Commercial Metals Co. reported net earnings of $50.9 million on net sales of $1.4 billion for the quarter ended May 31, 2004, earning more this quarter than any complete year in the company's history.

Third Quarter Results—Net earnings of $50.9 million ($1.69 per diluted share) compare to net earnings of $3.0 million ($0.11 per diluted share for the third quarter last year. Net sales of $1.4 billion compares with net sales of $774 million for last year’s third quarter.

The quarter included a pre-tax LIFO expense of $25 million ($0.54 per diluted share) compared to pre-tax LIFO expense of $5.2 million ($0.12 per diluted share) in the prior year quarter.

Nine Month Results—Net earnings were $84.7 million ($2.85 per diluted share) on net sales of $3.3 billion. This far surpassed any previous such nine month period. For the same period last year, net earnings were $8.2 million ($0.28 per diluted share) on net sales of $2.1 billion.

Pre-tax LIFO expenses for the period were $35.8 million expense ($0.78), which compares with $8.0 million expense ($0.18) in the previous year's nine months.

Comments—CMC Chairman, President and CEO Stanley A. Rabin said, "The essence of the quarter was the winning combination of high prices, high margins, high production, and high shipments in most of our businesses. This was most pronounced with steel mill products and steel scrap. The net result was a surge in profits for our Recycling and Domestic Mills segments. Profits in the Fabrication segment also improved despite the rapid increase in steel costs. Meanwhile, we attained record profitability in the Marketing and Distribution segment, and results for our Polish steel manufacturing acquisition, CMC Zawiercie (CMCZ), were excellent. Underlying the strong markets was continued robust demand in Asia (especially China), the upturn in the U.S. economy, the weak U.S. dollar, historically high freight rates and low end-user inventories. Manufacturing activity continued to pick up in many parts of the world. Construction markets were mixed, but perhaps modestly better than we expected at this point in the cycle. Measures taken by the Central Government in China to moderate the pace of growth in the surging Chinese economy generally cooled global price levels for commodities during the quarter. Our tax rate for the quarter was lower due to an effective tax rate of 20% in Poland and an increase in export sales."

Domestic Mills—Rabin added, "Our Domestic Mills segment's adjusted operating profit was substantially higher than last year's depressed third quarter. Within the segment, pre-tax profit for our steel minimills was more than four times greater than a year earlier on the strength of much improved selling prices and strong shipments, while productivity remained at exceptionally high levels at all four mills. Of course, the extremely rapid rise in steel scrap costs was a significant offset.

"On a year-to-year basis, tonnage melted for the third quarter was a quarterly record, up 7% to 613,000 tons; tonnage rolled was 581,000 tons, 7% above last year's third quarter while shipments decreased slightly to 632,000 tons with lower billet sales. Our average total mill selling price was $129 per ton above last year's extraordinarily low level and the average selling price for finished goods was up by $127 per ton to $416 per ton.

"By product line, the price premium of merchant bar over reinforcing bar widened dramatically to $117 per ton. Conversely, the average scrap purchase cost rose by $65 per ton versus a year ago. Additionally, utility costs increased by $1.2 million compared with the third quarter last year from higher usage, and costs for ferroalloys and graphite electrodes also were higher. On balance, our margins rose considerably; the metal spread at $238 per ton was $64 per ton greater than the third quarter of last year. The copper tube mill recorded a nice profit compared with last year's modest loss in the third quarter. We benefited from stronger demand from commercial as well as residential users, resulting in higher selling prices and margins. Against the same period last year, copper tube production increased 16% and
shipments gained 22% to 19.5 million pounds. Metal spreads improved by 22 cents per pound to 63 cents per pound despite the sharp rise in the underlying copper scrap price."

CMCZ—Rabin continued, "Results for CMCZ were outstanding. The steel minimill (and related operations) in Poland produced record quantities and shipments. CMCZ recorded an adjusted operating profit of $32.6 million on a 100% owned basis. CMCZ was affected by the same factors as reported above for our domestic steel mills except that it did not benefit from the weak U.S. dollar. For the quarter, melted tonnes equaled 364,000, rolled tonnes equaled 283,000, and shipments totaled 298,000 tonnes including billets. Meanwhile, the average selling price rose to $499 per tonne (including 14% billets). The average scrap purchase cost increased to $215 per tonne."

Financial Condition—Rabin said, "Our financial position remains strong. At May 31, 2004, our stockholders' equity was $612 million, or $21.01 per share. At quarter end, our working capital was $594 million, and the current ratio was 1.8. Our coverage ratios remain strong. Long-term debt as a percentage of total capitalization was 38%, and the ratio of total debt to total capitalization plus short-term debt was 40%. Both ratios include the debt of CMCZ which has recourse only to the assets of CMCZ."

Outlook—Rabin continued, "During the third quarter we saw a number of our market prices reach record highs, followed by an anticipated price correction in some of these markets; however, still at relatively high levels. Steel prices in the U.S. are firm and generally stronger than elsewhere. Our steel scrap prices were up modestly in June, and it now appears will be up in July as well. Conversely, overseas steel scrap prices have continued to move lower. Nonferrous prices have been in a trading range. Overall, our outlook for the fourth quarter remains very positive, consummating a record year by any measure. We anticipate fourth quarter LIFO diluted net earnings per share between $1.45 and $1.65. The effective tax rate in the fourth quarter is projected at 32%.

“Our earnings estimate includes a reduction of 10 to 15 cents per share because of transformer failures at the Texas steel minimill as reported earlier this month. Business interruption insurance claims will be filed, but have not been considered in our earnings estimate owing to timing of recovery. That mill became fully operational ten days later on June 10, 2004, albeit at a lower power rate in the meltshop. We now expect to reinstall the primary transformer during September 2004.

“Total earnings from our six mills should remain strong during the fourth quarter. Our expectation remains that mill margins and fabrication margins will expand further as we have booked new business at higher levels, and our other business segments will perform well, buoyed by strong demand and expansions in markets and product lines. Some positive recent economic developments include the U.S. economy continues to strengthen, State budgets are improving, and China appears to be effecting a moderate cool down of its economy."

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.