Steel Dynamics, Inc. (STLD) Q1 2014 Earnings Report, Transcript and Summary

Good day, and welcome to the Steel Dynamics First Quarter 2014 Earnings Conference Call. At this time, all participants are in a listen-only mode. After management’s remarks we will conduct a question-and-answer session and instructions will follow at that time. Please be advised that this call is being recorded today, April 17, 2014, and your participation implies consent to our recording this call. If you do not agree to these terms, simply disconnect. At this time, I would like to turn the conference over to Marlene Owen, Director, Investor Relations. Please go ahead.

Thank you, Melissa. Good morning, everyone, and welcome to Steel Dynamics First Quarter 2014 Financial Results Conference Call. As a reminder, today’s call is being recorded and will be available on the company’s website for replay later today. Leading today’s call are Mark Millett, President and Chief Executive Officer of Steel Dynamics; and Theresa Wagler, Executive Vice President and Chief Financial Officer. We also have the company’s operating platform leaders, including Dick Teets, President and Chief Operating Officer for our Steel Operations; Russ Rinn, President and Chief Operating Officer for our Metals Recycling Operations; and Chris Graham, President of our Fabrication Operations. Please be advised that certain comments made today may involve forward-looking statements that, by their nature, are predictive. These are intended to be covered by the Safe Harbor protections of the Private Securities Litigation Reform Act of 1995. Such statements, however, speak only as of this date, today, April 17, 2014, and involve risks and uncertainties related to our metals business or to general business and economic conditions which may cause actual results to turn out differently. More detailed information about such risks and uncertainties may be found at the Investor Center Advisory Information tab on our Steel Dynamics website and our Form 10-K annual report under the captions Forward-looking Statements and Risk Factors or as applicable in subsequently filed Form 10-Q filed with the Securities and Exchange Commission. And now I’m pleased to turn the call over to Mark.

Thanks Marlene, good morning everyone. Hopefully, you are all preparing for an enjoyable and safe holiday weekend, and thank you for joining us today, because we truly value your time. Nature certainly showed its fury this quarter, and I believe we weathered the storm better than most, and we are moving forward. And we have made great progress, I do believe on several fronts. And I will expand on that little later. But before we begin, I ask Theresa for brief comments concerning first quarter financial results.

Thanks Mark. Good morning, everyone. Our first quarter 2014 net income was $39 million or $0.17 per diluted share. It was on the upper range of our guidance between $0.13 and $0.17. This compares to net income of $55 million or $0.24 per diluted share in the fourth quarter of 2013. Even though our net sales of $1.8 billion only decreased minimally compared to the fourth quarter. Operating income declined $27 million or 25%, this was largely due to weather. The severe weather conditions that existed throughout much of the first quarter significantly reduced earnings. Conversion cost at our Midwest steel mills increased due to higher electricity and natural gas costs. Production was reduced due to power company curtailments, and shipments were reduced due to lack of available rail cars and trucks for delivery. All of our businesses were negatively impacted in some way, and our steel operations were impacted the most. Operating income from our steel operations decreased $47 million just over 30% compared to the fourth quarter. Total shipments decreased 6%, but the severe weather impacted our sheet and structural steel operations the most. At these locations, shipments decreased, and we recorded significantly higher electricity and natural gas costs. However, stronger order activity toward the end of the quarter, and the resulting growing backlog, suggest that our customers end market demand is steadily improving, and that reduced first quarter volumes were related to the winter weather. Operating income from our metals recycling operations, decreased by $2 million compared to the fourth quarter. The decrease was directly related to costs associated with building damages from excessive snow accumulation, again weather related. Operationally, ferrous shipments and metal spread were generally flat, while non-ferrous shipments increased and metal spread improved. Fabrication is the bright spot, demand continues to strengthen, from the…

Thank you, Theresa. We will begin with safety, which is the absolute highest priority for me, for each employee, and for our families. And simply said, our goal for all our employees is to work each day incident-free. Even though our results are better than industry averages, there’s more to be done, and we are making progress. Our continued focus on safety is affecting positive change. Many of the teams achieved zero recordable incidents in the first quarter. My personal congratulations and thanks to those teams. A zero-incident environment is definitely achievable, and so to our team, I challenge you to that goal and keep up the great work, and I look forward to more improvement throughout the year. I also want to take a second to recognize and thank a vast majority of our employees throughout the different business segments for working effectively and most importantly, safely through the extreme cold temperatures and inclement weather conditions that occurred this quarter. And especially the men and women in Minnesota. They truly live through a brutal winter, and I thank you. So it’s not news that the winter was tough, not just for the metals industry, but for the broader economy as well. Extreme temperatures and record snowfall hindered movement and consumer activities, delays and cancellations for both rail and truck transportation were prevalent. Significantly in equipment ferrous, major highways, secondary roads experienced closures. Basically, transportation was a mess, and led to the interruption of delivering of supplies, and raw materials, and shipment of product. Furthermore, energy costs went through the roof, with both gas and power curtailments. Consumers stayed at home; building sites were shut down. So I think it is no surprise, and honestly, that numerous key economic indicators were negatively impacted, and consumer settlement declined. But as I…

Sal Tharani – Goldman Sachs & Co.: Good morning, Mark, Theresa and Dick, and everybody.

Good morning, Sal.

Good morning.

(indiscernible) Sal Tharani – Goldman Sachs & Co.: Thank you. A couple of questions on Mesabi. You mentioned the weather, and obviously, the project is in northern Minnesota, which obviously gets colder. Of course, there is no question that it was worse winter than we have seen in many years. Is this – did this stop you from doing your changes that you wanted to do, or the trials you wanted to run, to make sure that process improves? Or is it impacting your – if this process was running regularly, fine, would that be an issue going forward, also, if weather gets worse? Or was it just because you weren't able to run those special trials because of the weather?

Well, I think from the standpoint of availability of the plant to produce, I think the team did a marvelous job. It did drop-off a little bit compared to summer months. But each winter, I think the team learns and slowly and improves and closes certain things, and that will just continue to improve. I can’t say that weather didn’t impact the availability of the plant, but that will improve and can be eliminated I think going forward. I think the weather did delay the trials. Again, we shut down for a couple of weeks natural gas cost which is prohibited, it would have been nonsensical for us to continue to run at that moment of time. So that obviously delayed things a little. And certain raw materials that we want to trial, we just couldn’t get them to the plant. Obviously the lake conditions remain pretty severe. Lake Superior is – I think has still about 90% ice coverage up there. And so that’s going to continue to give some protracted problems, I think to a variety of different companies. But it’s just a matter of getting the raw materials up there. The mills turn to rail to get the pellets to their plants, and they wield a bigger stick then we do. And so certain raw materials just didn’t get there until mid-April. They’re arriving and the trials, the definitive trails that we outlined in the past we’ll be completed, we think in the next two, three weeks. Sal Tharani – Goldman Sachs & Co.: When you mention raw material, isn't iron ore coming from the Magnetation joint venture, which is very close by? Is there some other raw materials we shouldn't get on the – from – through the Great Lakes?

Yes, the iron concentrate from mine resources is hasn’t been a problem. There are other raw materials fluxes, different fluxes, and binders that we have been trailing, or want to trial to reduce the operating cost. Sal Tharani – Goldman Sachs & Co.: Got it, that’s very helpful.

But I think the learning curve has, as I said, have been very, very steep, I am more than confident that plant availability can be in excess of 85%, they have proven it time and time again. We’re confident that we can get to 30,000 tons or slightly more per month, we don’t feel that’s a problem. The recent trials have certainly reduced the volumes generation which has been a focus. And I think we see an opportunity for the cash cost structure to be in the range as other products being constructed in the country today. Again we need to verify that and be sure that, with the trials we have planned in the next two, three, four weeks. Sal Tharani – Goldman Sachs & Co.: And the other thing I have is that your operating income in the omni-source was $9.5 million, which was mostly offset by Mesabi Nugget's $8.9 million. I am just wondering, do you still have a loss of $11 million in the metals recycling? Or was it strictly IDI, which was a big component of that $11 million loss?

No, Sal actually you are mixing apples and oranges a bit. So the $8 million that you are referring to for Minnesota that we have in the press release, that is a net of tax number and the other numbers you are talking about are operating numbers. So you can’t combine the two because if you are looking at from the operating level, you have to also include the portion of losses that are not ours because it’s a joint venture. Sal Tharani – Goldman Sachs & Co.: Okay, and was IDI profitable?

Yes it was. Sal Tharani – Goldman Sachs & Co.: Okay. All right, thank you very much. I’ll get back in the queue.

You are welcome.

Thank you. Our next question comes from the line of Dave Katz with JP Morgan. Please proceed with your question. Dave A. Katz – JPMorgan Securities LLC: Good morning. I hope you are doing well, looking at the order backlog you made several repeated dimensions of it being stronger than it’s been in nearly two years. So can one look at that and then conclude that absence, the expansion that you guys have completed that volume will be reasonably up compared to the past two years second quarters?

Well, don’t forget the – I think I tried to articulate this. The SBQ expansion did shipped some prime material just before the end of the quarter, as kind of advertised. They are going to continue to commission and fine-tune the process there. So I wouldn’t anticipate meaningful volume, right, Dick? In the second quarter, but then in the third and fourth quarter that will start ramping up. Similarly for rail they did ship some material, prime head hardened rail, that’s gone out to Class I rail routes for their final approval. And so that’s going to be a sort of a commissioning trial for the next few months, I would think. Right?

That’s correct. I mean again when you are talking backlogs we talk about backlog strength, how far it gets pushed out not necessarily the volume increased because when you are sold out, you are sold out. And so when we talk about the commissioning of the number two mill or what we are calling at the (indiscernible) in Pittsboro. And we are only rolling let’s say 2,000 tons a month on it right now, and commissioning different products on it, when you have a mill that’s shipping 55, 000 to 65, 000 tons a months adding 2000 tons to it doesn’t add a tremendous amount of volume. And I think we get by the end of the year if we get up to a 16,000 tons a month that’s not a tremendous amount of volumes being added to it, but it is extra volume. Again with rail we are adding the premium rail to it, but its displacing standard rail. So it’s again the strengthening of the margin, but it’s not necessarily strengthening the order book. Our shipments there though have been improving, we definitely proving over the first quarter because of the weather and so forth. We had – I think our second heaviest shipping month in the month of March at Columbia City versus the history going all way back to 2007. So the market in whole from beams as well and now they have the additional product of rail to ship versus then, but things are improving there to. But we still have a ways to go to fill out Roanoke because of the commercial products that we make there, it is still a bit weak. But Steel West Virginia is full. Again backlog is strengthening there, but that’s extending, not necessarily more volume coming out of the mill. Dave A. Katz – JPMorgan Securities LLC: Okay, and then with regard to capital expenditures on the previous conference call, you guided to expenditures in all of 2014 of $125 million to $150 million or about $30 million of that was CapEx that was going to be carried over into the first quarter, it didn’t look like that occurred. So a little more clarity there?

Certainly, I still expect CapEx to be in that same range for the year, some of the CapEx relates to the carryover I’ll just speak that in the second quarter rather than the first quarter and that just has to do with how far along we make the payments when we are completing projects, sometimes – even though the project is completed we extend the payments beyond that. Dave A. Katz – JPMorgan Securities LLC: Okay, and at that time, you’d also said that, you thought it could be more because that was historically relatively low number reflecting lack of specifically identified growth projects, by saying that you still expect it to be 125 to 150. Is that an indication that you haven’t identified any additional growth projects that you are definitively going forward with that at this point?

I would say that we certainly identified potential growth opportunities; we haven’t press the trigger on any one of them at this moment in time. Dave A. Katz – JPMorgan Securities LLC: And when would you anticipate having some additional clarity into those?

Well, in the future. I don’t need to be quiet, but we’ve never had a habit to preempt our potential growth opportunities and so we actually want to go forward –their approval. Dave A. Katz – JPMorgan Securities LLC: Okay, I’ll wait until the future then. Thank you.

Thank you. Our next question comes from the line of Evan Kurtz with Morgan Stanley. Please proceed with your question. Evan L. Kurtz – Morgan Stanley & Co. LLC: Hey, good morning Mark, Dick, and Theresa, hope you are doing well.

Go on. Evan L. Kurtz – Morgan Stanley & Co. LLC: Just wanted to try to get a sense of how – position you’ve been in the second quarter I mean, we all see that lot of your Flat Roll competitors in the Midwest are dealing with, lack of iron ore and couple of specific mill issues and is Butler going to run full through the second quarter, do you have any maintenance you need to take there? How you’ve been able to capture some of that share that’s going to hanging out there?

I think the – well, let me take a crack at just go through our platforms and then, and directly or fill in the color. But at Butler, we have a very, very strong order book as we’ve always said, we tend to maintain lead times to a four-week sort of cycle for the Hot Band and probably six weeks for value add. And we all there today, and as we typically do, next week, we are likely open up the order book backup for June. So hopefully the – we can leverage the uptick in the market to a small degree. And certainly there is tightness and there is a lot of press regarding shortages of iron ore and constraints on the integrated side. But I think beyond that as I said earlier, we still see growth in demand. And I don’t think people necessarily recognize how bad the weather has impacted the economy in the country. The flat rolled I think it seems obviously strength the automotive is still very strong, people were a little concerned with the inventory build in January and February. Hey, want cars buried in 3-feet of snow not many consumers are going to buy a car, the auto sales I think we abounded in March to one of the highest sales since 2007 all their effects. And a prediction to continued strength in that arena, manufacturing is seems to be little less at least from our view point. And although the residential indicators for March were a little mixed, we still are confident that is rebounding. And again I am not so sure why people were somewhat disappointed when the numbers came out yesterday its snow here in (indiscernible). So if we weren’t seeing some through about a week or so it’s going…

Yes, I will throw the color in on that because only market everything correctly that from an availability standpoint we did have maintenance outages scheduled there. But we decided to push those off because we can’t, we had four day outage plant here, our spring outage that was going to occur here in the second quarter. We decide to push that into third quarter because we can and we had an upgrade outage plan for June in Jeffersonville that for a speed increase and so forth for our Galvalume coating line that we’ve pushed that into July. So that we have the opportunity to be a bigger player in the marketplace because of some of the curtailments that are going on in the flat-rolled arena, so we could make our products available and some of it is because of issues going on, we have to – we’re going to step up and help our sister division in Pittsburgh The Techs or as they reach out and gain much of their supply, most of your supply normally from the marketplace, and with the tightening going on in this why we will now supply a bigger portion that we normally would, we’ll do it ourselves from the Butler plant then by taking outages into the next quarter and give the marketplace a chance to recover from some of these issues that it’s currently seeing itself. And we’ve already from the other plants, we went through our maintenance outage at Columbia City and every things running well there. And so that is up to snuff. We have small furnace outage going to occur in May in Pittsboro, but their customers won’t see that because we have a full of supply and we’re currently going through a maintenance outage in Roanoke, but when it comes back, again we ship most of the outage inventory there, so customers won’t have any issues. And in West Virginia there’s new fall. So there are no issues that Steel Dynamics very strong and healthy.

As I mentioned earlier, we get I think a good visibility into where the construction arena or market fell through. So Chris, would you just fill in.

Sure, Mark. As you and Theresa have already noted the joists market has continued its steady pattern of growth recently. I think some historical perspective on recent industry trends is important to give some color between 2009 and 2013, typical fourth quarter sales increased in total by approximately 50% typical bookings 2013, 50% higher than 2009. The rate of change increased in 2014, fourth quarter 2014 bookings were 25% higher than fourth quarter 2013. We said that’s been a very impactful change for the industry. The trend has continued in the first quarter of 2014, industry bookings were up over 7% year-over-year. As far as short-term indicators going forward, our current code activity remains at or above the levels that have supported that recent increase in demand. And our longer-term indicators like the ABI and the like, are still positive. That’s about as good as our crystal ball gets as far as the industry goes. I would say as far as new Millennium goes, the crystal ball is clear, we’re very excited with the direction the industry is having, given the retooling we’ve undergone over the last five years, and the expansion in the capacity in new markets. We have opportunities to do exciting things this year and beyond.

Thanks Chris. Evan L. Kurtz – Morgan Stanley & Co. LLC: And just to clarify did you say that first quarter 2014 with 25% higher than the backlog in the first quarter of 2013 is that right.

I was speaking to industry bookings just in general I apologize if I wasn’t clear. Fourth quarter of 2013 was 25, I’m sorry, the fourth quarter 2013 was 50% higher than fourth quarter 2009. Evan L. Kurtz – Morgan Stanley & Co. LLC: Gotcha, okay. Great, well thanks for all the color guys. Thank you.

Thank you. Our next question comes from the line of Nathan Littlewood with Credit Suisse. Please precede with your question. Nathan D. Littlewood – Credit Suisse Securities LLC: Good morning, guys, and thanks for the opportunity. I just had a couple more questions on this whole market share opportunity. We noticed that your days in inventory has increased from a two-year average of about 65 up to 73. So clearly, you were producing a little bit more during the quarter than what you were able to push into the end markets. And it sounds like that is largely transport-related. I was just wondering if you could talk a little bit about the composition of that inventory, in terms of where it is, what type of product it is. Is there anything unusual about the split of that material?

I will take that Nathan, this is Theresa. The inventory finished goods were increased specifically at the Flat Roll Division and the Structural and Rail division and it was specifically related to not been able to get transport out from the mills to the customers. So it’s already basically sold it’s just need to be transported. So I can but I will breakdown the specifics about the individual products that rail was related to Flat Roll and Structural. Nathan D. Littlewood – Credit Suisse Securities LLC: Got it, okay. And with the Butler operation specifically, just to confirm your earlier comments, that thing is basically running flat out at the moment? Is that correct? There's no opportunity to increase utilization?

That’s correct. Nathan D. Littlewood – Credit Suisse Securities LLC: Okay. And when you look at the sales for Butler, can you tell us what the split is there, in terms of contract versus spot tonnage?

Well, none of our business is contracts from the standpoint of any fixed price. We have some arrangements for the on a cost plus basis. But I would say it’s on, its not a whole bunch – definition, its probably 15% or there about. Nathan D. Littlewood – Credit Suisse Securities LLC: Okay. So I am just wondering, will we see a pretty direct transfer of the recent increases in spot prices created by CIU or [Plattes] (ph) or whoever? Are we going to see that pretty much fully reflected in June quarter average selling prices, do you think?

I would suggest you will. Nathan D. Littlewood – Credit Suisse Securities LLC: Yes, okay. Finally, there is obviously a lot of weather disruption right across the entire business during the March quarter. I'm just wondering, are any of those events and impacts that you felt, is any of it insurable? Or could we potentially see a recovery, at some point, of some of these disruptions?

The only part of that’s insurable with very, very small part and that’s relate to the damage to the building because it’s snow accumulation and it is a de minimis amount. Nathan D. Littlewood – Credit Suisse Securities LLC: Got, it. Okay.

As you translate the weather impact, as Theresa outlined, yes we had some inventory builds and so the Structural mill and sheet mill, will makeup some of those shipments. Or get some of that inventory out, so that’s recoverable, but much of the – much the impact to us anyway was on the cost side. Natural gas and power, and obviously that’s not recoverable. So as you look forward if you look at our first quarter, second quarter is two plus two equals four and you think that now first quarter is one and you are going to get three in Q2, that’s not going to be the case.

And I think for the record both natural gas and electrical power either by contract or by hedging, we have positions taken, but no one expected the duration of these experiences to last and then at every mill we had the power company step in and exercise interruptions that were part of the agreements we have had. Where we had no ability to even by through where we were offered by through opportunities, the price was so expensive it would have been even worse than the losses incurred by not producing on those days. And so decisions had to made. And I can remember one day when there was a natural gas pipeline explosion in May and October the following day there was a natural gas curtailment here in Indiana at some of our – were only the amount of natural gas that we had pre-elected, we were allowed to use in that curtail of our production in any of the facilities where we had not pre-elected sufficient. And again what under no other circumstances in history of the company had we had to pre-elect sufficient, because we didn’t know what you ever we are going to be producing. So these are – just like the 100-year flood. We had not anticipated a natural event like this. Nathan D. Littlewood – Credit Suisse Securities LLC: Understood, understood. And some of your competitors have been willing to discussing some detail sort of the actual prices they have been paying for electricity and gases. Is that something you would be willing to talk about, so we can maybe have to go kind of reversing it out as we look forward into the rest of the year?

Well, market prices are I think publicly available. That in the natural gas line decatherm at one point in places. For you to back calculate or try and guess is it – it’s incredibly difficult because on the power side we got many different contracts, Lumber city tends to be a market price. Butler is pretty well on a fixed-price. Incorruptibility hours which is difficult to quantify and same thing on the natural gas side. Nathan D. Littlewood – Credit Suisse Securities LLC: Okay. Thank you very much, I appreciate your time.

Thank you. Our next question comes from the line of Nick Jarmoszuk with RBC Capital Markets. Please proceed with our question. Nick Jarmoszuk – RBC Capital Markets: Hi, thanks for taking the question. First one is on the segment of cash flows. Could you give us a little details to the sources of cash coming from other investing activities?

We had a sale leaseback arrangement with another company and they elected to buyback that property and so that basically was $27 million and that’s really into the cash flow. Nick Jarmoszuk – RBC Capital Markets: And than in 1Q 2013?

In 1Q 2013 the amount was $34 million and that was simply associated with we had some investments that were not – they were not categorized as cash, even though they were short-term and so that was just bringing those investments back into a cash profile, so they had to run through the cash flow statements. Nick Jarmoszuk – RBC Capital Markets: Okay. And then just a follow-up on the energy and natural gas question. Would you be able to give us a sense as to what the year-over-year increase in energy and natural gas costs were in 1Q 2014 versus 1Q 2013?

I don’t have that in my finger tips here.

I can’t answer that question; I don’t have that in front of me. It was meaningful, we tended to look at it as first quarter costs, how much higher they were than the fourth quarter costs, and you kind of look more on a sequential basis than quarters. And it was definitely in the tens of millions of dollars impact. Nick Jarmoszuk – RBC Capital Markets: Okay. That’s all I had. Thank you.

Mark, can I make a clarification for the next question.

Yes, go ahead.

I was talking 2013 and 2014; I apologize if I confused everyone. The one caller about joist bookings, I just like to restate, between 2009 and 2013, typical fourth quarter sales increased by approximately 50%, after that increase came between fourth quarter 2012 and fourth quarter 2013 alone. The first quarter of 2014 7% over first quarter of 2013. Thanks for letting me clarify that.

Thank you. Our next question comes from the line of Brett Levy with Jefferies. Please proceed with your question. Brett M. Levy – Jefferies LLC: Two questions. First of all, Pittsboro, as you ramp up here, do you think – what’s the portion of the ramp-up that is market share gain? And what is the portion of it that was actually just growth in the market? And versus your original expectations, do think the ramp-up time will be as quick as you hoped?

Are you talking rail?

Yes, Pittsboro.

Pittsboro. Brett M. Levy – Jefferies LLC: It's Pittsboro, SBQ.

I guess we’ve – based on our thoughts and investments premise in that – much of that 325,000 tons is going to come from the market share. Brett M. Levy – Jefferies LLC: Go ahead.

And I think if you look at that market, and it’s – the expansion is focused on three and five-eighths of (indiscernible). That’s about 50% of the SBQ engineered market, which is typically 8 to 10 million tons. So we are looking to get 325,000 tons of a – essentially a 4.5 million ton market which we don’t believe is too bigger bite of the apple, particularly when we have the following that we – the team in Pittsboro has been able to get the very, very high quality product. They are focused on the high end of the market; the engineered bar as opposed to SBQ where delivery, quality is absolutely imperative. A lot of that work is – the material, as it goes through an approval certification process for two or three years. And so I think with that following the 225,000 tons of the market is not to

Yes I think Brett, what you had to think about is when we start to considering the project two is actually back prior to the drop off in the market place okay. And so even when Mark talks about the size of a market its not in a recession, it’s prior to recession. And so therefore it’s part of the growth but as Mark is pointing out right now I mean we have had products that have been PPAP-ed. I mean again through the automotive process and other customers. We engineered this whole design of the mill to allow us to continue to make those products smaller sizes for our PPAP-ed customers the delivery of those why we’re commissioning the mill on a non- PPAP-ed, non critical products we are commissioning the mill on those products now. And then we are also now making going to begin making those products that will be submitted to the same customers for their qualification process to become PPAP-ed and then when they go through that process and get qualified then will begin the transition to allow us that take out of the choice in the flexibility of being run on either the 16 inch mill or the 14 inch mill, which ever we desire. So is it part of the rebound into the full size market that we originally contemplated when we talk about the market or are we taking some of the original it’s really what you considering it, it’s the full size market. And we are trying to get a small piece of it the 8% of the small bar market. But it’s the market was smaller than that in the depth of the recession. And so yes is part of the recovery but we are taking market out of the recovery. But is also from somebody else. Brett M. Levy – Jefferies LLC: Got it. Okay. And thank you for a very specific and detailed answer. I have one more question. As you guys look at some of these growth opportunities, are you looking more towards building or buying?

I think as we look at growth and obviously I think we are well positioned to do so. If you look at our balance sheet and our liquidity, our cash flow we’re in great shape. And we are committed to growth yes we did increase our dividend in the first quarter, I wouldn’t want anyone to think that will change in the philosophy of the company as a whole, we are being very specific, and very intentional as to where we grow. We certainly want to not just grow with the size where we want to improve that the quality of our margin. And also perhaps mitigate or soften a little bit of the locality of our business. So we are going to and are evaluating organic growth opportunities within the company or we see some there. I think we are focused on downstream opportunities our teams are very, very confident that in coating and painting arena. We feel this opportunity in rail, this considerable expansion in that arena if you look at the CapEx spending of the major railroads that the anticipation is that market is going to grow with a 1.5 million may be 1.6 million tons of rails for year, as a market is typically been in the 800,000 to 1.2 million tons a year. So we are looking at possibilities there. I think our preference would be not to add capacity to the marketplace. And I do believe that there will be opportunities over the next 12 months to 18 months, where companies are reevaluating their sort of portfolios and seeing what – which businesses accord to their particular – their vision. And those opportunities I think will come to market. And we are in a great position to assess them as they do. Brett M. Levy – Jefferies LLC: Thanks very much.

Thank you. Our next question comes from the line of Brian Yu with Citi. Please proceed with your question. Brian Hsien Yu – Citigroup Global Markets Inc.: Great. Thanks and good morning. I think Dick, you mentioned earlier, with Techs, that you were going to ship some material substrate from Butler over there to displace, I believe, Monde Valley has been the more or less exclusive supplier? Can you elaborate on why the supply there is coming down? Because I didn't think Monde Valley was part of some of the disruptions we have heard. And how many tons are you going to ship from Butler? Is there a meaningful margin impact?

No, I didn’t mean to imply that they are having any problems at Mon Valley. Mon Valley supplies about half of the tons that we consume at The Techs and rest of it is out in the open market. And needless to say Sparrows point was the major – the second major supplier to The Techs once Sparrows point was around. And ever since the demise of Sparrows point The Techs have had go shopping further away and it’s only because of that that the shipping costs have been become more of an acceptable condition with Butler. And we have other good suppliers, I’m not saying we don’t, but with the impact of the general flat rolled market, everyone is reconsidering and when there is tightness in the flat roll market all customers whoever is having difficulties go shopping to their other suppliers asking for more tons. And therefore, then there is more pricing pressure on all of the suppliers and The Techs have a harder time, price-wise, with all those other suppliers. And therefore that makes our shipping rate even lesser than issue. So that’s what I was trying to imply. It had nothing to do with the Mon Valley capability. They are standup guys and they have always – we’ve been a great partner with them there. So I didn’t mean to imply anything whatsoever with US Steel Mon Valley. I'm sorry. Brian Hsien Yu – Citigroup Global Markets Inc.: Okay.

But I think the other issue, or consideration, is that the Dick's team in Butler has done an absolute phenomenal job over the last two or three years and the capacity of that mill is growing from 2.4 million tons up to in excess of 3 million tons. A lot of that was – that expansion was going to be assorted Hot Band, because of the limitation on the coal reversing mill to convert it to cold-rolled and downstream. Brian Hsien Yu – Citigroup Global Markets Inc.: Okay.

And consistent with the – consistent with the innovative sprit, the guys of just recently, two, three months ago.

Yes.

Came up with a way of dramatically increasing the throughput for the cold-reversing mill, so that allow us to convert some of the Hot Band to cold-rolled substrates that can be shipped to The Techs. So it’s given Butler greater flexibility they ship material to The Techs or they shipping into the open market, and it is an opportunity, in all honesty, for margin expansion not margin contraction. Brian Hsien Yu – Citigroup Global Markets Inc.: Okay. Second question, scrap markets, you mentioned earlier, in Q1, export scrap demand was weak. We saw some supply disruptions. Can you talk about what is happening now, in terms of the book, those elements, export, demand scrap supply, shredder capacity. Is it getting better, as we look out into the second quarter?

Hi, this is Russ, I think on the export side we have not seen a big market difference and where we are in the first quarter. It’s still somewhat muted. There have been some additional cargos of the coast. But it is not near the levels that it has been in past years at least at this point in time who is to say what will happen with the disruptions in the Russian market if that has any impact availability of either billets or scrap. But I think the export market is still lagging where it has been years past. So I think from that standpoint I don’t see that having a dramatic impact in the short-term. Brian Hsien Yu – Citigroup Global Markets Inc.: And then the supply side?

And so there is plenty of scrap available and unfortunately lot of has been buried into snow in this part of the world for the last three months. But as the weather warms up and – the scrap is out there its available particularly in the prime side where you see the automotive is really growing are continue to be robust. So that prime scrap has continue to flow the obsoletes, that is the stuff that has to go be collected in the fields has been and so little bit of a slower grade. But I think that will come back as weather or rise again but there plenty of obsoletes scrap in the U.S. it just a matter of, a function of whether its available or what its availability as the weather or what the prices that will attracted to the market place. Brian Hsien Yu – Citigroup Global Markets Inc.: Okay, thank you.

Thank you. Our next question comes from the line of Matt Murphy with UBS. Please proceed with your question. Matt Murphy – UBS Securities: Good morning. I saw the number of steel-makers had been down in Washington. I think Dick went for you guys. And I'm just wondering if you can provide any color on the reception you got there? And what your next concern is? Is it infrastructure funding? Or how concerned are you about the potential for imports, given we've got prices rallying here in the US?

Well, I would say that the I think from the Steel Caucus from the house was a very reception. But you would expect from the Steel Caucus Group because they are at least tuned in, to our play its matter of expanding that warm reception to those who don’t necessarily have steel producers in their home districts. But talking to others as congressmen took me around and gave me some introductions, I think it was at least pleasant visit that I had the opportunity to participate. Again I think the best word that we got from trade groups and so forth, I mean that the secretary was that it was preliminary rulings, that they were still gathering information. We didn’t really understand why that the rulings where, that they where when they were, it seem to be unfavorable ruling and they justify with the fact that they had not had enough information was – that you would have ruled the other direction giving a more favorable preliminary ruling. And still gathered the information and send other signals. But in order what it is. So everyone still anticipating the final decrease it come out. And so I think there is still opportunities and reasons to be optimistic about both all country tubular goods as well as rebar. So and then there are other products out there, that we have to be vigilant about cold galvanized products, painted products, like gauge particular. And so others interesting times, that we still need to be participating with products.

I think on general take is that, imports will continue to be a bit of ahead wind, once the domestic global spread gets up to that a $25, $150 a tons they start getting, attractive or some interest, but I think as the first couple of months of the year indicative of the level that’s going to be sustained the whole year or is it going to be a similar year to 2013, where we seem to get a couple of spikes each year and it just so happens the first spike was at the very beginning. And I guess I would suggest that at least historically and obviously that is been global over capacity for long-time and trade imports unfairly traded imports. Been there for years. Is not a new phenomenon and if you look typically 13, 12 imports are round about $29 million, $30 million tons which seems to be a normalized level, they tend as a percentage of sort a current consumption. It’s in the 20 year-on-year row, it’s about 21, 22 maybe 23% and I don’t see why there is anything to drive sort of a major dislocation in 2014. Matt Murphy – UBS Securities: That’s helpful. Thanks.

Thank you. Our next question comes from the line of Phil Gibbs with KeyBanc Capital Markets. Please proceed with your question. Philip N. Gibbs – KeyBanc Capital Markets, Inc.: Good morning. Thanks for taking my call.

Good morning, Phil. Philip N. Gibbs – KeyBanc Capital Markets, Inc.: Had a question on just the SBQ volume ramp for Dick. Any way we should be thinking about that, as we move through this year, as to what your expectations are on the new rolling mill?

I actually would tell you now that, this year that’s again this is going to be small tons, because we are really working on a high quality as I said it starts with the 200,000 tons and by the end of the year, really honestly believe it gets up to about 16,000 tons at the end of the year per month. And that’s not a big a number of tons and so, most of it is going to be around the lower end of the quality spectrum, because there is still going to be trials the sizing mill was going to becoming into play here until the end of this month, being end of June and again we are going to be experimenting with that we are going to be going through the keep act process of sending those products to customers, we won’t get approval on that early even just of this year. And so because that’s a very demanding process and so I won’t be thinking about major margins on those products, but I think for us it’s a really a 2015 excitement and then big investment for us…

The margin change is not going to be there. On a volume basis, if you look at the mill, you’re going to have growth in the market because last year was a tough time for SBQ and engineered bar. Plus you’ve got the additional smaller-diameter, so overall volumes I think quite likely could be up dramatically. Philip N. Gibbs – KeyBanc Capital Markets, Inc.: Okay, and if I could just squeeze another one here for Theresa. The corporate eliminations, they were high in the fourth quarter. I think we talked about that on the last call. This quarter, they were low. Some of that probably due to the sequential change in the profitability. But just wondering, how we should be thinking about that? Because it has moved around aggressively the last two quarters. Thanks.

Certainly, yes the fourth quarter still had some additional cost associate with year-end adjustments related to bonuses et cetera. And so and there was also additional expenses related to an RSU program. And so going forward you’re probably going to see a – and more inline with what you’ve seen in the first quarter and I wouldn’t expect dramatic changes from that. Philip N. Gibbs – KeyBanc Capital Markets, Inc.: Thank you.

Thank you. Our next question comes from the line of Andrew Lange with Morningstar. Please proceed with your question. Andrew Lange – Morningstar Research Ltd.: Hi, good morning. Just one quick one for me. With regard to nonferrous metal recycling, it looks like nonferrous shipments, as a percentage of total scrap shipments, was higher in the first quarter, than it has ever been before, at a little over 16%. And also, you shipped more nonferrous volume internally in the first quarter than in any full year previously. Could you provide some color as to what drove these results? And are these elevated nonferrous shipment volume levels sustainable going forward?

Andrew, this is Russ. The big impact of the nonferrous shipments level is the ramp up and the ramp up of our joint venture SDI/Lefarger copper mill. The bulk of that increase is coming from those shipments as we’ve finally begin to ramp up and produce on a more elevated basis with that joint venture. So I think, yes, the answer is the nonferrous those numbers would sustainable going forward. Again part of the percentage difference also I’d say on the – versus the ferrous, it’s also due to the fact that ferrous shipment hold ups and the transportation issues slow down some of what we likely could have gotten up on the ferrous side, not a huge impact, but it has some impact on ferrous shipments. Andrew Lange – Morningstar Research Ltd.: Okay, and as that JV ramps up, do you expect those figures to even to increase from here? For internal shipments?

We are planning on.

Yes. Andrew Lange – Morningstar Research Ltd.: Okay, thanks a lot.

Thank you. Our next question comes from the line of David Lipschitz with CLSA. Please proceed with your question. David A. Lipschitz – CLSA Americas LLC:

Good morning. David A. Lipschitz – CLSA Americas LLC: I guess two quickies. First one, and you haven't answered the whole energy question. Can you tell us in an earnings perspective, what do you think, just in general, all the weather cost you? Would it have been $0.05, $0.10, $0.15? What sort of, if you felt like your normal – where prices were and all that type of stuff, what you think the EPS impact would have been?

David, this is Theresa. Just from the perspective of the fact that they are definitely estimates, we made the decision that we don’t want to disclose that information. It is the majority of the drivers, so if you look at our consolidated operating income and it decreased by I believe $25 million or $27 million. It was a major, major part of that, and I think steel operations specifically decreased $47 million and it was well more than half of that number. David A. Lipschitz – CLSA Americas LLC: Okay. And then my second one is back on the imports. You talked about the percentage historically. But if you look at the numbers already, through the licenses, and you look at what it is through the first part of April, you are running at an import level that’s pretty much – or close to what you saw in 2006, which was the highest sort of level ever of imports. How do you feel when everything starts to get back online? The spread has continued to widen, the US versus the world price? How do you, when US Steel and AK and all them come back online, or – how does that impact the market, with all the imports coming?

Again it’s – I think is a question of spread between domestic and foreign pricing. And markets – commodity markets have a wonderful way of balancing themselves out. The domestic price goes up, because of either demand or supply side pressure. Next the import is attractive, they come in and as we saw in February this year, the domestic market turns over a little bit. And as I said if you look at 2012 and you look at 2013, we had two very, very, very similar spikes, and they lasted a couple of months. So the question is, is the February, March, is that a similar trend, and so we are going to get a spike, things turn over little bit, and they go away and we get another one later in the year or is it a prolonged, protracted issue? I don’t know who has got the clear crystal ball, but I would suggest that we are comfortable that it’s not a 2006 crisis, it’s just an ongoing 2012, 2013 type trend. David A. Lipschitz – CLSA Americas LLC: Okay, thanks.

And, again, I think and plus we are more optimistic than most, but we see demand growth. From our aspect – from our viewpoint, we truly see construction is coming back both on the non-res and the residential side of things, and that’s going to continue to drive our market. David A. Lipschitz – CLSA Americas LLC: Okay, thanks.

Thank you. Our next question comes from the line of Luke McFarlane with Macquarie. Please proceed with your question Luke McFarlane – Macquarie Capital, Inc.: Hi, guys. I’m not sure you mentioned it. But I was just wondering if the railcar issue that you’ve been talking about for your shipment delivery has actually resolved itself?

Sorry, what?

Has the railcar issue resolved itself?

It’s beginning to – it, again, there is still some backup in some areas, but I think by and large, I would characterize that it has started to alleviate itself, and we are starting to see those backup cars moving and delivered and much less interruptions or unavailability of cars for either shipment or from the mills or from the scrap yards. Luke McFarlane – Macquarie Capital, Inc.: Okay, cool, and whereabouts are the areas that are still backed up?

Again, don’t have visibility across all nations. But I know Dave up in Minnesota is still struggling with cars going back and forth through the range.

I had a meeting out in Colorado with just about all the major railroads, a different railroad function and they said they were in general about 85% caught up with their own, within their own systems. And they thought it would still take a few months to a clean their system out. And that they actually had resorted in some cases to a moving things by truck to help their own systems. I said, so you are the cause of my truck shortages. So had a chuckle with that. Luke McFarlane – Macquarie Capital, Inc.: There you go. And then just lastly, with the natural gas exposure you've got, have you ever thought about hedging any of that? Or is that something you might consider in the future?

We actually do has a portion of that at each of our steel divisions and most of the divisions were hedged to a certain point some of them were exposed and that’s where additional cost came to there. Luke McFarlane – Macquarie Capital, Inc.: Got it, thanks.

Thank you. Our next question is a follow up from the line of Sal Tharani with Goldman Sachs. Please precede with your question. Sal Tharani – Goldman Sachs & Co.: Thank you. Couple of things. You mentioned that, if I'm not mistaken, that you're opening the June book next week?

(indiscernible). Sal Tharani – Goldman Sachs & Co.: Is it yes?

Yes. Sal Tharani – Goldman Sachs & Co.: Okay. How does it look in terms of seeing some tightness? You think it is going to be filled up very quickly? Is that your expectations?

We won't know until we open it up, but when we close the book, they were floating at a phenomenal rate. And I guess as we see, our sales folks and commercial folks talk to people out there. They’re warning us to open the orders up. Couple of people may have even suggest that what we were delaying to try and take advantage of the market. But actually it’s not the case it just typical fourth week of the month. We open up the book for the following month, that’s how we’ve always done. There seems to be a strong appetite. Sal Tharani – Goldman Sachs & Co.: When was May filled out, by the way?

I think it was May filled. Sal Tharani – Goldman Sachs & Co.: When did you close May?

When do we close may?

Well, it depends on what product you are talking about. Because we still have a little bit of opening in our light gauge galvanized and so forth. But from hot-band and so forth it’s we are full. Sal Tharani – Goldman Sachs & Co.: Okay, the other thing on rail, Dick, congratulations that you pre-shipped your first premium grade. Been waiting for it for a long time. I was just wondering, like in SBQ, there are many grades and shades. Is there – are there many grades and shades of the premium rail also? Or is this a – are you at the top of the line, where you want to be? And also, what are your expectations in terms of qualification? How long does it take, generally, to have the qualification done on premium grades?

Well, each grades of the railroad has a either their own or they differ to the AREMA specification for premium rail. And we have made product repeatedly that meets the AREMA specification. And then when the railroads have qualifications that are above it, we shoot for the highest one, the ones at that have chemistries that our modifications from the AREMA, not just physical meaning hardness once that are different. Those are ones that we have not been pursuing because then if you miss it. You have a chemist a grade that’s unique and then it’s a hard to downgrade it. and so we have not pursued those. but the ones that are basically a heat treatment modification, those are ones that we’re after and we will be sending samples to them for their analysis. but we’re very confident that those will be falling in line. so we’ve already, like you said, made a shipment to the first Class One railroad and expecting feedback from them. They had their samples and they’ve been satisfied with the samples and that’s why they agreed to take a shipment of welded rail head-hardened product. Sal Tharani – Goldman Sachs & Co.: And that’s you have given us in the past that the size of this market, rail market is generally between 900,000 to 1.1 million tonnes, but a steady market. I was wondering how much is the hardened rail in there?

It’s a grown and continues to grow. and so I would tell you right now is probably 60% of the market used to be the other way around that used to be between 25% and 40% of the market. And now it’s basically flip-flop, because of the economics over there, the price of it has come down relative to the standard rail products. and therefore, people are taking advantage of the lower differential in pricing and then putting it into the – into applications where before they found standard rail acceptable. so they’re using it for reducing the maintenance cost in those arenas. Sal Tharani – Goldman Sachs & Co.: And my assumption is that, you can also start the longer length rails in hardened equipment is able to do that?

Yes. and that’s what we’ve shipped, that was a lot was shipment of long rail product. Sal Tharani – Goldman Sachs & Co.: Okay, great. thank you very much.

Thank you. You’re welcome.

Thank you. our next question comes from the line of Evan Kurtz with Morgan Stanley. Please proceed with your question. Evan L. Kurtz – Morgan Stanley & Co. LLC: Hi, guys, I think sort of a follow-up, I’ll keep it brief, I know you have other things to do today. But just quickly Theresa, what should we be using for a tax rate with the new tax roll in Indiana?

I think absent the adjustment that we saw in the first quarter is, you’ll probably be looking forward at around a 38%. Evan L. Kurtz – Morgan Stanley & Co. LLC: 38%, okay, great. thanks, guys.

Okay.

Thank you. our next question is from the line of Phil Gibbs with KeyBanc Capital Markets. Please proceed with your question. Philip N. Gibbs – KeyBanc Capital Markets, Inc.: Hey, just a last one here from me, any of you on scrap into May, any early read that you can provide there as to what you see? Thanks.

Phil, I think the trend is I think our folks look at it and see it is on the upswing at least in the short run, again, whether that is more than that is a furlong up direction, it’s way too early to tell, but I think at least as we look into May, we think the trend is going to be upwards. Philip N. Gibbs – KeyBanc Capital Markets, Inc.: Thank you.

Thank you. that concludes our question-and-answer session. I would like to turn the call back over to Mr. Millett for any final and closing remarks.

Before I do that, Dick had just one follow up comment.

Yes, I guess I just wanted to make a clarification, earlier when I was talking about a question, answering a question on the number two mill. the 14-inch mill, Pittsboro when I was talking about the tonnages. It was specifically directed towards the tonnages coming from the number two mill. and I said about ramping from 2,000 tonnes, up to about 16,000. when you consider, this is still April when you look at the tonnes in aggregate that becomes about 70,000, 75,000 tonnes plus or minus in the year. So those are still some significant tonnes, still tonnes downplay the expected margin impacts on it. But Pittsboro as a whole, as we have to remember when you think about year-over-year, last year, we were not running the melt shop, because of softness in the market during the daylight hours because we didn’t have the order book, the backlog wasn’t there, we are running flat out now. So from the whole plant perspective, we are doing – we are going to have couple hundred thousand tons of greater production in shipment. So I wasn’t – I want to make sure everyone understood how excited, the whole steel platform is about the improvement in the market, the production and everything. I was specifically addressing, I thought the question after I handed the answer almost sound like a downer about Pittsboro. No I was only being very specific about the number two mill and I didn’t want to raise the expectations of a major participation of that mill on the impact of that financial performance so that was my clarification.

Super, thanks Dick. Well, I guess just in closing, with the polar vortex behind us where we continue to maintain a positive view moving through 2014 into 2015. As I said earlier the residential and non-residential markets from our perspective are recovering and will allow us to start fully – averaging the $1.7 million tons of kind of latent capacity that we’ve been unable to use in the past. And as that additional demand does return obviously utilization rates will increase across the nations, but should allow margin expansion to occur also. We mentioned the premium rail and the SBQ expansions, we are incredibly excited about that and look forward to them contributing. We are in great financial shape. We do have the ability to grow. We’ve got great customers, and most importantly we have a phenomenal team with a passion to deliver. So on behalf of the whole team almost 6,800 of us now I’d like to thank you for your time this morning and your support to our company. A special thanks to all of our customers. Our team will continue to strive to create value for you. And as I said most importantly to each employee, thank you for your commitment, you passion, and remember to be always safe, always. Thank you.

Thank you. That concludes our call today. Thank you for your participation and have a wonderful day.