Commercial Metals Co. reported record net earnings of $47.4 million on net sales of $1.5 billion for the fourth quarter and net earnings of $132.0 million on net sales of $4.8 billion for the year ended August 31, 2004.

Fourth Quarter Results—Record net earnings of $47.4 million ($1.56 per diluted share) compares with net earnings of $10.7 million ($0.38 per diluted share) for the fourth quarter of 2003. Net sales of $1.5 billion compares to net sales of $805 million in the fourth quarter a year ago, and is the second consecutive quarter in which net earnings exceeded those for any previous complete fiscal year.

Results included a higher than anticipated pre-tax LIFO expense of $38.9 million ($0.83 per diluted share) compared with LIFO expense of $1.3 million ($0.03 per diluted share) in the prior year fourth quarter.

Full Year Results—Net earnings of $132.0 million ($4.42 per diluted share) compares with net earnings of $18.9 million ($0.66 per diluted share) for 2003. Net sales of $4.8 billion compares with net sales of $2.9 billion last year. The previous record annual net earnings were $47.0 million achieved in 1999.

Results included a higher than anticipated pre-tax LIFO expense of $74.8 million ($1.63 per diluted share), which compares to a $9.3 million expense ($0.21 per diluted share) in the previous year.

Comments—CMC Chairman, President and CEO Stanley A. Rabin said, "We continued to benefit in the quarter from the favorable supply/demand environment for most of our businesses. We continued to achieve outstanding performance in our Recycling and Domestic Mills segments. Meanwhile, we attained strong profitability in the Marketing and Distribution segment, and results for our Polish steel manufacturing operation, CMC Zawiercie (CMCZ), remained excellent. While markets generally remained strong during the fourth quarter, they also were very volatile. Part of the volatility appeared to stem from vacillating perceptions of China's economic growth rate and its decreased net imports for various materials and products."

Domestic Mills—“Our Domestic Mills segment set all-time annual records for tons melted, rolled and shipped,” commented Rabin. “The segment's adjusted operating profit of $28.1 million for the fourth quarter was substantially higher than last year's fourth quarter, including a pre-tax LIFO expense of $14.9 million in this year's fourth quarter. Within the segment, quarterly adjusted operating profit for our steel minimills at $25.3 million was about 250% greater than a year earlier on the strength of much improved selling prices and strong shipments, which more than offset the steep rise in steel scrap and other input costs.

On a year-to-year basis, tonnage melted by domestic mills for the fourth quarter was up 1% to 524,000 tons; tonnage rolled was 533,000 tons, 3% above last year's fourth quarter; shipments decreased slightly to 595,000 tons because of lower billet sales. Fourth quarter production at the Texas mill was adversely affected by the previously reported transformer failure; purchased billets helped us meet customer demands.

“Our quarterly average total mill selling price was $166 per ton above last year's relatively low level and the average selling price for finished goods was up by $163 per ton to $460 per ton,” continued Rabin. “Conversely, the average scrap purchase cost rose by $61 per ton versus a year ago. Additionally, utility costs increased by $1.5 million compared with the fourth quarter last year, costs for ferroalloys were much higher, and other supplies increased as well. On balance, though, our margins rose considerably; the metal spread at $293 per ton was $104 per ton greater than the fourth quarter of last year.

CMCZ—"It was another very strong quarter for CMCZ,” says Rabin. “The steel minimill (and related operations) in Poland generated record net sales of $166 million and recorded an adjusted operating profit of $30.5 million on a 100% owned basis. Market conditions remained favorable, although the average sales price decreased 4.2% from the third quarter to $431 per short ton. For the quarter, melted tons equaled 383,000, rolled tons equaled 281,000, and shipments totaled 364,000 tons, including billets. Meanwhile, the average scrap purchase cost decreased 3% from the third quarter to $189 per short ton, resulting in a metal spread of $242 per ton.”

Fabrication—Rabin continued, "Gross margins within the Fabrication segment were mostly higher under increasingly favorable market conditions. We recorded a slight loss for the fourth quarter in this segment in the face of a $13.1 million increase in the LIFO reserve and anticipated contract losses as we further worked through older jobs.

By product area, rebar fabrication, construction-related products (CRP), steel post plants, steel joist manufacturing, and structural steel fabrication all were penalized by higher steel input costs, but aided by significant increases in selling prices and better operating levels. Shipments from our fab plants totaled 388,000 tons, 32% above the prior year's fourth quarter while the composite average fab selling price (including stock and buyouts) increased by $168 per ton to $748 per ton.”

Recycling—According to Rabin, "The Recycling segment recorded another fantastic quarter, primarily a result of the vibrant ferrous scrap market on 74% higher net sales dollars. This compared most favorably with the quarter a year ago; adjusted operating profit increased fourfold to $21.9 million. LIFO expense for the quarter was $2.3 million. Gross margins were significantly above last year while operating costs as a percent of sales declined 17%.

"Our markets were characterized by significant price volatility for our major commodities against a backdrop of continued overall strong demand for our products. Versus last year, the average ferrous scrap sales price for the quarter increased by 86% to $195 per ton, and shipments climbed 15% to 486,000 tons. The average nonferrous scrap sales price for the quarter was approximately 36% above a year ago while nonferrous shipments were 11% higher. Conversely, shipments of both ferrous and nonferrous were lower than the third quarter of fiscal 2004, while prices were 2% higher and 7% lower, respectively. The total volume of scrap processed, including all our processing plants, equaled 868,000 tons against 732,000 tons in last year's fourth quarter."

Marketing and Distribution—"Adjusted operating profit of $11.8 million for the Marketing and Distribution segment was another record, 65% above last year's already strong fourth quarter, reflecting broad-based, robust sales and higher gross margins across multiple product lines and geographic areas," Rabin said. "This segment also recorded an increase of $8.7 million in the LIFO reserve for the fourth quarter of fiscal 2004. Sales were up, especially in the United States and Europe. China imported less steel than it had been and exported significant quantities of steel during the quarter as a result of its cooler economy. Additionally, imports of raw materials into China moderated. Our profits improved in the United States as margins and shipments in steel, aluminum, copper and stainless steel increased significantly, while sales and profits for industrial materials and products hit record levels. Our value-added downstream processing businesses continued to generate good profits."

Accounting for Trade Finance Agreements—Rabin said, "To facilitate certain trade transactions, we periodically utilize documentary letters of credit, advances, and non- or limited-recourse trade financing arrangements to provide assurance of payments and advanced funding to suppliers. One such agreement is reflected on our balance sheet at August 31, 2004 as trade financing with a corresponding advance to supplier in other assets. This contract was entered into in October 2003. We have determined that similar accounting should have been applied in our fiscal 2004 interim quarterly statements. No change to the consolidated statements of earnings for each quarter was required. The details of the changes in the other quarterly financial statements are disclosed in the Form 8-K at Item 4.02 filed today."

Financial Condition—Rabin added, "Our financial position remained strong. At year end, long-term debt as a percentage of total capitalization was 36%, and the ratio of total debt to total capitalization plus short-term debt was 38%. Both ratios include the debt of CMCZ which has recourse only to the assets of CMCZ. Our working capital was $641 million and the current ratio was 1.8. Our coverage ratios were strong."

Outlook—Rabin concluded, "As we look forward to fiscal 2005, we anticipate that the positive factors which have been driving our markets are sustainable and allow a continuation of healthy pricing and volume for our goods and services. Our outlook for the first quarter and year remains very positive, although we must be wary of the dampening effect of high petroleum prices as well as China's moderating impact on commodity prices. We expect some shift in profits with a higher proportion coming from the Fabrication segment, although ferrous scrap prices firmed again in recent weeks. We anticipate first quarter LIFO diluted net earnings per share between $1.70 and $1.90. The effective tax rate in the first quarter is projected at 33%.

"A business interruption insurance claim for the previously reported transformer failure in Texas will be filed. This primary transformer has been reinstalled and is performing well. An additional claim covering a failure during startup in August 2003 of a new, higher capacity transformer at South Carolina is also being prepared. This transformer had been returned for repair by its manufacturer in Italy and is now scheduled to be reinstalled at the South Carolina mill during November 2004. Following installation and start up, the transformer should achieve originally projected increases in meltshop production. The potential recovery resulting from these claims, which may be substantial, has not been considered in our earnings estimate owing to the timing of recovery which may extend beyond the first quarter and our inability to estimate the minimum recoverable amount."

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.