L B Foster Co (FSTR) 2011 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the fourth quarter 2011 L.B. Foster earnings conference call. My name is Amicielle, and I will be your operator for today. At this time, all participants are in a listen-only mode. We will conduct a question-and-answer session towards the end of the conference. (Operator instructions) I would now like to turn the conference over to Mr. David Russo. Please proceed.

Thank you, Amicielle. 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 2011 operating results. My name is David Russo, and I'm the Chief Financial Officer of L.B. Foster.

Hosting the call today is our newly appointed President and CEO, Mr. Robert Bauer. This morning -- I should say this afternoon, Bob will provide a brief overview of the Company's fourth-quarter performance and also give some general remarks. Afterward, I will review the earnings press release issued earlier this morning and then we will open up the 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 seven days.

During today's call, our commentary and response to your questions may contain forward-looking statements, including items and such as the Company's outlook for 2012, our thoughts regarding the concrete tie product claim, cash flows, margins and capital expenditures. These statements involve a number of risks and uncertainties that could cause actual results to differ materially. These forward-looking statements reflect our opinions only as of the date of this presentation and we undertake no obligation to revise or publicly release the results of any revisions to these statements in light of new information or future events. All participants are encouraged to refer to L.B. Foster's annual report on Form 10-K for the year ended December 31, 2010, as well as to other documents filed with the Securities and Exchange Commission for additional information about L.B. Foster and to learn more about the risk factors that may affect our results.

Additionally, while forward-looking statements will be made today, L.B. Foster Company's policy prohibits us from providing specific earnings guidance. With that, we will commence our discussion and I will turn it over to Bob Bauer.

Thank you, Dave. Thank you to everyone for joining us today. Before we begin our comments on the quarter and the year, I would like to make a few remarks.

First, as I'm sure you are already know or have seen our press release, I joined L.B. Foster on February 1. I'm extremely excited about being here and I very much look forward to working on the many opportunities the Company has for continued growth and profitability. As we handle questions today, I'm sure I will depend on Dave to handle the bulk of them, which I expect will be on our fourth-quarter results.

Second, I would like to recognize the contribution that Stan Hasselbusch has made over his 40 years with the Company, and particularly in the last decade as the Company's President and CEO. I'm fortunate to take over a business that's in very good condition and I know he would give a lot of credit to the employees at L.B. Foster, so I will do that on his behalf. There's a great team of people there, and it's obvious to me that they are energized about the path towards continuous improvement and accelerating our growth rate, which will benefit our shareholders.

Finally, I appreciate the confidence you have placed in our management team and I'm looking forward to future discussions with many of you regarding the Company's strategy. Over the course of the next two quarters, I will be looking for opportunities to meet with shareholders and analysts and anyone that's interested in L.B. Foster as we begin to talk or about ways to accelerate the Company's growth.

Before I turn it back over to David to discuss the details of the fourth quarter and the full-year results, I wanted to make a few comments about the Company's performance. As I said in the press release, the Company achieved record sales in 2011 of $591 million, up 24% over last year. This was helped, of course, by the acquisition of Portec Rail Products, which was acquired at the end of 2010. The base company without Portec or the Legacy L.B. Foster business, as we have referred to it in the past, grew at 3.1%.

As we go forward we will report Portec together with our existing rail businesses and will no longer refer to a legacy business. We plan to continue to integrate those businesses further, and it won't make sense for us to separate the reporting.

The Rail Products business excluding Portec Rail Products was up 5% for the year, and our Tubular Products business was very strong in 2011 with over 19% sales increase. Our Construction business, however, remained challenging through the year, ending the year flat with 2010 resulting in an overall increase of 3.1% that I mentioned without the acquisition.

The rail market has been looking pretty good. The North American class 1 railroads ended the year with strong rail traffic in the fourth quarter, resulting in 2011 being a pretty good year for them, and in several cases leading to record revenue and earnings. We closely monitor the revenue ton miles traffic measurements, and they hit historical highs in the fourth quarter, increasing by 4.4% year-over-year and ending up 3.2% in 2011. And we are seeing the growth trend continue into the first six weeks of 2012 with rail traffic up by over 2% year-over-year.

This momentum led to record levels of capital spending by the railroads in 2011, where their spending exceeded $14 billion. That was up 33% for the year. And already this year, six of the seven Class 1 North American railroads have announced capital spending plans of 2012, many of them expecting to increase spending by high-single digits this year.

As I mentioned a minute ago, our Construction Products businesses remained challenged through 2011, ending the year flat with 2010 but down considerably in this latest quarter, which Dave will expand upon. We will be looking for ways to keep this business growing despite some of the uncertainty around the transportation bill or the pressures that exist for state and local budgets. And while non-residential construction spending was down again in 2011, we do think that it has bottomed.

Finally, our Tubular Products business had a great year in 2011 with sales up over 19%. Our team did a great job responding to the new opportunities in this segment. Our backlog is up, order rates continue to be very solid and we are still seeing an uptick in bidding opportunities.

I want to turn my attention to margins. With regard to the margins in the business, as you analyze margins, there is significant impact from Portec Rail Products, which carries higher gross margins and higher SG&A as well. But overall, this business has favorable impact on our profitability. As for the whole Company, we were very pleased with the Company's net income of $22.9 million for the year, which was up 11.7% over prior year, and our EBITDA performance, which increased by 12.6% over the prior year. That helped us generate $30.7 million in cash for the year, and the Company's balance sheet continues to remain very solid.

I will close my comments with a comment on Union Pacific and the statements that we have made in our press release. I know there's a lot of concern over the Union Pacific warranty claim and the impact it could have on our Company. We will continue to keep you updated as we get relevant facts towards the resolution of this issue. We have retained experts to help us analyze the field performance of the CXT ties that are in question, and their findings continue to support our position that the product meets the specifications of the contract. I will be working diligently to put this issue behind us, and of course it will be aimed at satisfying Union Pacific, which is a very valued customer of ours.

With that, I will turn it back over to Dave Russo, and he will go through a deeper discussion on our fourth-quarter and financial results.

Thank you, Bob. Sales for the fourth quarter of 2011 were $137.4 million compared to $148 million in the prior year, a 7.1% decrease. The sales decline was due to a 31.4% reduction in Construction Products sales, partially offset by a 19.6% increase in Rail Products sales and an 18.1% increase in Tubular Products sales compared to the fourth quarter of last year.

The Construction Products fourth-quarter sales decline was due to a 32.7% reduction in piling sales and a 47.6% decline in concrete building sales. These were partially offset by a 10.5% increase in our Fabricated Products business sales. As

we have mentioned in previous quarters, our concrete buildings division has had a weak year in 2011, especially when comparing it to a record year in 2010. This anticipated decline was due to the conclusion of stimulus spending by the federal government in early 2011. Even though the concrete buildings division has a backlog that is still 23% lower than last year, we do anticipate an uptick in state spending in 2012 that could improve the backlog and the performance in the second half of this year.

The total Construction segment backlog at the end of 2011 was about 35% lower than December 2010. While that's not where we want to see it, the year-over-year reduction did show a little improvement compared to the Q3 over Q3 comparison last quarter. The construction markets in which we participate ended 2011 mixed with heavy civil construction relatively flat and nonresidential construction down about 4.5%.

Further, our visibility into 2012 is a bit cloudy due to the lack of a new transportation bill and an uncertain rebound in nonresidential construction, which we believe may have bottomed.

The fourth-quarter Tubular Products sales increase was principally due to an improved sales performance in our coated products business. Our overall Tubular segment backlog is significantly above that of last year, and we expect a strong performance from this segment in 2012.

The Rail sales improvement was principally due to a significant increase in Portec Rail Products sales partially offset by a 20% decline in Rail distribution sales and a 23% decrease in concrete tie sales. As a reminder, the Portec acquisition closed on December 15 of 2010, so we only have the last two weeks of Portec's 2010 sales in our consolidated 2010 results. As Bob mentioned, since we will have the full year of Portec Rail Products' results when reporting our 2012 earnings, we will not continue to report discrete Portec results, nor will it be necessary to report what we have referred to as legacy Foster sales. Our Rail segment ended the quarter with bookings up 52% over last year. However, our backlog was lower by 19.5%.

As Bob mentioned, capital spending among the Class 1 railroads a strong and we anticipate that strength to translate into increased business in our Rail segment. We are also seeing some projects come forward in transit and industrial applications, although not at the pace we would like.

Under its current operating parameters, our Tucson tie facility is operating at approximately 80% of capacity for the Union Pacific Railroad. The Tucson supply contract with the UP railroad expires at the end of 2012, when we hope to extend that agreement in the coming months. In Spokane, we continue to produce concrete ties for transit authorities, Class 1 railroads, contractors and industrial customers. We continue to see robust inquiry and bidding activity and we are close to capacity at that facility as well. Our Spokane facility reported very strong sales and profitability not only in the fourth quarter, but also for the entire year.

Our update regarding the Union Pacific Railroad product claim described in our earnings release continues to be somewhat limited, as our testing process, while purposeful and thorough, is still unfinished. We believe the most significant changes from our last update is that we were notified by the Union Pacific Railroad that a customer of theirs has claimed that a sample of our Grand Island ties failed a specification contained in our supply agreement.

While this claim was disclosed in our second-quarter 2011 earnings release, we are now aware that, as a result of this test failure, the UP has notified us that it intends to remove approximately 115,000 Grand Island ties from tracks. Our testing has been focused upon that specific test failure claim, and we hope to be largely complete with the testing sometime in the second quarter of this year. Thus far, our test results have not indicated any defects in workmanship or significant deviations from specification. As mentioned in our earnings press release, because we still have a significant amount of testing yet to perform, we have not recorded any charges in the fourth quarter for this claim, as it is impossible to reasonably estimate the liability, if any, we might have.

As a percentage of sales for this quarter's consolidated sales, the Tubular segment accounted for 6%, Construction was 39% and Rail was 55% of consolidated sales. As mentioned in our earnings release, backlog stood at $145.4 million at the end of the year, down 23% from December of 2010. Consolidated bookings for the fourth quarter increased by 12.7% compared to last year's fourth quarter, and full-year 2011 bookings increased 8% to $548.2 million.

Our gross profit margins were 20.1% in the fourth quarter of 2011, an increase of 510 basis points from last year's fourth quarter. The increase in margin was due principally to the inclusion of Portec Rail Products as well as a slight uptick in L.B. Foster margins. Full-year gross profit margins were 17.3% compared to 15.7% last year, an increase of 160 basis points. This increase was due to the addition of Portec Rail Products as well, partially offset by a reduction in Foster margins caused by charges relating to exiting our Grand Island tie facility, increased warranty charges related to concrete ties and increased unfavorable LIFO expense.

Our selling and administrative expenses increased by $5 million in the fourth quarter or 40.3% to $17.5 million, primarily due to the inclusion of Portec's S&A expense as well as a couple of legacy L.B. Foster costs, including integration costs and testing of concrete ties. SG&A represented 12.8% of sales for the fourth quarter of 2011 as compared to 8.5% of sales in the fourth quarter of 2010, the increase principally being the result of the inclusion of Portec as its estimated expense as a percentage of sales has historically been higher than that of Foster.

For the full year, selling and administrative expenses increased $25.1 million or 60%, due principally to the addition of Portec Rail Products' costs and, to a lesser extent, increased costs at Foster that were principally related to the aforementioned testing of concrete ties as well as integration costs.

Amortization expense in the fourth quarter of 2011 was $700,000 compared to $300,000 last year, the increase due to the amortization of definitive-lived intangible assets originating from the Portec Rail Products acquisition. For the 12-month period, this amortization expense was $2.8 million compared to $400,000 last year. Fourth-quarter operating income was $9.6 million compared to $10.8 million last year, a $1.2 million reduction.

As provided in our earnings release, we disclose the calculation of adjusted EBITDA which we believe is meaningful for company which has made a significant acquisition, as it compares the results of operations excluding certain non-cash items to provide another measure that reflects how a business is performing. For the fourth quarter of 2011, adjusted EBITDA was $12.9 million compared to $14.4 million in the prior year, a 10.5% increase. As a percentage of sales, adjusted EBITDA was 9.4% of sales in the current quarter versus 9.7% in the prior-year quarter. On a year-to-date basis, adjusted EBITDA was $49.1 million compared to $43.6 million last year, an increase of 12.6%.

Interest expense was $179,000 in the fourth quarter of 2011, 41.5% less than the same period last year, due to reduced average borrowings. Our pre-tax income for the fourth quarter of 2011 was $9.5 million compared to $10.6 million in last year's fourth quarter, a decrease of 10.1%. The fourth-quarter 2011 effective income tax rate was 36% compared to 41.2% last year. The reduction was principally due to the impact of Portec Rail Products results and the relatively lower effective tax rate applicable to its foreign operations. And, last year was negatively impacted by nondeductible acquisition expenses.

Our net income was $6.1 million or $0.60 per diluted share compared to $6.2 million or $0.60 per diluted share last year. Full year earnings per share in 2011 was $2.22 per diluted share compared to $1.98 per diluted share last year, an increase of $0.24 or 12%.

Turning to the balance sheet, debt at the end of the fourth quarter was $2.4 million compared to $4.8 million at the end of last year. We continue to pare down the debt, and it's primarily comprised of capital leases. Capital expenditures for the quarter were $3.8 million compared to $2.8 million in the prior year. For the year, capital expenditures were approximately $11.9 million in 2011 compared to $6.2 million in 2010.

Our CapEx in 2011 was for items such as our new threaded pipe facility in Magnolia, Texas; new yard improvements and equipment; new plant improvements and new plant equipment; new mobile equipment; computer, network and telecom equipment and building out a new facility in Vancouver for one of our friction management divisions.

Similar to 2010, in 2011 we anticipated that our 2011 cash generated from operating activities would exceed capital expenditures, scheduled debt service payments, share repurchases and dividends, and it did exceed it by a comparable margin. We also expect the same occurrence in 2012, where we expect our cash flows from operations to be able to fund all of those items -- CapEx, debt service, share repurchases and dividends.

During the fourth quarter we did not purchase any shares of the Company's common stock, pursuant to the Board of Directors' share repurchase authorization that was announced in May of 2011. Since the authorization began in May of this year we have purchased 278,655 shares at an average price of $23.25 per share, for a total cost of $6.5 million. Approximately $18.5 million remains on the outstanding authorization. As we have previously stated, we believe that the combination of the share repurchase program, the quarterly dividend issued in 2011 and our acquisition strategy gives us the tools that we need to use as opportunities arise and as market conditions dictate in order to provide long-term value for our shareholders.

Cash at the end of December of 2011 was $73.7 million, which was invested principally in AAA-rated money market funds and other short-term instruments where preservation of principal and quick access to funds has been the priority. Working capital net of cash decreased by $7.6 million compared to September 2011 and increased by $14.9 million compared to the end of last year. This was largely due to a liability we had from the Portec Rail Products acquisition, which was not paid until January of 2011.

Accounts receivable decreased by $12.8 million during the quarter, while DSOs stood at 47 days. We believe our AR portfolio remains in very good condition.

Inventory decreased by $1.6 million during the fourth quarter of 2011 while accounts payable and deferred revenues declined by $5.1 million.

Looking forward, we believe that we will continue to experience a continued competitive environment in the construction markets that we participate in as only slowly improving state and local budgets and no reauthorization of the transportation bill will provide headwinds in an already weak market. While we hold out hope that Congress will move a new transportation bill ahead, many unresolved issues remain that will make passage problematic. However, Class 1 railroads, steadily improving volumes and announced plans for capital spending in 2012 bode well for our Rail segment.

Finally, we expect our Tubular segment to continue the trend we saw in 2011 as we move into our new threading facility and work closely with our joint venture partner and also as new natural gas demand continues to grow.

I would also like to mention before we close that two weeks ago, L.B. Foster had its 2012 safety focus week, and we believe it was a great success. Every one of our facilities was actively engaged in improving our safety systems during that week. Safety is one of our Company's core values, and I continue to be very impressed by the ownership our workforce takes in driving towards a zero injury safety culture.

That concludes my comments on the fourth quarter of 2011. We will now open up the session for questions.

(Operator instructions) Brent Thielman, D.A. Davidson.

My first question, I guess, is a clarification on the product claim. Is the 115,000 ties specified by UP's customer separate from the 1.6 million ties you manufactured for UP? And should we still think about that 1.6 million as the total potential liability here?

The 115,000 ties as a part of that $1.6 million, Brent. It's -- I think we tried to say it that way. But it's a subset of that $1.6 million, so it's already included in the 1.6 million Ties, so it's not additive. And the 1.6 million ties obviously was the ties that we made for the Union Pacific during that time frame that's in question. And, while it's not the total amount manufactured, what we manufactured during that time period was probably 97% for the Union Pacific Railroad. So that's the majority of it.

So that 1.6 is still kind of what we should think about in terms of maximum liability of ties here?

Yes.

And then separate from that, I guess on the gross margins, a nice move up, is that a function of Construction Products becoming sort of a lesser portion of the mix, or have you seen margins ramp up in Rail Products, particularly as I look at it versus Q3?

Well, it's -- we've had -- it's not so much the decreased mix in Construction, but I guess, number one, what we've added, which is the Portec acquisition, and as well as that we have had -- even though we've had some sales declines in the Construction business, we have actually had some margin upticks in some of the businesses like piling actually increased their margins in the fourth quarter this year. And our new Rail business actually turned in some nice margins this year as well, so -- as well as our transit business. So we have had some nice improvement in a number of different product areas, not just -- it's not just mix.

Okay, and one more, and I'll turn it over. On SG&A I think you had said most of the increase was associated with Portec. Can you give a dollar figure how much expenses associated with the claim and how much you anticipate here in the first half of 2012?

A lot of our cost obviously has been internal resources. But we have -- for the fourth quarter, we have probably spent about $600,000 to $700,000 with outside consultants and testing labs and that sort of thing. And I would think it's probably going to be easily that much, $600,000 to $700,000, for the first half of 2012.

Okay, thanks guys.

Robert Kosowsky, Sidoti & Company.

I was just wondering if you can go over the UP customer claim. So was the genesis of this claim, did it come from this customer, or is this customer something else that happened in addition or once UP kind of raised awareness of this alleged issue?

No, it really came -- it was a fairly sizable project where we supplied ties to the UP, and they were actually improving a track that they use as well, but they were doing it in conjunction with another entity. And it was this entity/customer that did some of their own tests with an outside lab, and their claim is that this outside lab, who we are familiar with, failed really this one specific test.

So we are currently reviewing those test results, and we are not getting the same results from our consultants and from our labs. So we obviously have a little issue there with regard to the difference in results, and certainly why -- what's causing some of those differences. So that's what we are looking into today and testing.

So just to be clear, the UP allegedly found something wrong, and then this customer came in after the fact, so it's kind of two distinct discoveries?

You know, I honestly don't know which happened first. A lot of this happened right before our second-quarter earnings release, so we were notified by the UP of its customer test results, but we don't know exactly when they were taken.

Okay, and then what does the DOT investigation mean? It's kind of new to me, just kind of any background you can give on that.

Well, it's new to us, too, to be honest with you. We were a little surprised, but we got a subpoena from the United States Department of Transportation Inspector General's office, really, early in January, requesting information related to the manufacture of the concrete ties in Grand Island. And as far as -- any more than that as far as the genesis or how or why, we honestly don't know. So all we are doing now -- all we do know today is that we are proceeding with them. We are cooperating fully. We already have provided quite a bit of information to them, and I'm assuming they are sifting through it. And I'm sure we will be communicating with them in the future, once they digest it.

And onto more pleasant subjects, the cash flow was great this year. Do you see further opportunities on working capital, and what are you looking for, for CapEx, in 2012? Any big projects that we should be aware of?

Well, with regard to working capital next year, yes; there's opportunities in a couple of different ways. Number one is, there's -- as a matter of fact, in our offices today, we have quite a few folks from around the world, primarily from the Portec Rail Products group, and they are going through a cash -- what we call it cash-to-cash Kaizen. So they are in here because they want to improve their numbers as well. We haven't -- historically, the Portec organization -- we are more focused on the P&L, which is certainly a good thing, not quite as much on the balance sheet. And they are very focused on it now, and we believe they are going to be able to drive their working capital down a little bit.

And with the rest of the organization, it's all about maintaining that working capital as we grow, as well, and don't let -- not letting that working capital expand as we grow the business.

Okay, that's helpful. And then just some kind of outlook, I know you don't give quantitative guidance, but any kind of help you can give for how we are supposed to be approaching in 2012. Maybe you're looking for some nice margin expansion this year, even if the revenue is flattish, maybe up low-single digits. Is that kind of the right way of looking at it? And I know that you did have some purchase accounting adjustments in here, too.

We did; you are correct. And those, obviously, are the ones that hit -- it was -- the inventory write-ups will not reoccur, certainly. And that was $2.5 million that impacted the first quarter of last year. So you won't see that as well. We do have plans in a couple of different product lines to expand margins. But I will tell you that the Construction business continues to see an intensely competitive environment as well. So we are going to do what we can to expand margins where we can.

Okay, but basically just looking at the piling business, it's just pretty cutthroat right now, just given the low volume cyclically?

It's very competitive.

Okay, thank you very much.

Liam Burke, Janney Capital Markets.

Dave, you mentioned in the prepared statements that Rail distribution was down 10%?

Yes.

Okay, and when you discussed that, it looked like year-to-date that the actual Rail product distribution had been pretty strong. Are you seeing any falling off in that, or do you have continued momentum there?

Falling off in what part, Liam?

The Rail distribution part of the business.

Are you comparing the latest quarter to the year?

Yes.

We --

Yes, because for the year, the business was up.

For the year, Rail was up.

For the quarter, new Rail distribution was down 10%. But for the year, it was up substantially. It was up over 25%.

Okay, now how does it look? Is this a trend where the new Rail is trending down, or are you looking for this as a --

No, it's more -- obviously, you are aware, Liam, we don't sell new rail to the Class 1s, so it's the transit market and the Class 2s and the industrial customers. And in 2011, we had a -- I know we did announce it in late 2010 -- we had a really big project in New England that was actually stimulus related, and it was a $25 million project, most of which went in 2011. So that certainly helped the top line for the Rail business this year, but we are also going after other business. We just bid a sizable job done in Colombia a week ago. So there's other projects we are going after. We are not really looking for significant decline in the new Rail business.

Great. And also on the -- just to touch on the SG&A side, you have been pretty pleased with how the Portec integration has been going, obviously with sales. They haven't lost any momentum on the sales side. On the expense side, have you consolidated what you think you can do, or is there any more to be done there?

I would tell you, there is more to be done. I think we are more than halfway through that. We will continue in 2011 with what we think will be further opportunity in the area of consolidation. It will primarily be in the area of sales and maybe some into technical support and engineering areas.

Okay, and just one more -- on the working capital, you mentioned accounts receivable inventory and payables being -- the change. Is that from third quarter of 2011, or is that from year end 2010?

Most of them were -- there were from third quarter, Liam. If it was a year ago, I thought I had mentioned it. But most of them are from September.

Great, thank you, Dave.

(Operator instructions) Alan Brochstein, AB Analytical Services

I just wanted to congratulate you and learn a little bit more about your decision to come to the Company. It wasn't really clear to me from the original press release -- you were at Emerson a long time. Right?

I was at Emerson 17 years, and thanks for the congratulations. I'm excited about being here. This is a great company, and there's a great management team in place. And the opportunity to do a number of things with it as the management and the board looks to accelerate the growth of the Company and globalize the business more and take advantage of some of the significant trends in the marketplace that we think we have a number of core competencies from which to capitalize on. So as I look at this business, I think it's a great place for me to be, to work with this team that's here and to bring some of the expertise that I have in the area of strategic planning and growth and some of the tools that I know that we can work on for continued margin expansion as well, in order to change the Company to a $1 billion business or more.

I was trying to see what type of M&A experience you might have gotten at Emerson? I saw there was an Aperture acquisition; I wasn't sure if you are involved with the Avocent at all. But can you talk about some of your M&A experience or what you learned at Emerson?

Yes. I was the one that led the Aperture acquisition, which was a software company, as well as I did Avocent, which was in server management appliances for data centers. I was involved in Chloride acquisition in 2010, so the two acquisitions in 2010 that were the largest deals that Emerson made, Chloride and Avocent were in my business group.

Prior to that, I had acquisitions of companies that were anywhere from $10 million to $200 million in sales, roughly four or five of them, I would say, that were in the United States as well as Europe and Asia. I have been involved in joint ventures with the company in different countries around the world.

So I have -- I guess, in all, I've never counted them up, but I think I probably have been involved in about six or seven acquisitions in my time with the company, in fact, maybe more, because they go back to the acquisition of prior business groups as well, when I was in industrial automation. So I have done a number of them along way that include bringing forward those proposals to the Emerson management team all the way through closing the deal.

Great. And then just one last question -- I know that Portec acquisition was -- it seems like a really smart acquisition and it took a long time. I know you are new to the job right now, but should we expect more M&A in the next year? Is that going to take a while? What is your outlook for the M&A front?

I don't know if I could predict if we'll have something that will take place in the next year. We will have to see something that's awful attractive here pretty soon in order to get something like that done, I think. You can expect to see some going forward because of the cash that the Company is throwing off through our operating performance is clearly a way that we can help grow the Company. But we want to make sure that we are acquiring the right businesses, the ones that have some synergies with this Company.

And ones that can take us into areas where we want to be, where we can get into maybe more higher technology products, areas that might bring service opportunities to us and ways where we can just strengthen our overall business model. So as we turn our attention to that, we will look both inside of our core markets as well as in some adjacent markets that we serve today, and that scenario that we will increase our attention to as we develop our strategic plans in the coming year. But it's a bit hard for me right now to tell you what the time frame might be around that.

Sounds great, good luck.

Brian Rafn, Sparta Capital.

Can you talk a little bit -- maybe a question for Dave -- what you're seeing in inflation, commodity prices, steels, aggregates, anything that you might look at, wage and salary inflation and then -- or benefit?

Well, we do have some wage inflation that occurs annually. Some of the -- obviously, the commodities we deal in are certainly steel, carbon steel, aggregates and cement. And, typically, what we do is we are locked into at least one-year contracts on a lot of our concrete components, Brian. So we -- and we obviously price our deals accordingly. So we are usually able to at least recoup those increases.

From the steel side, there's obviously the piling business and the rail business use the carbon steel, the long hot-rolled products. And we are seeing some uptick in steel pricing, but it's not extremely steep. As a matter of fact, some of the mills are having trouble holding some of the price increases, most recently. So there's some strength in prices, but we don't see anything right now that leads us to believe that we're going to have a runaway increases this year.

If you went back and looked year-over-year, what would you be, say from a year ago, on carbon steel to hot roll?

It varies, but right now about 20%.

Okay. And then you talked about certainly the bogie you look at with CapEx for the Class 1 railroads. When you look at the demand from railroad for you guys, is it track, is it more concrete ties, or is it more of a focus on what Portec provides?

We hope, all three. But we are certainly -- when the railroads give us their CapEx numbers, Brian, we don't get, usually, enough discrete information to know exactly how much is going to be up our alley and necessarily in which areas. But we have been fairly fortunate on the track component side. As we mentioned, our Spokane facility is close to capacity with the orders we have been seeing across Class 1 in industrial and transit. And -- not that we can't change the capacity, by the way; it's not like we're totally full up. We can go to a second shift, we can add capacity. It just takes a little bit of effort and some extra manpower.

But -- and then on the concrete ties side, Spokane is full up. Tucson is not at capacity, but it's running be close for the UP. And Portec has -- they're not necessarily a backlog-driven company, so we can necessarily always tell the next six months based on their backlog. But their product acceptance has improved quite a bit. I would tell you, over the last 12 months, they have done a great job proving to a lot of folks that not only does their product lines reduce the wear on the rail, but it also improves fuel efficiency. And that's very attractive to the railroads.

Sure, sure. The installation of these concrete ties, not specifically the Union Pacific -- but are those installations on concrete? Are those rail lines point to point, or are those primarily just for more load bearing in, say, like a rail yard?

You know, it depends. There are some projects that are pretty big and they're point to point. Other ones are specifically for curves and heavy haul areas.

Okay. I didn't hear you -- what was, you thought, your CapEx number from a cash flow standpoint for 2012?

Right now, based on some of the opportunities we are seeing, we're thinking between $8 million and $10 million.

Okay, okay. And then you're debt deleverage plans for 2012 -- what might you pay down?

Well, there's only 2.4 out there. So just typical debt service, we will knock down probably half of that this year.

Okay, okay. And then as you guys now have had Portec in 2011, what are you -- you talked a little about the cash collection cycle or whatever, the Kaizen. Any other issues looking at factory expansions, capacity, the ability to extend product, niche acquisitions? What are you seeing from the standpoint of managing Portec?

Well, when you say acquisitions are you talking about other acquisitions (multiple speakers) --

When you look at just Portec specifically, did you guys now manage it? Are there specifically -- would you say, well, would probably have to add some capacity there, or there may be some product lines that we want to extend or we might want to do some more R&D? Or how do you see managing the Portec business? Where would you -- or is it something that is merely refinements that really aren't huge issues in managing the business?

Well, I would say it's definitely more than that because as you look at their product lines, there's some great technologies there, to begin with. But that team has a number of ideas of additional new products that they would like to fund that we think we absolutely can fund. There are opportunities to take those products into customers that the current rail team has access to that they weren't approaching in the past. So we believe we have some additional synergies where we can open customers to those product lines. An there's clearly opportunities to take some of those products into other countries as well, which is something that we will focus on in the coming year.

I don't see it as an issue where any of that growth is constrained by capacity inside of that company at this point. So the bulk of our attention will really be on trying to make sure we invest in the best product programs going forward and then expanding into these markets that we think are underserved by their products.

Okay. And then one final one -- can you give me a sense, capacity utilization, if you look at railroad construction in Tubular, how many shifts might you be running in the different areas, maybe, over time, what you might think capacity -- just give me a sense from where you are operating. You talked a little bit about Spokane and its capacity. Give me a sense of the whole manufacturing footprint, if you could.

You mean across the board, Brian, or --

You don't have to go factory -- but maybe just division by division, Railroad versus Construction versus Tubular. Give me a sense that -- you are running three shifts on the Rail side, one in the Construction -- ?

We are typically, right now for the most part we are running one shift in the Rail business.

Okay, and then across the other two, Tubular and the other?

Tubular we just ramped up a bit over the last month or so because we've got some orders that are sort of stuck together a little bit. We've got a lot of stuff that is customer required coming up over the next four to five months. So we are running a couple of shifts in Tubular.

We have just opened a new plant there in Texas which has much greater throughput than the prior facility as well.

Okay, okay. And then anything, any headcount additions, any overtime that you might be seeing across the different divisions?

Nothing significantly different than where we are at today, no.

Okay, thanks guys, I appreciate it.

Robert Kosowsky, Sidoti & Company.

Just a couple follow-up questions -- what was the backlog for the three segments? I think I missed it.

We gave the total backlog, Rob. We didn't disclose the backlog by segment.

Okay, so I wait for the K to come out on that? Okay, and then one other question, too -- if we take out the Grand Island portion of the comparison, what was the legacy Rail business up? I'm just trying to get a sense of how that compares to what the Class 1 CapEx was.

The Rail business was --

For the year or for the quarter are you talking about?

For the year, and I just -- and I'm trying to isolate or take out the fact that you were shipping tie in 2010 versus the fact that you -- I want to exclude that, just kind of --

Yes, in my comments --

Well, legacy one was up 5%.

It was up 5%, and you want to adjust for Grand Island?

Yes, just the fact that you weren't making ties that Grand Island the entire time in 2011, so just to kind of --

If you adjust for Grand Island, then the Rail business would have been up closer to probably 13%.

Okay, thank you very much.

Scott Blumenthal, Emerald Advisers.

Bob, could you talk about how you are looking right now at your Construction business? Obviously, that's the business that's struggling a little bit right now -- and kind of what your outlook is for -- if sales remain flat, do you think that you need to do anything with this business over the next few quarters? Are you inclined -- based upon what you know about the market right now, are you inclined to maybe shrink the business a little bit, or do you see at this point that this is a time maybe to expand and invest in it?

Well, obviously when you take a look at some of the market dynamics, there were parts of that that didn't help us this year. But setting that aside, this is not a business that we are looking at intentionally shrinking in any way. In fact, in many parts of it, there's as much opportunity in it as we think there is in our Rail segments. There's a portion of some of this comparison that comes off of 2010, where there was some spending, that stimulus money. Those types of projects helped it, which make some of our year-over-year comparisons a bit difficult. But we are as optimistic about that business as we are many of our businesses. And we will be looking at places where we can invest again in some of our product lines and areas we think are going to be the higher growth markets. And I need a little bit of time to take a look at that and develop, I think, a deeper opinion on it. But it's clearly not one that I would say fits into a category where we are going to intentionally decrease it or in some way put it in idle.

Okay, so it sounds like from your comments that you are inclined to invest a bit in it at this point because of your outlook. Do you look at maybe consolidating some of the current product lines that you are in, meaning consolidating the marketplace, or are you looking for new services, niches in the construction materials business? And maybe you can give us an example of some of the type of things that you are thinking about.

If your comment around consolidating means consolidate the marketplace by acquiring people that do the same thing that we do, I would probably tend to say that that's not where we are going to head. But again, it may be a little bit too early to tell, but that doesn't strike me as the most valuable way for us to move forward. I think the Construction business, like our other businesses, there's a lot of ideas that we have about spaces that we could move into, regions of the world we could move into. In some cases, some of those are a little bit more difficult than a few of our other products. But I think there's opportunities throughout Latin America, particularly in that segment, and I think our bridge business could be one that could continue to grow in the future as infrastructure spending favors that particular category. There's a lot of worn out infrastructure in this country and the whole lot of other places. So we think that we'll be able to take advantage of that going forward.

Okay, sure is. Can you talk, then -- I guess this one is for Dave. Dave, you made a comment a few minutes ago about only having a couple of million dollars of debt, and you're sitting on a pretty nice pile of cash there. Can you talk maybe about the priorities for that?

Well, the priorities for it is going to be pursuant to -- Bob has been here all of three weeks, Scott, but he has hit the ground running really hard. And one of his priorities is to assess and more than likely develop strategy further. And strategy is what's going to drive our acquisitions and other things that we do. And that's where, obviously, we want to have the liquidity to be able to do that. So I still view us as in growth mode, so we are going to -- we initiated the dividend last year. We will certainly, on an opportunistic basis, look at share repurchases. But the brunt of our liquidity, I believe, will be reserved for organic growth and acquisitions.

Okay, maybe you will have a different answer to that question after Bob has been here for four weeks.

Yes.

Thank you.

(Operator instructions). Ladies and gentlemen, this concludes the question and answer session for today's call. I would now like and the call over to Mr. Robert Bauer for closing remarks.

I appreciate all of your questions and I appreciate your interest in the business. I will look forward to some of the future calls that we have. I'm optimistic about what 2012 holds for the Company, so I'm sure as the next few quarters unfold, you will have a lot more things to ask us about. And I'll look forward to meeting with several of you in the coming months here. So thank you for joining us today. Goodbye.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect.