Capitalized interest increased $9.1 million in 2022 compared to 2021 due to construction of our third micro mill, which decreased interest expense. Partially offsetting the impact of increased capitalized interest was an increase in long-term debt interest expense of $6.7 million in 2022 compared to 2021 due to the additional long-term debt outstanding in 2022 compared to 2021.

Income Taxes

Our effective income tax rate for 2022 was 19.7% compared to 22.7% for 2021. The year-over-year decrease was primarily due to tax benefits recorded during 2022 from the recognition of research and development credits and a capital loss on a restructuring transaction. These decreases were partially offset by an increase in state and local taxes due to a prior year valuation allowance benefit that did not repeat in the current year. See Note 13, Income Tax, in Item 8 of this Annual Report for further discussion of our effective tax rate.

SEGMENTS

All amounts are computed and presented in a manner that is consistent with the basis in which we internally disaggregate financial information for the purpose of making operating decisions. See Note 20, Operating Segments, in Item 8 of this Annual Report for further information on how we evaluate financial performance of our segments. The operational data by product category presented in the tables below reflects activity from sales of raw materials, steel products and downstream products, as applicable, which comprise the majority of sales in North America and Europe. The data is calculated using averages, and therefore, it is not meaningful to quantify the effect that any individual metric had on the segment's net sales or adjusted EBITDA.

2022 Compared to 2021

North America

Year Ended August 31,

(in thousands, except per ton amounts) 2022 2021

External tons shipped

Average selling price per ton

Cost of raw materials per ton $ 807 $ 650

Cost of ferrous scrap utilized per ton 431 355

Steel products metal margin per ton 629 397

Net sales in the North America segment increased $1.6 billion, or 29%, in 2022 compared to 2021. The increase in net sales was primarily due to increases in average selling prices of 22%, 41% and 27% for raw materials, steel products and downstream products, respectively, in 2022 compared to 2021. The year-over-year increases in average selling prices were attributed to a

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rising scrap price environment throughout the first nine months of the year and steady demand in end-use markets for our steel products driven by greater construction and industrial activity. While scrap prices decreased during the fourth quarter due to decreased export demand, the price of steel products decreased at a lesser rate. Additionally, during the second half of 2022, prices of downstream products, many of which are fixed at the beginning of the project, grew to reflect the increased input costs from rising scrap and energy prices during 2021 and 2022. Shipments of these higher priced contracts, along with consistent demand contributed by construction and industrial projects, caused increases in the year-over-year average selling prices. Net sales in 2022 were impacted to a lesser extent by shipment volumes year-over-year, which remained relatively flat for raw materials and downstream products and decreased 7% for steel products. Steel product volumes decreased slightly in 2022 compared to 2021 due to planned maintenance activities at certain of our facilities in the second and third quarters, destocking of inventory by our customers in the fourth quarter in anticipation of downward price adjustments and slowed construction activity in certain months. The slowed construction activity was caused by constrained labor at construction sites in certain geographies and weather disruptions throughout the year. Also contributing to the increase in net sales in 2022 compared to 2021 were $74.8 million of net sales from the acquired Tensar operations.

Adjusted EBITDA in 2022 increased $807.3 million compared to 2021. Included in adjusted EBITDA in 2022 was a $273.3 million gain on the sale of the Rancho Cucamonga facilities. The remaining growth in adjusted EBITDA during 2022 was primarily due to expansion of steel products metal margin per ton and downstream products margin over scrap costs compared to 2021. The price increases of steel products and downstream products described above outpaced the rising cost of goods sold, which increased 23% year-over-year due to ferrous scrap price increases during the first nine months of the year and increased costs for energy, alloys and freight.

Europe

Year Ended August 31,

(in thousands, except per ton amounts) 2022 2021

External tons shipped

Average selling price per ton

Cost of ferrous scrap utilized per ton $ 463 $ 357

Steel products metal margin per ton 433 255

Net sales in the Europe segment increased $572.6 million, or 55%, in 2022 compared to 2021. This increase was primarily due to a $284 per ton, or 46%, year-over-year increase in steel products average selling price driven by rising raw materials input costs and growing market demand. Volumes rose year-over-year, in part due to a surge in demand in the third quarter as a result of steel products supply disruptions across Europe caused by the Russian invasion of Ukraine. On a sequential basis, fourth quarter volumes declined compared to the third quarter as a result of market stabilization attributed to customers utilizing inventory built up during the fluctuating price environments from the current year. Volumes in 2022 also benefited from a full year of increased capacity from our third rolling line in Poland, which was commissioned in late 2021 and contributed an incremental $321.7 million to 2022 net sales. Also contributing to the increase in net sales in 2022 compared to 2021 were $27.3 million of net sales from the acquired Tensar operations. Net sales in 2022 were impacted by an unfavorable foreign currency translation adjustment of $193.6 million primarily due to the increase in the average value of the U.S. dollar relative to the Polish zloty in 2022, compared to favorable foreign currency translation adjustments of $36.9 million during 2021.

Adjusted EBITDA in 2022 increased $197.8 million, or 133%, compared to 2021, primarily driven by a $178 per ton, or 70%, expansion in steel products metal margin. Increased demand for steel products caused the increase in average selling price of steel products described above to outpace the rising costs of ferrous scrap utilized per ton. Overall, the benefit from average

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selling price increases throughout 2022 exceeded the impact of the 40% increase in Europe segment cost of goods sold year-over-year, which was driven by higher volumes and impacts of inflation on energy and alloys. Our Europe segment continues to face an environment of rising energy costs, mitigated in part by our electricity commodity derivative and natural gas commitments. Our electricity commodity derivative resulted in a $21.7 million realized gain in 2022, recorded as a reduction to cost of goods sold, compared to a $2.4 million realized gain in 2021. See Note 11, Derivatives, in Item 8 of this Annual Report for further information on the electricity commodity derivative. Adjusted EBITDA in 2022 was impacted by unfavorable foreign currency exchange rate impacts of $39.9 million, compared to favorable foreign currency translation adjustments of $5.1 million during 2021.

Corporate and Other

Year Ended August 31,

Corporate and Other adjusted EBITDA loss in 2022 increased by $13.5 million compared to 2021. The year-over-year increase was driven in part by $8.7 million of acquisition-related costs in 2022, with no such costs in 2021, coupled with a $9.4 million year-over-year increase in labor-related expenses.

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 this Annual Report. Historically, our North America operations have generated the majority of our cash. At August 31, 2022, cash and cash equivalents of $36.3 million were held by our non-U.S. subsidiaries. We use futures or forward contracts to mitigate the risks from fluctuations in metal commodity prices, foreign currency exchange rates, interest rates and natural gas, electricity and other energy commodity prices. See Note 11, Derivatives, in Item 8 of this Annual Report for further information.

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 receivables (and those covered by export letters of credit) was approximately 16% of total receivables at August 31, 2022.

The table below reflects our sources, facilities and availability of liquidity as of August 31, 2022. See Note 9, Credit Arrangements, in Item 8 of this Annual Report for additional information.

(in thousands) Total Facility Availability

__________________________________

(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.

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We continually review our capital resources to determine whether we can meet our short and long-term goals. 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, repay current maturities of long-term debt, including our $330.0 million aggregate principal amount of 4.875% Senior Notes due in May 2023, pay dividends and opportunistically repurchase shares for at least the next twelve months. 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 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.

We estimate that our 2023 capital spending will range from $450 million to $500 million. We regularly assess our capital spending based on current and expected results and the amount is subject to change.

As of August 31, 2022 and 2021, 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.

2022 Compared to 2021

Operating Activities

Net cash flows from operating activities were $700.3 million and $228.5 million in 2022 and 2021, respectively. This $471.8 million increase in net cash flows from operating activities was primarily driven by an increase in net earnings of $804.4 million, or $537.8 million after excluding the $266.6 million increase in net gain on disposal of assets. See Note 3, Changes in Business, in Item 8 of this Annual Report for more information on the sale of the Rancho Cucamonga facilities that resulted in the majority of the increase in net gain on disposal of assets year-over-year. Also contributing to the increase in net cash flows from operating activities was a $126.0 million year-over-year increase in deferred income taxes, which represents a non-cash charge to the income statement. See Note 13, Income Tax, in Item 8 of this Annual Report for more information on the change in deferred taxes. These increases in net cash flows from operating activities were partially offset by a $208.1 million year-over-year net increase in cash used by operating assets and liabilities. Accounts payable increased significantly year-over-year in 2021 compared to a slight decrease in 2022, primarily due to the rising cost of scrap at the end of 2021, which stabilized near the end of 2022. This contributed to a year-over-year $190.9 million reduction in cash from accounts payable, accrued expenses and other payables, offset, in part, by a corresponding $61.1 million reduction in cash used to fund inventory purchases. Increased sales year-over-year also contributed to a net increase of $29.6 million of cash used by accounts receivable. The remaining $48.8 million increase in cash used by other operating assets and liabilities was primarily due to increased prices of production inputs. Operating working capital days, which represents the number of days to convert accounts receivable and inventory, less accounts payable, into net sales, increased eight days year-over-year.

Investing Activities

Net cash flows used by investing activities were $684.7 million and $162.1 million in 2022 and 2021, respectively, an increase of $522.6 million. Such increase was primarily impacted by the acquisition of Tensar for a cash purchase price of approximately $550 million, net of cash acquired, as well as increased capital expenditures of $265.8 million, mostly from the construction of our third micro mill. See Note 2, Acquisition, in Part II, Item 8 of this Annual Report for more information about the acquisition. These increases in cash outflows were offset, in part, by gross proceeds of $313.0 million from the sale of the Rancho Cucamonga facilities.

Financing Activities

Net cash flows from financing activities were $165.3 million in 2022, compared to net cash flows used by financing activities of $109.4 million in 2021. The $274.7 million increase in net cash flows from financing activities was a result of many actions, including net proceeds from long-term debt of $414.8 million during 2022, compared to net long-term debt repayments of $59.2 million during 2021. Net borrowings under our accounts receivable facilities were $6.3 million during 2022 compared to $26.7 million during 2021, a decrease of $20.4 million. See Note 9, Credit Arrangements in Item 8 of this Annual Report for more information regarding our credit arrangements and 2022 debt proceeds and repayments. Partially offsetting these cash flows from financing activities was $161.9 million of treasury stock repurchased under the share repurchase program in 2022, with no such activity in 2021, $10.0 million in increased dividend payments and a $6.3 million increase attributable to tax withholdings

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related to share settlements, net of purchase plans. See Note 16, Capital Stock in Item 8 of this Annual Report for more information on the share repurchase program.

Contractual Obligations and Commitments

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 9, Credit Arrangements, in Item 8 of this Annual Report for more information regarding scheduled maturities of our long-term debt. See Note 8, Leases, in Item 8 of this Annual Report for additional information on leases. Interest payable on our long-term debt was $64.7 million due in the twelve months following August 31, 2022 and $433.7 million due thereafter. Additionally, the Company has a U.S. federal repatriation tax obligation resulting from the repatriation tax provisions of the Tax Cuts and Jobs Act ("TCJA"), of which $2.2 million was due in the twelve months following August 31, 2022 and $16.6 million due thereafter.

As of August 31, 2022, our undiscounted purchase obligations were approximately $802.0 million due in the next twelve months and $138.9 million due thereafter under purchase orders and "take or pay" arrangements. These purchase obligations include all enforceable, legally binding agreements to purchase goods or services that specify all significant terms, regardless of the duration of the agreement, and exclude agreements with variable terms for which we are unable to estimate the minimum amounts. The "take or pay" arrangements are multi-year commitments with minimum annual purchase requirements and are entered into primarily for purchases of commodities used in operations such as electrodes and natural gas.

Of the purchase obligations due within the twelve months following August 31, 2022, approximately 29% were for the construction of our third micro mill, 22% were for consumable production inputs, such as alloys, 20% were for commodities and 10% were for capital expenditures on operating machinery and equipment. Of the purchase obligations due thereafter, 77% are for commodities and 7% are for the construction of our third micro mill. The remainder of the purchase obligations are for goods and services in the normal course of business.

We provide certain eligible employees benefits pursuant to our nonqualified Benefit Restoration Plan ("BRP") equal to amounts that would have been available under our tax qualified plans under the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), but for limitations of ERISA, tax laws and regulations. We did not include estimated payments related to the BRP in the above description of contractual obligations and commitments. Refer to Note 15, Employees' Retirement Plans, in Item 8 of this Annual Report for more information on the BRP.

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 August 31, 2022, we had committed $21.6 million under these arrangements, of which $1.4 million reduced availability under the Revolver (as defined in Note 9, Credit Arrangements, in Item 8 of this Annual Report).

CONTINGENCIES

In the ordinary course of conducting our business, we become involved in litigation, administrative proceedings and governmental investigations, including environmental matters. We may incur settlements, fines, penalties or judgments because of 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. 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. We do not believe that any currently pending legal proceedings to which we are a party will have a material adverse effect, individually or in the aggregate, on our results of operations, cash flows or financial condition. See Note 18, Commitments and Contingencies, in Item 8 of this Annual Report for more information.

Environmental and Other Matters

The information set forth in Note 18, Commitments and Contingencies, in Item 8 of this Annual Report is hereby incorporated by reference.

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General

We are subject to federal, state and local pollution control laws and regulations in all locations where we have operating facilities. We anticipate that compliance with these laws and regulations will involve continuing capital expenditures and operating costs.

Metals recycling was our original business, and it has been one of our core businesses for over a century. In the present era of conservation of natural resources and ecological concerns, we are committed to sound ecological and business conduct. Certain governmental regulations regarding environmental concerns, however well-intentioned, may expose us and our industry to potentially significant risks. We believe that recycled materials are commodities that are diverted by recyclers, such as us, from the solid waste streams because of their inherent value. They are identified, purchased, sorted, processed and sold in accordance with carefully established industry specifications.

We incurred environmental expenses of approximately $44.2 million, $49.8 million and $46.6 million for 2022, 2021 and 2020, respectively. The expenses included the cost of disposal, environmental personnel at various divisions, permit and license fees, accruals and payments for studies, tests, assessments, remediation, consultant fees, baghouse dust removal and various other expenses. In addition, during 2022, we spent approximately $6.9 million in capital expenditures related to costs directly associated with environmental compliance. Our accrued environmental liabilities were $5.3 million and $7.1 million as of August 31, 2022 and 2021, respectively, of which $2.0 million and $2.3 million, respectively, were classified as other noncurrent liabilities.

Solid and Hazardous Waste

We generate wastes, including hazardous wastes, that are subject to the Federal Resource Conservation and Recovery Act and comparable state and local statutes where we operate. These statutes, regulations and laws may limit our disposal options with respect to certain wastes.

We currently own or lease, and in the past we have owned or leased, properties that have been used in our operations. Although we have used operating and disposal practices that were industry standard at the time, wastes may have been disposed of or released on or under the properties or on or under locations where such wastes have been taken for disposal in a manner that is now understood to pose a contamination threat. We are currently involved in the investigation and remediation of several such properties, and we have been named as a PRP at a number of contaminated sites, none of which involve real estate we ever owned or upon which we have ever conducted operations.

State and federal laws applicable to wastes and contaminated properties have gradually become more strict over time. There is no guarantee that the EPA or individual states will not adopt more stringent requirements for the handling of, or make changes to the exemptions upon which we rely for, the wastes that we generate. Similarly, some materials which are not currently classified as waste may be deemed solid or hazardous waste in the future. Under new laws, we could be required to remediate properties impacted by previously disposed wastes. Any such change could result in an increase in our costs to manage and dispose of waste which could have a material adverse effect on our business, results of our operations and financial condition.

Superfund

The EPA, or an equivalent state agency, has notified us that we are considered a PRP at several sites, none of which involve real estate we ever owned or upon which we have ever conducted operations. We may be obligated under CERCLA, or similar state statutes, to conduct remedial investigation, feasibility studies, remediation and/or removal of alleged releases of hazardous substances or to reimburse the EPA or third parties for such activities and pay costs for associated damages to natural resources. We are involved in litigation or administrative proceedings with regard to several of these sites in which we are contesting, or at the appropriate time may contest, our liability. In addition, we have received information requests with regard to other sites which may be under consideration by the EPA as potential CERCLA sites. Because of various factors, including the ambiguity of the regulations, the difficulty of identifying the responsible parties for any particular site, the complexity of determining the relative liability among them, the uncertainty as to the most desirable remediation techniques and the amount of damages and cleanup costs, and the extended time periods over which such costs may be incurred, we cannot reasonably estimate our ultimate costs of compliance with CERCLA. Based on currently available information, which is in many cases preliminary and incomplete, we had immaterial amounts accrued as of both August 31, 2022 and 2021, in connection with CERCLA sites. We have accrued for these liabilities based upon our best estimates. The amounts paid and the expenses incurred on these sites for 2022, 2021 and 2020 were not material. Historically, the amounts that we have ultimately paid for such remediation activities have not been material.

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Management believes that adequate provisions have been made in the Company's consolidated financial statements for the potential impact of these contingencies, and that the outcomes of the suits and proceedings described above, and other miscellaneous litigation and proceedings now pending, will not have a material adverse effect on the business, results of operations or financial condition of the Company.

Clean Water Regulation

The Clean Water Act ("CWA") imposes restrictions and strict controls regarding the discharge of wastes into waters of the U.S., a term broadly defined, or into publicly owned treatment works. These controls have become more stringent over time, and it is probable that additional restrictions will be imposed in the future. Permits must generally be obtained to discharge pollutants into federal waters or into publicly owned treatment works and comparable permits may be required at the state level. The CWA and many state statutes provide for civil, criminal and administrative penalties for unauthorized discharges of pollutants. In addition, the EPA's regulations and comparable state statutes may require us to obtain permits to discharge storm water runoff. In the event of an unauthorized discharge or non-compliance with permit requirements, we may be liable for penalties, costs and injunctive relief.

Clean Air Act

Our operations are subject to regulations at the federal, state and local level for the control of emissions from sources of air pollution. New and modified sources of air pollutants are often required to obtain permits prior to commencing construction, modification or operations. Major sources of air pollutants are subject to more stringent requirements, including the potential need for additional permits and to increase scrutiny in the context of enforcement. The EPA has been implementing its stationary emission control program through expanded enforcement of the New Source Review Program. Under this program, new or modified sources may be required to construct emission sources using what is referred to as the Best Available Control Technology, or in any areas that are not meeting NAAQS, using methods that satisfy requirements for the Lowest Achievable Emission Rate. Additionally, the EPA has implemented, and is continuing to implement, new, more stringent standards for NAAQS, including fine particulate matter. Compliance with new standards could require additional expenditures.

Climate Change

The potential impacts of climate change on the Company’s business and results of operations and potential future climate change regulations in the jurisdictions in which the Company operates are highly uncertain. See the risk factors entitled “Increased regulation associated with climate change could impose significant additional costs on both our steelmaking and metals recycling operations” and "Physical impacts of climate change could have a material adverse effect on our costs and operations" in Part I, Item 1A, Risk Factors, of this Annual Report.

DIVIDENDS

We paid quarterly dividends in 2022 at the rate of $0.14 per share of CMC common stock, compared to quarterly dividends paid in 2021 at the rate of $0.12 per share of CMC common stock. On October 11, 2022, the Board of Directors declared CMC's 232nd quarterly cash dividend. The dividend was declared at the rate of $0.16 per share of CMC common stock and is payable on November 10, 2022 to stockholders of record as of the close of business on October 27, 2022.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preceding discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of the consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses and related disclosure of contingent liabilities. We evaluate the appropriateness of these estimates and assumptions, including those related to revenue recognition, income taxes, inventory cost, acquisitions, goodwill and other intangible assets, long-lived assets, derivative instruments and contingencies, on an ongoing basis. Estimates and assumptions are based on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Accordingly, actual results in future periods could differ materially from these estimates. Judgments and estimates related to critical accounting policies used in the preparation of the consolidated financial statements include the following.

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Revenue Recognition

Revenue from contracts where the Company provides fabricated rebar and installation services is recognized over time using an input method based on costs incurred compared to total estimated costs. Revenue from contracts where the Company does not provide installation services is recognized over time using an output method based on tons shipped compared to total estimated tons. Significant judgment is required to evaluate total estimated costs used in the input method and total estimated tons in the output method. If total estimated costs on any contract are greater than the net contract revenues, the Company recognizes the entire estimated loss in the period the loss becomes known. The cumulative effect of revisions to estimates related to net contract revenues, costs to complete or total planned quantity is recorded in the period in which such revisions are identified. The Company does not exercise significant judgment in determining the transaction price. See Note 5, Revenue Recognition, in Item 8 of this Annual Report for further details.

Income Taxes

We periodically assess the likelihood of realizing our deferred tax assets and maintain a valuation allowance to reduce certain deferred tax assets to amounts that we believe are more likely than not to be realized. We base our judgment of the recoverability of our deferred tax assets primarily on historical earnings, our estimate of current and expected future earnings, prudent and feasible tax planning strategies and current and future ownership changes. At August 31, 2022 and 2021, we had a valuation allowance of $268.5 million and $278.1 million, respectively, against our deferred tax assets. Of these amounts, $8.4 million and $7.7 million at August 31, 2022 and 2021, respectively, relate to net operating loss and credit carryforwards in certain state jurisdictions that are subject to estimation. The remaining valuation allowance primarily relates to net operating loss carryforwards in certain foreign jurisdictions, which the Company does not expect to realize.

Inventory Cost

We state inventories at the lower of cost or net realizable value, which is defined as estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. Adjustments to inventory may be due to changes in price levels, obsolescence, damage, physical deterioration and other causes. Any adjustments required to reduce the carrying value of inventory to net realizable value are recorded as a charge to cost of goods sold. Based on our review of inventories, obsolete or slow-moving inventories are not significant as of August 31, 2022 and current market conditions are favorable in our end-use markets.

Acquisitions

The Company accounts for business combinations under the acquisition method of accounting, which requires assets acquired and liabilities assumed to be recorded at their estimated fair value at the date of acquisition. The fair value is estimated by the Company using valuation techniques and Level 3 inputs, including expected future cash flows and discount rates. The excess of purchase price over the fair value amounts assigned to the assets acquired and liabilities assumed, if any, is recorded as goodwill. Determining the fair value of assets acquired and liabilities assumed involves the use of significant estimates and assumptions. See Note 2, Acquisition, in Item 8 of this Annual Report for more information about the Tensar acquisition.

Goodwill and Other Intangible Assets

Goodwill and indefinite lived intangible assets are tested for impairment annually as of the first day of the Company’s fourth quarter, or more frequently whenever events or circumstances indicate that the carrying value may not be recoverable. Goodwill is tested at the reporting unit level, which represents an operating segment or one level below an operating segment. When assessing the recoverability of goodwill and other indefinite lived intangible assets, the Company may first assess qualitative factors in determining whether it is more likely than not that the respective fair value is less than its carrying amount. The qualitative evaluation is an assessment of multiple factors, including the current operating environment, financial performance and market considerations. The Company may elect to bypass this qualitative assessment for some or all of its reporting units or other indefinite lived intangible assets and perform a quantitative test, based on management's judgment. If the Company chooses to bypass the qualitative assessment, it performs a quantitative test by comparing the fair value of the reporting units or indefinite lived intangible assets to their respective carrying amounts and records an impairment charge if the carrying amount exceeds the fair value; however, the loss recognized, if any, will not exceed the total amount of the intangible asset or the goodwill allocated to a reporting unit.

When assessing the recoverability of goodwill using a quantitative approach we use an income and a market approach to calculate the fair value of the reporting unit. To calculate the fair value of a reporting unit using the income approach,

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management uses a discounted cash flow model, which includes a number of significant assumptions and estimates regarding future cash flows such as discount rates, volumes, prices, capital expenditures and the impact of current market conditions. The market approach estimates fair value based on market multiples of earnings derived from comparable publicly traded companies with similar operating and investment characteristics as the reporting unit. The estimates used during a quantitative approach to test goodwill could be materially impacted by adverse changes in market conditions.

For 2022 and 2021, the annual goodwill impairment analyses did not result in impairment charges. As of August 31, 2022, the Company had goodwill of $249.0 million, of which $183.7 million resulted from the Tensar acquisition and $56.9 million relates to a reporting unit within the North America operating segment. In 2022, other than the reporting unit with $56.9 million of goodwill within the North America operating segment, management tested all reporting units using a qualitative approach and determined it was more likely than not that their fair values exceeded the respective carrying values. The reporting unit with $56.9 million of goodwill in the North America operating segment was tested using a quantitative approach and the resulting fair value exceeded its carrying value by 18%, which the Company believes is substantially in excess of carrying value. An increase or decrease of 1% to the discount rate or terminal growth rate would not result in an impairment charge for this reporting unit.

As of August 31, 2022, the Company had indefinite lived intangible assets of $56.0 million, all of which resulted from the Tensar acquisition. In 2022, the indefinite lived intangible assets were tested for impairment using a qualitative approach. Based on the Company’s annual impairment testing of the indefinite lived intangible assets, we concluded it is more likely than not that their fair values exceeded the respective carrying values. Based on the results of impairment tests performed in 2022, management does not believe that it is reasonably likely that our reporting units or indefinite lived intangible assets will fail their respective impairment tests in the near term. See Note 7, Goodwill and Other Intangible Assets, in Item 8 of this Annual Report for additional information.

Long-Lived Assets

We evaluate the carrying value of property, plant and equipment and finite-lived intangible assets whenever a change in circumstances indicates that the net carrying value may not be recoverable from the undiscounted future cash flows from operations. Events or circumstances that could trigger an impairment review of a long-lived asset or asset group include, but are not limited to: (i) a significant decrease in the market price of the asset, (ii) a significant adverse change in the extent or manner that the asset is used or in its physical condition, (iii) a significant adverse change in legal factors or in the business climate that could affect the value of the asset, (iv) an accumulation of costs significantly in excess of original expectation for the acquisition or construction of the asset, (v) a current period operating or cash flow loss combined with a history of operating or cash flow losses or a forecast of continuing losses associated with the use of the asset and (vi) a more-likely-than-not expectation that the asset will be sold or disposed of significantly before the end of its previously estimated useful life. If an impairment exists, the net carrying values are reduced to fair values. Our operations are capital intensive. The estimates of undiscounted future cash flows used during an impairment review of a long-lived asset or asset group require judgments and assumptions of future cash flows that are expected to arise as a direct result of the use and eventual disposition of the asset or asset group. If these assets were for sale, our estimates of their values could be significantly different because of market conditions, specific transaction terms and a buyer's perspective on future cash flows. During 2022, there were no events or circumstances that triggered an impairment review.

Derivative Financial Instruments

Our global operations and product lines expose us to risks from fluctuations in metal commodity prices, foreign currency exchange rates, interest rates and natural gas, electricity and other energy prices. To limit the impact of these exposures, we enter into derivative instruments. We do not enter into derivative financial instruments for speculative purposes. We evaluate the fair value of our derivative financial instruments using an established fair value hierarchy as stated in Note 1, Nature of Operations and Summary of Significant Accounting Policies, in Item 8 of this Annual Report. One derivative instrument is a commodity derivative for which the fair value estimate is based on an internally developed discounted cash flow model primarily utilizing Level 3 unobservable inputs for which there is little or no market data. The company determined the Level 3 fair value inputs as provided for under ASC 820, consisting of information obtained from relevant published indexes and external sources along with management’s own assumptions. Fluctuations in the information used to forecast future energy rates may cause volatility in the fair value estimate and in the unrealized gains and losses in other comprehensive income. See Note 12, Fair Value, in Item 8 of this Annual Report for more information on the Level 3 commodity derivative.

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Contingencies

In the ordinary course of conducting our business, we become involved in litigation, administrative proceedings and governmental investigations, including environmental matters. We may incur settlements, fines, penalties or judgments in connection with some of these matters. While we are unable to estimate the ultimate dollar amount of exposure or loss in connection with these matters, we make accruals when a loss is probable and the amount can be reasonably estimated. The amounts we accrue could vary substantially from amounts we pay due to several factors including the following: evolving remediation technology, changing regulations, possible third-party contributions, the inherent uncertainties of the estimation process and the uncertainties involved in litigation. We believe that we have adequately provided for these contingencies in our consolidated financial statements. We also believe that the outcomes will not materially affect our results of operations, our financial position or our cash flows.

Other Accounting Policies and New Accounting Pronouncements

See Note 1, Nature of Operations and Summary of Significant Accounting Policies, in Item 8 of this Annual Report.

FORWARD-LOOKING STATEMENTS

This Annual Report contains "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 impact of the Russian invasion of Ukraine, 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, construction activity, international trade, 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 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 Annual Report 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 this Annual Report 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;

•the impact of the Russian invasion of Ukraine on the global economy, energy supplies and raw materials, which is uncertain, but may prove to negatively impact our business and operations;

•increased attention to environmental, social and governance ("ESG") matters, including any targets or other ESG or environmental justice initiatives;

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•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 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;

•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;

•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 or other indefinite lived intangible asset 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

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•civil unrest, protests and riots.

You should refer to the "Risk Factors" disclosed in our periodic and current reports filed with the SEC for information regarding additional 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 Annual Report are cautioned not to place undue reliance on any forward-looking statements.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Approach to Mitigating Market Risk

See Note 11, Derivatives, in Item 8 of this Annual Report for disclosure regarding our approach to mitigating market risk and for summarized market risk information by year. Also, see Note 1, Nature of Operations and Summary of Significant Accounting Policies, in Item 8 of this Annual Report for additional information. We utilized the following types of derivative instruments during 2022 in accordance with our risk management program. None of the instruments were entered into for speculative purposes.

Foreign Currency Exchange Forward Contracts

Our global operations expose us to risks from fluctuations in foreign currency exchange rates. The Polish zloty ("PLN") to the United States Dollar ("USD") exchange rate is considered to be a material foreign currency exchange rate risk exposure. We enter into currency exchange forward contracts as economic hedges of trade commitments denominated in currencies other than our functional currency or the functional currency of our subsidiaries, including commitments denominated in PLN, USD and the Euro ("EUR").

The fair value of our foreign currency exchange forward contract commitments as of August 31, 2022 were as follows:

Functional Currency Foreign Currency

__________________________________

(1) Most foreign currency exchange forward contracts mature within one year. The range of hedge rates represents functional to foreign currency conversion rates.

Commodity Futures Contracts

Our product lines expose us to risks from fluctuations in metal commodity prices and natural gas, electricity and other energy commodity prices. We base pricing in some of our sales and purchase contracts on metal commodity futures exchange quotes, which we determine at the beginning of the contract. Due to the volatility of the metal commodity indexes, we enter into metal commodity futures contracts for copper and aluminum. These futures contracts mitigate the risk of unanticipated declines in gross margin due to the price volatility of the underlying commodities. We also enter into energy derivatives to mitigate the risk of unanticipated declines in gross margin due to the price volatility of electricity and natural gas.

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The fair value of our commodity futures contract commitments as of August 31, 2022 were as follows:

__________________________________

MT = Metric ton

MW(h) = Megawatt hour

MMBtu = Metric Million British thermal unit

(1) All commodity futures contract commitments mature within one year, except for the electricity and natural gas contract commitments, which have maturity dates of December 31, 2030 and August 31, 2025, respectively.

(2) There is no terminal exchange for electricity as it is a bilateral agreement with a counterparty.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the stockholders and the Board of Directors of Commercial Metals Company

Opinion on Internal Control over Financial Reporting

We have audited the internal control over financial reporting of Commercial Metals Company and subsidiaries (the “Company”) as of August 31, 2022, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of August 31, 2022, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended August 31, 2022, of the Company and our report dated October 13, 2022, expressed an unqualified opinion on those financial statements.

As described in Management’s Report on Internal Control over Financial Reporting, appearing under Item 9A, management excluded from its assessment the internal control over financial reporting at Tensar, which was acquired on April 25, 2022, and whose financial statements constitute 10% of total assets and 1% of net sales of the consolidated financial statement amounts as of and for the year ended August 31, 2022. Accordingly, our audit did not include the internal control over financial reporting at Tensar.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ Deloitte & Touche LLP

Dallas, Texas

October 13, 2022

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the stockholders and the Board of Directors of Commercial Metals Company

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Commercial Metals Company and subsidiaries (the "Company") as of August 31, 2022 and 2021, the related consolidated statements of earnings, comprehensive income, stockholders' equity, and cash flows, for each of the three years in the period ended August 31, 2022, and the related notes and the schedule listed in the Index at Item 15 (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of August 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended August 31, 2022, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of August 31, 2022, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated October 13, 2022, expressed an unqualified opinion on the Company's internal control over financial reporting.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Goodwill — A Reporting Unit within the North America Segment – Refer to Notes 1 and 7 to the Financial Statements

Critical Audit Matter Description

The Company has goodwill of $249.0 million, of which $183.7 million relates to the Tensar acquisition and $56.9 million relates to a reporting unit within the North America segment. Goodwill is tested for impairment at the reporting unit level annually and whenever events or circumstances indicate that the carrying value may not be recoverable. The Company’s goodwill impairment assessment involves comparing the fair value of each reporting unit to its carrying value. The Company estimates the fair value of its reporting units using a weighting of fair values derived from the income and market approaches. The determination of fair value using the income approach is based on the present value of estimated future cash flows, which requires management to make significant estimates and assumptions of revenue growth rates and operating margins, and selection of the discount rate. The determination of the fair value using the market approach requires management to make significant assumptions related to market multiples of earnings derived from comparable publicly traded companies with similar operating and investment characteristics as the reporting unit.

At August 31, 2022, based on the results of the Company’s annual impairment testing, no impairment was recognized as the fair value of the Company’s reporting units exceeded their carrying value.

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We identified the Company’s goodwill impairment assessment for the $56.9 million of goodwill related to a reporting unit within the North America segment as a critical audit matter because of the significant estimates and assumptions used by management to estimate the fair value of this reporting unit. This required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists, when performing audit procedures to evaluate the reasonableness of management’s estimates and assumptions of future cash flows based on estimates of revenue growth rates and operating margins and selection of the discount rate for the income approach, and multiples of earnings for the market approach.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the goodwill impairment assessment for the specified reporting unit within the North America segment included the following, among others:

•We tested the effectiveness of controls over the goodwill impairment assessment, including management’s controls over forecasts of future cash flows based on estimates of revenue growth rates and operating margins and the selection of the discount rate for the income approach, and determination of multiples of earnings for the market approach.

•We evaluated the reasonableness of management’s forecasts of future cash flows based on revenue growth rates and operating margins by comparing the forecasts to (1) historical revenues and operating margins, (2) internal communications to management and the Board of Directors, and (3) forecasted information included in analyst and industry reports for the Company and certain of its peer companies.

•With the assistance of our fair value specialists:

◦We evaluated the reasonableness of the valuation methodologies.

◦We evaluated the reasonableness of the discount rate used in the income approach by testing the underlying source information and the mathematical accuracy of the calculations and developing an independent range of estimated discount rates and comparing that range to the discount rate used in the Company’s valuation.

◦We evaluated the multiples of earnings used in the market approach, including testing the underlying source information and mathematical accuracy of the calculations.

Valuation of acquired intangible assets in the Tensar acquisition – Refer to Note 2 to the Financial Statements

Critical Audit Matter Description

On April 25, 2022, the Company completed the acquisition of Tensar for a purchase price of $550 million, net of cash acquired (the "Tensar acquisition”). The Company accounted for the Tensar acquisition under the acquisition method of accounting for business combinations. Accordingly, the purchase price was allocated to the assets acquired and liabilities assumed based on their fair values. As part of the Tensar acquisition, the Company acquired $260.5 million of intangible assets, including developed technologies, trade names, and customer relationships. Management estimated the fair value of the acquired intangible assets as follows:

•developed technologies using the income approach under the excess earnings method;

•trade names using the income approach under the relief from royalty method; and

•customer relationships using the income approach under the with-and-without method.

The fair value determination of the developed technologies, trade names, and customer relationships required management to make significant estimates and assumptions related to future cash flows and the selection of discount rates.

We identified valuation of acquired intangible assets in the Tensar acquisition as a critical audit matter because of the significant estimates and assumptions used to determine the valuation of such acquired assets. Performing audit procedures to evaluate the reasonableness of management’s valuation of acquired intangible assets required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the valuation of acquired intangible assets in the Tensar acquisition included the following, among others:

•We tested the effectiveness of controls over the valuation of intangible assets acquired, including management’s controls over the forecasts of future cash flows and selection of discount rates.

•We assessed the reasonableness of management’s estimated future cash flows by comparing the assumptions used in the projections to historical results.

•With the assistance of our fair value specialists:

◦We evaluated the reasonableness of the valuation methodologies utilized.

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◦We evaluated the reasonableness of the discount rates utilized by testing the underlying source information and the mathematical accuracy of the calculations and developing an independent range of estimated discount rates and comparing that range to the discount rates used in the Company's valuations.

/s/ Deloitte & Touche LLP

Dallas, Texas

October 13, 2022

We have served as the Company's auditor since 1959.

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COMMERCIAL METALS COMPANY AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF EARNINGS

Year Ended August 31,

(in thousands, except share and per share data) 2022 2021 2020

Costs and operating expenses (income):

Earnings from discontinued operations before income taxes — — 1,907

Income taxes — — 706

Earnings from discontinued operations — — 1,201

Basic earnings per share:

Earnings from continuing operations $ 10.09 $ 3.43 $ 2.34

Earnings from discontinued operations — — 0.01

Diluted earnings per share:

Earnings from continuing operations $ 9.95 $ 3.38 $ 2.31

Earnings from discontinued operations — — 0.01

See notes to consolidated financial statements.

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Year Ended August 31,

Other comprehensive income (loss), net of income taxes:

Derivatives:

Defined benefit plans:

Reclassification for settlement losses and other 23 53 33

See notes to consolidated financial statements.

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COMMERCIAL METALS COMPANY AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data) 2022 2021

Assets

Current assets:

Property, plant and equipment:

Liabilities and stockholders' equity

Current liabilities:

Current maturities of long-term debt and short-term borrowings 388,796 54,366

Commitments and contingencies (Note 18)

Stockholders' equity:

Stockholders' equity attributable to non-controlling interests 232 232

See notes to consolidated financial statements.

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COMMERCIAL METALS COMPANY AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS

Year Ended August 31,

Cash flows from (used by) operating activities:

Amortization of acquired unfavorable contract backlog — (6,035) (29,367)

Changes in operating assets and liabilities, net of acquisitions:

Cash flows from (used by) investing activities:

Proceeds from insurance 3,081 — —

Cash flows from (used by) financing activities:

Treasury stock acquired (161,880) — —

Contribution from non-controlling interest — 20 16

Effect of exchange rate changes on cash (2,785) (790) 759

See notes to consolidated financial statements.

Year Ended August 31,

Supplemental information:

Noncash activities:

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Common Stock Treasury Stock

Contribution of noncontrolling interest 16 16

Reclassification of share-based liability awards 2,510 2,510

Contribution of noncontrolling interest 20 20

Reclassification of share-based liability awards 5,419 5,419

Reclassification of share-based liability awards 9,091 9,091

See notes to consolidated financial statements.

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COMMERCIAL METALS COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations

Commercial Metals Company ("CMC") and its subsidiaries (collectively, the "Company," "we," "our" or "us") 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 United States ("U.S.") and Poland. Through its Tensar operations, CMC is a leading global provider of innovative ground and soil stabilization solutions selling into more than 80 national markets through two major product lines: Tensar® geogrids and Geopier® foundation systems.

The Company has two reportable segments: North America and Europe.

North America

The North America segment is primarily composed of a vertically integrated network of recycling facilities, steel mills and fabrication operations located in the U.S. The recycling facilities process ferrous and nonferrous scrap metals (collectively known as "raw materials") for use by manufacturers of new metal products. The steel mills manufacture finished long steel products including reinforcing bar ("rebar"), merchant bar, light structural and other special sections as well as semi-finished billets for rerolling and forging applications (collectively known as "steel products"). The fabrication operations primarily manufacture fabricated rebar and steel fence posts (collectively known as "downstream products"). The general strategy in North America is to optimize the Company's vertically integrated value chain to maximize profitability by obtaining the lowest possible input costs and highest possible selling prices. The Company operates the recycling facilities to provide low-cost scrap to the steel mills and the fabrication operations to optimize the steel mill volumes. The North America segment's products are sold primarily to steel mills and foundries, construction, fabrication and other manufacturing industries. In addition, the North America segment also has facilities that provide construction-related solutions to serve complementary markets to our vertically integrated operations.

Europe

The Europe segment is primarily composed of a vertically integrated network of recycling facilities, an EAF mini mill and fabrication operations located in Poland. The steel products manufactured by this segment include rebar, merchant bar and wire rod as well as semi-finished billets. In addition, the downstream products manufactured by this segment's fabrication operations include fabricated rebar, fabricated mesh, assembled rebar cages and other fabricated rebar by-products. The Europe segment's products are sold primarily to fabricators, manufacturers, distributors and construction companies. In addition, the Europe segment also has facilities that provide construction-related solutions to serve complementary markets to our vertically integrated operations.

Summary of Significant Accounting Policies

Consolidation

The consolidated financial statements include the accounts of the Company and its wholly-owned and majority owned subsidiaries and certain variable interest entities ("VIEs") for which the Company is the primary beneficiary. Intercompany account balances and transactions have been eliminated.

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Use of Estimates

The preparation of the Company's consolidated financial statements in accordance with accounting principles generally accepted in the United States ("GAAP") requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and reported amounts of net sales and expenses during the reporting period. Significant items subject to such estimates and assumptions include revenue recognition, income taxes, carrying value of inventory, acquisitions, goodwill, long-lived assets, derivative instruments and contingencies. Actual results could differ significantly from these estimates and assumptions.

Cash and Cash Equivalents

Cash and cash equivalents include cash on deposit and short-term, highly-liquid investments with original maturities of three months or less at the date of purchase.

Revenue Recognition and Allowance for Doubtful Accounts

Revenue is recognized when control of the promised goods or services is transferred to the customer in an amount that reflects the consideration received or expected to be received in exchange for those goods or services. The Company's performance obligations arise from (i) sales of raw materials, steel products, downstream products and construction-related solutions and (ii) installation services performed by its fabrication operations. The shipment of products to customers is considered a fulfillment activity and amounts billed to customers for shipping and freight are included in net sales, and the related costs are included in cost of goods sold. Net sales are presented net of taxes. Revenue related to raw materials, steel products and construction-related solutions in the North America and Europe segments and downstream products in the Europe segment is recognized at a point in time concurrent with the transfer of control, which usually occurs, depending on shipping terms, upon shipment or customer receipt. Revenue related to steel fence posts and other downstream products in the North America segment not discussed below is recognized equal to billing under an available practical expedient.

Each fabricated rebar contract sold by the North America segment represents a single performance obligation and revenue is recognized over time. For contracts where the Company provides fabricated rebar and installation services, revenue is recognized over time using an input measure of progress based on contract costs incurred to date compared to total estimated contract costs ("input measure"). This input measure provides a reasonable depiction of the Company’s progress towards satisfaction of the performance obligation as there is a direct relationship between costs incurred by the Company and the transfer of the fabricated rebar and installation services. Revenue from fabricated rebar contracts where the Company does not provide installation services is recognized over time using an output measure of progress based on tons shipped compared to total estimated tons ("output measure"). This output measure provides a reasonable depiction of the transfer of contract value to the customer, as there is a direct relationship between the units shipped by the Company and the transfer of the fabricated rebar. If total estimated costs on any contract are greater than the net contract revenues, the Company recognizes the entire estimated loss in the period the loss becomes known. The cumulative effect of revisions to estimates related to net contract revenues, costs to complete or total planned quantity is recorded in the period in which such revisions are identified.

The timing of revenue recognition may differ from the timing of invoicing to customers. The Company records an asset when revenue is recognized prior to invoicing and a liability when revenue is recognized subsequent to invoicing. Payment terms and conditions vary by contract type, although the Company generally requires customers to pay 30 days after the Company satisfies the performance obligations. In instances where the timing of revenue recognition differs from the timing of invoicing, the Company has determined the contracts do not include a significant financing component.

The Company maintains an allowance for doubtful accounts 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. The Company reviews and sets credit limits for each customer. The Europe segment uses credit insurance to ensure payment in accordance with the terms of sale. Generally, collateral is not required. Approximately 16% and 17% of total receivables at August 31, 2022 and 2021, respectively, were secured by credit insurance.

Inventories

Inventories are stated at the lower of cost or net realizable value. Cost is determined by the weighted average cost method.

Elements of cost in finished goods inventory in addition to the cost of material include depreciation, utilities, consumable production inputs, maintenance, production, wages and transportation costs. Additionally, the costs of departments that support production, including materials management and quality control, are allocated to inventory.

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Property, Plant and Equipment

Property, plant and equipment are recorded at cost. Maintenance is expensed as incurred. Leasehold improvements are amortized over the shorter of their estimated useful lives or the lease term. Depreciation and amortization are recorded on a straight-line basis over the following estimated useful lives:

Buildings 7 to 40 years

Land improvements 3 to 25 years

Leasehold improvements 3 to 15 years

Equipment 3 to 25 years

The Company evaluates impairment of its property, plant and equipment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. For each asset or group of assets held for use with indicators of impairment, the Company compares the sum of the estimated future cash flows generated by the asset or group of assets with its associated net carrying value. If the net carrying value of the asset or group of assets exceeds estimated undiscounted future cash flows, the excess of the net carrying value over estimated fair value is charged to impairment loss. Properties held for sale are reported at the lower of their carrying amount or their estimated sales price, less estimated costs to sell.

Leases

The Company's leases are primarily for real property and equipment. The Company determines if an arrangement is a lease at inception of a contract if the terms state the Company has the right to direct the use of, and obtain substantially all the economic benefits from, a specific asset identified in the contract. The right-of-use ("ROU") assets represent the Company's right to use the underlying assets for the lease term, and the lease liabilities represent the obligation to make lease payments arising from the leases. The Company records its ROU assets in other noncurrent assets, its current lease liabilities in accrued expenses and other payables and its noncurrent lease liabilities in other noncurrent liabilities. ROU assets and lease liabilities are recognized at commencement date based on the present value of lease payments to be made over the lease term. Certain of the Company's lease agreements contain options to extend the lease. The Company evaluates these options on a lease-by-lease basis, and if the Company determines it is reasonably certain to be exercised, the lease term includes the extension. The Company uses its incremental borrowing rate at lease commencement to determine the present value of lease payments, and lease expense is recognized on a straight-line basis over the lease term. The incremental borrowing rate is the rate of interest the Company could borrow on a collateralized basis over a similar term with similar payments. The Company does not record leases with an initial term of twelve months or less (“short-term leases”).

Certain of the Company's lease agreements include payments for certain variable costs not determinable upon lease commencement, including mileage, utilities, fuel and inflation adjustments. These variable lease payments are recognized in cost of goods sold and selling, general and administrative expenses, but are not included in the ROU asset or lease liability balances. The Company's lease agreements do not contain any material residual value guarantees, restrictions or covenants.

Government Assistance

Government assistance, including non-monetary grants, herein collectively referred to as grants, are not recognized until there is reasonable assurance that the Company will comply with the conditions of the grant and the Company will receive the grant.

Generally, government grants fall into two categories: grants related to assets and grants related to income. Grants related to assets are government grants for the purchase, construction or other acquisition of long-lived assets. The Company accounts for grants related to assets as deferred income with the offset to an asset account, such as fixed assets, on the consolidated balance sheets. Non-monetary grants are recognized at fair value. The Company recognizes the deferred income on grants related to depreciable assets in profit or loss on a systematic basis over the useful life of the asset, which, consistent with the Company's fixed assets policy, is straight-line. The period over which grants are recognized depends on the terms of the agreement. Grants related to specific expenses already incurred are recognized in profit or loss in the period in which the grant becomes receivable. Grants related to non-depreciable assets may require the fulfillment of certain obligations. In such cases, these grants are recognized in profit or loss over the periods that bear the cost of meeting the obligations.

Grants related to income are any grants that are not considered grants related to assets, such as grants to compensate for certain expenses. Grants related to income are recognized as a reduction in the related expense in the period that the recognition criteria are met. See Note 10, New Markets Tax Credit Transactions.

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Goodwill and Other Intangible Assets

Goodwill and other indefinite lived intangible assets are tested for impairment annually as of the first day of the Company's fourth quarter, or more frequently if events or circumstances indicate that impairment may be possible. To evaluate goodwill and other indefinite lived intangible assets for impairment, the Company may use qualitative assessments to determine whether it is more likely than not that the fair value of a reporting unit, including goodwill, or an indefinite lived intangible asset is less than its carrying amount. The qualitative assessments consider multiple factors, including the current operating environment, historical and future financial performance and industry and market conditions. If an initial qualitative assessment identifies that it is more likely than not that the carrying value of a reporting unit exceeds its estimated fair value, additional quantitative testing is performed. The Company may elect to bypass the qualitative assessment and instead perform a quantitative impairment test to calculate the fair value of the reporting unit in comparison to its associated carrying value.

The Company's reporting units represent an operating segment or one level below an operating segment. The Company estimates the fair value of its reporting units using a weighting of fair values derived from the income and market approaches. Under the income approach, the Company determines the fair value of a reporting unit based on the present value of estimated future cash flows. Cash flow projections are based on management's estimates of revenue growth rates and operating margins, taking into account industry and market conditions. The discount rate is based on a weighted average cost of capital adjusted for the relevant risk associated with the characteristics of the reporting unit. The market approach estimates fair value based on market multiples of earnings derived from comparable publicly traded companies with similar operating and investment characteristics as the reporting unit. If the carrying amount of a reporting unit exceeds its fair value, an impairment loss is indicated in the amount that the carrying value exceeds the fair value of the reporting unit, not to exceed the goodwill value for the reporting unit.

Intangible assets with finite lives are amortized on a straight-line basis over their estimated useful lives and are tested for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Impairment charges are recorded on finite-lived intangible assets when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amounts.

Contingencies

The Company accrues for claims and litigation, including environmental investigation and remediation costs, when they are both probable and the amount can be reasonably estimated. Environmental costs are based upon estimates regarding the sites for which the Company will be responsible, the scope and cost of work to be performed at each site, the portion of costs that will be shared with other parties and the timing of remediation. Where timing and amounts cannot be reasonably determined, a range is estimated and the lower end of the range is recorded.

Stock-Based Compensation

The Company recognizes stock-based equity and liability awards at fair value. The fair value of each stock-based equity award is estimated at the grant date using either the Black-Scholes or Monte Carlo pricing model. Total compensation cost of the stock-based equity award is amortized over the requisite service period using the accelerated method of amortization for grants with graded vesting or the straight-line method for grants with cliff vesting. Stock-based liability awards are measured at fair value at the end of each reporting period and will fluctuate based on the price of CMC common stock and performance relative to the targets.

Income Taxes

CMC and its U.S. subsidiaries file a consolidated federal income tax return. Deferred income taxes are provided for temporary differences between financial statement and income tax bases of assets and liabilities. The principal differences are described in Note 13, Income Tax. Benefits from income tax credits are reflected currently in earnings. The Company records income tax positions based on a more likely than not threshold that the tax positions will be sustained on examination by the taxing authorities having full knowledge of all relevant information. The Company classifies interest and any statutory penalties recognized on a tax position as income tax expense.

Foreign Currencies

The functional currency of the Company's Polish operations is the local currency, the Polish zloty ("PLN"). Translation adjustments are reported as a component of accumulated other comprehensive income or loss. Transactions denominated in

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currencies other than the functional currency related to continuing operations yielded a $9.6 million gain in 2022 and immaterial gains or losses in 2021 and 2020.

Derivative Financial Instruments

The Company recognizes derivatives as either assets or liabilities in the consolidated balance sheets and measures those instruments at fair value. Derivatives that are not designated as hedges are adjusted to fair value through net earnings. Changes in the fair value of derivatives that are designated as hedges are recognized depending on the nature of the hedge. In the case of fair value hedges, changes are recognized as an offset against the change in fair value of the hedged balance sheet item. When the derivative is designated as a cash flow hedge and is highly effective, changes are recognized in other comprehensive income.

When a derivative instrument is sold, terminated, exercised or expires, the gain or loss is recorded in the consolidated statement of earnings for fair value hedges, and the cumulative unrealized gain or loss, which had been recognized in the statement of comprehensive income, is reclassified to the consolidated statement of earnings for cash flow hedges. Additionally, when hedged items are sold or extinguished, or the anticipated transaction being hedged is no longer expected to occur, the Company recognizes the gain or loss on the designated hedged financial instrument.

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. Level 1 represents unadjusted quoted prices in active markets for identical assets and liabilities. Level 2 represents quoted prices for similar assets and liabilities in active markets (other than those included in Level 1) which are observable, either directly or indirectly. Level 3 represents valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

Recently Issued Accounting Pronouncements

In October 2021, the Financial Accounting Standards Board issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. ASU 2021-08 requires that an acquirer recognize and measure contract assets and liabilities acquired in a business combination in accordance with ASU 2014-09, Revenue from Contracts with Customers (Topic 606). This standard is effective for annual periods beginning after December 15, 2022, including interim periods therein, with early adoption permitted. The guidance will be applied prospectively to acquisitions occurring on or after the effective date. The Company will continue to evaluate the impact of this guidance, which will depend on the contract assets and liabilities acquired in future business combinations.

In November 2021, the Financial Accounting Standards Board issued ASU 2021-10, Government Assistance (Topic 832): Disclosures by Business Entities About Government Assistance. ASU 2021-10 aims to increase the transparency of government assistance through the disclosure of the types of assistance, an entity's accounting for the assistance and the effect of the assistance on an entity's financial statements. This standard is effective for annual periods beginning after December 15, 2021, with early adoption permitted. The Company will continue to evaluate the impact of this guidance based on government assistance received after the effective date of this guidance.

NOTE 2. ACQUISITION

On April 25, 2022 (the "Acquisition Date"), the Company completed the acquisition of TAC Acquisition Corp. ("Tensar"). The total cash purchase price, net of $19.6 million cash acquired, was approximately $550 million, subject to customary purchase price adjustments, and was funded through domestic cash on-hand.

Tensar is a leading global provider of innovative ground stabilization and soil reinforcement solutions through two major product lines: Tensar® geogrids and Geopier® foundation systems, which are complementary to the Company's existing concrete reinforcement product lines within North America and Europe. Geogrids are polymer-based products used for ground stabilization, soil reinforcement and asphalt optimization in construction applications, including roadways, public infrastructure and industrial facilities. Geopier foundation systems are ground improvement solutions that increase the load-bearing characteristics of ground structures and working surfaces and can be applied in soil types and construction situations in which traditional support methods are impractical or would make a project infeasible.

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Tensar’s end customers include commercial, industrial and residential site developers, mining and oil and gas companies, transportation authorities, coastal and waterway authorities and waste management companies. Tensar serves customers in more than 80 national markets through its manufacturing facilities, the largest of which are located in Morrow, Georgia and Blackburn, England. The acquired operations in North America are presented within the North America reportable segment, and the remaining acquired operations are presented within the Europe reportable segment.

The Company accounts for business combinations by recognizing the assets acquired and liabilities assumed at the Acquisition Date fair value. In valuing acquired assets and liabilities, fair value estimates were determined using Level 3 inputs, including expected future cash flows and discount rates. While the Company uses its best estimates and assumptions as a part of the purchase price allocation process to accurately value assets acquired and liabilities assumed at the Acquisition Date, the Company’s estimates are inherently uncertain and subject to refinement. The results of operations of Tensar are reflected in the Company’s consolidated financial statements from the Acquisition Date. The financial statements are not retrospectively adjusted for any adjustments that occur during the allowable one-year measurement period (the "Measurement Period"). Rather, any adjustments to provisional amounts identified during the Measurement Period will be recorded in the reporting period in which the adjustment is determined.

The table below presents the preliminary fair values and measurement period adjustments that were allocated to Tensar's assets and liabilities as of the Acquisition Date:

Current maturities of long-term debt (3,277) — (3,277)

Total assets acquired and liabilities assumed $ 572,000 $ — $ 572,000

Inventories

The acquired inventory is comprised of finished goods, work in process and raw materials. The fair value of finished goods was calculated as the estimated selling price, adjusted for the selling costs, economic rents for use of intangible assets involved with the disposal process and a reasonable profit margin. The fair value of work in process was calculated as the estimated selling price, adjusted for estimated costs to complete manufacturing, estimated selling costs and a reasonable profit margin. The fair value of raw materials approximates the historical carrying value or was calculated based on the estimated replacement cost. The total purchase accounting inventory adjustment of $8.7 million was recognized during the year ended August 31, 2022 and was reflected as cost of goods sold as the related inventory was sold.

Defined Benefit Pension Plan

The Company recognized a net asset of $14.6 million at the Acquisition Date, representing the overfunded status of the acquired defined benefit pension plan. See Note 15, Employees' Retirement Plans, for more information on the acquired plan.

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Property, Plant and Equipment

The fair value of real property was calculated using the cost approach for buildings and improvements and the sales comparison approach for land. The fair value of personal property was calculated using the cost approach. The cost approach measures the value by estimating the cost to acquire or construct comparable assets and adjusts for age and condition. The Company assigned real property a useful life ranging from 5 to 25 years and personal property a useful life ranging from 1 to 15 years.

Goodwill

Goodwill from acquisitions represents the excess of the purchase price over the fair value of net assets acquired. The factors contributing to the amount of goodwill are based on strategic and synergistic benefits that are expected to be realized from the acquisition, due in part to the complementing markets for engineered construction ground reinforcement and concrete reinforcement. As of the Acquisition Date, the Company added $186.8 million of goodwill related to the Tensar acquisition. The recognized goodwill is not deductible for tax purposes.

Intangible Assets

The acquired intangible assets consist of:

(in thousands, except life in years) Life in Years Estimated Fair Value

Trade names 8 to 9 or indefinite 57,000

In-process research and development Indefinite 2,400

The fair value of developed technologies was calculated using the income approach under the excess earnings method and considers selling, marketing and research and development costs, which were allocated based on patent lifecycles.

The fair value of trade names was calculated using the income approach, under the relief from royalty method. The relief from royalty method considers revenue derived from the corporate and product-specific trade names, the strength and relevance of the trade names in the marketplace and management’s plans to utilize the trade names going forward.

The fair value of customer relationships was calculated using the income approach, under the with-and-without method. The with-and-without method considers opportunity costs associated with lost profits in the absence of the existing customer base.

The fair value of in-process research and development was calculated using the cost approach and considers development costs, profit mark-up and opportunity cost.

Deferred Income Taxes

Deferred tax liabilities include the expected future U.S. federal, state and foreign tax consequences associated with temporary differences between the preliminary fair values of the assets acquired and liabilities assumed and the respective tax bases. Tax rates utilized in calculating the deferred tax liabilities represent the appropriate tax rate for each respective jurisdiction. Deferred tax liabilities may be adjusted during the Measurement Period as the Company finalizes tax returns for periods prior to the Acquisition Date.

Other Assets Acquired and Liabilities Assumed

The Company used historical carrying values for trade accounts receivable and payables, as well as certain other current and noncurrent assets and liabilities, as their carrying values represented the fair value of those items as of the Acquisition Date.

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Financial Results

The following table summarizes the financial results of Tensar from the Acquisition Date through the end of fiscal 2022 that are included in the Company’s consolidated statement of earnings and consolidated statement of comprehensive income:

(in thousands) From the Acquisition Date to August 31, 2022

Earnings before income taxes 3,183

Pro Forma Supplemental Information

Supplemental information on an unaudited pro forma basis is presented below as if the acquisition of Tensar occurred on September 1, 2020. The pro forma financial information is presented for comparative purposes only, based on certain factually supported estimates and assumptions, which the Company believes to be reasonable, but not necessarily indicative of future results of operations or the results that would have been reported if the acquisition had been completed on September 1, 2020. These results were not used as part of management's analysis of the financial results and performance of the Company. The pro forma adjustments do not reflect anticipated synergies, but rather include the nonrecurring impact of additional cost of sales from revalued inventory and the recurring income statement effects of fair value adjustments, such as depreciation and amortization. Further adjustments were made to remove the impact of Tensar's prior management fees, acquisition and integration expenses and interest on debt not assumed in the acquisition. The resulting tax effects of the business combination are also reflected below.

Year Ended August 31,

The pro forma results presented above include, but are not limited to, adjustments to remove the impact of $8.7 million of acquisition and integration expenses from 2022 and reapportion $1.0 million of those costs incurred following the Acquisition Date to 2021, as well as reallocate $8.7 million of increased cost of goods sold in 2022 to 2021 as a result of the revaluation of inventory. The pro forma results also reflect increased amortization expense from acquired intangible assets of $8.1 million in 2022 and $12.4 million in 2021.

NOTE 3. CHANGES IN BUSINESS

Facility Closures and Dispositions

In October 2019, the Company closed the melting operations at its Rancho Cucamonga facility, which was part of the North America segment, and in August 2020, the Company announced plans to sell the facility.Additionally, in September 2021, the Company ceased operations at a rebar fabrication facility adjacent to the Rancho Cucamonga facility. Due to these closures, the Company recorded $13.8 million and $9.8 million in 2021 and 2020, respectively, related to asset impairments, severance, pension curtailment, environmental obligations and vendor agreement terminations. The closures did not meet the criteria for discontinued operations.

As of August 31, 2021, the associated assets of the Rancho Cucamonga facility and the adjacent rebar fabrication facility ("the Rancho Cucamonga facilities"), comprised of property, plant and equipment, net, met the criteria for classification as held for sale. As such, the Company classified $24.9 million within assets held for sale in the Company's consolidated balance sheet as of August 31, 2021.

On September 29, 2021, the Company entered into a definitive agreement to sell the assets associated with the Rancho Cucamonga facilities. On December 28, 2021, the sale of the Rancho Cucamonga facilities was completed for gross proceeds of $313.0 million, of which $22.0 million was used to purchase like-kind assets in 2022 per the terms of the sale agreement.

In 2020, the Company idled six facilities in its North America segment and recorded $6.2 million of expense related to severance and ROU and other long-lived asset impairments.

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NOTE 4. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

Accumulated other comprehensive income (loss) ("AOCI") was comprised of the following:

Reclassification for (gain) loss(1) 6 (375) — (369)

Reclassification for gain(1) — (2,826) — (2,826)

__________________________________

(1) Reclassifications for gains and losses on derivatives included in net earnings are recorded in cost of goods sold in the consolidated statements of earnings.

NOTE 5. REVENUE RECOGNITION

Revenue from Contracts with Customers

Revenue related to raw materials, steel products and construction-related solutions in the North America and Europe segments and downstream products in the Europe segment is recognized at a point in time concurrent with the transfer of control, which usually occurs, depending on shipping terms, upon shipment or customer receipt. See Note 20, Operating Segments for further information about disaggregated revenue by our major product lines.

Each downstream product contract sold by the North America segment represents a single performance obligation. Revenue from contracts where the Company provides fabricated product and installation services is recognized over time using an input measure, and these contracts represented 8%, 10% and 12% of net sales in the North America segment in 2022, 2021 and 2020, respectively. Revenue from contracts where the Company does not provide installation services is recognized over time using an output measure, and these contracts represented 9% of net sales in the North America segment in 2022 and 2021, and 11% in 2020.

The following table provides information about assets and liabilities from contracts with customers:

Contract assets (included in accounts receivable) $ 73,037 $ 64,168

The entire contract liability as of August 31, 2021 was recognized in 2022.

Remaining Performance Obligations

As of August 31, 2022, a total of $1.1 billion has been allocated to remaining performance obligations in the North America segment related to contracts where revenue is recognized using an input or output measure. Of this amount, the Company

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estimates that approximately 78% of the remaining performance obligations will be recognized during 2023 and the remainder will be recognized during 2024. The duration of all other contracts in the North America and Europe segments are typically less than one year.

NOTE 6. INVENTORIES

The majority of the Company's inventories are in the form of semi-finished and finished steel products. Under the Company’s vertically integrated business model, steel products are sold to external customers in various stages, from semi-finished billets through fabricated steel, leading these categories to be combined as finished goods.

The components of inventories were as follows:

Inventory write-downs were immaterial for 2022, 2021 and 2020.

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NOTE 7. GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill by reportable segment is detailed in the following table:

(in thousands) North America Europe Consolidated

Goodwill, gross:

Foreign currency translation — (98) (98)

Foreign currency translation — (3,962) (3,962)

Accumulated impairment:

Foreign currency translation — 5 5

Foreign currency translation — 29 29

Goodwill, net:

Foreign currency translation — (93) (93)

Foreign currency translation — (3,933) (3,933)

During 2022, 2021 and 2020, the annual goodwill impairment analyses did not result in any impairment charges. For the year ended August 31, 2022, the Company performed qualitative tests for all reporting units other than one reporting unit within the North America reporting segment consisting of $56.9 million of goodwill. The results of the qualitative tests indicated it was more likely than not that the fair value of all reporting units with goodwill exceeded their carrying value. The Company elected to bypass the qualitative test and perform a quantitative test for the North America reporting unit consisting of $56.9 million of goodwill. Based on the results of the quantitative test, the fair value of this reporting unit exceeded its carrying value by 18%.

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Other intangible assets subject to amortization are detailed in the following table:

Due to acquisition of Tensar:

The foreign currency translation adjustments related to the intangible assets subject to amortization were immaterial for all periods presented above.

Amortization expense for intangible assets was $10.0 million in 2022, of which $6.4 million was recorded in cost of goods sold and $3.6 million was recorded in selling, general and administrative expenses in the consolidated statements of earnings. Amortization expense for intangible assets was $2.1 million in 2021 and 2020, all of which was recorded in selling, general and administrative expenses in the consolidated statements of earnings. Estimated amortization expense for the next five years is as follows:

Year Ended August 31, (in thousands)

Intangible assets with indefinite lives primarily resulted from the acquisition of Tensar and include trade names and in-process research and development with gross carrying amounts of $53.6 million and $2.4 million, respectively, at August 31, 2022. The Company did not have any significant intangible assets with indefinite lives at August 31, 2021. During 2022, a qualitative assessment was performed to evaluate the fair value of the indefinite lived intangible assets compared to their carrying values. Based on the qualitative assessments performed, the Company concluded it to be more likely than not that the estimated fair values for indefinite lived intangible assets were greater than their respective carrying values and did not record any indefinite lived intangible asset impairment charges in 2022.

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NOTE 8. LEASES

The following table presents the components of the total leased assets and lease liabilities and their classification in the Company's consolidated balance sheets:

Assets:

Finance assets Property, plant and equipment, net 63,702 55,308

Liabilities:

Operating lease liabilities:

Current Accrued expenses and other payables $ 31,792 $ 26,433

Finance lease liabilities:

The components of lease cost were as follows:

Year Ended August 31,

Finance lease expense:

The weighted average remaining lease term and discount rate for operating and finance leases are presented in the following table:

Weighted average remaining lease term (years):

Operating leases 5.3 6.2

Finance leases 3.4 3.6

Weighted average discount rate:

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Cash flow and other information related to leases is included in the following table:

Year Ended August 31,

Cash paid for amounts included in the measurement of lease liabilities:

Operating cash outflows from finance leases 2,093 2,228 1,720

ROU assets obtained in exchange for lease obligations:

Future maturities of lease liabilities at August 31, 2022 are presented in the following table:

(in thousands) Operating Leases Finance Leases

As of August 31, 2022, the Company has additional leases that have not yet commenced, primarily for vehicles, with aggregate fixed payments over their terms of approximately $17.0 million. These leases will commence in 2023 and 2024 and have noncancellable terms of 4 to 7 years.

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NOTE 9. CREDIT ARRANGEMENTS

Long-term debt was as follows:

Weighted Average Interest Rate as of August 31, 2022 Year Ended August 31,

Less unamortized debt issuance costs (16,496) (8,141)

Plus unamortized bond premium 4,838 —

Senior Notes

In February 2022, the Company redeemed all of the $300.0 million of 5.375% Senior Notes due July 2027 (the "2027 Notes") and recognized a $16.1 million loss on debt extinguishment.

In January 2022, the Company issued $300.0 million of 4.125% Senior Notes due January 2030 (the "2030 Notes") and $300.0 million of 4.375% Senior Notes due March 2032 (the "2032 Notes"). Aggregate issuance costs associated with the 2030 Notes and 2032 Notes were approximately $9.4 million. Interest on the 2030 Notes is payable semiannually on January 15 and July 15. Interest on the 2032 Notes is payable semiannually on March 15 and September 15.

In February 2021, the Company issued $300.0 million of 3.875% Senior Notes due February 2031 (the "2031 Notes") and accepted for purchase all of the previously outstanding $350.0 million of 5.750% Senior Notes due April 2026 (the "2026 Notes") through a cash tender offer. Issuance costs associated with the 2031 Notes and loss on debt extinguishment recognized related to the retirement of the 2026 Notes were $4.9 million and $16.8 million, respectively, in 2021. Interest on the 2031 Notes is payable semiannually on February 15 and August 15.

In May 2013, the Company issued $330.0 million of 4.875% Senior Notes due May 2023 (the "2023 Notes"). Accordingly, the 2023 Notes have been included within current maturities of long-term debt and short-term borrowings in the consolidated balance sheet as of August 31, 2022. Interest on the 2023 Notes is payable semiannually on November 30 and May 31.

Series 2022 Bonds

In February 2022, the Company announced the issuance of $145.1 million in original aggregate principal amount of tax-exempt bonds (the “Series 2022 Bonds”) by the Industrial Development Authority of the County of Maricopa (the "MCIDA"). The Series 2022 Bonds were priced to yield 3.5% and provided gross proceeds of $150.0 million. The proceeds were loaned to the Company pursuant to a loan agreement between the Company and the MCIDA. During 2022, the full amount of the proceeds was used to fund a portion of the acquisition, construction and equipping of the Company’s third micro mill, which is under construction in Mesa, Arizona.

Issuance costs associated with the Series 2022 Bonds were $3.1 million. The Series 2022 Bonds accrue interest at 4.0%, payable semiannually on April 15 and October 15, and have a maturity date in October 2047.

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Credit Facilities

The Company has a $400.0 million revolving credit facility (the "Revolver"), pursuant to the Fifth Amended and Restated Credit Agreement (as amended, the "Credit Agreement"). The Credit Agreement has a maturity date in March 2026. The maximum availability under the Revolver can be increased to $650.0 million with bank approval. The Company's obligations under the Credit Agreement are collateralized by its North America inventory. The Credit Agreement's capacity includes a $50.0 million sub-limit for the issuance of stand-by letters of credit. The Company had no amounts drawn under the Revolver at August 31, 2022 or 2021. The availability under the Revolver was reduced by outstanding stand-by letters of credit of $1.4 million and $3.0 million at August 31, 2022 and 2021, respectively.

Under the Credit Agreement, the Company is required to comply with certain financial and non-financial covenants, including covenants to maintain: (i) an interest coverage ratio (consolidated EBITDA to consolidated interest expense, as each is defined in the Credit Agreement) of not less than 2.50 to 1.00 and (ii) a debt to capitalization ratio (consolidated funded debt to total capitalization, as each is defined in the Credit Agreement) that does not exceed 0.60 to 1.00. Loans under the Credit Agreement bear interest based on the Eurocurrency rate, a base rate, or the LIBOR rate. At August 31, 2022, the Company believes it was in compliance with all of the covenants contained in its credit arrangements. At August 31, 2022, the Company's interest coverage ratio was 34.48 to 1.00 and the Company's debt to capitalization ratio was 0.31 to 1.00.

The Company has a Term Loan facility (the "Poland Term Loan") through its subsidiary, CMC Poland Sp. zo.o. ("CMCP"). At August 31, 2022, PLN 152.4 million, or $32.4 million, was outstanding, compared to the maximum amount available under the facility, PLN 190.5 million, or $49.7 million, which was outstanding as of August 31, 2021. CMCP is required to make quarterly interest and principal payments on the Poland Term Loan with interest based on the Warsaw Interbank Offer Rate ("WIBOR") plus a margin. The Poland Term Loan has a maturity date in August 2026.

The Company also has credit facilities in Poland, through its subsidiary, CMCP, available to support working capital, short-term cash needs, letters of credit, financial assurance and other trade finance-related matters. At August 31, 2022 and 2021, CMCP's credit facilities totaled PLN 300.0 million, or $63.9 million and $78.3 million, respectively. The credit facilities have expiration dates ranging from March 2024 to March 2025. At August 31, 2022 and 2021, no amounts were outstanding under these facilities. CMCP had no borrowings or repayments under its credit facilities in 2022 and 2021. The available balance of these credit facilities was reduced by outstanding stand-by letters of credit, guarantees and/or other financial assurance instruments, which totaled $1.0 million and $5.7 million at August 31, 2022 and 2021, respectively.

The scheduled maturities of the Company's long-term debt, excluding obligations related to finance leases, are included in the table below. See Note 8, Leases, for scheduled maturities of finance leases.

Year Ended August 31, (in thousands)

Total long-term debt, excluding finance leases 1,455,167

Less debt issuance costs (16,496)

Plus unamortized bond premium 4,838

Total long-term debt outstanding, excluding finance leases $ 1,443,509

The Company capitalized $11.9 million, $2.8 million and $2.5 million of interest in the cost of property, plant and equipment during 2022, 2021 and 2020, respectively.

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Accounts Receivable Facilities

CMC has a $150.0 million U.S. trade accounts receivable facility (the "U.S. Facility"), which expires in March 2023. Under the U.S. Facility, CMC contributes, and certain of its subsidiaries transfer without recourse, certain eligible trade accounts receivable to CMC Receivables, Inc. ("CMCRV"), a wholly-owned subsidiary of CMC. CMCRV is structured to be a bankruptcy-remote entity formed for the sole purpose of facilitating transfers of trade accounts receivable generated by the Company. CMCRV transfers the trade accounts receivable in their entirety to two financial institutions. Under the U.S. Facility, with the consent of both CMCRV and the program's administrative agent, the amount advanced by the financial institutions can be increased to a maximum of $300.0 million for all trade accounts receivable. The remaining portion of the purchase price of the trade accounts receivable takes the form of subordinated notes from the respective financial institutions. These notes will be satisfied from the ultimate collection of the trade accounts receivable after payment of certain fees and other costs. The U.S. Facility 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 Agreement. Advances taken under the U.S. Facility incur interest based on LIBOR plus a margin. The Company had no advance payments outstanding under the U.S. Facility at August 31, 2022 and 2021.

In addition to the U.S. Facility, the Company's subsidiary in Poland transfers trade accounts receivable to financial institutions without recourse (the "Poland Facility"). The Poland Facility has a facility limit of PLN 288.0 million, or $61.3 million and $75.2 million as of August 31, 2022 and August 31, 2021, respectively. Advances taken under the Poland Facility incur interest based on the WIBOR plus a margin. The Company had PLN 124.0 million, or $26.4 million, advance payments outstanding under the Poland Facility at August 31, 2022 and PLN 101.7 million, or $26.6 million, at August 31, 2021.

The transfer of receivables under the U.S. Facility and Poland Facility do not qualify to be accounted for as sales. Therefore, any advances outstanding under these programs are recorded as debt on the Company's consolidated balance sheets.

NOTE 10. NEW MARKETS TAX CREDIT TRANSACTIONS

During 2016 and 2017, the Company entered into three New Markets Tax Credit (“NMTC”) transactions with U.S. Bancorp Community Development Corporation, a Minnesota corporation ("USBCDC"). The NMTC transactions relate to the construction and equipping of the micro mill in Durant, Oklahoma, as well as a rebar spooler and automated T-post shop located on the same site.

The transactions qualified through the New Markets Tax Credit program provided for in the Community Renewal Tax Relief Act of 2000 (the "NMTC Program"), as the micro mill, spooler and T-post shop are located in an eligible zone designated by the Internal Revenue Service ("IRS") and are considered eligible business activities for the NMTC Program. Under the NMTC Program, an investor that makes a capital investment, which, in turn, together with leverage loan sources, is used to make a Qualifying Equity Investment (a "QEI") in an entity that (i) qualifies as a Community Development Entity ("CDE"), (ii) has applied for and been granted an allocation of a portion of the total federal funds available to fund the credits (an "NMTC Allocation") and (iii) uses a minimum specified portion of the QEI to make a Qualified Low Income Community Investment up to the maximum amount of the CDE’s NMTC Allocation will be entitled to claim, over a period of seven years, federal nonrefundable tax credits in an amount equal to 39% of the QEI amount. NMTCs are subject to 100% recapture for a period of seven years as provided in the Internal Revenue Code.

In general, the three NMTC transactions were structured similarly. USBCDC made a capital contribution to an investment fund and Commonwealth Acquisition Holdings, Inc., a wholly-owned subsidiary of the Company (“Commonwealth”), made a loan to the investment fund. The investment fund used the proceeds from the capital contribution and the loan to make a QEI into a CDE, which, in turn, makes loans of the QEIs to the operating subsidiaries of the Company with terms similar to the loans by Commonwealth.

The following table summarizes the key terms and conditions for each of the three NMTC transactions ($ in millions):

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By its capital contributions to the investment funds (exclusive of Twain Investment Fund 222) (collectively, the "Funds"), USBCDC is entitled to substantially all the benefits derived from the NMTCs. These transactions include a put/call provision whereby the Company may be obligated or entitled to repurchase USBCDC’s interest in the Funds at the end of a seven-year period, in the case of the USBCDC Investment Fund 156, LLC and Twain Investment Fund 249, LLC or an eight-year period, in the case of Twain Investment Fund 219, LLC (each of such periods, an "Exercise Period"). The Company believes USBCDC will exercise the put options following the end of the respective Exercise Periods. The value attributed to the put/call is immaterial. The Company is required to follow various regulations and contractual provisions that apply to the NMTC transactions. Non-compliance with applicable requirements could result in unrealized projected tax benefits and, therefore, could require the Company to indemnify USBCDC for any loss or recapture of NMTCs related to the financing until the Company's obligation to deliver tax benefits is relieved. The Company does not anticipate any credit recaptures will be required in connection with these transactions.

The Company has determined that the Funds are VIEs, of which the Company is the primary beneficiary and has consolidated them in accordance with ASC Topic 810, Consolidation. As of August 31, 2021, $27.2 million of USBCDC’s contributions, which represent deferred revenue to the Company, were included in other noncurrent liabilities in the consolidated balance sheet. The seven-year recapture period on the USBCDC Investment Fund 156 will end on December 24, 2022, and therefore, the corresponding $17.7 million USBCDC capital contribution was reclassified to accrued expenses and other payables in the Company's consolidated balance sheet as of August 31, 2022. Direct costs incurred in structuring the transactions were deferred and are recognized as expense over each Exercise Period. Incremental costs to maintain the structures during the compliance periods are recognized as incurred.

The Company has determined that Twain Investment Fund 222 is a VIE, of which the Company is not the primary beneficiary and has therefore treated the QEI of $2.1 million as debt. The obligation represents the Company's maximum exposure to loss and is included in long-term debt in the consolidated balance sheets.

NOTE 11. DERIVATIVES

The Company's global operations and product lines expose it to risks from fluctuations in metal commodity prices, foreign currency exchange rates, interest rates and natural gas, electricity and other energy prices. One objective of the Company's risk management program is to mitigate these risks using derivative instruments. The Company enters into (i) metal commodity futures and forward contracts to mitigate the risk of unanticipated changes in net earnings due to price volatility in these commodities, (ii) foreign currency forward contracts that match the expected settlements for purchases and sales denominated in foreign currencies and (iii) natural gas and electricity commodity derivatives to mitigate the risk related to price volatility of these commodities.

The Company considers the total notional value of its futures and forward contracts as the best measure of the volume of derivative transactions. At August 31, 2022, the notional values of the Company's foreign currency and commodity contract commitments were $253.5 million and $205.1 million, respectively. At August 31, 2021, the notional values of the Company's foreign currency contract commitments and its commodity contract commitments were $389.5 million and $213.4 million, respectively.

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The following table provides information regarding the Company's commodity contract commitments as of August 31, 2022:

Commodity Long/Short Total

Aluminum Long 3,700 MT

Aluminum Short 1,700 MT

Copper Long 635 MT

Copper Short 9,310 MT