Radius Recycling Inc (RDUS) 2006 Q1 法說會逐字稿

Good morning, ladies and gentlemen. And welcome to Schnitzer Steel's first quarter fiscal 2006 earnings conference call. [OPERATOR INSTRUCTIONS] As a reminder, this call is being recorded. [OPERATOR INSTRUCTIONS] Before we begin, the Company has asked me to read the following statement. Today's presentation by management contains forward-looking statements subject to the Safe Harbor provisions of Federal Securities law, including estimates of future company performance and views on future market trends. Actual results may differ materially from those projected in the forward-looking statements. Examples of factors that could cause actual results to differ materially from current expectations are described in detail under the heading "factors that could affect future results" in the management's discussion and analysis section of the Company's most recent quarterly report on form 10-Q. At this time, for opening remarks and introductions, I would like to turn the call over to President and Chief Executive Officer of Schnitzer Steel, Mr. John Carter. Please go ahead, sir.

Thank you, and good morning. Welcome to Schnitzer Steel Industries 2006 first quarter earnings webcast and conference call. I'm joined on the call today by Greg Witherspoon our CFO. After a few introductory remarks, we will be available to answer your questions.

First, I would like to update you on the subject of our ongoing investigation. As you are aware, the audit committee of the Company's Board of Directors has been conducting an independent investigation into our past payment practices in Asia, in cooperation with the Department of Justice and the Securities and Exchange Commission. We now believe the penalties which will be imposed by the DOJ and the SEC will be within a range of 11 to $15 million. Therefore, in the first fiscal quarter of 2006, the Company established a reserve totaling $11 million, in connection with these penalties, it estimates will be imposed by the DOJ and the SEC. At this point, we do not have a definitive timetable for closing the investigations, and we will provide an update when further information is available.

Next, I want to talk to you about our first quarter. We just completed the first quarter of a transformational year for Schnitzer that has changed the look and reach of our businesses. We are optimistic these changes will help position our company for continued success as we enter into our second century of operations. As many of you know from our prior communications we completed three significant transactions in the first quarter. We completed a separation of our joint ventures with Hugo Neu and we acquired both regional recycling and GreenLeaf auto recyclers. We believe we will derive significant benefits from these transactions. In a minute, I would like to talk about what we're doing to maximize the long term value of these businesses but first let me go through the results for the first quarter.

Our steel manufacturing business had another outstanding quarter, both in operating and financial terms. The performance of our auto parts business was solid. Due to a number of short-term factors, many of which we discussed in our last call, the results for our metals recycling business did not reflect what we would consider a normalized state of operations.

Let me start with the Metals Recycling Business. We've stated in the past that we believe this segment of our business is being supported by a number of positive long-term fundamental trends. We also expressed the view prices would remain higher over this business cycle than we've experienced in previous cycles but would remain subject to normal market fluctuations. We've seen nothing recently to change these views. The results in the first quarter should be viewed in light of the overall market, in different factors affecting the West and East Coast operations. First quarter net sales prices averaged $209 per ton, down slightly from the fourth quarter, and off about 11% from last year's first quarter. Toward the end of the quarter, we experienced a lull in buying from Asian export customers as a result of international steel manufacturing uncertainty regarding the direction of steel prices. The result was a situation where U.S. domestic scrap prices were higher than export prices which is something we haven't seen for a number of years.

During the quarter, we made sales to India, Malaysia, and Thailand, which helped offset reduced Chinese and Korean buying. This was consistent with our objective of expanding and diversifying our customer base. Nonetheless, China and Korea remained our largest export markets. We should note that the strong domestic demand for scrap during the quarter has increased competition for materials and increased the prices we've had to pay to maintain the flow of scrap into all of our facilities. Despite a relatively small drop in average sales prices since the fourth quarter, the average cost of obtaining fair scrap actually increased during the same period. Obviously that put pressure on our margins.

On the West Coast, we had anticipated sales volume of 450 to 475,000 tons at our processing facilities. Actual volumes were approximately 375,000 tons. The timing of when sales contracts were signed and the availability of shipping for the product caused several shipments to slip into the second quarter. This timing event reduced our revenues in the first quarter which we expect to recover going forward. Our new operations in the northeast, southeast, and our global exchange businesses have historically produced attractive financial results. I would like to address each of these sectors.

Turning to the East Coast operations, on our last conference call, we told you volume in the quarter would likely be impacted by a number of short-term production issues. Our expectations regarding these newly acquired processing facilities were that we would need to make significant improvements in infrastructure to capture the full value of these franchises. The performance of these facilities has been in line with those expectations. The capital improvement projects already underway are expected to result in improved performance over time. As an example, the shredder at our Rhode Island facility was shut down for two months as we installed a new, more efficient, and environmentally friendly motor. The shut down temporarily impacted our ability to process materials for shipment from that yard. We are pleased to report this machine is now up and running nicely.

As we've previously discussed as well, beginning inventories at our newly acquired New England and Hawaii facilities were drawn down prior to the closing of the joint venture separation agreement. As a result these yards had less material available for processing and sale. By the end of November, inventories had started to return to more normal levels. Consequently, as a result of the reduced volume, the financial performance of these entities was lower than that of the same period last year.

Our operations in the southeast acquired with regional recycling had a strong quarter, in line with our expectations. We are pleased with the ferrous and nonferrous results there, and the progress we are making on integration of that business with the strong management team we have in place. We expected and are finding that regional strength and expertise in nonferrous metals will help throughout the Company. The global exchange trading business has different characteristics and produces lower margins than our processing business, as it is essentially a volume trading business. We provide little value-added processing in this business. Results in the first quarter reflected both lower volumes and lower selling prices than in the previous year's first quarter.

Turning to Cascade, our steel manufacturing business, it continued to benefit from both strong West Coast market conditions, as well as continued improvements in productivity. Our operating earnings for the quarter set another record. Sales prices for the quarter averaged $517 per ton, as we realized the impact of price increases announced earlier in the quarter. Demand for all our products, particularly rebar, continued to remain strong as we delivered nearly 170,000 tons. The 31% increase over last year's first quarter volume.

While prices were higher than recorded in the fourth quarter, they was still approximately $17 per ton lower than the record prices of last year's first quarter. Nonetheless, significantly higher sales volume combined with lower scrap costs, and improved productivity offset those lower prices and resulted in a greater than 26% increase in year-over-year operating income. We continue to see the benefits of the new furnace installed last year, as well as the production incentives recently negotiated with our union workers and other improvements in our operations. Despite higher energy costs, the cost of making steel at Cascade was the lowest in recent memory, due primarily to reduction in man hours per ton.

Our auto parts business began a period of transition as we took control of the assets acquired in the the GreenLeaf transaction. Year-over-year revenues more than doubled, reflecting the results of the four self service stores acquired in January of last year, and the 19 new GreenLeaf stores. Approximately two-thirds of the revenues in this business were generated by the existing Pick-N-Pull self service operation. Although increasing revenue, GreenLeaf posted a modest loss for the quarter. As we had anticipated, higher retail parts and core sales led to an increase in margins in the Pick-N-Pull business over the fourth quarter of last year. Despite the fact that self service margins improved, as a result of the Green Leaf acquisition, combined first quarter margins in the auto parts business declined to 16%.

Let me spend a few minutes talking about our recent acquisitions. As I said earlier, we think we will derive significant benefit from these new businesses. However we recognize the need to move quickly to ensure we maximize the value we received. Therefore, our strategy has been to focus our attention in a few key areas. First, we are strengthening our overall organization. We've fundamentally strengthened our basic management team and put the human resources in place for a much larger business, one that has doubled its revenues, and is significantly larger in terms of operations, geography, and people. Building on earlier additions to the senior team, Greg Witherspoon who initially signed on as interim CFO has agreed to take on that role on a permanent basis. And Rich Josephson has accepted the position of General Counsel and Corporate secretary. We've previously announced other important senior management changes.

Second, we are integrating our operations and capturing synergies from both the old and the new parts of our businesses. We have the opportunity to leverage the economies of scale from our larger operation through a sound integration of these new businesses into our existing operations. In the time since we've completed these acquisitions, we've accomplished several key milestones. We've continued our drive to centralize and standardize our business systems and have adopted common platforms for managing the day to day business. In our Metals Recycling Business, we realigned our management team to provide focus on standardizing that business and operational processes in that business, with the goal of leveraging best practices from all 30 of our facilities, particularly in areas such as nonferrous metals where as I mentioned the acquisition of Regional has provided a greater market presence in this area.

In our auto parts business we're on track to deliver the expected benefits from converting selected GreenLeaf stores to the Pick-N-Pull self service business. We're also actively seeking best practices across this segment of our operations to maximize our leverage as we centralize and standardize many key areas including auto purchasing, core sales, title processing, and other administrative functions. In the coming months, our challenge is integrating these businesses to work together in a cohesive manner which should lead to increased productivity and improved competitiveness.

Third, we are continuing to invest in our businesses to improve productivity and efficiencies. We're working with our steel mill to develop new ways to differentiate our process scrap product in terms of quality and composition. We continue to upgrade and replace equipment and infrastructure at all of our facilities, including capital investments in our steel business, to help produce increased production capacity. We are making investments to modernize our auto parts facilities and their store fronts to improve efficiency and customer experience. We believe by focusing on these key areas, strong management, integration of our businesses, infrastructure investment, and productivity improvement, we will get the greatest long term returns for our shareholders. We expect it may take some time to achieve our objectives and in some cases we may experience short term operational disruptions as a result of our focus on the future, as we have during this past quarter. Now, let me turn the call over to Greg Witherspoon, our new CFO, on a permanent basis, to go over a few financial details for the quarter.

Thanks, John. Let me start by providing more details on a number of the financial items included in this quarter's results. First, I would like to point out that due to the separation of our Hugo Neu joint ventures, starting this quarter we will have significant change in how results are reported. Our share of the operating income but not the revenues and expenses in the Hugo Neu joint ventures had previously been included in a separate joint ventures segment. Now, the revenues, expenses, as well as the income for the entities we acquired in the split-up are being consolidated as part of the metals recycling business segment. This impacts our results in two ways. The revenues and expenses for the Metals Recycling Business will be higher than in the past. In addition, income in the joint venture segment will be reduced significantly since the Hugo Neu entity has represented the majority of what has historically been reported there.

As a result of the acquisitions during the quarter, we have completed a number of purchase accounting activities, including consolidating results of these acquisitions as if they were purchased at the beginning of the year to make sure we have a transparent quarter over quarter comparability. In addition, on a pro forma basis, we have provided first quarter results for 2005 as if Hugo Neu's separation had occurred at the beginning of fiscal 2005. As a result of the joint venture separation, we have recorded a pre-tax gain of $55 million based on the appraised fair value of the assets we acquired over the carry amounts of the assets given up. The gain was recorded in other income and the after-tax value of the gain was approximately $34 million. The total increase of the goodwill during the quarter was approximately $115 million, as a result of the Hugo Neu joint venture separation, the acquisitions of GreenLeaf and Regional Recycling. Of that amount, approximately $58 million was related to the assets acquired in the joint venture separation or roughly equal to the amount of the gain on the assets given up.

Depreciation expense during the quarter was $6 million. Capital spending was almost 16 million. We expect to spend an additional $75 million in CapEx for the remainder of the fiscal year, and we continue to explore other capital projects that will provide productivity improvements and add to shareholder value. Selling, general, and administrative expenses for the quarter were up $30 million to 42 million. SG&A includes an additional $11 million in expense attributable to the acquisitions made which nearly doubled the Company's revenues. It also includes the $11 million charge associated with the investigation reserve and an additional $1.5 million in related professional and legal fees as a result of the investigation.

Inventory levels at our West Coast processing yards were up 83,000 tons since the end of the fourth quarter which is a 43% increase. This is primarily the result of the slip of several shipments from the first quarter into the second quarter. Inventory levels in these yards will return to more normal levels in future reporting periods. Conversely, levels at our New England processing facilities are artificially low, because as John discussed, inventories were run down to facilitate the closing of the separation agreement and planned shut downs of our Rhode Island facility limit our ability to process materials. Inventories in these yards should show significant increases over the next couple of quarters. Finally, let me point out our debt balance has increased to $62 million during the quarter, primarily as a result of the acquisitions of GreenLeaf and Regional. Now I will turn the call back over to John.

Thanks, Greg. I would like to take a minute to talk about our outlook for our businesses. As I said earlier, our focus is on making sure we prepare ourselves properly for what we believe to be a positive future. In the coming months, we will continue to report to you the progress we make in integrating our new acquisitions and capturing synergies. We will also keep you posted on the status of our various capital improvement projects all of which should improve our competitiveness going forward.

In the Metals Recycling Business, we expect the export market to remain subject to cyclical fluctuations, although we've seen signs of renewed activity by some of our Asian customers, we believe in the near term export markets will remain unsettled and prices for sales made early in the second quarter have been down approximately 10% from the first quarter. Only in the past few days are we seeing signs of strengthening prices on the export front. We have seen recent evidence of declines in scrap acquisition costs, which are greater than the earlier declines in export sales prices. Providing the potential for improved margins later in the year. Second quarter ferrous sales volumes at our processing facilities should be up by about 25% from the first quarter this year. The increase in volume is due primarily to the timing of four shipments delayed from the first quarter which we previously noted and the restart in the second quarter of processing at our Rhode Island yard and a resumption of exports from our Portland, Oregon facility.

In the Portland facility, we are still undergoing a major dock renovation which isn't expected to be completed until later this spring. However our operating people have devised a procedure that allows us to load cargo during the renovation and take advantage of the inventory which had accumulated at the yard. We also anticipate that due to improved management at our Boston facility, we are going to see an increase in the materials we process and sell, even while that facility is undergoing major capital improvements. Our new operating team has spent considerable time addressing the reliability of existing equipment and we now believe this facility will be able to achieve improved output until such time as a new mega shredder is installed later this summer significantly increasing its output potential.

Volume in our global trading business will be down approximately 40% from the first quarter. In addition to the impact of normal seasonable winter shipping conditions, lower market prices for scrap metal has significantly reduced the availability of processed material available for purchase from Russia and the Baltic Sea region.

In the auto parts business, we are in the process of executing our plan to convert a number of full service stores acquired in the GreenLeaf acquisition to our more profitable self service model. We anticipate converting from six to eight stores over the next 18 months, some of them toward the end of the second quarter. The first conversion is expected to be completed around the end of the second quarter with two more conversions scheduled for this spring. The GreenLeaf full service operation provides us with a national footprint larger than our old Schnitzer footprint, and access to new strategic markets. The potential for continued expansion in a synergistic business segment and the potential to get closer to the auto manufacturers as they move to manage the life cycle of their products.

As noted before, GreenLeaf is expected to post a small loss during the second quarter and to be modestly dilutive to neutral for the full year. Longer term the full service operation is expected to provide meaningful revenues and profitability to the auto parts segment. When compared to the first quarter of this year second quarter sales at our self service Pick-N-Pull stores are expected to be impacted by normal seasonality and the very wet winter weather on the West Coast. For the second quarter, margins will also be affected by lower selling prices for scrap cars including cars sold from existing inventory, and carrying a higher cost basis compared to those sold in the second quarter of 2005.

In the steel manufacturing business, we continue to see strong customer demand in our West Coast markets. During the second quarter, we typically see a reduction in sales due to the impact of winter weather on construction projects. This year, however, we believe demand will remain good throughout the quarter, and sales volumes should be significantly higher than during the second quarter of 2005, though lower than the strong first quarter of this year. Average prices for the second quarter are expected to be slightly higher than both the first quarter of this year and the second quarter of last year. High prices on the West Coast relative to other markets could result in an increase in foreign imports of steel products, and provide some downward pressure on pricing,and we are closely watching import levels.

Let me close by reiterating that we are going through a major transformation. We have expanded our scrap processing business to both coasts and the southeast, and we have substantially increased our footprint in the auto parts business. We are focused on ensuring that we maximize the benefits from the new businesses we've acquired. We are making significant investments in business infrastructure and in human resources for the future. The transformation is challenging but going well. Our company and employees are optimistic about that future and we look forward to delivering shareholder value in our businesses. As your CEO I share that optimism. I'd now like to open up the call for questions. Thank you.

[OPERATOR INSTRUCTIONS] And your first question comes from the line of John Rogers of D. A. Davidson. Please go ahead, sir.

Hi, good morning.

Good morning, John.

A couple of specific things. First of all, in terms of the tax rate, do you expect it to remain at that just under 42% this year? Is that a good rate going forward?

I will let Greg answer that question.

Yes, that rate, John, was affected by the $11 million reserve which we took, no tax benefit for as--.

Okay.

We're unaware what the settlement will be right now.

Okay.

And also, the $55 million gain didn't benefit from any of the export tax credits.

Okay.

So it is artificially high for the first quarter. We're anticipating the next three quarters will be closer to the 35% rate.

Okay. But the $11 million charge then is pre-tax and after-tax.

It is assumed as after-tax and pre-tax, yes.

Okay. And just following up on that the -- you mentioned $1.5 million in ongoing professional fees and others related to that investigation, is that -- I'm sorry, is that a good quarterly run rate now until this is completely resolved?

No, we don't anticipate it will run that high, and obviously, when we finally resolve this, that that will disappear.

Okay. And then just the last thing was in terms of your balance sheet at the end of the quarter, can you give us a sense of where you stand in terms of cash and total debt?

Well, as of the end of the quarter, the debt had increased about -- I think it was $66 million, to right around $86 million, and we had cash and cash equivalents of $37 million on the balance sheet.

Okay. Great. Thank you.

And your next question comes from the line of [Sal Thorony] of Goldman Sachs. Please go ahead sir.

Hi, guys. Can you give us some color on the export markets, what you are seeing in demand from Korea and China and do you think it is seasonal pattern or are they cutting down production over there or what is the reason for decline in volume you're expecting?

I think it is very interesting, a series of events in the export markets in China of course is an enigma to many of the analysts that are looking at the steel production cycles there, obviously there has been views both ways as to whether China is overproducing and will be cutting back, as a result of their efforts to consolidate their businesses, into larger groups of steel manufacturing companies, but it is very difficult to see the impact of that in terms of imports into this country at this point, because they have been rather restrained in terms of exporting to the United States. However, those exports have gone to other countries, and as a result, have had an effect on the production levels of some of the other steel making countries.

I think one of the more interesting things that happened last year, the first part of the year, China was a net exporter and during the last part of the year, there are some analysts that are -- have pointed out that China was a net importer of steel products. So it is a very mixed situation. And one of the reasons we talk about it as somewhat uncertain, in terms of the pricing, that uncertainty is reflected in what I would call uneven buying patterns from the Chinese steel mills. So we saw a little bit of a lull in the first quarter this year that we noted, and most recently, that started to -- that activity has started to come back.

So I don't know that I can give you a specific forecast or answer on what is going to happen to China, but obviously, from our standpoint, the overall increase in world steel production, regardless of where it comes from is important to increasing demand for our scrap materials, and as I pointed out before, the incremental addition and capacity in the electric car furnace area is very important as well because it is a much higher use of our scrap metal product.

On your trading business, is it correct that you don't take a position? Or do you take a position in global trading business?

We do take a position, we're mostly long in that market, and of course, the various market forces affect us, we our trading is affected in terms of its margins. Right now, because scrap prices are a bit lower, our volumes are also affected because there is nothing like high prices to bring out higher volumes. And the volumes out of the Baltic and out of Russia are lower, we expect them to be lower in this quarter, because not only bad weather obviously during the winter months but also less attractive pricing.

So it is a price decline you may suffer on your trading business as well?

That's correct.

Terms of margins? Okay. And last thing on GreenLeaf, I understand you had 22 stores, you mentioned 19, have you closed down three stores?

You mean on GreenLeaf?

Yes.

No, what we're doing is we're in the process of converting those stores. We are disposing of three stores as we mentioned to begin with, one of them we're selling and two of them I think we're closing down, but that process is underway, but it is not complete, but we're actively pursuing 19 of those stores.

Okay. And lastly, can you give us the depreciation rate going forward? Would it be the same as this quarter?

Fairly close.

Okay. Thank you very much.

[OPERATOR INSTRUCTIONS] And your next question comes from the line of [Alda Talias] of Morgan Stanley.

Yes, good morning.

Good morning.

I have two questions, if I may. The first one is, you mentioned that the volume was restricted this quarter due to the Rhode Island shredder maintenance, or upgrade, sorry. Is there any sense or an indication on terms of how much the volume was restricted?

Well, I think I had mentioned that we were down in terms of our volume both on the East Coast and on the West Coast. And our tonnage expectations as we recover that volume in the second quarter, we had expected about 450 to 475,000 tons of shipment in the first quarter, and actually shipped about 365,000 tons, somewhere in that range, on the West Coast, and on the East Coast, our volumes were down accordingly.

Okay. And then what volume should we assume for the first scrap Q2 versus the 969 tons this quarter?

Well, overall, in the second quarter, we are expecting our volume to recover to somewhere in the range of 800 to 850,000 tons.

Okay. And finally, regarding the auto parts business, margins in the quarter were about 15% versus the traditional 25 to 30% in previous quarters. My question is, once you complete the integration of the GreenLeaf locations to your model, what margins should we expect going forward?

Well, I think that obviously we think that we will have a number of different characteristic on the margins in the auto parts business. Our auto parts margins in the California market where we dominate that market in the northern part of the state are going to continue to be high, in the range that historically have been there. The margin reduction is around 16% actually for the first quarter here. And the blended results have come from the fact that the GreenLeaf transition did not occur, and as you noted earlier, that some of the stores have been closed down. However, as we see this going forward, we see that the full service model will provide us attractive margins, probably because of geography and the nature of that market. It is not likely that they will be at the 25% level that we're seeing in the self service market in California. We do expect those stores that we convert, however, to have significantly higher margins than they have had for GreenLeaf in the past on the self service side, and the full service side, we also expect those margins to increase as we do some things that we think will help both in terms of efficiency, and the available inventory.

Longer term, as I mentioned on GreenLeaf, one of the things that we hope to achieve out of that, and we think that we conceivably are, is that in addition to the geography and volume additions, that we bring to the auto parts business, it also puts us in a segment of the market that gets us closer to the auto manufacturers, and it gets us closer to that integrated view of long-term life cycle management that the automobile manufacturers are looking at and already required to do in Europe. So I think it it is a good market. We think the margins are probably going to be, as we've said before, in the full service part, somewhat lower than they are in the self service part, but overall, it is a substantial increase in revenue and as a result, profitability.

Thank you.

And your next question is a follow-up from Mr. John Rogers of D. A. Davidson.

Hi, I just wanted to follow-up on the scrap business in terms of the outlook that you talked about. I just want to make sure I understand this. John, you had mentioned 800,000 to 850,000 tons out of your processing operations in the second quarter.

Right.

And 3.5 million tons for the year.

That's correct. Because of trading operations and additional volumes.

Well, I guess what -- that would imply then, we will see even further growth into the second half of the fiscal year.

That's our expectation, John.

And what is driving that? Is it the new processing facilities that are coming on or--?

Well, it is partly that. It is also partly, as we work through some of the things like the Rhode Island shut down, we also expect to complete our capital investments in Portland at the dock and the installation of the shredder there and toward later in the year, it is -- we're not quite clear on the exact timing yet, because we're working through permitting and other process in the open yard, but we are looking to get that mega shredder installed as well. And finally, as we mentioned earlier, the inventory on the East Coast is so that it has run down substantially before we closed the deal with Hugo Neu. Those volumes on the inventory side by the end of November have recovered to more or less normal levels and as a result, that gives us more to process.

So I guess what I'm trying to grasp then -- sustainable -- is that second half of the year level, is that a sustainable level, or is it just a catch-up from unusually low levels in the first half of the year? Because it would imply that you would be running at roughly a 4 million-ton a year run rate.

Yes. It is sustainable -- 3.5 million is a sustainable rate, as we've said, we're -- in the second quarter, we're actually going to be catching up a bit because of the four shipments that spilled over from the first quarter, but fundamentally long term in terms of the processing rate, that 3.5 million is a sustainable rate and we hope to improve on that.

Okay. And then the other question I had was just relative to your -- the brokerage business, or the Russian Baltic trading business, I don't know if you will give us exact numbers, but can you give us a sense of the margins on that business? I mean are we talking a couple of dollars a ton?

Well, the margins obviously vary a lot, John, and it's because it is a trading business, and they have historically run very high numbers down to small losses, as you've seen, and it depends a lot on the acquisition costs, which is one of the things we're working through now, because we had last year pretty high acquisition costs on some of the scrap that we had to inventory. But it is not -- it is the kind of thing where you get margins in the single digit dollar range.

Spread out on an annual basis?

Yes. Right.

Okay. That's it. I mean so it's a third or a quarter of what you might get on your own processing type stuff?

Right, because as I mentioned earlier, we don't do a lot of value-added to it so it is truly a trading business and we're obviously going to continue to look at that business and see what we can do to make that business perform better.

Okay. And then just lastly, I know -- I mean you've obviously been very active over the past year, but in terms of other acquisitions, dispositions, I mean are there other -- are there a lot of other things that you're seeing out there either on the scrap side or the auto parts side?

Yes, there are. We see continued -- continue to see a very strong flow of potential deals, and we address each of those, with care and with a lot of attention. Obviously, right now, we're focused on the integration of the acquisition that we've made, and of course, there is nothing like a good year like last year to have people who want to sell their business, have aspirational goals for the price they would like to sell it for, so there are a lot of things out there. How many of them are terrific deals for us remain to be seen.

Okay. Great. Thank you.

[OPERATOR INSTRUCTIONS] And your next question comes from the line of Sal Thorony of Goldman Sachs.

Just one more question on your Cascade mill. You -- can you give us some color on the expansion you are doing, or the improvement you are doing in your billet reheat furnace, how much production increase you would expect from this change?

Well, there is a number of things that tie into that, and maybe I could give that a little broader answer. We're doing several things at the mill that will result in increased throughput. Some of those things have to do with the melt shop and we've commented earlier about productivity improvements there because of the new furnace that we put in. Those productivity improvements have continued to increase over the course of the year as we have learned better off how to manage that new furnace, and its output. As a result, our bill of production is substantially up, meaning that we have two or three other bottlenecks in the mill that we now can address to get to what we think would be substantially increased production.

Our objective overall on this mill is to get to a level of about 800,000 tons a year. At the moment, though, the other pieces of that puzzle that need to be sorted out have to do with the rolling mills themselves. We are installing a new bailer as you mentioned, the reheat furnace is part of that process of being able to better utilize those billets for rebar production, and the actual improvement in production will phase in over the course of the next two years, because the reheated furnace itself is actually not scheduled to be completed until the end of this calendar year, when we -- or not to actually even start physically until December during the shut down and we're applying it then.

Okay. Thank you very much.

As there are no more calls, I would like to turn it back to Mr. John Carter for closing remarks.

Well, thank you very much for being with us today. We appreciate your questions. And look forward to talking with you again.

Ladies and gentlemen, this concludes your conference call for today. We thank you for your participation. You may now disconnect.