Question-and-Answer Session
Operator
(Operator Instructions) Your first call comes from Arnold Ursaner – CJS Securities.
Arnold Ursaner – CJS Securities
I want to start with the bad debt expense of $1.9 million which obviously impacted your earnings in the quarter. You attribute it to a single customer. Is this customer out of business? Is there some change of recovery? Could you maybe expand a little on that?
Barclay Simpson
There's a chance of recovery. However, it doesn't look too good.
Arnold Ursaner – CJS Securities
My second question relates to inventories which I know you have a goal of having three to four months of inventory for all your customers, but you inventory numbers seem to be getting I don't want to say out of hand, but they're certainly relatively high as a percent of trailing sales and given your outlook, they're probably an even greater percentage of future sales so several questions related to that.
How much of that is finished goods versus raw material? You mentioned in your prepared remarks that you think the price of steel could be hitting a bottom. With some of that opportunistic purchases of steel and maybe have Mike speak to how you might want to work this down. Any more you can expand on the growth in inventories relative to sales?
Barclay Simpson
Our steel costs as you heard me say before; one thing we are not going to do is run out of material and not be able to fill orders. So we go overboard and when the word was out that the steel mills were thinking about closing down some operations to keep demand equal supply, we got a little concern, so we laid in a lot of steel at high prices, and we're still working with that steel. So the cost of inventories is up all the way around.
We think that once we get rid of that steel, but it's going to take a little while, then our inventory costs will go down.
Arnold Ursaner – CJS Securities
Are you trying to say that the volume of steel that you have has actually gone up a fair amount?
Barclay Simpson
Well it did. It went up quite a little bit.
Arnold Ursaner – CJS Securities
Mike, can you expand a little more, perhaps some details or facts around that please?
Michael Herbert
During 2008 we did not change our policies on procuring steel. We tried to make sure we had enough for our customers. As sales began to drop off we had to stop purchasing steel for the last few months, and so we have been eating into that inventory. So what you see on the financials is the cost of steel when it went up last year.
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