Aaon Inc (AAON) 2007 Q4 法說會逐字稿

Good day, everyone, and welcome to today's Incorporated fourth quarter and full year conference call. Just as a reminder, today's' call is being recorded. At this time, I would like to turn the conference over to Mr. Norman Asbjornson, please go ahead, sir.

Good afternoon. Thank you for joining us on our fourth quarter report and for the year 2007. Before going forward I want to read a forward-looking disclaimer. To the extent any statement presented herein deals with information that is not historical including the outlook for the remainder of the year, such statement is necessarily forward-looking and made pursuant to the Safe Harbor Provisions of the Securities Litigation Reform Act of 1995. As such it is subject to the occurrence of many events outside AAON's control that could cause AAON's results to differ materially from those anticipated. Please see the risk factors contained in our most recent Securities Exchange Commission filings including the annual report on Form 10-K and quarterly report on Form 10-Q.

With that being completed I'd like to introduce Kathy Sheffield, excuse me, Kathy Sheffield our CFO. Kathy?

Good afternoon. Welcome to our conference call. I'd like to begin by discussing the results of this three months ended December 31. Revenues were up to 13.9% to $62.1 million from $54.6 million a year-ago. Gross profit was up to 26.7% to $12.4 million from $9.8 million. Gross profit was 20% of sales during the fourth quarter of 2007, compared to 18% of sales during the fourth quarter of 2006.

Selling, general, and administrative expenses increased for the fourth quarter by 94% to $5.2 million, or 8.4% of sales from $2.7 million or 4.9% of sales in 2006. Operating income increased 1.4% to $7.2 million or 11.6 of sales from $7.1 million or 13% of sales. Net income increased by 0.9% to $4.6 million or 7.4% of sales from $4.5 million or 8.3% of sales. The diluted EPS for both 2007 and 2006 was $0.24 per diluted share. These shares were calculated on 18.8 million shares in 2007 versus 18.9 million shares in 2006.

Looking at the full year, revenues were up 13.4% to $262.5 million from $231.5 million. Gross profit increased to 30.7% to $57.4 million, or 21.9% of sales from $43.9 million or 19% of sales in 2006. SG&A expenses increased for the year by 20.2% to $21.7 million or 8.3% of sales from $18.1 million or 7.8% of sales. The operating income increased 38.1% to $35.7 million or 13.6% of sales from $25.8 million or 11.2% of sales. Net income for the year increased 35.2% to $23.2 million or 8.8% of sales, from $17.1 million or 7.4% of sales. The diluted EPS was $1.22 per share versus $0.90 per share a year ago. Earnings per share for the year were calculated on 18.9 million shares versus 19 million shares a year-ago.

Looking at the balance sheet now our current asset ratio decreased lightly. It was approximately 2.0 due to dividends payable and higher accrued liabilities which came from increased warranty and increased commissions. Capital expenditures for the year were $10.9 million and related to increased equipment, related to increase in production efficiencies, some renovations to the our Tulsa facility. Our shareholders equity per share as of December 31, 2007 was $5.29 compared to $4.95 for the same period a year-ago. We also paid cash dividends of $5 million and bought back stock for a total of $20.8 million. I'd now like to turn the call back over to Norm who will discuss our results in further detail, also along with our new products and our outlook for 2008. Norm?

Okay. The year 2007 was pretty strong year from an economy standpoint. The commercial building was strong. It grew well and we benefited from that. In addition to which, we did introduce additional new products, which were well received and grew very well for us. As did some of the renovated or new products to replace old products. Couple that with the fact that we did have price increases attributed to our cost, inflation cost last year ended up giving us our total growth.

Profitable came about more by the fact that even there was volatility in the component cost it went both ways. In the early part of the year it was on a downward trend and then in the latter part of the year it started an upward trend. In some and substance from the whole year from the beginning to the end it was up -- inflation was up probably somewhere in the 4 to 5% on our costs of material. So it did give us a difference on a quarterly basis because of the changing nature of the inflation. It does on a go forward basis appear as if we are getting a little bit more inflation coming our way than we had a year-ago at this time. Not appreciably so but certainly it is worth mentioning.

As far as going through the types of products and what our results were by our various locations, the biggest product we build, the largest tonnage, the largest physical size, the most costly product was one of our stronger growth products, and it was one of our newer redesigned products, and employed the latest technology we know to put into products. This latest technology to which I'm referring is two inch double wall foam construction cabinet and the direct drive airflow blower, both of them very energy-related issues.

Moving down into the next size of cabinet which was also a redesign with the same attributes it was another large growth factor. And then when we got in the smaller three sizes of cabinets they grew but not as -- not as well as did the two larger sizes of units. Moving out of that into the chiller arena we have very nice growth in our chiller products in Tulsa. And we began on our air-handling units but they weren't a significant part of our volume, dollar volume. Moving on down to Long View, Texas we had nice growth on our air handlers down there, nice growth on the condensing units. Everything is coming along down there. It's getting to be much more of an outside sales relationship, compared to selling coils to Tulsa. And therefore, the value added is coming along well down there, the value added part of our sales. And we're doing better on the bottom line down there.

Moving to our Canadian facility we are still troubled by problems we're having up there. We did, during the year, manage to get the functionality of the -- all the things as far as running the Company in our software system, are doing very well. That's a positive side of it. On the weaker side of what's going on up there, we had still some catching up to do with our pricing of our product to get up to where we could make a profit on it. And we did manage to get that accomplished over the entire year. However we had a lag effect. And the lag effect was primarily attributable to the very rapid change in the exchange rate between the Canadian dollar and the U.S. dollar. When we would raise the price thinking we had ourselves in good shape the dollar value would change faster than our price increase and we were just constantly playing catchup with price increase.

Now that was not obviously the case on the market that we did in Canada because, of course, it was not an issue in the Canadian market. But where it was an issue is what we sold into the United States and built in Canada and when we sold a product in the United States, with Canadian -- with U.S. dollars thinking the exchange rate was going to be considerably bigger in Canadian dollars going from $1 of U.S. dollars to say, $1.18 of Canadian dollars and then when we actually got around to shipping it it had gone the other way, $1 in U.S. was only bringing us $0.90 some cents or $1 in Canadian so that entire differential came right off the bottom line of the Company. So we had a very vicious cycle going on.

It was further pyramides by the fact that we got a lot of orders in the early part of the year which, was good if the dollar hadn't changed. It turned out to be very bad because we had all these low-dollar-related orders, that we had to build after the exchange rate had changed on us, thereby destroying our bottom line. Net result we still had a bad year in the Canadian facility. Nearer the end of the year and into this year we have gotten the price up on the U.S. business to where now, the price of the product we're selling is okay. We're making money on that. The question is, and it's not a determined fact yet, is what effect does raising our price by around 30% to the U.S. customers have on our sales volume? Obviously, it had a very negative effect. Did it kill too much of our business for us? We don't know yet. So the jury is still out on what effect the exchange rate has had on the viability of the Canadian facility. But it has been a challenging year, particularly due to, as I say, the exchange rate. I spend a little extra time on this because of the fact that we've been talking about the fact that we thought we were going to have it solved last year and we did not get it solved. That's kind of where we've been, where we're going.

Now, then what's happening to us for the future? I mentioned early on in the discussion that the large tonnage equipment in the U.S. has done very well. We believe that the things we've done in our new product offering are continue to gain market share at above the average rates. We are presently implementing a lot of changes in the smaller tonnage units which haven't been updated for number of years. We believe that's going to make them very much more attractive to the end users. We have gotten enough going that we're going to expand the Tulsa facility a little bit more because we feel we can improve our facility enough that the efficiency of manufacturing will offset the cost of building the additional facility. We have done a long range plan, taking our Tulsa facility to what we consider the maximum that's available to us on the 53-acres we own here. We've set out a multi-year plan for working that as we grow. So we know where we're going. The over one year investigation has been completed on that and the planning has been pretty well completed.

Moving down to Long View. Long View is perhaps the biggest unknown thing we got because most of the product down there is either brand new or relatively new and some of it has tremendous upsides. The question is how much of the upside can we actually make happen. The air handlers that we have put into place there in the past year or so are into a marketplace that is very large and we're just getting started with it. The smaller air handlers we have had there for a number of years are doing very well and growing very nicely as are the smaller condensing units. When we get over to the smaller condensing units, as you know, we've been trying to get ourselves straightened out to where we could market our smaller condensing units into the residential market. As you probable all are well aware that the residential market is anything but a desirable place to be right now. So how fast or how much will happen in our efforts in that remains to be seen. But we are embarking upon it and we are seriously going after the replacement part of the air-conditioning part of the residential market which is an immense market. So as I said early on here, the big unknown on the upside is Long View. It has very little downside unknown but a huge upside unknown.

Moving up to the Canadian facility, I told you where we are, basically it's still a question mark about the viability of that operation until we see -- we know we can get enough money for the product we know we know how to build something that will make profit there. The question is, can we get enough business to make the Company profitable at that price level. It's not to say all problems are cured up there, they're not. But they're within a manageable means to go forward and the real question in that operation comes down to availability of orders at the price we have to have in the U.S., and over 80% of our business for that factory comes out of the U.S.

That pretty well wraps up my part of the discussion. I like to open the talk up now to questions from the listeners. Hello?

Thank you. (OPERATOR INSTRUCTIONS). Our first question will come from Frank Magdlen of The Robbins Group.

Good afternoon, Norm and congratulations on a nice year.

Thank you.

Can you give us a little more color as to what your backlog looks like at this time?

Yes, I can. We always hit a higher point at the end of the year than we have by this time. We always work off backlog a little bit. And our backlog is dependent upon two factors, number one, how good the order input is, and number two, how well we're able to turn those orders out if the customer's asking for delivery fairly quickly. So it's not just totally dependent upon order input it is also dependent on how fast we move it through the place and deliver the product. We're moving stuff through all the factories, all the factories right now, quite well.

So we're not gaining backlog because of our inability to build. The net result of what I've just given you a summary and then I'll break it down and talk a little bit more is that we've got more backlog at this time this year than we had at this time in 2006. We have less backlog; however, than we had a year-ago at this time. And the backlog we have right now is in the low $50 million. A year-ago at this time we were close to $60 million. Two years ago we were in the high $40 million. So that kind of gives you some revenues point.

Now what does that tell you? I've you that we are moving stuff through the build process very well right now. So it's not staying in here as long. Now does that attribute all of it? Yes, indeed if you look at the order input, we are at over, say, a respectable time, say, take the past six months we have taken in more orders than we did a year-ago in corresponding six months, so order input is good. Does that mean it's strong? No, it's not. And I know it sounds conflicting with what I'm saying here but we did very well at taking in orders this year in the past few months compared to a year ago.

We moved them out very well which is good but it's much harder to get those order than a year-ago. So is it soft in the marketplace? Yes, it is soft in the marketplace. I hope I haven't confused you with that analysis. But we're doing well at still getting orders better than we did a year-ago. We're moving them out of the place better than a year-ago ago but it's harder to get the orders.

Then could you go to Canada and quantify what the revenues were up there, if your willing to and maybe what you lost in operations up there?

We lost about 10% of our dollar-- of our movement through the place and just a moment, we moved through -- we didn't lose -- yes, we did. We moved through in the mid about $15 million through there. We're at -- we backed off what we're moving through there at the present time is more closely related to about 10 to $12 million because of the price increases and the fact that we built out our backlog. And so now, like I said earlier, the question is can we continue to get enough orders because we have corrected the pricing problem. I don't know if we can or not. We're not booking at the same rate we're shipping right now. But the January, February, and March are -- January and February particularly, are historically low booking months up there. So the question of our ability to get bookings is going to get resolved in the next few months when they are usually strong booking months.

Okay.

The loss up there was just under 10% of that booking -- or that revenue number.

Close to a 1.5 million then?

That's correct.

Can you tell us what your CapEx plans are for '08?

Yes, what we're doing, I mentioned early on that we have done some long range planning for the Tulsa facility and I'll talk about our major capital expenditures. We determined that we can, by adding more assembly area, it's just a shell-type building. It doesn't have much of anything in it. We can improve our efficiency enough that we can pay for the building as well as get ourselves prepared for further growth. So we will put on in addition to our Tulsa facility that will cost probably in the vicinity of $5 million. That being said, that's almost the only major thing that we have to do all the rest is relatively minor stuff that's just always happens in a business and that's probably going to run anywhere from two to if we do have one or two major things, maybe it might run it up to $10 million. But I'm going to say somewhere in the 7 to 10 compared to almost $11 million last year and $17 million two years ago. So it's on a downward swing and it's almost all attributable to a building addition in Tulsa.

All right, two more questions, how many shares did you buy back in the ?

I'd rather give that to Kathy. She's the one with the purse.

And wisely spent. We spent $20.771 million in total for all the shares we bought back and the total number of shares were a 1,082,736 million.

And then for modeling purposes based on your year end shares what would you use fully diluted shares?

Bear with me just one minute. For the full year total diluted shares were 18,927,000.

And then at the end of the year?

If you are going forward?

That was at the end of the year.

Okay.

That's how many shares we had outstanding.

Okay.

That's diluted shares.

Right, fully diluted.

Wait, wait.

Kathy, two more things, the tax rate what would be reasonable going forward and if you could explain the SG&A expense a little bit more.

Okay. Based on everything we know right now on the tax we're looking at a rate of 35% for 2008. As, different laws change, maybe different tax credits and that type of thing those can affect us but with everything we know right now it looks like it will be 35%.

Okay. And then a little more what happened in the SG&A expense?

SG&A increased for a couple of reasons. It increased because there were increased sales that we had to reserve that accrue at warranty for. Also we increased our time period on the warranty from 14 months to 18 months. There was a one-time adjustment basically reserved for that to increase those number of months of sales. Basically the anomaly comes in 2006. In 2006 we made a $1.9 million decrease in our warranty accrual because we were over accrued for a warranty based upon our warranty expense history. So the anomaly really was in the fourth quarter of '06 not so much in the fourth quarter of '07. Going forward, we anticipate our SG&A to be somewhere between 8 and 8.5% of sales.

Thank you very much. And again it was a nice year.

Thank you.

And we'll hear next from Clayton Ripley of Bears Capital Management.

Could you tell me the status of the share repurchase plan is it still going?

Yes, we are in the blackout period right now and have been since the latter part of December and we have another week or something we got to stay in that. Kathy is going to correct me here.

We'll be back in the market buying by Friday of this week. We'll only be in the market about ten days and then in blackout again until the second week in May after we file our first quarter filing 10-Q.

Okay. Are you limiting that on how you are able to fund that repurchase? Or you going to tap the line or how' that going to work?

No, basically, we're paying that completely out of cash flow.

Okay.

And we had, as we said, last year we bought back a little over a million shares for a little over $20 million and it was all out of cash flow. And we're not putting any limit on our buying back other than what the Federal Securities and Exchange Commission limits are.

Okay. Thanks. The Canadian exchange rate is a big part of your remarks. Are you hedging that in any way or are you thought about hedging?

We didn't do it before and we got burned badly and we are now investigating hedging that. We haven't started doing it yet but we are deeply into trying to understand it well enough that we can do it intelligently.

Okay so that's just a pending? That can be classified as just pending right now?

That would be a correct statement.

Okay. What's the progress of your efforts in the national accounts?

You mean like national accounts?

Yes.

Well, as we've said, the national accounts are very difficult places to make money because of course these places and organizations buy a lot of goods and they've got the ability to demand pretty low prices. So as we grow rapidly. And been challenged on the internal growth things we've raised our prices to the national accounts and pretty much lost a major share of them. Not because of the quality of our product or the performance of the product or anything but because of our pricing. And thus were much less a national account Company than we were a few years ago.

And if you think about our history about what we're trying do here let me just paint you a picture, a quick one. When we started the Company, when we bought the Company we had two national accounts. Between the two of them they accounted for about 95% of our sales.

Big worry then on everybody's part was what if we lose one of those two national accounts. We didn't for a while and eventually we did lose one of them. And then we picked up a whole bunch more because it was easier to go out and get a national account and get high volume than it was do to getting ones and twos and smaller orders from many more customers. So we concentrated on that for a period of time and built up our national account business very well. And then as we were getting better pricing out of other parts of the market we slowly started backing off being quite so competitive in the national account market. Right now we're raising our elevation and hopefully can make it happen, raising our expectations as far as our growth, and we feel we'll have to go back after a little bit more of that national account business, which we will do, and it's really a question about what are we willing to do price wise.

Okay. Winning those national account is more about price than anything?

That is correct. We have a good reputation. They would be glad to give us their order if we would give the price that they would feel happy with.

One more question, you talked about the residential market how is the marketing process go when you attempt to attack the residential market?

That is a difficult one and good question because the residential market is very much a commodity market and it does -- it really truly lives on nothing but price. To address that we've had to find some way to find some way to cut costs and be able to have it be a little bit better market for us. Our effort in that area is going to be by eliminating one step of distribution and selling directly over the Internet. With we believe we know how to make that work. And we reduce our cost of distribution but somewhere around 20%. And if that's true, that will allow us, we believe to be a very value-price product. We may not have the cheapest product but for the dollar that we will be asking we think it may be the best value.

And in that regard it's a very high efficiency, much higher than the SER of 13 which is Federal mandate. And it has several other features we think are have very important to people one of which is the ability to dehumidify the building when cooling isn't required. And that's not a common characteristic in the residential market and we think bringing our knowledge that we have out of the commercial market where we've been doing that now for 20 years into the residential will be well received. So it will be a -- it will be somewhat niche marketing but we're niche marketing an absolutely huge market. So even with a small niche it will be a big market for us.

Okay, thank you.

We'll move on to Jon Braatz Kansas City Capital Associates.

Good afternoon, Norm.

Yes.

Going back to the sort of residential market we're moving into the heating season, shortly. I mean, cooling season. Will you build inventory for that business -- I would think you'd almost have to as opposed to build to order.

That is correct. We will build inventory. The difference in this situation typically in that marketplace they build inventory and distribute inventory to various distribution houses all over the United States. So they build up a huge amount of inventory in local stocks as well as in their factory stocks. That is not our game plan. Our game plan is to build up a fairly substantial inventory but we will have it all in our building and ship out of there. And if you order something say right now today it would be our intent that we would have it on a truck tomorrow morning. And maybe if it's early enough in the day, it will go out the same day.

How much -- how much, obviously you don't know how well this is going to go, but how much volume, how much capacity might you have if this -- if this indeed is successful, this marketing effort?

Well we presently just completed an expansion of the Long View facility and bought some more machinery down there anticipating that we're going to be somewhat successful in doing this and we have ourselves set up to be able to handle, percentage growth will be absolutely astronomical but in real growth in dollars it will be small potatoes still, but we think we have all the things necessary to launch this and get going with it. And get moving.

Doing a little bit more planning, we are present facility is on 13 acres down there and over the past three to four years we've managed to buy up 14 acres directly adjacent to our 13 acres, thinking that we're probably going to need that to expand if this residential thing gets going.

Okay. In terms of profitability, assuming you get to a critical mass, whatever that number is, would you view the operating margin opportunity being similar to what you're seeing your base business now?

That is what we're targeting and that is what we think the game plan we are going to try to play or the business plan we're working on is going give us, so yes, our belief is that we'll get the same general gross margin out of it.

And similar operating margin too?

Yes.

Okay. One last question. In the other income item in the fourth quarter was a loss of $245,000, what does that related to?

Primarily the currency trends--.

Okay. And that's what you were referring, the prior question that you are looking into hedging is that correct?

That is correct.

Okay. Thank you very much.

And now we'll move on to Rod Wilson of Tulsa World.

I want to ask you a little bit more about this expansion at the Tulsa plant? How big is that going to be? I think you said $5 million. How much compatibility will that add and what product lines will be expanded?

Well it will expand us by a little over 100,000 square feet and it will basically give us the ability to utilize some of our other facility that presently is rented out and the renter will be moving out before very long and it will allow us to organize ourselves basically in a portion of the plant allow us to organize ourselves for doubling and tripling the volume of business that we could handle in this facility. That's not to say we wouldn't have other portions of the plant we'd have to do something on but the assembly area, per se would allow us a major improvement in our ability to assemble. And herein is the problem. The place where we are growing the fastest and where we are hurting the most for assembly effort is in our largest, most sophisticated, technically complex product line, things that take a full truckload just to carry one unit away. And because they are technically complicated if we go to a second shift in our existing product plant and at the present time we have a very limited second shift.

If we grow much more than we got right now we almost have to duplicate a lot of our engineering department to work the second shift because there are enough engineering questions come up during the workday that must be answered that you must have technical people around in order to answer those questions. That becomes a very difficult and not very productive thing to do to duplicate your engineering department, a portion of it, anyway, as well as adding the assembly personnel necessary to run second shift. The first thing we're going to be putting in this new plant is a second identical production line to the one we already have for those big units and by doing that we will be able to offload enough from that existing line as well as a second size down product line which is the second one I was mentioning that we have made all the technical changes of which is 26 ton through 70 ton and we're going to duplicate that production line too, because it is the second most technically complex product we have. And by doing that without changing personnel at all, we will be able to build a fair amount more product than we're able to build right now just by improving the efficiency of our assembly operation.

Very good. Will that start pretty soon; this year, sometime in this quarter or the next quarter?

Well, as I said we have been involved in trying to figure out how to put this place together where the ultimate use of 53 acres and we have be been at that well over a year and we've had about 12 people pretty deeply into it at various time. That isn't their only job, their jobs are running the things they're doing now but all the people who are really the runners of this factory have been involved in doing this. And what we're basically doing is putting together a factory that, as I said, will be a multiple not just a percentage not a 50 or 60% but it will be 2, 300% at today's dollars increase in capacity on this acreage and the part of it we're doing now, the some 100,000 that we're going put in will do a portion of it. That will catch a bulk of the assembly area that we need.

We still got to go back and do some other areas and put some addition on some other areas, but we're doing to the point that we've done all the parking areas. We're down to the point now we're trying to figure out now with that many more employees that we're setting up this building to get how we're going to get the food in and out, or th people out of here for noon hour, how we're going schedule the factory so that all the cars can get in and out of the facility. So we're into very deep, detail when we're off doing things like that we're in deep, detailed discussions.

By that I mean we know exactly how many pieces of metal we're going move around and how to move them and what we're going to have to do. Everything in great detail in that year and a half has been gone through. This is the first major step toward utilizing these 53 acres to their maximum. And did I answer all your question or get myself lost?

That was fine. One more question, you mentioned the additional people. How many jobs are you looking at ultimately you know, when this 100,000 square feet is done?

We're running just under 1,000 personnel. And ultimately we're looking at running a little over 2,000 people but that's, you know going to happen in a year or two that's a longer range plan depending on how fast we can grow the business. What that means of course is that right now we have parking room for about 1,000 people because almost everybody tries their own car and we have to have parks space for 2,000 people and everything else. It's a major, major thing to make sure you don't leave something out and leave yourself wide open for a problem.

Absolutely. Thank you very much. That's good news for Tulsa.

Yes, it is.

And we'll now move to Joe Montero of Sidoti .

Hi, Norm. Good afternoon.

Good afternoon, how are you?

Good. Just expanding on what you went over on the Tulsa operation there. I don't know if you mentioned this but when do you expect that do -- to be done?

Here's where we are, the 100,000-some we are adding immediately we are down to the point that yet this week the contractor is trying to pull pricing together that we're dealing with and we expect to have that under contract within the next 30 days. How long that will take him, is anyone's guess. My guess is it will take the better part of a year, probably not quite, maybe nine months or something like that, so about the end of the year I would expect that that addition will be put in place.

Okay. And you said that that's going to increase revenue by 200 to 300% is that correct?

That is the -- a major part of the addition necessary to make that happen. It's not all of it. It's a major part of it. That will take care of the bulk of the assembly problem. The other one which is the -- one of the next steps we're going to have to go through is the warehousing of material and straightening out our warehousing to handle that kind of volume and that will also necessitate a fairly large building addition.

So as soon as this is complete is it fair to say that this is going to increase revenue by 200 to 300 is that right?

We believe -- everybody has an ego and great dreams and aspirations but we believe it very strongly and it's not just myself speaking but the employees of this Company believe very strongly that we had a growth rate a compounded annual growth rate since we began in 1998 at 12.5% per year. Now some years we haven't had it and other years we've had much more but if you take from day one up until today we're 12.5%. We believe that with -- early on we had no money we had a lot of negatives, we had a lot of problems that we had to contend with. Those problems are pretty much behind us now. We have the money to do what we need do. We have a lot more people who have knowledge of what we need to do. We have a lot heavier quality people around now.

So a lot of the things that kind of limited us in our early years are gone. And it's our belief that we should be able to accelerate that growth pattern up a little bit. If you look back last year we grew 14%, not 12.5%. And we believe that it's possible ongoing to do that a little faster. If you want to just take those numbers out and let's say take a 15% and I'm not forecasting, all I'm doing is a mathematical model, 15%, starting today in the year 2017 this Company will be a billion dollar cooperation.

Okay, very good. And one last question, could you just give some outlook and break it down in terms of new construction and replacement side, so outlook to what you've seen so far in 2008 and going forward into 2008?

Well, we still probably are doing about 45% replacement and about 55% new construction. Which is one potential problem because if the economic slowdown does occur it generally hits the new construction much more than it does replacement market. And basically it depends upon your business model as to which of those two markets you're going to be the strongest in. In our industry of all our competitors, two of our competitors are focused on the replacement market, two other competitors we have are more focused at the new construction and planned replacement market, as we are. And so the ones who have got considerably more than 50% of their volume because they're focused on the replacement market are going to keep on doing that. As time goes on, the other two who aren't as focused are becoming more -- they're doing things to try to get into that market more, as are we. But -- basic business plans dictate to some degree as to who is going to get the replacement market and who isn't. And our basic business plan is not focused on the replacement market.

Great. How about in terms of 2008 compared to -- 2007 I'm sorry, in terms of those two sides of the business? How do you see it going so far and maybe going forward compared to 2007?

Well, as I stated earlier if you take, say, the last six months of new orders we have done better than we did in a comparable period a year-ago. But if you said , is the market available at the same level in the past six months as it was a year ago? No it's not it's just that we have been able to effectively obtain our market share. It is defiantly a weaker market than it was a year ago. Is it going to continue getting weaker? I don't know. I read in papers and read in magazines and watch televisions. I have mixed emotions about it, I have a theory and I hope it has some validity to it. Usually whoever is hurting tries to build something up much bigger than it is hoping that the government will help them out a little bit and I am wondering if that isn't the case with the financial people today. Maybe I am harsh in my judgment. But when you are hurting you make more noise than it justified. I hope that is what it is happening today and that all the noise istn't justified.

I hope so. Thanks a lot and congratulations.

(OPERATOR INSTRUCTIONS). Our next question comes from Shaun Nicholson from Kennedy Capital.

Hi, Norm. How you doing?

Good, yourself?

Good. You didn't touch on it in the call but the product of 4X4 units that are more popular out of New York City can you touch on if that segment is a focus as far as growing the business in that area?

To answer the last of your question? Yes it is a big focus of our growth. I haven't touched on it because at the present time we are not in the business we are just preparing to get in the business. We do have a small order for about $150,000 from New York City. And we are supposed to ship that within the next 30 days. So we're close to entering the market.

It has the potential for growing very rapidly because it's a market that's not a huge market. It's focused on the high-rise buildings, high-rise office buildings with of course, obviously main focus being New York City and lesser focuses being Boston, Philadelphia, Washington, D.C., Atlanta, Georgia, and it really started in New York City. So it's spreading out into the rest of the United States. The further west you go, the less that is a prevailing way to do high-rise buildings. In New York City it is probably the dominant way to do a 50 or 100 story building is with 4X4s and we have a product now and I could take an order for just about any size job if I could get it. But as you can well appreciate if you were building a 100 story building you want confidence in our ability to give you something you wanted. So we still have confidence building to do before we get the big orders.

Okay do you have a rep in that market?

Yes, we do and one whose very familiar with the market and who has been selling in the market a long time. So we're very confident that we're not going to be limited in any of those markets I mentioned plus a lot of our other markets by people not having familiarity in the market. We got a lot of people in all those markets are familiar with that market. And so giving them the product volume they know immediately how to go, what do and we don't have a big thing there other than familiarizing them with our product as opposed to whatever they are to selling.

Great. And just on the Tulsa expansion it has been talked about quite a bit here. Is it possible that if the Canadian operations were not feasible going forward and the decisions made to move those could they move into that facility or would you need another facility in the U.S.?

That would be possible to be done and what we are planning on doing.

Then you could expand it off of that?

That is correct.

And the 2 to $300 million that was mentioned there is a ramp that would need to be taken to get to that level if the conditions are right. Once you get it built how quickly do you think that ramp could be as far as getting the equipment in there and the people hired?

I don't think we're going to be limited in that. Because from day one, I have worked to the best of my knowledge and the best of everybody I hired and worked in this Company we worked toward building infrastructure that is necessary to support a much larger corporation. So we aren't limited by, say for instance software issues and policies and procedures and things like that. We're organized and ready to do it tomorrow, virtually. We could ramp up overnight. Our problem area is going to be, two, number one will be hiring people and training people at the factory level. And number two, really number one is going to be getting the orders. And if we can get the orders we can handle the orders.

Okay. And the last thing in the press release you mentioned the in the first quarter you expect a strong, record first quarter. Was that a record -- did you imply a record for the first quarter or in the history of the Company?

First quarter will be-- should be a record for the entire first quarter of the Company.

Great, thanks, Norm.

(OPERATOR INSTRUCTIONS). Our next question is from Anthony Rab from Perimeter Capital.

How you doing?

Good, yourself?

Yes. The question is on the larger tonnage products you were selling this quarter I think you said you saw an incremental uptick because of the new design can you give us an idea of the magnitude of the uptick?

Yes, I will give you a general idea here. I don't want to quote because I may have competitors listening here. But in the -- just a moment here. Let me see. In the past three years we've almost doubled our business in the area that we have redesigned and come out with these new concepts in.

Okay so now are you going to redesign some of the smaller tonnage products?

We are deeply into it now and by sometime a little more than a year from now we should be pretty well completed.

Okay, thank you.

It appear there is are no further questions at this time, sir.

Okay. Thank you, all for listening in. I hope that you feel comfortable staying with us as owners. We certainly appreciate you and thank you for being with us. Look forward to talking to you again in a few weeks when we finish the first quarter. I don't have any more so, Kathy?

We appreciate your attendance and we'll talk to you in May. Thank you.

Good-bye.

That conclude today's teleconference. Thank you for your participation, and have a wonderful day.