L B Foster Co (FSTR) 2006 Q4 法說會逐字稿

Good day ladies and gentlemen and welcome to the Fourth Quarter 2006 L.B. Foster Earnings Conference Call. My name is Sheryl and I'll be your audio coordinator for today.

[Operator instructions]

I would now like to turn our presentation over to your host for today's call, Mr. David Russo, Chief Financial Officer. Please proceed sir.

Thank you, Sheryl. Good morning ladies and gentlemen. Thank you for joining us for L.B. Foster Company's Earnings Conference Call to review the company's fourth quarter, 2006 operating results. My name is David Russo and I am the Chief Financial Officer of L.B. Foster.

Also on the call today is Mr. Stan Hasselbusch, L.B. Foster's President and CEO and Mr. Lee Foster, Chairman of the Board.

This morning Stan will provide an overview of the company's results, give an update on key issues, and discuss business conditions. Afterward, I will review the earnings press release issued earlier this morning before we open up this session for questions.

Means to access this conference call via webcast were disclosed in our earnings press release and were posted on the L.B. Foster company website under the investor relations page. This webcast will be archived and available for 7 days.

Today's call includes forward-looking statements and information within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements relate to future events and expectations and include known and unknown risks and uncertainties. Future actual results may differ greatly from these statements and expectations that are expressed today.

All participants are encouraged to refer to L.B. Foster's annual report on Form 10K for the year ended December 31, 2005 as well as to other documents filed with the Securities and Exchange Commission for additional information about L.B. Foster.

I should also reiterate at the beginning of this call, that while forward looking statements will be made, it is the policy of the L.B. Foster Company to not provide specific earnings guidance.

With that, we will commence our discussion and I will turn it over to Stan Hasselbusch.

Thank you David and thanks to all of you for attending our fourth quarter, 2006 earnings call and webcast. Overall revenues and income were up substantially compared to the fourth quarter 2005.

A mild November and December in the upper Midwest and Northeast, coupled with the number of projects which were delayed in the third quarter and moved into the fourth, led to record performances in both sales and profitability in our fourth quarter.

Our fourth quarter performance was the eighth consecutive quarter the company has recorded an earnings increase over the same period the previous year.

Revenues in the quarter were $110.5 million compared to $76.7 million in the fourth quarter, 2005, a 44% increase. Net income from continuing operations for the same period was $3 million, more than a 6-fold increase over the $429,000 from continuing ops in the fourth quarter 2005.

David will review the financials in more detail later, but first I'd like to discuss some of the highlights that led to our record fourth quarter.

Strong performances in the quarter came from a number of areas, let's start with rail. In rail distribution revenues totaled $24.8 million for the quarter, up 43% compared with fourth quarter 2005 as shipments were made across the breadth of our market. This was very much in line with the rail renaissance we have been discussing throughout the past year.

The Association of American Railroads, or AAR, estimates that class 1 spending - capital spending, was $8.3 billion in 2006, up 20% over 2005 and Railway Track and Structures magazine, or RT&S, believe capital spending will increase another 16% in 2007.

RT&S estimates new rail consumption by the class 1 railroads was up 29% in 2006 and is also forecasting an increase of another 10% in 2007.

Industry wide, new rail shipments hit 1 million tons in rolling 12-month usage through October of 2006.

In our transit business, our transit products division sales totaled $16.3 million for the year, up 51% over 2005 as we began to benefit from the transit side of [safe t lube]. Increased activity is also seen in our transit backlog, which stood at $14.5 million at year-end, which was 105% ahead of year-end 2005.

It also - it should also be noted that in last November's election we tracked 23 separate ballot initiatives across the country which passed and are expected to generate $40 billion of increased incremental funding for transit business in the future.

As upbeat as we are in our rail business, one of the few operational shortfalls was on the concrete tie side. Permitting and construction delays negatively impacted our Tucson facility in the quarter. Final occupancy permits were not received until mid December and the production results were a disappointment.

Total ties produced for the year at Tucson were less than 40,000. The plant is now operational and we expect to produce 70,000 in the first quarter. This will fall short of the 100,000 ties we expect to produce in the second quarter and beyond.

In our piling business, delayed project carryovers from the third quarter, continued sheet pile section development, product mix, and rental piling all contributed to revenue increases of 58% for the quarter and 23% for the year. Data we track indicates this positive trend should continue into the future.

Reed construction data expects non-residential spending to increase 12% in 2007, on the heels of a 13.8% increase in 2006. And Reed is also forecasting spending in another major piling area, highway and bridges to be up 9% in 2007, following a 15% increase in 2006.

We also continued to increase our share of the 300,000-ton per year domestic sheet pile market. On a tonnage basis, year to date, through November of 2006, we garnered 35% of the market, which was up 27% from the same period in 2005.

We also had an exceptional year in our concrete buildings business. In the past year, management, production, and sales have come together to drive a 20% improvement in revenue and a 700 basis point improvement in margins.

Sales for the year in concrete buildings were $26.8 million. Year-end 2006 backlog in buildings stood at 12.3, 67% ahead of 2005 as we expect additional gains from this product in 2007.

In our tubular business, overall sales were flat for 2006, however in coated pipe, an active energy market and a current backlog, which exceeds our entire production in 2006 by 20%, gives us every indication that 2007 could be our best year ever in this product. Volume drives performance in coated pipe.

In conclusion, we continue to be very bullish on our product mix and the markets we serve. Our year-end backlog is a solid $141million, which is 41% ahead of 2005 and bookings are strong.

Current January bookings are running 50% ahead of last January. All of which we believe will lead to continued improvement in 2007 over our record setting performance of 2006.

Before I turn back to David, I'd like to take a minute and thank our dedicated employees for the many contributions they've made in 2006. We are making progress in a number of areas and are on track to accomplish considerably more in the future or we would not be able to reach these goals without the quality of the people we employ. They make a positive impact on our performance every day of the week. Thank you.

And now I'd like to turn it over to David for our financial review.

Thank you Stan. We'll start with the quarter. Sales for the fourth quarter of 2006 were $110.5 million compared to $76.7 million in the prior year. An increase of 44%, which we were able to leverage into a 600% increase in income from continuing operations.

The sales increase was due principally to a 45% increase in rail product sales, a 49% increase in construction product sales, offset in part by 9% decrease in tubular sales compared to last year's fourth quarter.

As mentioned in the earnings release, and as Stan alluded to, while we are very pleased with the sales activity, the fact that Q4 ended up being the highest sales quarter of our 2006 fiscal year, this certainly contrary to our seasonal sales history.

As you may recall, our third quarter 2006 construction product sales were 5% less than the third quarter of 2005. Primarily because of a decrease in piling sales. This decrease was due to several customers not taking product as expected due to typical project delays and the individual items added up to a fairly substantial amount.

We also believe, but cannot easily quantify, that the mild weather had a favorable impact.

Tubular sales were down in - for the fourth quarter due to a decreased in coated product sales, partially offset by an increase in threaded product sales.

The construction product sales increase was due to across the board increases in this segment's businesses. Piling, fabricated products, and CXT concrete buildings all had sales increases in the fourth quarter of 2006 as compared to the prior year quarter with piling leading the way by posting more than a 50% increase.

As you may remember from prior calls, our fabricated products group is the business that had a poor year in 2005. Their fourth quarter results were significantly improved over last year's fourth quarter, primarily on the strength of our Georgetown Massachusetts facility.

Georgetown has played an instrumental role in assisting in the repair of the Boston Central Artery that has had substantial problems culminating in a tragic accident in July of 2006. This group has done an excellent job operationally, but as we have mentioned on prior calls, one of the keys for us in evaluating this business would be the bidding activity in the second half of 2006.

The fourth quarter rail sales increase was driven by rail distribution, CXT concrete ties, as well as increased sales in transit products.

Concrete tie sales were well ahead of last year, but less than we expected as Grand Island Volumes were strong, but problems at Tucson, which we have discussed, kept us from hitting our 2006 targets.

Fourth quarter tie production was up over 50% compared to last year while keeping in mind that Grand Island was not at full capacity in last year's fourth quarter and Tucson wasn't even built yet.

Last quarter I remarked that a more meaningful measure showed that the refurbished Grand Island facility produced 27% more ties than the maximum capacity of the old Grand Island facility. That measure has improved to 29 -- to a 29% increase for the fourth quarter of 2006.

For the full year we produced almost 800,000 ties compared to 500,000 in 2005. As Stan has mentioned in the past, we expect to produce as much as 1.1 million ties in 2007. We believe the demand is there, but we need to move Tucson from the commissioning stage to full production.

In that regard, we have several engineers, concrete manufacturing experts, and quality control professionals working with a tremendous sense of urgency and they are making meaningful progress increasing the productive capacity in Tucson.

For the past 24 months, our tie operations group has worked tirelessly on building facilities and installing new equipment. This year they will finally have the opportunity to focus on operational improvement at all of our tie facilities and we look forward to improved productivity and capacity commencing in the second quarter of 2007.

Our Grand Island and Tucson facilities are booked out for the Union Pacific Railroad for 2007.

In Spokane we are producing concrete ties for other class 1 railroads, transit authorities, contractors, and industrial customers and we continue to experience strong inquiry and bidding activity.

We also continue to encounter minor production issues in Grand Island and Spokane on a one off basis and believe there is further improvement that can be achieved from the efforts previously discussed.

As a percentage of consolidated sales, tubular accounted for 4%, construction 51%, and rail was 45% for the quarter.

Gross profit margins were 13.1% in the fourth quarter of 2006, an increase of 200 basis points from last year's fourth quarter. While this margin was even with the first 9 months of 2006, it was 140 basis points below the third quarter of 2006.

The positive margin expansion compared to the prior year is due to a significant increase in product profit at standard before plant and other variances and, to a smaller extent, decreased LIFOcharge in the fourth quarter of 2006. This is partially offset by increased scrap and obsolescence costs and by decreased favorable purchase price variances.

Net plant expenses did increase in the fourth quarter, but not as a percentage of sales. The increase was due primarily to the start up of the new facilities this year, ARP in Pueblo Colorado and the Tucson, Arizona concrete tie plant. These two facilities accounted for almost 50% of the unabsorbed plant costs in the fourth quarter. One of our highest priorities in 2007 is to reduce these costs.

The businesses that drove the margin improvement in the fourth quarter were rail distribution, fabricated products, concrete buildings, and piling.

SG&A expenses increased 22% to $9.0 million in the fourth quarter of 2006, due primarily to personnel related costs including salaries, incentive pay and benefits, and to a lesser extent professional fees and bad debts.

SG&A represented 8.1% of sales in the fourth quarter of 2006 as compared to 9.6% of sales in last year's fourth quarter. As a result of the foregoing, fourth quarter operating income was $5.5 million compared to $1.2 million in last year's fourth quarter, a $4.3 million or 370% improvement. As a percentage of sales, operating income was 5% in this year's quarter versus 1.5% last year.

Interest expense was $975,000 in the quarter compared to 697 in 2005, a 40% increase due principally to higher average borrowings and higher interest rates. Average borrowings have increased due to significant investment in plant and equipment over the past year and due to the increased investment in working capital.

The year-to-year rate comparison has started to flatten, as rates have not changed substantially since June 2006.

The fourth quarter 2006 income tax provision was 34.1% compared to 10.6% in last year's fourth quarter. Last year's low fourth quarter rate was the result of adjustments related to the reconciliation of certain tax accounts and releasing a portion of the valuation allowance provided for state deferred assets. All on a relatively low pre-tax income denominator.

Income from continuing operations increased almost 600% for the quarter to $3 million, or $0.27 per diluted share compared to $0.4 million or $0.04 per diluted share last year.

I would like to turn to the full year to discuss our 12-month operating results for a few minutes. Sales for the entire year of 2006 were $389.8 million compared to $326 million in the prior year, a 20% increase, which we leveraged into a 121% increase in income from continuing operations.

Sales increased due principally to a 20% increase in rail product sales and a 23% increase in construction product sales, offset by a 5% decrease in tubular.

The construction product sales increase was due to across the board increases in this segment's businesses. Once again piling, fabricated products, and CXT concrete buildings for the year all had double-digit increases as compared to the prior year with fab products leading the way with a 25% increase.

The 12-month rail sales increase was driven by rail distribution and CXT concrete ties as well as increased sales in transit products. As we look out to 2007, we expect further sales increases in CXT concrete ties, transit products, and ARP insulated joint and friction management businesses.

As a percentage of consolidated sales, tubular accounted for 5%, rail 49%, and construction 46% for the year.

Gross profit margins for the entire year of '06 were 13.2%, an increase of 195 basis points from last year. This positive impact, once again, was due to an increase in product profit of standard before plant and other variances and a decreased LIFO charge in 2006. These favorable variances were partially offset by increased scrap and obsolescence and decreased favorable purchase price variances.

The businesses that drove the margin improvement were transit products, fabricated products, CXT concrete buildings, and piling.

For the full year, SG&A expenses increased 18% to $33.7 million due primarily to personnel related costs including salaries, incentive pay and benefits, and to a lesser extent, bad debts and advertising. SG&A represented 8.6% of sales in 2006 as compared to 8.8% of sales in 2005.

2006 operating income was $19.2 million compared to $9.5 in '05, a $9.7 million, or 102% improvement. Operating income as a percentage of sales was 4.9% in '06 compared to 2.9 in 2005.

Interest expense was $3.4 million in 2006 compared to $2.5 million in 2005 a 37% increase, due principally to higher average borrowings and higher interest rates as explained in the quarter to quarter discussion.

Pre-tax income from continuing operations in 2006 was $15.8 million compared to $7.0 million last year, a 125% increase. As a percentage of sales, '06 pre-tax income was 4.1% versus 2.2% in 2005.

Income from continuing operations increased 121% to $10.7 million or $0.99 per diluted share in 2006 compared to $4.8 million or 46% -- $0.46 per diluted share last year.

Turning to the balance sheet, debt at the end of the year was at $58.1 million compared to $36.9 million at the end of '05. The $21.2 million increase during '06 was due principally to $15.1 million of cash used by operations and $17 million of capital expenditures partially offset by the proceeds from the sale of our former geo-technical business.

The $17 million of capitals expenditures this year were primarily for our Tucson and Grand Island concrete tie facilities and for our new Pueblo facility that we have discussed in the past, where we have commenced production of insulated bonded rail joints.

In 2007, we anticipate capital expenditures to be less than $10 million and we also look to generate positive cash flow from operating activities.

Debt as a percentage of capitalization at the end of 2006 was 37% compared to 35% at the end of Q3 2006 and to 32% at the end of 2005. Our leverage ratio is below 2.3 to 1, and our interest coverage is strong.

We mentioned earlier about working capital increasing. Accounts receivable and inventory net of accounts payable increased by approximately $32 million in 2006. Accounts receivable increased by $16.1 million from December '05 to December '06. This was due primarily to the 44% increase in fourth quarter net sales as compared to sales in the 2005 quarter.

DSO was 46 days at the end of 2006 compared to 55 days at the end of '05. We believe our AR portfolio to be in excellent condition.

Inventory increased by $32.8 million during 2006. The majority of this increase was in the rail segment. Total rail inventory accounts were approximately 50% of our total inventory. Two thirds of the increase was in the distribution side of our business where we expect a competitive market with a tight domestic supply situation in 2007. We do not expect this domestic capacity issue to ease as a third rail mill comes on line in 2007 to 2008.

In summary, we are pleased with the improvement demonstrated by our 2006 results. We only have 660 employees working at the company and each one of them plays a daily role in the continuous improvement challenge that L.B. Foster has and their efforts are very much appreciated.

We have set high goals for 2007 and beyond that ultimately depend upon such improvement in all areas of the company, whether it be plant operations, working capital management, getting the waste out of our processes, as well as providing the tools and resources to help us all succeed as we move forward. We continue to believe that our strategies are sound and that we have the right people to get it done.

That concludes my comments on the fourth quarter and year. We will now open up the session to questions for those of you on the call. Sheryl?

[Operator instructions]

Our first question comes from the line of Robert Damron of 21st Century Research.

Good morning guys.

Good morning Rob.

Excellent quarter. Wanted to try to quantify some of the revenue in the fourth quarter in terms of how much was pushed out - or how much do you think was pushed out from Q3 into Q4 and then also do you believe that there was any - did you steal any from Q1 in terms of the warm weather that we saw in November and December. Do you think some projects were pulled forward from the first quarter?

Rob the - the first question as far as what was delayed in - from Q3 to Q4, probably $9 to 10 million.

Okay.

As far as whether anything cheated forward or not, I mean who knows. We - yes, its very hard to figure. We certainly were surprised by the strength, especially in December. So, yes, probably some things were shipped that in prior years we might have seen them hold off until the middle or later first quarter. But we don't - we're not looking for that to create any significant weakness in 2007.

Our - Rob, our - typically our December is one of our slower months of the year and our traffic group has commented that there were as busy shipping trucks out in railcars, getting railcars in December as they were at the end of the third quarter so - and the weather really did come into play. But to quantify that it's hard to say.

Okay. That's helpful. And then, Stan, you did mention a few macro-spending issues on some of your end markets. I don't believe you mentioned about highway construction, or if you did, I missed it. What is the outlook for that segment going into '07?

I believe highway construction - highway and bridges were expected to be up 9% in '07 over '06, Rob.

Okay, so that was one market that has been weak in '06 and - but there is an expectation that that is expected to accelerate going into '07?

We think so. We think as the entire safe t lube bill just continues to unfold that it will come up.

Okay. And then I also wanted to find out about the depreciation on the Arizona facility. Did we start seeing that in the numbers in Q4? Was that fully realized in Q4 or will we see more depreciation on that facility going into '07?

It did start, Rob, but you didn't see the full impact in Q4. You'll see it in Q1 of '07.

Okay. Could you give us the DNA number for the quarter?

For the quarter? Between - a little more than 1.7 million.

And then - just in terms of the margin expectation as we move into '07, it looks like the concrete tie business will start to ramp up. It seems like that should be a higher gross and also a higher operating margin business than what some of your other businesses, continuing to get leverage. Do you care to give any guidance in terms of - or goals that you might have for margins going into '07 and '08, or what kind of margins did this business can ultimately generate?

Well, we do - Rob, we do expect to - we have, as we've talked about today, margin expansion was up 200 basis points on the year. We continue to drive it up. We will give benefit as we talked from coated pipe. You're right about the concrete tie facilities being up and operational which will continue that trend, but we do realize that we've made a lot of headway - we've made headway in the last 3 years and we've got a ways to go and there are a number of opportunities on what to do - what's out there to be able to capitalize on this.

There are some challenges but expectations that we have and one of the areas that we talk about is margin expansion and that goes to - part of it is bringing value to our customers and continuing to drive up gross profit at standard numbers. But on the other side of it is continue as we talked about in our presentations to reduce costs at the plant. We'll come a long way in that.

Couple other areas that we're looking at also, Rob, is at our plants. We realize that we do need to be bringing operations excellence to our plants. We've spent $25 million over the last 2 years to make 2 or 3 quality plants, the 2 tie plants and the plant at Pueblo. We do need to be able to drive performance at those plants to attain the productivity, the efficiencies, and the qualities that we expect and that would come a long way also as far as improving margins.

And then another area that we'll really be working on, that you didn't touch on, but I'm sure somebody is going to talk about is in working capital management. Our inventory at the end of the year as David alluded to was pushing $100 million, which was up $32 million in the year. We feel that that's too high. Most of that came in advantageous purchases that we made throughout the year because of the very tight rail market that I had alluded to.

We did make a number of advantageous buys, but we need to be turning this over and bringing margin enhancement with that product as our overall inventory. And the end goal here is to increase and to improve free cash flow. We have been a cash user over the last 2 years with some of the bills that we've had. As David said, our CapEx expenditures, expectations this year are under $10 million and that will all go away. We will be a cash provider this year. We will not be a cash user.

Okay. And then just one last question for me, just on commodity prices, how did that impact the sales and the gross profits during the quarter? Was there any significant impact from that?

I would tell you, Rob, really the only area where we really saw anything that significant was in the piling business and probably maybe, I would say, a fourth or a little less than the fourth of the piling sales increase was related to pricing.

Okay. All right. That's helpful. Again, great quarter. Thanks again.

Thanks, Rob.

Our next question is from the line of Mark Close of Oppenheimer.

Good morning.

Morning.

A couple questions. One on the fabricated products. How long do you expect the problems up at the big dig tunnels to benefit you there? You have indicated that as you review that business some of it will have been based on the last 2 quarter's bidding activity. I wonder if you can kind of bring us up to date on that. So I'll start there and --.

Two questions that you had there, Mark. I think on the first one, as far as what's going on from the artery, most of the immediate work was done with the central artery. That has been opened. There's - we've got some residue work, which we will continue, through the first quarter. That will also be used up there.

The other major project is at the Ted Williams - the Ted Williams tunnel and we expect to know more on that in the first quarter on how that's going to come out to bid.

As your second point was on the overall bidding activity. It's surely not been there. We've got some major work that's being in fab products in the first quarter. We did pick up some bookings in the New York area. And we just recently picked up a decking job this month. As I said, the overall activity is very strong in all of our products, but it is not where we expect to be - where we need to be in fab products.

We were profitable in fab products for the year. In 2006 our revenues were up 25% over 2005. Our backlog at our precise operation is higher than it was last year. We need some work at Bedford. There's the work that's coming out. The first quarter is going to be - its fairly slim at that plant.

On the concrete buildings, you had a nice increase this year, did that move into profitability as well?

Very much so. I mean we had a very good year in that one of our best performing return on investment products that we have.

And the backlogs look good there for '07?

Yes, I think I alluded to the fact its 65% ahead of last year running at about 14 or 12.5 million, I had it in my notes, but yes, its certainly ahead of last year. Yes.

Out in Colorado, I think in the last call or the last couple of calls, you had talked about some teething problems in getting that plant up and running and then it sounded like in the third quarter call that it was humming, but you were a little concerned about the volumes you were getting in terms of orders. How is that looking?

It - our performance in the fourth quarter in that particular facility, I would not say - I would not categorize as stellar. We are still looking for backlog. We've got some - we've had a good order entry so far in January. We've got some work that we expect to come in. we are getting improved production.

We really have some high expectations for that in the entire year 2007, Mark. But it was really not what we expected in the fourth quarter. We still are having some operational challenges and of course bringing in the backlog for the year. But we do have high expectations for that.

As part of what we talked about, operational excellence throughout the year, that's one of the 3 areas that we really have to be able to turn it around and get a positive contribution on throughout the year.

I think earlier on the Tucson plant you indicated that you would - you're looking for probably something along the lines of 70,000 ties in Q1. Did I understand you correctly that by Q2 you would hope to be -- to be up to the 100.

We expect that. That's our plans right now.

Okay. Dave, if you could just run us through. I know you gave us the percentages, but - and Stan just mentioned that you finished up the year with about 100 million in inventory. Can you give us the receivable and cash numbers as well, and also the short and long-term borrowing?

The receivable balances?

Yes. Well the - no, the accounts receivable. I think at the end of Q3 was about $50.9 million.

We ended up the year around $66 million, Mark, in AR.

Okay. And short-term borrowings, I think was about 10 - a little over $10 million and long term a little over 40 at the end of Q3. Where did they stand at year-end?

That's - most of that short term borrowings have been moved to long term because we've finalized our leases on - on really all of our facilities. So we really only have maybe $3.5 million -- $3.8 million of short-term borrowings and most of that is just current portion of long-term debt.

Okay. And the long-term debt ended up at - I'm sorry -.

Long term debt ended up at just about $55 million, $54 million -- $54 million.

Okay. Thank you.

We have a question now from the line of Tom Spiro of Spiro Capital.

Tom Spiro of Spiro Capital. Good morning everybody.

Morning Tom.

Boy a great quarter, a great year. Congratulations. You've got much to be pleased with.

I noticed in the press release the reference to product availability and delivery delays and I was kind of curious if you - what you're referring to, particular product lines? Are you at capacity in certain lines or do you anticipate being at capacity this year?

We're not, Tom. The only real reference there, on the rail side of the business. I think along with the rest of the country, we have struggled in certain areas getting rail cars timely from the railroads and lack of car availability and congestion on the lines have delayed some of our deliveries over the past couple of years.

I see. You mentioned, Stan, in your commentary that Tucson has been challenging. What's challenging in 2006? And I guess Pueblo a bit as well. Can you give us just sort of a ballpark sense of how much those two may have cost us in 2006, I mean just sort of a ballpark number of sort of how much in the red?

I'm sorry. Say that again, Tom. I -

I wondered how much the start up costs associated with Tucson and Pueblo may have burdened the income statement in 2006. Just sort of a ballpark aggregate number.

Yes, its - a little less than that. It's a little less than that because as they turn on they - that - their productivity has to move up along with the sales and gross profit. But probably $2 million or just a little under.

$2 million or so of running in the red for 2006?

Yes.

Got you. Okay. Tubular. Stan, I think I caught a reference to tubular where you said that our backlog as we enter 2007, am I right here that it exceeds the revenues that we had in that division in 2006?

Yes, we've just got a commitment earlier this week on a major project and right now we're looking at a backlog of neighborhood of over 21 million square feet and I think we produced all of - in all of '06 our number of square footage coated was around 17 million square feet. So we, right now, as of yesterday, I think we were at the end of January and we're still taking business for a second shift basis at coated.

We're booked through the third quarter, but we've got somewhere in the neighborhood of 16 to 18 weeks starting in the second quarter and into the third quarter which will be in double shift basis. We're looking - we have the possibility, we think, of having the best year we've ever had in coated pipe.

As I recall, from the third quarter 10Q, the backlog for tubular at the end of Q3 was quite robust, I think the number might have been about $11 million. Doing this from memory.

Yes, I think it ended the year at about 9, but we have added some in January, Tom, and we will add more in February. So, I think that our backlog right now is in excess of $11 million. I know it is.

Did - was - did tubular have a strong Q4 or not?

Marginal. It wasn't anything spectacular.

It was, it was, it was decent. It was not as good as last year's fourth quarter, Tom.

I see. I see. On the subject of working capital. Stan, you mentioned that the company as a whole will be cash flow positive in 2007, or so we hope. Will working capital itself be a source of cash in 2007 do you think?

We expect it to be. We expect it, we do. We expect to - we expect contributing coming from the CapExes, which David alluded to. We don't think that that's going to exceed $10 million. We're looking for improved profitability for the year and we're looking for better inventory management.

We've had - as David said, we've had just - we've had really very good success on the other side of our working capital management on the AR side. Our DSO at year-end was 46 days, which was down from December of last year, 55.

And you can go back a couple years before that and we were in the 60s. Our credit group has just done an excellent job. But we do have - we do have attention that we need to be putting on our inventory management.

SG&A is up in 2006. Certainly in absolute dollars. I guess it came down a bit in percentage. Do - what's your outlook for '07?

It is forecasted to rise gain in '07, Tom, but slower, much slower, than the 2006 increases.

You're talking about absolute dollars?

Yes.

So, declining as a percentage of sales.

Yes.

Okay, and lastly, tax rate for '07? Anything much different from '06.

Not really, a little higher than '06. We've pretty much chewed through any kind of NOLs and LIFO deductions we've had but it will be in the 34 to 34.5% range.

Well, many thanks. Congratulations and good luck in '07.

Thanks, Tom.

We also have a question from the line of [William Wolf]of First Manhattan Company.

Howdy. Yes, on the 800,000 last year, ties, expected this year maybe 1 million 1. Is there an average price that you can quote per tie? I know there's a range of, what -?

Bill, it's all over. We've got special pricing with the Union Pacific, and as we alluded to, they do have full capacity at both Tucson and UP, industrial ties. It depends on the quantity, it depends on the type of tie, it depends on the usage. We've had prices all over the board at our Spokane facility this year. We're selling it to class 1s, we're selling to regionals, we're selling industrial applications. So it's - there's really - it's all over.

We couldn't give you just one accurate number, Tom.

Bill.

Bill.

Yes, so if I needed 10 ties for my backyard that would be expensive right?

Give me a call.

Okay. Thank you.

How's everything going?

Fine. Everything is great.

Good.

Happy shareholder, absolutely.

Thank you.

Ladies and gentlemen, this concludes our question and answer session. I'd like to return the floor to Mr. Russo for any closing remarks.

Okay. Just thank everybody for their support of L.B. Foster and look forward to a good 2007. Thank you.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes our presentation. You may now disconnect. Good day.