CPI Aerostructures Inc (CVU) 2008 Q4 法說會逐字稿

Good day, everyone, and welcome to the CPI Aero fourth-quarter 2008 and year-end conference call. At this time I would like to welcome -- we would like to inform you that this conference is being recorded and that all participants are currently in a listen-only mode. I will now turn the conference over to Mr. Ed Fred, President and CEO. Please go ahead, sir.

Thank you, Brandy. Good morning and thank you all for joining us for our fourth-quarter and year-end 2008 conference call. If you need a copy of the press release issued this morning, please contact Lena Cati of the Equity Group at 212-836-9611 and she will fax or e-mail a copy to you. Also, if you would like to listen to this call again, you can hear a replay on our website Investor Relations section in about an hour at www.CPIAero.com.

Before we get started I want to remind investors that this conference call will contain forward-looking statements which involve known and unknown risks, uncertainties, and other factors that may cause actual results to be materially different from projected results. Included in these risks are the government's ability to terminate their contracts with us at any time, the government's ability to reduce or modify its contract if its requirements or budgetary constraints change, the government's right to suspend or bar us from doing business with them, as well as competition in the bidding process for all contracts.

Given these uncertainties, listeners are cautioned not to place undue reliance on any forward-looking statements contained in this conference call. Additional information concerning these risks can be found in our filings with the SEC.

This morning I will give you a brief overview of our year-end 2008 results and then I will hand the call over to Vince Palazzolo, our CFO, so he can walk you through the financial statement details. I will then discuss our current business environment, our outlook for 2009, and reaffirm our long-term projections through 2011. We will then briefly wrap things up and open the call to questions.

As reported earlier this morning, for the year ended December 31, 2008, revenue was approximately $35.6 million compared to approximately $28 million for the year ended December 31, 2007, an increase of approximately 27%. Pretax income was approximately $3.854 million compared to pretax income of approximately $3.017 million for the same period last year.

Net income for 2008 was approximately $2.591 million or $0.42 per diluted share compared to net income of approximately $1.907 million or $0.32 per diluted share for the same period last year. New orders received through December 31, 2008, were $55.4 million as compared to $37.7 million in 2007 making 2008 CPI Aero's greatest award year ever. Unawarded solicitations remain at an exceptionally high level totaling a maximum realizable value of approximately $374 million.

So with that prelude let me introduce Vince Palazzolo who will walk you through the details of the final quarter of 2008. When he is done I will come back on and then open the floor to questions. Vince?

Thanks, Ed. As reported in this morning's press release, revenue increased approximately 19% to $9,235,576 in the fourth quarter of 2008 from $7,766,130 in the fourth quarter of 2007. Gross margin was 27% as compared to 24% in the prior year's fourth quarter. The gross margin for the full year was 24%, which was in line with the gross margin expectation as we commenced various long-term programs that tend to be less profitable in the early stages.

This is because of the significant costs in both labor and material as we perform planning and engineering mostly related to the Spirit and Boeing contracts necessary to build the initial units for customer approval before we proceed with large-scale production. As we transition into the production phase, we will benefit from purchasing and labor economies which should be increasingly evident in the years to come due to the operating leverage that comes with volume.

Pretax income for the fourth quarter increased 65% to $1,311,715 compared to $793,123 in the prior year's fourth quarter and net income for the fourth quarter was $908,715 or $0.15 per diluted share compared to $528,123 or $0.09 per diluted share in the fourth quarter of 2007.

Selling, general, and administrative expenses for the fourth quarter of 2008 were approximately $1.187 million or 12.9% of revenue compared to approximately $1.056 million or 13.6% of revenue for the fourth quarter of 2007. SG&A expenses for the year ended December 31, 2008, were approximately $4.717 million or 13.3% of revenue compared with approximately $4.355 million or 15.6% of revenue for 2007.

At this point let me hand the call back over to Ed for an overview of the business.

Thanks, Vince. As reported, new orders for 2008 were $55.4 million compared to $37.7 million for 2007. This represents the largest award year in CPI Aero's history and was fueled by our subcontracting initiatives that were begun in earnest in late 2004. We expect that our future revenue mix will continue to reflect the larger proportion of work to be performed in our capacity as a subcontractor to major prime contractors.

Importantly, the size and duration of these contracts as well as the stature of the companies that awarded them give us confidence in CPI Aero's long-term growth prospects. Among the major awards received during 2008, a long-term requirements contract of approximately $70 million from the Boeing Company to provide assemblies for 242 enhanced wings of the A-10 Thunderbolt attack jet. The initial orders under this contract were for $13.2 million.

The US Air Force has just announced that it is requesting that the DoD provide funding to put new wings on the entire fleet of A-10s which would bring the total to approximately 360 aircraft. If this occurs, CPI Aero could anticipate that its current contract would increase to provide structure for the additional 120 wings.

An initial order of $7.9 million is part of a $98 million agreement with Northrop Grumman to provide structural kits for it E2D AEW aircraft. The eight-year agreement has the potential to generate up to $150 million in revenue to CPI over the life of the program. A long-term multi-million dollar contract from Spirit AeroSystems for major aerostructure assemblies for the Gulfstream G650 aircraft for which CPI is building fixed leading edge assemblies. This contract should be a significant revenue generator for us in years to come.

There are also a number of Sikorsky programs that represent repeat business like the Hover Infra Red Reduction System or HIRRS module assemblies for use on the UH-60 Black Hawk helicopter as well as programs that have large requirements and therefore offer follow-on order potential, such as the awards for the S-92 helicopter.

It is important that I point out the distinction and explain the long-term impact these aforementioned programs will have on CPI Aero's future. Unlike the C-5 top contract that the Company was awarded back in 2004, these contracts are not IDIQ, which stands for indefinite delivery/indefinite quantity awards.

For some of these programs the US government, in the case of the A-10 and the in-production aircraft from Northrop Grumman, has established a requirement for continued production or a complete modification of certain structure and has a funding and delivery plan in place. These programs should be viewed as being quite similar to the Company's T-38 program, which has been funded consistently since 2001 and is our most successful program to date. The only real difference is that we are supplying structural parts to major defense companies instead of directly to the Department of Defense. It is anticipated that these programs will be fully funded and on a timely basis as outlined by the United States government.

While the Spirit program differs slightly in that it is a new production aircraft being produced by Gulfstream, one has to look at the interest level in this plane. Never in the history of the executive corporate jet industry has there been this type of enthusiasm for an executive jet. Even in an extremely difficult economy, indications are that Gulfstream has converted its 500 initial interest indications into nearly 200 orders for this aircraft. And yet our initial orders are only for 134 ship sets of leading edges which gives us confidence that this too will become a very successful program for CPI Aero and generate significant revenue for years to come.

Lastly, our relationship with Sikorsky grows stronger every day and we look forward to a very fruitful future for both companies. Sikorsky is one of the most highly respected helicopter manufacturers in the world and it's an honor that CPI Aero's abilities are being recognized through the increased number and dollar values of the contracts awarded to us, which is an indication of the confidence that Sikorsky has shown in us. We are currently one of their top 100 suppliers and we are working diligently in 2009 to become one of only a handful of companies who will have the distinction of attaining Supplier Gold status this year.

In addition to the contracts already awarded to us, we are very pleased with the high level of unawarded solicitations outstanding which total approximately $374 million, the largest level in the Company's history. This high level is an indication that our reputation has been elevated in our industry thanks to our very impressive list of existing customers. We are now on the radar screens of additional prime manufacturers including other helicopter and business private jet companies who are beginning to acknowledge CPI Aero as a premier supplier of aircraft structure.

Even with the large contract awards announced recently the amount of total bids outstanding continues to rise as we are now bidding on contracts with these new potential customers. We are hopeful that several of these solicitations will become awards and contracts in the future.

Based on all of the above factors, we reaffirm our projection that 2009 revenue will be in the range of $42 million to $45 million with resulting net income in the range of $3.9 million to $4.3 million. Additionally, CPI Aero projects that, using 2008 as the baseline, for the three-year period ending in 2011 we will achieve a compounded annual growth rate for revenue in the range of 30% to 35% with a resulting compounded annual growth rate for net income in the range of 50% to 60%.

Another event that made us stronger in 2008 was that we were able to shore up our long-range financing needs so we may pursue all of the new business opportunities that lie ahead of us. In spite of the tight world credit market Sovereign Bank had sufficient confidence in our future that on October 22, 2008, we obtained a $3 million five-year term loan from Sovereign. Prior to September 30 we had borrowed $2.5 million on the existing Sovereign revolving facility to fund the initial cooling costs related to our long-term contract with Spirit. We used the proceeds from this new term facility to repay the $2.5 million outstanding under the revolver.

Concurrent with securing the term facility with Sovereign our $2.5 million revolver was extended until August of 2010. The Sovereign term facility and revolving facility now afford us a total of $5.5 million of borrowing capacity to be used as required to help us achieve our forecasted growth.

We have entered into a very aggressive investor relations campaign which has had me presenting before institutional investors at three prestigious financial conferences during the first quarter of 2009. In early February CPI Aero presented at the Cowen Aerospace and Defense conference and this was followed two weeks later by attendance at the Roth Capital Growth Conference -- company's conference.

Then last week we presented at the B. Riley conference. And if you were unable to listen to the webcast of that presentation, it is available on our website. I would highly recommend you listen to it and view the accompanying slides as they give you a very succinct summary of where the Company has journeyed from and the direction we believe we are headed in.

In addition, Stephens Inc. has invited CPI Aero to present at the firm's Spring Investment Conference in New York on June 3.

Lastly, for anyone who is unaware of this, the New York Stock Exchange acquired the American Stock Exchange in the fourth quarter of 2008. CPI Aero obviously moved to the NYSE, which at that time called the exchange that we transferred to the NYSE Alternext US. Quite frankly that name was displeasing to many of the newly listed companies and as of last week the exchange adopted a new name, the NYSE Amex, joining the branding of the most recognized name in the exchange world with the roots of the newly listed companies.

We used that name on this morning's release and it will be on all future releases.

Before closing I would like to thank all of our shareholders for your continued support of CPI Aero. And I assure you that your management team and your Board of Directors are working diligently to continue this profitable growth and reach our full potential as the world's premier small business supplier of aircraft structure.

I would be remiss if I didn't once again thank the CPI management team for sharing my vision of where we can take this company but, more importantly, for making it happen. I would also like to thank all of the employees of CPI Aero for executing on that vision and being an integral part in winning such impressive awards as the ones I mentioned earlier. I look forward to the future of this company with great eagerness and anticipation of now executing on these new contracts and then attaining new ones due to the quality of our work.

Speaking of quality, as you may have read earlier this month, CPI was acknowledged in a news release issued by Northrop Grumman for our contribution to the Rapid Airborne Mine Clearance Systems team or RAMICS. We, along with other team members, were proud to learn that the laser imaging helicopter-borne gun system designed to destroy mines at sea exceeded expectations the first time it fired at underwater targets.

CPI Aero's future has never been brighter and we look forward to continuing growth for years to come. At this point I would like to open the floor to questions. Brandy, can you allow the callers to place questions now, please?

(Operator Instructions) J.D. Abouchar, GRT Capital.

Congratulations on a nice quarter. A couple of questions for you. First, we saw a nice rebound in gross margin. Is that something that we can sort of work with in the upper 20s now or do we have more startup costs with some of these other programs that could bring it back down?

I am going to let Vince answer that one.

I would not anticipate the fact that we have achieved a higher margin on a long-term basis, not yet. I would expect that the first two quarters of 2009 would probably go closer to the 24% annualized margin that we had for all of last year. I think that our projected gross margin for all of 2009 is in the 24, 25 range. So I would at least hold that for the next year. As we move through the year we might be able to shed some more light beyond that.

Okay, good. So we still got some startup expenses to deal with?

We do.

You mentioned tooling for Spirit, what was -- how was that funded? Is that something that you get reimbursed for upfront or is that just sort of built into the life of the contract?

It's amortized over the initial 134 ships sets of units.

Okay, so that was -- that sort of ate into our cash this year?

Absolutely.

And then on OpEx you talked about leveraging the fixed infrastructure. I know it does have some seasonal variability because of paying of various things. Can you give us a little more guidance there for '09?

Specific guidance as to our operating expenses? We really don't have any specific guidance. What would probably be fair would be to take what our operating and general and administrative expenses were in the current period and apply a normal inflationary factor to it. That will probably get you a pretty good number.

We are always higher in the first half of the year because we have a Black-Scholes calculation on the stock options given to our Board of Directors as their compensation.

Right. I guess that was what I was aiming at. And then it should tail off in the second half?

That is correct.

Okay. Great, thank guys. You did a great job.

John Kohler, Oppenheimer & Co.

Good morning. I was wondering, the jump in unawarded solicitations versus what had been talked about in prior conferences and stuff, was there -- and I know you won't give a lot of color -- but is it a handful of large dollar amounts or is it a larger number of smaller dollar, the increase?

It's the former. It's a handful of large dollar amounts. As of this moment, the bidding process for government awards -- so things that people who have been familiar with us for five to seven years used to expect us to do where we were bidding on literally hundreds of contracts a year at minimal dollar amounts and hopefully you won enough to get yourselves up to where we did, the $30 million range -- that has not shown itself up again yet.

That is still in limbo. That is still tied up in the bureaucracy of the United States government at the moment. So we are not seeing any orders like that so pretty much everything we are bidding on nowadays -- and I say that loosely, everything -- is medium- to large-sized awards with subcontracting -- in a subcontracting capacity. So that jump is as you said a handful of rather large awards.

Okay. And you sort of hinted at this, that there might be some bids in there with other companies that you haven't worked with in the past?

That is absolutely correct.

Okay, great. And I was wondering if you could talk a little bit on the progress on the G650, if the design is progressing -- on the wing is progressing as expected? And in general whether or not you might get some benefit from them actually completing that design and maybe getting some flaps or trailing edges and stuff?

Okay. I will never tell you design is going as planned, because that is just never the case with a new aircraft. But the design is progressing; we are actually manufacturing the leading edge in shop right now. Last weekend we had people working round the clock to support the program and try to get the edges delivered as early as possible.

Yes, of course, our hope is that when this process is done of delivering five left-hand leading edges and five right-hand leading edges, which make up one aircraft, that our quality, our ability to produce, etc., will be seen in a good light by the customer, which at this point I absolutely would have to think it is. And then we can, again, pursue other opportunities on that same aircraft.

That aircraft is still extremely popular, which sometimes defies logic in this economy, except that if you think about it this is the top of the line executive jet. The only people who could afford it to begin with were either companies, individuals, countries, sports teams, or whatever that have a significant amount of wealth. Indications are that most of the people or companies or whatever with significant wealth, while they may have had a dent put in it by the current economy, seem to still have enough wealth to buy something like this.

And I think that is evidenced by the fact that 500 initial orders that were held with a refundable down payment have apparently converted to at least 200 firm orders with a nonrefundable deposit of $3 million. Now that doesn't mean that a buyer at some point won't take a look at the actual value of their money and say you know what, I will walk away from $3 million versus having to pay out $60 million. But I think it's a pretty good indication that in this environment that Gulfstream still seems to have that many orders for the plane.

So we are pretty confident, given that they have got 200 orders and we have only got 134 on contract right now, that even if that 200 reduces we are going to be looking pretty good for a long time with that. And then, yes, obviously we will go after the trailing edges and flaps and see if we can get those back and double the revenue from that program.

Great. Two questions relating to operations side. The first is obviously the Spirit business was a priority this year and I guess the A-10 is too, but I was wondering maybe if you could talk a little bit about what from a management perspective your priorities are for '09. And then sort of a corollary to that is given your current capacity, how much more business are you comfortable taking before you want to sort of reign it in a little bit and manage what you have?

The answer to the second question is I never want to have to reign it in. Now I understand the question, at some point you have to take a look and make sure you don't swallow too much.

The first part of the question, I think our priorities for 2009 are twofold. One, there are a lot of markets we still want to develop with new customers and also with these new current -- I will call them new current customers who we have never done business with before but we are now. There is a tremendous amount of work to be offloaded from them as the economy gets better and we want to be prepared to do that.

We also want to pursue companies like Airbus, Bell Helicopter, Bombardier, which is an executive jet maker, companies like that. So I think that is our new business thrust, if you will. However, I also see a tremendously strong thrust in new business at Sikorsky. Reason is they continue to prove their value as a supplier of helicopters to this country and also to the civilian market.

They are the only division of UTC that is growing at the moment and they have a tremendous amount of work. The fact that they have put us on a track to become a Supplier Gold, which as I said in the earlier part of the call, means that we will be one of a handful of companies that have reached that status by the end of 2009, is very, very promising because they have promised that with their increased volume that the work they sub out will go first to Supplier Gold companies.

I think there is tremendous potential there. We have established a truly fantastic relationship with Sikorsky. We love working for them; it appears they love having us work for them so I think there is a tremendous arena there that we will tap in 2009.

As far as the other prong of this and our focus, our focus has to be this year performing as well as humanly possible on the Spirit program and gearing up on the A-10 program. The E2D program has time. We are obviously working it, but it's not the push that the Spirit is.

And that is why when you said to me about -- you asked me about reigning things in, etc., what is great about the workflow we have right now, the contracts we have in house and how it's going to grow my revenue is that it's layered in. I am not starting three major programs all on the same day. We are full-blown working, as I said, weekends through the nights, etc., on the Spirit program. The E2D, we are laying the groundwork for everything that is to come and the A-10 is somewhere in the middle.

By the time we have to go full bore on the E2D program, I would think the Spirit program will have enough maturity where we will have our hands around it. The A-10 will be somewhere in the middle of those 2 and so in essence what we are doing is layering on revenue and production, which is the absolute best way to do it. You can't ask for anything better than that.

Now as far as your question capacity, it will all depend on where our increases in revenue come from over the estimated $80 million that I put out there for 2011. If it's a lot of jobs with a lot of different pieces like a, let's say, Sikorsky kind of jobs or the US government jobs come back and we are working 20, 30 different programs at once, my capacity might only be $100 million, $110 million here in this facility stand alone.

However, if I got the trailing edges and flaps from Spirit and could grow the Company that way, I can probably just do that in the same space we have the leading edges right now and just redesign it a little bit. I would say to you that we can probably do -- if this company went to two shifts, two full complete shifts, we can probably do on average somewhere between $110 million and $125 million within this facility. But, again, you can't hold me to that because the program mix could change and it might be at $90 million that I have to get some space within my current complex to house a particular program.

Understood. Great, I appreciate that. And then one question for Vince, if I may, not to leave you out. The tax rate was down a little bit year-over-year. I was wondering if you could explain that in the quarter?

We actually had some tax benefits from some exercises of stock options and warrants throughout the year and it was just a true-up of the full amount. We are still only paying the federal tax right now. We have no state taxes because of the allocation factor. So the slight downward was just a true-up of the benefit that we got from some of the option and warrant exercises.

Okay. So going forward that annual tax rate is probably the right number?

34%, yes.

Okay, great. Thank you. Thanks very much.

Carter Newbold, Rutabaga Capital.

Good morning, guys.

There is a name from the past. I haven't seen you in a long time, Carter.

Hopefully, you have seen some of my partners.

I certainly have.

Wondered if you could talk about the status and health and capability of your supply base. I know it's more or less ancient history, but 18 months or so ago I think you had a rather significant quality event. You are about to ask a lot of your supply base in terms of ramping production. Could you just kind of walk us through, particularly to the extent that some of their end markets are suffering, how you feel about both their operational and financial capacity to serve you here in the next two or three years?

Okay, that is a fair question. I think the safeguards we put in back in the middle of 2006 when we had the issue has worked extremely, extremely well. The Company has actually stationed an individual down in Texas. He lives in Dallas Fort Worth; he is the only person that lives off-site, if you will. The reason for that is many of our key suppliers are located in the Dallas/Tulsa/Wichita region and he handles all of those. Every single day is spent on the road monitoring vendors, etc.

We have consultants in California, two of them, doing exactly the same thing. So we are pretty confident in the fact that we have gotten our hands around that and the fact that it hasn't reoccurred in 2.5 years is certainly a good sign.

But then also things like the work we are doing for Sikorsky, the work we will be doing for the Northrop Grumman E2, things like that, we are using vendors that are or have been supplying those prime customers for years. So they are -- a lot of them are ISO-certified, a lot of them have been providing parts to both of those companies for years and years on this program, etc.

One of the other steps we have taken is that we have done some dual sourcing of items. Anything that I would call a major or integral part of any assembly, we have done some dual sourcing just to be sure that if someone does run into a problem they didn't anticipate, maybe not even necessarily under their control -- a lot of things happen in this economy that is not in someone's control -- that we have a fallback position, that one particular vendor or supplier [can] bring down the house of cards.

So I think that is the biggest thing we have done to make sure that the growth will not be stunted or hurt by one of these unforeseen incidents. We have got dual sourcing. We have got -- I don't want to call them better suppliers because that is not a fair thing to say to our former suppliers -- but people that are familiar with the programs they are already working on. And, again, we are also trying, as we always do, to use people in close proximity of CPI here on Long Island so that we can monitor things ourselves whenever we see something that is that important.

Great, that is a good review. Thanks.

Adam Mizel, Aquifer Capital.

A couple questions. You alluded in your prepared remarks, Ed, that the government has expanded the A-10 program to 350 or whatever the right number of aircraft were and I think hinted that it would seem logical that you would get a greater order from Boeing. Can you give us a little color on what would be the reasons you wouldn't (multiple speakers) and when do you think you will get more clarity on that?

First off, I did not allude to the fact that the government had said that. I alluded to the fact -- and didn't allude, I stated it -- that the Air Force has gone back in its public information and requested that the DoD fund the re-winging of the entire fleet of 360 versus the 242 that they are already funded for.

And I do allude, I have to be careful. I was more legalese than anything else. Yes, I certainly would anticipate that unless we screw up royally that, of course, we would provide the extra 120 ship sets of materials that Boeing would require. There would be no reason for that not to happen unless we have done something wrong. And I just refuse to allow that, so obviously we won't do anything wrong.

But, yes, I have to say could because it's open to discretion. But let's face it, if CPI is producing 240 ships sets of structure and they have done it well there is no reason we are not going to get the extra 120 ship sets.

As far as when this could occur, your guess is as good as mine. They have just gone back and asked. Obviously, there is all kinds of economic discussions going on in the country right now. So for me to say to you, yes, I think they will make a decision in two months would just be foolish. I don't know when that will happen.

But, obviously, if you have got the branch of the service going back and saying we need this and we have got an administration in there that tends to -- and when I say 'an administration,' a Democratic administration, which normally tends to fund older programs versus newer programs -- I like the chances the Air Force has in getting those extra wings, personally. But that is a personal answer; it's not anything I have factual information on.

In light of the current economic environment have you seen any slowdown or change in expected timing of orders and build-outs of orders from what you would have thought 90 days ago or when you initially received them?

Only one item and I think everybody on the call should be aware of it. We haven't hidden the fact, it has been very public. The only slow out or push out we have seen is that Northrop Grumman was expecting to build three E2Ds in 2011 and as of right now the government's budget calls for two, which reduced the budget by $200 million I believe it was. Northrop Grumman has put on a tremendous campaign both in Congress and Senate to have that one plane restored.

Again, the idea is not that they are going to build less planes. They just pushed one out to a further period of time. That is the only thing we have seen. It was built into my projections because we had heard about it long before it became public. So it doesn't impact us in any way, but that is the only push-out, slowdown, anything like that that we have seen so far.

Maybe a different angle at that point where opportunity would be, are you seeing any -- either one of two things, weaker competitors that are being driven towards you as a potential acquirer by your customers who are happy with you or your customers looking at their supply base and saying we want to concentrate greater revenues with suppliers who have the quality and the balance sheet that make us comfortable and as a result seeing opportunities to just win business that may not have otherwise existed as the supply chain gets rationalized?

Well, I think that is what I kind of alluded to -- and we can use alluded this time -- with the Sikorsky thing. Sikorsky is growing yet it's shrinking its vendor base. Who is going to get the new work from that vendor base? Those companies that are Supplier Gold. Who is Supplier Gold? Right now there is about five companies. Hopefully, by the end of this year there will be about 15 and we will be one of them.

That is the goal; it has been discussed with Sikorsky. They are helping us reach that level. Yes, that will give us more work than we normally would have expected to get though I obviously expected my business with them to grow.

Michael Potter, Monarch Capital.

Congratulations on a great quarter and great year. Just a couple housekeeping questions. Ed, you seem -- I guess you gave the long-term guidance, I think it was two conference calls ago, maybe three, but you seem a heck of a lot more confident now than you were when you originally gave the guidance. Do you think that is fair? Are you more confident now in that long-term guidance than you were initially?

I don't think I am more confident. I think what you might be hearing is just more excitement about the overall prospects of this company. I am just as excited as I was then. I think what perhaps has me potentially even more excited about where we are going is just when things happen like the A-10, 120 more ship sets could possibly fall into our lap. There are just a lot of good things happening here.

The fact that my unawarded bids grew from $270 million or $290 million to $374 million it means that we are starting to really churn as an entity. The fact that the number goes up so high, we are not sending in unsolicited bids. It means we are being requested by people or being provided a package by people to say, here would you please go bid on this.

That is a great sign for the Company because it means people are watching, people are hearing about us, people are seeing what we are doing. And it's opening doors that were not open before and it's making wider doors in places we have already walked into. And I just think that is a terrific thing.

I have an unbelievable amount of confidence in my management team and the people out here who get the work done. The more potential there is for work, the better I feel about our possibilities because in the last five years basically anything we have touched we have touched and it has done well. And that is a tribute to everybody in here.

I am excited about the fact that we are going to get to touch a lot more. I have supreme confidence that when we do, we will perform just as well. Look, it's a fact of life in just about anything you do, the better you perform the more you will get and that is our focus.

Over the last year or so, maybe year and a half, there have been a lot of companies here on Long Island, aerospace, parts manufacturers, things like that that had to lay off people because their business wasn't as good. We have been so fortunate to pick up a lot of those people and they have proven to be worth their weight in gold from senior management right on down on to middle management, right down to aircraft mechanics. And so I am just excited about the future prospects.

As I said back then when I made the original three-year projections and I have said at all three of these investor conferences I have been to, these numbers for me seem to be rather simple to attain. Yes, a lot of hard work, etc., but I don't have to go to bed at night praying we are going to get some work that gets me to those numbers.

I am very, very confident in what we have put out there. And I am even more confident in it because we have so much potential that is starting to build that will either fill in a gap if something doesn't go the way we want or will get added to the things that are already out there and just grow us to levels that I think will get everybody excited. So that was a long-winded answer to a very simple question.

But a good answer. Vince, a quick question for you on what was the depreciation and amortization expense for the quarter and for the year? And also non-cash stock option charges as well?

The depreciation expense for the year was $287,000. I don't know what the breakout was for the quarter. What was the other question?

Other non-cash stock option expense.

$495,000.

That was for the year?

Yes.

Okay. Thanks, guys.

(Operator Instructions) [Paul Berger], [Hammock Investor].

Congratulations on a good year. Most of my questions have been answered, but let me just -- two quick ones. One, can you give us a little more color on the A-10 program? Since you got the program before they found the wing cracks has that speeded up in any way and where do you anticipate it to go?

I doubt it's going to speed it up too much, Paul. There really isn't too much you can do about speeding up design work and getting prototypes built, inspected, test flown, etc. Is it possible that 2011, '12, '13 they could ask for more units per year than is in the schedule at this moment? Certainly. Is that something I am projecting for all of you? Definitely not.

I think a lot remains to be seen with the cracks on the A-10 to see just how bad they are as far as do we really need to replace them that fast or are there some repairs that can be made to hold them over until they are scheduled to have a wing changeover. So I wouldn't go out on a limb to tell you they have changed a whole lot because of the cracks that they found. One of the reasons that they were re-winging it was because they found a bunch of stress cracks.

Okay. The other thing, is there a possibility that you can come up with a new number such as a backlog number? For example, the A-10 program is $70 million. You were given awards for $13 million. Would that actually give you a backlog number of $57 million that you could carry?

It would be an unfunded backlog number of $57 million.

There is a number in the 10-K which I can't -- we haven't filed yet so I can't go into it. But look through the 10-K when it gets filed, it's there funded and unfunded and it includes all the numbers you are talking about.

Okay, great. Thanks.

(Operator Instructions) There are no further questions. I will now turn the conference back to management.

Okay. I would just like to thank everybody for participating. I guess you will hear from us again in about six to seven weeks when we report the first quarter of 2009. And as I said, I thank you for participating.

Ladies and gentlemen, this concludes our conference for today. Thank you all for participating and have a nice day. All parties may now disconnect.