Question-and-Answer Session
Operator
(Operator Instructions) Your first question comes from Michael Cox – Piper Jaffray.
Michael Cox – Piper Jaffray
My first question is on a comment you made in your prepared remarks about burning through the high cost of inventory by the end of the second quarter here, could you give us some sense for what sort of sales assumption might be imbedded in that? Would it be consistent with the trends that you saw in Q1 or would you expect some sort of improvement in Q2?
Norman C. Chambers
We are seeing levels of activity in Q2 that are fairly similar to Q1 and we have about less than a quarters worth of inventory to flow through. Mark do you want to add any color to that?
Mark E. Johnson
That’s an accurate assessment and our inventory in general is made up of several different grades and calibers of steel so while it will all turn within the quarter, some grades turn a little bit slower.
Michael Cox – Piper Jaffray
In terms of the capacity utilization rates that you called out, you noted that you plan to close five facilities and I assume that’s off the base of 39. Noting those capacity utilization numbers, how deep will the facility closures go as you look out over the balance of the year?
Mark W. Dobbins
Actually, we’ve actually closed five of the facilities already in the quarter. We’re at the tail ends of the last one. As the period continues we continue to look at areas and opportunities to reduce cost further but at this point we pull back to five facilities and really concentrated on bringing down our cost from pulling out shifts in each location. And like I said earlier, we’ve actually idled out some locations temporarily.
Norman C. Chambers
One of the things Michael I think is important is we begin to see positive benefits in operating leverage when our utilization rate historically starts to go above around 60% or 65%. With the reductions that we’ve made and the reductions in shifts that leverage point will be somewhat lower than what has historically been the case.
Michael Cox – Piper Jaffray
Last question on the balance sheet you noted that you have had some progress in the refi activity, I was just wondering if you could give any color around those discussions and what that may look like in terms of higher interest rates or whatever you can disclose at this point I guess?
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