March 21, 2007 — Commercial Metals Co. reported net earnings of $65.9 million on net sales of $2.0 billion for the quarter, and net earnings of $151 million on net sales of $4.0 billion for the six months ended February 28, 2007.

Second Quarter Results—The $65.9 million net earnings ($0.54 per diluted share) compares with net earnings of $80.1 million ($0.65 per diluted share) for the second quarter last year. Net sales, $2.0 billion, compares with net earnings of $80.1 million or $0.65 per diluted share on net sales of $1.6 billion for the second quarter last year.

Results included a $12.3 million after-tax LIFO expense ($0.10 per diluted share), which compares with LIFO income of $2.6 million ($0.02 per share) in last year's second quarter.

Selling, general and administrative expenses included $9.9 million of costs associated with global deployment of SAP software. For the six months ended February 28, 2007, the amount was $10.7 million. Other costs of $12.3 million, substantially all of which represents software acquisition, have been capitalized.

Six Month Results—The $151 million net earnings ($1.25 per diluted share) compares to net earnings were $150 million ($1.22 per diluted share) for the comparable year-earlier period. Net sales, $4.0 billion, compare to net sales of $3.3 billion for the year-earlier period. Results included an $18.9 million after-tax LIFO expense ($0.16 per share), which compares with an $11.5 million expense ($0.09 per share) last year.

Selling, general and administrative expenses included $10.7 million of costs associated with global deployment of SAP software. Other costs of $12.3 million, substantially all of which represents software acquisition, have been capitalized.

Management Comments—"We achieved solid results for a second quarter with a significant improvement at CMCZ, our Polish operation,” said CMC President and CEO Murray R. McClean. “The winter quarter (December to February) is typically our weakest quarter. In the U.S., we took the opportunity to undertake major maintenance and capital expenditure programs at our domestic steel mills during the quarter. As a result, our steel shipping volumes were down by 40 thousand tons. Rising steel prices late in the quarter caused larger-than-expected LIFO charges in our Domestic Mills and Domestic Fabrication segments. With its faster inventory turns, our Recycling segment benefited more rapidly from higher scrap prices. Marketing and Distribution continued to take advantage of overall favorable global metal markets."

Domestic Mills—The company’s domestic mills achieved their second-best second quarter, with an adjusted operating profit of $61.7 million ($59.4 million attributable to domestic minimills) that was 13% (8% for minimills) behind last year’s record-setting second quarter. Metal margins increased by $33 to $326 per ton, as average selling prices (total sales) rose $41 per ton in conjunction with an increase in the average cost of scrap used of $8 per ton.

Shipments of 563,000 tons represent a 40,000-ton decrease compared to last year's second quarter. The largest decline occurred at CMC Steel Texas due to scheduled maintenance at the meltshop (which was down 19 days for furnace shell replacement) and the rolling mill (which was down 13 days for annual maintenance, including relining the reheat furnace). Repair and maintenance expense rose $4.2 million from last year.

The steel mills reported a $14-million (pre-tax) LIFO expense, which reflect a sharp increase compared to the prior-year expense of only $686 thousand. The increase was driven by 12% cost increases coupled with modest inventory quantity increases.

Tonnage melted fell 46 thousand tons to 531 thousand tons, and tons rolled fell 17 thousand tons to 515 thousand tons due to the scheduled maintenance. Utility costs decreased by $5.7 million, split evenly between electricity and natural gas, with declines in both pricing and usage.

CMC’s Domestic Mills segment includes data for the company’s copper tube mill. "Pounds shipped at our copper tube mill declined 27% to 11.5 million pounds compared to last year's second quarter, attributable to the weaker housing market in the U.S. and destocking at distributors. Operating profit fell 64%. Copper tube production decreased 38% to 10.4 million pounds.

CMCZ (Poland)—The company’s Polish steel operation again achieved record profitability, with an adjusted operating profit of $25.8 million that was level with the first quarter. Strong Polish GDP growth, growing infrastructure work, and an improving German economy all contributed to the excellent performance. The company noted that its mega shredder continues to boost meltshop yields and reduce meltshop costs. Both fab shops within this segment (including the company’s newest acquisition in eastern Germany) were profitable.

Average selling prices rose 20% while the cost of scrap utilized increased 19%, resulting in a 21% increase in metal margin. The increase in metal spreads was combined with a 29% increase in short tons shipped, and the percentage of tons shipped domestically rose to 57%. Melted tons equaled 378 thousand, rolled tons equaled 292 thousand, and shipments totaled 369 thousand, all significantly above the prior-year numbers of 285 thousand melted, 261 thousand rolled, and 285 thousand shipped.

"After the quarter end, we completed the purchase of the State Treasury's shares for $59.5 million raising our ownership to 99%," said McClean.

Outlook—"Our third fiscal quarter is aligned to be our strongest-ever third quarter,” said McClean. “Global infrastructure growth is creating unprecedented demand for rebar and other steel long products, in particular in the markets of North Africa, Middle East, North Europe, Central and Eastern Europe, Russia and Asia. In the U.S., the non-residential construction market should remain strong and robust. The comparatively mild winter in many northern hemisphere countries, as well as the early settlement of 2007 iron ore contract prices, set the stage for significant price increases of most steel products starting in early calendar 2007.

“U.S. ferrous scrap prices, in particular obsolete grades, are currently at record levels due to both international and domestic demand. As ferrous scrap flow increases, there could be a correction. Rebar prices are likely to reach record levels in many international markets. The level of rebar imports into the U.S. should remain at lower levels compared with 2006. U.S. steel prices, in general, are likely to continue to lag international prices, and this will continue to curb the level of imports."

In conclusion, McClean said, "We believe our U.S. steel mills will benefit from higher prices and higher shipments. Our copper tube mill should improve over the second quarter's performance. Our Domestic Fabrication segment should increase shipments although there will be some margin squeeze due to the rapidly rising steel prices. Recycling should benefit from record ferrous scrap prices and strong nonferrous scrap prices. CMCZ (Poland) should have an exceptional quarter based on a booming construction market in Central and Eastern Europe. Our Marketing and Distribution segment should benefit from strong growth in most global markets and will have a solid third quarter. In summary, we anticipate a record third quarter."