Olympic Steel Inc (ZEUS) 2009 Q1 法說會逐字稿

Good day and welcome to the Olympic Steel first quarter 2009 conference call. Today's call is being recorded.

At this time, for opening remarks and introductions I would like to turn the call over to Mr. Michael Siegal, Chairman and CEO. Please go ahead, sir.

Good morning and welcome to our call. On the call with me this morning is David Wolfort, our President and Chief Operating Officer; and Rick Marabito, our Chief Financial Officer. I want to thank all of you for your participation and your interest in Olympic Steel. Before we begin our discussion I want to remind you that during this call we will provide forward-looking statements that we do not undertake to update or may not reflect actual results.

Changes in assumptions or changes in other factors affecting such forward-looking statements. Important assumptions, risks, uncertainties and other factors that could cause actual results to differ materially from those set forth in the forward-looking statements can be found in our filings with the Securities and Exchange Commission including our annual report on Form 10-K.

Earlier today we reported our financial results for the first quarter of 2009, let me review some of the details form our earnings release. Our first quarter net loss of $25.5 million or $2.34 per diluted share compared to net income of $13.2 million or $1.21 per diluted share for the first quarter of 2008. As we previously announced, our first quarter 2009 results include an inventory lower of cost or market charge of $30.6 million that was recorded as of March 31. Our first quarter sales totaled $141 million which is down 48.8% from the $275 million recorded in the first quarter of 2008. The sales decrease was due to lower selling prices for steel and a sharp decline in volumes sold. Our first quarter sales volume totaled 171,000 tons compared to 315,000 tons shipped in the first quarter of 2008. This represents a 45.6% decrease compared to the 41.8% decline in total service center steel shipments reported in the medals service center institutes March 2009 metals activity report. In 2009 results were impacted by dramatic and ongoing decline in industrial activity in all segments that we serve, resulting in a sharp and greater than expected decline in our customer's demand for steel. This was most evident in our plate and fabrication operations where many of our large OEM customers for which we performed a preponderance of our value added services experienced substantially lower production than they originally projected in their steel usage schedules.

As we worked through the first quarter we saw steel demand deterioration far greater than we anticipated. Our top 20 customers primarily consist of large multinational OEMs that we have served for years. For our top 20 customers we experienced significantly greater declines in the first quarter 2009 deliveries than experienced with the rest of our customer base. This decline is not due to Olympic losing market share with these customers but rather indicative of just how dramatically our large OEM customers have curtailed their buying and production in the first quarter. As a result of the weaker than expected demand we ended the first quarter with high inventories outside of our normal turnover objectives. In addition, a large portion of the inventory was purchased in late 2008 and held for customers resulting in that inventory being inappropriately cost today.

Our customers are getting little visibility of when their production might increase and really are unable to accurately predict their future demand. Therefore, in March, we decided that the best course of action for Olympic Steel was to reduce our inventory and our debt. And to no longer hold this customer specific inventory for our customers. Selling copper plate in today's market versus providing our customers with value added component products made of the same plate obviously has created a significant gross margin challenge.

Our current inventory turnover objectives assume future shipping levels at approximately those experienced in the first quarter. As we execute on right-sizing our inventory to our preferred historical Olympic Steel turnover rates, and work through high cost of inventory purchased, specifically for customers, we will experience operating losses but generate significant cash flows to reduce and potentially eliminate all debt. We are focused on managing working capital, generating cash, and lowering our debt. We anticipate making significant improvements in these areas in the second quarter, and the remainder of 2009. We entered this recession with a strong financial position based upon our desire to focus on the business basics of cash flow, and working capital management. We avoided the use of leverage in the past to purchase overpriced assets, which allowed us to enter this recessionary cycle with one of the strongest balance sheets in the service center industry.

Our metrics are not where we would like them to be in the first quarter. The economic and financial environment is the most challenging that we have experienced in our lifetimes. We expect to weather the difficult climate with a strong balance sheet, a proven approach to working capital turnover, a keen focus on expense reduction and our core values. We have a strong and easy to understand balance sheet with no defined benefit plans, no pension, nor post retirement liabilities, no financial derivatives nor hedges, no off balance sheet transactions other than typical operating leases, a bank agreement committed through December 2011 with no interim debt maturities, and only $6.6 million of goodwill. We have a significantly -- we have a significantly lower expense base and an experienced management team that provides Olympic Steel with a strong foundation for long-term success in the steel industry.

We also reported that we are continuing to pay a quarterly dividend in this environment, Olympic Steel Board of Directors has approved a quarterly cash dividend of $0.02 per share to be paid on June 15, 2009, to shareholders of record on June 1, 2009. This represents a $0.03 per share decrease from the quarterly dividend in March 2009. I will now turn the call over to Rick to comment on some of our financial results in more detail.

Thanks, and good morning, everyone. First I would like to cover the inventory lower cost for market charge that we recorded. As we indicated in our previous release, the charge was actually taken on our inventory as of quarter end, so our first quarter results did not contain any favorable impact of reduced inventory costs flowing through our cost of sales.

In terms of how the LCM charge is presented, the $30.6 million amount is recorded on our balance sheet as a reduction of inventory and was reflected as a separate line item in our income statement under the costs and expenses section. The $30.6 million adjustment was calculated in accordance with generally-accepted accounting principles, or GAAP to state our inventory at market under a two-step process. Step one is to reduce our total inventory from its cost basis to our average sell price at the end of March. Step two then further reduces the inventory value for the future costs of completion to get the inventory to the point of sale.

Next, I would like to review our banking agreement as we previously announced we amended our credit agreement in April to change certain covenants to allow for the current deteriorating market conditions and to allow for our lower of cost or market adjustment. The amendment also increased our variable borrowing rate to approximately or between 5 and 6% compared to our average borrowing rate of 2% in the first quarter of 2009. We ended the quarter with $89.1 million of debt, and have already reduced our borrowings down to $65.9 million in April. So we had a significant reduction already in the month of April. We anticipate further reductions in debt through the balance of the second quarter and beyond. We currently have approximately $32 million of availability under our credit agreement and our balance sheet remains strong with a debt to equity ratio of only 0.3 to 1.

For the first quarter of 2009, our operating expenses totaled $31.9 million. This is a $13.1 million or 29.1% reduction from the first quarter of 2008. As we indicated in our April 6, press release, we estimate that our annual expense rate has now been reduced by approximately $65 million, or 35% from the $187 million we incurred in the full year of 2008. And later in the call, David will review some of the details of our expense reduction actions. First quarter capital spending totaled $7.2 million, and our reduced capital projection for the remainder of the year is about $8 million. So we've reduced our capital spending budget from about $30 million, as we went into the year now and down to about $15 million in total, and we can reduce our future spending if market conditions so warrant. We recorded an income tax benefit of 39.7% in the first quarter of 2009, and the majority of that tax benefit can be carried back to prior years resulting in future income tax refunds. And finally, our receivables remain strong and healthy with a 39 day DSO in the first quarter. Now I'll turn the call over to David.

Thank you, Rick, and thanks, Mike, and good morning to all, and following on some of the comments that both Mike and Rick pointed out here early this morning, our goals in the near-term, are clear and focused. We intend to do the following, then to continue to reduce our inventory and to use the cash generated to pay down debt as Rick described earlier, and we've accomplished quite a bit here in the last -- in the last quarter. We will continue to preserve cash by scaling back our capital expenditure spending for balance of this year, again as Rick just depicted a moment ago. We'll reduce our costs while satisfying our customers with a quality product and outstanding service that we've -- that they've been -- that they have come to deserve, and will garner new customers with greater market share with our existing customers in a market place where customers are looking for strong financial, stable and experienced supply chain partners like Olympic Steel.

Earlier Mike and Rick have already covered the inventory and debt topics in some detail, so I'll only add that we expect to reduce our debt significantly by taking down inventory tonnage by about 25% between the next three months, and we've already eliminated some 11% over the quarter. Assuming market conditions remain stable.

In terms of capital spending programs for 2009, as Rick remarked just a moment ago, in the first quarter our spending was primarily related to finishing projects that we started last year, 2008, including our building expansion in Chambers Burke, Pennsylvania, and the expansion in Winder, Georgia facilities, both of which have been completed this past quarter. We also successfully went live with our implementation of our new IT system in Cleveland in January, and we continue to migrate that system to two additional facilities here in this past quarter. During the balance of 2009, we anticipate spending about $8 million to finish paying for these projects to roll out our new IT system beyond Cleveland and for maintenance projects and capital expenditures.

Next I would like to highlight our operating expense reduction to align our spending with the current depressed levels of the steel industry shipments. We quickly reacted to the decline in the business at the end of 2008, and our fourth quarter expenses decreased by $13.7 million, or 27% sequentially from the third quarter of 2008 and our first quarter expenses are down another $4.6 million from the fourth quarter. First quarter 2009 expenses were also down $13.1 million, or 29% on a year-over-year basis. We have also made further expense adjustments announced in our April 6, press release. Our initiatives include the elimination of temporary labor, elimination of overtime hours, except for customer service requirements, reduced workweeks, and layoffs. To date we have reduced our headcount by about 21% from our peak levels of last year, 2008, and to start 2009, we instituted a wage freeze and our senior management team voluntarily took a compensation reduction equal to 10% of the base salary.

We also have a highly variable compensation program throughout Olympic Steel that is performance based and tied to sales and margins for our sales personnel and pretax profitability for our management and staff. At the end of March, we followed -- at the end of March, we followed these actions with Companywide base pay reductions ranging from 2.5% to 10% effective March 30, 2009. Benefit reductions of a 20% cash and -- and a 20% cash compensation reduction by our Board of DIrectors. Including the March adjustments, our executive management team has now taken cash compensation reductions equal to 20% of each of our base salaries, and as Rick has stated, our expense reduction initiatives result in estimated annual savings of about 35%, or $65 million from 2008 levels.

We will continue to monitor business conditions closely and adjust our costs and spending further if need be. We have also achieved some significant milestones in 2009. We believe we're the first service center to achieve ISO14001 environmental certification for our operating locations in January, and that's all of our locations. As stated earlier, we successfully went live with our new Steelman IT software in Cleveland in January, and as I noted, we continue to migrate to a number of our other facilities. In March, we reached a new three-year agreement with our employees and in our Minneapolis plate facility, covered by a collective bargaining agreement, obtaining the same cost concessions achieved at all of our other noon Union Olympic locations.

In summary, no one, including Olympic Steel is immune to the effects of steel prices falling by 65% from the fourth quarter of 2008, coupled with service center shipments dropping by some 42%. Our short-term plans are targeted and focused. We'll continue to reduce inventory and continue to pay down debt, and we'll continue to execute on our expense reductions and capital spending plans and we will position Olympic Steel for return to profitability. We have built a Company with a strong foundation and a tested and experienced management team, which serves us well in these difficult times. We are confident that we will successfully navigate through this business cycle to emerge an even stronger Company when steel demand returns. This concludes our formal comments, and we will now open the call to your questions. Thank you.

Thank you. (Operator Instructions) Mark Parr with KeyBanc Capital Markets.

Hey, good morning, guys.

Mark, hi.

Hey, I was just curious about the -- if you could give me a little more color on the refinancing or the changes in the -- in your debt situation. Did -- is there any change in terms of how availability is calculated, or is there any change in the potential higher end of the availability?

Hey, Mark, it's Rick. Yes, the agreement made a few modifications to the availability and then modified some of the -- I call them the income statement covenants. So specifically on availability, the cap on sort of a hard reserve was increased from a covenant of $10 million to a hard cap of 20. So in essence, there's a $10 million extra reserve that we can't borrow against on the line size. So that was the main change to availability. And then on the income statement covenants, we basically got the fixed charge covenant, which would have been the one that would provide difficulty, given the LCM charge. We got that pushed out, and it won't be tested until mid-part of next year, and in it's place, they put an EBITDA rolling test. So those are the main changes in the agreement.

Okay. And what's the new EBITDA rolling test?

The new EBITDA rolling test is a three-month rolling test of $5 million negative EBITDA.

Okay. So if you're below -- was that on a trailing 12 month basis?

No, it's just a rolling three month, so April would be a one-month test. May would be April and May. June it would April, May, June, and then thereafter, it's a rolling three-month test. Tested monthly.

Okay. All right. That's helpful. One other thing I was curious about. It seemed as if the gross profit margin ex the mark to market charge, was a bit lower than -- at least it was lower than what we were looking for. I was just wondering, given the fact that the larger customers had significant delta from smaller customers, is this a reflection of the profitability metrics of the larger customers that you have, or was there a change in mix, say, to more service center business, or was it a function of competitive market conditions? Could you talk a little more about the profitability from a gross profit perspective in the first quarter?

As we like to say, Mark, it was probably E, all of the above, but the significant degradation of gross margin was primarily perpetrated by the lack of our major customers as we indicated, the top 20 customers which we supply a preponderance of the value added products, the pieces, parts business, really taking a much bigger degradation in terms of their intake versus the rest of our customer base. So as David indicated we had some significant pick up in new service business at the service center level as you would call it and really a significant degradation in terms of our ability to ship out pieces, parts from our fabrication divisions. That was probably the biggest factor on the degradation of gross margin dollars.

Okay. And it looks like your total operating expenses were I think about $32 million in the quarter? Is that about right?

Yes, 31.9 million.

Okay. And where would you expect that to insure the second quarter? Can you give us any color there?

Yes, they should be lower. I mean, part of the expense reductions that we implemented as we talked about, went into place on April 1. So -- and then if you annualize, Mark, we gave a little bit of guidance in terms of last year our expenses were $187 million, and we said we'll be $65 million lower, so if you kind of take those numbers and extrapolate them over the next three quarters, you can get pretty close, but it will be a little lower.

Okay. All right. That's helpful. And then anything -- it looked like your -- did I see your cash balance up over $50 million at the end of March. I mean is there something--?

No, I don't -- I'm not sure what you're looking at.

In the release, Mark?

Yes. Yes, I missed that.

We don't even -- I don't think we even release our cash balance till the 10-Q, Mark, I don't know what you were -- maybe you were trying to derive the balance.

You know what, that was -- I apologize for that.

No problem.

Other guys.

Yes, this has been one of these really, like, laid back easy going weeks, and on top of that, companies keep changing the time of conference calls, so I guess--.

If we're not sleeping, we like to do this pretty early.

All right. I appreciate that color. Thanks very much. I'll pass it on.

Thanks, Mark.

Thanks, guys.

And next we'll move to Sal Tharani with Goldman Sachs.

Good morning, guys. You gave us a guidance, a sort of first time you -- I remember in history you actually mentioned what your outlook is over the next couple of quarters, at least going forward. Is there any compelling reason that you wanted to do it this time?

Yes, I--.

I think it's important because there are so many mixed signals that -- from our suppliers and our competitives, Sal. We've seen from -- on one side (inaudible) giving different outlooks on what the market place is, and you see sort of what Reliance and Kessel have said. I think we may have our own opinions that may differ a little more substantially than we normally see. Again, I can't speak to other people's customer base, but we don't want to -- our objective is to manage our business within the walls of Olympic Steel. We have a specific strategy that has worked very well for us and continues to work well for us. However, having said that, our customers are really, maybe different than some of the other people out there and what we're seeing is a real lack of visibility and a real, I would say, sort of a negative position in some of the things that we've read, in terms of our customers making products, so I think it was appropriate although we don't really anticipate and don't like making forward-statements, we just want to make sure that people understand that we're managing our inventory down, and we really don't see a lot, other than the new business activity that we're lending, we don't see our customers going back into production and particularly with automotive declaring -- or General Motors declaring a 90 day shut down.

Nine week.

Nine week shut down. Excuse me. I think there's going to be some challenges for all of us, so we just wanted to put some color on it. David, you want to add anything?

I think Mike has described it accurately, Sal. One of the things that we anticipated was that January would be as poor as December, and we were really looking for February to show a modest improvement over the depths of late December, and what we -- what we knew would be an extended layoff period in January. In effect, we did see some modest uptick in February, and that was quickly evaporated by the front of -- front of March, which compelled us to accelerate our reduction of inventories and the reduction of debt and I think we were late into the quarter in terms of seeing the manifestation of our efforts, and so what Mike and Rick have described is that we continue those efforts diligently, and they're on an accelerated basis, because as Mike well described, our top 20 customers, which are large multinational OEMs, all great brand names, all terrific companies, their participation was down dramatically in the first quarter, and so we've accelerated the reduction of the inventory to compensate for their degradation of business.

On inventory writedown, Rick, you gave some comments, I missed that, that you have taken your inventory mark to the current price. Is that correct?

Basically, it's -- Sal, it's a two-step process. It's -- step one is to lower the cost of inventory to what our average sale price was at the end of March, and then step two is to further reduce the inventory basically for the costs to complete that inventory. In other words, to take the inventory from what we would call a purchased form to a salable form, so that's how we calculated our LCM under GAAP.

Is there any guidance that you might have to take more, or do you think you're pretty much done?

Well, that's hard to say the way the calculation works, obviously, if there's continued deterioration in the market and the price of steel, I can't sit here and say one way or another, but it's basically, as I said, it's determined based on the difference between a cost basis and the sale price.

To answer that a different way, we don't anticipate it, but it may occur.

Got you. Mike, we have been -- from some service centers we have heard that mills are actually also competing for very tiny small businesses. Are you facing similar situation?

Yes, I would say, Sal, we like to say at Olympic, fifty is the new fifty. But the steel mill today is challenged by effective production, and what they're telling us is a hundred ton order today is what a thousand ton order was six months ago, so the mills in order to effectuate an efficient production roll, rolling schedule, might actually be putting steel on the ground to finish the effective rolling schedule for sort of spot sales, just because they have certain -- they don't have enough current orders to effectuate a profitable rolling schedule. So we are seeing some mills actually put raw material on the ground for sale, but that's nothing new. We've seen other steel mills do that in the past, we're just seeing probably more mills do it at present.

Great. Thank you very much.

(Operator Instructions) Next we'll move to Luke Folta with Longbow Research.

Good morning, guys.

How are you, Luke?

Not bad. Just one question regarding inventory at the OEM level. How do you see supplies there, and do you think there's kind of a glut of inventory we need to work through in the event that they pick up?

Lou, this is David. I think it varies, but I think the OEMs have continued to reduce their inventory. I think they've reduced a great deal of it. Jim Owens of Caterpillar on his call, I think, a week ago, indicated that Caterpillar would reduce $3 billion worth of inventory. Obviously a global company that has resources parked in a lot of different parts of this world. As it pertains to our OEMs, we have seen our OEMs reduce their finished goods dramatically and their raw materials, and I would tell you that they've done a pretty effective job, and that's -- that's the severity of the participation that we've seen in the first quarter, as they have reduced their inventories dramatically, so I would tell you for the most part, I think the OEMs have delevered themselves, at least the ones that we participate in.

Okay. And just to follow-up, regarding the competitive environment at the distribution level, have you seen any sort of improvement there regarding kind of irrational pricing behavior?

I think -- is that a double never or a double positive?

Again, Lou, David, I'll field a little of that. There are a number of competing interests in the marketplace. There is an overall interest to reduce inventory, then there is -- then there are some in the service center industry that are significantly challenged for financial resources. That coupled with the fact that there are those that are owned by nonsteel people who are continuing to shed assets and all of those complicate the marketplace.

In short, I would tell you that I think we've seen the preponderance of the deep cuts, and if there's any further degradation in pricing, it will be very small. For the most part, a lot of the competition that we see, competitors are selling at a loss, and that has -- that's challenged the marketplace, and of course the steel mills have responded by eliminating capacity, and to be a little bit fair, as Sal asked the last question as to whether we compete with mills, to some degree we do, Lou, and I would also just add a little color, that the mills are finding themselves competing with OEMs, who are -- who continue to delever their inventory in large portion. These are large direct buyers from the mills who were shedding inventory and complicates the mart place, but I think we've seen the majority of that through the first four months of this year.

All right, great answer. Thanks a lot, guys, and good luck to you.

Thank you.

Thank you.

And Phil Gibbs with KeyBanc Capital Markets will have our next question.

Hey, guys, just had a couple of housekeeping questions. As far as your effective tax rate for the year, your book tax rate, what are we looking for, something similar to the first quarter?

Yes, I would say it will be -- our view right now is that it will be pretty similar.

Okay. As far as interest expense, that's largely a function of your debt balance, I assume, but something along a 5, 6% interest rate?

Right. So if you use 5 to 6% on the rate, and then we talked about taking our debt balance down significantly, and we already gave you the number where it is at the end of April, so.

Okay. And is there any help you can give us from the first quarter cash from operations?

We haven't discollateralized that number yet. That will be forthcoming in a couple of days when we file our 10-Q.

Okay. And on the volume side, in the 2Q, given -- given that there's been, looks like incremental weakness into March, and maybe kind of volumes that are hanging in or decelerating at a slower pace into April, what should we look for as far as volume momentum into the second quarter? Let's say on an absolute basis relative to the first quarter.

About the same?

Yes.

Yes. I mean I think we saw, as David indicated in his earlier remark, we anticipated obviously not a good January that took place. We anticipated a better February. That took place. We anticipated a better March. That did not take place. In fact, as David indicated, we saw a degradation in volumes in March that really caught us by surprise relative to the information we were given by our customers and their build schedules as anticipated. Right now, as David indicated, the rate of decline is slowing, we're starting to see some marginal pick up, but that's, as we were surprised in March, we can be surprised again, but I would tell you we're not seeing a significant degradation in the volumes, nor are we seeing any kind of material pick up either, so I would tell you relatively flat.

On the price -- that's helpful. On the pricing front, are we still seeing prices, implied realized prices falling in the second quarter, still looking for a bottom?

Phil, this is David. I think the rate of decline, again, follows the rate of decline of transactional business, and it's shrinking. I think that the -- the cited reports are lagging a little bit, but we've seen the bulwark of the reductions. Is there another $20 a ton? Maybe, but again, there's a number of issues, a number of large issues and the confluence of those issues are continued inventory reduction at the service center levels, and of course month over month, we continue to see that. That, of course, shrinks at some point in time, and of course steel mill production has been reduced dramatically. And so once you do that, quite frankly, pricing is leveling off, I would tell you, from its -- from its April levels, which were down a little bit over from March.

Two things which haven't been said. Obviously it's a fight for cash. It's not necessarily just a fight for the order. So who needs liquidity next is going to drive the marketplace, and so as the banks have tightened the credit and the asset quality has deteriorated in value, who is being squeezed the most next is really the determining factor. As you look at the MSCI data in terms of inventory and on order inventory, we're expecting obviously with what we've seen being not ordered, we're going to see a lot less of the volume being dumped into the marketplace, but there's still a lot of pleasure on people to generate cash by the banks.

Okay. Thanks, guys.

And we'll move on to Tim Hayes with Davenport and Company.

Hey, good morning.

Hi, Tim.

Just one question, can you repeat what you said about the outlook for operating income? I just missed that.

We didn't give a -- we didn't give any outlook on operating income, Tim.

I thought I heard something operating losses expected in the upcoming quarter, or quarters? Did I -- did I mishear that?

No, I mean, I think that was in Michael's prepared comments when we were talking about the -- the market deterioration continuing, but we didn't give any guidance.

Okay. All right. Very good. Thanks.

And next we'll move to Fritz von Carp with Sage Asset Management.

Oh, hi. I was wondering, could you give me some color in this weakness you've seen, or the general conditions for plate versus thinner grades? I mean, I was guessing that maybe because of your comments on the OE customers leading your weakness, I thought that might be hurting plate more than the colder or whatever, but could you help me?

Plate is a two-faceted business, right? There is the spot as is market, selling rectangles, which we historically have been in since 1954, and then it's obviously what we migrated to, which is the pieces and parts businesses, and we're geared for selling the pieces, parts more than we are for the rectangles. So as we've seen the degradation days of the pieces, parts business and see some limited production in that area, we're forced to then get back into the rectangle business, which from an order perspective is obviously selling that product for a lot less than we have been selling it for for the last seven years.

Yes.

So that's the margin depression that's occurring. Does that answer the question?

Okay. And how much of your -- I understand that there's a big difference between a value-added part and a rectangle plate, but how much of your volume do you think, ballpark, originates a a piece of plate as opposed to originates as a hot rolled or cold-rolled coil?

In the presentation, give me one second, Fritz, we show on the presentation that tons of plate are roughly -- let's call it 16.2% of our actual tonnage, versus 50% of hot roll, 11% of cold roll. 12% tolling.

And would you see that the customers that you're seeing is sort of the exceptional weakness that surprised you that you were talking about? Is it fair to say those are in heavy equipment type end markets, or could you give me some general characterization sector-wise where you're seeing this exceptional weakness?

That's a market highly engineered discreet products which involve construction equipment, and machine -- and construction machinery, as you depict it. Also mining. That's another aspect. So literally any piece of equipment that you see that can be leased from the large leasing companies, is the equipment that we are seeing being affected.

Thank you very much.

Thanks.

And next we'll move to Nat Kellogg with Next Generation Equity.

Good morning, guys. Obviously looked at the utilization rates at the mills and stuff, prices have obviously come down, but they seem to have been trying to be relatively disciplined in this environment. Just wondering what you're seeing at the service center level with some of your customers and how that environment. It sounds like, from what you're saying, it's a pretty competitive environment to the point maybe even where some guys are getting a little sloppy? Is that what you guys are seeing, or has it been relatively disciplined despite fact that it's a very difficult environment?

It's very competitive out there.

And then how about on -- on collections and customers? I realize your big customers are probably okay, but how has collections been for some of the smaller jobs that you guys are--?

Nat, it's Rick. So far it's been pretty good. We -- as I commented, our receivable base is still strong, and our DSOs in the first quarter were under 40 days. Which historically, that's a very strong number for us. And, to date, like you said, most of our big customers are in a strong financial position, they're just not taking as much steel. So as we sit here today, our receivables are in pretty good shape. Obviously we do have about 8 or 9% of our sales goes into the automotive marketplace, but so far so good.

And just on the auto shut down and possibly an auto shutdown this summer, am I correct in thinking that a lot of that tolling revenue typically has been focused on the auto, or is that not right?

That's correct.

So that might be something we could see come town a little bit in the second, third quarter if this auto shutdown happens as people have said?

Nat, we budget for that. It's not atypical that automotive goes down in July. This is extended subject to review, obviously from the automotive side of the equation, but, again, about half of our total processing goes to toll related businesses.

Okay. Great. That's helpful. All right, thanks very much, fees. That's all I've got.

And at this time, there are to further questions. I would like to turn the call back over to the speakers for any additional or closing remarks.

Thank you, operator, as a reminder, it is not or policy to provide forward looking earnings estimates for the upcoming quarter or year or not to endorse any analyst sales or earnings estimates. We anticipate releasing our second quarter 2009 earnings at around July 30. This concludes our call, and we thank you for your questions and interest in Olympic Steel. Thank you all.

That will conclude today's conference. We thank you for your participation.