Good day, ladies and gentlemen. And welcome to the Fastenal Company Q4 and Fiscal Year 2014 Earnings 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 follow at that time. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to introduce your host for today’s conference, Ellen Trester of Investor Relations. Please go ahead.

Welcome to the Fastenal Company 2014 annual and fourth quarter earnings conference call. This call will be hosted by Lee Hein, our President and Chief Executive Officer; and Dan Florness, our Chief Financial Officer. Also present for today’s call is Will Oberton, our Chairman. The call will last for up to 45 minutes. The call will start with a general overview of our quarterly results and operations with Lee and Dan, with the remainder of the time being open for questions-and-answers. Today's conference call is a proprietary Fastenal presentation and is being recorded by Fastenal. No recording, reproduction, transmission or distribution of today's call is permitted without Fastenal's consent. This call is being audio simulcast on the Internet via the Fastenal Investor Relations' homepage, investor.fastenal.com. A replay of the webcast will be available on the website until March 1, 2015, at midnight, Central Time. As a reminder, today's conference call includes statements regarding the company's anticipated financial and operating results, as well as other forward-looking statements based on current expectations as defined by the Private Securities Litigation Reform Act of 1995. Forward-looking statements may often be identified with words such as we expect, we anticipate, upcoming, or similar indications of future expectations. It is important to note that the company's actual results may differ materially from those anticipated. Information on factors that could cause results to differ materially from these forward-looking statements are contained in the company's periodic filings with the Securities and Exchange Commission, and we encourage you to review those carefully. Investors are cautioned not to place undue reliance on such forward-looking statements, as there is no assurance that the matter contained in such statements will occur. Forward-looking statements are made as of today's date only and we undertake no duty to update the information provided on this call. I would now like to turn the call over to Mr. Lee Hein.

Thanks, Ellen. Good morning. Before I start, I’d like to just say thank you to the Fastenal members on the call, I know there is a lot of you that tuned into this and we are so appreciative of the work that you did in the fourth quarter. So just a great job and I’d like to report that it was a good quarter for our company, 13.8% sales growth, that’s 15% or 15.7% on the daily average and there will be some questions I am sure on Christmas and December was in line with the rest of the quarter. We just thought it was a right thing to do to take the 26%. 20.1% on earnings growth and that equated to 28% incremental margin growth, which again these are strong numbers for our company. And how we got, there really was we continue to work hard on our gross margin, but in this quarter we really focused our attention on our expenses and the Fastenal Company and their members, I’ve got to tell you really did a nice job looking at all different types of expenses and we really clamped down and one thing that really came out is our ability to manage our labor. Historically, our daily average is going to decline somewhere around 10% from the end of October to the end of the year, we know that. And what we simply did is we turn down the hours or pullback the hours and we look at the timing of Thanksgiving, Christmas, et cetera, and just with the natural decline in our daily average. But we continue to add people at the company and especially in the part-time ranks and I would say in 2015 with the good economy we are committed to putting selling energy into our stores and I just again when we talk internally we are committed to a store-based model, we are committed to the fact that we really believe being close to our customers offering a high level of service is really the best -- is best way to really approach the industrial market. The other question we get is, if you are going to add 10% to 15% more hours in the store can you afford it? That really equates to about a 7% net effect on the labor dollar impact and so it's a good model for us, it really bodes well for our stores and for most importantly our customer. So strong quarter, we continue to stay disciplined in -- on the gross margin and there is pressure there, but we really like the momentum in the direction we are moving. With that, I will turn it over to Dan.

Thank you, Lee, and good morning, everybody, and thanks again for participating in our call today. I think our press release is certainly self-explanatory on the quarter. We published monthly numbers, so I think, as we touch on, our sales trends remained strong throughout the quarter, we think that bodes well as we go into 2015. I’d tried to highlight on the bottom page one, top of page two, the handful of bullets of things that I think were important to the business. One of them I wanted to and some of this commentary is based on questions that I might get and so did want to touch on. The headcount patterns as we’ve been going through the fourth quarter especially at the store level as we have talked in the past about the investment and selling energy and adding hours. The one position we were in this year, yeah, we really weren’t in last year is we are in a position to much more acutely manage the expense because we weren’t in a ramp up mode, we were in a manage the business mode and so we did a much better job of managing our expenses. We went through the fourth quarter. We were able to dial up and down the variable components of our expense, a big piece of that being the store-based labor to really match the needs of the business and really the needs of the customer to serve the customer. One item that I typically touch on or get questions on is the table we have on Pathway to Profit. I think it’s a good way to assess some of the underlying things going on in our business. And one of thing is always helpful I think is depreciate how we look at our business.…

No, I’ll wait for questions.

[Operator Instructions] Our first question comes from the line of Sam Darkatsh with Raymond James. Your line is open.

Good morning, Lee, Dan, Will. How are you? Very nice quarter with respect to expense control. First question, the spread between vending customers and non-vending customers in terms of the growth rates is -- continues to moderate. How should we look at that? And the concern obviously would be it’s a reflection of the maturation of the initiative but there is got to be some other factors or components driving the contraction of the spread?

Well, I think it's really a function. If you look at the growth of the customers with vending. They’ve been in a neighborhood of representing about 40% of our sales. So that group of customers. It inches up a little bit every quarter but it’s been in the upper 30s. Now, it’s approaching 40. The growth has been basically at 20% all year. I would say that the moderation of spread is really about the fact that the other 60% of our business, the investments we made in people at the store and at the district level. The rest of the business has lifted itself up. It isn’t so much that the gap has narrowed. It’s the performance of the other 60 has improved and it’s raised our company number. As we’ve been basically at 20% growth in that group for the entire year.

And part of that is, Lee, a little bit resurgence in the fastener business. If you look at year ago, the fastener business was seeing almost no growth at all, bringing that growth back basically does not come through vending. It’s non-vending business. It changes the mix a little bit about where our business is.

And that business is about half of the 60 that isn’t vending.

Yeah. So that really influences the gap.

Helpful. And my follow-up question, how do you look and it’s here in 2015, both early on and for the year, I know you voiced 51% expectation. What are your thoughts around pricing in fasteners and non-fasteners and how realistic the 51 expectation should be for the year and for near term?

On 51, I frankly don’t know. What I can tell you is -- I think what we demonstrated this quarter is we can invest heavily in the business. We can manage the expenses. We can let the pathway to profit mechanics shine through in our profit growth. We can do that without expansion of gross margin. And to me, that’s the most critical. It’s a competitive market out there right now. Our mix as we’ve talked on prior calls is not -- isn't inherent to raising margin. If you talk about the growth drivers of our business but the profitability on those growth drivers is great when it comes to the pretax line.

We get couple other positives on the margin. We do have a couple tailwinds. One is we still have a tremendous opportunity on upside for our exclusive brands, our private brands. And other is our transportation costs with fuel where it is or oil situation is going to drop. And as you saw in the fourth -- or as you see in the fourth quarter and other quarters or late quarters, the flexibility of our fuel and the costs going up in our fuel and utilization. Our utilization will be high in the first quarter of our transportation. And as it looks like right now, fuel costs will be down. So however we get to gross margins, it’s great. So exclusive brands, tailwind there on the fuel. And also our fastener business is doing a little bit better. So there are gives and takes all over the place in margin and it’s always going to be a fight. But I tell you what the team has done a great job of managing our margin through changing business environment.

So no reason to think why the 28% to 33% incremental margins should not hold true in '15?

We feel very good about our ability to get strong incremental margins we had in July. In April, we talked about getting the 20% in the third quarter -- or excuse me in the third quarter -- on the third quarter call, we talked about this quarter really being in the upper 20s and we feel very good about where we’re are positioned going into 2015.

I think one of the other reasons I feel good about that is we made very heavy investments at the end of '13 in our district managers, a lot of outside -- sales people outside of the stores and so we’re in a heavy investment mode. We can -- we don’t have to do much of that this year. In fact, in the leadership roles, district, regional, outside sales people were very set for at least the first six months of the year. And so we’ll able to -- that will come through in the P&L and incremental gross margins or incremental margins.

That’s very helpful. Thank you all.

Our next question comes from the line of John Baliotti with Janney Capital Markets. Your line is open.

Good morning. Thanks for taking question. Dan, as part of the assumption for '15, I know it’s early in the year, but with respect to gross margins, the fact that you pointed out the mix of business being larger customers, is it -- are you for the time being expecting that the mix to kind of stay where it is?

Well, the mix has been changing over many years that our large account business -- you see when you look at our vending numbers, because a good chunk of that is large account business, our large account business. And you see that the rest of the group like we talked on that first question, the rest of the group has stepped up and gotten closer to it. So we actually have a little bit more balanced growth in, in fact on gross margin in the next 12 months and we probably did in the last 24, because by adding -- selling energy in the store, the local business is stepping up to the play a little more. So when it’s not being pulled by the vending, the large account business, but there is still little bit of mix right there, but we will touch on both the fuel and our private brands is really powerful.

Yeah, I mean, the mix is not, I mean other distributors said the same thing, it’s not unusual as an industry now that the larger customers are contributing more. But to the point earlier, I think Lee brought this up, in terms of adding heads and you put it in your release, adding more in '15. As you said, you did a nice job of controlling your SG&A cost. Do you see that as a percent of sales more level with '14 this year, given that you are going to add more heads, but maybe offset with some further focus on cost or how do you see that shaping up?

I am not sure if I clearly follow your question.

SG&A as a percent of sales was down about 54 basis points this year or just under 30%. And you pointed out that you had pretty tight controls on expenses, especially in the fourth quarter. You also said that you are going to add some more heads in '15 to kind of resume what you were doing in '14. I was just curious how do you see those two in aggregate focus on cost control, but also adding heads? How do you see that aggregating into your SG&A as a percent of sales?

If you think about the pathway to profit, everything about that, including adding heads is about leveraging your SG&A. And so that in order to get the 28 to 30, low 30s incremental margin talked about, from our perspective that’s all coming from SG&A. The position we are in is that when you look at the labor growth for next year, the SG&A growth for next year a lot of the incentive pieces like I talked -- touched on what we gave up in the fourth quarter year-over-year because there is actually bonuses paid out again. That’s in our numbers now. That’s been growing into our numbers as we’ve gone through the year and stepping up a little bit every quarter. And so, it really puts us in a position to make investments, but the rest of the expense pool really isn’t growing that fast. And so we think we are in a great position to manage the SG&A going in 2015.

Great. Okay, thanks. And Lee, congratulations on your new position.

Thank you.

Our next question comes from the line of Winnie Clark with UBS. Your line is open.

Good morning.

Good morning, Winnie.

So in terms of the store count, you closed 52 stores in the second half ahead of that initial 45 target, are closings largely competitive at this point and how should we think about net store count additions in 2015?

Net store count additions, I would expect to be positive in ’15, marginally positive. We are always looking at our business. And even before we announced the 45 in the second quarter, I think we closed around 20 stores in first half of the year. And we think that’s a healthy thing because in our business, our locations are about -- in my mind and Lee, if you can chime in if you disagree with my approach on this. But my thought about our locations, it’s a base for our sales people that stocks inventory and customers have the ability to stop in. So we can do a great same-day service and a high-level to service for our customers. But if we come, if one of our district or regional leaders looks at our market and says, I think this market is better served, having us operate out of 4 points than 5 or 3 points than 4, when we know we are going to retain an incredibly high percentage of that business. We’ve got to look at and say what’s the smartest way to grow, but to answer your question I would expect it to be nominally positive in 2015.

Okay. Great. That’s helpful. And then just finally, I was hoping you could give us a sense about your exposure to oil and gas region is and how sales growth has been trending in those areas relative to the company average? And then maybe just how you think about the various puts and takes for your business of lower oil prices?

Sure. Will, I will take that. When you look at our sales about 12% to 13% of our sales, I would say are effected in some way shape or form from oil dropping, especially under 50 bucks barrel. And when you look at that but there is a percentage. And I’m kind of framing up from Pennsylvania to Texas to North Dakota, Tulsa, Western Canada, Alaska, we’ve really looked at that and that’s about 10% to 12%. We are going to fill it. Now what happens is I think, when you look back in time when oil drop, by the time it drops to the net effect where it hits us, it could be six months out there or something. There is that lag. So we are keeping an eye on it and we are definitely going to fill it in those regions. The flipside is we don't quite understand what it’s going to do to our other customers because it actually puts a little wind in their sales so to speak from a bottom line. So that's kind of how we look at it and how it affects company today.

Great. Thanks for taking my questions.

You bet.

Our next question comes from line of David Manthey with Robert W. Baird. Your line is open.

Hi guys. Good morning. First off, back on the contribution margin side, just given the level of profitability and the earnings growth that you are seeing right now. I know on the upside and the downside, we’ve had these stabilizers or shock absorbers through bonuses and profit-sharing and things. And I'm just -- I just want to press a little bit more on that contribution margin side. It sounds like you took a little bit of that in the fourth quarter here but as we look to next year, is there a possibility that those things kick in and even at a flat gross margin, it’s a little bit more difficult to get to that 30% level, Dan?

Well, with growth where we’ve talked about it in that mid-teens neighborhood, we are in a position to invest in energy at our stores and really get in the neighborhood of those operating margin, I mean, incremental margins, Dave, because when I look at our bonus pools, our incentive comp, it really stepped up when I look at it in the four quarters of this year. It really stepped up when we got into the second quarter and in the first quarter it was pretty really number too. But it really stepped up and so, I think that layer of added expense is really in our numbers when I look at the tails of the ‘015. And I think it positions us well. And the offset of that, some of the pieces you normally don’t count on and Lee just touched on it and Will touch on it earlier is you have some SG&A that’s going the other way in the short-term. I mean, we have some nice benefit coming into the first quarter as it relates to energy. I know you are down in Florida, as you don’t always appreciate this anymore now that you are no longer from the Midwest but it is cold up here. And energy prices for heating a lot of our locations in the northern half of the country and throughout Canada is a meaningful piece to us. So it gives us some tailwind coming into the first part of the year.

Hey, Dave. I'll jump in here. This is Will. But if you -- the biggest component by far of our SG&A, as you know is our labor and with the plan that Lee and his team have laid out for adding the vast majority of our new selling energy. They are not selling energy but storing energies so our sales people can get out by hiring college students. We can add 15. I’m not saying we are going to add 15%, but the math says we can add 15% more hours in our stores and that would translate into just under 7% labor, not including bonuses. So the base labor to fuel that were to support that 15% more hours and those are the scenarios we are looking at. So that gives us a tremendous amount of leverage when you look at the labor is by far our biggest expense where we can add the hours with only about just under half of the expense as a percentage. That’s where a lot of it comes from. And it allows us to be very bullish out there with our customers and serve our customers at a very high level.

Okay. All right. Thanks Will. And then on the gross margin, I know this gets far too much attention here lately. But the 51%, I’m just -- as I look historically at the company has maintained that level of gross profit profitability. And I know that historically there has been offsets, whether that was direct sourcing of Fastenal or ramp up the exclusive brands or changes to the logistics network, et cetera? So I know that historically even no national accounts have moved up in the mix and non-Fastenal as the percentage of the mix, you been able to maintain that level? What I’m wondering about is as those secular changes continue as they have for the past several decades, are there offsets that will allow you to remain in that range or is it just we reached a point where gross margins could potentially just be lower and we have to rely on better cost leverage?

Well, if you recall on the last call, Dave, we -- I probably not so artfully, but I tried to walk through what happens on the Pathway to Profit as our average store size gets bigger. I think that's really the underlying cause of a lot of what we are telling about. Our average store size gets bigger because we’re more and more successful with our larger customers and we drive some key counts in those individual stores and that’s what pushes our store from 80 to 100 or from 100 to 150 or 150 to 200. Overtime we have some $40,000 and $50,000 month customers and/or maybe an $80,000 month customer. But you have some big business that’s coming into those stores and like I talked about on the last call, if I look at our stores that are -- that do more than a $100,000 a month in sales, so -- at the time goes about just over 1,000 of our 2,700 stores, that group operates at a lower gross margin and goes up to…

70.

… 70 basis points lower than the company does. And so as we move from 100,000 to 110,000 to 130,000 to 160,000 average store over the next few years, because only nominally adding units, so that means our average store size going to grow. I would expect our gross margin to compress and right now I would expect it would be closer to 50 than that say, 51 or 50.5 that we just reported, because of the impact of that. But as I also talked about given up that 70 basis points, you give up -- you pick up both 450 basis points in operating leverage and that’s the secret.

And that’s going out over one, two, three years.

Oh! Absolutely. I mean…

Just want to make sure.

… lets look at out into the future because that group of stores averages a little over $160,000 a month.

And in this quarter that group of stores is a 24.5% pretax and that’s the fourth quarter. So that gives you an idea of the potential of the profitability of the organization.

All right. Yeah. Got it. Okay. Guys, thanks a lot. Stay warm.

Thanks, Dave.

Thanks, Dave.

Thanks, Dave.

Our next question comes from line of Eli Lustgarten with Longbow Securities. Your line is open.

Thank you. Good morning, everyone.

Good morning.

I’m glad to at least listen at the overemphasis of gross margin is strongly been recognized. I have two questions. One, we talk about sort of current business conditions as we look out the ’15. Typically, first quarter has a very easy comp within December from the weather impact a year ago so it doesn’t repeat? Last year if you know, nobody love -- if you look to which you not going to forget January and February so quickly? Can you give us some idea some benefits in there? And then second part of that thing, can you talk about the heavy manufacturing impact you told 20% of your business. Can you talk about the impact of ag and the Canadian economy, which is now starting to show signs of stress on Fastenal, particularly the ag market is one that we know was crashing at the moment and whether Canada is becoming a bit of a problem or not?

No. But quite a few items there. I’ll try to bounce through a few and Lee or Will, if you want to chime in, feel free. First off, on the end market piece, the manufacturing, that business really improve for us. And I think that’s really shines through in the fact that we exit the year with our fastener business growing double-digit. We started the year with our fastener business growing low singles, 1.5% first quarter, 1.9% fourth quarter of last year. That’s says a lot to the health of our OEM manufacturing customer out there. So I think that has very good trends going into the New Year. When I think of our Canadian business and I know enough -- some about a lot of details, sometimes get myself in trouble in the conversation. To me, the biggest issue we have with our Canadian business right now isn’t how well it's growing. It’s the value of the currency. That business grew for us in the mid single -- in the mid-double digit, excuse me, here when I’m looking at the last few months. But what shines through on our company level, when you look at it in USD, it cuts that down by almost two-thirds because of deflation in the currency. But the underlying business up there for us is healthy. Now one thing you have to keep in mind when you look at our business in Canada, it is weighted towards the eastern part of the country. We went into Ontario first and because we were expanding from the basically the Great Lake states in the U.S., when we first entered Canada been 90s. So we have a big chunk of business sets in the Ontario province and then out towards the Maritimes. It was later that we more expanded into Western Canada from the standpoint of where our dollars are. And that business, the eastern part of the country is stronger than the western part. Obviously, the western part is much more link to extractive industries.

Can you talk about the weather impact in the ags and the firms out there?

Well, the weather coming into last year -- we had a tough start to the year. Weather really beat us up and -- weather while it’s been cold in the upper Midwest, it hasn’t been pounded by the weather you saw. And time will tell how that plays out in rest of January and into February. But I don’t see weather as a threat right now.

But we did have a good March last year. So that balances it out too weather wise. We came back very strong. So it wasn’t the entire quarter that was affected. It was mainly January.

Yes.

Again, one other question. You had an initiative in metal working that was started several years ago, which really hasn’t done very much. I mean the relationship with Kennametal really just seems to be plotting along. Is that still a focus of the company or future growth lever or is that sort of just been put on the back burner?

I’ll jump in on that. Metal working continues to do well. Our relationship with Kennametal is good. People, I think, had too high of an expectation going in thinking we are going to be as big as MSC in overnight and that doesn’t happen. Our metal working business has grown not double digit, but almost double digit above the Fastenal growth over the last -- over 2014. We even did better than 2013. And we’ve grown a very nice size of business. We are doing well with it. We think the upside is great. It’s just hard to grow a business that right now represents about 10% -- just under 10% of our total revenue. So it’s a meaningful size business. And it’s hard to grow it more than 20 plus percent year-over-year with the business that big. So we are very committed. And we think we are going to continue to do well in it for a long time. And part of it is what we learned is that although Kennametal is a very good supplier, they don’t have full spectrum of what the customers need and neither does any of the other suppliers. So we’ve developed relationships with the wide range of suppliers and most of them are enjoying very good growth through Fastenal. So we are still very committed to and believe it’s a great opportunity for the future of Fastenal. The main thing that makes sense is our Fastenal and MRO customers. Most of those are using metal working products. We already have developed relationships. Now we have to develop a product relationship in this specific area.

Okay. Thank you very much.

Our next question comes from the line of Ryan Merkel with William Blair. Your line is open.

Thanks. Just want to clarify the 10% to 12% you said was tied to oil and gas. Is that direct to energy customers or were you saying that 10% to 12% of our stores are in energy levered states?

10% to 12% of our sales are in those geographic areas and shooting from the hip, I would say probably half of that would be closer to the energy piece. But that’s somewhat anecdotal talking to our regional leaders in those geographic areas. But it’s really looking at the Gulf Coast, the Texas market, Western Pennsylvania, Western North Dakota up into Oklahoma and Western Canada, kind of looking at those and engaging it.

And it’s pretty close to 12%. And more information, that grew in the third quarter. It grew at about 24% versus the company now. We have enjoyed very nice growth. So that’s the -- so we have that 12% of our business. It will probably slow down.

Yes.

I mean, probably will look good. But the other part of our business at 90% or 88% remaining, we are hoping we get a little tailwind through lower energy cost and maybe it balances. If it doesn’t balance, we also have about a $12 million of quarter energy and have $10 million energy, Will.

Yes.

That we think is going to go down by $3 million or $4 million. So we could give up a little revenue and balance it with the expense. We are hoping we don’t give up any revenue and we get to capitalize on the expense. So we’ve looked at it hard, Ryan and we are trying to figure out. But there’s no crystal ball for this right now. It’s all about how the rest of the economy is affected because of lower fuel prices.

Okay. I just wanted to clarify that. So you are kind of saying that 10% to 12% is direct and indirect and direct would be more like 5.

It’s always the geographies.

Yeah. Okay. I just want to be clear. That would have been a little bigger than I would have thought but 5% makes sense, which would be direct. Okay. Second question, given the decline in steel prices, should we be worried about deflation in fasteners and can you just remind us how your fastener contracts work with regard to price?

The large contracts which probably make up 20% to 25% of our fastener business are tied to a CRU index which is a steel index. And when -- the triggers on that are typically, they are not all the same, but majority of them have a 5% trigger. So as steel goes down more than 5% or up more than 5% over a six month period, it’s always on the calendar and January and July are the trigger points, that we will either raise our prices or lower our prices accordingly and then based on that, we are figuring out what percent. So Steel goes up 5% or down, it doesn’t mean we lower our price because we factor in the labor, so there is a formula there. So the other 75% of our business is not on these contracts when steel goes down, we have some upside from margin if we can hold on to that pricing. And that’s really where we think the balance is. There is always margin pressure exposure if there is lot of deflation in the business. So far, we’ve not seen a lot but that time will tell. We’ve been very close with our guys in Asia that run our business for us over there, our trading business. And trying to understand what the manufacturing are saying and seeing.

I mean, what would the lag be?

Pardon.

What would the lag be? So steel prices go up or down 5%, you have to change your pricing. Is it a quarter lag or is it right away?

It’s usually six months.

Okay. Great. And then probably just one more and kind of a big picture question. There is a view by some that the MRO industry is more competitive, more consolidated today and therefore the growth going forward would be slower, potentially less profitable. So what is your view and has anything changed in your view over the past 10 years?

Well, things have changed. But if you look at the big players and whoever you throw into that group, we’ve all grown nicely, but so maybe we’ve gone from 25% market share to 28% or 30%. So it has consolidated at pretty slow rate when you look at the -- combined if you look at us, MSC and Grainger combined and there is others I know, but our growth is probably 10% if you add us all up. Takes a long time to consolidate the industry. It’s always been competitive and I think it will remain competitive, but there is a tremendous amount of opportunity out there. We think the opportunity is as good as it’s ever been. And that's why we’re so focused as Lee talked earlier about staying close to our customers, using our same-day store model to grow our business and take market share.

Very good. Thank you.

Thanks, Ryan.

Our next question comes from the line of Adam Uhlman with Cleveland Research. Your line is open.

Hi, guys. Good morning. Congrats.

Hey, Adam.

Can we go through the cash flow outlook for next year? Pretty good job this year and getting cash conversion, I guess. How should we think about the CapEx? What are you thinking from an inventory side that would be helpful?

Our CapEx will drop, as we go into the New Year. The number I would expect us to be citing in our annual report will be number of around 150 plus or minus 5 million. And I think we’re positioned -- I think were positioned well. I think we’re in a good position to manage the working capital needs. The biggest component of need there will be more on the AR side than the inventory because I expect our business to keep growing nicely. And I think it puts us in a great position to generate very, very strong cash flow. And our operating cash flow this year was even high by our norm, because we basically had operating cash of essentially in line with earnings. Part of that was the fact that, our friends in Washington D.C. saw fit to continue the bonus depreciation and the few other things there. So we didn't get that tax bill coming and that defers that off, but it’s really a strong operating cash flow year. I think we have a great position for next year, because a lot of those investments in distribution are in the rearview mirror rather than in the windshield.

Okay. Got you. Thanks. And then clarification on the headcount it’s been asked several times. It’s still not clear to me. We had 2% year-over-year growth in December on FTEs. And I'm just wondering, how you think about that? For the first half of this next year, are we going to bounce back the 10% to 15% that was mentioned earlier? Or are we going to remain in the single digits and then ramp back up?

Are you talking about at the store level?

The total headcount growth on FTE basis, year-over-year in December we stay there some time.

You really have to discount a lot of what the year-over-year numbers are in November and December. Because in November and December a year ago, as I touched on earlier, we are in the massive ramp-up stage and we kept the hours just dialed up because we wanted to get our sales people out of the store selling. And this year as we manage through it, we were able to dial down the part-time hours in November and in December. And that’s really what -- that drives the FTE and one of the reason I put that bullet in on one page was really to talk about, hey, on the headline it looks like we dropped our numbers at the store. Our FTE did go down, so we dialed down the hours, but we actually added people. And so coming in to January and February that will dial back up because we have the need.

When we looked it at trying to normalize it taking out to people going home for the holidays and all that, we are in the high-single digits. I think we have 8% to 9% more selling energy, if everybody was at work all week long. And that’s a little lower than what we wanted, but it’s in the neighborhood. Does that make sense Adam?

Yes. And so that we kind of get back to that normalized 8% to 9% and then maybe grow from there as you have need.

We want to push it up from there, yes.

Okay. Thank you.

Thanks.

I see we are at 9:45. Again, I want to thank everybody for joining on the call this morning. And well good luck.

I’ll be here.

Thanks, everybody.