Steel Dynamics Inc (STLD) 2005 Q4 法說會逐字稿

[OPERATOR INSTRUCTIONS]

Good day everyone and welcome to today's Steel Dynamics' fourth 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, Ms. Theresa Wagler Chief Accounting Officer and Corporate Controller, and Mr. Fred Warner Manager of Investor Relations.

For opening remarks I will now turn this call over to Mr. Fred Warner.

Please go ahead, sir.

Good morning welcome to this January 24, 2006 conference call covering fourth quarter 2005 and annual results for Steel Dynamics, Inc..

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 10K as filed with the Securities and Exchange Commission.

Specifically please refer to those sections in our 10K report entitled forward-looking statements and risk factors.

This 10K 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.Steel Dynamics.com.

After todays management discussion, we will open the call for questions, we ask you to keep your questions brief.

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

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

Thank you, Fred.

Good morning ladies and gentlemen, and thank you for joining SDI on it's fourth quarter conference call which covers both the fourth quarter and the yearly results.

I think you can see from your press release we had a pretty good quarter as quarters goes in a-- what I would consider a more normalized environment than we operated in in the year 2004. 2004 was one of those-- one of those years that only come along every so often, and was quite a ride up the hill and down the hill in '04.

As I commented on in-- in '05, the-- the year started off with-- I think fairly weak results in terms of market activity and demand for the products and prices fell sharply, falling from the highs of nearly $700 down into the low 4's early in the year, only to recover to today's level later during the year.

And activity has been fairly good.

I think inventories are fairly well managed by our clients.

I don't think there are excess inventories out there.

In fact, I would characterize them as well managed and liked, and really don't see that changing.

Buying patterns are-- are fairly steady.

As it relates specifically to the fourth quarter, we earned, as you know $1.31, exceeding our upside earnings estimate that we provided everyone in mid-December.

So the quarter was a fairly significant quarter for us. $65 million worth of net income.

We-- we expect that-- that the first quarter's operating results will be in line with this quarter.

Not substantially changed.

I think the wording he used was up slightly, and I-- I would say that-- there is a possibility that prices on a link quarter basis would be up as-- in-- in the 5 to $10 range, and the-- and that shipping volume could rise 5 to probably stretching it at 10% in the first quarter of '06.

For the year, we ended up with a year of $4.35 a share.

I think much better than some people had thought that the industry and specifically Steel Dynamics could achieve in '05.

We think conditions right now are stable out there in the marketplace, certainly subject to change, but the-- but the backlogs right now are-- are excellent as we speak today.

I-- I think the structure is sold out for the quarter, the flat roll division is sold out for the quarter, and the bar products division has sales activity and order entry activity, that would take it through mid-March.

I might mention that in bar products, market penetration into the contract universe, if you will, is proceeding very, very well.

Our SBQ division in Pittsboro has made great headway out of the spark market business being less reliant on spark market activity and into the contract world.

That transition has went fairly smoothly and will give us a fairly stable anchor of business, as we proceed forward from month to month to month.

In the press release we noted that the company had earned $109 per ton shipped, but operating margin of 18%, I might tell you that the operating margin specifically for the fourth quarter was about $124 a ton.

So the margins are healthy.

And I think will remain healthy.

There-- there-- there is some skepticism that we may see import activity increase.

I don't think we'll see anything substantial-- if it were to increase, we'll not see anything substantial until the second quarter.

That could impact selling values to some degree, given where world market prices are in relation to domestic prices, but I think the impact would be-- would be only-- only slight to moderate, and-- or those of us that produce steel electrically generally speaking, our resource cost kind of trend with selling values, that's the one thing I think the-- the-- the folks that follow this industry now are beginning to understand that the margins aren't always dramatically impacted as we cycle through some ups and downs, given the fact that resource costs generally tend to follow.

Speaking of resource costs, I think we predicted that-- that scrap costs would be up 40 to $45.

You can see from the press release that our scrap cost were up $41.

I think fairly-- fairly tight prediction there.

I think we predicted selling values would be up as much as $70, and they are actually up $79, leading to the increased results that -- that you do see.

I think pricing and-- in the structural universe is rather stable and predicted to remain that way, barring in avalanche of imports and we really don't see that at this point in time.

I think as you all know things change rather rapidly in this business or this industry.

We don't see any substantial threats in the SBQ universe, and right now there are some signs of some lower quoted import activity.

I wouldn't characterize it as dramatically lower, and somewhat limited.

And we have all discussed, gee, what's going to happen with China's excess capacity.

I think we've all been discussing that on conference calls now for 2 or 3 years.

Fearing the worst and the avalanche hasn't arrived.

That doesn't mean it won't.

But at this point in time-- at this moment in time, China has not been a-- a problem for domestic producers, perhaps having some impact in the world market, which may spill over to the United States to some degree.

But right now, fairly constrained activity when you look at their actual level of capability.

So capital expenditures in-- in 2005 were a lot lower than we had contemplated given there were several-- several projects that were delayed.

These and other contemplated growth opportunities as I said will likely increase our capital expenditures fairly significantly in 2006, as we start to sow the seeds for growth again in the future.

The flat roll division continued to do just excellent.

Did very well.

Each quarter adding to their value-added capabilities and enjoying the mon-- the margins that come with those markets.

As I said, structured vision did real well in the quarter, and I believe will have a great-- a great first quarter of '06 as well.

Bar products will probably see-- we'll probably see the biggest change next year, I think percentage wise in bar products.

Our new finishing facility in Pittsboro is ahead of schedule and on budget, and will likely begin operations if not late the first quarter, early the second quarter.

We should see some benefit from your value-added capabilities in Q2, there won't be any enhanced margins certainly in Q1.

Given the time of the year, back logs for new millennium remain very, very healthy.

Healthier than they have been in a long time, which would suggest that there's continued positive activity in the non-residential construction marketplace, and I think a structural backlog would verify that as well.

So business conditions right now are-- are fairly stable throughout SDI.

The mills are-- are running very, very well, and probably will set-- we'll set record paces earlier in the year barring, any significant falloff in market activity.

I think our shipping volume could-- as I said-- could be up from the 920,000 ton level to perhaps almost a million tons in Q1.

At this this point in time unless there's some production glitches that-- that are unforeseen.

As-- as we look forward throughout the year, like I said our-- our view finder doesn't go beyond the first quarter to any great degree, but see no reason for demand to slip.

I think demand is going remain fairly healthy throughout the year.

I think the-- the question would be what level of importation are we going to see in Q2, Q3, and Q4 the remainder of the year.

Those questions are really yet to be answered.

As it would regard our acquisition of roll up electric steel, I might update you there.

We have field the S 4 registration on the 18th of January and would expect an SEC response in the appropriate period of time.

We have received heart [Scott Rodeno] clearance on that transaction so if everything goes well we hopefully we'll close the Roanoke acquisition in the first quarter of '06.

I think that for the most part probably concludes my remarks until we get to the Q&A piece of this.

And then I'll turn it over to Mark Millett right now for an update on activity at our Butler flat roll facility, which I think he's got very positive news to report.

Thanks, Keith.

And good morning everyone.

As you saw we had a great year in 2005.

Shipments were right around 2.4 million tons on production that was right at 2.5 million tons, even with the soft market that we saw in Q2, Q3, which kind of slowed us down a little bit.

We're seeing enhanced margins, like H galvanized coming out of Jacksonville along with painted products is improving our product mix dramatically.

And we hope to expand on that this-- this coming year.

As- as the market is picking up in the fourth quarter, we certainly saw record levels of production, and that will continue, I think, in-- in the first quarter here.

Half the products thats only bearing fruit on a product- basis, and if the press release suggests we are spending some incremental CapEx on the [inaudible] to take our operating rate up to 2.8, 2.9, maybe 3 million tons in those '07, '08 time period.

[Ibenax] saw some improve throughout the year.

We still struggled a little bit, there but it shipped a little over 200,000 tons of HBI and liquid big iron.

And that product is being well received in the metal shop.

We were [inaudible] at a cash-break even basis, despite the inflated raw material costs of iron ore coal and operating natural gas during the winter months.

It is again anticipated to spend some -- some more incremental CapEx this year on the [inaudible] off gas system to bring up the productivity there, for the year.

So hopefully we can get up to that 2-- maybe 230, 240,000 tons for '06.

Mesabi Nugget we continue to finalize the partnership there.

Subject to-- to acceptable, sort of financing structure.

We have the buy-in of ourselves close prometrics, and we are awaiting co-by's acceptance of the structure here in the next, hopefully 10 to 12 days.

Our investment would be currently $30 million in that-- in that project for a 30, 35% ownership eventually.

That's essentially Butler.

So things are going very, very well.

Thank you, Mike.

Dick.

Thank, Keith.

Good morning, as Keith mentioned we ended 2005 in a very strong position regarding sales production and shipping.

December was actually a record month for production both the melting casting and the rolling mill departments.

We entered 2006 likewise as strong, as we are positioned actually to break our rolling mill production record again in January.

While still taking 1.5 days for rail trials.

On the subject of rail we produced rail sections that were rolled from blooms produced with our new caster molds.

I'm happy to say that the samples inspected were free from the defects that have plagued us for the last two years.

In the first quarter we will continue to refine our casting techniques and improve our rolling efficiencies, and when your quality is verified we will begin the qualification process of class one railroads.

Our CapEx project involving increasing the length of our cooling bed will be completed in the first quarter and this will further increase our productivity, and reduce our yield losses on structural sections and allow us to produce long-length rail sections.

Keith?

Thanks, Dick.

Gary.

Okay.

I'll run you through some of the numbers.

Shipments for steel operation this quarter, Q4 we had hot ban shipments of 286,000 tons.

P and O 43,000 tons.

Cold roll 25,000 tons.

Hot roll galv, we had 102,000 tons.

Cold-roll galv, 117, painted 50 giving total flat roll shipments of 623.

We had structural and rail shipments of 198.4, 198,00 tons.

And we had bar shipments this quarter of 93,000 tons.

So total shipments for steel operations this quarter were 915,000 tons.

With regard to average selling prices our average selling price for steel operations this quarter was $596 a ton, verses the 514 in Q3, we were a $82 difference there $82 increase.

Our scrap cost difference was $43, or $41 increase over Q3 reflecting a little broader margin.

For CapEx, our actual CapEx in Q4 was 18 million leaving us at 63.4 million for the year.

Our projection for 2006 is about $98 million of CapEx, pending a number of different projects that are being-- are in the process of being approved or worked on, that number could actually change dramatically through the year, and we'll keep you apprised as our plans change.

Depreciation and amortization in Q4, 23 million for '05 putting us at 92 million.

We're expecting 2006 to come in just at 100 million.

Interest expense, Q4, $8 million giving us 35 million for 2005.

We're expecting a similar number probably closer to 34 million in 2006 depending on cash flows for the year and the timing of different investments and so on.

Taxes-- our effective tax rate was 38.5%.

In 2005 we ended up with cash taxes of 20 million in Q4, giving us 110 for the year 2005.

We expect that number to be significantly higher in 2006.

Looking at our working capital, receivables declined by $12 million, nothing of note there, I think that's just timing of collections.

Our receivables remain healthy. 75% of our receivables are under 30 days, 98% under 60 days.

So our are collections are continuing to be quite tremendous.

Inventory, we saw our scrap inventories go down by about $20 million in value, although at year end they were up 27,000 tons.

Our work in process was virtually flat over-- over last year, and our finished goods, as compared to last year, were about $14 million higher.

So all and all not very much change year-over-year looking at-- at inventories.

From a leverage standpoint our leverage remains stable at .92 times EBITDA.

Our liquidity again, very healthy.

We have got an undrawn revolver at 350 million.

We've got about 66 million in cash so we're at $416 million of liquidity at year end.

Thank you, Gary.

I might mention-- I don't think I updated you on what we would envision for resource costs in the first quarter.

But on a linked quarter basis, our-- our projection is only-- is showing that they are only going to change by-- diminuously by a dollar or two one way or another.

So on a link quarter basis, resource costs will be the same for the first quarter, we believe, as they were for the fourth quarter of '05.

Although I do believe that scrap costs will go down in-- in-- in the March buy, that quote of course will not have any impact on operating activity in the first quarter, and should they regress to a lower level of activity due to a lack of export activity and-- and some retrenching relative to import activity, et cetera, that would-- that impact would come in the second quarter, which is where, if you saw any slippage in pricing, you would expect to see that slippage.

The-- I-- I don't think scrap costs are going to change.

Obviously we're beyond the January buy.

I don't see that they are going change a whole heck of a lot in February, they might go up 10 or down 10, but I don't think there is going to be a significant change in February.

But there could be some movement potentially in-- in the March time frame, if not March, perhaps April.

So we are expecting to see resource costs regress.

Energy costs have-- have lightened up a little bit, but not a heck of a lot, and probably not forecasting any huge change on a link quarter basis in-- in-- in energy as well.

Having said that, I'll just repeat.

I think we had a really solid year in 2005, and are looking forward to another solid year in 2006.

I think we'll get off to a better start in-- in the first quarter of '06, as opposed to the first quarter of '05.

So we'll see where the year takes us after that, but I think SDI is very well positioned in the markets they serve at this point in time.

As Mark indicated his capacity is under the right conditions could be almost 3 million tons of capability effected by-- by-- by the types of products loaded on the miller, it would be mix dependent and certainly market dependent.

And as I said things are really improving at the bar products division.

Our backlogs are very healthy in fabrication, so I see no reason why we shouldn't have a fairly good year baring a total collapse in market conditions.

Stacy I think it is time to- to invite the questions.

Today's question and answer session will be conducted electronically. [OPERATOR INSTRUCTIONS] And we'll go first to Michelle Applebaum, Michelle Applebaum Research.

Good morning.

Pretty impressive performance overall and pretty straightforward call.

I wanted to ask-- is-- is John there?

John Nolan?

He's not.

He would have given a report if he was.

He's in Washington today.

That was kind of my question, then, Keith.

If you could speak as his proxy.

What-- what is your thought on recent events on trade?

The 421 suit, which I know did not directly effect the company.

And any other decisions recently?

Well I think it's clear that the Bush administration is-- is-- is not going to pursue any 421 activity of any kind, and has been-- been rather unsupportive of-- of the industry as you look back over the course of the last year or so.

But I think the matters that perhaps matter the most would come before the ITC, or the administration might have some influence, but-- but not a lot of influence.

And I think the ITCs has done a fairly good job of adjudicating injury in our domain in the last four, five, six years, and I think what is under consideration right now is relief from tariffs on the beam-- on the beam case, as they would effect others who imported into this country.

I don't think there's any decision that I'm aware of yet.

We're hopeful that the sunset review will go well and-- and those dumping margins will-- will be maintained.

Flat roll, you know, I-- not much to add other than if-- if-- if we see import activity from any nation we believe is truly dumping or selling at below their cost structure, then we're-- we-- we as an industry will-- will deal with that issue, and obviously file a case.

You are watching the trade licenses now pretty closely?

And are you seeing any activity there?

Do you think that's a good predictive measure?

Well there has been some upside activity.

I wouldn't call it an avalanche.

I was speaking with John this morning, and you know, there's some activity, but I don't think there's anything dramatic at this point in time.

I think the market, and the demand side of the equation is in good shape.

The inventories are low there have-- there have been imports reported at-- at sub 500.

Some reported at low 5s, but if they are not significant, I don't think they'll have a major impact on the marketplace.

On the same noted can you go through your view of what is happening in the global market most recently, any changes or anything interesting out there?

Michelle I'll be honest with you, I really haven't followed it extensively.

I was talking to our European director and he indicated the conditions were improving in Europe.

Obviously China continues to be a problem, in that new capacity continues to what exceed what we all would have said was rather healthy demand a few years ago, and how effective is their government going to be on constraining imports, consolidating the industry, getting rid of unequated capacity , those are all issues that are somewhat up-- up in the air at this point in time.

Great.

Thanks.

And we'll go next to Brett Levy from Jefferies & Company.

Hey, guys strong quarter.

Hey, Bret.

Can you give a little by-product about your backlogs.

I know you said they are good.

But I- my sense is that the chief products are well into March right now.

Can you kind of go product by product and give a sense as to where you are strongest, where you are weakest and even maybe within subcategories like hot and cold rolled.

We haven't opened our book for any activity in the second quarter yet.

And as I said earlier flat roll is sold out through March.

So Mark's producing and shipping at something on the order of 200,000, maybe slightly higher than 200,000 tons a month.

And that would provide the answer for you there.

Same in Dick's case.

I think he probably has the ability to-- to ship at the 75,000 ton level or somewhere in that vicinity these days, and has a backlog that would carry him through the end of the first quarter as well.

So very good shape.

Glenn has mill capability now of about 40 to 45,000 tons a month with the right product mix.

Unfortunately in the past his markets have been weaker.

He has been totally a spot market player, and he has been somewhat dependent on huge shifts.

In other words taking the mill down and reloading for products quite frequently because his backlog wasn't all that healthy.

But right now he's - I think you could say through mid-March, with order entry, doing a lot better in the SBQ contract universe at this point in time with a lot of pending activity on the board right now, relative to additional future contract business.

All right.

And I mean, this is a bit more sensitive, as you kind of put the acquisition front with [Roanoke] together with your expansion into some of the bar products.

Is there going to be any overlap here?

No we're not into merchant products, that are produced at the Virginia mill.

That's not a product field we produce right now, and those products would -- would find their way into our fabrication universe as well as continue to supply the existing marketplace, or markets that Roanoke does serve.

As it would regard their light beam business if you will, in West Virginia, that's-- that's fairly niche significant type activity.

They do produce some small beams for distribution in the commercial marketplace, but a lot of what they do is tied to down-stream fabrication by others or that they are involved in, and that-- so there won't be a lot of overlap.

I mean, we actually, with the kind of backlogs we have, would like to produce fewer 6s, 8s, and 10s kind of thing, and more heavier products of a heavier nature at-- at [inaudible], so that Dick could delve further into rail activity, he's somewhat limited because the mill is operating at almost capability.

So where there could have been some overlap on the light end of the business, there probably won't be because I think still West Virginia does a very nice job in that marketplace.

And last question is on the resource side.

With respect to energy or anything you can hedge, have you guys locked in anything going forward?

I'll let Dick and Mark speak specifically to that Bret.

Oddly on the power side we have got that-- that fixed contract for-- for another couple of years, which is around about, it goes up to 3.4 cents, so we're in pretty good shape there-- excellent shape there actually.

On the natural gas side, we only hedged through April of this year, and it was more from a protection measure than anything else, just in case we saw some incredibly high spikes.

Those hedges are on a basis around about 12-- I believe $12 a day for them.

So actually they are above the market, but again, that was for a protective measure.

Obviously, you are well aware the natural gas market right now, storage is at an all-time high, and it's our anticipation to get back in the market hopefully late spring when pricing comes back down.

Thank you, Mark.

Dick.

From Columbia city's perspective, electricity wise, we have in place a 24-hour a day 7-day a week, 15 mega watt purchase through the first quarter which covers all of our rolling mill and ancillary needs.

And we also purchased a strip of 50 mega watts, for 8 hours a day 7 days a week, from 11:00 at night to 7:00 in the morning, and that's only about 50% of our melding needs, and we feel a combination of our spot opportunities, and that-- that hedge has given us a pretty good comfort level.

From a natural gas perspective, actually for February we're-- we're hedged with a position of over 80%, very comfortably.

And some of ours are still out to the extent of just about 3 years, so-- and those are layered in at different points.

We made buys whenever the market looked appropriate and the duration seemed desirable.

So we have a wide range in our portfolio of hedges.

Got it.

Last question.

The March call date on the bonds, is that something you guys are thinking about addressing, given that it's, less than 2 months away?

It's something we have analyzed pretty steadily for the last 6 months or so and take a look at it.

The cost of calling notes as you know is quite high, and we have lots of things in place that make it a little more complex than just the straight savings coupon.

It's something we look at, continue to look at, but haven't made a decision yet to do anything.

Thanks, very much, guys.

Good quarter.

Thank you.

We'll go next to Wayne Atwell from Morgan Stanley.

Thank you.

If we take a look at the consensus estimate for the year, it's $4, which would imply about 200 million in earnings.

Your depreciation and capital spending are about the same.

What do you plan to do with the projected 200 million that the street looks for?

Well, Wayne, we-- we do have a significant project in Columbia city.

We haven't formally announced it yet because we're still working through some specific issues that would drive, not the capital cost of that project so much, but the operating cost of the project.

And until we resolve those issues, which we're working to resolve, we're not comfortable with formally announcing that project, but that would be a $200 million CapEx project, which would likely resolve your question.

Okay.

And can you describe exactly what you would include in that project?

It would be a-- well, Dick you go ahead and describe it.

It's designed as a medium section structural mill.

Basically it really affords us the opportunity to load up the existing mill on rail.

So the vast majority of its new capacity is really an offset to our expected development in rail production.

It will also allow us to produce some lighter sections that either steel of West Virginia doesn't produce or doesn't want to and it will allow us to capture some markets that are in our backyard.

It will also be designed to accommodate some larger bar sections that Roanoke Electric may or may not find desirable, but we're trying to cover all of the basis for a well meshed organization post merger.

Now, if I'm not mistaken, your melt shop there has about 2 million tons of capacity so this would fill in most of that excess capacity?

Yeah, Wayne, it could take Dick's operation from-- call it 900,000 tons and given the appropriate market circumstances the maturity of the mill could take it to about 1.5 million tons of capability.

Not adding a lot of structural capability as you heard Dick say, but potentially we're looking to penetrate the rail market to up to 300,000 tons, which would be half of our really found capability, and we have an opportunity to sell large flats and large angles and things of that nature.

So I think it's probably not going to have much of an impact in the structure universe as we know it today, but could significantly increase the-- the capacity at Columbia city and positively impact Dick's operating cost structure, and use utmost of that melt capability.

Since he's not on a fixed contract basis for electric power, we're-- we're not really comfortable at this point in time saying that we could utilize all 2 million tons of that capability.

There will be a lot of times from 8 to 5 during the daytime Monday through Friday where power may not be attractive and we may choose not to operate, which would effectively utilize some of that gap between 1.5 million and 2 million tons of capability.

Right, now on Mesabi Nugget, when do you think you might break ground and when might you be finished?

That's about a nine to maybe 12-month project.

Mark?

Wayne, I-- given-- given the-- the sort of complexity of the partnership I would probably put it at an 18-month time frame and starting hopefully this spring.

Okay.

And the capacity you have now, once you have brought Roanoke and before you have done anything else I would put it in at about 5.3 million once you have expanded your roll capacity at your flat facility.

If you were able to realize the anticipated capacity at Columbia city at the 1.5 ton level and Mark were able to achieve under appropriate market conditions, 3 million tons that those two mills would add up to 4.5 million tons on their own and Glen can get to 500,000 so that would be 5 million-- and if we were to acquire- Roanoke thinks is never over until it's over, but if it became part of the family, and we're looking forward to that day when it does, their capability could be as much as 7 or 800,000 tons.

Then you are up to 5.8 million tons.

So your current estimate of 5.3 would speak-- Dick's not moving forward.

The expansion not moving forward so you are in the right ballpark. 5.3 potentially 5.8 million tons, approaching 6 million.

Great, thanks and congratulations on a good quarter.

We'll go next to Mark Parr from KeyBanc Capital Markets.

Thanks very much.

Good morning.

Hey, good morning Mark.

I was wondering if you could provide just-- your sense of potential opportunities that could arise for you as a result of recent consolidation activity.

Question number one, does [inaudible] acquisition up at [Defasko] open up any opportunities for you in the flat roll business A and B, and does reliance acquisition of Jorgenson open up any opportunities for you in the SBQ bar business.

I think the latter has more implications for us than the former. [Defasko]- will probably still operate under much of it's current management structure.

Penetrating many of the same markets, and we do compete in those markets on a daily basis.

But I don't know that it's really going to provide any additional market opportunity for us.

We-- we-- we are very comfortably positioned from a niche market perspective, and don't view our circumstances to be majorly impacted by the consolidating activities, if you will.

Reliance, on the other hand, that consolidation and-- could-- could play a role-- a positive role, we think in our SBQ business over the long run.

Okay.

Terrific.

Hey, Keith, and you guys all, congratulations on a great quarter.

Keep up the great work.

Keith, do you have any other comments on the consolidation arena right now?

Do you think the North American market is going to be pausing in here, or do you think there's still a lot of activity potentially going on.

Mark, I-- I really don't know.

I think there's some opportunities- a couple of opportunities in the-- call it the electric universe potentially out there.

I think you could see a little more consolidation by-- by the many mills.

I couldn't possibly predict what is going to happen on the integrated side of the street.

I read the same press you do about someday there may only be three large integrates operating in North America, or four, that's certainly a possibility, and I think you know who the likely candidates to-- to be acquired could be.

So really not privy to any inside information or-- or future outlook in that regard.

Okay.

Hey, thanks for your comments.

And we'll go next to Andrew O'Connor from Wells Capital.

Good morning, gentlemen great quarter.

Regarding Iron Dynamics market, I think you said you are at a cash break even basis now.

What will it take to reach the same profitability, and when do you guys think you'll get there?

Thanks.

What obviously we're not producing at the rate we ultimately want, but we-- we need to get it up to about 250, 260,000 tons a year in this sort of economic climate.

Obviously natural gas seems to be easing a little bit, and we hope that-- you know the future would suggest that the gas is going to come down to, you know, 8, 9 bucks through-- through the cycles.

And although is projected to see some pressure here in February, March, again, with-- be new capacity coming on in '07, '08, we anticipate all pricing of foreign bank to-- to perhaps-- 2004 levels.

So in that scenario we would see a positive future for it.

Okay.

So I thought I heard you say also you're looking for 230, 240,000 tons this year.

We certainly hope to be there.

Okay.

So at this point, can you further elaborate on the impact of using [inaudible] liquid pig iron, or HBI on our steel production in '06, relative to '05?

I-- I think there-- there will be some just incremental change.

When-- when we are using the liquid pig iron what we're asking some cost benefits, obviously.

We're bringing liquid-- hot metal into the-- into the furnace and we're also seeing productivity gains there.

And as we look forward to expanding our through-put at bubbler, the first thing is to get the casting modifications done this year, and that will relieve the-- the bottleneck through the caster.

Okay.

The pressure then falls back into the melt shop and obviously liquid pig iron tends to help that situation for us.

Okay.

Thanks.

Good luck and great quarter.

Thank you.

We'll go next to David Lichtman from Merrill Lynch.

Yes, hi.

Do you guys think, and I know Keith you've mentioned in speeches before that some of the service centers will try to get more normalized buying patterns, rather than huge ups and downs in their inventory levels.

Do you see that going forward or do you think still could be- get over 4, get under 2.5 have those big swings like we did a year ago?

Well I-- I think as you work your market cycles you won't see as big of swings, but if the market were to be forecast to rise sharply, they are going to try to enter the market early, and if-- we're going to fall precipitously they would stay out of the market and drive their inventory to abnormally low levels to take advantage of the buy.

It's still normal human behavior.

But I think they have done a very good job of managing their inventories and-- and the product fields that they are effective in, and given the stable market conditions we have seen for quite sometime now, I-- I don't see that pattern changing at this point in time.

Okay.

Thank you.

And we'll go next to Ken Silvers CRP Capital Group.

Hey, guys this [inaudible] could you clarify the capacity that's coming on line at Columbia with respect to the rail division?

I mean, I think you said 300,000 additional tons, but I wasn't sure.

So if you would clarify that.

If Dick is able to penetrate that market as effectively as we hope in the future he can, then it could be up to 300,000 tons of rail production.

And we were having a discussion about that in the context of the pending mill expansion at Columbia city basically saying that-- that the-- the bigger mill would still be the venue to roll rail and would allow us to move a lot of the lighter product over to the new mill, thereby not really increasing our structural capability, all that dramatically, but being more reliant on other products, angles and flats and-- and other unique products, Mitch market opportunities.

So whether Dick ever gets to 300,000 tons remains a question.

Although recently in their casting trials they have finally achieved the level of quality as you dissect the bloom, and dissect the as-rolled product, that would allow us if we could do that now consistently to enter the Class 1rail market.

Right now the mill is under a lot of pressure because of its extensive backlog and therefore probably will not be able to engage in the rail marketplace all that extensively in the early part of the year.

Okay.

Thank you so much.

And we'll go next to Charles Bradford from Charles Bradford research.

Good morning.

Hi, Chuck.

Good quarter.

Couple of things, obviously there's a lot of talk in the news about automobile softening and so on, what's your exposure into that market.

Hasn't really changed a lot.

I suspect we might have backed up a percent or two.

Mindful of the fact that it's automotive and the truck universe that we're involved with, both-- light passenger type trucks as well as larger trance-- transportation vehicles.

And -- but any slack in that market activity has been nicely replaced by a robust construction market place.

I would-- that would be my call at the moment.

Mark, could you add to that?

Well, Chuck just additionally, obviously our automotive exposure is essentially through Highman steel and they have been very very consistent through good and bad cycles we have seen in the past and we see that going forward.

So our actual probably total automotive exposure last year was right around 30, 32%, and we would see that same level in 2006.

Thank you.

I guess Chuck what I was saying is that if it's 32 it might be 30, but surely not of any great concern to us.

And we have no further questions at this time.

I would like to turn the conference back over to our presenters for any additional or closing remarks.

I don't really have any.

I want to thank you all for the following that you give this company.

It certainly a very helpful to the marketplace in general.

We appreciate your interest in our company and to our employees that are listening I want to say thank you for the incredible job you continue to do.

I do believe that you are the best steel makers in the universe today.

Thank you folks for joining us.

And that does conclude today's conference. [OPERATOR INSTRUCTIONS]