Olympic Steel Inc (ZEUS) 2015 Q2 法說會逐字稿

Good morning and welcome to the Olympic Steel 2015 Second Quarter Conference Call. All participants will be in a listen-only mode. (Operator Instructions) After today's presentation, there will be an opportunity to ask questions. (Operator Instructions) Please note this event is being recorded.

Some statements made on today's call will be predictive and are intended to be made as forward-looking within the Safe Harbor protections of the Private Securities Litigation Reform Act of 1995 and may not reflect actual results. The Company does not undertake to update such statements, changes in assumptions or changes in other factors affecting such forward-looking statements.

Important assumptions, risks, uncertainties or other factors that could cause actual results to differ materially are set forth in the Company's reports on forms 10-K and 10-Q and press releases filed with the Securities and Exchange Commission. Today's live broadcast will be archived and available for replay on Olympic Steel's Web-site.

At this time, I'd like to introduce your host for today's call, Olympic Steel's Chairman and Chief Executive Officer, Michael Siegal. Please go ahead, Mr. Mike Siegal.

Thank you, operator. Good morning and thank you for joining us to discuss our 2015 second quarter and first half results. With me is David Wolfort, our President and Chief Operating Officer; Rick Marabito, our Chief Financial Officer; and Don McNeeley, President of our Chicago Tube & Iron business. So we look forward to continuing the call.

Since last fall, we have been updating all of you on exactly how we are managing the challenges facing the global metals market. On our year-end call in February, we stated, and I quote, waiting for the market to improve is never an option, therefore we are taking steps to enhance working capital, cash flow and operating efficiency, and that's exactly what we have done.

In the first quarter, we reduced inventory by $31 million, paid down $10 million of debt and lowered consolidated operating expenses by $2.6 million. In early May, in our first quarter call, we stated, quote you can anticipate more progress in future financial results as we continue to execute on additional aspects on this program, and again we executed successfully. Inventory reductions accelerated in the second quarter declining by another $37 million and we paid down an additional $26 million in debt. At the same time, operating expenses declined by more than $8 million or 12% from last year's second quarter.

We saw what was happening in the market and took immediate action to get ahead of it. Year-to-date, inventory has been lowered by $68 million, $36 million of debt has been paid down, and we reduced operating expenses by $11 million or more than 8% compared with last year's first half. As expected, the historically low costs for steel making inputs including energy, scrap metal and iron ore have continued. Combined with a strong US dollar and record imports, this has resulted in consistent downward pressure on metal prices. These factors which are all outside of our control are not expected to suddenly disappear anytime soon.

The relentless weekly declines in prices that started last summer finally paused in the second quarter. Our focus on reducing inventory and accelerating inventory turns resulted in our cost of sales catching up with falling prices resulting to a return to historical margins in June. We responded quickly to market conditions by focusing on areas within our control to strengthen our balance sheet and increase cash flow. Our long-term growth orientation remains intact and we continue to look at opportunities to advance the objective.

As everyone on this call is likely aware, after months of discussions, on June 3, the US steel mills filed a trade case petition on steel coated products, followed by last week's petition on cold rolled steel. We support these actions because foreign steel producers that receive government subsidies exploit an unfair trading advantage and disrupt free market forces. This puts the US steel mills at a disadvantage which can substantially harm the long-term viability of the United States, its steel producers and their workers.

The US Department of Commerce now will decide whether or not to initiate an anti-dumping investigation. If they move forward, the US International Trade Commission must make a determination of material injury. All of this will take time and actual duties will not be in effect until next year. Therefore, we do not expect an immediate impact on prices. However, the tide of illegal imports may slow and subsequent petitions are also likely to be filed on hot rolled and stainless steels.

Lastly, this morning we announced our Board of Directors declared a regular cash dividend of the $0.02 per share payable on September 15, 2015 to the holders of record on September 1, 2015.

Now, I'll turn the call over to Rick to have his financial review.

Thank you, Michael, and good morning everyone. Volumes were up sequentially from the first quarter in both our carbon and specialty metals flat product segments. However, the increase was considerably less than the typical seasonality we normally experience in the second quarter.

Compared with last year's second quarter, sales volumes at all three of our reporting segments declined from the record levels we achieved in 2014. For the first half of 2015, volume was lower for carbon flat products as well as for tubular and pipe products versus last year. However, volume increased 1% in our specialty metals segment.

Year-to-date tons sold in our two flat product segments were down less than 6%, which according to the MSCI was close to the 5% industry-wide volume decrease. As you may recall, last year our flat products volume increased by 13.8% or approximately 3 times more than the industry average as reported by the MSCI. We have maintained or increased these market share gains in 2015 in every product category with the exception of carbon plate.

Shipments were negatively impacted by weaker end markets for mining, agriculture and certain heavy equipment as well as softer spot market sales. Lower volume and prices resulted in consolidated second quarter net sales declining 18.3% to $315 million compared with $386 million, which was an all-time Company record. In the first half, net sales were up 9.8% to $661 million from $733 million in 2014.

Second quarter average prices were lower in all three of our reporting segments. On a consolidated basis, second quarter average pricing declined 9.3% from last year. Our average price on flat carbon products was 12% lower in the quarter and down 7% for the first half. Average pricing was down 8% in the quarter and 1% in the first half for our tubular and pipe product segment compared with last year.

In our specialty metals product segment, prices were more stable declining only 1% in the quarter and actually increasing by 1% in the first half compared with last year. This was despite the softness in nickel prices which just hit their lowest level in six years. Net sales for this segment were down in the quarter but increased 2% for the first half versus last year.

Gross margins were obviously compressed by the lower prices and volume. Consolidated gross margin contracted to 18.8% of sales in the second quarter versus 19.3% last year. For the six months, gross margin was 19.0%, down from 19.9% in the first half of 2014. We increased our estimate of LIFO income this year and recorded $400,000 of LIFO income in the second quarter. This brought our 2015 year-to-date LIFO income to $650,000. Last year when prices were increasing, we recorded $400,000 of LIFO expense through the first six months of the year.

In this morning's press release, we disclosed that we are writing off intangible assets related to our tubular and pipe products segment. We recorded a partial goodwill impairment in last year's fourth quarter, and with prices and volumes declining more than expected, we wrote off the remaining goodwill and certain related intangible assets. This resulted in a non-cash impairment charge totaling $24.5 million in the second quarter.

Before the impairment charge, operating expenses decreased to $59.4 million in the second quarter compared with $67.5 million last year. That's a 12% or $8.2 million decline. This brings our year-to-date operating expense decline to $10.8 million or 8%, which exceeds the 6% decline in shipping volume.

Operating expenses declined in all categories for the quarter and for the six months due to cost cutting initiatives included in our profit improvement plan as well as lower volume. As a percentage of sales, operating expenses were 18.4% in the first half versus 18.1% in last year's six-month period.

Including the impairment charge, we reported an operating loss of $24.4 million in the second quarter compared with operating income in last year's second quarter of $7.1 million. For the first half, the reported operating loss was $21.1 million versus operating income of $13.3 million in 2014.

Interest expense was down 17% in the quarter and down 14% in the first half due to lower interest rates. Our effective borrowing rate in the first half was only 2.6%. In the second quarter, we recorded an income tax benefit of $3.6 million which resulted in the reported net loss of $22.3 million or $1.99 per share.

Last year, we earned net income of $3.5 million or $0.31 per diluted share. For the 2015 first half, we reported a net loss of $21.2 million or $1.89 per share compared with net income of $6.3 million or $0.57 per share.

The impairment charge reduced our earnings per share by $1.91 per share. So before taking into account the impairment charge, we had a pre-tax profit in the first half which is a testament to the discipline we have installed during the past several quarters. As we indicated in prior disclosures, we have had a sharp focus all year on managing working capital, strengthening our balance sheet and controlling our costs.

Now let's take a look at our balance sheet. Accounts receivable declined $14 million from the end of the first quarter to $138 million. The quality of our receivables remains very healthy. Day sales outstanding have dropped to 39 days compared with 40 days in last year's first half.

As projected, inventory was lowered again in the quarter. We reduced inventory by $37 million from $280 million at the end of March to $243 million at the end of June. This took year-to-date inventory down $68 million or 22%. Our inventory turnover improved to 4.4x for the second quarter and in June we had 4.7 inventory turns. This allowed us to accelerate shipments of higher costed inventory in a falling price market.

Working capital management contributed to higher cash flow this year. We generated $45 million in cash in the six-month period with $38 million of that coming from the lower working capital. The remaining $7 million in cash was generated from our operations. We used $26 million to further reduce the outstanding balance on our credit revolver during the quarter which was, our total debt was down to $212 million at the end of June and is now dropped below $200 million here in August. So we are now at the lowest point on our debt since December of 2013. During the first half of the year, we paid off $36 million of debt.

Our financial condition remains very healthy. We currently have more than $100 million available on our low-cost asset based revolver and we remain well in compliance with all of our covenants. The impairment charge had no impact on our loan agreement, our availability or our cash position.

Capital spending through the first half was reduced to $4.2 million. This compares with depreciation of $9.2 million. We expect our full year CapEx to be less than $10 million and depreciation in 2015 is still expected to be between $18 million and $19 million.

At June 30, shareholders' equity decreased due to the write-down to $260 million or $23.66 per share. That compares to $281 million or $25.55 per share at the end of last year. And finally, we intend to file our Form 10-Q later today which will provide additional details on our operating results.

With that, I will now turn the call over to David for the operating review.

Thank you, Rick. I'll reiterate the difficulties that Rick addressed in the second quarter. Keep in mind however, we were mutually disadvantaged by the sharp drop in steel pricing over the first 17 weeks of 2015. We reacted with a sense of urgency to protect ourselves from the impact of cascading price declines in a less than robust global demand environment and continued our inventory and debt reduction objectives of the past three quarters, as Michael noted.

The record level of steel being imported into the US by subsidized foreign producers compounded the negative impact on domestic prices from already low-priced steel making commodities. Forced liquidations intensified the downward spiral which is not unusual in this kind of environment. We remained primarily committed to domestic production, as we've noted in the past quarters.

Published CRU hot-rolled coil prices collapsed from just under $600 a ton at the beginning of the year to $459 per ton on April 1, a decline of $138 per ton or 23%. This coincided with price adjustments on some of our index-based contracts that reset quarterly and created significant headwinds early in the quarter. The second quarter CRU for hot-rolled coil declined by 32% year-over-year.

Prices continued to fall in the second quarter and hit a low threshold of $442 per ton in late April, according to the CRU. Since early May, prices have been relatively firm and by June the improvement Rick highlighted on inventory turns helped us quickly work through higher-priced material and margins began to normalize. Entering the third quarter, prices have rebounded slowly to the mid $460 a ton range. While we hope the cycle's bottom is truly behind us, we will not know with any certainty until after the seasonal summer slowdowns.

We are particularly proud of how our operating teams in the field have risen to the challenge. We have endured price degradations of more than 30% in 12 months. Since September, we have reduced our inventory volumes by 24% and this has freed up more than $80 million in working capital. Our cost-cutting efforts gained momentum in the second quarter and we are pleased with the progress we have made in a number of areas. We have improved performance in underperforming facilities and have lowered overhead and transportation costs according to plan. Of course we recognize that we are not going to cut our way to growth and Olympic Steel remains a growth oriented company. Despite the immediate challenges of this cycle, we have not taken our eye off of opportunities for profitable growth and we continue to invest in the future.

For example, during the third quarter, we began successfully operating and shipping from our new Butech 0.5 inch 72 inch structure leveller line installed in our Winder, Georgia facility. This has reduced our need for outsourcing as we continue to onboard new customer participation from existing OEMs and those that have re-shored to the Southeastern United States.

Now, before we open the call for questions, I'd like to quickly echo Michael's comments on the recently filed trade petitions. We are free market advocates here at Olympic Steel and applaud these actions to combat unfair trade and dumping by heavily subsidized foreign mills. If free market forces determine winners and losers, I'm confident that the North American steel industry can survive. At the same time, we appreciate the impact that higher prices can have on North American fabricators and manufacturers. As such, we are not advocating unfair protectionist policies, just a level playing field for everyone.

With that, operator, let's open the call for questions.

Operator?

Michael, this is Don can you hear me?

(Operator Instructions) So the first question is from the line of Phil Gibbs of KeyBanc Capital Markets.

You talked about your gross margins being at the best level that you saw in Q2 late in the quarter. Any sense on what we should be anticipating in Q3 in terms of that, and then should we also expect your operating expenses to continue to move down a bit given seasonally lower volumes?

Thanks for the question, Phil. It's Rick. So the first part on gross margins, we do have contractual pricing that each quarter a portion of those contractual arrangements to reset. So we'll see some reset downward on pricing in July, but obviously as we talked about, pricing bottomed in May and then we saw a little bit of an increase. So that reset will not be anywhere near as dramatic as it was in the second quarter. And I'd tell you looking at third quarter versus the start of second quarter, our margins are a little bit ahead.

On the operating expense side, we pretty much fully implemented all of the items that were in our plan in second quarter. So last quarter I talked about first quarter was a phase-in and we had not implemented all of the individual actions. We will be diligent. So going forward I would tell you, the items that we implemented, a lot around transportation, a lot around really efficiency and people, those things will stick. So you should expect to see year-over-year expense declines pretty similar to what you've experienced here in the first half.

And certainly in the second quarter.

Okay.

Okay. And then in terms of your inventory positioning right now, are you anticipating moving inventory levels down through the remainder of the year, and specifically where do you think you are -- call it product by product, within sheet and on your plate, maybe specialty metals?

Well, Phil, David here. I'll take just an overall picture here.

First of all, we saw the CRU drop from the top of the year through the end of April by about $155 a ton, and it has since recovered by $25 a ton, and we are very confident that our inventories had balanced. We've taken our inventory down. We had distinct objectives over the last three quarters and we met every one of those objectives and a little bit of fine-tuning within the current inventory is quite satisfactory for us today, and I think we've weathered the toughest of the storm as we go into the back half of 2015.

So just from a data perspective -- it's Michael -- as Rick indicated, the inventory turns were 4.7 turns, our target is to five turns, which again it's a factor of what's our shipment versus our inventory. So it was a little anticipation of some increase of shipments and our inventory is well-positioned, and if we don't see a recovery of shipments, then we will probably lower the inventory a little bit more, but it all depends on what the shipment level is.

Okay. And then in terms of your demand trends right now, we clearly saw some challenged comparisons in the first half. Any view on when you expect those to level out some?

Not really. I mean no.

Quite frankly, Phil, it's customer by customer and we have some customers that are gaining some strength. We have others that are abating. We have inventory adjustments in our customers both up and down. We're going to respond proactively. As I said earlier, we're going to look to continue to grow our marketplace. We've added a new piece of equipment. As I commented, Butech stretcher or leveller down at our Winder facility, we're gaining market share there. So from an overall perspective, we continue to expect and put our efforts towards growing the enterprise.

Thanks very much. Appreciate it.

Next question is from the line of Aldo Mazzaferro of Macquarie. Please go ahead.

Hey. Good morning, Michael and David and Rick.

Good morning.

Hey. I just got a couple of real detailed questions. But first, I wanted to ask you on the tubular side. You had a very steady while a little bit down operating income year to year but a pretty significant price decline of -- well, not price and revenue decline. Could you talk about what the trends were within the revenues and operating income that seemed to improve the margins year to year?

Don, you want to take that?

Yes, we were affected. Three of our major segments are mining and agriculture and military. So as Rick had mentioned early, echoed by David, those are three areas that are experiencing their challenges.

Well, what we have done over the last few years is invest heavily in moving more towards a value-added engineered product. We've certainly been supportive with all the CapEx requirements for that, and I think that is what has contributed to our ability to maintain our gross margins in light of not necessarily decline in activity but decline in pricing.

So the world of the flat-rolled is the leading economic indicator of what's going to affect the tubular product about six months down the line. So, most of our price degradation was a result of sharp pricing in the primary product of flat-rolled that eventually will trickle it downstream.

Okay. So it's a mix improvement and offsetting a price decline in the market?

Yes, because normally when you see price sharpening, you see sharpening in those three major markets, you're going to see a corresponding [feeding] trends in the market that compresses margins. So one of the advantages that we had getting ahead of this was by moving up that value stream to more value-added, more fabrication. That's why we've been able to hold our gross margins sacrosanct.

Great, great. And I also wanted to say on the operating expense and the cash generation, I really think that's a great job, but I want to ask Mike.

Michael, your comment about that you don't expect the tariffs to have an immediate impact on pricing. I'm a little surprised there. I thought it would have more of an immediate impact. And you look at the market today and in the first half of August scrap seems to be down $20 or $30 but flat-rolled holding pretty steady. Is that the beginning of a price improvement you think or what do you see in the marketplace, I'm just wondering about your thoughts?

You know, Aldo, there are so many global factors beyond just the historical knowledge that you and I seem to have. Currency makes a big difference in terms of the pricing. The aspect of iron ore pricing out of Australia to China makes a big difference in the pricing as a correlation to scrap. And again, it does get back to supply and demand and to some degree sentiment.

So when you wake up in the morning and you hear that the active CPA is going to get more active, when you see that we're looking at coal being shut down completely. It doesn't lead to sentiment being well, and also customers have felt all along declining price environment and they are still demanding price declines. And so it's still high inventory levels overall in the marketplace and customers still believe that regardless of the pronouncements from the mills, they still expect a price decline.

So I think the indication from Olympic to the market, Aldo, is irrespective of what will happen from a macro perspective, we're focused on doing the things that we've got to do internally, and secondarily to it, I mean while these actions may take place until the government actually determines to investigate and find the outcome, nobody is paying -- I don't think my customers are paying attention to it.

All right, thanks, Mike. I'll turn it over.

(Operator Instructions) Next question is from Luke Folta of Jeffries. Please go ahead.

Hi. Good morning, guys.

Good morning.

Good morning.

I'd also like with it -- some pat on the back is due for the execution this quarter. And just given all the headwinds, I thought the margin performance and of course cash, and all that was good, so nice work there.

The first question I had, Rick, I just wanted to see if I can get a clarification of some of the things that were said in terms of the margin outlook for the third quarter. I know you don't want to give guidance but you did mention that there would be a step down in the contractual pricing related to I think CRU most likely, but then you also noted that July so far margins are better than what you had in the second quarter.

So I guess if you could just clarify some of that, maybe I misunderstood something, and then just an update on sort of how the lags work in your business, how much of the business is based on lagged pricing and which product lines and that sort of thing would be I think just a helpful update?

Sure, and I probably wasn't clear, so let me try to clarify it for you. So second quarter, on April 1 we have pricing resets on certain accounts, on contract accounts.

So as we move through the second quarter, we saw our margin improve. By the time we got to the end of the second quarter in June, we had what I call more normalized margins, our historic margins were back intact. As we go into the third quarter, on a portion of our contract accounts we'll also have pricing -- had pricing resets. Those pricing resets, while they are down and impact our margins and our margins will be lower in July than they were in June, when you compare the start of the third quarter with the start of second quarter, we're in a better gross margin position.

So the margin decline going into the third quarter was not nearly as steep as it was going into the second quarter. So hopefully, did I hit the mark there on your question?

Yes. I guess it sounds to me like you had I guess a greater squeeze from higher cost inventory or just a mismatch between the average inventory running through versus spot prices that sort of abated throughout the second quarter, and then it sounds like pricing taking a step lower on the contract resets maybe mitigate some of that?

Yes, no. Michael here, Luke. So on a Friday we have a particular price. The quarter flips over to the next quarter, the first day of the quarter we have a new price relative to the CRU number, alright. So that number in the first quarter was down substantially, that number in the second quarter was down not as substantial. And as we begin the fourth quarter, we'll have another reset and depending on the CRU that price could be up or down.

Obviously on Friday, when the price is at where it is in June, we had a level of inventory that is relatively necessary to serve to the customer. The following Monday that material is going out the door at a lower number just because of the reset, or it can go out at a higher number depending on the reset. The first two quarters, obviously the CRU number was down from December 31 to April 1 and then obviously from June 30 to July 1.

Okay. So if the spot prices were to just stay exactly where they are for the rest of the quarter, does that imply margins are higher or lower in the third quarter versus the second quarter?

I'd tell you we'd probably tick up a little bit.

Okay, okay. I think that makes sense. And then just as a reminder, what percentage of the business is based on a lagged contract at this point and is it typically the quarterly CRU lag that is the most predominant contract used?

The answer is yes to that question, and we would guess on the flat-rolled sector that about 60%-plus is probably subjected to some kind of index reset.

Okay. All right. And then on the SG&A, it sounds like most of the actions that you've taken are mostly reflected at this point in the second quarter number, and correct me if I'm wrong there, but going forward if we use something in the neighborhood of about a 10% incremental SG&A or operating expense margin excluding D&A, so just cash expenses, sort of a 10% incremental margin on sales, is that the right way to think about it going forward?

I'm not sure I'm following you, a 10% incremental?

So $100 million increase in sales, $10 million increase in cash operating expenses, is that a good way to think about how that number might move around with sales going forward?

That isn't really the way I've looked at it. It may be, but basically what I'd tell you is, obviously in the second quarter you saw our numbers for the first half, we're down about $11 million. We've got a fixed cost component. So depreciation is pretty much fixed.

Most of occupancy cost, there is a little bit of variability in there, but occupancy is pretty much fixed. Selling is highly variable. Warehouse has a high component of fixed costs with some variability in it. And admin, other than actually taking actions or actually reducing the size of our administrative workforce, is highly fixed.

So as we went into the expense reduction plan, we had several pillars on the operating expense. One was around transportation, and I think the trend that you see on our transportation year-over-year declines relative to sales and volume, those will continue because we fundamentally changed some things within the distribution arena that give us sort of permanent fixed savings.

As you look at the rest of it, we've been very good at managing our time, our overtime, and that's a big component in the warehouse expense. So I think your warehouse expense related to sales in the second quarter, that's a pretty good gauge on how you should move forward in terms of what happens with sales going forward.

Administrative cost, I think most of the reductions that you saw year-over-year in terms of dollars, those are pretty consistent and those will stick. Occupancy, there won't be much movement. And I gave you the depreciation number. And then sales is always pretty close as a percentage of sales. You can look at our history and that thing pretty much moves right along in concert with sales.

So hopefully that helps, and I'm sorry I couldn't give you the answer on the 10% but that isn't how I do the math, and you may be right but if you work through maybe some of the items I gave you, that should help you.

Okay, all right. And then just on the tubular business, I was a little surprised to see the write-down compared to the results. I mean if I'm not mistaken the earnings generated in the first half of this year were actually better than the first half of last year, and I think although pointed out that it was done obviously on a much lower sales number, but I guess what was the actual data point or the decision that drove you to re-evaluate the long-term prospects of that business and should we think of this as like a short term mix benefit that sort of dissipates going forward, I mean has the outlook over the next 12 to 18 months structurally dimmed in that business?

There's a lot of answers to that one depending on whether you want the technical or accounting one or how we feel about it. I'll let the technical and accounting ones serve the day.

So, Luke, you're exactly right. You look at the performance, we're really proud of the performance of our pipe and tube group. I think they have performed very well in a very difficult marketplace and obviously they are quite profitable, and if you look at their profitability versus peer groups, they are an upper-quartile performer. So obviously the write-off is not because that business has gone backwards.

Unfortunately the way the accounting rules work, a lot of the test is based upon future cash flow stream discounted back and on goodwill. As you know, we had a partial goodwill write-down at year-end. When you get into a partial goodwill write-down basically, you have no cushion in terms of whatever you projected into that model versus then what reality is.

So the short story is, it's a pretty complicated accounting entry and the reason we had a write-down is we adjusted our future cash flow streams down slightly from what the expected budget was when we moved into this year, and that's really I'll tell you all due to the industry decline in volume and price. So there's, fundamentally everything is strong there.

So like Rick indicated, I would say, one, there is no logic at all to this. It is a FASB regulation that we would argue does not serve anybody well, and every quarter that we've owned CTI, they have performed exceedingly well and have never lost money in their history, and so we don't get it but that's the rules.

Okay, fair enough. And I guess lastly, I might be asking a duplicate question, but can you talk about just what you're seeing in terms of order rates so far in the third quarter?

We are seeing a normalized third quarter. We're at the very front end of August obviously and strengthening from July and July delivered its usual disappointment as it does every year. We'd like to say -- I know Mike and I have been doing this for 41 years, that July never saved anybody in the service center business.

And it was okay, it was an okay July. August is already better and people are back from vacations and we see -- I think we've gotten through the worst part of this unless there's some big, big surprise at the end of this year, which I don't anticipate. The big surprise came in the 17 consecutive weeks of decline in the CRU from the top of the year through April 1 and a little bit extra decline through April 29, and then it started recovering and it has continued to recover or be neutral.

Great. Thanks a lot for all the detail, guys.

Sure. Thanks, Luke.

The next question is from Phil Gibbs -- a follow-up question, Phil Gibbs from KeyBanc Capital Markets.

Thank you. I think you --

Hello?

I'm sorry I guess he lost the line. Next is Charles Bradford of Bradford Research.

A couple of your suppliers or potential suppliers are doing restructurings, most of which has been well reported in the press. Are you seeing any impact on either their quality or their on-time deliveries?

I don't know specifically who you're talking about, Chuck, but --

Well, US Steel and ArcelorMittal.

Okay. No, not really. Both of them are strong suppliers to Olympic Steel and both of them are really performing as they've always performed. So we've seen no degradation in performance from either party and we see no degradation in delivery performance and we see no degradation in quality and we continue to rely on them as a key source for a majority of our facilities.

Based on your comments about inventories, the conclusion could be drawn that you're not worried about a strike at either one of these two, would that be safe to say?

That would be safe to say because I'm not involved with any negotiations, so there's really no reason for me to be worried about anything, but in reality I don't think that I'm not overly concerned about it.

Because historically the inventories have always gone up prior to a strike deadline.

It's probably not going to be the case. I think the automotive negotiation probably has a little bit more teeth two weeks after the August 31 deadline or August 30 deadline here.

Good point. Thank you very much.

Sure, Chuck.

And the next question is from Aldo Mazzaferro of Macquarie.

Hi, guys. One more follow-up and --

Sure.

You know your balance sheet is getting pretty strong and your debt I know is still $200 million but it's down $50 million or so from a year ago -- of being in a year. Is there a point, given the point that the stock is down and the cycle may be scraping along the bottom and getting ready to improve, do you guys consider buying back shares ever?

Well the answer ever is a very long time. I would tell you that we have very strong Board members and we discuss all possibilities at most of our Board meetings, which occurred yesterday. So we have nothing to announce but I will say that we have very broad discussions on a variety of issues all the time.

Okay, thanks.

Phil, you're back. Operator?

We have a follow-up question from Phil Gibbs of KeyBanc Capital Markets.

I'm here.

Sorry about --

I was going to echo a little bit of what Aldo was saying. Is there any thoughts to the fact that if the stock stays down here and any thoughts of wanting to just take the Company private at this point and not have to deal with all the volatility given the fact that you're making some really good strides and it's not being recognized?

I don't know, are there any lawyers on the call? I would just tell you, Phil, that anything we have to say regarding our share price will be done by a press release and not by a comment. So as I indicated, our Board members are elected by the shareholders and I think they represent them well and we will do whatever we can to enhance the value of our shareholders' investment.

(Operator Instructions) This concludes our question-and-answer session. I would like to turn the conference back to Mr. Siegal for any closing remarks.

Okay. Thank you all for joining us this morning and the obvious interest in Olympic Steel. So while we don't expect current market challenges to vanish, we will continue to execute on our initiatives to manage ourselves to the things that we can control. I'll be presenting at Jefferies Industrials Conference in New York next week on August 13 and we'll be also in Boston to meet with investors at the KeyBanc Basic Materials Conference on September 2. So I hope to see any and all of you there. So have a great day everyone. Thank you.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.