Reliance Steel & Aluminum Co. (RS) Q4 2012 Earnings Report, Transcript and Summary

Good morning, ladies and gentlemen, and welcome to the Reliance Steel & Aluminum 2012 Fourth Quarter and Year End Conference Call. [Operator Instructions] It is now my pleasure to turn the floor over to your host, Brenda Miyamoto. Ma'am, go ahead.

Thank you, operator. Good morning, and thanks to all of you for joining our conference call to discuss our fourth quarter financial results. I'm joined by David Hannah, our Chairman and CEO; Gregg Mollins, our President and COO; and Karla Lewis, our Executive Vice President and CFO. After the completion of this call, a printed transcript, including Regulation G reconciliations, will be posted on our website at www.rsac.com in the Investor Information section. Before we begin, please remember that our prepared remarks and responses to questions may contain forward-looking statements relating to future financial results. Our actual results may differ materially as a result of factors over which Reliance Steel & Aluminum Co. has no control. These risk factors and additional information are included in our annual report on Form 10-K for the year ended December 31, 2011, and other reports on file with the Securities and Exchange Commission. Although we believe the expectations reflected in such forward-looking statements are based upon reasonable assumptions, we can give no assurance that our expectations will be obtained. Reliance undertakes no obligation to update any forward-looking statement, whether as a result of new information, future events or otherwise. I will now turn the call over to David Hannah, Chairman and CEO of Reliance.

Good morning, everyone, and thank you for joining us today. Our 2012 results reflected growth over 2011, but not as much as we anticipated at this time a year ago. For the full year 2012, year-over-year tons sold increased 5.4%, operating income increased 15.1% to $659.2 million, net income increased 17.4% to $403.5 million and earnings per diluted share increased 16.4% to $5.33. We're also pleased with our operating performance in the fourth quarter in light of the weaker-than-expected market conditions. Fourth quarter net income was $80.4 million, or $1.06 per diluted share. That's up 16.5% from the fourth quarter last year, but down 18.5% from the previous quarter. Sales for the fourth quarter were $1.89 billion, down 7% from the fourth quarter last year and down 8% from the prior quarter. Our top line results reflect continued economic uncertainty, which continued to pressure pricing and negatively impacted volumes in the quarter, coupled with normal seasonal trends in the fourth quarter, including fewer shipping days due to the holidays and extended holiday-related closures by various customers. Our average price per ton sold of $1,847 held steady on a sequential-quarter basis in the fourth quarter. Our selling prices were lower in 2012 than in 2011 because of the general trends in metal pricing. However, the average selling prices of our newly acquired companies are higher than the company average due to their specialty products and processing capabilities which has helped to partially offset the downward pressure on our overall average price. Although our overall pricing in the 2012 fourth quarter did not decline, our top line continued to decline sequentially due to weak volumes. Our LIFO credit in the 2012 fourth quarter helped boost our margins, but more importantly, our local managers were able to improve our FIFO gross profit margins…

Thank you, Dave, and good morning. As Dave pointed out, we were pleased with our results in the fourth quarter and year-end 2012. Demand softened as the quarter progressed and the second half of December slowed down much more than normal. With the decline in volume we turn to gross profit margins. Price increases were announced on several of our products, which gave us the opportunity to pass them through to our customers. Fortunately, we were able to raise our FIFO margins in the quarter to 25.8% from 24.7% in the third quarter. This helped to partially offset our loss in volume. We are very proud of our people in the field that made this happen in a difficult market. Inventory turn, on a same-store basis, excluding acquisitions in 2011 and 2012, was 4.2x in dollars and 4.5x in tons. From a demand standpoint, we still feel pretty good about most all of the major industries that we support and their outlook going forward. Commercial aerospace build rates continue to rise, and our company's joint business in this space are doing very well. Oil and natural gas continue to be one of our strongest markets, and our company's joint business in this industry are also doing quite well. Heavy industries, such as mining equipment, barge and tank manufacturers, transmission towers and railcars, are strong. Agricultural equipment, was slowed somewhat in the second half primarily due to the summer drought, is forecasting a solid 2013. Automotive, supported by our toll processing business in the United States and Mexico, is doing extremely well and the future looks bright. We have plans to expand 2 of our plants into this year to keep up with demand, as well as adding additional processing equipment. We are very positive about our toll processing operations supporting…

Thanks, Gregg. Good morning, everyone. Our 2012 fourth quarter same-store sales, which excludes the sales of our 2011 and 2012 acquisitions, were down 9.7% versus the fourth quarter last year, with a 5.1% decrease in tons sold and a 5.7% decrease in our average selling price. Same-store sales compared to last quarter were down 9.5%, with a 9.3% decrease in tons sold and an average selling price that was relatively flat. Our gross profit margin for the fourth quarter was 27.8% compared to 23.4% in the fourth quarter last year. Our LIFO adjustment for the quarter was a credit or income of $37.1 million, or $0.30 per share, compared to a charge or additional expense of $17.8 million or $0.15 per share in the fourth quarter last year. Our LIFO adjustment is included in cost of sales and, in effect, reflects cost of sales at current replacement costs. Our 2012 LIFO income of $64.1 million was higher than we had anticipated during the year, including the fourth quarter true up. Although mill price increases were announced for the 2012 fourth quarter on certain products, in general, the inventory we received was at lower costs, contributing to the higher LIFO income. As a percentage of sales, our SG&A expenses for the fourth quarter were 18.3%, compared to 16.1% for the fourth quarter last year. The lower metal prices in 2012, compared to 2011, significantly impacted our SG&A expenses as a percent of sales. Our current cost structure can support significantly higher volumes, and we anticipate that our SG&A expense, as a percentage of sales, will begin to decline as our volumes and pricing improve. Operating income for the quarter was $135.8 million, or 7.2% of sales, compared to $112.3 million, or 5.5% of sales, in the fourth quarter last year. Our…

[Operator Instructions] Our first question today is coming from Sal Tharani at Goldman Sachs.

Two quick questions. First, Gregg, Kaiser mentioned in their press release conference call that they are seeing some de-stocking going on in the supply chain, in the aluminum. I was just wondering if you could give any comments on that?

Yes. What I think caused that overhang that they were referring to at Kaiser was really lead times in the first half of 2012 were very extended. On sheet and plate, 13 to 18 weeks, bar stock was out there, and that has a tendency for both service centers and OEMs to buy a little bit heavy because of the extended lead times that I just mentioned. And eventually, that catches up. And now people are working down their inventories and lead times have gone from that 13 to 18 to, like, 8 to 10 weeks on aerospace-related heat treat sheet and plate. But I think that's a very short term thing, Sal. It's not like the overhang that we saw several years ago, when the OEMs were swimming in inventory, and it took them many, many, many months to work it down. I don't see anything even close to resembling that. So I think it's a very short-term phenomena.

Okay. Great. And, Karla, I have a question on the accountings. If you were to -- when you close the Metals USA deal, they are a FIFO-accounting company, I was wondering if you're going to convert that to LIFO? Or you're going keep that separate as a FIFO accounting cost [ph]?

Yes. Sal, under the accounting rules, we'll have to have consistent inventory methodology. So they will become a LIFO -- their inventory costing will be on the LIFO method when they are -- become part of Reliance.

So will that incur any costs or anything? Any tax issue or anything like that you should think of?

Not initially, no. Well basically, as with all the acquisitions we do, many of whom that we buy, they are on FIFO accounting prior to us acquiring them. So we have to put their inventory at fair value. That establishes their very base year. So assuming we close in the second quarter of '13, that would be the base year for the Metals USA inventories. And then their LIFO charges or income would be based upon that starting point going forward.

Our next question today is coming from Luke Folta at Jefferies & Company. Luke Folta - Jefferies & Company, Inc., Research Division: A couple questions. I had one on your guidance for the first quarter. Can you give us some sense of what you're LIFO expectation is that's implied by that? And also, as it relates to shipments, should we consider something kind of close to what MSCI has reported for January as kind of what you're seeing so far in the quarter?

On the guidance, first off, on the LIFO, Luke, at this point, it's pretty early in the year. As Gregg has commented, we do expect there to be some improvement in Q1, although pretty tampered, we believe, in pricing. And we have to estimate for the full year. So at this point, we're estimating basically 0 LIFO for the year. At the end of the first quarter, certainly, we'll update that when we've seen what's happened during the first quarter. And when you think about LIFO, just remember that the company's reported numbers are consistently on a LIFO basis. And that's where we typically fall, within that 25% to 27% gross profit margin range. We came in about 26% for the year of 2012, our FIFO gross profit margin was around 25.8%. So assuming no significant changes in pricing in the first quarter, that's a pretty good run rate, we believe, from a margin expectation.

And in terms of tons sold per day in January, yes, Luke, we're off about 4%, a little less than 4% in tons shipped per day this January versus January of 2012. So the bigger deal is, of course, the pricing. And pricing is a fair amount lower now than it was a year ago. So that's really what's having a bigger impact on our guidance as opposed to the ton expectation.

Yes. So -- and we -- and as far as your reference to the MSCI data, we did see a similar type of increase from December to January. And our total tons shipped is what was reported by the MSCI. But you have to remember that December was low, especially the last 2 weeks of December were very low. So for the quarter, as Dave just commented, we expect tons to probably be still a less than the first quarter of last year, but we are seeing trends consistent with the MSCI data.

Yes. And January this year also had an extra day. Which has -- if you hear these numbers like tons are up 40% January versus December, 35%, whatever you're -- whatever you see, don't get carried away with that because December had fewer days, and as Karla just mentioned, it was way down, particularly the last 2 weeks business seemed to just come to a halt. And then January had an extra day this year compared to January a year ago. So that has a pretty big impact on things. And the other comment also is -- keep in mind that last year was a little bit different in that our first quarter last year was our best quarter in terms of earnings and in terms of tons, and pricing was the strongest in the first quarter last year, and pretty much softened as the year progressed, with maybe a month here or there that different products tried to go up. But in the first quarter last year we made $1.54, and then the second quarter was down, third quarter was down, fourth quarter was down, so that's unusual. Usually, our second quarter is our best, and then the first quarter typically would be the second best one. This year, we're expecting that maybe we'll return to a more normal pattern with second quarter being our strongest quarter. Third quarter potentially could be better than first if in fact we do get the improvement in non-res that seems to be on the horizon. We just -- we're still not certain when that's going to happen but it's out there, and I think it's a little closer than it has been, over the last couple of years. Luke Folta - Jefferies & Company, Inc., Research Division: That's great detail there. I just had -- the other one was actually on non-res construction. Firstly, just to the extent that you can comment on what the optimism that you have or the signs of improvement that you're seeing, is that relating to something that's happening within your business? Or is that just kind of the same housing start and ABI improvement that we've all been seeing? And secondly is just a follow-up to that. When non-residential construction activity does fully recover, say we get back to 2006, 2007 level at some point, can you just put in context for us what has changed in your business since the last peak? Just to try to help us understand what the real sales with an earnings leverage could be in that scenario?

To answer your first question, Luke, this is Gregg. We're seeing non-residential improvement by way of up-quoting. We're doing a lot more quoting. We read the same ABI units that you read and all that. And we take that into consideration. But really, we listen to our people in the field. And just recently, we've made a tour of several of our large steel producer, suppliers of ours and their inclination was very, very similar to our own, that they are seeing more quotes. They think that some projects are going to be left. And overall, I can be honest with you, I've heard a more positive outlook in the last few months than I have in some -- quite some time.

Additionally, the other thing that we're seeing this time that we haven't seen in the last 2 years, when the ABI was actually up for what, maybe 5 months in a row or thereabouts in each of the last 2 years, but then it calmed down and started to go the other way, actually, last year and also the year before. But this year, there is the residential part of it that does have an impact on the non-residential side. And that's a very positive thing in our minds, in addition to what Gregg was talking about in terms of our actual quoting activity. In terms of how the company has changed since 2006. In 2006, we didn't have the PNA Group, which was, so far, our largest acquisition to date. And we had acquired Jorgensen only at the end of the first quarter, beginning of the second quarter in 2006. So I think our volume in 2006 was $8 billion, as we reported, $8 billion plus. We would expect, if we came back to 2006 levels in non-res, our 2006, 2007 levels in non-res, and our other businesses held, where they were, we would have been -- or we would be approaching the $10-billion-plus mark in revenues. And we've acquired Continental. We've built some other energy businesses since 2006 as well. So the company has added quite a bit of business that's really been carrying us and making up for the deficit in non-res over the last few years.

Yes. We actually, Luke -- we've also been trying to figure that out. As Dave mentioned, we bought PNA Group in 2008. And our run rate, at that point in 2008, we would have been about a $10-billion-revenue company. And so after that, we've added, with -- since 2009, we've added about $800 million in revenue with the different acquisitions we've made. So certainly, we would get our revenues up. And also, the other impact, is if non-res is good, that typically supports pricing. Any pricing improvements fall to our bottom line and help our operating and pretax margins. Also, we've got the fixed cost structure in place. We have a lot of locations where we're not running at our normal capacity levels because they're primarily focused on non-res construction. So you would see leverage on the SG&A line. Also, if we get volumes back in those locations, because it would just be very incremental expense increases to support, not to the same level as the volume we would run through there.

Our next question today is coming from Arun Viswanathan at Longbow Research.

I guess I had a similar question on the non-res side that you gave quite a bit of detail. So first off, I guess, I just want to ask about what you're seeing in some of your other areas. Maybe you can comment a little about stainless and nickel trends to begin with?

Well, the nickel trends have been pretty stable in the -- throughout the second half of the year. They were ranging anywhere from $0.70 to $0.80 a pound. We've just seen some small increases just recently. But they're, I mean, small, $0.01, $0.025. So it's -- as you know, the nickel is a very volatile commodity, affected by a lot of different trends, and it's just one of those things we just have to follow. We turn our inventories as much as we possibly can, which helps us get through those volatile-type commodities. But we really don't have any input for you as to what we think nickel would do throughout 2013. We just don't have insight to that.

And is the residential recovery at all, is that going to ultimately help your stainless side? Or is that not a fair conclusion?

It could have some impact with what goes into the residential. Okay? Whether that be washers and dryers and dishwashers and all that stuff, which we touch on, certainly. So yes, that could have an impact. Could it have a major impact? I don't think it would have a major impact. But stainless flat roll, last year, we were up double digits on a same-store basis. So we made some headways. We opened up a couple of plants. We've put in some extra equipment, in particular in the Midwest, in the Northeast. And we got -- we improved our market share quite a bit in those areas because of those capital improvements.

Okay. Great. And then I guess the other question I had was on the acquisition front and kind of a new Reliance. So post the acquisition, maybe, can you give us a little bit more color on what your markets would look like? And obviously, we've gone through -- the Metals USA does now. But would it be possible to even increase your non-residential construction exposure to a greater degree because of their increased flat rolled exposure?

I think non-res, as a percentage of metals business, is a smaller percentage than it is of ours. We still think non-res for Reliance is about 30% of our business. When it's cooking along better than it is today, it could be a little higher than that. And it's less than that for Metals USA. So I think their exposure, when you put it together with us, would pull our exposure to non-res down as a percentage, but it would move it up substantially in terms of tons or dollars of sales going into that. So that's one of the real benefits of the transaction as we see it. So the other markets -- it doesn't really change much because of the size. It takes a lot to move the needle. So our carbon business, which is now 50-percent plus -- approximately 50% of our business, might go up 2 or 3 percentage points with Metals USA combined in. The flat roll component, would -- which -- our flat roll is about 11% of our current business on a pro forma basis. With Metals USA we'd be about 14% or 15% carbon flat roll. So it's -- it really complements where we are in our products, and we think it fits well and rounds us out better than we are today.

Okay. And just the last question I had was on the pricing front. You noted that your manager -- local managers were able to increase prices. And that was even in the fourth quarter when a lot of the carbon products have declined. What's the practice and outlook for 2013? I mean do we really need a lot of pricing to come through for margin improvement, especially in the back half? Or is that something that you can continue to improve through internal focus?

We sure don't want it to go down. So that -- it's hard to raise your margins when product prices are going down.

And to Karla's point, we're typically on a FIFO basis in that 25% to 27% range. Generally speaking, when prices are lower, we're in the bottom of that range, and when prices are going up, we tend to be in that 27% range. So...

Generally, in all the quarters of 2012, our gross profit margin is on LIFO, but more on FIFO. We're pretty stable, which is there's a little more pressure in the third quarter last year, they went down a bit more. But our people did a really good job of maintaining that margin, no matter what the cost was. So our average selling price actually was basically the same in the fourth quarter as the third quarter overall. But our costs were going down at the same time. So if there are not significant ups or downs in 2013, then we would expect to continue to be pretty steady at that margin level. Certainly, mill price increases would generally tend to help us lift the margin up a bit. Also, if volume is strong or gets stronger, that can also help us move the margin up a bit. So we feel pretty confident at maintaining margins and either pricing or volume improvements could help us increase those.

The most significant headwind we had last year as we progressed through the year was pricing. It -- and for the most part, from the first quarter through the rest of the year, I guess, towards the end of the first quarter, pricing flipped around and started to soften on most all the products. And as we move through the year, the prices just continued to weaken for the most part. So that was the toughest headwind that we had. And as Karla mentioned, that makes margins and maintaining your margins and improving your margins more difficult. And that's exactly why we feel pretty proud of our folks out in the field in the fourth quarter to raise their margins up over a point on a FIFO basis when demand was coming down like it was.

Our next question today is coming from Timna Tanners at Bank of America.

Yes. I mean, I think the guidance is still, year-over-year, pretty disappointing but the first quarter a year ago was seasonably warm. I mean can you just talk to us about the year-over-year comparison with a little more detail on what you think is happening there, if its underlying demand or if it's de-stocking or how much is weather-related?

Well, part of it, Timna, is just the momentum isn't there the first quarter of this year as it was the first quarter of last year. Coming into 2012, momentum from both demand and pricing were fairly strong. We and others in the industry had very good months in January and February last year. And we don't, even though we expect demand to be better than it was in the fourth quarter, even though we expect pricing to be about the same or a little better, it's still down from the first quarter of last year. And that's really the impact. We just had a good start to 2012 and we are currently not anticipating as strong of a start in the first quarter of this year.

Yes. Our average selling price per ton in January, compared to the prior January, was down 5.4%. So that's a tough position to start from. So the volumes, as I mentioned before, were about even. We were up 1%. But I think that's mostly due to an extra day this year compared to last year. But again, the biggest challenge we have is that pricing is lower. But last year, it turned around pretty quickly. Prices were going up, but not for long. And then it flipped around. So...

That is -- the confidence level out there in the first quarter of last year with our customer base was much more strong. Okay? And then it just begun to steadily decline with at all the uncertainty that was unfolding. And that's really the difference. I believe there's still a lot of uncertainty in this quarter. Certainly, the fourth quarter definitely had it very much so. So what we're seeing here is that a lack of confidence, a little lack of some uncertainty where we're going with this fiscal budgeting crisis that we're in, and we didn't have those issues in the first quarter of the last year.

I was just going to say, I think that's one of the major things that's got its foot on the brake in terms of business, in general, but more so in the large projects which for us translates into the -- when is non-res really going to kick back in. Because if you're going to make a significant investment, whether you're building a building or a strip mall or a stadium or something like that, you want to know what's going on in the economy. And we really just don't know that yet. And I think that's the big question, and that's the thing that is holding us back. And we need to get our folks in Washington moving in the right direction.

Even if you use Reliance as an example. We were very conservative in the fourth quarter. And even though we spent $76 million on CapEx spending in the quarter, the majority of that was actually on projects that we initiated in the first and second quarter and continued through completion in the fourth quarter. So we cut back on our spending in the second half of last year, and we cut back our inventories. On a same-store basis, we cut our inventories in the fourth quarter by $150 million. So -- and our customers were doing the same thing.

But I want to understand how that interpretation is manifesting itself in your business. If you're more of a spot, short, smaller, transactional focused company.

Well, because the end users are the end users. I mean those industries that we service are the industries that we service. And so when they're uncertain, we certainly are.

Okay. Fair enough. My last question is really about pricing. And I think we may have a more solid environment for non-ferrous, but on the carbon side, especially now that you're getting to be more into the flat rolled with the Metals USA, how do you manage around the price hikes that haven't been successful? You alluded to it. And how do you -- do you have a view of prices improving? Is it with the utilization where it is, there hasn't been a lot of pricing power, so does it have to be raw materials?

Well, raw materials and scraps certainly helped the equation. But ultimately, the reason why those increases that were announced didn't take hold was there just wasn't enough demand to support it. And really, in order to get those -- I think they've got a good story when you're talking about iron ore and scrap, if it goes up, that's certainly positive to support a price increase. But ultimately, the big driver is going to be demand.

Our next question today is coming from Michelle Applebaum at Steel Market Intelligence.

Not the best timing, because it's a similar question to Timna's. So last year, you did $1.48 in the first quarter and $1.44 in the second. And I think it's fair to say, while the Metals USA acquisition will be accretive and it's a great acquisition, even adjusting out any purchase accounting costs, it's going to be very hard for 1/2 2013 to beat 1/2 2012. Is that a fair statement or am I pushing you in terms of...

No. Not -- I think that's exactly the message we were sending with our guidance. Because -- and by the way, Michelle we were...

I said half. I said half. So I'm actually looking out.

Yes. Yes, I understand. But in the first quarter last year, we actually reported $1.54. So it's a little bit different than the number that you just mentioned. But yes, we were $1.54 and $1.44. And we just gave guidance for the first quarter. So I think, yes, it's reasonable to expect that the first half comparisons are going to be difficult, and we wouldn't expect to meet that, given where pricing is an given where demand is, even though we do expect incremental increases in pricing and demand as we move out of the first quarter into the second quarter. But we don't see anything significant enough to bring us up to the levels of the first half in terms of earnings that we had last year.

Okay. And my second question is, I suspect a big drag is the plate business. Is that fair to say?

Certainly, from a pricing standpoint, the plate -- you're referring to carbon steel plate, I assume.

Yes.

Yes. And yet our volumes on plate are reasonable. Okay? They're not at its peaks, but -- we've certainly seen them worse than this. Okay? By quite a bit. So we're really not complaining about the volumes that were -- that we have in plate. But I'll tell you that the margins that we have on plate, we are complaining about. There's been a tremendous decline in pricing in -- throughout 2012. And there was just, recently, I think, recently, as of Monday, SSAB made an announcement of a $30 a ton increase on plate, which we certainly hope will hold. And I believe it was followed by one other that I'm aware of, although I have not seen an official announcement. But our hope is that -- but prices went down over $200 a ton in plate last year, that's hard to absorb. But the volumes are still there. We're still doing well.

The price decline hurts your margins. And so that business is -- the profitably has been deteriorating quite a bit, hasn't it?

It -- you're absolutely correct, it has hit our margins in a negative way.

Is there anything on the horizon that -- they've tried to raise prices before, is there anything on the horizon that could change? Or is this -- I mean, in my opinion, it's largely been supply driven from imports. Would you agree with that?

Yes. Yes.

I guess, for you to add a lot of capacity last year. So can you say that yes a little bit more enthusiastically?

Well the imports can always be a problem as you well know, they kind of drive us crazy, actually. But it is what it is. And if we get that improvement in non-residential construction that we're hoping will take place, anticipating that it will in, like, the second half of the year, that's going to have a big influence on demand on plate as well. So that could help that also.

Won't it just attract more imports?

I can't answer that one way or the other. I don't have a real good crystal ball. I just assume that imports are going to be a problem all the time. So we just manage our business thinking that, that's going to be the case.

Yes. Okay. And then leading into my third question, which is, okay, everybody knows that if you look at any chart on residential and non-residential construction spending, there's a 6 to 18 month lag historically from one to the other. So we understand the numbers and the history, but my impression of, like, if you dumb it down to like how it works, is that you build housing developments and then the developments, people move in and have babies right away. And so the developments need infrastructure in terms of roads and all that stuff, as well as schools and hospitals and strip malls and all the institutional support and development. And most -- a lot of the housing dollars that are construction is the multi-family, which is a lot of places going up in established regions. And a lot of the housing dollars are going up in established regions as well. And I'm just wondering, from an on the ground in the weeds perspective, what you see in terms of the timing between the link, between residential, which clearly is past the bottom and non-res, pluses and minuses the cycle.

Everything you said is true, Michelle. But in terms of timing, we really don't know. We know there's a lag. And is it 6 months, is it 12 months, who really knows? And as you've mentioned, there's a lot of people moving into homes that have already been built. I think a lot of the support structures around those communities though had not been built, because the homes have never been occupied. So I think that's a good thing. Switching a little bit, when we talk about non-res, we also talk about the industrial and the commercial part of non-res, and also infrastructure. That's something that we -- when we're referring to non-res being 30% of our business, it's not just these little strip malls and the communities and the infrastructure for those, but it's infrastructure, it's bridges, it's water works, it's electrical grids and transmission towers and those kinds of things. So all of that is, all of that infrastructure we consider into the non-res side as well. And last year, the non-res, the public part of non-res shrunk, which was about the only active area there for a couple of years prior to that. But then the private side has been picking up some. So as Gregg mentioned earlier, we -- in terms of a crystal ball, we don't know. All we know is when we quote projects and then -- we can't get too much excited from quoting, we got to wait until we actually get an order. And then we'll have a better sense of whether those orders are coming in on a regular basis, is it sustainable. As yet, I don't think that we can say that there's a very strong trend in new orders coming in. But you got to quote them first. And that's the positive side. So non-res -- we don't really know when it's going to come back. It's going to come back, and when it does, it's going to be a real positive for us. That's -- and we'll be ready for it.

Cool. All right. Great. Well, your stock's up, what isn't the best news on the planet. So obviously, I think The Street has a lot of faith in you, so just keep it up whatever you're doing.

Our next question today is coming from Richard Garchitorena at Crédit Suisse. Richard Garchitorena - Crédit Suisse AG, Research Division: So just on the non-res again, earlier, you had said that if we had gotten back to 2006 levels, you'd get over $10 billion of revenues. Is it fair to say that if we get a recovery on the ton side, would margins be impacted at all? Is that, right now, lower margin than the rest of your higher value-added business? And how would that impact the overall company? Or do you think pricing could also improve if demand improves?

Sure. If demand improves, I would certainly think that the pricing would improve with it. If we had the volumes that we had back in the '06, '07 on the non-res side, which affects not only the beams and mini mill and it's certainly the carbon steel plate and whatnot. But I would -- I think all of us would expect that prices would have a very positive impact on that, especially when you're talking about mills that have been running at 50%, 60%, 70% capacity, if they get over 80% capacity they're going to have a lot more confidence in trying to -- in holding the ground on price increases. So yes, we're just -- we're all kind of sitting here when it comes to non-res, waiting for that demand improvement. And when it's there, we certainly have the infrastructure within our company right now, as we speak, to improve our volumes big time.

And following up with that, Richard, back -- if you look at like the '06 to '08 period, when demand was pretty good in non-res and other areas, and so pricing also was holding up and improving, as Gregg mentioned, and we would get pop at the gross profit margin line, but also, as I mentioned earlier, leveraging some of our SG&A. So back in that '06 to '08 period, our operating income margin was running about 10%. And currently, we've been running about 7% to 7.5% at the operating income margin line. So I think you could use that to gauge, to look at the margin improvement. Richard Garchitorena - Crédit Suisse AG, Research Division: Okay. Good. That's very helpful. And then my second question is depreciation ticked up in the quarter. Is there anything specific to that? And then obviously, you have the acquisition coming. How should we think about depreciation for 2013?

Yes. The depreciation, we did, as we mentioned, add $214 million of CapEx last year. So that, along with the depreciation expense for our newly-acquired companies and the one company, GH Metal Solutions that we acquired October 1, They've got heavier processing equipment there than a lot of our other companies with the amount of high-value processing they do. So probably about $28 million a quarter is probably a good run rate going forward. Richard Garchitorena - Crédit Suisse AG, Research Division: Okay. And then just a follow-up on that. CapEx, like -- do you have any guidance for CapEx for 2013 that we can think about or...

I think we can give it to you right now actually. We just looked at each other and realized that we haven't said anything about CapEx. We spent about -- last year, we spent about $214 million, $215 million. This year, we're anticipating spending about $180 million, maybe a little less than that. I think we're approved at $180 million for our CapEx budget. So it's down some. But we've been spending heavier than normal, you might say, in the last couple of years, which was a lot of that was us taking advantage of situations where we could buy property at lower prices because we had options to do so. And we like to own our facilities when we think they are good, long-term facilities for our operations. So we don't have as much of that in the budget for this year. So I think we're about -- our budget is $180 million.

Our next question today is coming from Phil Gibbs at KeyBanc Capital.

Just had a question on the debt paydown. You did mention that you paid down some debt on the revolver in January or February of this year. Does that imply that you're continuing to reduce your inventory position through the quarter? Should we expect your inventories to be lower at the end of the first quarter?

No. They -- typically, we go down low at the end of the fourth quarter. And so this first quarter it's kind of more cash being generated through the profitable operations. And you will see probably some borrowings by the end of the quarter because we'll have some tax payments due. But so far, we've been able to have positive cash flow, not necessarily reducing working capital, but maintaining and having profitable ongoing operations.

Okay. I appreciate that. And, Gregg, just a question for you. On the merchant bar based price cut from the mills and whether you think that's a function of the domestic inventory levels, apparent demand weakness or imports? Or is it a combination of the 3. How do you see it?

Actually, my own personal opinion is I think it had more to do with the imports. The spread between imports and the domestics pricing was quite profound. And they made that move back in July. Okay? And the imports went down below after that substantial move. That was over $100 a ton. They've cut it back just under $50. And I think it's just they're having a problem with more imports coming in, in particular, from the -- from Mexico. I hope that answers your question.

Our next question today is coming from Mark Parr at KeyBanc.

I just had one question. On March 8, Dave, are you going to be drinking Bordeaux or Napa Valley?

It won't matter then, Mark. It's on the date that we actually close it, that's when we'll have a nice drink.

But really, good luck with that. Looks like the market's pretty happy about what you've done. And I just -- I don't know if you have any -- I'm not asking to get on the political soapbox here. But it just sure feels like this year is starting off a lot weaker than what you normally get from a seasonal standpoint. I mean, I guess the only question I could have around that is what signs do you look at or how will you know if there's really anything better unfolding? Any leading indicators or things you could maybe point us to that might help us to feel better about the second half or even the second quarter moving better than the first quarter?

I think, Mark, the second quarter, most every year, at least Gregg and I have been in this business a long time, the second quarter has been a better quarter than the first quarter. Last year was the strange one when it moved the other way. And there were some political issues, all the uncertainty that we were referring to earlier. So I think last year was a little more unusual. So if you want to put any weight at all on just the historical trend, we would expect second quarter to be better. Also prices ran up, as you know, prices ran up in the first quarter, early in the first quarter last year, and then they started to correct. So they're not running up this year, so I don't think we would have that downward trend in the second quarter like we had last year. So I think that's a positive for second quarter operations. And I think, overall, we're thinking that tons are going to be off compared to the first quarter in our guidance. But if our tons are off 5% or 6%, which is pretty much is what we have baked into our guidance for the first quarter this year, off of last year, that's okay. There's still business out there and there still some good upside we're involved in and some really good markets with aerospace and auto, through the toll processing operations, energy, even though it's backed off of where it was from 1 year ago or 2 years ago, probably at this time. But it's still really strong. Our businesses there are making good money for us. And the farm equipment and heavy industry is a positive.

They're all doing well.

So we don't really see any big downside. We don't see anything really exploding on the upside, either. But we feel pretty good about just some steady improvement, assuming -- and we won't go into the political discussion, but assuming that we don't get derailed because that could happen. But we can't really do anything about that.

Yes. And, Mark, as you know, by design, we have a very diverse customer and market base. And so all the different indicators out there that you see published are meaningful to us. But the degree of how significant that particular indicator is to our total cost or total revenues varies quite a bit. So we watch those, but it's really the confidence by our customers and our local managers out there and what type of activity they're seeing, and that feeding back into us is probably our most meaningful indicator of what's going to happen in our business.

The -- one of the industries that we haven't talked about in a while, probably because it's been going down instead of up for us, has been semiconductor and electronics. And we sell a lot of aluminum plate into -- 61 plate into that industry. And that had been a drag last year, very honestly. We -- it was the first one to recover coming out of 2009. And our businesses in semiconductor and electronics set some all-time records for performance in 2010. And they were very good through the first half of 2011, but then it started to slow down, and last year was a challenge. But it looks like that part of the businesses is at least improving. The book-to-bill ratio is moving up, took a significant jump up. And it is a cyclical business, and we've been in it for a long time. So there's some good indications there. Again, not that it's going to go wild, but it's moving back in the right direction. And that can help us a lot as well.

Mark, in the first quarter of last year, just from a pricing standpoint, prices were up on a low of like $60 a ton higher than what they were this year. And we had product such as plate that were -- we were purchasing that product over $200 a ton in the first quarter of last year compared to the first quarter of this year. So that's a hell of a lot of ground to pick up. Okay? I'm looking at David and telling him to back off, man. We can do it, Mark.

Our final question for today is coming from Brett Levy at Jefferies & Company. Brett M. Levy - Jefferies & Company, Inc. Fixed Income Research: I think most of the questions have been asked. Can you guys talk a little bit about whether or not you're going to have any changes in strategy in terms of how you run Metals USA, potential synergies and timetables to realize that? And then also, anything about sort of who might be running that business going forward?

Well you're last part first, no. We can't comment on that because it's not ours. And those decisions will be made when -- and we'll let you know when it closes. But I think we said before that we expect the existing management team to continue doing what they're doing. We think Metals has done an outstanding job in building the business up and becoming consistent with their results. And we were attracted to them because of their own performance. And the last thing we want to do is go in and screw up what was attractive to us in the first place. And that's kind of the attitude we have with all of our acquisitions. We look for strong companies with good management teams. And hopefully, we can bring some resources that maybe they didn't have access to independently. So in terms of major changes in strategy, no. No. We like what they're doing, we like how they do it, we like their management team, and we just want them to continue doing that. And I think, together, we'll be stronger than we each are separately.

Yes. Synergies, Brett, obviously, we're anticipating on the financing rates that we'll be able to have lower financing costs when we refinance their existing debt than they have currently. So we would pick up a little savings there. Also, their management will stay in place and in our announcement was that Lourenco would be retiring upon closing. So there are some cost savings there along with other cost of them being a public company, whether it's filing costs, auditing, et cetera. So certainly, there are some synergies there. We have not quantified that. And we also would work with them on the way we do with every other company we acquire, as good as they are, usually, Gregg and his team, with looking at how they manage their inventory, and they can help them improve their margins and inventory management. So we would expect there to be something there, although as Dave said, they've done a good job so far.

We have no further questions in the queue at this time.

Okay. Thanks, again, for all of your support and for participating on today's call. And we'd also like to remind everyone that we'll be presenting in early May at the Wells Fargo 2013 Industrial and Construction Conference, and hopefully, we'll see a lot of you there. Have a great day, and we'll talk to you next quarter.

Thank you. Ladies and gentlemen, this does conclude today's conference call. You may disconnect your phone lines at this time, and have a wonderful day. Thank you for your participation.