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Executives

Murray R. McClean - President, Chief Executive Officer, Director

Stanley A. Rabin - Chairman of the Board

William B. Larson - Chief Financial Officer, Senior Vice President

Analysts

Michelle Applebaum - Michelle Applebaum Research

Chris Olin - Cleveland Research Company

Sal Tharani - Goldman Sachs

Timna Tanners - UBS

Sanil V. Daptardar - Sentinel Asset Management

Brian Yu - Citigroup

Eric Glover - Canaccord Adams

Charles Bradford - Bradford Research

Bob Richard - Longbow Research

Don McDougall - Adage

Commercial Metals Company (CMC) Q3 2008 Earnings Call October 30, 2008 11:00 AM ET

Operator

Welcome

To the Commercial Metals Company fourth quarter 2008 earnings conference call. Lines have been placed on mute to prevent any background noise. After the speaker’s remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star then the number one on your telephone keypad. If you would like to withdraw your question, press the pound key. Your host for today’s call is Mr. Murray McClean, Chairman, President, and Chief Executive Officer of Commercial Metals Company. Mr. McClean, please begin your call.

Murray McClean - President, Chief Executive Officer, Director:

Hi, and good morning to CMC’s fourth quarter 2008 fiscal conference call. Now before I begin the call I wish to say a few words in memory of Sarah Feldman, who passed away this week at the age of 101. Sarah was a widow of Jake Feldman, as some of you remember Jake was responsible for transforming Commercial Metals Company, [handled 0:14:3] by the Feldman family into a public corporation. Sarah was a very gracious lady and a tremendously kind and caring person. She and Jake honored principles and values, and in fact Jake was responsible for the foundation of the CMC’s core values, which Stan Raven, the former chairman endorsed and referred to as CMC’s eternal values. Sarah, you will be greatly missed by family, friends, and all of us at CMC.

And now on the call with me is Bill Larson, our Chief Financial Officer. I’ll start the call with an overview of the fourth quarter, and call on Bill to provide further details. Finally, I’ll comment on the outlook. With respect to the overview, we gave the guidance of $.90 to $1 in earnings per share with no Lifo forecasted. The actual result, as you see on the release, was actually $.55 earnings per share, and if you add back the life out expense of $.78 per share the total is $1.33 per share. Now this demonstrates the operating strength of the fourth quarter, where exceeded the range by $.33 to $.43 per share.

Now the global markets peaked during the quarter with prices declining by quarter end. Now prices here on the OS peaked in July, with $605 a long ton before dropping $60 a long ton in August. Infantry levels started comparably low, particularly rebar in June was low on the OS but increased by core end by supply and demand. Our rebar imports stayed low during this period at 68,000 tons average per month during the quarter. Haitian freight rates, which peaked in May of this year, declined during the quarter, and China - it was interesting to see that the exports still actually increased in July and August - and this was material that was booked back in May and June, when global store prices were at such high levels, it meant that the Chinese mills could make money even after applying export taxes.

Most of those Chinese exports went to Asia, Europe, and into the Middle East. The US economy weakened further, with non-residential construction slowing, definitely we saw signs of this toward the end of the quarter. The normal seasonal slowdown did not occur. Normally this happens in the May-June period. It didn’t happen this year until late in the quarter, late July, early August period. And in hindsight coal is a liquidity issue that was starting to impact demand by late in the quarter. I’ll now ask Bill to provide details on the fourth quarter.

William B. Lawson - Chief Financial Officer, Senior Vice President

Thanks Murray, good morning. Let me call to your attention the detailed Safe Harbor statement included in our press release and in our August 31st, 2008 10K which will be filed today, that in summary says that in spite of management’s good faith, current opinions on various forward looking matters, circumstances can change and not everything that we think will happen always happens. In addition we’ve given guidance, as Murray indicated, regarding our outlook for the first quarter fiscal 2009 in our press release. Subsequent to this call we will not be under any obligation to update our outlook. Finally in accordance with regulation G the Securities and Exchange Commission you’re aware of non-gap financial measures. Some of these have been derived fairly straightforward from our financial statements or our common business news, subject of discussion today, and our investor visits. Our Web site has additional information at CMC.com, but there are other items that may be outside our ability for discussion, and you may need to be patient with us. This morning’s a little different than our other conversations with you, sure due to the ongoing financial crisis, but more in terms of who is not with us. For my 10 years doing these calls Stan Raven has been in the room with me, and now he’s listening in as all the rest of you are, and as Murray noted for 101 years Sarah Feldman had been with us, and now is gone. May both of them enjoy their retirements.

I was debated about whether to put out a fourth quarter press release that has nothing but the first quarter outlook in it, though our fiscal year ended about 60 days ago. In what you might term economic event years that seems to be a long time ago. No need to go over the ploughed ground of what got us here: greed, pride, gluttony, wrath, envy, sloth, lust. Actually those are the seven deadly sins, but I think there are elements of each of them in the near death experience of global economies. What people want to know is where are we now and where are we going.

You know we’re going to play the cards that we’ve been dealt. We gave guidance for the next quarter as we always have. I notice a drawing reluctance on the part of some managements to make some forecasts even as short as a quarter, under the rationale that it’s just too hard to see right now. And though I agree with the circumstances we face, it’s been my opinion that the market abhors a vacuum and will ignorantly or not fill in the gaps. So we’ve been giving you our best thinking. Are we subject to being imprecise more than in the past, well given my track record on Lifo estimates some would argue that that just isn’t possible. But I think the qualitative message is clear: prices have collapsed, volumes will be lower, Lifo, which has taken the economic profits out of our previous earnings will now take the deflationary losses out as well.

A quick note on liquidity: August 31st, 2008 we had substantially all of our $400 million in commercial paper program, or the contractually committed revolver that backs it up, available to us. There were a few loads of credit issued under it. We had our $200 million accounts receivable securitization program available to us. We continue to have sufficient uncommit to the lines of credit from numerous banks. Our banking group has had some merger activity within its ranks but is substantially in tact. Our financial condition is strong.

Now what are our financial priorities right now? Clearly, you must play safe, with the bank crisis exploding around us. Financial institutions went to excess one way to cause this problem, and they will go to excess the other way to solve it. So our first priority must be liquidity. First, cash, by reducing working capital. Second, be flexible on our CapEx spending. Our press release outlined our objectives for the year, that we must constantly reassess where we are. Third, balance our cash needs against the compelling value represented by our stock price.

May I add just a few words about the fourth quarter: The results were all about Lifo. Increases in fair scrap prices were still resident in our raw material and our finished goods inventories by quarter end. In addition our marketing units - at least some of our marketing units - had significant in-transit inventories at August 31st. Not affected by Lifo, though, Poland had an extraordinary quarter. If you add it all up the Lifo reserve at August 31st, 2008 was $562 million, which is $3.21 a share.

In the fourth quarter decreased net earnings: $90.9 million - I mean, these numbers are just staggering - $90.9 million or $.78 per share verses last year. We had income of 5.7 million, or $.05 per share. Year to date, then, the decrease net earnings - this is an after-tax number - $209 million. $209 million or $1.78 per share, verses a decrease last year of $33 million or $.27 a share. The depreciation for the fourth quarter was $38,000,475. That then gave the year’s depreciation at $135,069,000. Because of acquisitions, both late in the year and not a full year of depreciation during fiscal 2008, we do expect depreciation for 2008 to be $160 million. Speaking of our debt, the interest coverage ratio - there’s only two covenants on it - the interest coverage ratio is 2.5 and the debt cap ratio is 60%, neither one of which we are even within sight of. SG&A for the fourth quarter increased about 53 million. A lot of that had to do with acquisitions. NiKae, ABC during the quarter.

Functionally, it’s resident mainly in salaries and in the ongoing costs associated with the SAP rollout and the IT infrastructure. All of that is true also for the increased year over year, and on top of that you can add CMC CSAP, the Croatian mill, on top of that. In some interest statistics, the weighted average of our long term publicly held debt is 6.73%. This is after the issuance of the $500 million in August. For the next quarter we expect an interest run rate of about 23 million, and we had an EBITDA interest in the fourth quarter of over eight times. It’s interesting on public debt, and I know you all have been following this and probably don’t need a whole lot of examples on how bizarre the circumstances are, but if you think about it we issued the $500 million in the first week of August and paid 7.3% for it. IBM, which is rated four notches above us, and probably has name recognition of - whatever factor - a hundred, a thousand times greater than we do, went out for ten year money two weeks ago and paid 7.8. So they paid 50 paces points more than we did for the same debt.

Value per share is $14.30 as of August 31st. That’s with the Lifo counted against it, so 14.40. And as many of the analysts have pointed out is rather significantly above where the current price is, which of course is fundamentally not possible, but I guess it’s a different world we’re in right now. Fourth quarter the average shares - the average deluded shares - were 116,251,800. Year to date the average deluded share is worth 117,685,753. And the actual number of shares outstanding was 113,777,152. Next year’s capital expenditure budget - I think the budget is going to be in the 425-450 range.

Predominantly there are three large projects that have carried over from the prior year. That’s the Micro Mill in Arizona, the new flexible rolling mill in Poland, and the melt shop and castor improvements in Croatia. During the quarter we purchased 8,000 shares of stock at an average price of $25.98. We were constrained in the fourth quarter because of our work on the $500 million bond issuant. We didn’t have that many days that we were able to actually purchase. Year to date, then, we bought back 6,212,238 at an average price of $27.74. You probably saw the announcement a couple of weeks ago, the board authorizing an additional 10 million shares for treasury stock repurchases. That brings the remaining authorization as we sit here today to be 10,012,547.

Murray McClean - President, Chief Executive Officer, Director:

Thanks, Bill. Just a couple comments on the outlook further to what we put in the press release. During the third quarter conference call on June the 18th, I mentioned the greatest longer term risks were inflation and the credit squeeze. Well clearly inflation is no longer a risk, at least in the short term. However, the global credit squeeze risk has hit with a vengeance as we all know. And clearly confidence has been shattered. Demand has been dramatically impacted in the US and globally for fear of scrap and raw materials to products. As Bill mentioned, our near term focus is on working capital reduction, reducing ventures, focus on collection and adjusting our businesses to fit the current market conditions. We saw our recycling segment was hit first, I mentioned earlier, about the scrap drop in August, but if you look at the August to October time period for shredded scrap it’s down over $400 a long ton. In November it looks like it will drop even further. There’s a reducing of production to control levels. Rebar prices have dropped significantly since August. They’re down $230 a short ton here in the US, and merchants at a lower rate of $160 short term lower.

We anticipate lighter shipments through the lower prices with metal spread should remain good in the short term but ultimately are likely to trend lower. Rebar as we see it, they will stay low for the next three months and then the next calendar year. Clearly, the key will be how quickly confidence and liquidity can be injected into the major global markets.

We anticipate several tough months ahead and as an implemented appropriate action plans to make the market situation. So as Bill mentioned earlier, it’s certainly very difficult to forecast in terms of to make the market situation so as Bill mentioned earlier it’s certainly difficult to find cast in such uncertain times. Looking a little further out, we really do focus on China’s doing, China’s such a huge player in the steel market, they represent 37% of the world’s steel production, and obviously a major player in raw materials.

China is already reversing many of their policy decisions from back in 2007. They are increasing infrastructure spending, reducing both infrastructure rates and taxes, including VAT tax rebates, reintroducing those or increasing those to help with their exports of range of products all this will stimulate the demand for steel within China. Also, the significant cutbacks in steel production in China and that will eventually restore the demand and supply balance. But most likely won’t see anything tangible until after the Chinese New Year which is after January so February March of next year maybe we’ll see positive signs of China.

And clearly China GDP growth rate, 8-9% a year, I think they go on track to achieve there. So in some ways, we face several difficult months ahead, certainly here in the US and with this stage it’s unclear how bad things will get before a recovery will occur. So with those closing comments I’ll now open the conference up to questions.

Question-and-Answer Session

Operator

Thank you sir. We will now begin the question and answer session. (Operator instructions) And the first question in the line up will come from Cuni Chen with Bank of America Securities

Cuni Chen with Bank of America Securities

Hi, good morning everybody.

Audience

Good morning.

Cuni Chen with Bank of America Securities

Can you, just to start off, talk a bit about the state of the various construction markets and some of the trends that you are seeing in your business, talk about what’s been holding up and which end markets you see are starting to roll over in a faster pace.

Murray McClean - President, Chief Executive Officer, Director:

Here in the US or globally?

Cuni Chen with Bank of America Securities

Both.

Murray McClean - President, Chief Executive Officer, Director:

In the US the weakest markets we see in relates more to retail shopping-centers, movies, etc, like commercial. After the events of September and this month of October, a lot of customers, it’s just sitting back and waiting. We’ve seen some jobs being canceled but most or many jobs are being delayed and some jobs there’s a lot of rebidding work going on. It’s a wait and see attitude. As I’ve mentioned earlier, we really need to wait until some form of confidence is restored and we get a clearer view of how things are going to eventuate. Globally, the biggest slowdowns I’ve seen are probably in Europe and clearly in the Middle East, there’s a lot of unsold rebar in the Middle East, risk cargoes, etc and until that inventory works through the system you won’t see a recovery there so that could be some time away.

Cuni Chen with Bank of America Securities

Okay. And Poland obviously - great quarter there. But we have seen a depreciation of this body in recent months. What do you anticipate is the net impact of FX? Obviously that helps the exports outside of Poland but then hurts your translation? If you could just give us some view there of the next quarter or two.

Murray McClean - President, Chief Executive Officer, Director:

Poland looks reasonably good. I mean it will be down like many of the markets but Poland is a little bit blessed, they’ve got EU funds available for infrastructure spending. They looked in reasonable shape. Clearly their markets go down as winter approaches but Poland looks reasonably good and we’re probably more Clearly their markets go down as winter approaches but Poland looks reasonably good and we’re probably more and this statistic about Poland, longer term than some of the other markets.

Cuni Chen with Bank of America Securities

I would say the strength of the US dollar, I wish I could give you a good formula but it just doesn’t run that way because the trade flows start changing but I would say it’s going to have marginally a small negative impact on us, as far as Poland is concerned it helps to keep imports out of Poland, it does help Poland to export as you’ve pointed out, here in the United States you would think that it would be net negative but it’s interesting the psychology, because bills are not running at full capacity the psychology on typical import buyers is they don’t want to take the risk of the time of transit and production and even though the offerings are at prices below what the current mills are offering nobody wants to take a risk so some of the typical effects you’d expect, Cuni, with the change in the dollar, they aren’t happening for other reasons.

And then, lastly, on your expectations for LIFO income of $50 million? I guess that seems a bit conservative in light of the big drops in scrap that we’ve seen so I just want to better sense of that you’re assuming there.

Murray McClean - President, Chief Executive Officer, Director:

Clearly, you’re going to watch the price of Feris scrap heading down in the inventories and working its way right through the finished goods. The only caviat and the reason why the number may not have been larger is there are always during these periods a volatility of opportunities that are springing up for our marketing and distribution areas and I can’t predict who it will be or when it will come but there might be an inventory and transit by November 30 that I don’t find out about and it ends up decreasing the amount of income because we have to pick it up on some FOB basis so I would agree the trend might appear to be that it would be higher than that but I have to take the information that’s available to me and be cognizant that these uncertain times always have these opportunistic shipments and I’ve been known to get caught. .

Cuni Chen with Bank of America Securities

Right. Thanks, I’ll turn it over.

William B. Larson - Chief Financial Officer, Senior Vice President

Good.

Operator

Your next question will come from Brian Yu with Citi.

Brian Yu with Citi

Thank you. Good morning Murray and Bill

William B. Larson - Chief Financial Officer, Senior Vice President

Murray R. McClean - President, Chief Executive Officer, Director

Morning Brian.

Brian Yu with Citi

If we take the prepared comment at face value and assume that LIFO charges of 78 cents mass a strong operating results of $1.34 then the same logic applies to first quarter guidance suggesting that expecting life-long earnings of around ten cents, so what’s causing the big earnings fall given the vertically-integrated nature of your business? Did the company get caught on a wrong side of some buys? If I look at the inventories of $1.4 billion back roughly $600 million LIFO that’s almost $2 billion in inventories.

William B. Larson - Chief Financial Officer, Senior Vice President

What you have here is dramatic effect of Ferris scrap prices, of course Feris has gone down as well but you’re seeing unprecedented amounts going down and in that period we do have some inventories periods around FIFO and you are going to have hopefully that we worked through all this quarter so you are going to have his being taken there’s no question about it and as Murray indicated in this period of the time you always have what we called market claims, material that was perfectly acceptable two months ago, bold beautifully, was the right color in perfect tolerance, now customers are finding excuses, sometimes they aren’t even trying to find excuses, they’re just calling up and saying “We need to renegotiate.” And you’re inevitably going to have that. I think what you’re seeing is this is kind of the quarter transition where all of the bad actors are going to be coming up now.

Brian Yu with Citi

I guess no surprise. And you touch on my second question a little bit. Without the benefit of product mixed information it does seem like the realized prices are closer to the average re-bar spa prices for three months and in June, which implies it's not a two month lag. A bit longer than one month lag mentioned in the last call, so now that prices are beginning to fall it does seem like it will be slippery on the way down so realized priced will reflect spots of this two month lag before.

William B. Larson - Chief Financial Officer, Senior Vice President

And you also have, you know, as values go down it takes you a little bit longer. I mean your point's well taken about the time period, but you know in May, April, June in that time period volumes were very high and it didn't take you as long to get through the inventory. Now it is going to take a little bit longer and going back to what part of what Murray's comments were, you know, you best see that in commercial metals will be adjusting its production in order to meet the apparent demand.

Brian Yu with Citi

Ok. Thank you

Operator

Your next question will come from the line of Timna Tanners from UBS

Timna Tanners - UBS

Good morning. I wanted to ask just conceptually if we take a step back, your CapEx Guidance is still awfully robust considering the economic environment we're in. You point out that the stock it trading below at least the book value on the balance sheet. What gives you the conviction past what sounds like its going to be a very difficult first quarter, to continue at the CapEx levels that they're at? What might people be missing in terms of beyond the first quarter how CMC was able to position itself into what's going to be a challenging 2009?

William B. Larson - Chief Financial Officer, Senior Vice President

Well for the first part, these projects are not going to come on board until a period of time when the markets hopefully have cleared. The micro melanera zala (sp) will not start up producing any significant tonnage until September of next year and it will be January of 2010 until the Polish well.

What inevitably comes out is the time to be positioning yourself for better times is now and if you wait until the better times come you will miss it, so we will constantly be looking at our cash flow and the ability for the units to generate it versus looking at the long term. It's clear that you can lose your focus in a period like this and we're in cyclical industries, right? And yes, this downturn is unprecedented in terms of it's depth but certainly not in terms of the fact that it occurred and I think if you play smart during this period of time you're going to come out better.

Timna Tanners - UBS

I mean along the same lines if you could give us more information about how CMC managed through some of the past down cycles, maybe past some of our memories or going back into CMC's history further?

William B. Larson - Chief Financial Officer, Senior Vice President

I think we manage the cuts real well and I think being vertically integrated is a big plus. I mean, for instance, this point in time our recycling, we are basically shipping all our scrap internally, we're not taking from the outside. So when you have that sort of control you keep the cash within and just the bills find our working capital. We think we can reduce our inventory substantially and that will generate a lot of cash. So we think we know these cycles, we went through the Asian cycle that wasn't as wide spread as this one of course. We know what to do, we've taken a lot of action already to reduce costs and will continue to do that. And being a mini mall operator you're a lot more flexible than lets say a brass furnace operator.

You know, you can take downtime, worse case scenario you can work just weekends when you've got real low pay rates. So there are a number of things you can do.

Timna Tanners - UBS

Ok. That's really helpful. And finally I just wanted to ask about the drags on earnings from SAP and Croatia. If you could give us an update on your thinking about the SAP completion time table and the Croatia turn around process

William B. Larson - Chief Financial Officer, Senior Vice President

Sure. 2009 will be the last substantial year, not that we won't continue to have SAP expanse. But by the end of fiscal 2009 between two thirds and 75% of the earning power of the company will be on SAP units. The substance is that won't our market distribution which are already on tier one or whole systems for the most part. So there isn't quite a burning platform there to consider.

Croatia we anticipate, things can change but we will about break even for this year mainly on the strength of these melt shop and castor improvements that should begin in the second half. They're starting now the benefits should begin to be seen in the second half of 2009. So I think from Croatia you're going to see continuing but declining losses and hopefully then a turn around in the summer months of 2009. I might ad, and really answer half of Cooley's question earlier about products that are doing well.

Obviously the oil country tools that are goods the seamless pipe that comes out of Croatia is probably the best market that we have right now, so in Croatia it's not a question of price in terms of price, it's not a question of volume. It's all a question of production, you know, fulfilling the orders.

Timna Tanners - UBS

Thanks very much

Operator

Your next question will come from the line of Barry Vogel with Barry Vogel and Associates

Barry Vogel - Barry Vogel and Associates

Good morning Gentlemen.

William B. Larson - Chief Financial Officer, Senior Vice President

Barry you used to be first, now you're second. You're losing your touch in retirement.

Barry Vogel - Barry Vogel and Associates

You have to remember, first of all I'm not retired but I'm getting older, getting older. My hand's not as fast as it used to be.

William B. Larson - Chief Financial Officer, Senior Vice President

Well Mrs. Korman lived to be 101, so you're going to be with us for a while.

Barry Vogel - Barry Vogel and Associates

I hope you're right. Going back to the issue of production. Obviously if you look at the American iron and steel statistics weekly since the middle of all of this every single week production had been cut. And again, this is in the United States. 550 thousand pounds a week for that period and production is now down during that period, a little more than 20%. Can you give us some color on your production cuts in rebar and merchant bar since the end of August?

William B. Larson - Chief Financial Officer, Senior Vice President

Let me speak to what we anticipate for the first quarter. And commercial metals, because there are fewer billet opportunities, export opportunities, our melt shops will probably be running. It varies by melt shop and location. But just in general we will be operating at around 75% capacity and our mills in the United States will probably be running at about 70% capacity. Again, that varies tremendously if the mill has more merchant shapes on their product line, they will be operating less. If they are more exposed to remark they're operating more. Poland will interestingly be running at 85 - 90% capacity, especially as our new Morgan block which will allow us to make higher quality wire rod and larger coils is being commissioned as we speak

Barry Vogel - Barry Vogel and Associates

I hear you saying that the first quarter you're probably in you US mills operating around a 70% operating rate? In Poland at 80 - 85% operating rate?

William B. Larson - Chief Financial Officer, Senior Vice President

Yes

Barry Vogel - Barry Vogel and Associates

Can you tell us, not withstanding those figures, what production cuts have happened since August?

William B. Larson - Chief Financial Officer, Senior Vice President

We don't break it out that way Barry. We prefer just to kind of keep it for the quarter.

Barry Vogel - Barry Vogel and Associates

Ok. And I was to go back to Tim and his comments. A question about the SAP expenses. Can you tell us what the PNR expenses are going to be for SAP and can you give us an idea on capitalized $83 million dollars that you had in the press release, what occasion would that have to hit the PNR?

William B. Larson - Chief Financial Officer, Senior Vice President

In terms of the expense it aught to be plus or minus 10 or 15% lower for the year than there was in 2008. The cap light cost has already been advertised as units roll on to SAP. They begin to amortize the expense. So it's going to be giving you, the number's going to be a moving target because there's another roll out that occurred in October. Other ones, there are two more scheduled for 2009 so it's a little bit of a dart throw.

Barry Vogel - Barry Vogel and Associates

Let's look at it this way. I'm surprised that it's as much as you just stated.

You and I talked about it. But based on what he just said, looking at $45 million PNL expense for fiscal '09 vs $64 million in fiscal '08, Can you give us your best guess for fiscal 10?

William B. Larson - Chief Financial Officer, Senior Vice President

I don’t have a guess of that yet.

Barry Vogel - Barry Vogel and Associates

Ok. Can you give us the regular tax rate for this year?

William B. Larson - Chief Financial Officer, Senior Vice President

I'm going to assume that it will be fractionally higher, maybe another per cent or so higher than the effective rate for this year only because Poland will not have as dominant a percentage of the earnings.

Barry Vogel - Barry Vogel and Associates

Ok. And what are the working capital reduction goals for the year? I know it's a tough number but, you know, you have all that high priced stuff in your working capital account and that is a great source of cash. So I am sure that you have a goal for this year.

William B. Larson - Chief Financial Officer, Senior Vice President

We're not publishing that, but it's a very large number

Barry Vogel - Barry Vogel and Associates

I'm not asking you to publish it, just can you give us a range?

William B. Larson - Chief Financial Officer, Senior Vice President

It's a very large number. It's in the hundreds of millions Barry.

Barry Vogel - Barry Vogel and Associates

Really?

William B. Larson - Chief Financial Officer, Senior Vice President

Hundreds

Barry Vogel - Barry Vogel and Associates

Hundreds? Conceivably if it's $3 - 400 million dollars, again, that's hundreds of millions that can turn to cash?

William B. Larson - Chief Financial Officer, Senior Vice President

It better

Barry Vogel - Barry Vogel and Associates

As far as your share repurchase program, I have to commend you with your discipline over the years and now of course, the way I've calculated if we add the LIFO reserve to your equity on a fully capped basis, we're looking at tangible book values using the 113 million shares at the end of the year of 17.17 a share. Now I know you have a lot of cleaning to spend money on but is the mindset of the company This is a question for you Murray, not for Bill because he's been answering too many questions here, why would you consider doing any acquisitions this year, other than your stock?

William B. Larson - Chief Financial Officer, Senior Vice President

Barry, good question. I mean clearly it's a compelling investment, but the MNA activity up to this point in time in uncertain times regardless of the share buy back program, you know, we'll put on hold. Unless its some compelling acquisition, you know, we want to preserve our cash and use it wisely during these times, so you're right. The MNA will be a lower priority and we'll certainly look at the share repurchase.

And as you know we just announced last week.

Barry Vogel - Barry Vogel and Associates

Now as far as fiscal ability to you and I know its way out, but what would be your maintenance CapEx in Fiscal 2010 assuming those projects got finished you know the big ones this year?

William B. Larson - Chief Financial Officer, Senior Vice President

Well, first of all, I shouldn't even answer any more of your questions Barry after you just kind of, don't ever call me again. I don’t know, to be honest. I have not run that number yet Barry. We've been, as you can imagine, we've anticipated what the market appears to be lurching from hour to hour. So we've been trying to gather information day by day, answering questions about what's happening this minute and really haven't looked at 2010. I'll be honest, we obviously have a business plans that go out farther than that, but given the market circumstances that we have right now, I think talking about anything beyond 2009 is treacherous

Barry Vogel - Barry Vogel and Associates

Ok. Thanks, you guys are doing a great job and I have tremendous confidence in you taking advantage of this problem

Murray R. McClean - President, Chief Executive Officer, Director

Thanks Barry

Operator

Your next question will come from the line of Bob Richard of Longbow Research

Bob Richard - Longbow Research

Good morning and thanks for taking our call

Murray R. McClean - President, Chief Executive Officer, Director

Thanks Bob

Bob Richard - Longbow Research

Murray, if I heard you right, metal spreads compressing? That's kind of surprising to me. Is that on a quarter to quarter basis or did I interpret that wrong?

Murray R. McClean - President, Chief Executive Officer, Director

No, you interpreted it wrong. They are obviously holding up well at this point in time. At some point you would think that would compress. You know it depends on how quickly a finished group prices drop. And we anticipate that they clearly will drop further following these cut prices down

Bob Richard - Longbow Research

Yeah, but that's the $64 question

Bob Richard - Longbow Research

Prices the way they sold at because they have…

Murray R. McClean - President, Chief Executive Officer, Director

We certainly haven’t seen that at least yet.

Murray R. McClean - President, Chief Executive Officer, Director

I agree with that.

Bob Richard - Longbow Research

Would you say the metal spread outlook is better in Poland or domestically, or can you answer that?

Murray R. McClean - President, Chief Executive Officer, Director

It’s better here.

Finished good prices in Poland have actually fallen faster than scrap prices. So here in the US the middle margin outlook is much better. Bear in mind that shipments will be lower overall.

So we’re more optimistic about the metal margin here than in Poland.

Bob Richard - Longbow Research

Okay, understood. Do you think we are close to a bottom on long product pricing in Poland. That seems to come down every week.

Murray R. McClean - President, Chief Executive Officer, Director

Yes. Time will tell. You probably won’t see a bottom until towards the end of this calendar year, maybe early next calendar year. As I mentioned earlier, we are going into the winter season shortly in Poland ant that always slows things down particularly on the construction side. So we’ll wait and see.

Bob Richard - Longbow Research

Thank you. One last question; you r LIFO income, is it safe to say that most of that will be coming from your Americas fabrication or distribution?

Murray R. McClean - President, Chief Executive Officer, Director

No. I think, Bob, it’s going to be spread. Unquestionably, it’s going to come from recycling to begin with given the price drops in all the commodities.

Then will filter through to the mills next and the fabricators will be last because their operations at this period of time, they are still working off backlogs of six to seven months, and for the most part, and I don’t want to over generalize, for the most part, you don’t get negotiation on those projects. So they are going to hold up fairly well. So I’m thinking that their pricing, at least their inventory quantities won’t drop quite as dramatically as recycling in the mills. So I would say… Recycling is not as big a segment as the mills. So I’m just giving you, from a percentage standpoint, one would expect the recyclers, given the size of their pool, to be first, then the mills, and finally the fabricators.

Bob Richard - Longbow Research

Thanks you. That’s very helpful. Have a great quarter and best of luck going forward.

Murray R. McClean - President, Chief Executive Officer, Director

Alright. To all of us.

Your next question will come from the line of Michael Willins of CIBC world market.

Michael Willins - CIBC world market.

Thank you. I want to ask on the fabrication division. How long do you pricing contracts usually go out for? Has the market changed so much that we can’t expect fabrication pricing to hold up for the next couple of quarters while your costs come down? Or, do you think you might get some more stickiness on the prices going down there?

Murray R. McClean - President, Chief Executive Officer, Director

Unquestionably on Rebar you’re going to see that it stays pretty much constant. The backlogs are that strong, and there’s enough tonnage in those. I don’t think you’re going to see much deterioration there. I don’t think that will necessarily be the case, Michael on Joycework.

Remember that this fabricated number that we give is kind of a potpourri of Rebar and Structual and Joyce. I don’t know how meaningful it is. I can always back out on the old product mix argument.

But if you look segment by segment, Rebar should probably hang in there pretty tough. But I think the Joyce, which of course comes from angels and [merchant shapes], is probably going to drop on us.

Michael Willins - CIBC world market.

In the quarter it says you had a LIFO expense of $100 million. Could we see that turn into a LIFO credit of $100 million in the next couple of quarters?

Murray R. McClean - President, Chief Executive Officer, Director

Remember how good I am at LIFO before I answer this. But if prices were to bottom out and stay where they are now, I would anticipate more LIFO income in the 2nd quarter. How big? I’ll need to rerun the calculations. The trend this year is clearly going to be LIFO income absent any recovery in prices in the 2nd half of the year

Michael Willins - CIBC world market.

Okay. Going back to international markets, if we look in the Spring of this year, there was a lot of talk in the press and commentary on demand in the Middle East being very robust, very strong. Did that end up being just an inventory bubble? What do you think happened in the Middle East?

Murray R. McClean - President, Chief Executive Officer, Director

I think in the Middle East, Michael, clearly liquidity issues caught up. It didn’t just happen here in the

PART TEN

Michael Willins - CIBC world market.

Just Buy stoped buying and I think certainly new projects have been postponed. Dubai was being cited as a case. Clearly, I think everyone uses that, which is getting over-built.

There are a lot of traders here speculating in the Middle East, building up inventory and rebar. Prices jumped very sharply from that January, February period through to May, June. There was clearly a lot of speculation, and there was a lot of unsolved rebar in the Middle East even there - distressed cargoes, a lot of banks and shipping companies are in rebar and they prefer not to loan, so that will take a few months to sort through.

But I think the underlying demand for most of these countries - Saudi Arabia, the United Arab Emirates in general, North Africa - is still pretty strong, but it’s just going to take a few months to sort out these problems. I don’t think you’ll go back to those robust times. The underlying fundamentals are there, and I think the Middle East will come back. They’ll just need a few more months to sort themselves out.

Michael Willins - CIBC world market.

Okay, thank you.

Operator

Your next question will come from the line of Sanil Daptardar with Sentinel.

Sanil V. Daptardar - Sentinel Asset Management

Thanks. Could you give us some information about public sector spending in the US given the constraints or given the kind of scenarios states are having as far as funding goes - the highway program, the bridges construction and other things?

Murray R. McClean - President, Chief Executive Officer, Director

The highway program, particularly here in Texas, is still quite good, but clearly there are some State funding and other areas that we’re concerned about. We mentioned at the outset that we want this election to be over and done with. We want some guidance. There are definitely going to be some issues in the short term. With the Texas highway program it’s so far so good. We’ve got good backlogs, and it doesn’t appear to be an issue. There’s more of an issue in some of the Eastern states. Do you have any comments?

William B. Larson - Chief Financial Officer, Senior Vice President

I think in terms of geography, if you rate it from best to not best Texas is clearly still very strong. I would say that the desert Southwest is next and that the Southeast is the weakest market that we have right now.

Sanil V. Daptardar - Sentinel Asset Management

What is your exposure to the public sector in terms of the company? Is it 20% or so that you’re exposed to that public sector?

William B. Larson - Chief Financial Officer, Senior Vice President

It’s probably more than that. If you include all infrastructure work, it’s probably as much as a third of what we do here in the United States.

Sanil V. Daptardar - Sentinel Asset Management

Okay, on the American fabrication, if you just back up LIFO effects and you look at the year to year, there was a gap in the margin by about 110 basis points. Is there something going on? Are you having operational issues? If you look at the price they were far ahead on a year-to-year basis because of the strain of the market, but operationally it looks like there were some issues. Is it possible to get some clarification on that? Is it going to go away in the next year?

William B. Larson - Chief Financial Officer, Senior Vice President

Yeah, Sanil, the number one cause was as prices fall customers renegotiate a lot of things. It doesn’t necessarily happen on the infrastructure work, as I said earlier, but on every other form of work you end up getting concessions. You get outright balking at pricing, and so you end up with what are known as contract loss reserves and a substantial amount of that came flowing through in the third and fourth quarters.

Also you have non-compliance on one hand. On the other hand, as prices go up those projects continue and they expect you to deliver. We bid a lot of these jobs back when rebar was a lot … we anticipated that prices would stay the same, but they actually went up. We had to fulfill some of these contracts at a loss.

So you’ve got two things - you’ve got losses on non-compliance or you’ve got losses on contracts that we do have to comply with where the selling prices throughout the year.

It’s hard to believe right now given what’s happened over the last couple of months, but nonetheless in the summer we took a lot of loss reserves on contracts that we had under-bid.

Sanil V. Daptardar - Sentinel Asset Management

In the future do you foresee that you might have to increase the loss provision?

William B. Larson - Chief Financial Officer, Senior Vice President

No, actually if there’s a silver lining - and it’s not a bright silver lining - but the fabricators, as we’ve said forever, in periods of declining prices is when their ship comes in. Now, especially on the contracts that were pretty much the end-use customers, the government entity, the pricing won’t change, yet the rebar they’ll be able to supply against those jobs is obviously dramatically falling in cost. Those reserves are going to be reversed now.

Sanil V. Daptardar - Sentinel Asset Management

Okay, just one last question on the international operations. You just talked about metals are going to be lower than the US. How much is the effect because you use LIFO for accounting there? How much is the effect because you have a higher cost over there that’s going to be flowing through the P&L now?

William B. Larson - Chief Financial Officer, Senior Vice President

Well, it’s a wait and see. The prices are moving around so much that we don’t really have a good number yet. But it will be substantial, Sanil. Anyone in commercial metals who’s on FIFO will not have that cushion that the LIFO reserve provides, depending on where prices end up at the end of the quarter. We’re not going to deceive ourselves. We’ve put in that first-quarter projection a significant hit because of that.

Sanil V. Daptardar - Sentinel Asset Management

You mean to say that probably the operating margins of 14% in the fourth quarter may drop down to somewhere around 7 or 8%?

William B. Larson - Chief Financial Officer, Senior Vice President

Yeah, I don’t know exactly. They’re going to decline. Where they’ll decline to I’m not ready to predict, but they will decline.

The other thing, Sanil, is we were selling a lot of export bullets, particularly the Middle East. That’s all dried up for the time being. Okay, so it’s not affected.

Sanil V. Daptardar - Sentinel Asset Management

Thanks a lot.

Operator

Your next question will come from the line of Sal Tharani with Goldman, Sachs.

Sal Tharani - Goldman Sachs

Good morning.

William B. Larson - Chief Financial Officer, Senior Vice President

Sal, you’re supposed to be traveling and not on this call.

Sal Tharani - Goldman Sachs

Yeah, I am traveling. I have a couple of quick questions on the scrap. I thought you moved your new inventory very quickly. I remember you first sold 30 ton or something. Were you caught with a lot of inventory?

William B. Larson - Chief Financial Officer, Senior Vice President

Not a lot. We probably were turning it at between 12 and 15 days, but the problem is the volume that was being able to be sent out dropped so dramatically that every ton we had - even though it doesn’t appear to be a lot - was taking a beating, because we were having to hold onto it a little bit longer, which is what Murray indicated. We’ve instituted CNC first policies, that the mills will source from CNC first and the fabricators will source from CNC first.

Sal Tharani - Goldman Sachs

Is there any chance that you may have taken a write-down on the inventory?

William B. Larson - Chief Financial Officer, Senior Vice President

No, that’s what the LIFO reserve’s for.

Murray R. McClean - President, Chief Executive Officer, Director

Sal, the volumes have fallen off dramatically, because the mills are basically trying to consume their own scrap they have so as to try and reduce the buying from the outside. Recyclers continued to be recyclers, and many recyclers, including ourselves, are very selective about where we buy now. A lot of the peddler business is being dropped. The dealer business is stopped. It’s quite a dramatic turn of events in the last few weeks.

Sal Tharani - Goldman Sachs

On the fab side what’s the back up like right now?

William B. Larson - Chief Financial Officer, Senior Vice President

In terms of the highway work it’s huge. Depending upon plants and locations it can be as much as a year’s backlog, but overall I think the backlogs are at normal levels, as we speak, which would put them at about five to six months. I suspect that they’re going to begin to tail. The tangential evidence is that the jobs being bid right now are generally

smaller. They may be in the 2-700 ton range as opposed to the 1,500 and plus area. So I would suspect there’s going to be a bit of weakening in that, Sal.

Sal Tharani - Goldman Sachs

I know that you have a lot of plants coming back and renegotiating or canceling orders. Is that happening in the fab shop also?

Murray R. McClean - President, Chief Executive Officer, Director

A lot of re-bidding work’s going on, particularly if there’s a second phase to a project. I know the bigger jobs are alluded to, a lot of customers and contractors just sitting back waiting for prices to drop further. There’s a wait-and-see attitude going on by buyers.

William B. Larson - Chief Financial Officer, Senior Vice President

But most of the contract renegotiation, though, historically has occurred in market and distribution where the lead times are a lot longer and the exposure to market changes is greater.

Sal Tharani - Goldman Sachs

Can you give us some color on [Inaudible] especially with [inaudible]. Is that an issue or is that part of your calculation in terms of the market size especially with the economy coming down over there?

William B. Larson - Chief Financial Officer, Senior Vice President

We expect that mill to be up and running, as I said, in September of 2009. We had looked at the market trends - and you have to look at these, of course, long term, averages over three or four years - and I think the premise is still valid that what we are displacing there is predominantly imported material and materials that are on fab shop purchase so that Newkirk can do what it wants at [unclear] - we don’t speak for them. Most of the tonnage that’s going to come out of our Arizona mill’s going to be sent to our sister fab shops.

Murray R. McClean - President, Chief Executive Officer, Director

We could theoretically sell only production from that mill or fab shops in the West or Southwest.

Sal Tharani - Goldman Sachs

Okay, one more question on the imports of rebar. Rebar prices in the US have fallen, but if you compare to the global price or if you look at scrap prices, you can make rebar at $50.00 a ton right now. How long do you think prices can hold up, or how long do you think the imports will not show up although there is a huge difference in global prices?

Murray R. McClean - President, Chief Executive Officer, Director

Clearly rebar prices will come down here in the US, Sal, but at this point in time no customer wants to buy three to five months out, except from Mexico where rebar exports will continue. The times are just too uncertain. We’re pretty confident that through to February or March of next year you won’t see any increase in rebar imports. We saw last month 30-odd thousand tons and the month before 50,000 tons.

As I mentioned before, the average [unclear] 68,000 tons, well under 100,000 tons per month. We’ll see this probably through the next six months, at least. Clearly, if that differential stays there, the markets [unclear], the customers get more confidence back then imports could be a threat. But we don’t see it in the short term.

Sal Tharani - Goldman Sachs

In fact the global uncertainty can actually keep the prices higher with the global prices since people are afraid to wait four or five months to bring something in, plus credit to be able to bring all that steel over here. Is this correct?

Murray R. McClean - President, Chief Executive Officer, Director

Yeah, if you’re looking at a company like us we were importing rebar, selling to our own fab shops, but now we’re buying all our rebar for own mills and that will continue indefinitely. The other point is that some of our competitors on the trading side take long positions, and those trading companies have got big problems, not so much here in the US but certainly in Asia and the Middle East. Credit lines are being stretched and distressed cargoes are adding to the problems they have. I don’t think you’ll see many of those in the marketplace for some time.

Sal Tharani - Goldman Sachs

Great, thank you very much.

Operator

Your next question will come from the line of Michael Gamperdello with J.P. Morgan.

Michael Gamperdello - J.P. Morgan

Good morning, Murray and Bill. In this environment where we have this global credit crisis, where people can’t get credit and a lot of your customers are having problems with credit, how do you deal with the issue where your customers may start - if they haven’t already - to look at you guys as a bank. And how do you keep control on your credit exposure to your customers?

William B. Larson - Chief Financial Officer, Senior Vice President: 

Well, I’ll let Murray answer the first part of that, because that’s a trading question and very well taken. On our part, with the exception of fabrication jobs, which generally are bonded and you’ve got lean rights, most of our receivables are bagged by letters of credit or credit insurance. And the counterpart on the credit insurance is still pretty financially stable, so we feel good about that. So, we’ve been following the lead from the credit insurers staying within the limits that they give us, and so hopefully we will not be subject - and of course there are always going to be surprises, we know that - but we believe that we, between the LCs, the bonding and lean rights, and the AR credit insurance, that we’re in pretty good shape. Now, as far as them using us as a bank -

Murray McClean - President, Chief Executive Officer, Director:

Yeah, in the credit business that’s really straightforward, but it’s more in the open account business we have problems, Mike. You have to be tough in these times, and certainly try to sell people, you know, well schooled in this area. But you’re right, there’s a tendency that customers, if they can get away with it, they will use us as a bank. So you just have to be alert to that fact. I mean, we have more problems quite frankly in these falling markets, which are falling quite dramatically as we mentioned, with these so-called market climbs, and it’s really just price renegotiations, which impacts your margin. And that is an issue. When you see the magnitude of the price drops in the past at $200 to $300 a ton price drop was huge, but when you look at the Middle East, some of those trading companies - fortunately we’re not exposed - but when you saw rebound prices peaked at $1500 a ton, now they’re at $500 a ton - that’s a $1000 drop in a matter of weeks - it’s quite dramatic. We’ve gone through these periods before, but it is an issue and we obviously constantly monitor it.

Michael Gamperdello - J.P. Morgan

My guess is that your customers out there are just, you know, taking whatever they have off their shelf when they need it and trying to rely on you as kind of their shelf, their extended shelf in terms of their - you know running their inventories to basically nothing, and only ordering when they absolutely need to. It seems like when the credit loosens up it could be a snap back, because you have the demand from people able to get letters of credit, get working capital financing, and all of a sudden you see this snap back almost as violent as the snap down.

Murray McClean - President, Chief Executive Officer, Director:

Yeah, probably, maybe more modest. Certainly here in the US, you know, the demand is no doubt demanded, slower in the non-risk side, but in certain markets - I think you’re right. We look at Poland, and infantry levels there are really quite low. And so there could be a snap back there and some other markets once they sort out the problems with unsolved material and distressed cargos, etcetera. And those markets, once they sort those issues out, there could be a quick snap back. But here in the US I think it will be slower.

Michael Gamperdello - J.P. Morgan

Are you seeing a lot of examples of guy having a hard time getting letters of credit?

Murray McClean - President, Chief Executive Officer, Director:

Yes, in Asia and certain markets we do.

Michael Gamperdello - J.P. Morgan

OK. Thanks a lot Murray and Bill.

Murray McClean - President, Chief Executive Officer, Director:

Thank you.

William B. Larson - Chief Financial Officer, Senior Vice President: 

Bye, Mark.

Operator

The next question comes from the line of Lloyd O’Carroll, with Davenport.

Lloyd O’Carroll:

My question’s been answered, thank you.

Operator

And the next question will come from the line of Charles Bradford with Bradford Research.

Charles Bradford - Bradford Research:

Hi, good afternoon. Question about the infrastructure issues. I’m sure you’ve been following all the comments from the various politicians and Congress about a massive infrastructure spending program to stimulate the economy. In your experience, how fast - or how long maybe I should say - does it take between Congress or whomever funding these kind of projects before they actually involve the usage of steel?

William B. Larson - Chief Financial Officer, Senior Vice President: 

Chuck, there is a year minimum, and you gotta wear two hats as a tax payer. And I think all of us should all be appalled at these ideas. As a producer of steel, if they’re going to waste the money, at least waste it on steel. But it would take at least a year, between trying to sort out what it is exactly that they had wanted to stimulate, and then getting projects up and scoped and bid and actual production. They’d be better off continuing the highway program and saying, look, “we’re going to supplement the federal gasoline tax receipts,” because you know, that program’s in place, there are jobs that are lining up in the queue. My fear, though, is that this is going to be every state for themselves, and all kinds of pork going on.

Murray McClean - President, Chief Executive Officer, Director:

Chuck, it’s an interesting question. If you asked that about China I would say about a quarter. China’s government can get things moving pretty quickly there.

Charles Bradford - Bradford Research::

I’ve noticed that they’ve done a couple of major projects recently. R and B for railroads and all sorts of things.

Murray McClean - President, Chief Executive Officer, Director:

Right, they have. And the big railway project which they had started but that’s really increasing or expanding its scope tremendously.

Charles Bradford - Bradford Research:

When it comes to imports, I recognize what you said about the lack of desire for a domestic consumer to buy imports. But what to we see in regards to the freight costs of moving imports? Because that must have come down dramatically in the last few months. I know that the whole cage size has fallen almost 90%.

Murray McClean - President, Chief Executive Officer, Director:

It has come down a lot. Some rates not so much, you know, the current, you know, from Turkey is the big exporter to the US, typically it’s about $55 a ton. Currently that’s down from $75-$80 a ton. Southeast Asia peaked at about $130 a ton, and that’s half of that now. Some have come down 50%, but you’re right, the big cage size, that’s dramatic. As you know, from Brazil to China is now $11-$12 a ton. I think it peaked at $100 a ton. And Australia to China is about $8 a ton, and that peaked at close to $50 a ton. So the big cage seller has gone down dramatically. And I know you follow the Iron Ore business, and you see China is basically without buying from Brazil at this point in time, and just buying from the major suppliers and Australia’s BHP. And Rio, by contract and virtually no spot buying because of their infantry situation at the ports. So yeah, freights have come down significantly.

Charles Bradford - Bradford Research:

My understanding of imported Weebar is that it’s mostly 20 foot lengths, and you guys don’t want to make a product that small.

Murray McClean - President, Chief Executive Officer, Director:

Obviously 40 foot and even 60 foot lengths for the fabricators. Twenty foot lengths generally go into the distribution business, obviously that was strong when housing was strong, particularly in the markets of Florida and California. The main imports now are coming in are not just 20 foot but larger lengths for fabricators. The imports are way, way down and we just don’t see those increasing anytime soon.

Charles Bradford - Bradford Research:

Thank you.

All:

Thanks, Chuck.

Moderator:

You have a follow up question from the line of Brian Yu, with Citi. You have a follow up question. I’m sorry, your next question will come from the line of Wayne Adwell with Prontis.

Wayne Adwell - Prontis:

Thank you. If I could follow up on Chuck’s question: I was under the impression that New York city, for instance, had a half a dozen or a dozen projects ready to go. Now, I don’t know, maybe there’s a difference between ready to go and actually buying steel and installing it, and I’m no expert in this area, but I have this distinct impression that they have projects designed, permitted, and ready to be spending money. Do I have that wrong or is that the case?

Murray McClean - President, Chief Executive Officer, Director:

I don’t know, we don’t sell to that market.

William B. Larson - Chief Financial Officer, Senior Vice President: 

I don’t know either. To the extent, Wayne, that the stimulus program targets projects that are already - it would have an accelerated effect, but something tells me they’re going to come up with all kinds of new stuff.

Wayne Adwell - Prontis:

Now, I would guess you’re right, but I had the impression that these are projects - and I guess if you don’t sell to New York you wouldn’t know - but I had the distinct impression that they had projects that they had designed and they had permitted and just didn’t have the capital for, but bridges and such they could crank up pretty quickly. That’s not true in other parts of the country? They haven’t been that anticipatory?

William B. Larson - Chief Financial Officer, Senior Vice President: 

Oh, I think they have. I think there are a lot of government projects that have been put on hold. We certainly see a lot of bidding activity waning. In fact, it’s interesting, the comments from our divisional heads, the bidding activity is as active as it’s ever been but the contract awarding has tailed off. So, I think the pipeline’s there, once the cloud passes over.

Wayne Adwell - Prontis:

Thank you.

Moderator:

And your next question is a follow up from the line of Samil Daptardar with Sentinel.

Sanil V. Daptardar - Sentinel Asset Management:

Thanks. Just on China, in fact, they just increased the tax tarries on exports of the Steelmer drill. Now would the industry, and China operating basically at a lower capacity almost 30% to 40% capacity is offline now, and still being one of the largest employers in China. What’s your perception - would they lower the export tax values and reinstate the rebids that they were doing so before? Or you think that they will stay within that?

Murray McClean - President, Chief Executive Officer, Director:

I don’t think they will, for a couple of reasons. I think long term they’re still concerned about energy and pollution, those issues. And also, at the end of the day they don’t have any competitive advantage, particularly on lower quality steel products, they have to import high cost iron ore, so I think they will hold. I mean, as you know, for high quality products - some of them particularly pipe and tube - they still have the VAT tax rebates system and there’s no export taxes on those products, so the bullets and rewire, those sorts of products I think they will maintain the regime and focus on the, you know, if you look at the VAT tax rebate increases, they’re on huge products, some of them consume still, of course, so they are wanting to encourage their export industry. A very interesting fact is that the Chinese really have paid the currency to the US dollar in the past two months. This hasn’t changed from a range of 6.83 to 6.85. So that’s stopped the appreciation of their currency, and they’re really trying to stimulate exports in this environment. But as I say, they still favour high quality steel. They will support those products, but the other products I think they’ll keep the export taxes on for the time being.

Sanil V. Daptardar - Sentinel Asset Management:

So you’re not concerned about the flow of imports to the US from China then?

Murray McClean - President, Chief Executive Officer, Director:

Not really. I mean, they still export a lot of high value products, things like pipe and tube for this market, but they can’t because of the anti-dumping duty. Why they still sell to this market, we don’t see any flood coming out of China.

Sanil V. Daptardar - Sentinel Asset Management:

OK, good. Thanks, Murray.

Operator

And at this time there are no further questions.

Murray McClean - President, Chief Executive Officer, Director:

OK, well thanks very much to everyone for your interest. Obviously we’re facing some difficult times, but we’ve gotten through these times before and we’re confident we’ll get through them again and we’ll be even stronger at the end of the day.

Operator

Ladies and gentlemen this does include the Commercial Metals Company fourth quarter 2008 earnings conference call. You may now disconnect.

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