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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

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, 1997

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:



NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- ---------------------

Common Stock, $5 par value New York Stock Exchange


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. [ ]

THE AGGREGATE MARKET VALUE OF THE COMMON STOCK ON NOVEMBER 24, 1997, HELD BY
NON-AFFILIATES OF THE REGISTRANT BASED ON THE CLOSING PRICE OF $33.0625 PER
SHARE ON NOVEMBER 24, 1997, ON THE NEW YORK STOCK EXCHANGE WAS APPROXIMATELY
$449,000,000.

INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE REGISTRANT'S CLASSES OF
COMMON STOCK, AS OF NOVEMBER 24, 1997: COMMON STOCK, $5.00 PAR -- 14,826,324.

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 22, 1998 -- PART III.
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PART I

ITEM 1. BUSINESS

Commercial Metals Company was incorporated in 1946 in Delaware as a
successor to a secondary metals recycling business in existence since
approximately 1915. The Company maintains executive offices at 7800 Stemmons
Freeway, Dallas, Texas 75247 (telephone 214/689-4300). The terms "Company" or
"registrant" as used herein include Commercial Metals Company and its
consolidated subsidiaries. The Company's fiscal year ends August 31 and all
references to years refer to the fiscal year ended August 31 of that year
unless otherwise noted.

The Company considers its businesses to be organized into three
segments - (i) Manufacturing, (ii) Recycling and (iii) Marketing and Trading.
The Company's activities are primarily concerned with metals related
activities. Financial information for the last three fiscal years concerning
the segments is incorporated herein by reference from "Note 12 Business
Segments," of the Notes to Consolidated Financial Statements at Part II, Item
8.

In November, 1994, the Company acquired Owen Steel Company, Inc. and
affiliated companies (collectively "Owen") headquartered in Columbia, South
Carolina. The Company paid approximately $50 million, one-half in cash and the
balance by issuance of 932,301 shares of the Company's Common Stock to certain
selling shareholders. The Company also provided funds for the retirement of
approximately $32 million of Owen debt at the Closing. The purchase price was
increased by approximately $3.2 million, paid one-half in cash and one-half
with 59,410 shares of the Company's Common Stock in October, 1995, as a result
of a post closing net worth adjustment and may be subject to further
post-closing adjustments (See Item 3. Legal Proceedings). Owen's successor
company, SMI-Owen Steel Company, Inc. and the former Owen affiliates operate as
a part of the Manufacturing Segment's CMC Steel Group.


THE MANUFACTURING SEGMENT

The Manufacturing segment is the registrant's dominant and most
rapidly expanding segment in terms of assets employed, capital expenditures,
operating profit and number of employees. It consists of two entities, the CMC
Steel Group and the Howell Metal Company subsidiary, a manufacturer of copper
tubing. The Steel Group is by far the more significant entity in this segment
with subsidiaries operating four steel minimills, twenty steel fabrication
plants, four steel joist manufacturing facilities, four steel fence post
manufacturing plants, six metals recycling plants, two railcar rebuilding
facilities and thirteen warehouse stores which sell supplies and equipment to
the concrete installation and construction trade. At year end the operations
of Commercial Metals Railroad Salvage Company, a purchaser and dismantler of
abandoned rail lines were transferred from the Recycling segment to the Steel
Group to improve coordination with the Steel Group's smallest mill which
utilizes salvaged rail for rerolling.

The Company endeavors to operate all four minimills at full capacity
in order to minimize product costs. Increases in capacity and productivity are
continuously emphasized through both operating and capital improvements. The
steel minimill business is capital intensive with substantial capital
expenditures required on a regular basis to remain competitive as a low cost
producer. Over the past three fiscal years, approximately $108 million or 68%
of the Company's total capital expenditures have been for minimill projects,
not including the Owen acquisition cost. This emphasis on productivity
improvements is






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reflected in a generally increased number of tons of steel melted, rolled and
shipped from the minimills during each of the last three years as follows:



1995 (1) 1996 1997
--------- -------- --------

Tons melted 1,532,000 1,561,000 1,755,000

Tons Rolled 1,487,000 1,477,000 1,581,000

Tons Shipped 1,531,000 1,730,000 1,926,000


(1) 1995 includes 283,000 tons melted, 213,000 tons rolled and 225,000
tons shipped following the Owen minimill acquisition in November,
1994.

The Company's largest steel minimill, operated by Structural Metals,
Inc. ("SMI Texas") is located at Seguin, Texas, near San Antonio. SMI Steel,
Inc. ("SMI Alabama"), a steel minimill in Birmingham, Alabama, was acquired in
1983. The steel minimill acquired in the Owen acquisition is located at Cayce,
South Carolina. This mill is now known as SMI Steel South Carolina ("SMI South
Carolina"). A fourth, much smaller mill, has been in operation since 1987 and
is located near Magnolia, Arkansas ("SMI Arkansas").

The SMI Texas, Alabama, and South Carolina mills consist of melt shops
with electric arc furnaces that melt the steel scrap, continuous casting
facilities to shape the molten metal into billets, reheating furnaces, rolling
mills, mechanical cooling beds, finishing facilities and supporting facilities.
The mills utilize both a Company-owned fleet of trucks and private haulers to
transport finished products to customers and Company-owned fabricating shops.
Mill capacity at SMI Texas is approximately 800,000 tons per year melted and
750,000 rolled. SMI Alabama's annual capacity is approximately 550,000 tons
melted and 450,000 rolled and SMI South Carolina's annual capacity is
approximately 425,000 tons melted and 325,000 tons rolled.


SMI Texas manufactures steel reinforcing bars, angles, rounds,
channels, flats, and special sections used primarily in highways, reinforced
concrete structures and manufacturing. SMI Texas sells primarily to the
construction, service center, energy, petrochemical, and original equipment
manufacturing industries. Its primary markets are located in Texas, Louisiana,
Arkansas and Oklahoma although products are shipped to approximately 30 states
and Mexico. An October, 1995, fire at SMI Texas destroyed key electrical
equipment used in melt shop operations. Interim measures have enabled melting
operations to continue with some restraints pending full replacement of the
equipment in early fiscal 1998. Despite this condition, 802,000 tons were melted
during 1997 compared to 764,000 the prior year. A record 707,000 tons were
rolled, up 7,000 from 1996.

A substantial program to modernize and improve productivity at SMI
Alabama after its 1983 acquisition has resulted in approximately $113 million of
capital expenditures through 1997. During 1997 the melt shop recorded record
production of 532,000 tons. SMI Alabama manufactures primarily larger size
products than SMI Texas such as mid-size structural including angles, channels,
up to eight inch wide flange beams and special bar quality rounds and flats and
rolled 418,000 tons in 1997. Customers include primarily service centers as
well as the construction, manufacturing, and fabricating industries in the
primary market areas of Alabama, Georgia, Tennessee, North and South Carolina,
and Mississippi.

Facilities at SMI South Carolina are similar but on a generally smaller
capacity scale than the SMI Texas and SMI Alabama mills. SMI South Carolina
manufactures primarily steel reinforcing bars with limited but increasing
production of angles, rounds and squares. Its primary market area includes the
Southeast and mid-Atlantic area south through Florida and north into New
England. During 1997 SMI South Carolina melted 420,000 tons and rolled 316,000
tons. In July, 1997, the company announced a $70 million capital expenditure,
the largest single project in the Company's history, to replace SMI South
Carolina's existing rolling mill with a new state-of-the-art rolling mill.
Construction began in July and is anticipated to be finished in February, 1999.
The new rolling mill will have a capacity of approximately 700,000 tons with a
substantially broader product line.






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The primary raw material for SMI Texas, Alabama and South Carolina is
secondary (scrap) ferrous metal purchased primarily from suppliers generally
within a 300 mile radius of each mill. A portion of the ferrous raw material,
generally less than half, is supplied from Company owned recycling plants. The
supply of scrap is believed to be adequate to meet future needs but has
historically been subject to significant price fluctuations. All three
minimills also consume large amounts of electricity and natural gas, both of
which are believed to be readily available at competitive prices.

No melting facilities are located at SMI Arkansas since this mill
utilizes as its raw material rail salvaged from abandoned railroads for
rerolling and, on occasion, billets from Company minimills or other suppliers.
The rail or billets are heated in a reheat furnace and processed on a rolling
mill and finished at facilities similar to, but on a smaller scale, the other
mills. SMI Arkansas' finished product is primarily metal fence post stock,
small diameter reinforcing bar and sign posts with some high quality round and
flat products being rolled. Fence post stock is fabricated into metal fence
posts at Company owned facilities at the Magnolia mill site, San Marcos, Texas,
Brigham City, Utah, and West Columbia, South Carolina, which started production
during 1996. Because of this mill's lack of melting capacity, it is dependent
on an adequate supply of competitively priced billets or used rail, the
availability of which fluctuates with the pace of railroad abandonments, rate of
rail replacement by railroads and demand for used rail from domestic and foreign
rail rerolling mills. Capacity at SMI Arkansas is approximately 150,000 tons
rolled per year.

The Steel Group's processing facilities are engaged in the fabrication
of reinforcing and structural steel, steel warehousing, joist manufacturing,
fence post manufacturing and railcar repair and rebuilding. Steel fabrication
capacity now exceeds 700,000 tons. Steel for fabrication may be obtained from
unrelated vendors as well as Company owned mills. Fabrication activities are
conducted at various locations in Texas in the cities of Beaumont, Buda (near
Austin), Corpus Christi, Dallas, Houston, San Marcos, Seguin, Victoria, and
Waco, as well as Baton Rouge; Slidell, Louisiana; Magnolia and Hope, Arkansas;
Brigham City, Utah; Starke, Florida and Fallon, Nevada. The Owen acquisition
added fabrication facilities in Cayce, Columbia, and Taylors, South Carolina;
Whitehouse, Florida; Lawrenceville, Georgia; Gastonia, North Carolina and
Fredericksburg, Virginia. Fabricated steel products are used primarily in the
construction of commercial and non-commercial buildings, industrial plants,
power plants, highways, arenas, stadiums, and dams. Sales of fabricated steel
are generally made in response to bid solicitation from construction contractors
or owners on a competitive bid basis and less frequently on a negotiated basis.
The SMI Owen structural steel operations have historically been active in large
projects such as high rise office towers, stadiums, convention centers and
hospitals.

Safety Railway Service, with locations in Victoria, Texas, and Tulsa,
Oklahoma, repairs, rebuilds and provides custom maintenance with some
manufacturing of railroad freight cars owned by railroad companies and private
industry. That work is obtained primarily on a bid and contract basis and may
include maintenance of the cars. Secondary metals recycling plants in Austin,
Texas, and Cayce, South Carolina, each with two smaller feeder facilities
nearby operate as part of the Steel Group due to the predominance of secondary
ferrous metals sales to the nearby SMI minimills. The Cayce recycling plant
installed and began operating a new automobile shredder during 1997 at a cost
of approximately $5





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million. These recycling plants have an aggregate annual capacity of
approximately 350,000 tons. The joist manufacturing facility, SMI Joist
Company, headquartered in Hope, Arkansas, manufactures steel joists and decking
for roof supports using steel obtained primarily from the Steel Group's
minimills. SMI Joist expanded operations with the Owen acquisition, obtaining
smaller joist plants in Starke, Florida and Cayce, South Carolina. During 1997
SMI Joist Nevada located in Fallon, Nevada, started production of joists to
supply western markets. Joist consumers are typically construction contractors
or large chain store owners. Joists are generally made to order and sales,
which may include custom design and fabrication, are primarily obtained on a
competitive bid basis.

The Company sells concrete related supplies including the sale or
rental of equipment to the concrete installation trade at eleven warehouse
locations in Texas. This business operates under the Shepler's name. The Owen
acquisition added a similar but smaller operation which emphasizes a broader
industrial product supply in Columbia, South Carolina and a second location
opened in Cayce, South Carolina during 1996.

In January, 1997, the operating assets of Allegheny Heat Treating,
Inc., of Chicora, Pennsylvania, were purchased. AHT, Inc. is the Steel Group's
entry into the steel heat treating business. AHT works closely with SMI
Alabama and other mills that sell specialized heat treated steel for customer
specific use, primarily in original or special equipment manufacturing.

The copper tube minimill operated by Howell Metal Company is located
in New Market, Virginia. It manufactures copper water, air conditioning and
refrigeration tubing in straight lengths and coils for use in commercial,
industrial and residential construction. Its customers, largely equipment
manufacturers and wholesale plumbing supply firms, are located primarily east
of the Mississippi river. High quality copper scrap supplemented occasionally
by virgin copper ingot, is the raw material used in the melting and casting of
billets. The scrap is readily available subject to rapid price fluctuations
generally related to the price or supply of virgin copper. A small portion of
the scrap is supplied by the Company's metal recycling yards. Howell's
facilities include melting, casting, piercing, extruding, drawing, finishing
and other departments. Capacity is approximately 50,000,000 pounds per year.
Demand for copper tube is dependent mainly on the level of new residential
construction and renovation.

No single customer purchases ten percent or more of the manufacturing
segment's production. The nature of certain stock products sold in the
manufacturing segment are, with the exception of the steel fabrication and
joist jobs, not characteristic of a long lead time order cycle. Orders for
other stock products are generally filled promptly from inventory or near term
production. As a result the Company does not believe backlog levels are a
significant factor in evaluating most operations. Backlog in the CMC Steel
Group at 1997 year-end was approximately $261,506,000. Backlog at 1996
year-end was approximately $195,779,000.


THE RECYCLING SEGMENT

The Recycling segment is engaged in processing secondary (scrap)
metals for further recycling into new metal products. This segment consists of
the Company's 33 secondary metals processing divisions's recycling plants
(excluding six such facilities operated by the CMC Steel Group as a part of the
Manufacturing segment). During the past year the secondary metals division
purchased operating assets of a facility in Odessa, Texas, and two small feeder
yards in Edinburg, Texas, and Palm Bay, Florida.

The Company's metal recycling plants purchase ferrous and nonferrous
secondary or scrap metals,





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processed and unprocessed, in a variety of forms. Sources of metals 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. Numerous small secondary metals collection firms are also, in
the aggregate, major suppliers.

These plants processed and shipped approximately 1,367,000 tons of
scrap metal during 1997, down slightly from 1,397,000 the prior year. Ferrous
metals comprised the largest tonnage of metals recycled at approximately
1,155,000 tons approximately 41,000 tons less than the prior year, followed by
approximately 212,000 tons compared to 199,000 in 1996, of non-ferrous metals,
primarily aluminum, copper and stainless steel. The Company also purchased and
sold an additional 213,000 tons of metals processed by other metal recycling
facilities. With the exception of precious metals, practically all metals
capable of being recycled are processed by these plants. The CMC Steel Group's
six metals recycling facilities processed and shipped an additional 344,000
tons of primarily ferrous scrap metal during 1997.

The metal recycling plants generally consist of an office and
warehouse building equipped with specialized equipment for processing both
ferrous and nonferrous metal. Most of the larger plants are equipped with
scales, shears, baling presses, briquetting machines, conveyors and magnetic
separators. Two locations have extensive equipment for mechanically processing
large quantities of insulated wire to segregate metallic content. All ferrous
processing centers are equipped with either presses, shredders or hydraulic
shears, locomotive and crawler cranes and railway tracks to facilitate shipping
and receiving. The segment operates five large shredding machines capable of
pulverizing obsolete automobiles or other ferrous metal scrap and has commenced
installation of a sixth shredder expected to be operational in 1998 in
Jacksonville, Florida. Two additional shredders are operated by the
Manufacturing segment's recycling facilities. A typical recycling plant
includes several acres of land used for receiving, sorting, processing and
storage of metals. Several recycling plants devote a small portion of their
site or a nearby location for display and sales of metal products considered
reusable for their original purpose.

Recycled metals are sold 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. Sales of material processed through the
Company's recycling plants are coordinated through the recycling segment's
office in Dallas. Export sales are negotiated through the Company's network of
foreign offices as well as the Dallas office.

No single source of material or customer of the Recycling segment
represents a material part of purchases or revenues. The 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 often have the capability to utilize
primary or "virgin" ingot processed by mining companies interchangeably with
secondary metals. The prices for nonferrous scrap metals are normally closely
related to but generally less than, the prices of the primary or "virgin" metal
producers. Ferrous scrap is the primary raw material for electric arc furnaces
such as those operated by the Company's steel minimills. Relatively high
prices and the need for low residual elements in the melting process have
recently caused some minimills to supplement purchases of scrap metal with
direct reduced iron and pig iron for certain product lines.



THE MARKETING AND TRADING SEGMENT


The Marketing and Trading segment buys and sells primary and secondary
metals and other





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industrial products through a network of trading offices located around
the globe. Steel, nonferrous metals, specialty metals, chemicals, industrial
minerals, ores, concentrates, ferroalloys, and other basic industrial materials
are purchased primarily from producers in domestic and foreign markets. On
occasion these materials are purchased from trading companies or industrial
consumers with surplus supplies. Long-term contracts, spot market purchases
and trading or barter transactions are all utilized to obtain materials. A
large portion of these transactions involve fabricated semi-finished or
finished product.

Customers for these materials include industrial concerns such as the
steel, nonferrous metals, metal fabrication, chemical, refractory and
transportation sectors. Sales are generally made directly to consumers through
and with coordination of offices in Dallas; New York City; Englewood Cliffs, New
Jersey; Los Angeles; Hurstville near Sydney, Australia; Singapore; Zug,
Switzerland; Hong Kong, and Surrey, United Kingdom. During 1997 the Company
closed the Tokyo office, now utilizing an exclusive agent, and opened offices in
Sandbach, United Kingdom and Bergisch Gladbach, Germany. The Company also
maintains representative offices in Bangkok, Sao Paulo, Seoul, and Beijing, as
well as agents in other significant international markets. These offices form
a network for the exchange of information on the materials marketed by the
Company as well as servicing sources of supply and purchasers. In most
transactions the Company acts as principal and often as a marketing
representative. The Company utilizes agents when appropriate and occasionally
acts as broker. The Company participates in transactions in practically all
major markets of the world where trade by American-owned companies is permitted.

This segment focuses on the marketing of physical products as
contrasted to traders of commodity futures contracts who frequently do not take
delivery of the commodity. Sophisticated global communications and the
development of easily accessible, although not always accurate, quoted market
prices for many products has resulted in the Company emphasizing creative
service functions for both sellers and buyers. Actual physical market pricing
and trend information, as contrasted with sometimes more speculative metal
exchange 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 are examples of the services offered. The Company attempts to
limit its exposure to price fluctuations by offsetting purchases with concurrent
sales and entering into foreign exchange contracts as hedges of trade
receivables and payables denominated in foreign currencies. The Company does
not, as a matter of policy, speculate on changes in the markets and hedges only
firm commitments not anticipated transactions. During the past year over 1.4
million tons of steel products were sold by the Marketing and Trading segment.
The Zug office of CMC Trading AG consummated a trade financing steel supply
contract with Essar Steel Ltd. of Hazira, India, to market over $100 million of
steel products. The Australian operations maintain warehousing facilities for
just in time delivery of steel and industrial products and expanded into heat
treating services for certain steel products during 1997.



COMPETITION

The Company's steel manufacturing, steel fabricating, and copper tube
manufacturing businesses compete with regional, national and foreign
manufacturers and fabricators of steel and copper. Price, quality and service
are the primary methods of competition. The Company does not produce a
significant percentage of the total national output of these products compared
with its competitors but is considered a substantial supplier in the markets
near its facilities. The large job structural steel capacity and expertise





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of SMI Owen enables the Company to compete throughout the United States for
large structural steel projects. SMI Joist is believed to be the second largest
manufacturer of joist in the United States although significantly smaller than
the largest joist supplier.

The Company believes the Recycling segment is among the larger
entities recycling nonferrous secondary metals and is also a major regional
processor of ferrous scrap. The past year brought active consolidation in the
scrap processing industry with aggressively priced acquisitions of significant
operations by several relatively new industry members. The secondary metals
business is subject to cyclical fluctuations depending upon the availability
and price of unprocessed scrap metal and the demand in steel and nonferrous
metals consuming industries. The Company will continue with selective
acquisitions at prices consistent with the cyclical nature of the metals
recycling industry.

All phases of the Company's marketing and trading business are highly
competitive. Many of the marketing and trading segment's products are standard
commodity items. The principal elements of competition are price, quality,
reliability, financing options, and additional services. This segment competes
with other domestic and foreign trading companies, some of which are larger and
may have access to greater financial resources or be able to pursue business
without regard for the laws and regulations governing the conduct of
corporations subject to the jurisdiction of the United States. The Company
also competes with industrial consumers who purchase directly from suppliers
and importers and manufacturers of semi-finished ferrous and nonferrous
products.



ENVIRONMENTAL MATTERS

Compliance with environmental laws and regulations is a significant
factor in the Company's business. The Company is subject to local, state,
federal and supranational environmental laws and regulations concerning, among
other matters, solid waste disposal, air emissions, waste and stormwater
effluent and disposal and employee health. The Company's manufacturing and
recycling operations produce significant amounts of by-products, some of which
are handled as industrial waste or hazardous waste. For example, the electric
arc furnace ("EAF") dust generated by the Company's minimills is classified as
a hazardous waste by the Environmental Protection Agency (EPA) because of lead,
cadmium and chromium content and requires special handling and recycling for
recovery of zinc or disposal. Additionally the Company's scrap metal recycling
facilities operate seven shredders for which the primary feed materials are
automobile hulks and obsolete household appliances. Approximately twenty
percent (20%) of the weight of an automobile hulk consists of material
(shredder fluff) which remains after the segregation of ferrous and saleable
non-ferrous metals. Federal environmental regulations require shredder fluff
to pass a toxic leaching test to avoid classification as a hazardous waste.
The Company endeavors to have hazardous contaminants removed from the feed
material prior to shredding and as a result the Company believes the shredder
fluff generated is properly not considered a hazardous waste. Should the laws,
regulations or testing methods change with regard to EAF dust processing or
shredder fluff disposal, the Company may incur additional significant
expenditures. To date, the Company has not experienced difficulty in
contracting for recycling of EAF dust or disposing of shredder fluff in
municipal or private landfills.

The Company may also be required from time to time to clean up or take
certain remediation action with regard to sites formerly used in connection
with its operations. Furthermore, the Company may be required to pay for a
portion of the costs of clean up or remediation at sites the Company never
owned or on which it never operated if it is found to have arranged for
treatment or disposal of hazardous





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substances on the sites. (See Item 3. Legal Proceedings). The Company has
been named a potentially responsible party (PRP) at several Superfund sites
because the EPA contends that the Company and other PRP scrap dealers are
liable for the cleanup of those sites solely as a result of having sold scrap
metal to unrelated manufacturers for recycling as a raw material in the
manufacture of new products. The Company's position is that an arms length
sale of valuable scrap metal for use as a raw material in a manufacturing
process over which the Company exercises no control should not, contrary to
EPA's assertion, constitute "an arrangement for disposal or treatment of
hazardous substances" within the meaning of federal law. If the EPA's position
is consistently upheld by the courts and no clarification or amendment of the
law is provided by legislative bodies, the Company believes the possible
liability arising from the sale of secondary metals may reduce recycling rates
for metals and other recyclable materials in general. In particular, the
Company believes that sellers of secondary or recycled metals could be at
material disadvantage compared to sellers of "virgin" ingot from mining
operations because the EPA's position apparently excludes suppliers of virgin
metals with the same levels of hazardous substances from liability for sales of
those materials to the same manufacturers for use, often interchangeably with
secondary metals, in the same manufacturing process. The Company believes this
result is contrary to public policy objectives and federal and state
legislation encouraging recycling and promoting the use of recycled materials.

New federal, state and local laws, regulations and changing
interpretations, together with uncertainty regarding adequate control levels,
testing and sampling procedures, new pollution control technology and cost
benefit analysis based on market conditions are all factors which impact the
Company's future expenditures to comply with environmental requirements. It is
not possible to predict the total amount of capital expenditures or increases
in operating costs or other expenses or whether such costs can be passed on to
customers through product price increases. During 1997, the Company incurred
environmental costs including disposal, permit, license fees, tests, studies,
remediation, consultant fees and environmental personnel expense of
approximately $10.1 million. In addition the Company estimates that
approximately $4.6 million of 1997 capital expenditures were for environmental
projects. The Company believes that it is in material compliance with
currently applicable environmental laws and regulations and does not presently
anticipate material capital expenditures for new environmental control
facilities during 1998 other than the addition of a new baghouse at SMI Texas
at an estimated cost of approximately $6 million.


EMPLOYEES

As of October, 1997, the Company had approximately 7,150 employees.
Approximately 5,753 were employed by the manufacturing segment, 1,075 by the
recycling segment, 259 by the marketing and trading segment, 37 in general
corporate management and administration with 26 employees providing service
functions for divisions and subsidiaries. Production employees at one metals
recycling plant are represented by a union for collective bargaining. The
Company believes that its labor relations are generally good to excellent and
its work force highly motivated.




ITEM 2. PROPERTIES

The SMI Texas steel minimill is located on approximately 600 acres of
land owned by the Company. Facilities including buildings occupying
approximately 745,000 square feet, are used for





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manufacturing, storage, office and related uses. SMI Alabama's steel mill in
Birmingham is located on approximately 35 acres with buildings occupying
approximately 435,000 square feet used for manufacturing, storage, office and
related use. The SMI South Carolina mill in Cayce, South Carolina is located on
approximately 62 acres, all owned, with buildings occupying approximately
360,000 square feet. The SMI Arkansas facility at Magnolia is located on
approximately 113 acres with buildings occupying approximately 187,000 square
feet. Approximately 30 acres of the Alabama mill property and all Arkansas
mill property is leased in conjunction with revenue bond financing and may be
purchased by the Company at the termination of the leases for a nominal sum.
The steel fabricating operations including the fabrication plants, fence post
and joist operations own approximately 800 acres of land and lease
approximately 50 acres of land at various locations in Texas, Louisiana,
Arkansas, Utah, South Carolina, Florida, Virginia, Georgia, North Carolina and
Nevada. Howell Metal owns approximately 21 acres of land with buildings
occupying about 228,000 square feet in New Market, Virginia.

The Company's recycling plants occupy in the aggregate approximately
400 acres owned by the Company located at Austin, Beaumont, Dallas, Galveston,
Houston, Lubbock, Midland, Odessa, Victoria and Vinton, all in Texas; as well
as the Jacksonville, Lake City, Orlando, and Tampa, Florida; and Shreveport,
Louisiana; Chattanooga, Tennessee; Springfield, Missouri; and Burlington, North
Carolina plants. It leases the real estate at Clute, Edinburg, and
Laredo,Texas; Ocala, Port Sutton (Tampa) and Casselberry, Florida; East Ridge,
Tennessee. The smaller of two locations at Beaumont and Victoria, Texas, and
Shreveport, Louisiana, are leased. The Fort Worth and Corpus Christi recycling
plants are partially owned and partially leased. Most small feeder yard
locations are leased.

The corporate headquarters, all domestic marketing and trading offices
and all foreign offices occupy leased premises.

The leases on the leased properties described above will expire on
various dates within the next ten years. Several of the leases have renewal
options and the Company has had little difficulty in renewing such leases as
they expire. The minimum annual rental obligation of the Company for real
estate operating leases in effect at August 31, 1997, to be paid during fiscal
1998 is approximately $3,836,000. The Company also leases a portion of the
equipment used in its plants. The minimum annual rental obligation of the
Company for equipment operating leases in effect at August 31, 1997, to be paid
during fiscal 1998, is approximately $3,225,000.


ITEM 3. LEGAL PROCEEDINGS

As of August 31, 1997, the Company or its affiliates has received
notices from the United States Environmental Protection Agency (EPA) or state
agency with similar responsibility that the Company and numerous other parties
are considered potentially responsible parties (a PRP) and may be obligated
under the Comprehensive Environmental Response Compensation and Liability Act
of 1980 (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 thirteen locations. The Company is
contesting or intends to contest its designation as a PRP with regard to
several sites, while at other sites the Company is participating with other
named PRPs in agreements or negotiations expected to result in agreements to
remediate the sites. The locations, none of which involve real estate ever
owned or on which operations were conducted by the Company, are commonly
referred to by the EPA or state agency as the Peak Oil Site (Tampa, FL), the
Metcoa Site (Pulaski, PA), the NL Industries/Taracorp Site (Granite City, IL),
the Sapp Battery Site (Cottondale, Florida), the Interstate Lead Company
("ILCO") Site (Leeds, Alabama), the Poly-Cycle Industries Site (Techula,
Texas), the Taylor Road Site (Tampa, Florida), the





9
11
Jensen Drive Site (Houston, TX), the Houston Lead Site (Houston, TX), the
SoGreen/Parramore Site (Tifton, GA), the Stoller Site (Jericho, SC), the RSR
Corporation Site (Dallas, TX), and the Sandoval Zinc Company Site (Marion
County, IL). The Company has periodically received information requests with
regard to other sites which are apparently under consideration by the EPA as
existing or potential CERCLA clean-up sites. It is not known if any demand
will ultimately be made against the Company as a result of those inquiries.

The EPA has notified the Company and other alleged PRPs that under
Sec. 106 of CERCLA it could be subject to a maximum penalty fine of $25,000 per
day and the imposition of treble damages if they refused to clean up the Peak
Oil, Sapp Battery, NL/Taracorp, SoGreen/Parramore and Stoller sites as ordered
by the EPA. The Company is presently participating in a PRP organization at
the Peak Oil, Sapp Battery, SoGreen/Parramore and Stoller sites, although
reserving the right to contest its PRP status, and does not believe that the
EPA will pursue any fine against it so long as it continues to participate in
the PRP groups. The Company is evaluating a de minimis settlement offer at the
NL/Taracorp Site and believes it has adequate defenses to any attempt by the
EPA to impose fines in that matter.

CMC Oil Company (CMC Oil), a wholly-owned subsidiary which has been
inactive since 1985, is subject to a final judgment resulting from an order
entered in 1993 by the Federal Energy Regulatory Commission (the "FERC Order").
Judgment upholding the FERC Order was entered by Federal District Court in
November, 1994 and affirmed by the Court of Appeals in November, 1995. The
FERC Order found CMC Oil liable for overcharges constituting violations of
crude oil reseller regulations from December, 1977 to January, 1979, in joint
venture transactions with RFB Petroleum, Inc. The overcharges total
approximately $1,330,000 plus interest from the transaction dates calculated
under the Department of Energy's interest rate policy to the date of the
District Court judgment with interest thereafter at 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, estimated, including interest, at
approximately $6.4 million as of August 31, 1997. No claim has ever been
asserted against Commercial Metals Company arising out of the CMC Oil
litigation. Commercial Metals Company will vigorously contest liability should
any such claim be asserted.

On April 30, 1996, the Company and its subsidiary SMI - Owen Steel
Company, Inc. (SMI-Owen) filed a lawsuit seeking to recover approximately $2.4
million from an escrow fund created with a portion of the purchase price in
connection with the Company's November, 1994, acquisition of Owen Steel
Company, Inc. and affiliates (Owen Steel). The lawsuit seeks recovery of part
of a payment made by SMI-Owen to settle a claim in connection with a steel
supply and erection contract entered into prior to the acquisition by the
predecessor of SMI-Owen. The Company contends the claim was based on events
which occurred prior to the acquisition, and the Company is entitled to
reimbursement from the former Owen Steel stockholders for the claim settlement
under the terms of the escrow agreement. The Complaint alleges breach of
contract, breach of the covenant of good faith and fair dealing and seeks a
declaratory judgment and damages. Dorothy G. Owen, a director of the Company
and former stockholder of Owen Steel is one of four designated representatives
of former Owen Steel stockholders. The four representatives have filed an
Answer and Counterclaim denying the material allegations of the Company,
alleging various defenses and setting forth counterclaims for specific
performance, breach of contract, breach of fiduciary duty, breach of the
covenant of good faith and fair dealing and seeking a declaratory judgment and
unspecified actual and punitive damages. The Company has notified the
representatives of the former Owen Steel stockholders and the escrow agent of
additional claims against the escrow fund totaling approximately $3 million.
Based on responses received to date, the Company believes the representatives
of the former Owen Steel stockholders dispute liability as to all of these
claims which the Company will pursue in the lawsuit.





10
12
While the Company is unable to estimate the ultimate dollar amount of
exposure to loss in connection with the above-described 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, it is the opinion of the Company's management 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 the business or the consolidated financial position of the Company.



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 the Company's common stock and cash dividends
paid for the past two fiscal years.





Price Range
1997 of Common Stock
Fiscal --------------- Cash
Quarter High Low Dividends
- -------------------------------------------------------------------------------------

1ST $33 1/2 $29 5/8 13c.
2ND 30 28 13c.
3RD 30 3/8 27 1/8 13c.
4TH 32 1/2 28 3/4 13c.







Price Range
1996 of Common Stock
Fiscal --------------- Cash
Quarter High Low Dividends
- ---------------------------------------------------------------------------------------

1ST $ 28 5/8 $ 23 1/2 12c.
2ND 27 1/4 23 12c.
3RD 32 3/8 26 1/2 12c.
4TH 33 1/4 29 7/8 12c.






11
13
Since August 3, 1982, the Company's common stock has been listed and
traded on the New York Stock Exchange. Prior to that date and since 1959 the
Company's common stock was traded on the American Stock Exchange. The number
of shareholders of record of the registrant's common stock at November 14,
1997, was approximately 2,591.



ITEM 6. SELECTED FINANCIAL DATA

The table below sets forth a summary of selected consolidated
financial information of the Company for the periods indicated:




FOR THE YEARS ENDED AUGUST 31,
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)


Net Sales 2,248,267 2,310,213 2,107,426 1,657,810 1,558,349

Net Earnings 38,605 46,024 38,208 26,170 21,661

Net Income Per Share 2.53 3.01 2.52 1.75 1.46

Total Assets 839,061 766,756 748,103 604,877 541,961

Stockholders' Equity 354,872 335,133 303,164 242,773 235,421

Long-term Debt 185,211 146,506 158,004 72,061 76,737

Cash Dividend Per Share .52 .48 .48 .46 .39





12
14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION.


CONSOLIDATED RESULTS
(in millions except share data)




Year ended August 31,
- -------------------------------------------------------------
1997 1996 1995
---------------------------------


Revenues $2,258 $2,322 $2,117
Net earnings 38.6 46.0 38.2
Cash flow 83.2 89.9 76.6
International sales 737 892 746
As % of total 33% 39% 35%
LIFO effect on net earnings (.2) 2.9 (8.4)
Per share (.01) .19 (.56)
LIFO reserve 30.1 29.8 34.3
% of inventory on LIFO 72% 79% 86%



Significant events affecting the Company this year:
o Second best net earnings year ever; fourth quarter
was the second best net earnings in history.
o Manufacturing segment achieved record shipments and sales, but operating
profits were below last year's record, primarily because of higher
nonoperating expenses.
o Recycling segment had another good year, completing a record four year period
of operating profits.
o Marketing and Trading maintained operating profits despite weak markets and
growing competition.

SEGMENTS
Revenues and operating profit by business segment are shown in the following
table:



(in millions) Year ended August 31,
- -------------------------------------------------------------
1997 1996 1995
---------------------------------

Revenues:
Manufacturing $1,083 $1,018 $913
Recycling 485 464 511
Marketing and Trading 758 890 749

Operating profit:
Manufacturing 54.8 61.8 54.4
Recycling 7.6 12.1 11.3
Marketing and Trading 17.6 17.7 17.6


Manufacturing
The Manufacturing segment includes the CMC Steel Group and Howell Metal
Company.
The Steel Group achieved record sales and tons melted, rolled and shipped;
however, operating profits were held back by computer migration costs,
termination of a defined benefit plan, and the startup costs of a new joist
facility.
Shipments by the four minimills increased 11% to 1.93 million tons while
fabricated shipments increased 6% to 690 thousand tons. A decrease of $4/ton to
$321 for average mill prices combined with slightly higher fabrication prices
of $656 per ton resulted in a 7% increase in revenues to over $1 billion.
Steel Group revenues were $1.0 billion compared with $949 million in the
prior year. Operating profit for the Steel Group was $48.6 million or 15%
lower. Computer migration costs totalled $6 million and pension expense
included a $541,000 curtailment loss for termination of the Company's last
defined benefit plan. The Company's fourth joist plant which opened in Nevada
in June 1997 had startup costs of $2.8 million all of which were expensed as
incurred.
SMI-Texas set new records for shipments and production and SMI Alabama had
record profits. Most notable was SMI South Carolina's turnaround from a very
weak performance last year to break even this year. Steel fabrication profits
were only half of last year's strong results due to delays on larger structural
jobs, generally lower margins, and the joist plant startup.
In January 1997 the Company acquired the assets of
a heat treating plant in Pennsylvania. The purchase price was not significant
to the Company. The operation has been profitable since the acquisition.
The Copper Tube Division operating profit was up 40% from last year based on
6% higher shipments and increased productivity. Late in the year margins came
under pressure due to imports from Mexico and reduced housing starts.

Recycling
Although revenues increased 4%, the Recycling segment reported a 37% decrease
in operating profit compared to last year. The largest single factor was a LIFO
charge this year versus a credit the prior year resulting in a change in LIFO
expense of $4.7 million. Gross margins on nonferrous scrap improved, but
ferrous margins were less because of lower volume. Shipments amounted to 1.15
million tons of ferrous scrap and 212 thousand tons of nonferrous scrap, down
2% in total from last year (excludes scrap tons processed by the six Steel
Group processing plants). Rail service disruption, especially in the Southwest,
was a problem.
Domestic demand for scrap was good, while exports were slack except for
Mexico. Average steel scrap prices were down slightly from last year. Aluminum
prices were a bit higher while copper prices were 9% lower.
The consolidation within the scrap industry accelerated during the past year
with major acquisitions pursued at what the Company believes are
overvaluations. The Company made an acquisition in 1997 of a complementary
processing facility in Midland/Odessa, Texas which was not significant to its
overall operations. The synergism of the combined operations fueled a
turnaround in profitability for the location.

Marketing and Trading
Operating income for the Marketing and Trading segment was consistent with last
year although revenues were down 15%. For the year, the segment had pretax LIFO
income of $2,006,000 compared to an expense of $324,000 last year.
Steel trading margins were pressured by intensely competitive global
markets, diminished buying by China and continuing exports from the CIS. The
Southeast Asian markets, wracked in the latter stages of the year with severe
financial downturns, were particularly weak. The steel and nonferrous marketing
and distribution businesses achieved good results with just-in-time delivery
and other warehousing programs especially in Australia. Similar programs in the



13


15

United Kingdom reversed the poor results of the prior year. Trading operations
located in the U.S. which import substantial quantities into North America had
excellent results. Semi-fabricated metals and minerals and chemicals had
equivalent results to the prior year. New steel products surpassed last year.
In the second half of the year a steel supply contract was consummated with
Essar Steel in India, and CMC Trading AG will market over $100 million of steel
products for Essar during the next three years. At year end, a similar but
smaller arrangement was concluded with a mill in China for performance over the
next year. The Tokyo office was converted to an exclusive representative agency
arrangement, and a small office was opened in Germany to facilitate steel
imports.

OUTLOOK
The outlook generally remains favorable although global markets remain mixed.
Most importantly, during the fourth quarter the Company began to implement
modest price increases in the United States on reinforcing bar and merchant
shapes. Some improvement is being seen in overall pricing of fabricated steel.
Construction markets in the U.S. are strong, margins on copper plumbing tube
should improve and ferrous scrap markets are steady. The trends in nonferrous
metal prices are diverse, but demand should remain active. Europe is improving,
but most Asian economies have slowed because of the currency turmoil. The
continued economic pickup in Latin America, especially Mexico, should be
beneficial. The outlook for public construction remains positive and, longer
term, infrastructure spending should increase.
Expenses related to the Steel Group computer migration in fiscal 1998 should
continue in the $6 million dollar range. In connection with the aforementioned
termination of its last defined benefit plan, the Company estimates that total
pension expense for 1998 will be $2.5 million which includes both normal
pension costs and a one time settlement liability. Thereafter, pension expense
will be eliminated altogether.
The opening two paragraphs of this section contain
forward-looking statements regarding the outlook for the Company's short-term
financial results including estimated expenses, shipments, pricing, demand, and
general market conditions. There is inherent risk and uncertainty in any
forward-looking statements. Variances will occur and some could be materially
different from management's current opinion. Developments that could impact the
Company's expectations include interest rate changes, construction activity,
metals pricing over which the Company exerts little influence, new capacity and
product availability from competing steel minimills and other steel suppliers,
currency fluctuations and decisions by governments impacting the pace of
overall economic growth.

1996 COMPARED TO 1995

SEGMENTS
Manufacturing
Despite generally weaker pricing, record tonnage levels propelled the
Manufacturing segment to record revenues and operating profit.
Steel Group revenues were $949 million, an increase of 13% over last year.
Operating profit rose 15% to $57.4 million on the strength of an 11% increase
in tonnage shipped. Mill prices declined 3% while average prices for fabricated
material increased modestly.
Steel mill tonnage shipped was 13% higher at a record 1.73 million tons.
Record steel mill tons were melted while rolled tons were comparable to last
year. Despite a fire at SMI-Texas and a weak performance at SMI-South Carolina,
Mill operating profits were in line with last year.
In October 1995 a fire put SMI-Texas' Melt Shop offline for 166 hours.
Notwithstanding operating under less efficient conditions for the remainder of
the year, the Mill had its second best year ever. Included in other revenues is
$1.8 million from an insurance recovery for property damage. Settlement of
business interruption claims did not occur until after fiscal year end.
SMI-Alabama shipped record tonnage and produced record profits. SMI-Arkansas
also achieved a new higher profitability level. SMI-South Carolina cut
inventories in half and restructured its management team, but suffered an
operating loss while our capital investment and employee efficiency programs
were being implemented.
Steel fabrication profits increased 40% as tonnage was up 15% to 650
thousand tons. Both the Steel Group East and West fabrication branches were
profitable.
Operating profit in the Copper Tube Division was down only slightly from
last year. Attractive interest rates continue to drive a strong housing market.
Pricing was unstable as the market was still trying to shake the effect of the
Sumitomo copper scandal.

Recycling
With a continuing strong ferrous market and receding LIFO reserves due to
falling prices and inventory levels, the Recycling segment completed a good
year. Shipments amounted to 1.2 million tons of ferrous scrap and 208 thousand
tons of nonferrous scrap, both comparable with the prior year.
Ferrous scrap has had stable pricing for the last two fiscal years.
Nonferrous scrap prices, particularly copper, have been more volatile. The
Sumitomo copper scandal resulted in a dramatic decline in the price of copper.
Aluminum declined on account of a global buildup in inventories. Rapid
inventory turnover protected the Secondary Metals Recycling Division from the
full effect of falling prices.


14


16


1996 COMPARED TO 1995 (CONTINUED):
Marketing and Trading
Facing difficult global markets, the Marketing and Trading segment still
increased revenues 19% and reported operating profits slightly above last year.
The markets for steel, aluminum and nonferrous products turned down sharply
during the first two quarters. Customers were left with high inventories and
many countries in which the Company operates experienced slower growth. The
highlights for the segment were trading in the Americas and marketing and
distribution in Australia. Imports of semi-fabricated metals, minerals,
chemicals and new steel products sustained earnings. Just-in-Time delivery and
other warehousing programs in Australia provided solid results. The segment was
adversely impacted in the United Kingdom where a sharp market downturn caused
renegotiated or canceled contracts.

LIQUIDITY AND CAPITAL RESOURCES
Cash flow from operations (before changes in operating assets and liabilities)
for fiscal 1997 was the second highest in the Company's history. Strong Company
earnings and record depreciation expense generated the cash flow.
Cash flow from operating activities was used to fund increases in
inventories across all divisions, but particularly for large fabrication jobs,
the new joist plant, and back-to-back marketing activities. Other assets
increased due to rail salvage jobs in process and funding of the Company's
nonqualified benefit plan. Accounts payable increased due to normal commercial
activity. Strong cash flow enabled the Company to retire all short-term
borrowings at year end.
Net working capital was $307 million as of August 31, 1997, compared to $275
million last year. The current ratio was slightly higher at 2.1.
The Company's sources of short-term funds include a commercial paper program
of $40 million. The Company's commercial paper is rated in the second highest
category by both Standard & Poor's Corporation (A-2) and Fitch Investors
Service, Inc. (F-2). Formal bank credit lines equal to 100% of the amount of
all commercial paper outstanding are maintained.
The Company's $150 million long-term notes issued in July 1997 ($50 million)
and July 1995 ($100 million) are rated investment grade by Standard & Poor's
Corporation and Fitch Investors Service, Inc. (BBB+) and by Moody's Investors
Service (Baa1 - upgraded from Baa2).
The Company has numerous informal credit facilities available from domestic
and international banks. These credit facilities are priced at banker's
acceptance rates or on a cost of funds basis.
Management believes it has adequate capital resources available from
internally generated funds and from short-term and long-term capital markets to
meet anticipated working capital needs, planned capital expenditures, dividend
payments to shareholders, stock repurchases and to take advantage of new
opportunities requiring capital.
Capital investments in property, plant and equipment were a record $71
million in 1997 compared to $48 million the prior year. The capital plan for
fiscal 1998 will be the largest plan in Company history at $125 million. The
single most important project to be undertaken is a new $70 million rolling
mill at SMI South Carolina. These expenditures are expected to be funded from
internally generated funds and existing credit facilities.
Total capitalization was $561 million at the end of fiscal 1997. The ratio
of long-term debt to capitalization was 33%, up from 29% last year.
Stockholders' equity was $355 million or $24.04 per share. In 1997 the Board of
Directors authorized an additional 500,000 shares for repurchase of the
Company's common stock and at August 31, 1997, 581,081 shares remain
authorized. During the fiscal year, the Company repurchased 628,993 shares of
Company stock at an average cost of $28.18 per share. On August 31, 1997,
1,371,653 treasury shares were held by the Company. There were 14.8 million
shares outstanding at year end.




15

17

CONTINGENCIES
In the ordinary course of conducting its business, the Company becomes involved
in litigation, administrative proceedings and governmental investigations,
including environmental matters.
The Company's origin and one of its core businesses for over three quarters
of a century has been metals recycling. In the present era of conservation of
natural resources and ecological concerns, the Company has a continuing
commitment to sound ecological and business conduct. Certain regulations
regarding environmental concerns, however well intentioned, are presently at
odds with goals of greater recycling and expose the Company and the industry to
potentially significant risks. Such exposures are causing the industry to
shrink, leaving fewer but more well financed operators as survivors to face the
challenge.
The Company believes that materials that are recycled are commodities that
are neither discarded nor disposed. They are diverted by recyclers 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 would 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 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 thirteen 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
investigation, 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 PRP designation. 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 which, from
time to time, may have a material impact on earnings and cash flows for a
particular quarter. 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. 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 business or
consolidated financial position of the Company.
In fiscal 1997, the Company incurred environmental expense of $10.1 million.
This included the cost to staff environmental personnel at various divisions,
permit and license fees, accruals and payments for studies, tests, assessment,
and remediation, consultant fees, baghouse dust removal and various other
expenses. The Company estimates that approximately $4.6 million of its capital
expenditures for fiscal 1997 related to costs associated with environmental
compliance. The nature and timing of these environmental costs is such that it
is not practical for the Company to estimate their magnitude in future periods.
At August 31, 1997 $4.5 million remained in accrued expenses for environmental
liabilities.
The November 22, 1994 Final Order of the United States District Court for
the Southern District of Texas against CMC Oil Company, a subsidiary of the
Company, is now a final, non-appealable order. This liability has been accrued
in the financial statements of CMC Oil Company. CMC Oil does not have
sufficient assets to satisfy the judgment. No claim has been asserted against
Commercial Metals Company in connection with this litigation. Commercial Metals
Company will vigorously contest liability should any such claim be asserted.
Under the terms of the acquisition agreement of Owen Steel Company, Inc. and
affiliates (Owen), the Company has presented certain claims against the portion
of the purchase price remaining in escrow, approximately $5.1 million at August
31, 1997. On April 30, 1996, the Company filed suit against four
representatives (one of whom is a current director of the Company) of the
former Owen stockholders. The lawsuit alleges failure to release from escrow,
funds for claims paid subsequent to acquisition on exposures that existed at
the acquisition date, and recovery of delinquent accounts receivable. The total
amount of claims by the Company approximates the escrow balance. The
stockholder representatives have filed a response and counterclaims; the
lawsuit is in the discovery phase.

DIVIDENDS
Quarterly cash dividends have been paid in each of the
past 33 consecutive years. The annual dividend in 1997 was 52 cents a share
paid at the rate of 13 cents each quarter.


16
18
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

Not applicable for fiscal year ending August 31, 1997.





17
19
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA.



COMMERCIAL METALS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(in thousands, except share data)




Year ended August 31,
- --------------------------------------------------------------------------------------------------------------------------------
1997 1996 1995
------------------------------------------------

Revenues:
Net sales $ 2,248,267 $ 2,310,213 $ 2,107,426
Other revenues 10,121 12,150 9,353
- --------------------------------------------------------------------------------------------------------------------------------
2,258,388 2,322,363 2,116,779

Costs and expenses:
Cost of goods sold 2,004,155 2,068,534 1,892,540
Selling, general and administrative expenses 164,173 151,171 133,058
Interest expense 14,637 15,822 15,246
Employees' pension and profit sharing plans 14,468 13,915 11,277
Litigation accrual -- -- 6,650
- --------------------------------------------------------------------------------------------------------------------------------
2,197,433 2,249,442 2,058,771
- --------------------------------------------------------------------------------------------------------------------------------
Earnings before income taxes 60,955 72,921 58,008

Income taxes 22,350 26,897 19,800
- --------------------------------------------------------------------------------------------------------------------------------
Net earnings $ 38,605 $ 46,024 $ 38,208
================================================================================================================================
Net earnings per share $ 2.53 $ 3.01 $ 2.52
================================================================================================================================


See notes to consolidated financial statements.


18

20
\

COMMERCIAL METALS COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)





August 31,
- --------------------------------------------------------------------------------------------------------------------------------
1997 1996
------------------------------




ASSETS

Current assets:

Cash $ 32,998 $ 24,260
Accounts receivable (less allowance for collection losses of $6,116 and $5,501) 289,735 294,611
Inventories 220,644 186,201
Other 41,899 34,411
- --------------------------------------------------------------------------------------------------------------------------------
Total current assets 585,276 539,483




Other assets 6,524 4,563



Property, plant and equipment:
Land 17,844 17,272
Buildings 55,700 45,902
Equipment 447,553 407,286
Leasehold improvements 19,666 19,761
Construction in process 29,841 16,748
- --------------------------------------------------------------------------------------------------------------------------------
570,604 506,969

Less accumulated depreciation and amortization (323,343) (284,259)
- --------------------------------------------------------------------------------------------------------------------------------
247,261 222,710
------------------------------
$ 839,061 $ 766,756
================================================================================================================================





19
21





August 31,
- -------------------------------------------------------------------------------------------------------------------------------
1997 1996
-------------------------------




LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Commercial paper $ -- $ --
Notes payable -- --
Accounts payable 136,988 116,971
Other payables and accrued expenses 129,036 128,879
Income taxes payable 618 6,729
Current maturities of long-term debt 11,502 11,494
- -------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 278,144 264,073

Deferred income taxes 20,834 21,044

Long-term debt 185,211 146,506

Commitments and contingencies

Stockholders' equity:
Capital stock:
Preferred stock -- --
Common stock, par value $5.00 per share: authorized 40,000,000 shares;
issued 16,132,583 shares; outstanding 14,760,930 and 15,095,964 shares 80,663 80,663
Additional paid-in capital 13,627 13,193
Retained earnings 293,600 262,772
- -------------------------------------------------------------------------------------------------------------------------------
387,890 356,628

Less treasury stock 1,371,653 and 1,036,619 shares at cost (33,018) (21,495)
- -------------------------------------------------------------------------------------------------------------------------------
354,872 335,133
-------------------------------
$ 839,061 $ 766,756
===============================================================================================================================






See notes to consolidated financial statements.

20

22


COMMERCIAL METALS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)





August 31,
- --------------------------------------------------------------------------------------------------------------------------------
1997 1996 1995
-------------------------------


CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 38,605 $ 46,024 $ 38,208
Adjustments to earnings not requiring cash:
Depreciation and amortization 43,720 41,599 38,134
Provision for losses on receivables 1,433 2,535 1,084
Deferred income taxes (210) (6) (524)
Other (353) (258) (268)
- --------------------------------------------------------------------------------------------------------------------------------
Cash Flows From Operations Before Changes in
Operating Assets and Liabilities 83,195 89,894 76,634

Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable 3,443 (29,063) 6,652
Decrease (increase) in financial services loans and advances -- -- 19,560
Decrease (increase) in inventories (34,443) 21,913 (39,804)
Decrease (increase) in other assets (9,449) 1,601 (5,635)
Increase (decrease) in accounts payable,
accrued expenses, and income taxes 14,063 2,253 15,472
- --------------------------------------------------------------------------------------------------------------------------------
Net Cash Flows From Operating Activities 56,809 86,598 72,879


CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of Owen net of cash acquired -- (2,799) (24,769)
Temporary investments -- -- 19,174
Purchases of property, plant and equipment (70,955) (47,982) (39,311)
Sales of property, plant and equipment 3,037 1,805 993
- --------------------------------------------------------------------------------------------------------------------------------

Net Cash Used by Investing Activities (67,918) (48,976) (43,913)


CASH FLOWS FROM FINANCING ACTIVITIES:
Commercial paper - net change -- -- (20,000)
Notes payable - net change -- -- (21,000)
Financial services notes payable -- (5,189) (45,723)
New long-term debt 50,000 -- 160,000
Refinance long-term debt of acquisition -- -- (32,000)
Payments on long-term debt (11,287) (14,112) (64,801)
Stock issued under stock option, purchase, and bonus plans 5,989 5,225 2,337
Tax benefits related to stock option plan 649 407 1,355
Treasury stock acquired (17,727) (13,465) --
Dividends paid (7,777) (7,246) (7,211)
- --------------------------------------------------------------------------------------------------------------------------------
Net Cash Provided (Used) by Financing Activities 19,847 (34,380) (27,043)

Increase in Cash and Cash Equivalents 8,738 3,242 1,923

Cash and Cash Equivalents at Beginning of Year 24,260 21,018 19,095
- --------------------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Year $ 32,998 $ 24,260 $ 21,018
================================================================================================================================


See notes to consolidated financial statements.

21

23


COMMERCIAL METALS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands, except share data)



Common stock Treasury stock
------------------------ Additional --------------------------
Number of paid-in Retained Number of
shares Amount capital earnings shares Amount
- -------------------------------------------------------------------------------------------------------------------------------


Balance, September 1, 1994 16,132,583 $80,663 $ 1,019 $192,997 (1,857,576) $(31,906)

Net earnings 38,208
Cash dividends - $.48 per share (7,211)
Treasury stock acquired -- --
Treasury stock issued for
acquisition of Owen 8,710 932,301 16,345
Stock issued under stock option, purchase
and bonus plans 862 162,284 2,122
Tax benefits related to stock option plan 1,355
- --------------------------------------------------------------------------------------------------------------------------------
Balance, August 31, 1995 16,132,583 80,663 11,946 223,994 (762,991) (13,439)

Net earnings 46,024
Cash dividends - $.48 per share (7,246)
Treasury stock acquired (557,600) (13,465)
Additional treasury stock issued
for Owen acquisition 552 37,196 472
Stock issued under stock option, purchase
and bonus plans 288 246,776 4,937
Tax benefits related to stock option plan 407
- --------------------------------------------------------------------------------------------------------------------------------
Balance, August 31, 1996 16,132,583 80,663 13,193 262,772 (1,036,619) (21,495)

Net earnings 38,605
Cash dividends - $.52 per share (7,777)
Treasury stock acquired (628,993) (17,727)
Stock issued under stock option, purchase
and bonus plans (215) 293,959 6,204
Tax benefits related to stock option plan 649
- --------------------------------------------------------------------------------------------------------------------------------
Balance, August 31, 1997 16,132,583 $80,663 $13,627 $293,600 (1,371,653) $(33,018)
================================================================================================================================


See notes to consolidated financial statements.

22

24


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, AUGUST 31, 1997




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
Southwest. Through its global marketing offices, the Company trades primary and
secondary metals and other industrial products worldwide. As more fully
discussed in footnote 12, 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. All material intercompany transactions and balances are
eliminated in consolidation.

Revenue Recognition
Sales are recognized when title to inventory passes to the customer based on
customary industry practice.

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 at annual
rates based upon the estimated useful lives of the assets using substantially
the straight-line method. 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.

Startup Costs
Startup costs associated with the acquisition and expansion of manufacturing
and recycling facilities are expensed as incurred.

Income Taxes
Deferred income taxes are provided for temporary differences between financial
and tax reporting. The principal differences are described in footnote 5.
Benefits from tax credits are reflected currently in earnings.

Foreign Currency
The functional and the reporting currency of a majority of the Company's
international subsidiaries is the United States dollar. There are no
significant translation adjustments to be reported as a separate component of
stockholders' equity.
Gain or loss on foreign currency exchange contracts designated as hedges is
deferred and recognized upon settlement of the related trade receivable or
payable.

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.

Cash Flows
For purposes of the statements of cash flows, the Company considers investments
that are short-term (generally with original maturities of three months or
less) and highly liquid to be cash equivalents. Temporary investments include
highly liquid instruments with longer original maturity dates. Cash and cash
equivalents and temporary investments at August 31 were as follows (in
thousands):


1997 1996 1995
- ---------------------------------------------------------------


Cash and cash equivalents $32,998 $24,260 $21,018
Temporary investments
(at lower of cost or market) -- -- --
- ---------------------------------------------------------------
$32,998 $24,260 $21,018
===============================================================



Other
The Company will adopt Statement of Financial Accounting Standards No. 128,
Earnings per Share, as of the quarter ending February 28, 1998. It is not
expected to have a significant impact on reported amounts of earnings per
share.

Reclassifications
Certain reclassifications have been made in the 1996 and 1995 financial
statements to conform to the classifications used in the current year.

2. INVENTORIES
Before reduction of LIFO reserves of $30,131,000 and $29,844,000 at August 31,
1997 and 1996, respectively, inventories valued under the first-in, first-out
method approximated replacement cost.
At August 31, 1997 and 1996, 72% and 79%, respectively, of total inventories
were valued at LIFO. The remainder of inventories, valued at FIFO, consist
mainly of material dedicated to international business.

3. CREDIT ARRANGEMENTS
Periodically, the Company is active in the commercial paper market with a
program which permits borrowings up to $40,000,000. It is the Company's policy
to maintain formal bank credit lines equal to 100% of the amount of all
commercial paper outstanding.
The Company has numerous informal credit facilities available from domestic
and international banks. These credit facilities are priced at banker's
acceptance rates or on a cost of funds basis. No compensating balances or
commitment fees are required under these credit facilities.



23

25

The Company's $100 million investment grade, unsecured notes have a coupon rate
of 7.20% which, after netting the proceeds of an interest rate hedge, results
in an effective interest rate of 7.04%.
On July 30, 1997, the Company sold the remaining $50 million of notes under
its $150 million shelf registration. The notes have an effective yield of 6.8%.
On August 15, 1996, the Company arranged a 5 year,
$40 million unsecured revolving credit loan facility with a group of four
banks. The agreement provides for borrowing in United States dollars indexed to
the reference rate or to the offshore dollar interbank market rate. A
commitment fee of .1125% per annum is payable on the credit line. No
compensating balances are required.
Long-term debt and amounts due within one year as of August 31, 1997, are as
follows (in thousands):



Long-term Current
debt maturities Total
- --------------------------------------------------------------


7.20% notes due 2005 $100,000 $ -- $100,000
6.80% notes due 2007 50,000 -- 50,000
8.49% notes due 2001 28,571 7,143 35,714
8.75% note due 1999 6,427 4,286 10,713
Other 213 73 286
- --------------------------------------------------------------
$185,211 $ 11,502 $196,713
==============================================================


All interest is payable semiannually. The 7.20% notes are due in July 2005; the
6.80% notes in August 2007. The 8.49% notes provide for annual principal
repayments beginning on December 1, 1995; all other notes are payable
semiannually.
Certain of the note agreements include various covenants. The most
restrictive of these requires maintenance of consolidated net current assets of
$75,000,000 and net worth (as defined) of $150,000,000. At August 31, 1997,
approximately $187,000,000 of retained earnings was available for cash
dividends under these covenants.
The aggregate amounts of all long-term debt maturities for the five years
following August 31, 1997 are (in thousands): 1998 - $11,502; 1999 - $11,485;
2000 - $9,317; 2001 - $7,164; 2002 - $7,147.
Interest expense is comprised of the following (in thousands):



Year ended August 31,
- ---------------------------------------------------------------
1997 1996 1995
- ---------------------------------------------------------------


Long-term debt $10,894 $11,903 $ 9,105
Financial services debt -- -- 1,364
Commercial paper 731 360 516
Notes payable 3,012 3,559 4,261
- ---------------------------------------------------------------
$14,637 $15,822 $15,246
===============================================================


Interest of $804,000, $320,000 and $149,000 was capitalized in the cost of
property, plant and equipment constructed in 1997, 1996, and 1995,
respectively. Interest of $15,578,000, $16,467,000, and $12,641,000 was paid in
1997, 1996, and 1995, respectively.

4. FINANCIAL INSTRUMENTS, MARKET AND CREDIT
RISK
Management believes that the historical financial statement presentation is the
most useful for displaying the Company's financial position. However, 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. Because of this management believes
that this information may be of limited usefulness in understanding the Company
and minimal value in making comparisons between companies.
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 Commercial paper
o Notes payable
The Company's long-term debt is both publicly and
privately held. Fair value was determined for private debt by discounting future
cash flows at current market yields and for public debt at indicated market
values.



(in thousands)
- -------------------------------------------------------------
Long-Term Debt 1997 1996
- -------------------------------------------------------------


Carrying Amount $196,713 $158,000
Estimated Fair Value $196,494 $159,162
=============================================================


The notional amount of foreign currency exchange contracts outstanding at year
end was $49,656,000. The fair value of these contracts effective as hedges if
settled at August 31, 1997 would result in a gain of $424,000. The fair value
of all outstanding letters of credit is not meaningful.
The Company does not have significant off-balance-sheet risk from financial
instruments. It enters into foreign exchange contracts as hedges of trade
receivables and payables denominated in currencies other than the functional
currency. Effects of changes in currency rates are therefore minimized. As a
matter of Company policy, foreign exchange contracts are used to hedge only
firm commitments, not anticipated transactions.
Pricing of certain firm sales and purchase commitments is fixed to forward
metal commodity exchange quotes. The Company enters into metal commodity
contracts (predominantly copper) as hedges of gross margins on these
commitments. The hedges are closed when the underlying sales and purchase
commitments are priced and gain or loss is recognized when the sale or purchase
is recorded.



24


26

The Company maintains both corporate and divisional credit departments.
Limits are set for customers and countries. Letters of credit issued or
confirmed through sound financial institutions are obtained to further ensure
prompt payment in accordance with terms of sale; generally, collateral is not
required. At August 31, 1997, $8,644,000 of bankers acceptances were included
in accounts receivable.
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.

5. INCOME TAXES
The provisions for income taxes include the following (in thousands):


Year ended August 31,
- --------------------------------------------------------------
1997 1996 1995
---------------------------------

Current:
United States $19,986 $22,356 $17,816
Foreign 680 1,364 615
State and local 2,065 2,880 1,893
- --------------------------------------------------------------
22,731 26,600 20,324
Deferred (381) 297 (524)
- --------------------------------------------------------------
$22,350 $26,897 $19,800
==============================================================


Taxes of $25,506,000, $16,537,000 and $21,000,000 were paid in 1997, 1996 and
1995, 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 tax effects of these differences are (in thousands):



August 31,
- --------------------------------------------------------------
1997 1996
---------------------

U.S. taxes provided on foreign income
and foreign taxes $11,524 $11,670
Tax on difference between tax
and book depreciation 19,294 20,071
Net operating losses (6,692) (6,692)
Alternative minimum tax credit (1,713) (1,713)
Other accruals (754) (1,917)
Other (825) (375)
- --------------------------------------------------------------
Total $20,834 $21,044
==============================================================


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. Such earnings have been reinvested
in the foreign operations except for dividends of $6,062,000.

The Company's effective tax rates were 36.7% in 1997, 36.9% in 1996, and
34.1% in 1995. Reconciliations of the United States statutory rates to the
effective rates are as follows:



Year ended August 31,
- --------------------------------------------------------------
1997 1996 1995
-------------------------------

Statutory rate 35.0% 35.0% 35.0%
Tax credits (.5) (.5) (.5)
State and local taxes 2.2 2.6 2.1
Other -- (.2) (2.5)
- --------------------------------------------------------------
Effective tax rate 36.7% 36.9% 34.1%
==============================================================


The Company acquired Owen Steel Company,Inc. and subsidiaries in a tax free
merger transaction during 1995. As a result of this transaction, there are $16
million of federal net operating losses and $1.7 million of alternative minimum
tax credits that were recorded as deferred tax assets under purchase
accounting. These assets will be reduced as tax expense is recognized in future
periods. The net operating losses consist of $4 million and $12 million that
are due to expire in 2008 and 2009, respectively. The $1.7 million alternative
minimum tax credit is available indefinitely.

6. CAPITAL STOCK
Stock Purchase Plan
Substantially all employees may participate in the Company's employee stock
purchase plan. The Directors have authorized the annual purchase of up to 200
shares at a discount of 25% from the stock's price. Annual activity of the
stock purchase plan was as follows:



1997 1996 1995
- --------------------------------------------------------------

Shares subscribed 165,300 158,490 146,710
Price per share $ 23.80 $ 17.80 $ 18.41
Shares purchased 152,260 138,180 107,110
Price per share $ 17.80 $ 18.41 $ 19.94
Shares available 142,531


The Company recognized compensation expense for this plan of $906,000, $844,000
and $712,000 in 1997, 1996 and 1995, respectively.

Stock Option Plans
The 1986 Stock Incentive Plan (1986 Plan) terminated November 23, 1996, except
as to 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 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. Vesting periods are
variable but no award may be exercised after ten years. The only outstanding
award under the 1996 Plan vests 50% after one year and 50% after two years from
date of grant and will expire seven years after grant.





25
27


Combined share information for the two plans is as follows:



Weighted Price
Average Range
Number Exercise Price Per Share
- ---------------------------------------------------------------

September 1, 1994
Outstanding 1,272,782 $16.69 $8.72-27.61
Granted 293,000 24.50 24.50
Exercised (126,843) 16.61 8.72-20.20
Forfeited (8,646) 23.74 8.72-27.61
Exercisable 860,253 17.36 8.72-27.61
- ---------------------------------------------------------------
August 31, 1995
Outstanding 1,430,293 20.81 8.72-27.61
Granted 435,050 27.29 26.25-27.31
Exercised (119,362) 17.92 8.72-27.61
Forfeited (31,486) 24.57 12.61-27.61
Exercisable 1,003,670 20.02 8.72-27.61
- ---------------------------------------------------------------
August 31, 1996
Outstanding 1,714,495 22.58 8.72-27.61
Granted 390,251 28.00 28.00
Exercised (161,879) 18.60 8.72-27.61
Forfeited (23,559) 26.46 18.42-28.00
Exercisable 1,108,337 21.32 8.72-27.61
- ---------------------------------------------------------------
August 31, 1997
Outstanding 1,919,308 $23.99 $8.72-28.00
Authorized
Shares Remaining 361,399
===============================================================



Share information for options at August 31, 1997:



Outstanding Exercisable
- ---------------------------------------------- ----------------------
Weighted
Average Weighted Weighted
Range of Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Price Outstanding Life Price Outstanding Price
- ----------------------------------------------------------------------


$8.72-18.42 367,591 3.3 years $15.64 367,591 $15.64
20.20-28.00 1,551,717 7.1 years $25.97 740,746 $24.14
- ----------------------------------------------------------------------
$8.72-28.00 1,919,308 6.3 years $23.99 1,108,337 $21.32



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 weighted-
average assumptions:


1997 1996
- -------------------------------------------------------------


Risk-free interest rate 6.22% 6.74%
Expected life 4.85 years 4.85 years
Expected volatility .160 .160
Expected dividend yield 1.7% 1.7%



Management believes that the resulting answer has narrow reliability 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 1996 pro forma information includes only options granted
during 1996 and none previous. The 1997 pro forma information includes options
granted in both 1996 and 1997.


1997 1996
- -------------------------------------------------------------

Net Earnings (in thousands)
As reported $38,605 $46,024
Pro Forma 37,584 45,667
Net Earnings per share
As reported $2.53 $3.01
Pro Forma 2.47 2.98


The weighted-average fair value of options granted in 1997 and 1996 was $6.27
and $6.44.

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.

7. EMPLOYEES' PENSION AND PROFIT SHARING
PLANS
Substantially all employees of the Company and its subsidiaries are covered by
profit sharing or savings plans. Company contributions, which are
discretionary, to all plans were $13,945,000, $13,394,000, and $10,801,000, for
1997, 1996 and 1995, respectively.
During 1997 the Company terminated its only remaining defined benefit plan.
Payment of benefits to participants is expected to occur by May 31, 1998.
Pension expense for 1997 totaled $1,892,000 including a $541,000 curtailment
loss. Estimated total pension expense for 1998 is $2.5 million which includes
both normal pension costs and a one time settlement liability. Thereafter,
pension expense will be eliminated altogether.

8. 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.

9. COMMITMENTS AND CONTINGENCIES
Minimum rental commitments payable by the Company and its consolidated
subsidiaries for noncancelable operating leases in effect at August 31, 1997,
are as follows for the fiscal periods specified (in thousands):



Real
Equipment Estate
- --------------------------------------------------------------


1998 $3,225 $ 3,836
1999 2,554 3,303
2000 809 3,163
2001 1,229 2,177
2002 and thereafter 87 3,772
- --------------------------------------------------------------
$7,904 $16,251
==============================================================


26

28


Total rental expense was $8,621,000, $7,834,000 and $7,953,000 in 1997, 1996
and 1995, respectively.
In the ordinary course of conducting its business, the Company becomes
involved in litigation, administrative proceedings and governmental
investigations, including environmental matters.
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 thirteen 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 PRP designation. 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 which, from
time to time, may have a material impact on earnings for a particular quarter.
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 business or
consolidated financial position of the Company.
The November 22, 1994 Final Order of the United States District Court for
the Southern District of Texas against CMCOil Company, a subsidiary of the
Company, is now a final, non-appealable order. This liability has been accrued
in the financial statements of CMCOil Company. CMCOil does not have sufficient
assets to satisfy the judgment. No claim has been asserted against Commercial
Metals Company in connection with this litigation.
Under the terms of the acquisition agreement of Owen Steel Company, Inc. and
affiliates (Owen), the Company presented certain claims against the portion of
the purchase price remaining in escrow, approximately $5.1 million at August
31, 1997. On April 30, 1996, the Company filed suit against four
representatives (one of whom is a current director of the Company) of the
former Owen stockholders. The lawsuit alleges failure to release from escrow,
funds for claims paid subsequent to acquisition on exposures that existed at
the acquisition date, and recovery of delinquent accounts receivable. The total
amount of claims by the Company approximate the escrow balance. The stockholder
representatives have filed a response and counterclaims; the lawsuit is in the
discovery phase.

10. EARNINGS PER SHARE
Earnings per share are computed on the basis of the weighted average number of
shares of common stock and common stock equivalents outstanding during the
year. The shares used in the calculation of earnings per share were 15,232,749,
15,306,413 and 15,151,072 in 1997, 1996 and 1995, respectively.

11. OTHER PAYABLES AND ACCRUED EXPENSES



(in thousands) August 31,
- --------------------------------------------------------------
1997 1996
-----------------------


Salaries, wages and commissions $ 29,330 $ 29,570
Advance billings on contracts 5,306 8,801
Pension and profit sharing 17,028 13,747
Insurance 9,516 8,864
Accrual for contract losses 1,163 1,406
Environmental 4,477 8,434
Litigation accrual 6,650 6,650
Freight 5,593 4,263
Taxes other than income taxes 6,044 5,518
Interest 3,732 3,543
Other accrued expenses 40,197 38,083
- --------------------------------------------------------------
$129,036 $128,879
==============================================================



12. BUSINESS SEGMENTS
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 (in thousands):



Year ended August 31,
- ---------------------------------------------------------------

1997 1996 1995
-------------------------------


Revenues-unaffiliated customers $360,283 $ 505,255 $ 376,332
===============================================================
Operating profit $ 3,469 $ 6,731 $ 10,051
===============================================================
Identifiable assets $ 95,358 $ 108,492 $ 88,711
===============================================================


Export sales from the Company's United States operations are as follows
(in thousands):



Year ended August 31,
- ---------------------------------------------------------------
1997 1996 1995
--------------------------------


Far East $ 39,863 $ 60,008 $ 42,439
Canada and Mexico 38,883 40,565 42,698
Other 4,590 3,414 6,074
- ---------------------------------------------------------------
Total $ 83,336 $ 103,987 $ 91,211
===============================================================


The Company operates in three business segments, as
indicated below. Intersegment sales generally are priced at prevailing market
prices. Certain corporate administrative expenses are allocated to segments
based upon the nature of the expense.




27

29



12. BUSINESS SEGMENTS (CONTINUED):



Adjustments
Marketing and
1997 (in thousands) Manufacturing Recycling and Trading Corporate eliminations Consolidated
- ------------------------------------------------------------------------------------------------------------------------------


Revenues - unaffiliated customers $ 1,077,296 $ 453,436 $ 727,532 $ 124 $ -- $ 2,258,388
Intersegment revenues 5,703 31,182 30,672 (67,557)
- ------------------------------------------------------------------------------------------------------------------------------
Total revenues 1,082,999 484,618 758,204 124 (67,557) 2,258,388
==============================================================================================================================
Operating profit (loss) 54,782 7,615 17,636 (4,441) 75,592

Interest expense (14,637)

Earnings before income taxes 60,955
==============================================================================================================================
Depreciation and amortization 32,915 9,926 669 210 43,720
==============================================================================================================================
Capital expenditures 50,773 15,885 4,023 274 70,955
==============================================================================================================================
Identifiable assets $ 510,951 $ 112,875 $ 192,224 $ 23,011 $ -- $ 839,061
==============================================================================================================================



1996 (in thousands)
- ------------------------------------------------------------------------------------------------------------------------------

Revenues - unaffiliated customers $ 1,008,231 $ 443,825 $ 869,646 $ 661 $ -- $ 2,322,363
Intersegment revenues 9,625 20,348 20,394 (50,367)
- ------------------------------------------------------------------------------------------------------------------------------
Total revenues 1,017,856 464,173 890,040 661 (50,367) 2,322,363
==============================================================================================================================
Operating profit (loss) 61,818 12,091 17,680 (2,846) 88,743

Interest expense (15,822)

Earnings before income taxes 72,921
==============================================================================================================================
Depreciation and amortization 31,319 9,410 614 256 41,599
==============================================================================================================================
Capital expenditures 37,315 8,727 1,611 329 47,982
==============================================================================================================================
Identifiable assets $ 457,939 $ 91,885 $ 195,042 $ 21,890 $ -- $ 766,756
==============================================================================================================================



1995 (in thousands)
- ------------------------------------------------------------------------------------------------------------------------------

Revenues - unaffiliated customers $ 900,922 $ 483,428 $ 732,419 $ 10 $ -- $ 2,116,779
Intersegment revenues 11,817 27,707 16,806 (56,330)
- ------------------------------------------------------------------------------------------------------------------------------
Total revenues 912,739 511,135 749,225 10 (56,330) 2,116,779
==============================================================================================================================
Operating profit (loss) 54,417 11,337 17,621 (10,121) 73,254

Interest expense (15,246)

Earnings before income taxes 58,008
==============================================================================================================================
Depreciation and amortization 28,847 8,524 635 128 38,134
==============================================================================================================================
Capital expenditures 24,689 14,103 431 88 39,311
==============================================================================================================================
Identifiable assets $ 452,145 $ 111,119 $ 165,692 $ 19,147 $ -- $ 748,103
==============================================================================================================================




28

30



13. QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data for 1997, 1996 and 1995 are as follows (in
thousands except per share data):




Three Months Ended 1997
----------------------------------------
Nov. 30 Feb. 28 May 31 Aug. 31
----------------------------------------


Net sales $526,859 $523,463 $586,141 $611,804
Gross profit 57,552 56,119 62,504 67,937
Net earnings 9,177 7,201 9,510 12,717
Net earnings per share .60 .47 .63 .85

Three Months Ended 1996
----------------------------------------
Nov. 30 Feb. 29 May 31 Aug. 31
----------------------------------------

Net sales $588,238 $514,855 $634,569 $572,551
Gross profit 57,956 57,628 61,663 64,432
Net earnings 10,832 10,010 12,012 13,170
Net earnings per share .70 .67 .79 .86

Three Months Ended 1995
----------------------------------------
Nov. 30 Feb. 28 May 31 Aug. 31
----------------------------------------

Net sales $411,434 $530,907 $572,520 $592,565
Gross profit 45,751 58,204 60,370 50,561
Net earnings 6,372 10,277 11,371 10,188
Net earnings per share .44 .67 .73 .66


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.



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, 1997 and 1996 and the related consolidated
statements of earnings, stockholders' equity and cash flows for each of the
three years in the period ended August 31, 1997. 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 generally accepted auditing
standards. 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, 1997 and 1996, and the results of their operations
and their cash flows for each of the three years in the period ended August 31,
1997, in conformity with generally accepted accounting principles.




/s/ DELOITTE & TOUCHE, LLP

Deloitte &Touche, LLP
Dallas, Texas
October 15, 1997





29

31
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

No event reportable herein took place.



PART III


ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Certain of the information required in response to this Item with
regard to directors is incorporated herein by reference from the registrant's
Definitive Proxy Statement for the annual meeting of shareholders to be held
January 22, 1998, which will be filed no later than 120 days after the close of
the Registrant's fiscal year. The following is a listing of employees believed
to be considered "Executive Officers" of the registrant as defined under Rule
3b-7 as of August 31, 1997:




NAME CURRENT TITLE & POSITION AGE OFFICER SINCE
- ---- ------------------------ --- -------------

Lawrence A. Engels Vice President, Treasurer and 64 1977
Chief Financial Officer


Hugh M. Ghormley Vice President and 68 1981
CMC Steel Group - President
Fabrication Plants


Harry J. Heinkele Vice President and Secondary Metals 65 1981
Processing Division - President


A. Leo Howell Vice President and 76 1977
Howell Metal Company - President;
Director and Chairman of the
Executive Committee


William B. Larson Controller 44 1995


Murray R. McClean Vice President and 49 1995
International Division - President





30



32



Stanley A. Rabin President and Chief Executive 59 1974
Officer; Director


Bert Romberg Senior Vice President 67 1968


Marvin Selig CMC Steel Group - Chairman 74 1968
and Chief Executive Officer; Director


Clyde P. Selig Vice President and 65 1981
CMC Steel Group - President
and Chief Operating Officer


David M. Sudbury Vice President, Secretary and 52 1976
General Counsel



The Executive Officers are employed by the Board of Directors of the
registrant or the respective subsidiary usually at its first meeting after the
registrant's Annual Shareholders Meeting and continue to serve for terms set
from time to time by the registrant's Board of Directors in its discretion.

All of the Executive Officers of the Company have served in the
positions indicated above or in positions of similar responsibility for more
than five years except for Messrs. Larson and McClean. Mr. Larson was employed
by the Company in June, 1991 as Assistant Controller and was named Controller
in March 1995. Mr. McClean has been employed by the Company's subsidiary CMC
(Australia) Pty. Limited since 1984. In September, 1993, he assumed the
function of President of the International Division of the Company. Marvin
Selig is the brother of Clyde P. Selig. There are no other family
relationships among the officers of the registrant or among the Executive
Officers and Directors.


ITEM 11. EXECUTIVE COMPENSATION

Information required in response to this Item is incorporated herein
by reference from the Registrant's Definitive Proxy Statement for the annual
meeting of shareholders to be held January 22, 1998, which will be filed no
later than 120 days after the close of the Registrant's fiscal year.


ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required in response to this Item is incorporated
herein by reference from the Registrant's Definitive Proxy Statement for the
annual meeting of shareholders to be held January 22, 1998, which will be filed
no later than 120 days after the close of the Registrant's fiscal year.





31
33
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

To the extent applicable, information required in response to this
Item is incorporated herein by reference from the Registrant's Definitive Proxy
Statement for the annual meeting of shareholders to be held January 22, 1998,
which will be filed no later than 120 days after the close of the Registrant's
fiscal year.


PART IV


ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K

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

2. Commercial Metals Company and Subsidiaries Consolidated Financial Statement
Schedules

Independent Auditors' Report as to Schedules
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 and Index required to be filed by
Item 601 of Regulation S-K:

(3)(i) Restated Certificate of Incorporation (Filed as Exhibit (3)(i)
to the Company's 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 the Company's
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 the Company's
Form 10-K for the fiscal year ended August 31, 1995, and
incorporated herein by reference).

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

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

(11) Calculation of primary and fully diluted earnings per
share . . . . . . . . . . . . . . . . . . . . . . . . . . . . E1

(21) Subsidiaries of Registrant . . . . . . . . . . . . . . . . . . E2





32
34
(23) Independent Auditors' consent to incorporation by reference of
report dated October 15, 1997 accompanying the consolidated
financial statements of Commercial Metals Company and
subsidiaries for the year ended August 31, 1997 into previously
filed Registration Statements No. 033-61073, No. 033-61075, and
333-27967 on Form S-8 and Registration Statement No. 33-60809 on
Form S-3 . . . . . E3

(27) Financial Data Schedule . . . . . . . . . . . . . . . . . . E4


(b) Reports on Form 8-K.

No reports on Form 8-K were filed during the last quarter covered by
this report.





33
35





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
President and
Chief Executive Officer

Date: November 24, 1997

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/ ALBERT A. EISENSTAT
- --------------------------------------
Albert A. Eisenstat, November 24, 1997
Director /s/ CHARLES B. PETERSON
--------------------------------------
/s/ MOSES FELDMAN Charles B. Peterson, November 24, 1997
- -------------------------------------- Director
Moses Feldman, November 24, 1997
Director /s/ STANLEY A. RABIN
--------------------------------------
Stanley A. Rabin, November 24, 1997
- -------------------------------------- President, Chief Executive Officer
Laurence E. Hirsch, November 24, 1997 and Director
Director
/s/ MARVIN SELIG
--------------------------------------
Marvin Selig, November 24, 1997
- -------------------------------------- Chairman and Chief Executive Officer
A. Leo Howell, November 24, 1997 CMC Steel Group and Director
Vice President and Director
/s/ LAWRENCE A. ENGELS
--------------------------------------
/s/ WALTER F. KAMMANN Lawrence A. Engels, November 24, 1997
- -------------------------------------- Vice President and
Walter F. Kammann, November 24, 1997 Chief Financial Officer
Director
/s/ WILLIAM B. LARSON
--------------------------------------
/s/ RALPH E. LOEWENBERG William B. Larson, November 24, 1997
- -------------------------------------- Controller
Ralph E. Loewenberg, November 24, 1997
Director

/s/ DOROTHY G. OWEN
- --------------------------------------
Dorothy G. Owen, November 24, 1997
Director







34
36
INDEPENDENT AUDITORS' REPORT

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

We have audited the consolidated financial statements of Commercial Metals
Company as of August 31, 1997 and 1996, and for each of the three years in the
period ended August 31, 1997, and have issued our report thereon dated October
15, 1997; 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 14. 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.

Deloitte & Touche LLP


Dallas, Texas
October 15, 1997
37
SCHEDULE VIII


COMMERCIAL METALS COMPANY AND SUBSIDIARIES
------------------------------------------

VALUATION AND QUALIFYING ACCOUNTS
---------------------------------

YEARS ENDED AUGUST 31, 1997, 1996 AND 1995
------------------------------------------

( In thousands )



Allowance for collection losses deducted from notes and accounts receivable:



Charged to Charged Deductions
Balance, profit and to other from Balance
beginning loss or accounts reserves end
Year of year income ( A ) ( B ) of year
-------- ---------- ---------- ---------- ---------- ----------


1995* 3,724 1,084 611 676 4,743

1996 4,743 2,535 269 2,046 5,501

1997 5,501 1,433 354 1,172 6,116



* Includes opening balance of $196 from the acquisition of the Owen Companies
in November 1994.


( A ) Recoveries of accounts written off.

( B ) Write-off of uncollectible accounts.




38
INDEX TO EXHIBITS


Exhibit No. Description
- ----------- -----------

(3)(i) Restated Certificate of Incorporation (Filed as Exhibit (3)(i)
to the Company's 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 the Company's
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 the Company's
Form 10-K for the fiscal year ended August 31, 1995, and
incorporated herein by reference).

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

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

(11) Calculation of primary and fully diluted earnings per share . E1

(21) Subsidiaries of Registrant . . . . . . . . . . . . . . . . . . E2

(23) Independent Auditors' consent to incorporation by reference of
report dated October 15, 1997 accompanying the consolidated
financial statements of Commercial Metals Company and
subsidiaries for the year ended August 31, 1997 into previously
filed Registration Statements No. 033-61073, No. 033-61075, and
333-27967 on Form S-8 and Registration Statement No. 33-60809
on Form S-3 . . . . . . . . . . . . . . . . . . . . . . . . E3

(27) Financial Data Schedule . . . . . . . . . . . . . . . . . . . E4