Hello, and welcome to today's Commercial Metals Company Second Quarter 2011 Earnings Conference Call. [Operator Instructions] Please be advised this call is being recorded today March 22, and your participation implies consent to our recording of this call. If you do not agree to these terms, simply disconnect. Your host for today's call is Mr. Murray McClean, Chairman, President and Chief Executive Officer of Commercial Metals Company. Mr. McClean, please begin your call.

Good morning, and welcome to CMC's second quarter fiscal 2011 conference call. With me this morning is Joe Alvarado, our Chief Operating Officer; and Bill Larson, our Chief Financial Officer. I'll begin the call with a couple of comments on the second quarter and then ask Joe to comment on our operations, followed by Bill who will provide our financial details. Finally, I'll comment on the outlook for our third quarter fiscal 2011 after which, Bill, Joe and I will be happy to answer questions. With respect to our second quarter, that is the winter quarter, it is always our weakest quarter. Nevertheless, we were pleased the way the quarter panned out absent the large LIFO expense, which Bill will explain later. We saw a gradual improvement in many of our operations, which should carry through to the third quarter. Joe will now talk about our operations. Joe?

Thank you, Murray. The Americas Mill and Recycling segments exceeded our projections in the second quarter due to a favorable price environment. Those favorable prices for the mills and recycling, however, resulted in higher steel input costs for our fabrication segment, contributing to higher than expected losses for the quarter. Our International Marketing and Distribution segment remained profitable in all major geographic areas but at seasonally lower levels. Stronger-than-expected demand in coal led to an unexpected profit for our Zawiercie mill in what is typically our softest period. However, losses in Croatia, though reduced, offset the unexpected operating profit in Poland. Our domestic mill's FIFO operating profits improved $4.4 million or 9% in the second quarter compared to the first quarter. While our domestic fabrication operating profit declined $14 million or 54%. Our domestic recycling business operating profit also improved quarter-on-quarter $7.5 million or 72%. The net decline in domestic operating results was $1.8 million. International mills and fabrication results were flat quarter-over-quarter. And despite the benefit of improved operating performance in Croatia, led by the assistance of technical teams dispatched there in the second quarter, the level of losses remain unacceptably high. In comparison to the prior year's second quarter, domestic mill's FIFO operating results improved more significantly, $54.7 million, and recycling improved $18.2 million. Domestic fabrication results improved $10 million in the same period. International mills and fabrication performance improved by $48 million quarter-on-quarter, mostly due to improved performance of our Polish operations. Our marketing and distribution business FIFO operating profits declined $8.3 million or 37% to Q1 but improved significantly by $23.7 million compared to the prior year's second quarter. Perspectively, we anticipate the third quarter operating rates to continue to improve. While operating rates in the second quarter were 73% compared to 72% in the first quarter, that compares favorably to the 58% operating rate in the prior year's second quarter.

Okay. Thanks, Joe. Bill?

Good morning, everyone. Let me call to your attention the detailed safe harbor statement included in our press release and in our August 31, 2010, 10-K, that in summary says that in spite of management's good faith, current opinions on various forward-looking matters, circumstances can change, and not everything that we think will happen always happens. In addition, we've given guidance regarding our outlook for the third quarter of fiscal 2011 in our press release. Subsequent to this call, we will not be under any obligation to update our outlook. In accordance with Regulation G of the Securities and Exchange Commission, you're aware of non-GAAP financial measures. Some of these have derived fairly straightforward from our financial statements or in common business use can be the subject of our discussions today and in our investor visits. But there are other items that may be outside of our ability for discussion. You may need to be patient with us if we defer comment. Our website has additional information at cmc.com. Well, as Murray and Joe have said, LIFO gives and LIFO takes away. And in this quarter, with its rapid rise in metals pricing, LIFO certainly took earnings away. As a full stop, a quarter of LIFO each quarter is approached as if it were year end. We took the full brunt of the increased prices. If pricing trends stay historically consistent, a good portion of this will disappear in the second half of our fiscal year but how much, I do not know. While comparisons of sales and operating profit, both second quarter to second quarter last year as well as year-to-date, are very favorable. However, this is a low hurdle to step over for operating profit as last year's second quarter was the worst quarter in CMC's history, and…

Okay. Thanks, Bill. The outlook for the third quarter. Ferrous scrap prices are likely to stabilize at relatively high levels before a seasonal correction possibly by May but more likely by June, July time frame. A rebound in merchandise prices also are likely to remain relatively stable which should expand metal margins. In the U.S., we anticipate seasonal demand to be above last year's levels, which should result in higher shipments. Internationally, we anticipate favorable market conditions in China, Southeast Asia, Northern Europe, in particular Poland, and improving conditions in Australia. In summary, we anticipate that four out of our five segments to be profitable in the third quarter, namely our Recycling segment, Americas Mills, International Mills and Marketing and Distribution. We will now open up the conference for questions.

[Operator Instructions] Our first question comes from Luke Folta from Longbow Research.

My first question had to do with the fabrication margins. I think I know what's going on here that you had booked forward some pricing, some product at a fixed price and then rebar input costs had increased on you. I just want to get a sense, of the fabricated product that you're selling now, are you able to get enough pricing to pass along current rebar prices? In other words, is this more of a timing issue, or are we not getting the pricing there?

Luke, that varies by geographic region according to demand. Essentially, we're always lagging in our fabricated pricing increases. Rebar prices go up faster than scrap prices. Rebar prices go up faster than our fabricated rebar is able to in the same way that scrap prices go up faster than our rebar, or merchant products were able to cover it. So the point that Murray made about stabilization in our pricing has to do with full recovery. Although geographically, it's more difficult than fab business to recover the full margins of rebar, particularly on the West Coast and to a lesser degree on the East Coast. Central region is much stronger.

And should we see some price stabilization on the rebar side, do you think it's possible that we could see a profitable quarter in 4Q in fab?

Probably not, Luke. I think the backlog that we have to run out is significant enough that it would take a very significant drop in rebar prices that we would not anticipate.

And then just one more if I could. On the fabrication backlog as you mentioned, can you give us some sense of how the backlogs look currently versus how they looked at the end of last quarter in fabrication?

In the fabrication business, our backlogs are up fairly significantly. In North America in particular, on the fab side of the business, it's up roughly about 40% -- I'm sorry, that's from the end of the fourth quarter. From the last quarter, that's up only slightly, just a few thousand tons. So the most significant pickup was from the end of the fourth quarter or fiscal year, which was the end of August through the end of our second quarter in February.

We also saw, Luke, quite a pickup in bidding activity which is a good sign for the future. So that's a plus.

And in Europe, just to answer the question from the European perspective on the fab business, our backlogs are actually down from the last quarter, reflecting what's more of a spot market, as opposed to the contract market that we have in North America.

Our next question comes from Brent Thielman from D.A. Davidson. Brent Thielman - D.A. Davidson & Co.: Just on Croatia, you mentioned the scheduled maintenance and inventory write-down. Do you have the net effect of those items on segment operating income?

No, we don't break it out. Brent Thielman - D.A. Davidson & Co.: And then I guess back on fabrication, in terms of through the average timing of projects in your backlog, I guess in terms of execution on those, is it becoming longer or shorter, or do you see much of a change there?

It's skewed right now to the long end because we were successful in getting to -- in a couple of other fairly long jobs, some very significant highway work in Texas, and that has changed the average rather significantly. Typically, it would be five, six months perhaps, I suspect, on average. But the average again is being skewed rather significantly by a couple of jobs. It's probably more like eight or nine. But as they say, Brent, it's the addition of some regular jobs and a couple of behemoths.

We are seeing some small work which comes and goes within the quarter, which we really don't include in the backlog. And that's a positive sign. In a healthy market, you see a lot of that activity, particularly in the commercial side. So we're seeing a little bit of that coming back, particularly in the central states, so that's a good sign. Brent Thielman - D.A. Davidson & Co.: Just on Americas Recycling, if their shipments look like they were up Q2 versus Q1, which I think is somewhat of a deviation from sort of typical patterns, is that a reflection of better collections or demand driven, any sense there?

I think on the ferrous side, obviously the scrap prices, ferrous scrap hitting 470 in January and 455, February and March roughly does attract slightly stronger flows. And you're correct. I mean, normally this time of the year, the winter quarter flows do slow, but the higher prices certainly attracted I would say a better flow than normal.

Our next question comes from Kevin Money with Cleveland Research.

We've been hearing more on Turkey being slightly more aggressive on the rebar side. Could you just talk a little bit about what you're seeing in terms of import?

We reported this in the last call, I believe, that we had received market reports of significant imports from Turkey. Those have been realized really in the February, March time frame, and orders are still open through April. So they've taken a more aggressive posture towards the United States, and it's been slightly disruptive to the Mexican imports more than anything else. But yes, we've seen a significant impact. Roughly 100,000 tons is what the market reports are what's been imported or contracted for.

A lot of it was booked in the second half of December which is to spot opportunity. The prices were going up here fairly rapidly in the U.S. starting December, January, and it coincided with the spring construction season. Those shipments started to arrive in February, some were in March and some may go into April, that 100,000 tons.

Have the political issues in the Middle East -- was it more of that, or is it just a continuation of what you saw last quarter?

Certainly, the political issues in the Middle East, and particularly North Africa, are having some impact and our market intelligence that the Turkish supplies or some of are cutting back but they're looking at other markets into Europe, South America or into Asia. Not so much here in the U.S. so we don't see, apart from the 100,000 tons, any other significant shipments coming. They may come eventually. I don't know that, but not at this stage.

I wonder if you could provide some color on what you're expecting out of infrastructure spending going forward, particularly do you see any kind of resolution to a long-term highway bill?

Unfortunately, it would appear that we won't see any resolution to that any time soon in terms of a long-term highway bill. All the other priorities in Washington, this seems to be one that gets pushed to the back burner. There was extended funding for an existing program but nothing in the way of new funding. Certainly, not the order of magnitude that is being called for, for infrastructure improvement.

Our next question comes from Tim Hayes of Davenport & Company. Timothy Hayes - Davenport & Company, LLC: Just one question in American Mills, the merchant shipments had a surprisingly strong quarter. Do you attribute a lot of that to service centers prebuying to get ahead of rising steel prices? And if so, what would you expect for the May quarter? Will we see more of a muted seasonal improvement or even perhaps a decline from the February level?

There is no doubt that there was some pre-shipment or pre-billing going on in the sense that prices were escalating pretty consistently from the end of the calendar year into the first quarter. So we did see some pull up shipments in December and January. We don't expect that to have a long-term effect. Service center stocks are still fairly low. This is a busier season for them, so we would expect them to continue to buy. We don't see any dramatic change. If anything, we've seen the brunt of that already.

Our next question comes from Charles Bradford of Bradford Research.

Do you see any increased usage by your customers or yourself of the various commodity exchanges that are now trading rebar and billets?

No, not that we're aware of.

What's not here, you mean in the U.S. or internationally or both, Chuck?

Both.

Well, we're seeing it more internationally but not so much here in the U.S. We've looked at it, but I think it's early days here yet.

And any indications what may be happening between Turkey and places like Egypt? Because a lot of Turkish steel used to head there. And with Egypt being the big gorilla in the Mideast and it's having its political problems, has construction activity continued, slowed down, has buying from Turkey has been disrupted, or do you have any idea?

Yes, it was disrupted for a period. But in the last couple of weeks, our people are reporting back that things are starting gradually getting back to normal. So assuming there is no other civil unrest in Egypt, it should stabilize. But clearly getting to summer there, their construction season as you know, slows down. It's a very hot time of the year. So by September period after the holidays should resume back to normal, assuming there's no more, as I say, unrest there.

[Operator Instructions] Our next question comes from Sanil Daptardar from Sentinel Investments.

Bill, just wondering on the American fabs, if the prices improve at the lag that you mentioned about and with the current cost structure, do you think that it will be breakeven?

Are you talking about this fiscal year, Sanil?

Yes, for the fabs. Suppose if the prices improve at that lag which you're talking about. But in what current cost structure you have in the fabs? Or do you think that you can [indiscernible].

I think we still have a couple of quarters of diminishing losses ahead of us. The backlog's just too large to run off at the current prices. Again, subject to an unanticipated significant drop in rebar which we don't see, I think we're -- the dye is kind of cast on this one.

You think that the cost structure has to improve on that further, or do you have any costs to take out from that, from the fabs?

If you look at it, the price of a job, probably 60%, 70% or more of it is the cost of the rebar. It's just very difficult to squeeze. I mean, the only thing you have left of significance is labor and very difficult absent running a significant volume of tons through there.

Sanil, at the same time, we have addressed manpower, as well as location issues. There's been some consolidation of facilities, some costs absorbed as a result of that for severance and the like, which is in the numbers, but it's also helped us reduce our operating cost structure. We've done that both in the East and in the West, in particular. But we've also made adjustments in the central region where it makes good sense for us.

My other question is on the utilization; when you talk about the third quarter that there is a seasonal uptick because of the seasonal bill period, do you think that the utilization may go above 72% that you had in the current quarter, because there was some pull-through in the second quarter, because of the demand in the third quarter and the seasonal uptick period? So if that utilization might remain constant don't you think utilization will have to increase in that case for the demand?

We'd anticipate that utilization will increase, Sanil. This is normally a busier time for us. It's extraordinary that we are operating at such a high rate in the second quarter, partly owing to what we've talked about already with merchants and a strong backlog, if you will, in rebar. So with normal seasonal uptick, we'd expect that those rates would continue at or above the current rate.

But the demand you see coming is through from the public and infrastructure works because they also mention in the press release that commercial is picking up but weak in the rest, right?

Correct.

So commercial in other parts of the country has improved compared to the last quarter, and do you see the trend continuing, or it might be just a seasonal pickup?

More a seasonal pickup than anything else.

Our next question is a follow up from Luke Folta of Longbow Research.

I was hoping you could talk a little bit about what's happening in Croatia regarding your restructuring efforts there, and give us some sense of how you think the progress will play out over the next few quarters.

As we reported, there actually was an improvement in operations, and there was an awful lot of planned activity. Most of it associated with -- and I'm talking about inventory, most of it associated with the new technical teams landing there and essentially providing the leadership and guidance that we'd been expecting they would provide. We would expect that in the third and fourth quarters, our operating losses would decrease substantially as we address the operating issues, the inventory issues and selling price issues. That was a combination of all that. So we've had a good, thorough look at what's going on in Croatia. We have a better perspective of what we needed to correct. We made those corrections. Moving forward, however, there's still fundamentally only a limited number of tons that we can produce in Croatia, for tubular applications, and most of it is for export. It would be nice if we had access to the EU. It would help our realizing prices and our margins. And while that work continues, there's no official accession date for Croatia into the EU. So the prospect is for reduced losses but not to be profitable any time before the calendar year-end.

So it seems like the team is now fully in place there. It's just a function of trying to work through some of these issues. When you said that the inventory issue seems to be mostly corrected, is it mostly kind of a marketing effort that's the biggest thing to improve?

The inventory issues that we had there were more production related in terms of lots and late deliveries and shorts, things of that nature. So those were more operational problems than they were commercial problems. The commercial issues for us were on-time delivery and being consistent. And as we get the mill in shape and the inventory out of the way, which was clogging up our operations, we expect to improve our performance commercially.

Our next question comes from Barry Vogel of Barry Vogel & Associates. Barry Vogel - Barry Vogel & Associates: I just don't want to beat a dead horse because I know you're very serious about Croatia, and you've used very strong language in your public press releases about that. But going forward to fiscal '12, given everything that you know, is it likely that you will have an operating profit fiscal '12 in Croatia?

Not on a cumulative basis for the year. I would suspect by the end of the year, we will have months that could reach that. We might for the year be cash flow neutral if not positive. That's about the best I can offer.

It obviously depends too, Barry, on the prices for the products. I mean, if oil continues over $100 a barrel and assuming the Middle East and North Africa settle out, I mean, margins could expand, and that would be in our favor. So we've taken very conservative assumptions. And as Bill said, we can see the thing gradually turning around, but it will be later in the year, not earlier in the year. Barry Vogel - Barry Vogel & Associates: But are you committed to -- I know it's a public call you're on right now. But after everything you've done and all the analyzing, are we likely to see this operation continuing business going forward in the future?

We can't really comment on that. But clearly, we want to improve it so that our options are broader, put it that way. So we just want to get to the profitability stage as quickly as we can and as efficiently as we can and put in a strong management team there to run the operations. So that's our short-term goal and that's what we're heading down. Barry Vogel - Barry Vogel & Associates: As far as Poland is concerned, you were surprised I think that you had a profit in the quarter. Does that augur very well for a strong second half?

Yes. Barry Vogel - Barry Vogel & Associates: You earned more money in Poland than you thought at the beginning of the year?

Yes.

Yes, we did.

And remember what Murray said in our opening comments. The second quarter is normally our weakest quarter, really for weather reasons. And Poland can be among the harshest environments in which we operate and sell and most difficult for construction markets. And it's a combination of a little bit stronger demand overall, some of it weather related and an improving mix in Poland towards value-added products, both merchant and wire rod but more on the merchant side of it. So that's why we made the investments in Poland, and we're starting to see some of the benefit of that.

I think we made a comment in there somewhere. I mean, Poland is a big swing factor, and we think it will be very positive in our third and fourth quarter. Barry Vogel - Barry Vogel & Associates: As far as your description of the non-residential construction end-user demand going forward, Murray, how would you describe it?

Here in the U.S.? Barry Vogel - Barry Vogel & Associates: Yes.

As I mentioned a little bit earlier, we're seeing a pickup in bidding activity which we haven't seen for quite some time, and that's a good thing. You're not going to get every bit obviously, but we are seeing some small commercial work being awarded. Obviously, the public work, we've spoken about that. Education, anything there with oil and gas industries is quite good. And health, anything in that field is quite good. So it is building and as Joe said, the seasonal demand pick up. We see some real demand slightly picking up. And we're not being wildly optimistic but we are definitely seeing improvement. That's why we are saying this third quarter, the demand will be certainly better than the third quarter of last year. So we're quietly optimistic that things are improving. Not every state in the U.S., not every region in the U.S., but overall for us, it is getting better.

[Operator Instructions] We have a follow up question from Sanil Daptardar.

I heard that comment on the cash flow neutral thing. I assume that's after dividends, right?

That comment dealt with Croatia only.

Then I see there was, of course there was a cash drain here on the six-month statement on cash flow, with the cash now on hand going down to $265 million. But if that continues, do you think there might be a possibility to restore the dividend payments?

A change in the dividend, Sanil?

Yes, restore dividends probably, if suppose because when you compare the guidance, what you've given, and if there are things, I mean, it's only a seasonal factor, a pickup in demand...

I follow you. I would tell you this, that the board looks through one of its committees at the situation before they declare the dividend each quarter. They assess the same factors that you're talking about, plus a lot of others to make the decision. And given where we stand right now, I don't think there's any conversation, plus or minus, about the dividend.

Do you think that at any point of time, you might have to access your credit lines? Because right now, I think there's a $10 million, right? I believe.

Yes, we just issued a commercial paper just to keep our name in the market. We didn't really need it. So that was more just kind of greasing the skids and maintaining the relationships.

Our next question comes from Leo Larkin of Standard and Poor’s. Leo Larkin - S&P Equity Research: Could you give us guidance for, if it's available, preliminary guidance at least for CapEx and depreciation in fiscal 2012?

Haven't done that yet but by next quarter, we will have done the preliminary planning for 2012, and I'll have a better answer for you. I'll have an answer for you, Leo.

Our next question is a follow up from Barry Vogel of Barry Vogel & Associates. Barry Vogel - Barry Vogel & Associates: I have a couple of questions on the Arizona mill. First of all, is it profitable?

Yes. I'm pleased to report that the mill itself is profitable on a net income basis in February, one month, and on operating profit basis for the prior month, which was January. So we've seen good progress in the facility. We're weighed down more in the Western region by our fab business than -- and margins or lack of margin in the fab business. So we've made good progress, and I'm pleased to report profitability in the mill itself. Barry Vogel - Barry Vogel & Associates: So will you be profitable for fiscal '11 at the Arizona mill?

We haven't done that yet. Oh, fiscal '11? Too early to say right now. Barry Vogel - Barry Vogel & Associates: Given the fact that you never did this before, long term, would you be considering duplicating this particular successful mill going in the future?

I'm sure, if the circumstances are right. We've discussed that before, Barry. That first of all, to your point, we wanted to break this mill in and find out all of the idiosyncrasies and how to run it. Now that we have it, would we duplicate it in some other geography? Yes, I think we would but that may not necessarily be the United States, as we've discussed in the past.

We're pleased with the technology, Barry, and having worked it for over a year now, we're obviously complimentary of Denelly [ph]. We work very closely with them, hand-in-hand with them. But whatever reservations that we might have had operationally, we think we've gotten over those hurdles.

At this time, there appear to be no more questions. Mr. McClean, I'll turn the call back to you for closing remarks.