UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934

COMMERCIAL METALS COMPANY

(Exact Name of registrant as specified in its charter)

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

6565 N. MacArthur Blvd.
Irving, Texas 75039

(Zip Code)

(214) 689-4300

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 þ No o

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

Large accelerated filer þ		Accelerated filer o		Non-accelerated filer   o (Do not check if a smaller reporting company)		Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act). Yes o No þ

As of April 4, 2008, there were 114,115,445 shares of the Company’s common stock issued and outstanding excluding 14,945,219 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 29, 2008 and August 31, 2007			2 - 3
Condensed Consolidated Statements of Earnings – Three months and six months ended February 29, 2008 and February 28, 2007			4
Condensed Consolidated Statements of Cash Flows – Six months ended February 29, 2008 and February 28, 2007			5
Condensed Consolidated Statement of Stockholders’ Equity – Six months ended February 29, 2008			6
Notes to Condensed Consolidated Financial Statements			7 - 15
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			16 - 25
Item 3. Quantitative and Qualitative Disclosures about Market Risk			26
Item 4. Controls and Procedures			26
PART II – OTHER INFORMATION
Items 1– 6			27 - 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

PART 1. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

COMMERCIAL METALS COMPANY AND SUBSIDIARIES

		February 29,				August 31,
(in thousands)		2008				2007
Current assets:
Cash and cash equivalents		$	75,435			$	419,275
Accounts receivable (less allowance for collection losses of $19,323 and $16,495)			1,173,078				1,082,713
Inventories			986,782				874,104
Other			134,142				82,760
Total current assets			2,369,437				2,458,852
Property, plant and equipment:
Land			70,346				54,387
Buildings and improvements			386,874				321,967
Equipment			1,195,077				1,095,672
Construction in process			182,958				118,298
			1,835,255				1,590,324
Less accumulated depreciation and amortization			(893,121	)			(822,971	)
			942,134				767,353
Goodwill			41,509				37,843
Other assets			244,032				208,615
		$	3,597,112			$	3,472,663

See notes to unaudited condensed consolidated financial statements.

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

LIABILITIES AND STOCKHOLDERS’ EQUITY

		February 29,				August 31,
(in thousands except share data)		2008				2007
Current liabilities:
Accounts payable-trade		$	573,786			$	484,650
Accounts payable-documentary letters of credit			144,039				153,431
Accrued expenses and other payables			365,656				425,410
Deferred income taxes			4,369				4,372
Commercial paper			39,990				—
Notes payable			29,613				—
Current maturities of long-term debt			104,429				4,726
Total current liabilities			1,261,882				1,072,589
Deferred income taxes			36,641				31,977
Other long-term liabilities			122,130				109,813
Long-term debt			606,623				706,817
Total liabilities			2,027,276				1,921,196
Minority interests			4,780				2,900
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 114,060,280 and 118,566,381 shares			1,290				1,290
Additional paid-in capital			367,196				356,983
Accumulated other comprehensive income			127,178				64,452
Retained earnings			1,375,947				1,296,631
			1,871,611				1,719,356
Less treasury stock: 15,000,384 and 10,494,283 shares at cost			(306,555	)			(170,789	)
Total stockholders’ equity			1,565,056				1,548,567
		$	3,597,112			$	3,472,663

See notes to unaudited condensed consolidated financial statements.

COMMERCIAL METALS COMPANY AND SUBSIDIARIES

		Three Months Ended								Six Months Ended
		February 29,				February 28,				February 29,				February 28,
(in thousands, except share data)		2008				2007				2008				2007
Net sales		$	2,254,168			$	1,908,314			$	4,370,172			$	3,801,033
Costs and expenses:
Cost of goods sold			2,016,397				1,656,237				3,871,777				3,261,419
Selling, general and administrative expenses			157,411				137,370				307,410				268,789
Interest expense			14,033				8,545				26,458				16,604
			2,187,841				1,802,152				4,205,645				3,546,812
Earnings from continuing operations before income taxes and minority interests			66,327				106,162				164,527				254,221
Income taxes			22,923				37,353				56,280				90,065
Earnings from continuing operations before minority interests			43,404				68,809				108,247				164,156
Minority interests			391				4,648				263				9,276
Net earnings from continuing operations			43,013				64,161				107,984				154,880
Earnings (loss) from discontinued operations before taxes			(4,229	)			2,193				2,221				(6,119	)
Income taxes (benefit)			(991	)			433				1,266				(2,510	)
Net earnings (loss) from discontinued operations			(3,238	)			1,760				955				(3,609	)
Net earnings		$	39,775			$	65,921			$	108,939			$	151,271
Basic earnings per share
Earnings from continuing operations		$	0.37			$	0.55			$	0.93			$	1.32
Earnings (loss) from discontinued operations			(0.02	)			0.01				0.01				(0.03	)
Net earnings		$	0.35			$	0.56			$	0.94			$	1.29
Diluted earnings per share
Earnings from continuing operations		$	0.36			$	0.53			$	0.90			$	1.28
Earnings (loss) from discontinued operations			(0.02	)			0.01				0.01				(0.03	)
Net earnings		$	0.34			$	0.54			$	0.91			$	1.25
Cash dividends per share		$	0.12			$	0.09			$	0.21			$	0.15
Average basic shares outstanding			115,139,693				117,266,573				116,354,030				117,348,716
Average diluted shares outstanding			118,028,571				121,807,414				119,200,422				121,422,373

See notes to unaudited condensed consolidated financial statements.

COMMERCIAL METALS COMPANY AND SUBSIDIARIES

		Six Months Ended
		February 29,				February 28,
(in thousands)		2008				2007
Cash Flows From (Used By) Operating Activities:
Net earnings		$	108,939			$	151,271
Adjustments to reconcile net earnings to cash from (used by) operating activities:
Depreciation and amortization			63,873				49,021
Minority interests			263				9,276
Provision for losses on receivables			1,424				41
Share-based compensation			9,068				5,358
Net loss (gain) on sale of assets and other			102				(28	)
Asset impairment			409				1,390
Changes in operating assets and liabilities, net of effect of acquisitions:
Accounts receivable			(89,404	)			42,145
Accounts receivable sold			37,369				95,255
Inventories			(48,403	)			(92,453	)
Other assets			(70,486	)			(57,958	)
Accounts payable, accrued expenses, other payables and income taxes			(59,406	)			(133,079	)
Deferred income taxes			(8,051	)			(2,136	)
Other long-term liabilities			4,772				19,673
Net Cash Flows From (Used By) Operating Activities			(49,531	)			87,776
Cash Flows From (Used By) Investing Activities:
Purchases of property, plant and equipment			(144,446	)			(75,100	)
Purchase of minority interests in CMC Zawiercie			(130	)			(61	)
Sales of property, plant and equipment			663				467
Acquisitions, net of cash acquired			(21,040	)			(10,633	)
Net Cash Flows Used By Investing Activities			(164,953	)			(85,327	)
Cash Flows From (Used By) Financing Activities:
Decrease in documentary letters of credit			(9,392	)			(12,191	)
Short-term borrowings, net change			38,309				(60,000	)
Payments on long-term debt			(1,201	)			(18,787	)
Stock issued under incentive and purchase plans			12,808				14,024
Treasury stock acquired			(151,530	)			(17,744	)
Dividends paid			(24,629	)			(17,748	)
Tax benefits from stock plans			4,101				5,068
Net Cash Flows Used By Financing Activities			(131,534	)			(107,378	)
Effect of Exchange Rate Changes on Cash			2,178				375
Decrease in Cash and Cash Equivalents			(343,840	)			(104,554	)
Cash and Cash Equivalents at Beginning of Year			419,275				180,719
Cash and Cash Equivalents at End of Period		$	75,435			$	76,165

See notes to unaudited condensed consolidated financial statements.

COMMERCIAL METALS COMPANY AND SUBSIDIARIES

														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, 2007			129,060,664			$	1,290			$	356,983			$	64,452			$	1,296,631				(10,494,283	)		$	(170,789	)		$	1,548,567
FIN 48 adjustment (Note H)																			(4,994	)											(4,994	)
Comprehensive income:
Net earnings for six months ended February 29, 2008																			108,939												108,939
Other comprehensive income (loss):
Foreign currency translation adjustment, net of taxes of $1,874															68,611																68,611
Unrealized loss on derivatives, net of taxes of $1,767															(5,885	)															(5,885	)
Comprehensive income																															171,665
Cash dividends																			(24,629	)											(24,629	)
Treasury stock acquired																							(5,412,238	)			(151,530	)			(151,530	)
Stock issued under incentive and purchase plans											(2,356	)											880,731				15,164				12,808
Restricted stock											(700	)											36,000				700
Amortization of share-based compensation											9,168												(10,594	)			(100	)			9,068
Tax benefits from stock plans											4,101																				4,101
Balance, February 29, 2008			129,060,664			$	1,290			$	367,196			$	127,178			$	1,375,947				(15,000,384	)		$	(306,555	)		$	1,565,056

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, 2007, 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, 2007 on Form 10-K for a description of the Company’s stock incentive plans.

The Company recognized share-based compensation expense of $4.9 million and $3.1 million ($0.03 and $0.02 per diluted share, respectively) for the three months ended February 29, 2008 and February 28, 2007, respectively, and $9.1 million and $5.4 million ($0.05 and $0.03 per diluted share, respectively) for the six months ended February 29, 2008 and February 28, 2007, respectively, as a component of selling, general and administrative expenses. The Black-Scholes pricing model was used to calculate total compensation cost which is amortized on a straight-line basis over the vesting period. At February 29, 2008, the Company had $12.1 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. See Note 1, Summary of Significant Accounting Policies, to the Company’s consolidated financial statements for the year ended August 31, 2007 on Form 10-K for a description of the Company’s assumptions used to calculate share-based compensation.

Combined information for shares subject to options and SARs for the six months ended February 29, 2008 was as follows:

						Weighted
						Average				Price
						Exercise				Range
		Number				Price				Per Share
August 31, 2007
Outstanding			6,480,908			$	14.74			$	2.94 – 34.28
Exercisable			4,333,089				7.65				2.94 – 24.71
Granted			—				—				—
Exercised			(565,492	)			6.17				2.94 – 24.57
Forfeited			(53,964	)			28.98				12.31 – 34.28
February 29, 2008
Outstanding			5,861,452				15.43				3.64 – 34.28
Exercisable			3,769,598				7.88				3.64 – 34.28

Share information for options and SARs at February 29, 2008:

Outstanding														Exercisable
						Weighted
						Average				Weighted								Weighted
Range of						Remaining				Average								Average
Exercise		Number				Contractual				Exercise				Number				Exercise
Price		Outstanding				Life (Yrs.)				Price				Exercisable				Price
$3.64 – 3.78			810,492				1.9			$	3.64				810,492			$	3.64
4.29 – 5.36			602,963				0.9				4.34				602,963				4.34
7.53 – 7.78			1,593,192				3.0				7.77				1,593,192				7.77
12.31 – 13.58			889,864				4.4				12.33				570,922				12.35
21.81 – 24.71			596,051				5.2				24.52				190,429				24.52
31.75 – 34.28			1,368,890				6.3				34.28				1,600				34.28
$3.64 – 34.28			5,861,452				3.8			$	15.43				3,769,598			$	7.88

Of the Company’s previously granted restricted stock awards, 33,986 and 32,000 shares vested during the six months ended February 29, 2008 and February 28, 2007, respectively.

Intangible Assets

The total gross carrying amounts of the Company’s intangible assets that were subject to amortization were $36.9 million and $32.9 million at February 29, 2008 and August 31, 2007, respectively. Aggregate amortization expense for the three months ended February 29, 2008 and February 28, 2007 was $1.7 million and $0.7 million, respectively. Aggregate amortization expense for each of the six months ended February 29, 2008 and February 28, 2007 was $4.0 million and $1.5 million, respectively.

Recent Accounting Pronouncements

In December 2007, The FASB issued Statement of Financial Accounting Standards No. 141(R), “Business Combinations” (SFAS 141(R)). SFAS 141(R) establishes principles for recognizing and measuring the identifiable assets acquired, the liabilities assumed, any noncontrolling interest in the acquired business and goodwill acquired in a business combination. The Company is required to adopt the provisions of this statement in the fist quarter of fiscal 2010. This standard will impact our accounting treatment for future business combinations.

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements an Amendment of ARB 51” (SFAS 160). SFAS 160 requires minority interests to be reported as equity on the balance sheet, changes the reporting of net earnings to include both the amounts attributable to the affiliate’s parent and the noncontrolling interest and clarifies the accounting for changes in the parent’s interest in an affiliate. The Company is required to adopt the provisions of this statement in the first quarter of fiscal 2010. The adoption is not expected to have a material impact on the Company’s consolidated financial statements.

NOTE C — ACQUISITIONS

On September 19, 2007, the Company acquired all of the outstanding shares of Valjaonica Cijevi Sisak (VCS) from the Croatian Privatization Fund and Croatian government. VCS’s name has been changed to CMC Sisak d.o.o. (CMC Sisak). CMC Sisak is an electric arc furnace based steel pipe manufacturer located in Sisak, Croatia with annual capacity estimated at about 300,000 metric tons. The acquisition will expand the Company’s production capacity into tubular and other products in the key markets of Central and Eastern Europe.

On September 19, 2007, the Company acquired the operating assets of Economy Steel, Inc. of Las Vegas, Nevada. The acquired assets will operate under the new name of CMC Economy Steel. This operation is a rebar fabricator, placer, construction-related products supplier and steel service center. The acquisition fits the Company’s initiative for growth and expansion into a new geographic market. The acquisition will also support the development and success of the Company’s future mill in Arizona.

On December 30, 2007, the Company acquired a 70% interest in a newly incorporated business, CMC Albedo Metals which aquired an existing metals recycling business in Singapore.

The purchase price of these acquisitions was approximately $23.1 million ($21.4 million in cash and $1.7 million in installments payable). The Company also has committed to spend not less than $38 million over five years in capital expenditures for CMC Sisak and increase working capital by approximately $39 million. The following is a summary of the allocation of the purchase price as of the date of the respective acquisitions, subject to change following management’s final determination of fair value:

(in thousands)
Accounts receivable		$	5,127
Inventories			17,663
Other current assets			6,877
Property, plant and equipment			50,239
Goodwill			3,313
Intangible assets			5,369
Other assets			13,270
Liabilities			(77,781	)
Minority interest			(979	)
Net assets acquired		$	23,098

The intangible assets acquired include customer base, trade name and non-compete agreements which will be amortized between 4 and 8 years.

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 and was formed for the sole purpose of buying and selling receivables generated by the Company. The Company, irrevocably and without recourse, transfers all applicable trade accounts receivable to CMCRV. CMCRV, in turn, sells an undivided percentage ownership interest in the pool of receivables to affiliates of two third party financial institutions. On April 12, 2007, the agreement with the financial institution affiliates was extended to April 10, 2008. CMCRV may sell undivided interests of up to $200 million, depending on the Company’s level of financing needs.

At February 29, 2008 and August 31, 2007, accounts receivable of $353 million and $378 million, respectively, had been sold to CMCRV. The Company’s undivided interest in these receivables (representing the Company’s retained interest) was 100% at February 29, 2008 and August 31, 2007, respectively. The Company did not sell any undivided interests in the pool of receivables to the financial institution buyers during the six months ended February 29, 2008 and February 28, 2007, respectively.

In addition to the securitization program described above, the Company’s subsidiaries in Australia, Europe, Poland and a domestic subsidiary periodically sell accounts receivable. These arrangements also constitute true sales and, once the accounts are sold, they are no longer available to satisfy the Company’s creditors in the event of bankruptcy. The Company’s Australian subsidiary entered into an agreement with a financial institution to periodically sell certain trade accounts receivable up to a maximum of 97 million AUD ($91 million). The Australian program contains covenants in which our Australian subsidiary must meet certain coverage and tangible net worth levels. At February 29, 2008, our Australian subsidiary was in compliance with these covenants. Uncollected accounts receivable that had been sold under these arrangements and removed from the condensed consolidated balance sheets were $214.9 million and $151.7 million at February 29, 2008 and August 31, 2007, respectively. The average monthly amounts of these outstanding accounts receivable sold were $191.8 million and $72.7 million for the six months ended February 29, 2008 and February 28, 2007, respectively.

Discounts (losses) on domestic and international sales of accounts receivable were $2.7 million and $1.4 million for the three months ended February 29, 2008 and February 28, 2007, respectively. For the six months ended February 29, 2008 and February 28, 2007, these discounts were $5.5 million and $2.3 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 $295.2 million and $240.5 million at February 29, 2008 and August 31, 2007, 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 $68.9 million and $66.4 million were in raw materials at February 29, 2008 and August 31, 2007, respectively.

NOTE F – DISCONTINUED OPERATIONS

During the fourth quarter of 2007, the Company’s Board approved the plan to offer to sell a division (Division) which is involved with the buying, selling and distribution of nonferrous metals, namely copper, aluminum and stainless steel semifinished products. The Company anticipates the sale will occur in fiscal 2008. The Division is presented as a discontinued operation in the condensed consolidated statements of earnings. During the three and six months ended February 29, 2008, the Division recorded LIFO expense of $0.6 million and LIFO income of $5.9 million, respectively, as compared to LIFO income of $1.1 million and LIFO expense of $6.3 million for the three and six months ended February 28, 2007.

The Division is in the International Fabrication and Distribution segment. Various financial information for the Division is as follows:

		February 29,				August 31,
		2008				2007
Current assets		$	82,993			$	93,385
Noncurrent assets			2,519				1,795
Current liabilities			25,816				34,889
Noncurrent liabilities			592				874

		Three Months Ended								Six Months Ended
		February 29				February 28				February 29				February 28
		2008				2007				2008				2007
Revenue		$	83,284			$	107,461			$	170,147			$	201,286
Earnings (loss) before taxes			(4,229	)			2,193				2,221				(6,119	)

NOTE G – CREDIT ARRANGEMENTS

Borrowings outstanding under the Company’s commercial paper program were $40 million at February 29, 2008 and none at August 31, 2007. No borrowings were outstanding under the related revolving credit agreement at February 29, 2008 and August 31, 2007. The Company was in compliance with all covenants at February 29, 2008.

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 29,				August 31,
(in thousands)		2008				2007
6.75% notes due February 2009		$	100,000			$	100,000
5.625% notes due November 2013			200,000				200,000
6.50% notes due July 2017			400,000				400,000
Other, including equipment notes			11,052				11,543
			711,052				711,543
Less current maturities			104,429				4,726
		$	606,623			$	706,817

As of February 29, 2008, the Company was in compliance with all debt requirements for these notes. Interest on these notes is payable semiannually.

CMC Zawiercie (CMCZ) has a revolving credit facility with maximum borrowings of 100 million PLN ($43.1 million) bearing interest at the Warsaw Interbank Offered Rate (WIBOR) plus 0.5% and collateralized by CMCZ’s accounts receivable.  This facility expires May 9, 2008.  At February 29, 2008, 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 29, 2008. There are no guarantees by the Company or any of its subsidiaries for any of CMCZ’s debt.

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 13.9 million PLN ($6.0 million) outstanding at February 29, 2008.  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 29, 2008 was 5.8%.  The notes are secured by the shredder equipment.

In September, 2007, CMC Sisak issued notes to banks with maximum borrowings of 140 million HRK ($29.3 million) due on September 5, 2008. As of February 29, 2008, the notes had an outstanding balance of 136.4 million HRK ($28.5 million). The interest is based on the weighted average value of the reported annual yield in respect to the uniform price for 91 day treasury bills issued by the Ministry of Finance of the Republic of Croatia, currently at 4.99 %. The notes are not collateralized and do not contain any financial covenants. The notes are guaranteed by CMC International.

Interest of $27.5 million and $17.2 million was paid in the six months ended February 29, 2008 and February 28, 2007, respectively. The Company capitalized interest of $1.9 million and $0.3 million for the six months ended February 29, 2008 and February 28, 2007, respectively.

NOTE H – INCOME TAXES

The Company paid $74.7 million and $87.6 million in income taxes during the six months ended February 29, 2008 and February 28, 2007, 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 29,				February 28,				February 29,				February 28,
		2008				2007				2008				2007
Statutory rate			35.0	%			35.0	%			35.0	%			35.0	%
State and local taxes			3.5				1.4				2.3				1.9
Dividend received deduction and other			—				2.9				—				1.5
Extraterritorial Income Exclusion (ETI)			—				(0.1	)			—				(0.1	)
Foreign rate differential			(2.6	)			(4.0	)			(2.0	)			(2.5	)
Domestic production activity deduction			(0.8	)			(0.3	)			(1.0	)			(0.5	)
Other			0.2								0.2
Effective rate			35.3	%			34.9	%			34.5	%			35.3	%

On September 1, 2007, the Company adopted FIN 48, ‘‘Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement 109,’’ for accounting for uncertainty in income taxes recognized in our financial statements. 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. As a result of the adoption of FIN 48, the Company recognized an asset of $0.8 million and an increase to reserves of $5.8 million related to uncertain tax positions, including $1.6 million in interest and penalties, which were accounted for as a net reduction of $5.0 million to the September 1, 2007 balance of retained earnings. The current Company policy classifies any interest recognized on an underpayment of income taxes as interest expense and classifies any statutory penalties recognized on a tax position taken as selling, general and administrative expense. If these uncertain tax positions were recognized, the impact on the effective tax rate would not be significant. The Company does not expect the total amounts of unrecognized benefits to significantly increase or decrease within the next 12 months.

The following is a summary of tax years subject to examination:

U.S Federal – 2005 and forward
U.S. States – 2003 and forward
Foreign – 2001 and forward

The Internal Revenue Service (IRS) is examining our federal tax returns for fiscal years 2005 and 2006. We believe our recorded tax liabilities as of February 29, 2008 are sufficient, and we do not anticipate any additional adjustments to be made by the IRS upon the completion of their examination.

NOTE I – STOCKHOLDERS’ EQUITY AND EARNINGS PER SHARE

In calculating earnings per share, there were no adjustments to net earnings to arrive at earnings for the three or six months ended February 29, 2008 or February 28, 2007. The reconciliation of the denominators of the earnings per share calculations is as follows: 

		Three Months Ended								Six Months Ended
		February 29,				February 28,				February 29,				February 28,
		2008				2007				2008				2007
Average shares outstanding for basic earnings per share			115,139,693				117,266,573				116,354,030				117,348,716
Effect of dilutive securities-stock based incentive/purchase plans			2,888,878				4,540,841				2,846,392				4,073,657
Average shares outstanding for diluted earnings per share			118,028,571				121,807,414				119,200,422				121,422,373

Stock Appreciation Rights (SARs) with total share commitments of 1,368,890 were antidilutive at February 29, 2008 based on the average share price for the quarter of $29.80. The Company’s remaining outstanding stock options, restricted stock and SARs with total share commitments of 5,038,406 were dilutive at February 29, 2008. All of the Company’s outstanding stock options, restricted stock and SARs with total share commitments of 6,986,817 at February 28, 2007 were dilutive based on the average share price for the quarter of $27.38. All stock options and SARs expire by 2014.

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.

On November 5, 2007, the Company’s board of directors authorized the purchase of an additional 5,000,000 shares of the Company’s common stock. During the six months ended February 29, 2008, the Company purchased 5,412,238 shares of the Company’s common stock, at an average purchase price of $28.00 per share, and had authorization to purchase 812,547 shares at February 29, 2008.

NOTE J – 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 into 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 29, 2008 and February 28, 2007. 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 29,				February 28,				February 29,				February 28,
		2008				2007				2008				2007
(in thousands)		Earnings (Expense)								Earnings (Expense)
Net sales (foreign currency instruments)		$	(639	)		$	(242	)		$	(427	)		$	(131	)
Cost of goods sold (commodity instruments)			(5,457	)			(1,518	)			(9,173	)			(3,724	)

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

		February 29,				August 31,
(in thousands)		2008				2007
Derivative assets (other current assets)		$	10,810			$	7,484
Derivative liabilities (other payables)			19,321				4,878

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 29, 2008 (in thousands):

Change in market value (net of taxes)		$	(5,508	)
Gain reclassified into net earnings, net			(377	)
Other comprehensive loss — unrealized loss on derivatives		$	(5,885	)

During the twelve months following February 29, 2008, $0.5 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 $0.2 million 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 K – CONTINGENCIES

See Note 11, Commitments and Contingencies, to the consolidated financial statements for the year ended August 31, 2007 on Form 10-K 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.

Guarantees The Company has entered into guarantee agreements with certain banks in connection with credit facilities granted by the banks to various suppliers of the Company. The fair value of the guarantees are negligible. All of the guarantees listed in the table below reflect the Company’s exposure as of February 29, 2008 and are required to be completed within 2 years.

				Maximum		Maximum
Origination		Guarantee		Credit		Company
Date		With		Facility		Exposure
May 2006		Bank		$15 million		$0.4 million
February 2007		Bank		80 million		8.0 million

NOTE L – 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.

Prior to September 1, 2007, the Company structured the business into the following five reportable segments: domestic mills, CMCZ, domestic fabrication, recycling and marketing and distribution.  However, during the first quarter of 2008, the Company implemented a new organization structure.  As a result, the Company now structures the business into the following five segments: Americas Recycling, Americas Mills, Americas Fabrication and Distribution, International Mills and International Fabrication and Distribution.

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

		Three Months Ended February 29, 2008
		Americas												International												Eliminations/
										Fabrication &								Fabrication &								Discontinued
(in thousands)		Recycling				Mills				Distribution				Mills				Distribution				Corporate				Operations				Consolidated
Net sales-unaffiliated customers		$	400,108			$	326,486			$	634,446			$	233,520			$	749,142			$	(6,250	)		$	(83,284	)		$	2,254,168
Intersegment sales			77,922				141,304				2,456				12,366				3,391				—				(237,439	)			—
Net sales			478,030				467,790				636,902				245,886				752,533				(6,250	)			(320,723	)			2,254,168
Adjusted operating profit (loss)			25,634				55,263				(7,638	)			9,651				21,708				(31,360	)			5,567				78,825

		Three Months Ended February 28, 2007
		Americas												International												Eliminations/
										Fabrication &								Fabrication &								Discontinued
(in thousands)		Recycling				Mills				Distribution				Mills				Distribution				Corporate				Operations				Consolidated
Net sales-unaffiliated customers		$	318,355			$	258,974			$	598,920			$	187,317			$	649,980			$	2,229			$	(107,461	)		$	1,908,314
Intersegment sales			74,164				93,438				463				7,926				8,461				—				(184,452	)			—
Net sales			392,519				352,412				599,383				195,243				658,441				2,229				(291,913	)			1,908,314
Adjusted operating profit (loss)			26,399				56,185				11,656				25,985				17,260				(17,641	)			(1,253	)			118,591

		Six Months Ended February 29, 2008
		Americas												International												Eliminations/
										Fabrication &								Fabrication &								Discontinued
(in thousands)		Recycling				Mills				Distribution				Mills				Distribution				Corporate				Operations				Consolidated
Net sales-unaffiliated customers		$	769,370			$	607,575			$	1,272,246			$	400,257			$	1,490,955			$	(84	)		$	(170,147	)		$	4,370,172
Intersegment sales			134,025				263,025				5,944				13,807				18,970				—				(435,771	)			—
Net sales			903,395				870,600				1,278,190				414,064				1,509,925				(84	)			(605,918	)			4,370,172
Adjusted operating profit (loss)			42,511				124,476				22,798				9,074				48,267				(45,641	)			(2,863	)			198,622
Goodwill – February 29, 2008			7,467				—				28,623				—				5,419				—				—				41,509
Total Assets – February 29, 2008			340,682				549,584				1,097,517				524,087				868,070				217,172				—				3,597,112

		Six Months Ended February 28, 2007
		Americas												International												Eliminations/
										Fabrication &								Fabrication &								Discontinued
(in thousands)		Recycling				Mills				Distribution				Mills				Distribution				Corporate				Operations				Consolidated
Net sales-unaffiliated customers		$	680,178			$	507,163			$	1,213,132			$	343,675			$	1,251,350			$	6,821			$	(201,286	)		$	3,801,033
Intersegment sales			129,875				190,475				1,566				13,695				21,579				—				(357,190	)			—
Net sales			810,053				697,638				1,214,698				357,370				1,272,929				6,821				(558,476	)			3,801,033
Adjusted operating profit (loss)			48,383				128,398				40,555				51,872				27,672				(25,426	)			(3,929	)			267,525
Goodwill – February 28, 2007			6,986				—				27,006				—				1,823				—				—				35,815
Total Assets – February 28, 2007			272,554				494,179				943,833				344,033				687,843				120,280				—				2,862,722

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

		Three Months Ended								Six Months Ended
		February 29,				February 28,				February 29,				February 28,
(in thousands)		2008				2007				2008				2007
Net earnings		$	39,775			$	65,921			$	108,939			$	151,271
Minority interests			391				4,648				263				9,276
Income taxes			21,932				37,786				57,546				87,555
Interest expense			13,990				8,852				26,368				17,080
Discounts on sales of accounts receivable			2,737				1,384				5,506				2,343
Adjusted operating profit		$	78,825			$	118,591			$	198,622			$	267,525
Adjusted operating profit (loss) from discontinued operations			(3,972	)			(2,477	)			2,829				(5,504	)
Adjusted operating profit from continuing operations		$	82,797			$	121,068			$	195,793			$	273,029

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

		Three Months Ended								Six Months Ended
		February 29,				February 28,				February 29,				February 28,
(in thousands)		2008				2007				2008				2007
Major product information:
Steel products		$	1,440,186			$	1,272,154			$	2,768,939			$	2,444,503
Industrial materials			257,310				184,735				494,947				379,055
Nonferrous scrap			234,155				229,059				441,811				497,074
Ferrous scrap			171,393				91,559				334,503				190,994
Nonferrous products			69,339				89,490				147,458				162,887
Construction materials			67,039				26,001				140,656				87,791
Other			14,746				15,316				41,858				38,729
Net sales*		$	2,254,168			$	1,908,314			$	4,370,172			$	3,801,033

		Three Months Ended								Six Months Ended
		February 29,				February 28,				February 29,				February 28,
(in thousands)		2008				2007				2008				2007
Geographic area:
United States		$	1,300,568			$	1,099,542			$	2,549,760			$	2,207,733
Europe			534,914				404,964				976,029				802,818
Asia			207,486				229,525				389,573				430,800
Australia/New Zealand			124,091				111,935				272,899				220,605
Other			87,109				62,348				181,911				139,077
Net sales*		$	2,254,168			$	1,908,314			$	4,370,172			$	3,801,033

NOTE M — 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.  Net sales to this related party were $172 million and $132 million for the six months ended February 29, 2008 and February 28, 2007, respectively. The total amounts of purchases from this supplier were $184 million and $170 million for the six months ended February 29, 2008 and February 28, 2007, respectively. Accounts receivable from the affiliated company were $52 million and $47 million at February 29, 2008 and February 28, 2007 respectively. Accounts payable to the affiliated company were $33 million and $26 million at February 29, 2008 and February 28, 2007, respectively.

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 for the year ended August 31, 2007.

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 for the year ended August 31, 2007 and are, therefore, not presented herein.

CONSOLIDATED RESULTS OF OPERATIONS

		Three Months Ended												Six Months Ended
		February 29,				February 28,				%				February 29,				February 28,				%
(in millions)		2008				2007				Change				2008				2007				Change
Net sales*		$	2,254.2			$	1,908.3				18.1	%		$	4,370.2			$	3,801.0				15.0	%
Net earnings			39.8				65.9				(39.6	)%			108.9				151.2				(28.0	)%
EBITDA			108.0				136.4				(20.8	)%			256.7				304.9				(15.8	)%

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 29,				February 28,				%				February 29,				February 28,					%
(in millions)		2008				2007				Change				2008				2007				Change
Net earnings		$	39.8			$	65.9				(39.6	)%		$	108.9			$	151.2				(28.0	)%
Interest expense			14.0				8.9				57.3	%			26.4				17.1				54.4	%
Income taxes			21.9				37.7				(41.9	)%			57.5				87.6				(34.4	)%
Depreciation and amortization			32.3				23.9				35.1	%			63.9				49.0				30.4	%
EBITDA		$	108.0			$	136.4				(20.8	)%		$	256.7			$	304.9				(15.8	)%
EBITDA (loss) from discontinued operations			(4.0	)			2.5				(260.0	)%			2.9				(5.4	)			153.7	%
EBITDA from continuing operations		$	112.0			$	133.9				(16.4	)%		$	253.8			$	310.3				(18.2	)%

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 40% to $39.8 million and 21% to $108.0 million, respectively, for the three months ended February 29, 2008 as compared to the same period last year. For the six months ended February 29, 2008, net earnings decreased by 28% to $108.9 million and EBITDA decreased by 16% to $256.7 million as compared to the same period last year. The following financial events were significant during our second quarter of 2008:

	•		We reported our highest net sales ever for the second quarter.
	•		We recorded pre-tax LIFO expense of $59.0 million ($0.32 per diluted share) as compared with expense of $18.9 million ($0.10 per diluted share) in last year’s second quarter.
	•		We experienced favorable foreign exchange rates during the second quarter of 2008 as compared to 2007 which resulted in an increase in net sales of approximately 4%.
	•		Net sales of the Americas Recycling segment increased 22% but adjusted operating income decreased 3% primarily due to LIFO expense of $5.0 million recorded during the second quarter of 2008 as compared to income of $1.8 million during the second quarter of 2007.
	•		Net sales of the Americas Mills segment increased 33% but adjusted operating income remained consistent with prior year. This was mainly caused by LIFO expense of $18.2 million during the second quarter of 2008 as compared to expense of $7.7 million during the second quarter of 2007.
	•		Our Americas Fabrication and Distribution segment’s results were impacted by escalating steel prices which resulted in an adjusted operating loss of $7.6 million primarily due to LIFO expense of $35.2 million as compared to expense of $14.1 million in last year’s second quarter.
	•		Our International Mills segment reported adjusted operating income of $9.7 million in the second quarter of 2008 as compared to $26.0 million in prior year. Our Polish mill experienced improved pricing beginning in mid-quarter and our mill in Croatia continued to be saddled with start-up costs.
	•		Our International Fabrication and Distribution segment had a strong quarter and generated an adjusted operating profit of $21.7 million, a 26% increase from prior quarter, driven by strong international demand coupled with supply interruptions in China and South Africa.
	•		Expense of $14.7 million and capital expenditures of $9.2 million were recorded during the second quarter of 2008 as compared to expense of $9.9 million and capital expenditures of $0.9 million recorded during the second quarter of 2007 related to the global implementation of SAP.

SEGMENT OPERATING DATA

See Note L — 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 29,				February 28,				%				February 29,				February 28,				%
(in thousands)		2008				2007				Change				2008				2007				Change
NET SALES:
Americas Recycling		$	478,030			$	392,519				21.8	%		$	903,395			$	810,053				11.5	%
Americas Mills			467,790				352,412				32.7	%			870,600				697,638				24.8	%
Americas Fabrication and Distribution			636,902				599,383				6.3	%			1,278,190				1,214,698				5.2	%
International Mills*			245,886				195,243				25.9	%			414,064				357,370				15.9	%
International Fabrication and Distribution			752,533				658,441				14.3	%			1,509,925				1,272,929				18.6	%
Corporate and Eliminations			(243,689	)			(182,223	)			(33.7	)%			(435,855	)			(350,369	)			(24.4	)%
Discontinued Operations			(83,284	)			(107,461	)			22.5	%			(170,147	)			(201,286	)			15.5	%
		$	2,254,168			$	1,908,314				18.1	%		$	4,370,172			$	3,801,033				15.0	%

		Three Months Ended												Six Months Ended
		February 29,				February 28,				%				February 29,				February 28,				%
(in thousands)		2008				2007				Change				2008				2007				Change
ADJUSTED OPERATING PROFIT (LOSS):
Americas Recycling		$	25,634			$	26,399				(2.9	)%		$	42,511			$	48,383				(12.1	)%
Americas Mills			55,263				56,185				(1.6	)%			124,476				128,398				(3.1	)%
Americas Fabrication and Distribution			(7,638	)			11,656				(165.5	)%			22,798				40,555				(43.8	)%
International Mills*			9,651				25,985				(62.9	)%			9,074				51,872				(82.5	)%
International Fabrication and Distribution			21,708				17,260				25.8	%			48,267				27,672				74.4	%
Corporate and Eliminations			(25,793	)			(18,894	)			(36.5	)%			(48,504	)			(29,355	)			(65.2	)%
Discontinued Operations			(3,972	)			(2,477	)			(60.4	)%			2,829				(5,504	)			151.4	%

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. International Mills is not included in this table as it uses FIFO valuation exclusively for its inventory:

		Three Months Ended								Six Months Ended
		February 29,				February 28,				February 29,				February 28,
(in thousands)		2008				2007				2008				2007
Americas Recycling		$	(4,969	)		$	1,774			$	(6,801	)		$	577
Americas Mills			(18,193	)			(7,683	)			(14,330	)			(11,654	)
Americas Fabrication and Distribution			(35,160	)			(14,139	)			(39,467	)			(11,692	)
International Fabrication and Distribution*			(632	)			1,149				5,906				(6,277	)
Consolidated increase (decrease) to adjusted profit before tax		$	(58,954	)		$	(18,899	)		$	(54,692	)		$	(29,046	)

Americas Recycling For the three and six months ended February 29, 2008 net sales for the Recycling segment increased 22% to $478 million and 12% to $903 million, respectively. Adjusted operating profit for the three and six months ended February 29, 2008 decreased 3% to $25.6 million and 12% to $42.5 million, respectively. The average ferrous scrap sales price for the second quarter of 2008 as compared to last year’s second quarter increased $73 per ton to $287 per ton, while shipments increased 17% to 754 thousand tons. As a result of rising prices, we recorded LIFO expense of $5.0 million in the second quarter of 2008 as compared to income of $1.8 million in last year’s second quarter. The average nonferrous scrap sales price for the quarter was $2,780 per ton, 2% higher than last year’s second quarter. Nonferrous shipments decreased 12% to 72 thousand tons as compared to the second quarter of 2007 due to weak residential construction, lower manufacturing input, and Chinese consumers opening warehouses in the U.S. Due to strong international demand for scrap and other products, we exported 37% of our nonferrous scrap and 7% of our ferrous scrap during the quarter.

The following table reflects our Americas Recycling segment’s average selling prices per ton and tons shipped (in thousands):

		Three Months Ended								Increase								Six Months Ended								Increase
		February 29,				February 28,				(Decrease)								February 29,				February 28,				(Decrease)
		2008				2007				Amount				%				2008				2007				Amount				%
Ferrous sales price		$	287			$	214			$	73				34	%		$	261			$	201			$	60				30	%
Nonferrous sales price		$	2,780			$	2,717			$	63				2	%		$	2,842			$	2,808			$	34				1	%
Ferrous tons shipped			754				645				109				17	%			1,460				1,349				111				8	%
Nonferrous tons shipped			72				82				(10	)			(12	)%			148				169				(21	)			(12	)%
Total volume processed and shipped			833				733				100				14	%			1,620				1,531				89				6	%