Joe Alvarado - Chairman of the Board, President, Chief Executive Officer Barbara Smith - Chief Financial Officer, Senior Vice President.

Luke Folta - Jefferies Sal Tharani - Goldman Sachs Nathan Littlewood - Credit Suisse Evan Kurtz - Morgan Stanley Timna Tanners - BofA Merrill Lynch Brian Yu - Citi Michael Gambardella - JPMorgan Phil Gibbs - KeyBanc Capital Markets Aldo Mazzaferro - Macquarie Charles Bradford - Bradford Research.

Hello and welcome, everyone, to today's Commercial Metals Company second quarter fiscal 2014 earnings conference 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, 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, including those 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 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 earnings release or on the company's website.

Now for opening remarks and introductions, I would like to turn the conference over to Chairman of the Board, President and Chief Executive Officer of Commercial Metals Company, Mr. Joe Alvarado..

Good morning and thank you for joining us to review CMC's second quarter fiscal 2014 results. I will begin the session with highlights from the quarter. Barbara will then provide further financial details and I will conclude our prepared remarks with comments on our outlook for the third quarter of fiscal 2014.

Afterwards we will open the call to questions. As detailed in our earnings release this morning, we reported net sales of $1.6 billion for the second quarter of fiscal 2014, which is 2% lower than our net sales for the second quarter of fiscal 2013.

For our second quarter of fiscal 2014, we reported earnings from continuing operations of $11.1 million or $0.09 per diluted share, which is an increase of $0.06 per diluted share when compared to the same quarter in the prior year. The results for the second quarter marked our 10th consecutive quarter of profitability.

However, as anticipated, results for the second quarter declined over results for the first quarter due to the impact of normal seasonality, inclement weather conditions particularly in North America, increased energy cost and holiday shutdowns.

For our second 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 April 9, 2014. The dividend will be paid on April 23, 2014. There were a number of factors impacting our second quarter results.

Following are a few comments on market conditions and other more strategic matters. Many of the key U.S. economic indicators that are relevant to our business remained strong. Total U.S.

construction spending increased in January for the 12th straight month with positive momentum in the residential, transportation, communications, manufacturing, water supply and highway and steel construction sectors, as it relates to the renewal of Federal funding of transportation programs.

Although, we would prefer an approval of a longer-term bill rather than repeated extensions of the prior bill, we are encouraged by signs of higher overall spending approvals currently under discussion in Washington. Since our last quarterly call to discuss our first quarter of fiscal 2014, the U.S.

Commerce Department preliminarily ruled against instituting any meaningful countervailing duties on importers of Mexican and Turkish reinforcing bar. We were disappointed in the ruling, as imports into the U.S. continued to negatively impact our business and capture market share in the markets in which we operate.

On April 18, the Commerce Department has scheduled to rule on antidumping duties on rebar. We are hopeful that the facts, circumstances and economics of the petition are used to determine the outcome of the ruling. Severe winter weather across much of the Eastern region of the United States negatively impacted production at our domestic operations.

In particular, our South Carolina minimill experienced energy curtailments from the effects of winter weather forcing us to utilize higher cost fuel at times during the second quarter. Additionally, our Texas operations were affected by an unusual amount of snow and ice activity this winter.

Our customers were also affected by the severe winter weather which softened demand for our products during the second quarter. On a more positive note, backlogs in our Americas division as of February 28, 2014 were at record highs. We expect demand to rebound in third quarter as our customers get back on track.

As planned, we took advantage of the seasonal slowdown in the second quarter to conduct routine maintenance outages and to upgrade our equipment. At this time, we are not planning any major outages during the third quarter for our domestic operations. Shifting to our International markets.

The Australian market remained flat with ongoing aggressive competition for volumes. We continue to focus on reducing costs and improving working capital efficiency as we wait for the economic activity to improve. We continue to be encouraged by improvements in our Polish operations which reported the best second fiscal quarter since fiscal 2008.

Results were largely a result of economic improvements in Poland and surrounding markets as well as efficiency improvements we have been implementing over the past number of quarters. As well, our Polish operations benefited from a relatively mild winter.

The Eurozone otherwise continued to improve during our second quarter of fiscal 2014 with business growth accelerating in February 2014 to its fastest pace since June 2011. However, the political situation in Ukraine could have a negative impact on the results of our European operations.

In the upcoming months, we plan to commission a new modern electric arc furnace which we anticipate will improve the efficiencies and overall cost performance of our melt shop in Poland. Work on the furnace is progressing as planned and we expect to begin commissioning towards the end of the fiscal third quarter.

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

Barbara?.

Thank you, Joe and good morning, everyone. As Joe mentioned, for the second quarter of fiscal 2014, we reported earnings from continuing operations of $11.1 million or $0.09 per diluted share, which compares to earnings from continuing operations of $3.9 million or $0.03 per diluted share for the second quarter of the prior year.

This year's second quarter results included after-tax LIFO expense of $12.3 million or $0.10 per diluted share compared with after-tax LIFO income from continuing operations of $300,000 or $0.00 per diluted share during last year's second quarter.

During the second quarter of fiscal 2014, we also settled an antitrust lawsuit for approximately $3 million after-tax $0.03 per diluted share. Turning to our results by segment. Our Americas Recycling segment reported adjusted operating loss of $900,000 in the second quarter of fiscal 2014.

Average sales prices on nonferrous scrap decreased to $85 per ton or 3% when compared to the second quarter of fiscal 2013. We shipped 54,000 tons of nonferrous scrap which was an 8% decrease over last year's second quarter.

For our ferrous shipments, average ferrous scrap sold for $350 per short ton during the second quarter representing a 4% increase over the $336 per short ton reported in the second quarter of fiscal 2013.

Ferrous scrap shipments during the second quarter of fiscal 2014 remained relatively flat at 519,000 ton when compared to last year's second quarter. Our Americas Mills segment recorded adjusted operating profit of $44.1 million for the second quarter compared to $47.7 million during the same period last year.

Selling prices for this segment decreased during the second quarter of fiscal 2014 to $675 per short ton from $682 per short ton during the prior year's second quarter. Our Americas Mills segment shipped 631,000 tons during the second quarter of fiscal 2014 resulting in a 5% increase in volume when compared to the second quarter of fiscal 2013.

Our Americas Fabrication segment reported adjusted operating loss of $5.3 million for this year's second quarter compared to the prior year's second quarter adjusted operating loss of $3.8 million. The primary driver of the reduced profitability was an unfavorable change in pretax LIFO expense of $5 million.

The average selling price for this segment decreased $8 dollars per short ton over last year's second quarter average selling price of $950 per short ton. As of the end of the second quarter of fiscal 2014, the volume in this segment's backlog increased by 9% over the prior quarter and was up by 22% over the second quarter of fiscal 2013.

Our International Mill segment reported a substantial turnaround recording adjusted operating profit of $8.3 million for the second quarter of fiscal 2014, compared to an adjusted operating loss of $4.2 million for the same period last year.

The International Mill volumes decreased slightly by 6,000 tons or 2% to 271,000 ton and selling prices increased $23 per short ton or 4% to $628 per short ton during the second quarter of fiscal 2014 when compared to the second quarter of fiscal 2013.

Our International Marketing and Distribution segment reported adjusted operating profit of $2.5 million for the second quarter of fiscal 2014, compared to adjusted operating profit of $3.9 million during the second quarter of fiscal 2013. Our U.S.

based trading divisions within this segment reported an $8.1 million unfavorable change in pretax LIFO from the second quarter of fiscal 2013, the primary driver of the decrease in profitability for these divisions.

Partially offsetting this decline all other divisions within this segment reported improvements in adjusted operating profit when compared to the same quarter of the prior year. Despite continuing aggressive competition in Australia, cost improvements have resulted in improved operating results for this division.

Turning to our balance sheet and liquidity. Our balance sheet remains strong. Cash and short-term investments totaled $431.8 million as of February 28, 2014, an increase of $53 million over the balance sheet as of August 31, 2013. $36.4 million of this increase came from cash from operations.

During the second quarter, we built up inventory levels in anticipation of spring and summer construction and to prepare for the commissioning of a new electric arc furnace in Poland, which led to increase in working capital levels over August 31, 2013.

As the construction season gets into full swing, we expect this inventory build to translate to greater cash from operations over the remainder of the fiscal year. Total liquidity was approximately $1 billion as of February 28, 2014. We continue to maintain significant unused credit lines that give us added flexibility.

Capital expenditures were $22 million for the second quarter of fiscal 2014, as compared to $17.1 million in the prior year's second quarter. We estimate that our capital spending for fiscal 2014 will be in the range of $130 million to $140 million. I thank everyone for joining us today. I will now turn it back over to Joe for the outlook..

Thank you, Barbara. Our third quarter typically brings warmer weather and therefore seasonal improvements in the construction markets which we expect will spur activity in the industry. Overall, the U.S. construction markets continued to show improvement but at a slower pace than we would like to see.

While the American Institute of Architects reported the Architectural Billing Index below 50 in November and December 2013, the ABI index rebounded in January 2014 to 50.4 and to 50.7 in February 2014, which we believe points to improvement of the domestic construction markets.

This growth may be offset by a continued influx of Turkish rebar imports, pending the upcoming countervailing and antidumping decisions by the U.S. Commerce Department in April. The slight improvements in the Eurozone during the second quarter of fiscal 2014, the recent turmoil in Ukraine could have an adverse impact on our European operations.

Although growth in China slowed and import pricing continued to challenge our operations, we are hopeful that global economic improvements will positively impact our business. I thank you for your time and attention and now we will open the call to any questions you might have. Thank you..

We will now begin the question-and-answer session. We request that you ask one initial question and one follow-up question. If you have additional questions please reenter the question queue. Follow-up questions will be addressed as time permits. (Operator Instructions). Our first question comes from Luke Folta from Jefferies.

Please go ahead with your question..

Good morning, Joe, Barbara..

Good morning, Luke..

Good morning, Luke..

I wanted to see if we can drill a bit more on the inventory build.

If we look at the magnitude of it, it's the biggest that I think you reported over the last cycle, outside of maybe one quarter in 2008, and I wanted to see if we can segment out in some way what the impact is from the Polish, new arc furnace versus just building some inventory ahead of the spring construction season? In other words, it could be interpreted to be a very bullish signal that you are building as much inventory ahead of the season.

I guess, help us understand the different magnitude there?.

So, Luke, a couple of things. One is, our seasonal activity in Poland was higher than we had anticipated and so the need for inventory was sustained at a little bit higher rate in addition to the build for the outage. Essentially the outage itself has already begun in terms of the construction activity and the shutdown of one of our furnaces.

So the inventory build was critical to continue operations while the furnace is down and we really won't be striking an arc until, as we said, later in the third quarter. So that's one element of our, or two elements of our, inventory build.

We also have the significant backlog that's built up in anticipation of stronger third quarter, which is typical in North America. We built inventory to be able to support that as well as new order demand in the quarter.

So in the aggregate, there is probably the best material is about 13 days of build in addition to what might be considered more typically normal and 30% of that was Polish related..

Got it. That helps. Also there has been handful of ethylene cracker awards in the Gulf coast over the last several quarters. We got an LNG plant that was awarded also over the last quarter or so in Texas.

Are you seeing any activity in terms of rebar demand on these jobs?.

We expect that we will. Any of the petrochem business or any larger manufacturing complexes that require foundation work and then later on, or subsequently any communities that's buildup surrounding such efforts require rebar for construction. I noted this morning that the fastest-growing cities and I think it's in the U.S.

are in Midland Odessa area on a population basis, but we haven't seen the same spike in construction, but ultimately that construction will come. So it's a matter of timing, Luke. It doesn't happen right away.

There are literally billions of dollars worth of projects related to increased manufacturing and the petrochem industry, in particular in the Gulf Coast, and all that will contribute to increased construction demand at some point. Though it's hard to predict or project exactly when that might be..

Are you able to say if any of those major projects have actually awarded the jobs yet or the contracts yet for the any the rebar supply? Or we are just not there yet in the process?.

I would say, if anything, that you referring to recently announced. They are hardly anywhere near the stage where they would be really bidding for construction..

Great. Thanks, Joe..

Thanks, Luke..

Our next question comes from Sal Tharani from Goldman Sachs. Please go ahead with your question..

Good morning..

Good morning, Sal..

Good morning, Sal..

Two questions. First, on the recent annual price decline.

How is your international trading business set up? I know last time you had some losses on that? How are you handling this time?.

Well, as has been widely reported, iron ore pricing is down dramatically and our engagement in those activities have also been reduced.

So I guess, in this case, as opposed to the time when we were hit pretty hard a year and half ago in trading activity, that was unprecedented and unexpected decline of about 30%, really in about a month's period of time. This is more gradual, more projected, and really is reflection of what's going on in China more than anything else.

So we haven't seen any -- we haven't had any dramatic exposure in our volume activity and iron ore trade is down..

Sal, where you would see it the most is overall, our revenue. Topline revenue in M&D segment is down compared to historical, and a lot of that is just that we are not participating in that iron ore business to the degree that we were a couple of years ago..

Okay. The next thing is on the furnace in Poland.

Can you give us some color on, is that the same size, or a bigger size and what kind of efficiency improvement do you expect and would you be having some negative impact on the earnings in the quarter as you are commissioning this furnace?.

Well, I will answer the last question first. The reason for the inventory build is to make sure that we continue operations of our rolling mills and taking care of customers in any market demand in all of the products that we offer. So we don't really anticipate any disruption.

There are always startup costs, but those are built into the capital expectations, our capital plan as well has startup costs associated with the facility.

So I would like to believe that that this will start up as efficiently as our new furnace was started up in South Carolina a year ago at this time and that it will see the same kind of benefits and improved productivity, efficiency and energy consumption. That's why we are doing it.

Recall that while the Polish facilities have been a part of CMC for the last 10 years, those furnaces are, we have two of them, about 40 years old and the size of the furnace is being increased as well as the capacity to support for all the infrastructure to support a larger diameter furnace, consistent with the objective of moving towards a single furnace operation..

Great. Thank you..

Our next question comes from Nathan Littlewood from Credit Suisse. Please go ahead with your question..

Good morning, guys and thanks for the opportunity. Listen, I just wanted to ask a couple of questions about the domestic scrap market during the quarter. We understand there is a pretty big drop-off in export tonnages, less material going to Turkey and wherever else.

There was presumably also less demand for the scrap itself as a lot of the domestic EAF mills cut back production a little bit, but at the same time, I guess the winter weather conditions probably also meant that there was a big drop-off in domestic risings of scrap.

So I guess there are a number of things going on there which are little bit unusual and probably causing some turbulence in the domestic scrap market.

I was just wondering if you might be able to talk a little bit about how you are seeing that and maybe how each of them is changing as we look into the current quarter?.

Yes, Nathan, I am not sure that you mentioned that the weather was a factor as well, a significant factor. And of course as the winter weather subsides and supplies hopefully increase, that always has an impact on pricing. But probably the single most significant factor is the inconsistency of exports.

We are expecting that scrap prices will be more or less sideways to slightly up, as is normally the case coming out of the winter season, But a lot of that will depend on demand for export product because I think what suppressed prices more than anything else was, a lack of export demand has increased supply and availability and has pushed prices down over the last couple of months.

So our expectation over the quarter is sideways to slightly up..

Got it, and what about the processing margins for the scrap business? How do you see them trending quarter-on-quarter?.

We are, all of us, in this business and electric arc furnace minimill business relentless about trying to manage our cost and we are aggressively pursuing cost reduction initiatives in all of our operations.

In particular, we have organized ourselves along business unit lines to be consistent with aligning the steel production with scrap collection and the most important element of our scrap strategy is to have raw material supply availability.

Although consistent with that organization is the administration and management of our cost structure consistent with how we run our mills. So it's a continuous effort to reduce costs, and where there are other excesses, we take initiative.

An example being, that we mothballed our shredder in El Paso during the quarter, reflecting market demand as well as an objective of improving our cost management and our profitability..

Got it, thank you and just one follow-up question on the import volumes and domestic rebar pricing for the next little while. A number of industry commentators and service centers are saying quite conflicting things about the direction of near-term prices.

I know you guys don't do HSE but Plattes for example is indicating that most of the recent HSE increases the stock, others are indicating that HSE process is actually going down. There seems to be a bit of confusion about the way some of these cost trends are playing out.

What are you seeing in terms of domestic rebar pricing at the moment?.

Well, there is no doubt, as we reported in our earnings release and from the comments that we make today that there is constant pressure as a result of a large rash of imports from Turkey, which has increased market share to double-digit figures from much lower single-digit figures in and months quarters gone by.

So the Turks have been very disruptive. Over the last quarter, they brought in nearly 400,000 tons of imported rebar into the market. They remained relentless about booking cargos into and beyond the April 18 preliminary ruling date on dumping duties.

We believe firmly that they are dumping products into North America and that's why we remain vigilant on this trade case because we see it as being very disruptive and at price well below the market pricing..

Great. Thanks very much. I appreciate your time..

Thanks, Nathan..

Our next question comes from Evan Kurtz from Morgan Stanley. Please go ahead with your question..

Hi, guys. Good morning. So I have a couple. One on the trade case.

Were you surprised at all by the ruling on CVDs for Turkey? Or are you really most expecting the antidumping ruling to cover what we are seeing in the market there?.

Well, we certainly expect duties based on antidumping provisions but we were surprised by the countervailing duties. In fact, I would say, disappointed. In reviewing with counsel some of the calculations that were made by the DOC, there were some anomalies, if you will, on the calculation of subsidies, for power in particular.

As you know, power is an important part of an electric furnace steelmaking and we will appeal that in our petition and following the preliminary rulings and so we will have our opportunity to demonstrate why we believe that there were some countervailing duties that should be applied.

But in the aggregate, yes, we believe that there is dumping as well. So the combination of the two were significant enough that we believe that it would affect rebar supply in North America..

Got you and then my other question is on iron ore. I don't know how much feedback you have had from traders on this but we understand that maybe two thirds of what's sitting on Chinese port inventories right now has been bought on import LCs and that maybe these Chinese mills are using iron ore as a financing vehicle.

I just wanted to get your thoughts on that if that's something that your traders are hearing about in the market? And is there some sort of concern? It sounds like a lot of these deals are done on 90 to 180 day terms and maybe more at the end of last year.

Are you concerned about a near-term unwind of some of this?.

Evan, from what we can tell, there is some of that type of financing going on. We are not participating in it but it's one of the situations where it's a little bit difficult to get all of the facts but certainly there is rising concern that there is going to be an unwind..

Okay, great. Thanks, guys..

Our next question comes from Timna Tanners from BofA Merrill Lynch. Please go ahead with your question..

Hi, good morning..

Hi, good morning..

Good morning, Timna..

Good morning, Timna..

I have one, a really straightforward one, and then one that can pry a little bit more about downstream and fabricating.

So one with, I am sorry if it is, but why was there the lower tax rate?.

I have one, a really straightforward one, and then one that can pry a little bit more about downstream and fabricating.

So one with, I am sorry if it is, but why was there the lower tax rate?.

Yes, the lower tax rate really reflects the improved performance out of Poland. Poland carries a 20% tax rate and over last year, our effective tax rate was elevated because we weren't getting the benefit of profits out of our foreign jurisdictions.

So the second quarter in Poland was a bit better than we anticipated because, as we mentioned, the winter weather was a little milder. So we looked at our full year effective tax rate and adjusted appropriately as a result of that..

Makes sense, okay. So we should look to see that continue, it sounds like. Go ahead..

Makes sense, okay. So we should look to see that continue, it sounds like. Go ahead..

I am sorry, Timna. We are estimating right now about 34% ETR for the year, if you want to model that in..

Awesome. Thank you. Okay, so the second question is about the downstream comments that you made in non-res improvements. So record backlog. I guess one of the things that I am confused about in general with modeling that division is how to think about the smaller size of it, given that you have sold off a bit of it.

So that was one part of the question And then, just any more details about that backlog and your conviction, just given how protracted the recover has been, as you mentioned? Thanks..

Awesome. Thank you. Okay, so the second question is about the downstream comments that you made in non-res improvements. So record backlog. I guess one of the things that I am confused about in general with modeling that division is how to think about the smaller size of it, given that you have sold off a bit of it.

So that was one part of the question And then, just any more details about that backlog and your conviction, just given how protracted the recover has been, as you mentioned? Thanks..

Yes. Timna, I am not sure I understood your question.

Could you rephrase it for us?.

Yes, sure. On the one hand, I am just curious how to think about your recovery and your record backlogs.

Does that include the fact that you sold off some of your fabrication business or is that just given the new size of the fabrication business? And then, along those same lines, I was hoping you could comment about he conviction around those record backlogs just because, as you mentioned, there has been a lot of delay in the recovery and sometimes the orders haven't translated into or that the interest hasn't translated into orders?.

Yes, sure. On the one hand, I am just curious how to think about your recovery and your record backlogs.

Does that include the fact that you sold off some of your fabrication business or is that just given the new size of the fabrication business? And then, along those same lines, I was hoping you could comment about he conviction around those record backlogs just because, as you mentioned, there has been a lot of delay in the recovery and sometimes the orders haven't translated into or that the interest hasn't translated into orders?.

Are you referring to the sell-off of Deck and Joist, Timna?.

Yes..

Yes..

Okay..

That was almost four years ago now..

Right. So when you talk about a record, this is a new cycle, and I am just wondering..

Right. So when you talk about a record, this is a new cycle, and I am just wondering..

Yes, we are referring to our fab backlog and being consistent looking at our fab backlog overall. So there are a couple of things that are working. One is that obviously shipments were a little bit shorter in the first and second quarter.

As we noted, we were impacted by the weather as everyone else was but more genuinely so other than an increase in fabrication demand really across the board, but still in regions that we talked about before, South Florida, The Beltway, Texas without a doubt and Houston market in particular picked up significantly and in the Western region, both Los Angeles and San Francisco areas were all strong construction markets.

That's not to say that we are seeing any dramatic improvement in other markets in between those major points. But activity is picking up and that's contributed to a more significant backlog at prices that are consistent with our earnings objectives. So it isn't about pricing or being aggressive.

It's about being responsive and taking on business that's s good for the bottom line.

Now we always have exposure because of the nature of fab business being bid on more consistently on fixed pricing despite the volatility associated with rebar prices, which ties back to scrap pricing and as a result, we have seen some depression of our fabricated rebar selling prices.

However, as markets pickup and demand strengthens and we do everything we can restore those margins, and you will see that as our backlog continues to ship, remember that our backlog is fairly significant and roughly in the range of about 800,000 tons on fab business, all of which will not ship in the next month or the next quarter but over an extended period of time.

So there is always some degree of volatility associated with that, Timna. I hope I have answered your question. I am not sure that I got it clearly, but we are happy to take that offline if you like..

No, it's good. Thank you..

No, it's good. Thank you..

Our next question comes from Brian Yu from Citi. Please go ahead with your question..

Thanks. Good morning, Joe, Barbara. I have got a follow-up question on just the fabrication backlogs. You mentioned you have about 800,000 tons of backlog now. As we think about the margins as these projects flow through, I recall in the past that there were issues with margin compression as rebar prices go up.

Have you guys devised a way to try to hedge out or insulate from moves in rebar prices in the future with these new projects?.

Yes, So a couple of things. First is, the compression usually comes when scraped and/or rebar prices are in decline, not when they are expanding. So that's what leads to pressure in the market and pricing for fabricated business. I mentioned fixed pricing and longer-term contracts.

One of the things that we focus on and we have talked about it before as well, Brian, is of the mix of private versus public. Public normally being longer lead time business which is fixed price for longer period of time, hence a longer exposure. Private normally being smaller projects, relatively smaller projects with relatively shorter exposure.

We were as high as 70% private and 30% public before the economic downturn and then those numbers flipped dramatically to 70% public and 30% private. And over the course of time up until the most recent quarter, the relativity of those numbers has changed significantly, such that we are at about 45% of private work and 55% public.

So we are working towards a more ideal mix. That's how we reduce our exposure..

Okay, and then the second question is, you mentioned that in the second quarter there was impact from weather disruptions and electricity.

Could you help us and try to quantify what the impact on costs is from higher electricity costs and the also the natural gas hitting $6?.

You know, we have tried to do that and it becomes a little bit of a futile exercise. Our costs were significantly higher in the millions of dollars range, not hundreds of millions or tens of millions but several million dollars worth of additional cost that were incurred in the quarter.

We weren't as badly impacted as some of the northern mills might have been but we were really hard hit in the East. It had significant disruption because not only of the snowfall but so energy curtailment and availability.

But we also, ironically enough, were also impacted and in our Central region when Northern Texas was pretty hard hit with snow and ice over the holidays.

So we had a double effect of holidays in the middle of the week, that being Christmas and New Year's and then bad weather in between, which effectively hurt us for the better part of 10 days of shipments and impacted our shipments overall..

Got it. Thank you..

Our next question comes from Michael Gambardella from JPMorgan. Please go ahead with your question..

Yes. Good morning, Joe and Barbara..

Good morning, Mike..

Good morning, Mike..

I had a question on your Polish operation and scrap in general. You mentioned you had a good quarter in Poland but you are being a little bit conservative or cautious about the outlook given what's happening in the Ukraine with Russia.

Are you seeing any evidence of that already? Or is that just anticipating that could happen?.

We have seen a little bit of evidence and the best way that we can highlight it, Mike, is to tell you that we are seeing products from traders that normally wouldn't be in the Polish marketer or haven't been in the past. It could be temporary and the reason we give caution is that it could be more prolonged.

So stated differently, there is rebar supply, for example, in Poland from locations that we haven't seen before. Not the usual suspects, I guess, is a way to describe this. And that can abate depending on flows.

Everyone tries to keep their nose running and looks for outlets when they go to markets for products that's moving and so we have seen a little bit of that. Enough that we want to be cautious about the quarter depending on how things play out over the next couple of months..

And just in regards to scrap, even back in the United States.

Do you think this issue going on in the Ukraine could back up in to lower scrap prices, especially with the recent drop in iron ore prices and what I am saying here is, if you are having potentially slower demand production in Poland and the surrounding areas because of what's going on in the Ukraine, could that back up into even lower exports of the U.S.

scrap over to Turkey and some of the other places where it typically goes?.

That's a good question, Mike and I guess I would say that if there are disruptions in production, which we really haven't heard or sensed that much.

We were seeing different trading patterns, but not necessarily disruptions in production, but if there are disruptions in production, for example, in Eastern Europe that could make scrap available with better prices for the Turks who are huge importers of scrap on a global basis. That might take them out of the United States.

So your speculation is if that's some probability, but I can't assign a number to it. I would be hard to say, but yet, it's possible..

Okay, all right. Thanks very much..

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

Hi, Joe and Barbara. Good Morning. I had a question on the litigation piece and just SG&A in general. I assume that the litigation is within that SG&A segment and a piece of the P&L. If you exclude that, your SG&A was down pretty dramatically quarter-on-quarter.

Just looking for any color that you have there? Is that baseline number sustainable? Did you ratchet down costs more than you thought? Is there accruals that should reverse in the back half? Just anything that you could provide there..

Yes. So the antitrust settlement did fall in the SG&A line and we did have -- typically our spending patterns are lighter within this quarter because of holidays and there is less travel and all those sort of things. We are having a strong year financially.

So we will be making some adjustments to our variable compensation accruals in the back half of the year. So I would ask you to probably model in SG&A for the next two quarters in $115 million to $120 million range..

Okay, that's really helpful. I know you have given the after-tax number for LIFO, but you can you give us color on what the pretax number was for the overall business and for the mills, please? U.S.

mills?.

Find my page for the LIFO numbers on it by segment. Okay, for the recycling segment it was a positive $1 million and for the Americas mills, it was a LIFO expense of almost $12 million. I think we noted that fab was almost $5 million expense and International M&D had $3.8 million as LIFO expense. So a total of $18 million..

Okay, that's really helpful. I appreciate it. And I just had the last question, if I could. The mothball shredder in El Paso that you mentioned, Joe, is there more to come here. Clearly, I think that the issue has been the excess capacity of shredders in general, making it ever more challenging on the cost side for the recycling community.

Any thoughts there on whether you think this will broadly accelerate the process you are doing a little bit on your side but anything more that you could see or hear that it would suggest that there is more to come broadly? Thanks..

Yes. There is nothing imminent that we can look at and we are always looking at our assets and we have had some other facilities that have been either mothballed or completely shut down. In this case, it's not the scrap collection. We are still doing scrap collection processing in El Paso. It is only the shredder. It was a cost issue.

So back to your earlier question, we are always looking at our costs and trying to make sense of our raw material supply and optimizing mix of product that we use in any of our operations. So there are plenty of others that operate on margin, and I think that somewhat puts pressure on the ferrous industry.

I think we do good job of managing the assets that we have and taking appropriate action. I am not sure others are looking at it the same way we do on a return basis. So I guess there could be others in the industry that might need to be shut down. We don't foresee or project any of our own..

Our next question comes from Aldo Mazzaferro from Macquarie. Please go head with your question..

Hi, Joe and Barbara. Thanks for all the detail today. I just wanted to drill down a little bit more on media on the Ukraine risk.

The electricity source for your mill there, is that a natural gas or coal fired electrical plant? Do you know off hand?.

I believe it's a combination but I believe majority of the sourcing is coal for the utilities in Poland..

And then your natural gas expense in the mill, would that be impacted if there was some disruption in the supply from the Russians?.

Sure. Sure, it would be. But we haven't seen any disruption in availability or supply despite all the saber rattling about sanctions and the like, there really hasn't been much impact on us in that regard..

Great, okay, and then Joe, do you have any way of breaking out the International Marketing and Distribution business by geography a little bit? Is there losses continuing in Australia, for example, offset by the profits in the U.S.? How does that break down?.

Yes. So I will break it down for you this way. First off, Australia has three different components to it. There is raw materials trading, steel trading and distribution.

And talking about regions on the trading basis, I would characterize it this way, the European market continues to be the most challenged, really because of lead times and availability as well as availability of the imports. So when I said availability the first time, I was referring to short lead times and availability from the mill.

So it's really, really a very competitive market in Europe, and we are challenged in every regard moving product really across the board. Asia is a good market. Southeast Asia is a good market for us. There is a lot of product movement, but margins are very thin.

And margins are thin because there is a lot of supply and a lot of flow of information about mill pricing available to the end-users. So it's a very, very competitive market. The Australian market on a trading basis, is neutral. It's not under the same sort of pressure that we see in Southeast Asia, but there are significant pressures there.

Then in North America, trading activity is stronger and our profitability is stronger as well, not only in the raw materials segment but the steel segment. However, there is always a potential, as we source some material from Eastern Europe and Russia in the flat rolled side, in particular that that too could be disrupted in the future.

It's a nice book that we have built, but that would be our concern with anything coming out of Russia and Eastern Europe as it relates to our trading business..

Great, and I know you have got a really good catbird seat for the Turkish rebar coming in and frankly myself, I was surprised, actually I wasn't surprised when you said that you lost the CVD but I thought that would be actually more difficult to prove than the dumping.

So do I understand dumping is, if they sell below their home market price and our market or they sell below their cost, do you think they are -- I don't think the Turks are losing money as far as I can tell and I am pretty sure they are not selling below the Turkish market price in the U.S.

What grounds do you think you are going to win the dumping cases on?.

So we were disappointed with the countervailing duty decision for some of the reasons that I already cited in terms of formula, and I guess probably the better thing is because there is a preliminary determination coming out on April 18, we won't even try and debate that.

We have submitted our arguments to the proper authorities and we will let them decide on it now, but we just believe strongly that there is pricing behavior that would lead to antidumping duties..

Okay, thanks Joe. Good luck..

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

Good morning. I had two questions. First of all, on domestic pricing for rebar, about 10 years ago one of your major competitors started a pricing system tying scrap to the rebar price and announcing every month what the change would be. That seems to have broken down over the last few months.

Has that system now basically been eliminated?.

Chuck, we probably shouldn't be talking about pricing and pricing methodologies on a call. We just settled an antitrust suit for $4 million. I am not really interested at engaging in more but I would say, systems change as opposed to break down, they evolve. We will just leave it at that..

In the South or I guess the Southeast Europe and the Turks and their scrap buying, have you seen any indications that the Russians with a much weaker Ruble and a much weaker economy may be increasing their sales of scrap into places like Turkey?.

Haven't seen it yet, Chuck, but it's entirely possible. We haven't seen any dramatic shift in availability in our Polish operations or surrounding areas on disruption in supply or new supply..

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

Thanks for the follow-up. I just wanted to ask you on the scrap. As you mentioned, Joe, you were seeing fairly weak demand in the International markets. U.S. price are high. Are you seeing product going from the coastal regions to the Midwest and if so how does that can keep pricing in the U.S.

flat to up, say over the next month or two?.

That's always a major contributor. When export markets are unavailable, materials that have been collected in or near the coast do make their way inland and that has propensity for putting pressure on prices.

So in my comments about looking forward, there is an assumption that there is increased demand in the aggregate, higher production rates, some of the winter outage or winter problems that competitors had in the North in particular will abate and they will be in the market for scrap.

And I am assuming that there will be some export, significant enough export market that will help drive prices. If we are wrong about exports, if for example, what Chuck just hypothesized, is right and the Turks don't need scrap from the U.S., that will put pressure on pricing.

Though at this point, we are all guessing about what's going to happen with scrap pricing..

Our next question comes from Timna Tanners from BofA Merrill Lynch. Please go ahead with your question..

I just wanted to follow-up real quick on the case. I know you settled and I can imagine why but I just wanted to get from you directly why bother settling this anti-trust case that's been going on for a while, if you don't even sell a lot of product that seems to be in dispute? Thanks a lot..

I just wanted to follow-up real quick on the case. I know you settled and I can imagine why but I just wanted to get from you directly why bother settling this anti-trust case that's been going on for a while, if you don't even sell a lot of product that seems to be in dispute? Thanks a lot..

Yes, this case was introduced in 2008 when I was more involved in tubular markets and other steel products, and I was pretty amazed when it was first introduced, but it is what it is and we have spent significant dollars preparing for litigation. It has been a long and extended process.

Somewhat extended by the fact that the same judge who was ruling on this was tied up with guy by the name of Rod Blagojevich for a period of time. But to answer to your question as simply as I can is, our expected expenses or anticipated expenses for continued defense of this were significantly higher than the cost associated with settling.

So it was an easy economic decision..

Okay, fair enough. Thank you..

Okay, fair enough. Thank you..

Our next question comes from Sal Tharani from Goldman Sachs. Please go ahead with your question..

Thank you. There has also been quite a bit of news about export of nonferrous scrap to China, zoba and so forth.

And I was wondering, are you seeing some pressure on that part of your business also?.

Yes, Sal. We participate in that market and as their need for product changes, it obviously is going to have a backward effect on us..

Is there another market for zoba besides China, if China stops buying or slows down its buying zoba?.

Yes, there are other markets..

Okay, thank you..

And at this time, I am showing no additional questions. I would like to turn the conference call back over for any closing remarks..

Okay. All right, well. You caught me off guard there. I thought we were getting another question. So, thanks. I appreciate it. And I would like to just say thanks to everyone for joining us on the conference call today.

We appreciate your interest and your questions and we look forward to speaking with many of you during our investor visits in the coming weeks. Thanks very much. Have a good day..

Ladies and gentlemen, this concludes today's Commercial Metals Company conference call. You may now disconnect your telephone lines..