Hello and welcome to today's Commercial Metals Company's third quarter 2009 earnings conference call. (Operator Instructions)Your host for today's call is Murray McClean, Chairman, President, and Chief Executive Officer of Commercial Metals Company.

Good morning and welcome to CMC's third quarter conference call. With me is Bill Larson, our Chief Financial Officer. As usual, I'll begin the call with an overview of the third quarter and then call on Bill to provide further details. Finally, I will comment on the outlook for the fourth quarter. As forecast in our last call, very difficult market conditions prevailed during the third quarter. Destocking continues across all steel product lines, although by quarter end some gaps were appearing in certain product lines. Our U.S. mills capacity utilization rate improved from 55% in the second quarter to 58% in the third quarter. This was more to do with seasonal factors than improving end use demand. There are virtually no signs to date of any impact due to the U.S. stimulus package. However there is clear evidence that China's stimulus programs are working, stimulating demand both through domestic consumption and infrastructure spending. China's rebar production and domestic consumption is now close to 10.0 million tons per month, which is 20% higher than twelve months ago. Prices for most of steel products appear to have bottomed during the quarter and were trending up by quarter end. The subsequent settling of 2009 contract iron ore prices in Korea and Japan is seen as a positive. That is, lower price reductions than had been anticipated, and this will influence favorably prices for pig iron and ferrous scrap going forward. I will now ask Bill to provide the details on the third quarter.

Let me call to your attention the detailed Safe Harbor statement included in our press release and in our August 31, 2008, 10-K 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 regarding our outlook for the fourth quarter of fiscal 2009 in our press release. Subsequent to this call, we will not be under any obligation to update our outlook. In accordance with Regulation G of the Securities and Exchange Commission, you are aware of non-GAAP financial measures. Some of these are derived fairly straightforward from our financial statements or in common business use can be the subject of our discussions today and in our investor visits. Our website has additional information at cmc.com, but there are other items that maybe outside of our ability for discussion and you will need to be patient with us if we defer a comment. It is paradoxical, but we work harder for less in bad times and we work less for more in good times. Our employees, being the most valuable asset we have, they have risen to the task in these difficult times. There are untold and likely never-to-be-known sacrifices that our workforce make each day to deliver superior service, make that extra sales call, forego that expense dollar. We are appreciative of all their efforts. I think an apt description of our results for this third quarter is that we were the tallest pygmy. I do not believe that to be any great honor, as we lost money, but I do believe compared to our peer group, we are weathering this economic crisis better than most as our vertical integration long product focus and…

Just the outlook for the fourth quarter. In the U.S. and in many global markets, we see that destocking is almost over. There will be some exceptions to that, some products may need another quarter or two. But we definitely are seeing some gaps appearing and we are seeing some modest restocking starting to take place. So that will continue in the next two or three months. We anticipate ferrous scrap prices and shipments to increase in July, led by restocking by the U.S. steel mills and also the strong international markets. I anticipate our U.S. steel mills combined capacity utilization to increase to around 65%, so that's up from 58% in the third quarter. In Poland it should actually be even higher, at over 80%. We are seeing increased market activities in Asia, led by China. Our rebar and billet prices are firming and flat product prices are increasing by $50 to $100 a ton in China and Taiwan from July. Our fabrication business in the U.S. will remain depressed with both lower shipments and a declining backlog. Hopefully, during the second half of calendar 2009 the stimulus package will show signs of kicking in with more jobs being awarded during this period. Our marketing and trading operation should improve, in particular in Asia and Australia. We will continue to have contractual claim and infantry issues related to our U.S. steel and core business for another one to two quarters. Our U.S. steel imports are likely to remain modest for the next three to six months. Rebar imports in the U.S. are less than 50,000 metric tons per month year-to-date and are likely to stay at these levels until the end of calendar 2009. Our global markets overall remain fragile, in particular in the U.S. and Europe. Many of our customers still have issues with liquidity, limited credit, and weak end-use demand. Against this background, any recover is likely to be modest and more due to restocking and seasonal factors rather than a pick-up in end-use demand. And with those comments, we will now open the conference for questions.

(Operator Instructions) Your first question comes from Rob Moffett - Longbow Research.

I'm a little bit curious regarding your outlook for construction. How does that tie into an outlook for metal margins, moving forward?

Well, we review, particularly, as you know, we are a mini-steel producer and if scrap goes up, as we forecast in July, we anticipate rebar prices for argument sake to be basically stable. So we would expect on a renewable basis margins to be squeezed some there. Obviously on the recycling side, their margins should improve if the scrap prices go up. And certainly if shipments go up, which we anticipate as well.

And then if we see some—I mean, if the demand that we're seeing right now is maybe seasonal, after some of that wears off, if there isn't maybe a solid non-residential construction market do we potentially see pricing come down after that?

That's possible. I mean, as we mentioned, we don't see any great impact with the stimulus package this calendar year. Hopefully, next year that will kick in but certainly in our view there will be a gap between when that kicks in, so it could be one to two quarters.

And if you do see some kind of a stimulus impact, where in the construction market do you think it would be?

Well, definitely for us in the highway work. But you know, on the public sector in general it would be very positive.

Outside of that, with the fab side of your business, are there still backlogs there?

There are still backlogs but they are declining, and there's a lot of small jobs being awarded but not too many large jobs, so hopefully, with some price stability, either directly or indirectly because of the stimulus package impact, that should pick up in the next few months.

Can you give us an idea of what kind of rate they're replacing at right now?

Probably half.

Could you give us a little update on your three big projects? The Arizona, Poland, and Croatia and kind of where we're at in terms of completion.

Arizona will commission in probably September. If we get lucky, maybe earlier, in August. So it is right on schedule. Our mill in Poland, the new rolling line, is coming along fine. Probably set for completion in early 2010 and commissioning then and then we will wait and see how the market plays out as to whether we run it flat out or vary it between the other rolling lines that are there. The Croatian melt shop is progressing very nicely. The improvements to the caster have been made and we have trialed and successfully run various billet sizes—round billet sizes—and we're very happy with the caster improvements. We are undertaking now the building of a new melt shop. It's actually an extension on the building that houses the current melt shop. That is progressing well and should be in place probably November, perhaps December, of calendar 2009.

Your next question comes from Chris Brown for Kuni Chen - Banc of America Securities.

Can you give us some additional color on the guidance? If steel prices and volumes are going to be higher next quarter, then why are earnings going to be flat? What businesses are going to be sequentially worse, I guess?

This is the LIFO conversation. We are either going to make this an hour or we're going to make it a minute. If prices stabilize, a couple of things happen that should cancel each other out. One, we will not have anywhere near the LIFO income that we have. In fact, we may not have LIFO at all because without the deterioration in pricing and with quantities no longer going down, that would stop the LIFO income. So that's on one side. The other thing it will stop is these lower cost or market adjustments that we're taking and I read all the same press releases you do, that our competitors are taking as well. So those two would tend to offset one another. Where the upside is is that the margins will expand. It is just the history of steel that as prices go up margins go up and so I would say that if LIFO cancels out against any further accounting adjustments we have to take, then some margin expansion could—you know, look, I'm not predicting profitability but some margin expansion might knock us into black numbers.

And could you discuss recent backlog trends for both the U.S. and Polish steel businesses?

In the United States in terms of the fabricators, where it's much more relevant, they are, as we mentioned earlier, they're coming down at a rate of for every two tons we send out we are only replacing it with one and of course the pricing on that is going to be lower as well because it's at current pricing rather than rolling off the old jobs, which were at higher pricing. So that trend, absent stimulus work coming into play very quickly, which we do not see, we're going to have a lower shipping come perhaps the tail end of calendar 2009. It's a much more positive story in Poland, and we made reference to this in the press release, where the infrastructure funds are finally—and the EU funds—being distributed and we have seen from the backlogs in both our fab shops and the mill, to be progressing very nicely. And you see that, as Murray said, if our mills here in the United States might run at 65% of capacity, Poland could exceed 80%. Now, some of that is going to be billet sales but you know the theory on that: as long as you keep the melt shop running flat out, you can carry your variable costs and every ton of steel you roll is going to be cheaper because you're melting more. So it looks a little bit more positive for Poland in the fourth quarter. In fact, it looks a whole lot more positive for Poland in the fourth quarter.

A couple of points to add to that, Poland, those billet sales, some of those are going into Asia markets like Taiwan. They're getting priced at $430 CNF there so scrap prices actually moved down in Poland in June so that will help. So Poland is looking quite good for this fourth quarter.

And just kind of views on the U.S. scrap market, do you see prices moving higher as utilization rates improve, or do you see the market as sort of adequately supplied whether steel mills are running at 50% or 70% utilization?

Well, we see, just on the mills, based on our own mills but we assume others, their utilization rates are probably increasing, too, so certainly shipments will improve and we anticipate higher prices. So the flows should improve as well. So it will be a combination of both.

Your next question comes from Timna Tanners – UBS.

I wanted to start out by asking a little bit more about the stimulus. I was surprised a little bit by the comments that you're not expecting to see much by calendar year end. It does seem like a lot of the projects are being obligated and you know there is a time frame by which they have to award and not obligate some of these projects. Can you tell us why you think there might be the delays and why you think it's more of 2010 story with a little more color?

If you look at the mechanics that have to happen with these jobs, this invented phrase of "shovel-ready" is fine for sound bites for politicians but in the end that is not what happens. These jobs have been bid and rebid and rebid. During this period of time where prices have declined, six to nine months, nobody is going to go out with a job if they think that next month they'd be criticized because steel dropped. So what they are doing, and we have seen this pattern over and over and over, is the same job gets rebid one month and it gets rebid the next month. On top of that, as competitors, small and large, certainly in fabrication, begin to hurt more, more competitors come in to bid these jobs. When they see more interest in that, they hold off awarding it—hey, let's have another round of bids. Even then, once it's awarded, you have to go through all the specifications. The drawings have to be made. These things have a very long gestation period so it's not the case—I'm certainly not going to debate that there aren't projects that have been identified and have been approved for funding, but whether they actually get started or not—and look, on the new project you've got to grade the land. I mean, it just doesn't happen overnight.

So more of a 2010 story than calendar 2010.

We think so. I mean, here in Texas it's probably a little bit better than most of the U.S. There's definitely the highway programs have been accelerated because they're anticipating the stimulus package to come in behind. So that's more of a carry forward than anything. But as Bill said, we're being conservative. We just really don't see anything yet. The small jobs but no substantial jobs at this point in time.

And on Poland, if you're over 80% utilization is it fair to say that that would put you back over in the black or is there a different way we should be looking at it?

I think it's a fair assessment. If they get up to 80%, they will make money.

And on the International Fabrication & Distribution, you said last quarter it would be another quarter or two that you would see the cancellations and the challenges there and now you're saying another quarter or two. Can you give us some more detail on what might be transpiring there?

Yes, the big areas there are mainly pipe, plate, and SBQ, which most of that [inaudible] markets the oil and gas industry, which as you know has been devastated with the rig counts down dramatically. I mean, there's a little bit of good news, rig counts seem to have stabilized at the bottom and may be coming off the bottom now. The other bit of good news is there is anti-dumping there on Chinese, or proposed anti-dumping on Chinese OTCG so that sets a floor price for pipe products. But it is an ongoing issue and we think it will take another one or two quarters. There's still a lot of unsolved pipe. If you go down to the Port of Houston, or Houston in general, at the distributors side, this will take time to sort through.

My last question is on corporate eliminations because the adjusted operating loss there fell substantially and I know that you're still talking about SAP costs continuing for at least another quarter or two. Can you give us an update on those items?

Actually, for the quarter the changes between third quarter to third quarter were more—and hopefully I don't lose you on this, but we allocated out more interest expense and now that SAP is up and running, we allocated out its costs as well. And in addition, we reversed an accrual on our long-term bonus plan. That bonus plan is dependent upon EBITDA. It's a three-year period, kind of a three-year rolling period, and we determined that for all three periods that are open right now that none of them are probable of meeting the goal and so when you add those up: more interest expense sent out of corporate, so think backwards now, that's income to corporate; more SAP expense allocated out to the units, that's income; and then a lower bonus accrual. So that makes up for the quarter. Those same factors come into play for the nine months as well with a couple of other items thrown in. The one thing that goes opposite to that is salary expense because of the build up in IT, due to the SAP project, is higher. So you've got that offset going against more interest than out, more SAP expense than out, more in the reversal of the long-term plan.

I think I've mostly followed you. Just on the SAP question, did I get that straight? Is that going to continue to taper off in probably another quarter?

You're right. We made brief reference to it because it's a longer story but the project has fulfilled its purpose, it got substantially all the Americas and upwards of 60% of the earning power of the company onto SAP and certainly the units that we had estimated would have the greatest benefits because of an integrated supply chain. We'll be up on it at August 31 so what will happen after this is we're just going to fold that project into our regular IT. We will not have anywhere near as extensive an effort. We don't need as extensive an effort on SAP rollout from here on out. So yes, the cost will decline significantly.

Your next question comes from Kevin Kurtz- Morgan Stanley.

Question on the recycling business. Judging from the commentary and the press release, it really sounds like flows are the issue there on margins. I was hoping you could give us a sense of what the industry operating rate needs to be for the recycling business to get back to break-even.

Probably upwards of 60%, I would think. We don't have an internal calculation but based upon the pricing that we've seen in the utilizations over the last, say, three to six quarters, I think you've got be above 60%. And it would be more helpful if the EAS were above 60% than the integrateds, because obviously that's not a particularly large customer for us.

Could you also remind us what your internal consumption is? How much scrap you're shipping from your own yards to your mills?

We typically had been at about 50%. I believe now we're exceeding two-thirds or more and the only exceptions to that are if a mill is particularly out of reach, which none of ours are, or we get a particularly good buy. But it's upwards of two-thirds. I've got a schedule here. I will get more exact numbers for you.

Finally, getting back to the backlogs in the F&D businesss, did you happen to say what the typical project length is?

It had been historically between, say, seven to eight months. That's shrinking right now. These smaller jobs, it's much more—I hate to use the word "spot work" in fabrication, but it's much smaller and it's much more immediate.

Your next question comes from Sanil Daptardar - Sentinel Investments.

You talked about the stimulus. It looks like the stimulus is one of the catalysts here. If I had to put it particularly in terms of the volumes, how much it would be helped, can you just give color how much volume would come from the stimulus program and increase in the volumes particularly?

It's one of those questions that depending upon who's asked and what projects they had in mind and what part of the United States they were in, you would probably get a different answer. The best that I have seen, and let's talk about rebar because that's the most relevant to commercial metals, is that the entire stimulus bill might be worth 2.0 million tons of rebar. I think that's a high estimate but let's just say 2.0 million tons. The United States in a normal year, or even its best year, would have been upwards of 10.0 million tons of rebar, so if we were at high tide it would be 20%. We're obviously not at high tide, we're lower than that, so the impact would probably be closer to 25% or so increase in rebar shipments. As far as the other steel is concerned, which we don't produce, I would just have to guess. I don't have a good feel for that at all.

And if I had to look outside the stimulus program in the commercial market of the private sector market, are you seeing any kind of signs that things are beginning to stabilize or pick up or is it still the same basically, there's no changes out there?

It's basically still the same; it's still very weak.

Going into the international markets on Poland, the capacity utilization you talked about going up to 80% in the fourth quarter, is it driven by the internal market or is it driven by the surrounding areas that are outside Poland, that Easter Europe might be picking up steam or something like that? Or it's just stimulus or develop offering in the public sector.

It's in the main, infrastructure within Poland, but there are decent shipments to Czech and the Slovak Republic, so the near end markets are pretty good and as Murray said, the billet markets in Asia. The last two destinations, I believe were Viet Nam and Taiwan.

It's not just rebar. Wire rod is quite good in Poland and merchant products as well.

Last question on China. Of course, the stimulus program is helping a lot I think. There is also a belief in the Chinese market that the residential property market might be undersupplied in the first half of 2010. Is that the same as you are getting from your Chinese contacts? Or if that's that case then there might be a pick up in the prices, but what is the color that you are getting? What's the sense you are getting there?

Well, the Chinese, you know, we have to take out hats off to them. They've really gone about this in a serious manner. I mean, they've tackled infrastructure, they've tackled the shipbuilding industry, which is depressed, they've tackled public housing, which you mentioned about residential, in a major way. They have accelerated their program in the Schezuan Province, where they had the earthquakes, and they have introduced a lot of initiatives to encourage domestic consumption. Plus they've freed up the banking system. I mean, obviously they control the banking system from the central government through to the provincial banks through to the local banks, but so all those measures have had a huge impact and as we said earlier this year, we believed that China would achieve 6% to 7% GDP when things were pretty poor, but now I think it might be able to achieve 8% GDP in this year, which is a phenomenal performance and even maybe higher next year. So China has really taken the right measures for China. And also, on balance, their exports are down. They're less than 20.0 million tons or imports at a similar level, so they are controlling their exports, particularly the lower grades of products. And clearly with China having higher prices for most of your products than other markets, most of that steel is being kept at home. So to answer your first question, we are very encouraged about China because China has a huge impact, obviously, globally, and certainly in Asia it has a tremendous impact. And other countries are moving up also in Asia. Taiwan, Malaysia, Singapore, even Indonesia. Viet Nam, of course, are all improving. So Asia looks positive going forward.

So all this means that basically that China may not be selling the steel in the export market, international markets, so that might be positive for us here in the U.S. in that case, for the steel prices?

Correct. That's positive. We don't believe they will. Some of the higher end products, though, continue to promote and sell but we don't believe like rebar, wire rod, lower end products, most of those products will be consumed within China. There might be some small exports to nearby Asian countries but that's about it.

So there may not be any more capacity, they will not have to raise the taxes or raise the rebates out there in China in that case?

We don't think so. I mean, obviously they reintroduced the rebate for hot roll coil and one or two other products but we think that's probably the limit to it. There might be one or two exceptions. But products like rebar, it's just phenomenal. As I mentioned, they've come from about 8.0 million tons per month of production and consumption to 10.0 million tons production and consumption per month in the last few months. So that means obviously their focus is on the infrastructure and construction in general within China.

Your next question comes from Tim Hayes - Davenport & Co. Tim Hayes - Davenport & Co.: The question to add to one of the previous questions, on your views for the U.S. market, I was curious to get more color within the non-res construction sector. What do you see for the infrastructure versus the commercial construction, out into calendar 2010? It seems like you could have some diversion tends between those two markets and I was curious what your take is?

Traditionally, non-res, we would have been probably 70% commercial in the private sector, if you like, and 30% public. Now it's well over 50% the public sector, and that could carry closer with the stimulus package to 70% and only 30% in the private or commercial sector. So it's a real swing around. But obviously the market is well down on what it was twelve months ago. Tim Hayes - Davenport & Co.: And on the private non-res construction, was the credit crunch so severe in the last couple of quarters that we could actually get a bounce in the private non-res construction just from that, or could that be a market that continues to move south?

Well, we think it could move south, or certainly sideways. You really need the credit markets to ease up substantially and more stimulus in that area. So we don't see that happening for the next one to two quarters.

Your next question comes from Jeff Cramer – UBS.

Just to kind of wrap up on the guidance, I guess I would have expected with utilization rates creeping up in the U.S. and also in Poland, that it would probably be a better quarter. Is this more of an accounting function?

It's only going to be accounting as far as the LIFO is concerned. The real question would be if pricing goes up in July, it's the timing of the pricing increases, which we anticipate will happen. If the pricing goes up July 1 I think there's every reason to believe that we could break into profitability. If it gets bled in and we don't see it hit until August, then of course you know we're on August 31 year end, then we may not get the benefit of it. So LIFO sometimes is—you know, you can cause things to go up and down and the explanations are difficult. Let's focus more on price increases. And if you see the market moving up as early as next week, and watch the scrap negotiations as they end up near the July 4th holidays, if you see a positive movement in that, then I think we're going to be better.

You've got a substantial amount of cash now. Are you going to be hoarding cash still? Any plans with that liquidity?

Yes, we have plans, not necessarily public information plans. I would say this, and we haven't talked about it yet, either in the press release or in the conference call, and that is the liquidity still is not out there in the market. We have not seen any relief from our customer base in terms of credit capability so I'm a little hesitant to declare that the good times are here.

So really, you're just going to be sitting tight. Are there certain priorities with that?

We want to play safe and some of those capex projects Bill mentioned will be a bit of a carry-over into next fiscal year, so we want to complete those, particularly and obviously the Arizona micro mill and in Poland and Croatia, the upgrades there. So but we want to play it safe for the next few months anyway.

Have you penciled in a number for where you think capex will be in fiscal year 2010 yet?

I did. I got tremendous push back from the operating guys. I told Murray that we should start with $100.0 million, which would represent normal maintenance capex across the entire company, plus one or two projects, one or two $5.0 million or $10.0 million projects. Of course, then the wailing and gnashing of teeth began. The CEO, in a moment of weakness, blurted out a number like $150.0 million, so I think we're going to do a wrestling match somewhere between $100.0 million and $150.0 million. I think the point of the story is that if we were at $400.0 million last year, you're going to see it cut in half if not more this year.

And I would assume on the working capital front, depending on the timing of price increases, that with volumes starting to pick up, you have probably seen most of the liquidation there? You had a big inflow this past quarter. Would you expect much more of that?

Point well taken. I would say that if pricing were to maintain at its current levels, there may be another $50.0 million, $75.0 million, maybe $100.0 million max, to be gotten out of it. If prices stabilized that would be the answer. If they go up, then it will be an interesting run for the money. We are implementing, as I made reference earlier, the supply-chain management within the use of SAP and trying to scale the inventories down to levels that we have never operated before. Now, we may not make it early on but we are certainly anticipating that our days outstanding are going to fall, all of which in the end is to say you will probably see if prices increase maybe a modest amount of working capital being used in the fourth quarter. I wouldn't anticipate it would be a whole lot.

Your next question comes from David Seamen - Goldman Sachs.

I just wanted to make sure I understood the guidance for Q4 correctly. Is that if you strip out everything, it looks like you had a loss of $0.05 to $0.07 this quarter, is that what you mean by flattish results in the fourth quarter? If you assume the prices are the same and that there are no other charges?

Yes.

And then do you think the industry has the pricing power to raise prices if scrap moves up significantly, going forward?

Well, look, higher prices are always a good thing and if customers will pay them, we'll charge them.

We can only speak for ourselves. We can't speak for the industry.

Your next question comes from Leo Larkin - Standard & Poor's. Leo Larkin - Standard & Poor's: Could you give us a DD&A for 2010, as estimate for that?

I don't have that yet, but I would think we are probably about the 155 to 160 level. Leo Larkin - Standard & Poor's: I know you want to be very cautious with your cash as this point, but I'm wondering with this kind of environment, does anything look attractive in terms of potential acquisitions?

We're not without our wish list. I don’t want to leave the impression that we haven't been doing our homework during this period of time. The question becomes, though, at what point are either the valuations pretty much at their lowest or at what point are sellers now motivated to talk to you. You certainly see in the early days, of course, denial and things will always be better next week. I think we've gotten to the stage now where I think reality has hit home and I would think there's a few more months to go yet of pain on some before I think buyers and sellers will end up having a common base from which to talk from. But things will happen.

Your next question is a follow-up from Rob Moffett - Longbow Research.

I'm trying to get a feel for your actual exposure to Asia. Is that primarily through trading distribution?

Yes, it is, but we also export nonferrous scrap from the U.S. into Asia, mainly China, and a little bit of ferrous scrap as well.

And that's about 50% of your nonferrous—right? Somewhere in that neighborhood?

That was the total exports last quarter, that's correct. Not all of that went to Asia but the vast majority.

And thinking through things, if we saw continued strength in Asia, we would probably see it pull up scrap prices rather significantly in the U.S., which could potentially squeeze your margins down the road, particularly if non-res construction stays weak here. Does that sound like a scenario that could play out?

Well, obviously recycling will benefit first and then the mills, but the fabricators, you're correct. They could well be squeezed for a quarter or two.

There are no further questions in the queue.

I just wanted to make one comment. Over the next three days, Hans Ohner, the President of CMC International and Executive Vice President of CMC, will join Bill and me during investor visits, so we look forward to answering further questions at that time. I thank you for your attendance.