FORM 10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

 

For the quarterly period ended February 28, 2007

Commission File Number 1-4304

COMMERCIAL METALS COMPANY

(Exact Name of registrant as specified in its charter)

Delaware		75-0725338
(State or other Jurisdiction of incorporation of organization)		(I.R.S. Employer Identification Number)

6565 N. MacArthur Blvd.
Irving, Texas 75039

(Address of principal executive offices)
(Zip Code)

(214) 689-4300

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes            No
þ            o

Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act).

Yes           No
o            þ

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer þ           Accelerated filer o           Non-Accelerated filer o

As of April 2, 2007, there were 119,224,147 shares of the Company’s common stock issued and outstanding excluding 9,836,517 shares held in the Company’s treasury.

 

 

COMMERCIAL METALS COMPANY AND SUBSIDIARIES

TABLE OF CONTENTS

		PAGE NO.
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets — February 28, 2007 and August 31, 2006			2-3
Condensed Consolidated Statements of Earnings — Three months and Six months ended February 28, 2007 and 2006			4
Condensed Consolidated Statements of Cash Flows — Six months ended February 28, 2007 and 2006			5
Condensed Consolidated Statement of Stockholders’ Equity — Six months ended February 28, 2007			6
Notes to Condensed Consolidated Financial Statements			7-14
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			15-24
Item 3. Quantitative and Qualitative Disclosures about Market Risk			25
Item 4. Controls and Procedures			25
PART II — OTHER INFORMATION
Items 1 — 6			26 - 28
Signatures			29
Index to Exhibits			30
Certification Pursuant to Section 302
Certification Pursuant to Section 302
Certification Pursuant to Section 906
Certification Pursuant to Section 906
Amended and Restated 1999 Non-Employee Director Stock Plan
2006 long-Term Equity Incentive Plan
2006 Cash Incentive Plan
Certification of President and CEO Pursuant to Section 302
Certification of Senior VP and CFO Pursuant to Section 302
Certification of President and CEO Pursuant to Section 906
Certification of Senior VP and CFO Pursuant to Section 906

PART 1. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

COMMERCIAL METALS COMPANY AND SUBSIDIARIES

		February 28,				August 31,
(in thousands)		2007				2006
ASSETS
Current assets:
Cash and cash equivalents		$	76,165			$	180,719
Accounts receivable (less allowance for collection losses of $16,825 and $16,075)			1,006,493				1,134,823
Inventories			864,592				762,635
Other			80,408				66,615
Total current assets			2,027,658				2,144,792
Property, plant and equipment:
Land			46,949				44,702
Buildings and improvements			280,163				268,755
Equipment			991,048				970,973
Construction in process			97,622				51,184
			1,415,782				1,335,614
Less accumulated depreciation and amortization			(788,411	)			(746,928	)
			627,371				588,686
Goodwill			35,815				35,749
Other assets			171,878				129,641
		$	2,862,722			$	2,898,868

See notes to unaudited condensed consolidated financial statements.

COMMERCIAL METALS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

LIABILITIES AND STOCKHOLDERS’ EQUITY

		February 28,				August 31,
(in thousands except share data)		2007				2006
Current liabilities:
Accounts payable-trade		$	488,814			$	526,408
Accounts payable-documentary letters of credit			129,522				141,713
Accrued expenses and other payables			294,851				379,764
Income taxes payable and deferred income taxes			10,286				14,258
Notes payable — CMC International			—				60,000
Current maturities of long-term debt			54,600				60,162
Total current liabilities			978,073				1,182,305
Deferred income taxes			33,295				34,550
Other long-term liabilities			98,727				78,789
Long-term debt			309,170				322,086
Total liabilities			1,419,265				1,617,730
Minority interests			72,195				61,034
Commitments and contingencies
Stockholders’ equity:
Capital stock:
Preferred stock			—				—
Common stock, par value $0.01 per share: authorized 200,000,000 shares; issued 129,060,664 shares; outstanding 118,880,424 and 117,881,160 shares			1,290				1,290
Additional paid-in capital			351,203				346,994
Accumulated other comprehensive income			44,168				33,239
Retained earnings			1,113,977				980,454
			1,510,638				1,361,977
Less treasury stock:
10,180,240 and 11,179,504 shares at cost			(139,376	)			(141,873	)
Total stockholders’ equity			1,371,262				1,220,104
		$	2,862,722			$	2,898,868

See notes to unaudited condensed consolidated financial statements.

COMMERCIAL METALS COMPANY AND SUBSIDIARIES

		Three Months Ended								Six Months Ended
		February 28,								February 28,
(in thousands, except share data)		2007				2006				2007				2006
Net sales		$	2,015,776			$	1,639,487			$	4,002,320			$	3,285,185
Costs and expenses:
Cost of goods sold			1,757,026				1,388,883				3,460,416				2,813,613
Selling, general and administrative expenses			141,543				118,623				276,722				225,357
Interest expense			8,852				6,952				17,080				13,876
			1,907,421				1,514,458				3,754,218				3,052,846
Earnings before income taxes and minority interests			108,355				125,029				248,102				232,339
Income taxes			37,786				45,504				87,555				82,945
Earnings before minority interests			70,569				79,525				160,547				149,394
Minority interests			4,648				(578	)			9,276				(333	)
Net earnings		$	65,921			$	80,103			$	151,271			$	149,727
Basic earnings per share		$	0.56			$	0.68			$	1.29			$	1.28
Diluted earnings per share		$	0.54			$	0.65			$	1.25			$	1.22
Cash dividends per share		$	0.09			$	0.03			$	0.15			$	0.06
Average basic shares outstanding			117,266,573				117,551,782				117,348,716				116,743,700
Average diluted shares outstanding			121,807,414				123,830,628				121,422,373				122,858,160

See notes to unaudited condensed consolidated financial statements.

COMMERCIAL METALS COMPANY AND SUBSIDIARIES

		Six Months Ended
		February 28,
(in thousands)		2007				2006
Cash Flows From (Used By) Operating Activities:
Net earnings		$	151,271			$	149,727
Adjustments to reconcile net earnings to cash from (used by) operating activities:
Depreciation and amortization			49,021				39,678
Minority interests			9,276				(333	)
Provision for losses on receivables			41				1,841
Share-based compensation			5,358				4,424
Net gain on sale of assets and other			(28	)			(1,098	)
Asset impairment			1,390				—
Changes in operating assets and liabilities, net of effect of acquisitions:
Accounts receivable			42,145				(75,138	)
Accounts receivable sold			95,255				—
Inventories			(92,453	)			(57,967	)
Other assets			(57,958	)			(23,577	)
Accounts payable, accrued expenses, other payables and income taxes			(133,079	)			(24,909	)
Deferred income taxes			(2,136	)			(635	)
Other long-term liabilities			19,673				13,062
Net Cash Flows From Operating Activities			87,776				25,075
Cash Flows From (Used By) Investing Activities:
Purchases of property, plant and equipment			(75,100	)			(59,460	)
Purchase of interests in CMC Zawiercie and subsidiaries			(61	)			—
Sales of property, plant and equipment			467				3,672
Acquisitions of fabrication businesses			(10,633	)			(5,140	)
Net Cash Used By Investing Activities			(85,327	)			(60,928	)
Cash Flows From (Used By) Financing Activities:
Decrease in documentary letters of credit			(12,191	)			(40,877	)
Payments on trade financing arrangements			—				(1,667	)
Short-term borrowings, net change			(60,000	)			—
Payments on long-term debt			(18,787	)			—
Proceeds from issuance of long-term debt			—				6,040
Stock issued under incentive and purchase plans			14,024				21,172
Treasury stock acquired			(17,744	)			—
Dividends paid			(17,748	)			(7,005	)
Tax benefits from stock plans			5,068				9,726
Net Cash Used By Financing Activities			(107,378	)			(12,611	)
Effect of Exchange Rate Changes on Cash			375				1,171
Decrease in Cash and Cash Equivalents			(104,554	)			(47,293	)
Cash and Cash Equivalents at Beginning of Year			180,719				119,404
Cash and Cash Equivalents at End of Period		$	76,165			$	72,111

See notes to unaudited condensed consolidated financial statements.

COMMERCIAL METALS COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF
STOCKHOLDERS’ EQUITY (UNAUDITED)

														Accumulated
		Common Stock								Additional				Other								Treasury Stock
		Number of								Paid-In				Comprehensive				Retained				Number of
(in thousands, except share data)		Shares				Amount				Capital				Income				Earnings				Shares				Amount				Total
Balance, September 1, 2006			129,060,664			$	1,290			$	346,994			$	33,239			$	980,454				(11,179,504	)		$	(141,873	)		$	1,220,104
Comprehensive income:
Net earnings for six months ended February 28, 2007																			151,271												151,271
Other comprehensive income (loss):
Foreign currency translation adjustment, net of taxes of $(869)															8,904																8,904
Unrealized gain on hedges, net of taxes of $924															2,025																2,025
Comprehensive income																															162,200
Cash dividends																			(17,748	)											(17,748	)
Treasury stock acquired																							(699,500	)			(17,744	)			(17,744	)
Restricted stock grant											(436	)											32,000				436				—
Stock issued under incentive and purchase plans											(5,808	)											1,670,196				19,832				14,024
Stock-based compensation											5,385												(3,432	)			(27	)			5,358
Tax benefits from stock plans											5,068																				5,068
Balance, February 28, 2007			129,060,664			$	1,290			$	351,203			$	44,168			$	1,113,977				(10,180,240	)		$	(139,376	)		$	1,371,262

See notes to unaudited condensed consolidated financial statements.

COMMERCIAL METALS COMPANY AND SUBSIDIARIES

NOTE A — QUARTERLY FINANCIAL DATA

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (GAAP) on a basis consistent with that used in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (SEC) for the year ended August 31, 2006, and include all normal recurring adjustments necessary to present fairly the condensed consolidated balance sheets and statements of earnings, cash flows and stockholders’ equity for the periods indicated. These Notes should be read in conjunction with such Form 10-K. The results of operations for the three and six month periods are not necessarily indicative of the results to be expected for a full year.

NOTE B — ACCOUNTING POLICIES

Stock-Based Compensation

See Note 9, Capital Stock, to the Company’s consolidated financial statements for the year ended August 31, 2006 filed on Form 10-K with the SEC for a description of the Company’s stock incentive plans.

The Company adopted 123(R) effective September 1, 2005 using the modified prospective method. As a result, compensation expense was recorded for the unvested portion of previously issued awards that were outstanding at September 1, 2005. The Black-Scholes pricing model was used to calculate total compensation cost which is amortized on a straight-line basis over the remaining vesting period of previously issued awards. (See Note 1, Summary of Significant Accounting Policies, to the Company’s consolidated financial statements for the year ended August 31, 2006 for the assumptions used to estimate the fair value and the weighted average grant date fair value. The Company developed its volatility assumption based on historical data). The Company recognized after-tax stock-based compensation expense of $2.0 million and $1.6 million ($0.02 and $0.01 per diluted share, respectively) for the three months ended February 28, 2007 and 2006, respectively and $3.5 million and $2.9 million ($0.03 and $0.02 per diluted share, respectively) for the six months ended February 28, 2007 and 2006, respectively as a component of selling, general and administrative expenses. The cumulative effect of adoption (primarily arising from the recognition of anticipated forfeitures) was not material. At February 28, 2007, the Company had $6.6 million of total unrecognized compensation cost related to non-vested share-based compensation arrangements. This cost is expected to be recognized over the next 28 months.

Combined information for shares subject to options and SARs for the six months ended February 28, 2007 was as follows:

						Weighted
						Average				Price
						Exercise				Range
		Number				Price				Per Share
August 31, 2006
Outstanding			7,485,348			$	8.06			$	2.75-$24.71
Exercisable			6,178,200				5.90				2.75 - 13.58
Granted			—				—				—
Exercised			1,116,612				4.64				2.75 - 12.31
Forfeited			15,454				9.16				2.94 - 24.57
February 28, 2007
Outstanding			6,353,282				8.66				2.94 - 24.71
Exercisable			5,052,468				6.18				2.94 - 13.58

Share information for options and SARs at February 28, 2007:

Outstanding														Exercisable
						Weighted
						Average				Weighted								Weighted
Range of						Remaining				Average								Average
Exercise		Number				Contractual				Exercise				Number				Exercise
Price		Outstanding				Life (Yrs.)				Price				Outstanding				Price
$  2.94 —   3.78			1,560,824				2.5			$	3.49				1,560,824			$	3.49
4.29 —   5.36			837,828				1.9				4.34				837,828				4.34
7.53 —   7.78			2,321,742				4.0				7.77				2,321,742				7.77
12.31 — 13.58			996,858				5.4				12.33				332,074				12.37
21.81 — 24.71			636,030				6.2				24.53				—				—
$  2.94 — 24.71			6,353,282				3.8			$	8.66				5,052,468			$	6.18

Of the Company’s previously granted restricted stock awards 32,000 and 16,000 shares vested during the six months ended February 28, 2007 and 2006, respectively.

Intangible Assets

The total gross carrying amounts of the Company’s intangible assets that were subject to amortization were $21.7 million and $22.0 million at February 28, 2007 and August 31, 2006, respectively. Aggregate amortization expense for the three months ended February 28, 2007 and 2006 was $0.7 million and $0.6 million, respectively. Aggregate amortization expense for each of the six months ended February 28, 2007 and 2006 was $1.5 million and $1.1 million, respectively.

SFAS No. 159 — The Fair Value Option for Financial Assets and Financial Liabilities

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities, including an amendment of FASB Statement No. 115. This statement permits entities to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value. SFAS 159 is effective for the Company’s fiscal year beginning September 1, 2008. The Company is currently evaluating the impact of adopting SFAS 159’s elective fair value option on the Company’s financial statements.

Staff Accounting Bulletin No. 108

In September 2006, the SEC released SAB No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements” which is effective for the Company’s fiscal year beginning September 1, 2007. As per the Standard, registrants should consider the effects of the carryover or reversal of prior year misstatements in quantifying a current year misstatement and should quantify errors using both a balance sheet and an income statement approach and evaluate whether either approach results in quantifying a misstatement that, when all relevant quantitative and qualitative factors are considered, is material. The Company does not expect the adoption of this Standard to have a material impact on its financial statements.

FASB Staff Position (FSP) No. AUG AIR-1

In September 2006, the FASB issued FASB Staff Position (FSP) No. AUG AIR-1, “Accounting for Planned Major Maintenance Activities” which is effective for the Company’s fiscal year beginning September 1, 2007. The Staff Position prohibits the use of the accrue-in-advance method of accounting for planned major maintenance activities in annual and interim financial reporting periods. The Company does not expect the adoption of this Standard to have a material impact on its financial statements.

NOTE C — ACQUISITIONS

On January 4, 2007, the Company completed the acquisition of the operating assets and inventory of Bruhler Stahlhandel GmbH steel fabrication business in Rosslau/Saxony-Anhalt in eastern Germany. The acquisition was made by CMC’s subsidiary Commercial Metals Deutschland GmbH. The Company paid $10.6 million for this acquisition. The Company allocated $6.1 million and $4.5 million of the purchase price to property, plant, and equipment and inventory, respectively, based on their fair value at the acquisition date. This acquisition is expected to strengthen the Company’s vertical integration and downstream capability in Central Europe and to complement CMC’s existing fabrication operation in Zawiercie, Poland.

NOTE D — SALES OF ACCOUNTS RECEIVABLE

The Company has an accounts receivable securitization program which it utilizes as a cost-effective, short-term financing alternative. Under this program, the Company and several of its subsidiaries periodically sell certain eligible trade accounts receivable to the Company’s wholly-owned consolidated special purpose subsidiary (CMCRV). CMCRV is structured to be a bankruptcy-remote entity. CMCRV, in turn, sells undivided percentage ownership interests in the pool of receivables to affiliates of two third-party financial institutions. CMCRV may sell undivided interests of up to $130 million, depending on the Company’s level of financing needs.

At February 28, 2007 and August 31, 2006, accounts receivable of $356 million and $351 million, respectively, had been sold to CMCRV. The Company’s undivided interest in these receivables (representing the Company’s retained interest) was 79% and 100% at February 28, 2007 and August 31, 2006, respectively. At February 28, 2007, the financial institution buyers owned $74 million in undivided interests in CMCRV’s accounts receivable pool, which was reflected as a reduction in accounts receivable on the Company’s condensed consolidated balance sheets. The average monthly amount of undivided interests owned by the financial institution buyers was $12.3 million and $1.7 million for the six months ended February 28, 2007 and 2006, respectively.

In addition to the securitization program described above, the Company’s international subsidiaries periodically sell accounts receivable without recourse. Uncollected accounts receivable that had been sold under these arrangements and removed from the condensed consolidated balance sheets were $83.2 million and $61.9 million at February 28, 2007 and August 31, 2006, respectively. The average monthly amounts of outstanding international accounts receivable sold were $72.7 million and $57.8 million for the six months ended February 28, 2007 and 2006, respectively.

Discounts (losses) on domestic and international sales of accounts receivable were $1.4 million and $797 thousand for the three months ended February 28, 2007 and 2006, respectively. For the six months ended February 28, 2007 and 2006, these discounts were $2.3 million and $1.6 million, respectively. These losses primarily represented the costs of funds and were included in selling, general and administrative expenses.

NOTE E — INVENTORIES

Before deduction of last-in, first-out (LIFO) inventory valuation reserves of $218.4 million and $189.3 million at February 28, 2007 and August 31, 2006, respectively, inventories valued under the first-in, first-out method approximated replacement cost. The majority of the Company’s inventories are in finished goods, with minimal work in process. Approximately $54.8 million and $54.6 million were in raw materials at February 28, 2007 and August 31, 2006, respectively.

NOTE F — CREDIT ARRANGEMENTS

At February 28, 2007 and August 31, 2006, no borrowings were outstanding under the Company’s commercial paper program or the related revolving credit agreement. The Company was in compliance with all covenants at February 28, 2007.

The Company has numerous informal credit facilities available from domestic and international banks. These credit facilities are available to support documentary letters of credit (including those with extended terms), foreign exchange transactions and, in certain instances, short-term working capital loans and are priced at bankers’ acceptance rates or on a cost of funds basis. Amounts outstanding on these facilities relate to accounts payable settled under documentary letters of credit.

Long-term debt was as follows:

		February 28,				August 31,
(in thousands)		2007				2006
6.80% notes due August 2007		$	50,000			$	50,000
6.75% notes due February 2009			100,000				100,000
CMCZ term note due March 2009			—				18,322
5.625% notes due November 2013			200,000				200,000
Other, including equipment notes			13,770				13,926
			363,770				382,248
Less current maturities			54,600				60,162
		$	309,170			$	322,086

CMCZ has a revolving credit facility with maximum borrowings of 100 million PLN ($33.7 million) bearing interest at the Warsaw Interbank Offered Rate (WIBOR) plus 0.55% and collateralized by CMCZ’s accounts receivable. This facility expires May 11, 2007. At February 28, 2007, no amounts were outstanding under this facility. The revolving credit facility contains certain financial covenants for CMCZ. CMCZ was in compliance with these covenants at February 28, 2007. There are no guarantees by the Company or any of its subsidiaries for any of CMCZ’s debt.

In February 2007, CMCZ entered into a new revolving credit facility agreement. The credit agreement has maximum borrowings of 100 million PLN ($33.7 million) and interest rate of WIBOR plus 0.55%. The credit facility expires on July 31, 2007 and is not collateralized. The short-term credit facility contains certain financial covenants. At February 28, 2007, no amounts were outstanding under the credit facility agreement.

CMC Poland, a wholly-owned subsidiary of the Company, owns and operates equipment at the CMCZ mill site. In connection with the equipment purchase, CMC Poland issued equipment notes under a term agreement dated September 2005 with 34.0 million PLN ($11.4 million) outstanding at February 28, 2007. Installment payments under these notes are due through 2010. Interest rates are variable based on the Poland Monetary Policy Council’s rediscount rate, plus any applicable margin. The weighted average rate as of February 28, 2007 was 4.25%. The notes are substantially secured by the shredder equipment.

Interest of $17.2 million and $14.8 million was paid in the six months ended February 28, 2007 and 2006, respectively.

NOTE G – INCOME TAXES

The Company paid $87.6 million and $74.1 million in income taxes during the six months ended February 28, 2007 and 2006, respectively.

Reconciliations of the United States statutory rates to the Company’s effective tax rates were as follows:

		Three Months Ended								Six Months Ended
		February 28,								February 28,
		2007				2006				2007				2006
Statutory rate			35.0	%			35.0	%			35.0	%			35.0	%
State and local taxes			1.4				1.4				1.9				1.3
Dividend received deduction and other			2.9				0.3				1.5				0.3
Extraterritorial Income Exclusion (ETI)			(0.1	)			(0.2	)			(0.1	)			(0.2	)
Foreign rate differential			(4.0	)			0.4				(2.5	)			(0.2	)
Domestic production activity deduction			(0.3	)			(0.5	)			(0.5	)			(0.5	)
Effective rate			34.9	%			36.4	%			35.3	%			35.7	%

Approximately $3.2 million of additional tax expense was recognized in the three months ended February 28, 2007 due to the final computation of the dividends received deduction afforded by the Foreign Earnings Repatriation Provision of the American Jobs Creation Act of 2004 on the repatriated unremitted foreign earnings from a Swiss subsidiary made during the fourth quarter of fiscal 2006.

In June 2006, the FASB issued FIN 48, ‘‘Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement 109,’’ which clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FAS No. 109, ‘‘Accounting for Income Taxes.’’ FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 is effective for the Company’s fiscal year beginning September 1, 2007. The Company is currently evaluating the impact of FIN 48 on the Company’s consolidated financial statements.

NOTE H – STOCKHOLDERS’ EQUITY AND EARNINGS PER SHARE

On April 24, 2006, the Company declared a two-for-one stock split in the form of a 100% stock dividend on the Company’s common stock payable May 22, 2006 to shareholders of record on May 8, 2006. The stock dividend resulted in the issuance of 64,530,332 additional shares of common stock. All per share and share amounts in the accompanying condensed consolidated financial statements for the three and six months ended February 28, 2006 have been restated to reflect the stock split.

In calculating earnings per share, there were no adjustments to net earnings to arrive at earnings for the three or six months ended February 28, 2007 or 2006. The reconciliation of the denominators of the earnings per share calculations is as follows:

		Three Months Ended								Six Months Ended
		February 28,								February 28,
		2007				2006				2007				2006
Average shares outstanding for basic earnings per share			117,266,573				117,551,782				117,348,716				116,743,700
Effect of dilutive securities-stock based incentive/purchase plans			4,540,841				6,278,846				4,073,657				6,114,460
Average shares outstanding for diluted earnings per share			121,807,414				123,830,628				121,422,373				122,858,160

At February 28, 2007, all of the Company’s outstanding stock options, restricted stock and Stock Appreciation Rights (SARs) with total share commitments of 6,986,817 were dilutive based on the average share price of $27.38. All stock options and SARs expire by 2013.

The Company’s restricted stock is included in the number of shares of common stock issued and outstanding, but omitted from the basic earnings per share calculation until the shares vest.

At February 28, 2007, the Company had authorization to purchase 2,642,260 of its common shares.

NOTE I – DERIVATIVES AND RISK MANAGEMENT

The Company’s worldwide operations and product lines expose it to risks from fluctuations in foreign currency exchange rates and metals commodity prices. The objective of the Company’s risk management program is to mitigate these risks using futures or forward contracts (derivative instruments). The Company enters into metal commodity forward contracts to mitigate the risk of unanticipated changes in gross margin due to the volatility of the commodities’ prices, and enters into foreign currency forward contracts, which match the expected settlements for purchases and sales denominated in foreign currencies. Also, when its sales commitments to customers include a fixed price freight component, the Company occasionally enters into freight forward contracts to minimize the effect of the volatility of ocean freight rates. Forward contracts on natural gas may also be entered to reduce the price volatility of gas used in production. The Company designates only those contracts which closely match the terms of the underlying transaction as hedges for accounting purposes. These hedges resulted in an immaterial amount of ineffectiveness in the statements of earnings and there were no components excluded from the assessment of hedge effectiveness for the three or six months ended February 28, 2007 and 2006. Certain of the foreign currency and commodity contracts were not designated as hedges for accounting purposes, although management believes they are essential economic hedges.

The following table shows the impact on the condensed consolidated statements of earnings of the changes in fair value of these economic hedges:

		Three Months Ended								Six Months Ended
		February 28,								February 28,
		2007				2006				2007				2006
(in thousands)		Earnings (Expense)								Earnings (Expense)
Net sales (foreign currency instruments)		$	(242	)		$	(180	)		$	(131	)		$	(87	)
Cost of goods sold (commodity instruments)			(1,518	)			1,926				(3,724	)			49

The Company’s derivative instruments were recorded as follows on the condensed consolidated balance sheets:

		February 28,				August 31,
(in thousands)		2007				2006
Derivative assets (other current assets)		$	2,786			$	5,633
Derivative liabilities (other payables)			7,357				8,323

The following table summarizes activities in other comprehensive income (losses) related to derivatives classified as cash flow hedges held by the Company during the six months ended February 28, 2006 (in thousands):

Change in market value (net of taxes)		$	3,552
(Gains) losses reclassified into net earnings, net			(1,527	)
Other comprehensive gain (loss) — unrealized gain (loss) on derivatives		$	2,025

During the twelve months following February 28, 2007, $2.7 million in losses related to commodity hedges and capital expenditures are anticipated to be reclassified into net earnings as the related transactions mature and the assets are placed into service, respectively. Also, an additional $112 thousand in gains will be reclassified as interest expense related to an interest rate lock.

All of the instruments are highly liquid, and none are entered into for trading purposes.

NOTE J – CONTINGENCIES

See Note 11, Commitments and Contingencies, to the consolidated financial statements for the year ended August 31, 2006 relating to environmental and other matters. There have been no significant changes to the matters noted therein. In the ordinary course of conducting its business, the Company becomes involved in litigation, administrative proceedings and governmental investigations, including environmental matters. Management believes that adequate provision has been made in the condensed consolidated financial statements for the potential impact of these issues, and that the outcomes will not significantly impact the results of operations or the financial position of the Company, although they may have a material impact on earnings for a particular quarter.

In February 2007, we entered into a guarantee agreement to assist one of our Chinese coke suppliers to obtain pre-production financing from a bank. In addition, we entered into another guarantee agreement for one of our suppliers of finished goods to obtain working capital financing from a financial institution. In the aggregate, the Company’s maximum exposure under the guarantees at February 28, 2007 is approximately $12.3 million. The fair value of the guarantees is negligible.

NOTE K – BUSINESS SEGMENTS

The Company’s reportable segments are based on strategic business areas, which offer different products and services. These segments have different lines of management responsibility as each business requires different marketing strategies and management expertise.

The Company has five reportable segments: domestic mills, CMCZ, domestic fabrication, recycling and marketing and distribution.

The following is a summary of certain financial information by reportable segment:

		Three Months Ended February 28, 2007
																		Marketing
		Domestic								Domestic								and
(in thousands)		Mills				CMCZ				Fabrication				Recycling				Distribution				Corporate				Eliminations				Consolidated
Net sales-unaffiliated customers		$	262,582			$	194,823			$	404,203			$	315,205			$	837,190			$	1,773			$	—			$	2,015,776
Intersegment sales			102,287				1,356				102				38,343				50,601				456				(193,145	)			—
Net sales			364,869				196,179				404,305				353,548				887,791				2,229				(193,145	)			2,015,776
Adjusted operating profit (loss)			61,671				25,826				13,883				20,903				15,223				(18,915	)			—				118,591

		Three Months Ended February 28, 2006
																		Marketing
		Domestic								Domestic								and
(in thousands)		Mills				CMCZ				Fabrication				Recycling				Distribution				Corporate				Eliminations				Consolidated
Net sales-unaffiliated customers		$	257,109			$	106,782			$	408,005			$	245,894			$	619,285			$	2,412			$	—			$	1,639,487
Intersegment sales			109,061				5,802				151				26,119				22,899				—				(164,032	)			—
Net sales			366,170				112,584				408,156				272,013				642,184				2,412				(164,032	)			1,639,487
Adjusted operating profit (loss)			70,767				(584	)			38,494				18,592				12,934				(7,425	)			—				132,778

		Six Months Ended February 28, 2007
																		Marketing
		Domestic								Domestic								and
(in thousands)		Mills				CMCZ				Fabrication				Recycling				Distribution				Corporate				Eliminations				Consolidated
Net sales-unaffiliated customers		$	512,376			$	357,737			$	852,213			$	674,881			$	1,598,208			$	6,905			$	—			$	4,002,320
Intersegment sales			210,048				1,389				878				61,728				87,393				(84	)			(361,352	)			—
Net sales			722,424				359,126				853,091				736,609				1,685,601				6,821				(361,352	)			4,002,320
Adjusted operating profit (loss)			134,310				51,620				45,379				38,511				23,131				(25,426	)			—				267,525
Goodwill – February 28, 2007			306				—				27,006				6,680				1,823				—				—				35,815
Total Assets – February 28, 2007			526,146				367,246				703,037				240,588				905,424				120,281				—				2,862,722

		Six Months Ended February 28, 2006
																		Marketing
		Domestic								Domestic								and
(in thousands)		Mills				CMCZ				Fabrication				Recycling				Distribution				Corporate				Eliminations				Consolidated
Net sales-unaffiliated customers		$	525,781			$	213,662			$	808,074			$	459,100			$	1,274,454			$	4,114			$	—			$	3,285,185
Intersegment sales			210,168				6,254				605				49,312				52,288				—				(318,627	)			—
Net sales			735,949				219,916				808,679				508,412				1,326,742				4,114				(318,627	)			3,285,185
Adjusted operating profit (loss)			135,686				948				56,691				32,426				35,989				(13,952	)			—				247,788
Goodwill – February 28, 2006			306				—				27,006				3,230				—				—				—				30,542
Total Assets – February 28, 2006			471,375				274,976				636,329				193,379				800,430				94,881				—				2,471,370

The following table provides a reconciliation of consolidated adjusted operating profit to net earnings:

		Three Months Ended								Six Months Ended
		February 28,								February 28,
(in thousands)		2007				2006				2007				2006
Net earnings		$	65,921			$	80,103			$	151,271			$	149,727
Minority interests			4,648				(578	)			9,276				(333	)
Income taxes			37,786				45,504				87,555				82,945
Interest expense			8,852				6,952				17,080				13,876
Discounts on sales of accounts receivable			1,384				797				2,343				1,573
Adjusted operating profit		$	118,591			$	132,778			$	267,525			$	247,788

The following presents external net sales by major product and geographic area for the Company:

		Three Months Ended								Six Months Ended
		February 28,								February 28,
(in thousands)		2007				2006				2007				2006
Major product information:
Steel products		$	1,247,494			$	961,749			$	2,406,245			$	1,922,258
Nonferrous scrap			190,871				161,973				433,848				293,519
Industrial materials			207,500				200,840				419,441				445,037
Nonferrous products			135,777				135,111				272,986				259,900
Ferrous scrap			121,869				82,655				237,390				163,024
Construction materials			91,442				86,150				197,507				178,165
Other			20,823				11,009				34,903				23,282
Net sales		$	2,015,776			$	1,639,487			$	4,002,320			$	3,285,185

		Three Months Ended								Six Months Ended
		February 28,								February 28,
(in thousands)		2007				2006				2007				2006
Geographic area:
United States		$	1,199,423			$	1,059,997			$	2,393,333			$	2,101,379
Europe			404,964				255,373				802,818				469,606
Asia			233,727				173,681				438,013				384,222
Australia/New Zealand			111,935				92,958				220,605				217,157
Other			65,727				57,478				147,551				112,821
Net sales		$	2,015,776			$	1,639,487			$	4,002,320			$	3,285,185

NOTE L — RELATED PARTY TRANSACTIONS

One of the Company’s international subsidiaries has an agreement for steel purchases with a key supplier of which the Company owns an 11% interest. The total amounts of purchases from this supplier were $170 million and $118.4 million for the six months ended February 28, 2007 and 2006, respectively.

NOTE M – SUBSEQUENT EVENTS

On March 2, 2007, the Company announced that its Polish steel mill, CMC Zawiercie S.A. (CMCZ), purchased all of the shares of CMCZ owned by the Polish Ministry of State Treasury for approximately $59.5 million. The shares acquired represent approximately 26.8% of the total CMCZ shares outstanding. The Company intends to redeem the shares and with this purchase and subsequent redemption, CMC will hold approximately 99% of the outstanding shares of CMCZ.

On March 5, 2007, the Company announced that it has entered into a definitive agreement to purchase substantially all the operating assets of Nicholas J. Bouras Inc. for approximately $63 million plus inventory on hand at the time of closing which is expected within 40 days following regulatory approval. Included in the deal are Bouras affiliates United Steel Deck, Inc., The New Columbia Joist Co., and ABA Trucking Corp. United Steel Deck manufactures steel deck at facilities in South Plainfield, NJ; Peru, IL; and Rock Hill, SC. New Columbia Joist manufactures steel joists in New Columbia, PA. ABA Trucking Corporation provides delivery services for United Steel Deck and New Columbia Joist. The purchase does not include Bouras subsidiary Prior Coated Metals and its affiliate Bouras Properties LLC. This acquisition will be integrated as part of CMC’s Domestic Fabrication segment and will operate under the trade name CMC Joist & Deck.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Management’s Discussion and Analysis should be read in conjunction with our Form 10-K filed with the Securities and Exchange Commission (SEC) for the year ended August 31, 2006.

CRITICAL ACCOUNTING POLICIES

Our critical accounting policies are consistent with the information set forth in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, included in our Form 10-K filed with the SEC for the year ended August 31, 2006 and are, therefore, not presented herein.

CONSOLIDATED RESULTS OF OPERATIONS

		Three Months Ended												Six Months Ended
		February 28,								%				February 28,								%
(in millions)		2007				2006				Change				2007				2006				Change
Net sales		$	2,015.8			$	1,639.5				23	%		$	4,002.3			$	3,285.2				22	%
Net earnings			65.9				80.1				(18	)%			151.3				149.7				1	%
EBITDA			136.4				153.0				(11	)%			304.9				286.2				7	%

In the table above, we have included a financial statement measure that was not derived in accordance with GAAP. We use EBITDA (earnings before interest expense, income taxes, depreciation and amortization) as a non-GAAP performance measure. In calculating EBITDA, we exclude our largest recurring non-cash charge, depreciation and amortization. EBITDA provides a core operational performance measurement that compares results without the need to adjust for federal, state and local taxes which have considerable variation between domestic jurisdictions. Tax regulations in international operations add additional complexity. Also, we exclude interest cost in our calculation of EBITDA. The results are, therefore, without consideration of financing alternatives of capital employed. We use EBITDA as one guideline to assess our unleveraged performance return on our investments. EBITDA is also the target benchmark for our long-term cash incentive performance plan for management. Reconciliations to net earnings are provided below:

		Three Months Ended												Six Months Ended
		February 28,								%				February 28								%
(in millions)		2007				2006				Change				2007				2006				Change
Net earnings		$	65.9			$	80.1				(18	)%		$	151.2			$	149.7				1	%
Interest expense			8.9				7.0				27	%			17.1				13.9				23	%
Income taxes			37.7				45.5				(17	)%			87.6				82.9				6	%
Depreciation and amortization			23.9				20.4				17	%			49.0				39.7				23	%
EBITDA		$	136.4			$	153.0				(11	)%		$	304.9			$	286.2				7	%

Our EBITDA does not include interest expense, income taxes and depreciation and amortization. Because we have borrowed money in order to finance our operations, interest expense is a necessary element of our costs and our ability to generate revenues. Because we use capital assets, depreciation and amortization are also necessary elements of our costs. Also, the payment of income taxes is a necessary element of our operations. Therefore, any measures that exclude these elements have material limitations. To compensate for these limitations, we believe that it is appropriate to consider both net earnings determined under GAAP, as well as EBITDA, to evaluate our performance. Also, we separately analyze any significant fluctuations in interest expense, depreciation and amortization and income taxes.

Overview Reported net earnings and EBITDA decreased by 18% to $65.9 million and 11% to $136.4 million, respectively, for the three months ended February 28, 2007 as compared to 2006. For the six months ended February 28, 2007, net earnings increased by 1% to $151.2 million and EBITDA by 7% to $304.9 million as compared to the same period last year. Traditionally, our second quarter (December to February) is our weakest quarter because of the seasonal nonresidential construction slowdown. For the quarter just ended, net earnings was also affected as a result of destocking at service centers, increased cost of steel scrap, the softening in the residential housing market, mill maintenance and certain oversupply conditions in the U.S. These factors contributed to our steel shipping volumes being down by 40 thousands tons and larger than expected LIFO charges in our Domestic Mills and Domestic Fabrication segments. In contrast, for the six months ended February 28, 2007, operating results were slightly better as sales were up and the Company had two strong quarters from CMCZ our Polish operations and a faster inventory turnover at our Recycling segment that benefited from higher scrap prices. In addition, we also experienced a recovery in the steel prices for our finished goods and a

tremendous unprecedented demand for our construction products in emerging markets, in particular in the markets of North Africa, the Middle East, Central and Eastern Europe, Russia and Asia. The following financial events were significant during our second quarter ended February 28, 2007:

	•		Net sales for the quarter increased by 23% over last year’s second quarter to $2.0 billion with CMCZ and the Marketing and Distribution segments contributing the largest proportion to the company’s overall net sales growth.
	•		After-tax LIFO expense of $12.3 million or $0.10 per diluted share as compared with income of $2.6 million or $0.02 per share in last year’s second quarter.
	•		Our Polish (CMCZ) operations continued to achieve record profitability with its adjusted operating profit of $25.8 million. Net sales increased 74% over last year’s second quarter.
	•		Adjusted operating profit for the Domestic Mills segment was down by 13% to $61.7 million caused mainly by a LIFO expense of $8.6 million, an $8 million increase over the prior year quarter, increased maintenance costs of $4.2 million and a lower adjusted operating profit at our copper tube mill.
	•		Adjusted operating profit of our Domestic Fabrication segment decreased $24.6 million to $13.9 million, a 64% decline from the prior year’s quarter due primarily to a $16 million swing from a LIFO credit to a LIFO expense and a margin squeeze caused by higher steel prices. Shipments were about even from last year’s quarter with our Rebar products showing a slight volume improvement of 6%.
	•		Our Recycling segment’s adjusted operating profit of $20.9 million increased 12% over last years’ quarter primarily as the result of a pre-tax LIFO income of $2.7 million and an 11% increase in shipments.
	•		Our Marketing and Distribution segment had a 38% sales increase over the second quarter of 2006 and an adjusted operating profit of $15.2 million an 18% increase in despite of absorbing a pre-tax LIFO expense of $6.7 million.
	•		Selling, general and administrative expenses include $9.9 million of costs associated with the investment in the global deployment of SAP software.
	•		On March 2, 2007, the Company announced that its Polish steel mill, CMC Zawiercie S.A. (CMCZ), purchased all of the shares of CMCZ owned by the Polish Ministry of State Treasury for approximately $59.5 million, making CMC the owner of approximately 99% of the outstanding shares of CMCZ.
	•		On March 5, 2007, the Company announced that it has entered into a definitive agreement to purchase substantially all the operating assets of Nicholas J. Bouras Inc. for approximately $63 million plus inventory on hand at the time of closing which is expected within 40 days following regulatory approval.

SEGMENT OPERATING DATA

See Note K — Business Segments, to the condensed consolidated financial statements.

We use adjusted operating profit (loss) to compare and evaluate the financial performance of our segments. Adjusted operating profit is the sum of our earnings before income taxes, minority interests and financing costs.

The following tables show our net sales and adjusted operating profit (loss) by business segment:

		Three Months Ended												Six Months Ended
		February 28,								%				February 28,								%
(in thousands)		2007				2006				Change				2007				2006				Change
NET SALES:
Domestic mills		$	364,869			$	366,170				(0.4	)%		$	722,424			$	735,949				(2	)%
CMCZ*			196,179				112,584				74	%			359,126				219,916				63	%
Domestic fabrication			404,305				408,156				(1	)%			853,091				808,679				5	%
Recycling			353,548				272,013				30	%			736,609				508,412				45	%
Marketing and distribution			887,791				642,184				38	%			1,685,601				1,326,742				27	%
Corporate and eliminations			(190,916	)			(161,620	)			18	%			(354,531	)			(314,513	)			13	%
		$	2,015,776			$	1,639,487				23	%		$	4,002,320			$	3,285,185				22	%

		Three Months Ended												Six Months Ended
		February 28,								%				February 28,								%
(in thousands)		2007				2006				Change				2007				2006				Change
ADJUSTED OPERATING PROFIT (LOSS):
Domestic mills		$	61,671			$	70,767				(13	)%		$	134,310			$	135,686				(1	)%
CMCZ*			25,826				(584	)			4,522	%			51,620				948				5,345	%
Domestic fabrication			13,883				38,494				(64	)%			45,379				56,691				(20	)%
Recycling			20,903				18,592				12	%			38,511				32,426				19	%
Marketing and distribution			15,223				12,934				18	%			23,131				35,989				(36	)%
Corporate and eliminations			(18,915	)			(7,425	)			155	%			(25,426	)			(13,952	)			82	%

LIFO Impact on Adjusted Operating Profit — LIFO is an inventory costing method that assumes the most recent inventory purchases or goods manufactured are sold first. This results in current sales prices offset against current inventory costs. In periods of rising prices it has the effect of eliminating inflationary profits from net income. In periods of declining prices it has the effect of eliminating deflationary losses from net income. In either case the goal is to reflect economic profit. The table below reflects LIFO income or (expense) representing decreases or (increases) in the LIFO inventory reserve. CMCZ is not included in this table as it uses FIFO valuation exclusively for its inventory:

		Three Months Ended								Six Months Ended
		February 28,								February 28,
(in thousands)		2007				2006				2007				2006
Domestic mills			(8,648	)			(686	)			(12,619	)			(10,358	)
Domestic fabrication			(6,256	)			9,705				3,064				(4,211	)
Recycling			2,739				(3,180	)			1,542				(4,577	)
Marketing and distribution			(6,734	)			(1,802	)			(21,033	)			1,518
Consolidated increase (decrease) to adjusted profit before tax			(18,899	)			4,037				(29,046	)			(17,628	)

Domestic Mills We include our four domestic steel and our copper tube minimills in our domestic mills segment. Our domestic steel mills had an adjusted operating profit for the three months ended February 28, 2007 of $59.4 million, down 8% as compared to the prior year’s second quarter due to a larger than expected LIFO pre-tax expense of $14 million and a slight decrease in net sales. The increase in LIFO was driven by a 12% cost increase coupled with a modest increase in the quantity of inventory for the quarter just ended as compared to a LIFO expense for the prior year’s quarter of $686 thousand. The average metal margin increased by $33 to $326 per ton, as average selling prices (total sales) rose $41 per ton offset by an increase in the average cost of scrap used of $8 per ton. The volume of shipments was down by 7% to 563 thousand tons, tons melted and rolled fell 46 and 17 thousand tons to 531 and 515 thousands tons, respectively as compared to last year’s second quarter. The largest decline in volume occurred at our CMC Steel Texas mill due to scheduled annual maintenance of 19 days to replace the furnace shell and foundation in the melt shop and 13 days to replace the lining of the reheat furnace in the rolling mill. Repair and maintenance expense increased by 46% or $4.2 million from last year’s second quarter.

The table below reflects steel and ferrous scrap prices per ton:

		Three Months Ended								Increase								Six Months Ended								Increase
		February 28,								(Decrease)								February 28,								(Decrease)
		2007				2006				Amount				%				2007				2006				Amount				%
Average mill selling price (finished goods)		$	556			$	516			$	40				8	%		$	563			$	513			$	50				10	%
Average mill selling price (total sales)			541				500				41				8	%			549				495				54				11	%
Average ferrous scrap production cost			215				207				8				4	%			211				205				6				3	%
Average metal margin			326				293				33				11	%			337				290				47				16	%
Average ferrous scrap purchase price			200				184				16				9	%			192				184				8				4	%

The table below reflects our domestic steel minimills’ operating statistics (short tons in thousands):

		Three Months Ended								Increase								Six Months Ended								Increase
		February 28								(Decrease)								February 28,								(Decrease)
		2007				2006				Amount				%				2007				2006				Amount				%
Tons melted			531				577				(46	)			(8	)%			1,063				1,151				(88	)			(8	)%
Tons rolled			515				532				(17	)			(3	)%			1,046				1,054				(8	)			(1	)%
Tons shipped			563				603				(40	)			(7	)%			1,089				1,227				(138	)			(11	)%

All of our domestic steel minimills were profitable during the second quarter ended February 28, 2007. For the six months ended February 28, 2007, our Alabama mill was 30% more profitable over the same period last year as a direct result of increased sales of specialty products and inventory on hand as its customers were trying to keep ahead of scheduled announced price increases. Average selling prices for all of our domestic mills were higher for the three and six months ended February 28, 2007 as compared to 2006. Utility costs decreased by $5.7 million, split evenly between electricity and natural gas with declines in both pricing and usage.

The table below reflects our copper tube minimill’s prices per pound and operating statistics:

		Three Months Ended								Increase								Six Months Ended								Increase
		February 28,								(Decrease)								February 28,								(Decrease)
		2007				2006				Amount				%				2007				2006				Amount				%
Pounds shipped (in millions)			11.5				15.7				(4.20	)			(27	)%			21.9				31.9				(10.00	)			(31	)%
Pounds produced (in millions)			10.4				16.7				(6.30	)			(38	)%			20.5				32.6				(12.10	)			(37	)%
Average selling price		$	3.50			$	2.84			$	0.66				23	%		$	3.82			$	2.63			$	1.19				45	%
Average copper scrap production cost		$	3.05			$	1.73			$	1.32				76	%		$	3.07			$	1.62			$	1.45				90	%
Average metal margin		$	0.45			$	1.11			$	(0.66	)			(59	)%		$	0.75			$	1.01			$	(0.26	)			(26	)%
Average copper scrap purchase price		$	2.78			$	2.02			$	0.76				38	%		$	2.96			$	1.87			$	1.09				58	%

Our copper tube minimill’s adjusted operating profit was $2.2 million and $5.6 million for the three and six months ended February 28, 2007, respectively, as compared to $6.1 million and $10.3 million, respectively, for the same period in 2006. While the average selling price for the quarter just ended increased by 23% to $3.50 from last year’s quarter, the average metal margin decreased by 59% to $0.45 as a result of higher copper scrap purchase price and production cost. Also pounds shipped declined 27% to 11.5 million pounds and production decreased 38% to 10.4 million pounds as compared to last year’s second quarter. The operating results of our copper tube minimill were affected by a weak housing market in the U.S., destocking at distributors and lower copper prices. There was a pre-tax LIFO income of $5.4 million compared to a pre-tax LIFO expense of $1.7 million in the prior year as copper prices fell throughout the quarter with only a partial recovery near quarter end.

CMCZ Our combined Polish operation continued to achieve record profitability as the adjusted operating profit for the three and six months ended February 28, 2007 was $25.8 million and $51.6 million, respectively. Average selling prices rose 20% to 1,486 PLN ($507) per short ton while the cost of scrap utilized increased 19% to 826 PLN ($282) per short ton resulting in a 21% increase in metal margin to 660 PLN ($225). The increase in the metal spread was combined with a 29% increase in short tons shipped with 57% of the products shipped domestically. The strong operating results at CMCZ resulted from a strong Polish GDP growth, the growing infrastructure work in Central and Eastern Europe, a mild winter and an improving German economy all of which contributed to the excellent performance level during the second quarter in an otherwise traditionally weak period. Our mega shredder continues to sustain higher melt shop yields and lower melt shop costs. Both fab shops, including our newest acquisition in eastern Germany, were profitable.

The following table reflects CMCZ’s operating statistics and average prices per short ton:

		Three Months Ended																Six Months Ended
		February 28,								Increase								February 28,								Increase
		2007				2006				Amount				%				2007				2006				Amount				%
Tons melted (thousands)			378				285				93				33	%			736				570				166				29	%
Tons rolled (thousands)			292				261				31				12	%			588				498				90				18	%
Tons shipped (thousands)			369				285				84				29	%			681				542				139				26	%
Average mill selling price (total sales)			1,486	PLN			1,238	PLN			248	PLN			20	%			1,506	PLN			1,269	PLN			237	PLN			19	%
Average ferrous scrap production cost			826	PLN			692	PLN			134	PLN			19	%			821	PLN			683	PLN			138	PLN			20	%
Average metal margin			660	PLN			546	PLN			114	PLN			21	%			685	PLN			586	PLN			99	PLN			17	%
Average ferrous scrap purchase price			742	PLN			580	PLN			162	PLN			28	%			734	PLN			575	PLN			159	PLN			28	%
Average mill selling price (total sales)		$	507			$	381			$	126				33	%		$	502			$	389			$	113				29	%
Average ferrous scrap production cost		$	282			$	213			$	69				32	%		$	274			$	206			$	68				33	%
Average metal margin		$	225			$	168			$	57				34	%		$	228			$	183			$	45				25	%
Average ferrous scrap purchase price		$	253			$	179			$	74				41	%		$	244			$	176			$	68				39	%