We are a growth company $19.72 $22.20 $24.04 $26.18 $29.05 1995 1996 1997 1998 1999 Equity Per Share We are Commercial Metals Company 1999 Annual Report 3 Financial Highlights 4 Letter to Stockholders 16 Manufacturing 24 Recycling 28 Marketing and Trading 35 Financial Review 65 Directors and Officers 66 Operations 68 Divisions and Subsidiaries Commercial Metals Company and subsidiaries manufacture, recycle and market steel and metal products and related materials through a network of over 115 locations. The Manufacturing group includes 4 steel minimills, 19 steel fabrication plants, 4 steel joist plants, a castellated and cellular beam fabricator, 4 steel fence post manufacturing plants, a heat treating plant, a railcar rebuilding facility, 18 concrete-related product warehouses, an industrial products supply company, a railroad salvage company and a copper tube mill. Recycling operations include 44 metal processing plants across the Sunbelt. Through its network of 17 trading offices around the world, the Company markets and trades primary and secondary metals, steel, ores, concentrates, industrial minerals, ferroalloys, chemicals and industrial products used in a variety of industries. Growth in .2 Financial Highlights Year ended August 31, (in thousands, except share data) 1999 1998 % Increase Net sales $ 2,251,442 $ 2,367,569 (5) Net earnings 47,120 42,714 10 Diluted earnings per share 3.22 2.82 14 Cash flows from operations 102,870 93,450 10 Net working capital 290,660 247,437 17 Cash dividends per share .52 .52 — Cash dividends paid 7,540 7,717 (2) Average diluted shares outstanding 14,626,540 15,120,786 (3) Stockholders’ equity 418,458 381,389 10 Stockholders’ equity per share 29.0526.18 11 Total assets 1,078,988 1,002,617 8 Consolidated Trends (dollars in millions) 1999 1998 1997 1996 1995 Net sales $2,251.4 $2,367.6 $2,258.4 $2,322.4 $2,116.8 Operating profit 94.7 86.1 75.6 88.7 73.3 Cash flows from operations 102.9 93.583.2 89.9 76.6 Average net assets 671.2 571.7 519.2 492.4 421.2 Return on net assets 14.1% 15.1% 14.6% 18.0% 17.4% Cash flow return on net assets 15.3% 16.3% 16.0% 18.3% 18.2% Cash flow return on beginning stockholders’ equity 27.0% 26.3% 24.8% 29.7% 31.6% revenues, cash flows, and earnings. Cash Flows Net Sales from Operations Net Earnings aggregate aggregate aggregate 15 500 250 446 ($ billions) ($ millions) ($ millions) 213 12 11.3 400 200 9 300 150 242 6.7 98 6 5.2 200 173 100 87 3 100 50 0 0 0 85-89 90-94 95-99 85-89 90-94 95-99 85-89 90-94 95-99 3. To our stockholders We have completed another successful year at Commercial Metals Company, a year of record net income and earnings per share. Indeed, despite extremely challenging global market conditions, which also impacted our businesses in the United States, the Company achieved a 14% increase in earnings per share and its 88th consecutive quarter of profitability. It is a proud record of growth—growth in earnings per share, growth in equity per share and, most notably, growth in manufacturing, recycling and marketing strength. Our overriding focus on systematic growth plays a key role in the Company’s success. Across all lines of business we are committed to expanding opportunities in capacity, in output and in product lines. And the successes of the past year leave the Company in an excellent position to continue our positive growth trends. Our commitment to strategic growth produces strong results. For the year ended August 31, 1999 your Company reported net earnings of $47.1 million or $3.22 per diluted share on sales of $2.3 billion. This compares with net earnings of $42.7 million or $2.82 per diluted share on sales of $2.4 billion for the year ended August 31, 1998. Cash flow from operations for the year was a record $103 million or $7.03 per diluted share compared with $93 million or $6.18 per diluted share the previous year. Earnings for the fourth quarter were a record $16.7 million or $1.15 per diluted share, compared with $14.9 mil- lion or $1.00 per diluted share in the same period last year. Record profits for Manufacturing segment. Our Manufacturing segment reported record earnings despite weaker steel mill prices stemming from low-priced steel imports as well as construction interference and start-up costs associated with our major capital projects. These factors were partially offset by income from settlements on the graphite electrode antitrust litigation. We otherwise enjoyed healthy demand and benefited from our vertical integration and lower raw material costs plus excellent profits from our copper tube business. Operating profit for the segment was 12% higher than last year although net sales were 2% lower. Steel minimills combat a transition year. Operating profit for our four steel minimills combined was 13% below the record fiscal 1998. Although under- lying demand was strong, shipments declined 16% to 1.7 million tons while production levels were down comparably because of the capital projects and unprecedented import levels. Conversely, our margins were aided by lower scrap prices. While our average mill selling price was $23 per ton below last year, average scrap purchase costs were lower by $37 per ton. SMI-Texas continued to produce our strongest results. Major capital projects have increased steel mill capacity. At our steel mills the major capital projects for fiscal 1999 were completion of the new Danieli rolling mill and ancillary equipment at SMI-South Carolina and the new finishing line at SMI-Alabama. Start up began during April 1999 and June 1999, respectively. The South Carolina project ultimately will more than double capacity to 800,000 tons, reduce costs and broaden significantly the product range. At Alabama we will improve quality, enhance efficiency and extend the product line. These investments will materially strengthen our position and profitability in the Southeast and South Central U.S.A. Strong growth continues for steel fabrication. Fiscal 1999 was a record year in our downstream steel fabrication businesses. Net sales and operating profit were higher than the previous records set in 1998 with strong performance except for significant losses sustained in some large and complex structural steel jobs. Fabricated steel shipments totaled 841,000 tons, slightly above last year. .4 The average fab selling price rose $17 per ton, partially due to product mix. During the Net Earnings third quarter we acquired substantially all of the assets of Construction Materials, Inc., ($ millions) headquartered in Baton Rouge, Louisiana, which complements our Shepler’s group 50 46 47 concrete-related products business. Additionally, our new castellated and cellular beam 43 product line progressed nicely as an adjunct to our steel joist business. 40 38 39 We plan to continue our growth in rebar fabrication, joists, specialty beams, niche 30 applications of structural steel, fence posts, concrete-related products, heat treating of steel and other related fabricated steel products and components. 20 CMC Steel Group outlook generally is positive. We anticipate higher sales, production and shipments in fiscal 2000. However, mill 10 profits are likely to be down because of a weaker first half due to continued ramping 0 up at South Carolina and Alabama, weaker pricing from a less favorable product mix 95 96 97 98 99 and continued high imports. Increased profits in steel fabrication should result from turnarounds at several operations that performed poorly in fiscal 1999, but again the improvement should be reflected in the second half. Our mill output should increase as we move along the learning curve with our new production lines, and our average selling price should benefit from the broadened product line. Our Steel Group computer migration project is substantially complete and costs will decline to maintenance levels. Production and earnings up for Copper Tube Division. It was an excellent year for Howell Metal Company—our copper tube minimill—including very good spreads as well as record production and shipment levels. We have benefited from the attrition of copper water tube sup- pliers during recent years. The principal economic driver remains housing starts, and residential construction remained strong during fiscal 1999. One of our biggest challenges in the marketplace is to continue to adapt to the consolidation among our buyers. We are building on our strength—both in marketing and operations—including a significant addition to our plant in Virginia. Meanwhile, production and shipments should keep climbing. Recycling segment’s efforts hampered by difficult market conditions. The Secondary Metals Processing Division (SMPD) reported a larger loss than last year, although the division was profitable in the fourth quarter and cash flow from operations was positive for the year. Together with very weak markets for ferrous and nonferrous scrap, the failed consolidation of the industry had a major negative influence on profitability this past year. The poor markets were reflected in a 27% drop in net sales. Processing costs were down but margins fell even further. 1999 Net Sales 1999 Operating Profit (Loss) Marketing 34% Manufacturing 53% Manufacturing 83% Marketing 22% Recycling 13% Recycling -5% 5. The average price of steel scrap fell by $33 per ton to $90 and ferrous scrap volume was 3% lower. Consequently, ferrous scrap operations were unprofitable even though costs were reduced. Nonferrous prices, on the other hand, stabilized in a trading range, shipments increased by 4% and our nonferrous operations were slightly profitable. The regional management concept adopted last year worked well.