Steel Dynamics Inc (STLD) 2005 Q2 法說會逐字稿

Good day, everyone, and welcome to today's Steel Dynamics Second Quarter Earnings Conference Call.

Today's conference is being recorded.

Joining us today are Mr. Keith Busse, President and Chief Executive Officer, Mr. Gary Heasley, Vice President and Chief Financial Officer, Mr. Mark Millett, Vice President, Mr. Richard Teets, Vice President, Mr. John Nolan, Vice President of Sales and Marketing, Ms. Teresa Wagler, Vice President and Corporate Controller, and Mr. Fred Warner, Manager of Investor Relations.

For opening remarks, I would like to turn the call over to Mr. Fred Warner.

Please go ahead, sir.

Good morning.

Welcome to the July 19, 2005 conference call covering second quarter 2005 results for Steel Dynamics, Incorporated.

Today's Management Discussion, as well as responses to questions, may include forward-looking statements.

We caution that actual future results and events may differ materially from statements or projections made today.

You may obtain additional information concerning a variety of factors and risks that could cause actual results to differ materially from today's forward-looking statements by referring to our most recent Annual Report on Form 10-K as filed with the Securities and Exchange Commission.

Specifically, please refer to those sections in our 10-K report entitled Forward-Looking Statements and Risk Factors.

This 10-K Annual Report and other reports we file from time-to-time with the SEC are publicly available on the SEC website, www.sec.gov, and on our website, www.steeldynamics.com.

After today's Management Discussion we'll open the call for questions.

We ask you to keep your questions brief and to the point.

You are welcome to ask additional questions later as time permits.

We will now begin today's discussion with introductory remarks from Keith Busse, Steel Dynamics' President and Chief Executive Officer.

Thank you, Fred.

Good morning, ladies and gentlemen.

And let me say good morning to all of the SDI employees who have joined us this morning for this Management Discussion.

I know many of you are wanting to learn a good bit more about the abyss, if you will, this morning.

And we'll have some comments on that that I think are appropriate for you.

But I think all in all, I would tell you we didn't have a bad quarter.

I tend to always look at things as if the glass is half-full, not half-empty.

Trying to get your arms around the market in mid-May was like trying to catch a comet or a falling star.

We had credible data I think to work with relative to volume and impact in our Structural and SBQ Bar business.

But at that point in time, we--the order entry in flat-roll was about weekly and we were not carrying a very large backlog and could only view realistically the remaining two weeks or so of May and potentially the first week of June through our viewfinder.

And I think we made some assumptions relative to pricing in that climate which weren't realized.

But more importantly, I think that pricing--we were impacted by volume.

Order entry in flat-roll, literally at the end of May, dried up.

And so, as we continued to live from week to week, it was impossible to realize our goal.

I mean, order entry really was very poor in June, which really caused our production at our Butler works to be off rather significantly from its potential.

I would tell you from its potential it was off 35,000 tons.

So from that perspective, I would tell you that we were part of throttling back supply.

And we did that consciously to some extent, because you could have chased that falling star forever and gosh only knows where it would have led you in terms of pricing.

And we chose not to do that and suffer the consequences of reduced production volume and reduced shipping volumes, which had a pretty significant impact on the bottom line from where we had re-estimated our earnings to be.

And we attempted to be fairly conservative with that estimate.

But when you lose that kind of volume in one month and the price goes well beyond any discussion that was being had by the analytical community at that point in time, it can have a pretty profound impact on the bottom line.

I would also tell you our earnings, probably to the tune of 5 to 6 cents a share, 7 cents a share, were probably impacted by actions of certain competitors in the structural arena that chose in the May timeframe to tear down pricing in response to fighting competition and/or whether it's domestic or competition from abroad in the structural arena.

So we had not baked that into our forecast of the pricing climate in the last half of May and all throughout June, and can only estimate that that probably was about a nickel to 6 cents of earnings momentum loss there that we had not really contemplated.

And as I said, the rest was--although, I would tell you that the Structural Division came respectably close to their revised forecast.

They weren't off all that far, and as I said in the press release, is now working with the best backlog that they've had in quite some time.

And I think the history of backlogs, for us anyway in the structural business, has been quite up and down.

We've had some large backlogs and they've lasted a week or two or three, and only to be impacted by rather modest order entry and the backlogs would then fall.

We've been able to sustain this backlog for quite some time now and it's growing.

And order entry remains very positive at the Structural Division and I think a good level of earnings can be accomplished with that volume in the future as we move forward because I think the mill will actually be running more volume in the third and fourth quarter than they did in the first and second quarters of this year if the market continues to hold together.

And I think we see that through the eyes of our fabricating business, New Millennium, as well as through the eyes of the fabricator community that we talk to.

Fabricators are busy at this point in time.

In fact, they're starting to sublet a lot of work.

So perhaps the non-residential boom in the construction activity that has been long awaited is being realized with even more potential from the highway bill I think in the future.

Dick will have more to say about our real business and his thoughts about the market and productive activities as we walk forward in this forecast.

The SBQ business, I might point out, has been fairly weak in comparison to '04.

And the order book in SBQ is another hand-to-mouth, week-to-week kind of activity at this moment in time.

Although, I would tell you that in talking with Glenn Pushis just this morning, the inquiries--now, they haven't resulted in orders yet--but the inquiries are up substantially in that business and we would expect those inquiries to turn into orders.

I would also tell you that we have a broader array of products to work with.

We have now successfully rolled 7 x 7 billets through the mill.

We are now making 1-inch product in the mill and previously had only been down into the 2 to 3-inch range.

So our product field is broadening rather substantially.

That business, by the way, is--and it affects our cost of sales--has probably been impacted by alloy costs more than any other operating unit we have.

I'm not going to read the press release to you verbatim.

I do want to comment on some of the comments we made in the second paragraph where we had talked about the fact that our consolidated selling price per ton shipped decreased $61 a ton, and that was true, and our metallics costs were down $49 a ton.

I might tell you that I believe pricing will probably be down another $50 to $60 a ton.

I look at what the analysts are writing and would only tell you that what they see seems to be delayed.

We tend to get to these rather depressed levels more quickly than they are written about.

But I think we're going to see prices down in the third quarter another $50 perhaps.

But I would tell you, we're going to see scrap down another $50 as well in Q3.

It was down $49 in Q2.

And I think our good scrap position will carry forward into the fourth quarter as well given the large stocks of material that we have on hand.

I guess you could draw the conclusion if your prices are going to be down $50 to $60 and your scrap is going to be down $50 or $60, your earnings momentum is going to be about the same as where it was in Q2.

And we're not going to offer any specific guidance to you this morning.

We will come back to you with a range of guidance as we firm up the third quarter and may well also comment on what we see in the fourth quarter.

But I would tell you that, as I said earlier, I don't think our performance--I will say this much, I don't think our performance in Q3 will be any worse than Q2 and certainly has the potential to be better than Q2.

I do believe, as I look at our forecast--and in Q3 we have not built any pricing momentum into that forecast should it be able to be realized.

And it's too early to make that call.

And I'm not going to sit here and tell you we're absolutely at the bottom of the market or in the basement.

I would tell you that the market is bottoming at this point in time.

Our order entry at Butler has been awfully good for about four weeks now.

I mean very, very good.

But rather than base a forecast on four weeks, we're going to wait a little longer.

That momentum in order entry is very positive.

It's in the value-added product lines more so than it's in hot-rolled.

And we're pleased about that.

So the--right now, the momentum is there.

And unlike mid-May, when we could only see three weeks ahead, we can see further out.

Not real far, but further out.

And we are no longer desperate for orders to cast, if you will, at this point in time, which is where we were a month or so ago or a little over a month ago.

So perhaps the winds are changing.

Certainly, order entry has just been awfully good at Butler recently.

And as I indicated earlier, it continues to be very good in structurals and the inquiries are up at our SBQ Division.

So having said that, we did--as you noted, we did ship a little more in this quarter than we had in Q1, although the price was off significantly.

But metallic scrap was down more than I had forecasted.

I can't remember exactly what I said.

I think it resembled $35 or something like that--$40.

I can't remember what it was.

But I think we were better with our scrap metallics posture than we had contemplated, but the price, obviously, given the total collapse in the market that occurred late--or in May and June, certainly took its toll.

As you look at how that affects quarterly earnings, obviously, the--from peak to trough, if you will, in scrap, I think you never realize the peaks.

I mean, much was written about $450 bundles or $400 bundles.

That was a 30-day kind of thing.

So you never realize the peak in terms of scrap cost and, obviously, sometimes you never realize the recent valley, if indeed it was a valley.

I think as it would regard scrap, I would still tell you that there is--most people have an abundance of scrap.

There were a few folks last month who needed to buy scrap.

They were not major players.

Nucor was not in that position.

Neither were we.

Neither were some of the other flat-rolled consuming entities that require a lot of scrap ingestion every month.

But considering the flows in the scrap yards was relatively light, and I think the scrap community was willing to put scrap on their tow, if you will, to build their inventories, because they didn't like the price, it caused somewhat of a momentum surge and prices were up $20 last month.

There may well be an argument made that flows haven't returned to normal.

I think that that's a bogus argument.

But that may well be the argument.

There may be an attempt to lay more scrap down, but I think it's kind of futile because most of us have so much inventory it's not going to result in any large buying activity on our part or probably the part of others.

So I would tell you the scrap market maybe has the potential to do anything from sideways in August to up a few bucks.

But I think that momentum will probably die in September.

We did not, as I said, build any--and I should tell you that from peak to valley, the impact of metallics was about $130 for SDI from peak to recent valley.

And pricing from peak to valley was probably down $170.

Again, you don't realize $800 a ton but for a brief moment, and hopefully, we won't see $420 or $400 or whatever is being forecast in the market but for a brief moment.

I think there's some pretty stiff resistance to pricing moving below $400 a ton.

I'll let John Nolan talk to you a little bit more about that as we move forward.

But I think there's going to be a fair amount of resistance there.

That's still going to leave, obviously, the mini-mills with the some pretty health margins, maybe not quite the margins that would allow you to generate a $2 quarter.

But I would remind everyone--and I get a little concerned when the analytical community sees things through the kind of negative viewfinders.

They're starting to remind me of the media.

Maybe they'll--maybe Europe isn't recovering as fast.

Maybe China won't grow as rapidly, etcetera, etcetera.

And maybe our economy did get a little weak.

But I think all of us understand we're in a cyclical business.

And I think we're at--it's a personal opinion.

I think we're at the bottom of the cycle.

And whatever you want to say about our earnings, if on a year-to-date basis they are only going to be off 10 to 20 percent kind of thing, maybe greater, I don't know--but not a lot greater I don't think.

I would tell you that it's an awfully good year.

And for SDI to have that kind of earning potential at the bottom of the cycle says volumes to me about where our earnings are going to be if and when we see the peak of the cycle.

Now, I can't tell you when that's going to be and I'm not going to predict that it's late this year, although I--or early next year.

It will be whatever it is.

And as I said, the order book has picked up recently.

I think a lot of people are starting to find themselves without the peak level of inventory that they had.

Clearly, we had an oversupply condition.

Clearly, it has taken longer to work through it.

But I think the imports were down again this month.

And I think they're going to be down again when we review the July results.

And with the economy not falling apart, if you will, I think you're going to see inventories come down sharply.

And I think as the buyers start to see scrap bottom out here, it may actually be a forebodence of some near-term buying activity.

But we'll let that speak for itself at that time.

So I wanted to tell you, too, that we made a small statement about Masabi Nugget.

It is slow due to challenges in Minnesota.

Mark can talk a little bit more about that.

We have some challenges in Indiana.

I think they'll be overcome here shortly.

Does that mean we'll step forward in Indiana first?

I would tell you that the odds are growing slimmer that that's going to happen and the reason is because of the cost impact of moving an oxide that distance with the moisture content in it.

Clearly, the cost of production in Indiana is going to be greater.

If we can't realize that project ever in Minnesota, then perhaps Indiana is the right place to build the next facility.

But clearly, there is a distinguishable cost difference between Indiana and Minnesota and need to work through the permitting issues in Minnesota.

Relative to New Millennium Building Systems, our momentum is building.

Our backlog is as big as it's ever been at our Butler works.

And, of course, I could easily make the statement as big as it's ever been at our Lake City, Florida plant.

But it is fair size and growing down there.

The learning curve is going very, very well.

I believe Lake City will make money certainly in August and come close to breaking even in July.

And they almost broke even last month.

We're a little bit in the red.

Awfully strong performance for a brand new operating unit, so we're pleased about that.

I think we made note of the fact that during the quarter we repurchased an additional 3.6 million shares.

And in the currently authorized buyback program only have a couple hundred thousand shares to buy should be choose to execute the remainder of the program.

I don't know that--I know that will be a question.

There are no plans for an additional authorization.

I think our stock has had the heck beat out of it for quite a period of time here.

And I don't know that it's--I don't know where it's going to go.

I know we can't predict those things.

But I don't know that we're going to authorize the purchase of any more of our shares at this point in time.

We'll just see what happens in the market.

But given the relatively low valuation of our earning, if you look at--if you forecast our go-forward earnings and it's still not a very decent PE multiple.

But the market, obviously, always attempts to anticipate a downward spiraling cycle such as the one we've been through and are still a part of.

And, obviously, there's going to be some momentum when the marketplace believes that we're starting to climb that hill again.

So, I think enough said about the shareholder buyback.

At this point in time, I have no additional comment at this time over and above what you've read.

And I'm going to turn it over to Mark Millett for his comments about our Butler works and the future there.

Thanks, Keith.

I agree with Keith.

Obviously, we were substantially handcuffed by market circumstance last quarter.

But fortunately, the order rate has picked up dramatically in the last three to four weeks and we've got certain products having lead times pushing out into September, which is as good a backlog as we've had probably all year.

Even though it was a kind of tough market from a scheduling productivity standpoint, I think the mill performed extremely well.

In fact, we successfully completed the first phase of our organic growth and we made some modifications to our original arc furnace some two or three months ago.

And it may demonstrate the ability to run around about 233,000 tons, which is a little over 2.6 million tons on an annualized rate.

So I think they guys did a great job demonstrating the mill's capability.

We ordered the caster equipment to expand the--or extend the metallurgical length of the caster, which will allow us next summer to take that capability up over 2.8 million tons.

So, things are on schedule there and looking very good.

We have an acrylic coder [ph] starting up here shortly for the hot regalvanizing line that will add yet another value-added product to our portfolio.

But the mill is in great shape and its [indiscernible] is high and we're just waiting for that market to come back in earnest.

Thank you, Mark.

Dick?

Good morning, ladies and gentlemen.

I'd like to report from Columbia City that we recently became ISO-registered.

And my congratulations are to all of the employees who helped make that possible.

I know we have some customers, especially in the rail marketplace, that view that as an important step forward in our quality requirements.

I'd also like to again congratulate all of the members of the shipping department that, as Keith in the press release mentioned, that we did have a record shipping month in finished goods in the month of June.

And I'm very proud of their performance.

I think a lot of things to talk about today have to do with our excitement that's building in the rail arena.

As recently as yesterday we received our new molds for the rail balloon products and we're in the process of scheduling a third party in to adapt those molds and insert our induction stirring units into them.

And that should take about a week or two.

And then, as soon as that's accomplished, we will begin our casting trials with the new molds, the shorter molds, which we believe will solve our hinge cracking or small quality issue that we had outstanding and was really the only thing left to accomplish a high quality product with.

In addition, from a rail perspective, our--the extension to our cooling bed to allow us to make 320-foot rail products is scheduled for delivery in August or September.

It's on track.

And installation will most likely be in October during our shutdown.

But we're already doing preliminary work as far as electrical and foundation work and so forth.

Also on the rail side of things, we have placed the order for the balance of the rail welding equipment that was a critical path requirement.

And so, that's scheduled for delivery in the first quarter of 2006 and is the basis for our welding of our long rail products into 1,600-foot lengths.

And finally, as Keith mentioned, our backlog is better than it's been in months.

And our order book and sales order entry rate continues to be promising.

So, we're excited in Columbia City.

Keith?

Thank you, Dick.

Maybe we'll go to John Nolan for some comments about the market from his perspective.

Good morning, everyone.

Mark, Dick, and Keith covered some of the aspects of our order books at the three respective divisions.

I'd just like to expand on one or two points.

Beams, as Dick indicated, the backlog is good.

For the past few weeks we've actually been booking what we've been shipping, which is the first time that's happened consistently since the beginning of the year.

And that we view as a very, very positive sign.

In SBQ, as Keith indicated, orders are slow, but steady.

Inquiries are up at the moment.

And as many of you know, we're primarily spot at Pittsboro and that will change later this year for 2006 as we pursue more contract business at Pittsboro.

I want to concentrate on a moment for flat-roll and touch-on, again, on some of the points that Keith made a moment ago.

I've been searching for the right analogy to describe the market at the moment.

And I think the best way to say it is that the market has been in a coma since it was hit head-on by an import surge late last year.

And all of us, including many of the analysts on this call, have been searching for signs of some awakening since as early this year as February.

We believe we're now seeing some of those signs.

Flat-roll new order entry has been up--is up about 60 percent during the past 25 business days compared to the prior 25 business days.

And as Mark indicated, our lead times, particularly on cold-rolled and cold-rolled-based galvanized are now in early September.

We discovered in June that, yes, large buyers could find hot-rolled in the marketplace from producers at 20 cents.

And frankly, those prices on a spot basis are still available depending upon the particular needs of the producer.

And that's a little disconcerting, but we're working our way through that to the extent that we can.

I want to touch on one more thing and that's imports as a component of supply.

As I indicated, new order entry is up 60 percent at Butler in the recent period.

And maybe it's a stretch to suggest that it's concurrent with a 60 percent decrease year-over-year in license applications for the Department of Commerce Surge Monitor.

As you know, we follow that fairly carefully.

We look at licenses and compare the statistics from DOC to the actual custom stroke census information on a month-to-month basis.

And we have found it to be remarkably consistent as an indicator--early indicator of where imports are going.

And all imports--at least 201 imports currently followed by Commerce, are now I think 40 percent of July 2004 levels, which means they are down 60 percent.

Per rata through the month of July they are something just shy of 900,000 tons.

If you look at slabs, hot-rolled, coated, cold-rolled, bars, welded tubular products, they all suggest the same thing.

The numbers are in the 40 to 50 percent range of where they were this time last year.

And actually, also compare very favorably to the 2004 monthly average volumes.

So, we believe that the market may have reached its bottom.

I think there are some in the marketplace and the buying community that would agree with me and some that probably would not.

But we're seeing some signs that again the market is awakening from its coma and, hopefully, that will occur within the next couple of weeks and be fairly clear and obvious to all of you.

Thank you.

We'll now turn it over to Gary Heasley and Teresa for comments--financial--certain financial comments and statistics which we normally give out in the course of this conference call.

Good morning.

This is Gary Heasley.

I'll just run through some of the numbers and give you some details here.

First of all, shipments in the Flat-roll Division.

Our shipments of hot-rolled cold were 225,000.

P and O, we had shipments of 43,000 tons.

Cold-rolled shipments were 38.

Hot-rolled galvanized products, 101.

Cold-rolled galvanized, 111,000.

And painted products, 51,000.

For a total of 569.

In the structural and rail business, we shipped 202,000 tons of structural with three rail for a total of 205.

And we shipped 108,000 tons of bar for the quarter.

The average selling price for steel operations was $590 a ton, which was, as Keith mentioned earlier, off about $60 or so from where we were last quarter.

Inventories have changed.

We actually decreased our work-in-process and finished goods inventories by about 34,000 tons, but as we bought into the falling scrap market, we increased our scraps inventory about 178,000 tons.

So, you'll see some movement there when you look at the numbers.

CapEx for the year is still expected to be around a $100 million mark, which is still dependent upon a certain amount being spent on Masabi Nugget, which is dependent upon these things happening.

There is a high likelihood that, in fact, the Masabi Nugget project continues to slide as these environmental challenges continue.

And that number will drop probably by another 20 to potentially the $80 million range.

So that's the range of possibilities.

Depreciation and amortization for the quarter, 21.6 million.

And we're expecting 91 million for the year.

Interest expense for Q2, 8.3 million.

The year, we're looking at about 35 million for interest expense.

Tax rate, effective rate, still at 38.5 percent.

We pay cash taxes of about 54.6 million in the quarter.

Our leverage is still very, very nice at .92 times EBITDA.

Our liquidity is 110 million.

We've got 120 million on the revolver right now with 125 million at the end of the quarter.

And share repurchases in the quarter, as we reported, we repurchased 3.6 million shares.

So those are the numbers.

Keith?

Thank you, Gary.

Sylvester, I think it's time to get involved with the Q&A.

Thank you, sir. (Caller Instructions.) We'll take our first question from Timna Tanners with UBS.

Morning, Timna.

Hey.

I wanted to just clarify when you talk about the $50 to $60 a ton decline, is that for your product mix or for the hot-rolled market in particular?

First of all.

First question.

It's pretty much across all products given the direction in pricing experience that the Structural Division--and forecasting that that's going to continue.

I don't know that it's going to fall any more.

So it's probably mostly related to flat-rolled and some SBQ.

So in each of your product categories, it could be another 50 to 60 tons versus the average in Q2, you are saying?

No.

I don't think the--the average will drop in Q3 in structurals because there was a much higher number in each month of the quarter.

April was higher than May.

May was higher than June kind of thing.

So when you average that out--so if you get to June's pricing, and keep that flat, then, obviously, you're going to experience a decline on a quarter-to-quarter basis.

Right.

That probably won't be $60, but may well be $40 or--I haven't looked at it specifically.

There will be that same effect in SBQ, if not even greater, and probably all products in flat-rolled quarter-over-quarter will probably show close to a $50 decline.

Teresa, you have something you--go ahead.

Actually, in flat-rolled I think we're projecting about a $60 decrease in quarter-over-quarter.

And Timna, you are right.

In structural it will be closer to maybe a $30 decrease.

And then, at bar products, it's going to be around that $60 range again.

That's where Keith gave a 50 to 60 overall in the Steel Division.

Okay.

That really helps.

Thanks.

So the other two questions I have just is if you could clarify a little bit on the demand side where you are seeing the pickup would be really helpful.

And then, finally, on uses of cash.

It looks like working capital liquidation might be kind of interesting going forward.

If you could talk about any potential projects or uses of cash.

Let me address the latter first.

I think Gary had a comment or two about our balance sheet.

The accounts receivable was down a little bit.

And inventories were up.

I think as we generate--I think still a decent level of earnings and cash flow in Q3, there is a potential for a fairly sizeable increase in our liquidity, our cash position, because I think our inventories by the time you get to the end of the quarter--scrap, specifically, will come down somewhat, so I think that could be a cash generator.

As to where our--where's the strength at right now?

Mostly in anything downstream of hot-rolled.

In fact, pickled dull [ph] has been a hot product port just recently.

Galvanized, as you heard John Nolan talk about, is out to nearly September.

Painted is starting to pick up--order entry in painted.

So value-added products in flat-rolled have good momentum.

I would tell you right now, hot-rolled has just been sort of sideways, if you will.

Haven't seen the tremendous momentum surge yet in hot-rolled.

But we earn more money on the margin with the value-added products.

So the caster doesn't care whether it's making hot-rolled or painted.

It's indifferent.

And obviously, in Structural, there's going to be some go-forward in exchange, but it's mostly going to be wide flange.

As I said earlier in the conference call, in SBQ, we've commissioned a whole new range of products down there down to 1-inch.

So I think as the market now understands our capability in 1-inch, 1.5-inch, 2-inch, 2.5, where we really didn't have a presence, that's--I think that's going to bode well for us.

Okay.

And then, if you could go through I believe you were talking on the demand side.

Did you address the uses of cash for potential projects question?

We have no major projects in tow at the moment.

And I think probably the $100 million number that Gary was talking about is probably pretty heavy.

I think we have said we're studying - I think that's the key word - sizeable expansion at Columbia City in unrelated products, not wide flange, but unrelated products.

And we'll have more to report on that later.

But that could result in potentially a 500 to 600,000-ton expansion of mill activity at Columbia City, which could lead to further cost compression as you look at fixed costs.

We have nothing to report on SBQ.

We're still going to finish commissioning all the different grades and sizes and continue to strengthen that already great management team before we launch another foray into SBQ, but I suspect we will.

But there's no--there are no big spending on the horizon in SBQ.

And the study at the structural mill, any spending activity on that wouldn't be realized until next year.

So, I think there's just--there are really no major projects.

So most of the earnings are going to be spent in reducing outstanding debt, most of which is our revolver.

I think there will be an opportunity in '06 to look at the bond picture, if you will.

If forget when that date materializes.

Teresa, can you help me with that?

Middle of March.

Of next year?

Yes.

There may be an opportunity to reduce our debt posture next year in the high yield arena unless we come up with a specific need for funds.

But I think, as I said earlier, we're not contemplating a next phase term buyback at this point in time.

It doesn't mean we won't.

But it just, right now, there is nothing in the hopper there.

Great.

Thanks very much.

We'll take our next question from Charles Bradford with Bradford Research.

Good morning.

Hi, Chuck.

Hey, could you talk a bit about Iron Dynamics?

Yes.

Iron Dynamics had an outage in the second quarter.

Lost a little bit of money because of that outage and further modifications and revamps.

Is back up and running.

As to its potential being realized, I'll let Mark really tell you a little bit more about it.

I think it will generate earnings again in the remainder of the year.

At least, it will generate cash flow.

But we'll let Mark make that call here.

Well, Chuck, obviously, it's a pretty tough economic client for Iron Dynamics given iron ore coal has reached some pretty horrendously high levels, along with natural gas.

But nonetheless, it soldiers on.

We're running at around about a 20,000-ton a month pace currently.

Obviously, we need to grow that to its anticipated 30,000-ton a month.

But we have seen some improvement in process and equipment availability, which is the primary reason that we can't get to that 30,000 tons.

It's just a matter of when it runs, it runs at its nominated rate, but we need to get it up to sort of a 90 percent availability.

We actually have seen just this past month some significant reductions in natural gas consumption, which is quite promising.

But, no, we soldier on.

For the year it should be cash positive as long as we can continue to show improvement productivity-wise.

Okay.

Can you talk a bit more about what you are seeing in scrap, because the number you used for the reduction in the scrap cost in the third quarter is contrary to what we're seeing in the market.

Is it time lag that makes a difference or is it just average pricing during the second quarter, so here we are now in the third that accounts for the differences?

Oh, it's time lags, Chuck.

Clearly, we've had a strong buying program clear back to the beginning of the year.

And so, as scrap continued to fall and over the cycle here we've bought a lot of scrap.

And obviously, on a [indiscernible] basis, couldn't get last week's purchases into the furnace fast enough so to speak.

So, yes, we're seeing the effects of the, if you will, the May--April, May, June buys will impact very positively for us the results in the third quarter with maybe even some carry into the fourth.

I did comment on the fact that there was a little scrap momentum in July and I think it had to do with the flow, it had to do with the dissatisfaction on the part of the processor with the level of pricing, although I would tell you it could get worse.

We're not forecasting that, but it's possible.

These folks have an awful lot of inventory.

Instead of selling into that market, given the flows were down, I think most of them probably put some inventory down, which from their perspective I'm sure was a good business move.

But I don't know if there's any place to unload.

Turnkey [ph] is not active in the market right now.

I don't think there is any foreign activity of any substance and I would still tell you that most major buyers, such as ourselves and Nucor, I know I have a lot of scrap.

And so there's no reason to go out there and buy well beyond your melting capability.

I'm sure we're going to stay in the market each month for a few tons.

But I think the--it would have shocked me, I guess, if scrap would have went down in July.

It's never happened.

It's the same old, same old there that the flows are down and that message--they like to carry that message into August.

How successful they're going to be is unknown.

I think scrap has a very reasonable potential to go sideways now in August.

But it could be--just as well be down or up a few bucks.

It's just nobody knows.

But I think the dealers, from our perspective, have a lot of scrap.

And we have a lot of scrap.

And that doesn't exactly make for a real exciting market in terms of price increases.

Thank you.

We'll take our next question from Michelle Applebaum with Applebaum Research.

Hi.

Can you hear me?

Yes, we can.

Good morning.

Okay.

I'm never sure if my mute is working.

A couple of things.

First, I just wanted to register my opinion on not getting guidance this quarter.

I think that's very smart.

And I don't--I presume that's a minority view.

But I think your business is far too volatile and I don't know how you've been able to do it as well as you've done it thus far.

So with moving targets on raw materials and moving targets on product prices on a monthly basis, it's amazing that the mini-mills give guidance.

So, anyway--.

--Michelle, we, as you know, probably always attempted to be a little too precise and probably should have been more conservative.

It's certainly not that we're bad forecasters.

I think we could--given the tools, we could forecast as well as anyone.

And as this quarter shapes up, as I said, we'll have something more to say about it.

Well, and Keith, I've said this before, if you were more conservative there wouldn't be a Steel Dynamics.

So I think that you take the good with the bad, right?

Moving on to my question.

Looking at the quarter, the one thing--a couple of things that I was wondering about on the earnings modeling.

Gary said prices were 590 and the press release said 608.

Was that just a glitch?

No.

He was talking about steel operations not mixing in New Millennium and Paragon and others.

Got it.

All right.

So then, that was right.

And then, the other question was--and this may be mix-related.

Your conversion cost ended December at 255 a ton, jumped to 270 in March, and we're 281 in June.

That's the highest conversion cost the Company has ever had.

Is that mix or lower production, as you made reference to, or both?

I would tell you it's mostly mix is what it is.

Okay.

All right.

So, if we're looking on a go-forward basis, I'm guessing with your backlog better, the missing 35,000 tons of flat-rolled will reappear in the next quarter.

Will that have a depressing factor on the conversion cost?

Butler's costs are up a little because natural gas--we're out of any forwards on natural gas.

So, their cost of energy is probably--given the heat we're experiencing in the summer, I know electric costs are up at Structural Division in the summer as well as we've been curtailed a little bit and had to buy-through at Butler.

So, energy is a little bit of a factor.

Volume certainly impacted our cost structure.

There's no doubt about that when you miss 35,000 tons.

So should the momentum continue and we have a decent quarter from the--in the perspective of not so much price, but volume through the shop, I think you'll see the compression return to more normal levels save only energy.

And then, it's just--generally it's mix-related.

We ran more value-added in this quarter because hot-rolled was such a tough item for us.

The other part to that, Michelle, is that as [indiscernible] products becomes a more significant part of our mix, their cost of alloys right now are significantly higher as well.

So, that's causing an increase.

So I think for modeling purposes, if we were to be kind of sideways on the conversion cost with richer product mix being offset perhaps by--and I'm making these assumptions--more tonnage in the flat-rolled side, that would be a conservative scenario just to assume flat on the conversion?

Yes, that probably makes sense.

Okay.

And as the quarter progresses, if we see that volume is not coming back--because we've had these reversals of fortune before--then conversion costs could be a little bit higher.

Well, it could be.

And again, as we expand the product mix into more value-added product it's going to continue to move around from that.

Okay.

One related question.

You're talking about bookings in the market.

My question--.

--Michelle, I might say one thing.

Alloys [indiscernible] added impact.

They are moving down.

That's lots of fresh air there.

Yes, that's right.

In your comments about business coming back the question was asked what markets are you seeing.

And you answered it in terms of products.

I'm interested in what markets--if you have any sense.

I know so much of your business goes to somebody who ships to somebody else.

If you have any sense--and related to that, you've got AK Steel now with their labor contract up in September at Ashland.

That's half their steel making.

Do you think there is some share gain?

I know they are not huge in the stock market, but still meaningful.

We'll let John talk about end-user markets.

Hi, Michelle.

Good morning.

Hey.

Obviously, in the context of Columbia City, it's certainly non-residential construction.

And I think to a certain extent there are some people that we supply in the non-residential construction through Butler that are also responding.

For example, spot ores for certain painted products are up a little bit.

Clearly, that's contributing.

But if you talk to the distributors, and again, those that I'm particularly close to, they would suggest that demand is still fairly stable, has been all along.

Automotive is still chewing up a considerable amount of product.

If you benchmark it to those companies that are significant players in the automotive market, they would all tell you that their shipping rate averages are where they had been for most of last year, where they expect them to be this year.

In fact, actually, in some cases there are some signs that they are improving a little bit.

So it could be the impact of the new incentive programs that Chrysler, Ford, and General Motors have on the street.

I can't really speak to that.

I think it's still a little bit early.

There is some expectation that now that many of the stamping and assembly plants are back that if these programs are as successful as they have been for GM in June, that we may see the automotive market come screaming back after the vacation outage as opposed to stumbling back.

Okay.

So, you're saying that the strength so far this year in flat-rolled is more--is not that end-users are buying more steel, it's that distributors are indicating maybe that they're done under destocking.

That's correct.

That's what we're saying.

Again, if you pick up on my remark earlier, it may be coincidental.

But we're seeing a rather significant decline in import licenses and it occurs at a time when we see a rather significant uptick in our flat-rolled new order entry.

And I believe--.

--Okay.

So [indiscernible] market share--.

--I believe there is an association there.

Okay, so--.

--I think that from a supply perspective, domestic and import has exceeded the level of demand that's been acquired in inventory.

In fact, one of the comments that one large buyer made to me just last Friday was, "Hey, I'm still sitting on a huge slug of high-priced inventory."

So that inventory value issue is still out in the market, but I think there are some signs that supply is moving back to be more consistent with demand in the equation.

And I sense an improvement.

Again, it's an intuitive thing.

I wish I could provide more factual and tangible aspects of that intuition, but I can't.

Okay.

So replacement of imports--so it's domestic market share gains, which has been quite apparent for a few months now.

And then--which is still on the come because you are looking at licenses which are predictive as opposed to historical.

Then, it's also you think some inventory--completion of inventory stocking.

But if the end-user automotive has not yet ticked up, that's on the come.

You're optimistic.

And we just heard Steel Tech also--had their call an hour ago and they said the same thing.

They haven't seen it yet, but they are also hopeful that it's going to come.

Yes, it's stirring.

As I say, the patient appears to be awakening from its coma.

Well, let's keep our fingers crossed.

Thanks for the rundown.

Michelle, I really have no comment on the AK situation.

I just don't have enough knowledge.

We'll take our next question from Brett Levy with Jeffries and Company.

Hey, guys.

Two questions.

First off, on Columbia City, you guys are still undergoing the study.

Last I heard it was somewhere around half a million or more tons of merchant bar.

Can you talk a little bit more about what you're thinking on that front?

And then, also, you guys have talked in past conference calls about a California project.

Obviously, California Steel has attempted to preclude others efforts to move out there by moving their reheat furnace project forward and adding another million tons out there to an already rather full market.

Any further thoughts regarding the West Coast if you look a little further out?

So, I guess two parts to the question.

First, a little bit more detail on Columbia City, and secondly, a little bit more about the West Coast.

Well, I don't know that we have firmed up where we're going to be from a product offering perspective.

So I think it's probably dangerous to comment on, but, Dick, if you'd like to--.

Well, I think the real key is that we look to expand significantly, as you heard Gary talk about our shipments.

We had all of three tons of--3,000 tons of shipments of rail.

And we expect to grow that ultimately to a quarter million tons.

And so, therefore, what the real--the new mill number one purposely does is create the opportunity to provide the time on the existing rolling mill to roll rail and rail products.

And so, therefore, the new facility is designed to product the products that would be taken off the existing mill--the slower roller, the smaller sections that are lightweight and not necessarily appropriately produced on such a large mill.

So of that half a million or a little bit more tonnage, more than half of it is replacement of the capacity that exists to make time for the rail.

And then, other bar products and other sections, long sections, are being looked at and we're trying to build in the flexibility to make sure that we recognize the existing markets and we don't overpower them with supply.

So when do you think you'll complete the study?

In the next month or so, and then, we would address it to the Board.

So probably you'll talk about it on the next conference call?

I would think that's a subject to be discussed then.

Yes.

Yes.

We could certainly tell you if it's been nixed, delayed, or moving forward.

And then, can you talk about sort of longer-term thoughts about the West Coast?

Well, it's not a scrap-rich region of the world.

We've said that over and over.

There's--I don't want to say abundant.

There's certainly a decent supply of obsolete that gets--some of which gets exported.

But it's not very rich from a premium grade perspective.

And I think if you're going to do a flat-rolled effort out there you obviously would have to get your arms around bundles and busheling [ph] that don't exist.

So we've always said that Masabi Nugget technology could be a key factor in a launch out there.

And the ore doesn't have to come from Minnesota.

It can come from Canada for that matter out there and the coal can, too.

But you have to have a process that we have confidence in.

So we are really a long way away, given the delays, from talking about another flat-rolled effort at this point in time on the West Coast.

It could be two years away.

So I think we probably just shouldn't talk about it right now.

There is nothing really to talk about.

All right.

And then, any thoughts about CapEx for 2006 at this point or are we getting too far ahead of ourselves?

Well, I think--I don't see any significant projects other than Dick's, which could be a decent amount of money.

I mean, it could be in the $150 to $200 million range.

So that would be the biggest capital spending project I think we're going to be looking at other than the reemergence of Masabi Nugget, which depending on what our ownership percentage is could be $30 or $40 million.

So you could envision a year that's in the $200 to $225 to $230 million range potentially, but it's probably not any larger than that.

All right.

Thanks very much, guys.

You're welcome.

We'll take our next question from Chris Olin with Long Bow Research.

Good afternoon.

Three questions.

First, where do you get the dollar from?

I mean, my math says 98 cents.

Am I missing something?

Yes.

This is Teresa.

You actually have to on a diluted basis add back the interest expense associated with our convertible notes because you have to act as if those notes were converted already.

So that's where if you do that you'll actually get to a dollar.

Okay, thanks.

Second, just on the flat-rolled market, does it really make sense that imports are not going to enter the U.S. market in the second half of the year?

I'm just--China looks like it's long capacity.

Europe is a mess.

The dollar is working against you.

Shipping costs are coming down.

I mean, doesn't it all suggest that the U.S. market is more attractive to a foreign mill?

Nobody said they weren't going to enter.

We only addressed May, June, and potentially, July.

So, I don't know if our crystal ball is big enough to look out into August and September.

And no one has said they are not going to enter.

I would tell you that Europe is still fairly disadvantaged given the exchange rate and their cost structure, even though their marketplace is fairly weak.

The Russians the other day dropped their appeal of the Sunset Reviews, which would tell you they have 500,000 tons left to ship and that's it.

That's not a huge amount.

I don't think the Japanese are, given their cost structure, a major threat to our market.

Historically, the Koreans haven't been here, which leaves you with other players such as surges from potentially Turkey or India or China.

And I think we all know that the Chinese are attempting to curtail any major export activity.

How successful they will be, we'll wait and see.

But we've said they're going to dry up.

Nothing to add, Chris, unless if you can figure it out let me know, will you?

Okay.

Just finally, too, you were saying that it looked like hot-rolled was holding around $400 a ton.

I get the sense from some of my contacts it would have dropped below that.

You're not seeing any prices below that as of yet?

I can't confirm to you that there are prices in the market below that.

There are maybe some people out there playing some games with extras, but typically, we're seeing $400 a ton as pretty much the practical floor.

And we anticipate it's going to move up consistent with the improvements in scrap pricing.

The--I think it ought to be noted that that's the big guy that swings an awfully big sledgehammer that could get $400.

Smaller buyers are not going to realize that kind of a number, at least not from us, in the near-term.

And so, but I, like John, I could tell you one of the biggest hot-rolled buyers in the entire country told me the other day the best he's been able to buy it is $400.

Interesting.

Thanks.

We'll take our next question from Mark Parr with Key Bank Capital Markets.

Good afternoon.

Hi, Mark.

Morning for you guys.

Just curious on the SBQ market.

Keith, you had mentioned that market was weak in the second quarter.

Could you give us some more color on that?

Well, the spot side was weak.

I'm not saying anybody is canceling their contracts with [indiscernible] or Republic or others.

And I still think that market is probably--when it warms up is an underserved market.

But we're a spot player, as you know, until we get to this contract season, which these guys are anxious to negotiate now as they maybe see resource costs heading the other way a little.

I don't know that they're accurate.

But we're going to be a player in the contract world next year.

Right now, we are mostly spot and therefore, like other entities in the service center arena or cold finish arena, these guys had a lot of inventory.

And there wasn't a lot of spot buying activity, which probably would affect us more than other SBQ players.

I think we'll dial-in to--I don't know, maybe half of our business may be contract next year and I think that's really good news, with maybe only a 50 percent dependency on the spot market.

It's--I don't know that it will be larger.

I don't anticipate it being a lot smaller.

But to color it in, we're mostly spot and they were oversupplied.

Okay.

All right.

So there's a--so you're seeing a little bit of an inventory bulge at the service center level for SBQ materials.

Would that be fair to say?

Yes.

I talked to a couple of cold [indiscernible] recently and they had a lot of [indiscernible] on their floor yet, so they weren't buying.

Although as we said earlier in the call, we don't have the backlog in hand yet, but the inquiries Glen tells me are substantially higher than where they were.

We'll have to turn that into a purchase order.

One other question I'd just like to ask.

I mean, we've talked or had a lot of conversation about the hot-rolled market and how it's still pretty well stuck in this 20-cent doldrums at leas for the large buyer.

And there's still five or six blast furnaces that are offline in the U.S.

You had indicated that you didn't operate at full capacity at Butler Works in June.

I would imagine there are other flat-rolled mini-mills that did not operate at full capacity in the second quarter either.

I mean, are--it's--I can certainly understand how you'd be more upbeat given the improvement in the backlog on the high value-added products.

But how do you reconcile an optimistic outlook for the third quarter in light of all the excess domestic capacity that's laying in the weeds?

Well, I don't know how optimistic we were.

We said we don't expect to be any worse.

I would tell you I thought Q2 was--in light of the--I think our performance was good in light of the volatility.

But we may not see it be quite so volatile, but you may not see a lot of pricing momentum.

Therefore, without pricing momentum the performance is going to grow substantially.

So I don't know that that's terribly optimistic.

You know, the guy said if we can perform this well at the bottom of a cycle we ought to see some really terrific numbers well beyond where we were in '04 at the top of the cycle.

When we get to the top of that cycle, I don't know.

But I think from an inventory position perspective, Mark, a little momentum goes a long way.

It's no different than it is for us in scrap.

We went from not much of a scrap inventory a year or so ago to well overstocked.

And I would dare tell you that I think that's what happens to the service centers.

And I think they've pushed it and pushed it.

You know, these guys are looking for the best buy they can get their arms around and they're willing to destock right up to the danger point, then they buy, and you get a lot of momentum and then all hell breaks loose again.

And it doesn't take a change on the margin of great significance to start to turn the momentum, but we'll just see what the numbers say.

I think you're going to see a further decline in June, or a decline.

And gosh only knows what we're going to see in July.

But I think their position will have a lot to do with any potential pricing momentum.

We didn't really bake any in in Q3.

Okay.

All right.

Terrific.

Well, thanks for all the comments.

We'll take our next question from Wayne Atwill with Morgan Stanley.

Thanks.

You've given us a lot of guidance.

Can you give us some volume guidance for the third quarter?

I think it's going to be up slightly, Wayne, in the--at least with regard to steel operations, certainly, New Millennium will because of Lake City.

But I think the steel operations will be up 20 to 25,000 tons potentially.

Some of that having to do mostly with growth we think at structural, fairly flat quarter at Butler.

But if we can keep it full, we might even realize a little more than that.

If it falls apart, we'll realize a little less.

But it's not too far off of where we were. 20,000 tons greater maybe.

And Columbia City, if you do decide to go ahead with that, what would the timing likely be for that?

I would guess you wouldn't get start--well, we'll let Dick answer it to the spring, but he may have a different view.

Well, we basically have already applied for our air permit and have gone through the public comment period and so forth and it stands to be issued here just about any day.

And so that has been the biggest dark cloud over us in the past history at Columbia City.

So with that behind us, we intend to put a project in front of the board that I think could be executed in 18 months to completion.

Eighteen to 20 months after approval by the Board.

So you might break spring--might break ground in the spring.

And total cost would be where do you think?

Between 150--.

--It sounds like you're going to break it in the winter.

Well, I intend to, but I have to get approval first.

But we're not spending the time on it because we don't believe in it.

But I believe it will move promptly and could be in this fall yet.

And the cap cost would be what?

As we said, depending upon the flexibility that we build into it and the product range, it could be between 150 and 200 million and that's what's taking so much time is to really figure out what we want to do.

I mean, we're trying to look at what New Millennium consumes and where they're going to be consuming that and a whole lot of other factors.

And so, it has that wide range right now, but we're narrowing it down on a daily basis.

Great, thank you.

We'll take our next question from Aldo Montefarrow with Goldman Sachs.

Hi.

Good afternoon.

Hi, Aldo.

Question for Gary.

What was the reason for the big pay down in accounts payable in the quarter?

A third of it was taxes that had been accrued and the rest was really just timing.

There was no other momentous event.

Gary, did you say that you had actually purchased additional scrap though and that was the reason for the inventories up?

Yes, we did.

Our scrap inventories are up.

Okay.

So another question on the scrap, Gary, do you have any way of quantifying what it--what the impact may have been if you guys were on LIFO versus FIFO?

We haven't looked at that.

We actually talked about it, but we just haven't--we haven't done the calculation.

If I were to guess that the trailing price, the three-month average price trailing three months old, would be a guess for FIFO and a trailing three-month price that is trailing one-month old would be a guess for LIFO, that difference was about $50 a ton.

Is that ballpark possible?

I don't you realized all that, Wayne, but given the fact that we're down on a linked quarter basis almost $50 in the second quarter and down $50--I mean, Aldo.

I apologize.

That's all right.

Down $50 projected in the third quarter, we wouldn't see all of that.

But I would guess had we not had as big a stockpile, been closer to the vest, but able to marshal in more of the Q2 buys, if you will, into Q2, it could have been $25.

I mean, it's just a wild guess.

Like Gary said, we haven't studied it.

Wouldn't have been $50.

Okay.

In terms of booking on--the bookings going up at Butler, would it be fair to say that a lot of that was booked at the 20-cent, 22-cent range?

Well, just that a lot of it was hot-rolled.

That would be tough to say.

It was mostly value-added.

Hot-rolled was north of 20 cents.

On a mix average basis.

Right.

And then, the final question, Keith, on the strategy with your stock repurchase now, is it--I kind of hear you saying that you've accomplished what you think is a nice chunk of buyback and now you are going to focus on the balance sheet for a while.

Would that be a fair statement?

Yes, I think it's probably a fair statement.

Okay.

That's it for me.

Thanks.

We'll take our next question from Tony Risudo with Bear Stearns.

Thanks very much.

I've got a couple of questions here.

First of all, with regard to a potential structural expansion, what kind of disruption would you guys expect to see at your existing operations or any kind of P and L costs that might be associated with something like that?

It would be minimal because this expansion is truly standaloneish.

It would be built just to the north of the existing rolling mill.

And in the design that we have, it's not--the only issue would be at the caster--that we originally installed the caster to be a three-strand caster with a single containment zone, but it has the ability to be expanded and that's what the plan is--to expand it to four strands with a second containment.

So the containment isn't really much of an issue.

It's really only adding the fourth strand.

And as we always have, we've tried to work around many outages and have basically a zero impact.

So we have a one-week outage planned--or a six-day outage planned in October, which annually we do.

And we have another four-day in the spring and we would attempt to work around those to get the groundwork laid.

I think what that translates into is that there is no impact until the time you start up.

And when you start up, there will be no impact on mill one, if you will, but there will be startup losses to be considered for a couple of months in mill two.

After that, I think there is a positive impact.

Until you guys get to obviously a certain level of capacity utilization.

The other question I would have guys is kind of from a 30,000-foot view, have you ever seen the level of discipline that we're seeing in the marketplace today and obviously with the integrateds and even the mini-mills contributing the [indiscernible] supply.

Just your thoughts on that and what is driving that today?

I haven't seen it and I've been around the industry for 20 years and I haven't seen this kind of discipline.

And it's to be applauded.

There still exists the knee-jerk reaction to events that cause people to go places that we all wish we didn't have to go.

But historically, there wasn't--there just wasn't any discipline.

It was--as I said earlier, the desperate acts of dying men.

And you'd always find those dying men out on the street trying to sell that last 100,000 tons that's going to save their company.

I don't think it's viewed through the same set of viewfinders and I think everybody is, to some degree, giving that pint of blood.

And there has been a better discipline.

It's affected all of us.

And that's a real positive.

Thanks very much, Keith.

Appreciate it.

Nothing to add, Keith.

We'll take our next question from George Nissan with Merrill Lynch.

Yes, guys.

I have a couple of questions.

Obviously, costs have been a big problem in your industry.

And scrap metal costs are what they are and honestly it's hard to gauge demand of your products right now.

How are you guys looking to reduce costs in other areas of the business?

What are you guys looking to do?

Well, our conversion costs are really pretty good and when we're at volume, if you will.

And we haven't been able to operate at volume as of recent, if you will.

We just haven't been stretched.

But I think our conversion cost structure is as good as it has ever been with things that we can control.

We can't control the price of natural gas.

And we can't control necessarily the price of our resource costs.

So given the things we can control, we've been getting better and better and better.

For those things that we can't, we're subject to, if you will.

What systems in place do you have to look at raw materials?

I mean, what are you guys doing?

I mean--.

--Well, we certainly aren't going to get caught short.

And I think I've said more than once, the industry in general I think got caught short of metallics and got whipsawed by the processing community last year.

We're not in that position right now.

And so we've taken a different position relative to inventories and, if you will, hedging than we have in the past.

And I think that discipline has paid off for us and for others in the industry as resource costs have wrapped up rather dramatically.

What's been your feel on freight costs?

Are you experiencing some tension in that area as well?

Which kind of cost, George?

Freight.

What are you guys looking to do regarding freight?

Well, freight has--availability has probably been a bigger problem than the cost.

Clearly, costs have been going up as well.

But a lot of that's energy related again.

And what would you say your top initiatives are for the remainder of the year?

I mean, we're in a very uneasy market right now.

How do you plan to keep the momentum going, keep costs down, and get your stock price up?

Well, our stock price in my opinion is--even if you had a lousy year--is a $4 year, which I think we've demonstrated time and time again - and I think you'll see it this quarter - that our operating profit per ton and our EBITDA margins are as good as anybody's.

And I don't know that we get the recognition for how cost effective we are and the kind of return we've been delivering consistently to shareholders.

I think our stock price is abysmal.

But everybody else got hit as well.

And that day will come when we cycle through all of that and it will be better.

We're not bigger than the market.

We'll just keep our pencil sharp, stay focused, be the low cost producer, as we've always been, and deliver performance to our shareholders.

And we'll let our shareholders worry about how we get rewarded.

How are you taking into account the uncertainty in the market right now?

Well, there's been this uncertainty--as John said earlier, this market has been in a coma for nine months.

And so, you're having to deal with a lot of volatility.

It is tough to plan for it.

But in terms of execution, I think our equipment is just absolutely in great shape.

There are no major problems at any of our mills.

We're still in a growth mode.

We still can expand our earnings based on realizing more volume at these facilities when there is good order entry available to us.

Again, we're trying to grow into new fields of products and expand our horizons in that regard.

But other than that, we can't exercise.

Are you guys making sure you get the best use out of your capital equipment?

You were talking about equipment.

How are you guys making sure you get the best use out of it?

We always strive to make sure that our uptime is as good as there is in the industry and that's the key.

As you heard Mark say earlier, availability of the equipment and uptime [indiscernible].

There's times when you're just not going to be running because you don't have a book.

But right now, I would tell you we are capable of running record volumes at Butler and at Columbia City and at our new SBQ plant.

The learning curve is not that far that I think the transition from 100,000 tons to 150,000 tons a month down there would be an easy one to make.

We are ready to go, George.

Okay.

Thank you very much.

And there appears to be no further questions.

At this time, I'd like to turn the call back over to our speakers.

Thank you, Sylvester.

Again, to all of those that are listening, thank you for joining us today.

As I said, I think we want to view this thing as a fairly good performance in the bottom side of a cyclical business.

And I think we have--our best days are yet ahead of us and thank you for being interested in our company and investing in it and following it.

And this does conclude today's conference call.

At this time you may disconnect.