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COMMERCIAL METALS COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (UNAUDITED)

(In thousands except share data)

See notes to unaudited condensed consolidated financial statements.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE A –— QUARTERLY FINANCIAL DATA

     In the opinion of management, theThe accompanying unaudited condensed consolidated financial statements containhave been prepared on a basis consistent with that used in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (SEC) for the year ended August 31, 2003, and include all adjustments (consisting of only normal recurring accruals)adjustments necessary to present fairly the financial position ascondensed consolidated balance sheet and statements of November 30 and August 31, 2003 and the results of operations andearnings, cash flows and stockholders’ equity for the three months ended November 30, 2003 and 2002.periods indicated. The results of operations for the three and six month periods are not necessarily indicative of the results to be expected for a full year. These interim financial statements should be read in conjunction with the Company’s consolidated financial statements for the year ended August 31, 2003 included in its Form 10-K filed with the Securities and Exchange Commission (SEC).

NOTE B –— ACCOUNTING POLICIES

Stock-Based Compensation

     The Company accounts for stock options granted to employees and directors using the intrinsic value based method of accounting. Under this method, the Company does not recognize compensation expense for the stock options because the exercise price is equal to the market price of the underlying stock on the date of the grant. If the Company had used the fair value based method of accounting, net earnings and earnings per share would have been reducedadjusted to the pro-forma amounts listed in the table below. The Black-Scholes option pricing model was used to calculate the pro forma stock-based compensation costs. For purposes of the pro forma disclosures, the assumed compensation expense is amortized over the options’ vesting periods. The pro forma information is consistent with assumptions used in the year end information.

(in thousands, except per share amounts)

Reclassifications

     Certain reclassifications have been made to the prior period financial statements to conform to the classifications used in the current period.

Accounts Payable — Documentary Letters of Credit

     In order to facilitate certain trade transactions, especially international, we utilizethe Company utilizes documentary letters of credit to provide assurance of payment to ourits suppliers. These letters of credit may be for prompt payment or for payment at a future date conditional upon the bank finding the documentation presented to be in strict compliance with all terms and conditions of the letter of credit. OurThe banks issue these letters of credit under informal, uncommitted lines of credit which are in addition to the Company’s contractually committed revolving credit agreement. In some cases, if ourthe Company’s suppliers choose to discount the future dated obligation, wethe Company may absorb the discount cost. The amounts currently payable under letters of credit in connection with such discount arrangements are classified as Accounts Payable — Documentary Letters of

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classified as Accounts Payable – Documentary Letters of Credit and the related discount charges are included as a component of interest expense in the condensed consolidated financial statements.

NOTE C –— ACQUISITIONS

     On December 3, 2003, the Company’s Swiss subsidiary acquired 71.1% of the outstanding shares of Huta Zawiercie, S.A. (CMCZ), of Zawiercie, Poland for 200 million Polish Zlotys (PLN), $51.9 million on the acquisition date. In connection with the acquisition, the Company also assumed debt of 176 million PLN ($45.7 million), acquired $3.8 million in cash and incurred $1.7 million of directly related costs. CMCZ operates a steel minimill similar to those operated by the Company’s steel group with total annual capacity of over 1 million metric tons consisting of rebar and wire rod products as well as merchant bar. With this acquisition, the Company has become a significant manufacturer of rebar and wire rod in a key Central European market.

On December 23, 2003, the Company acquired 100% of the stock of Lofland Acquisition, Inc. (Lofland) for $48.8 million cash, $9 million of which was placed in escrow which could be used to resolve any claims that the Company might have against the sellers for up to eighteen months post-acquisition. The Company also incurred $1.1 million of external costs directly related to this acquisition. Lofland is the sole stockholder of the Lofland Company and subsidiaries which operate steel reinforcing bar fabrication and construction-related product sales facilities from 11 locations in Texas, Arkansas, Louisiana, Oklahoma, New Mexico and Mississippi. This acquisition complements the Company’s existing Texas rebar fabrication and construction-related product sales operations and expands the Company’s service areas in each of the neighboring states.

The following is a summary of the allocation of purchase price as of the date of the acquisitions (in thousands). Although the Company does not anticipate any material changes, these purchase price allocations may be revised following the completion of the valuation process. The minority interest in CMCZ is recorded at historical cost.

Inventory costs for Lofland and CMCZ are determined on the first-in, first out (FIFO) method. The intangible assets acquired include customer base, non-competition agreement, favorable land leases and production backlog, all of which have finite lives and will be amortized over lives from one year (for the backlog) to 96 years (for the favorable land leases), with a weighted average life of 34 years. Also, the acquisition of Lofland resulted in a brand name of $2.3 million with an indefinite life. From the estimates reported at November 30, 2003, Lofland’s other intangible assets decreased by $3.3 million and goodwill increased by $10.3 million primarily due to changes in the estimated valuation of the customer base and the non-competition agreement and assessment of deferred tax impacts. From November 30, 2003, the estimated valuations of CMCZ’s inventories decreased by approximately $2.6 million and property, plant and equipment increased by $2.8 million. For tax purposes, the Company expects to be able to deduct approximately $4 million of goodwill related to carry-over tax attributes. The estimated aggregate amortization expense for each of the five succeeding fiscal years is as follows: 2004 — $1.9 million; 2005 — $1.6 million; 2006 — $1.2 million; 2007 — $1.0 million

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COMMERCIAL METALS COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

and 2008 — $326 thousand. The fair value estimates were determined either on a market-based or income-based approach.

The following pro forma financial information reflects the consolidated results of operations of the Company as if the acquisitions of CMCZ and Lofland had taken place at the beginning of the period. The pro forma information includes primarily adjustments for amortization of acquired intangible assets, depreciation expense based upon the new basis of property, plant and equipment, and interest expense for assumed debt. The Company considers its investment in Poland to be permanent, and therefore does not provide for U.S. income taxes on the earnings of CMCZ. The pro forma financial information is not necessarily indicative of the results of operations as they would have been had the transaction been effected on the assumed dates.

NOTE D — SALES OF ACCOUNTS RECEIVABLE

     The Company has an accounts receivable securitization program (Securitization Program) which it utilizes as a cost-effective, short-term financing alternative. Under the Securitization Program, the Company and several of its subsidiaries (the Originators) periodically sell accounts receivable to the Company’s wholly-owned consolidated special purpose subsidiary (CMCR). CMCR is structured to be a bankruptcy-remote entity. CMCR, in turn, sells an undivided percentage ownership interest (Participation Interest) in the pool of receivables to an affiliate of a third party financial institution (Buyer). CMCR may sell undivided interests of up to $130 million, depending on the Company’s level of financing needs.

     At November 30February 29, 2004 and August 31, 2003, uncollected accounts receivable of $159$183 million and $152 million, respectively, had been sold to CMCR, and theCMCR. The Company’s undivided interest in these receivables (representing the Company’s retained interest) was 70% and 100%. at February 29, 2004 and August 31, 2003 respectively. At November 30 andFebruary 29, 2004 the Buyer owned $55 million in Participation Interests in CMCR’s accounts receivable pool, which was reflected as a reduction in accounts receivable on the Company’s condensed consolidated balance sheet. At August 31, 2003, no Participation Interests in CMCR’s accounts receivable pool were owned by the Buyer and, therefore, none were reflected as a reduction in accounts receivable on the Company’s consolidated balance sheets.Buyer.

     Discounts (losses) on the sales of accounts receivable to the Buyer under this Program were $116$332 thousand and $123$448 thousand for the three and six months ended November 30,February 29, 2004, respectively, and $188 thousand and $311 thousand for the three and six months ended February 28, 2003, and 2002, respectively. These losses primarily represented the costs of funds and were included in selling, general and administrative expenses.

     In addition to the Securitization Program described above, the Company’s international subsidiaries periodically sell accounts receivable. Uncollected accounts receivable that had been sold under these arrangements and removed from the consolidated balance sheets were $23.5$21.5 million and $20.8 million at November 30February 29, 2004 and August 31, 2003, respectively.

NOTE D –E — INVENTORIES

     Before deduction of last-in, first-out (LIFO) inventory valuation reserves of $18.7$28.2 million and $17.4 million at November 30February 29, 2004 and August 31, 2003, respectively, inventories valued under the first-in, first-out method approximated replacement cost. Approximately $46.3 million and $20.5 million were in raw materials at February 29, 2004 and August 31, 2003, respectively. The majority of the Company’s inventories are in finished goods, with minimal work in process. Approximately $28.6 million and $20.5 million were in raw materials at November 30 and August 31, 2003, respectively.

NOTE E – LONG TERM DEBT9

     Long-term debt (in thousands) was as follows:

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE F — LONG TERM DEBT

     Long-term debt (in thousands) was as follows:

In November 2003, the Company purchasedrepurchased $89 million of its 7.20% notes due in 2005. In February 2004, the Company repurchased $1 million of the 7.20% notes. The Company recorded a pre-tax chargecharges of $2.8$280 thousand and $3.1 million for the three and six months ended February 29, 2004, respectively, resulting from the cash paymentpayments made to retire the notes, whichnotes. The $3.1 million was in excess of the $4.2 million of cash proceeds received by the Company upon settlement of a related interest rate swap. Also, in November 2003, the Company issued $200 million of its 5.625% notes due in November 2013. Interest is payable semiannually. The Company had entered into an interest rate lock on $100 million of the new debt resulting in an effective rate of 5.54%.

On April 9, 2002 the Company entered into two interest rate swaps to convert a portion of the Company’s long term debt from a fixed interest rate to a floating interest rate. The impact of these swaps adjusted the amount of fixed rate and floating rate debt and reduced overall financing costs. TheseAt February 29, 2004, these hedges remained in effect and were highly effective for the $11$10 million remaining debt at November 30, 2003.on the 7.20% notes. The swaps effectively converted the interest rate on the $100 million notes ($1110 million remaining at November 30, 2003)February 29, 2004) due July 2005 from the fixed rate of 7.20% to the six month LIBOR (determined in arrears) plus a spread of 2.02%. The interest rate is set on January 15th and July 15th, and for the quarterthree and six months ended November 30, 2003,February 29, 2004, was estimated to be an annualized rate of 3.38%3.43%. The total fair value of both swaps, including accrued interest, was $566$500 thousand and $4.6 million at November 30February 29, 2004 and August 31, 2003, respectively. The swaps are recorded in other long-term assets, with a corresponding increase in the 7.20% long-term notes, representing the change in fair value of the hedged debt.

On March 26, 2004, CMCZ borrowed 150 million PLN ($38.4 million) under a five year term note with a group of four banks. The term note was used to refinance a portion of CMCZ’s notes payable. The note has scheduled principal and interest payments in eight equal semi-annual installments beginning in September 2005. Interest is accrued at the Warsaw Interbank Offered Rate (WIBOR) plus 1.25% and was fixed at 6.71% for three months. The term note is collateralized by CMCZ’s fixed assets. In March 2004, CMCZ also entered into a revolving credit facility with the same group of banks with maximum borrowings of 60 million PLN ($15.4 million) bearing interest at WIBOR plus 0.8% and collateralized by CMCZ’s accounts receivable. The facility was drawn down in stages, and the interest rate, which resets daily, was approximately 5.65%. The proceeds were used by CMCZ to payoff the remainder of the notes payable and for working capital. The term note and the revolving credit facility contain certain financial covenants for CMCZ. There are no guarantees by the Company or any of its subsidiaries for any of CMCZ’s debt.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE F –G — EARNINGS PER SHARE

     In calculating earnings per share, there were no adjustments to net earnings to arrive at incomeearnings for the three or six months ended November 30, 2003February 29, 2004 or 2002.February 28, 2003. The reconciliation of the denominators of earnings per share calculations are as follows:

All stockStock options with total share commitments of 3,507,84335,247 at November 30, 2003February 29, 2004 were dilutiveanti-dilutive based on the average share price for the quarter of $22.14.$28.57. Stock options with total share commitments of 70,6901,208,863 were anti-dilutive at November 30, 2002February 28, 2003 based on the average share price of $17.48$15.42 for the quarter. All stock options expire by 2010.2011.

At November 30, 2003,February 29, 2004, the Company had authorization to purchase 1,116,152 of its common shares.

In January 2004, the Company’s stockholders increased the aggregate number of shares of common stock that are authorized for issuance to 100,000,000.

On March 5, 2004, the Company granted additional stock options with total share commitments of 857,325 at $31.125 per share.

NOTE G–H- DERIVATIVES AND RISK MANAGEMENT

     The Company’s worldwide operations and product lines expose it to risks from fluctuations in foreign currency exchange rates and metals commodity prices. The objective of the Company’s risk management program is to mitigate these risks using futures or forward contracts (derivative instruments). The Company enters into metal commodity forward contracts to mitigate the risk of unanticipated declines in gross margin due to the volatility of the commodities’ prices, and enters into foreign currency forward contracts, which match the expected settlements for purchases and sales denominated in foreign currencies. The Company designates only those contracts as hedges for accounting purposes, which closely match the terms of the underlying transaction. These hedges resulted in substantially no ineffectiveness in the statements of earnings for the three or six months ended November 30, 2003February 29, 2004 and 2002.February 28, 2003. Certain of the foreign currency and all of the commodity contracts were not designated as hedges for accounting purposes, although management believes they are essential economic hedges.

9The following chart shows the impact on the condensed consolidated statements of earnings of the changes in fair value of these economic hedges (in thousands):

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

they are essential economic hedges. The changes in fair value ofcompany’s derivative instruments were recorded as follows on the commodity hedging instruments resulted in a $889 thousand increase and a $339 thousand decrease in cost of goods sold for the three months ended November 30, 2003 and 2002, respectively. The Company also recognized a $715 thousand and a $1.1 million reduction in net sales relating primarily to foreign currency instruments for the three months ended November 30, 2003 and 2002, respectively. At November 30 and August 31, 2003, derivative assets recorded in other current assets were $4.8 million and $1.8 million, respectively. Derivative liabilities of $6.3 million and $1.7 million, respectively, were included in other current liabilities.condensed consolidated balance sheets (in thousands):

The Company recognized a gain of $1.5 million during the threesix months ended November 30, 2003February 29, 2004, relating to the forward purchase of Polish Zlotys in connection with the acquisition of Huta Zawiercie S.A.CMCZ. This was recorded in net sales for the threesix months ended November 30, 2003.February 29, 2004.

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

See Note E,F, Long-Term Debt, regarding the Company’s interest rate risk management strategies.

NOTE H –I — CONTINGENCIES

     There were no material developments relating to the Company’s contingencies during the three or six months ended November 30, 2003.February 29, 2004. See Note 9, Commitments and Contingencies, to the consolidated financial statements for the year ended August 31, 2003.

     In the ordinary course of conducting its business, the Company becomes involved in litigation, administrative proceedings and governmental investigations, including environmental matters. Management believes that adequate provision has been made in the condensed consolidated financial statements for the potential impact of these issues, and that the outcomes will not significantly impact the results of operations or the financial position of the Company, although they may have a material impact on earnings for a particular quarter.

     The Company has not entered into or modified any significant guarantees since December 31, 2002, and therefore no liability was recorded at November 30, 2003.February 29, 2004. The Company’s existing guarantees have been given at the request of a customer and its surety bond issuer.issurer. The Company has agreed to indemnify the surety against all costs that the surety may incur should the customer fail to perform its obligations under construction contracts covered by payment and performance bonds issued by the surety. As of November 30, 2003,February 29, 2004, the surety had issued bonds in the total amount (without reduction for the work performed to date) of $11.9$10.0 million, which are subject to the Company’s guarantee obligation under the indemnity agreement. The fair value of these guarantees is not significant.

The Company charged $1 million to selling, general and administrative expense during the three months ended February 28, 2003 relating to payments from a customer within 90 days of its bankruptcy filing, which were potentially voidable. This dispute was settled during the three months ended August 31, 2003 for $118 thousand.

NOTE I – SUBSEQUENT ACQUISITIONSJ — BUSINESS SEGMENTS

     OnFollowing the acquisitions of CMCZ and Lofland in December 3, 2003 the Company’s international Swiss subsidiary acquired 71.1% of the outstanding shares of Huta Zawiercie, S.A.(see Note C - Acquisitions), of Zawiercie, Poland for 200 million Polish Zlotys ($51.9 million). In connection with the acquisition, the Company also assumed debt of 180 million Polish Zlotys ($46.7 million), acquired $4.8 million in cash and incurred $1.7 million of directly related costs. Huta Zawiercie operates a steel minimill similar to those operated by the Company’s steel group with annual capacity of about 1 million metric tons consisting mainly of rebar and wire rod products. With this acquisition, the Company has become a significant manufacturer of rebarfive reportable segments: domestic mills, CMCZ, fabrication, recycling and wire rod in a key Central European market.marketing and distribution. Prior period results have been revised to be consistent with the current segment presentation.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

On December 23, 2003,The domestic mills segment includes the Company acquired 100%Company’s domestic steel minimills (including the scrap processing facilities which directly support these mills) and the copper tube minimill. The newly-acquired CMCZ minimill and subsidiaries in Poland have been presented as a separate segment because the economic characteristics of their markets and the regulatory environment in which they operate are not similar to that of the stock of Lofland Acquisition, Inc. (Lofland) for $48.8 million cash.Company’s domestic minimills. The Company also incurred approximately $1.0 million of external costs directly related to this acquisition. Lofland is the sole stockholderfabrication segment consists of the Lofland Companysteel group’s other steel and subsidiaries which operate steel reinforcing barjoist fabrication operations (including Lofland), fence post manufacturing plants, construction-related and construction-related product sales facilities from 11 locations in Texas, Arkansas, Louisiana, Oklahoma, New Mexico and Mississippi. This acquisition complements the Company’s existing Texas rebar fabrication and construction-related product sales operations and expands the Company’s service areas in each of the neighboring states.

The following is a summary of the preliminary allocation of purchase price as of the date of the acquisitions (in thousands) presented in conformity with U.S. GAAP. The purchase price allocations have been prepared on a preliminary basis, and changes may be made following the completion of the valuation of the net assets by independent appraisers.

The intangible assets acquired include customer base, favorable land leases and production backlog, all of which have finite lives and will be amortized over lives from one year (for the backlog) to 96 years (for the favorable land leases). Also,other products. Following the acquisition of Lofland, will result in goodwillthe Company’s chief operating decision maker began reviewing the results of approximately $15 millionfabrication operations separately, thus necessitating the reporting of these operations as a separate segment. The recycling and a trade name with an indefinite life.marketing and distribution segments are as they have been previously reported. The Company expects to be able to deduct approximately $4 million goodwill for tax purposes. The estimated aggregate amortization expense for eachcorporate and eliminations segment contains eliminations of intersegment transactions, expenses of the five succeeding fiscal years is as follows: 2004 - $2.4 million; 2005 - $1.7 million; 2006 through 2008 - $1.3 million per year. The fair value estimates are being determined either on a market-based or income-based approach.Company’s corporate headquarters and interest expense relating to our long-term public debt and commercial paper program.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE J – BUSINESS SEGMENTS

The following is a summary of certain financial information by reportable segment (in thousands):

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)