ArcelorMittal SA (MT) 2003 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Q4 2003 International Steel Group Inc. earnings call. My name is Louise and I will be your coordinator for today. At this time, all participants are in listen-only mode. We will be facilitating a question-and-answer session towards the end of the conference. (OPERATOR INSTRUCTIONS) I would now like to turn the presentation over to your host for today's call, Mr. Brian Kurtz, Vice President of Finance and Treasurer. Please proceed, sir.

Thank you and welcome to the International Steel Group's conference call for the fourth quarter and year-end 2003. I am Brian Kurtz, Vice President of Finance and Treasurer for ISG. With me are Rodney Mott, President and Chief Executive Officer; Len Anthony, Chief Financial Officer; and Lonnie Arnett, Corporate Controller.

Before we begin, I want to remind you that statements made during this conference call that are not historical facts may be forward-looking statements. Forward-looking statements involve risks and uncertainties that may cause actual results or events to differ materially from those expressed or implied in such statements. In addition, this conference call contains time-sensitive information that reflects management's best analysis only as of the date of this live call. ISG does not undertake any ongoing obligation other than that imposed by law to publicly update or revise any forward-looking statements to reflect future events, information, or circumstances that arise after this call. Further information concerning issues that could materially affect financial performance related to forward-looking statements can be found in ISG's prospectus filed on December 12, 2003, and in the Company's subsequent periodic filings with the Securities and Exchange Commission.

This call is open to the public and is being webcast simultaneously on our website at www.intlsteel.com, and will be archived for replay. A copy of the press release we issued this morning is also available on our website. On today's call, Rodney will begin with some opening comments about our Company and then will turn the call over to Len, who will discuss our financial results for the fourth quarter and for the year, and give your some guidance for the first half of 2004. After Len's comments, Rodney will review the progress we are making with our acquisitions and provide his perspective on 2004. We will then take your questions and the operator will instruct you on the procedure for asking questions at that time. I would now like to turn the call over to Rodney Mott, our President and CEO.

Thank you, Brian. I want to thank you all for joining us on this, our first-ever conference call. It is almost two years to the day since the auction took place where we purchased the assets from LTV, those assets that we brought back to life on a deal that was finalized on April 12 in 2002, and we began moving forward as a steel company. Then in the fourth quarter of 2002, we expanded with the acquisition of the assets from Acme Steel, another steelmaker that was in bankruptcy. By the beginning of 2003, ISG was well on the road to becoming the steel industry leader that it is today.

Although 2003 was a difficult year for the steel sector, we believe ISG had a very successful year, both financially and in terms of what we accomplished in building our Company for the future. As you recall, there was a lot of uncertainty in the marketplace during the first half of the year, as well as tremendous pressure on pricing. Our earnings release reflects how much our Company and the steel environment have changed throughout the year of 2003, and I believe it properly indicates our potential going forward. There have been several keys to ISG's continued success as a leader in the steel industry. Probably the most significant of them is the culture that we put in place, a culture of high productivity, a focus on cost control, and a willingness -- in fact, a necessity -- to react to and accept change throughout our industry.

Our workforce certainly is one of most dedicated work forces in the industry -- hourly workers that had had their jobs displaced and have something to prove, in that they are a very dynamic, very responsible workteam. Our partnership with the steel workers and its leadership and a management team with very diverse experiences and a (indiscernible) common vision for the industry.

We are very pleased that the marketplace has accepted us, both in a willingness to flex our operations based upon demand, our continued pursuit of a mix of value-added products along with a commodity business, and our willingness to enter into long-term contracts. Finally, we are very proud of our ability to execute our plans to optimize our facilities, to adopt our best practices across our Company, and to capitalize on the synergies that come along with a major Company such as we developed.

Two of our major successes in 2003 deserve special attention. First, we completed the largest acquisition in the steel industry when we acquired Bethlehem Steel, and I must say we are extremely pleased with the results of that acquisition. The acquisition of Bethlehem focused on three points -- employees, markets, and synergies. Our whole focus on the employee side was to get acceptance of the ISG model as rapidly as possible. At the same time, we needed the market to be reassured that as we grew so dramatically, that we could service the markets that we choose. And of course we need to work forward additionally on the synergies that come along with this size of a facility.

To a large extent, the restructuring of the Bethlehem facility is complete. Each facility has integrated their processes into the structure of ISG and our continued work will be in the area of optimization. The greatest single benefit of the impact of Bethlehem has been the richer product mix from the value-added products, as shown in the increased revenue on our earnings report. We will continue to explore further synergies, including areas of capacity management, property use of capital expenditures, and a reduction in the overhead throughout the Company.

Our second major accomplishment in 2003 was the IPO that we completed in December, which was one of the most successful IPOs of the year in any industry. All of our initial shares and the overallotment were purchased and the stock price has appreciated since the time of the offering. We used the proceeds from the IPO to pay down our debt. Our long-term debt to capitalization, which was 58 percent prior to the IPO, currently is at about 32 percent after the IPO financing.

In summary, we are proud of the accomplishments we have had for the year and we are very proud of the achievements that our employees have attained and we would like you to recognize again that ISG has become a leader in our industry. With that, I'm going to turn it over to Len Anthony for a discussion of the financial results and a bit of the outlook for 2004.

Thanks, Rod. Before I go into the fourth quarter and full-year results, I just wanted to point out that because of our rapid progress with acquisitions, comparison to prior periods we do not believe are meaningful. In fact, as Rod has mentioned, our operations did not begin in 2000 (ph) until the month of April. So we don't even have a full prior year for comparison purposes. Additionally during 2002, we experienced a very, very strong pricing environment, as well as the benefits of very, very low-cost raw materials and slabs that were acquired as part of the LTV acquisition. Additional detail on the years 2002 and 2003, including cash flow information, will be available in our 10-K, which we expect to file in the next couple of weeks.

As indicated in our earnings release for the year 2003, which included the results of the Bethlehem acquisition since May 7, we shipped about 10.4 million net tons at an average price of $391 per ton, generating revenues of about $4 billion. The acquisition of Bethlehem provided a significant improvement in our product mix and benefits from the long-term sales contracts that Bethlehem had. However, some of those benefits were offset by the acquisition-related costs that we experienced principally in the second and third quarters. These costs of about $70 million were principally non-cash items related to purchase accounting.

Because of the relatively weak steel market situation which the industry experienced during most of 2003, spot steel prices were very low. In fact last summer,, hot bands were selling for about $275 per ton. (Indiscernible) to our hot band price realization in the fourth quarter of 2002 averaged over $300 dollars ton, but in the fourth quarter of 2003, it averaged only about $290. These very low prices were key factors, causing our loss of about $24 million for the year.

Capital expenditures for the year were about $90 million and we ended the year with liquidity of about $423 million. In the fourth quarter, our raw steel production increased significantly over the third quarter, resulting in improved absorption of fixed costs. Additionally, shipments increased about 600,000 tons versus the third quarter. At an average price of about $400 per ton, our revenues totaled 1.4 billion and our net income was about $25 million, resulting in an EPS on a fully diluted basis of 28 cents per share.

For the year 2004, we expect the current strong domestic steel environment to continue as exchange rates and transportation costs limit imports. As a result, we expect our 2004 shipments to be in the 14 to 15 million ton range and spread relatively evenly throughout the year. We expect that by the second half of the year, about 60 percent of our shipments will be on a contract basis and that about 60 percent of all shipments will be value-added product. Additionally for the year, we expect our capital spending to be about $300 million and about 100 million of that will be for strategic high-rate-of-return projects, and we define those as projects with rates of return generally in excess of 30 percent. One of the key projects we are pursuing is a caster (ph) improvement project at Burns Harbor, which is currently scheduled for the fourth quarter. As a result, you will see our CAPEX increasing as we proceed through the year 2004. Given the significant growth in our shipments, we will also be experiencing an increase in working capital, principally in the first quarter.

Because of the benefits of the G reorganization structure we used to acquire the Bethlehem assets and the benefit of ISG's 2003 NOL carryforward, we expect that our 2004 effective tax rate will be about 15 percent or less. The key reorganization structure is also what created the unusually low tax rate in our 4Q 2003 results.

Although the cost of coke, steel scrap and natural gas have increased during the past couple of quarters, we have announced significant price increases and surcharges to recover some or all of the increased raw material costs. The reduction of imports and the expected improvement in domestic economy should allow our prices to increase, should help us improve and stabilize our operating profit margins. Rod will discuss with you in just a couple minutes more about more our raw material situation.

Additionally, looking more closely at the first half of 2004, our current thinking is that shipments will increase by about 300,000 tons in 1Q and continue at about the 3.8 million ton rate in 2Q. From a pricing perspective, taking into account the increasing base prices and surcharges, we expect our realized prices should be up 10 to $15 in 1Q and additional $30 2Q. As a result, we expect some further margin expansion, particularly in the second quarter. Therefore, first quarter 2004 is expected to be better than the fourth quarter of 2003, and we expect further improvement as we go into the second quarter. Although we have indicated that we are fully booked through the second quarter, our prices on many of our second quarter shipments are not yet established.

At our expected levels of profitability, particularly in the second half of 2004, we will begin making the steelworker Viva (ph) and paying profit sharing to the steel workers. Viva contributions are required when our quarterly EBITDA exceeds $20 per ton, and profit-sharing is triggered at $25 per ton EBITDA. Assuming that we are the successful bidder for the Weirton assets and close that transaction in May, our shipments could increase this year by, say, 1.5 million tons. Based on any potential alternative operating plan that we have looked at, we do expect that that acquisition will generate cash in excess of any financing costs we incur, and therefore will be accretive to our earnings.

In terms of that acquisition cost, just another way to look at our announced price of $255 million is that that price is a total value just slightly in excess of the value of working capital of the Weirton assets. As mentioned in our release, we do have adequate resources to finance the cash portion of the Weirton acquisition. However, given the relatively short maturity schedule of our existing bank debt, we believe that there may be opportunities for us to pursue some longer-term debt financing that will also provide an opportunity for us to put in place new revolving credit arrangements, which will provide significantly more liquidity and very few, if any, covenants as compared our existing arrangement. Overall however, we do not anticipate any material increase in our debt levels by year-end. Thank you, and I will turn the call back to Rob.

Thank you, Len. With that, I would like to share a few comments of my own regarding the raw material situation, a little more on the Weirton transaction, and a little bit of where I see our positioning in the marketing world.

First on raw materials. We have been very successful in investing the unprecedented change in raw material supply and will continue to look at ways to strengthen our position. Our strategy for raw materials has been to limit our exposure to changes in supply and cost without taking on too much overhead. We feel we have a good balance of owned materials, long-term contracts and spots applied to provide optimum supply throughout the cyclical nature of our business. The materials that are currently of biggest concern in our industry are coke, scrap, and iron ore, and I believe we are well-positioned to minimize the impact of these materials. Let me discuss a little bit of each of those.

Metallurgical coke typically represents about 22 percent of our cost and has been a most volatile piece of our cost equation. We believe we have an adequate supply of coke because the vast majority of our supply comes either from internally captive (ph) sources, are coke works at Warren, Ohio and at Burns Harbor, Indiana, and from long-term contracts. Our exposure to the spot market is limited but is of some concern on the longer-term. We are continuing to explore additional long-term supply, as indicated by the recently announced supply agreement with Sun Coke for their new coke facility in Haverhill, Ohio.

In the scrap marketplace, we have been increasing our use of scrap to provide an increase in production rates. Typically scrap is a small component of our raw material mix -- pretty much about 20 percent of total mix. We have increased our usage of most locations to over 25 percent. Although scrap is expensive and availability is tight, it has not affected our operations. Our mills are conveniently located near the major scrap markets and the combination of the internally generated scrap from our finishing operations and the relationship we have with the local scrap processors, and to a lesser degree the harvesting of on-site scrap, has ensured and will continue to ensure an ample supply. However, we do expect scrap costs to remain high in the foreseeable future and we are very comfortable with that.

On iron ore, we are also comfortable with our position, as over 80 percent of iron ore supply comes from our own supply sources or from long-term contracts. The majority of our long-term iron ore contracts do have limited price escalators based upon producer price indexes and also based upon the selling price of hot rolled steel. We are confident that we can recover the increases in raw material costs through increases in selling prices and the use of surcharges.

Now looking over to the Weirton acquisition, as Len had already mentioned, a very good acquisition. We are confident that Weirton will be a great addition to our Company, and pending bankruptcy court approval and the satisfaction of other customary requirements, such as the Hart-Scott-Rodino, we expect to close the deal before the end of the second quarter of 2004. The addition of Weirton will give us a strong position in the tin market; should move us up to a number two position. It will also strengthen our position in the commercial construction market. We have been actively involved in negotiations for the Independent Steel Workers, which represent the Weirton employees, through the due diligence process, and have been impressed with their resolve to make this transaction and transition a success. This is going to give us an opportunity to negotiate contracts with them very similar to the agreement that we have the United Steel Workers. Also through our due diligence, we have become confident the Weirton facilities are in good condition and will require only a normal amount of investment to keep them operating at the same high-quality levels as our other facilities.

As we move through 2004 and beyond, we intend to continue our disciplined and thoughtful approach in fully utilizing our existing capacity and also pursuing acquisitions that makes sense for the future strengthen of our Company. On a marketing standpoint, we recently announced increases in selling price and surcharges for all products, and will be keeping a very close eye on the pricing environment throughout 2004. I must say, this new environment of rapidly changing prices and the emphasis on spot pricing has taken some getting used to. We are comfortable with the changes in spot prices and will continue the use of surcharges to reflect shorter-term changes in material and operating costs.

We will also continue to pursue contract business, recognizing that these contracts are important for long-term planning and historically are for the higher value-added products that in turn had the highest margins. If we see these margins erode, we will address these contracts on an account-by-account basis.

With that, I hope (ph) this gives you a very clear idea of where we stand at ISG. We are proud and excited to be a key player in what we believe is the rebirth of the domestic steel industry. We have the most diverse group of assets and employees in the industry, and we plan to continue to leverage these assets to maximize returns and grow shareholder value. While we believe that ISG is still a work in process, we have made great strides so far and we are confident that our best years are yet to come. And with that, I guess we will open it up for questions and see where it takes us.

Thank you. (OPERATOR INSTRUCTIONS) Peter Marcus from World Steel Dynamics.

I wonder, Rodney, if you can tell us about the coke situation at Weirton. We know that they don't have any coke ovens.

Yes, as part of the due diligence part of the Weirton we had to verify that they had their raw material contracts in-place. They are supplied out of the U.S. Steel from their Scranton (ph) works. There is a two-year contract there that we will assume, which will supply about three-quarters of their normal needs for coke. That will lead us into a position of where we will have to either find additional coke for that plant or make a decision on what operating level we will run there on a longer-term basis.

Okay, thank you.

Alan Fournier from Pennant Capital Management.

Could you, since we are midway through the first quarter here, give us some sense of where hot-rolled prices are in Q1, and if you comment on Q2 as well that would be helpful.

Our announced prices for hot rolled -- again, this is where we will be with the shipments of April, which is second quarter -- we have announced a hot rolled base price of $420 a ton. In addition to that, we will still have a surcharge, which will be adjusted on a month-to-month basis. We have announced two increases in first quarter and I don't have the current information of where we are progressing up through on the increase, but we had announced going to a 320 plus a $60 surcharge in the first of February, and again, I don't know where the pricing will be for March.

And are the surcharges generally being accepted, and if you could comment specifically on the automotive industry, which there have been contradictory comments on whether the surcharges have been effective.

Yes, as I tried to put into my comments, we are going to use the surcharges where we have increased costs of business that we did not plan the proper margin, and that would be primarily on the spot business. The contract business was set with us taking some of the risk on a raw material side. Those contracts are set with a higher margin when you first negotiate them, and we offset them by using materials pretty much that is our own supply, so we know those costs.

We have not done more than information sessions with the automotive contracts. We have warned them that there will be a need for a collection of surcharges if this continues with the high raw material costs. But on all of our spot accounts and on some of our shorter-term contracts, we have gone through and started collecting a surcharge.

Great, last question and I will let somebody else jump in. Could you talk about what price caps there are on your iron ore contracts?

We cannot really go through the full details of the contracts. The main contract is with Cleveland-Cliffs. It does have two steps on the escalator into it, without a cap to it, but is based upon a producer price index on industry in general, not just specifically to the ore mine business. And then the additional factor based upon our selling price of hot rolled, again, where they get a very small percentage of the increase in the selling price.

Okay, so there's no cap then?

It is not capped, but going from 2003 to the beginning of 2004, we saw about an 8 percent increase in our ore prices, and again, it adjusts on a quarterly basis and we don't expect it to move nearly as fast at the international pricing.

Great, thank you very much.

Michael Lucas (ph) from Appaloosa.

I'm trying to understand, since you said you have Viva sharing above $20 a ton and EBITDA profit sharing above 25. What is the Viva -- is it 30 percent above the profits above $20 a ton of EBITDA?

It is a multi-tiered program. It starts at the $20 a ton above EBITDA and moves upward from there. But additionally, no, it is approximately 10 percent above $20 a ton.

But you get the 30 by 50, right? Is that how it works? You get the 30 percent of profit sharing above $50 of EBITDA per ton?

No, it actually is above $70 EBITDA per ton.

What is it at 50?

It's about 20 percent, I believe.

That's everything, including the profit-sharing?

That was the Viva only.

I'm just trying to understand. What is the total amount you give up at different thresholds, i.e. $40, $50, $60 per ton?

Michael, we will probably have to get back with you on that, and we can give you some information on that.

Okay and just per Alan's question, you had said that you don't expect iron ore to track what it has nationally as fast. I understand that, but I thought the way the contract works it won't because it's an accrual basis, but the actual amount will catch up at some point and you will have an 18 percent price adjustment, somewhere around there, on your contracts.

Again, if you're making the assumption that hot rolled prices continue at a very high level, that is a potential.

Hold on -- I'm sorry. Let me just quantify high level. Right here, I think it might be an anomaly in the 500s, but even the 4s or low 4s and high 3s, wouldn't that number still be somewhere around 18 percent vis-a-vis the different changes in the contract?

Again we set that contract to protect us based upon our marketplace. If we have high selling prices, which in turn gives us a higher margin, yes, that will approach that kind of a level. But if our pricing comes down and in turn our margins come down, it will come back down to a more normal level. Does that answer that?

Yes, I was just more trying to quantify it, put a number on it. If you could just say at the current 400, where do you look it to be? Is it 18 percent? (multiple speakers) your model.

We will ask how much of the detail of that we can share with you. Again, that's a contract with one supplier, so we have to be careful with that.

Sure, thanks.

John Tumazos from Prudential Equity Group.

Last year, the plate business shrank about five percent in the U.S. to 9.1 million tons, including coiled plate. Could you describe how much of your capacity is plate capacity, both cut and coiled, and what your expectations for the plate market are. And to the extent you have the Acme finishing facility well, how you can switch back and forth between hot rolled plate, other products as market conditions are more lucrative here versus there.

Okay, John, we don't really look at off of the hot mills what percentage of that is going into the plate or the cut-to-length business. We really just focus on our plate activities as being what is on our plates mills, both at Burns Harbor, at Coatesville and at Conshohocken. And you are aware that we did take some of the discrete plate capacity out with our acquisition of the U.S. Steel plate business, which we completed again at third quarter.

You're saying that the Gary plate mill does not run?

The Gary plate mill is not operating at this time. We are running two of their heat-treating lines and have the third one available to run.

How much is your current plate capacity running, and how much more is idle?

We are running at the three facilities just about 2 million tons of capacity -- a 2 million ton utilization rate. We do have room at each of the facilities (technical difficulty) plus counting the Gary plate mill and the extra mill at Burns Harbor, we have almost 2 million tons of capacity idled at this time.

Thank you.

Charles Bradford of Bradford Research.

Could you talk a bit more about coke, because we're seeing some pretty phenomenal forecasts or estimates. For example, Chinese coke export prices, we hear some pretty big numbers. Sparrows Point has always been a big buyer of coke. In your prospectus, I think you had 130 for the average cost last year. Could you hazard a guess what the average could be this year?

You're exactly right there, in saying that Sparrows Point is our largest buyer of spot coke. And even though we have put in the prospectus that our average last year was about $130, Sparrows Point has traditionally been a little bit higher than that because of their location and the inability to get any of the domestic coke. Currently, I would have to say that they are probably projecting to go very close to $300 a ton as an average for coke for 2004. Again, as you go back through that calculation, coke is somewhere around between 20 and 25 percent of the cost of steelmaking on a traditional basis, so you can see the effect it's having on that mill.

I would like to switch now to the other side of the equation. I understand that the Cleveland West facility is not in your capacity calculations. Yet there has been a lot of talk about it restarting maybe next quarter. Could you fill us in more on what is going on?

I can, and I appreciate some of the comments that you have made regarding that facility previously. Cleveland West has been idle for about three years. It is a very modern BOF shop and a very excellent caster. We are going through at this current time evaluating the condition of the facilities there. We are testing out the utilities, cycling the equipment. But most importantly we're also trying to verify that we can get the raw material supplies that we would be able to sustain that operation. I do expect that we will be making an announcement one way or the other on that facility in the very near future. The capacity there, if we choose to do that, will be somewhere around 700,000 tons.

Okay. I thought the capacity was closer 2 million.

The way we would choose to operate it, it will be just the BOF and the caster, using the synergies with the Cleveland East blast furnaces and Cleveland East strip mill. So it will reduce the capacity there; the blast furnace will not be coming back.

Is there any possibility that maybe you could run a relatively narrow slab there and use the Weirton raw materials?

We are looking at several combinations of how to use Cleveland East and West together. Also looking at it in conjunction with both Weirton and with Sparrows Point to try to optimize these facilities, maybe loading more narrow on one facility and widening out the casters at the other locations. But there has been firm plan at this time.

Thank you.

Brian Rayle from Midwest Research.

The first question is with the incremental value-added capacity that are expecting to gain here in the second half. Which end markets is that coming from here primarily?

The areas where we have the most availability for value-added is we still have room on all of our coating lines at each of our facilities. We have a coating line in Indiana Harbor, one of them that is only running at about 60 percent capacity. The one at Hennepin is still only about 50 (ph) percent capacity. And I believe we still have one of the lines at the Lackawanna that has additional capacity to it. So it would primarily be in the hot-dipped area.

In addition to that, I mentioned earlier the heat-treated plate; that would be additional value-added product that we see that we can bring on up. Again, we just took over the Gary operations recently, have two of the lines running there and expect to bring the third line on later this spring.

Great, and one other question. The raw material contracts that you do have, do you think there is a possibility to leverage or expand those to either Weirton or any other future acquisition you might do?

I would be speculating on that. I mean, it would always be our hope to take the vendors with us that have the support for us and try to get them to understand the value we do together. But again, that would be pure speculation.

Okay, thank you.

Aldo Mazzaferro from Goldman Sachs.

This is Sal Tony (ph) sitting in for Aldo Mazzaferro. I just wanted to ask about the coke situation. You said that the 20 percent coke you get from Sun Coke and another one was -- the contract was up to 2005. I was wondering if you will be able to extend this contract. Another thing is, Sun Coke is building a coke plant in Brazil and I was wondering if you are part of that plan also?

No, we are working with Sun Coke at the new location they're going to build -- that is in Haverhill, Ohio. And we also off take from one of their other locations, I believe it's over in Virginia. We are going to continue to look at additional projects with them, but we do not have any firm plans at this time.

We have no involvement in the Brazil project.

None at all.

Thank you.

(OPERATOR INSTRUCTIONS) Deborah Fine (ph) from Lowe's.

I am wondering, given the general robustness of the steel conditions and the steel equities, if you're considering raising more capital at these levels and adding to the liquidity of the hard (ph) offering?

One of the comments we made earlier was with respect to some potential financing plans that may come into place in view of the Weirton acquisition. And what we talked about was some potential debt financing that we would consider that would be put in place and potentially reduce and probably focus on the reduction of existing debt. So in essence, a big portion of any new debt issuance would be used to repay existing debt and then there might be some small additional portion used to finance a piece of the Weirton acquisition.

And in terms of getting liquidity to the initial equity investors?

Yes, at this point we would consider it that we have no specific plans in place.

Thank you.

Another question, from Aldo Mazzaferro from Goldman Sachs.

I just wanted to know the 60 percent value-added mix you are talking about, does that assuming your assumption that Weirton will be in your fold, or that would be separate?

No. More broadly, all the guidance we provided was pre-Weirton.

Okay, thank you.

A further question from John Tumazos of Prudential Equity Group.

Thank you. In terms of the best way to create value, your company of course has made extraordinary progress by acquisition, reorganization very quickly. Should we expect that you can pause and consolidate after Weirton and maybe a couple years occur when you don't make an acquisition? Or could we -- would it be on the table and considered if 5- or 6-million-ton plant like Inland or the AK Steel system came available? Is anything possible?

John, I think if you look through our track record as the facilities that we go after, we do look to buy them on a very attractive value basis and in most cases that is through the bankruptcy process. We certainly have had a very stressful year integrating in the Bethlehem facilities. But as you can say, it doesn't slow us down. If there is good value there, were going to go out there and pursue things like the Weirton acquisition and other ones that may come along. But until we see a major facility that is at that level of value that would be attractive, I really can't predict whether we would go there or not. We don't have a strong appetite for right now. Again it would have to be in a different situation than we see currently.

Thank you.

Charles Bradford of Bradford Research.

I just would like to talk a bit more about some of your costs. Can you give us some help on the SG&A and some of those issues? It seemed to be a little bit high in the fourth quarter.

They increased somewhat in the fourth quarter, Charles. In terms of thinking about 2004, however, which I suppose is really where you are headed --

Exactly.

You would see some returns to more normal levels. And as I think about -- call it total marketing, admin, and other expenses, which would include things such as our research facilities, etc., you ought to be thinking that, again, you would see a return to more normal levels, which might be say around 2 percent of revenues, something like that.

Thank you.

Michael Lucas from Appaloosa.

The one thing we are trying to get our hands on to give us a better view, what your view is of the steel markets? Do you think we have had a secular move with the dollar on India and China? And it kind of seems that even if prices have a stepback -- I know there are a lot of analysts who have covered this a long time very negative on the sector and I think some industry guys are also. Trying to understand, if things did slow down, is the next movement down to like 325 as opposed to 250? Do we set a new floor here, and where do you think we are with prices going forward, etc. -- utilization, capacity rates, etc.?

That's a very complex question you have there.

I am sure it is. But it's upmost of what investors are trying to focus on because people even believe semi (ph) the prices that are at out there right, these equity prices would be double where they are, quite honestly.

Quite honestly, I do believe the prices have run up much faster than a marketplace can really sustain. There would be too much pressure away from steel items if we continue these high prices. I do believe there will be a settling down to a small extent as we go through the year, but nothing substantial. I think the floor, like you are guessing, is going to be in the mid-300s, not down into the 200s where it has been previously. I do believe the exchange rate is probably the biggest driving factor on this, and if they make more materials out of the North America in demand around the world, then that in turn will support the higher steel prices. I believe that the raw material prices will settle out. I think it's a bit of a feeding frenzy now, where people are trading and retrading the same materials and pushing the prices up.

So in general, I think the thing to focus on is where do we think the margins will be, the margin being the selling price over the cost of raw materials. I think we are into a good world of where there will be a substantial change there to actually increase the margin going forward, based upon the fact that so many of the raw materials, such as scrap, cannot come down to the previous levels; but at the same time, the steel price is going to average out at a higher floor than before.

Just one last thing is on the scrap, I know a lot of people also think that scrap is going to be a big tank (ph). We are trying to figure this out over here also, and it seems to me that scrap honestly has come down significantly from where (ph) it is, but isn't it a factor of as world capacity moves up and there's less scrap out there, that (indiscernible) scrap is not going to go back down to 125? (multiple speakers)

What you are implying is that there is going to be a sustained use of scrap around the world, and I believe in that. I think scrap has been recognized as a raw material of choice for developing countries in that it is easy to get, does not require a lot of infrastructure to get it. I also believe the integrated steel makers are learning to use scrap more as a supplement to enhance their production rates when the market is strong and the pricing will allow you to have higher cost operation -- again, focusing on the margin over cost. So even though I believe there will be some coming down of the scrap prices -- again, it makes sense that people are going to harvest more scrap at a very high price -- but it is truly going to be an elastic correction there. If pricings come down too far, they'll be right back to scrap shortage, and I think that is going to support the higher steel prices and the higher margins for the integrated steel makers.

Are you worried about China falling down? I mean, everybody is, but how much do you think it actually plays into the domestic steel market?

Do we worry about China falling down?

Of course you worry. What magnitude do you think it would affect the domestic steel market -- not for 500 prices but for 350 prices?

I think everybody is concerned about what is going on in China and it does seem like it's hard to really get a handle on what's happening over there. I believe the country like that as it develops is always going to be an increased user of steel just as they build their infrastructure and they develop a higher standard of living. I also think that if (ph) it cools off a little bit, that will also take some of the pressure off of raw materials around the world and make it so our business is a little more predictable. The other thing I hope happens is, again, a reflection there on exchange rates. To get the Chinese currency and credit situation in line with the rest of the world would certainly be beneficial to all of us.

Thanks a lot.

At this time, I would now like to turn the presentation back to your host for today's call, Mr. Rodney Mott.

Okay. I want to thank you for tuning in to our call today and, again, it is our first call. I'm sure you could sense that we are little nervous on our side and we have to learn what issues are really important to you. I do thank you for your questions and your interest in ISG. I would like you to know that we're proud of our many accomplishments and we look forward to our continued progress in 2004, and I really look forward to talking to you again when we do next quarter's conference call. With that, I would like to thank you and Brian and Len and the team here also thank you.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day.