Astec Industries Inc (ASTE) 2007 Q4 法說會逐字稿

Greetings, Ladies and Gentlemen, welcome to the Astec Industries fourth quarter 2007 results. At this time, all participants are in a listen-only mode. (Operator Instructions) As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Mr. Steve Anderson, Director of Investor Relations, Astec Industries. Thank you, Mr. Anderson, you may begin.

Thank you, Doug. Good morning, welcome to the Astec Industries conference call fourth quarter fiscal ended 2007. I'm Steve Anderson Corporate Secretary and Director of Investor Relations for the Company. Also on today's call Dr. J. Don Brock, our Chairman and Chief Executive Officer and Mckamy Hall, our Chief Financial officer. In just a moment, I'll turn the call over to McKamy to summarize our financial results and then to Don to comment on our 2007 and also provide some insights in 2008.

In the way of disclosures of note, our discussion this morning may contain forward-looking statements that relate to the future performance of the company. These statements are intended to qualify for the safe harbor liability established by the private securities' litigation reformat. Any such statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions. Some of those factors that could influence our results are highlighted in today's financial news release and others are contained in our annual report, in our quarterly and annual filings with the SEC. As usual, we ask you to familiarize yourself with those factors. At this point, I'll turn the call over to McKamy Hall to summarize our financial results for the fourth quarter in full year 2007. McKamy?

Thanks, Steve. We appreciate each of you joining us this morning. We're excited about historical highs in sales, net income, and backlog. With sales growth and gross margin improvement, the company was able to generate a 40% improvement in earnings per share. We also look forward to continued improvement in 2008 beginning with a strong backlog. The net sales for the quarter were $221 million, that's an increase of 36%.

International sales, $85 million for an increase of 75%. The increase is primarily an international sales that occurred in South America, Australia, Canada and the Middle East.

Domestic sales for the fourth quarter $136 million for a 19% increase. The park sales for Q4 2007, $49 million, or 27% increase. For the year, net sales were $869 million for an increase of 22%.

International sales were $278 million for an increase of 45%. These increases occurred primarily in Australia, Canada, South America and Africa. Domestic sales were $591 million an increase of 14%. Perk sales were $186 million an increased of 4% Sales increased in all segments. As reminder, we have attached to the Press Release the sales and gross margins for all segments.

The consolidated gross profit for the quarter was at $48 million, an increase of 38%. Gross profit increase for the quarter, 30 basis points. All segment gross margin dollars improved. For the year, consolidated gross profit was $210 million, a 25% increase. For 20007 gross profit percentage was at 24.1%. Compared to 23.7% last year, an increase of 40 basis points.

Again, I remind you that these -- this information by segment is available in the Press Release and all segment gross dollar--gross margin dollars improved for the year as well. In looking at SG&A and engineering for the quarter, it was at $30 million or 13.7% of sales compared to 17.1% of sales last year. It is also noteworthy that it was down from 15.5% in the third quarter of this year. For the year, SG&A was at 14.2%, compared to 15.2% last year.

In the fourth quarter, the SERP, because of the change in the price of our stock, the SERP expense converted to a SERP credit, so that was a primary item, helping the SG&A reduce in the fourth quarter, and that was to the extent of $1.7 million. Now, on the income from operations for the quarter, we were at $18 million that's 153% increase. And for the year, we were $87.7 million, or 44% increase. Again, these numbers are available at the segment and attached to our Press Release.

In the other income area, the primary driver there is interest income because of the cash that we've had available in 2007 and that was $3 million for the year. The effective tax rate for the quarter is at 36.5% and 35.5% for the year. The main reason for the increase over the prior year is the loss of the extra territorial income exclusion act.

The net income for the quarter was $11 million or earnings per share of $0.50 compared to $0.29 last year for a 72% increase in earnings per share. For 2007, we were at $57 million, earnings per share of 253 for an increase of 40% in the earnings per share.

Our backlog is at $272 million compared to $246 million. That's a historical high and is up 11%. Normally, during the quarters we don't give you an update because we're normally a little bit late on the year-end. We did give you an update on January. And January backlog is at 293 versus a prior year of 267 or a 10% increase. The backlog at 1231 is broken down by segment for you and attached at segment information attached to the Press Release.

Our balance sheet continues to be very strong. Corporate cash available at the end of the year was $32 million. Our days outstanding were 35.8 days versus 37.7 days last year. Our inventory turns basically remains flat 3.5 terms. We are using $7 million off that credit facility for letters of credit, that leaves a bargain availability of $93 million that's available on our credit line.

Our capital expenditures for 2007 was $39 million with depreciation and amortization being $15 million. And in 2008, we're projecting CapEx at $32 million with depreciation and amortization at $19 million. The cash flow will be attached to our filing, which will be done on this Thursday, February 28th.

This concludes my prepared remarks on the financial details. Now, I'll be available to answer any questions you have later in the call. We do appreciate your interest in Astec as we strive to improve profitability in return for the shareholders. Thank you.

Thank you, McKamy. Dr. Don Brock will now discuss Astec's business operations for 2007 and the general outlook for 2008. Don?

As you see we had a good year, our revenues as McKamy said was $869 million, up 22%. Our income level reached 56.8% or up 40% Both of these were records for our company. Our return on capital employed reached a record 19.2% after tax. With the focus with Sarbanes Oxley, the focus on cutoffs, large ticket items that we have makes our quarters a little lumpy. As you know, we had a good first quarter, a good second quarter, third quarter was down a little bit from expectations in the fourth quarter is up. I guess we encourage you to look at our entire year and not at quarter by quarter, because of the lumpiness of the size of our products.

During the year, we acquired Peterson Pacific which increased our presence in recycle and recycling the wood and timber industry and in the energy business. Our parts business continued to grow, increasing from $165 million to $186 million, or up 13%. Our international business was helped considerably by the weak dollar and increases in our international sales forces. International sales were 32% of our business last year and then the fourth quarter reached 38%. We expect this to continue to grow in '08.

Our gross margins increased 40 basis points during the year. As compared to prior years, this increase was a little disappointing, but the inflationary pressures are greater than I've seen since the late '70s. We see a continuing rise in steel prices and other components built out of steel. And a lot of the savings that we reach in through the efforts are offset by increasing prices. And I guess our effort is just to try to continue to keep out running it.

For '08 looking forward, we have seen a softening in the domestic customers' businesses in the aggregate and the asphalt and the small utility business; however, the customers' business seem to have been more profitable last year than in the past. It seems like the customers are making more profit on less volume. Therefore, they are less negative than I've seen in the past and more willing to continue to increase their equipment purchases and upgrade their equipment. The increase in international business with the weak dollars is more than offset any potential downturn in the domestic spending, and so we see a continuing growth as we go into '08.

Our introduction of a number of new cost-saving products during '07 continues to help us grow. These new products will grow even in a weaker market because they offer savings to our customers. The new warm mix process introduced by Astec in June '07 we believe will actually revolutionize the hot mix industry. The combination of warm mix increased, allows the increase of recycle significantly which lowers the cost of hot mix asphalt. As recycle increases, it increases the demand for our differentiated products and asphalt plants, pressures, and special screens.

Our growth in the energy market with our slant and vertical drill rigs, thermal oil heaters, trenchers, wood chippers and drying equipment, offer some significant growth in this area, which is certainly counter cycling to the infrastructure business. I guess if I had one worry of '08 it is a continuous amount of unrecognized inflation, particularly in steel and oil and products made of steel. Our products, however, that we build, help us -- help our customers offset oil prices increases. We see a continuing increase in the amount of recycling is being used. Our product-focused teams purchasing in these days in lay manufacturing, also help us to offset increased prices as our -- or increase as these prices increase. We, also, are continuing to raise our prices as they are required to make sure we maintain our margins.

As McKamy mentioned, our backlog is strong. We are up about 10% over last year. Both at the end of the year and at the end of January. While it is difficult to see beyond six-months in our business, and sometimes as little as three months out front, based on the record backlog, we believe that our business will continue to grow 15% topline and bottom line in '08. We expect revenues to reach over $1 billion in earnings to be in the range of 280 to $2.95 per share.

Just to summarize, we had a great '07. '08 continues to look good to us. With 15% top and bottom line growth. We continue to look at [Indiscernible] acquisitions that will either increase our product range, our distribution channels. We plan to continue to diversify into markets that can apply our equipment and to markets that are counter-cyclic to the infrastructure business. With that, I'll stop and be glad to answer any questions.

Thank you. Ladies and Gentlemen, at this time, we'll be conducting a Q&A session. (OPERATOR INSTRUCTIONS ) Our first question comes from the line of Arnie Ursaner with CJS Securities. Please go ahead with your question.

Good morning.

Hi, good morning.

First question I have is, in Q3 you highlighted you have $4.5 million of first time manufacturing costs. Can you freshen that up for Q4? If you have that number available?

Don't really have it available Arnie. But it was not near as much. Well, very little. We just had an unusual situation in the third quarter where we introduced a number of new--first time, new products. The Green systems on the asphalt plants, we got the costs down and got the prices up somewhat on those. Same way on the Rotech equipment and the big trenchers that we had. So, not --there's always some every quarter, but not in inordinate amount.

Okay. Where I was going with that is, relevant to my expectations, the gross margin was less than I thought it would be. Notice, specifically, in aggregate and mining group, you have 200 basis points decline in gross profit and actual decline in overall profit, despite the sizeable jump in revenue, can you expand a little bit on that?

Generally, we are raising prices starting about September. And fourth quarter is historically, if you look, is the margins tend to slip in the fourth quarter and we start to see the benefit of price increases in the first and second quarter of the year. Also, as I mentioned, inflation is -- we're seeing -- we saw in the fourth quarter and we continued to see in the first quarter, tremendous push on process on a lot of commodity items are affecting us. Steel is going up pretty rampant right now. Fortunately, we're locked in on steel prices at most of the Companies out into June. But other prices such as bearings, things like that, we're not locked in on. And I guess, it is a combination of when we raised our prices with the backlogs that we had and prices that caught us unexpectedly.

Given the very strong backlog that you have, do you have the ability to go back within your backlog and try to get price relief? Or?

Not really. Our customers are pretty tough in that area. You know, if it -- we -- I couldn't say absolutely no, if we have some situations where orders have been delayed for a substantial period of time, due to permitting and if it gets stretched out over, like, six or nine months, yes, we can go back. But most of our backlog is usually exhausted within, you know, three to four months.

Final question, if I can, in all other category, I presume that's predominantly Peterson?

That's really Peterson and corporate --

And Astec insurance.

And Astec insurance.

Okay. What were the revenues from Peterson in Q4? And did it make money?

It made money. I'm not -- do you have them?

Let me get them for you there.

There's, approximately, $29 million in sales.

$30 million --

Excuse me, that's for the high.

Yes, for six months.

Yeah. For six-months, around $29 million. McKamy is looking here to answer your question.

For the quarter, it is $18.8 million.

Okay. And it was profitable?

Yes.

Okay. Thank you very much.

Our next question comes from the line of Jack Kasprzak with BB&T Capital Markets. Please go ahead with your question.

Sorry. Good morning.

Good morning, Jack.

Good morning, Jack.

Hi. Congratulations on the great results, first of all.

Thank you.

Well-done. I wanted to ask about state budgets you know, there's increasing evidence that there are problems with budgets at various states. I mean, what do you guys -- you mentioned, maybe, Don, domestic customers or pulling back a bit. What do you see on the state budget side? You know, four or five -- five or six years ago was a pretty difficult situation. And looks like the budget situation today is deteriorating. I was wondering if you could just talk a little bit about what's going on there? Maybe compare it to what we saw in the last downturn?

Jack, we see, basically, at least half of the states down, half of the states flat. There's probably few exceptions of states being up. I think two or three things happened last year, is the oil prices, last we accrued, is obviously close to $100. There is a wide disparity between heavy crude and light crude, like 35 to 35 dollars a barrel. So liquid asphalt prices has not, necessarily, tracked the last we accrued and as a result our customers, many of them tell me, that their volume was off 15% for the year, but the profitability is the most it ever made. So they bid the work and are very cautious on bidding the work based on higher oil prices, but have not had to pay those higher asphalt prices. And as a result, their profitability is better and they seem to be operating more at being more satisfied with the continuing of their business with less volume. And being able to manage it and make a profit at it. And, but, from a macro-scale statewide, I would say, you know, it is, obviously, down. International, as I said earlier, has more than offset that. We anticipate, probably, domestic sales or -- domestic volume of asphalt to be pretty well flat. But I would say internationally, it continues to grow and be up.

How would you describe the international market for guys today? Is it getting better than it's been in the last year? Are there more opportunities? The same amount? Maybe talk about that?

We believe there's more opportunities driven by two things. I guess one, the weak dollar sure helps us on the pricing internationally and competing with European manufacturers helps a heck of a lot. The second thing is we have really put an emphasis to grow international sales forces in touch areas of the world we, frankly, haven't been touching. And any part of the world where there is basically minerals or mining and are areas where there's oil is continuing to grow substantially or there's been a lot of money on the infrastructure. So, we see it being good next year internationally. I looked at the international backlog -- or the prospect list for asphalt plants and it is excellent. And same way our problems on some of the crushing equipment, it is deliveries--it's, you know, we're stretched out pretty good on them.

And the CapEx, which starting on '07, you say 32 for '08, what--are these just various random things, you guys spending or anything in particular?

Primarily, moderate -- more modern machinery. Cutting equipment. Machine tools. Some of the new machine tools are a million-and-a-half dollars a piece. But what we're looking at more and more, the technology has changed where you got multiple tasking machines where you can do a lot of processes without taking a part out of a machine and we're continuing to modernize that way. The only area that the expansion area that probably in the drill rigs, drill rigs are certainly the oil drilling rigs look like it is really going to take off and we may end up spending slightly north of the 32 to add, again, add on to the building in American Augers. We're looking at that pretty seriously right now. We just don't have enough capacity there right now.

Okay. Great, thanks a lot.

Thank you, Jack.

Our next question comes from the line of Robert McCarthy with Robert W. Baird. Please go ahead with your question.

Morning, guys.

Hey, Rob.

Good morning.

Nice quarter. Hey, I wanted to ask you, basically, questions about sales comparisons. First off, the 15% number that you are using for 2008? Can you give us a rough break down of how much of that would be organic? How much of that would be contributed by Peterson?

Rob, it is basically, if I include Peterson, you know, it is all organic. And there will be acquisitions to place on top of that. But Peterson is beginning well, when we bought them, they were having a tough year, last year. This year, they have got that business is growing quite well. It is the thing that on their big, big machines, that, basically, take a complete tree and delimb it and debark it and make wood chips, that market is going very strong because as home building goes down, there's not saw dust that would normally go to the folk mayor. So, it is certainly that business has come back. The wood, the energy part of it is very strong and we see continuing growth in that. But Peterson, basically, is about a $70 million business in revenues. They did, like, $60 million last year. So, you know, we probably see them coming back to 70 to 75 this year.

Okay. But, with only the partial year results in 2007, they ought to add, probably, something like 3% to --

That's correct. They'll add, basically, if just looking' at their budget, we're talking about around $35 or $36 million additional revenues generated by them.

Okay. And, just so I'm clear, of the balance, that doesn't include any future acquisitions?

That's correct.

Okay. And, McKamy do you have a number for what currency translation added in the fourth quarter?

David is looking for you. We'll have to come back to you.

That's fine.

Overall, I think that it cost us about $1.5 pretax at BTI -- I mean, for the year.

For the year.

David is looking for the quarter. But, it --

I wondered if that had something to do with the year-over-year decline in aggregate margins?

Yeah, it did. BTI's margins were down, primarily. That was a major factor on theirs, being a Canadian company.

And then, I was struck by the language, Don, that, you know, the quote in the release that speaks to strong backlog, but then, says that you have a strong outlook for the first six months of the year. I feel like you're trying to communicate something to us there. And I'm not sure what it is?

Well, I guess the only thing I can say there, Rob, we're kind of blind beyond six months.

Okay. All right, the comments before about --

Yeah. We just can't see any further than that. There are some of our companies that have backlogs stretched beyond that, and it is concerning to me, because you start losing business when you get out there. But from what we see, you know, and I -- you know, I don't want to give you exact numbers, but I've looked at our prospect list on out and it's pretty dang strong. So, we don't --if I could then watch television-- I'd feel real good.

One last one, while you guys are digging for that number. How are you planning to report Peterson in 2008? Are you going to put it into a segment? Are you going to continue to treat it as an "other" for the time being? What?

Other until it grows -- until we grow it a little bit more. I mean, we're looking at acquisition or two to go with it. Then, we would pull it out as a separate group.

Okay. All right. Very good, thank you.

Our next question comes from the line of Rich Wesolowski with Sidoti & Company. Please go ahead with your question.

Thanks a lot, good morning.

Hi, Rich.

Don, is there a big difference between the U.S. and international pricing power on account of the dollar?

Yeah. There's a huge difference. I guess -- you know, I guess I don't know what would be par, but I can tell you, I mean, if you look at just look at the way the dollar has changed, six years, five years ago, the Euro was about $0.83 and now we're $1.48, somewhere like that. So, been a huge difference in that. And, probably, you know, $1.20 where it ought to be, but it certainly makes our products cheaper.

Okay. So, would you say the majority of pricing power that you have is international? Do you still maintain pricing power in the U.S., as well.

I think we have pricing power in the U.S. Now, we are always, at least our perception, the highest-priced equipment in our product ranges. But we build the highest-quality and the highest-technology products. And as a result, and probably more than anything, is we're very service-oriented. As a result, there's a substantial amount of our business that we really don't have a lot of competition on.

Right.

And, so, we got some pricing power there from that standpoint. But internationally, there -- people like high tech, U.S. equipment. If they can buy it, you know, at competitive prices, you know, it sure helps our exports from this country.

Do you think the price increase that you pushed through in September had an effect on the 4Q new award volume?

Not really. And we may end up having to increase again this year. I mean, we're watching this inflation, you know, very, very carefully. And that's probably my only negative concern is holding margins. Is making sure that we can keep up with inflation, keep our prices out front from it. No, I don't think -- I don't think that affect -- we didn't get a lot of front end business, I guess what I'm saying.

Okay. Can you discuss how far out the asphalt plant backlog stretches? How you priced those out-period contracts in light of fluctuating steel costs?

We're stretched out into July. But we're on steel costs in the -- in the Tennessee area here, where four of our plants are, we're locked in on steel until the end of June.

Okay. If you do a 14%, there's still an SG&A. Your guidance implies 24.5% to 25% gross margins. So, a little bump in there. Are there other avenues besides the pricings from which you expect to boost the margins? I mean, is there any fruit left from the focus group, etc.?

You know the discouraging thing Rich is, I've just been to 12 of the Companies in the last three weeks. It's amazing what we've done with rationalizing the products and our focus groups, what they've done. But the disappointing thing is most of everything we've done is being offset by the inflationary price increases. And in steel and components. So, as I said earlier, bearings has gone up 13% to 60%. So, anything related to Copper is tremendously up. So, a lot of our savings that -- these initiatives, don't get me wrong, we're continuing on, but a lot of them is being eaten by component price increases. So that's-- that's why I'm a little reluctant to say there's much room for margin improvement as long as we're in this inflationary period.

Great. Thank you.

Uh-huh.

Rob, back to your question, we had $120,000 of expense in Q4. On --

About a million? About a million-and-a-half for the whole year.

Yep.

Our next question comes from the line of Tom Hayes with Piper Jaffray. Please go ahead with your question.

Thank you, good morning, guys.

Good morning, Tom.

Don, you mentioned some of the issues here domestically, where everyone is talking about a flat market. I think one of the drivers really could be, you mentioned was the warm asphalt. I know a lot of associations are doing some work on that. I was just wondering, where'd you get your view when you thought it would be moved to a main stream acceptance?

My personal opinion is within two to three years, it will be the main stay. Our competitors are coming out now with a competitive units to try to do this mechanically. The way we are doing it decreases the cost of the mix. And there's been a lot of effort with warm mix of adding additives to it, but it increased the price $3.00 a ton. Where we're doing it, we're decreasing the price, probably, $0.40 to $0.50 a ton. And increasing the production of the plant. So, with our method, which our competitors, I'm sure will come up with ways of doing it. We're way out infront of any of them. I mean, we got like, 30 units in, about 50 more on order at this point. So, we see it taking off, our engineers call it the Green Tsunami.

Right.

The other area, though, I think that we're probably are not emphasizing much, is probably 20% of our volume right now is in the energy business and that's growing. Heatec's volume 40% of it is in energy business. American Augers, probably, could reach 40 to 50% within a year in drill rigs and in the energy business. There's a lot of -- a lot of our products can be applied to industries that are hot now and not down. So, we're continuing to try to grow in that area. And, at the same time, grow in a way that is green and that the recycle products that growing in that area, Tom, offers real sustainability, you know? The more recycle that we use, and the more we process and reuse it, it really rings well for sustainability.

But, is that becoming more of a selling point to the state D.O.T.s as they become more budget-conscious? Recycled?

Yes. Really, where it helps there, there is a huge amount of environmental movement 50 state highway departments and state governments. And the recycle ability has been -- it has been around, but there's been a reluctance to do it. If you work for a highway department and you're an engineer, there's no reward for taking a risk. If you make a mistake, you might get fired.

However, the green movement has given them a lot of cover. Anything that is green that reduces emissions, that reduces -- offers sustainability, allows them to, I guess, for a better way of saying it, gives them cover. They're more -- more -- or less reluctant on takes risks.

Okay. One more, if I may? You continue to grow the international business well. I was just wondering how much further scalability there is within the international without having to, I guess, increase the sales force?

Well, we're increasing the sales force. That's the thing that we've had large domestic sales forces. But, basically, international, in the past, has been kind of a, just a bonus to us. And it has been primarily major companies that have come to us because of our technology. We are adding dealers and adding reps in many areas of the world that we haven't covered in the past. So, yeah, we're increasing the number of international people.

Okay. Great. Thank you.

Thank you, Tom.

Our next question comes from the line of [Buzz Hydekey] with ING Co. (ph.). Please go ahead with your question.

Don, how you doing?

Okay.

I've not been with us since you went public, just about. I bought some more of your stock in January. What kind of accounting do you all? Do you use a FIFO?

We're FIFO, yeah.

Okay, then. I know, in the past, you always spent a lot of money tinkering with new products, making them better. A lot of competitors didn't, but gave you a little edge later. You still doing that?

Buzz, that's the only fun I have.

I know you got over--you had over a hundred patents about 10 or 15 years ago, how many do you have now?

I don't know. I don't try to keep up with them. I try to push the other guys where they can take credit for it. But now, we continue to develop new products. What we've grown by over the years.

Okay. Now, what percentage of your business goes to the mining industry?

Probably 10% of it. That's the two areas that we're really pushing in setting up independent sales forces or separate sales forces, is in the mining, in the recycle. And kind of separating those and putting more focus on mining and recycle for our crushing equipment. As well as staying in the aggregate and the construction aggregate side of the business but there--our aggregate mining group, if you look at BTI, 50% of our business is mining. If you look at Osborn, probably 30 to 40% of theirs is in the mining. Some of our domestic companies are just now really growing in that area.

Okay. Now, what are your, say, two or three top companies, countries that you all ship to? Canada probably one?

It varies. We ship a lot to Australia, that's been -- their infrastructure is very similar to ours, it is very common but pretty well, I guess, last year, Australia, Canada, South America and Africa are the four top ones. But Africa is a big country.

Okay. Do you all have any plants overseas? Are you think being opening any? China? Anywhere like that? Or --

We have one in Canada and one in South Africa. We have not gone to China yet. I mean, we sell a lot of products in China, but we have not opened up there yet. It is a -- I guess it has been a tough country for us, for our products, not being high-volume products. Really hadn't, quite, fit that market over there yet. I mean, I -- maybe another way of saying it, we sold a lot of equipment over there, but they immediately copy it and to go over there and to try to get into that, competing, big part of what they want is a lower-tech product at this point. We're kind of on the high-tech end.

Okay. The last question is, you got pretty good balance sheet right now, if you all thought about getting into the leasing and financial, financing business?

We got in the finance business about 10 years ago. We find we're better manufacturers than we are financiers. The problem, is we have access to the customers that wanna buy it, but it is hard to separate your balance sheet with a finance company from a balance sheet of a manufacturing company. We decided we better just stay in the manufacturing side of it. Our dealers do leases, particularly in the recycle equipment to track mount equipment, we encourage them to do that and we support them on doing more leasing or rent-to-own type of equipment.

Okay, Don. Thank you very much.

Okay, Buzz.

Bye.

Bye.

Our next question is a follow-up question from the line of Arnie Ursaner. Please go ahead with your question.

Hi, couple of quick follow-ups, if I can? Don, can you give us an update on the COO status?

What our Board has decided, we are making -- we'll be dividing our aggregate group up into two group Vice Presidents and at that point four group Vice Presidents and one of those, or two of those guys, will be stepping up over a period of the next couple of years. That we're going to promote from within. We're not going outside.

Okay. Question for McKamy, can you just remind us of the accounting. When you have ConExpo every three years and it's a pretty hefty SG&A expense. Remind us of the accounting treatment of that, please?

In the past, we have expensed 50% in the year of the show and 50% in the year after the show. We are going to be expensing all of it this year in the year of the show.

So --

So -- That's a new requirement, I guess.

Yes. That's -- the latest interpretation by our audit firm.

Okay. Can you remind us, though, give us a sense of --

That will be about an extra $700,000 for this year.

Okay. That will hit in Q2? Or --

Most of it will be. We'll attempt to get it in Q1.

Okay. And, on the $1 billion revenue that you're highlighting for the year, you speak a lot about new products. But some of the math doesn't really seem that material. So, perhaps, if you could spend an extra minute on the $1 billion of revenue and quantify the revenue impact on what you believe will be the key new products in the upcoming year?

Well, from the standpoint of new products, while they're not real big, there's a lot of these Green Systems at Astec. There's the pulverized coal burners that we came out with two years ago, were selling themselves very quickly. In the Astec side of it. In the drill rig side of it, probably the biggest growth going to be in the oil drilling rigs. At Rotech, there are 400 horsepower mill, there's stabilizer, which is a new -- both our new products. We'll be adding to it. The crushing side of it, new multiple frequency screens, our track mounted machines that we've been developing over the last few years. We see -- we've really organized the manufacturing to up until this year's, the first year we really are beginning to have availability like we wanted.

So we see a tremendous -- a continuing growth in recycle machines. We see at Peterson, before and since we've acquired, they've developed a number of new products. A whole new line of chippers, their recycle machines have all been re-engineered. The [Flayo] machine which delimbs and debarks a full tree, we are now gonna be able to make a boiler fuel out of the bark and stuff that's previously been wasted. So, I guess, Arnie, that's kind of a quick round of them.

Yeah, but I'm trying to go--let's say for example on the green machine which was the first one you mentioned?

Right.

They are roughly $50,000 per upgrade?

Yeah, that we do. We're probably--we're doing three a week right now. So, you know, that adds to that. But, I guess overall, the overall business, not just all new products, overall, they are kind of icing on the cake. But overall, the business is continuing to grow, so, it's what we're saying.

Okay. And I know you spoke to your revenue growth of 15% before, roughly 3% from Peterson. If I look at the remaining, perhaps, 12%, how much of that is price? How much of that is volume?

About four of the price.

Okay. Thank you very much.

Thank you, Arnie.

Our next question comes from the line of Robert McCarthy, which is a follow-up question. Please go ahead with your question.

Because one is a follow-up, to something you just said. I just wasn't clear McKamy, the extra $700,000 is that the 100% of the cost, or is that the extra half?

That's the extra half.

Okay. And, then, my question, Don, was for you. I wondered, you -- you, obviously, are aware that Terex has been promoting, you know, their ability to retro-fit old cedar rapids plants and produce their version of a foamed asphalt.

Right.

Could you -- I mean, to what extent can you speak to the difference between their solution and yours? If there is one?

Well, you know, basically, we're both foaming the asphalt. They have put one system in and, really, hadn't hardly run it. We got 30 of them running. And I -- you know, I am sure that they'll make it work. What they're doing is what we did on our prototype.

Okay.

We modified it. But I'm sure they'll do the same, Rob. Not rocket science. And, frankly, the industry will be better if all of our competitors do it. You know it, is good thing for the industry. And, you know, we'll all participate in it.

Could, I mean, you said something that could hasten, you know, accelerate adoption?

Yes. It will help, certainly, if the competitors do it. Because right now, I mean, when we end up being the only supplier, one of the problems we've had over the years, with the shuttle buggy, is, is the problem, that it was patented and nobody else could use it. The states were very, very reluctant to spec it in. So, I think that when the patent will run out in about a year on the shuttle buggy, I would say the market for that will grow when it runs out.

Yeah.

So. We're not afraid of competition. I think it -- I think it is --

No, you got a track record to support that sentiment, thanks, Don.

Okay.

We do have a follow-up question from the line of Rich Wesolowski. Please go ahead with your question.

Thanks, can you give us a sense of how far ahead or behind you are in the sales and overhead staff relative to the internal plans for '08 and '09?

How far ahead we are? I'm not sure I understand the question, Rich.

Have we hired enough salesmen to generate the sales?

Oh, have we hired enough -- yeah, well, it's an ongoing process. We have a new international sales manager at the Astec operation. He has hired a couple of guys in that area. Our guy that is over the international sales in the aggregate has done an excellent job. And that side of the business is, certainly, grown a lot.

We are adding, at Rotech or in the mobile side of it, underground, we really combine American Augers and Astec underground international sales force and it is pretty well-established. I guess the area we still probably got some real growth opportunities at Peterson, which, internationally, they do -- they do quite a bit of exports to Japan. But there's probably a lot of other markets that we hadn't done as well. We're looking at other markets for them.

Okay. Lastly, can you update the outlook for the vertical drills, whether or not you sold anymore outside the first customer? How many prospects you have? Whether you are going to expand the facility, et cetera?

First customers now ordered seven of them. We've got other prospects that we should close very quickly. He was reluctant to let us show them to anybody else. And he continues to give us orders about as fast as we get them built. So.

Okay.

There seems to be a huge amount of -- the Marcel Shell from St. Louis to New York state, there is a lot of shale of gas in that area, they estimate, like, 50 trillion cubic feet. Our rigs are ideal for that to be able to go down shale and turn. And you know they're predicting it will be a huge number of rigs go all of the way from, you know, from St. Louis through -- through, you know, Indiana, Ohio, Pennsylvania, West Virginia, all of those areas up through there. Tremendous amount of drillin', will be going on. Because of that -- that deposit is like three times what the Barrett shale is. That seems to be a real hot--hot area of the country.

Uhum. Do you expect to expand the facility anytime soon?

Yeah. We're starting -- ha, we're -- I'll be talking to the board about that tomorrow.

Okay. Thank you, again.

Okay.

There are no further questions in the queue. I'd like to hand the call back over to go Management.

Okay, thank you, Doug. We appreciate your participation on our fourth quarter earning's conference call for 2007. We thank you for your interest in Astec. As our news release indicates, today's conference call has been recorded. A replay of the conference call will be available through March 4, 2008, and archive webcast will be available for 90 days. A transcript will be available under the investor's relations section of Astec Industries' website within the next seven days. All of that information is contained in the news release that was sent out earlier today. Is there no further questions? This will conclude our call, thank you.

Ladies and Gentlemen, that does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time.