L.B. Foster Company (FSTR) Q3 2014 Earnings Report, Transcript and Summary

Good afternoon, ladies and gentlemen, and welcome to the third-quarter 2014 L.B. Foster earnings conference call. My name is Chris and I will be your conference moderator for today. [Operator Instructions]. As a reminder, this conference is being recorded for replay purposes. And at this time, I would now like to turn the conference over to your host for today Mr. David Russo, Chief Financial Officer. Sir, you may proceed.

Thank you, Chris. Good morning, ladies and gentlemen. Thank you for joining us for L.B. Foster Company's earnings conference call to review the Company's third-quarter 2014 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 review the Company's third quarter performance and provide an update on key business issues and discuss market conditions. Afterward, I will review the Company's third quarter financial performance, and we will then 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 30 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 businesses and markets in 2014 and beyond, cash flows, gross profit margins, operating costs, capital expenditures, and other key performance measures. These statements involve a number of risks and uncertainties that could cause actual results to differ materially from statements made today. 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, except as required by law. All participants are encouraged to refer to L.B. Foster's annual report on Form 10-K for the year ended December 31, 2013, and reports on Form 10-Q thereafter, 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. In addition to the results provided in accordance with US generally accepted accounting principles, our commentary may include certain non-GAAP statements which present operating results on a basis before the impact of the second quarter 2014 adjustments related to a warranty charge. A reconciliation of US GAAP to non-GAAP measurements has been included with the Company's 8-K filing. Statements referring to the exclusion of these items are considered non-GAAP measurements, and while they are not intended to replace the presentation of our financial results in accordance with GAAP, the Company believes that the discussion of results before these items provide additional meaningful information to investors to facilitate the comparison of past and present operating results. With that, we will commence our discussion and I will turn it over to Bob Bauer.

Thank you, Dave and good morning everyone. Let me add my thanks for also joining us today. I will start with a very high level view of the quarter and the year-to-date performance and then drill down into a few specific areas to help you understand how our year is unfolding. Our results for the quarter include a number of very favorable business performance results as well as market outlook that remains still positive, and overall year-to-date performance versus prior year on our earnings per share that are better when adjusted for the warranty charge that we took in the second quarter. The area is not as close to our sales forecasts as our distribution business, we’ll make a number of comments about that today both our rail distribution and piling distribution had sales volume that’s below what we expected as the year began with piling sales representing the more significant shortfall of the two. However these shortfalls to forecast, they are not the result of weakness in the market. The market activity continues to have a favorable outlook for both of these product categories. We just haven’t converted bookings into shipments. So the rest of the headlines kind of look like this. Today we reported our earnings-per-share of $0.88 for the quarter on sales of almost $168 million. The sales results reflect a 3.4% increase in sales which was driven by our coated products business and the tubular segment. And while rail products orders were up 41% in the quarter, rail sales reflect the decline from the prior year period as we struggled with the rail distribution shipments and our transit business as well was coming off of some prior year peak sales from the Honolulu project making that comparison also difficult. Our EPS decrease of 7.4% in the quarter was affected by timing of expenses around some key initiatives which include preparation of an ERP implementation as well as costs related to acquisition activity which were significant, I will cover those. Dave will speak to those again as well. But however on a year-to-date basis, after adjusting for the warranty charge taken in Q2, our earnings are still up year-over-year. Gross profit has improved from 19.3 to 21.2%. Our pretax margin is up 10 basis points to 7.5%. And we managed to keep our net income margins at 5% while absorbing a number these expenses related to our future growth initiatives. So at this point, I like where we’re at. But I have to say I like it more when we complete more of these key growth initiatives that we’re of course excited about. So let me circle back to kind of the orders and sales discussion. New orders for the quarter, they were up 7% over the prior year quarter which brings the year-to-date order growth in at just over 16% for the nine-month period. And while our tubular orders grew at 65% on a year-to-date basis, the real driver was the rail business with 21% order growth over the prior nine-month period. So we really have some divisions that are doing very well that are supporting that number -- our Allegheny Rail products, concrete ties, as well as our rail technology’s divisions are all having solid double-digit order growth. So the rail business continues to benefit from capital projects aimed at improving freight rail infrastructure. There is continued growth in intermodal services as the rails continue to drive investment in that business model and we’re getting business from the crude by rail volume that’s putting new traction in the locations that weren’t previously served. Turning to the tubular products business. Tubular product orders have benefitted most from the increase in our coated product orders for gas pipelines. We expected this to take place and expected the product line to show improving order patterns in 2014. And then as I look at the construction business and outlook remains positive. Our new orders for piling and buildings are up on a year-to-date basis, both are close to 5%, better than prior year and that's without any acquisition impact. Our bridge orders are the ones that are below levels of last year. As we won't have now a super large multimillion dollar project book this year, that means that the bridge business won’t be growing next year and achieving record performance like it is this year and that's not uncommon at all to see swings like this for our bridge business. So overall our backlog looks good, it’s $20 million higher or 13% over where it was last year this time. That's fine as I see it, although I would have liked to a little more to ship in the third quarter. I wanted to start with this discussion about orders because I figured the 3.4% sales growth in the quarter in the low growth on a year-to-date basis might be construed as the company seeing some weakness, it's not. We’re headed into the final quarter of the year with some nice growth rates across many product lines, again with the exception of our rail distribution and the piling distribution businesses. These two products segments and they are sizable for us, are running behind forecast, and it’s really related to our ability to execute. We had some operational congestion in the rail distribution in the third quarter which has since been relieved. We had a two new tracks to handle inbound and outbound flow of new product from our primary distribution yard. We also had delivery problems actually waiting on railcars which from time to time were held up as a result of the demand in the industry. Now with regard to piling orders, those orders had been pretty good since the first quarter. We got behind in Q1 shipments and still haven’t been able to make up for the shortfall. Earlier as I mentioned, piling orders were up 5% year to date. Piling sales on the other hand are lower than prior year by 23%. So this is a business where making up lost ground is difficult as production output in a given quarter cannot be ramped up substantially and therefore this is why our sales are impacted the way they are. But overall I believe our markets, they’ve remained positive. We’ve got a number of business segments and product lines doing very well. Our transit business will have some tough year-over-year comparisons as their Honolulu project winds down, and as I look at our total company growth it would look better for our distribution businesses and rail and piling at that pace would improve but that's probably going to still continue to lie behind where we would like it to be at least for the next quarter. And looking at then our profit performances, as we had growth in manufactured products versus our distributed products, it has contributed to favorable gross margins. Our gross margins finished the quarter at 21%, 170 basis points better than prior year. The rail business had a 240 basis point increase over the prior year in Q3. Construction was better by 150 basis points. Tubular gross profit margins, they were down slightly as we recognized costs on our project with low productivity. That project is now complete and behind us and our focuses now are going to be on restoring these margins going forward. So overall our gross profit margins reflect a good pricing environment and I think good management of costs except for one tubular project. So the final story really behind the quarter’s performance lies in expenses we incurred. While we’re roughly on plan with SG&A spending for the nine-month period, a significant amount of expenses were incurred in Q3 related to our ERP pre-project work as well as acquisition activity. This is contributing to year-over-year pretax margins being down for Q3 but when adjusting for that warranty charge that we took in Q2, the year-to-date pretax margins are better than prior year by 10 basis points. So this is keeping our adjusted EPS also slightly ahead of last year after nine months. It’s important to point out that several of the spending initiatives are aimed at driving growth through acquisitions and creating the right infrastructure to handle a larger more complex business and we’re confident that these investments will pay off. So I will wrap up a comment on cash flow. As far as the financials go, our operating cash flows have I think really been exceptional this year at more than 49 million of operating cash flow through nine months, we’re way ahead of where we were this year last time. Our inventories are below prior year levels and we’re poised to finish the year with lower working capital as a percent of sales. So as a result of all of that, we also decided to increase the dividend this quarter announcing a penny a share increase to $0.04 per quarter which will leap the year from $0.12 to $0.16, that's a nice 33% increase which will return a little more to shareholders while still providing us with enough cash to execute on our growth initiatives. And then along the lines of some of the other things going on, you may have seen a week ago, we did announce an acquisition in October. We completed the acquisition of Balfour Beatty’s friction management product line. It’s the first step in building scale in our European business as it establishes a presence in Germany which we’ve really wanted to see. We will immediately have a product that's acceptable to key German customers in addition to having local sales and support resources in this market. The business will immediately be integrated into our current European operations and it will boost sales by approximately almost $3 million. So it was one of our smaller product line acquisitions. So overall I'm very pleased to report that our divisions are doing a great job. Our underlying results through nine months are good and we will continue to focus on the plans that create values and opportunities in the future. So with that, I'll turn it back to Dave and he will run through the specifics little more on these financials and we will take some questions after that.

Thank you, Bob. We will start with the top line. Net sales for the third quarter of ‘14 were $167.8 million compared to $162.2 million last year, a 3.4% increase. The sales increase was due to a 114% increase in our tubular segment sales and a 1.2% increase in construction segment sales, partially offset by a 3.3% decline in rail segment sales. The rail segment sales decline was due principally to reductions in rail distribution sales and transit product sales, partially offset by increases in rail technology and concrete tie sales. The tubular segment sales improvement was due principally to a significant increase in our legacy coated products business as well as the sales contribution made by our fourth quarter 2013 specialty coatings business. The construction segment sales decline was due to a volume related decrease in sales of piling products, partially offset by an increase in fabricated bridge products and the contribution from our Carr Concrete Products acquisition which closed earlier in the third quarter. As a percentage of third quarter 2014 sales, tubular accounted for 9%, construction was 30% and rail totaled 61% of sales. As mentioned in our earnings release, backlog stood at $223.2 million at the end of the third quarter, up $25.7 million or 13% from the third quarter of 2013. The year-over-year increase was due to a 104% increase in our tubular segment backlog of 15.2% increase in rail segment backlog and a 6.2% strengthening in our construction segment backlog. So every segment was up. The tubular increase was driven by our coatings business while the rail increase was due to new rail, rail technologies as well as concrete ties. The increase in our construction business was due to piling and concrete products partially offset by lower fabricated bridge backlog as Bob mentioned a little while ago. Third quarter bookings were $142.4 million, up 7% compared to last year's third quarter. Bookings improved over last year's third quarter in the tubular segment by 43.9% and by 41.2% in the rail segment while declining by 34% in the construction segment, which was driven by the piling as well as the fabricated bridge businesses. Gross profit margin was 21% in the third quarter of ’14, 165 bps higher than the prior year quarter due to improvements in the rail and construction segments, partially offset by a reduction in tubular gross profit margins. A 235 basis point improvement in the rail segment was principally due to increased margins in Allegheny Rail products businesses, transit products as well as rail technologies and a little bit of leverage from the mix of product sold. The construction improvement was driven by expanded margins across all product lines, except for piling products and also as well as product mix. The decline in our tubular segment margins was due principally to lower coated products margins excluding the 2013 specialty coatings acquisition and that decline was caused by a project whereas Bob mentioned we had cost overruns in the third quarter and this project was completed late in Q3. With regard to costs and expenses, our selling and administrative expenses did increase by $3.1 million over last year, that’s a 17.6% increase to $20.6 million. That’s principally due to increases in personnel related costs, acquisition related due diligence and legal costs, expenses reported by our newly acquired businesses that we did not own last year, as well as fees related to the preparation for and identification of a new ERP system. Our SG&A expense represented 12.3% of sales in the third quarter as compared to 10.8% last year. The increase is due mostly to the previously discussed cost increases on slightly increased sales. So we are where -- obviously that our SG&A expenses comparisons are unfavorable and not supported by adequate sales and gross profit improvement in the quarter. We do, however, feel strong that these costs will generate attractive results and returns in future periods. We are trying today to lay a foundation for future growth, whether that foundation is in the category of a new ERP system that makes our organization much more scalable without adding headcount in the future, or adding costs for sales or R&D efforts that we believe will yield long-term benefits or M&A activity that allows us to acquire businesses in a sustainable manner while maintaining a favorable risk profile. We believe the steps we’re taking this year will yield the desired long-term positive results that we strive for and will benefit our stakeholders in a meaningful way. Third quarter pretax income was $13.9 million or 8.3% of sales compared to $14 million or 8.6% of sales in the prior year. As mentioned in our earnings press release, the effective tax rate for the third quarter of 2014 was 34.2% compared to 30.2% in the third quarter of 2013. The current year rate compares unfavorably to the prior year quarter due to the recognition of discrete tax items related to certain state income tax matters during the prior year quarter. Third quarter income from continuing operations was $0.88 per diluted share in 2014 compared to $0.95 per share in the prior year quarter. Turning to the balance sheet. Working capital net of cash decreased by $4.9 million in the current year quarter. Accounts receivable decreased by $3.3 million . However our DSO at the end of the quarter did increase to 48 days from 45 days at June 30 but still much improved from the 55 days at the end of March and 52 days at the end of the year in 2013. The slight spike that we had this quarter was basically due to the average accounts receivable that we had over the past three months. We do that calculation on a 90 day average basis. Inventory increased by $6.2 million while accounts payable and deferred revenue increased by $2.3 million. As Bob mentioned the cash provided by continuing operating activities in the third quarter was $18 million compared to $3 million of cash generated in the prior year quarter. For the first nine months of ’14, cash generated by operating activities was $49.6 million and that’s compared to $2.5 million for the comparable prior year period. The improved performance during the first nine months of this year is attributable to better working capital management, especially with regard to accounts receivable. Also adding to the favorable comparison were decreased tax payments. Our robust third quarter cash flow came in handy as we closed on the Carr Concrete Products acquisition in July. The strong year-to-date cash provided by operating activities is also important as we've also increased capital spending in 2014 which is targeting several growth and profit improvement initiatives. We anticipate spending approximately $16 million to $19 million in capital programs this year. These capital programs are inherent in all three business segments and are all under the umbrella of growth and profit improvement in the coming years that we believe will improve stakeholder value and on a longer-term basis. That said, we continue to forecast that cash generated from operating activities will exceed CapEx, debt service payments, dividends and share repurchases this year. Our year-to-date 2014 capital expenditures were $11.6 million compared to $5.6 million last year. The 2014 spend has been predominantly for buildings, yards and equipment aimed at providing new and expanded manufacturing capabilities, improved service and product availability to the customer and increased manufacturing efficiencies. Cash at the end of the quarter was $86.5 million, down $1 million from June 30. Our cash was invested principally in AAA rated money market funds and other short-term instruments where preservation of principals and quick access to funds is a priority. In addition to our strong cash flows and considerable cash balance of the end of third quarter, we also closed on a new revolving credit agreement with our bank group. Our credit facility capacity was increased from $125 million to $200 million. The accordion feature inherent in the agreement was increased from $50 million to $100 million. Our maximum leverage ratio was increased from 3.1 to 1 to 3.25 to 1 and our pricing remains very attractive. The agreement was executed in September and it has a five-year duration. We believe that the company’s enhanced liquidity and ability to generate strong cash flows will enable L.B. Foster to pursue organic growth programs and meaningful strategic acquisitions while still allowing for some modest increases in our dividend as mentioned by Bob and announced by the company last week. That concludes my comments on the third quarter of 2014. I’ll now turn it over to Chris to open up the session for questions.

[Operator Instructions]. Our first question comes from the line of Mike Baudendistel with Stifel. You may proceed. Mike Baudendistel – Stifel Nicolaus: Thanks and good morning. I just want to ask –

Good morning, Mike. Mike Baudendistel – Stifel Nicolaus: I just wanted to ask you I guess the rail congestion issues with the solid year they seemed to continue to be with us. It seems like it impacted you. On the revenue side, are your customers coming to you with orders for various products to sort of address of those issues and is that something that you think is going to take place going forward?

No. We really need to just solve that ourselves. We got into a situation where we just couldn’t move enough product through our facility and we just needed to expand the capacity and we’ve done that and we have that behind us, but that’s really what that was about. It was all on our operations. Mike Baudendistel – Stifel Nicolaus: Okay and then are your customers looking for ways to de-bottleneck their rail operations of sort of independent of yours where you see the Allegheny products or other areas in your rail group should benefit from just the entire industry trying to become more productive?

I don’t think they were doing anything that’s dramatically different to try to address that. Everybody has a lot of projects that are going on out there. The rail that’s being used in the industry is the product that has been used for sometime. There is more premium rail that’s going into the marketplace. Premium means what we sometimes call head-hardened rail which means heat treated so that it will last longer and so there is a trend to moving toward that which means that they won’t have to replace it as often and that’s basically reduced operating cost for them when they do the lifecycle analysis. The rest of the strength that we’re having out there is due to wear and tear from a traffic, from gross tonnage that’s moving over the rails from beneath the lower operating cost and even some PTC. Our Allegheny Rail products is benefiting from the fact that that positive train control trend that’s under-weighing the investment there is leading to the need for the joints that we put in the track that handle the connections to the signalling process at crossings. Mike Baudendistel – Stifel Nicolaus: Great. Thanks for the detail. And then with the recent tuck-in acquisition, I was wondering if you just kind of review your acquisition strategy sort of what are you looking for in acquisition targets and if we look over the next few years how much capital would you be willing to deploy for acquisitions?

That strategy we continue to execute what we have been talking about for the last year. So it hasn’t changed much. So the review of that is the attractive marketplaces for us are adding to our rail products business and any rail services that we can also step into. They are largely going to probably be in the maintenance way. Our business is really in the track infrastructure and maintenance way and you will see us stepping into things that are in rolling stock and those sort areas so that to the extent that we can build on products that we have and services that surround all of those attractive areas and we’re also intending to increase our exposure into the energy markets because we like what we do in our tubular products businesses that have exposure into the energy markets particularly gas pipelines and the midstream markets. There are other spaces out there that we think are very adjacent to the businesses that we’re in and we are looking at stepping into those markets to increase our exposure to energy in addition to what we get as well and even in the rail business like in Crude By Rail. We have said in presentations in the past that we think that we can acquire somewhere between $200 million and $250 million worth of sales in our planning period. I continue to believe that we can make that happen. About the deal we did just was small, we continue to see more sizable ones that we are engaged in and so we want to do that in too many small bites at the time. So the work that Dave spoke a moment about upping our credit facility is intended to support that and I’m sure we will challenge the size of that credit facility to get the sales that I just spoke of. Mike Baudendistel – Stifel Nicolaus: Okay. Thanks for the detail. And I just wanted to ask with the most recent acquisition being based in Europe, what’s your Europe revenue on an annual basis?

It is in the area of $25 plus million, we convert that to dollars. So that deal was the first of what I called the “multi-step strategy” to really increase the scale of that business. We’ve other things in mind at the moment that we can do to increase that and improve the presence that we really have in serving that market. Mike Baudendistel – Stifel Nicolaus: And are those expected to be transit base primarily or freight?

Well. Most everything over there has some transit exposure to it and more so than freight. So, yes, you will see more transit exposure. Mike Baudendistel – Stifel Nicolaus: Great. Those are the questions I had. Thank you.

Thank you.

Our next question comes from the line of Robert Kosowsky with Sidoti. You may proceed. Robert Kosowsky – Sidoti & Company: Hi. Good morning, guys. How are you doing?

Good. How are you, Rob? Robert Kosowsky – Sidoti & Company: Doing well. So I was hoping if you could just dive a little bit more into the sheet piling issues that you had and kind of how far you are as far as kind of rectifying some of the issues and also what those might mean for fourth quarter revenue because last year we did see a nice bump-up sequentially the third quarter to fourth quarter. I’m wondering if that’s still in the cards this year just given kind of working through some of these issues?

Well. We started the year with a pretty decent order outlook and continued to build the backlog and as we went through the second quarter we were talking about how the backlog was increasing in that particular area. So we had some shortfalls in product supply. In the quarter we continued to have some shortfalls in product supply. We’re attempting to work through those with our partner. It’s hard from where we’re starting today to be able to project exactly how that might unfold under the coming quarter, but I can tell you that there’s investments that are being made in operations, there is technology that is going into operations all in an effort to improve those things. So I would like to say that we will continue to see some better execution in production supply going forward, but we really got to see that happen and so I’ve got to kind of put that into the wait and see it happen kind of category before I comment, I think, more positively on that. And that’s not to say it’s negative but it’s just that I like to see it move up in a little stronger manner than we’ve been able to move it up. Robert Kosowsky – Sidoti & Company: Okay. So it sounds like obviously the issues in distribution on the construction side are going to linger for a little bit longer maybe to a lesser extent than maybe when we get up 2015 you should see I guess more efficient operations come through or more ideal operations.

I think that mindset is fine to have. Yes, there is always a bit of risk of there. Robert Kosowsky – Sidoti & Company: Okay. And the otherwise I was wondering if you could break out what manufacturing versus distribution sales were for the entire company if you could, if you even have that number?

Distribution was around 45%, Rob. Robert Kosowsky – Sidoti & Company: No, I mean from a growth standpoint. Sorry. How much manufacture products were up versus what distribution may have been?

In the quarter? Robert Kosowsky – Sidoti & Company: Yeah, in the quarter.

Yeah. I don’t—I can’t think of that. I didn’t break it down that way, but—

Are you talking about quarter-over-quarter? Robert Kosowsky – Sidoti & Company: Yeah, just third quarter this year over I know you had some issues on the distribution side. So I’m wondering how much manufacture products were up versus distribution being some of the issues. How much of that was down just to get a better sense of the kind of the core growth of the company?

Well. I would tell you that distribution was probably down around 10%, yeah and could down 20%. So manufacturing obviously made up the balance. Yeah. Robert Kosowsky – Sidoti & Company: Yeah. Some of the manufacturing is up a good 10% to 15% or something like that?

It’s just a — yeah. It has to be a double-digit number. Yeah. It’s close to that anyway, Right now, I mean the fact that manufacturing is probably 55% of our business and distribution is 45%, manufacturing would have increased just a tat less than distribution decrease. Robert Kosowsky – Sidoti & Company: Cool. And then otherwise still a bit more, I guess, granularity as to the scope for the size of this ERP implementation and kind of what we should be thinking about for SG&A expenses in 2015? I guess how big the step-up that’s going to be? Is that permanent, does that step back down in 2016? Just any kind of high level thoughts on that?

Well. I would tell you that there will be some additional expenses next year related to this, but at the point where we actually commence implementation, the costs will then be capitalized instead of flowing through operating expense. So I wouldn’t expect to see a significant increase in the expense side of it from this year to next year maybe a little bit, but at some point when we get into more of a full-fledged implementation, those costs will be capitalized as part of the entire ERP system. Robert Kosowsky – Sidoti & Company: Okay. When would you expect the ERP system implementation to be concluded?

We’ll probably need to talk more about that in some of the coming calls, I think, in addition to the costs throughout. To answer your scope question, we need to address almost the entire company. There’s probably parts of that we can look pass. We’re on a couple of different older systems, some of the Tier-1 suppliers, but much outdated systems that just can’t carry us forward into the future decades old. So we’ve got to eventually get around the whole company. We don’t have any kind of big fire on our hands here where things are breaking down. So we have the luxury to approach this thing in a manner to make it successful and not run high on cost. So we’re in the process of planning that right now and that’s what the expenses would support to do our homework upfront to get our house in order and to approach in a way where when we do go live we don’t have things that aren’t working properly. Robert Kosowsky – Sidoti & Company: Okay. Thank you very much and good luck.

Thank you.

: Elisa Johnson – D.A. Davidson: Hi. Good morning. This is Elisa, in for Brent today.

Good morning. Elisa. Elisa Johnson – D.A. Davidson: I was wondering if it is possible to quantify the impact that the product supply have on the revenue?

No. I can’t really break that down into actual dollars for you. It clearly had an impact on the quarter as we talked about, but I wouldn’t go into that in the actual dollars by each product line. Elisa Johnson – D.A. Davidson: Okay.

It’s the growth rate that Dave spoke of a little while ago is for the better way to think of it. Elisa Johnson – D.A. Davidson: Okay. That sounds good. Thank you.

Yeah. You’re welcome.

[Operator Instructions]. Our next question comes from the line of Brian Rafn with Morgan Dempsey Capital Management. Please proceed. Brian Rafn – Morgan Dempsey Capital Management: Good morning, guys.

Good morning, Brian. Brian Rafn – Morgan Dempsey Capital Management: Yeah. Give me your sense of—either Bob or Dave, you’re talking about $16 million and $19 million property plant equipment CapEx. Can you highlight maybe some of your larger investment allocations across your three segments of that?

Yeah. Well, we have a substantial project that is upwards of $4 million, $5 million going into our credit products facility to modernize the technology there. We stepped into the role-forming business and our bridge just here in the last year that was stepped in into the market. We have certain—we put a building in place and some new role-forming equipment there which is in the couple million dollar category, few million, I guess as I think about the total addition that we had in that particular category. We have some equipment that’s rather expensive going into some of our rail divisions to launch some new product lines that’s fairly substantial as well and even directing some of it to one of the new businesses that we acquired there at Carr Concrete as well. And we put the—when I spoke earlier about our rail distribution yard putting those tracks in place and expanding that, that was a pretty significant investment that took place there. Again we’re talking above a million dollars for that and we’re in the process of executing on that new service center that we have in the Midwest for serving our construction customers. So those are some of the more notable ones. Everything there is in the millions. Brian Rafn – Morgan Dempsey Capital Management: Okay. All right. Good. If you guys kind of look across your three segments, give me kind of maybe a 50,000 foot view, what’s kind of your capacity utilization and how many shifts might you guys be running on labor?

Well. In terms of our physical capacity in our facilities, they are all in a position where they can take on some more business at this point. Our distribution yard was run in well over capacity there in the last quarter. So again we’ve gotten that fixed. We have some locations where we run in second shifts and we have some locations where we’re running around the clock right now. Now I’ll tell you—I’ll go as far as saying that we’re running two shifts or better and now we’re gaining real products in some factories. We’re running more than a shift and two shifts in concrete products, mainly concrete ties and we’ve got a facility and coated products where we had been running basically around the clock and still have one of our newer facilities in the speciality area that is running just about 7x24 right now. So it depends where you look across the company. It’s kind of—for that reason I tend to try to stay away from statistics encoding exact utilization because it really depends on the factory in the business line. Brian Rafn – Morgan Dempsey Capital Management: Yes, sure. Now I think that’s helpful, Bob. If you look at the rail segment, can you just kind of again from a kind of a high-level talk a little bit about where you’re seeing some products ranged whether it’s concrete ties, frictional lubricants, rail technology, maybe track? Are you seeing more maintenance track or even more new line installation track from that standpoint? I’m just looking to kind of granular from the rail side.

Well. When you look at our business, the bulk still of what we do is maintenance and refurbishment of existing track and rebuilds of certain lines because there is—in comparison to how much track is out there versus how much track is going in that’s new, there is just so much out there that it still dominates our business. And then when you throw on initiatives like PTC we get the benefit of some of that, but again that’s all in existing infrastructure. The new projects that are going on for us that are most significant where the new track is going in is into the industrial areas which means mainly in the process industry, Crude By Rail, other people that are shipping petroleum products and gas and those sorts of things, liquids, and transit where there is transit projects that are going on all over the country. So there is a fair amount of new build work going into the industrial. So we’re getting nice benefit from that. But it’s still smaller in comparison to everything that we do for the rest of the freight business in North America at least which dominates our sales. Brian Rafn – Morgan Dempsey Capital Management: Yeah, okay. I think that’s fair. Given the innateness relative to these extensions on the highway bill, if we were to get a new Congress in a new decent highway bill next May, a sixth-year bill with 270 billion or 280 billion, would that help your bridge-decking business and some of your piling-support business?

I believe that would absolutely help. There is no doubt in my mind. And I say that because the existing bills have been essentially continuation of the same spending. They haven’t had the ability to get something through that would actually put some stimulus out there and some investment in infrastructure. So we’re essentially spending at the same levels, so if we could get something through and of course they continue to just keep the highway trust funds kind of floating at what they know they’ll need to keep it going. So we really got serious about some infrastructure investment which is what you would think would be in a build, if they actually took it on, then yeah I think we would have a little shot in the arm, but I wouldn’t expect the big one but I think a little one. Brian Rafn – Morgan Dempsey Capital Management: Okay. And then give me the sense – and you alluded to it a little bit. If you look across your different businesses, ex the bulk of the ship type business where you’re looking at backlog, how from the standpoint robust or how would you define kind of your bid quote activity and then maybe your sales conversion of bid quotes relative to the last five --

Well. I still call the market -- I’ve been using the term that the market outlook is positive as opposed to trying to put it in exact growth rate on it particularly with all the different businesses we compete in. It’s a mixture of a lot of the different things, but I say that because I see the project activity in the quote activity out there as remaining positive based on what we track and that goes across all three of our major segments, rail, construction and tubular. I think our win rates continue certainly to hang in there. I don’t see any real trouble other than the fact that I think in this last quarter when we struggled a bit in our distribution businesses. I think there were probably a few losses that we suffered along the way because of inability to ship as quick as we needed to deliver. And so I’m sure that we lost a few orders we would have otherwise won in this last quarter. Brian Rafn – Morgan Dempsey Capital Management: You talked about roughly a $25 million on kind of your Euro railroad infrastructure. How much of the other legacy products are you looking to build back European platform sort from manufactured components on that that you buy or acquire in Europe or is there some cross-selling you can do with current product lines here domestically in the United States that can be sold in the Europe?

Well. I’ll first say that when you look at our European strategy that there are some of our heavier products that we don’t participate in over there that you would have to make locally to serve any market every year meaning steel rail, concrete ties products like that which we don’t participate in there. So our strategy is to go after more of the other value-added products and services along the lines of like our friction management which lead the way. We do have local manufacturing for our track components products. So we actually do have operations there. What we add we will add assuming that we will have some local manufacturing that will take place, but we also do trade products that go from North America over there and I think with what I’m saying in the way of deals—in fact the latest one that we put together is a friction management product line that we think we can immediately bring to North America, but we’ll probably localize that manufacturing in North America when we do that. Brian Rafn – Morgan Dempsey Capital Management: Okay. How from a standpoint of Europe be a little more dense congested that you do a lot of public transit versus here in America where everybody rides by themselves in their own automobile? Give me your sense from the standpoint the European rail, from friction management you said PTC? Would you say their technology footprint is as good or better than the U.S., either transit or freight?

Well. The predominant market over there is transit in terms of the volume of what takes place. It’s what really drives the market because the freight lines are anywhere near as significant and I would rate the technology and the design of the infrastructure there as superior. I don’t think there is any question about that. And to that extent I believe that they will also spend more money to get the right technology into their rail infrastructure. But with that said, they also depend on government’s spending to make that happen and that’s not the prettiest picture in the world. Brian Rafn – Morgan Dempsey Capital Management: Okay. And then just final one. What’s your sense, either Bob or Dave, kind of the markets for what you guys are looking at acquisition-wise, multiples of EBITDA… more financial buyers and strategic buyers? Give me the sense of what’s your finding? How lucrative are the markets right here given the cash that you have in the financing and that from a price standpoint?

Well. Brian, I hear. So I would have you think about that. There are what appeared to be good opportunities out there for as we are seeing deal flow that is substantially above more it had been in the last few years. So there is, I think, more than enough opportunities for us to find attractive businesses in those market segments that I spoke of earlier when Mike asked that question. So we’re staying disciplined to go after the markets that are high on our strategic list and the adjacencies around all of those particular areas. We continue to remain prudent about the pricing. We compete against both strategics and financials on these deals. From time to time there is somebody hungry for a deal that wants to take if off the table the price more than will pay and anybody that’s getting up into the double digits. The EBITDA is probably going to be successful with that because we’re not going to that kind of level. But the deal multiples there drains all over the place. It depends on the industry, the quality of the company, lots of different circumstances. I would say that you don’t see a whole lot of things down around the 5- or 6-level these days if it is a decent company, but you can see things that will go through then. If they’re really attractive, we’re typically not going after those. It’s just too expensive. And so we’re going to be somewhere in that area maybe the 6 to 9 as the most likely area where a lot of these things will land and the more attractive they are and quality companies, the more they tend to be towards the higher end of that range. Brian Rafn – Morgan Dempsey Capital Management: Okay. Then I’ll just ask given 12 touchdowns in the last two games, are your Steelers thrown back off the Super Bowl?

I would not be putting my money on that, although I also can’t explain what has happened in the last two weeks either. Brian Rafn – Morgan Dempsey Capital Management: Alright. Okay, guys. Thanks much.

Thank you, Brian.

And we have no further questions at this time.

Alright, Chris. Thank you, Thanks, everyone. Appreciate the questions there and we will look forward to catching up with you next quarter. Take care. Bye bye.