Commercial Metals Company (CMC) Q4 2015 Earnings Report, Transcript and Summary

Hello, and welcome everyone to today's Commercial Metals Company's Full Year and Fourth Quarter Fiscal 2015 Earnings Call. Today's call is being recorded. After the company's remarks, we will have a question-and-answer session and we'll have a few instructions at that time. I would like to remind all participants that during the course of this conference call, the company will make statements that provide information other than historical information and will include expectations regarding economic conditions, U.S. steel import levels, U.S. construction activity, scrap metal pricing, the company's future operations, the company's future results of operations, the commissioning of the company's plant new steel micro mill in Oklahoma and capital spending. These statements are considered forward-looking and may involve speculation and are subject to risks and uncertainties that could cause actual results to differ materially from these expectations. These statements reflect the company's beliefs based on current conditions, but are subject to certain risks and uncertainties, including those that are described in the Risk Factors section of the company's latest 10-K. Although these statements are based on management's current expectations and assumptions, CMC offers no assurance that events or facts will happen as expected. All statements are made only as of this date. Except as required by law, CMC does not assume any obligation to update these statements in connection with future events, new information or otherwise. Some numbers presented will be non-GAAP financial measures and reconciliations for such numbers can be found in the company's earnings release or on the company's website. And now, for opening remarks and introductions, I will turn the call over to the Chairman of the Board, President and Chief Executive Officer of Commercial Metals Company, Mr. Joe Alvarado. Joseph Alvarado - Chairman, President & Chief Executive Officer: Thank you. Good morning and welcome to all that are joining us to review CMC's results for the full year and fourth quarter of fiscal 2015. First, I will cover highlights for the fiscal year, Barbara, will then present further financial details, and I will conclude our prepared comments with a discussion of our outlook for the first quarter of fiscal 2016. After which, we will open the call to questions. As expressed in our earnings release this morning, we reported full year 2015 net sales of $6 billion compared to $6.8 billion for the full year of fiscal 2014. For the full fiscal year 2015, earnings from continuing operations were $161.3 million or $1.37 per diluted share, an increase of $0.45 per diluted share when compared to the prior fiscal year. Furthermore, for the 2015 fiscal year, our adjusted EBITDA from continuing operations was $464.6 million, our best annual performance in the last seven years. Further details for the current fiscal quarter will be described by Barbara during the financial update. Also noted in our earnings release this morning, I'm pleased to report that the board of directors declared a dividend of $0.12 per share of CMC common stock for stockholders of record on November 11, 2015. The dividend will be paid on November 25, 2015. Next, I will cover trends and conditions in the markets in which we operate. The U.S. non-residential and non-building construction markets continued to improve with spending increasing year-over-year in the month of August by 24% and 3% respectively. While we continue to anticipate a permanent federal highway bill, several states have passed legislation or have bills in their state legislatures to raise funds, to improve transportation, infrastructure within their borders. As we discussed in prior calls, certain foreign producers continue to dump steel in the U.S., primarily as a result of the strong U.S. dollar and relatively good U.S. construction demand. We continue to work with the U.S. government to use its trade authority to create a level playing field for domestic producers against the flood of foreign steel. The trade issue is amplified by China's economic slowdown. It's failure to adjust its output to meet current demand and its inability to rationalize inefficient capacity. These factors alone were a significant contributor to the pricing pressure for a number of major commodities worldwide, which in turn placed significant pressure on both the volume and margins in our International Marketing and Distribution segment during fiscal 2015. Furthermore scrap prices continued to decline in concert with other commodity prices, which negatively impacted our results in our Americas Recycling segment. In response, we have made adjustment at many of our locations in order to reduce our cost structure and return to profitability. Poland also continued to attract imported steel as surrounding economies remained weaker. Nonetheless our Polish operations produced a solid fourth quarter of fiscal 2015 by focusing on lowering costs and improving efficiency. As a follow-up to our July 27, 2015 announcement regarding our plan to construct a new steel micro mill in Durant, Oklahoma, the project timeline remains on track. As we expect commissioning of this new facility in the fall of 2017. During the fourth quarter of fiscal 2015, we largely completed the sale of our Australian distribution business. While one location remains for sale, the substantial conclusion of this matter marks another step in our strategic direction to focus on the core operations of CMC. Regardless of market pressures, we're committed to focusing on the matters that are within our control. Namely, we have several initiatives underway related to our supply chain spending and optimization. Furthermore, we continuously review controllable SG&A, manage working capital and take a prudent approach to capital allocation. With that as an overview, I'll now turn the discussion over to Barbara Smith, Senior Vice President and Chief Financial Officer. Barbara? Barbara R. Smith - Senior Vice President & Chief Financial Officer: Thank you, Joe, and good morning, everyone. As Joe mentioned, for the full year of fiscal 2015, we reported earnings from continuing operations of $161.3 million or $1.37 per diluted share, which compares to earnings from continuing operations of $109.1 million or $0.92 per diluted share for fiscal 2014. Results from continuing operations for fiscal 2015 included after-tax LIFO income of $51.5 million or $0.44 per diluted share. The increased LIFO income during fiscal 2015 is primarily due to the dramatic decline in scrap pricing during our fiscal 2015. This compares with after-tax LIFO expense from continuing operations of $8.8 million or $0.07 per diluted share for fiscal 2014. For the fourth quarter of fiscal 2015, we reported a net loss from continuing operations of $5.9 million or $0.05 per share. Included in continuing operations was an after-tax LIFO expense of $23.7 million or $0.20 per share. In the first quarter of fiscal 2015, we changed our method of determining interim LIFO inventory reserves from the complete quarterly LIFO valuation method to the expected annual LIFO valuation method. The actual full year LIFO result differed from our estimates of inventory costs and quantities during the interim periods and resulted in an after-tax LIFO expense true up for the fourth quarter of fiscal 2015. Due to the variability in earnings caused by changes in LIFO and the fact that we reduced our reserve during fiscal 2015, we are considering changing the inventory costing methods for all of our LIFO inventories in fiscal 2016. In addition, as detailed in our press release this morning, we made several decisions during the fourth quarter of fiscal 2015 that we expect will improve our results going forward, which resulted in a number of one-time charges. We also recorded asset impairment charges in the fourth quarter of fiscal 2015. In summary, these actions resulted in charges totaling approximately $0.10 per share. Looking at our results by segment for the fourth quarter of fiscal 2015, our Americas Recycling segment recorded an adjusted operating loss of $15.4 million for the fourth quarter of fiscal 2015 compared to an adjusted operating loss of $2.1 million for the fourth quarter of fiscal 2014. The loss was primarily due to the reduced shipments of both ferrous and nonferrous scrap coupled with lower metal margins for nonferrous shipments compared to the fourth quarter of fiscal 2014. Ferrous metal margins were largely flat compared to the same quarter in the prior year. In addition, this segment recorded a goodwill impairment of $7.3 million. Our Americas Mills segment recorded an adjusted operating profit of $46.2 million for the fourth quarter of fiscal 2015 compared to an adjusted operating profit of $63.8 million for the fourth quarter of fiscal 2014. This decrease was driven by a 6% decrease in total shipments partially offset by a 2% increase in average metal margin, compared to the fourth quarter of fiscal 2014. Another significant driver of the decline in profitability was a pre-tax LIFO expense of $13.9 million for the fourth quarter of fiscal 2015, compared to a pre-tax LIFO expense of $6.1 million for the fourth quarter of the prior fiscal year. Our Americas Fabrication segment recorded an adjusted operating profit of $7.5 million for the fourth quarter of fiscal 2015 compared to an adjusted operating profit of $8.1 million in the prior year quarter. For the fourth quarter of fiscal 2015, total shipments increased 1% while the average composite metal margin expanded 23% compared to the fourth quarter of fiscal 2014. Offsetting these improvements for the fourth quarter of fiscal 2015, this segment recorded pre-tax LIFO expense of $11 million compared to pre-tax LIFO expense of $3.8 million for the fourth quarter of fiscal 2014. Our International Mill segment recorded an adjusted operating profit of $6.4 million for the fourth quarter of fiscal 2015, an improvement of $1.4 million compared to the prior year's fourth quarter. While average metal margins were squeezed to 21% and the shipments declined 1% compared to the fourth quarter of fiscal 2014, these declines were more than offset by an $8.3 million decline in utilities and repair and maintenance expense partially due to the efficiencies gained from the commissioning of a new state-of-the-art electric arc furnace in the third quarter of fiscal 2014. For the fourth quarter of fiscal 2015, adjusted operating profit reflected an unfavorable foreign currency impact of approximately $2.2 million. Our International Marketing and Distribution segment recorded an adjusted operating loss of $13.7 million for the fourth quarter of fiscal 2015 compared to an adjusted operating profit of $15.5 million in the year's fourth quarter. The decline in adjusted operating profit is due to a combination of lower shipments and margin compression in many of the products we trade in the fourth quarter of 2015 compared to the fourth quarter of fiscal 2014. This segment's results continue to be pressured by strong U.S. dollar, global steel overcapacity and weak oil and gas tubular demand. In addition, during the fourth quarter of fiscal 2015, we made the decision for an orderly exit of our steel distribution operation in the UK and as a result we recorded an expense of approximately $4.5 million. Furthermore, for the fourth quarter of fiscal 2015, this segment had a $13.6 million unfavorable change in pre-tax LIFO expense compared to the fourth quarter of the prior fiscal year. Turning to our balance sheet and liquidity, as of August 31, 2015, cash and short term investments totaled $485.3 million and total liquidity was more than $1.1 billion. For the fiscal year 2015, we had cash flows from operating activities of $313.5 million. For fiscal 2015, capital expenditures were $119.6 million. We estimate that our capital spending for fiscal 2016 will be in the range of $220 million to $230 million, which includes an estimate of costs related to the construction of the new Oklahoma micro mill. This concludes my remarks. Thank you very much. I'll now turn it back over to Joe for the outlook. Joseph Alvarado - Chairman, President & Chief Executive Officer: Thank you, Barbara. We expect September and October to be a continuation of solid construction demand. In November, we will begin to see things slow down due to holidays in the U.S. as well as the onset of more inclement weather in the U.S. and Poland. In September and October of this year, ferrous scrap prices continued to fall but we believe prices are near a bottoming point. In the short-term, we expect the decline in ferrous scrap prices to open up metal margins in our downstream mill and fabrication operations. While the indicators do not suggests material or near-term improvements in ferrous scrap pricing, we do not anticipate significant future downside. We believe that U.S. non-residential construction will continue to show modest gains in the near-term resulting in steady demand for fabricated steel products and we continue to monitor the impact of steel imports into both the U.S. and Poland. To briefly look back on fiscal 2015 as a whole, we achieved record adjusted EBITDA since the onset of the global financial crisis. We also celebrated a century of CMC as a commercial enterprise. We are proud of our accomplishments and of the commitments we've made as a company and as individuals to our customers, suppliers, shareholders, community and each other and we look forward to the future with optimism. Thank you. And at this time, we'll now open the call to questions.

We will now begin the question-and-answer session. We request that you ask one initial question and one follow-up question. If you have additional questions, please re-enter the question queue. Follow up questions will be addressed if time permits. The first question comes from Evan Kurtz with Morgan Stanley. Please go ahead. Evan L. Kurtz - Morgan Stanley & Co. LLC: Hey. Good morning, guys. Joseph Alvarado - Chairman, President & Chief Executive Officer: Good morning, Evan. Barbara R. Smith - Senior Vice President & Chief Financial Officer: Good morning, Evan. Evan L. Kurtz - Morgan Stanley & Co. LLC: Just wanted to nail down the LIFO true-up in the quarter. I kind of calculate, it's coming out somewhere in the high-40s or so. Do you have that broken out anywhere? Barbara R. Smith - Senior Vice President & Chief Financial Officer: Broken out by segment or... Evan L. Kurtz - Morgan Stanley & Co. LLC: Or just overall, I mean, how much was earnings impacted by just a pure true-up portion of LIFO rather than just the underlying LIFO expense from the quarter? Barbara R. Smith - Senior Vice President & Chief Financial Officer: I guess, Evan, our method is to do an estimate for the full year and then each quarter we book based upon that estimate for the full year and the true up in the fourth quarter really reflected the scrap price estimate for the end of the year and the quantity estimates for the end of the year did not materialize as anticipated and so we then had to adjust. So it's – I guess, there's not really a way to break it down into separate pieces between what would have been booked in the fourth quarter versus – because we do an estimate for the full year, it's like an estimated tax calculation and there are a lot of different factors that go into it. We've always seen a lot of variability in LIFO charges are – others who are on the LIFO method tend to see a lot of variability in their earnings as well. Evan L. Kurtz - Morgan Stanley & Co. LLC: Maybe, I could just walk through a little bit of math because the way I was kind of thinking about it and maybe I'm off base here, but for your full year LIFO expense or income rather, I believe is somewhere around the $92 million mark. So if you just looked at that on a quarterly basis, it kind of runs at about $23 million or so a quarter. But obviously you booked $24 million expense this quarter. So, I kind of looked at that delta of negative $22 million versus positive $24 million as kind of a true-up for your year-end assumption changes. Is it fair to say that if we excluded that that would give a better representation of kind of the underlying normalized earnings power? Barbara R. Smith - Senior Vice President & Chief Financial Officer: Okay. Let me try it another way. So for the full year... Evan L. Kurtz - Morgan Stanley & Co. LLC: Maybe this is too detailed. Barbara R. Smith - Senior Vice President & Chief Financial Officer: No. No. No. It's okay. For the full year, we recorded $79 million of LIFO income pre-tax. And so that would be roughly $20 million a quarter as compared to what was actually booked each quarter and if you recall first quarter was a really modest amount. There was then a big true-up in second and third quarter. We expected scrap prices to continue to fall. They were sort of flat within the quarter up in June and down again in August. And then, the downturn in scrap prices has come subsequent to our year-end. Does that answer you...? Evan L. Kurtz - Morgan Stanley & Co. LLC: Got it. Okay. That – yeah. The 20 is helpful. It feels like that maybe is kind of, like the right LIFO number to use per quarter or this year, would you say? Barbara R. Smith - Senior Vice President & Chief Financial Officer: Yeah. Yeah. Evan L. Kurtz - Morgan Stanley & Co. LLC: Okay. Barbara R. Smith - Senior Vice President & Chief Financial Officer: On a quarterly basis, that's what would have been spread – if we had a perfect lens and could have estimated it perfectly. Evan L. Kurtz - Morgan Stanley & Co. LLC: Great. And then just my other question is on next quarter. So, just looking at averages on the spot market from rebar versus scrap, you saw a little bit of metal margin compression in the fourth fiscal quarter here. But it looks like scrap is falling quite a bit or will it fall quite a bit for the November quarter and metal margins could once again expand. Do you expect to – I would expect, you would see some improved metal margins going into next quarter, I guess that will be somewhat impacted by weaker seasonality but is there a potential here for an uplift and at least Americas Mills profitability on a sequential basis? Barbara R. Smith - Senior Vice President & Chief Financial Officer: Yeah. Evan, it's still early in the quarter, but clearly as prices don't adjust to get back all the scrap decline, that potential does exist. Evan L. Kurtz - Morgan Stanley & Co. LLC: Okay. And sorry. Maybe just one final one. What are you seeing for November scrap? Joseph Alvarado - Chairman, President & Chief Executive Officer: Well, it's and as I said in my comments, Evan, we feel like we're near bottom. Now that doesn't mean that we are at the bottom but we don't see any significant change one way or the other. Guessing where scrap is, has been not a very profitable business for anyone these days. Obviously the prices moved dramatically and in some pretty big swoops, the last one being at $50 a ton decline. So in terms of ratios compared to iron ore and I've heard ratios anywhere from 2.5% to 4.5% and we're sitting at about 3.5% right now and with oil prices hit about $50 a ton. So yeah I don't expect dramatic movement, but we could be wrong. The one thing that certainly happening is that flows are being impacted. And the more that flows are impacted the more likely there'll be some upward pressure. Evan L. Kurtz - Morgan Stanley & Co. LLC: Got it. Thanks for that. Take care guys. Joseph Alvarado - Chairman, President & Chief Executive Officer: Thank you, Evan. Barbara R. Smith - Senior Vice President & Chief Financial Officer: Thanks, Evan.

The next question comes from Brain Yu with the Citi. Please go ahead.

Yeah. Hi, good morning Joe, Barbara. Joseph Alvarado - Chairman, President & Chief Executive Officer: Good morning, Brian.

I'm back of Evan – hey, Evan's comment, I think you are so disappointed that the LIFO charges are taken away from what is a pretty good quarter, I'm getting free cash flow generation before working capital changes of $0.70 per share in the fourth quarter and almost $1.60 for the full year which would actually put you guys pretty high amongst your price (21:48) to free cash generation. And you mentioned, Barbara, that you're looking to change the way you're going to account or try to account for a LIFO in 2016. Can you expand on that comment? Barbara R. Smith - Senior Vice President & Chief Financial Officer: Yeah, as I indicated earlier, LIFO creates a lot of variability and volatility in our earnings. It's very difficult to estimate and it's really historically been attack strategy and given the depletion of our LIFO reserve in 2015 and anticipated depletion potentially in 2016, the reserve is at a level where it may make sense for us to consider moving off the LIFO method to another method of inventory valuation. So we're doing the work on that. There is lot of work to be done and things to be analyzed, but it just might be an opportunistic time to evaluate that and I think it would eliminate a lot of volatility in our earnings and would be a better matching of revenue and expense.

Okay. And related to that, are there going to be any cash tax implications from moving off or potentially moving off of LIFO? Barbara R. Smith - Senior Vice President & Chief Financial Officer: We actually think it could be a positive because, as I indicated earlier, we booked $79 million of LIFO income this year and we had to pay the corresponding tax of roughly $30 million on that income and if you change methods you actually have the opportunity to spread that tax liability over four years. And so it would reduce the cash tax impact by our current estimates in fiscal 2016 and it would be spread, the balance would be spread over the coming four years.

Okay. Thanks, I'll drop back in the queue. Barbara R. Smith - Senior Vice President & Chief Financial Officer: Thanks, Brian. Joseph Alvarado - Chairman, President & Chief Executive Officer: Thanks, Brian.

The next question comes from Brent Thielman with D.A. Davidson. Please go ahead. Brent Edward Thielman - D. A. Davidson & Co.: Hey, good morning. Joseph Alvarado - Chairman, President & Chief Executive Officer: Good morning. Barbara R. Smith - Senior Vice President & Chief Financial Officer: Good morning, Brent. Brent Edward Thielman - D. A. Davidson & Co.: Joe, when you take a step back and kind of look at the volume trends at the U.S. Mills and Fabrication businesses the last few quarters, you're sort of roughly flat to down year-on-year depending on the quarter. Can we kind of look at that lack of momentum and attribute that strictly to the import situation or does this sort of reflect the general momentum in domestic construction markets you're seeing? Joseph Alvarado - Chairman, President & Chief Executive Officer: Yeah. So there are a combination of things, obviously, with no simple answer to any of this Brent. But the most significant impact in our shipping volume really hasn't been on the rebar side, it's been more on merchant and billet. But you're right the rebar shipments have been fairly flat and merchant – I'm sorry and fabrication shipments have been strong, but over the course of the year that'll normalize itself especially as we go into next quarter. But where we've seen the most adjustment or impact on volume has been not in rebar but in billet and merchant product. And merchant inventories are still high on a relative basis. I think it's sort of long products 2.8 months inventory as compared to a year ago of 2.4 months. And certainly the distributors are very cautious about inventory and inventory positions really owing to demand I think more than anything else and availability of alternatives. So we're still pretty optimistic about construction markets and rebar strength and demand but there is no doubt that imports have gained the lion share of increased demand in the United States. Brent Edward Thielman - D. A. Davidson & Co.: Okay. Great. Thanks for that. And then on the fabrication backlog, appreciate the comments around it being good. Wondering if you could just get into any more granularity about regional trends? Is their significant work in the backlog that's yet to be released or delivered would be helpful. Joseph Alvarado - Chairman, President & Chief Executive Officer: Yeah. We have really strong backlog. Our backlog is as strong as it's been and that's been consistent as well throughout the year. We have seen pickups in some regions where we hadn't seen strength. More specifically, I'll use the Atlantic Georgia market is an area where only recently in some of our discussions, it's become more apparent that there is good activity there. The others remain strong. The Texas market has remained strong, California has remained strong, South Florida, which doesn't impact us as much but certainly is a factor in rebar consumption is strong and Beltway is strong and we've reported good solid activity in the New England area specifically in New York. So all those markets remain attractive and good. The Architectural Billing Index jumped up well above 50 again this past month after a bit of a bump back. So there is still really good activity on the bidding and booking front and we still maintain a strong backlog. And as we work through that backlog and realize the benefit of what is changing raw material prices, we'll hope to see slightly better spreads and maybe when those tons are booked. Brent Edward Thielman - D. A. Davidson & Co.: Thank you.

The next question comes from Phil Gibbs with KeyBanc Capital Markets. Please go ahead.

Good morning. Joseph Alvarado - Chairman, President & Chief Executive Officer: Good morning. Barbara R. Smith - Senior Vice President & Chief Financial Officer: Good morning, Phil.

As far as the capital spending, are we likely to see any carryover in 2017 from spending on the new mill or is the majority of that spend going to be taking place in fiscal 2016? Barbara R. Smith - Senior Vice President & Chief Financial Officer: Well, a good portion will occur in fiscal 2016 but, yes, there'll be some carryover, Phil, into 2017.

Okay. Any color on the magnitude just for our modeling for the share next? Barbara R. Smith - Senior Vice President & Chief Financial Officer: Of the $220 million that I guided, about $90 million of that is the new mill. And so I'd put another equivalent amount in the following year.

Okay. That's helpful. And then in terms of the severance inventory write-downs along with asset impairments that you bucketed as a $4 million after tax hit I think on my math it's probably $6 million to $6.5 million pre-tax. Any help on where that came through in the segments or corporate or just any sort of help there because I think you had bucketed the other charges pretty well of the segments? Barbara R. Smith - Senior Vice President & Chief Financial Officer: Yeah. And I think, well, the goodwill was in the recycling segment. And I think actually on the face of the financial statements, we break it out separately but some people are – will roll that into their SG&A line, I don't know how is that modeled, everyone keeps their models. Then I mentioned in my remarks that the – we took an impairment in the M&D segment for the exit of the Distribution portion of our activity there and I think that was like $4.5 million pre-tax. And then the balance, the severance is really spread throughout the business. We made comments about making some adjustments in recycling as that continues to be under a lot of pressure but we are really – it's really a company wide effort to continue to reduce overhead and SG&A and so it would spread throughout the segments.

Okay, that's helpful. And just lastly before I jump off, anything from a big picture strategic standpoint Joe that you can talk about as far as what you're focused on maybe in terms of goals for the next year to two and then what the goals for the company here for growth in the next three to five, I think that would be helpful? Thank you. Joseph Alvarado - Chairman, President & Chief Executive Officer: Yeah, Phil. We're committed to growing the business, that's always been our objective and improving the balance sheet had been our priority and as was pointed out, our balance sheet is in good order and there is good strong free cash flow from the business. And as we think about growing the business, we always think to about doing it ratably and doing it for the right reasons. The micro mill in Oklahoma is an example of that where we – we're adding capacity, but known capacity into market that can absorb that capacity as opposed to capacity for the sake of capacity. So while growth is our priority we want to be reasonable about it and that needs to be measured. The fact of the economy and where we are – we have been sitting in a pretty good economic situation for growth purposes, and so anything that allows us to improve our cash flow and our balance sheet is good for us and anything that allows us to improve the revenue and profitability stream is where we focus our energy and our time. The last thing I want to point out is that, we're in the recycling business. Recycling business is important to us. I know there's a lot of attention paid to that. It's also a critical input and times like this is when it's really essential to the operation of our mill that we have good access to recycle ferrous material and the nonferrous obviously gets marketed off. And I know that that will get a lot of attention on that. For us, it's a critical component of our overall go-to market strategy. And we continue to work it very hard recognizing that we have to address our cost side. But it'll be an essential element to any recovery that we see in the market because demand for metallics will grow from where they're today. So in longer term, while it's important to us, it's also a vital resource for other EAF producers. So that's – those are kind of general comments, Phil, about where we spend our time, but last but not least, it's focusing on the things that are important that we can control. And that's where lot of our energy is, that's why supply chain – our supply chain initiative is important. We've been disaggregated buyer from the old business model that we employed at Commercial Metals where everything was decentralized. We went to a regional model with more central control and this is continuation of that effort. And it's important, it's essential and it's vital because as it stands now, we lack the controls that we'd like to have and believe that there is some real savings potential associated with those things that we can control and supply chain is one of them – supply chain and logistics.

Thanks, Joe.

The next question is a follow-up from Brian Yu with Citi. Please go ahead.

Thanks for follow-up. Hey, Barbara, so on CapEx, if I'm reading this correctly and it looks like for the new Oklahoma mill, it's going to be somewhere around $180 million across next couple of years. Is that right? Barbara R. Smith - Senior Vice President & Chief Financial Officer: Yeah. For planning purposes, I think in that $180 million, $190 million is a good projection to use.

Okay. Are there any updates on the permitting for that project, or any other necessary permits that need to be achieved? Joseph Alvarado - Chairman, President & Chief Executive Officer: The air permit is the most essential and there were hearings and a little bit of public comment that needs to be addressed. So we feel like we're on track from, as I mentioned in my comments, on track from what we had anticipated. So that's the most essential permit that we still have to fulfill.

Okay. Joseph Alvarado - Chairman, President & Chief Executive Officer: And we're still shooting for completing that as quickly as possible.

Got it. And then last one just on the scrap side a bit, more for your purchasing costs and that the fiscal quarter. It looks like it was mostly stable quarter-on-quarter and obviously we've seen scrap prices drop quite a bit. Is there a bit of a lag effect that's causing your scrap input cost to basically not change? So we should expect that to drop in the fiscal first quarter? Joseph Alvarado - Chairman, President & Chief Executive Officer: Yeah, there are some regional differences, Brian that are going to be a little bit not reflective per se of what exactly happens in Chicago. Texas markets are different than the East Coast markets or West Coast markets. So there's a good deal of variability. I'm not sure what exact number you're looking at. Quarter-to-quarter it was flat, but it would vary significantly by region.

Okay. Barbara R. Smith - Senior Vice President & Chief Financial Officer: Yeah. And Brian remember last – I mentioned earlier in June, scrap prices went up and then they fell back in August. So we've really did see sort of flat net-net... Joseph Alvarado - Chairman, President & Chief Executive Officer: For the quarter. Barbara R. Smith - Senior Vice President & Chief Financial Officer: ...for the quarter and again that was one of the factors that drove the true up on the LIFO.

Yeah. Got it. Okay. Thank you.

The next question comes from Aldo Mazzaferro with Macquarie. Please go ahead. Aldo Mazzaferro - Macquarie Capital (USA), Inc.: Hi, good morning. Joseph Alvarado - Chairman, President & Chief Executive Officer: Good morning, Aldo. Barbara R. Smith - Senior Vice President & Chief Financial Officer: Good morning, Aldo. Aldo Mazzaferro - Macquarie Capital (USA), Inc.: Yeah. A couple of quick ones, Barbara, I was happy to hear you say on the LIFO swing there that that was such a big impact to the earnings, following my due diligence math on LIFO. I was estimating about a $0.20 income in the quarter, so $0.40 swing there is a big number. And I would wholeheartedly support the move to FIFO. So basically... Barbara R. Smith - Senior Vice President & Chief Financial Officer: Yeah. I... Aldo Mazzaferro - Macquarie Capital (USA), Inc.: Okay. Barbara R. Smith - Senior Vice President & Chief Financial Officer: We agree. Thank you. Aldo Mazzaferro - Macquarie Capital (USA), Inc.: Yeah. The other thing, why didn't the scrap consume decline in the mills in the quarter, sequentially, I see it was about flat? Barbara R. Smith - Senior Vice President & Chief Financial Officer: Are you talking, pricing or volume? Joseph Alvarado - Chairman, President & Chief Executive Officer: Volume. Aldo Mazzaferro - Macquarie Capital (USA), Inc.: No, no, the usage cost on the Americas Mills, it looked like it went sequentially flat. And I'm just wondering there was the lot of movement in the market I think around them. But that's – I understand that's August quarter, but don't you think you should have gotten more reduction in the scrap side? Barbara R. Smith - Senior Vice President & Chief Financial Officer: Yeah, I mean although, I think it – going into the fourth quarter of course everyone anticipated a continuation of falling scrap prices. And, maybe it's because we all know that scrap has since our fiscal year end fallen $50 a ton, but if you recall, our May quarter ended our third quarter in June, scrap prices went up $30 a ton unexpectedly. And then they went on to fall back down $30 a ton by the end of the quarter. So within the quarter, it was pretty flat in terms of – and as Joe said, there's lots of gives and takes regionally, but for our fiscal fourth quarter, scrap was flat, up $30, down $30. Aldo Mazzaferro - Macquarie Capital (USA), Inc.: Great. Barbara R. Smith - Senior Vice President & Chief Financial Officer: And then only to fall again here more recently. And that's part of why it wreaks havoc on LIFO calculations, because we've had such significant changes in scrap prices month-to-month. Aldo Mazzaferro - Macquarie Capital (USA), Inc.: Great. And so in terms of the upcoming quarter then you should probably definitely see a decline in scrap cost, I would think then... Joseph Alvarado - Chairman, President & Chief Executive Officer: Yeah, absolutely. Barbara R. Smith - Senior Vice President & Chief Financial Officer: Yeah, yeah. Aldo Mazzaferro - Macquarie Capital (USA), Inc.: Agree with that? Yeah. Joseph Alvarado - Chairman, President & Chief Executive Officer: Absolutely. Aldo Mazzaferro - Macquarie Capital (USA), Inc.: And I guess, could I go further and say against the rebar and merchant bar price, would you expect a wider metal spread? Barbara R. Smith - Senior Vice President & Chief Financial Officer: I believe we got the question earlier. And certainly, if the market doesn't require for end product prices to adjust and give back all that reduction in scrap price and certainly that creates an opportunity for margin expansion. Aldo Mazzaferro - Macquarie Capital (USA), Inc.: Great. And then if I could just follow one more on the new mill in Oklahoma. If I remember correctly, you have a very large swath of land there relative to the size of the mill would require and I'm thinking, is there some reason why – is that wetlands or the fact that it's a reservation? Is there some reason why you had to purchase so much land or do you have like grander scale plans for that site? Joseph Alvarado - Chairman, President & Chief Executive Officer: I'm chuckling a little bit, Aldo because when we purchased the land, someone pointed out here that there was a proposed integrated mill somewhere in Vietnam being built for 6 million tons on the same site. We have no such plans. However the land that was available gives us a nice buffer from neighbors and good access to the highway, and each – you know all of us in this business have neighbors who don't really like what they see when they – after it's been built, it's fun to think about the jobs, but once it's built, there is noise coming out of there and smell is coming out and smoke coming out and much as we do to behave responsibly and in concert with the regulations and environmental laws it's still always a bit of an eyesore when someone sees manufacturing. As one of my old bosses said, there is no thing as pretty manufacturing. So we got a nice piece of parcel of land and it makes good sense for us and gives us ample room with which to operate and with which to buffer our neighbors. Aldo Mazzaferro - Macquarie Capital (USA), Inc.: Great. Well, thanks, Joe and Barbara. Thank you. Barbara R. Smith - Senior Vice President & Chief Financial Officer: Thank you, Aldo.

The next question comes from David Lipschitz with CLSA. Please go ahead.

Good morning. Joseph Alvarado - Chairman, President & Chief Executive Officer: Good morning, David.

Good morning. So I'm not that bright. So please go back, is your LIFO going forward or no? I'm confused. So in the first quarter..? Barbara R. Smith - Senior Vice President & Chief Financial Officer: So you sensed a little hedging there, David?

Yeah. So... Barbara R. Smith - Senior Vice President & Chief Financial Officer: So...

...if I am modeling forward, do I expect a LIFO credit because prices have fallen or there should be no – nothing because you are going to FIFO? Barbara R. Smith - Senior Vice President & Chief Financial Officer: Yeah. David, I think for the time being, one should assume we are still on the LIFO method until otherwise stated.

For the notice. Barbara R. Smith - Senior Vice President & Chief Financial Officer: Right, but I would say, in addition to that, we will make that determination within this first quarter. There is a lot of work that goes into that. It's a big accounting change. It requires a preferability letter from our auditors. We've got to restate prior years and quarters to reflect the change. So there is a massive amount of works. We have looked at it in some amount of depth and we feel like it makes a lot of sense for us. But we have to complete all of that work. And we expect to do that within this quarter and give you further input on that when we announce our results for the first quarter.

So let's say you don't do it. Would we expect a pretty big LIFO credit, because prices have dropped so much? If I were – would that be a correct assumption or...? Barbara R. Smith - Senior Vice President & Chief Financial Officer: We would do an estimate for the full year and book a fourth of that estimate based on the outlook, would be the way it would occur...

Right. Barbara R. Smith - Senior Vice President & Chief Financial Officer: ....if we were to...

So do we have an estimate though for the year as of this point? Barbara R. Smith - Senior Vice President & Chief Financial Officer: Well, as you know, we don't give specific guidance. So at this point, I would say we're not prepared to give you a specific estimate for LIFO for the full year.

Okay. (42:39) yeah. Okay. Perfect. Thank you. Joseph Alvarado - Chairman, President & Chief Executive Officer: Thank you, David.

The next question comes from Charles Bradford with Bradford Research. Please go ahead.

Good morning. Joseph Alvarado - Chairman, President & Chief Executive Officer: Good morning, Chuck. Barbara R. Smith - Senior Vice President & Chief Financial Officer: Good morning, Chuck.

Couple of questions. The land in Oklahoma, there are reports in some of the press that you actually got the land for free. Can you comment? Joseph Alvarado - Chairman, President & Chief Executive Officer: Chuck, there are a lot of different incentives that are offered to us by the state. That's one of the reasons why we are located in Oklahoma. So rather getting into all the details like – as it's done in the press, I'll let them keep reporting on that they can work through the paperwork. To me, that's not useful – good use of time for us.

There has been a report out of, I guess Japan that the Chinese exported 23.6 million tons or in the process of exporting this year, that would be a gigantic amount of billets, which the comment being made is, well maybe they really were reported as alloy bars, yet the U.S. data, we get from Department of Commerce and AISI doesn't show billet separately, do you know or have any idea what the number could be on the U.S. side? Joseph Alvarado - Chairman, President & Chief Executive Officer: On the billets, Chuck?

Yeah, on the billets imports. Joseph Alvarado - Chairman, President & Chief Executive Officer: Yeah. To my knowledge we haven't seen much in the way of billet imports here in North America, but certainly it's had a huge impact on Southeast Asia. Really throughout the region most electric arc furnace producers are relying on billets from China because they are priced so attractively. So electric arc furnace production in Southeast Asia has been severely impacted by the availability of cheap imported Chinese billets. So if you look to your numbers, you might want to look that way Chuck, and nearby regions have been particularly impacted by billet exports from China.

Does it make sense for you to import these cheap billets? Joseph Alvarado - Chairman, President & Chief Executive Officer: At this point Chuck, we haven't seen any offers, not aware of any of that, it really has been more isolated. It's hard for me to rationalize how that makes sense against our overall cost structure. We have a lot of mouths to feed. I think we're very competitive with the metallic price that we have and we're very competitive in our conversion costs on each of our melt shops. And I would suspect that it would quickly be found that there is dumping associated with that kind of activity. And you know as well as us the overall cost structure in China is highly subsidized, so to make a living off – to try to make a living off of the subsidized source while it might have short-term benefit and impact, long-term isn't really a viable strategy.

Thank you. Joseph Alvarado - Chairman, President & Chief Executive Officer: Okay. Thanks, Chuck.

At this time, there appear to be no further questions. Mr. Alvarado, I'll now turn the call back over to you. Joseph Alvarado - Chairman, President & Chief Executive Officer: Okay. Well, thank you. I appreciate that. Thank you all for joining us on today's conference call. We appreciate it very much and we look forward to speaking with many of you during our investor visits in the coming days and weeks. So thanks all and have a good day.

This concludes today's Commercial Metals Company conference call. You may now disconnect.