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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
___________________________________
FORM 10-Q
___________________________________
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended February 28, 2022
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-4304
___________________________________
COMMERCIAL METALS COMPANY
(Exact Name of Registrant as Specified in Its Charter)
| | | | | |
Delaware | 75-0725338 |
(State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification Number) |
6565 N. MacArthur Blvd., Irving, Texas 75039
(Address of Principal Executive Offices) (Zip Code)
(214) 689-4300
(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act: | | | | | | | | | | | | | | |
Title of Each Class | | Trading Symbol(s) | | Name of Each Exchange on Which Registered |
Common Stock, $0.01 par value | | CMC | | New York Stock Exchange |
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 ("Exchange Act") during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
| | | | | | | | | | | |
Large accelerated filer | ☒ | Accelerated filer | ☐ |
Non-accelerated filer | ☐ | Smaller reporting company | ☐ |
| | Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☒
As of March 22, 2022, 121,495,868 shares of the registrant's common stock, par value $0.01 per share, were outstanding.
COMMERCIAL METALS COMPANY AND SUBSIDIARIES
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
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COMMERCIAL METALS COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED) |
| | Three Months Ended February 28, | | Six Months Ended February 28, |
(in thousands, except share and per share data) | | 2022 | | 2021 | | 2022 | | 2021 |
Net sales | | $ | 2,008,888 | | | $ | 1,462,270 | | | $ | 3,990,689 | | | $ | 2,854,073 | |
Costs and operating expenses (income): | | | | | | | | |
Cost of goods sold | | 1,614,965 | | | 1,228,343 | | | 3,201,375 | | | 2,403,162 | |
Selling, general and administrative expenses | | 127,985 | | | 120,829 | | | 251,563 | | | 234,525 | |
Loss on debt extinguishment | | 16,052 | | | 16,841 | | | 16,052 | | | 16,841 | |
Interest expense | | 12,011 | | | 14,021 | | | 23,046 | | | 28,280 | |
Asset impairments | | 1,228 | | | 474 | | | 1,228 | | | 4,068 | |
Gain on sale of assets | | (273,099) | | | (5,412) | | | (274,082) | | | (5,481) | |
| | 1,499,142 | | | 1,375,096 | | | 3,219,182 | | | 2,681,395 | |
Earnings from continuing operations before income taxes | | 509,746 | | | 87,174 | | | 771,507 | | | 172,678 | |
Income taxes | | 126,432 | | | 20,941 | | | 155,304 | | | 42,534 | |
Earnings from continuing operations | | 383,314 | | | 66,233 | | | 616,203 | | | 130,144 | |
| | | | | | | | |
Earnings from discontinued operations before income taxes | | — | | | 197 | | | — | | | 447 | |
Income taxes | | — | | | 73 | | | — | | | 141 | |
Earnings from discontinued operations | | — | | | 124 | | | — | | | 306 | |
| | | | | | | | |
Net earnings | | $ | 383,314 | | | $ | 66,357 | | | $ | 616,203 | | | $ | 130,450 | |
| | | | | | | | |
Basic earnings per share (1) | | | | | | | | |
Earnings from continuing operations | | $ | 3.16 | | | $ | 0.55 | | | $ | 5.08 | | | $ | 1.08 | |
Earnings from discontinued operations | | — | | | — | | | — | | | — | |
Net earnings | | $ | 3.16 | | | $ | 0.55 | | | $ | 5.08 | | | $ | 1.09 | |
| | | | | | | | |
Diluted earnings per share (1) | | | | | | | | |
Earnings from continuing operations | | $ | 3.12 | | | $ | 0.54 | | | $ | 5.02 | | | $ | 1.07 | |
Earnings from discontinued operations | | — | | | — | | | — | | | — | |
Net earnings | | $ | 3.12 | | | $ | 0.55 | | | $ | 5.02 | | | $ | 1.07 | |
| | | | | | | | |
Average basic shares outstanding | | 121,458,196 | | | 120,345,432 | | | 121,293,030 | | | 120,052,459 | |
Average diluted shares outstanding | | 122,852,410 | | | 121,751,859 | | | 122,747,981 | | | 121,672,194 | |
See notes to condensed consolidated financial statements.
_________________
(1) Earnings Per Share ("EPS") is calculated independently for each component and may not sum to Net EPS due to rounding.
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COMMERCIAL METALS COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) |
| | Three Months Ended February 28, | | Six Months Ended February 28, |
(in thousands) | | 2022 | | 2021 | | 2022 | | 2021 |
Net earnings | | $ | 383,314 | | | $ | 66,357 | | | $ | 616,203 | | | $ | 130,450 | |
Other comprehensive income (loss), net of income taxes: | | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Foreign currency translation adjustment after reclassification | | (14,461) | | | 1,465 | | | (54,149) | | | (6,923) | |
Derivatives: | | | | | | | | |
Unrealized holding gain | | 33,197 | | | 7,723 | | | 55,451 | | | 8,887 | |
Reclassification for realized gain | | (5,277) | | | (259) | | | (8,346) | | | (313) | |
Net unrealized gain on derivatives | | 27,920 | | | 7,464 | | | 47,105 | | | 8,574 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Defined benefit plans loss after amortization of prior service costs and net actuarial losses | | (6) | | | (14) | | | (12) | | | (27) | |
Total other comprehensive income (loss), net of income taxes | | 13,453 | | | 8,915 | | | (7,056) | | | 1,624 | |
Comprehensive income | | $ | 396,767 | | | $ | 75,272 | | | $ | 609,147 | | | $ | 132,074 | |
See notes to condensed consolidated financial statements.
| | | | | | | | | | | | | | |
COMMERCIAL METALS COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) |
(in thousands, except share and per share data) | | February 28, 2022 | | August 31, 2021 |
Assets | | | | |
Current assets: | | | | |
Cash and cash equivalents | | $ | 846,587 | | | $ | 497,745 | |
Restricted cash | | 153,113 | | | 3,384 | |
Accounts receivable (less allowance for doubtful accounts of $5,446 and $5,553) | | 1,153,868 | | | 1,105,580 | |
Inventories, net | | 1,142,446 | | | 935,387 | |
Prepaid and other current assets | | 192,096 | | | 169,649 | |
Assets held for sale | | 2,138 | | | 25,083 | |
Total current assets | | 3,490,248 | | | 2,736,828 | |
Property, plant and equipment, net | | 1,649,264 | | | 1,566,123 | |
Goodwill | | 65,775 | | | 66,137 | |
Other noncurrent assets | | 298,933 | | | 269,583 | |
Total assets | | $ | 5,504,220 | | | $ | 4,638,671 | |
Liabilities and stockholders' equity | | | | |
Current liabilities: | | | | |
Accounts payable | | $ | 414,025 | | | $ | 450,723 | |
Accrued expenses and other payables | | 383,622 | | | 475,384 | |
Current maturities of long-term debt and short-term borrowings | | 27,554 | | | 54,366 | |
Total current liabilities | | 825,201 | | | 980,473 | |
Deferred income taxes | | 146,179 | | | 112,067 | |
Other noncurrent liabilities | | 217,138 | | | 235,607 | |
Long-term debt | | 1,445,755 | | | 1,015,415 | |
Total liabilities | | 2,634,273 | | | 2,343,562 | |
Commitments and contingencies (Note 13) | | | | |
Stockholders' equity: | | | | |
Common stock, par value $0.01 per share; authorized 200,000,000 shares; issued 129,060,664 shares; outstanding 121,495,868 and 120,586,589 shares | | 1,290 | | | 1,290 | |
Additional paid-in capital | | 366,162 | | | 368,064 | |
Accumulated other comprehensive loss | | (91,876) | | | (84,820) | |
Retained earnings | | 2,745,117 | | | 2,162,925 | |
Less treasury stock 7,564,796 and 8,474,075 shares at cost | | (150,978) | | | (152,582) | |
Stockholders' equity | | 2,869,715 | | | 2,294,877 | |
Stockholders' equity attributable to non-controlling interests | | 232 | | | 232 | |
Total stockholders' equity | | 2,869,947 | | | 2,295,109 | |
Total liabilities and stockholders' equity | | $ | 5,504,220 | | | $ | 4,638,671 | |
See notes to condensed consolidated financial statements.
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COMMERCIAL METALS COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) |
| | Six Months Ended February 28, |
(in thousands) | | 2022 | | 2021 |
Cash flows from (used by) operating activities: | | | | |
Net earnings | | $ | 616,203 | | | $ | 130,450 | |
Adjustments to reconcile net earnings to cash flows from (used by) operating activities: | | | | |
Depreciation and amortization | | 82,360 | | | 83,372 | |
Stock-based compensation | | 25,870 | | | 21,758 | |
Deferred income taxes and other long-term taxes | | 34,980 | | | (8,129) | |
Loss on debt extinguishment | | 16,052 | | | 16,841 | |
Asset impairments | | 1,228 | | | 4,068 | |
Other | | 835 | | | (105) | |
Amortization of acquired unfavorable contract backlog | | — | | | (3,032) | |
Net gain on disposals of assets and other | | (274,082) | | | (5,481) | |
Changes in operating assets and liabilities | | (449,078) | | | (238,539) | |
Net cash flows from operating activities | | 54,368 | | | 1,203 | |
| | | | |
Cash flows from (used by) investing activities: | | | | |
Proceeds from the sale of property, plant and equipment and other | | 309,563 | | | 20,338 | |
Capital expenditures | | (191,562) | | | (87,688) | |
Proceeds from insurance | | 3,081 | | | — | |
| | | | |
| | | | |
| | | | |
Net cash flows from (used by) investing activities | | 121,082 | | | (67,350) | |
| | | | |
Cash flows from (used by) financing activities: | | | | |
Proceeds from issuance of long-term debt, net | | 740,403 | | | 296,250 | |
Repayments of long-term debt | | (313,174) | | | (357,792) | |
Debt extinguishment costs | | (13,642) | | | (13,051) | |
Debt issuance costs | | (2,977) | | | (1,124) | |
Proceeds from accounts receivable facilities | | 190,730 | | | 8,848 | |
Repayments under accounts receivable facilities | | (215,196) | | | (8,848) | |
Dividends | | (34,011) | | | (28,833) | |
Treasury stock acquired | | (17,010) | | | — | |
Stock issued under incentive and purchase plans, net of forfeitures | | (10,719) | | | (4,536) | |
Contribution from non-controlling interest | | — | | | 19 | |
Net cash flows from (used by) financing activities | | 324,404 | | | (109,067) | |
Effect of exchange rate changes on cash | | (1,283) | | | (419) | |
Increase (decrease) in cash, restricted cash and cash equivalents | | 498,571 | | | (175,633) | |
Cash, restricted cash and cash equivalents at beginning of period | | 501,129 | | | 544,964 | |
Cash, restricted cash and cash equivalents at end of period | | $ | 999,700 | | | $ | 369,331 | |
See notes to condensed consolidated financial statements. | | | | | | | | | | | | | | |
Supplemental information: | | Six Months Ended February 28, |
(in thousands) | | 2022 | | 2021 |
Cash paid for income taxes | | $ | 133,194 | | | $ | 48,757 | |
Cash paid for interest | | 24,916 | | | 34,094 | |
| | | | |
Noncash activities: | | | | |
Liabilities related to additions of property, plant and equipment | | 35,781 | | | 16,252 | |
| | | | |
Cash and cash equivalents | | $ | 846,587 | | | $ | 367,347 | |
Restricted cash | | 153,113 | | | 1,984 | |
Total cash, restricted cash and cash equivalents | | $ | 999,700 | | | $ | 369,331 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
COMMERCIAL METALS COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED) |
| Three Months Ended February 28, 2022 |
| Common Stock | | | | Treasury Stock | | |
(in thousands, except share and per share data) | Number of Shares | Amount | Additional Paid-In Capital | Accumulated Other Comprehensive Loss | Retained Earnings | Number of Shares | Amount | Non-controlling Interest | Total |
Balance, December 1, 2021 | 129,060,664 | | $ | 1,290 | | $ | 357,413 | | $ | (105,329) | | $ | 2,378,789 | | (7,580,725) | | $ | (146,206) | | $ | 232 | | $ | 2,486,189 | |
Net earnings | | | | | 383,314 | | | | | 383,314 | |
Other comprehensive income | | | | 13,453 | | | | | | 13,453 | |
Dividends ($0.14 per share) | | | | | (16,986) | | | | | (16,986) | |
Treasury stock acquired | | | | | | (335,500) | | (11,699) | | | (11,699) | |
Issuance of stock under incentive and purchase plans, net of forfeitures | | | (1,275) | | | | 351,429 | | 6,927 | | | 5,652 | |
Stock-based compensation | | | 10,024 | | | | | | | 10,024 | |
Balance, February 28, 2022 | 129,060,664 | | $ | 1,290 | | $ | 366,162 | | $ | (91,876) | | $ | 2,745,117 | | (7,564,796) | | $ | (150,978) | | $ | 232 | | $ | 2,869,947 | |
| | | | | | | | | |
| Six Months Ended February 28, 2022 |
| Common Stock | | | | Treasury Stock | | |
(in thousands, except share and per share data) | Number of Shares | Amount | Additional Paid-In Capital | Accumulated Other Comprehensive Loss | Retained Earnings | Number of Shares | Amount | Non-controlling Interest | Total |
Balance, September 1, 2021 | 129,060,664 | | $ | 1,290 | | $ | 368,064 | | $ | (84,820) | | $ | 2,162,925 | | (8,474,075) | | $ | (152,582) | | $ | 232 | | $ | 2,295,109 | |
Net earnings | | | | | 616,203 | | | | | 616,203 | |
Other comprehensive loss | | | | (7,056) | | | | | | (7,056) | |
Dividends ($0.28 per share) | | | | | (34,011) | | | | | (34,011) | |
Treasury stock acquired | | | | | | (495,000) | | (17,010) | | | (17,010) | |
Issuance of stock under incentive and purchase plans, net of forfeitures | | | (29,333) | | | | 1,404,279 | | 18,614 | | | (10,719) | |
Stock-based compensation | | | 18,340 | | | | | | | 18,340 | |
| | | | | | | | | |
Reclassification of share-based liability awards | | | 9,091 | | | | | | | 9,091 | |
Balance, February 28, 2022 | 129,060,664 | | $ | 1,290 | | $ | 366,162 | | $ | (91,876) | | $ | 2,745,117 | | (7,564,796) | | $ | (150,978) | | $ | 232 | | $ | 2,869,947 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended February 28, 2021 |
| Common Stock | | | | Treasury Stock | | |
(in thousands, except share and per share data) | Number of Shares | Amount | Additional Paid-In Capital | Accumulated Other Comprehensive Loss | Retained Earnings | Number of Shares | Amount | Non-controlling Interest | Total |
Balance, December 1, 2020 | 129,060,664 | | $ | 1,290 | | $ | 348,816 | | $ | (111,055) | | $ | 1,857,513 | | (8,992,643) | | $ | (161,877) | | $ | 212 | | $ | 1,934,899 | |
Net earnings | | | | | 66,357 | | | | | 66,357 | |
Other comprehensive income | | | | 8,915 | | | | | | 8,915 | |
Dividends ($0.12 per share) | | | | | (14,427) | | | | | (14,427) | |
Issuance of stock under incentive and purchase plans, net of forfeitures | | | (2,120) | | | | 440,194 | | 7,925 | | | 5,805 | |
Stock-based compensation | | | 7,924 | | | | | | | 7,924 | |
Contribution of non-controlling interest | | | | | | | | 19 | | 19 | |
| | | | | | | | | |
Balance, February 28, 2021 | 129,060,664 | | $ | 1,290 | | $ | 354,620 | | $ | (102,140) | | $ | 1,909,443 | | (8,552,449) | | $ | (153,952) | | $ | 231 | | $ | 2,009,492 | |
| | | | | | | | | |
| Six Months Ended February 28, 2021 |
| Common Stock | | | | Treasury Stock | | |
(in thousands, except share and per share data) | Number of Shares | Amount | Additional Paid-In Capital | Accumulated Other Comprehensive Loss | Retained Earnings | Number of Shares | Amount | Non-controlling Interest | Total |
Balance, September 1, 2020 | 129,060,664 | | $ | 1,290 | | $ | 358,912 | | $ | (103,764) | | $ | 1,807,826 | | (9,839,759) | | $ | (175,063) | | $ | 212 | | $ | 1,889,413 | |
Net earnings | | | | | 130,450 | | | | | 130,450 | |
Other comprehensive income | | | | 1,624 | | | | | | 1,624 | |
Dividends ($0.24 per share) | | | | | (28,833) | | | | | (28,833) | |
Issuance of stock under incentive and purchase plans, net of forfeitures | | | (25,647) | | | | 1,287,310 | | 21,111 | | | (4,536) | |
Stock-based compensation | | | 15,935 | | | | | | | 15,935 | |
Contribution of non-controlling interest | | | | | | | | 19 | | 19 | |
Reclassification of share-based liability awards | | | 5,420 | | | | | | | 5,420 | |
Balance, February 28, 2021 | 129,060,664 | | $ | 1,290 | | $ | 354,620 | | $ | (102,140) | | $ | 1,909,443 | | (8,552,449) | | $ | (153,952) | | $ | 231 | | $ | 2,009,492 | |
See notes to condensed consolidated financial statements.
COMMERCIAL METALS COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1. ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States ("GAAP") on a basis consistent with that used in the Annual Report on Form 10-K for the year ended August 31, 2021 (the "2021 Form 10-K") filed by Commercial Metals Company ("CMC," and together with its consolidated subsidiaries, the "Company") with the Securities and Exchange Commission (the "SEC") and include all normal recurring adjustments necessary to present fairly the condensed consolidated balance sheets and the condensed consolidated statements of earnings, comprehensive income, cash flows and stockholders' equity for the periods indicated. These notes should be read in conjunction with the consolidated financial statements and notes included in the 2021 Form 10-K. The results of operations for the three and six month periods are not necessarily indicative of the results to be expected for the full fiscal year. Any reference in this Form 10-Q to the "corresponding period" relates to the relevant three or six month period ended February 28, 2021.
Any reference in this Form 10-Q to a year refers to the fiscal year ended August 31st of that year, unless otherwise noted.
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.
NOTE 2. CHANGES IN BUSINESS
Pending Acquisition
On December 3, 2021, the Company signed a definitive agreement to acquire TAC Acquisition Corp. ("Tensar"), a portfolio company of Castle Harlan Inc.’s fund, Castle Harlan Partners V, L.P., and a leading global provider of engineered solutions for subgrade reinforcement and soil stabilization used in road, infrastructure and commercial construction projects. The transaction is expected to close during the third quarter of 2022, and is subject to the satisfaction or waiver of customary closing conditions, including customary regulatory review. Upon closing, the Company will pay a cash purchase price of approximately $550.0 million, subject to customary purchase price adjustments. The transaction is not contingent on any financing arrangements.
Facility Closure and Disposition
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 $5.4 million and $13.4 million of expenses in the three and six months ended February 28, 2021 related to asset impairments, severance, pension curtailment, environmental obligations and vendor agreement terminations. Expenses
recorded in the three and six months ended February 28, 2022 were immaterial. 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 sheets 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. A portion of the gross proceeds amounting to $39.0 million were set aside in a restricted cash account to facilitate the purchase of like-kind assets. In January 2022, the Company used $7.5 million of the restricted cash on a purchase of a like-kind asset. The remaining balance of $31.5 million was included in restricted cash as of February 28, 2022.
NOTE 3. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The following tables reflect the changes in accumulated other comprehensive income (loss) ("AOCI"):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended February 28, 2022 |
(in thousands) | | Foreign Currency Translation | | Derivatives | | Defined Benefit Obligation | | Total AOCI |
Balance, December 1, 2021 | | $ | (145,368) | | | $ | 40,966 | | | $ | (927) | | | $ | (105,329) | |
Other comprehensive income (loss) before reclassifications | | (14,461) | | | 41,044 | | | (8) | | | 26,575 | |
Reclassification for gain (1) | | — | | | (6,536) | | | — | | | (6,536) | |
Income tax (expense) benefit | | — | | | (6,588) | | | 2 | | | (6,586) | |
Net other comprehensive income (loss) | | (14,461) | | | 27,920 | | | (6) | | | 13,453 | |
Balance, February 28, 2022 | | $ | (159,829) | | | $ | 68,886 | | | $ | (933) | | | $ | (91,876) | |
| | | | | | | | |
| | Six Months Ended February 28, 2022 |
(in thousands) | | Foreign Currency Translation | | Derivatives | | Defined Benefit Obligation | | Total AOCI |
Balance, September 1, 2021 | | $ | (105,680) | | | $ | 21,781 | | | $ | (921) | | | $ | (84,820) | |
Other comprehensive income (loss) before reclassifications | | (54,149) | | | 68,518 | | | (16) | | | 14,353 | |
Reclassification for gain (1) | | — | | | (10,325) | | | — | | | (10,325) | |
Income tax (expense) benefit | | — | | | (11,088) | | | 4 | | | (11,084) | |
Net other comprehensive income (loss) | | (54,149) | | | 47,105 | | | (12) | | | (7,056) | |
Balance, February 28, 2022 | | $ | (159,829) | | | $ | 68,886 | | | $ | (933) | | | $ | (91,876) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended February 28, 2021 |
(in thousands) | | Foreign Currency Translation | | Derivatives | | Defined Benefit Obligation | | Total AOCI |
Balance, December 1, 2020 | | $ | (96,321) | | | $ | (10,224) | | | $ | (4,510) | | | $ | (111,055) | |
Other comprehensive income (loss) before reclassifications | | 1,465 | | | 9,535 | | | (14) | | | 10,986 | |
Reclassification for gain (1) | | — | | | (320) | | | — | | | (320) | |
Income tax expense | | — | | | (1,751) | | | — | | | (1,751) | |
Net other comprehensive income (loss) | | 1,465 | | | 7,464 | | | (14) | | | 8,915 | |
Balance, February 28, 2021 | | $ | (94,856) | | | $ | (2,760) | | | $ | (4,524) | | | $ | (102,140) | |
| | | | | | | | |
| | Six Months Ended February 28, 2021 |
(in thousands) | | Foreign Currency Translation | | Derivatives | | Defined Benefit Obligation | | Total AOCI |
Balance, September 1, 2020 | | $ | (87,933) | | | $ | (11,334) | | | $ | (4,497) | | | $ | (103,764) | |
Other comprehensive income (loss) before reclassifications | | (6,923) | | | 10,972 | | | (34) | | | 4,015 | |
Reclassification for gain (1) | | — | | | (387) | | | — | | | (387) | |
Income tax (expense) benefit | | — | | | (2,011) | | | 7 | | | (2,004) | |
Net other comprehensive income (loss) | | (6,923) | | | 8,574 | | | (27) | | | 1,624 | |
Balance, February 28, 2021 | | $ | (94,856) | | | $ | (2,760) | | | $ | (4,524) | | | $ | (102,140) | |
_________________
(1) Reclassifications for gains on derivatives included in net earnings are recorded in cost of goods sold in the condensed consolidated statements of earnings.
NOTE 4. REVENUE RECOGNITION
Each fabricated 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% and 9% of net sales in the North America segment in the three and six months ended February 28, 2022, respectively, and 11% and 12% of net sales in the North America segment in the three and six months ended February 28, 2021, respectively. Revenue from contracts where the Company does not provide installation services is recognized over time using an output measure, and these contracts represented 8% and 9% of net sales in the North America segment in the three and six months ended February 28, 2022, respectively, and 9% of net sales in the North America segment in the three and six months ended February 28, 2021. Remaining net sales in the North America segment were recognized at a point in time concurrent with the transfer of control, or as amounts were billed to the customer under an available practical expedient.
The following table provides information about assets and liabilities from contracts with customers:
| | | | | | | | | | | | | | |
(in thousands) | | February 28, 2022 | | August 31, 2021 |
Contract assets (included in accounts receivable) | | $ | 61,884 | | | $ | 64,168 | |
Contract liabilities (included in accrued expenses and other payables) | | 25,302 | | | 23,948 | |
The amount of revenue reclassified from August 31, 2021 contract liabilities during the six months ended February 28, 2022 was approximately $16.8 million.
Remaining Performance Obligations
Remaining performance obligations represent the transaction price of fabricated product contracts where revenue is recognized using an input or output measure for which work has not yet been performed. As of February 28, 2022, $805.9 million was allocated to remaining performance obligations in the North America segment related to those contracts.
NOTE 5. INVENTORIES, NET
The majority of the Company's inventories are in the form of semi-finished and finished goods. Under the Company’s business model, products are sold to external customers in various stages, from semi-finished billets through fabricated steel, leading these categories to be combined. As such, at February 28, 2022 and August 31, 2021, work in process inventories were immaterial. At February 28, 2022 and August 31, 2021, the Company's raw materials inventories were $319.2 million and $286.1 million, respectively.
NOTE 6. GOODWILL AND OTHER INTANGIBLES
Goodwill by reportable segment at February 28, 2022 is detailed in the following table: | | | | | | | | | | | | | | | | | | | | |
| | | | | |
(in thousands) | | North America | | Europe | | Consolidated |
Goodwill, gross (1) | | $ | 71,941 | | | $ | 4,014 | | | $ | 75,955 | |
Accumulated impairment (1) | | (10,036) | | | (144) | | | (10,180) | |
Goodwill, net (1) | | $ | 61,905 | | | $ | 3,870 | | | $ | 65,775 | |
_________________
(1) The change in balance from August 31, 2021 was immaterial.
The total gross carrying amounts of the Company's intangible assets subject to amortization were $20.2 million and $21.7 million, and the total net carrying amounts were $8.7 million and $10.1 million at February 28, 2022 and August 31, 2021, respectively. These assets were included in other noncurrent assets on the Company's condensed consolidated balance sheets. Amortization expense from continuing operations related to such intangible assets was immaterial for the three and six months ended February 28, 2022 and 2021. Excluding goodwill, the Company did not have any significant intangible assets with indefinite lives at February 28, 2022.
NOTE 7. LEASES
The following table presents the components of the total leased assets and lease liabilities and their classification in the Company's condensed consolidated balance sheets:
| | | | | | | | | | | | | | | | | | | | |
(in thousands) | | Classification in Condensed Consolidated Balance Sheets | | February 28, 2022 | | August 31, 2021 |
Assets: | | | | | | |
Operating assets | | Other noncurrent assets | | $ | 113,446 | | | $ | 112,202 | |
Finance assets | | Property, plant and equipment, net | | 54,793 | | | 55,308 | |
Total leased assets | | | | $ | 168,239 | | | $ | 167,510 | |
| | | | | | |
Liabilities: | | | | | | |
Operating lease liabilities: | | | | | | |
Current | | Accrued expenses and other payables | | $ | 28,229 | | | $ | 26,433 | |
Long-term | | Other noncurrent liabilities | | 93,272 | | | 93,409 | |
Total operating lease liabilities | | | | 121,501 | | | 119,842 | |
Finance lease liabilities: | | | | | | |
Current | | Current maturities of long-term debt and short-term borrowings | | 16,639 | | | 16,040 | |
Long-term | | Long-term debt | | 33,762 | | | 36,104 | |
Total finance lease liabilities | | | | 50,401 | | | 52,144 | |
Total lease liabilities | | | | $ | 171,902 | | | $ | 171,986 | |
The components of lease expense were as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended February 28, | | Six Months Ended February 28, |
(in thousands) | | |