Metals service centers function as key intermediaries between the primary metals producers that produce and sell large volumes of metals in a limited number of sizes and configurations and end-users, such as contractors and OEMs, that require smaller quantities of more customized products delivered on a just-in-time basis. End-users incorporate processed metals into finished products, in some cases with little further modification.

The service center industry is highly fragmented, with as many as 5,000 participants throughout North America, generating in excess of $115 billion in net sales in 2005. The industry includes both general line distributors that handle a wide range of metal products and specialty distributors that specialize in particular categories of metal products. Metals service centers accounted for approximately one quarter or more of U.S. steel shipments in 2005 based on volume, a market share which has been relatively constant for the last 15 years. The industry has been consolidating due to the economies of scale and other advantages that the larger metals service centers enjoy. According to industry sources, the number of metal processor and service center locations in the U.S. has been reduced significantly.

Orders are monitored by the Company’s computer systems, including, in certain locations, the use of bar coding to aid in and reduce the cost of tracking material. The Company records the source of all metal shipped to customers. This enables the Company to identify the source of any metal which may later be shown to not meet industry standards or that fails during or after manufacture. This capability is important to the customers as it allows them to assign responsibility for non-conforming or defective metal to the mill that produced the metal. Many of the products and services the Company provides can be ordered and tracked through a web-based electronic network that directly connects its computer system to those of the customers.

The Company cooperates with its customers and tailors its deliveries to support their needs, which in many instances consist of short lead-times and just-in-time delivery requirements. This is accomplished through the Company’s inventory management programs, which permit delivering of processed metals from a sufficient inventory of raw materials to meet the requirements of the customers, which in many instances results in orders filled within 24-48 hours.

Cost of sales increased $7.2 million, or 2.2%, from $333.8 million for the three months ended March 31, 2005, to $341.0 million for the three months ended March 31, 2006.

Operating and delivery expenses increased $3.9 million, or 10.3%, from $37.8 million for the three months ended March 31, 2005 to $41.7 million for the three months ended March 31, 2006.

Operating income decreased $15.5 million, or 50.0%, from $31.0 million for the three months ended March 31, 2005 to $15.5 million for the three months ended March 31, 2006.