Operator: Hello, and welcome everyone to today's Commercial Metals Company Second Quarter 2013 Earnings Call. As always, 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 the Company's future prospects, revenues, expenses or profits. These statements are considered forward-looking statements 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 listed in the Company's press release and described in the Company's latest 10-K. Although CMC believes these statements are made based on management's 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 and on the Company's website.
Now for opening remarks and introductions, I would turn the call over to President and CEO of Commercial Metals Company, Mr. Joe Alvarado.
Joseph Alvarado - President and CEO: Good morning. Thank you for joining us to review CMC's fiscal 2013 second quarter results. I'll begin with highlights from quarter and Barbara will then provide further financial details relative to the results. Following Barbara I will close out with comments on our outlook for the third quarter of fiscal 2013, after which we will open the call to questions.
In our results for the quarter as detailed in our earnings release this morning, we reported net sales of $1.7 billion for our fiscal 2013 second quarter, a decrease of 12% from net sales of $2 billion for the second quarter of fiscal 2012. Sales were down across most segments with the international segment having experienced the most difficult – had more significant sales decline when compared to the segment's strong second quarter last year. On the other hand, we did see an upward trend in sales in Americas Fabrication segment which is indicative of the emerging U.S. construction recovery.
For our fiscal second quarter, we reported net earnings of $4.6 million or $0.04 per share. While markets remain volatile, we are pleased to report a sixth consecutive quarter of profitability. As indicated in the earnings release, the Board of Directors declared our regular quarterly dividend of $0.12 per share for shareholders of record on April 9, 2013. The dividend will be paid on April 23, 2013.
As we anticipated and communicated when we last spoke in January, our fiscal second quarter results are affected by the normal seasonal effects of the winter and holiday month. This year's second quarter was no exception. In fact, we continue to see extended winter weather conditions in Poland which are also affecting the start of our fiscal third quarter. Ongoing economic challenges in the Eurozone and Australia and uncertain growth prospects in China also adversely affected second quarter results.
Our results and market view by reporting segments are as follows; our Americas Recycling segment remained profitable in second quarter of 2013, despite weaker demand than anticipated which created pressure on pricing and margins. Demand for scrap is currently steady in the domestic market, but weak internationally, and over the next few months we expect scrap prices to fluctuate $10 to $20 per ton around current levels. These price fluctuations will likely vary by region.
Our Americas Mills segment recorded another strong quarter with adjusted operating profit of $48.8 million. The Americas Mills segment has been able to sustain profitability near or above $50 million per quarter for the past six quarters, despite the softening of merchant product demand in the second quarter of 2013 as compared to a year ago. On the other hand, our rebars shipments continued to gain momentum when compared to the prior year signaling an emerging construction recovery. Unfortunately the decline in merchant sales adversely impacted our overall product mix and margin for the quarter. As it relates to merchant products, imports contributed to decline in both volume and pressure on margins. As in most years, we took advantage of the seasonal trends to complete a number of plant maintenance items at several of our locations during the quarter.
Our Americas Fabrication segment slipped into a slight loss, reporting an adjusted operating loss of $38.8 million for this year's second quarter. However compared to an adjusted operating loss of $10 million for the prior year's second quarter, we continue to see this segment improve overall. The operating improvement compared with the prior year's second quarter is primarily due to improvements in both shipping volumes and transaction prices. While the second quarter in North America was impacted by normal, seasonal trends, our international market conditions remained even more difficult and uncertain.
When examining our International Division, our International Mills segment's results continue to be negatively impacted by decline in volumes of our merchant and wire rod products driven by the economic weakness that continued broadly across European markets. Additionally, as we highlighted in our last several calls, imported product into Poland, coupled with the strong Polish zloty, continue to compress margins. Our International Marketing and Distribution segment's operating result declined compared to the prior year's second quarter operating results, due mostly to comparative weakness in our Raw Materials business and our Australian operations. Economic conditions remain challenging in Europe and Australia and both markets continue to lack positive momentum.
While we look forward to improving markets, we continue to focus on actions within our control to reduce costs, adjust our output to current demand, and preserve as much margin as possible. We continue to work (reduced) schedules in Poland, managing down excess inventory, and we are examining similar actions in Australia's construction markets and Australia continued to lack any stimulation or growth.
Reiterating our view that international markets will remain difficult from a domestic market perspective, there is growing evidence of an emerging recovery in construction end markets as noted in the February 2013 Architectural Billings Index registering 54.9, the highest level since January of 2007 marking seven consecutive months above 50. Seasonally adjusted annual residential construction spending as of January 2013 is 21% higher on a year-over-year basis, which is another leading indicator that non-residential construction will follow. Seasonally adjusted annual private construction spending as of January 2013 is also 12% better than this time a year ago and industrial production is nearly back to prerecession 2007 levels. All these data points are good leading indicators for future booking activity for our businesses. Unfortunately, weak international markets and increased import activity will need to be monitored. Increased imports will likely put pressure on volumes and margins in the near term.
I'll now turn the discussion over to Barbara Smith, Senior Vice President and Chief Financial Officer. Barbara?
Barbara R. Smith - SVP and CFO: Thank you, Joe, and good morning, everyone. As Joe mentioned, for the (second quarter) of 2013 we reported net earnings of $4.6 million or $0.04 per diluted share. We reported net earnings of $28.9 million or $0.25 per diluted share in the second quarter of the prior year. This year's second quarter results include a pre-tax LIFO income of $300,000 compared with pre-tax LIFO expense of $2 million during last year's second quarter.
Turning to our results by segment, our Americas Recycling segment recorded an adjusted operating profit of $2.2 million despite weak ferrous pricing experienced this winter. We experienced lower ferrous and nonferrous margins when compared to the same quarter of 2012. Average ferrous scrap sold for $336 per short ton during the second quarter of 2013, which represented a 7% decrease over the $363 per ton averaged in the second quarter of 2012. Average sales price on nonferrous scrap were $2,815 per short ton during the second quarter of 2013, which was comparable to the second quarter of 2012. We shipped a total of 515,000 tons of ferrous scrap during the second quarter of 2013 which was a 6% decrease over last year's second quarter shipment. We shipped 59,000 tons of non-ferrous scrap which was a 5% decrease over last year's second quarter shipment.
Our Americas Mills segment generated an adjusted operating profit of $48.8 million for the quarter compared to an adjusted operating profit of $54.4 million during the same period last year. Selling prices for Americas Mills segment decreased during the second quarter of 2013 to $682 per ton from $726 per ton during the prior year's second quarter. Our Americas Mills segment shipped 602,000 tons during the second quarter of 2013 resulting in a 7% decline in volume when compared to the second quarter of 2012. The decline in volume is primarily due to lower merchant billet sales. As Joe mentioned, merchant margins were negatively impacted by price reduction as a reaction to import pressure.
Our Americas Fabrication segment recorded adjusted operating loss of $3.8 million for the quarter, compared to an adjusted operating loss of $10 million during the second quarter of 2012. Americas Fabrication LIFO income was $500,000 in the second quarter of fiscal 2013 compared to LIFO income of $3.4 million in the second quarter of fiscal 2012, resulting in an unfavorable change of 2.99. The average selling price for our Americas Fabrication segment increased $36 per ton over last year's second quarter average selling price of $914 per ton.
Our International Mill segment recorded an adjusted operating loss of $4.2 million for the second quarter of 2013, compared to an adjusted operating profit of $6.6 million for the same period last year. International Mill volumes decreased by 54,000 tons or 16% to 331,000 tons and International Mill selling prices declined $8 per ton to $605 per ton during the second quarter of 2013. This segment continues to be negatively affected by the unsettled Eurozone crisis and import pressures from neighboring geographies. International Mill shipments in the second quarter of 2013 included 39,000 tons of billets compared to 26,000 tons of billets in the second quarter of the prior year.
Our International Marketing and Distribution segment reported an adjusted operating profit of $3.9 million for the second quarter of 2013 compared to an adjusted operating profit of $26.6 million during the second quarter of 2012. Our raw materials and Australian operations experienced declines in both revenues and margins during the second quarter of 2013 as compared to the prior year periods. This segment continued to suffer from weakness in the markets we serve globally.
Turning to our balance sheet and liquidity, capital expenditures were $17.1 million for the second quarter of 2013 as compared to $23.4 million in the prior year's second quarter. The decrease in spending from prior year was in anticipation of (indiscernible) global economic environment. We have adjusted our full year 2013 capital spending estimates to a range of $130 million to $140 million. Overall, our balance sheet remained strong. Cash and short-term investments totaled $170.1 million and total liquidity totaled more than $800 million as of February 28, 2013. Our 300 million revolver remains undrawn and we continue to maintain significant unused credit lines that give us flexibility to adapt to changing markets.
Thank you very much. Now, I'll turn it back to Joe for the outlook.
Joseph Alvarado - President and CEO: Thank you, Barbara. Our third quarter results have historically been better than our second quarter results following the holiday season and winter months. Our domestic mills should experience improved volumes entering the construction season and pricing should move in units and with any scrap price changes. However, we are concerned about the strength of the near term construction activity as a result of the sequester budget signed on March 1 and continued isolated regional strength in U.S. construction markets. Our international mill and international marketing and distribution segments expected moderate improvement in the third quarter compared to the second quarter mostly due to seasonality. We anticipate that the third quarter of 2013 will be profitable.
Thank you for your attention. At this time, we will now open the call up to questions.
Operator: Kuni Chen, CRT Capital Group.
Kuni Chen - CRT Capital Group: Just to start off, hoping you could just give us a little bit more color on the performance in Fabrication. Is that really just all seasonal or were there any other factors behind the swing to a loss there and do you expect that to get back to positive results next quarter?
Joseph Alvarado - President and CEO: Most of the decline in the fab business on, I'd say sequential quarter basis, because year-on-year, the business is much better, but sequentially volumes are down and prices were down, and both of those factors contributed a little bit higher operating cost and margin squeeze, but it's more seasonal than anything else, Kuni. Our fab business is strong and backlog is good, but there are only so many days in the quarter and we were unfortunately impacted by that.
Barbara R. Smith - SVP and CFO: I should also point out, Kuni, we had $7 million LIFO benefit in the prior quarter and it's pretty muted this quarter.
Kuni Chen - CRT Capital Group: Just as a follow-up question on Poland. We've seen U.S. Steel in the news recently evaluate its position in Europe, what about you guys and your general thoughts there? I mean, look back over the last couple of years, you've had, I guess, five years or so of fairly uneven profits there and low margins, the outlook continues to be pretty challenging. Can you just walk us through your general thought process on why keeping the operation in its current form is the best outcome here?
Joseph Alvarado - President and CEO: Well I guess, I'd respond to you by saying we're not keeping in its current form. I commented that we continue to be very aggressive in managing our overall cost structure and that includes our operating cost (amending) in Poland. It's a little bit more difficult in Poland to make manpower shifts as we might in North America, given the history of the country and some of the labor loss, but we're moving as swiftly as we can. Over time, it's been a good business for us Kuni, and Poland has exhibited positive economic growth really until projections for this year started declining, really in line with Germany, whereas the rest of Europe really wasn't very strong. There's still continued strong prospects for Poland in the future but we've been impacted somewhat by the economy and the catch up in the Eurozone and some of the factors, but more importantly, we've been affected by what is essentially VAT, fraud scheme that's been discovered in Poland, resulting in imports consuming for recovering 50% of the market in some quarters and on an annualized basis, close to that level still. We've been working with federal authorities to combat the schemes, not unlike what happened on scrap about five years ago, and the authorities are working with us and proposing legislation, both within Poland and to the EU, that would help combat that scheme.
Kuni Chen - CRT Capital Group: Last follow-up, then I'll turn it over. Just on the notes maturing later in 2013, just any general thoughts on timing and how you look to address that?
Barbara R. Smith - SVP and CFO: I will take that one. We've been monitoring the market and as – markets continue to be open and attractively priced. We do have a big nickel premium on that and we would like to minimize that as much as possible, but we will probably make a decision following our next fiscal quarter.
Operator: Arun Viswanathan, Longbow.
Arun Viswanathan - Longbow: First question I had was on M&D. What's going on there? Obviously, I know that you are getting hurt on the raw material side and distribution but that segment I guess in the last couple of calls we've been going – experiencing quite a bit of volatility and can that segment – is this going to recover to over 10 million in quarterly profitability any time soon or what's your outlook there?
Joseph Alvarado - President and CEO: Let me start with – M&D activity includes trading activities in Europe as well as South East Asia and Australia. We also have trading activities in North America. North American results are pretty strong. The activities that we are engaging and trading steel products in North America really have been very good and fairly consistent. We have impressed on the raw material side which is also part of our American trading activities. Europe is depressed and has been depressed and we are fighting through that. And Australia is also what I will call economic flat line these days at least in construction markets. Mining markets have been really strong, but for distribution we feel we are well poised for whenever there is recovery, we just can't project a strengthening economy, and lot of its dependent on federal fiscal policy which is I guess up for debate in the sense that there's an election forthcoming. In Southeast Asia, our trading activities have been really strong. Volumes are good, Kuni, lot of that owing to long capacity and China being moved into other regions, but margins are really (big). Just very aggressive trading patterns in Southeast Asia which while it's positive and we're essentially at our planned levels. It's on higher volumes than we had anticipated because of the lighter margins.
Kuni Chen - CRT Capital Group: What about the profitability outlook for that segment? I mean, I guess, in years passed, it was noted that it could be $55 million to $70 million a year. Is that still a fair characterization or how do you look at the earnings power of this segment?
Barbara R. Smith - SVP and CFO: Yeah, Arun, I'll remind you we don't give specific guidance. And I think for the past several quarters, we've been signaling that this segment because of the pressures that Joe just mentioned, particularly in Europe and Australia, which are essentially offsetting little bit better conditions in our North America trading business, we expect to be on the lower end of that range. In the near term, we see that segment getting back to sort of first quarter levels in the near term.
Kuni Chen - CRT Capital Group: When you say in the near term, getting back to first quarter levels, I mean, did 14 million in the first quarter. I mean, this is a pretty significant swing down the 3.9, so you think you can hit something in the double digits in the near term is what you're saying?
Barbara R. Smith - SVP and CFO: Well, a lot of markets will be – we're expecting seasonal uptick, and so it will depend upon a fairly dramatic improvement in Australia's result. We do know that we have some additional business booked in Europe that should help improve their results quarter-over-quarter, and that's also assuming that the trend continues with the trading activities here in North America. So, based on our best outlook yes, that is achievable.
Kuni Chen - CRT Capital Group: The other questions I had was, just real quickly on the Americas side, just wanted to parse your comments a little bit more, I mean, it sounds like you're getting a little bit more positive on the construction outlook and Americas mills continues to do well as you reference. When do you see that, I guess, really showing up in your volumes, because by my numbers, volumes are a little bit light, but do you see those improving from non-res in the second half of this year or early next year? How typical is the lag between the industries that you're watching and numbers actually showing up in your shipment volumes?
Joseph Alvarado - President and CEO: Kuni, we've been asked those questions many times and I've been offered by people who ask the question, whether it's an 8 month lag or an 18 month lag, and it's probably somewhere in between. It's typical, it's hard to define these data, but because the trends are so positive, we remain encouraged about construction markets. We'll see more strength this quarter as we always do. The third quarter is consistently stronger than our second quarter. So, while we're anticipating that, it's hard to project exactly when non-residential will come back stronger. Our bidding activity is more oriented towards private money bids as opposed to public, so that's an encouraging sign. We see in our construction services business some pickup in construction activity on a local basis. I guess the biggest problem in projecting the change is that some markets are actually fairly strong. The Texas market is strong, Florida – South Florida particularly has become strong, California strengthened, but other markets are not nearly as strong. And so until there is a fuller and more robust recovery, it's hard to project when all non-residential will strengthen, so…
Kuni Chen - CRT Capital Group: Sorry, you said that private was more – is there a split that you can give us as far as your own backlog and or book of business that's between private and public?
Joseph Alvarado - President and CEO: Arun, the normal – what's been normal for the last couple of years has been about a 70/30 public versus private and our bidding activity is moving closer to something like 60/40, not exactly 40% yet. But that's a significant improvement and a divergence from what we've been seeing for the last couple of years. So, I think it points to some of the confidence that we're seeing in construction markets in spite of the lack of direction or policy out of Washington, but again it's not universal. It's very, very segmented in two particular markets that are much stronger than others. So, we know we moderate closely. I'd like to tell you that we know exactly when non-res will pick up, but it's hard to pinpoint and exact time. But again confidence is up and bidding activity is still good.
Operator: Brian Yu, Citigroup.
Brian Yu - Citigroup: My question is with the steel business in the U.S. and Joe you've mentioned that you're seeing some import pressure and I know a bunch of steel mills have announced price increase from March with the scrap. Are those prices flowing through given your comments on imports?
Joseph Alvarado - President and CEO: For the most part prices are flowing through the residual impact of imports has really been that some of the announced increases are merchant products. They have not covered the increased cost of scrap. So, the increases are flowing through, but they aren't necessarily because of an import pressure, they are necessarily covering full scrap cost increases. So, those who provided price leadership have taken that initiative in response to imports. But there is import pressure directly in the sense that rebar imports have increased year-over-year. We're seeing more significant import of rebar product from Mexico as well as Turkey and merchant products are also flowing in particular from Mexico.
Brian Yu - Citigroup: Can you comment on just the order entry rate because we've seen domestic steel production rate and it hasn't quite recovered. I was wondering if you are seeing a pickup in your order entries suggest better volumes?
Joseph Alvarado - President and CEO: Not dramatically different. When we look at our order intake as well as our backlog, they are currently flat. We expect and normally see a pickup in order intake about this time of the year. We're optimistic that there will be strength in construction market on a seasonally adjusted basis and that will pick up, but there hasn't been a dramatic shift. It's certainly flat.
Brian Yu - Citigroup: We're definitely seeing that, same here. From your downstream business, are there any insights that you can gain from there to help explain why we're seeing that sale lag or lack of improvement?
Joseph Alvarado - President and CEO: No, I really can't point to any one particular thing. You know we're still construction oriented and are downstream that so much of what has tied back to construction markets and some of that was steel segment in terms of the downstream. There are mixed strength in end user market, lot of competitive pressures in the flat-rolled arena that we don't quite get exposed to. So, I can't really give you a good reason or rational other than what I described for construction.
Operator: (Martin Englert, Jefferies).
Martin Englert - Jefferies: Just wanted to see if you'd be able to provide the segment LIFO and the copper contribution of the quarter?
Barbara R. Smith - SVP and CFO: Let see, the buy segment recycling LIFO was an expense of about $1 million, the mill more than $3.5 million, fab was $0.5 million benefit and cold metals was $4.3 million benefit.
Martin Englert - Jefferies: I am sorry, what was for $4.3 million for?
Barbara R. Smith - SVP and CFO: M&D, I'm sorry, M&D. And had an adjusted operating profit of $1.1 million and basically breakeven LIFO expense.
Martin Englert - Jefferies: This is circling back on the import pressure that we're seeing on the bar side and I guess I heard there are some rebar imports that are having this month, next month and then there is potentially some office-related for the May, June timeframe. Are you seeing additional discounting below less prices, for either rebar products or merchant bar products that compete with those imports? I guess in the past some of the mills have done some (indiscernible) discounting?
Joseph Alvarado - President and CEO: Nothing, Martin other than what I already mentioned price increases that maybe haven't fully covered the shifting cost of raw materials, but otherwise those price increases are being fully implemented.
Martin Englert - Jefferies: Then I know you spoke a lot about the non-residential construction on what you're seeing there and that commentary has been helpful, just looking at your backlog at this point this year relative to where it was last year. Are you able to see – is there any kind of growth there on a year-over-year basis?
Joseph Alvarado - President and CEO: On a year-over-year basis, we're within 1% on our backlog, so fairly flat and stable, but we would expect it to improve in the third quarter, but as of the end of the second quarter flat overall.
Operator: Chris Haberlin, Davenport & Company.
Chris Haberlin - Davenport & Company: Going back to Poland, can you just talk a little bit about the two drivers there, the weak economy and then the imports, which of those are really having the bigger impact on driving the loss this quarter in kind of what's the outlook going forward for that business? I know you said that, you expect some modest improvement in profitability in FQ3, just kind of how should we think about that over the next few quarters given the economic backdrop in the import situation?
Joseph Alvarado - President and CEO: Well, Chris, compared to our second quarter last year in Poland, second quarter was an extraordinarily strong quarter. We weren't nearly as impacted by weather as we were this year. Our shipping volumes are down significantly, but the economic results at least in terms of a driver of what's impacting our profitability there is margin squeeze not only for rebar, but where we're seeing imports with merchant products. To the point where merchant products pressure on margin has gotten to the point where rebar and merchant product margins are almost non-differentiated. So, without a doubt the imports have had a more dramatic impact overall in Poland not only in this most recent quarter, but really through the last three or four quarters. We first started seeing this problem in, well, I'll say early 2012, it might have been as early as late 2011 and it's become more pronounced and we thought, we got some relief from the government over the course of the summer, but unfortunately that didn't happen and some of the fraud continued and it's impacted overall shipments by ourselves as well as our competitors. All of which are non-Polish based owned companies. So, it might be that we didn't get as good a year as we thought we are getting vis-a-vis the distributors which are almost principally Polish-owned. We're taking advantage of the scheme.
Chris Haberlin - Davenport & Company: Then looking at cash flow, working capital's eaten up a bit of cash here in the first half. I guess, how should we think about that looking into the second half, will we see some reversal of that in H2?
Barbara R. Smith - SVP and CFO: Yeah, definitely, in the second half, we should see – as we did I think in the same pattern last year, we should see the inventory and the receivables turning to cash. This quarter, I should point out, we consciously reduced our dependency – we have been reducing our dependency on the use of the sales receivable program which was the facility that the Company had used quite extensively in the past and that's reflective of the improvements in the underlying cash flows of the business, so we no longer need to rely so heavily on the sales receivable program, but the second thing, I think is also reduce our dependency on deferred letters of credit really to save the financing fees as Joe mentioned earlier, while volumes of traded product have been fairly healthy. The margins have been extremely thin, and so that was a conscious decision to not used deferred LCs and reduce those fees, because we obviously have negative carry on our cash sitting in the bank.
Chris Haberlin - Davenport & Company: And then lastly, you cut your guidance for CapEx, should we see some of that shift I guess into fiscal '14 and then the second half, it looks like you're going to have a pretty significant step-up in capital spending. Can you just talk about what's on the plan for the back half for the year?
Barbara R. Smith - SVP and CFO: Yeah, I'll talk about the first half of your question. The reduction from the CapEx is really two pieces. We talked about last quarter CapEx project that we authorized for some downstream recycling equipment and we just found a creative way to finance that through the way of leasing option, and so that's part of the reductions in the cash flow projection for CapEx. And then the other is, we had a planned furnace outage in Poland that was due to begin later on this year and that's really going to spill over into 2014. I think the back half of this year, are just normal projects that will get going and accelerating here over the next couple of quarters.
Chris Haberlin - Davenport & Company: So, with the Poland mills shifting to 2014, I mean, should we expect CapEx next year to be just directionally higher than this year?
Barbara R. Smith - SVP and CFO: I wouldn't think so. We still – we will it at or around depreciation level.
Operator: Aldo Mazzaferro, Macquarie.
Aldo Mazzaferro - Macquarie: Can you just talk a little bit about the currency impact you may have seen in the quarter in Poland? I see the zloty was up against the dollar and I know the dollar was also up against the euro, so Eurozone is seeing lower currency against what you operate in. Is that something that penalizes your mill currently there?
Barbara R. Smith - SVP and CFO: The biggest impact in Poland when we say adjusting the zloty is, generally they can't take advantage of billet orders in other regions and we will opportunistically fill up that mill with billets to utilize the mill shop when we have an advantage of the zloty, but our billet shipments were about on par this quarter.
Joseph Alvarado - President and CEO: They are pretty sporadic. In any case the billet shipments, it's really windows of opportunity where there is demand and weaken up zloty that we can make it work. So, it isn't the core business. We have some normal billet business geographically, but in terms of behaving opportunistically, it really hasn't impacted us in a very significant way.
Aldo Mazzaferro - Macquarie: So, Joe, can you talk a little bit about the outage spending? I was wondering, if you could talk the severity of it in terms of days of outage or maybe the dollar impact that you had. I think you said it was in the Americas mills?
Joseph Alvarado - President and CEO: Yeah, nothing significant although in the way of spending. We finished the capital upgrade in South Carolina in the furnace. We had some work that needs to be done. We took some time out on the rolling mill, but what I'm really referring is utilizing downtime in any of our mills to do what we would call normal – I would call, winter maintenance in anticipation of stronger spring. So, we had some outages in Arizona that also weren't planned for, but this is just normally the way we operate our business as we use the winter period to do any significant maintenance whether it's with contractors or ourselves, to be in good shape for operating full up in the third quarter.
Aldo Mazzaferro - Macquarie: Just one last follow-up Joe, in terms of pricing, I know, you probably won't say specifically, but has – can you talk about what the spread between merchant and rebar is now? I know it's coming down and it's been amazingly wide I think in the last few years, and I'm wondering whether we're getting back to a normal spread or if you want to tell me how much it is, that'd be great.
Joseph Alvarado - President and CEO: I don't think I'm supposed to tell you exactly what it is especially with my lawyer sitting next to me here, but I try to differentiate that. There's always been a significant difference between merchant and rebar in the U.S. as compared to Poland. In Poland, it's essentially almost gone away. That is to say that we don't price accordingly where we can, but there's been lot of price pressure. The pressure in the U.S. has been more related to imports and a little bit more aggressive pricing on merchants vis-a-vis, those imported products which has squeezed down margins, but it has been a dramatic shift, and I can't give you an exact number off the top of my head, but we can take a look at that although.
Aldo Mazzaferro - Macquarie: So it still makes sense to chase the merchant market though, I mean...?
Joseph Alvarado - President and CEO: Without a doubt. There is an advantage in the merchant business and part of our results were impacted by the fact that, our merchant shipments were down. So merchant shipments were down. Hemisphere inventories continue to remain really low and lead times are really short, so despite that margins are still better on merchant than they are on the rebar, particularly in North America.
Aldo Mazzaferro - Macquarie: But you're shipping more rebar than merchant, volume wise?
Joseph Alvarado - President and CEO: We had stronger booking in rebar quarter-on-quarter, year-to-year basis.
Operator: Evan Kurtz, Morgan Stanley.
Alexander Levy - Morgan Stanley: This is Alexander Levy filling in for Evan. Have you seen any of the recent cold weather affect your business or construction activity or have you been mostly insulated by your geography?
Joseph Alvarado - President and CEO: We're more inflated in our geography on construction markets, but certainly the typical weather condition do effect our recycling business and pricing for ferrous and non-ferrous material. So, while we're not impacted on flows as much, we can be more impacted, but construction activity less, so we're more impacted by is the length of the holiday season and the less number of shipping days that we have in our second quarter. So, I wouldn't say that we've been dramatically impacted. We had a little bit of the fab business up in the Midwest, but it's not a true amount shifts. So, Poland is where we've been more impacted by winter weather and particularly as you look at the volume and Poland, a year ago with compared to the most recent second quarter of this year fiscal second quarter, there has been a dramatic shift in reduction in volume really owing to much milder winter last year than this year in Poland.
Alexander Levy - Morgan Stanley: Could you talk a little bit about your copper mill, how is business there and what would need to happen for utilization to increase?
Joseph Alvarado - President and CEO: Our business there has been pretty steady throughout the year. We saw more wild fluctuations a year ago, residential construction picking up as generally a positive impact on copper tubing business. And what was the second part of your question?
Alexander Levy - Morgan Stanley: What would kind of need to happen for utilization to increase there, maybe in terms of demand drivers?
Joseph Alvarado - President and CEO: As with the rest of our business non-residential as well as residential construction, in that case non-residential helps our copper business just like – it helps our steel fab business.
Operator: Phillip Gibbs, KeyBanc Capital Markets.
Phillip Gibbs - KeyBanc Capital Markets: Joe, can you just elaborate on your sequester cautious this comments because I know you are somewhat insulated on a public side given your Texas exposure but I just wanted to dig a little deeper regarding what you were alluding to there?
Joseph Alvarado - President and CEO: What I am referencing and what I am alluding to is the fact that confidence is such an important part of construction markets moving forward and some of the anecdotal stuff that comes out of Washington on sequester and how it is going to impact construction activity or jobs in general are always a cause for caution. That was hard to say. But that's what unnerves us a little bit, is it starts affecting people's psyche and their confidence in the market. And so when we hear that it (indiscernible) little bit. We haven't seen any direct impact, but could. A lot of the jobs that were left in prior period of time and those will go forward, but it doesn't mean that we have the assurance that everything will continue to go forward on a new project basis. So, more than anything else it is confidence and that affects the private sector in some regards as much as the public sector. It's just a caution.
Phillip Gibbs - KeyBanc Capital Markets: Regarding Poland, it wouldn't be easiest thing for the government to do to help a market leader like yourself and the jobs creator is just to get rid of the tax altogether?
Joseph Alvarado - President and CEO: Yeah. The VAT is prescribed by the European Union. So, the Polish can't do that by themselves as members of the European Union. But what we are striving for is to have that tax paid instead of sequentially throughout the supply chain at the end user level, which is where it would be most appropriate. The VAT just goes back and forth between buyer and seller. Ultimately, it should be paid by the end user and some obligation to make sure the tax is paid. And so, because it's supplier to vendor throughout the supply chain, there is always room for fraud for what I'll call paper companies being set up and then suddenly VAT disappears. And that 23%, that's significant chunk of change for opportunists and people who are willing to take a chance in the face of law to do it, and it's gone with those funds, and that's what we saw in scrap and that's a little bit of what we're seeing in the distribution supply chain for rebar products coming into Poland.
Phillip Gibbs - KeyBanc Capital Markets: Just lastly if I could, your line of sight on IM&D, can we get back to a 3% segment operating margin there in the next 6 to 12 months, is that possible? I think your guidance somewhat would get us near there but below that level, but it's a seasonally strong quarter somewhat on a recurring basis, when could we get to that level? Thanks. And what would you need to see to get that to level?
Barbara R. Smith - SVP and CFO: Yeah. So I think a lot depends on our Australian operations and how well they can recover from this timeframe that we're in right now and pressures that they're under. And I think Joe mentioned earlier that the government there has not done anything to stimulate their economy, while mining has been doing well, construction has been down, and they're experiencing a similar situation to the U.S. We're hopeful that now that they've called for an election that maybe the government will take a different posture and become a little bit more stimulative, but Australia is going to kind of be the swing factor for us, I think.
Operator: Timna Tanners, Bank of America Merrill Lynch.
Timna Tanners - Bank of America Merrill Lynch: So, just wanted to take a step back and a lot of questions already addressed, but one thing that I still want to understand better is hypothetically let's just say that the ABI is wrong or it is an 18 month horizon, can you just remind us what kind of activities or initiatives you have to kind of further your own earnings profile without a construction recovery or irrespective of a construction recovery?
Joseph Alvarado - President and CEO: Yeah Timna, it's what we've been doing all along for the last three years here. It's aggressively managing our own cost structure, whether it's SG&A, conversion cost, energy cost, manning levels, and we continue to do that on a daily basis. We've reduced our SG&A dramatically. We've improved the efficiencies in our operations and I've also shared with you in terms of our approach about going to market on a regional basis and not diluting ourselves into taking business that really doesn't contribute to the bottom-line. I think we've become much more disciplined about taking on business that's profitable as opposed to taking on business that just sells mill. We don't see our competitors doing that all the time and it's somewhat disconcerting but we just walk away from that business. Ultimately, we believe that's the right thing to do not only for profitability, but for our shareholders and for utilization of our operations. So, it is a multi-level effort that we have from our raw materials procurement down to the way we sell our aggregated products.
Timna Tanners - Bank of America Merrill Lynch: So, is there a lot more that can be done, granted of course you've been talking about the initiatives there and the improvement since you became CEO. But just wondering are you in the final innings or is there always a lot more that can be done, are we talking dollars, are we talking about tens of dollars of cost savings. Just if you could help us there?
Joseph Alvarado - President and CEO: Timna, I'll answer it by saying that our mission in life is continuous improvement, so whether it is improvement in margin or improvement in cost, there is always a gain. But if you are asking about, for example, SG&A taking out another $30 million in SG&A, that's more difficult to envision, but can we continue to improve and reduce, yeah and we will and we have this quarter. So, it is a continuous effort Timna and there is no end to it. That's what we are here to manage. And at the same time not assume that markets will get better, but we do look forward to them improving and it will.
Timna Tanners - Bank of America Merrill Lynch: And then only other question I had was on recycling. What's going to help that market get better? I don't think we've touched on that, so I thought I'd just throw out any visibility. At one time you were talking about growing out your recycling operations and little optimism there and what's changed or if anything in your outlook on not recycling longer term?
Joseph Alvarado - President and CEO: For me at least when I look back over the last few months, recycling business issue is one of consistency. Volatility, as we've said before, isn't necessarily good when it is down or when it is up and down. Consistency in pricing and raw materials with some slight improvement in the cost of scrap is – ferrous price is actually good for us. So, the volatility is I think what hurts us all the most. We concentrate on – we're about half retail and half our own consumption, so where we can we utilize the consumption of our ferrous product growth and speculating in international markets and that's always been our core businesses is balancing our supply with our retail and our consumption demand. So, I think, for the time being, because we're expecting continued volatility, the recycling business will be challenged and until global demand improves, including in particular in Europe more consistently, it's going to contribute to that volatility.
Operator: Sal Tharani, Goldman Sachs.
Sal Tharani - Goldman Sachs: Wanted to ask you, Joe, does it make sense to have still these five divisions in the business or do you think that – I mean, I can understand scrap, steel and fabrication maybe have some synergies across. Do you still want to be in trading? Does it give you any synergy. It grew a lot to a point and did very well. I am just wondering if this is what spending time on that business or is there something you think you can exit? And also, Poland, I think you already answered difficulties in getting in terms of labor relationships, but I'm just wondering if trading is a part of business or is one segment which you can get away with and concentrate more on your core business of steel and scrap?
Joseph Alvarado - President and CEO: Sal, have you been talking to Aldo, because he asked this question last time.
Sal Tharani - Goldman Sachs: No, I didn't.
Joseph Alvarado - President and CEO: Whenever we fall on difficult times, it's a question that we're asked frequently. The way that I'll respond, Sal, is the trading business has been good for us. Over the cycle, we're going to have bumps and bruises, but the trading business has been good for us and there are synergies, and probably 90% of our trading activities is in some way I'll call it steel related. It can be in providing products for refractories or for steel or for coke production. We're selling to a large number of our competitors and to other steel producers. So, yeah, we do get a good window into what's going on in activities on a global basis. So, we see trends coming out of China, I think, significantly earlier than others might see them, because of our trading activities. So, yeah there are some synergies, we flow a lot of product into – raw materials into North America as well as into China from South America and back and forth between Australia and China, the Southeast Asia region. So, yeah it gives us a good feel for the pulse of what's going on there. We'd like it to be more consistent. We wouldn't like the margin pressure to be as great as it is, for example when Chinese are moving, as much products as they're moving out of China into Southeast Asia, it does give us some impact and there are some synergies and we've exploited that in sales of raw materials as well as in sales of semi-finished products, and in some instances finished products as well.
Sal Tharani - Goldman Sachs: I'm not sure if you made a comment, but is there any change in the backlog on the fabrication business in the U.S.?
Joseph Alvarado - President and CEO: Yeah, the bidding activity is up significantly, I believe it's at 40%, but in terms of the backlog right now, it's flat year-on-year, within 1%.
Sal Tharani - Goldman Sachs: Australia, how big is your business in Australia is of your total trading platform which you report as one segment?
Joseph Alvarado - President and CEO: Australia, there are three components for our Australia business. One is raw materials trading, the other is steel trading and the third is distribution. The largest of those is the distribution component itself. We have roughly 13 locations in Australia, where we store and distribute steel products. So, 20 – what did you say?
Barbara R. Smith - SVP and CFO: It's about 25% of the overall.
Sal Tharani - Goldman Sachs: Is Australia all three combined or just the distribution?
Joseph Alvarado - President and CEO: That would be all three combined.
Sal Tharani - Goldman Sachs: And you've seen a slowdown in all three, my assumption is?
Joseph Alvarado - President and CEO: Yeah. We bring raw materials and we're selling them to steel producers like OneSteel and BlueScope and they've cut back their production. We bring in a lot of the long products for construction markets, we probably commented that's a pretty slow market for us in Australia. So, yeah, it's really across the board in Australia.
Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Joe Alvarado for any closing remarks.
Joseph Alvarado - President and CEO: Well, thank you. I appreciate that. Thank you to everyone who is on this call for joining us today. We look forward to meeting many of you in our Investor meetings in the coming weeks and look forward to talking to you again in the third quarter.
Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.