Mar 12, 2008
Executives
Norman Asbjornson - President and CEO Kathy Sheffield - VP, CFO and Treasurer
Analysts
Frank Magdlen - The Robins Group Clayton Ripley - Bear Capital Management Jon Braatz - Kansas City Capital Rob Wilson - Tulsa World Joe Mondello - Sidoti Shaun Nicholson - Kennedy Capital Anthony Raab - Perimeter Capital
Operator
Good day, everyone, and welcome to today's AAON Incorporated fourth quarter and full year conference call. (Operator Instructions) At this time, I'd like to turn the conference over to Mr.
Norman Asbjornson. Please go ahead, sir.
Norman Asbjornson
Good afternoon. Thank you for joining us in our fourth quarter report and full year 2007.
Before going forward, I'll have to read a forward-looking disclaimer. To the extent any statement presented here in deals with information that is not historical, including the outlook for the remainder of the year, such statement is necessarily forward-looking and made pursuant to the Safe Harbor provisions of the Securities Litigation Reform Act of 1995.
As such, it is subject to the occurrence of many events outside AAON's control that could cause AAON's results to differ materially from those anticipated. Please see the risk factors contained in our most recent Securities and Exchange Commission filings, including the annual report on Form 10-K and quarterly report on Form 10-Q.
With that being completed, I'd like to introduce Kathy Sheffield, our CFO. Kathy?
Kathy Sheffield
Good afternoon. Welcome to our conference call.
I'd like to begin by discussing the results of the three months ended December 31. Our revenues were up 13.9% to $62.1 million from $54.6 million a year ago.
Gross profit was up to 26.7% to $12.4 million from $9.8 million. Gross profit was 20% of sales during the fourth quarter of 2007 compared to 18% of sales during the fourth quarter of 2006.
Selling, general and administrative expenses increased for the fourth quarter by 94% to $5.2 million or 8.4% of sales from $2.7 million or 4.9% of sales in 2006. Operating income increased 1.4% to $7.2 million or 11.6% of sales from $7.1 million or 13% of sales.
Net income increased by 0.9% to $4.6 million or 7.4% of sales from $4.5 million or 8.3% of sales. The diluted EPS for both 2007 and 2006 was $0.24 per diluted share.
These shares were calculated on 18.8 million shares in 2007 versus 18.9 million shares in 2006. Looking at the full year, revenues were up 13.4% to $262.5 million from $231.5 million.
Gross profit increased to 30.7% to $57.4 million or 21.9% of sales from $43.9 million or 19% of sales in 2006. SG&A expenses increased for the year by 20.2% to $21.7 million or 8.3% of sales from $18.1 million or 7.8% of sales.
The operating income increased 38.1% to $35.7 million or 13.6% of sales from $25.8 million or 11.2% of sales. Net income for the year increased 35.2% to $23.2 million or 8.8% of sales from $17.1 million or 7.4% of sales.
The diluted EPS was $1.22 per share versus $0.90 per share a year ago. Earnings per share for the year were calculated on 18.9 million shares versus 19 million shares a year ago.
Looking at the balance sheet now our current asset ratio decreased slightly. It was approximately 2.0 due to dividends payable and higher accrued liability which came from increased warranty and increased commission.
Capital expenditures for the year were $10.9 million and related to increased equipment related to increase in production and sales efficiency, some innovations to our Tulsa facility. Our shareholders equity per share as of December 31, 2007 was $5.29 compared to $4.95 for the same period a year ago.
We also paid cash dividends of $5 million and also bought back stock for a total of $20.8 million. I would now like to turn the call back over to Norm, who will discuss our results in further detail, also along with our new products and our outlook for 2008.
Norm?
Norman Asbjornson
Okay. The year of 2007 was a pretty strong year from an economy standpoint.
The commercial building was strong; it grew well and we benefited from that. In addition to which, we did introduce additional new products, which were well received and grew very well for us, as did some of the renovated or new products to replace old products.
Coupled with the fact that we did have price increases attributed to our inflation cost last year, it ended up giving us our total growth. Profitability, came about more by the fact that even though there was some volatility in component costs, it went both ways.
In the early part of the year, it was on a downward trend and then in the latter part of the year it started an upward trend. And some [subsistence] from the whole year from the beginning to the end, inflation was up probably somewhere in 4% to 5% on our cost of material.
So, it did give us a difference on a quarterly basis, because of the changing nature of the inflation. It does on a go forward basis, appear that we are getting a little bit more inflation coming our way than we had a year ago this time.
Not appreciably, but certainly it is worth mentioning. As far as going through the types of products and what our results whereby of these various locations, the biggest product we build, the largest tonnage, the largest physical size, the most costly product, was one of our stronger growth products and it was one of our newer redesigned products and employs the latest technology we know to put into products.
This latest technology to which I'm referring is the two inch double-wall foam construction cabinet and the direct driver for blower, both of them very energy related issues. Moving down into the next size of cabinet, which was also re-designed with the same attributes and was another large growth factor and then when we got into the smaller three sizes of cabinets, they grew but not as well as that of the two larger sizes of units.
Moving out of that into the chiller arena, we have very nice growth in our chiller products in Tulsa and we began our Air Handling Units but they wanted a significant part of our volume, dollar volume. Moving on down to Longview Texas, we had very nice growth on our Air Handling Units down there, nice growth on our condensing units and everything is coming along pretty well down there.
It's getting to be much more of an outside sales relationship compared to selling coils to Tulsa and therefore the value added is coming along well down there; the value added part of our sales and we're doing better on the bottom line down there. Moving to our Canadian facility, we are still troubled by problems we're having up there.
We did during the year manage to get the functionality of all the things as far as running the company and our software systems are doing very well. That's a positive side of it.
But on the weaker side of that, what's going on up there? We had still some catching up to do with our pricing of our product to get up to where we could make a profit on it, and we did manage to get that accomplished over the entire year, however we have lag effect.
And the lag effect was primarily attributable to the very rapid change in the exchange rate between the Canadian dollar and the US dollar. When we would raise the price thinking we had ourselves in good shape, the dollar value would change faster than our price increase and we were just constantly playing catch-up with price increases.
Now, that was not obviously the case on the market that we did in Canada because of course that was not an issue in the Canadian market but there was an issue here as what we sold into the United States and built in Canada and when we sold a product in the United States with US dollars thinking the exchange rate was going to be considerably bigger than Canadian dollars going from US$1 to say C$1.18. And then when we actually got around to shipping that, it had gone the other way, US$1 was only bringing us C$0.90 some cents or a dollar in Canadian.
So the entire differential came right off the bottom-line of that company. So we had a very vicious cycle going on.
It was further pyramided by the fact that we got a lot of orders in the early part of the year, which was good if today's dollar hadn't changed. It turned up to be very bad because we had always got low dollar-related orders; then we had to build after the exchange rate has changed on.
It's there by destroying our bottomline. Net result, we still had a bad year in the Canadian facility.
Near the end of the year and into this year, we have gotten the price up on the US business to where now the price of the product we're selling is okay. We're making money on that.
The question is and it's not a determined fact yet, is what effect thus raising our price by around 30% to the US customers have on our sales volume. Obviously, we had a very negative effect.
Did it kill too much of our business force? We don't know yet.
So, jury is still out on what effect the exchange rate has had on the viability of the Canadian facility. But it has been a challenging year, particularly, due to as I said the exchange rate.
I spent a little extra time on this because of the fact that we've been talking about the fact that we thought we were going to have it solved last year and we did not get it solved. That's kind of where we've grow up, where we've been, where we're going.
Now, then, what's happening to us for the future? I mentioned early on in the discussion that the large tonnage equipment in the US is done very well.
We believe that the things we've done in our new product offerings are going to continue to gain market share at above the average rates. We are presently implementing a lot of changes in the smaller tonnage units, which haven't been updated for a number of years.
We believe that's going to make them very much more attractive to the end users. We have gotten enough going that we're going to expand the Tulsa facility a little bit more because we feel we can improve our facility enough that the efficiency of manufacturing will offset the cost of building the additional facility.
We have done a long range plan taking our Tulsa facility to what we consider the maximum that's available to us on the 53 acres, we own here. And we've set out a multiyear plan for working that as we grow.
So, we know where we're going. Over a one-year investigation has been completed on that and the planning has been pretty well completed.
Moving down to Longview. Longview is perhaps the biggest unknown thing we've got because most of the product down there is, either brand new or relatively new, and some of it has tremendous upsides.
The question is how much of the upside can we actually make happen. The air handlers that we put into place there in past years or so are into a marketplace that is very large and we're just getting started with it.
The smaller air handlers we've had there for a number of years are doing very well and growing very nicely as are the smaller condensing units. When we get over to the smaller condensing units, as you know, we've been trying to get ourselves straightened up where we could market our smaller condensing units into the residential market.
As you probably all are well aware that the residential market is anything but a desirable place to be right now. So how fast or how much will happen in our efforts and that remains to be seen, but we are embarking upon it and we are seriously going after the replacement part of the air conditioning part of the residential market, which is an immense market.
So, as I said early on here, the big unknown on the upside is Longview. It has a very little downside unknown, but it has a huge upside unknown.
Moving up to the Canadian facility, I told you where we are. Basically it's still a question mark about the viability of that operation.
We know we can get enough money for the product, we know how to build something that will make profit there, the question is can we get enough business to make the company profitable at that price level? And it's not to say all problems are cured up there, they are not.
But they are within manageable means to go forward and the real question in that operation comes down to availability of orders at the price we have to have in the US. And over 80% of our business for that factory comes out of the US.
That pretty well wraps up my part of the discussion. I would like to open the talk up now to questions from the listeners.
Hello?
Operator
(Operator Instructions) Our first question will come from Frank Magdlen of The Robins Group.
Frank Magdlen - The Robins Group
Good afternoon, Norman. Congratulations on a nice year.
Norman Asbjornson
Well, thank you.
Frank Magdlen - The Robins Group
Can you give us a little more color as to what your backlog looks like at this time?
Norman Asbjornson
Yes, I can. We always hit a higher point at the end of the year.
By this time, we always work off backlog a little bit and our backlog is dependent upon two factors. Number one, how good the order input is, and number two, how well we're able to turn those orders out if the customer is asking the delivery fairly quickly.
So, it's not just totally dependent on order input. It is also dependent upon how fast we move it through the place and deliver the product.
We're moving stuff through the factories. All of the factories right now are quite well, and so we're not gaining backlog because of our inability to bill.
The net result of what I've just given you is a summary, and then I will break it down, talk a little more, is that we've got more backlog at this time this year than we had in this time in 2006. We have less backlog, however, than we had a year ago at this time.
And the backlog we have right now is in the low 50 millions. A year ago, at this time, we were close to 60 million.
Two years ago, we were in the high 40 million. So that kind of gives you some reference point.
Well, what does that tell you? I've told you that we are moving stuff through the billing process very well right now.
So it's not staying in here as long. Now, does that attribute all of it?
Yes, indeed. If you look at the order input, we are at overseeing respectable times.
If you take the past six months we have taken in more orders than we did a year ago, in corresponding six months. So order input is good.
Does that mean it's strong? No, it does not and I know it sounds conflicting with what I am saying here.
But we did very well, taking orders this year, in the past few months compared to a year ago, we moved them out very well, which is really good. But it's been much harder to get those orders in the past few months than it did a year ago.
So is it soft in the marketplace? Yes, it is soft in the marketplace.
I hope I haven't confused you with that analysis, but we're doing well and still getting orders, better than we did a year ago, we're moving them out of the place better than we did a year ago, but it's much harder to get new orders.
Frank Magdlen - The Robins Group
All right. Could you then go to Canada and just quantify what the revenues were up there if you're willing to and maybe what you lost in operations out there?
Norman Asbjornson
We lost about 10% of a dollar of our movement through the place. We moved through, we did, yes we did, we moved through in the mid about $15 million through there.
We backed off what we're moving through the present time is more closely related to about $10 million to $12 million because of price increases and the fact that we built out our backlog. And so now, like I said earlier, the question is, can we continue to get enough orders because we have corrected this pricing problem.
I don't know if we can or not; we're not booking at the same rate we're shipping right now. But January and February particularly are historically low booking months up there.
So, the question of our ability to get bookings is going to get resolved in the next few months, when they usually start bookings months.
Frank Magdlen - The Robins Group
Okay.
Norman Asbjornson
Our loss up there was just under 10% of that booking or of that revenue number.
Frank Magdlen - The Robins Group
Close to $1.5 million of that?
Norman Asbjornson
That's right.
Frank Magdlen - The Robins Group
Could you tell us what your CapEx plans are for '08?
Norman Asbjornson
Yes. What we're doing, I mentioned early on, that we've done some long range planning for the Tulsa facility, and I'll talk about our major capital expenditure.
We determined that by adding some more assembly area, so it's just a shell type building, it doesn't have even much in it. We can actually improve our efficiency enough so that we can pay for the building, as well as get ourselves prepared for further growth.
And so, we will put on an addition to our Tulsa facility that will cost probably in the vicinity of $5 million. That being said, that's almost the only major thing that we have to do; all the rest is relatively minor stuff that just always happens in a business and that's probably going to run anywhere from two, to if we do have one or two major things maybe it might run it up to $10 million.
But, I am going to say somewhere in the seven to 10, compared to almost 11 million last year, and 17 million two years ago. So it's on a downward swing and it's almost all attributable to a building addition in Tulsa.
Frank Magdlen - The Robins Group
All right. Two more questions I guess would be, how many shares did you buyback in the fourth quarter?
Norman Asbjornson
I'd rather give that to Kathy. She is the one with the purse.
Kathy Sheffield
And wisely spent, we spent $20.771 million in total for all the shares we've bought back and the total number of shares were 1,082,736.
Frank Magdlen - The Robins Group
And then for modeling purpose, based on your yearend shares, what were the year's fully diluted shares?
Kathy Sheffield
Bear with me, just one minute. For the full year total diluted shares were 18.927 million.
Norman Asbjornson
At the end of the calendar year?
Frank Magdlen - The Robins Group
Yeah, but if you're going forward, if you're looking through…
Kathy Sheffield
That was at the end of the year.
Frank Magdlen - The Robins Group
Okay.
Kathy Sheffield
That's how many shares we have outstanding.
Frank Magdlen - The Robins Group
Okay.
Norman Asbjornson
That's diluted shares.
Frank Magdlen - The Robins Group
Right. Fully agreed.
And then Kathy, two more things. On the tax rate, what would be reasonable going forward and then if you could explain the SG&A expense a little bit more?
Kathy Sheffield
Okay. Based on everything we know right now on the tax, we're looking at a rate of 35% for 2008.
As different laws change, maybe different tax credits and that type of things, those can affect us. So with everything we know right now, it looks like it will be 35%.
Frank Magdlen - The Robins Group
Okay. And then a little more, what happened in the SG&A expense?
Kathy Sheffield
SG&A increased for a couple of reasons. It increased because there were increased sales that we had to reserve as accrual warranty.
Also we increased our time period on the warranty from 14 months to 18 months. So there is a one-time adjustment basically reserved for that to increase those numbers of months of sales.
Basically the anomaly comes in 2006. In 2006, we made a $1.9 million decrease in our warranty accrual because we were over-accrued for our warranty based upon our warranty expense history.
So the anomaly is really within the fourth quarter of '06, not so much in the fourth quarter of '07. Going forward, we anticipate our SG&A to be somewhere between 8% and 8.5% of sales.
Frank Magdlen - The Robins Group
Thank you very much. And again it was a nice year.
Norman Asbjornson
Thank you.
Kathy Sheffield
Thank you.
Operator
And you'll hear next from [Clayton Ripley of Bear Capital Management.]
Clayton Ripley - Bear Capital Management
Could you tell me the status of the current repurchase, the share repurchase plan, is it still going?
Norman Asbjornson
Yes indeed. Well, we're in our blackout period right now and have been since the later part of December and but we got another week or something we've got to stay in that.
Kathy is going to correct me here.
Kathy Sheffield
We'll be back in the market buying by Friday of this week. We'll only be in the market about 10 days and then we'll be in blackout again until the second week in May, after we file our first quarter filings 10-Q.
Clayton Ripley - Bear Capital Management
Okay. And are you limiting that on how you are able to fund that repurchase, are you going to tap the credit line or how is that going to work?
Kathy Sheffield
No, basically we are paying that completely out of cash flow.
Clayton Ripley - Bear Capital Management
Okay.
Norman Asbjornson
And we had, as we've said last year we bought back a little over a million shares for a little over $20 million, and that was all out of cash flow. And we are not putting any limits on buying back other than what the Federal Securities Exchange Commission limits are.
Clayton Ripley - Bear Capital Management
Okay. Thanks.
The Canadian exchange rate is a big part of your remarks. Are you hedging that and in anyway; have you thought about hedging that?
Norman Asbjornson
We didn't do it before and we got burned badly and we are now investigating hedging that. We haven't started doing it yet, but we're deeply into trying to understand it, well enough that we can do it intelligently.
Clayton Ripley - Bear Capital Management
Okay. And so that's just a kind of, let's say, a pending.
It can be classified just pending right now.
Norman Asbjornson
Yeah. That would be a correct statement.
Clayton Ripley - Bear Capital Management
Okay. What's the progress of your efforts in the national account?
Norman Asbjornson
You mean like national accounts, you say?
Clayton Ripley - Bear Capital Management
Yes.
Norman Asbjornson
Well, as we've said the national accounts are very difficult places to make money because, of course, these places, organizations buy a lot of goods and they've got the ability to demand pretty low prices. So, as we've grown rapidly and had been challenged on the internal growth things, we have raised our prices to the national accounts and pretty much lost a major share of them.
Not because of the quality of the product or performance of the product or anything, but because of our pricing. And thus, we're a much lesser national account company than we were a few years ago.
But if you think about our history, about what we're trying to do here, let me just paint you a quick picture. When we started the company, when we bought the company, we had two national accounts.
They accounted to be between the two of them. They accounted for about 95% of our sales.
Big worry then on everybody's part was what if we lose one of those two national accounts. We didn't for a while and eventually, we did lose one of them.
And then we picked up a whole bunch more, because it was easier to go out and get a national account, get high volume than it was to do getting the one and two unit orders and smaller orders from many more customers. So, we concentrated on that for a period of time, built up our national account business very well and then as we were getting better pricing out of the other parts of the market, we slowly started backing off and being quite still competitive in the national account market.
Right now, we're raising our elevation and hopefully, we can make it happen, raising our expectations as far as our growth and we feel we'll have to go back after a little bit more of that national account business, which we will do. And it's really a question about what we are willing to do price wise.
Clayton Ripley - Bear Capital Management
Okay. Winning those national accounts is more about price?
Norman Asbjornson
That is correct. We have a good reputation.
They would be glad to give us the order if we will give them the price that they will feel happy with.
Clayton Ripley - Bear Capital Management
Okay. And one more question, you talked about the residential market.
How does the marketing process go when you attempt to attack the residential market?
Norman Asbjornson
Well, that is a very difficult one and a very good question because the residential market is very much a commodity market and it really truly lives on pretty much nothing but price. To address that we've had to find some way to find some way to cut costs and be able to have it be a little bit better market for us.
Our efforts in that area are going to be by eliminating one step of distribution and selling directly over the Internet. We believe we know how to make that work and reduce our cost of distribution by somewhere around 20%.
And if that's true that will allow us, we believe, to be a very value price product. In other words, we may not have the cheapest product, but for the dollar that we'll be asking, we think it may be the best value.
And in that regard, it's very high efficient, much higher than the SEER 13, which is federal mandate and it has several other features we think that are very important to people, one of which is the ability to dehumidify the building when cooling isn't required. And that's not a common characteristic in a residential market, and we think bringing our knowledge that we have out in the commercial market where we've been doing that now for 20 years into the residential will be well received.
So it will be somewhat niche marketing, but the niche marketing in absolutely huge markets. So, even with a small niche, it will be a big market for us.
Clayton Ripley - Bear Capital Management
Okay. Thank you.
Operator
And we'll now move on to Jon Braatz of Kansas City Capital.
Jon Braatz - Kansas City Capital
Good afternoon, Norm.
Norman Asbjornson
Yes.
Jon Braatz - Kansas City Capital
Going back to sort of market, hopefully, we're moving into the heating season shortly, I mean cooling season. Will you build inventory for that business?
I would think that you'd almost have to as opposed to build the order.
Norman Asbjornson
That is correct. We will build inventory.
The difference in the situation is typically in that marketplace they build inventory and distribute the inventory to various distribution houses all over the United States, so they build up a huge amount of inventory in local stocks as well as in their factory stocks. That is not our game plan.
Our game plan is to build up a fairly substantial inventory, but we will have it all in our building and ship out of there. And if you order something, say, right now today it would be our intent that we would have it on the truck tomorrow morning, and maybe if it's early enough in the day, it will go out the same day.
Jon Braatz - Kansas City Capital
Obviously, you don't know how well this is going to go, how much volume, how much capacity might you have if this indeed is successful as a marketing effort?
Norman Asbjornson
Well, we presently just completed an expansion of the Longview facility and we bought some more machinery down there anticipating that we're going to be at least somewhat successful in doing this. And we have ourselves set up to be able to handle some percentage growth.
It will be absolutely astronomical. But in real growth in dollar, it will be a small potato step.
But we think we've got all the things necessary to launch this and get going with it and get moving. Doing a little bit more planning, our present facility is on 13 acres now, and over the past three to four years we've managed to buy 14 acres directly adjacent to our 13 acres thinking that we're probably going to need that to expand if this residential thing gets going.
Jon Braatz - Kansas City Capital
Okay. In terms of profitability, assuming you get to a critical mass, whatever that number is, would you view the operating margin opportunity been similar to what you're seeing with your base business now?
Norman Asbjornson
That is what we are targeting and that is what we think the game plan we are going to try and play, the business plan that we're working on is going to give us. So yes, our belief here is that we will get the same general gross margin out of it.
Jon Braatz - Kansas City Capital
And similar operating margin too?
Norman Asbjornson
Yes.
Jon Braatz - Kansas City Capital
Okay. One last question, in the other income item, in the fourth quarter, there was a loss of $245,000.
What is that related to?
Kathy Sheffield
Primarily, the currency trend.
Jon Braatz - Kansas City Capital
Okay. And that's what you were referring to.
Final question, that you are looking into hedging, is that correct?
Norman Asbjornson
That is correct.
Jon Braatz - Kansas City Capital
Okay. All right.
Thank you very much.
Operator
And then we will have [Rob Wilson] of Tulsa World.
Rob Wilson - Tulsa World
Hi, I wanted to ask you little bit more about this expansion at the Tulsa plant. How big is that going to be, I think you said $5 million?
How much capacity will that add? What products lines will be expanded?
Norman Asbjornson
Well, it will expand by a little over 100,000 square feet and it will basically give us the ability to utilize some of our other facilities that presently is renting out and renter will be moving out before very long and it will allow us to organize ourselves, basically in the portion of the plant, allow us to organize ourselves for doubling and tripling the volume of business that we could handle in this facility. That's not to say we wouldn't have other portions of the plant.
We'd have to do something on, but the assembly area per se, that will allow us some major improvement in our ability to assemble and here is problem. The place where we are growing the fastest and where we are hurting the most for assembly effort is in our largest, most sophisticated, technically complex product line, things that take a full truckload just to carry one unit away.
And because they are technically complicated, if we go to a second shift in our existing product plant, and at the present time we have a very limited second shift, if we do much more than we've got right now, we almost have to duplicate a lot of our engineering department to work the second shift, because enough engineering questions come up during the workday that must be answered, that you must have technical people around in order to answer those questions. That becomes a very difficult and not very productive thing to do, to duplicate your engineering department, a portion of it anyway, as well as adding the assembly personnel necessary to run second shift.
The first thing we are going to be putting in this new plant is a second identical production line to the one we already have for those big units and by doing that, we will be able to offload enough off from that existing line, as well as second sized down product line, which is the second one I was mentioning that we had made all the technical changes of, which is 26 ton to 70 ton, and we are going to duplicate that production line too, because it is the second most technically complex product we have. And by doing that, without changing personnel at all, we will be able to build a fair amount of more products than we are able to build right now, just by improving the efficiency of our assembly operation.
Rob Wilson - Tulsa World
Very good. Will that start pretty soon this year, sometime in this quarter or the next quarter or --
Norman Asbjornson
No. As I said, we have been involved in trying to figure out how to put this place together for the ultimate use of 53 acres and we've been at that for well over a year and we’ve had about 12 people pretty deeply into it at various times.
That isn't their only job, their jobs are running the things they are doing now. But all the people were literally the runners of this factory and had been involved in doing this and what we are basically doing is putting together a factory that as I said, will be a multiple, not just a percentage, not a 50% or 60% but it'll be a 200%, 300% at today's dollars.
Increasing capacity on these acreage and the part of that that we are doing now, the 107,000 some that we are going put in will do a portion of that. That will catch a bulk of the assembly area that we need.
We still got to go back and do some other areas and put some additions on some other areas, but we're down to the point that we've done all the parking areas. We are down to the point now where we are trying to figure out, how with that many more employees that we are setting up this building to get, how we're going to get the food in and out to the people out here for noon hour?
How we are going to schedule factory, so that all the cars can get in and out of that facility. So we're into a very deep detail.
When we are off doing things like that, we are in deep detailed discussions. By that I mean like we know exactly how many pieces of metal we are going to move around and how we're going to have to move them and what we're going to have to do.
Everything in great detail in that year and half has been gone through. This is the first major step toward utilizing these 53 acres to the maximum.
And did I answer all your questions or get myself lost?
Rob Wilson - Tulsa World
No, that was fine. One more question, you mentioned the additional people, how many jobs are you looking at ultimately when this 100,000 square feet…?
Norman Asbjornson
Right now we are running just under 1000 personnel and ultimately we are looking at running a little over 2000 people but that's not going to happen in a year or two. That's a long range plan.
It will depend on how fast we can grow the business. So it's -- what that means, of course is, right now we've got parking room for about a 1000 people because almost everybody drives their own car.
And we have to have parking space for 2000 people and we have to add everything else. It's a major, major thing to make sure you don't leave something out and leave yourself wide open for a problem.
Rob Wilson - Tulsa World
Absolutely. Thank you very much.
That's good news for Tulsa.
Norman Asbjornson
Yes it is.
Operator
I will now move to [Joe Mondello] of Sidoti.
Joe Mondello - Sidoti
Hi, Norm. Good afternoon.
Norman Asbjornson
Good afternoon. How are you?
Joe Mondello - Sidoti
Good. Just expanding on what you just went over on the Tulsa operation, the new operation there.
I don't know, if you said or mentioned this but when do you expect that to be done if you have…?
Norman Asbjornson
Well, here's where we are. The part that we are thinking about hundred and some thousand that we are talking about adding immediately, we were down to the point that yet this week the contractors tried to pull pricing together that we are dealing with and we expect to have that under contract within the next 30 days.
How long that will take in all, is anyone guess. My guess is it's going to take in the better part of the year, probably not quite, maybe nine months or something like that.
So about the end of the year, I would expect that addition would be put in place.
Joe Mondello - Sidoti
Okay. And you said that that's going to increase revenue by 200% to 300%, is that correct?
Norman Asbjornson
That is the major part of the addition necessary to make that happen. It's not all of it.
It's a major part of it. That will take care of the bulk of the assembly problem.
The other one, which is one of the next steps we're going to have to go through, is the warehousing of material and straightening out our warehousing to handle that kind of volume. And that will also necessitate a fairly large building addition.
Joe Mondello - Sidoti
Okay. So, as soon as this is complete, is it fair to say that this is going to increase revenue by 200% to 300%, that seems is that right?
Norman Asbjornson
Everybody has got an ego and everybody has great dreams and aspirations, but we believe it very strongly and it's not just myself speaking, but the employees of this company believe very strongly that we've had a growth rate, a compounded annual growth rate essentially began in 1988 at 12.5% per year. Now some years we haven't had it and other years we've had much more, but if you take from day one up until today, we're 12.5%.
We believe that early on we have no money. We had a lot of negligence.
We had a lot of problems that we had to contend with. Those problems are pretty much behind us now.
We have the money to do what we need to do. We have a lot more people, who have knowledge of what we need to do.
We have a lot of heavier quality people around now. So, a lot of the things it kind of limits, certainly in our earlier years are gone and it's our belief that we should be able to accelerate that growth pattern up a little bit.
If you look back last year, we grew 14%, not 12.5%. And we believe that it's possible ongoing to do that a little faster.
If you want to just take those numbers out and let's say take a 15%, and I'm not forecasting, all I'm doing is just doing a mathematical model. 15% starting today in the year 2017 this Company will be a $1 billion Corporation.
Joe Mondello - Sidoti
Okay. Very good.
And I think one last question. Could you just give some outlook and break it down in terms of new construction and replacement side, so outlook to what you've seen so far in 2008 and maybe going forward into 2008?
Norman Asbjornson
Well, we still probably are doing about 45% replacement and about 55% new construction, which is one potential problem because if an economic slowdown does occur, it generally hits some new construction much more than it does replacement market. And basically, it depends upon your business model as to which of those two markets you're going to be the strongest in.
In our industry of all our competitors, two of our competitors are focused on the replacement market, two other competitors we have are more focused at the new construction and plan replacement market, as we are. And so, the ones who have got considerably more than 50% of their volume because they're focused on the replacement market are going to keep on doing that.
As time goes on, the other two who aren't as focused they are doing things to try and get into that market more as are we. Basic business plans dictate to some degree as to who is going to get the replacement market and who isn't.
And our basic business plan is not focused on the replacement market.
Joe Mondello - Sidoti
Great. How about in terms of 2007 in terms of those two sides of the business?
How do you see going so far and maybe going forward compared to 2007?
Norman Asbjornson
Well, as I stated earlier if you take, say, the last six months of new orders; we have done better than we did in the comparable period a year ago. But if you said, is the market available at the same level in the past six months as it was a year ago, no, it's not.
It's just that we've been able to effectively obtain our market share. It is definitely a weaker market than it was six months or a year ago.
And is it going to continue getting weaker? I don't know.
I read in papers just like you in magazines, whatever, watch television, and I have mixed emotions about it. I have a theory and I hope that it has some validity to it.
Usually, whoever is hurting tries to build something up much bigger than it is hoping the government will help him out a little bit, and I'm wondering if that isn't the case of financial people today. Maybe I'm a little harsh in my judgment.
But generally, when you're hurting a little bit, you make more noise than it justifies. I hope that is what is happening today and that all the noise isn't justified.
Joe Mondello - Sidoti
I hope so. All right.
Thanks a lot and congratulations.
Operator
(Operator Instructions) Our next question will come from Shaun Nicholson of Kennedy Capital.
Shaun Nicholson - Kennedy Capital
Hi, Norm. How are you doing?
Norman Asbjornson
Good. Yourself?
Shaun Nicholson - Kennedy Capital
Good, good. I wondered, you didn't touch on it in the call, but I know the product floor by floor units that are obviously more popular out of New York City.
Can you touch on if that segment is going to be of more focus as far as growing the business in that area?
Norman Asbjornson
To answer the last year question, yes, it is going to be a big focus of our growth and I haven't touched on it, because at the present time, we are not in the business. We are just preparing to get into the business.
We do have a small order for about $150,000 from New York City, and we are supposed to ship that within the next 30 days. So we are close to entering the market.
It has the potential for growing very rapidly, because it's a market that's not a huge market; it's focused on the high-rise buildings, high-rise office buildings, with of course, obviously main focus being New York City and lesser focus has been Boston, Philadelphia, Washington DC, Atlanta, Georgia and it really started in New York City. So it's spreading out into the rest of the United States.
So further west, you go the less, that is a prevailing way to do high-rise buildings. In New York City, it is probably the dominant way to do a 50 or 100 story building is with floor by floor.
And we have a product now and I could take an order for just about any size job, if I could get it. But as you can well appreciate if you were building a100 story, building, you'd want to have a little bit of confidence in our ability to give you something you wanted.
So we still have some confidence building to do before we are going to get the big orders.
Shaun Nicholson - Kennedy Capital
Okay. Do you have a rep in that market?
Norman Asbjornson
Yes, we do and one who is very, very familiar with the market and who has been selling in the market for a long time. And so, we are very confident that we are not going to be limited in any of those markets, I mentioned plus a lot of our other markets.
My people not having familiarity in the market. We got a lot of people in all of those markets, who are familiar with that market and so getting in the product, and they know immediately where to go, how to do it and what to do?
And we don’t have a big thing there other than familiarizing with our products as opposed to whatever they are accustomed to selling.
Shaun Nicholson - Kennedy Capital
Great, and then just on the Tulsa expansion obviously, it's been talked about quite a bit here. Is there a potential, it is not a potential.
I guess is it possible that if the Canadian operations were not feasible going forward and the decisions made to move those, could they move into that facility or would you need another facility in the US?
Norman Asbjornson
That would be the possible move to be done.
Shaun Nicholson - Kennedy Capital
Okay.
Norman Asbjornson
What we are planning on doing.
Shaun Nicholson - Kennedy Capital
And you could expand it obviously off that?
Norman Asbjornson
That is correct.
Shaun Nicholson - Kennedy Capital
Okay. And then the $200 million to $300 million that was mentioned obviously, that's -- I'm sure there's a ramp that will need to be taken for that to get to that level if the conditions are right.
Once you get it built, how quickly do you think that ramp could be, as far as getting the equipment in there and the people hired?
Norman Asbjornson
I don’t think that we are going to be limited in that because from day one, I've worked there, to the best of my knowledge and the best of everybody who I have hired and who's worked in this company, we have worked towards building an infrastructure that's necessary to support a much larger corporation. So, we aren't limited by, say, for instance, software issue and policies and procedures and things like that.
We're organized. We're ready to do it tomorrow.
Virtually, we could ramp-up overnight. Our problem area is going to be two.
Number one, we'll be hiring people and training people at the factory level and number two really number one, is to be getting the orders. And if we can get a few orders, we can handle the orders.
Shaun Nicholson - Kennedy Capital
Okay. And the last thing, in the press release you guys mentioned, the first quarter obviously you expect a very strong record first quarter, was that a record, or did you imply a record for the first quarter or in the entire history of the Company as from the sales…
Norman Asbjornson
This quarter should be a record for the entire first quarter of the Company.
Shaun Nicholson - Kennedy Capital
Okay. Great.
Thanks, Norm.
Operator
(Operator Instructions) Our next question will come from Anthony Raab of Perimeter Capital.
Anthony Raab - Perimeter Capital
Hi, Norm, how are you doing?
Norman Asbjornson
Good. And yourself?
Anthony Raab - Perimeter Capital
Good. Thanks.
The question is on the larger tonnage products that you were selling this quarter and I think you said that, so saw an incremental up-tick because of the new design. Can you give us an idea of the magnitude of the up-tick?
Norman Asbjornson
Well, I will give you just a general idea here. I don't want to quote because I may have some of our competitors listening in here.
Let me see, in the past three years we have almost doubled our business in the area that we have redesigned and came out with these new concepts in.
Anthony Raab - Perimeter Capital
Okay. So, now you're going to redesign some smaller tonnage products?
Norman Asbjornson
We are deeply into it right now and by sometime a little more than a year from now, we should be pretty well completed.
Anthony Raab - Perimeter Capital
Yeah. Thank you.
Operator
And it appears that are no further questions at this time, Sir.
Norman Asbjornson
Okay. Well, thank you all for listening in and I hope that you feel comfortable staying with us as owners.
We certainly appreciate you and thank you for being with us. Lookimg forward to talking to you again in the few weeks, when we finish the first quarter.
I don't have anymore, so Kathy.
Kathy Sheffield
We appreciate your attendance and we'll talk to you in May. Thank you.
Norman Asbjornson
Goodbye
Operator
And that conclude today's teleconference. Thank you for your participation and have a wonderful day.