美國鋼鐵 (X) 2005 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the U.S.

Steel first quarter 2005 conference call and webcast.

At this time, all participants are in a listen-only mode.

Later on, we will conduct a question and answer session.

Instructions will be given at that time.

For help or assistance at any time during the call, please press star and zero.

As a reminder, this conference is being recorded.

Thank you.

I would now like to turn the conference over to Mr. Nick Harper, Manager of Investor Relations.

Please go ahead, sir.

Thank you, David.

Good afternoon.

Thank you for participating in United States Steel Corporation's 2005 first quarter earnings conference call and webcast.

We'll start the call with some brief introductory remarks from U.S.

Steel President and CEO, John Surma.

Then Gretchen Haggerty, U.S.

Steel Executive Vice President and CFO will review the results for the quarter and comment on the outlook for the second quarter of 2005.

Following our prepared remarks, the team will be happy to take any questions.

Before we begin, however, I must caution you that today's conference call contains forward-looking statements and that actual results may differ materially from statements or projections made on today's call.

For your convenience, the forward-looking statements and risk factors that could affect those statements are referenced at the end of our release and are included in our most recent annual report on form 10-K in accordance with the Safe Harbor provisions.

Now, to begin the call, here's U.S.

Steel President and CEO, John Surma.

Thank you, Nick, and good afternoon, everyone.

Thanks for joining us today.

For the quarter, as you saw, we reported earnings of $3.48 per diluted share.

Those results include the favorable effect of the settlement agreement related to the property tax disputes we had in Gary, Indiana.

As a result of that settlement we reversed some accruals totaling about $95 million, including a 25 million portion of that being interest.

You may recall, we mentioned that settlement in our 10-K and actually back in the earnings release for the fourth quarter.

That settlement effect in a small Other item I allocated in segment results increased our results by about $0.45 cents per diluted share.

So if you excluded that $0.45 from the $3.48 per diluted share, it seems thus our results were well beyond the average of analyst expectations, which I understand were $2.37 per share.

As is evident from the results, our three main operating segments continued their run of exceptionally strong performance.

Our Tubular, European operations each had three quarters record operating income per ton of $403 for Tubular and $164 for Europe.

Our Flat-rolled operations delivered another strong quarter, near-record results, with operating income of $95 per ton.

Looking forward, key economic data suggests that North American demand for high-quality flat-rolled and tubular products will remain favorable.

The strong U.S. industrial productions that was forecast, which we see at 4%, GDP growth rate estimates of about 3.7%, both reflective of a positive manufacturing environment going forward.

Consumer and capital spending, which are forecast to increase 3.5% and 10.3% respectively, also pretty positive indicators.

For flat-rolled products, the public sources that we watch forecast 2005 North American automotive production even with the recent revisions by some of the auto makers to remain at healthy very levels.

Housing starts were projected at nearly 1.9 million units in 2005, while down slightly from 2004 remain very strong by historical standards.

When coupled with a slight increase in applied shipments, these trends indicate good steel consumption from these industries.

In nonresidential construction, the anticipated recovery of 2005 has been slow to develop but there remains the potential for a seasonal upswing in the second half of the year.

Now, turning to tubular products, current high oil and natural gas prices have supported higher exploration budgets and strong drilling activity.

That's evidenced by the U.S. recomp, which has recently ranged between 1300 and 1350 rigs compared to an average of 1125 for last year.

And that likely would be higher if not constrained by rig availability.

Just as important as the nature of the drilling that's taking place, activity tends to be in hostile and deep-water conditions.

And that favors our U.S.

Steel and our leadership in the seemless [ph] market.

Our European segment continues to benefit from growing steel demand in the central European corridor.

Central European GDP rates continue to grow by about 4% annually, which has led to increased demand for steel products.

Sustained growth with a key factor in our decision to construct a new automotive hot-dip galvanized line in Kosice.

Currently, central Europe represents about 40% of our European shipments.

Western European GDP, forecast to increase by about 1.7% in 2005, with steel demand remaining near recent levels.

Current domestic service and inventory levels continue to reflect the higher levels of imports that were shipped to the U.S. late last year.

With the recent decline in imports and continuing strong steel consumption, it appears, based on the latest MSCI data, the flat-rolled inventories are moving back toward more traditional levels in terms of months of supply.

I won't try to predict the direction of domestic spot prices, but with North American pricing achieving relative parity with Asian and European prices, coupled with the positive economic growth rates and continued strong global steel demand, we're optimistic that the current favorable steel cycle has plenty of room to run.

We believe that U.S.

Steel should do well in this environment, given our favorable cost structure and our domestic [inaudible] position, our balanced commercial position, our geographic diversity and our favorable exposure to the tubular market.

With a very strong first quarter behind us, we anticipate another very profitable year with significant contributions from all of our major business segments.

With that view in mind, you may have noted that our Board voted this morning to increase our dividend by $0.02, or 25%, to a quarterly rate of $0.10 per common share.

With that, I'll turn the call over to my colleague, Gretchen Haggerty, our Chief Financial Officer, for a review of the quarter's results.

Gretchen?

Thank you, John.

Our first quarter 2005 consolidated net sales totaled $3.8 billion, which was a $100 million decrease from the prior quarter, as higher realized prices were offset by lower flat-rolled shipments.

For the quarter, we reported net income of $455 million, or $3.48 per diluted share, as John mentioned, modestly lower than our net income of 468 million or $3.59 per share in the fourth quarter of 2004 and almost eight times higher than net income of 58 million, $0.47 per share, in the first quarter of 2004.

Our total segment income from operations before our retiree benefit expenses and those other items not allocated to our segments, was $652 million or $127 per ton, a $4 million increase from the prior quarter.

That's $1.3 billion of segment income in two quarters' time.

In Flat-rolled, income of 335 million was 40 million lower than fourth quarter 2004 results.

Our flat-rolled prices increased by $27 per ton to $650 per ton, as we received higher prices for the portion of our contract business that was repriced as of the beginning of the year, partially offset by lower spot pricing.

Flat-rolled shipments declined 212,000 tons from the prior quarter and our costs increased by $33 per ton due to higher coking coal and coke production costs.

In Europe, first quarter income from operations was $212 million or $164 per ton, an increase of $80 million or $66 per ton from the prior quarter.

This occurred as the average realized price increase of $65 per ton more than offset somewhat lower shipments.

Now turning to the Tubular segment, our first quarter operating income was $122 million, $403 per ton.

This was an increase of $3 per ton from the prior quarter as our average realized prices increased by $82 per ton to $1,165 per ton, and this was offset by higher rounds costs.

Now Nick will provide some additional details on our quarter's results as well as some items for your modeling purposes.

Nick?

Thanks, Gretchen.

Capital spending, which is detailed by segment in the earnings release, totalled $122 million in the first quarter.

Our current plan for 2005 has total capital spending at approximately $755 million, with $480 million for domestic operations, including 125 million for the Gary works number 13 blast furnace rebuild and 275 million for European operations.

As you can tell, our capital spending this year is more weighted to the last three quarters of the year.

Depreciation, which totalled $98 million in the first quarter, is expected to be 389 million for the year.

Defined benefit and multi-employer pension and OPAD costs for the quarter totalled $91 million.

As mentioned in the earnings release, we made $130 million voluntary contribution to our main pension plan during the quarter.

In addition to the voluntary contribution, we made cash payments of $75 million, primarily for retiree healthcare costs and multi-employer pension costs during the first quarter.

Additional details will be included in our 10-Q, which should be filed late this week.

Interest expense totaled $22 million in the first quarter and includes both the $25 million benefit relating to the Gary tax settlement and $27 million of foreign currency remeasurement losses.

Excluding these amounts and excluding interest income on cash balances, interest expense is expected to be $30 million per quarter for the remainder of the year.

This is lower than previous guidance, which included additional interest charges associated with the Gary, Indiana property tax dispute.

Currently, our estimated annual effective tax rate for the year is 23%, excluding $37 million -- excluding a $37 million provision related to the Gary tax settlement.

Our domestic earnings are projected to be taxed at the statutory rate and our Slovakian earnings are projected to be taxed at 9.5%.

Lastly, we're using 131 million for the [inaudible] share count.

Now I'd like to turn it back to Gretchen for additional comments on our results and outlook for the second quarter.

Thanks, Nick.

Cash flow was very strong in the first quarter, reflecting the strong performance from our operations.

Cash provided by operating activities was 296 million, which was after the $130 million pension fund contribution.

We currently have Board authority to contribute an additional 130 million to either our pension plans or VEBA trust through the end of 2006.

We generated free cash flow after capital spending and dividends but before external financing of 163 million and ended the quarter with over $1.1 billion of cash and with $2.3 billion of liquidity.

We expect second quarter flat-rolled shipments to be 3.5 million tons, and averaged flat-rolled prices to decline somewhat due to lower spot prices.

Approximately half of our flat-rolled shipments are sold under contract so we are somewhat insulated from spot price declines.

We expect second quarter flat-rolled costs to remain about the same as our first quarter levels, with higher outage costs expected to be offset by lower raw materials and other costs.

We anticipate full-year flat-rolled shipments of 14.5 million tons.

For U.S.

Steel Europe, we expect second quarter prices to be in line with first quarter levels and results will be negatively affected by higher raw material costs.

Full-year shipments are expected to be 5.8 million tons, in line with our previous guidance.

In the Tubular segment, we expect second quarter prices to improve moderately from our first quarter levels.

As mentioned in the earnings release, the transfer price for tube rounds produced at Fairfield was increased by $53 per ton effective April 1st, to reflect the markedly higher costs for steelmaking additions which are used in particular to produce tube rounds.

Second quarter tubular shipments are expected to decline from first quarter levels, due mainly to a planned outage at Lorain pipe mills.

Our full-year tubular shipments are expected to be 1.2 million tons, again, in line with our previous guidance.

Now, that concludes our formal remarks at this time, and I would like to open the call for questions.

Nick?

David, could you please queue the line for calls?

Certainly. [OPERATOR INSTRUCTIONS] The first question comes from the line of Bruce Klein with CSFB.

Please go ahead.

Good afternoon.

Hey, Bruce.

Just, if you can help us, this cash [inaudible] has been on the balance sheet for a while.

What's your latest thinking, in terms of the use of cash as well as maybe what's the latest numbers for payment availability per your bond covenants?

This is John.

I'll let Gretchen deal with the last question about the covenants, but just with respect to the general use of cash, no news flashes there.

I think you've seen in the first quarter everything we said we were going to do, we did.

We -- working on our capital plan, which is quite a bit higher this year than the last year or two, both infrastructure and market facing.

We did do some pension funding, which we think's a responsible thing to do, just making sure we're not exposed in that regard.

And also then, we did take action this morning to increase our dividend.

We did all those things.

We also have some strategic opportunities that we continue to look at.

Some that are getting a little closer toward there may be something worth pursuing that would be within the zone of what we've talked about before, raw materials in Central or Eastern Europe, in a way that we think is manageable and appropriate to our consumption needs.

And then some market opportunities here in North America that might be useful for us from a strategic point of view.

But not that I can really talk about specifically now, so --

John, when you said raw materials, you connected Central and Eastern Europe or raw materials.

Is that the focus there?

Or just grow separate from raw material growth?

In Europe, it would be largely raw materials oriented, although that would not exclude other opportunities if they came our way.

We have acknowledged that we're observing what's going on in Turkey with [inaudible], all of that seeming to take some time to play out.

So we'll certainly observe that, but our primary interest in Europe would be in raw materials in the near term.

I'm sorry, Bruce, could you ask the question on the covenants again?

I'll turn to Gretchen for that.

Yes, I'm sorry, Bruce.

Would you repeat that again?

Just what the restricted payment basket is in the bond indentures?

It's pretty large.

It's in excess of $1 billion now, as of the end of the year.

Oh, really?

Okay.

I'll pass it on then.

Thanks.

Our next question comes from the line of Chris Olin with Longbow Research.

Please go ahead, sir.

Good afternoon.

Hi, Chris.

John, first of all, on the European segment, I guess I was surprised by the operating number put out there.

Does that fully reflect the higher iron ore cost for the global markets?

Or did you begin to realize that 86% in the April time frame?

You mean the operating income number for Europe in the first quarter?

Yes.

It's an excellent number as you point out.

It reflected the fact that, you know, we were able to move our prices up and expand our margins a bit, which we I think have predicted before, and that the costs for metallics and to some degree for carbon as well on the coal side did not move up in the first quarter as rapidly as our prices did.

Eventually, those prices move along towards world levels, not maybe necessarily all way there, and I think are confidence in the outlook for Europe indicates that we expect those prices, particularly on iron ore, to begin moving more towards the kind of increases you saw around the world in the second quarter .

So I think the answer to your question is the first quarter results were terrific because we moved prices a little before the costs and the costs will begin to catch us in the second quarter.

Great.

Also, are you concerned that China could eventually become self-sufficient with its steel needs and that ultimately will flood the European market with too much flat-rolled supply?

It seems like it's getting kind of sloppy over there right now.

It's hard to say exactly what's happening in China.

We were just there recently and we received a new report at the IISI meeting that's quite interesting in China.

A lot of strategy there, and we read just recently a lot of pronouncements out of China about the course of events that the leadership there sees for their steel industry.

We hear most frequently that their interest is to not become an exporter, to become -- to remain sort of a good citizen in the world of steel and that they expect their consumption to be increasing at a rate at least as rapidly as their capacity will increase.

The other thing that we've learned a bit more, and I heard loud and clear there, is there's a lot of internal industry restructuring to go on in China, particularly not with the big gleaming companies we would see, like [inaudible] and others, but with the larger population of smaller companies that may be less energy efficient and may be more environmentally less friendly.

So I think there's a lot to happen inside China.

We think the long-term prospect for China probably is to be a big consumer and also a big producer, but to the extent that there would be a major dislocation as there was, you know, a few years ago in Asia, whether it's China or anywhere else, that would would be a concern to us and that's one of the reason we want to make sure we keep our trade lot strong.

Great.

Just finally, the Tubular segment put out another good quarter, but we're starting to hear about some Asian products hitting the west coast.

Any concern of that -- imports could weaken the market?

Or could you discuss maybe what you are seeing for the inventories?

You're right.

We did have an excellent quarter in Tubular.

There's always been some import penetration on certain size ranges and certain areas.

We haven't seen a particular change in that.

There's a number of trade orders that are still involved there for the next few years anyway.

There's always some import play in Tubular, but we haven't seen a major change in that in the marketplace in the last quarter.

Thanks a lot.

Thank you.

Our next question comes from the line of John Hill with Smith Barney.

Please go ahead, sir.

Thank you very much for hosting the call.

I was wondering if you could provide some color on the Flat-rolled guidance for the year.

Obviously down from 15.4 to 14.5.

Just comment on the geographies, product segments, and implications.

Sure.

The change in our outlook -- let me just give you a little color on it.

The original outlook on shipments we provided [inaudible] you just mentioned.

It was sort of reflective of what our shipments were last year, and that's where our original thinking came from.

Last year was a huge year, from a shipping standpoint.

We had a number of semi finished opportunities we were able to take and some other hot roll business that was available at the time that may not be available this year.

We also didn't meet our shipping expectation in the first quarter, so obviously, we had to adjust for that amount.

But for the rest of the year our expectations are more designed to be something we think we can achieve and also recognizing that the service center inventories got high and while they're being worked down, that's going to have some effect on how much of that business is available.

So I think we're trying to be realistic in our expectations.

It would be largely service center and in probably value-added construction over the remainder of the year.

We were encouraged, though, to see in the MSCI numbers recently, that all of the numbers we look at all went the right way.

We saw inventories, both total and flat down.

We saw day supply flat in total, down.

We saw shipments up -- in fact, March MSCI flat-rolled shipments were the third highest ever.

So, we see good progress there, but the absolutes will take some time to work on.

Great.

And on the subject of inventories, and obviously the service center commands a lot of scrutiny, but I suppose there are some intriguing questions internally as well with U.S. shipments across the industry falling more rapidly than production.

Do you have any -- how do you view your own internal inventories?

What's your thought on inventories existing at other mills across the domestic industry?

I can't comment on inventories at the other mills.

We have enough trouble with our own, just to be flippant about it.

But our inventory has been reduced, quite substantially, really, following the National Steel acquisition.

We took a lot of inventory out and put a lot of it in the form of cash on the balance sheet and we kept a pretty tight leash on the inventories.

We have to do a little bit of management right now because we have the Gary blast furnace outage coming up later in the year.

You have to put some inventory on the ground for that.

Then trying to make sure we keep our coal inventories at the right level.

We don't want to be too short, given what we've discovered is a fairly frail river transportation system.

So, having said all that, our inventories aren't a whole lot different than they were before.

There's some seasonal uptick on the raw materials side.

But we don't see in our case any kind of excessive inventory problem.

Great, thank you.

We could probably build inventory in the first quarter, though, as our shipments were less than we were expecting.

Your next question comes from the line of Timna Tanners with UBS.

Please go ahead.

Hi.

Good afternoon.

Good afternoon, Timna.

Welcome to the call.

Thanks.

I wanted to ask you a little bit about -- and you've addressed this a little bit, but I wanted to come out and ask you about some of the European, your counterparts, are cutting back production a little bit.

I wanted to know if that was something that you can see continuing or having an impact or if it's something that you've looked into also copying?

In Europe, you mean?

Well, yes, in Europe, but also a little bit in the U.S. as well.

In Europe, at least, where we do most of our business, we still see a pretty good market.

We're looking to continue our operations at good levels in Slovakia.

In Serbia, our plan is to have our second blast furnace come on later in the summer, June, July, sometime like that, and really be expanding our sales into largely central and southern Europe.

So we observe, we read the same things you read about what other companies in Europe are doing.

And that's really up to them.

We can't say much about it.

In the zone where we're most concentrated, Central Europe, economies are still going pretty good, as I said before.

In the U.S., we've had a number of -- outages planned.

We have 12 blast furnaces, so we have outages all the time.

We don't make as much of a story about it when we do or we don't.

But we do have a large outage in Gary coming up later on in the third and fourth quarter.

So we've been planning for that for some time and trying to make sure we had enough steel on the ground to get through for our key customers.

And then we've had a few other outages here and there, one of which was unplanned here, locally, where we had a problem with an oxygen plant that took out some tonnage from our system.

So, we're running fairly well balanced right now.

We observe what others are doing.

And if that would be appropriate and necessary, we're certainly inclined to try to maximize profitability.

But for the moment, we like that position in the market.

Okay.

So that the second half is where you've loaded a lot of the shipments.

And you're pretty comfortable that the market can bear that and it seems like the central European market that you're looking at is different than what we're hearing about in the southern European softness?

The central European market is somewhat distinct from the north and western European markets, where I think a lot of that -- and there hasn't been strong economic growth there for the last couple years anyway -- and with respect to the domestic marketplace, our outlook is what it is.

We think that in general, steel demand should be pretty good.

Maybe some sections better than others, but in general, we look for this year to be a pretty good year.

Thank you very much.

Your next question comes from the line of Mark Parr with KeyBanc Capital Markets.

Please go ahead, sir.

Hey, good afternoon.

Congratulations on a phenomenal first quarter.

Thank you.

On behalf our our 45,000 hard-working men and women, we'll accept that.

Very kind of you to say that.

You deserve it.

I was curious about valuation levels that are being talked about for central European and, you know, maybe Ukrainian acquisitions.

Can you give us some color on what sort of multiples of cash flow, the Erdemere [ph] is being talked about?

And also, can you talk a little bit about what the valuations were in the Ukrainian operation that recently appears to have gone back to the Yanakovic crowd?

You mean, previous [inaudible]?

We were involved in that one in a very small way a year or more ago and I honestly don't recall a lot about valuation, which at the end of the day didn't make that much difference anyway.

Maybe that's one reason I don't remember it.

But in general, in an asset like the case of Erdemere [ph], I think the valuation that the market seems to put on it, [inaudible] or so was traded locally on their exchange, seems to look and trade and get valued a lot like assets in the rest of Europe do.

So we don't see any great change there or any great difference in that particular one.

It's a pretty visible, and pretty transparent company with pretty well-known tonnages and markets.

I think it's valued reasonably well from a market standpoint.

In Eastern Europe, I think that's a slightly different question, you know, that the portions of those companies, those that are public traded in Russia and Ukraine are quite small and not nearly, at least from our point of view, as much transparency.

So I really wouldn't be qualified to give you much commentary about the values there.

When we get to a point, we're going to be into it very deeply and we'll talk about it a lot when we actually get to point of looking at something specifically.

Okay.

So would you say those value -- I mean, as multiples of cash flow, could those valuations be what, four or five times maybe?

In Eastern Europe?

Yes.

I suppose.

I think the experts, and I'm not one, would tell me that they'll be less than in other more transparent kinds of situations.

It's hard to say.

Okay.

Thanks.

I'll pass it up.

I'll come back later.

Congratulations again.

Thank you, Mark.

Our next question comes from the line of Aldo Mazzaferro with Goldman Sachs.

Please go ahead.

Hi, John.

How are you?

Hi, Aldo, how are you?

I was wondering, on that some question that Mark just asked, on the acquisition thinking that you're doing, have you had any change of thought given the market over the last few months, whether you actually want to go after acquisitions in central Europe or other areas of the world at this point?

I just observed that values are fairly high and we're interested in doing things that add value.

Everything we have done has added value and there are several things that we obviously publicly have passed on that probably would not have.

We'll stand on our record.

Having said that, we do have an interest, strategically, in having some stability in our raw material supply in central Europe.

We think that's worth at least having a look at.

Yes, values are high but maybe there's opportunities where something is being developed or whether it would be some benefit of us as a customer, having a position in a development.

We think there's good opportunities there to do things at the right value.

If it's not the right value, we're not going to pursue it.

And then, as the stock prices changed here, have you -- has your thinking about stock repurchases changed at all?

Yes, I think -- although we look at all that, and Gretchen, you may want to comment -- but we look at all of that shareholder-related return aspects together and try and make sure that we're thinking about it properly and have the right balance in how we approach capital and obligation reduction and return to shareholders.

The -- trying to tie strategy like that to a particular share price level seems to be an elusive thing to do given the volatility we've experienced in the last six months or year.

But we're still very much focussed on returns to shareholders as evidenced by the action we took this morning.

We'll continue to look at dividends as well as share repurchases regularly, certainly quarterly, more often than that, if necessary.

And, John, related to iron ore, just a quick one.

Is it a possibility that you would invest to expand your Minntac operations?

Perhaps.

We were at Minntac recently and Keetac, the facility we acquired from National Steel, which is an excellent facility, both of which have some contiguous reserves that have that potential -- there's, you know some work on the plant side, permitting, et cetera, that needs to be looked at, but that's something that we have under some consideration.

And just a final one if I could real quick, another seamless pipe producer this morning predicted that there would be about a $100 a ton increase in pricing on OCTG in the second quarter versus the first.

Is that in line with what you would expect?

Our outlook, I think, is that we see prices staying in line.

That would be -- we see moves of that magnitude frequently in this market recently.

That I think really is going to be demand, pull, sort of driven.

And if it turns out the demand for the kind of heavy walled, wider, bigger, thicker stuff, we make, and it's good for deep and down hole for hostile environments.

If that demand is strong, I think the cost of that in the total cost of the well completion is fairly modest and it's very possible.

Although, I must confess, I don't have any specific evidence or knowledge of that right now.

Our next question comes from the line of Michael Gambardella with JP Morgan.

Please go ahead.

Hi, John.

Good afternoon.

Hi, Mike.

Question on your automotive business.

What were your volumes like in the first quarter, say, compared to a year ago?

Are you generally moving up and down with the overall industry production or have you made any share improvements?

From last year's first quarter to this year's first quarter, we've had some share improvement.

I think we're doing very well in automotive.

Our first quarter shipments in automotive were pretty good.

We were affected to some degree, like everyone was, but my sense would be less so.

We have some good fortune of being on the right parts, on the right vehicles and in a very diversified position among all of the manufacturers, certainly with the three -- Big 3, but also most -- really, all the transplants.

Our position is strong, diversified, and we had a very good first quarter with the automotive producers and we expect to have a good year with them the rest of the way.

Okay.

And last question, could you just highlight the rest of the year in terms of production outages that you have planned and the impact on volumes, you know, Gary as being the big one, but could -- any others out there?

No.

As I said, we have a lot of assets, furnaces, steel shops, strip mills, and we do work on them at different times when it's necessary and appropriate.

But the only real newsworthy event that I'd draw to your attention would be the outage at Gary number 13 and starting in the late third quarter finishing into the fourth quarter.

I think we have the number two blast furnace in Slovakia later on in the year.

That's built into our shipping expectations.

I mean, we have those kind of things all the time.

So the only really big, major long job that's got a lot of iron loss with it would be the 13 project.

Okay.

Thanks a lot, John.

You're welcome, thank you.

Your next question comes from the line of Michael Lucas with Appaloosa Management.

Please go ahead.

How's it going?

Great quarter.

Thank you, Mike.

One thing though I'm a little bit confused on.

I'm trying to reconcile the EBITDA to cash generation.

I'm confused because it seems like you did a healthy 675 or so in EBITDA, yet you only -- the cash balance only went up 140 million.

Well --

10 million actually.

I'm trying to figure out where that is.

I have 675 EBITDA, 122 CapEx, $1.65 of taxes, and 130 pension contribution, which should be 270 million in free cash flow.

There's also, I think, the property tax reversal in there, Mike, was a noncash effect.

Have you taken that into account?

That's about 70 million on an income per operations basis, so 95 in total including the interest, once that flows through.

I think in our earnings release, we did show that some negative working capital effects around the order of 160 million, so that would be a piece of it, too.

Yes, except that is offset by 111 million positive, correct?

Above your operating activities.

Yes, which would be largely tax related, deferred taxes kind of thing.

So it's, you know, I guess those are just the biggest -- largest elements that I have.

So, we can spend some other time.

We will be filing our Q later in the week and we can try and walk you through that again a little bit more carefully.

But those are the biggest items.

I mean, I think you've got that.

Okay.

And then furthermore, in terms of pension contributions, I just want to make sure, there's no discount rate changes or anything like that going forward and we've already had that, would this be like a one for one?

In other words, the 400 million should come down to now 270 underfunded?

No.

Not specifically.

That contribution -- I guess at a point in time, if you want to view it that way, keeping [inaudible] constant, it would.

There would be a lot of other moving pieces, but it actually gets added to the fund and added to the balance sheet, the way the accounting actually works.

The next time we measured, if nothing else would happen, if everything else would stay the same, assets, discount rates, et cetera, in essence, it would reduce the underfunding position by that amount.

We won't have to remeasure that, assuming there are no other events such as settlements or major transactions or events.

We wouldn't remeasure the liability and assets again until the end of next year, or then end of this year until the early part of next year.

I just want to know how to view it, if it's accretion to shareholders as opposed to last year we put in a lot of money and we changed the discount rate.

I understand we had to do that, because I'm trying to just track where cash goes.

So you guys are thinking about putting it into the VEBA trust again?

We have authority to -- right now, standing authority to contribute 130 million to either the pension or the VEBA, but we've got broad authority to do that.

Last year we contributed 30 million to the VEBA.

So, I mean, it's possible we could do that again, but I really wouldn't see us putting the whole 130 there.

I'd probably direct it more towards pension.

And just one last thing.

I know a lot of people have addressed it in different ways in terms of buying back stock and whatnot.

I'm curious as to what you think of your stock valuation around 277 a ton.

Is there anybody else cheaper out there?

Because I certainly don't know of it.

Not on a per ton basis, even even worldwide.

I'm just trying to think who you guys think is cheaper, or are you not looking at that valuation metric?

We look at it a number of different ways.

We also look at one as sort of an adjustment.

But that's an enterprise value model.

We also look at one that adjusts and puts in legacy value, plus or minus, a couple different angles.

But I don't really have an answer as to where we stand versus others.

We look at that periodically, but I can't really offer much about that now, Nick, unless you have anything you've done recently.

Not really.

Our next question comes from the line of Charles Bradford from Bradford research.

Please go ahead.

Good afternoon.

Hi, chuck.

You've talked about the Gary outage in terms of the capital cost.

But when you lose that much metal, you're going to lose a fair bit of steel production.

You're going to have other facilities, if not fully shut down, partially shut down.

What people perfection. kind of operating cost increase can we expect?

There'll be some of that, Chuck, but because at Gary we have three other furnaces that we can -- all of which have been worked on the last year or so, we can kick it up pretty good.

We've been laying down slabs.

We also are -- long slabs to some degree at Granite City and we can lay some of those down.

And we look to be able to run through the outage pretty well across all of the major units.

There would be some that will -- and of course we scheduled some outage work on some of the finishing downstream units in sympathy with the blast furnace outage.

But because of Gary being a large plant with some flexibility, we can manage down that cost penalty of an outage much better than any other plant and I think our folks have been planning this so long and so carefully that there'll be some, but it's not going to be a huge effect during that period.

It would seem like you wouldn't have much effect on shipments, but if you don't have 45% of the hot metal, how do you make as much steel and cast as many slabs?

I would think those facilities would go down.

They would be slowed down to some degree.

We do have outage work on those.

We have hood work to do on some of the steel shops, which we'd have to do anyway.

Of course we've been stretching them out and setting all that up to do all at the same time.

So some of that we'll do all at the same time that we otherwise would have done.

There's no real incremental outage cost because it's being done then.

Can you talk a bit about what's going on in Serbia?

I see where this second blast furnace is supposed to come up shortly.

What's beyond that, and what will that do to our shipments next year?

Well, it's about a million ton shipment kick, plus or minus, is the rule of thumb that I use.

If it comes up halfway through the year, we'll get 4 or 500,000 tons this year and we should get a million next year.

So, in terms of unit growth, just in Serbia this year ought to be up by some number, 4 to 500,000 tons.

Next year ought to be up by another 4 or 500,000 tons as we get up to around 2 million.

Virtually every unit in the plant continues to set records almost every month.

The assets are performing very well.

We're spending some capital on control systems, those kinds of things.

But the assets themselves and the people and the market all are performing very, very well, and we're anxious to get the second blast furnace on.

Most of us have seen the price increases from the iron ore suppliers in Brazil, Australia, and a few others.

What about Russia and the Ukraine?

They're pretty much more land-locked and don't seem to have the opportunities that the others have.

Have their price increases been as much or a little bit less?

A little bit less, I guess, and a little bit later.

They tend to lag.

What happens in the more well publicized seaboard transactions that you just referred to.

Our expectations, our outlook I think for our European results for the second quarter acknowledge we'll have some raw material cost increases, and it would be largely iron ore cost increases from those locations and we use a certain number of tons of pellets, which you can calculate and pick your number as to how much you think it's going to turn out to be.

That is catching up with us now because of where those facilities are and where our three big strong -- really, now four, soon to be five -- big strong blast furnaces are.

We're a good customer and I think we do a little better than the seaborne trade number but we're going to have our effect.

Our next question comes from the line of Wayne Atwell from Morgan Stanley.

Please go ahead, sir.

Thank you.

Good afternoon.

Hey, Wayne.

There's an iron ore strike right now in North America.

We understand some of your competitors are out there trying to buy some iron ore.

Do you have any excess and might you sell some?

Maybe and maybe.

Sorry, we're -- not to be cute about it.

We don't have a lot, no.

We have pretty well balanced our position right now.

We have a few minor commitments to some other parties we're going to honor.

And then, from time to time, we'll move some of that material into Europe, usually in Serbia, because we do have pretty good access through the seaborne corridor, through the [inaudible].

So, not a whole lot we would have available right now.

In your press release, you talked about a problem with some deliverability in coal.

How do you stand in coking coal?

Obviously, the market's quite tight there with one mine down and another one down permanently.

Do you have enough available there?

What's the story?

What's the outlook in your coking coal purchases?

We're fine.

We're covered pretty well through the rest of the year in North America.

We're okay in Europe.

There's -- the problem that we alluded to was really the river system problem that we had on the Ohio River back in the first quarter, and we have, as you rightly point out, a number of force majeure events that occurred, one, the [inaudible] mine, being the most recent and notable, and there's a few others that, you know, every time that happens, we have to replace that with usually higher priced coal.

But we've also had lots of challenges on the transportation side, both rail and marine.

I'd say in general at this moment, that situation is better, much better than it was.

We're looking strategically at whether we ought to have a slightly higher coal position on the ground at the plant, just to make sure we don't get into those kind of problems again, and we're working towards that now.

But we're pretty well fixed to operate, certainly through the rest of the year.

And lastly, I hear there's a shortage of barges.

Are you okay there?

Are you having difficulty, or are you able to secure enough barges?

It's very tight.

We do have some of our own assets.

We still own a barge line in Alabama.

That's been helpful to us to have some assets, both marine and rail.

We're pretty well fixed, but some of that is seasonal, as grain shipping season starts, et cetera.

Some is because the barges get in the wrong place and the locks and dams are clogged and they can't get through.

In general right now, we're better off than we've been since the beginning of the year.

Your next question comes from the line of John Tumazos with Prudential.

Please go ahead, sir.

Congratulations on the great earnings.

Thanks, John.

The OISI data shows about 800,000 tons a month of exports.

Some of the companies we heard earlier, Newcor, Stell Dynamics, had virtually no experts.

And the export destinations are very curious.

There's a few tons to Angola, Vietnam, a 30,000 ton slab shipment in February to Yugoslavia.

I presume you're sending slabs to Serbia.

Could you talk a little bit about your own export level including the exports to Canada and Mexico?

And could you also, in terms of Europe, explain the market practicality of adding the second blast furnace when Arcelor and Tissin [ph] are cutting production.

Presumably your $1.00 an hour or $2.00 an hour wage range will permit to you raise output when the other companies are cutting output?

Okay.

Let me just give you a few thoughts on those points, John.

First, with respect to our exports, yes, we export some flat roll to Canada and Mexico, Mexico in particular, where we have a joint venture operation and we supply a number of important mostly appliance and automotive customers with value-added products.

Been doing that for quite a while.

Those volumes have been pretty steady.

Good business.

I think they're pleased, we're pleased to have that business.

So that continues and we look forward to being a good business for a long time.

On the Tubular side, we might well have some Tubular that got into some of those more exotic locales, but also into Canada and Mexico, could be very, very possible.

I don't have that data at my fingertips, but our Tubular business make some sizes that are quite popular and not made by all that many people.

So, it may well be in some of those territories, our Tubular business got in there.

You observed that we shipped some slabs -- or that someone did.

You thought it was us -- to Serbia.

That's correct.

That's really part of your last question which is how we develop the market in Serbia.

Are the slabs from Gary to Belgrade?

No.

I think they're from Granite City.

But it's somewhere in the Midwest.

It could have been a blend, but mostly Granite City.

We tend to, when we get the furnaces working at Granite City and the strip mills running, we can outrun some of the finishing there and we occasionally have slabs available to be applied to other uses.

This is one of them, because again, we have a reasonably good access and our interest in beginning to develop the market in Serbia to be ready for our second blast furnace.

And then also because at that time the -- one of our blast furnaces in Slovakia was not running as well as it should have, we were not shipping as many slabs from Slovakia to Serbia to keep the strip mill running, to keep developing the market, this was a way, a fairly modest amount, to fill a hole that we had over there and to get a little more product in the market off the Serbian [inaudible], which is a great mill.

We'd done the others -- the opposite, of course.

We've brought some material from Serbia here last year for specific customer needs, which was quite well-accepted.

So, I think as we bring the second blast furnace on, we've been working towards developing the market.

We think we've got pretty good opportunities.

A lot of it fairly nearby.

I think this plan at one time filled the Yugoslav -- the former Yugoslav Republic market, essentially by itself.

And we'll move it elsewhere, but largely it'll be in the fairly close home markets and we'll develop that starting in July.

Were your exports as high as 750,000 tons in the first quarter?

No.

No.

How high were they?

We didn't have much flat roll export other than some of the slabs at all.

I mean, we have some steady business that's going into Mexico and Canada, but that wouldn't have changed, wouldn't be at that magnitude and wouldn't have changed, it's fairly steady month to month, quarter to quarter.

Can you give us a broad range as to what the export amount was?

I can't really, John, but it -- our actual flat roll exports -- and I'm only going to guess that, you know, it's 100 thousand, 200 thousand ton level.

I mean, it's not a huge number.

Your next question comes from the line of John Novak with CIBC World Markets.

Please go ahead.

As you get closer to the Gary furnace reline, can you give us a sense of how much is to be capitalized and how much to be expensed for that repair?

We've made some comments on that.

Nick, do you want to repeat those?

We did spend some money in preparation in 2004 already, right, Nick?

It's Nick.

In 2005, we talked about $195 million in total. 70 of that would be operating costs and 125 million would be capital.

Okay.

And secondly, John, you talked a bit about market opportunities in North America when someone asked a question about acquisitions.

And I was wondering what type of synergies you would like to exploit from your existing operations if you were to look at additional acquisitions in North America?

Well, synergies come in a few different buckets, of course.

We like to be involved in things where we already have the position, where we know the market, where we maybe have some customer relationships, where there might be some physical synergies to eliminate freight, to have procurement synergies.

All those kind of things.

So most of the places, most of the things we would look at would be where we have some existing position where it's a nice extension, the fill-in and add on where we've got relationships.

By the same token, things we passed on, such as an opportunity in Canada, is where none of that is really there.

Okay.

And do you have much excess capacity in your finishing operations in North America right now?

Some.

I mean, I think one measure of that would be our hot strip mill capacity.

I think we do have some additional capacity on hot strip mills when we're fully loaded.

We'd be a little long in capacity in a couple of plants.

Beyond that, there would be, you know, longs and shorts through the system.

But for the most part, when we acquired National Steel and we put the system together, we were very well balanced with very few bottle necks to really preclude us from running things full.

So, other than some long capacity on a hot strip mill, we're pretty well balanced throughout the system.

Thank you very much.

Thank you.

Next question comes from the line of Brian Rayle with FTN Midwest Research.

Please go ahead.

Good afternoon.

Most of the detailed questions have been answered.

I wanted to talk more, like long-term, conceptually, about contract business.

We've been hearing that a lot of contracts, whether or not it's yours, are indexed in some cases obviously to scrap bundles or even AMM spot prices.

Do you see that that being sort of a temporary event in '05 and something that goes back to a little bit more normal levels going forward?

And also the contraction of the contracts, which by most estimates kind of have gone from 36 months on a long end to more like 12 months on the long end.

Thanks.

It's a good question, Brian, and that really will be -- the answer to that will be developed between our commercial people and our customers, sort of individually over a long period of time.

The only thing I would say is in conversations I've had with customers, some that are large, traditional, long duration contract people and others who are on the shorter end of that, everyone's a little uncomfortable with having to manage their price expectations solely in the physical market, solely through a fixed price contract and solely for a certain period of time.

There may be some interest in trying to arrive at solutions on both sides that sort of meet our expectations a little bit better.

I don't -- I can't predict.

It's a very good question, I wish I could.

But I really can't predict whether a year or two from now we'll see that there's more business on a longer or shorter term or there'll be more business with some element of variable piece to it, based on whatever indices might emerge.

I just know there seems to be more discussion about that, which is fairly natural, given the kind of turbulence we've had in the market, I think both sides of the discussion are interested in having a solution that provides some stability.

I think stability is a good thing for both us and our customers.

So, we'll continue to have those discussions.

We won't resist conversations that lead to something that provides both of us stability.

But, it's a very good question but a little too early in the game to have a conclusive answer.

Thank you.

Our next question comes from the line of Brett Levy with Jefferies & Company.

Please go ahead.

Hi.

This is actually Jordan Hollander for Brett.

You guys spoke earlier about possible acquisitions in Europe.

Are there any, you know, is there any interest in making acquisition, either in the U.S. or Canada for any of the integrated steel players?

U.S./Canada integrated steel players -- I think that's less likely near term prospect, Jordan, for a number of reasons.

One would be that there aren't that many any more that would be available for acquisition, and aren't that many that would sort of fit the criteria.

I just commented on where we'd have physical market synergies that would make it sensible.

And also values are fairly high right now.

So I think, you know, we would approach all those things with exuberance but would be tempered by the fact that the values are high and it's going to be hard to make something fit.

Great, thanks.

Our next question comes from the line of Daniel Roling with Merrill Lynch.

Please go ahead.

Thank you.

Looking at the Tubular business, John, it clearly is strong.

You made the comment about the rate count is up.

But could you give us some guidance on your utilization rate in that part of the business and what your backlog looks like?

We're running hard on that side of the business, you know, in -- all the way back to the steel shop.

We're really trying to favor the tube rounds coming out of the steel shop in Fairfield, more -- and we can't brag that much, but where we can, we tend to prefer that right now.

So we're making as many rounds as we can in Fairfield.

We're supplementing our rounds purchase agreement in Lorain with a purchase from a variety of parties, and while we do have some capacity on the hot mills at Lorain, we're running most things about as hard as we can, getting about all of the tons out of that business that we can right now to the extent we can locate some additional tube rounds here and there.

We'll kick it up a bit more, particularly, I would expect, in Lorraine.

So we have additional opportunities but we're running hard right now.

Any backlog?

Yes, although that doesn't tend to be a long backlog business.

It's more spot through distribution.

So I can't quote you any backlog numbers to be honest.

It's not something we use to manage that particular segment of the business all that much.

We do know from our, you know, colleagues in the distribution channels, what their pull is.

I think demand is very, very good right now.

And one other question on the metallurgical coal side, agreed, the market is kind of tight, but have you had any problems recently with receiving coal from an existing supplier?

And and are you looking at bringing some coal in from outside the country again?

We have continuing delivery issues from time to time.

Right now, things are relatively stable.

This is probably as stable a time as we've had.

We do have one important supplier who's got a mine on force majeure that we can talk about separately, but save that one issue, we're doing fairly well, transportation is, you know, not easy.

But it's okay.

We -- other than maybe occasionally doing some coal from Canada -- that qualifies as out-of-country -- but really nothing else that would be seaborne.

So, I think our coal supply, by and large, is coming from Appalachia.

And given our locations, that's not a bad place to have it from.

So I think on the coal side, we're -- it's a difficult market but we're probably more well situated now than we've been for the last year or so.

Thank you.

Our next question comes from the line of Ron Gutlich of Elmridge Capital Management.

Please go ahead.

Hi, guys.

Hi, Ron.

One quick question.

I want a little more strategic.

One is just as -- in regard to the question before about reconciling cash flow with the debt paid out, looks to me like you had -- at least from looking at your balance sheet, it looks like a 400 million working capital build.

I wonder if there's any -- you don't break out short-term debt.

Was there any short-term debt pay down in the quarter?

No.

No.

I mean it's pretty clear.

Current liability's up -- down 200 million, current assets up 200 million.

That equals four.

That's pretty simple math.

Yes.

With that -- yes.

I guess -- I think we're going to have to get back to you on that, but it's not -- our working capital changed in the summary press release we gave you is a net 160, and, you know, there's going to be some other --

I imagine the property settlement's in there.

Yes, the property tax settlelement's in there.

That's about 70.

We've got some deferred taxes that are favorable, so, you know, I think it will just be sorted out with, you know, once we get our cash flow statement filed in our Q. Because we have a little bit more detail.

We can only do a summary one in time for the -- to get the release out.

So -- our working capital changes are in that 160 that's in the press release.

More strategically, I'm still a little, almost incredulous now, that when your stock is trading at 2.5 times EBITDA that you think the world is aware -- you can look at, you know, what's happened to coal and iron ore -- that there are shortages of these assets, that you could actually do better buying some undiscovered, which would, again, strike me as a rather tough job, raw material asset rather than your stock at 2.5 times, and want to understand how you see the market different than the other U.S. producers whose balance sheets, in some cases, are the same as yours or even worse on buying back stock.

I can't comment on what the other producers see, but we see the fact that we do have an uncovered raw materials position in Europe and we think if we could make some inroads on that through ownership or contract or otherwise, that would be a good thing to do.

But only if it's going to be a value-added thing.

We wouldn't do it just for the sake of doing it.

And if the values are too high, we won't.

And if I implied undiscovered, I didn't mean to.

There are some that are undeveloped that are well known and others where their expansion projects were having a customer be part of that is not uncommon, and the resource value is only one element of what the cost in it would be, but that sounds like we have more specific things than we really do.

So I just think there could be an opportunity to do that.

If it was the right [inaudible] if not, we won't do it.

And then the general question of our share buybacks, we've talked about before.

I think there we just have to make sure we look at that together with everything else in a balanced way and look at it every quarter.

Our next question comes from the line of Tony Rizzuto with Bear Stearns.

Please go ahead, sir.

Thank you.

Good afternoon.

Very strong quarter.

I've got a couple questions.

I don't want to beat a dead horse but I did hear your profit maximization comments, but that works fine in a market that's not over-supplied, but if we make an assumption and maybe the market might worsen a little bit from a standpoint of oversupply, we don't know how it's going to turn out -- but how would you categorize?

I mean, would you guys be willing to idle capacity in your system?

And I guess, what would you categorize as being your swing capacity, if you could look at it that way.

If the market were to continue to weaken, would it be a plant like Granite City?

Could you just discuss that, John, and your views there?

I have another question, too.

Sure, Tony.

It's hard to give you a definitive answer without actually going through it, but what we tend to do and we would certainly look at what the market situation is and what our operating situation is and if there was a way to try to make sure we didn't overproduce, we would certainly consider all that and have in the past.

There's no news there.

We've done that before on and off over the years for a long time.

The way we look at our operations now is more as a system, not so much as individual plans that are sort of operating separate business units.

And our operations planning people are very, very nimble now and able to move orders from plant to plant to make sure we keep certain facilities loaded.

So we'd really have to see if we got to a certain point like that where whatever market sector, some weakness may be exhibited and if that's where we don't have as much of a book what we would want to produce and where.

And that could result in Granite City being a location where we might not want to produce as much or another location not being as much.

We'd also have to look then and see what our scheduled outages were and what we'd want to do that might be different, we might change, we might accelerate.

That's a fairly complicated question, not just one that says we want to take X or Y number of tons out of the system.

It's more of a system management and one that may not be so obvious as just to say we're going to take this or that out of one place.

It may be a much more subtle shift, as we mover our assets to focus on one market or another.

But we're not to that point yet.

We're not necessarily frightened by it or intimidated by it.

Okay.

And the other question I would have is, just perusing some valuations for some of the global steelmakers, including yourselves, you certainly are now in a very small company with some of the most undervalued steel equities I think, on the global landscape.

The question I have I is, do you guys currently have an authorization in place to buy back stock?

I know that's not a big thing to do, but have you explored or, you know, maybe it's not a bad idea to think about exploring possibly a Dutch tender.

I know there's other companies that have done so with a good level of success, and the stock prices reacted very favorably to that.

Just a comment on my part.

To answer your question, we do not have an authorized repurchase program.

And we take your advice to heart.

We've looked at all sorts of things, and that among them.

But we'll make sure we look at it again.

All right, John.

Thanks very much.

Thank you.

Our next question comes from the line of Marty Pollock with NWQ Investment Management.

Please go ahead, sir.

Hi, John.

Hi, Marty.

Excellent quarter.

The thing that I haven't heard really being questioned, and I'm just kind of looking at your supplemental charts.

As we look at Q1 versus Q4, you've got a significant increase in average pricing for both the U.S., you know, out of the European operations and the U.S., and I'm just wondering relative to to mix and maybe contract pricing, what's really going on that's in effect -- even with a soft spot price in Q1, that we're actually seeing this incredibly, let's say, strong average pricing per ton.

Is part of this -- I'm wondering whether it's spread that you've got there, or just again, maybe the impact of contract pricing catching up.

I think you've got it analyzed.

In Europe, I think it's just absolute pricing is stronger and, you know, some of this is priced in Euros.

That gives us a few more dollars as Euros, in general, have been somewhat strong.

But in Europe it's been just mostly absolute pricing.

And then in the U.S., the number you're looking at is 623 a ton to 650 a ton.

You could observe easily from public sources, Purchasing Magazine, or CRU or whatever, that spot prices during that time have trended down.

The fact that our average prices went up, you would correctly conclude that contract pricing improved substantially.

And I don't know that there was a big mix effect in there.

I think it would be the two effects you observed: spot down and contract up strong.

Are you suggesting, again on Europe, that it's strictly pricing as opposed to any kind of change in mix?

Europe would have had some mix improvement over that time but really from December through March, not much.

We might have had a little bit better run on the motor laminate line, a little more [inaudible] here, but not substantially.

In Europe it would be mostly price.

Just absolute price.

And again, that market saw some substantial price increases along with raw materials moves.

Let me just reiterate also, obviously, the comments everybody's been asking about share repurchase.

Clearly, the $0.02 dividend increase you put in place today, I believe we're talking 10 million annualized.

It seems that you're either going to take a stab at this notion of creating value by a more significant share repurchase.

So really, if you are going to do something, it should be in a sense a much higher payout.

At least on a link basis what you're really saying is we think we can afford to give investors another $10 million this year, but that's it.

Again, I would like to reiterate this point, because it seems that returning value to shareholders is one of the reasons stock multiples receive higher valuation.

That's kind of in a sense the basic primer for investors.

Thank you, Marty.

We appreciate your point.

Our next question comes from the line of Frank Dunau with Adage capital.

Please go ahead, sir.

I have a couple questions.

On the realign, would it be fair to say the current market softness is helping you do your whole system up so can you do this realign with minimal disruption?

Well, we were playing for it anyway.

I mean, the fact that in certain markets the demand hasn't been as strong provides a little more capacity to cover what we otherwise would have tried to cover.

A bit easier.

But we were planning all the way along to have it covered.

Okay.

And if I did my arithmetic right, when you made the announcement this was going to -- once you were done with the realign, it was going to add about 900,000 tons of incremental capacity?

From where we're operating that furnace today.

Okay.

So, is there any thought to simultaneously taking down other capacity or are you just going to run with more capacity?

Well, I think we'll see what the market provides.

We have an expectation that in the North American market, which is short to begin with, then if imports are moving in a fairly priced way, we think we can beat quite effectively and run our facilities full.

And just to beat a dead horse, the least you can do is make an authorization.

I mean, not to run without an authorization is, I don't know, seems like not altogether -- I don't want to use a bad pejorative term.

But if something happens and you want to buy the stock, that -- have to confine your board members on someday in order to do it seems a little silly.

You ought to just give yourself the ability to do it without having to make. telephone call.

Good advice.

We appreciate it.

The final question comes from the line of Michelle Applebaum with Michelle Applebaum Research.

Please go ahead.

Oh, hi.

Cool.

Hi, Michelle.

Okay.

Left field out of the box, you're stirring off a lot of cash and I think that you are seeing people express kind of a preference for what to do with the cash.

Thinking out of the box, your company had -- let me ask a different way.

Would you be looking at any businesses adjacent to your own business?

I think you've highlighted that the opportunities in your own business are somewhat limited.

You've got some core competencies and I know you're hearing people comment on raw materials being kind of maybe buying at the top of the market.

What about other industries?

There are industries that are suffering because of what's happening with sale prices, where you might have some complimentary competencies.

Are you thinking about potentially adding a related line of business?

Not in any serious way, Michelle, but it is a good point.

We did go through a fairly lengthy roundup, strategic plan process last year to examine all those kind of things.

What we've been doing since then is really the result of that.

We looked at whether we wanted to be further up or further down than the stream that we're in or if somewhere else open the periodic chart, and concluded that given where we are in the market, given where we are with some obligations that have [inaudible] not quite raised just yet that we still do have a more cautious and responsible balanced approach to all this and that things that would be adventuresome probably don't fit our profile right now.

Okay.

So even something as plain vanilla as maybe distribution or something a little bit further, maybe parrots [ph] or roll forming or something, that would be adventuresome at this point.

We're already in some of those things.

We do some blanking and some laser welding.

We've got some joint interest in all those.

We don't see that as a terrific use of our capital right now.

Okay.

Thank you very much.

Thank you, Michelle.

I agree with the buyback people.

Thank you.

There are no further questions.

Please continue.

I'd like to thank everyone for participating and we look forward to talking to you next quarter.

Thank you all.

Ladies and gentlemen that does conclude our conference for today.

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