Olympic Steel Inc (ZEUS) 2010 Q4 法說會逐字稿

Good day, ladies and gentlemen. Welcome to the Olympic Steel Inc fourth quarter results conference call. At this time all participants are in a listen-only mode. Later we will conduct a question and answer session and instructions will be given at that time. (Operator Instructions)As a reminder today's conference call is being recorded. I would now like to turn the conference over to your host, Mr. Michael Siegal, Chief Executive Officer. Please go ahead.

Thank you. 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. I want to thank all of you for your participation and your interest in Olympic Steel.

Again before we begin our discussion I want to remind everyone that during this call we will provide forward-looking statements that do not -- that we do not undertake to update or that may not reflect actual results, changes and assumptions of changes and 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 Securities and Exchange Commission including our 2010 annual report on form 10-K which will be filed later today.

Earlier today we reported our financial results for the fourth quarter and the year ended December 31, 2010. Net sales for the full year ended December 31, 2010 increased by 53.8% to $805 million compared to $523.4 million for 2009. Our shipments in 2010 increased 34.3% to 969,000 from 721,000 tons in 2009. Net income for the full year 2010 was $2.1 million, or $0.20 per diluted share compared to a 2009 net loss of $61.2 million or $5.62 per diluted share which included the $81.1 million of lower of cost or market pretax charges to write down the value of inventory in the first half of 2009.

In addiction, our 2010 results included a third quarter $2.1 million pretax bad debt charge related to an abrupt and unannounced closure of a private equity owned rack manufacturing customer. Net sales for the fourth quarter of 2010 increased 55.4% to $215.2 million or $138.5 million for the fourth quarter of 2009. Our shipments in the fourth quarter of 2010 increased 31% to 254,000 from 194,000 in the fourth quarter of 2009. Fourth quarter 2010 net loss totaled $1.6 million or $0.15 per diluted share compared to a net loss of $2.6 million or $0.24 per diluted share for last year's fourth quarter. 2010 fourth quarter results include an unfavorable tax rate impacting earnings negatively by approximately $0.02 per share and Rick will discuss this further in his remarks.

We are pleased obviously to our return to profitability in 2010. Strategically growing our geographic footprint, increasing our market share, adding logistics capabilities and well positioning our year end inventory to position us to accelerate our market share penetration and overall profitability in the improving North American economy. Our 2010 shipments increased by 34% over 2009 which is significantly greater than the total industry growth in steel shipments up 21% as reported in the Metals Service Center Institutes market activity report. Throughout 2010 we continued to earn new business awards from large OEM customers seeking financially strong quality oriented suppliers like Olympic Steel.

Our continued commitment to capital investment in geography, equipment and people separate Olympic Steel when customers are choosing long-term supply relationships. Our strong balance sheet along with our new $125 million five year asset based loan facility and the $200 million three year shelf registration statement filed with the SEC in 2010 provide us with access to funds for increased working capital needs and our capital investment programs. We strategically invested in growth initiatives during 2010 including ordering a new temper mill and cut-to- length line to be located on the United States Steel corporation Gary Works site in Indiana. We also invested in stainless steel and aluminum product lines which experienced growth and were accretive to our results in 2010.

Additional equipment and geographic expansion with our new location in Mount Sterling, Kentucky, which is currently being equipped and is expected to begin operating in March 2011 and our relocation to Moses Lake, Washington. In addition to purchasing facilities we also continue to explore growth via acquisition opportunities in 2011. These timely investments which David will expand upon later in the call will provide both tonnage and revenue growth and real value creation in the recovering economic environment in north America. Also today we reported that Olympic Steel's board of directors approved a regular quarterly catch dividend of $0.02 per share to be paid on March 15, 2011 to shareholders of record on March 1, 2011.

Now, I will turn the call over to Rick to comment in detail on some of the financial results.

Thank you, Michael. And good morning, everyone. Michael spent time on our tonnage and sales growth so I will start my comments related to gross margins. As a percentage of net sales gross margins totaled 17.9% in the fourth quarter of 2010 compared to 19.3% in the fourth quarter last year. For the full year of 2010 the gross margins totaled 19.2% compared to 4.1% last year and again, as Michael just reminded us, last year's gross margins included $81.1 million of the inventory lower costs for market adjustments that were recorded in the first half of 2009.

Internally we measure our gross margin results on a per ton basis and the margins per ton were $151 versus $138 for the fourth quarter of 2010 compared to 2009. For the full year of 2010, our gross margin per ton totaled $160. Our gross margin trend in 2010 by quarter was as follows; $160 per ton in Q1. $172 in Q2. $156 in Q3 and then the $151 per ton in Q4. The second half margin drop off was primarily due to a very competitive marketplace that was impacted by downward pricing pressures in the third and fourth quarters.

In 2010, a larger percentage of our sales were also made to the lower margin automotive industry and we also increased our sales of stainless steel which carries a higher gross margin per ton but a lower gross margin percentage than our carbon products. In terms of operating expenses they increased by $30 million or 25% in 2010 as compared to 2009. The 25% increase in 2010 expenses primarily relates to variable costs associated with the 34% increase in our shipments and our return to profitability in 2010. In order to meet increased customer demands, our head count, the use of temporary labor over time and delivery costs to our customers have all increased. Additionally, during 2010 we phased in pay restorations for our employees' compensation that was originally reduced in 2009. And as we stated earlier, our selling expense included the unexpected $2.1 million bad debt charge at the end of the third quarter.

In terms of capital spending in 2010, it totaled $17.8 million, compared to depreciation expense of $13.3 million. We continued to strategically invest in our recovering market with the majority of our spending related to IT and communication systems, new fabrication equipment, the purchase of land in a facility in Mount Sterling, Kentucky and the down payments for the new temper mill cut-to-length line equipment that will be located on US Steel's Gary Works facility. During 2010 we also capitalized $3.8 million and expensed $1.4 million related to the IT system implementations. We would expect our capital spending in 2011 to ramp up to approximately $35 million to $40 million inclusive of payments on the temper mill and cut-to-length line equipping our new Kentucky facility and continuing our system roll out.

Our effective tax rate for 2010 as Michael talked about earlier ended up at 43.9%. And that is about five percentage points higher than Olympic's normal rate. This was due to the effect of permanent non-deductible tax items applied to a low pretax income level and the inability of us to take certain tax deductions, like the manufacturing deduction, once our 2010 taxable income flipped to a taxable loss in the fourth quarter. We would expect our 2011 tax rates to return to our normal range of 38% to 39%. And then to conclude some other financial metrics and highlights, our inventory turnover for the year of 2010 was 4.6 times. That's slightly shy of our targeted turnover rate of 5 times per year.

Our inventory was strategically and intentionally higher at year end and we would expect to be at five turns in the first half of 2011 as our shipments are accelerating. Our 2010 accounts receivable DSO ended at 42 days. That's up about four days from 2009. That increase is due to some slowdown in customer payments as well as the impact that increasing sales have on the DSO calculation. Our total debt was $55 million at year end and availability under our new ABL credit facility was $68 million at year end.

The new bank agreement also lowered our interest costs and provided us with significantly more flexibility than our previous agreement. Our debt will be, is anticipated to be higher at the end of the first quarter of 2011 as we fund increased working capital needs associated with higher sales levels and increased prices. Shareholders' equity per share at year end was $24.01 and during 2010 we paid dividends totaling $0.08 a share or $870,000 for the year.

Now, I will turn the call over to David.

Thank you, Rick. And good morning to all. I want to echo the theme that Michael noted at the onset of this call. We are pleased with our shipping and sales strength and the market share gains achieved in 2010. We experienced stronger than normal customer demand in the fourth quarter and that shipping strength has continued into 2011. Our timely and well planned investments in inventory provide us with the opportunity to continue growing our market share while improving our profitability as the market recovery continues.

Olympic's inventory entering 2011 is well positioned as we strategically bought heavier in advance of the price increases for anticipating growing customer demand that we started to recognize in the tail end of 2010 and continuing through 2011 as Rick indicated. We have a full complement of inventory and we have experienced both volume and price increases for all products that we sell and we are, indeed, winning the business and winning the price as there is a series of some six to seven official mill price increases from November forward. We believe customer demand and market prices will continue to accelerate in the first half of 2011 and the January MSCI metal activity report provides encouraging support showing rising steel shipments combined with balanced inventories at only 2.4 months on hand.

Last year, 2010, was a pivotal year for Olympic Steel as we continued to invest heavily in our future. Our strong balance sheet and access to capital provided us with the advantage of spending money in a down market when facilities and equipment were less expensive, personnel were available, and the rewards of these investments would be reaped just as the market returns to growth again which we are now witnessing. Our investments were made in four different strategic growth streams. Product line expansion, geographic expansion, additional equipment and value added processing capabilities for our customers. And lastly, investments in personnel.

In terms of product line growth our efforts the past two years have been focused on stainless steel and aluminum that we refer to internally as specialty metals. We have made a strategic acquisition in Integrity Stainless in February of 2010 as we have advised in previous quarters. Upon acquisition Integrity, which is and continues to be a profitable niche stainless steel sales organization in Cleveland, has had some exponential growth on this platform for our specialty metals business. Integrity was immediately accretive to our results and we have already made investments in processing equipment that allow Integrity to enter the stainless steel flat bar market.

We also added aluminum as a new product category in mid year 2009. While we do not provide separate sales and earnings disclosures for specialty metals we have a goal to grow the percentage in this area faster than our carbon business in the next few years resulting in specialty metals becoming a greater share of the total consolidated sales that constitutes our growth today. So far, we have been successful in growing this business from 7.1% of our total Company sales in 2009 to last year's accomplishments growing it to 9.5%. For 2011 our plans include locating our specialty metals personnel and assets in a new location as well as utilizing existing equipment in existing Olympic locations to expand our processing of specialty needs.

As for the second kind of our growth, that being geographic expansion, we have been quite busy adding two new Olympic locations and relocating a third in 2010. First, after a lengthy and targeted commercial effort in August of 2010 we announced the addition of a new Olympic facility in Mount Sterling, Kentucky, which is about 30 miles east of Lexington. We purchased 14 acres of land and an existing 100,000 square foot building to perform plate burning, machining, forming and shot blasting. Anchored by blue chip customers such as Link-Belt and Hoffman and several other key accounts in the area we expect to be operational from this new facility by the end of the first quarter of 2011 and we are on target.

The Mount Sterling site reinforces our strategy of being closer to where our customers assemble their products. We are thrilled to be serving marquise customers in the commonwealth of Kentucky. Next, in November of 2010 we announced a new location in Gary, Indiana, to house a $20 million investment in a new temper mill cut-to-length line, our third temper mill cut-to-length line. We are grateful to US Steel for allowing us the opportunity to locate on their Gary Work site. Once operational in 2012, this facility will add approximately 150,000 new tons of high quality tempered sheet capacity for Olympic Steel and significantly reduce our inbound and outbound freight costs while better servicing customers within this geography from our existing two temper mills, Cleveland, Ohio and Bettendorf, Iowa.

Our Cleveland and Iowa temper mills were added in 1994 and 1996 respectively and were a significant driver in Olympic Steel's growth to greater than 1.3 million tons and $1 billion in sales. Our agreements with the temper mill and cut-to-length line manufactures also provide us with an option to purchase a second like kind piece of equipment at favorable terms consistent with the original purchase order that we authored. We believe our temper mill investments will be the driver of Olympic Steel's next big growth spurt.

Let me continue. In early of 2010 we also completed a move to Moses Lake, Washington, to serve our customers in that region of the country. This marked our first physical location in western United States. In 2011 we plan to continue adding geographic locations. We have finalized our selection of locations in both Mexico, that being Monterey, and Kansas City, to better serve our customers in those geographies. We will also study the benefits of the additional temper mill option for the southeastern United States.

Our third growth stream comes from new processing and value added equipment investments. In addition to the value added equipment placed in Kentucky and a new temper mill we made a major upgrade to our Cleveland temper mill replacing a 15-year-old rocking shear is with a new Butek rotary shear which began operating in January. We took off three weeks of production in December to install this new rotary shear and we have added fabrication equipment in our Minneapolis plate and Dover Ohio, facilities. For cost savings and improved customer service we increased our own truck fleet in 2010, elevating it from 17 to 27 tractor trailers and right now we are at 39 and by the end of the first half we will be at 42 in terms of our own truck fleet.

Lastly let me continue to remark on our continued investment in people. During the economic downturn we bucked the trend and did not reduce our sales force but instead hired and expanded our commercial team. This strategy paid dividends with market share growth during the economic downturn. We also restored compensation and benefits for all employees that were reduced during the 2009 recession.

We are confident in our revenue growth and profitability opportunities as we enter 2011. We believe that our timely and well planned investments in people, facilities equipment and new products and inventory in 2010, provide a strong foundation for significant growth and value for our shareholders, our customers and the employees of Olympic Steel.

This concludes our formal comments and we will now open the call to your questions. Thank you.

(Operator Instructions). Our first question comes from Martin Englert of Longbow Research. Please go ahead.

Good morning.

Good morning.

In the press release you had mentioned about the favorable inventory position and you gave a little bit more color earlier and it sounded like mainly that was a pre buy for the products ahead of these price increases. My question is, is the market currently I guess tighter that this would give you some kind of advantage holding the extra inventory in the first half?

Well, I don't know that it is an advantage but we buy inventory to sell inventory and while we have certain disciplines in terms of inventory turnover, we obviously decided to go long on that in anticipation of a recovering economy and some significant price increases which obviously have been stated by the steel mills and others. I don't know if it gives us an advantage but certainly we are capable of servicing our customers growing demands and we are in pretty good shape for the growth that we anticipated.

Okay. Excellent. One quick followup on that. Any particular area that you focus more so on, was it the light gauge flat rolled or the plate or the specialty or across the board?

Across the board. Yeah, everywhere.

Okay. Excellent. Thank you.

Our next question comes from mark Parr of KeyBanc Capital Markets. Please go ahead.

Good morning.

Good morning Mark.

And congratulations on all the growth initiatives and the positioning, certainly you have got tremendous opportunities unfolding for you and that is, I think that is terrific. One thing I'm curious, you know, and Dave, I don't know, you may want to comment on this or Michael you may want to comment. We've heard everybody and their uncle talk about how great the first half of 2011 is going to be and that is terrific but I'm wondering what is it that is going to help you to feel comfortable about the second half or the third quarter? How soon will you, do you think you might have some feel for what the third quarter or the fourth quarter might look like?

Well, a couple of things, Mark. It is David here. First of all, we have growth as I remarked in both our specialty metals so stainless and aluminum are increasing and they continue to increase and we continue to make investments in all aspects. Geographically, equipment wise, people wise and so we have some great strength there and that has grown almost exponentially I would say as I remarked they were up to 9.5% through 2010. Next, our value added business has grown dramatically, too. We added Mount Sterling.

I remarked that we have finished our site selection in Kansas, in Kansas City. Also in Monterey, Mexico. We are putting the finishing touches on those leases. Those are value added, those are value added facilities and the continuity of that business is very sustainable. These are long-term agreements we have with blue chip customers highly engineered discrete product manufacturers in North America and so we think there is a great amount of stability there.

The third leg of that which is our service center business which is the original business obviously we have a temper mill, a third temper mill coming on. It will be operational by this time next year. We are in Gary, Indiana, as we talked about. We wouldn't make this investment in the next 150,000 tons if we didn't have that committed to. And so we pretty much are expanding. That is why we are going out on value added as we push further west we talked about Moses Lake and so forth. What we do is we see tremendous sustainability with our large OEM customers.

Our spot business continues to get smaller. It is about a third of the proposition today and if you will remember you have been with us for a long time, Mark, following us, that was greater than 50% at one point in time so we continued to narrow the flexibility on that spot side of the equation and we have more durability and more consistency. We've remarked in past quarters and then I will punctuate this here, we remarked in past quarters that the large OEMs, what we see is a flight to quality and it is the flight to the quality of the balance sheet. So our strength the balance sheet here that is driving these blue chip customers to us and we see great continuity in their business. Not only in 2011 but we also see growth in 2012 and growth in 2013.

To answer the other part of the question, Mark, when will we see what is going to happen in the third and the fourth quarter is not yet. There is global factors going on in the Middle East that is impacting everything as it relates to construction markets in the Middle East and how that impacts [Turkey] and how that impacts the scrap market. So what we can tell you is that when mills get busy, everybody gets busy at the same time. When the steel mills get busy that usually runs into production problems at the mills. We would anticipate in the normal cycle that as the mills get busier, is what we are seeing with an increased operating rate, you will see continued production problems which will elongate, I think, supply constraints for the back half of the year.

Okay. Is it, I heard Rick talk about inventory turns in the first half being higher than the back half of 2010. Is that a reflection of just stronger demand unfolding or is that a reflection of the fact that you are not buying as aggressively here with spot prices north of 850?

Well,. Ha, ha, ha. There is a couple of things Mark stated and Rick can comment on the financial piece. But number one, our (inaudible) temper mill was down three weeks as we put in this rotary shear. That's back up, it's is running at 100%. We are happy with the Butek rotary shear, we are getting great productivity off of that. So we have increased participation out of this particular facility and out of the Cleveland facility in this region.

From a more generic standpoint we got off to a very quick start in 2011. Much more demand than we anticipated and we anticipated strong demand. The inventory level that we restored is much in line with our normalized inventory rates as our customers signaled us that they were much busier than they anticipated and we were able to buy into that. We are maintaining that level because we are seeing consistency in that business and a restoration of the marketplace along with the businesses that, new businesses that we have recruited.

Right. And then I think, Mark, it is just as we commented in the fourth quarter, while it was very strong in terms of a normal expected fourth quarter, as you know, volumes are lower in fourth quarter. We did buy more inventory in the fourth quarter and as we look out in the first half based upon our run rates on sales and where inventory is going to be I think we will be right back around our five inventory turns. So it is positioned well.

Okay. Just one last question, if I could. Do you think, could you give us any thought on where you think the volume for 2011 overall might come in versus 2010? I know you have a lot of growth initiatives and I'm trying to get a sense of how much growth are you going to get from growth initiatives, new products, new value add capabilities and how much do you think that the base business could grow in terms of at least a proportions there. And then if you want to try to put a range as far as how much you think your business could grow overall in 2011, which you probably won't but I mean if you would I would certainly be interested in your opinion there.

Phew. That was a mouthful Mark.

Well, I mean, you've got growth from new initiatives.

If you go back to December and you look at what steel consumption was forecasted to grow, it was some where between 8% and 10%. And that was predicated on some GDP growth number and some extrapolation of something. Obviously we significantly grew far greater in the tonnage than the market did in 2010. I would tell you we would continue to probably anticipate growth in excess of the MSCI by at least 30% to 50%. And so when we look at sort of the forecast in December of 8% to 10% steel consumption we would like to double that. Whether we do or whether we don't, I would tell you that we can anticipate some significant growth over the initial forecast.

Okay. All right. That's helpful. And it really is striking to see how the cyclical momentum has unfolded here, the recovery momentum is unfolding, and it is amazing what has unfolded here in the last 90 days. Congratulations on that and putting yourself in a position to be able to avail yourselves of that for your shareholders. That's terrific. Thank you.

Thank you, Mark.

Our next question comes from Richard Garchitorena of Credit Suisse. Please go ahead.

Thank you and good morning guys. First question, I believe Rick mentioned earlier that margins were impacted by a higher mix of auto volumes. Can you just remind us how much of the revenues autos make up at this point?

Sure, Richard. In 2010 it was about 12.3%. And typically we are under 10%. So we have been as low as 8% of sales so those were the numbers last year.

Great. And I guess you assume that would come down given the recovery that we are seeing across the board, is that the idea?

Yes, as other industries pick up that percentage should drop a little bit.

Great. Okay. And then my next question, you mentioned also that spot business is basically only about a [three] year business right now, large OEMs obviously making the bulk of the contracts. Is that, are those contracts for volume only or is there an index based pricing related to that?

Richard, this is David. There is a variety. There is a variety of mechanisms and they are as unique as the customers are. So the OEMs, the large OEMs that we are participating with of which you are all familiar with the names, I won't go through them, they are all the blue chip accounts and they all have varying protocol on how they want to do business. And we are able to offer and deal with all of them and they do have components of volume needless to say and they do have componentry of some indexing and variations of that indexing.

The comment I would make, Richard, is we do not go naked, however, in any and all cases where we have a contract we will have some backed up supply on a comparable basis.

Okay. Great. Makes sense. One other question. On the higher SG&A and warehouse expenses in Q4, obviously related to higher volume is requiring additional staff, do you expect those levels to remain sort of flat or are they going to increase in 2011?

Well, I think in 2011 obviously some of the things as we grow the top line some of the variable expenses will grow maybe not commensurately but they will certainly grow. But I do think, Richard, what you saw as we went through 2010 is we sort of had big waves of expense come back, right. So we had restoration of the pay and benefits. We had overtime coming back. All good things as the business returns. So I think as you look at 2010 versus 2011, 2011 will not see as big an increase in expenses even in the variable expenses as you saw from 2009 to 2010.

Great. And my last question is just looking at the objectives for 2011 on, specifically on the geographic locations. You mentioned Monterey southeast. Is that just really to maybe potential Greenfield sites are you also contemplating existing facilities that are there?

In the sites we are looking at in Mexico and Kansas, as we indicated, those are existing facilities so they are not real greenfield although we will complement them with some down stream value added equipment. In the case of a temper mill, a fourth temper mill, an option on the current one that we have, that would be a greenfield site.

Great, thanks, guys.

Your next question comes from Sandeep Singh of Goldman Sachs. Please go ahead.

Hey guys, good morning.

Good morning.

I have a quick question for you. Of the many prices that have been announced so far, what often (inaudible) are like you managing to realize in the market? Like are you getting the full list prices or is it some (inaudible) you know?

Of the, Sandeep, of the mill price increases are you referring to?

Yes. If you look at the list prices they are currently at around $900 but from what we are hearing from some of our (inaudible) deals are getting down much lower prices than that as well. Could you give us some comments on that?

Well, from our perspective there are, depending on who you are following, six to seven official price increases. I can tell you that through the sixth price increase which takes a hot roll up to a generic $840 or $850 depending on who you are following. That has been totally absorbed in the marketplace and the seventh one that was initially authored by AK Steel I think on February 6 followed by a first an unofficial and then an official announcement by Nucor of something less than that, those are pretty firm in the marketplace. We, our job is on the spot market to collect all of those replacement costs and in effect we are doing so.

Okay. And second question I would like, you said that, okay, one third of your business is parts so would it be proper to say that you don't get a lot of benefit off any of the price increase in December and most of the benefit will come in the first quarter?

I think a lot of the index is obviously, Sandeep, as you understand, as the average price moves up depending on what index mechanism people are using that benefit will be realized in first quarter and in second quarter.

Okay. And on the other hand, like when I look at the past like when the (inaudible) price moved up by over $100 quarter on quarter, your operating profit has gone up by maybe, say, more than $50 put-back and you said that you look at it on a [part time] basis so [operating profit cannot be more than $50]. But then the volumes are significantly higher. So can you give us some guidance on how to look at it? I mean okay (inaudible) price is significantly higher but you have next (inaudible) exposure and your lower volumes so.

There is no question that when you take contracts you usually to some degree fixing a spread on margin. That is going to trail to some degree the current price and sometimes the current price going up and sometimes the current price going down but clearly what we are seeing in a double benefit in terms of an increasing price on the CRU, we are seeing much more increase in volumes than our customers anticipated. So that gives you a certain degree of elongation and opportunity as well Sandeep.

Okay. Thanks guys.

(Operator Instructions). Our next question comes from Tim Hayes of Davenport & Company. Please go ahead.

Morning.

Hi.

My question is sort of a follow-up on the expense side in Q4. When I look at selling expenses in relation to EBITDA and then also admin and general expenses in relation to EBITDA they seem to be on the high side in Q3 and Q4. I'm assuming some of that is just sort of coming back from cuts that were made in 2009 but I'm trying to get a feel for will that relationship, those line items, those expenses relative to EBITDA go back to sort of historical norms, historical being before the financial crisis before you had to make those deep cuts.

Yes, Tim, it's Rick. I would say on the last part of your question yes, we are seeing our expenses get back to those, I call them normal levels of pre recession. In terms of your questions about the second half, I mean remember in the end of March we had a $2.1 million bad debt expense in selling expense and the back half of the year had the full effect of the compensation increases. So those were phased in partly at the end of first quarter and the remainder at the end of second quarter. So when you go first half to second half, that is part of the increase there.

Okay. Thank you.

Our next question comes from Aldo Mazzaferro of Burke & Quick. Please go ahead.

Hi Michael, David and Rick. Thanks for taking my call. I just had two questions on the supply side of the market. I'm trying to gauge the potential for excess supply. I'm wondering are you seeing anything on the import front that would suggest that these prices that have been announced by the domestic mills have any effect of attracting a greater amount of imports at this point?

Aldo, David, not really. There have been some offerings but those offerings are all at current new domestic pricing and they are shallow, not, no significant tons being offered. At least to us.

All right. And how about on the domestic side. Are you seeing any of the domestic mills wanting to ramp up their volume very much or are you seeing more volume out of the Sisson mill that you can buy or things like that?

No. Quite the opposite. We are seeing more constraints, Aldo, as we go forward. We would have anticipated some addition tonnage as the spring thaw comes in to play but we are seeing constrained production especially on the value added items, they are punched way out into, deep into second quarter, if not into the tail end of second quarter. Obviously cold roll and coded, and then automotive grades are way out there if you can even access them. And then the high cost of the high cost of hot roll production there has not been anybody who is really offering any significant tonnage, addition tonnage.

So we see narrow offerings. Disciplined marketplace. Shallow inventories. And as we rolled into 2011 we thought the market was, we thought pricing was much stronger than was being exhibited. We thought demand was much stronger and we thought inventories were lower. All three of those catalysts proved to be proved to be, we've proved to be accurate on all three of those and we continue to see strength of pricing and strength of demand and lower inventories and then to your question, lower offerings.

One final question, David. I know how you are adding value to the product mix over time here and it is interesting to note that the percent of sales of the operating expenses dropped in 2010 versus 2009 even though you probably, I would guess, probably have more people per ton and things like that. I wonder if you could fill us in on what your head count was, say, at the end of 2010 versus 2009 and is that a correct reading of my part? Is that the percentage of sales of that those operating expenses were down? Despite your mix and I'm just wondering whether that is the trend. I mean 18.5% of sales is not a bad operating ratio there.

Aldo, I don't have the numbers in front of me but our head count probably did go up 50 to 100 people. I think we were right around 1100 at year end. So, you know, those people were starting to phase in and the end of 2009 beginning of 2010 and then throughout 2010. Obviously we have got some growth initiatives and projects where we are needing to hire some people for some of the new facilities. And then in terms of your statistics, I don't want to say because I don't have the numbers in front of me. I'm not sure about that but we can certainly get back to you on that.

Okay. Well, thanks. Congratulations on all the progress. It's much more than a steel price these days I guess.

I hope so.

All right, talk to you later. Thank you.

Thank you.

I'm showing no further questions at this time and I would like to turn the call back over to Michael Siegal for any closing remarks.

Thank you, operator. As a reminder it is our policy not to provide forward looking earnings estimates for the upcoming quarter or years and not to endorse any analyst sales or earnings estimates. We anticipate releasing our first quarter 2011 earnings on or around May 6, 2011 and this concludes our call and we thank everybody for your interest in Olympic Steel. Thank you.

Ladies and gentleman this does conclude today's conference. You may all disconnect. And have a wonderful day.