Dec. 27, 2006 — Commercial Metals Co. reported record net earnings of $85.4 million on net sales of $2.0 billion for the fiscal first quarter ended November 30, 2006.

First Quarter Results—The $85.4 million record net earnings ($0.71 per diluted share) compare to net earnings of $69.6 million ($0.57 per diluted share) for the same period last year. Net sales of $2.0 billion compare with net sales of $1.6 billion for the same period last year.

Results included a $10.1 million pre-tax LIFO expense ($0.05 per diluted share) compared with a LIFO expense of $21.7 million ($0.12 per diluted share) in the prior year quarter. The current LIFO expense occurred mainly in the Marketing and Distribution segment. The effective tax rate was 35.6%.

Management Comments—“The strong market conditions prevailing in our fourth quarter carried into the fall resulting in our best first quarter ever,” said CMC President and CEO Murray R. McClean. “Each of our segments attained record earnings with the exception of Marketing and Distribution, which absorbed a large LIFO charge. Demand for long products in the U.S. remains solid, and the continued strength of the non-residential construction markets, including infrastructure, is further reflected in our fabrication profitability. Commodity prices remain at high levels, although copper has retreated. Our Polish operations concentrated on near markets and rebounded strongly from last year. The weaker U.S. dollar has helped overall."

Segment Analysis—"It was another record first quarter for our Domestic Mills segment,” said McClean. “The adjusted operating profit of $72.6 million for the quarter, on net sales of $358 million, exceeded last year's record first quarter by 12%. Within the segment, quarterly adjusted operating profit for our domestic steel minimills at $69.2 million also was a first quarter record, up 14% from that of a year earlier on the strength of a 21% higher metal margin of $349 per ton. This year's result included a pre-tax LIFO expense of $4.0 million (compared with $8.2 million LIFO expense last year) for the domestic steel mills. Shipments of 526 thousand tons were down 16% from the prior year as customers who were understocked last year were better balanced.

“Planned meltshop shutdowns at South Carolina (new ladle crane) and Alabama (new furnace shell) resulted in tonnage melted for the first quarter declining by 7% to 532 thousand tons,” continued McClean. “Tonnage rolled was 531 thousand tons, slightly ahead of last year's first quarter. Our quarterly average mill selling price (total sales) of $557 per ton was $67 per ton or 14% above last year's level, and the average selling price for finished goods was up by $61 per ton to $571 per ton. Conversely, the average scrap purchase cost decreased by $4 compared with a year ago to $183 per ton. Utility costs decreased by $3.7 million or 15% versus the first quarter last year; electricity costs rose $0.6 million on lower usage but higher pricing, while natural gas costs dropped $4.3 million due solely to lower prices. Alloy costs were flat, but electrode costs increased 13%.

"The copper tube mill recorded an adjusted operating profit of $3.4 million, historically strong, but down 19% from the prior year's first quarter,” said McClean. “There was no significant LIFO expense compared with $1.5 million LIFO expense last year. Demand from residential users weakened further. First quarter-to-quarter metal spreads improved by $0.29 per pound to $1.12 per pound on the strength of higher copper prices. Against the same period last year, copper tube production decreased 36% to 10.1 million pounds while shipments of 10.4 million pounds decreased 36%."

According to McClean, "This year's first quarter adjusted operating profit was a record $25.8 million for CMCZ, the steel minimill and related operations in Poland, compared with an adjusted operating profit of $1.5 million the prior year. Market conditions improved throughout the calendar year. Infrastructure projects are now underway, and the adjacent German economy has positive growth. Our mega-shredder has improved melt yields and lowered melt shop operating costs. The relatively new fab shop located at the mill was profitable.

“Our combined Polish operations generated net sales of PLN 503 million ($163 million) compared with net sales of PLN 349 million ($107 million) the previous year,” continued McClean. “The average sales price increased by 17% from the first quarter of fiscal 2006 to PLN 1,529 ($496) per short ton while the average scrap purchase cost increased by 27% to PLN 725 ($235) per short ton. This year's metal spread was PLN 714 per ton, which compared with PLN 631 per ton one year ago. For the quarter, melted tons equaled 358 thousand, rolled tons equaled 296 thousand, and shipments totaled 312 thousand tons, including billets. All were substantially ahead of the prior-year numbers of 284 thousand tons, 237 thousand tons, and 257 thousand tons, respectively."

McClean continued, "The adjusted operating profit of $31.5 million for the Domestic Fabrication segment on net sales of $449 million compares with an adjusted operating profit of $18.2 million the previous year's quarter as nonresidential construction markets remained solid. This year included a $9.3 million LIFO credit (compared with a $13.9 million expense last year). Among our product areas, rebar fabrication, construction-related products (CRP), and steel fence posts had increased profits while steel joist manufacturing and structural steel fabrication were weaker. There was some residual margin compression from earlier increases in mill prices. Shipments from our fabrication plants totaled 404 thousand tons, 11% above the prior year's first quarter, with rebar fabrication showing the largest increase."

"The Recycling segment recorded another excellent quarter on 62% higher net sales dollars ($383 million) in the face of (relatively) stable ferrous scrap prices with higher nonferrous prices, including aluminum, copper, and nickel (soaring),” McClean continued. “Adjusted operating profit increased by 28% to $17.6 million compared with $13.8 million in the prior year, mainly due to higher volumes including material from our Yonack acquisition. LIFO expense for the quarter was $1.2 million ($1.4 million last year).

“Profitability [in Recycling] was more balanced between ferrous and nonferrous product lines compared to the prior year's quarter, heavily influenced by relative pricing,” commented McClean. “Our strategy in volatile or steady markets remains the same — we focused on rapid inventory turnover. Versus last year, the average ferrous scrap sales price for the quarter decreased by 6% to $184 per ton, but shipments increased to 573 thousand tons. The average nonferrous scrap sales price for the quarter was a whopping 60% above a year ago, while nonferrous shipments were 22% higher at 85 thousand tons. The total volume of scrap processed, including all our domestic processing operations, equaled 937 thousand tons against 839 thousand tons in last year's first quarter."

"Adjusted operating profit of $7.9 million for the Marketing and Distribution segment compares unfavorably with the prior year of $23.1 million," McClean said. "However, LIFO expense of $14.3 million in the current year is a major swing from last year's LIFO credit of $3.3 million. The LIFO expense results from nonferrous price increases and large increases in inventory, substantially in transit, which is an indicator of upcoming strong sales activity. Net sales totaled $798 million, an increase of 16%. The Chinese increase in exports gave the segment additional sourcing opportunities in inter-Asian carbon steel products. Our domestic steel import business was touching record margins, and European imports were stronger. Our sales of aluminum, copper, brass and stainless steel semis were steady. Sales, margins and profits for industrial materials and products remained strong. Our value-added downstream processing businesses, primarily in Australia, continued to generate good profits. The impact of the weaker U.S. dollar and higher freight rates were overall negatives for this segment."

Financial Condition—"Our financial position is strong,” McClean reported. “At quarter end, long-term debt as a percentage of total capitalization was 19%. Our working capital was $1.1 billion, and the current ratio was 2.0. Our coverage ratios were strong. Cash flows from operating activities were $42 million."

Outlook—"Our second fiscal quarter (winter months) is traditionally our weakest quarter," according to McClean. "Destocking will continue at service centers and to a lesser extent at fabrication facilities. Rebar imports will continue to decline significantly. We are poised to reaccelerate in our third fiscal quarter (spring months) and fourth quarter (summer months). The fundamentals remain very good with strong demand in non-residential construction markets both in the U.S. and globally."

McClean continued, "International steel prices appear to be at or near the bottom of the current cycle and are likely to increase early in calendar 2007. Ferrous scrap prices will trend upwards based on good international demand as well as U.S. mills rebuilding inventory of scrap.

"Our domestic steel mills will enjoy excellent metal margins and shipments to match seasonal demand. The discipline of mill outages will balance supply and demand and, with significantly reduced steel imports, steel prices should firm. CMC Howell Metal, our copper tube mill, will continue to ship at lower levels due to the weaker housing market. Our Fabrication segment overall will continue to benefit from stable steel prices. CMCZ faces the usual slowdown in demand during winter and with a very strong Zloty (2.88 to the U.S. dollar), exports are limited. However, CMCZ will bounce back strongly in the spring of 2007. CMC Recycling will benefit from higher ferrous scrap prices although there is some margin squeeze due to buying pressures on unprepared scrap. Flows will improve with higher prices and better demand from the mills. Nonferrous will remain volatile with spreads (to Comex) narrowing. Our Marketing and Distribution segment will have a steady quarter; however, the impact of LIFO is difficult to predict."

McClean concluded, "In summary, 2007 is shaping up to be similar to 2006. Our diversification provides a good balance in the current global market conditions."

Commercial Metals Co. and subsidiaries manufacture, recycle and market steel and metal products, related materials and services through a network including steel minimills, steel fabrication and processing plants, construction-related product warehouses, a copper tube mill, metal recycling facilities and marketing and distribution offices in the United States and in strategic overseas markets.