Mar 31, 2008
Executives
Brian W. Dunham – President and Chief Executive Officer Stephanie J.
Welty – Senior Vice president and Chief Financial Officer
Analysts
Brent Thielman – DA Davidson Companies Ryan Connors – Boenning & Scattergood Inc Alex Ryeson Shirad Patelle Andrew Nevadomski - Standard & Poor’s
Operator
Welcome and thank you for standing by. (Operator Instruction) I would now like to turn the call over to President and CEO, Mr.
Brian Dunham and Senior Vice President and Chief Financial Officer, Ms. Stephanie Welty.
Thank you, you may begin.
Brian Dunham
Thank you, Dianne. Welcome to Northwest Pipe’s conference call and the announcement of earnings for the fourth quarter of 2007.
My name is Brian Dunham. I am the President and CEO of the company and I am joined today by Stephanie Welty who is our Chief Financial Officer.
Before we begin, I would like to remind everyone that the statements we make in this call about our expectations for the future are forward-looking statements and actual results could differ materially. Please refer to our most recent filings with the SEC for a discussion of risk factors that could cause actual results to differ materially.
With that, I will turn this over to Stephanie to review our financial results.
Stephanie Welty
Thank you, Brian. For the fourth quarter of 2007, we generated revenue of $98.2 million which is the quarterly revenue record.
Net income was $5.6 million and diluted earnings per share 60 cents. For the year, we recorded revenue of $382.8 million, net income of $20.8 million, diluted earnings per share of $2.26.
For the year, both revenue and earnings were record results. For the fourth quarter, discussion of our segment results in water transmission sales were $76.8 million for the quarter, up from $72 million in the fourth quarter of 2006.
This is a new record high for quarterly water transmission revenue. Gross profit was $17.4 million for the quarter or 22.7% of revenue compared to $13.9 million or 19.3% of revenue for the fourth quarter last year.
Gross profit increased as a result of operating efficiencies, improved pricing and product mix. While we believe this margin improvement does demonstrate true improvements in our efficiency and in our market, we do not anticipate that the gross profit percentage will be as high in the first quarter of 2008.
The product mix in the first quarter will not be as favorable and we will continue to see some quarterly variability in margins as we have in the past. In tubular product sales were $17.9 million in the fourth quarter which is down compared to last year due to much lower energy sales and weather related power outages.
We expected lower sales and energy because we exited the sales agency agreement earlier in the year. We have had some success in booking new energy orders but more the most part, shipments of these new orders have not yet taken place.
In addition, we saw minor declines in some of our other markets which appear consistent with seasonal pattern. We expect sales volume to increase substantially in the first quarter of 2008.
Gross profit declined to $1 million compared to $2.1 million last year. Gross profit is the percent of revenue with 5.5% for the quarter.
This is the lowest margin we have seen since the third quarter of 2005. The margin is down due to a combination of factors.
Our average selling price was off approximately 2% due to partial mix and partial minor softness in the market. Volume was down as noted earlier and this impacted our overall cost per unit and we have slightly higher manufacturing cost.
The combination of this last two resulted in overall increase in cost of slightly more than 3%. As we look ahead at our input cost, volumes and market, we expect to see a rapid return to double digit margins in this group.
Our fabricated products group which does its manufacturing in Mexico had sales of $3.5 million which is down from Q4 2006. This group recorded a loss of approximately $400,000 for the quarter.
The decline resulted from poor market conditions in our propane tank business. While we are focused on shifting production into water transmission, we have not yet fully transitioned this business.
We do expect to improve results ahead as more production goes into water transmission settings. Going forward, we will be reporting Mexico operations in the water transmission group to better reflect our organizational structure and strategic direction.
With respect to selling general and administrative cost, the SG&A for the company was $7.8 million in the fourth quarter of 2007. SG&A costs are slightly higher than expected due to increased compensation expense and professional fees.
We expect SG&A cost to be flat but slightly higher in the first quarter of 2008. Depreciation expense was $4.9 million, CapEx was $24.1 million including our two acquisitions in the year and operating cash flow was $18.5 million.
Interest expense was $1.7 million for the quarter as expected compared to $1.4 million in the last quarter of 2006. After adjusting for taxes, we reported a net income of $5.6 million compared to $6 million in Q4 of 2006.
Net income per share is equal to 60 cents per diluted share on $9.3 million shares outstanding compared to 72 cents per share on $8.3 million shares outstanding in the fourth quarter of 2006. The number of shares increased as a result of our follow on offering that was completed in the fourth quarter of 2006.
In water transmission for the year, sales are up 12.2% to $274.8 million. Gross profit is up 30% to $60.6 million compared to $46.6 million for 2006.
Gross profit is a percent of sales improved from 19% last year to 22% for 2007. In tubular product sales increased 12.1% to $95 million in 2007 from $84.8 million last year.
We did not quite hit our target of a $100 million for the year due to slower than expected sales in the fourth quarter as previously discussed. We do expect to exceed this target in 2008.
Gross profit improved from $8.9 million or 10.5% as a percent of sales to $10 million, again 10.5% as a percent of sales. In fabricated products, sales were $13 million and the group loss $356,000 on the gross margin line driven by a poor fourth quarter.
SG&A costs for the company as a whole were $30.7 million in 2007 or approximately 8% percent of sales compared to $27.4 million or 7.9% sales for the prior year. Our 2007 interest expense was $6.8 million and 2006 was $6.7 million.
After adjusting for taxes, net income increased to $20.8 million for 2007 compared to $20 million last year. Last year’s results included a gain on the sale of Riverside property.
Without this gain, we would have reported net income of approximately $14.9 million for 2006. Without excluding this gain, this year’s result represents a 40% improvement in earning.
Earnings per diluted share were $2.26 on $9.2 million shares compared to $2.69 per share last year on $7.4 million shares. And again, the earnings per share for 2006 included the gain on the sale of the Riverside property and without the gain; earnings in 2006 would have been $2.01 per share.
Moving on to the balance sheets, we have a working capital of $181.5 million in 2007 compared to $166.7 million in 2006. The current ratio today is 3.9 compared to 3.4 in 2006 and debt as a percent of capitalization in 2007 is 27.1% compared to 29.5% last year.
Total assets have increased from $424.5 million shares to $453.6 million and equity has increased from $230.8 million to $256.3 million. Now Brian is going to take a look at what our expectations are going forward.
Brian Dunham
Thank you. As we look ahead to 2008, we continue to expect strong results.
Our backlog was at a record high level of $212 million as of the beginning of the year. Earning activity throughout the year is expected to be very strong although it is weighted towards the second half of the year.
At this time, we expect a total market for 2008 to be a new record high for the company. The water transmission margin was very strong in the fourth quarter.
We have seen some improved pricing and certainly, our manufacturing performance was very good as reflected in overall volume as well as margin. However, the margin improvement was also partially due to a favorable mix of projects during the quarter and we do not expect the margin to be this high in the first quarter of 2008.
Water transmission volume was obviously very strong in the fourth quarter as well. We have experienced some delays here in the first quarter in our manufacturing schedules generally due to an increase in lead times on steel deliveries.
While this is not a long lasting issue, it will result in lower sales in Q1 than we had in Q4. Combined with this, our manufacturing schedules were already a little wider than we would like just due to the timing of projects.
Consequently, we expect Q1 volume to be closer to the levels we reported in the third quarter of 2007 rather than the quarter we are reporting today. Based on anticipated billing activity, we currently expect the second quarter to be stronger than the first quarter and we expect the second half of the year to be stronger than the first half.
As we previously projected, the loss of the US steel energy business did impact our sales for the fourth quarter. Under that agreement, we would have expected sales between $4 million and $7 million for that quarter.
Instead, our energy sales for the quarter total less than $2 million. We have been booking energy order successfully and we do expect to see these sales increased substantially by the second quarter of this year.
We also see opportunities to grow our tubular products business and traffic sign post products, fire protection sprinkler pipe and certain agricultural products as well. Margins were quite low in the fourth quarter in the tubular products group.
This is partly due to lower volume to the plants and therefore higher cost per unit and is partly due to weather issues that resulted in loss production and higher cost. Overall our costs for the quarter were up approximately $35 per ton.
We expect this to correct as we go through the first and second quarters of this year. The remaining difference in our margin was due to pricing.
We did see some unfavorable pricing in the fourth quarter which is generally consistent with seasonality. Orders booked during the fourth quarter to be produced in Q1 however already show improvement so we expect margins will rapidly improve.
As we move in to 2008, our cost will be significantly impacted by rising steel cost and Stephanie will talk about our expectations regarding steel.
Stephanie Welty
Steel is a primary raw material on both groups. In the water transmission group, steel is approximately a third of our overall cost.
In tubular products, it can be 75% to 80% of our cost. Steel is currently rising rapidly and our average steel cost just gone from $550 per ton in December to more than $700 per ton for the steel orders that we are placing today.
In the rising market, we face different challenges. In the water transmission group, our risk is that we may have bid a firm price contract with steel estimated at a lower cost that we can actually purchase it for.
This would result in losing margin point on that contract. To manage this risk, we focused on projecting steel cost ahead using all the sources we have available and fortunately, for most of our contracts, we only need to forecast a few months.
For longer contracts, we try to get an escalation cost clauses built-in to mitigate any risk of rising raw material cost. At this time, we believe we have been successful in both of these endeavors and do not see much risk.
In tubular products, the challenge is to pass along steel cost increases in higher selling prices. This is dependent on overall market condition.
Over the past two months, we have seen prices increase and demand appears strong enough to absorb the overall increase in our raw material cost. Steel supply is often an issue as well on the rising market.
As we mentioned earlier, we have a short-term issue with some steel coming in later than we had wanted it. This should be resolved by the end of the first quarter.
In the longer term we are more comfortable that we will be able to acquire the supply we need as we go through 2008. At this time, we are watching steel carefully but we do not believe we currently have much exposure.
Brian Dunham
Thank you. In closing, we are very pleased to report another record year for Northwest Pipe; even more importantly the look ahead continues to be positive.
We see opportunities in both of our main groups. There are certainly challenges but the overall market opportunities and our position within our market indicates another strong year ahead.
Timing in the bidding activity is of course critical to our performance and is always subject to change. However, as the market develops as we currently expect, we will afford to record in another record year in 2008.
We are excited about the challenges and opportunities that we see ahead of us. At this time, we will be happy to answer any questions you might have.
Dianne, can you start the questions?
Operator
Thank you. We will now begin the question and answer session.
(Operator instruction) One moment please, while we wait for the first question. Brent Thielman, you line is now open.
Brent Thielman – DA Davidson Companies
Good morning and congratulations on the quarter.
Brian Dunham
Good morning. Thank you.
Brent Thielman – DA Davidson Companies
Can you, guys, give us a sense of what the reduced run expense contributed to the water transmission margin in the quarter?
Brian Dunham
I do not recall that number at the top of my head but obviously that has been running through the numbers all year long as we compare to prior year numbers, Brent. I am sorry I do not have that number at the top of my head.
Let me think for a second. I do not remember what that number is.
Brent Thielman – DA Davidson Companies
Okay. I can follow up.
Brian Dunham
I apologize. I can find that.
Brent Thielman – DA Davidson Companies
No problem and then on the timing of the two new mills, I mean you are still projecting completion around August, is that still sort of on-going?
Brian Dunham
Yes, I think so. We expect the mills, right now all the components are being put together and they are going to be shipped over to this country for the final assembly in Adelanto, California.
We expect them to arrive here probably late second quarter and then we will do the final assembly there and then we will pick the right time to do the installation so it is as least disrupted as possible.
Brent Thielman – DA Davidson Companies
Okay and I just wanted to confirm that you said that the water transmission volumes in the first quarter of 2008 should be comparable to Q3 2007?
Brian Dunham
Yes, for a couple of different reasons. One is just the way the timing of jobs lays out, we think it is going to be a little lower in the first quarter and then we do have a few projects where it is taking us a little longer to get steel than we have expected so those things are going to combine and push us down probably close to our Q3 number.
Brent Thielman – DA Davidson Companies
Got you, okay and then just last one from me. Do you have a utilization rate during the quarter for water transmission?
Brian Dunham
I do not but I do have a calculator so one second, it is always a little bit speculative because of the nature of jobs on so on so we do this always on our average but we are probably somewhere in the 80% to 82% range.
Brent Thielman – DA Davidson Companies
Okay, perfect.
Brian Dunham
Our general plea as you know, we are going to see that our capacity number continues to expand as we go through here the next several months.
Brent Thielman – DA Davidson Companies
Okay, thank you very much.
Brian Dunham
Welcome.
Operator
Next question comes from Ryan Connors. Your line is now open.
Ryan Connors - Boenning & Scattergood
Good morning.
Brian Dunham
Good morning.
Ryan Connors - Boenning & Scattergood
Yes, just a couple of things. Number one, can you expand, Brian, on the sort of makeup of that record backlog in terms of, is it higher margin stuff?
Is it lower margin stuff? Is there a sort of regional focus there?
Which particular regions are picking up more quickly than others or are there any color you can give us around the backlog?
Brian Dunham
I can give you a little bit of help there, Ryan. We typically do not break it down by region in any real detailed fashion but as it is almost always true, it is not consistent throughout the country.
We do have I think a reasonably good backlog in virtually all of our facilities but in some of them, it is much, on that range it is recently good, some were more of the high end into than range and some were are below end into that range. So, we do not have any facilities that are really desperate for work at the moment but we certainly have facilities where we could put some more work in there in a relatively near term.
In terms of the overall margins in the backlog, it is the pricing in the fourth quarter, let me do it that way, was a little bit better again than it was in Q3 so we are seeing a positive pricing trend going forward. Obviously, that should translate to a higher margin in the backlog if in fact you produce projects at exactly the same average rate as you book them.
In our cases, that is not what happened and as we mentioned, we have a little bit of a positive project mix in the fourth quarter so we will see the other side of that in Q1 so the backlog number is a little bit lower and because of that, we have just been working on some of the better margin projects here in the fourth quarter.
Ryan Connors - Boenning & Scattergood
Okay, that is helpful. In terms of the steel issue, I mean coming out from kind of a bigger picture, aside from the potential impact on your margins on any given project, is there a risk that some steel prices stay where they are and continue to go up from here that some municipalities decide “You know what, given this increased in input cost we are just kind of put some of these projects on the backburner for now” or is that something that would happen or not?
Brian Dunham
I cannot tell you obviously with any certainty what would happen there but I can relate this to what we have seen in the past. We saw steel go up in 2004 from roughly $280 a ton to about $780 a ton in about an 8-month-period and at that time, we did not really see any significant fall off in water transmission projects for municipalities.
There were certainly some projects that we believe did get postponed because of that but they tend to be more private projects than municipal projects. Municipal projects get planned for a long time.
In some cases, 10 years or 20 years in the planning phase before they start focusing on getting them built. As they get them built, they are building a pipeline that they expect is going to last for 75 to 100 years so if you think about the change in the steel cost, it becomes a relatively small component in the overall big picture.
Put it another way, steel is about a third of our cost in that business and our long distance cross country pipelines which is the majority of what we do, the pipeline has a real affirmed cost about $2 per every $1 pipe. So, in other words, the installation cost is about equivalent to the cost of the pipe.
So, then you start looking at that and say, “Well, steel then is about 16 ½% or so of the total cost of the pipeline to the municipal water agency.” So, if a component of your cost is 16 ½% of the total, it goes up by 50%, it is a big change but it might not be a deal breaker.
Ryan Connors - Boenning & Scattergood
Okay, then that certainly makes sense and over on the financial side, as the business improves on the second half, if in fact does improve like you think it will, do you think the company will be able to generate some leverage on the SG&A line or will that lines increase as the new facilities come on stream and so forth and new people relative to that or will there be leverage there?
Stephanie Welty
Yes, we expect the SG&A will be relatively flat in 2008 and so, there will be leverage so SG&A as the percent of revenue should be coming down overtime.
Ryan Connors - Boenning & Scattergood
Okay, great and then, well just one final one. You mentioned the networking capital going up a little bit, I know that one of the things that happened in the past is that as volumes increase, networking capital needs increase and I am just, Brian, if you can just give your kind of outlook on, for free cash flow, if in fact the cycle does pick up in the second half, what is the kind of timeframe, how long will that networking capital need to be elevated and what timeframe does that sort of reverse itself?
Brian Dunham
Yes, I am going to throw that one to Stephanie, Ryan.
Ryan Connors - Boenning & Scattergood
Okay.
Stephanie Welty
Our outlook is that we should be able to post some cash out of the balance sheet. We have got some pretty long cash cycle times and we see big opportunity to get that cash out of the balance sheet.
Our target will be roughly $15 million over the course of the year to be able to improve that.
Ryan Connors - Boenning & Scattergood
Okay, that is all very helpful. Thank you both.
Brian Dunham
Thank you.
Operator
Next question comes from [Alex Ryeson]. Your line is now open
Alex Ryeson
Thanks for taking my question, guys. I do not mean to get back to the steel question but just for the recent rise, I had a few more follow up questions.
The first one is just in the tubular segment, I know you guys talked about, and market demanding very strong. I just am curious, one if you have seen your competitors increase prices as well and two, what has happened in the past in that segment with the increase in steel prices?
Brian Dunham
Well, as a rule of thumb, as steel cost increase, we are able to pass on those increases to our customer base. There have been some exceptions to that where the market has been weak for the finished good and yet are still strong for the steel and some other components of their market so steel prices were able to go up and our prices were not but that are a relatively rare occurrence.
Typically, we can pass on these increases. We saw and again, I will refer back to 2004, we saw an extraordinary increase in the cost of steel over a short period of time and we were capable of passing on those increases at that time and those were absorbed in the marketplace.
So, we feel reasonably confident at this point that we will be able to do that. There is certainly strong evidence out there.
Our markets, in spite of discussions about a swollen economy, our markets continue to look pretty good for our tubular products pretty much across the board and we have seen our competitors’ increased prices. In fact, just day before yesterday, US Steel announced across the board $150 a ton price increase effective April 1st.
So, we are seeing that those kinds of increases going to affect and we do think we will be able to do that as well.
Alex Ryeson
Okay, great. That is helpful and then, just on the water segment, just with your fixed priced contracts, just with steel going up, $150 a ton from December until today, how are you able to manage that?
It seem like maybe you guys have to bid on some contracts with the lower steel price in mind but you say it was not going to be an issue, I am just trying to connect those two points.
Brian Dunham
Yes, I mean that the key is being careful and profitable about how you bid those jobs and taking into account all the information available in the market to forecast so you can see what the steel price is going to be. If you knew that successfully then even though steel price rises, you have already incorporated that into your bid.
Alex Ryeson
Into your account and you guys something going forward I mean I have seen your assumptions as the steel is going up from $700 a ton going forward, are you guys..?
Brian Dunham
We believe it is still going up from here and part of this, the important piece is for the most part, we only have to forecast ahead a couple of months and Stephanie referred to that, that when we get an order, typically we will be buy steel for that order within three months after we put our final bid in.
Alex Ryeson
Right.
Brian Dunham
Okay, so it is not a real long-term forecast. When we do get to some long-term projects then it is a little bit different and then we try to get escalation clauses built in to some of those longer term contracts and we have been generally successful in doing that.
Alex Ryeson
Okay, that is helpful and just one follow up question. Have you guys seen an increase in Chinese imports just in your products at all over the last few months?
Brian Dunham
Are you referring to steel or finished goods?
Alex Ryeson
Finished goods.
Brian Dunham
No, nothing substantial.
Alex Ryeson
Okay, I am just curios that there are many sanctions in finished good over there and exporting it to get around their deregulations.
Brian Dunham
Well, there was a trade case that was found in favor of the US and against China that was, boy I think, it was in January when they made the decision. That applied abruptly at 16% countervailing duty for Chinese tubular goods and that has not gone into affect yet.
I think the date has been delayed so now the final hearing is going to be in May. We certainly saw that.
We reduced the impact of Chinese goods in the US.
Alex Ryeson
Okay. Well, great.
Thanks to you guys and congratulations on the great quarter.
Operator
Okay, just a reminder, please press * and 1 if you have a question. Again, please press * 1.
I show no further questions at this time.
Brian Dunham
Okay, if there are no further questions and this will conclude our conference call…
Operator
Excuse me, two questions just popped up. One moment please –
Unidentified Analyst
Hello?
Brian Dunham
Yes, you are on.
Unidentified Analyst
Yes, hi. I am sorry; I was wondering if there was enough data on the Las Vegas project, if the timing was still intact, if that is what you were thinking?
Brian Dunham
Las Vegas, there are a couple of events going on, I believe. In terms of their timeframe, first they are putting together their specifications for the project.
I think they have an engineering firm that is providing that to the agency. We understand the agency have the engineering firms’ recommendations and are revealing them.
They are then going to put those out for us and other bidders to look at. We expect that to happen within the next few weeks, maybe certainly within the next month.
That is probably a little bit later than we had expected it previously but nothing that is too surprising. After that, it is done or after that, if that comes out, there will be a review of that and comments we made back and may make another revision before they ultimately bid the project.
I understand at this point is they are planning on bidding a 100 mile section of the pipeline and we do not have any bid dates scheduled for that at this point in time.
Unidentified Analyst
Do you have any idea what the estimated dollar value of that would be then?
Brian Dunham
Well, that is going to depend on what people bid on it and we are not going to talk about that.
Unidentified Analyst
Okay. So as far as getting derailed by protest from I guess some of the local interest and environmentalist that… it does not appear to be an issue at this point?
Brian Dunham
Well, a project like this attracts a tremendous amount of attention and until it is done, it is not done. They obviously have things that they have to deal with and overcome, final sign, final right of way; dealing with any protest could be on that list as well.
So, that is a lot of things that they have to do to move this along but we continue to believe that they have got the wares to make it happen.
Unidentified Analyst
Okay and then just on your comments on pricing order transmission being better in Q4, was that broadly across the entire nation or was that more specific to certain regions?
Brian Dunham
The pricing is a little bit difficult in the water transmission business because there is no such thing as a price list. Each one of these projects is a custom-designed project so when we talked about pricing, what we typically do is we will group together all the activity for a quarter and look at how those average prices worked out.
So, it is essentially across the universe of bids during the quarter.
Unidentified Analyst
Okay, great. Thanks, nice quarter.
Brian Dunham
Thank you.
Operator
And our last question comes from Shirad Patelle. Your line is now open.
Shirad Patelle
Good morning, Brian.
Brian Dunham
Good morning.
Shirad Patelle
Just one quick housekeeping item here, where is the tax rate for the first quarter of the 2008?
Stephanie Welty
We expect that we will be roughly in the 36% to 37% range.
Shirad Patelle
Okay and then do you have kind of a CapEx target for 2008?
Brian Dunham
I think 2008 will probably be $15 million to $18 million is the target.
Shirad Patelle
Excellent and I guess following on the Las Vegas, do you guys have additional updates for projects that you are seeing in the Texas region?
Brian Dunham
No, I do think we have any specific updates. There are several projects and taxes and several of them are quite large that are moving to the system but I do not think we have any specific updates on any of those.
Shirad Patelle
Okay, thanks. Good quarter, guys.
Brian Dunham
Thank you.
Operator
Then we do have a question from Andrew Nevadomski. Your line is now open.
Andrew Nevadomski – Standard & Poor’s
Hey, guys, how are you?
Brian Dunham
Good. How are you?
Andrew Nevadomski – Standard & Poor’s
I am doing well thank you. I just want to get a little bit more color on the tubular side of things.
I guess you are looking for the revenue to improve in Q1 versus Q4, is that correct?
Brian Dunham
Yes.
Andrew Nevadomski – Standard & Poor’s
But not necessarily to the $25 million quarter range that we saw at that first few quarters of last year?
Brian Dunham
Yes, we did not get terribly specific but we think it will be up quite a bit from where it was in the Q4.
Andrew Nevadomski – Standard & Poor’s
Okay and could we be looking at the similar run ways and start to see some nice growth by Q2 and in the Q3 from what we have seen last year?
Brian Dunham
Again, we did not get very specific with those numbers. We think all raw for the year.
We certainly expect to see tubular products grow. I would say as a rule we would expect to think of Q2 as being higher than Q1 in the tubular products group, Q3 probably be enough there and then Q4 drops off a little bit.
That is generally the pattern.
Andrew Nevadomski – Standard & Poor’s
Okay, just another seasonality in Q4 and then but looking at the couple of years, what do you think this business can be?
Brian Dunham
The target for this business is to get it to $150 million in the next three years.
Andrew Nevadomski – Standard & Poor’s
Okay and does it mostly driven on the energy side of the business or do you see a lot of options in the tubular side?
Brian Dunham
I think energy will be a big component of that but I think there are other opportunities as well.
Andrew Nevadomski – Standard & Poor’s
Okay and then the other margins on I guess the similar questions I mean, it sounds like you expect to figures to look better in Q1 but maybe not quite a bit double digit range in Q1 but determine as the revenue improves the Q2 and Q3, that is more what we should expect to see the margins back in the double digit range?
Brian Dunham
Yes, I think we will see it move up and over the first two quarters, we will see a recovery in that margin and the long term objective has been for quite some time though I see the years is to get that margin into the double digit range and keep it there and we have done that successfully with the exception of this fourth quarter of 2007. I think we will see it back at that level.
It is certainly hit that level for the year of 2007. We should see at that level maybe a little bit above that in 2008.
Andrew Nevadomski – Standard & Poor’s
Okay, great. Thank you and good luck.
Brian Dunham
Thank you.
Operator
I show no more questions.
Brian Dunham
Are you sure?
Operator
Yes.
Brian Dunham
Okay, well thank you very much for your interest. This will conclude our conference call.