CMC'S MANUFACTURING SEGMENT INCLUDES THE CMC STEEL GROUP AND HOWELL METAL COMPANY.

CMC Steel Group - The CMC Steel Group is a vertically integrated family of companies with over 50 locations from Virginia to Nevada. The CMC Steel Group includes 4 steel minimills, 20 steel fabrication operations, 4 steel joist fabrication plants, 4 steel fence post manufacturing plants, a heat treating plant, a railcar rebuilding facility, 12 concrete related product warehouses, 2 industrial products supply companies, 8 scrap processing facilities, and a railroad salvage company.

Fiscal 1998 Successes, Initiatives - The companies in the CMC Steel Group enjoyed record success during fiscal 1998. Strong U.S. construction markets provided the opportunity for a solid year. Yet it was the ongoing emphasis on training, teamwork, and producing at high efficiencies that enabled CMC Steel Group employees to capitalize on those opportunities and produce a banner year. Collectively, profits and production for the group were at all time highs reflecting healthy backlogs and steady prices.

Significant ongoing programs and assets in the CMC Steel Group that helped provide the foundation for a record year were:
/ dedicated, knowledgeable employees and strong customer relationships
/ full utilization of people and resources to meet increased customer needs
/ focus on quality, best exemplified by SMI-Alabama's CPQI (Change Process for Quality Improvement) program and by the ISO 9002 Certification at SMI-Texas
/ management development courses that teach CMC Steel Group operating philosophies, particularly crucial at affiliates recently acquired or started up
/ focus on sales training and development to maximize sales opportunities and further develop long-term relationships with customers
/ a safety emphasis with the most noteworthy accomplishments being two million man hours without a lost time accident at SMI Joist and one million man hours without a lost time accident at SMI-Alabama
/ the continuation of the computer migration effort that includes networking, hardware, software, and user training to provide streamlined data processing efficiencies and improved communications for the new millennium throughout the CMC Steel Group
/ a financial effort to improve day's sales outstanding performance, and improve cash collections and bad debt recoveries
/ in-house training programs to improve technical and business skills.

Minimills - The CMC Steel Group's four minimills continued their focus on people development and process improvement during a year of record production and profits. SMI-Texas achieved all-time high melted and rolled tonnages, and near record shipments. SMI-Alabama completed a record year all around - melt and mill tonnages, finished goods shipments, and net income. The desire at SMI-Alabama for ongoing improvement of people and processes resulted in the start up of a new program, SMI Lifetime Education (SMILE), which features mandatory employee participation in a computer-based classroom setting. SMI-South Carolina set all-time records for tons melted, rolled, and shipped while producing a profit. Its focus on people and process development has resulted in a solidified, experienced management team guiding a more consistent sales and production effort.

SMI-Arkansas, a rail re-rolling minimill that also serves as headquarters for the Southern Post Company and SMI Rail, experienced a record year of profitability despite production and shipment levels falling below fiscal 1997. The Southern Post plants had significant improvements in profitability and continue to be the nation's leading producer of studded "T" steel fence posts.

Among the significant facility improvements completed or underway during fiscal year 1998 at the CMC Steel Group minimills was the installation of a shredder at SMI-Texas. Billed as the "largest in North America," the shredder has an environmentally friendly design including noise and dust suppression. Also at SMI-Texas, there was the installation of an industry-wide first application of a statcom to regulate power to an electric arc furnace, and the construction of a new baghouse that will double the melt shop's ventilation capacity. The new merchant mill that will come online at SMI-South Carolina in February 1999 will be one of the most flexible and efficient bar mills in the world. The mill will feature a 135-ton per hour reheat furnace, a 17-stand Danieli mill, a cooling bed, and an automatic straightening/stacking mechanism all housed in a new mezzanine building. The new mill is designed to exceed the capabilities demonstrated at the Seguin, Texas mill.

Fabrication - The fabrication branches' ongoing emphasis on production efficiencies, cost-control measures, safety performance and people development helped produce a record net income year for the fabrication division. The overall division, including rebar and structural fabrication, and joist manufacturing, more than doubled the net income levels of a year ago.

The CMC Steel Group "West" markets in Texas and the Southwest benefited from robust construction, especially for rebar fabrication. Net income increases of 80% to 100% were achieved by several fabrication affiliates. New federal funds for highway construction will also benefit those markets in fiscal 1999. And new businesses, such as the pipe fabrication operation at Safety Steel Service, added to the bottom line.

The CMC Steel Group "East" fabricating companies also did well in solid market conditions. They are continuing to develop the practices and approaches to business that have worked in the West and are embracing the customer service aspect as evidenced by increased sales and profits. SMI Owen Steel, the largest structural fabricator in the group, had a sales increase of 33% with high profile projects such as the NFL Cleveland Browns stadium and a production increase of 25% that led the company back to profitability.

SMI Joist registered significant increases in orders, production, and shipments in a year of strong market demand. The Hope, Arkansas joist plant had a notable increase in productivity with investments in automation and refinement of production techniques showing positive results. The Fallon, Nevada facility completed its first full year of operation with solid levels of operating profit and net income. SMI Joist Florida had an operating profit increase of five fold with bookings, production, and shipments all showing a 30% increase with essentially the same facility and personnel. The South Carolina joist facility had consistent production runs thanks to better bookings and backlogs.

Concrete Related Products - Shepler's, a twelve-store chain that provides concrete related products (CRP) and forming systems throughout Texas, led the way in the CRP division's nearly doubling of net income. Shepler's ventured outside of Texas with the opening of CMC Concrete Accessories in Atlanta, Georgia. SMI-Owen Supply in Columbia, South Carolina posted a sales increase of 12% and a profit increase of 9% over fiscal 1997.

Scrap Yards - CMC-Austin transferred its shredder operations and personnel to SMI-Texas and opened a new/used steel warehouse while one of its feeder yards, Horowitz Salvage, completed construction of a new office/warehouse/truck scale to increase efficiency. CMC-Lexington had increased production and shipments at all locations. It also completed a nonferrous recovery system (eddy current), opened a used auto parts yard in Lexington, CMC U-Pull-It, and added a new feeder yard in Augusta, Georgia to complement the two South Carolina feeder yards in Cayce and North Augusta.

Additional Operations - Allegheny Heat Treating completed its first full year in the Steel Group and was a solid profit contributor. Safety Railway Service made the decision to close its Tulsa plant and reorganize the Victoria plant. In addition, it successfully developed a railcar fabrication business to offset a downturn in railcar repair activities, a market which appears to be rebounding strongly in fiscal 1999.

Outlook - The CMC Steel Group's system of vertically integrated steel businesses from scrap to steel to value-added steel products delivered to a customer continues to work well, achieving growth by all standards. The CMC Steel Group companies enter fiscal 1999 with healthy backlogs in a fundamentally strong U.S. economy. With the ongoing emphasis on training, teamwork, and production efficiencies that helped make fiscal 1998 a banner year, the CMC Steel Group companies remain well-positioned and flexible to excel in any market condition. The men and women of the CMC Steel Group will continue to work hard to make their companies stronger and better prepared for the future.

Howell Metal Company - Howell Metal Company manufactures copper tubing for the plumbing, air conditioning, and refrigeration industries. This fully integrated copper minimill utilizes both secondary and virgin copper in the manufacturing process. The copper is melted, cast, extruded and drawn into water and refrigeration tubing.

Housing starts continued to show strength while interest rates remain attractive throughout fiscal 1998. Demand for water tubing has been strong throughout the period. We are expanding our customer base and sales area to keep pace with increased production. Copper prices remain soft as world demand decreases and supply increases. We see no change in the price of copper next year. Increased productivity and modernization of the mill will be key areas of emphasis during fiscal 1999. Our outlook for fiscal 1999 remains positive.