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					We are a
growth
company
$19.72   $22.20         $24.04       $26.18   $29.05



19 95    19 9 6         19 97        19 9 8   19 9 9




                  Equity Per Share
  We are
Commercial
  Metals
 Company
       1999 Annual Report
        3 Financial Highlights
        4 Letter to Stockholders
       16 Manufacturing
       24 Recycling
       28 Marketing and Trading
       35 Financial Review
       65 Directors and Officers
       66 Operations
       68 Divisions and Subsidiaries
Commercial Metals Company and subsidiaries manufacture, recycle and market steel and metal products and related materials
through a network of over 115 locations. The Manufacturing group includes 4 steel minimills, 19 steel fabrication plants, 4 steel joist
plants, a castellated and cellular beam fabricator, 4 steel fence post manufacturing plants, a heat treating plant, a railcar rebuilding
facility, 18 concrete-related product warehouses, an industrial products supply company, a railroad salvage company and a copper
tube mill. Recycling operations include 44 metal processing plants across the Sunbelt. Through its network of 17 trading offices
around the world, the Company markets and trades primary and secondary metals, steel, ores, concentrates, industrial minerals,
ferroalloys, chemicals and industrial products used in a variety of industries.




                    Growth in



.2
  Financial Highlights

                                                                 Year ended August 31,
  (in thousands, except share data)                   1999               1998          % Increase
  Net sales                                    $ 2,251,442           $ 2,367,569                 (5)
  Net earnings                                      47,120                42,714                 10
  Diluted earnings per share                          3.22                  2.82                 14
  Cash flows from operations                        102,870                93,450                 10
  Net working capital                              290,660               247,437                 17
  Cash dividends per share                              .52                   .52                —
  Cash dividends paid                                7,540                 7,717                 (2)
  Average diluted shares
    outstanding                                14,626,540            15,120,786                  (3)
  Stockholders’ equity                            418,458               381,389                  10
  Stockholders’ equity per share                    29.05                 26.18                  11
  Total assets                                  1,078,988             1,002,617                   8


  Consolidated Trends

  (dollars in millions)                               1999              1998                1997                 1996          1995
  Net sales                                      $2,251.4            $2,367.6           $2,258.4               $2,322.4    $2,116.8
  Operating profit                                    94.7                86.1               75.6                   88.7        73.3
  Cash flows from operations                         102.9                93.5               83.2                   89.9        76.6
  Average net assets                                671.2               571.7              519.2                  492.4       421.2
  Return on net assets                               14.1%               15.1%              14.6%                  18.0%       17.4%
  Cash flow return on net assets                      15.3%               16.3%              16.0%                  18.3%       18.2%
  Cash flow return on beginning
   stockholders’ equity                                27.0%              26.3%                24.8%              29.7%           31.6%




revenues, cash flows, and earnings.
                                                                                    Cash Flows
                                          Net Sales                                 from Operations                            Net Earnings
                                                        aggregate                                  aggregate                                 aggregate

                                         15                                         500                                        250
                                      ($ billions)                              ($ millions)             446               ($ millions)            213
                                         12                   11.3                  400                                        200


                                           9                                        300                                        150
                                                                                                   242
                                                        6.7
                                           6                                        200                                        100           98
                                                5.2                                        173                                         87


                                           3                                        100                                         50


                                           0                                           0                                          0
                                               85-89 90-94 95-99                           85-89 90-94 95-99                          85-89 90-94 95-99




                                                                                                                                                     3.
To o u r s t o c k h o l d e r s




         We have completed another successful year at Commercial Metals Company, a year of record net income and earnings
         per share. Indeed, despite extremely challenging global market conditions, which also impacted our businesses in
         the United States, the Company achieved a 14% increase in earnings per share and its 88th consecutive quarter
         of profitability. It is a proud record of growth—growth in earnings per share, growth in equity per share and,
         most notably, growth in manufacturing, recycling and marketing strength. Our overriding focus on systematic
         growth plays a key role in the Company’s success. Across all lines of business we are committed to expanding
         opportunities in capacity, in output and in product lines. And the successes of the past year leave the Company in
         an excellent position to continue our positive growth trends.
Our commitment to strategic growth produces strong results.
         For the year ended August 31, 1999 your Company reported net earnings of $47.1 million or $3.22 per diluted
         share on sales of $2.3 billion. This compares with net earnings of $42.7 million or $2.82 per diluted share on
         sales of $2.4 billion for the year ended August 31, 1998. Cash flow from operations for the year was a record $103
         million or $7.03 per diluted share compared with $93 million or $6.18 per diluted share the previous year.
         Earnings for the fourth quarter were a record $16.7 million or $1.15 per diluted share, compared with $14.9 mil-
         lion or $1.00 per diluted share in the same period last year.
Record profits for Manufacturing segment.
         Our Manufacturing segment reported record earnings despite weaker steel mill prices stemming from low-priced
         steel imports as well as construction interference and start-up costs associated with our major capital projects.
         These factors were partially offset by income from settlements on the graphite electrode antitrust litigation. We
         otherwise enjoyed healthy demand and benefited from our vertical integration and lower raw material costs plus
         excellent profits from our copper tube business. Operating profit for the segment was 12% higher than last year
         although net sales were 2% lower.
Steel minimills combat a transition year.
         Operating profit for our four steel minimills combined was 13% below the record fiscal 1998. Although under-
         lying demand was strong, shipments declined 16% to 1.7 million tons while production levels were down
         comparably because of the capital projects and unprecedented import levels. Conversely, our margins were aided
         by lower scrap prices. While our average mill selling price was $23 per ton below last year, average scrap purchase
         costs were lower by $37 per ton. SMI-Texas continued to produce our strongest results.
Major capital projects have increased steel mill capacity.
         At our steel mills the major capital projects for fiscal 1999 were completion of the new Danieli rolling mill and
         ancillary equipment at SMI-South Carolina and the new finishing line at SMI-Alabama. Start up began during
         April 1999 and June 1999, respectively. The South Carolina project ultimately will more than double capacity to
         800,000 tons, reduce costs and broaden significantly the product range. At Alabama we will improve quality,
         enhance efficiency and extend the product line. These investments will materially strengthen our position and
         profitability in the Southeast and South Central U.S.A.
Strong growth continues for steel fabrication.
         Fiscal 1999 was a record year in our downstream steel fabrication businesses. Net sales and operating profit were
         higher than the previous records set in 1998 with strong performance except for significant losses sustained in some
         large and complex structural steel jobs. Fabricated steel shipments totaled 841,000 tons, slightly above last year.




.4
       The average fab selling price rose $17 per ton, partially due to product mix. During the         Net Earnings
                                                                                                                           ($ millions)
       third quarter we acquired substantially all of the assets of Construction Materials, Inc.,
       headquartered in Baton Rouge, Louisiana, which complements our Shepler’s group                    50
                                                                                                                                    47
                                                                                                                     46
       concrete-related products business. Additionally, our new castellated and cellular beam                                 43
                                                                                                         40   38          39
       product line progressed nicely as an adjunct to our steel joist business.
          We plan to continue our growth in rebar fabrication, joists, specialty beams, niche
                                                                                                         30
       applications of structural steel, fence posts, concrete-related products, heat treating
       of steel and other related fabricated steel products and components.                              20

C MC Steel Group outlook generally is positive.
                                                                                                         10
       We anticipate higher sales, production and shipments in fiscal 2000. However, mill
       profits are likely to be down because of a weaker first half due to continued ramping       0
       up at South Carolina and Alabama, weaker pricing from a less favorable product mix           95 96 97 98 99


       and continued high imports. Increased profits in steel fabrication should result from
       turnarounds at several operations that performed poorly in fiscal 1999, but again the
       improvement should be reflected in the second half. Our mill output should increase as we move along the
       learning curve with our new production lines, and our average selling price should benefit from the broadened
       product line. Our Steel Group computer migration project is substantially complete and costs will decline to
       maintenance levels.
Production and earnings up for Copper Tube Division.
       It was an excellent year for Howell Metal Company—our copper tube minimill—including very good spreads
       as well as record production and shipment levels. We have benefited from the attrition of copper water tube sup-
       pliers during recent years. The principal economic driver remains housing starts, and residential construction
       remained strong during fiscal 1999. One of our biggest challenges in the marketplace is to continue to adapt to
       the consolidation among our buyers.
          We are building on our strength—both in marketing and operations—including a significant addition to our
       plant in Virginia. Meanwhile, production and shipments should keep climbing.
Recycling segment’s efforts hampered by difficult market conditions.
       The Secondary Metals Processing Division (SMPD) reported a larger loss than last year, although the division was
       profitable in the fourth quarter and cash flow from operations was positive for the year. Together with very weak
       markets for ferrous and nonferrous scrap, the failed consolidation of the industry had a major negative influence
       on profitability this past year. The poor markets were reflected in a 27% drop in net sales. Processing costs were
       down but margins fell even further.



                             19 9 9 Ne t Sal e s                                    19 9 9 Opera ting Prof it (L oss)




                                                     Marketing 34%

       Manufacturing 53%                                             Manufacturing 83%

                                                                                                                     Marketing 22%



                                            Recycling 13%                                           Recycling - 5%




                                                                                                                                          5.
          The average price of steel scrap fell by $33 per ton to $90 and ferrous scrap volume was 3% lower.
       Consequently, ferrous scrap operations were unprofitable even though costs were reduced. Nonferrous prices, on
       the other hand, stabilized in a trading range, shipments increased by 4% and our nonferrous operations were
       slightly profitable. The regional management concept adopted last year worked well. Operating costs are lower,
       inventories are at low levels and prices have increased—especially nonferrous scrap—after sharp declines over
       the past 12–18 months.
          In fiscal 1999 a number of operational improvements continued to be made including installation of a new
       shear in Houston, which started up during late August 1999.
          Total volume of scrap processed in fiscal 1999, including our CMC Steel Group operations, hit a record 2.04
       million tons.
Recycling segment looks ahead to enhanced operations and improved demand.
       Both ferrous and nonferrous operations should be profitable in fiscal 2000. The fourth quarter of fiscal 1999 was
       much better than the corresponding period in fiscal 1998. Scrap prices appear to be relatively firm at prevailing
       levels and demand is expected to pick up overseas as well as by U.S. consumers of scrap. As indicated above, we
       are poised to capitalize on better markets and to continue our turnaround at underperforming facilities.
Marketing and Trading segment turns in another solid year.
       We continued our consistently good performance in this segment. Operating profit was 10% higher than last
       year, another remarkable performance in the face of the Asian crisis, the Russian crisis and the Latin American
       crisis. Steel prices were substantially below last year and gross margins in steel marketing and distribution as well
       as steel trading remained tight. Anti-dumping activity and other forms of protectionism around the world
       continued to affect the flow of products. Nevertheless, our sales into the United States and Europe increased and
       compensated for the decreased sales into Asia. We achieved further market penetration in highly competitive
       markets for nonferrous metal products and maintained profitability through product line expansion. Profits were
       moderately lower for industrial raw materials and products but shipments generally were higher. Our
       participation in the marketing of ferrous raw materials continued to grow. Furthermore, we were able to achieve
       our profit level in the segment because of effective cost controls.
Marketing and Trading segment cultivates growth in products, customers and suppliers.
       We continued to diversify and build our business in new product and geographic areas, and added key personnel
       throughout the segment. Our business encompasses marketing and distribution as well as indent trading,
       including expanded just-in-time services. Our regional trade continues to grow. We also have been increasing our
       presence in the processing of the materials and products we buy and sell. Marketing and trading functions
       continue to evolve and we have been a leader in instituting changes. We continue to build our strategic alliances
       among suppliers and customers.
Capital investments play a key role in growth plans.
       Capital expenditures in fiscal 1999 were a record $142 million, and for the past two years totaled a record $262
       million. The capital plan for fiscal 2000 is down by nearly half—the pause that refreshes—as we begin to reap
       the rewards of our investments, particularly in steel manufacturing. Growth in steel fabrication will constitute a
       significant portion of our spending in fiscal 2000.
          The planned expansion at Howell Metal Company will increase copper tube output by nearly 50%, increase
       automation, reduce our finished goods purchases, improve productivity and increase our sales for HVAC
       applications as well as water tube.
          Recycling should benefit as well from plant and equipment improvements made during the past several years
       including shredders, shears and balers.




.6
Financial highlights include record equity and financing achievements.                               Cash Flows
                                                                                                                       ($ millions)
       Commercial Metals Company’s financial condition remains sound. At the end of fiscal
       1999 our stockholders’ equity rose to $418 million or $29.05 per share. Net working          120

       capital was $291 million and the current ratio was 1.8. Long-term debt as a percentage                        103
                                                                                                    100
                                                                                                                 93
       of total capitalization stood at 37.5% while the ratio of total debt to total capitalization        90
                                                                                                              83
       plus short-term debt declined to 39.6%. The net income return on beginning equity             80 77


       was 12.4% and the cash flow return on beginning equity was 27.0%.                              60

          During the year we consummated several key elements of our financing require-
                                                                                                     40
       ments. This included another $100 million public offering of investment grade,
       unsecured 6.75% ten year notes. We added a $60 million unsecured revolving bank               20

       credit facility to bring our contractual bank lines up to $100 million. Concomitantly,         0
                                                                                                        95 96 97 98 99
       we expanded our investment grade commercial paper to $100 million and added one
       seller to our program. (The revolver serves as backup for the commercial paper pro-
       gram.) These moves provide us significantly increased short-term borrowing capacity
       and flexibility. In addition, we have numerous informal borrowing lines with banks around the world for corporate
       and trade finance purposes.
          We also were successful with our working capital reduction program.
Increased U.S. construction activity leads near-term growth opportunities.
       Despite the continued high level of low-priced steel imports into the U.S., which will continue to affect prices of
       our mill products, demand for our steel remains strong and manufacturing margins should be good. The
       outlook for steel fabrication also is favorable. The increased infrastructure spending under The Transportation
       Equity Act for the 21st Century (TEA-21) should be very beneficial. The copper tube market is robust. The
       lengthy bear market cycle for scrap metals appears to have abated. The pickup in global trade should be
       positive for marketing and trading. Overall, the outlook is challenging but positive, with the second half of fiscal
       2000 expected to be better than the first half.
C MC is well positioned to exploit long-term opportunities.
       We are poised to move to the next level in revenues and net income at our steel mills. Our mills are versatile,
       flexible, highly productive and high quality. Finished product capacity at our combined mills has increased to 2.3
       million tons. Steel fabrication will continue to be an essential element of our vertical integration strategy and a
       growing part of our overall business. Our strong regional position in the copper tube industry is a solid building
       block for further market penetration. We believe that long-term demand for scrap will continue to grow, and our
       volume will increase at existing operations. Our capital expenditures over the past five years have enhanced
       significantly our capability to process high quality scrap in an efficient manner.


                      19 9 9 C ap i t al E xp en d i t u res                  19 9 9 Deprecia tion a nd A mor tiza tion




       Manufacturing 92%                                            Manufacturing 75%



                                                                                                                  Recycling 23%


                                                Recycling 5%
                           Marketing 3%                                                            Marketing 2%




                                                                                                                                      7.
         In the Marketing and Trading segment we entered the new year with a revised organizational setup, i.e., the
       segment has its own president for the first time. Among other benefits, the new structure should lead to more
       unity, greater synergies and even better risk management while maintaining the entrepreneurial spirit. We will
       continue our evolution toward more marketing and distribution; however, we will maintain a strong presence in
       the trading or indent side of the business. We will also further our efforts on value-added businesses whereby we
       broaden our product range and provide more services to the customer and the supplier.
Commitment to growth is a critical component of future success.
       CMC’s history goes back more than 80 years. By all key measures we are an extremely successful company. And we
       believe there still is much more for us to achieve. We are committed to creating long-term growth and building
       earnings power through continuous internal improvements, a focus on cash flow, strong regional positions and a
       superior management team. In the past two years we have taken major steps to boost capacity, increase our
       output, expand our product lines and add value downstream. We will continue to identify and exploit these
       opportunities, as they are crucial to growing the Company and your shareholder value.
A tribute upon the retirement of Lawrence A. Engels.
       In April, Lawrence A. Engels retired from the Company as vice president, treasurer and chief financial officer after
       twenty-two years of distinguished service. CMC achieved many milestones in corporate and trade finance under
       his leadership. Larry is a man of great integrity and is missed by his colleagues.
Cautionary statement concerning forward-looking comments.
       This letter to stockholders contains forward-looking statements regarding the outlook for the Company’s finan-
       cial results including product pricing and demand, capacity increases, efficiency improvements and general
       market conditions. There is inherent risk and uncertainty in any forward-looking statements. Variances will
       occur and some could be materially different from management’s current opinion. Developments that could
       impact the Company’s expectations include interest rate changes, construction activity, unanticipated start-up
       expenses and delays, metals pricing, over which the Company exerts little influence, increased capacity and
       product availability from competing steel minimills and other steel suppliers including import quantities and
       pricing, global factors including credit availability, currency fluctuations and decisions by governments
       impacting the level and pace of overall economic activity.




                                                                                     Stanley A. Rabin
                                                                                     Chairman, President
                                                                                     and Chief Executive Officer

                                                                                     November 4, 1999




.8
For CMC,
growth comes in many forms
and never stops. We’ve spent $262 million to expand our facilities—an expansion that will

mean growth in capacity, growth in output, growth in earnings, and growth in cash flow. We’re

also growing in talent and skill, more than doubling our number of people in the past ten years.

And we’re growing in the services we can provide as well, by acquiring complementary new

businesses that expand the scope of our three business segments —Manufacturing, Recycling,

and Marketing and Trading. The fact is, CMC, a company more than 80 years old, has never

stopped growing. We are a growth company, with growth in equity per share, steady growth

in revenues over five-year cycles, and solid, consistent performance, including more than two

decades of continuous profits. That’s where we are coming from, and where we are going is

just as exciting. Our business is steel and other metals and their related products, which puts

us at the heart of the growth in infrastructure and construction all over the world. For CMC,

our record of growth, and our promise of growth into the future, are as strong as steel.
      Increasing
      output
      is the primar y goal of our current expansion projects. As capacity is added, fabricated

      steel shipments should exceed current record levels; net income and cash flow grow th

      are also expected in the years ahead. We have recently completed a $262 million commit-

      ment to expenditures at our facilities, including two major projects that will strengthen

      C M C ’s position in the S outh Central and S outheastern regions of the United St ates.

      Specifically, the new rolling mill at S M I - S outh Carolina will double capacity, reduce

      costs, and broaden our product range, while the finishing upgrade at S M I -Alab ama will

      broaden our product offerings, improve quality and enhance the Company’s efficiency.




.10
Mill capacity will be increased


           to 2.3 million tons.




                                  Copper tube expansion will


                                  increase volume 50% and broaden


                                  the product mix.
      Acquiring and
      integrating
      complement ar y businesses translates into a grow th in ser vices and new sources of

      revenue. But it isn’t grow th for grow th’s s ake alone. Careful planning and analysis

      ensure that any new development fits into the Company’s overall strategic plan. For

      example, the acquisition of three auto s alvage operations in Florida helped strengthen

      our Recycling segment’s position in the S outheast. And a joint venture with a Central

      European steel mill brought expanded sourcing channels and new international

      s t r e n g t h . We c o n t i n u e t o s e e k o p p o r t u n i t i e s a c r o s s a l l t h e C o m p a n y ’ s b u s i n e s s

      segments that suppor t our goal of growing C M C and increasing shareholder value.




.12
                                                                Our Marketing and Trading segment is

                                               2000
                                                                evaluating alliances worldwide that support


                                                                our strategic plan.




        CMC’s acquisition of Construction

                                                       19 9 9
Materials, Inc., significantly expanded our


   construction-related product offerings.




                                                                      Over 100,000 tons of metals recycling


                                                                      capacity was added with the
                                              19 9 8
                                                                      acquisition of Central Non-Ferrous, Inc.
      Talent and
      skill
      have grown dramatically at CMC, as the numbers of our people have grown, from

      3 4 0 0 t e n y e a r s a g o t o m o r e t h a n 76 0 0 t o d a y. We c u l t i v a t e t a l e n t t h r o u g h a c o n t i n u -

      ing emphasis on training, teamwork and process development. As new people join

      t h e C o m p a n y, t h e y a r e i n t r o d u c e d t o C M C ’ s s u c c e s s f u l o p e r a t i n g p h i l o s o p h i e s .

      Fr o m m a n a g e m e n t d e v e l o p m e n t c o u r s e s t o c o m p u t e r - b a s e d t r a i n i n g f o r e m p l o y e e s ,

      the Company is committed to education and training as keys to continued grow th.




.14
    We have more than doubled the number


of our people over the past 10 years through


          acquisitions and internal growth.
                                           Manufacturing



        [ CMC Steel Group ] The CMC Steel Group is                              Group that contributed to this year’s performance
        a vertically integrated family of companies in                          and are building a stronger foundation for
        over fifty locations from Pennsylvania to                               future years are: • succession planning to build
        Nevada. The CMC Steel Group consists of four                            a core of dedicated and knowledgeable employ-
        steel minimills, nineteen steel fabrication                             ees • building stronger customer relationships
                                                         Mar vin Selig
        plants, four steel joist plants, a castellated and Chairman and
                                                                                by striving for excellence in customer service
        cellular beam fabricator, four steel fence postChief Executive Officer, that is built on a history of dependable and reli-
                                                         CMC Steel Group
        manufacturing plants, a heat treating plant, a                          able performance • continued sales training and
        railcar rebuilding facility, an industrial prod-                        development to maximize sales opportunities
        ucts supply company, eighteen concrete-related                          and strengthen long-term relationships with
        product warehouses, eight scrap processing                              strategic customers • commitment to quality
        facilities, and a railroad salvage company.                             as shown by the ISO certification at our
                                                                                Birmingham, Alabama, and Seguin, Texas steel
        [ Fiscal 1999 Successes and Initiatives ]        Clyde P. Selig         minimills • continued safety training and prac-
                                                            President and
        The CMC Steel Group achieved its best year Chief Operating Officer, tice as exemplified by SMI-Texas reaching one
        ever, driven by continued strong demand from     CMC Steel Group        million man hours without a lost time accident
        construction markets. With top quality                                  in 1999 and several other locations achieving
        employees, strong training programs, and an                             multiple years without lost time accidents
        abundance of persistence, the CMC Steel Group was • very successful efforts to improve asset management
        able to meet and overcome many challenges, including and cash flow at all CMC Steel Group locations, primar-
        the surge of low-priced imported steel. Several large ily through lowering inventories and improving
        capital projects were completed and commissioned.            collections • continuing in-house education and training
          Significant ongoing programs within the CMC Steel programs to improve technical and business skills.




                       The CMC Steel Group achieved its
      best year ever, driven by continued strong demand
                                 from construction markets.


.16
            N e t Sal es                                Operating Prof it                       Capit al Ex penditure s

         Manufacturing 53%                              Manufacturing 83%                         Manufacturing 92%




               19 9 9                                         19 9 9                                      19 9 9




         Rest of CMC 47%                                Rest of CMC 17%                            Rest of CMC 8%




CMC’s Manufacturing segment is located in areas of the countr y that are experiencing strong construction
                             activity, which creates increased demand for our products.




            Steel Manufacturing         Processing                     Railway Services       Construction Supply Products

            Steel Fabrication           Copper Tube                    Concrete-Related       Steel Joist Plants
            and Warehousing             Manufacturing                  Products Warehousing
                                                                                              Fence Post Manufacturing
                                                                       Railroad Salvage
                                                                       Company                Heat Treating
 Manufacturing Segment


 (dollars in millions)                         1999                     1998                 1997                  1996                 1995

 Net Sales                                  $1,206.0                $1,233.9              $1,083.0              $1,017.9            $912.7
 Operating Profit                                83.8                    74.8                  54.8                  61.8              54.4
 Cash Flows                                     95.0                    86.1                  67.9                  72.4              61.9
 Average Net Assets                            501.1                   423.9                 363.9                 336.9             292.7
 Return on Net Assets                           16.7%                   17.6%                 15.1%                 18.3%             18.6%
 Cash Flow Return on Net Assets                 19.0%                   20.3%                 18.7%                 21.5%             21.2%




            [ Minimills ]  The four minimills in the CMC Steel new ladle metallurgical station. Though sales growth
            Group faced a much different year in fiscal 1999 than was impacted negatively by steel imports, the South
            in their record production and profits year in fiscal Carolina mill’s profit performance exceeded plan. The
            1998. Though markets remained relatively strong, new mill has the most up-to-date electrical and mechan-
            large volumes of steel imports caused a downturn in ical features of any bar mill in the world today. It is
            pricing and production levels. Even though our mills’ highly automated and runs faster, has greater heating
            steady and consistent growth in sales and production capacity, and changes product even faster than the
            output was tempered in fiscal 1999, the mills still Company’s Texas mill. The SMI-Texas mill has been
            managed good profitability levels.                                 continually updated and is also one of the most flexible
               The weak scrap market that reduced margins in the and productive merchant bar mills in the world.
            Company’s Recycling segment allowed better margins                    With the installation of a modern automated finish-
            for the Company’s steel mills. By focusing on employee ing line, SMI Steel Inc. in Birmingham, Alabama, took
            development, facility improvements, safety and quality a major step in 1999 to improve production capacities,
            performance, and market development, each mill made efficiency, and product quality, as well as to broaden its
            significant progress in preparing for future opportunities. product line. The Birmingham mill also continued its
               Significant 1999 accomplishments at SMI-Texas emphasis on people development with its SMI Lifetime
            were the upgrading of Melt Shop facilities, including a Education (SMILE) training center and process improve-
            new EBT furnace shell to accommodate 120-ton heats, ment with its CPQI (Change Process for Quality
            and the installation of a new 750,000                                            Improvement) program.
            cfm pulse jet baghouse system to handle                                            The SMI Steel-Arkansas management
                                                              C M C Steel Mills
            increased production levels and assure                                           and steelmaking team responded to
                                                                     (tons in millions)
            the Company maintains its leading edge                                           weak rebar markets by broadening their
            environmentally.                                  2000
                                                                        1.9
                                                                              2.0            product line. In addition to continuing
                                                                              1.9
               In April, SMI Steel-South Carolina suc-        1600      1.8         1.7      their role as the nation’s leading pro-
                                                                                    1.6
            cessfully commissioned one of the most                                           ducer of steel fence posts through its
                                                              1200
            flexible and efficient bar mills in the                                          Southern Post Company plants, the
                                                               800
            world. Thanks to a well-trained and                                              Magnolia rail-rerolling mill increased
            motivated team, mill start-up perfor-              400                           shipments of angles and developed new
            mance has been exceptional. The focus for            0      1.6 1.7 1.4
                                                                                             products. The availability of rail stock
            fiscal 2000 will switch to improving                     97 98 99
                                                                                             through SMI Rail has continued to be
            melting capacities with the addition of a         n Melted n Rolled n Shipped    beneficial to its operation.




.18
 Castellated beams, which are used in parking garages and multi-story office buildings, are manufactured by SMI Steel Products, Hope, Ark.




               CMC Steel Group companies enter
fiscal 2000 with healthy backlogs, a continued
    strong U.S. economy, and great optimism.




                                                                                                                                            19.
      A pulpit operator monitors the line at our new st ate-of-the-art rolling mill in Columbia, S.C., which was commissioned in April.




.20
   [ Joist Division ]    Sales, production, and                                 almost 34% over last year and significantly
   income hit record levels at all locations as                                 increasing profits.
   SMI Joist continued building its reputation                                     SMI Owen Steel, the largest structural steel
   for customer service. Improvements in pro-                                   fabricator in the CMC Steel Group, had sev-
   duction efficiencies, record production                                      eral large complicated jobs that strained both
                                                        Hugh M. Ghormley
   levels, and a significant increase in sales, pri-           President,
                                                                                production capacity and project management
   marily in retail and public buildings,                  Fabrication Plants   capabilities which resulted in unsatisfactory
                                                           CMC Steel Group
   brought record profits for the joist division.                                performance. Significant efforts are underway
      SMI Steel Products, a manufacturer of castel-                             to redirect the business.
   lated and cellular beams, had its start up late
   in the fiscal year. Initial sales for use in parking garages, [ Concrete-Related Products ] Construction Materials,
   multi-story office buildings, and mezzanines have pro- Inc. (CMI) joined the CMC Steel Group’s construction-
   duced a good backlog. The castellated and cellular beams related products group midway through the fiscal year.
   are a product that compliments the joist business and CMI has a 47-year history of serving the construction
   is manufactured in a new facility at Hope, Arkansas.                industry and currently has five locations throughout




The CMC Steel Group’s fabricators of reinforcing steel
                               had an outstanding year.

   [ Rebar and Structural Steel Fabrication ]    The fabri-
   cation branches enjoyed record success in 1999. A
   continued strong U.S. construction market, solid cus-
   tomer relationships, production efficiencies and high
   quality products and services allowed the fabrication
   division to realize all-time record sales, tons shipped,
   and profits.
      The CMC Steel Group’s fabricators of reinforcing            C M C Steel Group Executive Vice Presidents
                                                                  (left to right) Jeff Selig, Russ Rinn
   steel had an outstanding year, reaching new levels of
   sales and profitability. Every rebar fabricator increased
   their profits from last year and several of them set all-
   time records for sales and profits. Many locations
   achieved record production with essentially the same
   facilities and manpower as last year.
      Almost all of the CMC Steel Group’s structural busi-
   nesses had a successful fiscal 1999. In the east, South
   Carolina Steel and SMI Florida Steel both set new
   records for sales and profits. In the west, Sterling Steel      S M I-Alab ama Management Team

   increased sales and profits over last year, while Alamo         (Standing left to right) Ron Collins, Alex Hrechko

                                                                  (Sitting left to right) Ray Bauer, Dolph Morrison, Bob Unfried
   Steel smashed their prior records by increasing sales




                                                                                                                                   21.
      Louisiana and one in Gulfport, Mississippi.                                     with challenges like 1999. Despite the surge of
        Shepler’s had a sensational year with a 21%                                   steel imports, the CMC Steel Group companies
      increase in sales and a 76% increase in profits.                                 enter fiscal 2000 with healthy backlogs, a con-
      With the addition of CMI and a new warehouse                                    tinued strong U.S. economy, and great
      in Lubbock, Shepler’s is well positioned for                                    optimism. With the ongoing emphasis on
                                                          Dolph C. Morrison
      growth with eighteen locations. In total, the       Executive Vice President,
                                                                                      training, teamwork, efficiencies in production,
      concrete-related products group had a 35%              CMC Steel Group          and cash flows, CMC Steel Group companies
      growth in sales and an increase in profits of 91%.                               remain well positioned and flexible to excel in
                                                                                      any market condition.
      [ Scrap Yards ]   The depressed prices and low
      volume seen in the national and global scrap                             [ Howell Met al Company ] Howell Metal
      business have also affected our scrap yards.                             Company manufactures copper tubing for the
      However, despite lower prices and lower                                  plumbing, air conditioning and refrigeration
                                                           A. Leo Howell
      volume, CMC Steel Group yards remained                                   industries. This fully integrated copper min-
                                                              President,
      profitable due to efforts started last year. Howell Metal Company imill utilizes both secondary and virgin copper
      Improved efficiencies, lower costs, and                                  in the manufacturing process. The copper is
      expanding product offerings such as a used                               melted, cast, extruded and drawn into water
      auto parts yard at Lexington and a new and                               and refrigeration tubing.
      used steel warehouse at Austin helped keep the scrap               Housing starts continued to show strength, while
      yards in the black.                                            interest rates remained attractive throughout fiscal 1999.
                                                                     Demand for water tubing has been strong throughout
      [ Additional Operations ] Allegheny Heat Treating had          the period resulting in record shipments of over 51 mil-
      a successful year even though profits were down lion pounds and doubling of operating profit.
      slightly as a significant expansion project hindered                Howell Metal has started a storage facility that is the
      production and shipments. However, sales still hit an all cornerstone of a two to three year expansion program.
      time high, up 6% from last year. Profits were down as The second phase will include capacity increases in
      construction expenses and interference lowered profits drawing, finishing, extrusion and casting. The extru-
      13%. The building addition and new equipment will sion, drawing and finishing facility will enable us to
      effectively double the production capacity of the Chicora operate at 30% savings in our highest demand produc-
      facility and allow for entry into new market segments.         tion. The new facility will reduce the items we
         Safety Railway finished closing the Tulsa facility currently purchase by 90%. Expanded production will
      early in the year and is now concentrating on increas- reduce our exposure in the market for large and small
      ing production capacity and improving efficiency at diameter tubing needed to complete our product mix,
      the Victoria location.                                         increasing profits and minimizing our dependence on
                                                                     competitors.
      [ Outlook ] The CMC Steel Group’s system of vertically             Increased productivity and modernization of the
      integrated steel businesses from scrap to steel to value- mill will be key areas of emphasis next year. Our out-
      added products delivered to our customers continues look for next year is very positive given current market
      to enable it to achieve good results even in years filled conditions.




.22
    CMC’s copper minimill in New Market, Va., manufactures copper tubing for use in the plumbing, air conditioning and refrigeration industries.




            By focusing on employee development,
facility improvements, safety and quality performance,
 and market development, each mill made significant
    progress in preparing for future opportunities.


                                                                                                                                                   23.
                                                Recycling



      [ Secondary Metals Processing Division ]                                of fiscal 2000. It will replace an older and
      The Asian economic crisis persisted into fiscal                          much smaller 900-ton Harris shear. We also
      1999 with resulting weak commodity prices.                              installed a 500-ton shear/baler at our Ocala,
      The failed consolidation of the industry added                          Florida, operation. This latter shear will help
      instability to the market. It was during only                           support our Jacksonville shredder by supply-
      the last quarter of fiscal 1999 that we started Harr y J. Heinkele ing loosely baled, light gauged ferrous scrap.
                                                             President,
      to see conditions improve. Our fourth quarter       Secondary Metals      The domestic electric furnaces in the steel
                                                         Processing Division
      finished in the black, and we finished the fiscal                          industry have improved their operating rates.
      year with positive cash flow.                                            The current low 80 percent utilization is
         During this fiscal year, we made no process-                          expected to move toward the mid-80 percent
      ing plant acquisitions. Our growth during this year was rate before the summer of 2000. In addition, various
      internal. We have significantly increased our productiv- domestic steel companies are adding to existing capac-
      ity by cost containment measures and selective capital ity. While this bodes well for scrap and scrap
      expenditures. This resulted in increased processing substitutes, ultimately steel products are world com-
      capabilities at various locations. We are completing the modities. The final utilization of scrap or scrap
      installation of a 1,225-ton Harris shear for processing substitutes is still dependent upon the need for steel
      steel scrap in our Houston, Texas facility. This is the products, which should continue to grow.
      same size shear placed in Odessa, Texas, last year. The            Some of the primary nonferrous industry is now
      Houston shear will be operational during the early part going through consolidation. We do not think it will




                   We have significantly increased our
      productivity by cost containment measures and
                          selective capital expenditures.




.24
            N et Sal e s                       Opera ting Prof it                  Capit al Ex penditur e s

          Recycling 13%                          Recycling -5%                         Recycling 5%




              19 9 9                                 19 9 9                                 19 9 9




         Rest of CMC 87%                      Rest of CMC 105%                       Rest of CMC 95%




The capacity of the Recycling segment was significantly expanded with the opening of a new shredder in
                           Jacksonville, Fla., your Company’s eighth shredder.




                                            Secondary Metals        Feeder Yards
                                            Processing
Recycling Segment


(dollars in millions)                                             1999                    1998              1997              1996                 1995

Net Sales                                                      $301.9                    $414.9           $484.6             $464.2           $511.1
Operating Profit                                                  (5.0)                     (1.4)             7.6               12.1             11.3
Cash Flows                                                        8.5                      10.6             14.6               17.4             15.9
Average Net Assets                                               92.9                      90.5             79.7               75.6             82.4
Return on Net Assets                                             NA                         NA               9.5%              16.0%            13.7%
Cash Flow Return on Net Assets                                    9.1%                     11.7%            18.3%              23.0%            19.3%




                                                                                                For our own business, we have added confidence
                                                                                             that the new millennium will continue to see good
                                                                                             demand for our products. The economic improvement
                                                                                             in Asia and Europe should also return the flow of
                                                                                             scrap to its historic markets. The recent Federal
                                                                                             Reserve tightening may help keep inflation in check,
                                                                                             and domestic business should remain robust. With
            Secondar y Met als Processing Division Management Team                           firming prices, continued good demand and some
            (Standing left to right) Jim Vermillion, Larry Olschwanger, Chuck Grossman
                                                                                             industry rationalization, the Recycling segment
            (Sitting left to right) Alan Postel, Larry Nance, Bob Melendi, Rocky Adams
                                                                                             should return to profitability.

            have any major impact on the scrap processing busi-
            ness. Both industries serve the consumer now and will
            continue to do so in the future. In the case of supply
            overlap, this will persist with the market dictating the
            ultimate source.




                            For our own business, we have added
       confidence that the new millennium will continue
                             to see good demand for our products.




.26
Thousands of car bodies are shredded each year at C MC’s scrap processing facilities, which are located throughout the Sunbelt.




                                                                                                                                  27.
                            Marketing and Trading



        [ International Division ]     The International                        economic conditions improved.
        Division is involved globally in the marketing                             Our Australian operations had a good year.
        and trading of steel. As well, in certain mar-                          The heat treatment plant continued to improve
        kets such as Australia, we market and                                   its earnings. The steel market was strong, in
        distribute industrial products, raw materials                           part because of construction activity for the
                                                          Murray R. McClean
        and special metals.                                President, Marketing
                                                                                Sydney Olympic Games in September 2000.
           In fiscal 1999, the International Division and Trading Segment           The outlook for fiscal year 2000 is positive
        had a solid earnings performance. The impact                            for the International Division as global
        of the Asian crisis was still a major factor with                       demand for steel and commodities continues
        international steel and commodity prices                                to improve.
        reaching twenty year lows during the first half
        of 1999. Prices have recovered modestly since                           [ Commonwealth Met al ] Commonwealth
        the third quarter.                                                      markets a broad spectrum of metal products
           Our operations in Europe had mixed               Kevin Aitken        and services to large distributors and original
                                                                President,
        results. Some markets were adversely affected International Division equipment manufacturers throughout North
        by the flood of steel imports from Asia. Other                           America. From supply partners around the
        markets were more resilient. The protectionist                          globe, CMC offers a wide array of aluminum,
        activities in Europe increased with anti-                               copper, and nickel alloys in many shapes and
        dumping investigations proceeding on certain                            sizes required by industry. Commonwealth’s
        steel products imported from mainly Asian countries.           full suite of services, including technical support and
           In Asia we benefited from sourcing opportunities as innovative delivery programs, enable our customers to
        a result of the Asian crisis. During the second half of secure ready and reliable access to the most capable
        fiscal 1999 we increased our sales activities into Asia as and competitive sources worldwide.




      The outlook for fiscal year 2000 is positive for the
                International Division as global demand
      for steel and commodities continues to improve.



.28
             N e t Sal e s                            Opera ting Prof it                     Capit al Ex penditure s

           Marketing 34%                               Marketing 22%                               Marketing 3%




               19 9 9                                       19 9 9                                     19 9 9




          Rest of CMC 66%                            Rest of CMC 78%                              Rest of CMC 97%




The Marketing and Trading segment adds value to its distribution activities with special physical operations
                             in key areas, including a heat-treating plant in Australia.




                                   Marketing and Trading        Representative Offices   Agents
Marketing and Trading Segment


(dollars in millions)                          1999                 1998                 1997                1996                   1995

Net Sales                                    $801.6                $788.5              $758.2              $890.0              $749.2
Operating Profit                                22.6                  20.6                17.6                17.7                17.6
Cash Flows                                     14.2                  12.5                10.9                10.5                12.6
Average Net Assets                            131.5                 114.5               110.6               102.1                93.0
Return on Net Assets                           17.2%                 18.0%               15.9%               17.3%               18.9%
Cash Flow Return on Net Assets                 10.8%                 10.9%                9.9%               10.3%               13.5%




               In fiscal year 1999 Commonwealth posted                             [ Cometals ] Fiscal 1999 was another excel-
            record volume sales with metal units advanc-                          lent year for the Cometals division. We were
            ing almost 10%. In spite of these higher                              able to achieve an all-time record in sales and
            shipments, our revenue and profits declined                            tonnage handled. We benefited from strong
            slightly. Unexpected lower metal values of our                        markets and were able to increase the volume
                                                              Charles J. Shrem
            products, as well as greater planned expenses         President,
                                                                                  of most of the minerals, metals and chemicals
            in our expansion, impacted our results. Commonwealth Metal we market. Margins for 1999 were good and
            Nevertheless, we achieved significant market                           in line with our original projections, albeit
            share gains in three out of our four business                         lower than our past year’s record earnings.
            units. For next year, we project robust growth for key We were able to add new product lines and expand
            product lines in line with our strategic plan.               our services and service packages to provide tailor-
               In order to fuel our growth, this year we launched a made solutions meeting the demands of our
            new marketing campaign, the Commonwealth individual customers.
            Advantage Program or CAP. With this new initiative,              The U.S.A. remains our main market, where we
            CMC brings to market the widest range of specialized enjoy strong demand for most of our products.
            aluminum and copper products, along with an However, deflationary pressures and a very competitive
            enhanced service menu, both unique to the trade. By environment eroded our margins. China continues to
            doing so, Commonwealth aims to make substantial be a very important source of raw materials and an
            inroads in our target markets during fiscal year 2000.        important market for our division. During 1999, we
               As always, CMC concentrates on serving our core were successful in expanding our business in China by
            suppliers with whom we forge close and enduring increasing the volume of exports as well as imports.
            alliances. These producers utilize Commonwealth’s We were also successful in increasing our business
            strong longstanding market position and service plat- activities in the CIS, which is quite an achievement
            form as the most cost effective and efficient means to considering the financial difficulties and instability in
            penetrate the North American market. We effectively this important area. Furthermore, we were able to
            pursue these mutually beneficial relationships.               achieve increased sales to Europe where we see addi-
               As part of an ongoing and consistent strategy, CMC tional market growth potential, although margins
            continues to invest heavily in people, systems, and ser- remain modest on account of fierce competition.
            vices. Our future growth depends on our ability to               During 1999, we successfully developed and
            develop our personnel and deliver these products and installed a state-of-the-art communications and data-
            services. We must maintain and fortify the role we play base system. We will continue our efforts to streamline
            as an important link in the metal supply chain for cus- and modernize our operations to become an even more
            tomers and producers alike.                                  effective force in the marketplace.




.30
     Steel products stored at a C MC warehouse in Australia are ready for just-in-time deliver y to our customers.




As part of an ongoing and consistent strategy,
                      CMC continues to invest
  heavily in people, systems, and services.



                                                                                                                     31.
      C MC is active in the worldwide met als trade; here, steel reb ar is loaded for international shipping.




.32
     We added a new department under the                                business plan. All three operating departments
  stewardship of Manfred Roeschel, who brings                           made considerable contributions to the bottom
  with him a rich experience in our traditional                         line, benefiting from additional products and
  product lines and has added new lines to our                          an expanded customer base. We added experi-
  basket of commodities and services.                                   enced staff in several key positions and
                                                  Eliezer Skornicki
     Cometals Division is well poised to meet       President, Cometals
                                                                        continued our trader trainee program.
  the challenges of the new millennium and to                           Cooperation with the CMC Steel Group and
  continue our growth by providing an ever-                             the International Division attributed to higher
  increasing range of services and products to                          profits within our Division and the Company.
  our many customers worldwide.                                            During fiscal 1999, the employees of Dallas
                                                                        Trading created a mission statement which
  [ Dallas Trading ] The Dallas Trading                                 focuses on profitability, customer satisfaction,
  Division markets and distributes new steel                            individual growth and improved team work.
  semi-finished products (long and flat), alu-     J. Matthew Kramer The Division participated in a Control Self-
                                                         President,
  minum semi-finished flat rolled and Dallas Trading Division Assessment in February that helped amplify
  extruded products, nonferrous scrap, steel                            the strengths of our team while outlining
  scrap, steel and aluminum re-rolling stock                            areas of opportunity for improvement.
  into the Americas and other global markets                               We look forward to the challenges in fiscal
  from a diverse base of overseas and domes-                            2000. Current U.S.A. fiscal policies coupled
  tic sources. Marketing, trading, financial and with the rebuilding of the Asian economies should
  logistical services are customized as required by our allow sustained business opportunities for the Dallas
  suppliers and customers.                                      Trading Division.
     We are pleased to report another year of record
  earnings, well exceeding last year’s results and our




During fiscal 1999, the employees of Dallas Trading
                created a mission statement which
  focuses on profitability, customer satisfaction,
     individual growth and improved team work.




                                                                                                                          33.
36 Selected financial data
38 Management’s discussion and analysis of the
    consolidated financial statements
48 Financial ratios and statistics
49 Consolidated statements of earnings
50 Consolidated balance sheets
52 Consolidated statements of cash flows
53 Consolidated statements of stockholders’ equity
54 Notes to consolidated financial statements
64 Independent auditors’ report
                          1999
                         Financial
                          Review
                                                                        Depreciation
Net Sales                           Net Working Capital                 and Amortization
                    ($ millions)                        ($ millions)                    ($ millions)



2.5                     2.4         350                                 60
            2.3   2.3         2.3
                                                      307
      2.1                                                                                        52
                                    300         275               291   50                  47
2.0                                       266                                          44
                                    250                     247                   42
                                                                        40   38
1.5
                                    200
                                                                        30

1.0                                 150
                                                                        20
                                    100
 .5
                                                                        10
                                     50

 0                                    0                                  0
      95    96    97    98    99          95    96    97    98    99         95   96   97   98   99




                                                                                                       35.
Commercial Metals Company and Subsidiaries

Selected Financial Data
(dollars in thousands, except share data)                            1999            1998            1997                    1996

Operations
            Net sales                                             $2,251,442     $ 2,367,569    $ 2,258,388            $ 2,322,363
            EBITDA                                                   146,734         133,584        119,312                130,342
            Depreciation and amortization                             52,054          47,460         43,720                 41,599
            EBIT                                                      94,680          86,124         75,592                 88,743
            EBITDA/interest expense                                       7.5             7.4            8.2                    8.2
            Interest expense                                          19,650          18,055         14,637                 15,822
            Earnings before income taxes                              75,030          68,069         60,955                 72,921
            Income taxes                                              27,910          25,355         22,350                 26,897
            Effective tax rate                                        37.2%           37.2%          36.7%                  36.9%
            Net earnings                                              47,120          42,714         38,605                 46,024
            Cash flows from operations before changes
              in current assets and liabilities                      102,870          93,450          83,195                   89,894
Balance Sheet Information
            Cash and temporary investments                             44,665         30,985          32,998                  24,260
            Notes and accounts receivable                             304,318        318,655         289,735                 294,611
            Inventories                                               249,688        257,231         220,644                 186,201
            Total current assets                                      662,337        673,500         585,276                 539,483
            Property, plant and equipment
              Original cost                                           804,247        680,401         570,604                 506,969
              Net of depreciation                                     402,272        318,462         247,261                 222,710
              Capital expenditures                                    141,752        119,915          70,955                  47,982
            Total assets                                            1,078,988      1,002,617         839,061                 766,756
            Commercial paper                                           10,000         40,000              —                       —
            Notes payable                                               4,382         60,809              —                       —
            Total current liabilities                                 371,677        426,063         278,144                 264,073
            Net working capital                                       290,660        247,437         307,132                 275,410
            Current ratio                                                  1.8            1.6             2.1                     2.0
            Acid test ratio                                                 .9             .8             1.2                     1.2
            Long-term debt                                            265,590        173,789         185,211                 146,506
            Long-term debt as a percent
              of total capitalization                                  37.5%          30.1%            33.0%                   29.1%
            Total debt/total capitalization
              plus short-term debt                                     39.6%          41.5%           34.4%                   30.7%
            Deferred income taxes                                      23,263         21,376          20,834                  21,044
            Total stockholders’ equity                                418,458        381,389         354,872                 335,133
            Total capitalization at year-end                          707,311        576,554         560,917                 502,683
            Return on beginning stockholders’ equity                   12.4%          12.0%           11.5%                   15.2%
            Cash flow (before changes in current assets and
              liabilities) return on beginning stockholders’ equity    27.0%          26.3%            24.8%                   29.7%
            Stockholders’ equity per share*                             29.05          26.18            24.04                   22.20
Share Information
            Diluted earnings per share*                                 3.22            2.82           2.54                    3.01
            Stock dividends/splits per share                               —               —              —                       —
            Cash dividends per share of common stock*                     .52             .52            .52                     .48
            Total cash dividends paid                                  7,540           7,717          7,777                   7,246
            Average diluted common shares*                        14,626,540      15,120,786     15,219,727              15,276,158
Other Data
            Number of employees at year-end                             7,630          7,376            7,103                    6,681
            Stockholders of record at year-end                          2,550          2,672            2,674                    2,593
                                                                                                *Restated for stock splits and FASB No. 128



.36
    1995           1994           1993           1992           1991           1990           1989


$ 2,116,779    $ 1,666,234    $ 1,568,506    $ 1,165,792    $ 1,161,302    $ 1,137,236    $ 1,308,768
    111,388         80,321         71,819         55,876         50,527         70,583         73,832
     38,134         30,143         27,361         25,628         23,618         22,212         20,192
     73,254         50,178         44,458         30,248         26,909         48,371         53,640
         7.3            8.7            7.6            5.6            5.9            8.3            7.2
     15,246          9,271          9,397          9,951          8,565          8,551         10,289
     58,008         40,907         35,061         20,297         18,344         39,820         43,351
     19,800         14,737         13,400          7,787          6,329         13,900         14,900
     34.1%          36.0%          38.2%          38.4%          34.5%          34.9%          34.4%
     38,208         26,170         21,661         12,510         12,015         25,920         28,451

     76,634         61,666         53,632         39,718         37,856         48,749         50,167


     21,018         38,269         47,439         47,426         33,215         38,638         65,589
    268,657        228,035        163,387        164,126        132,466        129,086        127,712
    208,114        133,748        136,601        106,213         93,922         82,219         84,258
    534,105        446,085        398,495        378,263        318,867        289,196        315,424

    456,705        370,556        327,166        297,314        289,690        251,368        212,136
    209,739        156,808        139,323        130,690        132,722        114,643         93,815
     39,311         48,152         37,613         24,503         42,659         43,709         26,350
    748,103        604,877        541,961        515,738        460,757        415,746        419,183
          —         20,000              —              —         20,000          4,000              —
          —         21,000              —              —              —              —              —
    268,382        270,966        215,030        203,921        198,853        148,921        155,458
    265,723        175,119        183,465        174,342        120,014        140,275        159,966
         2.0            1.6            1.9            1.9            1.6            1.9            2.0
         1.1            1.1            1.1            1.3            1.1            1.3            1.4
    158,004         72,061         76,737         87,221         45,547         54,380         60,525

     32.9%          21.6%          23.5%          28.0%          17.4%          20.4%          23.0%

     35.5%          39.2%          32.9%          39.5%          33.6%          25.8%          33.7%
     18,553         19,077         14,773         12,492         12,794         12,019         12,264
    303,164        242,773        235,421        212,104        203,563        200,426        190,936
    479,721        333,911        326,931        311,817        261,904        266,825        263,725
     15.7%          11.1%          10.2%           6.2%           6.0%          13.6%          16.9%

     31.6%          26.2%          25.3%          19.5%          19.0%          25.5%          29.8%
      19.72          17.01          15.96          14.92          14.43          13.97          12.69


       2.51           1.75           1.46             .87            .84          1.70           1.85
          —           33%               —              —              —              —           33%
         .48            .46            .39            .39            .39            .38            .31
      7,211          6,705          5,635          5,515          5,502          5,631          4,695
 15,207,086     14,943,123     14,883,785     14,405,318     14,297,030     15,210,292     15,412,876


      6,272          4,314          3,904          3,834          3,709          3,838          3,386
      2,256          2,190          1,973          2,249          2,294          2,408          2,094



                                                                                                         37.
Commercial Metals Company and Subsidiaries

Management’s Discussion and Analysis of the Consolidated Financial Statements




        Consolidated Results                                                      approach, the Company has three reportable segments:
                                                                                  Manufacturing, Recycling, and Marketing and Trading.
                                                     Year ended August 31,
                                                                                  Net sales and operating profit (loss) by business seg-
        (in millions except share data)       1999           1998        1997
                                                                                  ment are shown in the following table:
        Net sales                   $ 2,251                 $ 2,368    $2,258
                                                                                                                        Year ended August 31,
        Net earnings                   47.1                    42.7      38.6
                                                                                  (in millions)                  1999           1998            1997
        Cash flows*                    102.9                    93.5      83.2
        International sales             760                     752       739     Net sales:
           As % of total                 34%                     32%        33%      Manufacturing             $1,206         $1,234        $1,083
        LIFO effect on net earnings    12.6                     5.0        (.2)      Recycling                    302            415              485
           Per diluted share            .86                     .33      (.01)       Marketing and Trading        802            788              758
        LIFO reserve                    3.0                    22.5      30.1     Operating profit (loss):
           % of inventory on LIFO        72%                     72%        72%      Manufacturing               83.8           74.8              54.8
        *before changes in current assets and liabilities                            Recycling                    (5.0)          (1.4)             7.6
                                                                                     Marketing and Trading       22.6           20.6              17.6
        Significant events affecting the Company this year:
        1. Best net earnings and earnings per share ever.
        2. Record steel fabrication and copper tube profitabil-                    1999 Compared to 1998
        ity sustained the Manufacturing segment in spite of
        significant losses incurred on several large structural
                                                                                  [ Manufacturing ]  The Manufacturing segment includes
        fabrication contracts. 3. Steel mill shipments, prices,
                                                                                  the CMC Steel Group and Howell Metal Company.
        and operating profits declined due to construction                           Although net sales decreased 2%, operating profit
        interference, imports, and equipment outages. 4. Sig-                     increased 12% for the year ended August 31, 1999.
        nificant LIFO income due to substantial decrease in                        These were record earnings despite weaker steel mill
        prices. 5. New rolling mill in South Carolina and fin-                     prices stemming from low-priced steel imports. Ship-
        ishing end at the Alabama mill were completed. 6.                         ments by the four minimills totaled 1.7 million tons
        Litigation settlements received, $5.2 million, after-                     versus 2.0 million tons the prior year. 1999 was another
        tax. 7. Continuing poor market conditions resulted in                     record year in the downstream steel fabrication busi-
        Recycling segment loss; however, the fourth quarter                       nesses with 841,000 tons shipped, a slight increase from
        was profitable. 8. The Marketing and Trading segment                       fiscal year 1998. Copper tube results were outstanding
        continued profitable performance.                                          as the strong housing market and lower copper scrap
                                                                                  prices doubled operating profit. Copper tube annual
        Segments                                                                  shipments were comparable at 51 million pounds.
                                                                                  Lower prices in the Manufacturing segment resulted in
        Financial results for the Company’s reportable seg-                       pre-tax LIFO income of $15.9 million, a substantial
        ments have been prepared using a management                               increase from the $3.2 million reported in the prior year.
        approach, which is consistent with the basis and man-                                                                        August 31,

        ner in which management internally disaggregates                                                                      1999              1998

        financial information for the purposes of assisting in                     Average mill selling price                $299                $322
        making internal operating decisions. Using this                           Average fab selling price                   677                 660
                                                                                  Average scrap purchase price                 76                 113

                                                                                    Operating profit for the four steel minimills com-
                                                                                  bined was 13% below the record year of 1998.
                                                                                  Although underlying demand was strong, shipments
                                                                                  declined 16% to 1.7 million tons while production




.38
levels were down comparably because of construction          was not significant to the Company. The operation has
interference caused by the capital projects and the          been profitable since acquisition.
unprecedented import levels. Conversely, margins were           Production increased by 3%, and earnings more
aided by lower scrap purchase prices. While the aver-        than doubled for the Company’s copper tube mill for
age mill selling price was $23 per ton (7%) below last       1999. Spreads increased by 34% and shipments
year, average scrap purchase costs were lower by $37         increased by 1%, benefiting from lower copper scrap
per ton (33%). The Company received pre-tax $8.1             prices. The principal economic driver remains housing
million in settlements from graphite electrode               starts and renovation, as residential construction
antitrust litigation. Primarily as a result of the decline   remained strong during fiscal year 1999. A significant
in shipments, operating profit at SMI-Arkansas, SMI-          planned expansion of the plant will increase copper
Alabama, and SMI-South Carolina decreased by 20%,            tube output by approximately 50%, increase automa-
59% and 38%, respectively. In spite of transformer           tion, reduce finished goods purchases, improve
downtime, strong results continued at SMI-Texas, with        productivity and increase sales for HVAC applications
a 17% increase in operating profit from the prior year.       as well as water tube.
   Computer migration costs were $10.9 million com-
pared to $8.6 million in the prior year.
   The Company had a record $142 million in capital          [ Recycling ]   The Recycling segment continued to be
spending for fiscal 1999, primarily at the steel minimills.   hampered by difficult market conditions. The Secondary
The major capital projects for 1999 were the comple-         Metals Processing Division reported an operating loss of
tion of the new rolling mill and ancillary equipment at      $5.0 million for the fiscal year ended August 31, 1999,
SMI-South Carolina and a new finishing line (replace-
                                                             compared with an operating loss of $1.4 million for the
ment of the mill cooling bed, straighteners and              prior year. However, the Division was profitable for the
stackers) at SMI -Alabama. Commissioning was in              fourth quarter 1999, and cash flows from operations
April and June 1999, respectively. The South Carolina        (before changes in current assets and liabilities) was pos-
project ultimately will more than double capacity to         itive for the year. Together with very weak market
800,000 tons, reduce costs and broaden significantly          conditions for ferrous and nonferrous scrap, the failed
the product range. The Alabama improvements will             consolidation of the industry had a major negative influ-
improve quality, enhance efficiency, and extend the           ence on profitability in 1999. The poor markets were
product line.                                                reflected in a 27% drop in net sales, from $415 million
   Fiscal year 1999 was another record year in the CMC       for 1998 to $302 million for 1999. Processing costs also
Steel Group’s downstream fabrication businesses. Net         decreased, but margins fell even further.
sales increased by 8% from 1998, and operating profits           The average price of steel scrap fell by $33 per ton to
increased 39%. This strong performance was in spite of       $90, and ferrous scrap volume was 3% lower. Conse-
$13.1 million in operating losses sustained on some          quently, ferrous scrap operations were unprofitable
large and complex structural steel jobs. While fabri-        even though costs were reduced. Nonferrous prices, on
cated steel shipments totaled 841,000 tons, only             the other hand, stabilized in a trading range, ship-
marginally increased from the prior year, the average        ments increased by 4% and nonferrous operations were
fab selling price rose $17 per ton (3%), partially due to    slightly profitable. The Division’s regional manage-
product mix. Additionally, a new castellated beam and        ment restructuring which occurred in the prior year
cellular beam product line was developed as an adjunct       resulted in lower operating costs and inventories.
to the steel joist business.                                 Prices have recently increased (especially nonferrous
   During the third quarter 1999, the Company                scrap) after sharp declines over the past 12-18 months.
acquired substantially all of the assets of Construction        In fiscal year 1999, a number of operational
Materials, Inc., headquartered in Baton Rouge,               improvements continued to be made including instal-
Louisiana, which complements the Shepler’s group             lation of a new shear in Houston which started up
concrete-related products business. The purchase price       during late August 1999.
                                                                The total volume of scrap processed in 1999, includ-
                                                             ing the CMC Steel Group operations, increased 5% to
                                                             2.0 million tons.




                                                                                                                           39.
      [ Marketing and Trading ]  The Marketing and Trading       ipated for the CMC Steel Group for fiscal year 2000.
      segment continued its remarkable performance in the        However, mill profits are likely to be down because of
      face of crises in Asia, Russia and Latin America. Net      a weaker first half due to continued ramping up at
      sales increased by 2% to $802 million, and operating       South Carolina and Alabama, weaker pricing from a
      profit was 10% higher for 1999 than the prior year.         less favorable product mix and continued high
      Steel prices were substantially lower in 1999 than the     imports. Mill output should increase as new produc-
      prior year, and gross margins in steel marketing and       tion lines are added, and the average selling price
      distribution as well as steel trading remained tight.      should benefit from the broadened product lines.
      Anti-dumping activity and other forms of protection-       Increased profits in steel fabrication should result in
      ism around the world continued to affect the flow of        the second half of the upcoming year from turn
      products. Nevertheless, sales into the United States       arounds at several operations that performed poorly in
      and Europe increased and compensated for the               fiscal year 1999. Increased infrastructure spending
      decreased sales into Asia. The segment achieved fur-       under The Transportation Equity Act for the 21st Cen-
      ther market penetration in highly competitive markets      tury (TEA-21) should be very beneficial. The copper
      for nonferrous metal products and maintained prof-         tube market remains robust, and production and ship-
      itability through product line expansion. Profits were      ments should climb. The CMC Steel Group computer
      moderately lower for industrial raw materials and          migration project is substantially complete, and costs
      products, but shipments generally were higher. Partic-     will decline to maintenance levels.
      ipation in the marketing of ferrous raw materials             Both ferrous and nonferrous operations in the Recy-
      continued to grow.                                         cling segment should be profitable in fiscal year 2000.
         During 1999, the segment continued to diversify         Operating profit for the fourth quarter of 1999 was
      and build business in new product and geographic           substantially improved from the corresponding period
      areas, and added key personnel. The Marketing and          in 1998. Scrap prices appear to be relatively firm at
      Trading segment’s international division reaped the        prevailing levels, and demand is expected to increase
      rewards from a 1998 joint venture with a large Euro-       with both international and domestic consumers of
      pean mill giving the Company exclusive rights to sell      scrap. The Company is poised to capitalize on better
      steel to the German market. Resulting net sales from       markets and to continue to turn around underperform-
      this endeavor were significantly more than anticipated.     ing facilities. Recycling should benefit from plant and
      This segment’s business encompasses marketing and          equipment improvements made during the past sev-
      distribution including expanded just-in-time services.     eral years including shredders, shears and balers.
      Regional trade continued to grow, as well as increased        The pickup in global trade, resulting from improving
      presence in the processing of the materials and prod-      Asian and European economies, should be positive for
      ucts which are bought and sold.                            the Marketing and Trading segment, in spite of the
                                                                 decreased supply from a large financially-troubled
      Near-Term Outlook                                          international supplier. The Company will continue to
      Despite the continued high level of low-priced steel       diversify and build business in new products and geo-
      imports into the United States, which will continue to     graphic areas. The segment will build further on
      affect prices of mill products, demand for steel remains   strategic alliances among suppliers and customers.
      strong and manufacturing margins should be good.              Overall, the outlook is challenging but positive,
      The new mill in South Carolina will ultimately double      with the second half of fiscal year 2000 expected to be
      capacity, reduce costs and broaden the product range.      better than the first half.
      Our new finishing end in Alabama will improve qual-         Long-Term Outlook
      ity, enhance efficiency and also broaden the product
      line. Higher sales, production and shipments are antic-    The Company is well positioned to exploit long-term
                                                                 opportunities. Net sales and net income should
                                                                 increase substantially at the steel minimills. The mills
                                                                 are versatile, flexible, highly productive and high qual-
                                                                 ity. Finished product capacity at the combined mills
                                                                 has increased to 2.3 million tons. Steel fabrication will
                                                                 continue to be an essential element of the Company’s




.40
vertical integration strategy and a growing part of the    1998 Compared to 1997
business. The Company’s strong regional position in
the copper tube industry is a solid building block for     Segments
further market penetration.
   Long-term demand for scrap will continue to grow,       [ Manufacturing ]   Net sales for the Manufacturing seg-
and volume will increase at existing operations. Capi-     ment increased 14% and operating profit increased
tal expenditures over the past five years have enhanced     36%. The CMC Steel Group accounted for these
significantly the capability to process high quality       increases. The Copper Tube Division’s annual operating
scrap in an efficient manner.
                                                           profit was down slightly.
   The organizational setup for the Marketing and
                                                              Selling prices were lower at the beginning of 1998
Trading segment was revised as of the beginning of fis-
cal year 2000, including the addition of the position of   but recovered, and combined with record shipments
president. Among other benefits, the new structure          produced a 42% increase in annual operating profit for
should lead to more unity and synergies and better risk    the CMC Steel Group. Mill tonnage shipped at
management while maintaining entrepreneurial spirit.       2,008,000 was 4% ahead of last year.
The segment will continue its evolution toward more           The four mills showed a 22% increase in operating
marketing and distribution, while maintaining a            profit led by SMI-Alabama and SMI-Arkansas, each
strong presence in the trading side of the business. The   with increases in excess of 24%; particularly notable
Company will also further its efforts on value-added       was the turnaround in profitability of SMI-South Car-
businesses whereby it will broaden its product range and   olina which was profitable all fiscal year. Its results
provide more services to the customer and the supplier.    were all the more noteworthy as they were attained in
   The sections regarding segments and near- and long-
                                                           the midst of construction of a new rolling mill. SMI-
term outlook contain forward-looking statements
                                                           Texas’ operating profit was 7% ahead of the prior year.
regarding the outlook for the Company’s financial
results including product pricing and demand, capacity        Operating profit in the Company’s steel fabrication
increases, efficiency improvements and general market       businesses more than doubled. Fabricated shipments of
conditions. There is inherent risk and uncertainty in      839,000 tons were well ahead of the previous year of
any forward-looking statements. Variances will occur       690,000 tons. SMI Owen Steel, the large structural
and some could be materially different from manage-        fabrication facility in Columbia, South Carolina, had
ment’s current opinion. Developments that could            operating profit $4.4 million ahead of the prior year. A
impact the Company’s expectations include interest         similar gain was accomplished by the combined joist
rate changes, construction activity, unanticipated         plants. As of August 31, 1998, the Company ceased
start-up expenses and delays, metals pricing, over         operations at its railcar rebuilding facility in Tulsa,
which the Company exerts little influence, increased        Oklahoma.
capacity and product availability from competing steel
                                                              CMC Steel Group computer migration project
minimills and other steel suppliers including import
                                                           expenses totaled $8.6 million compared with $6 million
quantities and pricing, global factors including credit
availability, currency fluctuations and decisions by       in 1997. Final pension settlement cost of $3.3 million
governments impacting the level and pace of overall        was incurred as the Company’s only major defined bene-
economic activity.                                         fit plan was terminated.
                                                              The Company spent $120 million for capital
                                                           improvements for fiscal 1998, primarily at the steel
                                                           mills. Construction of the new rolling mill and ancillary
                                                           equipment at SMI-South Carolina will ultimately dou-
                                                           ble capacity, reduce costs, and broaden the product line.
                                                           The finishing upgrade at SMI-Alabama (replacement of
                                                           the mill cooling bed, straighteners and stackers) will
                                                           improve quality, enhance efficiency and also broaden the
                                                           product line.




                                                                                                                       41.
         Attractive interest rates continue to strengthen resi-   Liquidity and Capital Resources
      dential construction markets, maintaining demand for
                                                                  Cash flows from operations (before changes in current
      plumbing tube. Margins were weak in the early
                                                                  assets and liabilities) for the year ended August 31,
      months of 1998, but improved to moderate propor-
                                                                  1999, were a record $103 million compared to $93
      tions by the fourth quarter. Copper tube shipments
                                                                  million for fiscal year 1998. Also, net cash flows from
      increased 11% over the prior year to 51 million
                                                                  operating activities for fiscal 1999 were the highest in
      pounds. Annual production was 4% above 1997’s rate.
                                                                  the Company’s history. Strong earnings and working
      [ Recycling ]   The Asian economic crisis brought the       capital reduction initiatives generated the cash flows
      Recycling segment’s four-year period of record operat-      from operating activities. Accounts receivable and
      ing profits to an abrupt end. Scrap normally exported        inventories significantly decreased in the CMC Steel
      by competitors was diverted for domestic consump-           Group as a result of working capital reduction efforts
      tion. Selling prices were decimated, falling to their       and from the effect of falling prices. Decreased
      lowest levels in many years. Margins eroded while total     advances to suppliers for material purchases in the
      processing costs increased due to acquisitions; how-        Marketing and Trading segment resulted in a net
      ever, the new capacity failed to bring in sufficient        decrease in other assets. This was partially offset on a
      margin increases. All of these factors resulted in a        consolidated basis by the CMC Steel Group’s invest-
      moderate operating loss—the first in six years in this       ments in mill rolls and guides for the new mill at
      cyclical industry.                                          South Carolina. Also depreciation and amortization
          For 1998, the average copper and brass scrap price      expense increased primarily due to the capital projects
      dropped 22%, aluminum fell 6%, and steel scrap was          at South Carolina and Alabama.
      unchanged; at year end this left prices 20% below the          Cash flows from operating activities were invested in
      previous year. Ferrous scrap shipped increased 11% to       new equipment, primarily in the Manufacturing seg-
      1.28 million tons; however, nonferrous shipments            ment (particularly at the South Carolina and Alabama
      declined 11% to 188,000 tons, due to a drop in copper       mills). Accounts payable increased primarily in the
      and brass shipments. Total volume of scrap processed,       Marketing and Trading segment due to more ship-
      including the CMC Steel Group processing plants,            ments in transit at year end and more extended
      reached 1,948,000 tons.                                     payment terms from suppliers than in the prior year.
         During 1998 the Company made several small acqui-           Net working capital was $291 million as of August
      sitions within existing geographic areas, none of which     31, 1999, compared to $247 million last year. The cur-
      were significant to the overall operations of the Company.   rent ratio was improved at 1.8 versus 1.6 at the prior
                                                                  year end.
      [ Marketing and Trading ]  Net sales for the Marketing
                                                                     The Company’s sources of short-term funds include
      and Trading segment increased 4%, and operating
                                                                  a commercial paper program of $100 million, an
      income rose 17% over the prior year. Purchases from
                                                                  increase of $60 million from the prior year. The Com-
      new sources in the Far East increased significantly
                                                                  pany’s commercial paper is rated in the second highest
      while sales were sharply reduced. Shipments into
                                                                  category by Moody’s Investors Service (P-2), Standard
      North America were brisk for most product lines and
                                                                  & Poor’s Corporation (A-2) and Fitch IBCA, Inc. (F-2).
      business in Europe increased.
                                                                  Formal bank credit lines equal to 100% of the amount
         Operating profits from steel marketing and distribu-
                                                                  of all commercial paper outstanding are maintained.
      tion increased; however, profitability in steel trading
                                                                     The Company filed a shelf registration of $200 mil-
      decreased because of reduced volume and margins.
                                                                  lion of long- and medium-term notes, of which $100
      Nonferrous metal product tonnage increased particu-
      larly in semi-finished aluminum products. Activity for
      ores, minerals and industrial materials continued solid;
      meanwhile, new marketing channels were added.




.42
million were sold in February 1999. The proceeds were          The Company’s origin and one of its core businesses
used to retire short-term borrowings.                       for over eight decades has been metals recycling. In the
   The Company’s $250 million long-term notes issued        present era of conservation of natural resources and
in February 1999 ($100 million), July 1997 ($50 mil-        ecological concerns, the Company has a continuing
lion) and July 1995 ($100 million) are rated                commitment to sound ecological and business con-
investment grade by Standard & Poor’s Corporation           duct. Certain governmental regulations regarding
and Fitch IBCA, Inc. (BBB+) and by Moody’s Investors        environmental concerns, however well intentioned, are
Service (Baa1).                                             presently at odds with goals of greater recycling and
   The Company has numerous informal credit facili-         expose the Company and the industry to potentially
ties available from domestic and international banks.       significant risks. Such exposures are causing the indus-
These credit facilities are priced at bankers’ acceptance   try to shrink, leaving fewer operators as survivors to
rates or on a cost of funds basis.                          face the challenge.
   Management believes it has adequate capital                 The Company believes that materials that are recy-
resources available from internally generated funds and     cled are commodities that are neither discarded nor
from short-term and long-term capital markets to            disposed. They are diverted by recyclers from the solid
meet anticipated working capital needs, planned capi-       waste streams because of their inherent value. Com-
tal expenditures, dividend payments to shareholders,        modities are materials that are purchased and sold in
stock repurchases and to take advantage of new oppor-       public and private markets and commodities exchanges
tunities requiring capital.                                 every day around the world. They are identified, pur-
   Capital investments in property, plant and equip-        chased, sorted, processed and sold in accordance with
ment were a record $142 million in 1999 compared to         carefully established industry specifications.
$120 million the prior year. Capital spending for fiscal        Environmental agencies at various federal and state
2000 is projected to be substantially reduced at $76        levels would classify certain recycled materials as haz-
million. The most important projects to be undertaken       ardous substances and subject recyclers to material
are the expansion of the Howell Metal Company’s cop-        remediation costs, fines and penalties. Taken to
per tube manufacturing facility and growth in steel         extremes, such actions could cripple the recycling
fabrication.                                                industry and undermine any national goal of material
   Total capitalization was $707 million at the end of      conservation. Enforcement, interpretation, and litiga-
fiscal 1999, a 23% increase from the prior year. The         tion involving these regulations are not well developed.
ratio of long-term debt to capitalization was 37.5%,           The Company has received notices from the U.S.
up from 30.1% last year due to the issuance of the          Environmental Protection Agency (EPA) or equivalent
$100 million long-term notes. Stockholders’ equity          state agency that it is considered a potentially respon-
was $418 million or $29.05 per share. During the fis-        sible party (PRP) at thirteen sites, none owned by the
cal year, the Company repurchased 314,400 shares of         Company, and may be obligated under the Compre-
Company stock at an average cost of $22.30 per share.       hensive Environmental Response, Compensation, and
The Company has authorized an additional 270,681            Liability Act of 1980 (CERCLA) or similar state statute
shares for repurchase. On August 31, 1999, 1,726,323        to conduct remedial investigation, feasibility studies,
treasury shares were held by the Company. There were        remediation and/or removal of alleged releases of haz-
14,406,260 shares outstanding at year end.                  ardous substances or to reimburse the EPA for such
                                                            activities. The Company is involved in litigation or
Contingencies                                               administrative proceedings with regard to several of
In the ordinary course of conducting its business, the      these sites in which the Company is contesting, or at
Company becomes involved in litigation, administra-         the appropriate time may contest, its PRP designation.
tive proceedings and governmental investigations,
including environmental matters.




                                                                                                                       43.
      In addition, the Company has received information            2000 issue, the ability of computer software to cor-
      requests with regard to other sites which may be under       rectly interpret dates at the turn of the century. The
      consideration by the EPA as potential CERCLA sites.          following is a discussion by segment of the status of
         Some of these environmental matters or other proceed-     each of these initiatives.
      ings may result in fines, penalties or judgments being
                                                                   [ Manufacturing ]   The CMC Steel Group and the How-
      assessed against the Company which, from time to time,
                                                                   ell Metal Company have assessed their key financial
      may have a material impact on earnings and cash flows
                                                                   and operational systems, and detail plans have been
      for a particular quarter. While the Company is unable to
                                                                   implemented to address modifications required by
      estimate precisely the ultimate dollar amount of expo-
                                                                   December 31, 1999. Since fiscal year 1995, the CMC
      sure to loss in connection with the above-referenced
                                                                   Steel Group has been in preparation and implementa-
      matters, it makes accruals as warranted. It is the opinion
                                                                   tion of a Year 2000 compliant enterprise resource
      of the Company’s management that the outcome of these
                                                                   planning system. This system covers all traditional
      proceedings, individually or in the aggregate, will not
                                                                   financial systems and, in addition, covers sales, raw
      have a material adverse effect on the business or consoli-
                                                                   material usage, transportation management, purchas-
      dated financial position of the Company.
                                                                   ing, maintenance and other functional areas. Each of
         In fiscal 1999, the Company incurred environmental
                                                                   the four mills in the CMC Steel Group, SMI-Texas,
      expense of $8.8 million. This included the cost to staff
                                                                   SMI-Alabama, SMI-South Carolina, and SMI-Arkansas,
      environmental personnel at various divisions, permit
                                                                   have Year 2000 task teams that meet periodically. As
      and license fees, accruals and payments for studies,
                                                                   of August 31, 1999, the mills’ systems implementa-
      tests, assessment, remediation, consultant fees, bag-
                                                                   tion was more than 90% complete with final
      house dust removal and various other expenses. The
                                                                   completion scheduled by December 31, 1999. As of
      Company estimates that approximately $9.8 million of
                                                                   August 31, 1999, the mill task teams were well into
      its capital expenditures for fiscal 1999 related to costs
                                                                   verifying, validating and testing these systems as well
      directly associated with environmental compliance.
                                                                   as coordinating final contingency plans. Non-mill
      The nature and timing of these environmental costs is
                                                                   operations have less formalized structures as the effect
      such that it is not practical for the Company to esti-
                                                                   is significantly reduced. As of August 31, 1999, letters
      mate their magnitude in future periods. At August 31,
                                                                   of compliance have been received for all non-mill sys-
      1999, $5.3 million remained in accrued expenses for
                                                                   tems, or upgrades are scheduled for completion by
      environmental liabilities.
                                                                   December 1999. All critical suppliers and vendors for
      Dividends                                                    both mill and non-mill operations have submitted
                                                                   readiness letters or alternatives have been surveyed.
      Quarterly cash dividends have been paid in each of the          An infrastructure migration completed in July 1998
      past 35 consecutive years. The annual dividend in            upgraded all personal computer hardware and software
      1999 was 52 cents a share paid at the rate of 13 cents
                                                                   to common compliant platforms. Systems in place at
      each quarter.
                                                                   the CMC Steel Group scrap yards, a relatively small
      Year 2000                                                    portion of the CMC Steel Group, will be upgraded to a
                                                                   current release by December 1999.
      The Company’s three operating segments, Manufac-
      turing, Recycling, and Marketing and Trading
      (combined with Corporate), have undertaken manage-
      ment information system initiatives that address a
      broad spectrum of functionalities including the Year




.44
[ Recycling ]   The Recycling segment has substantially    systems with the goal to have the entire segment on a
completed a multi-year transition plan of its systems      common platform with Corporate.
for Year 2000 compliance in each of the following             Separate teams were established for completing the
categories:                                                upgrade process for both marketing and financials. A
   1. Mainframe computer hardware —All current             common PC hardware and software platform has been
computers have been certified by the manufacturer as        established. Financial systems for domestic operations
compliant. Outside of Year 2000 issues, some older         were rolled out, tested, and online in May 1999. Alter-
machines have been retired and replaced by certified        natives for the joint marketing program are still being
compliant hardware.                                        researched. In the meantime, the existing trading
   2. Workstation hardware — Personal computers            management system has been reviewed and issues
have had chip replacements or been replaced where more     identified and corrected. All operating systems will be
cost effective.                                            updated and compliant by December 1999.
   3. Business application software—Core applications
                                                           [ Summary ]     The area of greatest risk is the readiness
developed in-house have had conversion processes
                                                           of the Company’s suppliers and vendors. Although
completed and are fully compliant. Outside package
                                                           appropriate inquiries have been made, there will be a
software for general ledger and payroll has been
                                                           factor of the unknown until January 1, 2000.
upgraded. The fixed asset package is scheduled to be
                                                              The Company has implemented the program
completed by the end of calendar year 1999.
                                                           described above with the use of internal personnel and
   4. Systems software —The mainframe replacements
                                                           outside consultants. Resources are considered available
discussed in point 1 above have brought all operating
                                                           and adequate to meet the Company’s goals. Where
systems up to a certified compliant version. All PC’s
                                                           necessary, contingency plans have been developed to
have had Year 2000 patches installed, where required.
                                                           address any anticipated shortfall. Minimal additional
   5. User level software and applications — Standard
                                                           costs will be required to implement the remaining
spreadsheet and word processing software has been
                                                           Year 2000 compliance activities.
upgraded to current versions. There may remain pock-
                                                              The section titled “Year 2000” contains forward-look-
ets of applications that will still be discovered during
                                                           ing statements regarding the Company’s expectations
the ordinary course of business, which will be addressed
                                                           regarding addressing the Year 2000 computer problem.
as uncovered.
                                                           These plans among other factors include the timing of
   6. Communication equipment and software —The
                                                           implementation phases, reallocation of in-house
segment-wide communications equipment is now
                                                           resources, use of outside personnel, third-party hardware
compliant.
                                                           and software, and reliance on representations of third
   7. Non-computer automated systems—This is con-
                                                           parties. There is inherent risk and uncertainty in any
sidered a minor risk and is 80% completed with 100%
                                                           forward-looking statements. Variances will occur and
completion anticipated by the end of December 1999.
                                                           could be materially different from management’s cur-
[ Marketing and Trading, Including Corporate ] The         rent opinion. Developments that could impact the
Marketing and Trading segment, combined with the           Company’s expectations include the availability of Com-
Corporate functions, represent the most geographically     pany personnel, malfunctions of third-party software
dispersed operations of the Company. Several systems       and hardware, over which the Company has no control,
were in place to address both financial applications and    availability of outside consultants, and the inability to
marketing information needs. Compliance evaluations        fully assess the readiness of key vendors and suppliers.
begun two years ago indicated that generally the inter-
national divisions were compliant but reaching
capacity constraints and that the domestic operations
had sufficient size but were not compliant. Therefore, a
joint program was developed to address both the func-
tional marketing requirements and the financial




                                                                                                                        45.
      Euro                                                       [ Interest Rates ]   Substantially all of the Company’s
                                                                 short- and long-term debt is denominated in United
      Effective January 1, 1999, eleven of the fifteen member
                                                                 States dollars. The Company’s financial results as
      countries of the European Union adopted the euro as
                                                                 affected by interest rates are most vulnerable to swings
      their common legal currency and established fixed con-
                                                                 in short-term commercial borrowing rates. At August
      version rates between their existing sovereign
                                                                 31, 1999, approximately $7 million Australian dollars
      currencies and the euro. The existing sovereign curren-
                                                                 notional amount of debt was covered by an interest rate
      cies remain legal tender in the participating countries
                                                                 swap. The swap is variable to fixed, terminating June 2,
      during the transition period ending on January 1, 2002.
                                                                 2003, intending to match physical asset lives with debt
      The Company has adequate information systems for
                                                                 provisions in one foreign subsidiary. The variable rate at
      compliance with the requirements of this new currency.
                                                                 year end was 5.2% and the fixed rate 5.5%. At August
      The Company does not anticipate that the adoption of
                                                                 31, 1999, it had a fair value of $115,000.
      the Euro will have a material impact on its results of
      operations, financial position or liquidity.                [ Commodity Prices ]    Pricing of certain firm sales and
                                                                 purchase commitments is fixed to forward metal com-
      Market Risk
                                                                 modity exchange quotes. The Company enters into
      [ Approach to Minimizing Market Risk ] The Com-            metal commodity contracts for copper, aluminum, and
      pany’s product lines and its worldwide operations          zinc as hedges of gross margins on these commitments.
      expose it to risks associated with fluctuations, some-      Of these, copper is the most predominant. The hedges
      times volatile, in exchange and interest rates and         are closed when the underlying sales and purchase
      commodity prices. It employs various strategies to         commitments are priced, and gain or loss is recognized
      mitigate the effects of this volatility. None of the       when the sale or purchase is recorded. In general the
      instruments used are entered into for trading purposes     Company is most affected in periods of declining com-
      or speculation; all are effected as hedges of underlying   modity prices as spreads narrow and sources withhold
      physical transactions. The accompanying information        recycled metals from the market. The settlement values
      mandated by the Securities and Exchange Commission         expressed in the accompanying chart as of August 31,
      should be read in conjunction with footnotes 1 and 4       1999, should be read with caution as the offsetting
      to the annual financial statements.                         physical transactions for which the commodity futures
                                                                 are effective as hedges are not quantified. Physical
      [ Foreign Exchange ] The Company enters into for-          transaction quantities will not match exactly with
      eign exchange contracts as hedges of trade receivables     standard commodity lot sizes, leading to small gains
      and payables denominated in currencies other than the      and losses at settlement.
      functional currency. Effects of changes in currency           The following table provides certain information
      rates are therefore minimized. No single currency          regarding the financial instruments discussed above.
      poses a primary risk to the Company; fluctuations that
      cause temporary disruptions in one market segment
      tend to open opportunities in other segments. As a
      matter of Company policy, foreign exchange contracts
      are used to hedge only firm commitments, not antici-
      pated transactions. Certain information in the
      accompanying chart assumes that the foreign exchange
      contracts were settled at August 31, 1999; this would
      defeat their purpose as hedges on transactions that will
      not occur for some period after year end. Due to cus-
      tomary weight and quality settlements on physical
      transactions, small gains and losses do occur upon close
      of the foreign exchange contracts.




.46
Foreign Currency Exchange Contract Commitments As of August 31, 1999:

                                                                                       Range of                                 U.S. $
     Amount                                   Currency                                Hedge Rates                             Equivalent
    8,376,000                             German mark                              1.6137-1.8740                          $ 4,748,000
   12,915,000                                         ECU                          .92907-.95822                           13,636,000
    5,500,000                               Swiss franc                              1.385-1.5395                           3,684,000
    3,350,000                          Singapore dollar                               1.68-1.6977                           1,987,000
    6,013,000                            British pound                             .61816-.63088                            9,641,000
   49,305,000                         Australian dollar                            1.5041-1.5713                           31,784,000
    1,850,000                         Norwegian krone                              7.4914-7.5642                              246,000
       39,000                        Netherlands gilder                                    2.1164                              18,000
                                                                                                                              65,744,000
Revaluation as of August 31, 1999, at quoted market                                                                           65,388,000
Settlement gain                                                                                                           $     356,000
• All foreign currency exchange contracts mature within one year.
• Foreign currency exchange contracts effective as hedges have no book carrying value until maturity; they are considered reductions in
  otherwise available bank credit lines.


As of August 31, 1998:
Revaluation at quoted market                                                                                              $57,398,000
Settlement gain                                                                                                           $ 1,332,000

Metal Commodity Contract Commitments As of August 31, 1999:

                                                                                                        Range of          Total Contract
                                            Long/           # of        Standard         Total         Hedge Rates           Value at
Terminal Exchange            Metal          Short           Lots        Lot Size        Weight           Per MT             Inception
London Metal
Exchange (LME)              Copper          Long            61           25 MT         1525 MT $ 1422-1757                 $ 2,369,000
                              Zinc          Long            23           25 MT          575 MT    995-1151                     605,000
                         Aluminum           Long             4           25 MT          100 MT        1375                     138,000
                         Aluminum           Short            2           25 MT           50 MT        1478                      74,000

New York Mercantile                                                                                     Per 100/wt.
Exchange             Copper                  Long         125      25,000 lbs. 3.1 MM lbs.             64.65-81.00            2,346,000
Commodities Division
(Comex)              Copper                 Short         251      25,000 lbs. 6.3 MM lbs.             75.05-79.30            4,857,000
                                                                                                                           10,389,000
Revaluation as of August 31, 1999, at quoted market                                                                        10,101,000
Settlement gain                                                                                                            $ 288,000
• Eighteen lots mature after one year
• MT = Metric Tons
• MM = Millions
• Metal commodity contracts effective as hedges have no book carrying value until maturity; a two million dollar letter of credit stands as
  margin requirement for Comex transactions.


As of August 31, 1998:
Revaluation at quoted market                                                                                             $ 3,577,000
Settlement (loss)                                                                                                        $ (610,000)



                                                                                                                                              47.
      Financial Ratios and Statistics                                     Dividend Data and Price Range of Common Stock


                                               Year ended August 31,       1999                   Price Range of
                                                                           Fiscal                 Common Stock                   Cash
                                             1999       1998     1997     Quarter               High           Low             Dividends
                                                                           1st                 28 1/2              219/16           13¢
      Liquidity
                                                                           2nd                 27 3/4              22 9/16          13¢
      Current ratio                            1.8       1.6       2.1
                                                                           3rd                 25 7/16             19 11/16         13¢
      Acid test ratio                           .9        .8       1.2
                                                                           4th                 34 3/16             23 1/2           13¢
      Cash flow to long-term debt                .4        .5        .4
                                                                           1998                   Price Range of
      Turnover
                                                                           Fiscal                 Common Stock                   Cash
      Average day’s sales                  $ 6.2      $ 6.5     $ 6.2     Quarter               High           Low             Dividends
                                           million    million   million    1st                 339/16              30 1/16          13¢
      Accounts receivable                                                  2nd                 337/8               29 3/8           13¢
         No. of day’s sales outstanding      49.2       48.7     46.4      3rd                 36                  30 1/2           13¢
      Inventories                                                          4th                 32 11/16            24 1/8           13¢
         No. of day’s sales on hand          46.1       44.5     39.6
      Fixed assets turnover ratio
         of net sales to fixed assets           5.5       7.4       9.1
      Ratio of net sales to total assets       2.1       2.3       2.7                                    Stock Exchange
                                                                                                          Prices High and Low
      Leverage
                                                                                                                                    (dollars)
      Long-term debt as a
         percent of total capitalization     37.5%      30.1%    33.0%                                    40

      Total debt to total                                                                                 35

         capitalization                                                                                   30
         plus short-term debt                39.6%      41.5%    34.4%
                                                                                                          25
      Ratio of total debt to
                                                                                                          20
         tangible net worth                     .7        .8        .6
      Ratio of total liabilities to                                                                       15

         total assets                           .6        .6        .6                                    10

      Fixed assets as a percent                                                                            5
         of net worth plus
                                                                                                           0
         long-term debt                      58.8%      57.4% 45.8%                                               95    96    97    98    99
                                                                                                                              High n   Low n
      Short-term borrowings as a
                                                                                                                adjusted for stock dividends
         percent of total borrowings           5.0%     35.2%      —

      Coverage
      Times interest earned pre-tax            4.8       4.8       5.2                                    Common Stock
      EBITDA/interest expense                  7.5       7.4       8.2                                    Dividends Per Share
      Fixed charge coverage pre-tax            3.6       3.5       3.6                                                              (dollars)


      Taxes                                                                                               .60
                                                                                                                              .52   .52   .52
      Effective tax rate                     37.2%      37.2%    36.7%
                                                                                                          .50     .48   .48

      Profitability
                                                                                                          .40
      Pre-tax profit margin on sales           3.4%       2.9%     2.7%
      Profit margin on sales                   2.1%       1.8%     1.7%                                    .30

      Return on beginning equity             12.4%      12.0%    11.5%
                                                                                                          .20
      Cash flow return on beginning
        stockholders’ equity                 27.0%      26.3%    24.8%                                    .10


                                                                                                           0
                                                                                                                  95    96    97    98    99




.48
Commercial Metals Company and Subsidiaries

Consolidated Statements of Earnings




                                                                                                       Year ended August 31,
        (in thousands, except share data)                                             1999                     1998                        1997
        Net sales                                                               $ 2,251,442                 $ 2,367,569              $ 2,258,388
        Costs and expenses:
          Cost of goods sold                                                        1,948,596                   2,083,036                2,004,155
          Selling, general and administrative expenses                                192,233                     178,961                  164,173
          Interest expense                                                             19,650                      18,055                   14,637
          Employees’ retirement plans                                                  15,933                      19,448                   14,468
                                                                                    2,176,412                   2,299,500                2,197,433
        Earnings before income taxes                                                    75,030                    68,069                    60,955
        Income taxes                                                                    27,910                    25,355                    22,350
        Net earnings                                                            $       47,120              $     42,714             $      38,605
        Basic earnings per share                                                $          3.25             $         2.88           $            2.59
        Diluted earnings per share                                              $          3.22             $         2.82           $            2.54
                                                                                                     See notes to consolidated financial statements.




       Depreciation, Capital                                                                                           Cumulative Cash
       Expenditures and Cash                                                                                           Flows from Operations*
       Flows from Operations*                                                                                          and Capital Expenditures
                            ($ millions)                                                                                                   ($ millions)


       150                                                                                                             500


                                                                                                                                                           446
       125
                                                                                                                       400

       100                                 142
                                  120                                                                                  300
                                                                                                                                                   343
        75
                            83
                                                                                                                       200
        50            90          93       103                                                                                              250
                77          71
                39    48
                                                                                                                       100           167
        25
                                                                                                                                77
         0     38 42 44 47 52                                                                                             0     39 87 158 278 420
             95 96 97 98 99                      *Before changes in current assets and liabilities                            95 96 97 98 99

         Cash Flows from Operations n                                                                                     Cash Flows from Operations n
                 Capit al Expenditures n                                                                                         Capit al Expenditures n
          Depreciation & Amor tization n


                                                                                                                                                                 49.
Commercial Metals Company and Subsidiaries

Consolidated Balance Sheets




                                                                                                              August 31,
        (in thousands, except share data)                                                        1999                             1998
        Assets
        Current assets:
           Cash                                                                              $ 44,665                      $      30,985
           Accounts receivable (less allowance for collection
             losses of $7,714 and $8,120)                                                      304,318                          318,655
           Inventories                                                                         249,688                          257,231
           Other                                                                                63,666                           66,629
              Total current assets                                                             662,337                          673,500


        Property, plant and equipment:
          Land                                                                                  25,927                           24,967
          Buildings                                                                             87,796                           67,505
          Equipment                                                                            635,054                          499,899
          Leasehold improvements                                                                30,119                           26,084
          Construction in process                                                               25,351                           61,946
                                                                                               804,247                          680,401
           Less accumulated depreciation and amortization                                      (401,975)                       (361,939)
                                                                                               402,272                          318,462
        Other assets                                                                             14,379                           10,655
                                                                                             $1,078,988                    $1,002,617
                                                                                             See notes to consolidated financial statements.




                                                       Cash Flow Return
                                                       on Beginning
                                                       Stockholders’ Equity                                    Total Assets
                                                                                 (percent)                                         ($ millions)


                                                       35                                                      1200
                                                            31.6
                                                       30          29.7
                                                                                 26.3 27.0
                                                                          24.8                                  900
                                                       25

                                                       20
                                                                                                                600
                                                       15
                                                                                                                                                  662
                                                       10                                                                                674
                                                                                                                300
                                                                                                                                585
                                                                                                                        534 539
                                                        5

                                                        0                                                         0     214 227 254 329 417
                                                            95     96     97      98   99                             95 96 97 98 99

                                                                                                                             Fixed and Other n
                                                                                                                               Current Assets n




.50
                                                                                                       August 31,
(in thousands, except share data)                                                         1999                            1998
Liabilities and Stockholders’ Equity
Current liabilities:
  Commercial paper                                                                   $ 10,000                       $    40,000
  Notes payable                                                                         4,382                            60,809
  Accounts payable                                                                    191,508                           163,507
  Other payables and accrued expenses                                                 153,889                           143,394
  Income taxes payable                                                                  2,025                             6,870
  Current maturities of long-term debt                                                  9,873                            11,483
      Total current liabilities                                                         371,677                         426,063

Deferred income taxes                                                                     23,263                          21,376
Long-term debt                                                                          265,590                         173,789
Commitments and contingencies
Stockholders’ equity:
  Capital stock:
    Preferred stock                                                                              —                               —
    Common stock, par value $5.00 per share:
    authorized 40,000,000 shares; issued 16,132,583 shares;
    outstanding 14,406,260 and 14,569,611 shares                                         80,663                          80,663
  Additional paid-in capital                                                             14,131                          14,285
  Accumulated other comprehensive loss                                                     (774)                         (1,596)
  Retained earnings                                                                     368,177                         328,597
                                                                                        462,197                         421,949
   Less treasury stock 1,726,323 and 1,562,972 shares at cost                            (43,739)                        (40,560)
                                                                                        418,458                         381,389
                                                                                     $1,078,988                     $ 1,002,617
                                                                                      See notes to consolidated financial statements.


Capital Expenditures                         Total Capitalization
                  ($ millions)                                  ($ millions)



150                        142               800

                                             700
125                  120
                                             600
100
                                             500

 75             71                           400

                                             300
 50        48                                                                  418
      39
                                             200                355 381
                                                    303   335
 25
                                             100
                                                     158 147 185 174 266
  0                                            0     19  21  21 21   23
      95   96   97   98    99                      95 96 97 98 99

                                                          Long-Term Debt n
                                                     Stockholders’ Equity n
                                                          Deferred Taxes n


                                                                                                                                        51.
Commercial Metals Company and Subsidiaries

Consolidated Statements of Cash Flows




                                                                                             August 31,
        (in thousands)                                                   1999                  1998                    1997
        Cash Flows from Operating Activities:
          Net Earnings                                                 $ 47,120              $ 42,714               $ 38,605
           Adjustments to earnings not requiring cash:
              Depreciation and amortization                             52,054                  47,460                43,720
              Provision for losses on receivables                        1,877                   2,898                 1,433
              Deferred income taxes                                      1,887                     542                  (210)
              Other                                                        (68)                   (164)                 (353)
          Cash Flows from Operations Before Changes in
            Current Assets and Liabilities                             102,870                  93,450                83,195
          Changes in Current Assets and Liabilities:
              Decrease (increase) in accounts receivable                12,460                 (33,104)                3,443
              Decrease (increase) in inventories                         7,543                 (36,587)              (34,443)
              Decrease (increase) in other assets                        1,009                 (30,457)               (9,449)
              Increase in accounts payable,
                accrued expenses, and income taxes                      34,412                  47,129                14,063
        Net Cash Flows from Operating Activities                       158,294                  40,431                56,809
        Cash Flows from Investing Activities:
          Purchases of property, plant and equipment                   (141,752)             (119,915)               (70,955)
          Sales of property, plant and equipment                          4,247                 1,418                  3,037
        Net Cash Used by Investing Activities                          (137,505)             (118,497)               (67,918)
        Cash Flows from Financing Activities:
          Commercial paper—net change                                  (30,000)                 40,000                    —
          Notes payable —net change                                    (56,427)                 60,809                    —
          New long-term debt                                           100,000                      —                 50,000
          Payments on long-term debt                                    (9,809)                (11,441)              (11,287)
          Stock issued under stock option, purchase, and bonus plans     3,273                   8,239                 5,989
          Tax benefits related to stock option plan                         406                     895                   649
          Treasury stock acquired                                       (7,012)                (14,732)              (17,727)
          Dividends paid                                                (7,540)                 (7,717)               (7,777)
        Net Cash (Used) Provided by Financing Activities                 (7,109)                76,053                19,847
        Increase (Decrease) in Cash and Cash Equivalents                13,680                  (2,013)                 8,738
        Cash and Cash Equivalents at Beginning of Year                  30,985                  32,998                24,260
        Cash and Cash Equivalents at End of Year                       $ 44,665              $ 30,985               $ 32,998
                                                                                  See notes to consolidated financial statements.




.52
Commercial Metals Company and Subsidiaries

C o n s o l i d a t e d S t a t e m e n t s o f S t o c k h o l d e r s’ E q u i t y


                                              Common Stock                                                  Treasury Stock
                                                                               Accumulated
                                                                  Additional   Other Comp-
                                          Number of                Paid-In      rehensive  Retained    Number of
    (in thousands, except share data)      Shares       Amount     Capital         Loss    Earnings     Shares          Amount            Total

    Balance, September 1, 1996          16,132,583 $ 80,663 $ 13,193                      $262,772 (1,036,619) $(21,495) $335,133
       Comprehensive Income:
         Net earnings                                                                       38,605                                      38,605
       Cash dividends—$.52 per share                                                        (7,777)                                     (7,777)
       Treasury stock acquired                                                                          (628,993)        (17,727)      (17,727)
       Stock issued under stock option,
         purchase and bonus plans                                     (215)                              293,959             6,204        5,989
       Tax benefits related to stock
         option plan                                                  649                                                                   649
    Balance, August 31, 1997            16,132,583      80,663     13,627                  293,600 (1,371,653)           (33,018) 354,872
       Comprehensive Income:
         Net earnings                                                                       42,714                                      42,714
         Other comprehensive loss -
          Foreign currency translation
             adjustment, net of taxes of $859                                  $(1,596)                                                  (1,596)
       Comprehensive income                                                                                                             41,118
       Cash dividends—$.52 per share                                                         (7,717)                                    (7,717)
       Treasury stock acquired                                                                          (496,000)        (14,732)      (14,732)
       Stock received from
         escrow upon settlement
         of Owen lawsuit                                                                                  (47,316)        (1,286)        (1,286)
       Stock issued under stock option,
         purchase and bonus plans                                     (237)                              351,997             8,476        8,239
       Tax benefits related to stock
         option plan                                                  895                                                                   895
    Balance, August 31, 1998            16,132,583      80,663     14,285       (1,596)    328,597 (1,562,972)           (40,560) 381,389
       Comprehensive Income:
         Net earnings                                                                       47,120                                      47,120
         Other comprehensive income-
          Foreign currency translation
             adjustment, net of taxes of $442                                      822                                                      822
       Comprehensive income                                                                                                             47,942
       Cash dividends—$.52 per share                                                         (7,540)                                    (7,540)
       Treasury stock acquired                                                                          (314,400)         (7,012)       (7,012)
       Stock issued under stock option,
         purchase and bonus plans                                     (560)                              151,049             3,833        3,273
       Tax benefits related to stock
         option plan                                                  406                                                                   406
    Balance, August 31, 1999            16,132,583 $ 80,663 $ 14,131 $            (774) $368,177 (1,726,323) $(43,739) $418,458
                                                                                                       See notes to consolidated financial statements.




                                                                                                                                              53.
Commercial Metals Company and Subsidiaries

Notes to Consolidated Financial Statements




        Note   1.      Summary of Significant                          amounts expected to be realized upon sale. The
                                                                       amounts the Company will ultimately realize could
                       Accounting Policies
                                                                       differ substantially from management’s estimates.
                                                                       [ Start-Up Costs ]     Start-up costs associated with the
        [ Nature of Operations ]    The Company manufactures,          acquisition and expansion of manufacturing and recy-
        recycles and markets steel and metal products and              cling facilities are expensed as incurred.
        related materials. Its manufacturing and recycling facil-
        ities and primary markets are located in the Sunbelt           [ Income Taxes ]    Deferred income taxes are provided
        from the mid-Atlantic area through the West. Through           for temporary differences between financial and tax
        its global marketing offices, the Company trades pri-           reporting. The principal differences are described in
        mary and secondary metals and other industrial                 footnote 5. Benefits from tax credits are reflected cur-
        products worldwide. As more fully discussed in footnote        rently in earnings.
        12, the Manufacturing segment is the most dominant in
        terms of capital assets and operating profit.                   [ Foreign Currency ]    The functional currency of the
                                                                       Company’s international subsidiaries in Australia, the
        [ Consolidation ]   The consolidated financial state-          United Kingdom, and Germany is the local currency.
        ments include the accounts of the Company and its              The remaining international subsidiaries’ functional
        subsidiaries. All material intercompany transactions           currency is the United States dollar. Translation
        and balances are eliminated in consolidation.                  adjustments are reported as a component of accumu-
                                                                       lated other comprehensive income.
        [ Revenue Recognition ]      Generally, sales are recog-          Gain or loss on foreign currency exchange contracts
        nized when title passes to the customer based on               designated as hedges is deferred and recognized upon
        customary industry practice. Certain revenues related          settlement of the related trade receivable or payable.
        to the steel fabrication operations are recognized on the
        percentage of completion method. Due to uncertainties          [ Use of Estimates ] The preparation of financial state-
        inherent in the estimation process, it is at least reason-     ments in conformity with generally accepted
        ably possible that completion costs for certain projects       accounting principles requires management to make
        will be further revised in the near-term.                      significant estimates regarding assets and liabilities
                                                                       and associated revenues and expenses. Management
        [ Inventories ]  Inventories are stated at the lower of cost   believes these estimates to be reasonable; however,
        or market. Inventory cost for most domestic inventories        actual results may vary.
        is determined by the last-in, first-out (LIFO) method;
        cost of international and remaining inventories is deter-      [ Cash Flows ]   For purposes of the statements of cash
        mined by the first-in, first-out (FIFO) method.                  flows, the Company considers investments that are
                                                                       short-term (generally with original maturities of three
        [ Property, Plant and Equipment ]     Property, plant and      months or less) and highly liquid to be cash equivalents.
        equipment is recorded at cost and is depreciated at
        annual rates based upon the estimated useful lives of          [ Reclassifications ]Certain reclassifications have been
        the assets using substantially the straight-line method.       made in the 1998 and 1997 financial statements to
        Provision for amortization of leasehold improvements           conform to the classifications used in the current year.
        is made at annual rates based upon the estimated use-
        ful lives of the assets or terms of the leases, whichever      [ Accounting Standards ]  The Company adopted State-
        is shorter.                                                    ment of Financial Accounting Standard (SFAS) No. 130,
                                                                       Reporting Comprehensive Income, effective September 1,
        [ Assets Held for Sale ] Included within other assets is       1998. SFAS 130 establishes new rules for the reporting
        equipment which is no longer used for Manufacturing            and display of comprehensive income and its compo-
        operations and is being held for sale. The assets are          nents; however, adoption had no impact on the
        recorded at management’s best estimate of the




.54
Company’s net income or stockholders’ equity. State-
ment 130 requires foreign currency translation
                                                              Note   3.        Credit Arrangements
adjustments to be included in other comprehensive
income. Prior year financial statements have been reclas-      The Company is active in the commercial paper mar-
sified to conform to the requirements of SFAS 130.             ket with a program that permits borrowings up to
   Effective for the year ended August 31, 1999, the          $100,000,000. It is the Company’s policy to maintain
Company adopted SFAS No. 131, “Disclosures about              formal bank credit lines equal to 100% of the amount
Segments of an Enterprise and Related Information,” which     of all commercial paper outstanding.
changed the method for determining and reporting                 The Company has numerous informal credit facili-
certain financial information at segment levels. Prior         ties available from domestic and international banks.
year segment disclosures have been modified to reflect          These credit facilities are priced at bankers’ acceptance
these new requirements.                                       rates or on a cost of funds basis. No compensating bal-
   The Company will adopt the American Institute of           ances or commitment fees are required under these
Certified Public Accountants’ (AICPA) Accounting              credit facilities.
Standards Executive Committee Statement of Position              The Company filed a shelf registration for $200 mil-
(SOP) 98-1, “Accounting for the Costs of Computer Software    lion of long- and medium-term notes, of which $100
Developed or Obtained for Internal Use,” on September 1,      million of investment grade, unsecured notes were sold
1999. This SOP requires that entities capitalize certain      in February 1999 with a coupon rate of 6.75%, and an
internal-use software costs once specific criteria are met.    effective rate of 6.76% due in February 2009. The pro-
Management does not anticipate this SOP will have a           ceeds from the notes were used to retire short-term
significant impact on the Company’s consolidated finan-         borrowings. The remaining $100 million securities
cial position or results of operations.                       included in the shelf registration can be issued over the
   In June 1998, the Financial Accounting Standards           next two years.
Board ( FASB) issued SFAS No. 133, “Accounting for               The Company’s $100 million investment grade,
Derivative Instruments and Hedging Activities,” which is      unsecured notes due in 2005 have a coupon rate of
effective for the Company’s year ending August 31,            7.20%, which, after netting the proceeds of an interest
2001. This statement requires all derivatives to be recog-    rate hedge, results in an effective interest rate of 7.04%.
nized as either assets or liabilities in the balance sheet,      On August 15, 1996, the Company arranged a five-
measured at fair value. Gains or losses resulting from        year, $40 million unsecured revolving credit loan
changes in the values of these derivatives would be           facility with a group of four banks. On October 29,
accounted for depending on the use of the derivative and      1998, an additional five year $60 million facility was
whether it qualifies for hedge accounting. Management          finalized with three banks. The agreements provide for
is currently assessing the impact of this statement on the    borrowing in United States dollars indexed to the ref-
consolidated financial statements.                             erence rate or to the offshore dollar interbank market
                                                              rate. Commitment fees of .1125% and .1800% per
                                                              annum are payable on the 1996 and 1998 credit lines,
Note   2.      Inventories                                    respectively. No compensating balances are required.
                                                                 Long-term debt and amounts due within one year as
Before reduction of LIFO reserves of $2,993,000 and           of August 31, 1999, are as follows:
                                                                                        Long-Term    Current
$22,459,000 at August 31, 1999 and 1998, respec-              (in thousands)              Debt      Maturities   Total
tively, inventories valued under the first-in, first-out        6.75% notes due 2009      $100,000    $      — $ 100,000
method approximated replacement cost.                         7.20% notes due 2005       100,000           —   100,000
   At both August 31, 1999 and 1998, 72% of total             6.80% notes due 2007        50,000           —    50,000
inventories were valued at LIFO. The remainder of             8.49% notes due 2001        14,285        7,143   21,428
inventories, valued at FIFO, consisted mainly of mater-       8.75% note due 1999             —         2,141    2,141
ial dedicated to international business.                      Other                        1,305          589    1,894
                                                                                        $265,590    $   9,873 $ 275,463
                                                              All interest is payable semiannually. The 6.75% notes
                                                              are due in February 2009; the 7.20% notes are due in




                                                                                                                            55.
      July 2005; the 6.80% notes in August 2007. The               in understanding the Company and minimal value in
      8.49% notes provide for annual principal repayments          making comparisons between companies.
      beginning on December 1, 1995; other notes are                 Due to near-term maturities, allowances for collec-
      payable semiannually or annually.                            tion losses, investment grade ratings and security
        Certain of the note agreements include various             provided, the following financial instruments’ carrying
      covenants. The most restrictive of these requires mainte-    amounts are considered equivalent to fair value:
      nance of consolidated net current assets of $75,000,000        • Cash and temporary investments
      and net worth (as defined) of $150,000,000. At August           • Commercial paper
      31, 1999, approximately $229,000,000 of retained               • Notes payable
      earnings was available for cash dividends under these          The Company’s long-term debt is both publicly and
      covenants.                                                   privately held. Fair value was determined for private
        The aggregate amounts of all long-term debt                debt by discounting future cash flows at current market
      maturities for the five years following August 31, 1999       yields and for public debt at indicated market values.
      are (in thousands): 2000–$9,873; 2001–$7,729;                (in thousands)                          1999      1998
      2002–$7,764; 2003–$4; 2004 and thereafter–$250,093.          Long-Term Debt:
        Interest expense is comprised of the following:              Carrying amount                    $275,463 $ 185,272
                                        Year ended August 31,        Estimated fair value               $264,715 $ 186,796
      (in thousands)             1999           1998        1997
                                                                   The fair value of all outstanding letters of credit is not
      Long-term debt           $ 12,013     $ 11,568 $ 10,894
                                                                   meaningful.
      Commercial paper            2,257        1,547      731
                                                                      In 1998, the Company entered into an interest rate
      Notes payable               5,380        4,940    3,012
                                                                   swap (variable to fixed) effective as a hedge for certain
                               $ 19,650     $ 18,055 $ 14,637      debt outstanding of its Australian subsidiary. The instru-
      Interest of $4,547,000, $2,290,000, and $804,000             ment’s notional amount is seven million Australian
      was capitalized in the cost of property, plant and           dollars and terminates June 2, 2003. The variable rate at
      equipment constructed in 1999, 1998, and 1997,               year end was 5.2% and the fixed rate 5.5%. At August
      respectively. Interest of $24,334,000, $20,691,000,          31, 1999, it had a fair value of $115,000.
      and $15,578,000 was paid in 1999, 1998, and 1997,               The Company does not have significant off-balance-
      respectively.                                                sheet risk from financial instruments. It enters into
                                                                   foreign exchange and commodity contracts as hedges
                                                                   when trade receivables and payables are denominated in
      Note   4.        Financial Instruments,                      currencies other than the functional currency. Effects of
                       Market and Credit Risk                      changes in currency rates are therefore minimized. The
                                                                   notional amount of foreign currency exchange contracts
                                                                   outstanding at year end was $65,744,000. The fair
      Management believes that the historical financial            value of these contracts effective as hedges if settled at
      statement presentation is the most useful for display-       August 31, 1999 would result in a gain of $356,000.
      ing the Company’s financial position. However,               As a matter of Company policy, foreign exchange con-
      generally accepted accounting principles require dis-        tracts are used to hedge only firm commitments, not
      closure of an estimate of the fair value of the              anticipated transactions. The Company does not hold
      Company’s financial instruments as of year end. These         financial instruments for trading purposes.
      estimated fair values disregard management intentions           Pricing of certain firm sales and purchase commit-
      concerning these instruments and do not represent liq-       ments is fixed to forward metal commodity exchange
      uidation proceeds or settlement amounts currently            quotes. The Company enters into metal commodity
      available to the Company. Differences between histori-       contracts (predominantly copper) as hedges of gross
      cal presentation and estimated fair values can occur for     margins on these commitments. The hedges are closed
      many reasons including taxes, commissions, prepay-           when the underlying sales and purchase commitments
      ment penalties, make-whole provisions and other
      restrictions as well as the inherent limitations in any
      estimation technique. Because of this, management
      believes this information may be of limited usefulness




.56
are priced, and gain or loss is recognized when the sale          reported amount in the financial statements. The
or purchase is recorded. The notional amount of for-              sources and deferred tax liabilities (assets) associated
ward commodity contracts outstanding at year-end                  with these differences are:
was $10,388,000. The fair value of these contracts                                                              August 31,
effective as hedges if settled at August 31, 1999 would           (in thousands)                            1999        1998

result in a gain of $288,000.                                     Tax on difference between tax
   The Company maintains both corporate and divi-                   and book depreciation                 $ 23,388    $19,165
sional credit departments. Limits are set for customers           U.S. taxes provided on foreign
and countries. Letters of credit issued or confirmed                 income and foreign taxes               11,497       11,595
through sound financial institutions are obtained to               Net operating losses                     (2,671)      (2,660)
further ensure prompt payment in accordance with                  Alternative minimum tax credit           (1,713)      (1,713)
terms of sale; generally, collateral is not required.             Other accruals                           (2,878)      (2,030)
   In the normal course of its marketing activities, the          Other                                    (4,360)      (2,981)
Company transacts business with substantially all sec-            Total                                   $ 23,263    $21,376
tors of the metals industry. Customers are                        The Company uses substantially the same depreciable
internationally dispersed, cover the spectrum of manu-            lives for tax and book purposes. Changes in deferred
facturing and distribution, deal with various types and           taxes relating to depreciation are mainly attributable
grades of metal, and have a variety of end markets in             to differences in the basis of underlying assets recorded
which they sell. The Company’s historical experience              under the purchase method of accounting. As noted
in collection of accounts receivable falls within the             above, the Company provides United States taxes on
recorded allowances. Due to these factors, no addi-               unremitted foreign earnings. Net operating losses con-
tional credit risk beyond amounts provided for                    sist of $4.5 million of federal net operating losses that
collection losses is believed inherent in the Company’s           are due to expire in 2009 and $51 million of state net
accounts receivable.                                              operating losses that expire during the tax years end-
                                                                  ing from 2006 to 2019. These assets will be reduced as
                                                                  tax expense is recognized in future periods. The $1.7
Note   5.        Income Taxes                                     million alternative minimum tax credit is available
                                                                  indefinitely.
The provisions for income taxes include the following:               The Company’s effective tax rates were 37.2% for
                                  Year ended August 31,           both 1999 and 1998, and 36.7% in 1997. Reconcilia-
(in thousands)             1999           1998        1997        tions of the United States statutory rates to the
Current:                                                          effective rates are as follows:
  United States         $ 22,443       $21,651      $19,986                                          Year ended August 31,
                                                                                              1999           1998            1997
  Foreign                    672           782          680
  State and local          2,689         2,558        2,065       Statutory rate              35.0%         35.0%        35.0%
                                                                  State and local taxes        2.3           2.6          2.2
                          25,804         24,991       22,731
                                                                  Other                        (.1)          (.4)         (.5)
Deferred                   2,106            364           (381)
                                                                  Effective tax rate          37.2%         37.2%        36.7%
                        $ 27,910       $25,355      $22,350
Taxes of $32,515,000, $21,444,000 and $25,506,000
were paid in 1999, 1998 and 1997, respectively.
  Deferred taxes arise from temporary differences
                                                                  Note    6.       Capital Stock

between the tax basis of an asset or liability and its
                                                                  [ Stock Purchase Plan ]   Substantially all employees
                                                                  may participate in the Company’s employee stock pur-
                                                                  chase plan. The Directors have authorized the annual
                                                                  purchase of up to 200 shares at a discount of 25% from




                                                                                                                                    57.
      the stock’s price. Annual activity of the stock purchase       Combined share information for the two plans is as
      plan was as follows:                                        follows:
                                 1999        1998       1997                                                  Weighted
                                                                                                              Average                Price
      Shares subscribed         187,460    161,130 165,300                                                    Exercise              Range
        Price per share        $ 19.50    $ 24.59 $ 23.80                                          Number      Price               Per Share

      Shares purchased           39,810    138,640 152,260        September 1, 1996
        Price per share        $ 24.59    $ 23.80 $ 17.80           Outstanding                  1,714,495 $22.58 $ 8.72-27.61
      Shares available          455,161                             Granted                        390,251 28.00         28.00
                                                                    Exercised                     (161,879) 18.60   8.72-27.61
      The Company recognized compensation expense for
                                                                    Forfeited                      (23,559) 26.46 18.42-28.00
      this plan of $326,000, $1,053,000 and $906,000 in
                                                                    Exercisable                  1,108,337 21.32    8.72-27.61
      1999, 1998 and 1997, respectively.
                                                                  August 31, 1997
      [ Stock Option Plans ]   The 1986 Stock Incentive Plan        Outstanding                  1,919,308 $23.99 $ 8.72-28.00
      (1986 Plan) terminated November 23, 1996, except as           Granted                        364,841 29.81         29.81
      to awards outstanding. Under the 1986 Plan, stock             Exercised                     (229,277) 19.05   8.72-28.00
      options were awarded to full-time salaried employees.         Forfeited                       (9,859) 27.35   8.72-29.81
      The option price was the fair market value of the Com-        Exercisable                  1,454,626 24.14 12.61-28.00
      pany’s stock at the date of grant, and the options are      August 31, 1998
      exercisable two years from date of grant.                     Outstanding                  2,045,013 $25.56 $12.61-29.81
         The 1996 Long-Term Incentive Plan (1996 Plan)              Granted                          7,000 24.01 21.94-26.69
      was approved in December 1996. Under the 1996                 Exercised                     (118,587) 18.44 12.61-29.81
      Plan, stock options, stock appreciation rights, and           Forfeited                      (22,665) 28.59 13.64-29.81
      restricted stock may be awarded to employees. The             Exercisable                  1,712,318 25.56 12.61-29.81
      option price for both the stock options and the stock         Increased Authorized           743,994
      rights will not be less than the fair market value of the   August 31, 1999
      Company’s stock at the date of grant. Vesting periods         Outstanding                  1,910,761 $25.96 $12.61-29.81
      are variable but no award may be exercised after ten          Authorized
      years. The outstanding awards under the 1996 Plan             Shares Remaining               762,058
      vest 50% after one year and 50% after two years from
      date of grant and will expire seven years after grant. In   Share information for options at August 31, 1999:
      1999, the shareholders of the Company authorized an                      Outstanding                           Exercisable
      amendment to the 1996 Plan resulting in additional                                        Weighted
      authorized shares of 743,994.                                                              Average
                                                                                                Remain- Weighted                Weighted
                                                                    Range of                    ing Con- Average                 Average
                                                                    Exercise         Number      tractual Exercise    Number     Exercise
                                                                     Price          Outstanding Life (Yrs) Price     Outstanding Price

                                                                  $12.61-18.42 178,380            2.3    $17.15 178,380 $17.15
                                                                  $20.20-24.50 406,678            4.5    $22.53 402,730 $22.54
                                                                  $26.25-29.81 1,325,703          5.5    $28.20 1,131,208 $27.97
                                                                  $12.61-29.81 1,910,761          5.0    $25.96 1,712,318 $25.56

                                                                  The Company has maintained its historical method for
                                                                  accounting for stock options, which recognizes no
                                                                  compensation expense for fixed options granted at cur-
                                                                  rent market values. Generally accepted accounting
                                                                  principles require disclosure of an estimate of the
                                                                  weighted-average grant date fair value of options
                                                                  granted during the year and pro forma disclosures of
                                                                  the effect on earnings if compensation expense had
                                                                  been recorded.




.58
The Black-Scholes option pricing model used requires                exercisable or trade separately from the common stock
the following weighted-average assumptions:                         unless at least one of the following conditions are met:
                                  1999         1998        1997     a public announcement that a person has acquired
Risk-free interest rate         4.80%        5.44%      6.22%       15% or more of the common stock of the Company, or
Expected life                 4.15 years   4.60 years 4.85 years    a tender or exchange offer is made for 15% or more of
Expected volatility              .214         .170       .160       the common stock of the Company. Should either of
Expected dividend yield         1.7%         1.8%       1.7%        these conditions be met and the Rights become exer-
Management believes that the resulting answer has                   cisable, each Right will entitle the holder (other than
narrow reliability as characteristics of the Company’s              the acquiring person or group) to buy one one-thou-
options such as nontransferability, forfeiture provi-               sandth of a share of the Series A Preferred Stock at an
sions, and long lives are inconsistent with the option              exercise price of $150.00. Each fractional share of the
model’s basic purpose of valuing traded options. For                Series A Preferred Stock will essentially be the eco-
purposes of pro forma earnings disclosures, the                     nomic equivalent of one share of common stock. Under
assumed compensation expense is amortized over the                  certain circumstances, each Right would entitle its
option’s vesting period. The 1999 pro forma informa-                holder to purchase the Company’s stock or shares of the
tion includes options granted in 1997, 1998, and                    acquirer’s stock at a 50% discount. The Company’s
1999. The 1998 pro forma information includes                       Board of Directors may choose to redeem the Rights
options granted in 1997 and 1998.                                   (before they become exercisable) at $0.001 per Right.
                                  1999         1998        1997     The Rights expire July 28, 2009.
Net Earnings (in thousands)
  As reported                 $ 47,120     $42,714     $ 38,605
  Pro Forma                     45,598      41,120       37,584     Note   7.     Employees’ Pension and
Net Earnings per share                                                            Profit Sharing Plans
  As reported                 $    3.22    $    2.82   $     2.54
  Pro Forma                        3.12         2.72         2.47
                                                                    Substantially all employees of the Company and its
The weighted-average fair value of options granted                  subsidiaries are covered by defined contribution profit
in 1999, 1998 and 1997 was $5.07, $6.06 and $6.27,                  sharing and savings plans. Company contributions,
respectively.                                                       which are discretionary, to all plans were $15,933,000,
[ Preferred Stock ]       Preferred stock has a par value of        $19,448,000, and $14,468,000, for 1999, 1998 and
$1.00 a share, with 2,000,000 shares authorized. It may             1997, respectively.
be issued in series, and the shares of each series shall              During 1998 the Company settled its only remain-
have such rights and preferences as fixed by the Board               ing defined benefit plan, which it had terminated in
of Directors when authorizing the issuance of that par-             1997. Included in 1998 is pension expense of
ticular series. There are no shares of preferred stock              $3,310,000, substantially all of which was a settle-
outstanding.                                                        ment liability.

[ Stockholder Rights Plan ]     On July 28, 1999, the
Company’s Board of Directors adopted a stockholder                  Note   8.     Postretirement Benefits
rights plan pursuant to which stockholders were                                   Other Than Pensions/
granted preferred stock rights (Rights) to purchase one                           Postemployment Benefits
one-thousandth of a share of the Company’s Series A
Preferred Stock for each share of common stock held.
In connection with the adoption of such plan, the                   The Company has no significant postretirement
Company designated and reserved 100,000 shares of                   obligations. The Company’s historical costs for
preferred stock as Series A Preferred Stock and declared            postemployment benefits have not been significant and
a dividend of one Right on each outstanding share of                are not expected to be in the future.
the Company’s common stock. Rights were distrib-
uted to stockholders of record as of August 9, 1999.
  The Rights are represented by and traded with the
Company’s common stock. The Rights do not become




                                                                                                                               59.
      Note   9.        Commitments and                             above-referenced matters, it makes accruals as war-
                                                                   ranted. Due to evolving remediation technology,
                       Contingencies
                                                                   changing regulations, possible third-party contribu-
                                                                   tions, the inherent shortcomings of the estimation
      Minimum rental commitments payable by the Com-               process and other factors, amounts accrued could vary
      pany and its consolidated subsidiaries for noncancelable     significantly from amounts paid. Accordingly, it is not
      operating leases in effect at August 31, 1999, are as fol-   possible to estimate a meaningful range of possible
      lows for the fiscal periods specified:                         exposure. It is the opinion of the Company’s manage-
                                                          Real     ment that the outcome of these proceedings,
      (in thousands)                       Equipment     Estate
                                                                   individually or in the aggregate, will not have a mate-
      2000                                 $   3,622 $    3,006    rial adverse effect on the business or consolidated
      2001                                     3,235      1,985    financial position of the Company.
      2002                                     2,517      1,064
      2003                                     1,464        740
      2004 and thereafter                        368      1,707    Note   10. Earnings Per Share
                                           $ 11,206 $     8,502
      Total rental expense was $9,100,000, $9,634,000 and          There were no adjustments to net earnings to arrive at
      $8,621,000 in 1999, 1998 and 1997, respectively.             income for any years presented. The stock options
          In the ordinary course of conducting its business,       granted June 11, 1998, with total outstanding share
      the Company becomes involved in litigation, adminis-         commitments of 351,002 at year end, are antidilutive.
      trative proceedings and governmental investigations,                                            August 31,
      including environmental matters. Management                                           1999         1998        1997
      believes that adequate provision has been made in the        Shares outstanding
      financial statements for the potential impact of these           for basic
      issues, and that the outcomes will not significantly             earnings per share 14,510,882 14,829,515 14,910,771
      impact the results of operations or the financial posi-       Effect of dilutive securities:
      tion of the Company although they may have a                    Stock options/
      material impact on earnings for a particular quarter.           purchase plans              115,658  291,271    308,956
         The Company has received notices from the U.S.            Shares outstanding for
      Environmental Protection Agency (EPA) or equivalent             dilutive earnings
      state agency that it is considered a potentially respon-        per share              14,626,540 15,120,786 15,219,727
      sible party (PRP) at thirteen sites, none owned by the
      Company, and may be obligated under the Compre-
      hensive Environmental Response, Compensation, and
      Liability Act of 1980 (CERCLA) or similar state statute
      to conduct remedial investigations, feasibility studies,
      remediation and/or removal of alleged releases of haz-
      ardous substances or to reimburse the EPA for such
      activities. The Company is involved in litigation or
      administrative proceedings with regard to several of
      these sites in which the Company is contesting, or at
      the appropriate time may contest, its PRP designation.
      In addition, the Company has received information
      requests with regard to other sites which may be under
      consideration by the EPA as potential CERCLA sites.
         Some of these environmental matters or other pro-
      ceedings may result in fines, penalties or judgments
      being assessed against the Company. While the Com-
      pany is unable to estimate precisely the ultimate dollar
      amount of exposure to loss in connection with the




.60
Note   11. Other Payables and                              those described in the summary of significant account-
                                                           ing policies.
                 Accrued Expenses
                                                              The following presents information regarding the
                                          August 31,       Company’s domestic and operations outside of the
(in thousands)                        1999       1998      United States:
Salaries, wages and commissions    $ 29,240 $ 32,685                                       External Revenues for the
                                                                                            Year ended August 31,
Employees’ retirement plans          27,588   21,882
                                                           (in thousands)                1999           1998         1997
Advance billings on contracts        15,130   15,585
                                                           United States          $1,491,371 $1,615,893 $1,519,538
Insurance                            10,755   11,202
                                                           Non United States         760,071    751,676    738,850
Accrual for contract losses           7,132    2,379
                                                           Total                  $2,251,442 $2,367,569 $2,258,388
Environmental                         5,339    5,718
Litigation accrual                    6,650    6,650
                                                                                                 Long-Lived Assets
Freight                               6,381    4,936                                              as of August 31,
Taxes other than income taxes         7,704    7,558       (in thousands)                1999           1998         1997
Interest                              3,412    3,348       United States             $409,886       $322,620 $ 246,560
Other accrued expenses               34,558   31,451       Non United States            6,765          6,497     7,225
                                   $153,889 $143,394       Total                     $416,651       $329,117 $ 253,785


                                                              Summarized data for the Company’s international
Note   12. Business Segments                               operations located outside of the United States (princi-
                                                           pally in Europe, Australia and the Far East) are as
The Company’s reportable segments are based on             follows:
                                                                                                Year ended August 31,
strategic business areas, which offer different products
                                                           (in thousands)                1999           1998         1997
and services. These segments have different lines of
                                                           Revenues-unaffiliated
management responsibility as each business requires
                                                           customers                 $306,279       $330,772 $ 358,483
different marketing strategies and management expertise.
    The Company has three reportable segments con-         Operating profit           $    5,521     $    4,491 $        3,469
sisting of Manufacturing, Recycling, and Marketing         Total assets              $101,434       $107,422 $ 95,358
and Trading. Manufacturing consists of the CMC Steel       The following is a summary of certain financial infor-
Group’s minimills, steel and joist fabrication opera-      mation by reportable segment:
tions, fence post manufacturing plants, heat treating,
railcar rebuilding and concrete-related products, as
well as the Howell Metal Company’s copper tube man-
ufacturing facility. The Manufacturing segment’s
business operates primarily in the southern United
States. Recycling consists of the Secondary Metals Pro-
cessing Division’s scrap processing and sales operations
primarily in Texas, Florida and the southern United
States. Marketing and Trading includes both domestic
and international operations for the sales and distribu-
tion of both ferrous and nonferrous metals and other
industrial products. The segment’s activities consist
only of physical transactions and not speculation.
   The company uses operating profit and profit before
tax to measure segment performance. Intersegment
sales are generally priced at prevailing market prices.
Certain corporate administrative expenses are allocated
to segments based upon the nature of the expense. The
accounting policies of the segments are the same as




                                                                                                                                61.
      Note   12. Business Segments (Continued):
                                                                                                 Adjustments
                                                                      Marketing                      and
      1999 (in thousands)                Manufacturing   Recycling   and Trading   Corporate     Eliminations   Consolidated
      Net sales– unaffiliated
        customers                        $1,202,057      $283,635    $765,673      $      77     $       —      $2,251,442
      Intersegment sales                      3,948        18,300       35,941            —          (58,189)             —
        Net sales                         1,206,005       301,935     801,614             77         (58,189)    2,251,442
      Operating profit (loss)                 83,796        (5,024)      22,606         (6,698)                       94,680

      Profit (loss) before income taxes       83,710        (5,074)      19,956     (23,562)                          75,030
      Interest expense                       4,068          2,373        2,115         15,641         (4,547)       19,650
      Capital expenditures                 130,098          6,468        1,291          3,895                      141,752
      Depreciation and amortization         38,841         11,767        1,050            396                       52,054
      Total assets                       $ 683,561       $114,807    $242,547      $ 38,073      $       —      $1,078,988


      1998 (in thousands)

      Net sales– unaffiliated
        customers                        $1,229,016      $386,002    $752,501      $      50     $        —     $2,367,569
      Intersegment sales                      4,925        28,884      35,991                        (69,800)
        Net sales                         1,233,941       414,886     788,492             50         (69,800)    2,367,569
      Operating profit (loss)                 74,766        (1,354)      20,582         (7,870)                       86,124

      Profit (loss) before income taxes       74,753        (1,358)      17,660     (22,986)                          68,069
      Interest expense                        5,375         1,614        1,688         11,668         (2,290)       18,055
      Capital expenditures                   90,036        27,391        1,360          1,128                      119,915
      Depreciation and amortization          35,364        10,925          939           232                         47,460
      Total assets                       $ 622,694       $118,905    $236,968      $ 24,050      $       —      $1,002,617


      1997 (in thousands)

      Net sales–unaffiliated
        customers                        $1,077,296      $453,436    $727,532      $     124     $        —     $2,258,388
      Intersegment sales                      5,703        31,182      30,672                        (67,557)
        Net sales                         1,082,999       484,618     758,204            124         (67,557)    2,258,388
      Operating profit (loss)                 54,782         7,615       17,636         (4,441)                       75,592

      Profit (loss) before income taxes       54,770         7,608       15,947     (17,370)                          60,955
      Interest expense                        4,378         1,880          516          8,667           (804)        14,637
      Capital expenditures                   50,773        15,885        4,023            274                        70,955
      Depreciation and amortization          32,915         9,926          669           210                         43,720
      Total assets                       $ 510,951       $112,875    $192,224      $ 23,011      $       —      $ 839,061




.62
Note   13. Quarterly Financial Data
                (Unaudited)


Summarized quarterly financial data for 1999, 1998 and
1997 are as follows (in thousands except per share data):
                           Three Months Ended 1999
                Nov. 30      Feb. 28     May 31      Aug. 31
Net sales      $ 549,376   $550,537     $582,154     $569,375
Gross profit       74,120     70,163       76,139       82,424
Net earnings      11,011      8,386       11,002       16,721
EPS basic            .76        .57          .76         1.16
EPS diluted          .75        .57          .76         1.15

                           Three Months Ended 1998
                Nov. 30      Feb. 28     May 31      Aug. 31
Net sales      $ 550,501   $568,178     $606,099     $642,791
Gross profit       63,801     66,284       73,836       80,375
Net earnings       8,053      8,348       11,391       14,922
EPS basic            .55        .57          .77         1.01
EPS diluted          .54        .56          .75         1.00

                           Three Months Ended 1997
                Nov. 30      Feb. 28     May 31      Aug. 31
Net sales      $ 530,961   $525,755     $589,646     $612,026
Gross profit       61,654     58,411       66,009       68,159
Net earnings       9,177      7,201        9,510       12,717
EPS basic            .61        .48          .64          .87
EPS diluted          .60        .47          .63          .85

The quantities and costs used in calculating cost of
goods sold on a quarterly basis include estimates of the
annual LIFO effect. The actual effect cannot be known
until the year end physical inventory is completed and
quantity and price indices are developed. The quarterly
cost of goods sold above includes such estimates.
Fourth quarter 1999 net earnings increased $5,986,000
after the final determination of quantities and prices
was made.
   During 1999, the Company received $8.1 million in
settlements for antitrust litigation included in net sales,
of which $3.0 million was received in the fourth quarter.




                                                                63.
Independent Auditors’ Report


      Board of Directors and Stockholders
      Commercial Metals Company
      Dallas, Texas


      We have audited the consolidated balance sheets of
      Commercial Metals Company and subsidiaries at
      August 31, 1999 and 1998 and the related consoli-
      dated statements of earnings, stockholders’ equity and
      cash flows for each of the three years in the period
      ended August 31, 1999. These financial statements are
      the responsibility of the Company’s management. Our
      responsibility is to express an opinion on these finan-
      cial statements based on our audits.
         We conducted our audits in accordance with gener-
      ally accepted auditing standards. Those standards
      require that we plan and perform the audit to obtain
      reasonable assurance about whether the financial state-
      ments are free of material misstatement. An audit
      includes examining, on a test basis, evidence support-
      ing the amounts and disclosures in the financial
      statements. An audit also includes assessing the
      accounting principles used and significant estimates
      made by management, as well as evaluating the overall
      financial statement presentation. We believe that our
      audits provide a reasonable basis for our opinion.
         In our opinion, such consolidated financial state-
      ments present fairly, in all material respects, the
      financial position of Commercial Metals Company and
      subsidiaries at August 31, 1999 and 1998, and the
      results of their operations and their cash flows for each
      of the three years in the period ended August 31,
      1999, in conformity with generally accepted account-
      ing principles.



                                                Dallas, Texas
                                            October 13, 1999




.64
Commercial Metals Company Management



     Board of Directors                                                      Corporate Officers



                  Stanley A. Rabin             Anthony A. Massaro                         Bert Romberg
                  Chairman of the              Chairman, President and                    Senior Vice President
                  Board, President and         Chief Executive Officer,
                  Chief Executive Officer;     The Lincoln Electric
                  Member of Executive          Company, Cleveland, Ohio;
                  Committee                    Member of Compensation
                                               Committee




                  Albert A. Eisenstat          Dorothy G. Owen                            William B. Larson
                  Atherton, California;        Chairman-Emeritus                          Vice President and
                  Chairman of Audit            Owen Steel Company, Inc.                   Chief Financial Officer
                  Committee and Member of      Columbia, South Carolina;
                  Compensation Committee       Member of Audit Committee




                  Moses Feldman                Charles B. Peterson                        David M. Sudbury
                  President, AeroMed, Inc.     Investments, Dallas, Texas;                Vice President,
                  Hatfield, Pennsylvania;      Member of Compensation                     Secretary and
                  Member of Audit and          and Audit Committees                       General Counsel
                  Compensation Committees




                  A. Leo Howell                Marvin Selig                               Louis A. Federle
                  Vice President, CMC;         CMC Steel Group                            Treasurer
                  Chairman of Executive        Chairman and
                  Committee; President,        Chief Executive Officer;
                  Howell Metal Company         Member of Executive
                                               Committee




                  Walter F. Kammann            Robert R. Womack                           Malinda G. Passmore
                  Managing Director-Emeritus   Chairman and Chief                         Controller
                  Commercial Metals            Executive Officer of Bath
                  Company Holding AG           and Plumbing Products
                  Zug, Switzerland             Group of U.S. Industries,
                                               Addison, Texas; Member
                                               of Audit Committee




                  Ralph E. Loewenberg                                                     Milton L. Davis
                  President, R.E. Loewenberg                                              Assistant Controller
                  Capital Management
                  Corporation, New York, NY;
                  Chairman of Compensation
                  Committee and Member of
                  Audit Committee




                                                                                                                 65.
Commercial Metals Company and Subsidiaries

Operations




 C MC Steel Group                               Safety Steel Service, Inc.            Southern Post-Texas
                                                P. O. Box 2298                        440 Wonder World Drive
                                                Victoria, Texas 77902                 San Marcos, Texas 78666

            Steel Manufacturing                 SMI Georgia Rebar                     Southern Post-Utah
                                                P. O. Box 368                         920 W. 600 North
            SMI Steel-Arkansas                  Lawrenceville, Georgia 30046          Brigham City, Utah 84302
            P. O. Box 1147
            Magnolia, Arkansas 71754            SMI Joist Company                     Southern States Steel Company
                                                P. O. Box 2000                        9675 Walden Road
            SMI Steel Inc.                      Hope, Arkansas 71802-2000             Beaumont, Texas 77707
            101 South 50th St.
            Birmingham, Alabama 35212           SMI Joist Florida                     Sterling Steel Company
                                                P. O. Box 310                         2001 Brittmoore Road
            SMI Steel South Carolina            Starke, Florida 32091                 Houston, Texas 77043
            310 New State Road
            Cayce, South Carolina 29033         SMI Joist Nevada                      Texas Cold Finished Steel, Inc.
                                                2121 Trento Lane                      1300 Baker
            Structural Metals, Inc.             Fallon, Nevada 89406                  Houston, Texas 77002
            Steel Mill Road
            Seguin, Texas 78155                 SMI Joist South Carolina              Concrete- Related Products
                                                850 Taylor Street
            Steel Fabrication                   Cayce, South Carolina 29033           Construction Materials, Inc.
            and Warehousing                                                           4212 N. Bolton Avenue
                                                SMI-Owen Steel Company                Alexandria, Louisiana 71303
            Alamo Steel Company                 824 Greene Street
            321 Old Dallas Road                 Columbia, South Carolina 29201        Construction Materials, Inc.
            Waco, Texas 76705                                                         18909 Highland Road
                                                SMI Rebar North Carolina              Baton Rouge, Louisiana 70821
            Allegheny Heat Treating Co., Inc.   2528 N. Chester St.
            P. O. Box U                         Gastonia, North Carolina 28052        Construction Materials, Inc.
            Chicora, Pennsylvania 16025                                               600 St. George Street
                                                SMI Rebar South Carolina              New Orleans, Louisiana 70121
            Capitol City Steel Company          2105 S. Beltline
            900 North IH 35                     Columbia, South Carolina 29201        Construction Materials, Inc.
            Buda, Texas 78610                                                         2135 McClellan Street
                                                SMI Rebar Virginia                    Shreveport, Louisiana 71103
            Capitol Steel, Inc.                 9434 Crossroads Parkway
            2655 N. Foster Dr.                  Fredericksburg, Virginia 22408        Construction Materials, Inc.
            Baton Rouge, Louisiana 70805                                              3310 East Napoleon
                                                SMI Steel Florida                     Sulphur, Louisiana 70664
            Capitol Steel-Slidell               10483 General Avenue
            P. O. Box 3219                      Whitehouse, Florida 32220             Construction Materials, Inc.
            Slidell, Louisiana 70459                                                  3408 A Avenue
                                                SMI Steel Products                    Gulfport, Mississippi 39507
            CMC Steel Fabricators, Inc.         4365 Highway 278 West
            Steel Mill Road                     Hope, Arkansas 71801                  Shepler’s
            Seguin, Texas 78155                                                       251 Hosea Rd.
                                                South Carolina Steel                  Lawrenceville, Georgia 30045
            CoMet Steel, Inc.                   113 East Warehouse Ct.
            4846 Singleton Blvd.                Taylors, South Carolina 29687         Shepler’s
            Dallas, Texas 75212                                                       4123 Todd Lane
                                                Southern Post Company                 Austin, Texas 78760
            Houston Steel Service Company       P. O. Box 1147
            5321 Westpark Drive                 Magnolia, Arkansas 71753-1147         Shepler’s
            Houston, Texas 77056                                                      580A Graham Rd.
                                                Southern Post Company                 College Station, Texas 77845
            Safety Railway Service              14340 Torrey Chase Blvd., #360
            Hwy. 59, Aloe Field                 Houston, Texas 77014                  Shepler’s
            Victoria, Texas 77901                                                     2309 N. Frazier
                                                Southern Post-South Carolina          Conroe, Texas 77303
            Safety Steel Service, Inc.          1540 Pine Ridge Dr.
            6802 Safety Steel Drive             West Columbia, South Carolina 29172   Shepler’s
            Corpus Christi, Texas 78412                                               301 45th Street
                                                                                      Corpus Christi, Texas 78405




.66
Shepler’s                                     SMI-Texas                            Commercial Metals Company
9103 E. Almeda Road                           Steel Mill Road                      2160 Harbor Street
Houston, Texas 77054                          Seguin, Texas 78155                  Houston, Texas 77020

Shepler’s                                     Copper Tube                          Commercial Metals Company
2001 Brittmoore Road                          Manufacturing                        2015 Quitman Street
Houston, Texas 77043                                                               Houston, Texas 77026
                                              Howell Metal Company
Shepler’s                                     State Route 728                      Commercial Metals Company
513 32nd Street                               New Market, Virginia 22844           2038 North Lane Avenue
Lubbock, Texas 79404                                                               Jacksonville, Florida 32254
                                                                                      Feeder Yard: Lake City, Florida
Shepler’s
                                      Recycling
Hwy. 281 & East Owassa                                                             Commercial Metals Company
Pharr, Texas 78577                                                                 12th & Iowa Street
                                                                                   Joplin, Missouri 64802
Shepler’s                                     Secondary Metals Processing             Feeder Yards: Frontenac, Kansas
3203 South IH 35                                                                                    Independence, Kansas
Round Rock, Texas 78664                       Aaron Scrap Metals                                    Miami, Oklahoma
                                              Division Commercial Metals Company
Shepler’s                                     P. O. Box 607069                     Commercial Metals Company
4911 Whirlwind Drive                          Orlando, Florida 32860-7069          Interstate 27 & County Rd. 58
San Antonio, Texas 78217                         Feeder Yard: Palm Bay, Florida    Lubbock, Texas 79401

Shepler’s                                     All American Recycling               Commercial Metals Company
3502 2nd Ave. South                           Division Commercial Metals Company   3501 West Second Street
Texas City, Texas 77590                       4351 W. Hwy. 40                      Odessa, Texas 79763
                                              Ocala, Florida 34482                   Feeder Yards: Midland, Texas
Industrial Products
                                                                                                   Odessa, Texas
                                              All Metals Processors
SMI-Owen Supply Company
                                              Division Commercial Metals Company   Commercial Metals Company
831 Blossom Street
                                              12335 Almeda Rd.                     634 E. Phelps
Columbia, South Carolina 29201
                                              Houston, Texas 77045                 Springfield, Missouri 65806
                                                                                      Feeder Yard: Springfield, Missouri
Rail Salvage
                                              American Iron & Metal Company
                                              Division Commercial Metals Company   Commercial Metals Company
SMI Rail
                                              2215 South Good-Latimer              62nd Street & SCL Railroad
Steel Mill Road
                                              Dallas, Texas 75226                  Tampa, Florida 33619
Seguin, Texas 78155
                                              Commercial-Levin                     Commercial Metals Company
Scrap Processing
                                              Division Commercial Metals Company   398 Industrial Park Drive
AMP Recycling                                 2600 Park Road Extension             Victoria, Texas 77905
1704 Howard Lane                              Burlington, North Carolina 27215
                                                                                   Commercial Metals Company
Austin, Texas 78664
                                              Commercial Metals Company            8230 Doniphan Dr.
CMC-Augusta                                   5250 College Street                  Vinton, Texas 79821
1890 Old Savannah Rd.                         Beaumont, Texas 77707
                                                                                   Liberty
Augusta, Georgia 30901
                                              Commercial Metals Company            Division Commercial Metals Company
CMC-Cayce                                     400 E. 20th St.                      1729 North Westmoreland Rd.
603 Godley Street                             Chattanooga, Tennessee 37408         Dallas, Texas 75212
Cayce, South Carolina 29033                     Feeder Yard: Chattanooga,             Feeder Yard: Shreveport, Louisiana
                                                              Tennessee
CMC-Lexington                                                                      Sun State Recycling
2308 Two Notch Road                           Commercial Metals Company            1508 N.W. 55th Place
Lexington, South Carolina 29072               215 Mockingbird                      Gainesville, Florida 32653
                                              Clute, Texas 77531
CMC-North Augusta                                                                  Sun State Recycling of Leesburg
1119 Atomic Road                              Commercial Metals Company            2296 Highway 441
North Augusta, South Carolina 29841           4614 Agnes Street (Hwy. 44)          Fruitland Park, Florida 34731
                                              Corpus Christi, Texas 78405
Commercial Metals-Austin Inc.                    Feeder Yard: Laredo, Texas        Sun State Recycling of Ocala
710 Industrial Blvd.                                                               7100 N.W. Gainesville Rd.
Austin, Texas 78745                           Commercial Metals Company            Ocala, Florida 34475
                                              601 North Throckmorton
Horowitz Salvage                              Fort Worth, Texas 76106
1558 N. Austin St.
Seguin, Texas 78155                           Commercial Metals Company
                                              71st and Broadway Street
                                              Galveston, Texas 77550




                                                                                                                           67.
Marketing and Trading                        Commonwealth Metal                   Divisions and Subsidiaries
                                             Division Commercial Metals Company
                                             560 Sylvan Avenue
        CMC (Australia) Pty., Limited        Englewood Cliffs, New Jersey 07632
                                                                                  Manufacturing
        Level 2, Balcroft Centre
                                             Dallas Trading Division
        Garden Office Park
                                             Division Commercial Metals Company
        345 Harborne Street
                                             1929 South 6th Avenue                        C MC Steel Group
        Herdsman, WA 6017 Australia
                                             Arcadia, California 91006
        CMC (Australia) Pty., Limited                                                     Marvin Selig
                                             Dallas Trading Division                      Chairman & Chief Executive Officer
        Level 5, 4-8 Woodville Street
                                             Division Commercial Metals Company
        Hurstville, Sydney
                                             7800 Stemmons Freeway                        Clyde P. Selig
        N.S.W. 2220 Australia
                                             Dallas, Texas 75247                          President & Chief Operating Officer
        CMC (Australia) Pty., Limited
                                             Representative Offices                       Hugh M. Ghormley
        Tomago Heat Treatment Plant
        2/13 Old Punt Road                                                                President, Fabrication Plants
                                             CMC Cometals, Inc.
        Tomago, N.S.W. 2322 Australia        Room 500, 27 B.                              Dolph C. Morrison
                                             Kommunisticheskaya Str.                      Executive Vice President
        CMC (Australia) Pty., Limited
                                             Moscow 109004 Russia
        1st Floor, 425-427 Riversdale Road
                                                                                          Russell Rinn
        Hawthorn East                        Cometals China, Inc.                         Executive Vice President
        Victoria 3123 Australia              22/F Full Link Plaza
                                             Suite 2206-2207                              Jeff H. Selig
        CMC Fareast Limited
                                             No. 18 Chaoyangmenwai Avenue                 Executive Vice President
        Unit C, 12th Floor
                                             Beijing 100020, China
        128 Gloucester Road                                                               Byron Henderson
        Hong Kong                            Daltrading Limited                           Senior Vice President
                                             Wooduck Bldg., 6th Floor
        CMC International (S.E. Asia) Pte.                                                H. Avery Hilton, Jr.
                                             832-2 Yoksamdong, Kangnamku
        Limited                                                                           Senior Vice President
                                             Seoul, South Korea
        298 Tiong Bahru Road
        #03-03 Tiong Bahru Plaza             Agents                                       Binh K. Huynh
        Singapore 168730                                                                  Vice President, Commercial Operations
                                             Athens, Greece
        CMC Trading AG                                                                    Phil Seidenberger
                                             Bangkok, Thailand
        Baarerstrasse 14                                                                  Vice President
        CH-6301 Zug, Switzerland             Beijing, China
                                             Bombay, India                                Kyle K. Kraft
        CMC (UK) Limited                     Buenos Aires, Argentina                      Controller
        1st Floor, Milton House              Cairo, Egypt
        27 Station Road                                                                   Howell Metal Company
                                             Caracas, Venezuela
        Egham
                                             Ho Chi Minh City, Vietnam                    A. Leo Howell
        Surrey TW20 9LB, United Kingdom
                                             Istanbul, Turkey                             President
        CMC (UK) Limited                     Jakarta, Indonesia
        Sandbach Steel                       Kaohsiung, Taiwan                            James K. Forkovitch
        Wesley Court                                                                      Vice President
                                             Manila, Philippines
        Bradwall Road                        Milan, Italy                                 Willard G. Williams
        Sandbach, Cheshire CW11 1DG          Moscow, Russia                               Controller
        United Kingdom                       Sao Paulo, Brazil
        Cometals                             Sosnowiec, Poland
        Division Commercial Metals Company   Temse, Belgium                       Recycling
        One Penn Plaza, Suite 4330           Tokyo, Japan
        New York, New York 10119-0118

        Commercial Metals                                                                 Secondary Metals
        Deutschland GmbH                                                                  Processing Division
        Sattlerweg 8
                                                                                          Harry J. Heinkele
        D-51429 Bergisch Gladbach
                                                                                          President
        Germany
                                                                                          Rocky Adams
        Commercial Metals
                                                                                          Vice President - South Texas
        (International) AG
        Baarerstrasse 14                                                                  Chuck Grossman
        CH-6301 Zug, Switzerland                                                          Vice President - Southeast U.S.A.




.68
        Robert J. Melendi                          Dallas Trading Division                 Corporate Information
        Vice President - Marketing & Sales
                                                   J. Matthew Kramer
        Larry Nance                                President
        Vice President - West Texas                                                                Transfer Agent and Registrar
                                                   Albert Lee
        Carl J. Nastoupil                          General Manager, New Steel Dept.                ChaseMellon
        Vice President & Controller                                                                Shareholder Services, LLC
                                                   Brad A. Cottrell                                Overpeck Centre
        Alan Postel                                Manager, Ferrous Trading                        85 Challenger Road
        Vice President - North Texas                                                               Ridgefield Park, NJ 07660-2104
                                                   Ellen M. Derington                              (800) 635-9270
        Jim Vermillion                             Manager, Trading Services
        Vice President - Central U.S.A.                                                            Auditors
                                                   Joseph D. McNamara
        Joseph R. Reichard                         Manager, New Steel Dept.                        Deloitte & Touche LLP
        Chief Engineer                                                                             Dallas, Texas
                                                   Jeffrey G. Vance
        Richard L. Goulde                          Manager, Nonferrous Products                    Annual Meeting
        MIS Director
                                                   James Widman                                    January 27, 2000
                                                   Manager, Traffic                                10:00 A.M. C.S.T.
                                                                                                   Cityplace Conference Center
Marketing and Trading                              Jim R. Hodges                                   Joe C. Thompson Amphitheater
                                                   Controller                                      2711 North Haskell
                                                                                                   Dallas, Texas
        Murray R. McClean                          International Division
        President                                                                                  Stock Exchange Listing
                                                   Kevin S. Aitken
                                                                                                   New York Stock Exchange
        Cometals                                   President
                                                                                                   Symbol: CMC
        Eliezer Skornicki                          Hanns Zoellner
                                                                                                   Executive Offices
        President                                  Executive Vice President
                                                                                                   7800 Stemmons Freeway
        John Rothschild                            Ruedi Auf der Maur                              Dallas, Texas 75247
        Executive Vice President                   Vice President, CMC Trading AG                  Telephone: (214) 689-4300
                                                                                                   Fax: (214) 689-5886
        Richard Conk                               Hans-Ruedi Meuwly
        Vice President & Controller                Controller                                      Form 10- K

        Dennis C. Gates                            Roland Wismer                                   Copies of the Corporation’s
        Vice President                             Treasurer                                       Form 10-K are available from
                                                                                                   Secretary
        Sergei Frolov                              Dick Sands                                      Commercial Metals Company
        Director, CMC Cometals, Inc.               Managing Director, CMC (UK) Ltd.                P.O. Box 1046
                                                                                                   Dallas, Texas 75221-1046
        Weston Liu                                 Tony Cresswell
        General Manager, Cometals China, Inc.      General Manager, CMC (UK) Ltd.                  Web Site

        Commonwealth Metal                         Jimmy Dee                                       http://www.commercialmetals.com
                                                   General Manager, CMC Fareast Ltd.
        Charles J. Shrem
        President                                  William Li
                                                   General Manager, CMC International
        Henry J. Shrem                             (S.E. Asia) Pte. Ltd.
        Senior Vice President
                                                   Klaus Marschall
        Eugene L. Vastola                          General Manager
        Vice President & Chief Operating Officer   Commercial Metals Deutschland GmbH

        Greg Barczy                                Ian Massey
        Vice President                             General Manager - Steel
                                                   CMC (Australia) Pty. Ltd.
        Charles J. Schaffer
        Vice President                             Mark Morrison
                                                   General Manager - Steel
        Steven E. Shur
                                                   CMC (Australia) Pty. Ltd.
        Vice President
                                                   John Paterson
        Steven I. Halpern
                                                   General Manager - Industrial Division
        Controller
                                                   CMC (Australia) Pty. Ltd.

                                                   Paul Rietmeijer
                                                   General Manager, CMC Trading AG




                                                                                                                                     69.
  Sculptures from CMC’s 21st Annual “Scrap Can Be Beautiful” contest, in which students create artwork with metal collected at a CMC scrap processing facility.




                                                                                                                                                                  D e s i g n : S u l l i v a n Pe r k i n s , D a l l a s , Te x a s




.70
  We are
Commercial
  Metals
 Company


Commercial Metals Company   7800 Stemmons Freeway   Dallas, Texas 75247

				
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