• extent of government intervention and its effect in capital markets;

• construction activity;

• decisions by governments affecting the level of steel imports, including tariffs and duties;

• litigation claims and settlements;

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

• unsuccessful implementation of new technology;

• metals pricing over which we exert little influence;

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

• court decisions;

• industry consolidation or changes in production capacity or utilization;

• global factors including credit availability;

• currency fluctuations;

• interest rate changes;

• scrap metal, energy, insurance and supply prices; and

• the pace of overall economic activity.

See the section entitled "Risk Factors" in this annual report for a more complete discussion of these risks and uncertainties and for other risks and uncertainties. These factors and the other risk factors described in this annual report are not necessarily all of the important factors that could cause actual results to differ materially from those expressed in any of our forward-looking statements. Other unknown or unpredictable factors also could harm our results. Consequently, we cannot assure you that the actual results or developments we anticipate will be realized or, even if substantially realized, that they will have the expected consequences to, or effects on, us. Given these uncertainties, we caution prospective investors not to place undue reliance on such forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
This Management's Discussion and Analysis of Financial Condition and Results of Operation should be read in conjunction with our consolidated financial statements and the accompanying notes contained in this annual report.
We recycle, manufacture, market and distribute steel and metal products through a network of over 200 locations in the United States and internationally.
Our business is organized into the following five segments: Americas Recycling, Americas Mills, Americas Fabrication and Distribution, International Mills and International Fabrication and Distribution. Our domestic and international distribution business activities consist only of physical transactions and not speculation.
Americas Recycling Operations
We conduct our recycling operations through metal processing plants located in the states of Texas, Oklahoma, Kansas, Louisiana, Alabama, Arkansas, Missouri, Georgia, Tennessee, Florida, South Carolina, and North Carolina. Americas Mills Operations
We conduct our domestic mills operations through a network of:
• steel mills, commonly referred to as "minimills," that produce reinforcing bar, angles, flats, rounds, fence post sections and other shapes; and

• a copper tube minimill. Our copper tube minimill is aggregated with the Company's steel minimills because it has similar economic characteristics.

Americas Fabrication and Distribution Operations We conduct our domestic fabrication operations through a network of:
• steel fabrication and processing plants that bend, weld, cut, fabricate, distribute and place steel, primarily reinforcing bar and angles;

• warehouses that sell or rent products for the installation of concrete;

• plants that produce special sections for floors and support for ceilings and floors;

• plants that produce steel fence posts; and

• plants that treat steel with heat to strengthen and provide flexibility.

Additionally, our domestic distribution consists of our CMC Dallas Trading division which markets and distributes semi-finished long and flat steel products into the Americas from a diverse base of international and domestic sources.
International Mills Operations
International Mills includes our Polish ("CMCZ") and Croatian ("CMCS") mills and have been presented as a separate segment because the economic characteristics of the market and the regulatory environment in which our international mills operate is different from our domestic minimills. We conduct our international mill operations through:
• a rolling mill that produces primarily reinforcing bar and some merchant products;

• a rolling mill that produces primarily wire rod;

• our scrap processing facilities that directly support the CMCZ minimill; and

• an electronic arc furnace based steel pipe manufacturer.

International Fabrication and Distribution Operations We conduct our international fabrication operations through three steel fabrication plants in Europe primarily for reinforcing bar and mesh. Additionally, we market and distribute steel, copper and aluminum coil, sheet and tubing, ores, metal concentrates, industrial minerals, ferroalloys and chemicals through our network of marketing and distribution offices, processing facilities and joint ventures internationally. Our customers use these products in a variety of industries.
Critical Accounting Policies and Estimates The following are important accounting policies, estimates and assumptions that you should understand as you review our financial statements. We apply these accounting policies and make these estimates and assumptions to prepare financial statements under accounting principles generally accepted in the United States ("GAAP"). Our use of these accounting policies, estimates and assumptions affects our results of operations and our reported amounts of assets and liabilities. Where we have used estimates or assumptions, actual results could differ significantly from our estimates.
Revenue Recognition We recognize sales when title passes to the customer either when goods are shipped or when they are received based on the terms of the sale, there is persuasive evidence of an agreement, the price is fixed or determinable and collectibility is reasonably assured. When we estimate that a contract with one of our customers will result in a loss, we accrue the calculated loss as soon as it is probable and estimable. We account for large fabrication projects in accordance with Statement of Position 81-1, Accounting for Performance of Construction-Type and Certain Production-Type Contracts.
Contingencies In the ordinary course of conducting our business, we become involved in litigation, administrative proceedings and government investigations, including environmental matters. We may incur settlements, fines, penalties or judgments because of some of these matters. While we are unable to estimate precisely the ultimate dollar amount of exposure or loss in connection with these matters, we make accruals as warranted. The amounts we accrue could vary substantially from amounts we pay due to several factors including the following: evolving remediation technology, changing regulations, possible third-party contributions, the inherent shortcomings of the estimation process, and the uncertainties involved in litigation. Accordingly, we cannot always estimate a meaningful range of possible exposure. We believe that we have adequately provided in our

consolidated financial statements for the estimable probable impact of these contingencies. We also believe that the outcomes will not significantly affect the long-term results of operations or our financial position. However, they may have a material impact on earnings for a particular quarter.
Inventory Cost We determine inventory cost for most domestic inventories by the last-in, first-out method, or LIFO. We estimate our interim LIFO reserve by using quantities and costs at quarter end and recording the resulting LIFO expense in its entirety. Inventory cost for international and remaining inventories is determined by the first-in, first-out method, or FIFO. We record all inventories at the lower of their cost or market value.
Property, Plant and Equipment Our domestic and international mills, fabrication and recycling businesses are capital intensive. We evaluate the value of these assets and other long-lived assets whenever a change in circumstances indicates that their carrying value may not be recoverable. Some of the estimated values for assets that we currently use in our operations utilize judgments and assumptions of future undiscounted cash flows that the assets will produce. If these assets were for sale, our estimates of their values could be significantly different because of market conditions, specific transaction terms and a buyer's different viewpoint of future cash flows. Also, we depreciate property, plant and equipment on a straight-line basis over the estimated useful lives of the assets. Depreciable lives are based on our estimate of the assets' economically useful lives and are evaluated annually. To the extent that an asset's actual life differs from our estimate, there could be an impact on depreciation expense or a gain/loss on the disposal of the asset in a later period. We expense major maintenance costs as incurred.
Other Accounting Policies and New Accounting Pronouncements See Note 1, Summary of Significant Accounting Policies, to our consolidated financial statements.

Consolidated Results of Operations

                                                    Year ended August 31,
            (in millions except share data)      2008        2007        2006

            Net sales *                       $ 10,427     $ 8,329     $ 7,212
            Net earnings                         232.0       355.4       356.3
            Per diluted share                     1.97        2.92        2.89
            EBITDA                               531.4       671.0       659.2
            International net sales              4,937       3,397       2,726
            As % of total sales                     47 %        41 %        38 %
            LIFO** effect on net earnings        209.1        33.3        50.6
            Per diluted share                     1.78        0.27        0.41

* Excludes the net sales of a division classified as discontinued operations.

** Last in, first out inventory valuation method.

In the table above, we have included a financial statement measure that was not derived in accordance with GAAP. We use EBITDA (earnings before interest expense, income taxes, depreciation and amortization) as a non-GAAP performance measure. In calculating EBITDA, we exclude our largest recurring non-cash charge, depreciation and amortization. EBITDA provides a core operational performance measurement that compares results without the need to adjust for federal, state and local taxes which have considerable variation between domestic jurisdictions. Tax regulations in international operations add additional complexity. Also, we exclude interest cost in our calculation of EBITDA. The results are, therefore, without consideration of financing alternatives of capital employed. We use EBITDA as one guideline to assess our unleveraged performance return on our investments. EBITDA is also the target benchmark for our long-term cash incentive performance plan for management. Reconciliations to net earnings are provided below for the years ended August 31:

       (in millions)                                  2008        2007        2006

       Net earnings                                 $ 232.0     $ 355.4     $ 356.3
       Interest expense                                59.5        37.3        29.6
       Income taxes                                   104.8       171.0       187.9
       Depreciation and amortization                  135.1       107.3        85.4

       EBITDA                                       $ 531.4     $ 671.0     $ 659.2

       EBITDA (loss) from discontinued operations       3.2        (3.3 )      (8.1 )

       EBITDA from continuing operations            $ 528.2     $ 674.3     $ 667.3

EBITDA does not include interest expense, income taxes and depreciation and amortization. Because we have borrowed money in order to partially finance our operations, interest expense is a necessary element of our costs and our ability to generate revenues. Because we use capital assets, depreciation and amortization are also necessary elements of our costs. Also, the payment of income taxes is a necessary element of our operations. Therefore, any measures that exclude these elements have material limitations. To compensate for these limitations, we believe that it is appropriate to consider both net earnings determined under GAAP, as well as EBITDA, to evaluate our performance. Also, we separately analyze any significant fluctuations in interest expense, depreciation and amortization and income taxes.
The following events and performances had a significant financial impact during 2008 as compared to 2007 or are significant for our future operations:
1. We reported our highest net sales ever for the fifth straight year.

2. We recorded after-tax LIFO expense of $209.1 million ($1.78 per diluted share) compared to $33.3 million ($0.27 per diluted share) in 2007.

3. We experienced favorable foreign exchange rates during 2008 as compared to 2007 which resulted in an increase in net sales of approximately 4%.

4. Net sales of the Americas Recycling segment increased 22% and adjusted operating income increased 29% driven by higher scrap prices, primarily ferrous scrap.

5. Net sales of the Americas Mills segment increased 28% but adjusted operating income decreased 20% primarily caused by LIFO expense of $109.8 million during 2008 as compared to expense of $27.3 million during 2007.

6. Our Americas Fabrication and Distribution segment's results were impacted by escalating steel prices and a margin compression due to fixed price contracts which resulted in an adjusted operating loss of $67.5 million including LIFO expense of $197.4 million and job loss reserves of $26.7 million.

7. Our International Mills segment reported adjusted operating income of $96.8 million in 2008 as compared to $112.4 million in prior year. Our Polish mill experienced an increase in adjusted operating profit of 9% offset by losses at our mill in Croatia which continued to be saddled with start-up costs.

8. Our International Fabrication and Distribution segment set an all-time record for adjusted operating profit of $124.3 million, a 69% increase from prior year, driven by strong pricing internationally.

9. Seven acquisitions with a total purchase price of $231.5 million were completed during 2008.

10. Expense of $53.7 million and capital expenditures of $49.9 million were recorded during 2008 as compared to expense of $33.8 million and capital expenditures of $22.3 million recorded during 2007 related to the global implementation of SAP.

11. Treasury shares purchased by the Company during 2008 increased diluted earnings per share by $0.05.

12. Our overall effective tax rate decreased to 31.1% as compared to 31.9% in 2007 due to shifts in profitability among tax jurisdictions.

Segments
Unless otherwise indicated, all dollars below are before minority interests and income taxes. Financial results for our reportable segments are consistent with the basis and manner in which we internally disaggregate financial information for making operating decisions. See Note 14, Business Segments, to the consolidated financial statements.

We use adjusted operating profit (loss) to compare and evaluate the financial performance of our segments. Adjusted operating profit is the sum of our earnings before income taxes and financing costs. Adjusted operating profit is equal to earnings before income taxes for Americas Mills and Americas Fabrication and Distribution segments because these segments require minimal outside financing. The following table shows net sales and adjusted operating profit (loss) by business segment:

                                                         Year ended August 31,
     (in millions)                                   2008         2007         2006

     Net sales:
     Americas Recycling                           $  2,189     $  1,801     $  1,503
     Americas Mills                                  1,966        1,540        1,558
     Americas Fabrication and Distribution           2,875        2,587        2,328
     International Mills                             1,156          777          571
     International Fabrication and Distribution      3,781        2,762        2,315
     Corporate                                          (2 )         11           24
     Eliminations/Discontinued operations           (1,538 )     (1,149 )     (1.087 )
     Adjusted operating profit (loss):
     Americas Recycling                              145.8        113.0        124.9
     Americas Mills                                  207.8        259.4        267.7
     Americas Fabrication and Distribution           (67.5 )      100.0        110.1
     International Mills                              96.8        112.4         53.1
     International Fabrication and Distribution      124.3         73.7         55.4
     Corporate                                       (99.5 )      (72.0 )      (31.0 )
     Eliminations/Discontinued operations              0.1         (7.6 )        7.1

LIFO Impact on Adjusted Operating Profit LIFO is an inventory costing method that assumes the most recent inventory purchases or goods manufactured are sold first. This results in current sales prices offset against current inventory costs. In periods of rising prices it has the effect of eliminating inflationary profits from net income. In periods of declining prices it has the effect of eliminating deflationary losses from net income. In either case the goal is to reflect economic profit. The table below reflects LIFO income or (expense) representing decreases or (increases) in the LIFO inventory reserve. International Mills is not included in this table as it uses FIFO valuation exclusively for its inventory:

                                                      Three Months Ended                    Twelve Months Ended
                                                          August 31,                            August 31,
(in thousands)                                      2008               2007               2008               2007

Americas Recycling                              $    5,094          $  9,292          $  (16,894 )        $    (407 )
Americas Mills                                     (40,152 )             135            (109,809 )          (27,324 )
Americas Fabrication and Distribution             (100,945 )           3,124            (197,435 )          (11,479 )
International Fabrication and
Distribution*                                       (3,893 )          (3,743 )             2,398            (11,983 )

Consolidated increase (decrease) to
adjusted profit before tax                      $ (139,896 )        $  8,808          $ (321,740 )        $ (51,193 )

* LIFO income or (expense) includes a division classified as discontinued operations.

2008 Compared to 2007
Americas Recycling This segment had record sales and adjusted operating profit in 2008 which was driven by higher scrap prices, primarily ferrous. The record adjusted operating income of $145.8 million was strong enough to overcome LIFO expense of $16.9 million in 2008 compared to $0.4 million in 2007. Spurred by ferrous price increases, our ferrous scrap operations accounted for three-fourths of the segment's profitability. The average ferrous scrap sales price increased 56% and shipments increased 7% compared to 2007. Although lower than ferrous scrap, the average sales price of nonferrous scrap increased 4% but shipments decreased 13% due to

continued weak residential markets and lower manufacturing output. We exported 31% of our nonferrous scrap during the year.
The following table reflects our recycling segment's average selling prices per short ton and tons shipped (in thousands) for the years ended August 31:

                                                                    Increase (Decrease)
                                           2008        2007        Amount            %

    Average ferrous selling price        $   346     $   222      $   124             56 %
    Average nonferrous selling price     $ 3,037     $ 2,920      $   117              4 %
    Ferrous tons shipped                   3,053       2,842          211              7 %
    Nonferrous tons shipped                  305         350          (45 )          (13 %)
    Total volume processed and shipped     3,391       3,220          171              5 %

Americas Mills We include our four domestic steel minimills and our copper tube minimill in this segment. While 2008 resulted in record sales for this segment, adjusted operating profit decreased 20% from 2007 resulting from a significant increase in LIFO expense due to spiking ferrous scrap prices. This segment had LIFO expense of $109.8 million, an increase of $82.5 million over 2007.
Within the segment, adjusted operating profit for our four domestic steel minimills was $195.3 million for 2008 as compared to $239.8 million for 2007. The decrease in adjusted operating profit was mainly due to additional LIFO expense of $102.1 million recorded during 2008 as compared to 2007. Metal margins were 2% higher as weighted average sales prices barely stayed ahead of rapidly increasing ferrous scrap prices. The price of ferrous scrap consumed rose 50% compared to 2007. The increase in ferrous scrap prices drove the average selling price up $125 per ton while the average selling price for finished goods increased $136 per ton. Margins were negatively impacted by a 77% increase in alloys and electrodes and a 31% increase in energy cost during 2008 as compared to 2007. Combined, these two costs accounted for an increase of $65 million. Sales volumes increased 12% to 2.5 million tons, an all-time record, while tonnage rolled increased 7% to 2.1 million tons. We have invested $63 million of the expected $155 million total cost for our micro mill project in Arizona.
The table below reflects domestic steel and ferrous scrap prices per ton for the year ended August 31:

                                                                            Increase
                                                     2008      2007      Amount      %

      Average mill selling price (finished goods)   $ 723     $ 587      $ 136       23 %
      Average mill selling price (total sales)        691       566        125       22 %
      Average cost of ferrous scrap consumed          350       233        117       50 %
      Average FIFO metal margin                       341       333          8        2 %
      Average ferrous scrap purchase price            329       211        118       56 %

The table below reflects our domestic steel minimills' operating statistics for the year ended August 31:

                                                                     Increase
             (short tons in thousands)     2008        2007       Amount      %

             Tons melted                   2,396       2,121        275       13 %
             Tons rolled                   2,101       1,957        144        7 %
             Tons shipped                  2,528       2,250        278       12 %

Our copper tube minimill experienced continued strength from commercial markets while residential markets remained weak. Adjusted operating profit decreased 36% to $12.5 million primarily due to an increase in LIFO expense for 2008 of $7.7 million. Pounds shipped, including sales of steel pipe, a new product line in 2008, remained flat as compared to 2007. The average copper selling price increased 7% to $4.34 per pound and the metal margin increased 5% to $1.12 per pound overcoming average copper scrap purchase price increases of $0.29 to $3.38 per pound. The decline in the residential housing market coupled with the extraordinary high price of copper has reduced the demand for copper plumbing tube across the U.S.

The table below reflects our copper tube minimill's prices per pound and operating statistics for the year ended August 31:

                                                                     Increase (Decrease)
     (pounds in millions)                     2008       2007        Amount             %

     Pounds shipped                           52.3       52.5           (0.2 )         -
     Pounds produced                          46.8       50.4           (3.6 )        (7 %)
     Average copper selling price           $ 4.34     $ 4.06      $    0.28           7 %
     Average copper scrap production cost   $ 3.22     $ 2.99      $    0.23           8 %
     Average copper metal margin            $ 1.12     $ 1.07      $    0.05           5 %
     Average copper scrap purchase price    $ 3.38     $ 3.09      $    0.29           9 %

Americas Fabrication and Distribution During 2008, this segment reported adjusted operating loss of $67.5 million as compared to adjusted operating income of $100.0 million in the prior year due primarily to rapidly increasing . . .