COMMERCIAL METALS CO - 10-K Annual Report

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
(MARK
ONE)

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

FOR THE FISCAL YEAR ENDED AUGUST 31, 2002

OR

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

FOR THE TRANSITION PERIOD FROM -------- TO --------

COMMISSION FILE NO. 1-4304

COMMERCIAL METALS COMPANY

(Exact name of registrant as specified in its Charter)

DELAWARE 75-0725338
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)

7800 STEMMONS FREEWAY, DALLAS, TEXAS 75247
(Address of principal executive offices) (Zip Code)

(Registrant's telephone number, including area code) (214) 689-4300

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act:

NONE

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 X NO ___

INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405
OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE
BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS
INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS
FORM 10-K. [ X ]

THE AGGREGATE MARKET VALUE OF THE COMMON STOCK ON NOVEMBER 15, 2002, HELD BY
NON-AFFILIATES OF THE REGISTRANT BASED ON THE CLOSING PRICE OF $16.05 PER SHARE
ON NOVEMBER 15, 2002, ON THE NEW YORK STOCK EXCHANGE WAS APPROXIMATELY
$426,312,958. (FOR PURPOSES OF DETERMINATION OF THIS AMOUNT, ONLY DIRECTORS,
EXECUTIVE OFFICERS AND 10% OR GREATER STOCKHOLDERS HAVE BEEN DEEMED AFFILIATES.)

THE NUMBER OF SHARES OUTSTANDING OF COMMON STOCK AS OF NOVEMBER 15, 2002 WAS
28,420,735.

DOCUMENTS INCORPORATED BY REFERENCE:

PORTIONS OF THE FOLLOWING DOCUMENT ARE INCORPORATED BY REFERENCE INTO THE LISTED
PART OF FORM 10-K:

REGISTRANT'S DEFINITIVE PROXY STATEMENT FOR THE ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JANUARY 23, 2003 -- PART III.
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COMMERCIAL METALS COMPANY
TABLE OF CONTENTS

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PART I

ITEM 1: BUSINESS

GENERAL

We manufacture, recycle, market and distribute steel and metal products,
related materials and services through a network of over 130 locations located
throughout the United States and internationally. We consider our business to be
organized into three segments which include the manufacturing segment, the
recycling segment and the marketing and distribution segment.

We were incorporated in 1946 in the State of Delaware. Our predecessor
company, a secondary metals recycling business, existed since approximately
1915. Currently, we maintain executive offices at 7800 Stemmons Freeway in
Dallas, Texas. Our fiscal year ends August 31 and all references in this Form
10-K to years refer to the fiscal year ended August 31 of that year unless
otherwise noted. Financial information for the last three fiscal years
concerning the segments is incorporated herein by reference from "Note 13
Business Segments" of the notes to consolidated financial statements which are
in Part II, Item 8 of this Form 10-K.

MANUFACTURING SEGMENT

Our manufacturing segment is our dominant and most rapidly expanding
segment. The manufacturing segment utilizes the most assets, requires the most
capital expenditures, generally has the highest operating profit and employs the
most employees as compared to the recycling and marketing and distribution
segments. Our manufacturing segment consists of the steel group and Howell Metal
Company. Howell Metal Company, a subsidiary, manufactures copper tubing. Our
steel group is the larger portion of this segment.

STEEL GROUP

The steel group and its subsidiaries operate the following:

o 4 steel mills, commonly referred to as "minimills", that produce
reinforcing bar, angles, flats, small beams, rounds, fence-post
sections and other shapes

o 29 steel plants that bend, cut, weld and fabricate steel,
primarily reinforcing bar and angles

o 27 warehouses that sell or rent supplies for the installation of
concrete

o 6 plants that produce special sections for floors and ceiling
support

o 4 plants that produce steel fence posts

o 1 plant that treats steel with heat to strengthen and provide
flexibility

o 1 plant that rebuilds railcars

o a railroad salvage company

MINIMILLS We operate four steel minimills which are located in Texas,
Alabama, South Carolina and Arkansas. The minimills produce reinforcing bar,
angles, flats, small beams, rounds, fence-post sections and other shapes. We
utilize a fleet of trucks that we own and private haulers to transport finished
products from the minimills to our customers and our fabricating shops.

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To minimize the cost of our products, we try to operate all four minimills
at full capacity. Market conditions such as increases in quantities of competing
imported steel, production rates at domestic competitors or a decrease in
construction activity may reduce demand for our products and limit our ability
to operate the minimills at full capacity. Through our operations and capital
improvements, we strive to increase our capacity and productivity at the
minimills and enhance our product mix.

Since the steel minimill business is capital intensive, we make substantial
capital expenditures on a regular basis to remain competitive with other low
cost producers. Over the past three fiscal years we have spent approximately $51
million or 29% of our total capital expenditures on minimill projects.

The following table compares the amount of steel (in tons) melted, rolled
and shipped in the past three fiscal years:

We acquired our largest steel minimill in 1963. It is located in Seguin,
Texas, near San Antonio. In 1983, we acquired our minimill in Birmingham,
Alabama. As part of the acquisition of Owen Steel Company, Inc. and its
affiliates, we acquired our minimill in Cayce, South Carolina. We have operated
our smallest mill since 1987, and it is located near Magnolia, Arkansas.

The Texas, Alabama and South Carolina minimills consist of:

o melt shops with electric arc furnaces that melt steel scrap;

o continuous casting facilities that shape the molten metal into
billets;

o reheating furnaces that prepare billets for rolling;

o rolling mills that form products from heated billets;

o mechanical cooling beds that receive hot product from the rolling
mill;

o finishing facilities that cut, straighten, bundle and prepare
products for shipping;

o supporting facilities such as maintenance, warehouse and office
areas.

Our Texas minimill has annual capacity of approximately 900,000 tons melted
and 800,000 tons rolled. Our Alabama minimill's annual capacity is approximately
650,000 tons melted and 575,000 tons rolled. We have annual capacity at our
South Carolina minimill of approximately 700,000 tons melted and 800,000 tons
rolled.

Our Texas minimill manufactures a full line of bar size products including
reinforcing bar, angles, rounds, channels, flats, and special sections used
primarily in building highways, reinforcing concrete structures and
manufacturing. Our Texas minimill sells primarily to the construction, service
center, energy, petrochemical, and original equipment manufacturing industries.
The Texas minimill primarily ships its products to customers located in Texas,
Louisiana, Arkansas, Oklahoma and New Mexico. It also ships products to
approximately 30 other states and to Mexico. Our Texas minimill melted 838,000
tons

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during 2002, compared to 729,000 tons during 2001, and rolled 713,000 tons, an
increase of 72,000 tons from 2001.

The Alabama minimill recorded 2002 melt shop production of 585,000 tons, an
increase of 128,000 tons from 2001. The Alabama minimill rolled 493,000 tons, an
increase of 127,000 tons from 2001. Our Alabama minimill primarily manufactures
products that are larger in size as compared to products manufactured by our
other three minimills. Such larger size products include mid-size structural
steel products including angles, channels, wide flange beams of up to eight
inches and special bar quality rounds and flats. Our Alabama minimill sells
primarily to service centers, as well as to the construction, manufacturing, and
fabricating industries. The Alabama minimill primarily ships its products to
customers located in Alabama, Georgia, Tennessee, North and South Carolina, and
Mississippi.

Our South Carolina minimill manufactures a full line of bar size products
which primarily include steel reinforcing bar. The minimill also manufactures
angles, rounds, squares, fence post sections and flats. The South Carolina
minimill ships its products to customers located in the Southeast and
mid-Atlantic areas which include the states from Florida through southern New
England. During 2002, the South Carolina minimill melted 677,000 tons and rolled
693,000 tons compared to 610,000 tons melted and 581,000 tons rolled during
2001.

The primary raw material for our Texas, Alabama and South Carolina
minimills is secondary, or scrap, ferrous metal. We purchase the raw material
from suppliers generally within a 300 mile radius of each minimill. We have ten
secondary metals recycling plants near our minimills in Texas and South Carolina
and include these facilities in our steel group due to the predominance of
secondary ferrous metals sales to the nearby steel group minimills. Two of the
ten recycling plants operate automobile shredders. The eight smaller facilities
assist the two larger locations with shredders and our nearby minimills with the
acquisition of ferrous scrap. These metal recycling plants processed and shipped
827,000 tons of primarily ferrous scrap metals during 2002. We believe the
supply of scrap is adequate to meet our future needs, but it has historically
been subject to significant price fluctuations. All three minimills also consume
large amounts of electricity and natural gas which have been readily available.
Regional and more recently, national energy supply and demand levels affect the
prices we pay for electricity and natural gas.

Our Arkansas minimill primarily manufactures metal fence post stock, small
diameter reinforcing bar, sign posts and bed frame angles with some flats,
angles and squares. At our Arkansas minimill and at our facilities in San
Marcos, Texas, Brigham City, Utah, and West Columbia, South Carolina, we
fabricate fence post stock into studded "T" metal fence posts. This minimill
utilizes rail salvaged from abandoned railroads and, on occasion, billets from
our minimills, or other suppliers, as its raw material. The minimill's reheat
furnace heats the rail or billets and then a rolling mill processes it. The
product is finished at facilities similar to, but smaller than, the other
minimills. Since our Arkansas minimill does not have melting facilities, the
minimill depends on an adequate supply of competitively priced billets or used
rail. The availability of these raw materials fluctuates with the pace of
railroad abandonments, rail replacement by railroads and the demand for used
rail from domestic and foreign rail rerolling mills. We have annual capacity at
our Arkansas minimill of approximately 150,000 tons rolled.

STEEL FABRICATION PLANTS Our steel group operates facilities that engage in
the fabrication of reinforcing and structural steel, steel warehousing, joist
manufacturing, fence post manufacturing and railcar repair and rebuilding. We
obtain steel for fabrication from our own minimills and unrelated vendors. Our
steel fabrication capacity exceeds 1.1 million tons. In 2002 we shipped 984,000
tons of fabricated steel, a decrease of 2,000 tons from 2001. We conduct our
fabrication activities at various locations in Texas in the cities of Beaumont,
Buda, Corpus Christi, Dallas, Harlingen, Houston, McKinney, San Marcos, Seguin,
Victoria, and Waco; in Louisiana in the cities of Baton Rouge and Slidell;

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in Arkansas in the cities of Magnolia and Hope; in Utah in the city of Brigham
City; in Florida in the cities of Jacksonville, Naples and Starke; in Nevada in
the city of Fallon; in South Carolina in the cities of Cayce, Columbia, Taylors
and West Columbia; in Georgia in the cities of Atlanta and Lawrenceville; in
North Carolina in the city of Gastonia; in Virginia in the cities of Farmville
and Fredericksburg; in California in the cities of Etiwanda, San Marcos,
Stockton and Fontana; and in Iowa at Iowa Falls. Fabricated steel products are
used primarily in the construction of commercial and non-commercial buildings,
hospitals, convention centers, industrial plants, power plants, highways,
arenas, stadiums, and dams. Generally, we sell fabricated steel in response to a
bid solicitation from a construction contractor or the project owner. Typically
the contractor or owner of the project awards the job based on the competitive
prices of the bids and does not individually negotiate with the bidders. During
2002 we sold the operating assets of our largest heavy structural steel
fabrication plant in Columbia, South Carolina and acquired a small reinforcing
bar fabrication shop in Harlingen, Texas.

STEEL JOISTS, CASTELLATED AND CELLULAR STEEL BEAM PLANTS Our joist
manufacturing operations headquartered in Hope, Arkansas, manufacture steel
joists for roof supports. The joist manufacturing operations fabricate joists
from steel obtained primarily from our steel group's minimills at facilities in
Hope, Arkansas; Starke, Florida; Cayce, South Carolina; Fallon, Nevada; and Iowa
Falls, Iowa. Our typical joist customer is a construction contractor or large
chain store owner. Joists are generally made to order and sales may include
custom design, fabrication and painting. We obtain our sales primarily on a
competitive bid basis. During 1999, we began production and sales of castellated
and cellular steel beams. These beams, recognizable by their hexagonal or
circular pattern of voids, permit greater design flexibility in steel
construction, especially floor structures. We closed the portion of the
Farmville, Virginia, location that made this product in 2002 due to poor market
conditions and consolidated the manufacturing of these beams at a facility
adjacent to our Hope, Arkansas, joist plant.

CONCRETE-RELATED PRODUCTS We sell and rent concrete related supplies and
equipment to concrete installation businesses. We have twenty-seven warehouse
locations in Texas, Louisiana, and Mississippi, South Carolina and Florida where
we store and sell these products which, with the exception of a small portion of
steel products, are purchased for resale from unrelated suppliers. During 2002
we acquired the operating assets of a manufacturer of steel dowel couplers which
are utilized in concrete paving.

HEAT TREATING OPERATION Our steel group's heat treating operation is
Allegheny Heat Treating, Inc., located in Chicora, Pennsylvania. Allegheny Heat
Treating works closely with our Alabama minimill and other steel mills that sell
specialized heat-treated steel for customer specific use. Such steel is
primarily used in original or special equipment manufacturing. We have annual
operating capacity in our heat treating operation of approximately 30,000 tons.

RAILROAD CAR PLANT AND RAILROAD DISMANTLING We have a facility in Victoria,
Texas that repairs and rebuilds railroad freight cars. We also provide custom
maintenance and some manufacturing of specialized railroad freight cars. Owners
of private railcar fleets, railroads and leasing companies are our customers. We
primarily obtain this work on a bid and contract basis. We also operate a
business that purchases and removes rail and other materials from abandoned
railroads. Most of the salvaged rail is utilized by our Arkansas minimill.

HOWELL METAL COMPANY

Our subsidiary, Howell Metal Company, operates a copper tube minimill in
New Market, Virginia. The minimill primarily manufactures copper water tube. The
minimill also manufactures air conditioning and refrigeration tubing in straight
lengths and coils for use in commercial, industrial and residential

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construction. Our customers, largely equipment manufacturers, wholesale
plumbing supply firms and large home improvement retailers, are located
primarily east of the Mississippi River. The demand for copper tube depends on
the level of new apartment, hotel/motel and residential construction and
renovation. Melting and casting of billets uses high quality copper scrap
supplemented occasionally by virgin copper ingot as its raw material. Copper
scrap is readily available, but subject to rapid price fluctuations. The price
or supply of virgin copper causes the price of copper scrap to fluctuate
rapidly. Our metal recycling yards supply a small portion of the scrap. Howell
Metal Company's facilities include melting, casting, piercing, extruding,
drawing, finishing and office facilities. During 2002 Howell Metal Company began
operations of a larger production facility as part of a two-year expansion
project. The expansion project includes a three furnace melt shop, extrusion,
drawing and finishing lines. During 2002 the facility produced approximately
56,000,000 pounds of copper tube. When in full production the expansion should
increase capacity to approximately 80,000,000 pounds a year.

No single customer purchases 10% or more of our manufacturing segment's
production. Due to the nature of certain stock products we sell in the
manufacturing segment, we do not have a long lead time between receipt of a
purchase order and delivery, with the exception of the steel fabrication and
joist jobs. We generally fill orders for other stock products from inventory or
with products near completion. As a result, we do not believe that backlog
levels are a significant factor in the evaluation of our operations. Backlog in
our steel group at 2002 year-end was approximately $286,880,000 as compared to
backlog in our steel group at 2001 year-end of approximately $340,684,000.

RECYCLING SEGMENT

Our recycling segment processes secondary metals, or scrap metals, for use
as a raw material by manufacturers of new metal products. This segment operates
thirty four secondary metal processing facilities not including the ten
recycling facilities operated by our steel group as a part of our manufacturing
segment.

We purchase ferrous and nonferrous secondary or scrap metals, processed and
unprocessed, from a variety of sources in a variety of forms for our metal
recycling plants. Sources of metal for recycling include manufacturing and
industrial plants, metal fabrication plants, electric utilities, machine shops,
factories, railroads, refineries, shipyards, ordinance depots, demolition
businesses, automobile salvage and wrecking firms. Collectively, small secondary
metal collection firms are a major supplier.

In 2002, our metal recycling plants processed and shipped approximately
1,741,000 tons of scrap metal compared to 1,611,000 tons in 2001. Ferrous scrap
metals comprised the largest tonnage of metals recycled at approximately
1,494,000 tons, an increase of approximately 131,000 tons as compared to 2001.
We shipped approximately 247,000 tons of nonferrous scrap metals, primarily
aluminum, copper and stainless steel, a decrease of approximately 2,000 tons as
compared to 2001. With the exception of precious metals, our metal recycling
plants recycle and process practically all types of metal. Our steel group's ten
metal recycling facilities processed and shipped an additional 827,000 tons of
primarily ferrous scrap metals during 2002.

Our metal recycling plants consist of an office and warehouse building
equipped with specialized equipment for processing both ferrous and nonferrous
metal. A typical recycling plant also includes several acres of land that we use
for receiving, sorting, processing and storing metals. Several of our recycling
plants use a small portion of their site or a nearby location to display and
sell metal products that may be reused for their original purpose without
further processing.

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We equip our larger plants with scales, shears, baling presses, briquetting
machines, conveyors and magnetic separators which enable these plants to
efficiently process large volumes of scrap metals. Two plants have extensive
equipment that segregates metallic content from large quantities of insulated
wire. To facilitate processing, shipping and receiving, we equip our ferrous
metal processing centers with either presses, shredders or hydraulic shears to
prepare and compress metal scrap for easier handling. Cranes are utilized to
handle scrap metals for processing and to load material for shipment. Many
facilities have rail access as ferrous scrap is primarily shipped by open
gondola railcar or barge when water access is available.

We operate five large shredding machines, four in Texas with one in
Florida, capable of pulverizing obsolete automobiles or other ferrous metal
scrap. We have two additional shredders operated by our manufacturing segment's
recycling facilities.

We sell recycled metals to steel mills and foundries, aluminum sheet and
ingot manufacturers, brass and bronze ingot makers, copper refineries and mills,
secondary lead smelters, specialty steel mills, high temperature alloy
manufacturers and other consumers. Ferrous scrap metal is the primary raw
material for electric arc furnaces such as those operated by our steel
minimills. Some minimills periodically supplement purchases of scrap metal with
direct reduced iron and pig iron for certain product lines. Our Dallas office
coordinates the sales of recycled metals from our metal recycling plants to our
customers. We negotiate export sales through our network of foreign offices as
well as our Dallas office.

We do not purchase a material amount of scrap metal from one source. One
customer's purchases represented approximately 10% of our recycling segment's
revenues. Our recycling segment competes with other secondary processors and
primary nonferrous metals producers, both domestic and foreign, for sales of
nonferrous materials. Consumers of nonferrous scrap metals oftentimes can
utilize primary or "virgin" ingot processed by mining companies instead of
secondary metals. The prices of nonferrous scrap metals are closely related to
but generally less than, the prices of primary or "virgin" ingot.

MARKETING AND DISTRIBUTION SEGMENT

Our marketing and distribution segment buys and sells primary and secondary
metals, fabricated metals and other industrial products. During the past year,
our marketing and distribution segment sold approximately 1.4 million tons of
steel products. We market and distribute these products through a network of 16
offices, 4 processing facilities and joint venture offices located around the
world. We purchase steel, nonferrous metals including copper and aluminum coil,
sheet and tubing, chemicals, industrial minerals, ores, metal concentrates and
ferroalloys from producers in domestic and foreign markets. Occasionally, we
purchase these materials from suppliers, such as trading companies or industrial
consumers, who have a surplus of these materials. We utilize long-term
contracts, spot market purchases and trading or barter transactions to purchase
materials. A majority of the products we purchase are either fabricated
semi-finished product or finished product.

We sell our products to customers, primarily manufacturers, in the steel,
nonferrous metals, metal fabrication, chemical, refractory and transportation
businesses. We sell directly to our customers through and with the assistance of
our offices in Dallas, Texas; Fort Lee and Englewood Cliffs, New Jersey; Los
Angeles, California; Sydney, Perth, Melbourne, Brisbane and Adelaide, Australia;
Singapore; Zug, Switzerland; Hong Kong; and Sandbach, United Kingdom and
Bergisch Gladbach, Germany. We have representatives in offices in Moscow, Seoul,
and Beijing. We have agents or joint venture partners in twenty three additional
offices located in significant international markets. Our network of offices
shares

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information regarding demand for our materials, assists with negotiation and
performance of contracts and other services for our customers, and identifies
and maintains relationships with our sources of supply.

In most transactions, we act as principal by taking title and ownership of
the products. We are also designated as a marketing representative, sometimes
exclusively, by product suppliers. We utilize agents when appropriate, and on
occasion we act as a broker for these products. We buy and sell these products
in almost all major markets throughout the world where trade by American-owned
companies is permitted.

We market physical products as compared to companies that trade commodity
futures contracts and frequently do not take delivery of the commodity. As a
result of sophisticated global communications, our customers and suppliers often
have easy access to quoted market prices, although such prices are not always
accurate. Therefore, to distinguish ourselves we focus on creative service
functions for both sellers and buyers. Our services include actual physical
market pricing and trend information, as compared to more speculative metal
exchange futures market information, technical information and assistance,
financing, transportation and shipping (including chartering of vessels),
storage, warehousing, just in time delivery, insurance, hedging and the ability
to consolidate smaller purchases and sales into larger, more cost efficient
transactions. We attempt to limit exposure to price fluctuations by offsetting
purchases with concurrent sales. We also enter into currency exchange contracts
as economic hedges of sales and purchase commitments denominated in currencies
other than the United States dollar or, if the transaction involves our
Australian, United Kingdom or German subsidiaries, their local currency. We do
not, as a matter of policy, speculate on changes in the markets.

We have previously made investments to acquire approximately 11% of the
outstanding stock of a Czech Republic steel mill and 24% of a Belgium business
that processes and pickles hot rolled steel coil. These investments allow us to
expand our marketing and distribution activities.

Our Australian operations have eleven warehousing facilities for
just-in-time delivery of steel and industrial products. We also have a heat
treating facility for steel products at our Australian operations. In early
2002, our Australian operation acquired the remaining 78% interest of Coil
Steels Group that we did not own. Coil Steels Group is the third largest
distributor of steel sheet and coil products in Australia and has processing
facilities in Brisbane, Sydney and Melbourne and warehouses in Adelaide and
Perth. In September, 2002, we acquired the sheet and coil inventory and a small
amount of equipment from another Australian steel distributor, Horan Steel
Holdings, Pty. Ltd.

SEASONALITY

Many of our manufacturing segment's customers are in the construction
business. Due to the increase in construction during the spring and summer
months, our sales in the manufacturing segment are generally higher in the third
and fourth quarters than in the first and second quarters of our fiscal year.

COMPETITION

Manufacturing Segment. Our steel manufacturing, steel fabricating and
copper tube manufacturing businesses compete with regional, national and foreign
manufacturers and fabricators of steel and copper. We compete primarily on the
price and quality of our products and our service.

During 2001 and early 2002, significant quantities of steel products were
imported to the United States, including steel concrete reinforcing bars,
continuing a trend that began in 2000. In June 2000, we joined other steel
manufacturers and filed an antidumping petition with the United States
International Trade Commission, or ITC. The antidumping petition proposed
imposing duties on rebar imported and

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sold at less than fair value. In August 2000, the ITC determined that a
reasonable indication of material or threatened injury to rebar manufacturers
within the United States existed because of unfairly priced imported rebar from
eight countries. In April and June 2001, the ITC established final duties on
imported rebar from the eight named countries of 17% to 232%.

In June 2001, President Bush instituted an investigation under Section 201
of the Trade Act of 1974 to determine if certain steel products, including those
products manufactured by us, were being imported into the United States in such
increased quantities that they may cause serious injury to domestic
manufacturers of steel products. In October 2001, the ITC determined that
imports of certain product categories caused serious injury to the U.S.
industry. In March, 2002, President Bush adopted most of the ITC determinations
and imposed tariffs of 15 to 30% on products encompassing a majority of the
steel products produced by our minimills, except for most products manufactured
by our Alabama minimill. The tariffs apply to rebar, hot rolled bars and light
shapes. The tariffs are to be in place for three years but will decline by 1/5
of the initial amount in each of the second and third years. We believe these
tariffs should have a beneficial impact on our steel manufacturing operations by
increasing prices and reducing levels of competing steel imports.

Some members of the domestic steel industry support legislation that would
subsidize their operations by relieving them of liability for most legacy costs
and providing them with other government financial assistance. Typically, these
members of our industry are integrated steel producers with significant legacy
costs associated with their retiree medical and pension plans. Since we have no
significant unfunded retirement or medical plan expenses, we would not benefit
from this legislation. We oppose government subsidies that would benefit only a
few of the less financially viable and production cost competitive domestic
steel producers.

We do not produce a significant percentage of the total national output of
most of our products. However, we are considered a substantial supplier in the
markets near our facilities. We believe that our joist facilities are the second
largest manufacturer of joists in the United States, although significantly
smaller than the largest joist supplier. We believe that we are the largest
manufacturer of steel fence posts in the United States.

Recycling Segment. We believe our recycling segment is one of the larger
entities that recycles nonferrous secondary metals. We are a major regional
processor of ferrous scrap metal. The secondary metals business is subject to
cyclical fluctuations based upon the availability and price of unprocessed scrap
metal and the demand for steel and nonferrous metals.

Marketing and Distribution Segment. Our marketing and distribution business
is highly competitive. Our products in the marketing and distribution segment
are standard commodity items. We compete primarily on the price, quality and
reliability of our products, our financing alternatives and our additional
services. In this segment, we compete with other domestic and foreign trading
companies, some of which are larger and may have access to greater financial
resources. In addition some of our competitors may be able to pursue business
without being restricted by the laws of the United States. We also compete with
industrial consumers, who purchase directly from suppliers, and importers and
manufacturers of semi-finished ferrous and nonferrous products. Internet
ecommerce sites specializing in metals began to develop in the late 1990's but
during the past year most have terminated or scaled back operations. We do not
believe they have had a significant impact on our business.

ENVIRONMENTAL MATTERS

A significant factor in our business is our compliance with environmental
laws and regulations. We are subject to local, state, federal and supranational
environmental laws and regulations regarding, among

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other matters, solid waste disposal, air emissions, waste and storm water
effluent and disposal, and employee health. Our manufacturing and recycling
operations produce significant amounts of by-products, some of which the
environmental laws categorize as industrial waste or hazardous waste. For
example, the Environmental Protection Agency, or EPA, classifies the electric
arc furnace, or EAF, dust generated by our minimills as a hazardous waste
because of the lead, cadmium and chromium content. The EAF dust requires special
handling and recycling for recovery of zinc or disposal. Additionally, the
primary feed materials for our eight shredders operated by our scrap metal
recycling facilities are automobile hulks and obsolete household appliances.
Approximately 20% of the weight of an automobile hulk consists of material known
as shredder fluff. After the segregation of ferrous and saleable non-ferrous
metals, shredder fluff remains. Federal environmental regulations require
shredder fluff to pass a toxic leaching test to avoid classification as a
hazardous waste. We attempt to have hazardous contaminants removed from the feed
material prior to shredding. As a result, we believe the shredder fluff we
generate is not hazardous waste. If the laws, regulations or testing methods
change with regard to EAF dust processing or shredder fluff disposal, we may
incur significant expenditures. To date, we have not experienced difficulty in
obtaining contracts for recycling of EAF dust or disposing of shredder fluff in
municipal or private landfills.

Occasionally, we may be required to clean up or take certain remediation
action with regard to sites we formerly used in our operations. We may also be
required to pay for a portion of the costs of clean up or remediation at sites
we never owned or on which we never operated if we are found to have treated or
disposed of hazardous substances on the sites. The EPA has named us a
potentially responsible party, or PRP, at several federal Superfund sites. The
EPA alleges that we and other PRP scrap metal suppliers are responsible for the
cleanup of those sites solely because we sold scrap metal to unrelated
manufacturers for recycling as a raw material in the manufacturing of new
products. We contend that an arms length sale of valuable scrap metal for use as
a raw material in a manufacturing process that we have no control of should not
constitute "an arrangement for disposal or treatment of hazardous substances" as
defined under Federal law. In 2000 Congress approved and signed into law the
Superfund Recycling Equity Act. This statute should, subject to the satisfaction
of certain conditions, provide legitimate sellers of scrap metal for recycling
with some relief from Superfund liability at the Federal level. Despite
Congress' clarification of the intent of the federal law, various state laws and
environmental agencies still seek to impose such liability. We believe imposing
such liability is contrary to public policy objectives and legislation that
encourage recycling and promote the use of recycled materials and we continue to
support clarification of state laws and regulations consistent with Congress's
action.

New Federal, state and local laws, regulations and the varying
interpretations of such laws by regulatory agencies and the judicial impact how
much money we spend on environmental compliance. In addition, uncertainty
regarding adequate control levels, testing and sampling procedures, new
pollution control technology and cost benefit analysis based on market
conditions impact our future expenditures in order to comply with environmental
requirements. We cannot predict the total amount of capital expenditures or
increases in operating costs or other expenses that may be required as a result
of environmental compliance. We also do not know if we can pass such costs on to
our customers through product price increases. During 2002, we incurred
environmental costs including disposal, permit, license fees, tests, studies,
remediation, consultant fees and environmental personnel expense of
approximately $12.1 million. In addition, we estimate that we spent
approximately $507,000 during 2002 on capital expenditures for environmental
projects. We believe that our facilities are in material compliance with
currently applicable environmental laws and regulations. We do not presently
anticipate material capital expenditures for new environmental control
facilities during 2003.

9

EMPLOYEES

As of October 2002, we had approximately 7,728 employees. Our manufacturing
segment employed approximately 6,300 people. Our recycling segment employed 927
people, and our marketing and distribution segment employed 432 people. We have
34 employees in general corporate management and administration and 35 employees
who provide service to our divisions and subsidiaries. Production employees at
one metals recycling plant and one fabrication operation are represented by
unions for collective bargaining purposes. We believe that our labor relations
are generally good to excellent and our work force is highly motivated.

ITEM 2. PROPERTIES

Our Texas steel minimill is located on approximately 600 acres of land that
we own. Our Texas minimill facilities include several buildings that occupy
approximately 745,000 square feet. Our Alabama steel minimill is located on
approximately 38 acres of land, and it includes several buildings that occupy
approximately 567,000 square feet. We utilize our facilities at the Texas and
Alabama steel minimills for manufacturing, storage, office and other related
uses. Our South Carolina steel minimill is located on approximately 84 acres of
land, and the buildings occupy approximately 660,000 square feet. Our Arkansas
steel minimill is located on approximately 135 acres of land, and the buildings
occupy approximately 202,000 square feet. We lease approximately 30 acres of
land at the Alabama minimill and all the land at the Arkansas and South Carolina
minimills in connection with revenue bond financing or property tax incentives.
We may purchase the land at the termination of the leases or earlier for a
nominal sum.

All other steel group facilities utilize approximately 1,363 acres of land
and lease approximately 45 acres of land at various locations in Texas,
Louisiana, Arkansas, Utah, South Carolina, Florida, Virginia, Georgia, North
Carolina, Nevada, Iowa, California, Pennsylvania and Mississippi. Howell Metal
Company owns approximately 30 acres of land in New Market, Virginia, with
buildings occupying approximately 325,000 square feet.

Our recycling segment's plants occupy approximately 493 acres of land that
we own in Beaumont, Dallas, Galveston, Houston, Lubbock, Midland, Odessa,
Victoria and Vinton, Texas; Jacksonville, Ocala, Gainesville, Lake City, Orlando
and Tampa, Florida; Shreveport, Louisiana; Chattanooga, Tennessee; Springfield
and Joplin, Missouri; Burlington, North Carolina; Frontenac, Kansas; and Miami,
Oklahoma. The recycling segment's other scrap processing locations are on leased
land.

We lease the office space where our corporate headquarters and all of our
domestic marketing and distribution offices are located. We own three warehouse
buildings in Australia, one of which is located on leased real estate. We lease
the other warehouse facilities located in Australia.

The leases on the leased properties described above will expire on various
dates generally over the next ten years. Several of the leases have renewal
options. We have had little difficulty renewing such leases as they expire. We
estimate our minimum annual rental obligation for real estate operating leases
in effect at August 31, 2002, to be paid during fiscal 2003, to be approximately
$3,178,000. We also lease a portion of the equipment we use in our plants. We
estimate our minimum annual rental obligation for equipment operating leases in
effect at August 31, 2002, to be paid during fiscal 2003, to be approximately
$6,169,000.

10

ITEM 3. LEGAL PROCEEDINGS

Our subsidiary, SMI-Owen Steel Company, Inc. or SMI-Owen, prior to our
March, 2002, sale of the assets used at its heavy structural steel fabrication
facility, frequently worked on large and complex construction projects. Some of
the projects generated significant disputes. In connection with work completed
prior to the sale, SMI-Owen entered into a fixed price contract with Fluor
Daniel, Inc., or F/D, as design/builder general contractor to furnish, erect and
install structural steel, hollow core pre-cast concrete planks, fireproofing,
and certain concrete slabs along with related design and engineering work for
the construction of a large hotel and casino complex owned by Aladdin Gaming,
LLC, or Aladdin. F/D secured insurance from St. Paul Fire & Marine Insurance
Company under a subcontractor/vendor default protection policy. That insurance
policy named SMI-Owen as an insured in lieu of performance and payment bonds. A
large subcontractor to SMI-Owen defaulted, and SMI-Owen incurred unanticipated
costs to complete the work. We made a claim under the insurance policy for all
losses, costs, and expenses incurred by SMI-Owen because of the default. The
insurance company refused to pay our claim, so we filed suit against the
insurance company and the insurance broker, J & H Marsh McClennan, in March 2000
(C.A. No. G-00-149 United States District Court Southern District of Texas).
During May 2002, we settled the litigation with the insurance company. The
settlement included our recovery of the $6.6 million claim receivable, receipt
of an additional $7.4 million, the release of the balance of $1.0 million of
previously escrowed funds for payment of certain claims made by our
subcontractors and, subject to certain contingencies, reimbursement of up to an
additional $3.0 million. We have not settled our lawsuit against the insurance
broker for insurance benefits we did not receive due to the broker's acts,
errors and omissions. The project is now complete and we do not anticipate any
additional construction costs.

Other disputes concerning the Aladdin project have been submitted to
binding arbitration. In August 2000, we filed a claim against F/D for
approximately $27 million. Our claim seeks recovery of unpaid contract
receivables, amounts for delay claims and change orders all of which F/D has not
paid. Depending upon future rulings in the arbitration, a portion of our
recovery from the insurance company may be credited toward our claim against
F/D. F/D has not disputed certain amounts owed under the contract, but F/D
contends that other deductive items reduce the contract balance by approximately
$6.3 million. F/D also contends that the deductive items plus F/D's other claims
exceed the unpaid contract balance. We dispute the deductive items and intend to
vigorously pursue recovery of the contract balance in addition to all amounts
not recovered under insurance program coverage as a result of misrepresentations
or omissions by F/D.

Aladdin and F/D have filed joint claims in the arbitration proceeding
against us. Their claims in the amount of $144 million are primarily for alleged
damages that resulted from alleged delay during the construction process. Their
claims also include delay damages they allege to have incurred in the
construction of a retail area adjacent to the project. We believe their claims
are generally unsubstantiated. We believe we have valid legal defenses against
their claims and intend to vigorously defend the claims.

As of August 31, 2002, we have received notices from the EPA or state
agency with similar responsibility that we and numerous other parties are
considered potentially responsible parties, or PRPs, and may be obligated under
the Comprehensive Environmental Response Compensation and Liability Act of 1980,
or CERCLA, or similar state statute to pay for the cost of remedial
investigation, feasibility studies and ultimately remediation to correct alleged
releases of hazardous substances at fourteen locations. We may contest our
designation as a PRP with regard to certain sites, while at other sites we are
participating with other named PRPs in agreements or negotiations that we expect
will result in agreements to remediate the sites. The EPA or respective state
agency refers to these locations, none of which involve real estate we ever
owned or conducted operations upon, as the Peak Oil Site in Tampa, Florida, the
NL Industries/Taracorp Site in Granite City, Illinois, the Sapp Battery Site in
Cottondale, Florida, the

11

Interstate Lead Company Site in Leeds, Alabama, the Poly-Cycle Industries Site
in Techula, Texas, the Jensen Drive Site in Houston, Texas, the
SoGreen/Parramore Site in Tifton, Georgia, the Stoller Site in Jericho, South
Carolina, the RSR Corporation Site in Dallas, Texas, the Sandoval Zinc Company
Site in Marion County, Illinois, the Ross Metals Site in Rossville, Tennessee,
the Li Tungsten Site in Glen Cove, New York, the NL Industries Site in
Pedricktown, New Jersey, and the Stoller Site in Pelham, Georgia. We
periodically receive information requests from government environmental agencies
with regard to other sites that are apparently under consideration for
designation as listed sites under CERCLA or similar state statutes. We do not
know if any of these inquires will ultimately result in a demand for payment
from us.

The EPA notified us and other alleged PRPs that under Sec. 106 of CERCLA we
and the other PRPs could be subject to a maximum fine of $25,000 per day and the
imposition of treble damages if we and the other PRPs refuse to clean up the
Peak Oil, Sapp Battery, NL Industries/Taracorp, SoGreen/Parramore and Stoller
sites as ordered by the EPA. We are presently participating in PRP organizations
at the Peak Oil, Sapp Battery, SoGreen/Parramore and Stoller sites which are
paying for certain site remediation expenses. We do not believe that the EPA
will pursue any fines against us if we continue to participate in the PRP groups
or if we have adequate defenses to the EPA's imposition of fines against us in
these matters.

During 2002, the South Carolina Department of Health & Environmental
Control, or the Department, notified us of alleged violations by us of laws and
regulations concerning air pollution discharge and related matters at five of
our manufacturing facilities in South Carolina. We reached an agreement with the
Department regarding these matters and signed a Consent Order in October 2002.
Under the terms of the Consent Order, we have paid $325,000 to the Department
and agreed to comply with the requirements of various permits and regulations
and to apply for and obtain all necessary permits for the operation of our
business at the facilities. In accordance with the terms of the Consent Order,
we neither agree with nor admit to the Department's allegations. We have also
notified the Department that we intend to perform voluntary environmental audits
of eleven of our South Carolina facilities, including the five facilities
specifically named in the notice.

In September, 2002, the Director of the Region 6 EPA's Compliance Assurance
and Enforcement Division, filed an administrative complaint against us. The
complaint alleges that we violated the Clean Air Act by failing to remove any
remaining refrigerant from appliances brought to one of our Dallas, Texas
secondary metals facilities for recycling, or by failing to verify the prior
removal of refrigerant from such appliances. The EPA proposes a civil penalty in
the amount of $149,000 in the complaint. We have notified the EPA of our intent
to contest both the amount of the proposed penalty and the basis of the
allegations.

In 1993, the Federal Energy Regulatory Commission entered an order against
our wholly-owned subsidiary CMC Oil Company, or CMC Oil, which has been inactive
since 1985. As a result of the order, CMC Oil is subject to a judgment which the
Federal District Court upheld in 1994 and the Court of Appeals affirmed in 1995.
The order found CMC Oil liable for overcharges constituting violations of crude
oil reseller regulations from December 1977 to January 1979. The alleged
overcharges occurred in connection with our joint venture transactions with RFB
Petroleum, Inc. The overcharges total approximately $1,330,000 plus interest
calculated from the transaction dates to the date of the District Court judgment
under the Department of Energy's interest rate policy, and with interest
thereafter at the rate of 6.48% per annum. Although CMC Oil accrued a liability
on its books during 1995, it does not have sufficient assets to satisfy the
judgment. No claim has ever been asserted against us as a result of the CMC Oil
litigation. We will vigorously defend ourselves if any such claim is asserted.

12

We are unable to estimate the ultimate dollar amount of any loss in
connection with the above-described legal proceedings, environmental matters,
government proceedings, and disputes that could result in additional litigation,
some of which may have a material impact on earnings and cash flows for a
particular quarter. Management believes that the outcome of the suits and
proceedings mentioned, and other miscellaneous litigation and proceedings now
pending, will not have a material adverse effect on our business or consolidated
financial position.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Not Applicable.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The table below summarizes the high and low sales prices reported on the
New York Stock Exchange for our common stock and the cash dividends we paid for
the past two fiscal years. The amounts set forth below have been adjusted to
reflect a two-for-one stock split in the form of a stock dividend on our common
stock effective June 28, 2002.

Since 1982, our common stock has been listed and traded on the New York
Stock Exchange. From 1959 until the NYSE listing in 1982, our common stock was
traded on the American Stock Exchange.

13

The number of shareholders of record of our common stock at November 15, 2002,
was approximately 2,242.

ITEM 6. SELECTED FINANCIAL DATA

The table below sets forth a summary of our selected consolidated financial
information for the periods indicated. The per share amounts have been adjusted
to reflect a two-for-one stock split in the form of a stock dividend on our
common stock effective June 28, 2002. Net earnings, diluted earnings per share,
total assets and stockholders' equity have been restated as described in
footnote 14 to the consolidated financial statements.

14

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION

We manufacture, recycle, market and distribute steel and metal products through
a network of over 130 locations in the United States and internationally.

Manufacturing Operations

We conduct our manufacturing operations through the following:

o 4 steel mills, commonly referred to as "minimills," that produce
reinforcing bar, angles, flats, small beams, rounds, fence-post sections
and other shapes

o 29 steel plants that bend, cut and fabricate steel, primarily reinforcing
bar and angles

o 1 plant that produces copper tubing

o 27 warehouses that sell or rent supplies for the installation of concrete

o 6 plants that produce special sections for floors and ceiling support

o 4 plants that produce steel fence posts

o 1 plant that treats steel with heat to strengthen and provide flexibility

o 1 plant that rebuilds railcars

o 1 railroad salvage company

Recycling Operations

We conduct our recycling operations through 44 metal processing plants located
in the states of Texas, South Carolina, Florida, North Carolina, Oklahoma,
Kansas, Missouri, Tennessee, Louisiana and Georgia.

Marketing and Distribution Operations

We market and distribute steel, copper and aluminum coil, sheet and tubing,
ores, metal concentrates, industrial minerals, ferro alloys and chemicals
through our network of 16 marketing and distribution offices, 4 processing
facilities and joint ventures around the world. Our customers use these products
in a variety of industries.

You should read this management's discussion and analysis in connection with
your review of our consolidated audited financial statements and the
accompanying footnotes.

Critical Accounting Policies and Estimates

The following are important accounting policies, estimates and assumptions that
you should understand as you review our financial statements. We apply these
accounting policies and make these estimates and assumptions to prepare
financial statements under generally accepted accounting principles. Our use of
these accounting policies, estimates and assumptions affects our results of
operations and our reported amounts of assets and liabilities. Where we have
used estimates or assumptions, actual results could differ significantly from
our estimates.

REVENUE RECOGNITION Generally, we recognize sales when title passes. For a few
of our steel fabrication operations, we recognize net sales and profits from
certain long-term fixed price contracts by the percentage-of-completion method.
In determining the amount of net sales to recognize, we estimate the total costs
and profits expected to be recorded for the contract term, and the
recoverability of costs related to change orders. These estimates could change,
resulting in changes in our earnings.

CONTINGENCIES We make accruals as needed for litigation, administrative
proceedings, government investigations, including environmental matters, and
contract disputes. We base our environmental liabilities on estimates regarding
the number of sites for which we will be responsible, the scope and cost of work
to be performed at each site, the portion

15

of costs that we expect we will share with other parties and the timing of
the remediation. Where timing of expenditures can be reliably estimated, we
discount amounts to reflect our cost of capital over time. We record these and
other contingent liabilities when they are probable and when we can reasonably
estimate the amount of loss. Where timing and amounts cannot be precisely
estimated, we estimate a range, and we recognize the low end of the range
without undiscounting. Also, see footnote 10, Commitments and Contingencies, in
the consolidated financial statements for the year ended August 31, 2002.

INVENTORY COST We determine inventory cost for most domestic inventories by the
last-in, first-out method, or LIFO. At the end of each quarter, we estimate both
inventory quantities and costs that we expect at the end of the fiscal year for
these LIFO calculations, and we record an amount on a pro-rata basis. These
estimates could vary substantially from the actual year-end results, causing an
adjustment to cost of goods sold. See footnote 15, Quarterly Financial Data, to
the consolidated financial statements. We record all inventories at the lower of
their cost or market value.

PROPERTY, PLANT AND EQUIPMENT Our manufacturing and recycling businesses are
capital intensive. We evaluate the value of these assets and other long-lived
assets whenever a change in circumstances indicates that their carrying value
may not be recoverable. Some of the estimated values for assets that we
currently use in our operations utilize judgments and assumptions of future
undiscounted cash flows that the assets will produce. If these assets were for
sale, our estimates of their values could be significantly different because of
market conditions, specific transaction terms and a buyer's different viewpoint
of future cash flows. Also, we depreciate property, plant and equipment on a
straight-line basis over the estimated useful lives of the assets. Depreciable
lives are based on our estimate of the assets' economically useful lives. To the
extent that an asset's actual life differs from our estimate, there could be an
impact on depreciation expense or a gain/loss on the disposal of the asset in a
later period. We expense major maintenance costs as incurred.

OTHER ACCOUNTING POLICIES For additional information on our accounting policies,
see footnote 1, Summary of Significant Accounting Policies, to the consolidated
financial statements.

NEW ACCOUNTING PRONOUNCEMENTS See footnote 1, Summary of Significant Accounting
Policies, to the consolidated financial statements.

Consolidated Results of Operations

As discussed in footnote 14, Restatement of Prior Periods, we have restated the
2001 and 2000 financial statements and the 2001 and 2000 financial information
included in our management's discussion and analysis.

* Before changes in operating assets and liabilities

** Adjusted for stock split

Our results in fiscal 2002 reflect the impact of significant external factors.
Our fiscal year began on September 1, 2001, only 10 days before the September 11
terrorist attacks, which dramatically affected United States commercial
activity. Capital markets also suffered during our fiscal 2002 period due to the
collapse of the technology market bubble and corporate financial and accounting
scandals. Following signs of an economic recovery during the first

16

calendar quarter of 2002, the growth of the U.S. economy instead slowed during
the second and third calendar quarters. Economic activity also lost momentum in
most global markets, perhaps except for non-Japan Asia.

Our 2002 results reflect notable weakness in business investment. We saw big
declines in key markets such as nonresidential construction spending for
factories, offices and other commercial buildings. Public works outlays for
institutional buildings, highways and bridges remained strong, but did not
offset reduced expenditures in the private sector. Residential construction
activity fell, although it remains at a historically high level. Hotel/motel
building also fell. Consequently, we experienced lower margins in our
manufacturing segment, especially during our fiscal fourth quarter.

The weakening of the U.S. dollar during the latter part of our fiscal year
helped our results, although the impact was not as strong as we expected. We
believe that one reason is that world production and supply of many steel
products and nonferrous metals remained excessive.

During fiscal 2002, the U.S. government implemented tariffs on imported steel
products that compete with most of the products manufactured by our minimills.
However, because production by our U.S. competitors remained constant, we have
not seen a significant increase in prices. Conditions in our important end use
markets generally showed little improvement and in some instances deteriorated.

The following financial events were significant this year:

1. 2002 earnings were much higher than 2001, even excluding the $5.4
million after-tax litigation accrual recorded last year in the
manufacturing segment.

2. At year end 2002, we had no short-term financing needs and had, in
fact, significant temporary investments.

3. Steel minimill earnings were higher in 2002 due to increased
production and shipments in spite of lower selling prices and higher
scrap costs.

4. During the current year, our steel group received a nonrecurring
graphite electrode litigation settlement of $1.6 million after-tax.

5. Our steel group realized a $3.4 million after-tax gain from the sale
of the assets of SMI-Owen Steel Company in 2002.

6. We discovered a theft and accounting fraud and accounting errors at
two rebar fabrication operations totalling $3.0 million after-tax. See
footnote 14, Restatement of Prior Periods, to the consolidated
financial statements.

7. Copper tube profits decreased in spite of record production and
shipments because of lower selling prices and margins.

8. Our recycling segment returned to profitability during 2002 mostly due
to the recently improved ferrous scrap market.

9. Our marketing and distribution group's profit was higher than last
year, but some markets remained weak. Our acquisition of the Coil
Steels Group in September 2001 significantly contributed to profits.

10. Financing costs decreased due to lower requirements, reduced interest
rates and the beneficial effect of an interest rate swap.

11. A lower effective income tax rate, due primarily to the favorable
completion of IRS audits, added $1.0 million to net earnings in 2002.

17

Segments

Unless otherwise indicated, all dollars below are pre-tax. Financial results for
our reportable segments are consistent with the basis and manner in which we
internally disaggregate financial information for making operating decisions. We
have three reportable segments: manufacturing, recycling, and marketing and
distribution. The following table shows net sales and operating profit (loss) by
business segment. Our operating profit (loss), as presented below, is the sum of
our earnings (loss) before income taxes, interest expense owed to third parties
and discounts on the sales of accounts receivable.

2002 COMPARED TO 2001

MANUFACTURING We include our steel group and our copper tube division in our
manufacturing segment.

Our manufacturing operating profit in 2002 increased $14.7 million (26%) as
compared to 2001 on marginally more ($12 million) net sales. We achieved this
increase in operating profit for two primary reasons in 2002:(i) the
nonrecurrence of the prior year litigation accrual in the amount of $8.3
million, and (ii) the current year gain on the sale of the steel group's heavy
structural fabrication operation, SMI-Owen, in the amount of $5.2
million. Excluding those items, our manufacturing segment's operating profit was
slightly higher than last year.

Increased production and shipments at our steel group's minimills more than
offset lower selling prices, increased scrap purchase costs and lower copper
tube earnings. Also, we spent less in 2002 on utilities, and we recorded lower
depreciation and amortization expense. However, fiscal 2002 was not a good year
in the steel group's downstream steel fabrication and related businesses due to
lower profits in rebar fabrication and structural steel fabrication, excluding
SMI-Owen.

The table below reflects steel and scrap prices per ton:

MINIMILLS During 2002, operating profit for our four steel minimills rose 27%
compared with 2001, despite lower selling prices. SMI South Carolina had a $2.8
million profit in 2002 compared to a $1.6 million loss in 2001. SMI Alabama
turned around as well with a $2.5 million profit in 2002 compared to a $2.2
million loss in 2001. Profits at SMI Arkansas were up 4% in the current year
period. These improvements more than offset a 7% decline in profits at SMI Texas
as compared to 2001. A major reason for the minimills' improved profitability
was a 14% increase in shipments because of continued public projects
infrastructure construction. Shipments were 2,171,000 tons in 2002 compared to
1,903,000 in 2001. Mill production also increased over last year. Tons rolled
were up 19% to 2,026,000 in 2002. Tons melted were up 17% to 2,100,000 in 2002.
Even though demand was strong, the average total mill selling

18

price at $269 per ton was $15 (5%) below last year. Also, in 2002, we sold more
semi-finished billets, a product with a lower selling price than our average.
Average scrap purchase costs were $6 per ton (8%) higher than in 2001, resulting
in smaller margins. Utility expenses declined by $2.4 million as compared to
2001. Decreases in natural gas costs more than offset higher electricity costs.
Also, depreciation and amortization expenses decreased by $5.2 million in 2002,
primarily because SMI-South Carolina fully depreciated its mill rolls and guides
as well as certain melt shop equipment. The mills also received $2.5 million
from a nonrecurring graphite electrode litigation settlement in 2002.

The U.S. government's new tariffs cover most of the steel minimills' products
and range from 15-30% the first year, declining over the next two years. An
import licensing and monitoring system and an anti-surge mechanism will further
strengthen these remedies. Also, the U.S. administration plans to continue
discussions with other steel producing nations to remove excess global capacity
and eliminate subsidies.

FABRICATION AND OTHER BUSINESSES Operating profit in the steel group's
fabrication and other businesses increased by $12.1 million (57%) in 2002 as
compared to 2001. Excluding the 2002 gain on the sale of SMI-Owen ($5.2 million)
and the 2001 litigation accrual ($8.3 million), operating profits in 2002
decreased by $1.3 million (4%) as compared to 2001.

Near the end of fiscal 2002, we discovered two significant, but unrelated
events, requiring retroactive writedowns at two rebar fabrication operations.
The total amount of the adjustments required to correct the August 31, 2002
balance sheets of these two facilities was $4.6 million. These adjustments
affect four fiscal years from 1999 to 2002. In August 2002, we uncovered a theft
and an accounting fraud which occurred over four years at a rebar fabrication
plant in South Carolina. The total adjustment required to revert the accounting
records to their proper balances was $2.7 million. In September 2002, we
discovered accounting errors related to losses on rebar fabrication and
placement jobs at one facility in California, some of which date back to its
acquisition in fiscal 2000. The resulting charge was $1.9 million. The South
Carolina incident resulted in a $900 thousand expense in fiscal 2002. The
remaining $3.7 million for both instances was attributed $885 thousand to fiscal
2001, $2.6 million to fiscal 2000, and $227 thousand to 1999, resulting in prior
period adjustments to these previously reported financial statements. We have
taken immediate action to strengthen compliance with our internal control
policies.

Fabrication plant shipments totaled 984,000 tons, down fractionally from 986,000
tons shipped in 2001. The average fabrication selling price in 2002 decreased
$38 per ton (6%) as compared to 2001. Rebar fabrication markets were softer in
2002 as a result of intense competition, and several plants reported losses.
During the fourth quarter 2002, we acquired the real estate, equipment,
inventory and work in process of Varmicon, Inc. in Harlingen, Texas. We now
operate this rebar fabrication facility under the name of SMI-Valley Steel. The
steel joist operations, which includes cellular and castellated beams, were
breakeven in 2002, an improvement over the loss in 2001. Both prices and
shipments decreased, but lower operating costs and shop efficiencies helped
significantly. Also, in 2001 these operations incurred $8.9 million in start-up
costs. Structural steel fabrication profits, excluding SMI-Owen and the prior
year litigation accrual, were down in 2002 compared to 2001. However, our
concrete-related products operations were more profitable in 2002. We continued
to expand this business through the acquisition in the fourth quarter of Dowel
Assembly Manufacturing Company, or DAMCO, in Jackson, Mississippi.
DAMCO manufactures dowel baskets and has an epoxy coating business.

In 2002, the steel group started Spray Forming International, a stainless steel
cladding operation located in South Carolina. Spray Forming International will
use a patented process to produce stainless clad billets.

COPPER TUBE Our copper tube division's operating profit decreased 59% with 7%
less net sales as compared to 2001. Copper tube shipments increased 3% from 2001
to a record 59.3 million pounds, and production increased 5% from 2001 to a
record 56.2 million pounds. However, average sales prices dropped 10% in 2002
compared to 2001. The biggest factor was lower apartment and hotel/motel
construction. Consequently, demand for plumbing and refrigeration tube was not
as strong. The 2002 product mix included increased quantities of HVAC products
and line sets. In the marketplace, we continued to adapt to the consolidation
among our buyers. The difference between sales price and copper scrap purchase
cost (commonly referred to as "the metal spread"), declined 8% in 2002 compared
to 2001. Lower raw material purchase costs did not fully compensate for the
decline in selling prices.

19

RECYCLING Our recycling segment reported an operating profit of $5.1 million in
2002 compared with an operating loss of $2.3 million in 2001. Net sales in 2002
were 4% lower at $378 million as compared to 2001. However, gross margins were
11% above last year, primarily because we shipped 8% more total tons. Demand for
ferrous scrap improved both in the U.S. and internationally. The segment
processed and shipped 1,494,000 tons of ferrous scrap in 2002, 10% more than in
2001. Ferrous sales prices were on average $81 per ton, an increase of $6 from
2001. Nonferrous shipments were flat at 238,000 tons. The average 2002
nonferrous scrap sales price of $947 per ton was 9% lower than in 2001.
Increased productivity, higher asset turnover and reduced costs contributed to
the improved 2002 results. The total volume of scrap processed, including the
steel group's processing plants, was 2,568,000 tons, an increase of 11% from the
2,308,000 tons processed in 2001.

In June 2002, we acquired most of the transportation assets of Sampson Steel
Corporation in Beaumont, Texas. These assets will be combined with our existing
scrap processing facility in Beaumont. Earlier in the year we closed our
Midland, Texas facility, resulting in a writedown of $455,000 on certain
equipment.

MARKETING AND DISTRIBUTION Net sales in 2002 for our marketing and distribution
segment increased 1% to $777 million as compared to 2001. Operating profit in
2002 increased 82% to $14.2 million as compared to 2001, mostly due to better
results from our Australian operations. International steel prices and volumes
for steel and nonferrous semifinished products improved during the second half
of 2002, primarily in the distribution and processing businesses. However,
depressed economies, oversupply in most markets and intense competition from
domestic suppliers in the respective markets caused compressed margins for
numerous steel products, nonferrous metal products and industrial raw materials
and products. The U.S. dollar weakened against major currencies, a beneficial
development.

In September 2001, we completed our acquisition of Coil Steels Group, an
Australian service center in which we already owned a 22% share. This
acquisition provided $2.2 million of additional profits and $69.0 million in net
sales during 2002. Sales and profits for the Company's pre-existing business in
Australia also improved significantly. However, this increase in net sales was
more than offset by decreased sales in our U.S. operations due to fewer imports
into the United States.

Operating profits for the U.S. divisions improved significantly due to Cometals
which returned to more historical levels, and Dallas Trading which benefited
from the U.S. tariff legislation. Lower margins at Commonwealth on semi-finished
products almost offset these improvements. Our European operations' net sales
decreased slightly in 2002 as compared to 2001, but profits improved
significantly. The segment's recent strategy of growing its downstream marketing
and distribution business offset the continuing very difficult trading
conditions.

OTHER Selling, general and administration as well as employee's retirement plans
expenses were higher in 2002 as compared to 2001, mostly due to the acquisition
of Coil Steels Group and discretionary items, such as bonuses and profit
sharing. This increase was consistent with the improvement in our operating
profitability. Interest expense decreased by $8.9 million (32%) from 2001
largely due to lower interest rates and much lower average short-term
borrowings. Also, during 2002 we entered into two interest rate swaps (see
footnote 4, Credit Arrangements, to the consolidated financial statements) which
resulted in interest expense savings. During 2002, we favorably resolved all
issues for our federal income tax returns through 1999. Due to the lack of any
material adjustments, we have reevaluated the tax accruals and, consequently,
reduced the net tax expense by $1.0 million during 2002.

Near-Term Outlook

We expect that fiscal 2003 will be weaker than 2002. The global economy slowed
in 2002 amid considerable uncertainty, and economic growth in the United States
remains slow and uneven. Our specific markets reflect the soft demand and remain
very competitive. The outlook for our markets generally is weaker, in some cases
significantly so. The manufacturing sector continues to grow slowly. We do not
expect private, nonresidential construction to improve before mid-calendar year
2003, but we expect public construction to hold steady.

Residential building slowed in 2002, but housing sales and starts remain at a
historically high level because of the lowest mortgage rates in three decades.
Economic growth outside the United States also slowed, especially in Europe. On
the other hand, most analysts don't expect the global economy to fall into a
double-dip recession.

20

The fiscal 2003 quarterly results are likely to be erratic and the first half of
fiscal 2003 could be relatively weak. In addition to market conditions, we face
a number of other challenges including increased insurance costs and higher
energy costs. By segment, we anticipate a decrease in operating profit for
manufacturing, little change in recycling and an increase in marketing and
distribution. We expect fiscal 2003 diluted earnings per share to decrease
because diluted average shares will rise further. Our balance sheet should
remain strong.

During 2002, we had capital spending of $47 million plus $7 million for the
acquisition of the remaining shares of Coil Steels Group, compared to capital
spending of $53 million in fiscal 2001. We have focused on reducing short-term
financing needs during the past two fiscal years. We plan to increase capital
expenditures to $88 million for fiscal 2003. Fiscal 2003 capital expenditures
will include expansion in downstream rebar fabrication and concrete-related
products operations in the steel group and the acquisition of the flat-rolled
assets of Horans, a small service center in Australia. We have no major projects
planned at the steel mills for fiscal 2003, only smaller enhancements and
maintenance expenditures. All segments will continue to focus on improving or
disposing of under performing operations, especially if they no longer fit our
strategic direction.

Long-Term Outlook

We are well-positioned to exploit long-term opportunities. Our challenge is to
continue growing in a manner which increases our earnings per share and return
on capital and generates free cash flows over time. Further consolidation is a
virtual certainty in the industries in which we participate, and we plan to
participate in a prudent way. The reasons for further consolidation include an
inadequate return on capital for most companies, numerous bankruptcies, a high
degree of fragmentation, the need to eliminate non-competitive capacity and more
effective marketing.

The outlook section contains forward-looking statements regarding the outlook
for our financial results including net earnings, product pricing and demand,
production rates, energy expense, insurance expense, interest rates, inventory
levels, acquisitions and general market conditions. These forward-looking
statements can generally be identified by phrases such as we or our management
"expects," "anticipates," "believes," "plans to," "ought," "could," "should,"
"likely," "appears," "projects," "forecasts," or other similar words or phrases.
There is inherent risk and uncertainty in any forward-looking statements.
Variances will occur and some could be materially different from our current
opinion. Developments that could impact our expectations include the following:

o interest rate changes

o construction activity

o litigation claims and settlements

o difficulties or delays in the execution of construction contracts resulting
in cost overruns or contract disputes

o metals pricing over which we exert little influence

o increased capacity and product availability from competing steel minimills
and other steel suppliers including import quantities and pricing

o court decisions

o industry consolidation or changes in production capacity or utilization

o global factors including credit availability

o currency fluctuations

o energy and insurance prices

o decisions by governments impacting the level of steel imports and the pace
of overall economic activity.

21

2001 COMPARED TO 2000

Segments

MANUFACTURING Our manufacturing net sales for 2001 for the manufacturing segment
decreased by 3% compared to 2000. Despite an increase in both mill and
fabrication shipments, net sales decreased due to lower selling prices.
Operating profit as restated decreased $15.4 million (21%) in 2001 as compared
to 2000. The adverse charge for litigation of $8.3 million caused more than half
of the decrease. Also, 2001 copper tube profits dropped from their record levels
in 2000. Steel group profits, excluding the litigation accrual, decreased
slightly as well. We recorded pre-tax LIFO income of $1.7 million in 2001
compared to LIFO expense of $5.2 million in 2000, primarily in the manufacturing
segment.

MINIMILLS Our steel minimills recovered in the second half of 2001 despite very
weak markets throughout the year. The four steel mills' operating profit
decreased 27% as compared to 2000. An operating loss at the Alabama mill and
lower profits in Texas and Arkansas contributed significantly to the decrease.
The lower profits were partially offset by significantly lower losses at South
Carolina. Tons melted and rolled decreased 3% to 1.8 and 1.7 million tons,
respectively. Shipments rose by 3% to 1.9 million tons. The average mill selling
price decreased $22 (7%) in 2001 as compared to 2000. The average selling price
for finished goods decreased $24 per ton (8%) in 2001 as compared to 2000. The
average scrap purchase cost for the mills decreased $17 per ton (19%) in 2001,
which offset the decreases in selling prices. However, utility costs rose $9.8
million (13%) as compared to 2000. Import levels and more aggressive competition
caused sales prices to drop.

Excluding prior year graphite electrode settlements, operating profit in 2001 at
SMI-Texas decreased 16% and at SMI-Arkansas decreased 24% as compared to 2000.
SMI-Alabama reported an operating loss in 2001 as compared to an operating
profit in 2000. The price drops especially hurt SMI-Alabama. Record shipments at
the SMI-South Carolina mill caused losses to decrease by $8.1 million in 2001 to
$1.6 million This mill was profitable in the second half of 2001. Selling prices
continued to be significantly lower, and utility and scrap purchase costs were
down as well.

FABRICATION AND OTHER BUSINESSES In 2001, our downstream steel fabrication
businesses had another solid year. We have restated 2001 operating results by
$885 thousand for the accounting fraud at the South Carolina rebar facility.
Also, we reduced fiscal 2000 operating profits by $677 thousand and $1.9
million, respectively, for the accounting fraud at the South Carolina rebar
facility and the accounting errors at the California rebar manufacturing and
placement operation. We discovered both events near the end of fiscal 2002.
Excluding a net pre-tax gain of $5.5 million from the sale of land and
improvements in fiscal 2000, net sales remained the same in 2001 as compared to
2000. Operating profits increased 30% as compared to 2000, excluding the 2001
litigation accrual of $8.3 million for an adverse court ruling and the 2000 $5.5
million gain on the sale. Fabricated steel shipments of 986,000 tons increased
3% as compared to 2000; however, this included new capacity. Although prices
were mixed, the annual average fab selling price remained unchanged. Steel joist
and cellular beam manufacturing operations incurred $8.9 million in startup
costs for four projects. A major turnaround in large structural steel jobs
fabricated by SMI-Owen more than offset these costs.

COPPER TUBE Our copper tube division's operating profit decreased 29% in 2001 as
compared to 2000. Shipments decreased less than 1% in 2001 to 57.3 million
pounds, and metal spreads declined 13% in 2001 as compared to 2000. Production
at the plant decreased consistently with shipments. Although the housing sector
of the U.S. economy remained relatively strong, demand for plumbing and
refrigeration tube was softer than in the prior year. In the second half of
2001, we added line sets to our product mix, although shipments of this new
product were not yet significant.

22

CAPITAL IMPROVEMENTS Our capital improvements decreased significantly to $53
million as compared to $70 million in 2000, primarily in the manufacturing
segment. The $70 million included the expansion at the copper tube mill and the
installation of a ladle metallurgical station at SMI-South Carolina. In fiscal
2001, we substantially completed the copper tube mill expansion.

RECYCLING Our recycling segment incurred an operating loss of $2.3 million in
2001 as compared to a $5.8 million operating profit in 2000. Tons processed and
shipped decreased 4% as compared to 2000; however, net sales decreased 15% as
compared to 2000. Due to high scrap imports, weak domestic steel mills and the
strong U.S. dollar, ferrous prices fell $21 per ton (22%) as compared to $75 per
ton in 2000, and shipments fell 5%. A sharp drop in terminal market values
resulted in lower nonferrous margins. The average nonferrous scrap price was 5%
lower on volumes which were 2% higher as compared to 2000. Increased
productivity, high asset turnover and reduced expenses mitigated the effects of
weak markets.

The total volume of scrap processed and shipped in 2001, including our steel
group operations, decreased slightly to 2.3 million tons from 2.4 million tons
in fiscal 2000.

MARKETING AND DISTRIBUTION Our marketing and distribution segment's net sales
decreased in 2001 by 15% to $771 million, and operating profits were 59% lower
as compared to 2000. Depressed global economies, oversupply in most markets and
intense competition from domestic suppliers in the respective markets
contributed significantly to the decline. Also, the strong U.S. dollar continued
to hamper the segment's results in various parts of the world. Margins were
compressed for most steel products, nonferrous metal products and industrial raw
materials and products. Our strategy in recent years to enhance regional
businesses helped in the difficult market and currency conditions.

Most importantly, we achieved profitability even as we continued a major
commitment to develop quality people in sales and administration to provide for
long-term growth. We continued to diversify and build business by adding product
and geographic areas. We expanded regional trade as well, and continued to
increase our operations in the processing of the materials and products we buy
and sell.

2002 Liquidity and Capital Resources

We discuss liquidity and capital resources on a consolidated basis. Our
discussion includes the sources and uses of our three operating segments and
centralized corporate functions. We have a centralized treasury function and use
inter-company loans to efficiently manage the short-term cash needs of our
operating divisions. We invest any excess funds centrally.

We rely upon cash flows from operating activities, and to the extent necessary,
external short-term financing sources. Our short-term financing sources include
the issuance of commercial paper, sales of accounts receivable and borrowing
under our bank credit facilities. From time to time, we have issued long-term
public debt. Our investment grade credit ratings and general business conditions
affect our access to external financing on a cost-effective basis. Depending on
the price of our common stock, we may realize significant cash flows from the
exercise of stock options.

Moody's Investors Service (P-2), Standard & Poor's Corporation (A-2) and Fitch
(F-2) rate our $174.5 million commercial paper program, which is up from $135
million in 2001, in the second highest category. To support our commercial paper
program, we have unsecured revolving credit agreements with a group of eight
banks. Our $129.5 million facility expires in August 2003 and our $45 million
facility expires in August 2004. We plan to continue our commercial paper
program and the revolving credit agreements in comparable amounts to support the
commercial paper program.

For added flexibility, we may secure financing from the sale of certain accounts
receivable in an amount not to exceed $130 million. We continually sell accounts
receivable on an ongoing basis to replace those receivables that we have
collected from our customers. Our long-term public debt, which was $255 million
at August 31, 2002, is investment

23

grade rated by Standard & Poor's Corporation (BBB), Fitch (BBB) and by Moody's
Investors Services (Baa1). We have access to the public markets for potential
refinancing or the issuance of additional long term debt. Also, we have numerous
informal, uncommitted credit facilities available from domestic and
international banks. These credit facilities are priced at bankers' acceptance
rates or on a cost of funds basis.

Credit ratings affect our ability to obtain short- and long-term financing and
the cost of such financing. If the rating agencies were to reduce our credit
ratings, we would pay higher financing costs and possibly would have less
availability of the informal, uncommitted facilities. In determining our credit
ratings, the rating agencies consider a number of both quantitative and
qualitative factors. Such factors include earnings, fixed charges such as
interest, cash flows, total debt outstanding, off balance sheet obligations and
other commitments, total capitalization and various ratios calculated from these
factors. The rating agencies also consider predictability of cash flows,
business strategy, industry condition and contingencies. We are committed to
maintaining our investment grade credit ratings.

Certain of our financing agreements include various covenants. The most
restrictive of these covenants requires us to maintain an interest coverage
ratio of greater than three times and a debt to capitalization ratio of 55% as
defined in the financing agreement. A few of the agreements provide that if we
default on the terms of another financing agreement, it is considered a default
under these agreements. We have complied with the requirements, including the
covenants of our financing agreement as of and for the year ended, August 31,
2002.

Our unsecured revolving credit agreements and accounts receivable securitization
agreement include ratings triggers. The trigger in the revolving credit
agreements is solely a means to reset pricing for facility fees and, if a
borrowing occurs, on loans. Within the accounts receivable securitization
agreement, the ratings trigger is contained in a "termination event," but the
trigger is set at catastrophic levels. The trigger requires a combination of
ratings actions on behalf of two independent rating agencies and is set at
levels seven ratings categories below our current rating.

Our manufacturing and recycling businesses are capital intensive. Our capital
requirements include construction, purchases of equipment and maintenance
capital at existing facilities. We plan to invest in new operations. We also
plan to invest in working capital to support the growth of our businesses,
maintain our ability to repay maturing long-term debt when due at its earliest
maturity in 2005 and pay dividends to our stockholders.

Our management continues to assess alternative means of raising capital,
including potential dispositions of under-performing or non-strategic assets.
Any potential future major acquisitions could require additional financing from
external sources such as the sale of common stock.

CASH FLOWS Our cash flows from operating activities primarily result from sales
of steel and related products and, to a lesser extent, from sales of nonferrous
metal products. We have a diverse and generally stable customer base. We use
futures or forward contracts as needed to mitigate the risks from fluctuations
in foreign currency exchange rates and metals commodity prices (see footnote 5,
Financial Instruments, Market and Credit Risk, in the consolidated financial
statements).

The volume and price of the orders from our U.S. customers in the manufacturing
and construction sectors affect our cash flows from operating activities. Our
international marketing and distribution operations also significantly affect
our cash flows from operating activity. The weather can influence the volume of
products we ship in any given period. Also, the general economy, the strength of
the U.S. dollar, governmental action, and various other factors beyond our
control influence our volumes and prices. These periodic fluctuations in our
prices and volumes can result in variations in cash flows from operations.
Despite these fluctuations, we have historically relied on operating activities
as a steady source of cash.

Cash flows from operations before changes in operating assets and liabilities in
2002 increased to $107.4 million from $94.9 million in 2001 due mostly to higher
earnings. Depreciation and amortization expense decreased $5.7 million in 2002
primarily because SMI South Carolina fully depreciated its mill rolls and guides
as well as certain melt shop equipment. We realized a $4.1 million increase in
the tax benefits from stock issued under option and purchase plans during 2002.
Our cash flows increased by $2.4 million in 2002 as a result of deferred income
taxes, due largely to additional depreciation which was granted under new tax
legislation.

24

Net cash flows from operating activities decreased to $96.6 million in 2002 as
compared to $192.6 million in 2001, primarily as a result of decreased
funding from sales of accounts receivable. Net working capital in 2002 increased
to $379 million from $274 million in 2001, primarily due to increased temporary
investments and higher receivables. Increases in accounts payable more than
offset the increase in inventories. The ratio of current assets to current
liabilities was 1.9 at August 31, 2002, increased from 1.8 at August 31, 2001.
Excluding Coil Steels Group, CSG, and SMI-Owen, which were facilities acquired
and sold in 2002, accounts and notes receivable at August 31, 2002 were $41.2
million more than at August 31, 2001. The increase resulted because we did not
request as much funding from the accounts receivable that we sold to financial
institutions. Excluding CSG and SMI-Owen, inventories and accounts payable,
accrued expenses, other payables and income taxes at August 31, 2002 increased
by $37.2 million and $67.0 million, respectively, as compared to 2001.
Inventories in the steel group, excluding SMI-Owen, increased $22.3 million. The
majority of the increase occurred at the minimills because of higher scrap
purchase costs and higher inventory quantities. Steel fabrication and post
inventories increased as well. Inventories in marketing and distribution,
excluding CSG, increased $15.1 million in 2002 mostly due to shipments in
transit and customer delays. Accounts payable in marketing and distribution,
excluding CSG, increased by $65.5 million in 2002 due to higher inventory
purchases and extended terms with vendors. Accounts payable in the steel group
at the minimills increased $9.9 million in 2002. Also, during 2002, we received
$15.0 million from a litigation settlement (see footnote 10, Commitments and
Contingencies, to the consolidated financial statements). Increased profits
resulted in an increase of $5.7 million in income taxes payable. During 2002, we
received $5.2 million for the contract balance and settlement of disputed change
orders on an old large structural steel fabrication contract at SMI-Owen.

We invested $47.2 million in property, plant and equipment in 2002, which was
$5.8 million less than in 2001. In addition, in 2002, we acquired the remaining
shares of CSG for $6.8 million, net of cash. We received $19.7 million during
2002 for the sale of the assets of SMI-Owen. We expect capital spending for
fiscal 2003 to be $88 million, including both new construction and acquisitions
to expand our downstream businesses. At August 31, 2002, we had $91.1 million in
temporary investments, as compared to $23.0 million at 2001.

We needed much less short-term financing during 2002 than during 2001, primarily
due to better management of working capital, higher earnings, the litigation
settlement, the sale of SMI-Owen and cash from stock issued under incentive and
purchase plans. These events enabled us to repay all of our short-term
borrowings. In 2002, we also made our final payment on the 8.49% long-term
notes.

In May 2002, our Board of Directors declared a two-for-one stock split in the
form of a stock dividend on our common stock payable June 28, 2002 to our
shareholders of record on June 7, 2002 (see footnote 7, Capital Stock, to the
consolidated financial statements). On June 28, 2002, we issued 16,132,583
additional shares of common stock. At August 31, 2002, 28,518,453 shares of
common stock were issued and outstanding, and 3,746,713 were held in our
treasury. Also, we issued 2,361,265 additional shares of common stock during
2002 because more employees exercised stock options, and we issued more shares
than last year under our employee stock purchase plan because of the significant
increase in our average market price per share. We issued all shares from
treasury shares. As a result of this activity, our cash flows increased by $30.2
million in 2002 as compared to $4.4 million from such activity in 2001.

We paid dividends of $7.5 million during 2002, slightly more than the $6.8
million we paid during 2001. On May 20, 2002, our directors declared a quarterly
cash dividend of eight cents per share on common stock. We paid this quarterly
cash dividend on July 19 to stockholders of record at July 5, 2002. This new
cash dividend rate on the after-split shares represents a 23% increase in our
cash dividend. This was the 151st consecutive quarterly cash dividend we have
paid.

We believe that we have sufficient liquidity for fiscal year 2003 and the
foreseeable future.

25

Contractual Obligations

The following table represents our contractual obligations as of August 31, 2002
(dollars in thousands):

*We have not discounted the cash obligations in this table.

(1) Total amounts are included in the August 31, 2002 consolidated balance
sheet. See footnote 4, Credit Arrangements, to the consolidated financial
statements.

(2) Includes minimum lease payment obligations for noncancelable equipment and
real-estate leases in effect as of August 31, 2002. See footnote 10,
Commitments and Contingencies, to the consolidated financial statements.

(3) About 35% of these purchase obligations are for inventory items to be sold
in the ordinary course of business; most of the remainder are for freight
and supplies associated with normal revenue-producing activities.

At August 31, 2002, we received $2,141,000 of net funding from the sales of
accounts receivable. If we terminated the accounts receivable program on August
31, 2002, we would have to pay the first $2.1 million of collections from these
accounts to third party financial institutions. We complied with the terms of
this program as of, and for the year ended August 31, 2002.

Other Commercial Commitments

We maintain stand-by letters of credit to provide support for certain
transactions that our customers or suppliers request. At August 31, 2002, we had
committed $20.9 million under these arrangements. A cash deposit included in
current other assets on the consolidated balance sheet collateralized $6 million
of these commitments. All commitments expire within one year.

At the request of a customer and its surety bond issuer, we have agreed to
indemnify the surety against all costs the surety may incur should our customer
fail to perform its obligations under construction contracts covered by payment
and performance bonds issued by the surety. We are the customer' primary
supplier of steel, and steel is a substantial portion of our customer' cost to
perform the contracts. We believe we have adequate controls to monitor the
customer' performance under the contracts including payment for the steel we
supply. As of August 31, 2002, the surety had issued bonds in the total amount
(without reduction for work performed to that date) of $2,193,000 which are
subject to our guaranty obligation under the indemnity agreement.

Contingencies

In the ordinary course of conducting our business, we become involved in
litigation, administrative proceedings, government investigations including
environmental matters, and contract disputes. We may incur settlement, fines,
penalties or judgments because of some of these matters. While we are unable to
estimate precisely the ultimate dollar amount of exposure or loss in connection
with these matters, we make accruals we deem necessary. The amounts we accrue
could vary substantially from amounts we pay due to several factors including
the following: evolving remediation technology, changing regulations, possible
third-party contributions, the inherent shortcomings of the estimation process,
and the uncertainties involved in litigation. Accordingly, we cannot always
estimate a meaningful range of possible exposure. We believe that we have
adequately provided in our financial statements for the estimable potential
impact of these contingencies. We also believe that the outcomes will not
significantly affect the long-term results of operations or our financial
position. However, they may have a material impact on earnings for a particular
period.

26

CONSTRUCTION CONTRACT DISPUTES See footnote 10, Commitments and Contingencies,
to the consolidated financial statements.

ENVIRONMENTAL AND OTHER MATTERS We are subject to federal, state and local
pollution control laws and regulations in all locations where we have operating
facilities. We anticipate that compliance with these laws and regulations will
involve continuing capital expenditures and operating costs.

Our original business and one of our core businesses for over eight decades is
metals recycling. In the present era of conservation of natural resources and
ecological concerns, we are committed to sound ecological and business conduct.
Certain governmental regulations regarding environmental concerns, however well
intentioned, are contrary to the goal of greater recycling. Such regulations
expose us and the industry to potentially significant risks.

We believe that recycled materials are commodities that are diverted by
recyclers, such as us, from the solid waste streams because of their inherent
value. Commodities are materials that are purchased and sold in public and
private markets and commodities exchanges every day around the world. They are
identified, purchased, sorted, processed and sold in accordance with carefully
established industry specifications.

Environmental agencies at various federal and state levels classify certain
recycled materials as hazardous substances and subject recyclers to material
remediation costs, fines and penalties. Taken to extremes, such actions could
cripple the recycling industry and undermine any national goal of material
conservation. Enforcement, interpretation, and litigation involving these
regulations are not well developed.

The U.S. Environmental Protection Agency, or EPA, or an equivalent state agency
notified us that we are considered a potentially responsible party, or PRP, at
fourteen sites, none owned by us. We may be obligated under the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, or CERCLA, or a
similar state statute to conduct remedial investigation, feasibility studies,
remediation and/or removal of alleged releases of hazardous substances or to
reimburse the EPA for such activities. We are involved in litigation or
administrative proceedings with regard to several of these sites in which we are
contesting, or at the appropriate time we may contest, our liability at the
sites. In addition, we have received information requests with regard to other
sites which may be under consideration by the EPA as potential CERCLA sites.

In fiscal 2002, we incurred environmental expense of $12.1 million. This expense
included the cost of environmental personnel at various divisions, permit and
license fees, accruals and payments for studies, tests, assessments,
remediation, consultant fees, baghouse dust removal and various other expenses.
Approximately $507 thousand of our capital expenditures for 2002 related to
costs directly associated with environmental compliance. At August 31, 2002,
$5.0 million was accrued for environmental liabilities of which $1.5 million is
classified as other long-term liabilities.

Dividends

We have paid quarterly cash dividends in each of the past 39 consecutive years.
We paid dividends in 2002 at the rate of 0.065 cents per share each quarter for
the first three quarters, and 0.08 cents per share for the fourth quarter.

27

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market Risk

APPROACH TO MINIMIZING MARKET RISK See footnote 5, Financial Instruments, Market
and Credit Risk, for disclosure regarding our approach to minimizing market
risk. Also, see footnote 1, Summary of Significant Accounting Policies, to the
consolidated financial statements. The following types of derivative instruments
were outstanding at August 31, 2002, in accordance with our risk management
program.

CURRENCY EXCHANGE FORWARDS We enter into currency exchange forward contracts as
economic hedges of international trade commitments denominated in currencies
other than the United States dollar, or, if the transaction involves our
Australian, United Kingdom or German subsidiaries, their local currency. No
single foreign currency poses a primary risk to us. Fluctuations that cause
temporary disruptions in one market segment tend to open opportunities in other
segments.

Effective September 1, 2002, we changed most of our European
subsidiaries' functional currency to the Euro. We do not anticipate that this
change will have a significant impact on our financial results.

COMMODITY PRICES We base pricing in some of our sales and purchase contracts on
forward metal commodity exchange quotes which we determine at the beginning of
the contract. Due to the volatility of the metal commodity indexes, we enter
into metal commodity forward or futures contracts for copper, aluminum and zinc.
These forwards or futures mitigate the risk of unanticipated declines in gross
margins on these contractual commitments. Physical transaction quantities will
not match exactly with standard commodity lot sizes, leading to small gains and
losses from ineffectiveness.

INTEREST RATE SWAPS See footnote 4, Credit Arrangements, regarding our strategy
for managing the fluctuations in interest rates on our long-term debt.

The following table provides certain information regarding the foreign exchange
and commodity financial instruments discussed above.

28

FOREIGN CURRENCY EXCHANGE CONTRACT COMMITMENTS AS OF AUGUST 31, 2002:

o Substantially all foreign currency exchange contracts mature within one year.

o Hedge rates reflect foreign currency conversion to U.S. dollar.

AS OF AUGUST 31, 2001:

Revaluation at quoted market $69,184,000
Unrealized loss $ 1,327,000

METAL COMMODITY CONTRACT COMMITMENTS AS OF AUGUST 31, 2002:

o Seven lots mature after one year

o MT = Metric Tons

o MM = Millions

AS OF AUGUST 31, 2001:

Revaluation at quoted market $ 10,733,000
Unrealized loss $ 158,000

29

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA

Commercial Metals Company and Subsidiaries

CONSOLIDATED STATEMENTS OF EARNINGS

See notes to consolidated financial statements.

30

Commercial Metals Company and Subsidiaries

CONSOLIDATED BALANCE SHEETS

See notes to consolidated financial statements.

31

See notes to consolidated financial statements.

32

Commercial Metals Company and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

See notes to consolidated financial statements.

33

Commercial Metals Company and Subsidiaries

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

* As restated-see footnote 14.

See notes to consolidated financial statements.

34

Commercial Metals Company and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 Summary of Significant Accounting Policies

NATURE OF OPERATIONS The Company manufactures, recycles and markets steel and
metal products and related materials. Its manufacturing and recycling facilities
and primary markets are located in the Sunbelt from the mid-Atlantic area
through the West. Through its global marketing offices, the Company markets and
distributes steel and nonferrous metal products and other industrial products
worldwide. As more fully discussed in note 13, the manufacturing segment is the
most dominant in terms of capital assets and operating profit.

CONSOLIDATION The consolidated financial statements include the accounts of the
Company and its subsidiaries except CMC Receivables, Inc. (CMCR). See note 2.
All significant intercompany transactions and balances are eliminated in
consolidation.

REVENUE RECOGNITION Generally, sales are recognized when title passes to the
customer. Some of the revenues related to the steel fabrication operations are
recognized on the percentage of completion method. Due to uncertainties inherent
in the estimation process, it is at least reasonably possible that completion
costs for certain projects will be further revised in the near-term.

TEMPORARY INVESTMENTS The Company considers investments that are short-term
(generally with original maturities of three months or less) and highly liquid
to be temporary investments.

INVENTORIES Inventories are stated at the lower of cost or market. Inventory
cost for most domestic inventories is determined by the last-in, first-out
(LIFO) method; cost of international and remaining inventories is determined by
the first-in, first-out (FIFO) method.

PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment is recorded at cost
and is depreciated on a straight-line basis over the estimated useful lives of
the assets. Provision for amortization of leasehold improvements is made at
annual rates based upon the estimated useful lives of the assets or terms of the
leases, whichever is shorter. At August 31, 2002, the useful lives used for
depreciation and amortization were as follows:

Buildings 7 to 40 years
Equipment 3 to 15 years
Leasehold improvements 3 to 10 years

We evaluate the carrying value of property, plant and equipment whenever a
change in circumstances indicates that the carrying value may not be recoverable
from the undiscounted future cash flows from operations. If we determine that
impairment exists, we reduce the net book values as warranted. Major maintenance
is expensed as incurred.

START-UP COSTS Start-up costs associated with the acquisition and expansion of
manufacturing and recycling facilities are expensed as incurred.

ENVIRONMENTAL COSTS The Company accrues liabilities for environmental
investigation and remediation costs based upon estimates regarding the number of
sites for which the Company will be responsible, the scope and cost of work to
be performed at each site, the portion of costs that will be shared with other
parties and the timing of remediation. Where amounts and timing can be reliably
estimated, amounts are discounted. Where timing and amounts cannot be reasonably
determined, a range is estimated and the lower end of the range is recognized on
an undiscounted basis.

INCOME TAXES The Company and its U.S. subsidiaries file a consolidated federal
income tax return, and federal income taxes are allocated to subsidiaries based
upon their respective taxable income or loss. Deferred income taxes are provided
for temporary differences between financial and tax reporting. The principal
differences are described in footnote 6, Income Taxes. Benefits from tax credits
are reflected currently in earnings. The Company provides for taxes on
unremitted earnings of foreign subsidiaries.

FOREIGN CURRENCY The functional currency of the Company's international
subsidiaries in Australia, the United Kingdom, and Germany is the local
currency. The remaining international subsidiaries' functional currency is the
United States dollar. Translation adjustments are reported as a component of
accumulated other comprehensive loss.

35

Effective September 1, 2002, most of the Company's subsidiaries in Europe
changed their functional currency to the Euro. The Company does not anticipate
that this change will have a material impact on its financial condition or
results of operation.

USE OF ESTIMATES The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make significant
estimates regarding assets and liabilities and associated revenues and expenses.
Management believes these estimates to be reasonable; however, actual results
may vary.

DERIVATIVES The Company records derivatives on the balance sheet as assets or
liabilities, measured at fair value. Gains or losses from the changes in the
values of the derivatives are recorded in the statement of earnings, or are
deferred if they are highly effective in achieving offsetting changes in fair
values or cash flows of the hedged items during the term of the hedge.

RECLASSIFICATIONS Certain reclassifications have been made in the 2001 and 2000
financial statements to conform to the classifications used in the current year.

RECENTLY ISSUED ACCOUNTING STANDARDS Statement of Financial Accounting Standards
(SFAS) No.142, Goodwill and Other Intangible Assets, must be adopted by the
Company in the first quarter of its fiscal year 2003, and will be applied to all
goodwill and other intangible assets recognized on the balance sheet, regardless
of when those assets were initially recognized. Goodwill will no longer be
amortized, but must be tested for impairment as of the beginning of the fiscal
year of adoption and annually thereafter. Goodwill was $6.8 million at August
31, 2002. Management does not believe that the implementation of SFAS 142 will
result in an impairment charge.

In August 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement
Obligations, effective for the Company in fiscal 2003. This standard requires
entities to record the fair value of a liability for an asset retirement
obligation when it is incurred by increasing the carrying amount of the related
long-lived asset. The liability is accreted to its present value each period,
and the capitalized cost is depreciated over the useful lives of the assets.

In October 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets, that refines criteria for assets classified as
held for sale, further refines rules regarding impairment of long-lived assets
and changes the reporting of discontinued operations. SFAS No. 144 is effective
for the Company's fiscal 2003.

SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities,
was issued in June 2002. It is effective for all such activities initiated after
December 31, 2002. SFASNo. 146 requires that a liability for a cost associated
with an exit or disposal activity be recognized at fair value only when
incurred.

Management believes that the adoption of SFAS Nos.143, 144 and 146 will have no
significant impact on the results of operations or financial position of the
Company.

NOTE 2 Sales of Accounts Receivable

In 2001, the Company and several of its subsidiaries entered into three-year
agreements to periodically sell trade accounts receivable to the Company's
wholly-owned unconsolidated special purpose affiliate (CMCR). Depending on the
Company's level of financing needs, the affiliate receives funds from a third
party financial institution up to a $130 million maximum. The Company utilizes
this arrangement as an alternative to short-term borrowing. The key components
of such arrangements with financial institutions were as follows as of August
31:

The notes receivable from affiliate are presented net of allowance of $2.9
million and $2.7 million at August 31, 2002 and 2001, respectively. These notes
represent amounts withheld for credit and other reserves, as well as excess
funding capacity not currently needed by the Company. Discounts (which
aggregated $793 thousand and $976 thousand for the years ended August 31, 2002
and 2001, respectively) represented primarily the costs of funds and were
included in selling, general and administrative expenses.

36

NOTE 3 Inventories

Before deduction of LIFO reserves of $8,074,000 and $6,476,000 at August 31,
2002 and 2001, respectively, inventories valued under the first-in, first-out
method approximated replacement cost.

At August 31, 2002 and 2001, 72% and 70%, respectively, of total inventories
were valued at LIFO. The remainder of inventories, valued at FIFO, consisted
mainly of material dedicated to the marketing and distribution business.

The majority of the Company's inventories are in the form of finished goods,
with minimal work in process. Approximately $15.3 million and $10.8 million were
in raw materials at August 31, 2002 and 2001, respectively.

NOTE 4 Credit Arrangements

In August 2002, the Company increased its commercial paper program to permit
maximum borrowings of up to $174.5 million, an increase from the prior year $135
million level. It is the Company's policy to maintain contractual bank credit
lines equal to 100% of the amount of all commercial paper outstanding.

On August 8, 2002, the Company arranged an unsecured revolving credit agreement
with a group of eight banks consisting of a 364-day, $129.5 million facility.
This facility is in addition to the previously existing $45 million facility
that matures August 14, 2004. These agreements provide for borrowing in United
States dollars indexed to LIBOR. Facility and other fees of 0.150% and 0.125%
per annum are payable on the 364-day and multi-year credit lines, respectively.
No compensating balances are required.

The Company has numerous informal credit facilities available from domestic and
international banks. These credit facilities are priced at bankers' acceptance
rates or on a cost of funds basis. No compensating balances or commitment fees
are required under these credit facilities.

Long-term debt and amounts due within one year as of August 31, are as follows:

Interest on these notes is payable semiannually.

On April 9, 2002, the Company entered into two interest rate swaps to convert a
portion of its fixed interest rate long-term debt commitment to a floating
interest commitment. These arrangements adjust the Company's fixed to floating
interest rate exposure as well as reduce overall financing costs. The swaps
effectively convert interest on the $100 million debt due July 2005 from a fixed
rate of 7.20% to a six month LIBOR (determined in arrears) plus 2.02%. The
floating rate was 3.88% at July 15, 2002, the most recent reset date. The total
fair value of both swaps was $4,775,000 at August 31, 2002 and is recorded in
other long-term assets, with a corresponding increase in the 7.20% long-term
notes, representing the change in fair value of the hedged debt.

Certain of the note agreements include various covenants. The most restrictive
of these requires maintenance of an interest coverage ratio of greater than
three times and a debt/capitalization ratio of 55% (as defined).

The aggregate amounts of all long-term debt maturities for the five years
following August 31, 2002 are (in thousands): 2003-$631; 2004-$563;
2005-$105,296; 2006-$17; 2007-$50 and thereafter-$100,093.

37

Interest expense is comprised of the following:

Interest of $447,000, $1,111,000, and $808,000 was capitalized in the cost of
property, plant and equipment constructed in 2002, 2001, and 2000, respectively.
Interest of $18,879,000, $28,704,000, and $27,536,000 was paid in 2002, 2001,
and 2000, respectively.

NOTE 5 Financial Instruments, Market and Credit Risk

Generally accepted accounting principles require disclosure of an estimate of
the fair value of the Company's financial instruments as of year end. These
estimated fair values disregard management intentions concerning these
instruments and do not represent liquidation proceeds or settlement amounts
currently available to the Company. Differences between historical presentation
and estimated fair values can occur for many reasons including taxes,
commissions, prepayment penalties, make-whole provisions and other restrictions
as well as the inherent limitations in any estimation technique.

Due to near-term maturities, allowances for collection losses, investment grade
ratings and security provided, the following financial instruments' carrying
amounts are considered equivalent to fair value:

o Cash and temporary investments

o Accounts receivable/payable

o Short-term borrowings

o Notes receivable/payable

The Company's long-term debt is predominantly publicly held. Fair value was
determined by indicated market values.

The Company maintains both corporate and divisional credit departments. Limits
are set for customers and countries. Credit insurance is used for some of the
Company's divisions. Letters of credit issued or confirmed by sound financial
institutions are obtained to further ensure prompt payment in accordance with
terms of sale; generally, collateral is not required.

In the normal course of its marketing activities, the Company transacts business
with substantially all sectors of the metals industry. Customers are
internationally dispersed, cover the spectrum of manufacturing and distribution,
deal with various types and grades of metal and have a variety of end markets in
which they sell. The Company's historical experience in collection of accounts
receivable falls within the recorded allowances. Due to these factors, no
additional credit risk, beyond amounts provided for collection losses, is
believed inherent in the Company's accounts receivable.

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
declines 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. The
Company designates as hedges for accounting purposes only those contracts which
closely match the terms of the underlying transaction. These hedges resulted in
substantially no ineffectiveness in the statements of earnings for the years
ended August 31, 2002 and 2001. Certain of the foreign currency and all of the
commodity contracts were not designated as hedges for accounting purposes,
although management believes they are essential economic hedges. The changes in
fair value of these instruments resulted in a

38

$208 thousand decrease and a $452 thousand increase in cost of goods sold for
the years ended August 31, 2002 and 2001, respectively. All of the instruments
are highly liquid and none are entered into for trading purposes or speculation.

See footnote 4, Credit Arrangements, regarding the Company's interest rate
hedges.

NOTE 6 Income Taxes

The provisions for income taxes include the following:

During 2002, the Company favorably resolved all issues for its federal income
tax returns through 1999. Management has reevaluated the tax accruals resulting
in a net decrease of approximately $1,000,000.

Taxes of $11,016,000, $8,691,000 and $26,363,000 were paid in 2002, 2001 and
2000, respectively.

Deferred taxes arise from temporary differences between the tax basis of an
asset or liability and its reported amount in the financial statements. The
sources and deferred long-term tax liabilities (assets) associated with these
differences are:

Current deferred tax assets of $12.3 and $11.0 million at August 31, 2002 and
2001, respectively, were included in other assets on the consolidated balance
sheets. These deferred taxes were largely due to different book and tax
treatments of various allowances and accruals. No valuation allowances were
required at August 31, 2002 or 2001 for the current deferred tax assets.

The Company uses substantially the same depreciable lives for tax and book
purposes. Changes in deferred taxes relating to depreciation are mainly
attributable to differences in the basis of underlying assets recorded under the
purchase method of accounting. As noted above, the Company provides United
States taxes on unremitted foreign earnings. Net operating losses consist of
$120 million of state net operating losses that expire during the tax years
ending from 2006 to 2022. These assets will be reduced as tax expense is
recognized in future periods. The $1.7 million alternative minimum tax credit is
available indefinitely. The FSC Repeal and Extraterritorial Income Exclusion Act
of 2000 replaced the Foreign Sales Corporation (FSC) tax benefits with the
"extraterritorial income" exemption (ETI) for fiscal year 2002 and the years
thereafter. The ETI exclusion maintains the same level of tax benefit for
current FSC users.

39

The Company's effective tax rates were 35.8% for 2002, 38.1% for 2001 and 36.9%
for 2000. Reconciliations of the United States statutory rates to the effective
rates are as follows:

NOTE 7 Capital Stock

On May 20, 2002, the Company's Board of Directors declared a two-for-one stock
split in the form of a 100% stock dividend on its common stock. This stock split
was effective June 28, 2002 to shareholders of record on June 7, 2002. On June
28, 2002, the Company issued 16,132,583 additional shares of common stock and
transferred $17,354,000 from paid-in capital and $63,309,000 from retained
earnings to common stock. All applicable share and per share amounts in the
accompanying consolidated financial statements have been restated to reflect
this stock split. Following the stock split, the Company also instituted a
quarterly cash dividend of eight cents per share on the increased number of
shares.

STOCK PURCHASE PLAN Almost all employees may participate in the Company's
employee stock purchase plan. The Directors have authorized the annual purchase
of up to 200 shares per employee at a discount of 25% from the stock's market
price. Yearly activity of the stock purchase plan was as follows:

2002 2001 2000
-------------- -------------- --------------

Shares subscribed 282,780 347,640 330,000
Price per share $ 12.48 $ 9.48 $ 11.74
Shares purchased 257,860 74,480 273,980
Price per share $ 9.48 $ 11.74 $ 9.75
Shares available 366,446

The Company recorded compensation expense for this plan of $815,000, $291,000
and $890,000 in 2002, 2001 and 2000, respectively.

STOCK OPTION PLANS The 1986 Stock Incentive Plan (1986 Plan) ended November 23,
1996, except for awards outstanding. Under the 1986 Plan, stock options were
awarded to full-time salaried employees. The option price was the fair market
value of the Company's stock at the date of grant, and the options are
exercisable two years from date of grant. The outstanding awards under this Plan
are 100% vested and expire through 2006.

The 1996 Long-Term Incentive Plan (1996 Plan) was approved in December 1996.
Under the 1996 Plan, stock options, stock appreciation rights, and restricted
stock may be awarded to employees. The option price for both the stock options
and the stock rights will not be less than the fair market value of the
Company's stock at the date of grant. The outstanding awards under the 1996 Plan
vest 50% after one year and 50% after two years from date of grant and will
expire seven years after grant. The terms of the 1996 Plan resulted in
additional authorized shares of 52,126 in 2000, 67,270 in 2001, and 1,073,782 in
2002. In addition, the Company's shareholders authorized an additional 1,000,000
shares during 2002.

In January 2000, the Company's stockholders approved the 1999 Non-Employee
Director Stock Option Plan and authorized 400,000 shares to be made available
for grant. Under this Plan, each outside director of the Company will receive
annually an option to purchase 3,000 shares of the Company's stock. In addition,
any outside director may elect to receive all or part of fees otherwise payable
in the form of a stock option. The price of these options is the fair market
value of the Company's stock at the date of the grant. The options granted
automatically vest 50% after one year and 50% after two years from the grant
date. Options granted in lieu of fees are immediately vested. All options expire
seven years from the date of grant.

40

Combined share information for the three plans is as follows:

Share information for options at August 31, 2002:

The Company has maintained its historical method for accounting for stock
options, which recognizes no compensation expense for fixed options granted at
current market values. Generally accepted accounting principles require
disclosure of an estimate of the weighted-average grant date fair value of
options granted during the year and pro forma disclosures of the effect on
earnings if compensation expense had been recorded.

The Black-Scholes option pricing model used requires the following assumptions
as of August 31:

41

Management believes that the results have limited relevance as characteristics
of the Company's options such as nontransferability, forfeiture provisions and
long lives are inconsistent with the option model's basic purpose of valuing
traded options. For purposes of pro forma earnings disclosures, the assumed
compensation expense is amortized over the option's vesting period. The pro
forma information includes options granted in preceding years.

The weighted-average fair value of options granted in 2002, 2001 and 2000 was
$4.52, $2.77 and $3.89, respectively.

PREFERRED STOCK Preferred stock has a par value of $1.00 a share, with 2,000,000
shares authorized. It may be issued in series, and the shares of each series
shall have such rights and preferences as fixed by the Board of Directors when
authorizing the issuance of that particular series. There are no shares of
preferred stock outstanding.

STOCKHOLDER RIGHTS PLAN On July 28, 1999, the Company's Board of Directors
adopted a stockholder rights plan pursuant to which stockholders were granted
preferred stock rights (Rights) to purchase one one-thousandth of a share of the
Company's Series A Preferred Stock for each share of common stock held. In
connection with the adoption of such plan, the Company designated and reserved
100,000 shares of preferred stock as Series A Preferred Stock and declared a
dividend of one Right on each outstanding share of the Company's common stock.
Rights were distributed to stockholders of record as of August 9, 1999.

The Rights are represented by and traded with the Company's common stock. The
Rights do not become exercisable or trade separately from the common stock
unless at least one of the following conditions are met: a public announcement
that a person has acquired 15% or more of the common stock of the Company or a
tender or exchange offer is made for 15% or more of the common stock of the
Company. Should either of these conditions be met and the Rights become
exercisable, each Right will entitle the holder (other than the acquiring person
or group) to buy one one-thousandth of a share of the Series A Preferred Stock
at an exercise price of $150.00. Each fractional share of the Series A Preferred
Stock will essentially be the economic equivalent of one share of common stock.
Under certain circumstances, each Right would entitle its holder to purchase the
Company's stock or shares of the acquirer's stock at a 50% discount. The
Company's Board of Directors may choose to redeem the Rights (before they become
exercisable) at $0.001 per Right. The Rights expire July 28, 2009.

NOTE 8 Employees' Retirement Plans

Substantially all employees of the Company and its subsidiaries are covered by
defined contribution profit sharing and savings plans. Company contributions,
which are discretionary, to all plans were $14,685,000, $10,611,000, and
$18,108,000, for 2002, 2001 and 2000, respectively.

NOTE 9 Postretirement Benefits Other Than Pensions/Postemployment Benefits

The Company has no significant postretirement obligations. The Company's
historical costs for postemployment benefits have not been significant and are
not expected to be in the future.

42

NOTE 10 Commitments and Contingencies

Minimum lease commitments payable by the Company and its consolidated
subsidiaries for noncancelable operating leases in effect at August 31, 2002,
are as follows for the fiscal periods specified:

Total rental expense was $11,774,000, $11,483,000 and $10,664,000 in 2002, 2001
and 2000, respectively.

CONSTRUCTION CONTRACT DISPUTES During 2001, the Company increased its litigation
accrual (included in accrued expenses and other payables) by $8.3 million due to
an adverse judgment from a trial. At August 31, 2002 and 2001, $9.8 million and
$9.4 million, respectively, were accrued (including interest). The Company has
appealed the judgment.

In another matter, a subsidiary of the Company entered into a fixed price
contract with the design/builder general contractor (D/B) to furnish, erect and
install structural steel, hollow core pre-cast concrete planks, fireproofing,
and certain concrete slabs along with related design and engineering work for
the construction of a large hotel and casino complex. In connection with the
contract, the D/B secured insurance under a subcontractor/vendor default
protection policy which named the Company as an insured in lieu of performance
and payment bonds. A large subcontractor to the Company defaulted, and the
Company incurred unanticipated costs to complete the work. The Company made a
claim against the insurance company for all losses, costs, and expenses incurred
or arising from the default. A portion of the claim, $6.6 million, was recorded
as a claim receivable in other assets at August 31, 2001. During May 2002, the
Company and the insurance company settled litigation filed by the Company
following the insurer' refusal to pay the claim. The Company recovered $15
million from the insurance company, which included recovery of the $6.6 million
claim receivable, receipt of an additional amount ($7.4 million), the release of
the balance of $1 million of previously escrowed funds for payment of certain
claims by subcontractors to the Company and, subject to certain contingencies,
reimbursement of an additional amount (up to $3 million). The $7.4 million in
excess of the claim receivable and escrow amount released was recorded as
deferred insurance proceeds (in other long-term liabilities at August 31, 2002)
pending final resolution of the Company's disputes with the D/B. The Company has
also filed a lawsuit against the insurance broker for insurance benefits not
received due to the broker's acts, errors and omissions.

Disputes between the Company and the D/B have been submitted to binding
arbitration. Depending upon future rulings in the arbitration, a portion of the
Company's recovery from the insurance company may be credited toward the
Company's claim against the D/B. The Company has filed a claim for approximately
$27 million against the D/B. The claims seeks recovery of unpaid contract
receivables, amounts for delay claims and change orders all of which have not
been paid by the D/B. At August 31, 2002 and 2001, the Company maintained
contract receivables of $7.2 million from the D/B. Such amounts are included
within other assets on the accompanying balance sheets. The D/B has not disputed
certain amounts owed under the contract, but contends that other deductive
items, disputed by the Company, reduce the contract balance by approximately
$6.3 million which together with other D/B claims (discussed below) exceed the
unpaid contract balance. The Company disputes the deductive items in the D/B's
claim and intends to vigorously pursue recovery of the contract balance in
addition to all amounts not recovered under insurance program coverage as a
result of misrepresentations or omissions of the D/B.

The owner of the Project and the D/B have filed joint claims in the arbitration
proceeding against the Company, primarily for alleged delay damages, totaling
approximately $144 million which includes alleged delay damages in construction
of a retail area adjacent to the Project. Management believes the claims are
generally unsubstantiated, and the Company has valid legal defenses against such
claims and intends to vigorously defend these claims. Man-

43

agement is unable to determine a range of potential loss related to such claims,
and therefore no losses have been accrued; however, it believes the ultimate
resolution will not have a material effect on the Company's consolidated
financial statements. Due to the uncertainties inherent in the estimating
process, it is at least reasonably possible that a change in the Company's
estimate of its collection of amounts receivable and possible liability could
occur in the near term.

The Company is involved in various other claims and lawsuits incidental to its
business. In the opinion of management, these claims and suits in the aggregate
will not have a material adverse effect on the results of operations or the
financial position of the Company.

ENVIRONMENTAL AND OTHER MATTERS 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 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.

The Company has received notices from the U.S. Environmental Protection Agency
(EPA) or equivalent state agency that it is considered a potentially responsible
party (PRP) at fourteen sites, none owned by the Company, and may be obligated
under the Comprehensive Environmental Response, Compensation, and Liability Act
of 1980 (CERCLA) or similar state statute to conduct remedial investigations,
feasibility studies, remediation and/or removal of alleged releases of hazardous
substances or to reimburse the EPA for such activities. The Company is involved
in litigation or administrative proceedings with regard to several of these
sites in which the Company is contesting, or at the appropriate time may
contest, its liability at the sites. In addition, the Company has received
information requests with regard to other sites which may be under consideration
by the EPA as potential CERCLA sites.

Some of these environmental matters or other proceedings may result in fines,
penalties or judgments being assessed against the Company. While the Company is
unable to estimate precisely the ultimate dollar amount of exposure to loss in
connection with the above-referenced matters, it makes accruals as warranted.
Due to evolving remediation technology, changing regulations, possible
third-party contributions, the inherent shortcomings of the estimation process
and other factors, amounts accrued could vary significantly from amounts paid.
Accordingly, it is not possible to estimate a meaningful range of possible
exposure. It is the opinion of the Company's management that the outcome of
these proceedings, individually or in the aggregate, will not have a material
adverse effect on the results of operations or the financial position of the
Company.

NOTE 11 Earnings Per Share

In calculating earnings per share, there were no adjustments to net earnings to
arrive at income for any years presented. The stock options granted June 7,
2002, with total outstanding share commitments of 10,000 at year end, are
antidilutive.

44

NOTE 12 Accrued Expenses and Other Payables

NOTE 13 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 three reportable segments consisting of manufacturing,
recycling, and marketing and distribution. Manufacturing consists of the CMC
steel group's minimills, steel and joist fabrication operations, fence post
manufacturing plants, heat treating, railcar rebuilding and concrete-related
products, as well as Howell Metal Company's copper tube manufacturing facility.
The manufacturing segment's business operates primarily in the southern and
western United States. Recycling consists of the Secondary Metals Processing
Division's scrap processing and sales operations primarily in Texas, Florida and
the southern United States. Marketing and distribution includes both domestic
and international operations for the sales and distribution of both ferrous and
nonferrous metals and other industrial products. The segment's activities
consist only of physical transactions and not speculation.

The Company uses operating profit, profit before tax and return on net assets to
measure segment performance. Intersegment sales are generally priced at
prevailing market prices. Certain corporate administrative expenses are
allocated to segments based upon the nature of the expense. The accounting
policies of the segments are the same as those described in the summary of
significant accounting policies.

45

The following presents information regarding the Company's domestic operations
and operations outside of the United States:

Summarized data for the Company's international operations located outside of
the United States (principally in Europe, Australia and the Far East) are as
follows:

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

46

NOTE 13 Business Segments (Continued):

47

NOTE 14 Restatement of Prior Periods

In August 2002, the Company uncovered a theft and accounting fraud which had
occurred over four years at a rebar fabrication facility in South Carolina. The
total adjustment required to restate the accounting records to their proper
balances was $2.7 million pre-tax. In a second, unrelated incident, the Company
discovered accounting errors related to losses on rebar fabrication and
placement jobs at one facility in California, some of which dated from the
acquisition of the facility in May 2000. The resulting charge was $1.9 million
pre-tax. The South Carolina incident resulted in a $900 thousand pre-tax expense
in fiscal 2002. The remaining $3.7 million pre-tax for both instances was
attributed $885 thousand in 2001, $2.6 million in 2000 and $227 thousand in
1999. All reported periods have been restated. The effects of the restatement
were as follows:

In addition to the above, beginning retained earnings as of September 1, 1999
was reduced by $146 thousand.

48

NOTE 15 Quarterly Financial Data (Unaudited)

Summarized quarterly financial data for fiscal 2002, 2001 and 2000 are as
follows (in thousands except per share data):

The quantities and costs used in calculating cost of goods sold on a quarterly
basis include estimates of the annual LIFO effect. The actual effect cannot be
known until the year end physical inventory is completed and quantity and price
indices are developed. The quarterly cost of goods sold above includes such
estimates. The final determination of inventory quantities and prices resulted
in $1.1 million after-tax expense in the fourth quarter 2002. Fourth quarter
2001 net earnings were not significantly impacted. Fourth quarter 2000 net
earnings decreased $1.2 million after the final determination of quantities and
prices was made.

In recording accruals for workers' compensation expense, management relies on
prior years' experience and information from third party administrators in
making estimates. Results at the end of fiscal year 2002, 2001 and 2000
indicated a decline in the number of claims resulting in a $1.0 million, $2.1
million and $2.6 million reduction, respectively, in the accrual during the
fourth quarters.

Following a revised Court ruling, the Company reduced its litigation accrual by
$2.5 million during the fourth quarter 2001 (see note 10).

49

INDEPENDENT AUDITORS' REPORT

Board of Directors and Stockholders
Commercial Metals Company
Dallas, Texas

We have audited the consolidated balance sheets of Commercial Metals Company and
subsidiaries at August 31, 2002 and 2001, and the related consolidated
statements of earnings, stockholders' equity, and cash flows for each of the
three years in the period ended August 31, 2002. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Commercial Metals Company and
subsidiaries at August 31, 2002 and 2001, and the results of their operations
and their cash flows for each of the three years in the period ended August 31,
2002 in conformity with accounting principles generally accepted in the United
States of America.

As discussed in Note 14, the accompanying 2001 and 2000 financial statements
have been restated.

/s/ DELOITTE & TOUCHE LLP

Dallas, Texas
November 22, 2002

50

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

No reportable event took place.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Some of the information required in response to this item with regard to
directors is incorporated by reference into this annual report from our
definitive proxy statement for the annual meeting of shareholders to be held
January 23, 2003, which will be filed no later than 120 days after the close of
our fiscal year. The following is a listing of employees we believe to be our
"Executive Officers" as of November 11, 2002, as defined under Rule 3b-7 of the
Securities Exchange Act of 1934:

51

Our board of directors, or a subsidiary, usually employs the executive
officers at its first meeting after our annual stockholders meeting. Our
executive officers continue to serve for terms set from time to time by the
board of directors in its discretion.

We have employed all of our executive officers in the positions indicated
above or in positions of similar responsibility for more than five years, except
for Ms. Passmore. We employed Ms. Passmore in April 1999 as Controller. From
January 1998 until April 1999, she was President and CEO of System Health
Providers, Inc., and its Chief Financial Officer from January 1997 until January
1998. Prior to 1997, Ms. Passmore was a consultant and employed as Executive
Director of Financial Services and Controller with Kaiser Foundation Health Plan
of Texas from 1991 to September 1996. Mr. Federle became our Treasurer in April
1999. Mr. Federle has been employed with us since 1977 and our Assistant
Treasurer since 1979. In June 1991, we employed Mr. Larson as our Assistant
Controller. In March 1995, we named Mr. Larson as our Controller, and in April
1999, he was elected Vice President and Chief Financial Officer. As of September
1, 1999, we elected Mr. McClean to the newly created position of President of
the Marketing and Distribution Segment. Mr. McClean has been employed with us
since 1985 and President of the International Division of the Marketing and
Distribution segment since 1993. In March 1999, Mr. Rabin was elected to the
additional position of Chairman of the Board. In June 2002, Marvin Selig,
brother of Clyde P. Selig retired as CMC Steel Group Chief Executive Officer and
Clyde P. Selig was named Chief Executive Officer of the CMC Steel Group in
addition to his existing duties as CMC Steel Group President. Jeffrey H. Selig
is Clyde P. Selig's nephew and the son of Marvin Selig.. There are no other
family relationships among our officers or among the executive officers and
directors.

ITEM 11. EXECUTIVE COMPENSATION

Information required in response to this Item 11 is incorporated by
reference into this annual report from our definitive proxy statement for the
annual meeting of shareholders to be held January 23, 2003. We will file our
definitive proxy statement no later than 120 days after the close of our fiscal
year.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required in response to this Item 12 is incorporated by
reference into this annual report from our definitive proxy statement for the
annual meeting of shareholders to be held January 23, 2003. We will file our
definitive proxy statement no later than 120 days after the close of our fiscal
year.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

To the extent applicable, information required in response to this Item 13
is incorporated by reference into this annual report from our definitive proxy
statement for the annual meeting of shareholders to be held January 23, 2003. We
will file our definitive proxy statement no later than 120 days after the close
of our fiscal year.

ITEM 14. CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures. The term
"disclosure controls and procedures" is defined in Rule 13a-14(c) of the
Securities Exchange Act of 1934, or the Exchange Act. This term refers to the
controls and procedures of a company that are designed to ensure that
information required to be disclosed by a company in the reports that it files
under the Exchange Act is recorded, processed, summarized and reported within
required time periods. Our Chief Executive Officer and our Chief Financial
Officer have evaluated the effectiveness of our disclosure controls and
procedures as of a

52

date within 90 days before the filing of this annual report, and they have
concluded that as of that date, our disclosure controls and procedures were
effective at ensuring that required information will be disclosed on a timely
basis in our reports filed under the Exchange Act.

(b) Changes in Internal Controls. There were no significant changes to
our internal controls or in other factors that could significantly affect our
internal controls subsequent to the date of their evaluation by our Chief
Executive Officer and our Chief Financial Officer, including any corrective
actions with regard to significant deficiencies and material weaknesses.

53

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a) The following documents are filed as a part of this report:

1. All financial statements are included at Item 8 above.

2. Commercial Metals Company and Subsidiaries Consolidated Financial
Statement Schedule

Independent Auditors' Report as to Schedule Valuation and qualifying
accounts (Schedule VIII)

All other schedules have been omitted because they are not applicable,
are not required, or the required information is shown in the financial
statements or notes thereto.

3. The following is a list of the Exhibits required to be filed by Item
601 of Regulation S-K:

(3)(i) - Restated Certificate of Incorporation (Filed as
Exhibit (3)(i) to Commercial Metals' Form 10-K for
the fiscal year ended August 31, 1993 and
incorporated herein by reference).

(3)(i)a - Certificate of Amendment of Restated Certificate of
Incorporation dated February 1, 1994 (Filed as
Exhibit 3(i)a to Commercial Metals' Form 10-K for
the fiscal year ended August 31, 1995, and
incorporated herein by reference).

(3)(i)b - Certificate of Amendment of Restated Certificate of
Incorporation dated February 17, 1995 (Filed as
Exhibit 3(i)b to Commercial Metals' Form 10-K for
the fiscal year ended August 31, 1995, and
incorporated herein by reference).

(3)(i)c - Certificate of Designation, Preferences and Rights
of Series A Preferred Stock (Filed as Exhibit 2 to
Commercial Metals' Form 8-A filed August 3, 1999 and
incorporated herein by reference).

(3)(ii) - By-Laws (Filed as Exhibit (3)(ii) to Commercial
Metals' Form 10-K for the fiscal year ended August
31, 1993 and incorporated herein by reference).

(4)(i)a - Indenture between Commercial Metals and Chase
Manhattan Bank dated as of July 31, 1995 (Filed as
Exhibit 4.1 to Commercial Metals' Registration
Statement No. 33-60809 on July 18, 1995 and
incorporated herein by reference).

(4)(i)b - Rights Agreement dated July 28, 1999 by and between
Commercial Metals and ChaseMellon Shareholder
Services, LLC, as Rights Agent (Filed as Exhibit 1
to Commercial Metals' Form 8-A filed August 3, 1999
and incorporated herein by reference).

54

(10)(i)a - Purchase and Sale Agreement dated June 20, 2001,
between various entities listed on Schedule 1 as
Originators and CMC Receivables, Inc. (Filed as
Exhibit (10)(a) to Commercial Metals' Form 10-Q for
the period ended May 31, 2001, and incorporated
herein by reference).

(10)(i)b - Receivables Purchase Agreement dated June 20, 2001,
among CMC Receivables, Inc., as Seller, Three Rivers
Funding Corporation, as Buyer, and Commercial Metals
Company as Servicer (Filed as Exhibit (10)(b) to
Commercial Metals' Form 10-Q for the period ended
May 31, 2001, and incorporated herein by reference).

(10)(i)c - $45,000,000 3 Year Revolving Credit Agreement dated
as of August 15, 2001 (Filed as Exhibit (10)(i)c to
Commercial Metals' Form 10-K for the fiscal year
ended August 31, 2001, and incorporated hereby by
reference).

(10)(i)d - $129,500,000 Amended and Restated 364-Day Revolving
Credit Agreement dated as of
August 8, 2002...................................... E1 - E68

(10)(iii)a - Employment Agreement of Murray R. McClean as amended
through October 2, 2000 (Filed as Exhibit (10)(iii)
to Commercial Metals' Form 10-K for the fiscal year
ended August 31, 2000, and Incorporated herein by
reference).

(10)(iii)b - Amendment to Employment Agreement of Murray R.
McClean dated March 28, 2001, (Filed as Exhibit
(10)(iii)b to Commercial Metals' Form 10-K for the
fiscal year ended August 31, 2001, and incorporated
herein by reference).

(10)(iii)c - Key Employee Long-Term Performance Plan description
(Filed as Exhibit (10)(iii)c to Commercial Metals'
Form 10-K for the fiscal year ended August 31, 2001,
and incorporated hereby by reference).

(10)(iii)d - Key Employee Annual Incentive Plan description
(Filed as Exhibit (10)(iii)d to Commercial Metals'
Form 10-K for the fiscal year ended August 31, 2001,
and incorporated hereby by reference).

(10)(iii)e - Employment and Consulting Agreement of Marvin Selig
dated as of June 7, 2002............................ E69-72

(21) Subsidiaries of Registrant.......................... E73

(23) Independent Auditors' consent to incorporation by
reference of report dated November 22, 2002,
accompanying the consolidated financial statements
of Commercial Metals Company and subsidiaries for
the year ended August 31, 2002, into previously
filed Registration Statements No. 033-61073, No.
033-61075, 333-27967 and 333-42648 on Form S-8 and
Registration Statements No. 33-60809 and 333-61379
on Form S-3......................................... E74

55

99.1 Certification of Stanley A. Rabin, Chairman of the
Board, President and Chief Executive Officer of
Commercial Metals Company, under Section 906 of the
Sarbanes-Oxley Act of 2002.......................... E75

99.2 Certification of William B. Larson, Vice President
and Chief Financial Officer of Commercial Metals
Company, under Section 906 of the Sarbanes-Oxley Act
of 2002............................................. E76

A Form 8-K was filed on June 13, 2002, under Item 5, announcing Marvin
Selig's retirement effective August 31, 2002 and his resignation from
our board of directors. We also announced Clyde Selig's election as a
director to fill the vacancy created by Marvin Selig's resignation and
Clyde Selig's appointment as President and Chief Executive Officer of
the CMC Steel Group.

56

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

COMMERCIAL METALS COMPANY

/s/ STANLEY A. RABIN
-------------------------------------
By: Stanley A. Rabin
Chairman of the Board, President
and Chief Executive Officer

Date: November 26, 2002

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:

/s/ STANLEY A. RABIN /s/ MOSES FELDMAN
- ----------------------------------- --------------------------------------
Stanley A. Rabin, November 26, 2002 Moses Feldman, November 26, 2002
Chairman of the Board, President Director
and Chief Executive Officer

/s/ A. LEO HOWELL /s/ RALPH E. LOEWENBERG
- -------------------------------- --------------------------------------
A. Leo Howell, November 26, 2002 Ralph E. Loewenberg, November 26, 2002
Director Director

/s/ ANTHONY A. MASSARO /s/ ROBERT D. NEARY
- ------------------------------------- --------------------------------------
Anthony A. Massaro, November 26, 2002 Robert D. Neary, November 26, 2002
Director Director

/s/ DOROTHY G. OWEN /s/ CLYDE P. SELIG
- ------------------------------------- --------------------------------------
Dorothy G. Owen, November 26, 2002 Clyde P. Selig, November 26, 2002
Director Director

/s/ ROBERT R. WOMACK /s/ WILLIAM B. LARSON
- ----------------------------------- --------------------------------------
Robert R. Womack, November 26, 2002 William B. Larson, November 26, 2002
Director Vice President and
Chief Financial Officer

/s/ MALINDA G. PASSMORE
- --------------------------------------
Malinda G. Passmore, November 26, 2002
Controller

57

CERTIFICATION

I, Stanley A. Rabin, certify that:

1. I have reviewed this annual report on Form 10-K of Commercial Metals
Company;

2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this annual report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this annual report;

4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:

a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this annual report is being prepared;

b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this annual report (the "Evaluation Date");
and

c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;

5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent functions):

a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and

6. The registrant's other certifying officer and I have indicated in this
annual report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.

Date: November 26, 2002

/s/ Stanley A. Rabin
------------------------------------
Stanley A. Rabin
Chairman of the Board, President and
Chief Executive Officer

58

CERTIFICATION

I, William B. Larson, certify that:

1. I have reviewed this annual report on Form 10-K of Commercial Metals
Company;

2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this annual report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this annual report;

4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:

a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this annual report is being prepared;

b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this annual report (the "Evaluation Date");
and

c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;

5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent functions):

a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and

6. The registrant's other certifying officer and I have indicated in this
annual report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.

Date: November 26, 2002

/s/ William B. Larson
------------------------
William B. Larson
Vice President and
Chief Financial Officer

59

INDEPENDENT AUDITOR'S REPORT

Board of Directors and Stockholders of
Commercial Metals Company
Dallas, Texas

We have audited the consolidated financial statements of Commercial Metals
Company and subsidiaries as of August 31, 2002 and 2001, and for each of the
three years in the period ended August 31, 2002, and have issued our report
thereon dated November 22, 2002; such financial statements and report are
included in Item 8 herein. Our audits also included the consolidated financial
statement schedule of Commercial Metals Company listed in Item 15. This
consolidated financial statement schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits. In
our opinion, such financial statement schedule, when considered in relation to
the basic consolidated financial statements taken as a whole, presents fairly in
all material respects the information set forth therein.

As discussed in footnote 14, the 2001 and 2000 financial statements have been
restated.

/s/ DELOITTE & TOUCHE LLP

Dallas, Texas
November 22, 2002

SCHEDULE VIII

COMMERCIAL METALS COMPANY AND SUBSIDIARIES

----------

VALUATION AND QUALIFYING ACCOUNTS

----------

YEARS ENDED AUGUST 31, 2002, 2001 AND 2000

----------

(In thousands)

Allowance for collection
losses deducted from notes
and accounts receivable:

(A) Recoveries of accounts written off and acquired allowance.

(B) Write-off of uncollectible accounts.

INDEX TO EXHIBITS

(10)(i)a - Purchase and Sale Agreement dated June 20, 2001, between
various entities listed on Schedule 1 as Originators and
CMC Receivables, Inc. (Filed as Exhibit (10)(a) to
Commercial Metals' Form 10-Q for the period ended May 31,
2001, and incorporated herein by reference).

(10)(i)b - Receivables Purchase Agreement dated June 20, 2001, among
CMC Receivables, Inc., as Seller, Three Rivers Funding
Corporation, as Buyer, and Commercial Metals Company as
Servicer (Filed as Exhibit (10)(b) to Commercial Metals'
Form 10-Q for the period ended May 31, 2001, and
incorporated herein by reference).

(10)(i)c - $45,000,000 3 Year Revolving Credit Agreement dated as of
August 15, 2001 (Filed as Exhibit (10)(i)c to Commercial
Metals' Form 10-K for the fiscal year ended August 31,
2001, and incorporated hereby by reference).

(10)(i)d - $129,500,000 Amended and Restated 364-Day Revolving Credit
Agreement dated as of August 8, 2002 ...................... E1 - E68

(10)(iii)a - Employment Agreement of Murray R. McClean as amended
through October 2, 2000 (Filed as Exhibit (10)(iii) to
Commercial Metals' Form 10-K for the fiscal year ended
August 31, 2000, and Incorporated herein by reference).

(10)(iii)b - Amendment to Employment Agreement of Murray R. McClean
dated March 28, 2001, (Filed as Exhibit (10)(iii)b to
Commercial Metals' Form 10-K for the fiscal year ended
August 31, 2001, and incorporated herein by reference).

(10)(iii)c - Key Employee Long-Term Performance Plan description (Filed
as Exhibit (10)(iii)c to Commercial Metals' Form 10-K for
the fiscal year ended August 31, 2001, and incorporated
hereby by reference).

(10)(iii)d - Key Employee Annual Incentive Plan description (Filed as
Exhibit (10)(iii)d to Commercial Metals' Form 10-K for the
fiscal year ended August 31, 2001, and incorporated hereby
by reference).

(10)(iii)e - Employment and Consulting Agreement of Marvin Selig dated
as of June 7, 2002......................................... E69-72

(21) Subsidiaries of Registrant................................. E73

(23) Independent Auditors' consent to incorporation by
reference of report dated November 22, 2002, accompanying
the consolidated financial statements of Commercial Metals
Company and subsidiaries for the year ended August 31,
2002, into previously filed Registration Statements No.
033-61073, No. 033-61075, 333-27967 and 333-42648 on Form
S-8 and Registration Statements No. 33-60809 and 333-61379
on Form S-3................................................ E74

99.1 Certification of Stanley A. Rabin, Chairman of the
Board, President and Chief Executive Officer of
Commercial Metals Company, under Section 906 of the
Sarbanes-Oxley Act of
2002....................................................... E75

99.2 Certification of William B. Larson, Vice President
and Chief Financial Officer of Commercial Metals
Company, under Section 906 of the Sarbanes-Oxley Act
of 2002.................................................... E76