Aaon Inc (AAON) 2011 Q2 法說會逐字稿

Good afternoon. My name is Carlo and I'm going to be your conference operator today. At this time, I would like to welcome everyone to the second-quarter and first-half AAON, Incorporated. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions). Thank you.

And Mr. Asbjornson, you may now begin your conference.

Good afternoon, ladies and gentlemen. Welcome to AAON's second-quarter and first-half announcement of results and discussion of same. Before going any further, I'd like 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 SEC filings, including the Annual Report on Form 10-K and the Quarterly Report on Form 10-Q.

Now I'd like to introduce Kathy Sheffield, our Chief Financial Officer. Kathy?

Thank you, Norm. Good afternoon. Welcome to our conference call. I'd like to begin today by discussing the comparative results of the three months ended June 30, 2011 with June 30, 2010. Revenues were up 7% to $69.1 million from $64.5 million. Our revenues increased primarily as a result of an increase in sales to the replacement market and a favorable reception to our new products.

Gross profit decreased 24.3% to $11.7 million from $15.5 million. Gross profit was 17% of sales compared to 24% of sales. The gross profits percentages decreased [due] to a number of factors, which include excess manufacturing supplies that we purchased in advance to avoid price increases; higher cost of raw material and component parts, which we were unable to pass on to our customers in the form of a price increase; lower productivity of workers and equipment caused by an adverse temperature conditions, resulting from previously reported storm damage to the roof of our Tulsa facility; and also to the manufacturing problems related to production facilities rearrangement. Norm will be happy to address the subject in greater detail in his part of the discussion.

Selling, general and administrative expenses decreased 13.7% to $5.7 million or 8.2% of sales from $6.6 million or 10.2% of sales. The decrease was primarily due to lower warranty and selling-related expenses. Our operating income decreased 32.2% to $6 million, or 8.8% of sales from $8.9 million, or 13.8% of sales. Net income decreased 34% to $3.8 million or 5.6% of sales from $5.8 million, or 9% of sales.

Diluted earnings per share was $0.15 per share versus $0.23 per share a year ago. Earnings per share were based on 24,923,000 shares versus 25,546,000 shares. All the diluted earnings per share and the share count information that we discuss today are reflective of the 3-for-2 stock split that was effective June 13 of this year.

The results of the six months takes us to revenues going up 13.3% to $129 million from $113.8 million. Gross profit decreased 18% to $23.4 million from $28.5 million. Gross profit was 18.1% of sales compared to 25% of sales. Selling, general and administrative expenses decreased 1.6% to $11.2 million or 8.7% of sales from $11.4 million, or 10% of sales. Operating income decreased 28.9% to $12.1 million, or 9.4% of sales from $17.1 million, or 15% of sales. Net income decreased 31.5% to $7.5 million, or 5.8% of sales from $10.9 million, or 9.6% of sales. Diluted earnings per share was $0.30 per share versus $0.43 per share. Earnings per share were based on 24,931,000 shares versus 25,725,000 shares.

As we move to the balance sheet, we see that we continue to have a strong balance sheet with $240,000 invested in certificates of deposit; $2.3 million of current assets and corporate notes and bonds; and no long-term debt. Our current ratio was 1.7 to 1.0, which was affected by an increase in inventories of [$11.8 million], due to purchasing additional inventory to avoid impending price increases and capital expenditures of $25.6 million. Shareholders equity per share is $4.87 compared to $4.72 a year ago.

I'd now like to turn the call back over to Norm, who will discuss our results in further detail, along with our new products and the outlook for the remainder of the year. Norm?

Thank you, Kathy. We've had a highly unusual quarter and a highly unusual first-half of the year. And before going into AAON's part of it, I would like to discuss the general market condition a little bit, so you kind of know what the market is that we're seeing.

The market has been -- the new construction market has been in a long-term decline ever since hitting a high back in 2007, December of 2007 -- well, actually it went into early 2008 before it actually started the decline, which began in August of 2008. And we are now seeing the beginning of an upturn, which, according to all the non-residential construction, began in February of this month -- of this year. However, that is somewhat misleading, because it has roads and water systems and various other things in it which are not part of our world.

If I look at the portion which is our world, and go down through it, I find that lodging has made a turn, a slight turn from May to June. All of my data here, the most recent I have available to look at is June. I find that offices have also gone up from May to June, as have commercial buildings -- there it's basically flat, commercial buildings went flat in that time. Healthcare went up slightly. Educational went up a little bit there and religious was still down. So -- excuse me, educational stayed down in that month.

So, since educational is almost twice as large a market as any one of the others I mentioned, and then I add in there manufacturing, which was up substantially -- about 4% between those two months -- it -- or $4 million, I should say -- it gives you the picture that finally, we've reached the bottom in the building construction market somewhere in the May/June/July timeframe. And hopefully, it will continue to move upward.

However, comparing those results to the previous year, you'd find that lodging is down considerable, as is office is down considerable; commercial is down considerable. Healthcare is slightly up from a year ago. Educational is also down for the year in comparison year-to-year.

So, in total, compared to a year ago, we're down but we've made the turn on new construction. However, that's not the real story to be told in our industry. The real story has to do with what has happened in the replacement market. The replacement market started turning in early this year and then turned significantly as the year went on.

I believe the majority of the credit for that does have to do with one of the few successful programs, in my opinion, that the federal government has implemented, which was the tax relief, unemployment insurance reauthorization and Job Creation Act of 2010 that signed into law on December 17th of last year. That seems to be the trigger that really triggered the replacement market.

And the net result of that, all that, has been when looking at AHRI, which are industry statistics, telling us what has happened by unit size growth or not, the market in total has, through the most recent reporting time, which was May, had improved from a year ago by 8%. And that can only be attributable to replacement market. And I think a lot of that was attributable to that Act I read, which allowed 100% depreciation for certain qualified capital expenditures. And I believe a lot of the air-conditioning qualified for some people and they used that.

That being said, we finally are seeing a situation -- at least in the statistics that are present at this time -- of a possible turn in new construction and a fairly healthy replacement market, giving us, in total, a nice rope. All right. That being said, now let's go into AAON and how that affected us, and what we're seeing in our world.

The first thing I would like to tell you is that thus far this year, we have booked 19% more business than we had in a similar period a year ago. We also have gone up in our backlog through the second quarter by 35%, when compared to the second quarter of last year. Now those are the two very positive things. The third positive thing is that the price increases, which we have had, have been passed through and are in place, and are largely represented in our backlog. So those are the good things.

The other very good thing in my opinion and very hard to understand, perhaps, when you look at the numbers -- so it's very critical that what I tell you now is understood -- we're in the process of one of the biggest revitalizations of a company that you could possibly go through. What do I mean by that?

We have been introducing new products for the past three or four years, and they have been very well received by the marketplace. And they basically take into account the technological advances that are available now and put our product line in an excellent condition going forward. So, the necessary cost of expenditure for reengineering product is largely behind us.

Along that line, what our belief is, is that we have a significant growth potential if the economy cooperates at all. Toward that end, we have been building and been renovating, and been restructuring the inside of the building. All of that has come at a cost to us, obviously. And when the fact which I mentioned, allowing capitalization, 100% depreciation, was announced, we checked and a lot of our machinery qualified -- a lot of our very old machinery that was pretty well worn out. And so we decided to embark, and we changed our capital investment procedures considerably following that announcement in December of last year. And we have purchased a lot of capitalized machinery since that time.

To that extent, what we have done in that arena, we have put out about $25.9 million worth of capital goods, the majority of which is for new equipment. And only a portion of it is for building, which is, of course, capitalized on a long-term depreciation schedule.

Most all of that has already been paid for and is outside of our scope -- the scope of our business. The [bulk] that is still remaining open in that arena is around $7 million to come out of it. However, along with that, one of the things -- practices which we have had in this Company since the beginning of the Company, has been whenever we can buy-forward anything that will allow us to make money on the purchase -- and by that, I mean, if we, for instance, have somebody announce to us a 5% price increase, and our cost of capital to pre-purchase is less than that for the time element we're going to buy it for -- in other words, if we were buying and our cost of capital was 5% -- obviously, one year's pre-purchasing would negate any need to buy forward.

So we might buy forward three or four months or five months. That's the way in which we make these decisions. And also based upon cost of holding that beyond just the capitalized cost or cost of our facility and everything, whatever we're using up.

Well, this year, the commodity costs have moderated compared to last year, but the pass-through of those commodity costs, as they affect component costs, are still being passed through. And they were rather significant. We have had price increases of up to 10% on some components -- major components -- and possibly quite a bit more than that on some smaller ones.

So we have been pre-purchasing two types of things. One is the capitalized items, such as you see on our inventory sheet, which is up considerable -- approximately $12 million. That will largely be used up in this last half of the year. However, not totally, because some of the things we purchased that were major items were up in that 8% and 10%. So we actually bought more than what we will need until sometime the early part of next year. So those will moderate. We will be liquidating our inventory and going back pretty close to where we were coming into the year by the end of this year.

The other aspect that is not on our balance sheet, and which is very significant, one which you must recognize to understand what has happened financially to us, has to do with expense items. Expense items are a whole variety of things, and I'll give you some examples.

Wire, for instance, is an expense item. Straight copper -- in other words, the copper that we buy in straight links that we use to pipe up the machine -- is expensed. Paint is expensed. Foam is expensed. Refrigerant is expensed. And [molt] and screws and bolts, and a multitudinous other items.

The net result of all of that is we have pre-purchased -- and it is not in our financial sheets -- a lot of material which will be used up over the next few months -- primarily, I think, almost entirely by the end of this year. That is a significant factor -- it's almost -- it's up around $1.7 million, $1.8 million of excess inventory on purchase. Now, I shouldn't have used the word inventory because it's expensed items.

And so that's not on our balance sheet, but it is in our control. And we will use it and it will offset those costs for the next six months. So that distorts our balance sheet somewhat.

Now then, going through some of the other items which are affecting us, besides that. We listed in our announcement that the excess cost, because of what we pre-purchased on expense items, and the raw material and the component parts -- those were, we believe, slightly less cost additions to us in the first six months -- down around $1.6 million or $1.7 million, than was the expensed items.

The next ones which are the lower productivity caused by adverse temperature conditions are extremely difficult to measure. And I won't try and give you a feel for it, but I'll tell you what has occurred. As we talked in the first quarter, we had a very unusual snowstorm here the first week of February of this year, where in one week, we received more snow than had ever been recorded in the history of Tulsa, Oklahoma in all preceding recorded history for an entire year -- and we got it in one week. That, plus the winds that came along with it, overloaded our roof -- broke some very large holes in the roof.

And because of the structural nature of the roof, it's considerable effort to get those replaced -- one of which has been fixed; the other one, a hole of about 130 by 140, is being repaired as we speak, but it has not been closed off. Therefore, in the winter, of course, we suffered from the cold, and this summer, we've suffered from the heat. We finally have gotten enough air conditioning running that even with the hole in the roof, it's not too bad inside the building. But back in the month of June, we did not get that air conditioning up and running. And so we had conditions inside the building of approximately 100 degrees, plus or minus, for most of the month of June.

And that was quite unexpected; quite unusual weather for Oklahoma, but we had it. And the net result is some of our sheet metal equipment overheated, as well as the cause of the productivity slowed down from people having to work in that kind of a climate. And it had an immediate impact on us during June and slowed down the month.

How much did it cost us in production? If I had just a rough guess on it, I think it probably cut back production $4 million to $5 million. The net result is, of course, we lost any income associated with that plus we lost the revenue that was associated there. So those are highly unusual aspects which have occurred to us. We don't anticipate any of -- most any of them other than the ongoing costs of the components and the raw material to be with us.

Okay. Offsetting that, we have been buying a lot of -- I should say we have been putting price increases in on all of our products at various times and various amounts for the past year. We are of the opinion that most of our backlog now -- which is carrying all these price increases, and has just started flowing through during the month of July in real big quantities -- is going to bring our profitability back to a reasonable level compared to where we have been in the past.

Precisely where, is yet to be determined, because so many price increases are folded in there that are just starting to flow through, that it's going to be difficult to tell until we actually see them flow through to know precisely. We know they're significant -- very significant. That, coupled with the size of our backlog and the fact that we are booking new business at a very considerable rate of increase of the 19% I mentioned earlier, gives me great hope for the future.

As far as the significance of it, we have one analyst who has a new estimate out -- a company by the name of Sidoti. And I have reviewed the new one, which I've just received, and I feel fairly comfortable with where they are for the balance of the year.

That being said, the last thing I need to discuss has to do with our rearrangement of our plant. And the rearrangement of the plant is all intended to give us two benefits. One, an increased productivity, and two, an ability to handle considerably more volume. We are now approximately one-half of the way through the rearrangement of the facility. During the rest of this year, we will rearrange perhaps another 15% of the facility. And in future years, we will be doing the rearrangement of the balance of that 30-some-percent of the facility. So the majority of the rearrangement is past for this year and will not be causing us the degree of problem it has.

What this amounts to is we have been moving production lines around in the building to give them more productivity and longer lines, which will allow us to build more product. We have also been rearranging our sheet metal department to utilize the facility better when we put the new machinery in there. And that is going to have a very, very significant impact upon our ability to produce product at a cost-effective manner. So a very lot of -- very positive things are happening.

A very negative thing about the cost that it has incurred on us so far the first half of this year. The good part is that most of that's behind us, and there's a lot of good backlog there that is priced higher than what we've been producing.

So with that, I'm going to open it up for questions. Carlo? Hello? Do I have somebody there?

I'm sorry, sir. I couldn't get my [talk] going. (Operator Instructions). You have two questions in queue. Your first question comes from Jon Braatz of Kansas City Capital.

Good afternoon, Norm. (multiple speakers) Did you -- I thought I heard everything correctly but maybe I missed it -- did you quantify what those expense items might have come to in the quarter and what kind of impact they had? Did you (multiple speakers) --?

Yes, I did. About $1.8 million.

Okay. $1.8 million, okay. Okay. Would you -- I don't know how those -- how the price -- if prices are continuing to rise on those items, but would you say that most of that's behind you? And that maybe there won't be any additional pre-purchasing of those expense items, as they go forward into the second half?

I would think that most of them are, because the things that have gone up that encompass that -- we bought a lot of wire because that was starting to get the pass-through of the copper price increase. And copper has more or less stabilized, so there's no reason that we should see that happening on wire. The other thing was on copper tubing. And again, that's already pretty much stabilized so that shouldn't happen to us any more.

Refrigerant went up considerably. I hope that's behind us, but I can't judge that as well, because I don't know the reason -- why that went up as much as it did, but it did. The foam went up, and then nuts and bolts and screws, and a whole lot of miscellaneous stuff went up -- all of which I think should be stabilizing now.

I don't see any driving force behind them. There's always a lag on components -- when basic commodities go up, there's a lag between when they can put their price through to us, just like there's a lag for us putting a price through to our people. But I think that should be pretty well past us now.

What -- in particular, what component parts have moved up the most in terms of pricing?

Compressors and motors.

Compressors and motors. Okay. How much have they gone up?

Somewhere, depending upon the size we're talking about, somewhere between 7% and 10%.

Okay. All right. And then going back to the replacements business that you're seeing because of the change in the tax law, is that -- will that be effective next year too?

No (multiple speakers) --

(multiple speakers) Or is this just one year?

Well, the way the law is written, the 100% depreciation drops back to 50% depreciation with the balance then going on a normal depreciation schedule. So that has to -- that goes through this year and then it drops back. Whether Congress will choose to extend it or not remains to be seen.

In terms -- in order to earn that -- the additional depreciation, do you have to have that, let's say, that air conditioning unit installed by year-end? Or just simply ordered by year-end?

It has to be installed, as I read the law. I'm not a tax attorney but that's my reading of it.

So would you sense that maybe as we head into the fourth quarter, let's say, November/December, that the replacement business could slow down then, because you wouldn't -- might not be able to have it installed by that time?

That would be my reading of it.

Okay. And when you add everything up, how much of an impact do you think that will have on your -- is there a dollar amount of sales you can give us?

Well, it's really hard for us to judge because we don't, on taking orders, ask them to tell us whether it's new construction or replacement. And we try and judge it by a variety of things that tell us what it is and how successful we do or not -- all I'm doing is qualifying my answer here -- so I'm just saying I'm not really good and certain. I believe that we went from someplace less than 60% of our sales to somewhat over 60%, maybe up as high as 70%. I don't think it went that high. I think it's more in the mid-60s, but I don't -- I can't really tell you that for sure.

Now, here is part of it -- the marketplace, as we know, divides into replacement market and new construction. And new construction has been where our biggest strength is, because our biggest strength is to owners. And owners are the one in the new construction that determine, by and large, more so than they do in the replacement. The replacement market, that's mostly determined by a service contractor who tells the owner he's got worn-out machinery. And he makes a decision about what goes on to the building, more than likely.

So the upswing in the replacement market was not to our strength; it was to our weakness. And yet we managed to -- our people managed to give us that 19% growth in spite of that. Our competitors, who are more -- those who are more in tune with the replacement market, who focus on the replacement in lieu of the new construction, probably had a better deal than we did in that respect.

So it didn't get us as much this year as maybe it would have if we would have been more focused on the replacement market. And the reason we aren't is because we don't build stuff for stock and we don't have distributors sitting all over the United States with stuff in stock, which is what those who focus on the replacement market do have.

And so we didn't gain as good of upswing due to that replacement swing as I'm sure some of our competitors did. However, if it goes away at the end of the year, we're not going to be hammered as bad by it either. And the fact that the new construction is starting to make a turn right now, based upon the statistics from the federal government, gives me hope that maybe we're going to be swinging back into new construction -- market will start climbing again. So maybe it will offset what ever happens due to the decline if they don't extend that Act.

Okay. Norm, thank you very much.

Joe Mondillo, Sidoti & Company.

Good afternoon, Norm.

Hello, Joe. I received your most recent thing and I feel comfortable with what I'm looking at.

Well, that's great. I just have a couple of questions just to follow-up. First off, on the point that you made in terms of, I guess, advanced purchasing of certain materials or components -- just let me be clear because I sort of missed part of it. You're advance-purchasing some of that because you had an idea that prices are going to continue to rise? Is that the (multiple speakers) thought process?

No. No, we didn't do it thinking that they were going to rise; they -- somebody announced to us that we were going to get a price increase. And generally, when people do that, they give you an advance notice of 30 days or something. And when they do that and they tell us that, let's say that it's 5% increase, then we might start in and buy as much as we can in that 30 days, to offset that 5% as much as we think we can and make money by doing it. And so all of these things actually went up. There's no question about their going up, or we wouldn't have been triggered to buy.

Okay. Got you. That's helpful. (multiple speakers)

And that was roughly $1.8 million, as best we can tell, that we did that on. And a lot of that is still sitting around here being used, as we speak now. So we have an excess in two things -- both in our inventory, that $12 million, a lot of that excess that is inventory. And then we have some portion of that $1.8 million that is not in the balance sheet, is not inventory, but it is here and will be used in this year -- the balance of the year.

Okay. And how much -- how long will that last you, the stuff that you bought?

It will vary all over the place. In the case of -- what we did, for instance, we have some very large pressure vessels that contain 40,000, 50,000 pounds of refrigerant. We have three of those around here. We filled all of those up to the fill. Now they, typically, I think they perhaps last 45 to 50 days, something like that, before we have to fill them again. So how much benefit did we get from that? Somewhat but not a lot.

Same would be true of the foam, which we also filled up large vessels full. The ones where the majority of that money went was on motors and compressors. And our suppliers in that aren't going to be getting a lot of business for quite some time, because we have a big stock of motors and compressors here.

How much was the average price increase that you were seeing from those suppliers?

If I had to give you an average on it -- I'm going to grope a little on that one, because I don't have a number there -- I'm going to say on the majority of it was 5%, 6% across-the-board -- 7%, perhaps. But the ones that we bought the most of were up in the 7% to 10%, the motors and compressors on those inventoried items. The refrigerant, I don't remember that I even knew a percent; I knew it was quite a considerable amount, because when they told me how much refrigerant was going up -- and that, of course, is an expense item -- I'm going to guess it went up 10%, 15%.

Okay. And in terms of your price increases, you're expecting in the back half of this year that to boost sales roughly how much? About 4% or 5%?

Well, no, no -- well, it will boost the sales -- the cost increases that we put in, say, compared to last year, are going to be more in the vicinity of 6% to 7% probably, that our sales will be boosted strictly because of price increases.

Okay. And in terms of your quoting just say, I guess, the month of June and through July, what has that trend been like? Are you seeing -- on an absolute value, are you seeing consistent improvement week-to-week, or --?

Well, we don't see that because that's done by our sales representatives. We get reports from them and estimates from them about what they're expecting. And so far, they're still pretty positive. They're awfully shaky, just like everything else seems to be in our economy right now -- there's not a lot of security in making their commitments of what they think. But they are quoting a lot. There is quite a bit of activity out there.

So we're of the opinion that this turn that we're starting to see in the statistics probably is a real turn. How strong a turn, I couldn't say at this point in time. I don't think it's terribly strong, but it is going to start going in the right direction, I believe.

A lot of construction companies like McGraw-Hill and such are predicting somewhat of a pretty strong rebound, considering in 2012, in new construction. Have you been -- have you seen any -- have you talked to anyone or had a sense of how that's looking -- shaping up?

Well, we deal with a lot of architects and consulting engineers and everything who see day-to-day how much work they're doing. And they have turned up in the work they're doing. And that work is done somewhat anywhere from a few months in advance to when it goes out for bid, to maybe a year or two before it goes out for bid. And they all seem to be working fairly heavily now -- not tremendously, but they do seem to be more so than they have been for quite some time.

The national account people that we talked to are kind of -- very hesitant to give you much of a feel of anything. They seem to be very undecided about where they're going. So I'm not sure -- sometimes what happens -- and the hard part to judge this -- is sometimes people will go ahead and contract with an architect and an engineer to design a building, and they'll go ahead and put that much money into it, planning on building the building, but sometimes they won't go forward with the actual construction, if they don't feel good by the time they get the building designed, to be built. So they won't award any contracts to build a building that they paid somebody to design. And so it's hard to say for sure how much of that might be out there.

Okay. And just out of curiosity, I don't know if you know the answer, but in terms of your -- the new products that you've introduced, specifically on the lower tonnage over the last year or so, how much is that making up of your total sales these days?

Well, the new -- the products that we, say, in the past three years that we've put out there, probably 60-some-percent of our sales are in those products, maybe even over 70%. So it's a pretty significant part of our business right now.

I'm of the opinion that, because they are quite considerably advanced in some aspects, the biggest one from a standpoint of a hard one for someone to emulate one of our competitors to follow, would be our double walled foam construction, which improves the insulating value of the cabinet on our product by not a small amount -- by a large amount, all the way from an [R] value down about two or three to a [R] value of 13 to 15. In other words, five times -- four or five times better insulated cabinet than we used to have and that our industry generally has.

That, we think, is going to, and is already, building a following of people who have seen it and experienced it, that's going to have a pronounced positive effect on our going-forward business. And there's a lot of other issues. But that's probably the biggest, hardest one for anybody else to follow, because they have to totally redesign their product line to do that.

Got you. And last question just is regarding the geothermal units that you're manufacturing. How did those perform in the quarter? And at this point, how much are those making up of your sales? And what kind of growth are you seeing with those?

Well, I know that in the past year, they have increased in volume by 300 -- a little over 300%. As far -- I don't have a good solid number for you, as far as what percent of our business they're making up. I'd give you a guesstimate that they're somewhere around 4% or 5% now of our business. But, like I say, growing quickly.

There are a lot of positives for that. That's one other government program that is out there to get people to go with geothermal heating. And that is stimulating a lot of that business. And it is a sound science, in that it truly does save something -- it's not a hocus-pocus mirrors type of deal. It is an honest to God one. But it is a more costly system to install. And so it's going to grow -- no doubt about that. As energy grows, it's going to become a bigger factor. How fast is very hard to say, because it has been around quite a while.

Okay. Great. Thank you very much.

DeForest Hinman, Walthausen & Co.

Norm, I had a few questions. Can you tell us when the other roof repair is going to be finished?

When the what?

The other roof repair is going to be finished?

Well, the contractor is telling us -- he was telling us the end of August and now he's telling us the first week of September. They are working seriously on it and the materials are all starting to appear.

Because when you have a structural failure in the roof, what you have to do is bring in a consulting engineer, a structural engineer, who first has to analyze the roof. And this was the part that's collapsed was some -- probably 70 or 80 years old. And so he had to start all over again and re-engineer what was up there, totally redo it, and figure out how to fix it before he could even design the material. And then give that to a structural steel company who built the things. And they're just now delivering the structural steel, as we speak. And the contractor installing it is in the process of installing it.

I'm being told that the last of the major big structural pieces will come in on the 15th of this month. If that's true, then I think their numbers are pretty rational. The problem we've had with it is, because this is not a big structural steel job -- it's a small job to a structural steel company -- it's a small job to the consulting engineer. So, of course, we didn't get put with much preference to the larger jobs. We kind of fell into whenever they got around to doing our job.

Okay. And I'm assuming we filed a claim with our insurance. Are you anticipating any funds from the damage to be received at any point in the near future?

Our insurance company has been very good. We have been giving them bills, showing them what we're doing. We've kept them abreast all the way. Last I heard -- and Kathy is here, maybe she'll correct me -- I know we have one payment of $400,000. Have we had anything else?

Yes, we've had a little over $100,000 -- I mean, up to the $100,000 (multiple speakers) -- more.

Yes. So we've had maybe $0.5 million of reimbursement so far of our expenses. And basically, they're pretty much going to be reimbursing us for what -- most of the costs from here on out will be reimbursed.

Okay. And I think you had given some CapEx guidance in the past, and it seems like we've had a pretty good amount of that full-year, fiscal year '11 amount spent in the first half. And we've had some pre-buy on inventory, so it sounds like potentially in the second half, we have some cash flow coming into the Company. Can you talk about your expectations for that free cash flow -- or what you expect to use that for?

That's probably a better question to come from Kathy. I'll just give you the first part of it, and then I'll let her talk a little bit about some of the other things.

So far, we've had a total of $32,684,362 in CapEx spent and committed for, of which we still owe money on $7,194,358. So most of the money has been taken through our -- we've spent -- given out the cash on most of it.

Now, on positive cash flow -- of course, I mentioned we've got too much inventory around here -- we have set a goal on how successful we'll be -- generally, I think we can do it -- of cutting our inventory by $10 million by the end of the year. We would expect that most of that $1.8 million is either already started being used or is going to be used by the end of the year. So all of that will help us in the cash flow.

And then the rest of it will be primarily in profit that we generate from here on out the rest of the year. And it's our belief that we're going to be pretty well out of owing money by the end of the year at this point in time, on our revolving credit. That will be -- if it won't be gone, it will be pretty close to being gone. So we would expect that -- and if things go really well -- and I'm not predicting anything of that nature at this time, but we could have a little more positive cash beyond that.

Okay. And my final question is can you talk about post your tent show you did in Vegas? I mean, in terms of getting in those -- I believe they were engineers -- to kind of look at the product, now we've had a few months to try to see if they actually buy anything -- can you talk about how either if that tent show was successful, relative to your expectations? Or not as successful? Or much better than expected?

Much better than expected. Trying to put a number to it is, I think, an impossibility. But I think a lot of that 19% growth can be attributed to that show. If I could do something that successful again, I would certainly do it, but I don't know how to do anything that probably would impact us as much as that one did.

And it has long-range benefits, because we opened some specifiers' eyes that they didn't realize that we were -- have the capability we have. And that will be with us for many years to come. So it was very, very worthwhile a show for us, but it was a costly show. It hit us for a little over $0.5 million to make that show. But it, I think, is paying for itself very well. Again, we've made a lot of investment in the Company with that show good and -- but I think it's already paid off in what's happened so far.

Okay, thank you.

There are no further questions in queue.

Okay. I thank all of you for your time. We look forward to the next one. And at that point in time, we would anticipate it being a much happier, much more profitable-looking quarter that we're going to be reviewing at that time.

Thank you for the time. We appreciate your continued support.

This concludes today's teleconference. You may now disconnect your lines.