Olympic Steel Inc (ZEUS) 2012 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Olympic Steel first-quarter 2012 earnings call.

At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions on how to participate will be given at that time. (Operator Instructions). As a reminder, today's conference is being recorded.

Now, I would like to come the program over to your host, the Chairman and CEO, Mr. Michael Siegal.

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 and Treasurer, and Dr. Don McNeeley, President of the Chicago Tube and Iron division.

Before we begin our discussion, I want to remind everyone that, during this call, we will provide forward-looking statements that we do not undertake to update or that 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 SEC, including our 2011 Form 10-K and our 2012 first-quarter Form 10-Q, which we did file earlier this day and anticipate filing later on (inaudible).

So earlier today, we reported our financial results for the first quarter ended March 31, 2012. Net sales for the first quarter of 2012 totaled $382.1 million, which is a record high quarterly revenues total. First-quarter sales increased 29.8% from $294.4 million in the first quarter of 2011. Our first-quarter 2012 net income totaled $6.2 million or $0.57 per diluted share, compared to net income of $10.3 million or $0.94 per diluted share in last year's first quarter.

Capsulizing our first-quarter highlights, number one, we achieved record quarterly sales. Number two, our Chicago Tube and Iron acquisition is performing well. Number three, we are ahead of our internal production and financial plans related to our temper mill investment in Gary, Indiana. And four, we completed a $50 million amendment to our existing credit agreement to increase our revolver size from $265 million to $315 million. Our first-quarter results and record sales benefited from sequentially improved flat-rolled performance in the fourth quarter of 2011 and from outstanding performance in the Pipe and Tube segment.

Our Pipe and Tube business has been immediately accretive to earnings since we acquired Chicago Tube and Iron on July 1, 2011. Our balance sheet remains strong and the large revolver accommodates our larger working capital needs while lowering our borrowing rates.

We also reported today that Olympic Steel's board of directors approved a regular quarterly cash dividend of $0.02 per share to be paid on June 15, 2012 to the shareholders of record on June 1, 2012.

I will now turn the call over to Rick Marabito.

Thank you, Michael, and good morning everyone. I'll review some additional financial highlights from the first quarter but first I would like to remind everyone that we acquired Chicago Tube and Iron on July 1, 2011. As such, our first quarter of 2011 does not include CTI results and our business results are now reported in two segments, a Flat Product segment and a Tubular and Pipe Product segment. For more information, please refer to our segment information provided in the earnings release and in our Form 10-Q, MD&A, and footnotes.

Some other financial highlights, as a percentage of net sales, consolidated gross margin totaled 19.7% in the first quarter, up from 19.4% recorded in the fourth quarter and down from the robust flat roll margins of 21.5% earned in the first quarter of 2011. Pipe and Tube gross profit totaled 31.4% for the first quarter of 2012 as our Pipe and Tube Products gross margins are higher than our traditional flat products margins.

As a percentage of sales, first-quarter 2012 operating expenses totaled 16.5% versus 18.2% in the fourth quarter and 15.7% in the first quarter of 2011. EBITDA, defined as our operating income before depreciation and amortization expense on the face of our income statement, totaled $17.3 million, up from $8.4 million earned in the fourth quarter and $20.8 million in the first quarter of 2011.

Capital spending in the first three months of 2012 totaled $8.0 million. That is a similar amount to what we spent in the first quarter of 2011. The majority of the spending related to completion of our temper mill project in Gary, Indiana, equipping facilities in Mount Sterling, Kentucky, and Chambersburg, Pennsylvania, and installation of a new jumbo laser at CTI in Chicago. We expect our total capital spending in 2012 to be in the $30 million to $37 million range, depending on the timing and the choices we make on lease financing.

Our effective income tax rate in the first quarter was 38.9%, and we expect our full-year 2012 income tax provision to remain in this range.

Our flat rolled inventory turnover rate for the first quarter was 4.1 times, slower than our historical turnover rate of five times. Commencing with the CTI acquisition, about 14% of our consolidated inventory is stated on LIFO. We have no LIFO reserve at March 31, 2012 however because our Pipe and Tube inventory on LIFO has current and 2012 year-end projected quantity and pricing points below those at the July 1, 2011 acquisition date. So in essence, our LIFO inventory is stated as FIFO at March 31, 2012.

Our 2011 flat rolled Accounts Receivable DSO totaled 41 days. Pipe and Tube DSOs are well under 40 days, so our receivable quality remains very good.

Our debt at quarter end totaled $290 million and our availability was $89 million. The $46 million increase in debt during the first quarter is primarily due to increased working capital levels at March 2012 versus the seasonally low point of December 31. We expect to improve our inventory turnover rate, resulting in lower working capital needs and less debt by the end of the second quarter. Finally, shareholders equity per share increased to $26.95 at March 31, 2012.

Now, I will turn the call over to David.

Thank you, Rick, and good morning. Today, I thought I would address the progress we have made on some of our specific -- some of your specific questions asked on our last call in February.

Specifically, we were asked about the status of our CTI acquisition, as Rick just mentioned, our mix of business end of status and startup costs associated with our new locations and our view on market dynamics.

Let's start with Chicago Tube and Iron. As Michael indicated earlier, our Chicago Tube and Iron continues to perform well and has been highly accretive to Olympic Steel's financial results in the three quarters since the acquisition. The recently completed quarter was Chicago Tube and Iron's best ever first quarter in its 98-year history. We are now a major player in pipe and tube with product sales totaling $65.4 million in the first quarter, comprising about 17% of our consolidated sales.

Last summer, we assembled commercial integration teams that have been working successfully and our cross-selling efforts have accomplished a significant and growing success record in 10 short months. As Rick highlighted, we just installed a new Adige jumbo laser in our Chicago facility, and we expect our Pipe and Tube segment to continue its strong performance in the second quarter.

We have been highlighting our many startup initiatives that are at various stages of progress. Over the four-year period of 2009 through today, 2012, we estimate spending approximately $100 million on our strategic capital expenditure program that adds multiple Olympic facilities in new geographies, ands value add processing equipment and 150,000 tons of new tempered steel capacity. This strategic investment program provides a foundation for growth and value creation for years to come.

Our most significant initiative is our new Gary, Indiana temper mill facility, which is performing well in its first quarter of operation. The $30 million project provides over 150,000 tons of new capacity. The facility and equipment were successfully completed under budget and on time with the mill processing its first coil at the end of December 2011. Then in the first quarter of 2012, we successfully ramped up production from the first coil to ship at a run rate of approximately 190 tons per day by the end of March. This marks a very quick and successful startup. We are now at 30% of full capacity. Gary recorded a nominal startup loss in its first quarter of operation and is ahead of our internal budget.

Now to our Specialty Metals business, which is currently adding processing equipment in its new facility in Streetsboro, Ohio which just opened last month, April. The addition of a physical location in Streetsboro with internal control on slitting, flattening, cutting capabilities in stainless and aluminum will propel our continued growth in the food and the food service markets going forward. Specialty Metals sales now make up almost 10% of our consolidated sales mix.

In addition to Streetsboro and Gary, which I just nominated, we announced -- start up facilities were also added in Kansas city, Roseville, Minnesota and second facilities to existing locations were added in Moses Lake, Washington and Mount Sterling, Kentucky. The six previously shuttered facilities were brought back to life and are now ready to contribute to our financial results.

In total, we incurred about $1 million of pretax startup losses in the first quarter. We're expecting startup costs to phase out ratably by year-end.

Turning to the market outlook, finally, let me briefly comment on current market conditions. First quarter could be characterized as uneven with most of our quarter under supply-side pricing pressure. This resulted in choppy steel prices and pressured margins, especially in carbon and stainless flat rolled areas. First half is usually the seasonal time for price increases, but 2012 has started as a nontraditional year. The second quarter looks to have similar market conditions to the first quarter. Our demand has been consistent and stronger towards the contract mix versus spot business when compared to last year.

Our first-quarter flat rolled tons sold totaled 311,000 tons, sequentially up 54,000 tons or 21% from the fourth quarter, but it was down 1.9% from the first quarter of 2011. The year-over-year decline is due to a robust spot market in Q1 of 2011 that did not repeat this past quarter.

As we noted on last quarter's call, we purposely increased our inventory to higher levels than normal to start the current year as we favorably purchased material in advance of a rising year-end steel price environment. We expect to reduce inventory levels in the second quarter. We're excited by the opportunities in front of us with new startup locations, the Pipe and Tube segment, and the continued success of our existing businesses.

This concludes our formal comments. We will now open the call to your questions.

(Operator Instructions) Luke Folta, Jefferies & Co.

Nice performance in the CTI business this quarter. Did I hear you correctly that the margins there were, what, 31.4% gross margin?

Yes.

You know you said that you're kind of expecting a similar performance in the second quarter. Can you talk -- I mean, given that this is the best quarter that they've ever had, can you talk about what is driving that? Is that something that has to do with how you are operating, maybe some cross-selling or cost efficiencies or has there been price increases there? Can you give us some sense of what is the driver?

This is Don McNeeley who runs that Chicago Tube and Iron subsidiary. We have filed a number of synergies in our new relationship with Olympic. They embrace our philosophy of continuing to invest in value-added equipment. I think, being a 100-year-old private company, we were known within our niche. I think now, being part of a much larger public company can actually enhance our visibility throughout the market.

Referring to Mr. Wolfort's comments earlier about the cross-selling team, we are now having doors open for us in not only new areas of incumbent accounts but also new geographies and new areas. So we are optimizing every one of those opportunities.

So, to conclude, one, a similarity and philosophy and access to capital that allows us to invest in value-added equipment which carries a higher gross margin with it, along with an expansion of our geographic footprint. So those would be the two continuing factors.

But there wasn't anything that was one time in nature or anything -- this kind of 31%-ish number seems consistent going forward. Is that something -- do you think that might be able to be done for the full year?

We're comfortable that we will be in there with minimal divergence from that. The concern on a macroeconomic basis is not withstanding we are forced to the contrary. There's still a pseudo-recessionary environment out there. To some extent, you can only put off the replacement of equipment so long before maintenance costs with some of our customers start to grow as a percent of the replacement cost of a piece of equipment. So I think the economic environment has some pent-up demand in the OEMs. I think we are enjoying the [medical station] of that pent-up demand. Whether or not that will be continued in the second half of an election year is something that we will need to stay very close to.

Okay, thanks for that. Then just regarding the flat rolled side of the market, you had slightly lower inventory turns this quarter, and you did talk about maybe building some inventory at the end of the fourth quarter or moving into this pricing environment. Can you talk about was that decision to build some inventory, did that have a positive impact on the quarter? Because we saw flat roll prices kind of start to reverse earlier than expected. I guess what I'm trying to get at is I'm trying to understand what we can expect. If market conditions are the same in the second quarter, what should your margin performance look like in flat rolled?

I think -- it's Michael. It's probably going to be comparable. I think we bought ahead on contracts in December because we thought there (inaudible) pricing in a rising price environment as we said during the call that we really didn't take advantage of some positions of making sure that we have sufficient inventory for contractual obligations in the first half. So that that is being eaten through. On a monthly basis and as David indicated, we didn't buy long on the stock market because we were not as confident that the market would be as sustainable (inaudible) prior years so I think the margins that we are seeing in the first quarter are going to be comparable.

And then just lastly for the model, can you give us what the tons sold were for the flat rolled segment?

Rick?

Sure, Luke. They were, in the first quarter, they were 20,300.

Thanks a lot guys. I'll get back in line.

Thanks, Luke.

(Operator Instructions). Edward Marshall, Sidoti & Company.

The performances you've seen from the acquisition of Tube Supply -- sorry, CTI -- can you talk about what you've learned thus far? I guess this is the third quarter in which you've had them, sales and cost synergies maybe that you didn't realize that you would have had and you're unlocking anything up to that extent?

Edward, this is Dave Wolfort. Let me remark on what we have consistently said. We believe that Chicago Tube and Iron was a purchase of economies of excellence. We had the highest of expectations and we have been -- we are rarely surprised but we are surprised at how synergistic and how quickly this union has taken us into the marketplace, allowing us to grow our business, as Dr. McNeeley commented earlier. So we're seeing some real strength going forward. We think it is a company that was extremely well-run, continues to be well-run. The only change we made in this was that Dr. McNeeley reports to our CEO, Mike Siegal, leading the call. That's the only change we made there. The synergies we see on a go-forward basis are all accretive. They're additive in terms of market penetration. They're complementary in terms of businesses that we reciprocally supplied in the past and we're now supplying in total.

Was there any integration or acquisition costs that weren't broken out in the quarter? Any kind of inventory adjustments? I think they are probably gone now, but anything you might want to highlight for us?

This is Rick. No. We highlighted those the last two quarters. Those are all behind us, so this quarter had no unusual or tail related costs related to the acquisition.

Regarding the temper mill startup, you talked about capacity utilization being at 30%. Where do you expect that to go in the second half of the year, assuming demand is there?

We first want to complete the second quarter before we got to the second half. We're seeing month-over-month growth. Needless to say, it's in Gary, Indiana, as we have noted. It is our third temper mill. It's the quickest startup, the most successful startup that we have had. As, again, Mike Siegal commented in his Chairman's letter, the attribution goes to Ray Walker, Executive Vice President, and Terry Rohde and members of their staff for bringing that up from the time that we purchased the temper mill in November of '10 to where we were cutting coils in December. We have seen sequential progress in each of the first three months, the first three months of the third quarter, and that continues on through April.

To just to give you little bit more color, I would just say that, by the end of the year, we're hoping to be at least at 80% of capacity.

You said 80%, right?

Yes, the way things are progressing, we have tested through the machine now. Pretty much all of it (inaudible) great, so we're pretty confident of what we are capable of running on that machine. So barring any change in market conditions, either more favorable or less favorable, which would change our outlook. If you said was everything was sort of copacetic in the marketplace, as David indicated, we should be running a full two-shift operations and then some. So it's progressing, as David indicated in his remarks, ahead of our schedule.

Excellent. What is the plan for debt? I heard better working capital adjustments in the back half of the year as you down some inventory. But what is the plan for debt? I did highlight that you said that debt would be coming down, but what are the plans there? (multiple speakers) level or --

Yes. We've got some targeted working capital levels for the end of the second quarter that I would feel comfortable by June or July because there is a little bit of a lag on working capital increase or decrease versus the debt. But I would be comfortable saying we should take down the $40 million to $50 million that we took up here in the first quarter. So, that would be the first step.

Then I certainly feel, Ed, as we get to the tail end of the capital expenditure program that we talked about and move into the second half with profitability, then we will start junking down the debt through the cash flow from the business. So those would be the two steps.

Excellent, thanks guys.

(Operator Instructions). Mark Parr, KeyBanc.

Hey, thanks. Good morning, guys. I was wondering. Can you give us any color on your contract business in the first quarter and how much it grew on a year-over-year basis?

We can. We're staring at each other Mark. It certainly grew from a percentage of the business. As you know, the robustness of the first quarter of 2011 allowed us a really strong stock market. We have some trading tons that were unique, not unusual but unique, that occurred in the first quarter last year that did not occur this year. So I would say our contract business still operates somewhere between 60% and 70%. It is probably closer to the high side than the low side for this quarter. We like that two-thirds/one-third mix because the stock market is obviously favorable. It takes advantage of where the market inconsistencies are. This market has been, as David indicated, volatile in terms of its pricing. Put some caution in terms of the stock market which is traditionally a lot of other service centers.

What we're see I think that's unique is the mill delivery rate in 2012 in terms of their anticipated delivery has been much better than historical performance. So I think mills are performing better for their end-use customers. We're not seeing outages at the customers like we have historically, and we're not seeing a lot of the service center business other than what they immediately need. So it's a little bit higher than normal, but it is not really the direction. We're comfortable at our targets and only because the spot market [sells] do we see probably a little bit higher than normal.

Okay. If I could follow up on that, the pricing momentum, David, you had indicated you characterize it as a supply driven event. Certainly, that would coincide with everything that we are seeing and hearing. Could you give us some color on what you are seeing as far as import offerings? Is there adequate quality to address your spot needs or some of your quality or some of your contract needs? How long do you expect that to persist based on what the traders have been telling you?

Well, Mark, that's a lot of questions. I will try and answer them.

One, there have been more foreign offerings, as you well know. The US market is the highest priced market, so it does -- it's going to attract more tonnage. We would tell you that demand as we remarked has been consistent. Last year has been good for us in terms of recovery and it has been consistent as we went into '12. Our direct tons were very good in the first quarter. As Michael indicated earlier, on a tonnage basis, we had, in the first quarter of 2011, we had some substantial shipments that were one-time opportunities. We took advantage of those. Obviously, we did not expect those to repeat on a regular basis and they did not. So we do see the foreign offerings. There is more capacity in the marketplace

You asked in the earlier question and Michael responded, in terms of our percentage of contract, we thought it prudent to increase the contractual participation because of the additional capacity in the marketplace and unknown marketing by some of the less capitalized new startup companies. We thought that we could contaminate the marketplace and we were correct on that side of the equation. I don't think that has changed, Mark.

So adding all those together, there are more foreign offerings with price increases of late last year of which there was three as you well know. They all stuck and as we got into the latter part of January, we saw some erosion and those increases started to fade away one after another, finally restarted in the middle of March by some of the more disciplined mills that we have great faith in and are key suppliers to us.

As we look at second quarter, particularly as we now get into where scrap has been in April and May, again, we see some stability and demand is there, but still there is overcapacity and still there is foreign offerings.

I appreciate the color. Thanks. Good luck on the second quarter.

Richard Garchitorena, Credit Suisse.

My first question, just touch a little bit more on demand. Are you seeing any change in terms of your customer interest on the energy side, given (inaudible) gas where it is? Obviously oil is holding up well, but any change on that front?

Well, you know, we are not into OCTG, so that is not who Chicago Tube and Iron is, so we don't participate there. In our flat rolled business, we see the same strength that we have seen. We have slightly more direct ton growth in the first quarter. We see that stability, but we are not affected by that marketplace. We're not operating in that market.

If you are asking about fracking, it's predominantly OTCG, so we're not seeing a lot from a Olympic Steel perspective other than more supply overall will be better for the market or more demand overall will be better for the market.

Okay, understood. Then just on the balance sheet, could you tell us how much cash you had at the end of the quarter and also you know in terms of how much have you had drawn on the new revolver amount?

Sure. So let's go over cash. Basically, what we do is we take all our cash every day and we pay down the revolver with any excess cash. So the cash that is sitting on our balance sheet at any balance sheet date is typically just one day of cash in transit. So, Richard, the amount at quarter end was about $4.3 million of cash.

Secondly, you asked about the revolver. The revolver at quarter end of the total debt of $290 million, the revolver was $218 million.

Okay, great. Then my last question just in terms of the CapEx this year of $30 million to $37 million, how much of that is maintenance and how much is growth? Going forward, what can we expect in terms of your views on M&A versus additionally organic growth opportunities?

Want me to take the CapEx one first (multiple speakers) okay. So the $30 million to $37 million of CapEx, I would tell you that between $5 million and $8 million to $10 million would be what we would call maintenance CapEx to keep our 33 facilities up and running and equipment. So the rest of that CapEx is -- they are growth initiatives. They are the things like David and Don and Michael talked about -- new lasers, new equipment in Chambersburg, finishing up the opportunity in Gary, Indiana. So the bulk of our CapEx is and has been for the last three years investments in growth opportunities.

Yes, going forward, I would say that we have invested heavily I think at very appropriate times related to value in terms of the [fix in] facilities and things we have done before the six new facilities of last year. I think you will see that program come to its conclusion from a strategic perspective. We expect that we're going to allow those investments to accrue back to profitability, taking us out of the organic growth scenario for a while. Not to say that we wouldn't fulfill a customer's desire to use capital to support the customer. But I think we would be more active looking at M&A than we would be at organic growth in the future, in the near future.

Okay, thanks.

Sal Tharani, Goldman Sachs.

Nice job, guys. Hey, Don, you mentioned about the -- some pent-up demand from your OEM customers. I was just wondering if the margins you did this quarter, is that something we can expect is sustainable or something that's coming from pent-up demand and it should -- it might fade away to sort of somewhere (technical difficulty)

Well, margins are somewhat volatile but I think, once again, Sal, with the value-added equipment and model that Olympic has wholeheartedly embraced and embraced not only from a philosophical standpoint but also with their checkbook, we are making those investments in order to maintain those margins. That is a record high margin for us. There may be some deterioration in them, but we're never going to be down in the teens or single digits as you had mentioned.

One of the things we do track is we sell construction. We sell OEM to manufacture equipment for construction. So we really look at some of the global fronts. For example, Caterpillar Tractor is one of the larger steel users in the Midwest and we look at what percent of their sales are going offshore. There is a significant infrastructure build in Asia and throughout India. So right now, that high demand on a rural stage results in their production up and gives us some opportunity to manufacture or fabricate components as opposed to simply selling the raw steel to them. So as we move up the value change of performing some type of process to the steel to the next iteration of some type of subassembly, those type of activities will traditionally and in the future carry an enhanced margin. So that would be very consistent with the game plan that both Olympic and our company has going forward. They have certainly funded the equipment and the inventory that I need to optimize those opportunities for the shareholders.

So we are confident that the margins in our particular product line will understandably trend higher than flat rolled. It's the nature of the industry. There is a higher inventory investment and such a lower inventory turn in my sector. There's more engineering expenses affiliated with it. So it adds nicely to the Olympic portfolio. But in conclusion, we do anticipate being able to maintain these types of margins.

And is jumbo laser you are buying, what is the cost involved?

That cost ran between $2.5 million and $2.7 million. It was the first piece of equipment I acquired not under my own ownership. There was a very thorough vetting process by Olympic and in looking at the return on that investment and the payback period. It is the largest capacity six access laser in North America. So, knowing that will be the case until somebody replicates that equipment, that is another example of how we're going to try to optimize that for margin enhancement. But $2.7 million was that investment.

Thank you very much.

Lloyd O'Carroll, Davenport & Company.

Okay, two questions. First, the straight numbers, direct versus total tonnage in Q1.

It's Rick. The director versus toll tonnage was -- let me find it here -- direct was 314,000 and the toll was rounded to 18,000.

Another service center reported that they had seen strong volume in February and then it had softened some in March and April. Are you seeing that kind of pattern or what is your near-term pattern over the last one, two, three months?

Lloyd, this is David. We anticipated a quick start to 2012 much like '11. That quick start really did not occur, but we have seen consistent, we've seen consistent demand. We have not seen a fall-off. Some unevenness in the marketplace but we would not characterize it as a month-over-month fall-off, as you suggested by whomever it was. So we've seen good consistency. March was a good month for us, and we are seeing that same consistency as we move into Q2.

Okay, I appreciate it.

(Operator Instructions). Aldo Mazzaferro, Macquarie.

A question I had on the laser, it's a great investment and I know it has a high margin product mix. Would you be able to characterize at all the margins that you might expect at for full rates compared to your average margin,, say, either in flat rolled or the gross margin in CTI? Is it somewhere a little under CTI, maybe a little bit better than the average in flat rolled? Or how would you describe it?

Aldo, let me field this in terms of generalities. This is our 30th laser from an overall perspective from Olympic Steel and CTI -- CT&I. As Don suggested here, it is their newest and biggest. It's up and running. In our value-added component of business, we see very similar margins on our laser work.

On the Chicago Tube and Iron side, the similarity gets -- when you get a little more granular, those are six Access lasers. There's a lot more work being done on those and we get a little bit of a premium because there is a lot more work being done on those lasers.

Right. Dave, I was also wondering how the temper mill margins might compare to the CTI margins, if you could be that granular, I don't know.

well, I mean, they're not value-added. There's a laser at the end of that, Aldo, and but there is volume there so remember these lasers, they are terrific. There is a variation of how many tons you get off of them depending on which size they are, so forth and so on. On the temper mill, these are very different animals. That is a big volume business.

We -- however, our customers and our downstream processing demand, the critical flatness and the critical service conditions that these three temper mills provide for us, this latest rendition for us here in Gary, Indiana has come up beyond faster than our internal budget. Nominal as I suggested, a nominal loss here at the end of the first quarter and the margins are traditional. Our margins are traditional in our service center business, so as you look back at us pre-Chicago Tube and Iron, that is pretty much what you see.

And Dave, could you generally describe what you're seeing in leadtimes from domestic mills? I heard you say delivery was better than you expected. Is that an indication that the mills possibly are not as busy as they are saying, or how do you see leadtimes and deliveries working out?

Well, I think each mill, Aldo, I think each mill has its own set of both positive and negative issues, needless to say. The ones that we rely on are well-run. The integrated mills' leadtimes are longer. The electric furnace leadtimes are somewhat shorter. Those shorter leadtimes, from our perspective, give people an opportunity to buy from them but they're going to pay a little bit higher price, needless to say, because of the short leadtimes. I think the integrated mills are very well run today. The traditional ones that we do business with, very well-run and they manage their order book very well. And so we are seeing good consistency throughout the first half we would assume on that side of the equation.

Great, thanks. Final one for Rick, Rick, I heard you mention a tonnage number. You said 20,300. What was that? The stateless component of flat roll?

No, that was on the Pipe and Tube side. The total tonnage for the first quarter was 20,300.

Would you ever provide the mix of stainless in that flat-rolled number by any chance?

No, we don't provide that.

Thanks.

Charles Bradford, Bradford Research.

A couple of days ago, there was an announcement about a strike at one of the I think smaller Caterpillar plants in Illinois. But sometimes a particular plant can make a part that is critical to other operations. Are you hearing much about this? Or is it significant?

Chuck, other than what we read about in the paper, Caterpillar is a big customer of ours. We've seen no disruption there and we have had no calls regarding that. That is a fresh labor dispute of two days ago, and we have seen nothing other than what we read in the paper, that Caterpillar says that there is no disruption.

Okay. Then you made some references earlier about maybe some price disruption in some of the restarted operations. I assume that you are referring to RG? Is there anything going on there? Because we're not getting very much information other than some rumors spread by some disgruntled people. Are they making progress? Are they affecting pricing?

You know, Chuck, I didn't point out anybody in specific. There is some additional capacity I talked about that has come on in the marketplace. Again, a little bit of that unevenness that has led to a little bit of a breakdown, a disciplined breakdown in some regional spots. Nothing that I think is egregious in terms of RG. Good communications from them. We don't rely on them heavily, and our hands are full with Olympic Steel and Chicago Tube and Iron. So, I can't imagine running RG Steel. So but appreciate the inquiry.

Thank you very much.

Sal Tharani, Goldman Sachs.

Hey, Mike, (inaudible) said the leadtimes at [integrateds] are longer than [EFs] but you have to pay a little higher for the EF steel?

David just commented on that, yes.

I didn't say we were paying. I'm saying the shorter lead times have allowed some of the electric furnace mills to capitalize on immediate needs at what would be current pricing or what we would deem as maybe a premium price.

Got you. Also, there has been a lot of announcements for downtime in the second quarter by some of the integrated mills. I was just wondering if you -- I know you're going to lower your inventory. But are you seeing any tightness or sort a little bit more stability in the supply demand fundamentals?

No, I've read the same articles that you've read and I've heard the same commentary. I don't see any immediate disruption. All I know is what we hear from the suppliers, but we haven't seen any of those actions.

Great, thank you very much.

At the moment, I have no other questions in queue. (Operator Instructions). I'm showing no further questions from the phone lines. I would like to turn the program back to our presenters for any concluding remarks.

Thank you, operator. As a reminder, it is our policy not to provide forward-looking earnings estimates for the upcoming quarter or the year and not to endorse any analyst sales or earnings estimates. We anticipate releasing our second-quarter 2012 earnings on or around August 9, 2012.

That concludes our call. Thanks, everybody, for your probing questions. We'll speak to you soon. Bye-bye.

Ladies and gentlemen, thank you for joining today's conference. This does conclude the program and you may now disconnect.