8-K/A

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K/A

(Amendment No. 1)

CURRENT REPORT

Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): November 1, 2018

Commercial Metals Company

(Exact name of registrant as specified in its charter)

Delaware	1-4304	75-0725338
(State or other jurisdiction of incorporation)	(Commission File Number)	(IRS Employer Identification No.)

6565 N. MacArthur Blvd. Irving, Texas	75039
(Address of principal executive offices)	(Zip Code)

(214) 689-4300

(Registrant’s telephone number, including area code)

Not Applicable

(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

☐ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

☐ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

☐ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

☐ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

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.  ☐

Explanatory Note

On November 5, 2018, Commercial Metals Company (the “Company”) filed a Current Report on Form 8-K (the “Initial Filing”) with the United States Securities and Exchange Commission to report the consummation of its previously announced acquisition of substantially all of the rebar fabrication facilities owned by Gerdau S.A. and certain of its affiliated entities (collectively, the “Sellers”) in the U.S., as well as the Sellers’ steel mini mills located in or around Rancho Cucamonga, California, Jacksonville, Florida, Sayreville, New Jersey and Knoxville, Tennessee (collectively, such acquired assets, the “Business”).

This Current Report on Form 8-K/A amends and supplements Item 9.01 of the Initial Filing to include the historical audited and unaudited financial statements of the Business and the pro forma combined financial information of the Company and the Business required by Items 9.01(a) and 9.01(b) of Form 8-K that were excluded from the Initial Filing in reliance on the instructions to such items.

Item 9.01. Financial Statements and Exhibits.

(a) Financial Statements of Businesses Acquired.

The combined financial statements of the Business as of and for the year ended December 31, 2017, together with the notes thereto and Independent Auditor’s Report thereon, are filed as Exhibit 99.1 hereto and are incorporated by reference herein.

The unaudited combined financial statements of the Business as of September 30, 2018 and December 31, 2017 and for the nine months ended September 30, 2018 and 2017 are filed as Exhibit 99.3 hereto and are incorporated by reference herein.

(b) Pro Forma Financial Information.

The unaudited pro forma condensed combined financial statements of the Company and the Business as of and for the year ended August 31, 2018 and notes thereto are filed as Exhibit 99.2 hereto and are incorporated by reference herein.

(d) Exhibits.

Exhibit No.	Description
23.1	Consent of Deloitte & Touche LLP.
99.1	Audited combined financial statements of the Business as of and for the year ended December  31, 2017 and notes thereto and Independent Auditor’s Report (filed as Exhibit 99.2 to the Company’s Current Report on Form 8-K filed April 19, 2018 and incorporated by reference herein).
99.2	Unaudited pro forma condensed combined financial information of the Company and the Business as of and for the year ended August 31, 2018 and notes thereto.
99.3	Unaudited combined financial statements of the Business as of September 30, 2018 and December  31, 2017 and for the nine months ended September 30, 2018 and 2017 and notes thereto.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	COMMERCIAL METALS COMPANY
Date: November 29, 2018	By:	/s/ Mary A. Lindsey
	Name:	Mary A. Lindsey
	Title:	Senior Vice President and Chief Financial Officer

EX-23.1

Exhibit 23.1

CONSENT OF INDEPENDENT AUDITORS

We consent to the incorporation by reference in Registration Statement No. 333-218970 on Form S-3 of Commercial Metals Company and Registration Statement No. 333-186974, No. 333-164604, No. 333-164603, and No. 333-141663 on Form S-8 of Commercial Metals Company, of our report dated March 23, 2018, relating to the combined financial statements of Gerdau Ameristeel Target Business (A Carve-Out of Certain Operations of Gerdau Ameristeel Corporation) (the “Gerdau Target Business”) as of and for the year ended December 31, 2017 (which report expresses an unqualified opinion on the combined financial statements and includes an emphasis of matter paragraph related to allocation of certain expenses from Gerdau Ameristeel Corporation) included as Exhibit 99.2 to the Current Report on Form 8-K of Commercial Metals Company dated April 19, 2018, which is incorporated by reference in this Current Report on Form 8-K dated November 29, 2018.

/s/ Deloitte & Touche LLP

Dallas, Texas

November 29, 2018

EX-99.2

Exhibit 99.2

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

On December 29, 2017, Commercial Metals Company (the “Company”, “CMC”, “we”, “our”, or “us”) and our direct and indirect wholly owned subsidiaries, CMC Steel Fabricators, Inc. and CMC Steel US, LLC, entered into a stock and asset purchase agreement (the “purchase agreement”), with GNA Financing, Inc., Gerdau Ameristeel US, Inc., Gerdau Ameristeel Sayreville Inc. and Gerdau Ameristeel WC, Inc. (the “sellers”), pursuant to which we agreed to acquire, which include sellers’ rebar fabrication facilities in the U.S. as well as four steel mini mills (the “acquired businesses), for a cash purchase price of $600.0 million (the “acquisition”).

On November 5, 2018, we closed the acquisition of the acquired businesses and paid the cash purchase price of $701.2 million which included an estimated working capital adjustment of $101.2 million. The purchase price is subject to customary purchase price adjustments under the terms of the purchase agreement, including a final working capital adjustment. The purchase price was paid with the proceeds from the issuance of $350.0 million aggregate principal amount of 5.750% Senior Notes due 2026 (the “old notes”), a $180.0 million term loan A under our credit agreement due 2022 (the “2018 term loan”) and cash on hand.

The following unaudited pro forma condensed combined financial statements, associated adjustments and related information, or the pro forma statements, give effect to the acquisition of the acquired businesses (the “pro forma statements”). The unaudited pro forma condensed combined balance sheet assumes this acquisition was consummated on August 31, 2018. The unaudited pro forma condensed combined statement of earnings assumes the acquisition was consummated on September 1, 2017.

The following pro forma statements have been prepared for illustrative purposes only and are not necessarily indicative of what our condensed combined financial position or results of operations actually would have been had the acquisition of the acquired businesses been completed as of the dates indicated. In addition, the pro forma statements do not purport to project the future financial position or operating results of the Company. The pro forma statements do not include (i) all reclassifications or adjustments to conform the acquired businesses’ financial statement presentation or accounting policies to those adopted by the Company, (ii) potential additional fair value adjustments to equity method investments, cost method investments, content and property, plant and equipment, (iii) adjustments for certain deferred tax assets and liabilities or (iv) the impact of pending or future investments by the Company. The pro forma statements also do not reflect the cost of any integration activities or benefits from the acquisition or synergies that may be derived.

The Company’s fiscal year ends on August 31, while the fiscal year with respect to the acquired businesses ends on December 31. The unaudited pro forma condensed combined statement of earnings for the twelve months ended August 31, 2018 combines the unaudited consolidated condensed statement of earnings of the Company for the twelve months ended August 31, 2018 with the statement of earnings for the acquired businesses for the twelve months ended September 30, 2018. The unaudited pro forma condensed combined balance sheet as of August 31, 2018 combines the consolidated condensed balance sheet of the Company as of August 31, 2018 with the balance sheet of the acquired businesses as of September 30, 2018.

The pro forma statements are based on, and should be read in conjunction with, the following information:

• notes to the unaudited pro forma condensed combined financial information;

• the Company’s Current Report on Form 8-K filed on January 2, 2018 relating to the acquisition of the acquired businesses;

• the Company’s Current Report on Form 8-K filed on November 5, 2018 relating to the closing of the acquisition of the acquired businesses, as amended by the Company’s Current Report on Form 8-K/A filed on November 29, 2018, which (1) incorporates by reference the acquired businesses’ audited financial statements as of and for the year ended December 31, 2017 from the Current Report on Form 8-K filed on April 19, 2018 and (2) includes the unaudited

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interim financial statements of the acquired businesses as of September 30, 2018 and December 31, 2017 and for the nine months ended September 30, 2018 and 2017, which are filed as exhibits thereto; and

• the Company’s audited financial statements for the year ended August 31, 2018 included in its Annual Report on Form 10-K for the fiscal year ended August 31, 2018.

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UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF EARNINGS

	Historical CMC Year Ended August 31,		Historic Acquired Businesses Twelve Months Ended September 30,			Pro Forma Acquisition Adjustments Note 2				Pro Forma Financing Adjustments Note 3				Pro Forma Combined Year Ended August 31,
(in thousands, except share data)	2018		2018											2018
Net sales	$	4,643,723	$	1,599,654		$	—			$	—			$	6,243,377
Costs and expenses:							—				—				—
Cost of goods sold		4,021,558		1,582,099			(18,620	)	A		—				5,585,037
Selling, general and administrative expenses		401,452		84,220			(46,015	)	B		—				439,657
Impairment of assets		14,372		313,064			—				—				327,436
Interest expense		40,957		1,278			(1,278	)	C		7,939		B		48,896
		4,478,339		1,980,661			(65,913	)			7,939				6,401,026
Earnings (loss) from continuing operations before income taxes		165,384		(381,007	)		65,913				(7,939	)			(157,649	)
Income taxes (benefit)		30,147		(52,752	)		16,926		D		(2,039	)	C		(7,718	)
Earnings (loss) from continuing operations	$	135,237	$	(328,255	)	$	48,987			$	(5,900	)		$	(149,931	)
Basic earnings (loss) per share from continuing operations	$	1.16												$	(1.28	)
Diluted earnings (loss) per share from continuing operations	$	1.14												$	(1.28	)

See notes to the unaudited pro forma condensed combined financial statements.

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UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET

	Historical CMC		Historic Acquired Businesses		Reclassifica tions				Pro Forma Acquisition Adjustments				Pro Forma Financing Adjustments			Pro Forma Combined
					Note 4				Note 5				Note 3
(in thousands, except share data)	August 31, 2018		September 30, 2018													August 31, 2018
Assets
Current assets:
Cash and cash equivalents	$	622,473	$	—	$	—			$	(701,200	)	D	$	176,500	A	$	85,139
										(12,634	)	E
Accounts receivable, net		749,484		268,192		—				16,656		D		—			1,034,332
Inventories, net		589,005		205,392		—				4,056		D		—			811,208
										12,755		D
Other current assets		115,533		4,930		—				(179	)	B		—			120,284
Assets of businesses held for sale & discontinued operations		710		—		—				—				—			710
Total current assets		2,077,205		478,514		—				(680,546	)			176,500			2,051,673
Property, plant and equipment		1,075,038		274,301		—				64,699		D		—			1,414,038
Goodwill		64,310		35,834		—				(35,834	)	A		—			64,310
Other intangible assets		—		10,142		(10,142	)	A						—
Other assets		111,751		5,255		10,142		A		3,800		D		—			124,272
										(6,676	)	B
Total assets	$	3,328,304	$	804,046	$	—			$	(654,557	)		$	176,500		$	3,654,293
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	261,258	$	99,250	$	—			$	6,090		D	$	—		$	366,598
Accrued expenses and other payables		259,022		43,556		17,546		B		2,871		D		—			300,053
										(16,042	)	B
										(6,900	)	E
Current maturities of long-term debt		19,746		59,000		—				(59,000	)	C		9,000	A		28,746
Other current liabilities		—		17,546		(17,546	)	B		—				—
Liabilities of businesses held for sale & discontinued operations		1,917		—		—				—				—			1,917
Total current liabilities		541,943		219,352		—				(72,981	)			9,000			697,314
Deferred income taxes		37,834		—		—				—				—			37,834
Retirement benefit obligations		—		14,842		(14,842	)	C						—
Other long-term liabilities		116,325		5,359		14,842		C		(11,349	)	B		—			125,177
Long-term debt		1,138,619		—		—				—				167,500	A		1,306,119
Total liabilities		1,834,721		239,553		—				(84,330	)			176,500			2,166,444
Net parent investment		—		564,493		—				(564,493	)	A, B, C, D		—			—
Stockholders’ equity attributable to CMC		1,493,397		—		—				(5,734	)	E		—			1,487,663
Stockholders’ equity attributable to noncontrolling interests		186		—		—				—				—			186
Total liabilities and stockholders’ equity	$	3,328,304	$	804,046	$	—			$	(654,557	)		$	176,500		$	3,654,293

See notes to the unaudited pro forma condensed combined financial statements.

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Notes to the Unaudited Pro Forma Condensed Combined Information

1. Basis of Presentation

The accompanying pro forma statements are based on our historical consolidated financial statements and the acquired businesses’ historical combined financial statements as adjusted to give effect to the acquisition of the acquired businesses and the related financing transaction. The unaudited pro forma condensed combined balance sheet assumes this acquisition was consummated on August 31, 2018. The unaudited pro forma condensed combined statement of earnings assumes the acquisition was consummated on September 1, 2017. The Company has adjusted the historical consolidated financial statements in the pro forma financial statements to give effect to items that are (1) directly attributable to the pro forma transactions, (2) factually supportable, and (3) with respect to the statements of earnings, expected to have a continuing impact on the combined results.

The pro forma statements do not include all of the information and note disclosures required by accounting principles generally accepted in the United States (“GAAP”). The unaudited pro forma condensed combined statement of earnings does not reflect cost savings expected to be realized from the elimination of certain expenses and synergies expected to be created or the costs to achieve such cost savings or synergies. Such costs may be material and no assurance can be given that cost savings or synergies will be realized.

In order to prepare the pro forma statements, CMC performed a preliminary review of the acquired businesses’ accounting policies to identify significant differences. CMC is currently conducting a detailed review of the acquired businesses’ accounting policies to determine if differences in accounting policies require further adjustment or reclassification of the acquired businesses’ results of operations, assets or liabilities to conform to CMC’s accounting policies and classifications. As a result of that review, CMC may identify additional differences between the accounting policies of the two companies that, when conformed, could have a material impact on the pro forma statements.

Assumptions and estimates underlying the pro forma adjustments are described in the notes below, which should be read in conjunction with the pro forma statements. Since the pro forma statements have been prepared based on preliminary estimates and assumptions, the final amounts may differ materially from the information presented. These estimates and assumptions are subject to change pending further review of the assets to be acquired and liabilities to be assumed, and as additional information becomes available. Additionally, the final purchase price allocation will be determined after the acquisition is completed and the final amounts recorded may differ materially from the information presented.

Note 2. Adjustments to Unaudited Pro Forma Condensed Combined Statement of Earnings

(A) Represents the change in depreciation and amortization for the fair value of property, plant and equipment and intangibles for the year ended August 31, 2018. The change in depreciation expense is calculated using the straight line method over the estimated remaining useful lives.

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(In thousands)	Year Ended August 31,2018
Estimated depreciation and amortization expense	$	16,560
Elimination of historical acquired businesses’ depreciation and amortization expense		(35,180	)
Total	$	(18,620	)

(B) Reflects the elimination of $26.8 million and $19.2 million of transaction costs recognized in CMC’s and the acquired businesses’ historical financial statements, respectively.

(C) Reflects the elimination of $1.3 million of historic intercompany interest expense of the acquired businesses.

(D) Reflects the income tax effect for adjustments related to the acquisition using a 25.7% blended U.S. statutory income tax rate, consistent with the statutory rate disclosed in the Company’s audited financial statements for the year ended August 31, 2018 included in its Annual Report on Form 10-K for the fiscal year ended August 31, 2018.

Note 3. Pro Forma Financing Adjustments

Balance Sheet Adjustments:

(A) Reflects the net proceeds to CMC of $176.5 million draw on the 2018 term loan, net of debt issuance costs of $3.5 million. These debt issuance costs will be amortized through interest expense over the life of the 2018 term loan using the effective interest method. The total 2018 term loan has been reflected on the condensed combined balance sheet, of which $9.0 million is a current liability based on the stated repayment terms. After consummation of this transaction, the Company’s outstanding indebtedness on a pro forma basis as of August 31, 2018 is expected to consist of (i) $330.0 million of 4.875% Senior Notes due May 15, 2023 (ii) $300.0 million of 5.375% Senior Notes due July 15, 2027 (iii) $142.5 million senior secured term loan due June 2022 (iv) $180 million under the 2018 term loan and (v) $350.0 million of old notes.

Income Statement Adjustments:

(B) Reflects an adjustment for the increase in interest expense as a result of the assumed issuance of the 2018 term loan, for the year ended August 31, 2018, reflected as if the 2018 term loan were issued on September 1, 2017.

Pro forma interest expense associated with the 2018 term loan (using an assumed effective interest rate of approximately 4.33%, including amortization of debt issuance costs) for the year ended August 31, 2018 is $7.9 million.

If interest rates were to increase or decrease by 0.125% from the rates assumed in estimating this pro forma adjustment to interest expense, total pro forma interest expense on the term loan would increase or decrease by approximately $0.8 million.

(C) Reflects the income tax effect for adjustment related to the financing using a 25.7% blended U.S. statutory income tax rate, consistent with the statutory rate disclosed in the Company’s audited financial statements for the year ended August 31, 2018 included in its Annual Report on Form 10-K for the fiscal year ended August 31, 2018.

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Note 4. Reclassification of acquired businesses’ Historical Financial Information

Financial information in the “Historical acquired businesses’” columns in the pro forma statements has been reclassified to conform to the presentation in CMC’s historical financial statements. The reclassification adjustments are summarized as follows:

(A) Represents a reclassification adjustment of $10.1 million to increase other assets in order to align with CMC’s presentation of other intangibles in Other assets.

(B) Represents a reclassification adjustment of $17.5 million to increase Accrued expenses and other payables in order to align with CMC’s presentation of other current liabilities in Accrued expenses and other payables.

(C) Represents a reclassification adjustment of $14.8 million to increase Other long-term liabilities in order to align with CMC’s presentation of retirement benefit obligations within Other long-term liabilities.

Note 5. Adjustments to Unaudited Pro Forma Condensed Combined Balance Sheet

The pro forma adjustments are based on preliminary estimates and assumptions that are subject to change. The following summarizes the pro forma adjustments to give effect to the acquisition as if it had occurred on August 31, 2018.

(A) To eliminate $35.8 million of acquired businesses’ historical goodwill.

(B) To reflect the elimination of assets and liabilities that are being retained by the seller, as follows:

(In thousands)
	As of September 30, 2018
Current assets
Other current assets	$	179
Other assets
Customer relationships	$	6,676
Current liabilities
Sales and payroll taxes payable	$	7,557
Accrued benefits and salaries		3,862
Workers compensation liability		3,149
Accounts payable		1,295
Accrued interest on intercompany loan		179
Total current liabilities	$	16,042
Noncurrent liabilities
Workers compensation liability	$	5,031
Accrued pension cost		6,318
Total noncurrent liabilities	$	11,349

(C) To eliminate acquired businesses’ historical loan from affiliate of $59.0 million.

(D) The following table presents our preliminary estimates of the assets to be acquired and the liabilities to be assumed by CMC, reconciled to the consideration transferred. The purchase price for the acquisition was $701.2 million, which is subject to a customary purchase price adjustment. The purchase price was paid with proceeds from the issuance of the old notes, the 2018 term loan and cash on hand. The final allocation of the purchase price will be determined at a later date and is dependent on a number of factors, including the final valuation of the tangible and intangible assets acquired and liabilities assumed, which may be materially different than the value of assets acquired and liabilities assumed in

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the estimated pro forma adjustments. The pro forma adjustments are preliminary and based on estimates of fair values and have been prepared to illustrate the estimated effects of the acquisition. The allocation is dependent upon certain valuation and other studies conducted to date; however, not all such work has been completed. We anticipate the final purchase price allocation to be complete by November 5, 2019. Additionally, useful lives assigned to the acquired assets will be determined after final valuation work is complete. For purposes of the pro forma statements, we have assumed a useful life of 25, 15, and 5 years for real property, personal property, and intangibles, respectively.

(In thousands)
Net book value of net assets acquired	$	564,493
Adjustment for removal of historical goodwill		(35,834	)
Adjustment for removal of intercompany loan		59,000
Adjustment for removal of other assets and liabilities		20,536
Adjusted net book value of net assets acquired	$	608,195
Fair value adjustments:
Inventory		4,056
Property, plant and equipment		64,699
Identified intangibles		3,800
Working Capital Adjustments		20,450
Fair value of assets acquired and liabilities assumed	$	701,200
Estimated purchase price	$	701,200

(E) The impact of our future estimated acquisition related expenses is as follows:

(In thousands)
Estimated total acquisition related expenses	$	34,497
Less: Expenses paid through August 31, 2018		(19,882	)
Less: Expenses accrued through August 31, 2018		(6,900	)
Less: Tax impact associated with future expenses of $7.7 million		(1,981	)
Future acquisition related expense, net of tax		5,734
Add: Expenses accrued through August 31, 2018 to be paid		6,900
Future fees to be paid from cash	$	12,634

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EX-99.3

Exhibit 99.3

Gerdau Ameristeel Target Business

(A Carve-Out of Certain Operations of Gerdau Ameristeel Corporation)

Condensed Combined Interim Financial Statements as of September 30, 2018 and December 31, 2017 and for the Nine Months Ended September 30, 2018 and 2017

(Unaudited)

GERDAU AMERISTEEL TARGET BUSINESS

(A Carve-Out of Certain Operations of Gerdau Ameristeel Corporation)

TABLE OF CONTENTS

	Page
CONDENSED COMBINED FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 2018 AND DECEMBER 31, 2017 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2018 AND 2017 (UNAUDITED):
BALANCE SHEETS		1
STATEMENTS OF OPERATIONS		2
STATEMENTS OF CHANGES IN NET PARENT INVESTMENT		3
STATEMENTS OF CASH FLOWS		4
NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS		5–15

GERDAU AMERISTEEL TARGET BUSINESS    

(A Carve-out of Certain Operations of Gerdau Ameristeel Corporation)

CONDENSED COMBINED BALANCE SHEETS    

AS OF SEPTEMBER 30, 2018 AND DECEMBER 31, 2017    

(In thousands)    

(Unaudited)    

	SEPTEMBER 30,		DECEMBER 31,
	2018		2017
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	—	$	2,568
Trade accounts receivable—net (Note 5)		268,192		221,543
Inventories (Note 6)		205,392		160,678
Other current assets		4,930		2,330
Total current assets		478,514		387,119
PROPERTY, PLANT AND EQUIPMENT—Net (Note 7)		274,301		288,066
GOODWILL (Note 8)		35,834		35,834
OTHER INTANGIBLE ASSETS—Net (Note 8)		10,142		11,297
OTHER NONCURRENT ASSETS		5,255		2,012
TOTAL ASSETS	$	804,046	$	724,328
LIABILITIES AND NET PARENT INVESTMENT
CURRENT LIABILITIES:
Trade accounts payable	$	99,250	$	81,139
Accrued expenses and other payables		43,556		41,617
Short-term debt—affiliated (Note 10)		59,000		31,000
Other current liabilities		17,546		21,390
Total current liabilities		219,352		175,146
RETIREMENT BENEFIT OBLIGATIONS (Note 11)		14,842		15,092
OTHER NONCURRENT LIABILITIES		5,359		4,166
Total liabilities		239,553		194,404
CONTINGENCIES AND COMMITMENTS (Note 12)
NET PARENT INVESTMENT—Accumulated net contributions from Parent		564,493		529,924
Total net Parent investment		564,493		529,924
TOTAL LIABILITIES AND NET PARENT INVESTMENT	$	804,046	$	724,328

See accompanying notes to condensed combined financial statements.

- 1 -

GERDAU AMERISTEEL TARGET BUSINESS    

(A Carve-out of Certain Operations of Gerdau Ameristeel Corporation)

CONDENSED COMBINED STATEMENTS OF OPERATIONS    

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2018 AND 2017

(In thousands)    

(Unaudited)    

	NINE MONTHS ENDED SEPTEMBER 30, 2018			NINE MONTHS ENDED SEPTEMBER 30, 2017
NET SALES	$	1,258,604		$	985,419
COST OF SALES		(1,231,986	)		(997,599	)
GROSS INCOME (LOSS)		26,618			(12,180	)
OPERATING EXPENSES:
Selling, general and administrative expenses		65,037			48,709
LOSS FROM OPERATIONS		(38,419	)		(60,889	)
INTEREST EXPENSE—Affiliated (Note 10)		1,084			150
INTEREST COST ON PENSION BENEFITS, NET		367			522
LOSS BEFORE INCOME TAXES		(39,870	)		(61,561	)
INCOME TAX EXPENSE (BENEFIT)		91			(23,558	)
NET LOSS	$	(39,961	)	$	(38,003	)

See accompanying notes to condensed combined financial statements.

- 2 -

(A Carve-Out of Certain Operations of Gerdau Ameristeel Corporation)

CONDENSED COMBINED STATEMENT OF CHANGES IN NET PARENT INVESTMENT

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2018    

(In thousands)     

(Unaudited)    

	NINE MONTHS ENDED SEPTEMBER 30, 2018			NINE MONTHS ENDED SEPTEMBER 30, 2017
Balances at January 1	$	529,924		$	802,023
Net loss		(39,961	)		(38,003	)
Net transfers from Parent		74,530			62,199
Balances at September 30	$	564,493		$	826,219

See accompanying notes to condensed combined financial statements.

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GERDAU AMERISTEEL TARGET BUSINESS

(A Carve-out of Gerdau Ameristeel Corporation)

CONDENSED COMBINED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2018 AND 2017

(In thousands)

(Unaudited)

	NINE MONTHS ENDED SEPTEMBER 30, 2018			NINE MONTHS ENDED SEPTEMBER 30, 2017
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(39,961	)	$	(38,003	)
Adjustments to reconcile net loss to net cash used for operating activities:
Depreciation (Note 7)		25,071			28,496
Amortization of intangibles (Note 8)		1,155			1,154
Loss (gain) on disposal of property, plant and equipment		84			(118	)
Provision for doubtful accounts		779			212
Deferred income tax expense (benefit)		91			(23,558	)
Inventory write-down					264
Post-employment benefits expense		1,020			1,205
Changes in operating assets and liabilities:
Trade accounts receivable		(47,428	)		(57,192	)
Inventories		(44,714	)		(28,565	)
Other assets		(5,843	)		309
Liabilities		17,041			44,448
Net cash used in operating activities		(92,705	)		(71,348	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment		(12,549	)		(17,137	)
Proceeds from disposition of property, plant and equipment		175			122
Net cash used in investing activities		(12,374	)		(17,015	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net transfers from Parent		74,511			61,717
Repayments on affiliated promissory note		(2,000	)
Borrowings on affiliated promissory note		30,000			23,000
Net cash provided by financing activities		102,511			84,717
NET DECREASE IN CASH AND CASH EQUIVALENTS		(2,568	)		(3,646	)
CASH AND CASH EQUIVALENTS:
Beginning of year		2,568			4,388
End of year	$	—		$	742
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION—
Interest paid on affiliated debt	$	979		$	110
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Net transfer of property, plant and equipment from affiliates	$	19		$	482
Liabilities related to additions of property, plant and equipment	$	690		$	112

See accompanying notes to combined financial statements.

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GERDAU AMERISTEEL TARGET BUSINESS

(A Carve-out of Certain Operations of Gerdau Ameristeel Corporation)

NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS

AS OF SEPTEMBER 30, 2018 AND DECEMBER 31, 2017 AND

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2018 AND 2017

(UNAUDITED)

(US$ in thousands, unless otherwise stated)

1. DESCRIPTION OF BUSINESS

The condensed combined financial statements include the historical accounts of the Gerdau Ameristeel Target Business (“Gerdau Target Business” or the “Business”) of Gerdau Ameristeel Corporation (the “Parent”), which includes 33 rebar fabrication facilities in the United States, as well as four steel mini-mills located in Rancho Cucamonga, California, Jacksonville, Florida, Sayreville, New Jersey and Knoxville, Tennessee. Gerdau Ameristeel Corporation operates steel mini-mills, producing primarily steel bars and special sections for commercial and industrial building construction, steel service centers, and original equipment manufacturers. Gerdau Ameristeel Corporation is a wholly owned subsidiary of Gerdau S.A., a publicly traded corporation and leading producer of long steel products in the Americas and major supplier of specialty long steel products in the world.

On December 29, 2017, Gerdau Ameristeel Corporation entered into a Definitive Purchase Agreement (the “Purchase Agreement”) with Commercial Metals Company, a Delaware Corporation (“Buyer”), providing for the sale of the Business. The transaction closed on November 5, 2018.

2. BASIS OF ACCOUNTING AND PRESENTATION

The condensed combined financial statements have been prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP) and the rules and regulations of the Securities and Exchange Commission. The condensed combined financial statements have been prepared from the accounting records of the Parent using the historical results of operations and historical cost basis of the assets and liabilities of the Parent that comprise the Business. These condensed combined financial statements have been prepared solely to demonstrate its historical results of operations, financial position, and cash flows for the indicated periods under the Parent’s management. The condensed combined financial statements do not include all the necessary disclosures required by U.S. GAAP that would be required for annual reporting. In the opinion of management these condensed combined financial statements reflect all adjustments (of a normal and recurring nature) that are necessary for a fair presentation for the interim periods presented. The results of interim periods are not necessarily indicative of results for the full year. These notes should be read in conjunction with the audited financial statements and accompanying notes of the Parent and the Gerdau Ameristeel Target Business (A Carve-Out of Certain Operations of Gerdau Ameristeel Corporation) as of and for the year ended December 31, 2017.

All intercompany balances and transactions within the Business have been eliminated in the condensed combined financial statements. Transactions and balances between the Business and Gerdau Ameristeel Corporation and its subsidiaries not part of the Business are reflected as related party transactions within these condensed combined financial statements.

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Intercompany transactions with the Parent are considered to be settled for cash in the condensed combined cash flow statement of the Business in the same period as reported by the Parent. The total net effect of the settlement of these intercompany transactions is reflected in the condensed combined cash flow statement as a financing activity and in the condensed combined balance sheet within net Parent investment. Net Parent investment represents the Business’s cumulative earnings (loss) as adjusted for cash distributions to and cash contributions from the Parent.

In connection with the closing of the acquisition under the Purchase Agreement, the Buyer acquired stock interest in Tamco, a California corporation, and Gerdau Reinforcing Steel (“RSW”), a Delaware general partnership, which are included in the condensed combined financial statements, and acquired other businesses as a net asset acquisition. The Agreement provides that certain assets and liabilities of the stock transaction will not be acquired by the Buyer. For the purpose of the condensed combined financial statements, management is disclosing all of the assets and liabilities of the stock purchase portion of the contract as part of the Business, while for the net asset acquisition portion of the contract, only the assets and liabilities included in the agreement as being acquired or assumed are being included in the condensed combined financial statements.

3. ALLOCATION OF CERTAIN COSTS AND EXPENSES AND CONTINUED SUPPORT

The historical costs and expenses reflected in the condensed combined financial statements include an allocation for certain corporate and shared service functions historically provided by the Parent. These expenses have been allocated on the basis of direct usage when identifiable, with the remainder allocated on a pro rata basis of proportionate revenue, headcount, tangible assets or other measures considered to be a reasonable reflection of the historical utilization levels of these services.

Amounts recorded for these transactions and allocations are not necessarily representative of the amount that would have been reflected in the condensed combined financial statements had the Business been an entity that operated independently of the Parent. Consequently, future results of operations, subsequent to the separation of the Business from the Parent, will include costs and expenses that may be materially different than the Business’s historical results of operations, financial position, and cash flows. Accordingly, the condensed combined financial statements for this period are not indicative of Business’s future results of operations, financial position, and cash flows.

The amounts allocated to the Business by the Parent for the nine months ended September 30, 2018 and 2017 were as follows:

	September 30,
	2018		2017
Intangible amortization (1)	$	2,597	$	2,535
Selling expenses		3,677		3,237
General and administrative expenses		32,698		17,915
Other expense (1)		6,770		972
Total allocated expenses	$	45,742	$	24,659

⁽¹⁾  These allocated expenses are included in costs of sales in the condensed combined statements of operations.

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Costs incurred by the Parent related to the divestiture of the Business have been included in the condensed combined financials statements. These costs are comprised of legal fees, consultancy fees and audit fees solely related to the divestiture of the Business that had been incurred as of September 30, 2018 and December 31, 2017. The total fees are approximately $16.9 million and $2.3 million and are included in general and administrative expenses allocated by the Parent as of September 30, 2018 and December 31, 2017, respectively. Gerdau S.A. financially supported the operations of the Business through the date of disposition of such business.

4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

4.1 Recently Issued Accounting Pronouncements

In March 2017, the FASB issued ASU 2017-07 “Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost”. The amendment requires the service cost component be presented in the same line item as compensation costs for the pertinent employees during the period. The other components of net pension cost must be presented outside a subtotal of income from operations, if one is presented. Gerdau Ameristeel Target Business meets the definition of a Public Business Entity, as defined under ASU 2013-12. The amendments are effective for public business entities for annual periods beginning after December 15, 2017, including interim periods within those annual periods. These amendments were applied retrospectively for the presentation of the service cost component and the other components of net periodic benefit expense in the income statement and prospectively, on and after the effective date, for the capitalization of the service cost component of net periodic benefit expense in assets. The amendments allow a practical expedient that permits an employer to use the amounts disclosed in its pension and other postretirement benefit plan note for the prior comparative periods as the estimation basis for applying the retrospective presentation requirements.

The Company adopted the income statement presentation aspects of ASU 2017-07 on a retrospective basis effective January 1, 2018. As a result of adopting this guidance, total cost of sale increased $0.9 million and decreased $0.5 million with an offsetting change to non-operating items, net for the twelve months ended December 31, 2017 and nine months ended September 30, 2017, respectively.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), and has modified the standard thereafter. Under the standard, revenue is recognized when a customer obtains control of promised goods or services and is recognized in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This guidance is effective for public business entities for annual reporting periods beginning after December 15, 2018, and interim reporting periods within annual reporting periods beginning after December 15, 2019. In addition, the standard includes expanded disclosure requirements. The standard permits the use of either the retrospective or cumulative effect transition method. The Business plans to adopt the standard when required and currently expects to adopt the standard using the modified retrospective approach. The Business will be required to implement changes to its accounting policies, practices, and internal controls over financial reporting to support the standard both in the transition period as well as on an on-going basis. The Business has not evaluated the impact of this guidance on its condensed combined financial statements.

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In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), requiring a lessee to recognize a right-of-use asset and a lease liability on its balance sheet for all leases with terms of twelve months or longer. This guidance is effective for public business entities for annual periods beginning after December 15, 2019, and interim reporting periods within annual periods beginning after December 15, 2020. The Business plans to adopt the standard when required. The provisions of this guidance are to be applied using a modified retrospective approach, with elective reliefs, which requires application of the guidance for all periods presented. The Business plans to adopt the standard when required, but has not evaluated the impact of this guidance on its condensed combined financial statements.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230) – Classification of Certain Cash Receipts and Cash Payments. These amendments clarify the presentation of cash receipts and payments in eight specific situations. These amendments are effective for fiscal years beginning after December 15, 2017, and interim periods within those annual periods. These amendments have been applied using a retrospective transition method to each period presented. The adoption of ASU 2016-15 on January 1, 2018 did not have an impact on the Company’s cash flows.

4.2 Estimates in the Condensed Combined Financial Statements

The preparation of condensed combined financial statements in conformity with generally accepted accounting principles in the U.S. requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the condensed combined financial statements and the reported amounts of revenues and expenses. Changes in facts and circumstances may result in revised estimates, and actual results could differ from those estimates. Significant items subject to such estimates and assumptions include the carrying value of inventory and long-lived assets, including goodwill; valuation allowances for receivables and deferred income taxes; percentage of completion accounting method for revenue recognition; reserve for job losses and environmental liabilities. Actual results could differ significantly from these estimates and assumptions.

4.3 Revenue Recognition and Allowance for Doubtful Accounts

The Business recognizes revenues from sale of goods under unit priced contracts when products are shipped to the customer, the sales price is fixed and determinable; collectability is reasonably assured; and title and risks of ownership have passed to the buyer.

The asset, “Costs and estimated earnings in excess of billings on uncompleted contracts”, represents revenues recognized in advance of amounts billed as included in Trade Accounts Receivable-net in the condensed combined balance sheet. The liability, “Billings in excess of costs and estimated earnings on uncompleted contracts”, represents billings in advance of revenues recognized as included in Accrued Expenses and other payables in the condensed combined balance sheet.

Trade accounts receivable are stated at cost, less allowance for doubtful accounts, when applicable. The allowance for doubtful accounts is calculated based on a risk assessment, which considers historical losses, the individual situation of each customer and the situation of the economic group to which they belong, available collateral and guarantees and the opinion of legal counsel. The allowance is considered sufficient to cover any losses incurred on uncollectible receivables.

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4.4 Inventory

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

4.5 Income Taxes

The Company is required to estimate and record income taxes payable for federal, state and foreign jurisdictions in which the Company operates. This process involves estimating actual current tax expense and assessing temporary differences resulting from differing accounting treatment between tax and book that result in deferred tax assets and liabilities. In addition, accruals are also estimated for federal and state tax matters for which deductibility is subject to interpretation. Taxes payable and the related deferred tax differences may be impacted by changes to tax laws, changes in tax rates and changes in taxable profits and losses.

4.6 Pension Obligations

The Business maintains defined benefit pension plans covering certain of its employees. Annual contributions are made in conformity with minimum funding requirements and maximum deductible limitations. The liability recognized in the balance sheets related to the defined benefit pension plans is the present value of the defined benefit obligation at the balance sheet date less the fair value of plan assets for the defined benefit plans of Tamco. In accordance with the Sale and Purchase Agreement, only the liability related to the Tamco Pension Plan for Hourly Employees will be assumed in the purchase and the Tamco Pension Plan for Salaried Employees will be retained by the Parent.

5. TRADE ACCOUNTS RECEIVABLE, NET

The Business’ Trade accounts receivable balances consisted of the following at:

	September 30,			December 31,
	2018			2017
Trade accounts receivable	$	243,246		$	204,491
Costs and estimated earnings in excess of billings on uncompleted contracts		26,185			19,114
		269,431			223,605
Less: allowance for doubtful accounts		(1,239	)		(2,062	)
Trade accounts receivable—net	$	268,192		$	221,543

Trade accounts receivable includes contract retentions of $29.7 million, of which $17.7 million was unbilled as of September 30, 2018 and $26.6 million, of which $11.6 million was unbilled as of December 31, 2017.

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6. INVENTORIES

Inventories consisted of the following:

	September 30,		December 31,
	2018		2017
Ferrous and nonferrous scrap	$	19,054	$	21,352
Raw materials (excluding scrap) and operating supplies		22,889		35,839
Work-in-process		14,987		20,251
Finished goods		148,462		83,236
	$	205,392	$	160,678

At September 30, 2018 and December 31, 2017, work-in-process inventory consists of semi-finished billets and liquid steel of approximately $14.3 million and $0.6 million and $20 million and $0.2 million, respectively.

For the nine months ended September 30, 2018 and 2017, the Business has recorded inventory write downs of approximately $0 million and $0.2 million, respectively in cost of sales in the statements of operations.

7. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consisted of the following:

	September 30,			December 31,
	2018			2017
Land, buildings, and improvements	$	190,753		$	188,692
Machinery and equipment		598,452			574,622
Furnitures and fixtures		9,510			9,656
Vehicles		14,373			14,622
Construction in progress		10,085			27,869
		823,173			815,461
Less: accumulated depreciation		(548,872	)		(527,395	)
	$	274,301		$	288,066

For the nine months ended September 30, 2018 and 2017, approximately $24.5 million and $0.5 million and $28.0 million and $0.5 million of depreciation expense was charged to cost of sales and selling, general and administrative expenses, respectively, and interest of $0.6 million and $0.6 million was capitalized, respectively.

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8. GOODWILL AND OTHER INTANGIBLE ASSETS

The following table summarizes the changes in the carrying amount of goodwill:

	West		East		Total
Cost at January 1, 2018	$	11,073	$	24,761	$	35,834
Cost at September 30, 2018	$	11,073	$	24,761	$	35,834

In accordance with the Business’s policy to test goodwill for impairment at least annually, the Business tested goodwill allocated to the carve-out Business for impairment as of September 30, 2018 and December 31, 2017. Goodwill from the Parent was allocated to the Business based on the relative fair value of the Business to the Parent’s total fair value. Management determined the consideration to be exchanged defined in the Sale and Asset Purchase Agreement to be the most objective measurement of fair value of the Business. The Business’s reporting units with significant balances of goodwill include the West Coast, which includes the Rancho Cucamonga, California mill and RSW operations, and the East Coast, which includes Jacksonville, Florida, Sayreville, New Jersey, Knoxville, Tennessee and the east coast downstream operations. The reporting units are aligned with the way the Business is managed and the way current oversight is provided. Allocation of goodwill between reporting units is based on relative fair value, which approximates book value. It was determined the carrying amount of the Business’s net assets exceeded their fair value. Accordingly, no goodwill impairment was recognized during the nine months ended September 30, 2018 and 2017.

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The following table summarizes the changes in intangibles assets for RSW and Tamco:

	Customer
	Relationships		Emissions		Total
Cost
At January 1, 2018	$	18,990	$	4,982	$	23,972
At September 30, 2018	$	18,990	$	4,982	$	23,972
Accumulated amortization
At January 1, 2018	$	11,314	$	1,361	$	12,675
Amortization charges		1,000		155		1,155
At September 30, 2018	$	12,314	$	1,516	$	13,830
Carrying amount
At December 31, 2017	$	7,676	$	3,621	$	11,297
At September 30, 2018	$	6,676	$	3,466	$	10,142
Estimated useful lives		13 to 15 years		15 years
Remaining estimated useful lives		3 to 8 years		8 years

For the nine months ended September 30, 2018 and 2017, the Business recorded amortization expense related to its intangible assets of $1.2 million and $1.2 million, respectively. The amortization expense was included in cost of sales in the Business’s condensed combined statements of operations.

9. INCOME TAXES

The Tax Cuts and Job Act was enacted on December 22, 2017, and has several key provisions impacting accounting for and reporting of income taxes. The most significant provision reduces the U.S. corporate statutory tax rate from 34% to 21% beginning on January 1, 2018. Consequently, the Business has recorded a decrease related to net deferred tax asset of $2.6 million, with a corresponding decrease related to the valuation allowance of $2.6 million, resulting in an overall $0 impact to the income statement. The ultimate impact of the Tax Cuts and Jobs Act may differ from the Business’ estimates due to changes in the interpretations and assumptions made by the Business as well as additional regulatory guidance that may be issued.

As of December 31, 2017, the Company has federal and state income tax net operating loss (“NOL”) carryforwards of $27.4 million, which will expire at various dates from 2024 through 2037.

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The Company believes that it is more likely than not that the benefit from the federal and certain state NOL carryforwards will not be realized. In recognition of this risk, the Company has provided a valuation allowance of the full net deferred tax asset amounts at September 30, 2018 and December 31, 2017.

10. RELATED-PARTY TRANSACTIONS

In May 2008, RSW executed a demand promissory note with Gerdau Ameristeel US, Inc., a related party, that allows RSW to borrow up to $60 million at BBA LIBOR plus 1.50% for working capital, capital expenditures, or acquisition purposes. The outstanding balance on the demand promissory note at September 30, 2018 and December 31, 2017 was $59 million and $31 million, respectively. Interest expense on the demand promissory note for the nine months ended September 30, 2018 and 2017 was approximately $1.1 million and $0.1 million, respectively, and accrued interest was approximately $0.2 million and $0.1 million at September 30, 2018 and December 31, 2017, respectively.

At September 30, 2018 and December 31, 2017, the Business had receivables and payables from subsidiaries of the Parent of $0.8 million and $2.9 million and $2.6 million and $3.8 million, respectively. These amounts are reflected in trade receivables and trade payables in the condensed combined balance sheets.

The Business purchases products from and sells products to certain Gerdau Ameristeel Corporation affiliates which are outside of the scope of the Sale and Asset Purchase Agreement. For the nine months ended September 30, 2018 and 2017 such purchases and sales totaled $121.9 million and $18.3 million and $38.0 million and $14.9 million, respectively. Management believes transactions with the Business’s affiliates were on terms similar to those that would be obtained in transaction with unrelated parties.

Additionally, refer to Note 3 for allocation of certain costs and expenses from the Parent and certain of its affiliates.

11. RETIREMENT BENEFIT OBLIGATIONS

The following table details the net periodic pension expense under the Business’ plans for the periods presented:

	September 30,
	2018		2017
Components of net periodic cost:
Service cost	$	653	$	683
Net interest cost		367		522
Net periodic benefit expense	$	1,020	$	1,205

The component of net periodic benefit expense, other than the service cost component for the nine months ended September 30, 2018 and 2017 is presented separately as interest costs on pension benefits, net, in the condensed combined statements of operations. The service cost component for the nine months ended September 30, 2018 and 2017 was included in Cost of sales in the condensed combined statements of operations.

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12. COMMITMENTS AND CONTINGENCIES

Operating Leases—The Business leases various machinery, equipment and real property under noncancelable operating leases. Total rent expense related to operating leases was $13.1 million and $12.7 million for the nine months ended September 30, 2018 and 2017, respectively.

Capital Expenditure Commitments—The Business has contractual purchase obligations for capital expenditures in progress of $5.0 million and $19.7 million as of September 30, 2018 and December 31, 2017, respectively.

Service Commitments—The Business has long-term contracts with several raw material suppliers. The Business typically realizes lower costs and improved service from these contracts. The Business believes these raw materials would be readily available in the market without such contracts.

Environmental Remediation—As the Business is involved in the manufacturing of steel, it produces and uses certain substances that may pose environmental hazards. The principal hazardous waste generated by current and past operations is electric arc furnace (“EAF”) dust, a residual from the production of steel in electric arc furnaces. Environmental legislation and regulation at both the federal and state level over EAF dust is subject to change, which may change the cost of compliance. While EAF dust is generated in current production processes, such EAF dust is being collected, handled and disposed of in a manner that the Business believes meets all current federal, state and provincial environmental regulations. The costs of collection and disposal of EAF dust are expensed as operating costs when incurred. In addition, the Business has handled and disposed of EAF dust in other manners in previous periods, and is responsible for the remediation of certain sites where such dust was generated and/or disposed.

In general, the Business’s estimate of remediation costs is based on its review of each site and the nature of the anticipated remediation activities to be undertaken. The Business’s process for estimating such remediation costs includes determining for each site the expected remediation methods, and the estimated cost for each step of the remediation. In such determinations, the Business may employ outside consultants and providers of such remedial services to assist in making such determinations. Considering the uncertainties inherent in determining the costs associated with the clean-up of such contamination, including the time periods over which such costs must be paid, the extent of contribution by parties which are jointly and severally liable, and the nature and timing of payments to be made under cost sharing arrangements, there can be no assurance the ultimate costs of remediation may not differ from the estimated remediation costs.

The related remediation liability has not been allocated to the Business and has not been presented in the condensed combined balance sheet since the obligation is and will remain a liability of the Parent. Expenses related to remediation are recorded in cost of sales and totaled approximately $8.6 million and $1.0 million for the nine months ended September 30, 2018 and 2017, respectively.

Accrued Workers’ Compensation—The Parent provides workers’ compensation benefits to employees of the Business who suffer injuries while performing their job duties. The Parent is self-insured up to a maximum limit, over which, they are then covered by a third party insurer. Management has made various assumptions and estimates to allocate the expenses and balances related to this policy to the Business. The accrued workers’ compensation liability represents the present value of future expected payouts for both reported claims

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and incurred but not reported claims. Additional accruals or reversals of accruals are recorded in the Business’s condensed combined statements of operations in either cost of sales or selling, general and administrative expenses.

The liability presented in the condensed combined balance sheets represents the balance related to RSW and in accordance with the Sale and Purchase Agreement, such liabilities will be retained by the Parent upon consummation of the transaction.

Changes in accrued liabilities for workers’ compensation activities for the nine months ended September 30, 2018 and 2017 are summarized as follows:

	Workers’
	Compensation
At January 1, 2018	$	7,346
Accrued liability charged to earnings		1,725
Cash payments		(2,059	)
At September 30, 2018	$	7,012

Accrued workers’ compensation liability is included in the following balance sheet lines:

	September 30,		December 31,
	2018		2017
Other current liabilities	$	2,454	$	3,180
Other noncurrent liabilities		4,558		4,166
Total	$	7,012	$	7,346

13. SUBSEQUENT EVENTS

On November 5, 2018, the sale of the Business to Commercial Metals Company was completed for a purchase price of $701.2 million.

The Business has conducted subsequent events review through November 29, 2018, which is the date the condensed combined financial statements were available to be issued.

*  *  *  *  *  *

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