Commercial Metals Co (CMC) 2018 Q3 法說會逐字稿

Hello everyone, and welcome to today's Commercial Metals Company Third Fiscal Quarter of 2018 Earnings Call.

Today's call is being recorded.

(Operator Instructions)

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 key macroeconomic drivers that impact our business, our margins, refinancing plans and exit from our International Marketing and Distribution segment and the company's future operations, the company's planned new steel mill in Oklahoma capital spending, the company's planned acquisition of certain U.S. rebar assets of Gerdau S.A. These statements generally can be identified by phrases, such as we, the company, CMC or management, expects, anticipates, believes, estimates, intends, plans to, ought, could, will, should, likely, appears, potential, outlook or other similar words or phrases.

These and other similar statements are considered forward-looking within the meaning of Federal Securities Laws and may involve speculation and are subject to risks and uncertainties that could cause actual results to differ materially from those expectations.

These statements reflect the company's expectations and beliefs based on current conditions that are subject to certain risks and uncertainties, including those that are described in the Risk Factor section of the company's latest annual report on Form 10-K.

Although these statements are based on management's current expectations and beliefs and the company believes that such expectations and beliefs are reasonable, CMC offers no assurance that events or facts will happen as expected, and we caution those listening to this call to not place undue reliance on any forward-looking statements.

All statements are made only as of this date except as required by law.

CMC does not assume any obligation to update, amend or clarify these statements in connection with future events, changes in assumptions, the occurrence of anticipated or unanticipated events, new information or circumstances or otherwise.

Some numbers discussed or 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.

Unless stated otherwise, all references made to year or first quarter are references to the company's fiscal year or fiscal quarter, respectively.

And now for opening remarks and introductions, I'd like to turn the conference call over to President and Chief Executive Officer of Commercial Metals Company, Ms. Barbara Smith.

Good morning, and welcome everyone joining us to review the results of our third quarter 2018.

Today, I'm joined by Mary Lindsey, Senior Vice President and Chief Financial Officer.

I will review highlights from the quarter, and then Mary will cover the quarter financial information in more detail.

Afterwards, I will conclude our prepared remarks with some comments on our outlook for our 2018 fourth quarter, after which we will open the call to questions.

Before covering the results for the quarter, I want to recognize the entire CMC team for their outstanding performance over the past 3 months.

Across our various operations, we are setting new benchmarks for productivity and costs, while maintaining our focus on quality and superior service to our customers and safety.

The ingenuity of our people as well as our laser focus on creating value for our customers and stakeholders is a key tenet of the unique culture that we cultivate here at Commercial Metals.

Turning to the results.

As announced in our earnings release this morning, we reported net sales of $1.2 billion for our third quarter 2018, which represents an increase of 15% from the same period of the prior year.

Our earnings from continuing operations during the third quarter of 2018 were $42.3 million or $0.36 per diluted share, while our adjusted earnings from continuing operations were $49 million or $0.41 per diluted share in comparison to $31.6 million or $0.27 per diluted share in the same period of the prior year.

As indicated in our press release this morning, the adjusted EBITDA from continuing operations was the highest since the Great Recession.

Also as noted in our press release yesterday, June 20, our Board of Directors declared a regular quarterly cash dividend of $0.12 per share of CMC common stock for stockholders of record on July 5. The dividend will be paid on July 19.

This cash dividend reflects CMC's 215th consecutive quarterly dividend.

Now I'll cover current trends and conditions in the markets in which we operate.

We continue to see strong demand throughout our markets, fueled by high overall levels of business confidence and economic fundamentals.

In the U.S. as an example, the National Federation of Independent Business Optimism Index is at a 10-year high, and as a result, businesses plan to increase their capital expenditures by more than 12% from last year.

We see evidence of this in our markets as indicated by farm equipment manufacturing activity increasing almost 19%, construction machinery spending up 11% and energy-related spending up almost 14%.

In addition, nonresidential construction activity in the U.S. continues to grow at approximately 3% per year and is close to spending levels that occurred prior to the financial crisis.

Bidding activity for new rebar fabrication jobs remains strong, and a significant shift is occurring in the contract bid prices.

In comparison to our second quarter of fiscal 2018, the average contract awarded to CMC increased by approximately $100 per ton.

Work being bid in the third quarter is approximately $170 per ton higher than during the second quarter.

Strong bid activity has resulted in a significant growth in our backlog, which also provides us optimism for continued strength for steel demand in the U.S.

Turning to the Polish operations.

Steel consumption in Poland increased during 2017 for the fourth year in a row to a record consumption of 13.5 million metric tons.

The construction sector, which accounts for 43% of national steel consumption, showed a 12% increase in production supported by infrastructure projects continued by -- co-financed by EU funds.

This rising inflow of EU investment and upbeat business confidence is helping the country's [core] forecast GDP growth rate of 3.7% for 2018.

With our recent investments in Poland, great execution by the Polish team, along with strong market conditions, the financial results for the quarter represent a record level of profitability for this operation.

And through our fiscal third quarter, Poland is on pace to record one of the strongest financial years on record.

Now I'd like to give you a brief update on some of our recent strategic investments.

First, in terms of our new Durant, Oklahoma micro mill.

We continue to ramp up production at the facility and we are on track to generate positive EBITDA by fiscal year-end.

I'm happy to report that we are bringing -- we are beginning to consume some of the first spooled material from this facility in our own internal fabrication facilities.

As a reminder, CMC will be introducing the first hot spooled rebar production in North America, with many advantages for our fabricating customers.

We are also on track to be ready to begin commissioning of our new T-post shop located at the Durant site around the end of our fiscal year.

A second investment that is coming online is our downstream nonferrous separation facility in South Carolina.

As nonferrous prices increase, the return on this investment becomes even more attractive as we are able to extract more valuable metal and reduce any residual waste stream.

This project, along with others, will enhance the margins of our recycling segment over time.

A third example of an investment that we're excited about is the potential for MMFX, which produces high-strength, corrosion-resistant rebar.

We have now produced the full range of grades of material at various CMC facilities.

We are also seeing increased levels of shipments as we utilize our broader footprint to bring this innovative product to our customers.

With that as an overview, I'll now turn the discussion over to Mary Lindsey, Senior Vice President and Chief Financial Officer.

Mary?

Thank you, Barbara, and good morning to everyone joining us on the call.

As Barbra mentioned, for the third quarter of 2018, we reported earnings from continuing operations of $42.3 million or $0.36 per diluted share, which compares to earnings from continuing operations of $31.6 million or $0.27 per diluted share for the third quarter of the prior year.

Included in the results are pretax costs of $5 million of acquisition-related expenses associated with the Gerdau transaction and $6.5 million of expenses coming from the startup of production at the Durant, Oklahoma mill facility, offset by $3 million of incentives for the facility recorded as income during the quarter.

Adjusted earnings from continuing operations, which eliminates the effect of these infrequent items of income and expense from our earnings, were $49 million for our third quarter or $0.41 per diluted share, in comparison to $31.6 million or $0.27 per diluted share from the third quarter of the prior year.

Summarizing our results by segment.

The 2018 third quarter Americas Recycling segment results were very strong, resulting in $14.4 million of adjusted operating profit for the quarter.

This was the highest quarterly profit in this segment in 7 years and exceeded the very strong results we experienced in the first half of this year.

Strong demand for ferrous scrap and an increasing price environment for both ferrous and nonferrous material contributed to the results.

Year-to-date, ferrous prices have increased approximately 21% from this time last year, while nonferrous prices have increased 15%.

Our Americas Mills segment recorded adjusted operating profit of $70.4 million for our third quarter 2018, compared to adjusted operating profit of $50.7 million for the same period in 2017.

Included in the current period results are $6.5 million of expenses related to the startup of a new Durant, Oklahoma micro mill.

The strong end market demand that Barbara referred to resulted in shipment volume increasing by approximately 12% when compared to the same period of the prior year.

Despite inflationary pressures, our conversion costs actually decreased by approximately $4 per ton in comparison to the third quarter of fiscal 2017 due to the very strong levels of production achieved during the quarter.

While selling price increases earlier this year lagged the increases incurred in raw material prices, margins exiting the quarter are now approaching levels closer to historical through this cycle norm.

Americas Fabrication segment recorded an adjusted operating loss of $16.1 million for the third quarter of 2018.

This compares to adjusted operating profit of $1.8 million for the third quarter of 2017.

The decrease in adjusted operating profit was primarily due to the margin compression caused by increases in the cost of rebar consumed by this segment in comparison to the third quarter of fiscal 2017.

Assuming stable rebar pricing, we anticipate losses will continue in this segment as lower-priced backlog continues to run out through the first half of our fiscal 2019.

An increase in rebar prices puts margin pressure on this segment, but shifts margins to the mill segment; while a decrease in rebar prices benefits this segment, but puts margin pressure on the mill segment.

We had another strong quarter in our International Mill segment, with third quarter 2018 adjusted operating profit of $24.4 million versus adjusted operating profit of $13 million for the third quarter 2017.

This approximately $11.4 million improvement in adjusted operating profit was primarily due to higher metal margins, driven by continuing focus on merchant products as well as strong demand for construction steel.

More recently, we have seen an uptick in import offers into the Polish market due to the strong demand fundamentals, a situation which we will monitor closely.

However, the strong margins offset the reduced shipping volumes and resulted in a record quarterly profit that Barbara referenced.

Turning to our balance sheet and liquidity.

During our third quarter, we completed an offering of $350 million of 5.75% senior notes due 2026.

As a result of anticipated rising rates, we took advantage of an opportunistic moment in the market to raise funds in anticipation of the closing of the Gerdau acquisition.

Together with cash on hand and a delayed draw term loan facility, which is part of our credit facility, we have low-cost financing in place to facilitate the closing of the acquisition.

As a result of cash generated from completing the liquidation of the MND business and the strong performance of our operations, we anticipate that the total debt we will require to fund the $600 million purchase price will be between $450 million and $500 million.

We generated approximately $405 million of cash during the third quarter.

This was achieved from strong earnings, the collection of most of the remaining cash from the windup of the International Marketing and Distribution business and the proceeds from the notes offering, partially offset by investments in working capital due to higher prices and volumes in our manufacturing segment.

Our balance sheet remains very healthy.

As of May 31, 2018, cash and cash equivalents totaled $600.4 million and availability under credit and accounts receivable sales facilities totaled approximately $614.8 million.

Capital expenditures were $43.2 million for our third quarter of 2018.

We estimate that capital spending for 2018 will be in the range of $175 million to $200 million, which includes expenditures related to the completion of our new Oklahoma mill.

Thank you very much.

I'll now turn it back over to Barbra for the outlook.

Thank you, Mary.

We continue to be very confident as we look to the remainder of 2018.

In our markets, more specifically in the U.S. and Poland, demand has been robust for the past few quarters, and our key end markets continue to show strength, supported by strong domestic steel demand fundamentals and consumer optimism.

We are positioned well to leverage our recent investments, most notably our Durant facility, in which we expect to continue to ramp up production and shipment volumes as we add the fourth production crew in the coming months.

With respect to the announced acquisition of certain rebar assets from Gerdau S.A., we continue to move forward in preparing for the closing of the transaction.

The HSR regulatory review process is proceeding as expected.

We look to substantially comply with the Department of Justice's second request within the coming weeks and continue to anticipate the final approval will be provided for the transaction by the end of 2018.

Over the past few months, we spent considerable effort in preparing for the closing of the transaction.

As Mary mentioned, we have secured attractive financing in order to fund the acquisition, and on the operational side, we are building integration and transition plans for when the organizations come together.

We're very pleased with how these plans are being developed and look forward to moving into the execution phase once we close the transaction.

Finally, we are very pleased with the action taken by President Trump on the Section 232 trade measures to reduce the threat of subsidized and unfairly priced imports and their effect on a very important domestic steel industry.

We are very confident that with a fair and level playing field, we can effectively compete on a global basis and thus deliver attractive returns to our stakeholders.

Just as an update regarding imported rebar into the U.S. According to the public U.S. Department of Commerce import data, cleared April rebar imports into the U.S. were 186,000 tons at an average declared value of $534 per ton.

The declared value does not reflect the import selling price in the market.

The declared value does not include the Section 232 25% steel tariff or existing anti-dumping and countervailing duties, which are levied in addition to the 25% tariff and which range, as an example, from 3% to 18% for Turkish product.

The declared value also does not include port fees, U.S. inland transportation costs or distributor profit.

All these costs should be considered when thinking about actual prices for imported rebar.

Also note that average license data for May shows base values for imports increasing to $531 per ton.

And in addition to all of the above expenses, ocean freight and insurance must be added to the pre-clear data.

Thank you for your interest in CMC.

And at this time, we'll now open the call to questions.

(Operator Instructions) Our first question today comes from Matthew Korn from Goldman Sachs.

So is there any reason, on the American mills segment, any reason you shouldn't see continuation of similar domestic shipping volumes through the rest of the year given the strong tenor of demand that you -- as you see it?

How much should seasonality in construction be a factor there?

You mentioned this as a very strong quarter.

And then if you could be a little more explicit in what kind of contribution from Durant you've got in the third quarter and what you expect for the fourth quarter.

It sounds as though you may not be expecting us to reach the full pace of the 350,000-ton run rate by year-end.

Okay.

That was -- there was a lot there, Matthew.

So if I missed one of your questions, please follow up.

First of all, in terms of domestic steel demand in the U.S., we would expect the fourth quarter to be similar to the third quarter.

Typically, it continues to be the busier part of the year.

And so absent any weather-related disruptions, we would expect to see good shipping levels for the next 3 months.

In terms of the Durant facility, we are still in the commissioning phase.

And the first part of the commissioning was the main mill.

And then we began commissioning the spooler, I believe, in the April time frame.

And that commissioning -- those commissioning activities continue.

And so everything is on track and on pace, and we would expect in our fiscal fourth quarter that we will be breakeven EBITDA contribution from the Durant facility.

In terms of ramping to the 350,000 tons, I believe we indicated earlier that we would expect to be at a 3-crew situation by the end of our fiscal year.

And as I noted in our comments, we are now beginning to look to hire that fourth crew, which would give us the ability to get up to the 350,000 tons roughly of capacity that we announced when we announced the construction of the mill.

The hiring of that fourth crew, we always said was going to be based upon market demand.

And so I think the good news is that we see healthy demand from -- for the product off of that mill, not only [re] straight rebar but spooled rebar.

And I would also add that it will take us some time to hire the crew, and we will train that crew to make sure that they are fully capable of operating safely within that environment.

And so at this point, I would say in the second half of fiscal 2019 is when we would look to be at that full capacity run rate.

Got it.

I appreciate the clarity, and I think you've covered it all.

I'll be very concise with my second one.

On the fabrication side, if rebar prices stayed flat from today through year-end, how much improvement in margin would that translate to as the contracts roll forward?

Would you put us at 1 to 2 quarters now before you see it move towards breakeven?

Sooner?

Later?

How would that look?

Yes, thanks.

Yes, I mean, as we mentioned, we're seeing rapidly escalating bid and award prices at this point.

And as that begins to replenish the backlog, we would expect to see some positive contribution from the business, probably toward the middle of our fiscal year next year.

But you would -- if in using your assumption, if rebar prices stabilized, obviously, the results would begin to improve from the low point as time moves forward.

But it's hard to predict the actual when it will break through to positive because you just have so many different jobs cycling through that backlog that have different directions.

Our next question comes from Martin Englert from Jefferies.

So some of this was already touched on within the fabrication business and return to breakeven and the move towards profitability there.

But can you provide a little bit of color on what you're seeing with the bidding activity and potential market share gains [as -- or] 232 as implemented here as far as availability with rebar import substrates for some of the competitors in the fabrication space?

Yes.

So 232 is really not impacting fab the same way that it's impacting the mills.

But I would say that there's availability of rebars.

As I mentioned in my remarks, there's still some import product flowing in to make up any gaps in availability.

And as we indicated, or Mary indicated in her comments, there have been significant raw material price increases that we've seen that is a significant driver to rebar prices.

So I think all fabricators are competing for work just as they have historically, and we're making adjustments to support any gaps that might arise due to shifts in the amount of available import rebar.

Okay.

So not necessarily seeing any fab market share gains due to any kind of import constraints at this time.

Is that fair?

No.

I would say there's not a significant shift there.

Okay.

And then, again, you already touched on this some of this in your prepared remarks, but some of the rebar import trends and kind of what you've seen recently in the U.S. and Poland.

Can you talk about maybe based on where prices are at now and relative to regional markets and global prices, what you may anticipate as far as import pressure incrementally?

Do you think it's going to become greater in the U.S. and Poland when we look towards the back half of this calendar year?

Or do you think it's going to see some retracement incrementally?

Yes.

Martin, we don't typically comment on specifics around pricing.

But I would say it's really -- there's a -- demand is a huge factor in how product flows to different markets throughout the world.

And as I indicated, demand in Poland is just strong.

It has been strong relative to other countries in that region.

Poland has enjoyed good economic growth.

And so naturally, Poland, from time to time, can attract imports into that market.

And we've seen a little bit of that of late.

It's not something that is alarming to us, but it's something -- in any market where we operate, we monitor those trends carefully and take actions as we see appropriate.

Okay.

And looking at where some of that pressure is coming from in Poland, what countries or regions of the world?

Of recent, it's Russia, Ukraine, Belarus.

I should also probably further add because it may come up later, the EU is in the process of putting in safeguard measures.

Safeguard measures which are consistent or similar to the 232 actions that have been implemented here in the U.S. So I would anticipate that those safeguard measures will begin to deter some of the potentially unfairly priced product that's being aimed at some of the European markets.

Our next question comes from Piyush Sood from Morgan Stanley.

First one.

To get some limited relief from Section 232, some end users have some metal exclusion requests on a product-by-product basis.

So curious what you're seeing, if exclusions have been requested for products or grades that you either produce currently or you could produce, based on the equipment you have.

And if you file any objections to them?

Yes, I think simply in terms of exclusions for rebar, there have been basically no exclusions submissions that I've seen or any that would be granted.

As you indicated, there's been, I don't know, thousands of exclusion requests.

But there -- nothing that's going on there is going to have -- that we see at this point in time, is going to have a significant effect on the product set that we produce.

And yes, we are monitoring those and we are submitting responses as they come along, but I think it's going to affect other parts of the industry more so than us.

And the second one for me.

I remember you had called out a core EBITDA of about [$77.5] million last quarter, adjusting out startup and M&A costs.

And there were some similar expenses this quarter which could effectively be added back to EBITDA to better reflect the earnings [part.] So just curious why you're adjusting them on the EPS side and not on the EBITDA side in the reporting.

And second, if this kind of reporting format is going to stay consistent next quarter?

Yes.

Thanks for the question.

It's a good question.

And we're -- we've really just started developing this idea of calling out some of the extraordinary costs as we've got so many projects going on.

And we will, in the next quarter, adjust so that both are affected similarly.

Our next question comes from Chris Terry from Deutsche Bank.

First one is just around the CapEx profiles in Q. You said that you now expect $175 million to $200 million for FY '18.

And then that obviously implies $30 million to $35 million for the fourth quarter of the year.

Any color on FY '19?

Or is it too early at this stage?

I guess it will probably depend on Gerdau.

But excluding that, can you just talk about some of the ups and downs and the direction perhaps?

Yes.

Thanks, Chris.

We are really in the beginning stages of our planning process, and so I think we can give a better estimate of what we're anticipating for 2019 when we report our full year results.

I think from a guidance perspective and modeling, I would keep it in that 150 to 200 range.

And then of course, we will have to factor in additional CapEx for the Gerdau acquisition when the closing date is known.

And obviously, we -- once we're able to have ownership of those assets, our thinking will develop as we gain more knowledge.

But again, we're just beginning our planning process, but I think that range of CapEx is appropriate.

Obviously, we're completing the Durant spending, but we have -- any number of productivity or cost improvement projects that we evaluate every year, and we just haven't landed on the full list of things that we will plan into next year's fiscal year.

Maybe one for Mary.

Just on the trading ops.

I think you say it's $70 million inflow from the sale of subsidiaries.

Is the rest of the number, the $100 million to $120 million, is that come through working capital?

Or is that still to actually come through the cash flow statement in the next quarter?

Yes.

The bulk of it has actually flowed through the working capital number in this quarter.

It's about $46 million related to the MND liquidation that actually flowing through the working capital number at this point.

And we're pretty much done with the monetization of those assets, Chris.

Our next question comes from Chris Olin from Longbow Research.

Question on the merchant bar market.

Prices have started to move higher.

However, they still seem to be lagging some of the other long product categories out there.

I guess I was just wondering if there's anything going on in that particular marketplace that could limit the upside on a go-forward basis.

Chris, I wouldn't suspect that there's anything that could limit the upside.

It's just normally how much inventory is through the system, what does demand look like, what are the imports in the various products that flow through that merchant category.

But I wouldn't say there's anything that could limit any upside.

Okay.

It looks like you're still underpriced on your realization versus where rebar is.

I assume a lot of it is timing-related.

So if we adjust for, I guess, higher merchant bar prices and then what the market is priced on rebar, I guess my question is how do I think about metal spreads going forward on the domestic business versus that $300 you put out for this current quarter?

Yes.

If you look at the 300 average for the third quarter, you're absolutely right.

I mean, price increases, generally there's a lag time before you get the full realization of it.

And there have been some price increases that have been announced throughout the quarter and then on into June.

So assuming that scrap prices stabilize, which they did for the current month, then you would expect that to translate into some further margin improvement.

Is the $400 per ton margin out of the question?

I can't comment on that.

Our next question comes from Aldo Mazzaferro from Mazzaferro Research.

I just wanted to dig a little into your comment about the Americas Mills, Mary, where you said you picked up a $4 a ton class advantage on -- basically, because of the volume effect, which would be on the fixed cost.

I'm wondering, you said there was an offset of some inflation in there.

Could you quantify what the inflation factor was that you may have offset on a per ton basis?

Yes.

It's not significant, Aldo.

Probably like $2 a ton would be a rough idea of the inflationary effect.

So that's a sequential comparison, Mary?

Yes, sequential compared to the second quarter.

And how about electrode specifically?

Are you seeing any movement in electrode prices these days?

Or how do those [prices inflecting] versus the year-ago pricing?

Yes.

I mean, in the first half of the year, we really saw the most significant impact on our conversion cost.

And we're going to continue to see some minor effects on our conversion cost but it's going to be, at this point, kind of spread, and expectedly spread, because we understand what the negotiated contract prices are.

So it's not going to be such a significant impact as it was in the first half of the year.

And then just a quick follow-up.

On the comments you made on fabrication, where you mentioned the pricing that you're getting coming in on orders today, about $100 ahead of the average, and you had a big gain in the third quarter.

Are those based on your quotes that reflect the current market price for rebar, for example, the current rate now, low $700-type rebar price?

And how long do those backlogs extend?

How long do they extend out?

Aldo, I would -- let me take a crack at this.

On the rebar fab side of the business, we're competitive to whatever the dynamics are in a given market.

And there are regional dynamics.

There are different demand situations, different types of contracts.

And so in fab, we are competitive in the various markets.

And as you know, the raw material for fab rebar has been escalating because there, in part, has been significant escalation in the raw material scrap.

And so we -- we're competitive.

We're always searching to be profitable.

Because rebar prices have been escalating, it's consistent that you would see fab prices escalating as well.

And so it's just basically consistent with -- the movements are consistent with scrap and rebar price movements, all within the context of the competitive dynamics in the various markets.

In terms of the backlog, we're constantly quoting jobs with various duration.

Some that turn in a month, some that turn in 3 months, some that turn in a year.

And I don't know that the mix of our backlog has taken any dramatic shifts from what we've seen historically.

Our next question comes from Phil Gibbs from KeyBanc Capital Markets.

I just have a question on Durant.

I know you spoke a little bit about it earlier.

But any sense on how much volume Durant contributed in the quarter?

I think we were looking for about 30,000 tons or that's kind of what you had guided to last quarter.

Yes, we were just shy of the 30,000 so.

Okay.

So very, very strong volumes then in the core business.

I think volumes were up strongly in both rebar and in merchants.

Any way to provide some color on whether or not you had a lift in semi-finished sales or billet sales, Barbara, in the quarter?

What they may have been?

We always have a little steady diet of that, Phil.

But I don't think there was a significant shift in the amount of billet sales.

If you need a precise number, maybe Mary can follow-up and give you a number to put in your model.

But I think it's pretty consistent.

And you're correct, volumes were good in the quarter, and Durant was on pace with what we expected.

Okay, appreciate that.

In terms of a follow-up, it sounds like IM&D, in terms of the working capital let there, is largely concluded.

I didn't notice there was maybe 1.5 million of impairment that flowed through the cash flow statement that you didn't call out.

Was that in the fabrication division in terms of just some leakage from last quarter?

Or is that associated with some of the discontinued operations?

Yes.

The CTA -- the small amount of CTA -- or the small amount of impairment you saw was CTA associated with the sale of the structural business that occurred during the second quarter.

Our next question comes from John Tumazos from John Tumazos Very Independent Research.

Can you give us a little historical background on the evolution of the strong market conditions for the Polish metal with the great recent earnings?

In the early period after you acquired it in 2003, there appeared to be ample competitive capacity.

There's mini mills in Germany, Italy, Turkey and lots of steel capacity, Russia, Ukraine, Kazakhstan, China.

Things seemed to have made a wonderful turn, even though that Turkey has access rebar capacity they're not sending here.

Is it the Silk Road project in Central Asia that's sucking up all these rebar?

Or why are we doing so well?

Thanks for the question, John.

We're really proud of the progress that we've made in Poland.

And I wasn't here for the early years of ownership of that asset, but what I can say is the following.

There has been a very deliberate strategy in Poland to make strategic investments over time.

And when I say over time, over the last 10 years, to allow them to have the capability to make a broader range of products.

So if you go back to the historical timeframe that you're thinking about, our Polish mill was highly dependent upon rebar.

And rebar is cyclical because of weather, and Poland has difficult winters.

And so there was a lot of seasonal trends in activity in that Polish operation.

And through a series of investments, and as I said this very deliberate strategy, we have positioned that mill to where they not only make rebar, they make merchant.

They make wire rod.

And so they have been shifting their product mix, which is also consistent with a country developing their economy and increasing the production of finished products and all those types of things.

And also the series of investments have repositioned the cost structure in Poland, and they have a much lower cost structure than what you would have had historically.

And we also like to give credit to the Polish leadership team for other actions they're taking to improve their cost structure and their competitiveness.

They've done a number of things, for example, in the energy area, to lower their overall energy cost and to allow it to be more competitive on a global basis.

The second part of your question in terms of the excess capacity in the region, there remains excess capacity in the region.

And if you also look at economic growth in countries in that region, Poland has enjoyed very good economic growth.

It is a great country to do business in, good rule of law, good educational system.

We have really talented individuals in Poland, and so we find it to be a great country to do business.

As a reminder, Poland entered the EU in 2004 and Poland is also enjoying an influx of EU funding for infrastructure development and what have you, and that translates into steel demand.

So overall, as I said, we're very happy with our investment there and we're very happy with the strategy that we put in place and have been executing on.

And as I have said I believe in the past, Poland is now reaching its full potential after we've concluded a number of those investments.

Of course, nothing stays still and they will have many other projects going forward to help them remain competitive.

But it's been a couple of things: Poland entering the EU, our investment strategy, other work on the overall cost structure, Poland as a country enjoying really strong economic growth.

(Operator Instructions) Our next question comes from Charles Bradford from Bradford Research.

Maybe a year ago, varying time periods, there was a lot of discussion in Washington, both sides, about an infrastructure building program which obviously would be very helpful to you all.

I've not heard too much in recent months.

Is anything going on?

Yes, Chuck.

As we've talked about over and over again, and as you know the statistics very, very well, the American Society of Civil Engineers, which is great at the infrastructure in the U.S. and which has monetized what the investment requirement would be to improve the infrastructure to a good level, it's massive and it's significant.

As you also know, the President, part of his agenda was an infrastructure bill or program.

And you're right, as of today, the Congress has not been successful in passing additional infrastructure spending over and above the last reauthorization of the FAST Act a couple of years ago.

We would encourage and welcome the administration taking up this topic.

I know that they are interested in moving this agenda item forward.

The immigration bill that's potentially being voted on today would have some spending in there for the wall, which would generate demand for steel products.

So that's a possible additional level of funding that might come.

My personal view is that it's not a question of if, it's a question of when and we will refurbish our infrastructure.

Certain states -- and I also believe in the absence of action in Washington, businesses and states will fill the void or the gap if there's not a comprehensive plan passed in Washington.

And so some states have done just that, and in those states, you'll see more infrastructure spending.

But -- and I'll finish with a comment that we had our dedication of the Durant facility back in April, and Dr. Navarro was present for the ceremony.

And clearly, he talked about this issue, and it is still on the mind and a top priority for the President, but he needs cooperation from Congress.

And ladies and gentlemen, at this time, there appear to be no more questions.

Ms. Smith, I'll turn the call back to you for closing remarks.

Thank you.

And thank you all for joining us today, on today's conference call.

We look forward to speaking with many of you in our investor visits in the coming weeks and once again in the fall when we report our annual earnings.

Thank you.

And ladies and gentlemen, the conference has now concluded.

We do thank you for attending today's presentation.

You may now disconnect your lines.