Schnitzer Steel Industries Inc (SCHN) Q1 2015 Earnings Call Transcript

Timna Tanners, Bank of America Merrill Lynch
Okay. I will ask one more if I could and then get back in the queue. But on the MRB side and on exports, I asked some Chinese mill recently how their scrap mix was looking and they laughed at me. They just said, “We are not using scrap as much at all,” given where iron ore is and given that Chinese billet can be used in Turkey in lieu of scrap.

I’m just wondering, what are your customers saying about why they are still using scrap to the extent they are? Is there a need for it? Can they get by without it or is there a minimum level that they are still buying from you? Are you selling to blast furnaces at all or is it now just more electric arc furnaces? Thanks.

Tamara Lundgren, President, CEO
Well, as you know, blast furnaces can use up to 20 percent scrap and many of them arbitrage where where cost is most effective and yield is most effective, and it is driven by products that they are making. But our customers are buying scrap and EAS will use the scrap ore to the extent – billets from time to time. We’re selling scrap very consistently into EAS and into new markets as well as we expand our customer base.

Timna Tanners, Bank of America Merrill Lynch
Okay. Thank you.

Tamara Lundgren, President, CEO
Thank you.

Operator
Thank you. Our next question comes from the line of Sal Tharani from Goldman Sachs.

Tamara Lundgren, President, CEO
Good morning.

Sal Tharani, Goldman Sachs
Good morning. I want to understand this adjustment you have done for $6 million. Can you just explain to us again what was that about?

Tamara Lundgren, President, CEO
Sure.

Richard Peach, CFO, SVP
Yes, hi, Sal, it’s Richard here. What’s happened here is that the rapid drop in market prices has coincided with a couple of customers not honoring their commitments for certain bulk ferrous shipments where we had entered into contracts with them. As a consequence, we had to resell or reprice these cargos at a lower selling price. So the non-GAAP adjustment reflects the difference between the original price and the revised price. Because the last time this happened was actually as far back as 2008 when the market collapsed, we have made a non-GAAP adjustment to provide comparability with other reporting periods and to give more insight to our results and our overall performance in the quarter.

Sal Tharani, Goldman Sachs
What you are saying is that you had booked this at a different level – at a different price and then you finally shipped it at a lesser amount?

Richard Peach, CFO, SVP
We had expected it at the original contracted amount and eventually, we had to book it in our reported results at the revised, lower amount. So we have made a non-GAAP adjustment for the difference so that we can provide more of an insight to our overall results.