Commercial Metals Co (CMC) 2014 Q1 法說會逐字稿

Hello and welcome, everyone, to today's Commercial Metals Company first-quarter fiscal 2014 earnings call.

Today's call is being recorded.

After the Company's remarks we will have a question-and-answer session, and we will 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 and the Company's future results, prospects, operations 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 that are described in 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.

CMC does not assume any obligation to update them in connection with future events, new information, or otherwise.

Some numbers presented will be non-GAAP financial measures, and reconciliations can be found in the Company's press 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.

Thank you.

Good morning and Happy New Year.

Thank you for joining us to review CMC's first-quarter fiscal 2014 results.

I will begin the session with highlights from the quarter.

Barbara will then provide further financial details, and I will close out with comments on our outlook for the second quarter of fiscal 2014, after which we will open the call to questions.

As detailed in our earnings release this morning, we reported net sales of $1.7 billion for the first quarter of fiscal 2014, which was consistent with our net sales for the first quarter of fiscal 2013.

For our first quarter of fiscal 2014 we reported net earnings of $45.9 million or $0.39 per diluted share.

This included an after-tax gain of $15.5 million or $0.13 per diluted share associated with the sale of our wholly-owned copper tube manufacturing operation, Howell Metal Company.

Earnings from continuing operations were $32 million or $0.27 per diluted share, which is an increase of $0.24 per diluted share when compared to the preceding quarter.

Furthermore, for the first time since the first quarter of fiscal 2013, all of our business segments reported positive results.

In particular we are pleased with the improved profitability of our Polish operations, which posted one of the best first-quarter results since CMC acquired the business 10 years ago.

For the quarter and as indicated in the earnings release, the Board of Directors declared a dividend of $0.12 per share for shareholders of record on January 21, 2014.

The dividend will be paid on February 4, 2014.

At this time I will make a few remarks on market conditions and other strategic initiatives.

During our last conference call, discussing our results for the fourth quarter of fiscal 2013, we noted strength in many of the key US economic indicators.

Those indicators remain strong and continue to point to improvement for our North American businesses.

We remain committed to the notion that the pending recovery of nonresidential construction is gaining traction.

Additionally, in the US, while trade actions against several foreign countries are underway, imports continue to negatively impact our businesses.

The international markets in which we operate are also displaying similar positive economic signs, as reported in our fourth-quarter of fiscal 2013 conference call.

Both Europe and Australia are seeing economic indicators improve.

However, these indicators have not yet turned into meaningful improvements in our shipments or margins.

Our Polish operations reported an outstanding quarter, and we're encouraged by the outlook.

In the spring of 2014 we will be installing a new, modern electric arc furnace, which will improve the efficiencies and overall cost performance of our melt shop.

As discussed earlier, during the quarter we completed the sale of our copper tubing manufacturing operation, adding more than $15 million of cash to our balance sheet.

This action was a continuation of our effort to strategically reposition our operations and to capitalize on our core strengths.

We're also pleased that our US fabrication businesses remain profitable and that our backlogs, bid activity, and bookings are strong.

We're optimistic that these activities in our downstream businesses point to a more sustainable trend for the US construction markets.

With that overview, I will now turn the discussion over to Barbara Smith, Senior Vice President and Chief Financial Officer.

Barbara?

Thank you, Joe.

Good morning and Happy New Year.

As Joe mentioned, for the first quarter of fiscal 2014 we reported net earnings of $45.9 million or $0.39 per diluted share, which compares to net earnings of $49.7 million or $0.42 per diluted share for the first quarter of the prior year.

First-quarter results for fiscal 2014 included an after-tax gain, $15.5 million or $0.13 per diluted share, associated with the sale of our copper tube manufacturing operation.

Similarly, during the prior year first-quarter we recorded an after-tax gain of $17 million or $0.14 per diluted share on the sale of our 11% ownership investment in Trinecke.

More notably, during the first quarter of fiscal 2014 we reported $0.27 per diluted share from continuing operations, which included after-tax LIFO expense of $2.8 million or $0.02 per diluted share compared with LIFO income from continuing operations of $15.1 million or $0.13 per share during last year's first quarter.

Turning to our results by segment, our Americas recycling segment reported adjusted operating profit of $839,000 in the first quarter of fiscal 2014.

Average sales prices on nonferrous scrap decreased $119 per short ton or 4% when compared to the first quarter of fiscal 2013.

We shipped 56,000 tons of nonferrous scrap, which was a 5% decrease over last year's first quarter.

Our ferrous shipments averaged -- ferrous scrap sold for $326 per ton during the first quarter, representing a 1% increase over the $322 per ton reported in the first quarter of fiscal 2013.

Ferrous scrap shipments during the first quarter of fiscal 2014 remained flat at 503,000 tons when compared to last year's first quarter.

During the first quarter of fiscal 2014, this segment's results benefited from a gain on the sale of real estate and facility relocation reimbursements.

Our Americas mills segment recorded adjusted operating profit of $65.8 million for the first quarter compared to $51.6 million during the same period last year.

Selling prices for this segment decreased during the first quarter of fiscal 2014 to $657 per ton from $669 per ton during the prior year's first quarter.

Our Americas mills segment shipped 676,000 tons during the first quarter of fiscal 2014, resulting in a 2% increase in volume when compared to the first quarter of fiscal 2013.

From a product mix perspective we shipped more merchant products, which return a higher margin, and decreased our lower-margin billet shipments.

Our Americas fabrication segment reported adjusted operating profit of $2.2 million for this year's first quarter compared to the prior year's first-quarter adjusted operating profit of $10.2 million.

The primary driver of the reduced profitability was an unfavorable change in LIFO expense of $9.1 million.

This performance extends the string of six out of the last seven quarters that our Americas fabrication segment has been profitable.

The average selling price for this segment decreased $20 per ton over last year's first-quarter average selling price of $934 per ton.

As of the end of the first quarter of fiscal 2014, the volume and the backlog in this segment remained stable.

Our international mill segment reported adjusted operating profit of $15.3 million for the first quarter of fiscal 2014 compared to an adjusted operating profit of $876,000 for the same period last year.

International mill volumes increased by 15,000 tons, or 4%, to 360,000 tons; and selling prices were flat at $603 per ton during the first quarter of fiscal 2014 when compared to the first quarter of fiscal 2013.

Similar to our Americas mills segment, the international mill segment had an increase in shipments of more profitable merchant and wire rod products.

Our international marketing and distribution segment reported adjusted operating profit of $503,000 for the first quarter of fiscal 2014 compared to adjusted operating profit of $40.2 million during the first quarter of fiscal 2013.

The prior year's first-quarter results included a pretax gain of $26.1 million related to the sale of our minority interest in Trinecke.

Within the segment our US-based trading and distribution divisions remained steadily profitable, while our European and Australian divisions continued to struggle in the face of difficult market conditions in these regions.

For an update on our balance sheet and liquidity, our balance sheet continued to strengthen.

Cash and short-term investments totaled $515.5 million as of November 30, 2013, an increase of $136.7 million during the quarter.

$73.5 million of this increase came from cash from operations.

Total liquidity was more than $1.1 billion as of November 30, 2013.

We continue to maintain significant unused credit lines that give us flexibility to adapt to changing markets.

Capital expenditures were $14.1 million for the first quarter of fiscal 2014 compared to $24.8 million in the prior year's first quarter.

We estimate that our capital spending for fiscal 2014 will be in the range of $140 million to $150 million.

With that, thank you very much.

And I will now turn it back over to Joe for the outlook.

Thank you, Barbara.

Overall, this quarter's results were strong and marked our ninth consecutive quarter of profitability.

Despite the strong start to the fiscal 2014 year, our fiscal second quarter is typically our weakest quarter, as holidays limit activity and winter weather slows construction markets in North America, Poland, and northern Europe.

We plan to take advantage of the seasonal slowdown in the second quarter to conduct routine maintenance outages and to upgrade our equipment.

Furthermore, in addition to preparing for the March furnace outage in Poland, we expect to build inventory in preparation for the busier spring construction season.

In summary, we remain upbeat about the nonresidential construction outlook in the US as well as the improved economic indicators in both Europe and Australia.

Thank you for your attention.

At this time, we will now open the call to questions.

(Operator Instructions).

Luke Folta, Jefferies.

Congrats on the results.

First question I had was on -- we have seen a pretty nice move in scrap over the last couple of months, and I wanted to see if you can talk us through how that should impact margins across the main North American businesses in the second quarter.

And all in all, do you expect that to be a net positive or a net negative factor in 2Q?

I think, broadly speaking, prices moving up are positive for the business overall, and they speak to some of the positive indicators that we are seeing in the market.

But in the near term we would expect on the mill side of it that prices will move in tandem with changes in scrap.

The fab side of the business will see a little bit of a squeeze until their prices can catch up to the movement in rebar prices.

But again, overall, we think it is positive for the long term.

I would point out that we do anticipate a fairly large LIFO impact in the second quarter as a result of prices moving higher.

Okay.

All right, that helps, thanks.

And, also, your trading business in the US -- I think -- I know you have talked in the past about having some leverage to the flat rolled market historically.

There is a pretty wide disparity between US and global prices, and I was curious to know if you are a participator -- if that has opened an opportunity for you to import product into the US, and just maybe your perspective on the whole situation and how that is likely to play out over the next few months.

Yes, flat rolled trading is certainly an integral part of our overall trading activities, one that has been strengthened of late.

And, yes, of course, these kinds of disparities create opportunities for us, and we participate in them; but I would say that we are a relatively smaller player in the flat rolled business.

But yes, we take advantage of those opportunities when they present themselves, Luke, and there is a significant threat.

So a lot of speculation about what will happen in the future, and we just monitor the markets as best we can and take advantage of opportunities when they present themselves.

All right, thanks, Joe.

I will turn it over.

Meredith Bandy, BMO Capital Markets.

Good morning and thanks for taking my question.

I just wanted to ask, with the completion of the copper tube sale, do you feel comfortable with your current asset base?

Do you foresee any more asset sales?

Meredith, we as a company are always evaluating our Company's assets and balance sheet and trying to optimize the use of whatever invested capital that we have.

And I wouldn't comment on if we are planning anything, but it is a normal -- it is a required, routine activity for any management team to look at their asset base and make sure that we are getting the best we can out of what we have invested in those assets.

So we have made a number of changes over the years.

We mentioned in our earnings results the sale of the Trinecke investment a year ago.

A year before that, we shuttered the Croatian operations.

Before I ever joined the Company, we disposed of some of deck and joist assets.

And so the copper tube facility sale really was a sale that we determined would be good for Howell Metal in that it's with a strategic player now in the copper tube manufacturing business and allows us to focus on our core business.

Thanks.

That makes a lot of sense.

And then that has also, obviously, helped your cash position.

So how do you prioritize the uses of cash between growth and reducing debt, or possibly dividend increases?

Yes.

Well, clearly with some of Joe's comments around the market, we do look forward to improving market conditions and the cycle recovery in construction.

And that will generally consume additional working capital as that cycle recovery materializes.

So we see that as a use of cash, and so growth is certainly a priority.

We have a CapEx program, as we mentioned; and currently for this year we are projecting around $150 million.

We have remained committed to the dividend throughout this cycle since the global financial crisis.

I think we evaluate that every quarter.

The Board evaluates it and makes their determination.

Today our yield is fairly healthy relative to our peer companies.

So that would be the top three priorities for us.

All right, thank you very much.

Evan Kurtz, Morgan Stanley.

Happy New Year, Joe and Barbara.

Nice improvement in mix on both US and Poland.

I was hoping to drill down a little bit more into detail there.

Can you provide the semifinished tons numbers for each of those two segments?

Yes, we could, but --.

We generally don't give that level of detail.

Sometimes I think we do highlight the billet sales.

I could probably put my hands on that if we dug through some of this.

Yes, it would be great to know at least billets; because we historically used to track billets, and it does give us a sense of how the mix is shifting as time goes on.

So it is a good way to see the improvements there.

Why don't you follow up on another question, Evan, and then we will get back?

I can tell you in the Americas, our billets for a year-ago quarter were 88,000 tons, and the current quarter was 50,000 tons.

Great.

I will try to look up Poland here.

And assuming that that can continue, could you ever get to a point where you are really not selling any billet at all in the US?

Evan, given the cyclical nature of our business, that is an option that we always want to have available to help operating rates and facility utilization.

So I am not envisioning so much strength in the market that we wouldn't be interested in some billet sales.

But certainly, we are always measuring the economics of billet sales, versus finished product, versus overall operating rates at mills.

So I guess I would call it a relief valve of sorts.

And when the right opportunities present themselves, we can take advantage of it, that we do.

That's helpful.

And then just maybe one follow-up on the rebar market.

It seems like rebar imports went off a cliff in December, just based on the license data.

Are you starting to see any sort of activity in that market as far as just ability to negotiate pricing, that sort of thing?

Just maybe an update on that, market conditions there.

The rebar imports are up significantly, as you know, whether we look at it on a quarter-to-quarter basis or a year-to-year basis.

There is certainly a spike coming in January based on the licensing, mostly from Turkey; and as we noted, this negatively impacts our business overall.

And the timing of as much as 100,000 tons of rebar from Turkey coming in in January, which is a couple of points for all of us, doesn't bode well; but I think it also reflects on Turkish practices or expectations of what the trade ruling might be.

And I guess I would further advocate, Evan, that we had a similar situation a year ago, which was finally curtailed in Poland, where unfair trade practices and dumping from Latvia resulted in a pretty significant negative impact on our results, and that when legislation was introduced -- whether it is trade legislation, or in the case of Poland, it was VAT legislation -- it is a level playing field.

We are very competitive in the markets that we serve against imported or dumped steel.

Okay, thanks, guys.

And, Barbara, maybe I will just follow up with you offline on that Poland billet question.

Yes.

We looked it up, and in the current quarter we shipped 25,000 tons of billet; in prior year it was 14,000.

So a marginal change there.

And the 25,000 ton level is light in comparison to past periods.

That was a very small part of the overall mix.

Got it.

Thanks so much.

Timna Tanners, Bank of America Merrill Lynch.

I wanted to ask you a question similar to the last ones, actually.

The first one, if I could drill down a little bit in the solid performance in the US mills segment: so if you look at it on a per-ton basis, your profitability improved.

But if you would humor me for a second, I was still confused that despite the better mix, you didn't see year-over-year improvement in pricing.

But so the improvement in per-ton profitability seemed to come more from the cost side.

We had $92 a ton or so of operating profit per ton.

And then even if I take out the South Carolina furnace fix and also take out the $1 million from Howell, I get $85 a ton year-over-year.

So I am just trying to understand where the improvement came from, if it wasn't price; and if that is something sustainable that we should be looking at going forward in the US mills segment?

Timna, we are not unlike any of our competitors in electric arc furnace business or the steel business in total.

We're always aggressively attacking costs.

And so some of the cost benefit of upgrades and facilities, like we did in South Carolina, does trickle down to the bottom line.

And we are doing everything we can to manage those margins, recognizing that we don't control the price.

The market sets the price, and we get squeezed when raw material costs, like ferrous scrap in particular, swing.

So I don't think there is anything extraordinary in what we are doing, other than minding our Ps and Qs as efficiently as we can and being really good, efficient minimal producers in the products that we produce.

Okay, and that's helpful.

So the second question really has to do with a comment that you had on your backlogs -- and as you know, we think of you as an important company with regard to non-res exposure here in the US.

But I was kind of surprised when you said the backlogs are stable.

What does that mean with relationship to your outlook on non-res improving?

Is it stable and growing, or can you characterize a little bit more your backlog?

Yes.

As we have been talking about for quite some time, it is very regional.

And if you break our backlog down, we are seeing improving trends in the fab side of the backlog.

And we continue to see a benefit from being positioned in the Sun Belt states, and the regional growth in the markets that we serve is stronger than the growth in other parts of the country.

And, Timna, the only other thing I would add to that is we are seeing better bidding activity, particularly in the Sun Belt.

And when that bidding activity, even at whatever our normal hit rate might be, materializes into orders and tons that are booked, that will add to a sense of more stability.

And that is what we are seeing: a little bit less cyclicality or inflection, if you will; and more stability in the bidding activities, particularly in the Sun Belt regions.

We're also seeing a continuing trend of a higher level of private bidding over public.

But more recently we are seeing some public spending start to come back.

There has been funds released.

And in certain parts of the country, we are seeing even higher levels of public bidding than we have seen in the past three or four quarters.

Thomas VanBuskirk, Sidoti & Company.

Happy New Year.

Just a couple of real quick things.

Most of my questions have actually already been answered.

But I wanted to try and get a little bit of sense of the timing of the CapEx over the course of the year.

Obviously, it was pretty light for the first quarter.

And then if you could also maybe characterize a little bit what you are expecting for the amount of inventory build you are going to see in Q2, maybe in terms of days or however you want to put it?

Yes, the CapEx will probably be backend loaded this year.

I think it was little more evenly spread last year.

Clearly, we have heavy spending that is going to begin on the furnace rebuild in Poland very shortly.

But some of the other, bigger projects in the US just haven't had a chance to get started yet.

In terms of the inventory build, I don't have a specific breakdown in terms of tons, but I think it is safe to say that we could see $100 million of cash usage associated with that in this coming quarter.

Okay.

And, actually, just one click follow-up, if I can.

One of the other things on nonferrous in terms of the pricing, kind of coming off in nonferrous scrap -- do you see any remedies out there for that?

Or are you planning anything else in terms of improving some of the recoveries, maybe putting a little more capital spend into that?

I think that has kind of been a trend lately because of the weakness in scrap business.

Yes, Thomas, that is one of the things that we've just completed in the way of a capital project in our Texas region.

We a year ago authorized, and in about eight or nine months' time, built out additional recovery systems for our shredder.

It has been operational since August, and we have seen very positive results.

We are pleased with that investment.

We will consider additional investments for other shredders where the economics make sense.

Okay, thanks.

Brent Thielman, D.A. Davidson.

You mentioned the stable, or, I guess, slight increase in backlog in fabrication.

I was just wondering if you could quantify or give any metrics around the increase in tons bid or tons booked in the quarter?

Well, let me consult my cheat sheets here.

I would point out the following: that normally, moving into this time frame, we see the backlog begin to drop, because the second-quarter shipments are lower and affected by weather to some degree.

So the fact that the backlog increased slightly sequentially, and it is up by a good measure year-over-year, is -- those are both encouraging signs for us.

The change year-over-year is about 10% increase.

Okay, that's helpful.

Thank you.

And then, has the mill in Poland been profitable thus far through the second quarter?

And do you think you can sustain that through Q2, even with, certainly, some seasonality setting in?

We can't comment on the second quarter, of course, Brent.

We don't give specific guidance.

Yes.

But suffice to say that Poland is a mill that is very much impacted by weather, more than any of our other Sun Belt facilities, for sure -- although all of our facilities had some impact because of the cold weather snap that has impacted us.

But we also have holiday effect.

Practically speaking, Poland shuts down for two weeks.

It was only today, after the Feast of the Epiphany that they come back to work.

So we are hindered by shipments because of holidays as well as weather.

The good news on the weather front is that we haven't had any bad storms or a lot of snow coverage in Poland, kind of the opposite of what is normally the case, just like what we are experiencing in the Midwest to North to Northeast is the opposite of what we normally experience.

So we have benefited from that somewhat thus far, but that can turn on a dime and come to a halt very quickly.

What happens more than anything else is a lot of the project work in Poland just stops because of the weather uncertainty.

That doesn't mean that sites aren't being built, that merchant products aren't shipped; but project work really, really comes to pretty much a halt and then picks up again significantly in the spring.

So the situation in Poland is improved, and a big part of the improvement is because of the legislation on VAT to stop fraud.

And so we are grateful for the benefit that has resulted from the initiative taken by the Polish government.

Okay, thank you.

Sal Tharani, Goldman Sachs.

Just a couple of housekeeping questions.

On the Americas mills, what was the LIFO over there?

The Americas mills -- LIFO for the quarter was actually a LIFO benefit of $1.8 million.

$1.8 million, okay, great.

And also, when I look at your divisional information, Americas mills are $480 million, $481 million revenue.

Does that include Howell in there, on Howell sales, profit or whatever -- not the profit, but the revenue you got from selling Howell in there?

Yes, we have reclassed Howell to discontinued ops.

So it has been removed from that.

Oh, from sales and profit, both -- operating profit, both?

Yes.

Yes.

Okay, great.

Thank you very much.

Phil Gibbs, KeyBanc Capital Markets.

How should we be thinking about the timing of the capital upgrades at Poland, as far as how we are thinking about it moving through the year?

Probably the best way to think of it like this, Phil, is we have begun to build inventory for the outage.

We still have -- it is a two-furnace operation, so it is a little bit different than most plants, where we don't have the option of running.

But we still have to build inventory ahead.

The outage is slated for March into April time frame.

And then there is always (inaudible), which will probably carry us up to June.

So the back half of the second quarter -- it won't reflect the capital as much as the third quarter will.

And the third quarter should nearly fully reflect the capital expenditures.

Does that help?

Yes, that is really helpful.

I appreciate it.

Typically the IM&D business ticks up in your second quarter, and you are back to at least a breakeven outcome, which is good.

Anything that we should be expecting there from a seasonal progression standpoint?

You looking for that to play out typically as it does, or is seasonality not as really a big of a factor anymore?

Seasonality in marketing and distribution is more impacted in the second quarter by holidays than anything else.

We have -- essentially, Australia shuts down for a more extended period then we might normally expect.

We have the Chinese New Year, and that all affects trading activity.

So we would expect a normal recovery in the third quarter in our trading activities.

I guess one thing I wish I could say is that we are seeing really extended lead times or strong demand in the building backlog in our raw materials group.

But we're not just yet, and I think that reflects more the international level of activity, where lead times are short and supplies are abundant.

But in the grand scheme of things, our raw material business in North America is generally stronger, which -- it kind of reflects the same thing that we are seeing in the steel business: a generally stronger North American market, which obviously attracts imports, not only of raw materials, but of finished goods; and continued weakness in Europe, despite the fact that Europe is expecting growth in GDP in 2013 and 2014.

Some of the projections are even at the end of 2015 that the operating rates will be in a range of 20%, 25% below the peak.

So recovery is relative, and we have still got a long way to go in Europe.

And, of course, the overcapacity in China has a tendency to impact margins, and prices, and availability throughout Southeast Asia.

So don't see any really strong recovery in China until the capacity issues are addressed, which, as we all know, are very slow in coming.

Okay, and if I could just ask one more -- I really appreciate all the color.

The merchant bar market: I know you had a little bit of a pickup in your mix, and you are aggressively oriented in the southern United States.

So I was reading that the Mexican government put out a public works plan largely for increased -- double-digit increases in public works spending for 2014.

Their calendar year.

Does that help you at all in the South, potentially, send off merchant bar imports from Mexico in the next year?

Yes, I would suspect so.

There has been significant additions of capacity in Mexico for merchant and rebar.

The Mexicans have never overstretched their reach on merchants, because they really didn't have the capacity; and we have seen them more active north of the border.

So if that merchant product got tied up in infrastructure projects in Mexico, yes, that would have, I think, a positive effect.

Is the majority of merchant bar going into non-res construction, or is it split between that and industrial uses?

Phil, it is so hard to measure, because so much of it goes through distribution.

It is really hard to say where it goes.

I will just call it distribution, and the normal mix of end markets from distribution is the best way to characterize it.

Thanks very much.

John Tumazos, John Tumazos Very Independent Research.

It is great that the cash balances rose about 3 times as much as the asset sale and are above $0.5 billion.

Would you explain what the normal level of cash you require for letters of credit, international operations, the diversity of your five segments are, and how much of this cash might be surplus?

And whether you view at today's low interest rates your debt as an asset, and you would rather hold the cash than repay the debt; or whether you intend to pay down debt after some breakage fee periods, or when the right time arises, it is cost effective?

Well, there is a lot in there, John.

In terms of normal level of cash, you can do all kinds of math around that.

And it is a number that can change over time based upon business activity levels.

And we do think that we are at the beginning stages of a recovery, and so the cash requirements in with that recovery could come price increases, which would also increase the amount of cash needed to fund working capital.

So we do see a, as I mentioned earlier, at least $100 million use of cash in the second quarter to fund some of the working capital.

And we look forward to the recovery continuing and also requiring some additional cash.

We have increased our CapEx projections the last couple of years, and so that's another use of cash.

In terms of the debt question, I think we answered that earlier in the year, when we tapped the market, and we extended maturity on the notes that came due in November of 2013.

The market was so favorable.

And as you know, we printed under 5% in that new note and extended the maturity 10 years.

While I would like to be carrying a slightly lighter debt load, at this point in time we really don't have any debt that would be economical to take out right now, with some of the excess cash that we have on hand.

But we evaluate those things all the time.

Our next maturity is 2017.

And we do have a little bit of that pre-funded in our current cash balance.

Thank you.

Aldo Mazzaferro, Macquarie.

Good morning and Happy New Year.

So, you know, when I heard Sal ask his question on the Americas mills line and the revenues, I thought you were going to say the copper revenues are still in there.

The fact that they are not in there -- can you tell us briefly what that incremental $30 million or $37 million, I think, of revenues would be?

If you back into the numbers by multiplying the tons price times the volume, you up with something like $440 million.

And I think there is about $37 million more there, I just -- and I know that has been variable all over the place.

I just wonder if you have any idea what that might be and whether it is sustainable?

Yes, I would say it is probably mix related.

But I would have to take that offline and do some more research on it, Aldo.

Okay.

A quick one, too -- you mentioned there was a real estate gain in the recycling, Barbara.

Was that anything material?

No, it was $1 million.

Okay.

All right, thanks.

Michael Gambardella, JPMorgan.

Good morning and Happy New Year, Barbara and Joe.

Wanted to see if you can give us some more color, maybe quantify -- I don't know.

You can't give an exact number; obviously, you don't know -- but a range on what you are looking at for the LIFO in the second quarter?

Yes, it was a $0.02 expense for the current quarter.

And I could easily see that be north of $0.10 in the second quarter.

Okay, and then last question.

Just on the color on the non-res construction part of your market, in the past you have mentioned a breakdown that you have between private and public.

Has that changed much since the last quarter?

Yes, Mike.

It continues to improve slightly and slowly.

We have shared with you and with others that prior to the downturn, we had as much as 70% private and 30% public.

That got inverted completely to where private became 30% and public became 70%.

And so quarter by quarter, whether it is in booked tons or bidding -- bid tons or even shipments, the private number continues to shift to be a greater percentage.

And so I would put it in the range of about 45%.

Maybe in some instances a little bit better than that.

So we're not back to the historical levels, but certainly better than where we were when we were 30% private project activity.

But it has been a slow climb.

And we have been talking about this now for three years and are only now getting to the point where we are above 40%.

In your opinion, what do you think is holding back the non-res activities from being more than just a slow climb?

I've always expressed it as confidence, Mike, that there are any number of projects -- and a lot of projects get bid, rebid, and quoted once again, because developers are looking at their overall project costs and trying to find the right opportunity.

And the best illustration I can give is a building in downtown Dallas not far from where I live, which is -- we were told over a year and a half ago that there would be a building started, and that they would turn dirt by the fall.

And what happened is in the late fall they put a sign up, saying they are working on it, and they're going to put a project together.

So I think when developers believe that they can get the occupancy rates to a level that justifies the investment, whatever that minimum level is, as long as they can control the raw material costs and other aspects of the buildout, they will go forward, but not until then.

And a lot of that gets back to confidence in the government, what is going on with taxes, what is going on with healthcare.

And I am sure it won't be long before we are hearing about the midterm elections and the posturing that takes place there.

So it is hard to get the solid kind of momentum that leads to significant growth.

But if you go back and think about what some of the GDP numbers were and the upward revisions, there is just a little bit better sense of projects moving forward.

Certainly, in Texas, and Florida, and even California now, some of that confidence has returned; and projects are moving forward a little bit more aggressively.

But it is all the places in between that were a big part of strong nonresidential construction demand, where it is still fairly tepid.

And I would use the Atlanta market as an example of -- you know, there is good construction activity, but it is not great.

And so until the Atlantas, Charlottes, and Birminghams of the world start building out again, it is the larger regions, like North Texas, and Houston, and LA and California, and South Florida, and the beltway around Washington where construction activity never has really been as negatively impacted.

But we need the rest of it to strengthen.

And so there are some signs of that.

And we keep monitoring it, and it is reflected in bid tons.

But the bid tons aren't necessarily orders.

And I can say the same thing about the Australian market, where we are also very construction related.

There is a bit of a euphoria with the change in government.

A lot of activity.

But it hasn't materialized to real strong orders or a demand for -- future demand for products.

It is just kind of the same activity with a little bit more exuberance, I guess, is the best way to describe it.

Not yet confidence.

Got it.

Thanks, Joe.

Okay, I hope that helps.

Nick Jarmoszuk, RBC.

Thanks for taking the question.

I was hoping you could talk about the CapEx budget and just detail some of the larger projects.

The biggest project by far and away is the furnace rebuild in Poland.

That is going to impact the second quarter into the third quarter, but it by far and away is the largest.

We have just done some major maintenance in our Texas facilities and completed that.

We have other projects that are slated for later in the year in our South Carolina facilities.

So it is really across the board.

I wouldn't say anything that is extraordinary, but routine maintenance that we needed to get caught up on and some additions to productive capability that aren't insignificant.

So the biggest single project this year would be Poland.

The biggest single project last year was South Carolina.

Both are furnace related.

The other project last year was the recycling additions and processing in Texas.

And we are looking at doing more of that activity this year, which would also tap into our CapEx budget.

Okay, and then what is the budget for the Poland rebuild?

It is a similar expense to South Carolina, around $20 million.

Yes.

Okay.

Ballpark.

Thank you.

Brian Yu, Citi.

Thanks and Happy New Year, Joe, Barbara.

First question: I think, Joe, you mentioned earlier that in Poland, the government has made attempts to address the VAT circumvention -- and along those lines, do you think the November quarter results fully reflect a more normalized market?

Or is there more to come as we try to look at the future quarters?

I would say that it doesn't fully reflect the potential of that market.

There is still some recovery.

And from our perspective there is more that we can do on mix between merchants and rebar.

And we added significant production capability to make more merchant products.

And we're still being introduced to that market.

We are a latecomer, so it takes time to shift buyer sentiment towards us.

But we have been working on that for quite a while.

We have made some key personnel moves to make that work more effectively and more smoothly.

So I think there is still some upside in Poland from what we saw in the first quarter.

Even though it was a really good quarter, I believe fundamentally that that market is still a strong market.

We will gain some efficiencies from the capital investments that are going to be made.

But even there -- and we won't see that in this fiscal year.

But those are efficiencies that are intended to drive improvements at bottom line.

Okay.

Well, my question is more just on the VAT circumvention side.

The government -- it looks like they have addressed it.

I am wondering, when did you start to see the benefit of it in the margin expansion as the VAT circumventing material exited the market and helped to restore better balance?

Do you think the November quarter fully reflected the government's actions?

Yes, now I understand your question, Brian.

The legislation was actually enacted and effective on October 1, but I would say that we saw more or less the full benefit of it throughout September, as buyers were starting to shift their patterns because of the unavailability of imported Latvian product as well as declining stocks.

So I would say more or less we got the full benefit in the quarter of the VAT.

Got it.

My second question is -- I think, Barbara, you mentioned earlier that you're going to see some margin squeeze in the fabrication business.

How should we think about the lag in timing now, with the shift in your public versus private backlog?

I remember historically it was six months.

Is that still the right way to think about it?

I think to get the full price realization, that is probably a good rule of thumb.

I think our current backlog has -- is pretty attractively priced.

And the private moves through maybe a little quicker than the public does.

So, hopefully, it can translate into a little shorter lag, but --.

Okay, thanks.

(Operator Instructions).

Charles Bradford, Bradford Research.

When I look at AISI numbers for November on rebar shipments, they were up like 17%.

And it looks like year to date is up almost the same.

If I work out the quarters to match your quarters, it is more like 29%.

That is an awful lot better than what you have reported.

Is there anything changing in the domestic market?

Yes, Chuck, that is what we've been talking about.

We had a little bit stronger quarter shipment wise, and the seeing, as I said, better bidding activity.

I am not sure exactly how you're adjusting for AISI versus our quarterly data.

Generally speaking, the quarter is not as strong as our third or fourth quarter have tended to be.

But, certainly, we have seen good demand for rebar product.

That is reflecting some of the construction activity we have talked about; and, yes, imports have also increased, but a lot of that materializes into what is basically positions in inventory that distributors or others might take in anticipation of higher prices.

So it is hard to measure, really, the impact of what goes in inventory, Chuck, whenever a trade case is announced.

But, certainly, there is that effect as people try to rush to bring product in.

But overall, yes, demand has been better.

It is just the light shape reported data was actually relatively weak.

I presume that matches more up to your merchants?

Yes, it does.

But rebar was unusually strong compared to what all the other numbers showed.

Just curious if there was anything -- any of your competitors getting more aggressive, or --?

Only on the import side, Chuck.

Yes, and that wouldn't show up in domestic shipments.

Yes.

Oh, well.

See you tomorrow.

Thank you.

Phil Gibbs, KeyBanc Capital Markets.

Thanks very much for taking my follow-up.

I appreciate it.

So a lot of the industrial projects going forward in the US over the next few years -- got the LNG export facilities, a lot of the chemical processing renaissance that we're supposed to be seeing.

Do you feel like any of the steel has been laid for a lot of that going into this year?

Or you feel like a lot of that is still really on the come?

My own view is most of that is still on the come.

There is some projects, and we can use the Nucor DRI facility.

It is a classic example of something that creates tremendous infrastructure demand, not only for the plant, but for the surrounding communities.

And so a lot of the petrochem projects that we are tracking are all future-based.

Until LNG is approved, it is hard to think about putting investment into the infrastructure, because those are multibillion-dollar projects.

So I believe that is all a part of what is potential demand for a strong nonresidential construction recovery.

That is the kind of stuff that dreams are made of, because that in conjunction with some infrastructure build by the federal government -- which we all know is badly needed -- is, I guess, a perfect storm from a demand perspective.

Not that it would ever happen that way.

But that is why we are pleased to see the nonresidential construction improving of its own accord, with business confidence improving slightly or to the point where activities are just a little bit stronger.

At this time there appear to be no more questions.

Mr. Alvarado, I will turn the call back to you.

Okay.

Well, we had what I thought was a short call to report on numbers and lots of good questions.

And we appreciate all your questions and look forward to answering any of those that we didn't -- weren't able to answer here today.

So thank you for your questions, and thank you for joining us on today's conference call.

We will look forward to seeing all of you in the very near future.

Thank you.

This concludes today's Commercial Metals Company conference call.

You may now disconnect.