L B Foster Co (FSTR) 2013 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the fourth-quarter 2013 L.B. Foster earnings conference call. My name is Sheila and I will be your operator for today. (Operator Instructions). As a reminder, this call is being recorded for replay purposes. I would like to turn the call over to Mr. David Russo, Chief Financial Officer. Please proceed, sir.

Thank you, Sheila. 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 2013 operating results. My name is David Russo and I am the Chief Financial Officer of L.B. Foster.

Hosting the call today is Mr. Robert Bauer, L.B. Foster's President and CEO. This morning, Bob will provide an overview of the Company's fourth-quarter performance and an update on pertinent business issues and discuss market conditions. Afterward, I will review the Company's fourth-quarter financial performance and then turn it back to Bob so that he can discuss our Q1 outlook before we 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 responses to your questions may contain forward-looking statements, including items such as the Company's outlook for our business and markets in 2014, cash flows, margins, and capital expenditures. These statements involve a number of risk 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, 2013, 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.

With that, we will commence our discussion and I will turn it over to Bob Bauer.

Thank you, Dave, and good morning, everyone. We appreciate you joining us today. This year we scheduled our fourth-quarter announcement later in February than we did last year because he wanted to wait for our Board of Directors' meeting to conclude before holding a conference call. We held that meeting earlier this weak. We focused a lot on growth programs, which has been a top priority for the Company here, as I think you know, in recent years. And we are grateful for the support that our Directors have given us to grow the Company.

So with today's release we reported diluted earnings per share of $0.71 for the fourth quarter, bringing our full-year earnings from continuing operations to $2.85. The highlight for the quarter was our EPS up 9.2% over prior year on sales that were up 11.2%.

The fourth quarter made for a strong finish to the year, reflecting the improvement in sales from the construction market picking up. Last quarter we mentioned the improving order entry patterns for our piling business, which led to a very strong fourth quarter in construction segment sales. So we ended the quarter and year also with $183 million in backlog, and while that is down from prior year, it's a very healthy level given the project backlog we knew we would work off during 2013.

In the quarter, gross profit margins were up in rail and construction. They did decline in the tubular products segment, as expected, due to lower sales volume some coated products during the quarter, which we have been talking about here in recent quarters. Overall, I feel like we've performed fairly well, holding gross margins flat year over year, particular given the lower tubular product volume.

So as we summarize the financial results, we will describe the full-year sales results that include modest growth for the year, at 1.6%, and that is reflecting an environment where solid growth in several product areas was offset by our businesses that saw declining sales due to largely specific customer dynamics.

More specifically, our rail distribution sales declined this year as a result of lower project activity. Concrete tie sales were down as a result of planned activity from Union Pacific, which we expected and planned on. Our bridge sales were down year over year as backlog declined going into 2013, again, as expected.

But I continue to believe that the diversification of our product lines is an asset to the Company. It creates multiple platforms from which we can build good, organic growth programs. But we know from time to time it does bring cycles and specific customer dynamics that can offset growth in other areas.

Turning to profitability results, our income from continuing operations for the fourth quarter was up 9.5%. That dropped the full-year net income to $29 million, which is 4.9% of sales, and that is 20 basis points better than last year's adjusted non-GAAP result, and with significantly unfavorable sales mix this year.

Turning to cash flow, our operating cash flow for the year did not perform up to our expectations. We ran into significant issues in the second half of the year, particularly in the area of receivables, which did not in the year close to our forecast. It was a result of significant payments that did not come in as we had forecast. It's not an issue of increasing bad debts. It is an issue of project management, customer changes and change orders we received, delays, and customer pressure, frankly, at the end of the year that resulted in slow pay as the year came to a close. But many of the payments we were looking for in December have now been received, but it really hurt our DSOs and year-end receivable balance.

Inventory wound up more favorable than forecast, but not enough to offset the impact of the receivables shortfall. So our operating cash flow of $13.9 million was low for the year but still in excess of capital spending and other debt and dividend payments that we address. So I expect that the cash shortfall will add to our 2014 results. And as we talk about the 2014 outlook, we will expand more on that.

So, overall, I would assess the year and the quarter this way: first, we needed the construction business to turn upward and while it was later than expected, it did make the turn, helping our top line for the year. The profit margins in construction, however, are not what we see in the tubular space and consequently, we did suffer from unfavorable mix that created profit margin headwinds.

I feel like we held in there pretty well given the loss of tubular volume, and we did well enough in the rails segment that gross margin improvements allowed us to proceed with investments in key growth programs.

And some of the other highlights that I think are notable are that our transit products business had a record year in sales and continued to enjoy a high win rate on key projects across North America. We ramped up new product development in our core rail business in 2013 and we've got four key product launches that are planned in 2014.

We started up the corrugated bridge form business in 2013 and we won over $2 million in projects on our first partial year of operation. And in a year that started with a lot of uncertainty around government spending, our concrete buildings business finished the year with nearly double-digit sales growth.

And then our friction management products led the way for our rail technologies business growth and it continues to drive global expansion for the Company, with sales outside the US now for L.B. Foster accounting for 17% of the Company's sales. And then, finally, we achieved another year of improvement in safety measures as measured by the recordable injuries that we look at so carefully. I feel that our performance in this area would rival anyone in the industry and it speaks to the continued success and culture of the Company around safety.

Before I turn it back to Dave, I want to say something about the acquisition that we closed on in 2013. In November, we closed on the Ball Winch acquisition, which will bring L.B. Foster custom coating capability for items such as specialty fittings, connections, and large-diameter line pipe that are used in the same pipeline applications where our current coated pipe is often found. It will expand our footprint across the country, establishing an operation in one of the most important markets -- that is Houston, Texas. And we expect annual sales will be in the area of $15 million in 2014, which will have a nice impact on our tubular segment business.

As I have mentioned in the past, the tubular segment for L.B. Foster is the smallest, but it represents some of the most attractive growth opportunities for us. Our focus is on businesses that serve the energy industry with unique skills and service levels that will differentiate us and bring value to end users. And the new company has excellent skills in the engineering and design of pipe coating operations, and possesses a business model that brings very quick delivery of custom-coated fittings, elbows, and joints to the pipeline market.

We think it is very unique and we are excited about the new growth initiatives that we plan to start immediately as a result of the capability and the talent that Ball Winch brings to L.B. Foster. And we are also extremely delighted that the management team at Ball Winch is staying on to be a part of this exciting future. So I am sure you will hear a lot more about us talking about that in the tubular segment space as a result of it going forward.

So, with that, let me turn it back to Dave. He will make comments about the quarter and the year, and then I will come back and we will talk about a little bit of a 2014 outlook. Dave?

Okay. Thank you, Bob. This morning I will discuss our fourth-quarter operating results and at times we will highlight certain annual financial results, as well. When that occurs, I would remind our audience that the full-year of 2012 included concrete tie warranty charges of approximately $22 million, which was included in cost of goods sold.

$19 million was recorded in the second quarter and an additional $3 million in the third quarter of 2012. These charges were related to a product warranty claim regarding concrete ties manufactured at our Grand Island, Nebraska, facility which was closed in the first quarter of 2011.

Well, my discussion will focus primarily on our GAAP results. When we feel it beneficial to the audience I will refer to 2012 adjusted results, which assumes the exclusion of these adjustments in order to present another look at 12 month to 12 month normalized comparative results. Reconciliations between these non-GAAP results and our GAAP results are included in our earnings press release.

So I will begin with sales for the fourth quarter of 2013, which were $156.5 million compared to $140.7 million in the prior year, an 11.2% increase. The sales improvement was due to a 67% increase in construction segment sales partially offset by a 29.3% decline in tubular segment sales and a 6% decrease in rail segment sales. The construction segment sales improvement was due to across-the-board increases in all businesses, with the most significant increase reported by our piling products division, and to a lesser extent, concrete buildings and sales of fabricated bridge products.

The rail segment sales decline was due principally to a reduction in rail distribution sales, and to a lesser extent, concrete tie sales. These were partially offset by increased sales turned in by our transit products division and our rail technologies business. The tubular segment sales decrease was due principally to volume-related declines in our coated products division.

We ended 2013 with full-year consolidated sales up 1.6% to $598 million due to a 13.3% increase in construction partially offset by a 13.1% decline in tubular and a 1.8% reduction in rail sales. As a percentage of total year 2013 sales, tubular accounted for 7%, construction was 32%, and rail totaled 61% of sales.

As mentioned in our earnings release and as Bob touched on, backlog stood at $183.1 million at the end of the fourth quarter of 2013, down $27.8 million or 13.2% from last year's fourth quarter. The year-over-year reduction was due to a 13.3% decrease in rail segment backlog, a 29.9% decline in our tubular segment backlog, and a 9.7% reduction in our construction segment backlog. While backlog is lower in all segments, the December period-to-period comparisons have improved across all segments when compared to the September period-to-period comparisons, and we feel pretty good about the activity levels thus far in 2014.

Fourth quarter bookings increased 21.5% compared to the fourth quarter of 2012. Bookings improved over last year's fourth quarter in our tubular segment by 114% and by 41% in our rail segment, but declined in the construction segment by 23.5%. Year-to-date bookings declined by 12.8% from the prior year. However, excluding the $60 million Honolulu transit project order that we received in the second quarter of 2012, new orders decreased by 3.7%.

Our gross margin was 19.6% in the fourth quarter of 2013, flat compared to the prior-year quarter. Gross profit margin increases in the rail and construction segments were largely offset by a decline in the tubular segment. Gross profit margin in the rail products segment was 22% in the fourth quarter compared to 18.9% in the prior-year quarter. The increase was primarily attributable to favorable product mix and lower manufacturing overhead costs.

The gross profit margin in our construction products segment was 16.1% in the fourth quarter of this year compared to 15.8% in the prior-year quarter. That increase was principally to improved product mix and manufacturing efficiency in our concrete buildings business. Gross profit margin in our tubular products segment was 25.5% in the fourth quarter of 2013 compared to 32.9% in the prior-year quarter. The decline was due to unfavorable volume-related manufacturing variances and unfavorable product sales mix.

2013 full-year gross profit margin was 19.4% compared to 15.7% last year. Excluding the prior-year warranty-related charges that we discussed, the 2012 gross profit margin would have also been 19.4%. A 40 basis point improvement in the construction segment, which was driven by our concrete buildings business and a 50 basis points increase in the rail segment on an adjusted basis were offset by a 220 basis point decline in the tubular segment.

Turning to costs and expenses, our selling and administrative expenses increased by $2.1 million, or 12.8%, to $18.6 million in the fourth quarter of 2013 due to increases related to salaried headcount partially offset by a reduction in concrete tie testing costs. SG&A expense represented 11.9% of sales in the fourth quarter of this year as compared to 11.7% sales in the fourth quarter of 2012.

For the 12-month period, SG&A expense increased by $4.6 million, or 6.9%, to $71.3 million and represented 11.9% of sales in 2013 compared to 11.3% of sales in 2012. Our fourth-quarter pretax income was $11.6 million or 7.4% of sales compared to $10.8 million, or 7.7% of sales in the prior year. Pretax income for the entire 12-month period in 2013 was $44.1 million, or 7.4% of sales. Excluding last year's warranty adjustments, the comparable prior year pretax income would have been $45 million, or 7.7% of sales.

As mentioned in our earnings press release, the effective tax rate in the fourth quarter of 2013 was 37% compared to 38.6% in 2012. The prior-year rate was negatively impacted by certain discrete items recorded in last year's fourth quarter.

Our fourth-quarter EPS from continuing operations was $0.71 per diluted share in 2013 compared to $0.65 in the prior-year quarter. Our full-year 2013 earnings per share from continuing operations was $2.85 per diluted share compared to $1.44 per diluted share last year. Excluding the same warranty-related adjustments, earnings per diluted share for 2012 would have been $2.72 per share.

Turning to the balance sheet, working capital net of cash decreased by $2.1 million during the quarter but increased by $24.3 million for the year. Accounts receivable increased by $10 million, or 11.3%, principally due to large projects that encounter difficulties, as Bob has mentioned, in the fourth quarter that were mostly administrative in nature, as well as our mix of sales favoring businesses with higher DSOs. We expect a significant improvement in collections in the first quarter of 2014.

Our DSO at December 31, 2013, increased to 52 days from 46 days at September 30, 2013, due mostly to the items mentioned above. While the timing of collections did deteriorate, we do not believe there is a collectability issue. In fact, 2014 collections have made nice progress in catching up on past-due accounts thus far in the 2014 first quarter. Inventory decreased during the quarter by $16.5 million while accounts payable and deferred revenue declined by $8.5 million.

Cash generated by continuing operating activities in Q4 was $11.4 million compared to $1.7 million in the prior year. For the entire year of 2013, cash generated from continuing operating activities was $13.9 million compared to $27 million in the prior year. The year-to-year reduction in cash from operations was caused by changes in working capital, including reductions in deferred revenue and increased accounts receivable, as we discussed. Also adding to the unfavorable comparison were increased tax payments and lower depreciation and amortization in 2013.

We expect to see improvement in operating cash flows in 2014 that should cover some increased growth-related capital expenditures that Bob will cover later. So we anticipate that our cash generation from operating activities will exceed capital expenditures, debt service payments, dividends, and share repurchases.

Speaking of capital expenditures, 2013 CapEx was $9.7 million compared to $7.2 million in the prior year. This spend was principally for items such as plant, production equipment, and inventory handling equipment, including some initial outlays for some of our growth initiatives that we are planning for 2014. As Bob will discuss, we anticipate that the Company's 2014 capital expenditures will range between $18 million and $22 million.

Our cash at December 31, 2013, was $64.6 million and that was down $31.4 million from September of 2013 and down $36.8 million from last year. While there were many moving pieces in 2013, the primary reason for the decline was the fourth-quarter acquisition of Ball Winch that Bob touched on. Our cash was invested principally in AAA-rated money market funds and other short-term instruments where preservation of principle and quick access to funds has been the priority.

Looking forward, we believe that the trend in sales mix that commenced in the third quarter should actually improve as we progress into 2014, but we also intend to continue to spend on programs that we believe will benefit the Company and add shareholder value on a longer-term basis. We feel pretty good about recent activity levels as we look for opportunities to offset some of the difficult comparisons we will face in the coming year.

That concludes my comments on the fourth quarter of 2013, and I will now turn it back over to Bob for his comments regarding our first-quarter outlook.

Thanks, Dave. I'm going to start by talking generally about the full year ahead and then I will make some more specific comments about the first quarter. Generally speaking, our markets are in pretty good shape. The freight rail market is being driven by an improving economy, shipments in oil and gas commodities, and a very strong intermodal environment. The freight railroads have been passing price increases on to end customers, and with solid financial performance, will continue to boost capital spending for their network performance according to everything we hear them say.

Transit is also in pretty good shape as the number of projects around North America and the UK remain at high levels. There isn't anything the size of the Honolulu transit project we worked on over the last two years, but all other agencies we typically watch have a solid pipeline of expansion or refurbishment projects that are on the board.

Construction, specifically piling, has greatly improved from this time last year. Throughout 2013, the market became more positive. I expect to see a continued positive environment for that in 2014. And our concrete buildings business grew nicely in 2013, and we have every reason to believe that this market should remain healthy in the year ahead. And our bridge business will certainly grow this year after having a year in which the 2012 record backlog shipped made 2013 comparisons difficult, but we ended 2013 with a very nice backlog for 2014, having already booked some significant projects that are expected to ship this year.

Capital spending will really look different in 2014. It is anticipated to reach approximately $18 million to $22 million as we ramp up growth programs across several business areas. The spending is aimed at supporting new product development, expanding into new markets, as well as improvements in our cost position. We are making significant investments in coated products facilities that will boost capacity and bring new technology in to improve cost. We have plans to open a new service center to support construction sales. We are consolidating rail product lines into fewer operations that will help cut costs. And we're acquiring equipment to expand into field service businesses in both the rail and the tubular business segments.

So these programs are all aimed at taking significant steps to fuel organic growth and make the Company more competitive. I think it is important to mention that this should not be viewed as a new level of annual spending, but that we started a number of new initiatives in the last year and we have several programs that are coinciding with investment needs as a result of that. Obviously, we believe these plans will ultimately reward our shareholders. Some will yield return faster than others, but in our view, all of them are attractive enough to warrant the investment that we are making.

Let me turn now to more specifically the first quarter. We thought it would be best to provide an outlook for the first quarter only at this time and comment more on the full year the next quarter as we have some more visibility on project activity. We are estimating that sales for Q1 will (technical difficulty) $123 million and $128 million. The high versus the low end of the range will be affected most by how much piling product we can ship. As sales have increase in this area over the last two quarters, we are attempting to keep up with the increase.

Net income for the quarter, first quarter there, is projected to be between $5.5 million and $5.9 million. I expect to see a pretty steady pricing environment in the quarter, and really as well for the year. And as with 2013, we are currently expecting a low inflationary environment as well. So I hope that gives you some insight into the current business conditions and how we think the first quarter is going to shape up here.

Before I conclude my comments, I thought I would comment on the paragraph in the press release regarding our concrete tie warranty claims. We included a more thorough report on the status of our concrete tie warranty claims specifically as it relates to the progress of replacing Grand Island-manufactured ties for Union Pacific Railroad that is in our 10-K filing. In 2013, a significant number of ties were replaced by Union Pacific Railroad. They were accompanied by an L.B. Foster team that is skilled in the manufacturing of concrete ties during the majority of the replacement activity.

We furnished ties at no charge to Union Pacific in advance of the field replacement work as part of the process to work in an efficient manner. And in a few particularly concentrated areas, there were a large number of replacements made. Among them were ties that we would not consider eligible for warranty as defined by an agreement we have for the criteria for a defective tie. We are currently working with Union Pacific Railroad to reconcile the number of replacements that are eligible for warranty. We are also working on a proposal we have that would improve the process going forward to avoid or minimize discrepancies as the replacement process progresses.

And because we are working with Union Pacific to resolve the issue, there's probably a lot of things I can't say a lot more about in the way of details, so I may not be able to respond to many of your questions. We will do our best. So that is a bit on that subject.

As I conclude, I just want to thank our team throughout all of L.B. Foster that I think turned in a pretty good year despite some of the challenges that we faced during the year. We continue to have a lot of ambition and set the bar high. We're looking forward to a good year here in 2014 and I know everybody is excited about all of these investments that we are making in the Company. We are doing more today than I think we ever have in the past.

So I want to thank our team for that, and as I turned this back to the operator for questions, I would just maybe remind everyone that if you have several questions, you might get a few of them out and you can always jump back in the queue to address some additional questions. So, with that, we will turn it back to the operator.

(Operator Instructions). Mike Baudendistel, Stifel.

Just wanted to maybe if you could, put some numbers around the Union Pacific tie situation. We think about 170,000 ties that are being disputed. What is the value of one of those ties?

Yes, Mike, that's the first question we anticipated would come in, and unfortunately, the first one that we really can't disclose. We're not going to report right now on a per-tie cost for the actual order of magnitude on that. That is something that we feel like we shouldn't be discussing.

Okay. And when do you feel like you could have an agreement in place with Union Pacific as to not damage the relationship with that large customer? Did you think you can have that by the end of the first quarter, the second quarter, somewhere in there?

Well, I think the better way to look at it is that this is a process that we knew would unfold over a long period of time. It was something that you just don't go out and fix overnight. There were a number of areas on track that needed to be addressed. And so having some issues like this arise I would say would not necessarily be unexpected. The time to sort through it, it's really hard to pin down at this point. We are both working diligently to get all of these reconciliations behind us. And I hope that we can do it certainly in an amicable way. But I think it's just too difficult to really nail it down specifically in the way you are asking.

Okay, thanks for that. And then just shifting gears to the Ball Winch acquisition, you said it was slightly accretive. Can we think of that business as being as high a margin as we typically think of your tubular products segment, which was [certainly] a little bit higher margin than the rest of the businesses?

It would be fair to put it in that ballpark, yes.

Okay, that is helpful. And anything on the Class I rail CapEx discussions? When they talked about their 2014 outlook, did that surprise you to the upside?

I think the big surprise for everyone was BNSF, who said they were going to take spending from $4 billion to $5 billion. That was a real surprise. But then on the other hand, I think everybody recognizes the fact that these guys are right in the sweet spot of both the Bakken and all of the crude-by-rail renaissance there that is going on. So, I don't think that is surprising.

I can't really comment on exactly how much of that is tank cars and things like that, that they might already have on order. I suspect a lot of it has to do with that. But I think they are just also running a whole lot busier than they used to in that one region. Other than that, I think everybody else was pretty much in line with expectations. And that is that a lot of them like to say they are going to spend 16% to 18% of sales on capital spending.

And I think they are going to run right along with that. They always say it is going to notch up a few percent in the coming year. It is never really bullish. And that is what we have been seeing year after year, even though it doesn't always hit exactly that.

Okay, and then just one last one on the working capital discussion. If I think about your receivables down, being normalized, say, by the end of the first quarter, is that likely to give you an extra, say, $10 million cash balance, all things being equal? Am I thinking about that right?

That is a fair estimate, Mike, yes.

Okay, that is all for me. Thank you.

Robert Kosowsky, Sidoti.

I was wondering on the growth investments. I wonder if you could discuss the framework you looked at for some of these investments. Are these margin-accretive initiatives? Are they low-hanging fruit in some markets where you think you can outcompete? How are you thinking about allocating some of that growth spending?

Well, I guess I will frame it up first into the three segments that we talk about the most: new product development, expanding our served market, and moving into some adjacent areas that we don't serve today. We have activity going on in all three of them. And depending on what business segment you are looking at, or product division, the opportunities can be more or less attractive in either of those three segments.

So in the core rail business, for example, we pretty much serve the broad market fairly well, so we're focused on new product development. But in a couple of other areas like in this bridge area, we are moving into an adjacent market in the bridge form business because we're serving the entire grid decking market, so we're moving into an adjacent market there.

Generally speaking, I would also say that one of our goals is to move into the more profitable segments. Just as it is with acquisitions, we're attempting to look at acquisitions that have profitability margins that are better than L.B. Foster's average margins. So we would like all of these things to provide a favorable impact to profit margin mix. But business by business, the opportunities are really kind of different. And in the construction area, some of that is moving into expanding our served market, so it is a little bit of everything.

Okay, but it seems like as a general rule these are margin accretive relative to the segments at which they play in.

Yes, I would say it's a fair statement, because in some areas we just don't want to go lower than certainly than we already are. I think that is a fair statement.

Okay, and is there a growth market above the market that you think L.B. Foster can generate over, say, a 5-, 10-year time horizon? Understanding that it is going to take a little while to get these new products out and penetrate some of these new markets. But how do you think about the growth potential?

Yes, well, we have presented that in fact at some of the investor conferences that we have been at lately. And what we talk about is that we think that the marketplace is probably going to grow somewhere in the area of 3% to 4%. And that we would put a couple points of additional growth on top of that, setting the bar for ourselves at about 6%, that would allow us to grow at a faster pace than the market.

Okay, so that is pretty much intact?

Yes, as of right now, that is kind of the plan, and then add some acquisitions on top of that and that is really the basis for our value-creation model.

Okay. And then finally on the tubular business, was there any particular region or type of end market that saw particular strength? And I am just wondering how you are seeing that so far in 2014.

In tubular?

I mean on pilings. Sorry, on piling.

Okay, yes.

Sorry about that.

No, I don't think I can really point to any one specific market. We largely are aimed at the heavy civil construction market, with a large degree of our projects in the transportation segment. So transportation is bridges, highways, roads, ports. Ports has always been a strength of ours. So we saw activity going on in all of those. And I guess I'd say that I think we saw a little bit of wins from commercial construction, which is not where we get the majority of our market; commercial buildings and those sorts of things. But that has been on the rebound as well, and I think that has helped for some broad market improvement that we have participated in.

All right. Thank you very much and good luck.

Brent Thielman, D.A. Davidson.

Bob or Dave, maybe I can ask the Union Pacific question another way. If we think about the $22 million charge you've already taken, can you remind us how many ties are associated with that? And from our perspective, when we look at that and think about the 170,000 ties and can make some guesses about that potential cost to you.

Yes, Brent, that is creative. I guess that is a different way of asking what the per-tie cost is. When we took that $22 million charge last year, we did not furnish the number of ties that we thought that we would have to update as a result of that. We did say that we thought it was the appropriate charge to take at the time based on a lot of analytical and scientific data that would project what we would have to replace over time. And that is still our position at this point, but the actual number of ties is something we can't disclose.

Okay, I tried. But I guess on another note the decline in ties at UNP that you're expecting for next year, or I guess this year, is that simply a function of your capital spending initiatives? Are they sourcing ties elsewhere? Maybe just a little more color there would be helpful. And then is there still in your mind the opportunity you can fill that capacity elsewhere?

I think all I could say on that is that we really don't participate in any discussions with them about any other supplier. We are purely focused on our own replacement program for the Grand Island product. And we do sell them ties that are, on a revenue basis, that are for projects that they deem appropriate to use our product on as well. But they are not by any means -- do they have to come to us for everything that they do? We don't have some agreement that says we are the sole supplier. And they could make a decision to buy product from another supplier at any time, and I really can't comment on exactly how much of that they do these days.

Okay, that is fair. And, Bob, just following up on that, it sounds like you're going to have a little more capacity available. Do you think you can still get opportunity for you to fill that this year?

Well, we have capacity in our facilities. That is accurate. I think that the transit market is as strong as it could be. There is another Class I customer that we sell product to that might potentially have some upside. I don't think I can go into any details for them on that. That is there particular proprietary project information.

But we are dealing with a healthy market, I think, at the moment. And I don't think there has been a time we had seen so many transit projects on the drawing board, and that is certainly one of our sweet spot for concrete ties. So I'd certainly be pleased if we could see some upside from that. I think if you just gauge how much that is; we're not talking several million.

Sure, okay. And then on the transit side, I imagine this decline is around -- that the Honolulu project and tough compares. With the upcoming transportation bill, is there any uncertainty around that and how that is affecting these projects?

I don't see any at this time. I think everybody would love to benefit from that bill. And I would tell you, I do believe that the environment in Washington around transportation funding has actually been very positive lately, with a flurry of more positive activity then there has been. So, while I don't have a lot of confidence in what anybody does down there usually, I can at least say that the news has been fairly positive of late. But a lot of the transit agencies, they get some money from there, but a lot of it is local funding, as well -- the states, the municipalities, bonds, all of those sorts of things.

Okay, that is encouraging. One more, just on Ball Winch. It wasn't clear to me. Was it accretive this quarter? And then again a clarification, as you look forward, do you think with the business you can still achieve those gross margins that you had done there in tubular? The upper 20s, lower 30s? The business isn't so structurally different that you can't get there? Is that fair?

Let me take the margin one and I will let Dave answer the accretive aspect of it, which I think is more 2014 than the quarter. But, anyway, on the margin one, I think the best way for me to answer that for you is that if you were to use the tubular segment overall that we report on as a basis from gross margins, and that as a basis for which to model Ball Winch in, you would be building a pretty good model. Does that answer what you were trying to get at?

That helps.

On that part? Okay. And, Dave, you want to comment about --?

Yes. Regarding accretion, Brent, we certainly expect Ball Winch to be accretive in 2014. Ball Winch was -- it was a November 6 or 7 acquisition, so we had it under our ownership less than two months, and it was slightly accretive in 2013. There's obviously a decent amount of amortization of definite lived intangibles that go along with an asset deal like that, so that will certainly have an impact. But it was accretive, slightly.

Great. Thanks, guys. Good luck this year.

(Operator Instructions) Brian Rafn, Morgan Dempsey Capital Management.

Give me a sense -- you talked a little bit, Bob, about the construction pilings. You alluded a little bit about some of the end markets. You talked about the heavy civil, transit, and then commercial building construction. Can you put a numeric mix on that? Is it a 75%-25%, 90%-10%? How much of the pilings demand is in the transit, the infrastructure, heavy civil type, versus commercial building?

I can't give you an exact number on that, but you ought to interpret it at it's far and away -- the majority is heavy civil construction, and not so much, or very little commercial. We just don't participate in a lot of commercial construction. And that heavy civil segment, it's just hard for us to break that out by highways, bridges, ports, and all of those particular segments. But it was across the board in all those kinds of project activity where far and away the majority came from.

Okay. Does anything, Bob, stand out within the heavy civil transit side? You mentioned bridges versus ports. You talked a little bit about we have got a really strong niche in the port area. Within heavy civil transit, does anything stand out relative to a demand end market?

I would just say that the only thing that comes to my mind from time to time is we continue winning projects due to the poor infrastructure that exists in certain places across our country. There are things that are falling apart. Sometimes it is a port. Sometimes it is a levy in low-lying areas in cities that flood. It's a lot of things that just need to be replaced out there.

Okay. How much is your sense -- there has been an issue; you'd mentioned it. We have seen it with the highway bills, and that has been a problem relative to funding in Washington. How much of that infrastructure demand, and specifically if you're talking about flooding -- if you have a collapsible levy, or that -- it really is a mission-critical, emergency type repair versus something that you may be doing as a maintenance type. How much of that business might be tripped based upon imminent collapse or a response to a disaster?

Yes, if your question is the percent, I just can't put my finger on it as a percent. If the Army Corps of Engineers needs to go out and fix something like that, they get around to fixing it. But if FEMA needs to do something, they seem to be able to figure out how to get money to do it. But I can -- it's hard to put our finger on exactly what percentage of that has been our business in the past. And of course, I'd never be able to predict that for the coming year.

Yes, that's the bigger problem.

Fair enough, fair enough. Let me ask you about -- you talked a little bit, Bob, about Ball Winch. As you add some of those extension lines -- you talked about elbows and connectors and that type of thing -- to tubular products, can you sell that in a turnkey package? And will that allow you, with your piping, to really grow Ball Winch organically? Or are they so strong on a standalone as they're own brand that being part of you, maybe of a larger order with piping, really is not something that would drive their organic sales?

I think from a turnkey package standpoint, that will be an interesting area for us to explore going forward. I would tell you that it is not sitting out there as a top priority of something we know we can capitalize on. And it is obvious that we would do better as a result of that, so that is a little bit more opportunistic.

You should think of it more as the company has, on its own, great capabilities to do quick turnaround, custom projects for both newbuild construction as well as replacement activity. And one of the neat things about it -- I won't call this turnkey, but related synergies, is that because we are in the line pipe business, we know the projects before Ball Winch ever knew about the projects. Because you have got to get the line pipe and all of that going before you get sometimes a lot of the other small localized pieces.

So we now have a terrific project pipeline from which to feed that company a lot sooner than we get selling on it before they ever did before.

Okay. If you look at -- your sense -- you talked a little bit about bookings. I think Dave mentioned it. What is your sense -- as you look across construction, tubular pipe, or railroad -- what is your sense of big quote activity? And maybe if you look back over the last three or four years, of the conversion to sales of [bidden] quotes, or maybe the timing. Is it shorter? Is it longer? Just give us a sense from an actual quoting activity that you're seeing here in 2014.

It sounds like you are describing if something changed with the length of time that it takes to close projects and our win rate.

Right.

I would say that -- I don't think I would describe the win rate and some of those things as something that is that much of a meaningful change. Project cycles in rail and tubular are probably not changing a lot. They are always very dynamic, especially in tubular and the energy market. So that is always changing. And I would say in construction, that could be the one where project cycles are probably getting a little bit quicker right now, because as the market gets a little stronger, you do tend to have projects that people are trying to keep on schedule among the different things that they're doing. But I really can't point to a significant or meaningful change in that, that is dramatic.

Okay. I will ask one more and get back in line. Can you give us a sense -- very, very 50,000-foot view, macro -- your capacity utilization and maybe how many labor shifts you guys are running between construction, tubular pipe, and railroad?

Oh, boy, Brian, that is a tough one. In some places we have two shifts going. In some we don't. I'd probably have to get to that by plant by plant. I'm not sure that I can model that for you here right over the phone. We don't have any plants sitting around at very low capacity rates at the moment. And we are consolidating some, as I mentioned, in some of our capital spending. We have a great project underway right now at our Niles, Ohio, facility where we are bringing product lines in from another state in the US as well as a facility in Canada that we'll close.

So where we do have some nice capacity like that and synergies we can get, we're taking advantage of those sorts of things. But shift capacity and all of that -- it really varies across the Company.

Okay, okay. But if you look from a floor -- on the shop floor, would you be in the 60%, 70%, 80s? A very wide range. I know you can't sharp shoot it, but I'm just looking for a broad range where you might be operating. 60% versus 80%; 70% versus 90%; 50%. A broad, broad brush stroke.

I will tell you that we have the capacity to grow the Company. And we will, without having to build another facility, meet our growth expectations over the next few years.

Okay. I will get back in line. Thanks.

As there are no more questions at this time, I would like to turn the call back to Robert Bauer for closing remarks.

All right. Well, great. I appreciate everyone joining us today. Thanks for all your interest in the Company, and we will look forward to catching up with you here after the close of the first quarter. Thanks again. So long.

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