NWPX Infrastructure, Inc. (NWPX) Q4 2013 Earnings Report, Transcript and Summary

Welcome, and thank you for standing by. [Operator Instructions] This call is being recorded. If you have any objections, you may disconnect. And now I'm turning the meeting over to your host, the CEO, Mr. Scott Montross. Sir, you may begin.

Okay. Thank you, Ralph. Good morning, and welcome to Northwest Pipe's conference call. My name is Scott Montross, and I am President and CEO of the company; and I'm joined by Robin Gantt, our Chief Financial Officer. As we begin, I would like to remind everyone that the statements we make in this call about our expectations for the future are forward-looking statements and actual results could differ materially. Please refer to our most recent SEC filing on Form 10-K for a discussion of risk factors that could cause actual results to differ materially from expectations. I will now turn to Robin who will discuss our fourth quarter and full year results.

Thank you, Scott. Our fourth quarter net loss was $17 million or $1.80 per diluted share in 2013. This included a noncash, after-tax, fixed-asset impairment charge of $17.3 million. Excluding this charge, adjusted net income in the fourth quarter of 2013 was $319,000, or $0.03 per diluted share, compared to net income of $4.5 million or $0.48 per diluted share, in the fourth quarter of 2012. Water Transmission sales decreased 51% to $43 million in the fourth quarter of 2013 from $88 million in the fourth quarter of 2012. Water Transmission gross profit as a percent of sales decreased to 16.4% in the fourth quarter of 2013 from 19.9% in the fourth quarter of 2012. Tubular Products sales increased 51% to $72 million in the fourth quarter of 2013 from $48 million in the fourth quarter of 2012. Volume increased 64% while average selling prices decreased 8%. We sold 66,100 tons in the fourth quarter of 2013 as compared to 40,200 tons in the fourth quarter of 2012. Tubular Products was breakeven for gross profit as a percent of sales in the fourth quarter of 2013 compared to a negative 6.3% for gross profit as a percent of sales in the fourth quarter of 2012. Total company inventories remained relatively the same in the fourth quarter from the third quarter of 2013. Moving on to the full year results. Our net loss was $923,000 or $0.10 per diluted share. This included the noncash, after-tax, fixed-asset impairment charge of $17.3 million. Excluding this charge, adjusted net income was $16.4 million, or $1.72 per diluted share, in 2013 compared to net income of $16.2 million or $1.72 per diluted share in 2012. Water Transmission sales decreased to $226 million in 2013 from $269 million in 2012. Water Transmission gross profit as a percent of sales increased to 20.7% in 2013 from 16.7% in 2012. The decrease in sales was due to continued weakness in municipal markets. The increase in gross profits and gross profit as a percent of sales was driven by a favorable product mix, including the production of Lake Texoma, the largest project in our history, as well as cost reduction initiatives. These initiatives have improved quality, reduced overhead costs and reduced man hours per ton. Tubular Products sales decreased 2.4% to $249 million in 2013 from $255 million in 2012. Selling prices decreased 10% while volume increased 9%. We sold 224,300 tons in 2013 compared to 206,200 tons in 2012. Tubular Products gross profit as a percent of sales was 2.2% in 2013 compared to 4.4% in 2012. Our energy product comprised approximately 78% of Tubular Product sales in 2013 compared to 74% in 2012. Gross profit and gross profit as a percent of sales was negatively impacted by the increased competition from imports, which exerted significant downward pressure on selling prices and volume. In addition, gross profit was negatively impacted by $4.9 million in lower of cost or market inventory adjustments. This was partially offset by cost reduction initiatives successfully implemented at our Atchison facility, which is important as we complete our capacity expansion investment projects at Atchison. The investment projects completed to date have helped increase our 2013 Atchison line pipe shipments by about 50% over the 2012 shipments. Selling, general and administrative costs decreased to $24.2 million in 2013 compared to $28.6 million in 2012. These decreases covered a wide range of general and administrative cost categories as part of our total company efforts to reduce overhead and administrative costs. We recorded a $27.5 million fixed-asset impairment charge in 2013, which was $17.3 million after tax. In conjunction with the preparation of our year-end financial statement, we determined that an impairment-triggering event had occurred for the assets at our Bossier City, Louisiana facility due to increased competition in the OCTG market and pricing and volume pressures from imported pipes. Interest expense was $4 million in 2013 and $5.6 million in 2012. The decrease was the result of lower average interest rates and decreased amortization of deferred financing costs, partially offset by higher average borrowings. Our effective tax benefit rate was 69.7% in 2013, and our effective tax provision rate was 25.4% in 2012. During 2013, we performed a research and development tax credit study, which resulted in a net tax benefit of $900,000. In 2013, the company generated $20.1 million in cash from operations to support the growth of the business mainly through our income, excluding the impairment charge, and decreases in inventories and costs and estimated earnings in excess of billings on uncompleted contracts. These were partially offset by an increase in accounts receivable and decreases in accrued liabilities. Depreciation was $13.3 million in 2013 and $16.3 million in 2012. Inventory decreased $3 million in 2013 from 2012. This was primarily due to a decrease in Water Transmission coil inventory with the decrease in production. This was partially offset by an increase in inventory due to the Permalok acquisition on December 30. Capital expenditures were $28.5 million in 2013 primarily for planned capacity expansion in our Saginaw, Texas water transmission facility and our Atchison, Kansas line pipe facility. The remainder was for ongoing maintenance capital expenditures. Another large investing outflow was the acquisition of Permalok Corporation on December 30 for $15.7 million in cash. We paid this through borrowings on our revolving credit agreement. Our balance on the credit agreement was $87.9 million at the end of 2013. Now I'll turn it over to Scott for an update on our business.

Thank you, Robin. As of December 31, 2013, our backlog in Water Transmission was approximately $103 million. As of December 31, 2012, our backlog was approximately $173 million. We expect that the first quarter of 2014 will continue to be challenging for both sides of the business. Backlog in Water Transmission has decreased as expected. We expect Water Transmission sales to be comparable to the fourth quarter levels with gross margins in the high single digits. The following is an outlook on upcoming water transmission projects. The first segment of the Tarrant County integrated pipeline job, or IPL, has bid, and we are expecting the results will be announced in late March. If our bid is successful, the earliest IPL revenue would be recognized is in the second quarter of 2014. Second segment of IPL is expected to bid in the fourth quarter of 2014. The 22-mile Madison, Wyoming bid was pushed out from the fourth quarter of 2013 to late March, early April of 2014. The Odessa Subarea is a 40-mile pipeline project near the Snake River in Washington State that may bid in mid-2014 at the earliest, but we believe it will be closer to 2015. The Red River job in North Dakota is approximately 140 miles and will bid in mid-to-late 2015. As you can see, there is some increased activity, but we expect that our Water Transmission order book will remain at low levels for at least the next quarter. In Tubular Products, we expect compressed margins to continue into the first quarter as imports have had a negative impact on both volume and margins, and we expect our customers to continue to closely manage their inventory levels. The trade case filed in July addressing the high imports of Oil Country Tubular Goods has not yet had a significant impact on sales price or volumes. The preliminary determination by the Commerce Department was announced in February and it was not favorable. The preliminary determination is not the final determination and could change as more information is presented. Final determination by the Commerce Department is expected in July 2014. We continued line pipe production on the Double H pipeline in the fourth quarter at our Atchison, Kansas plant. We have produced approximately 24,000 tons through the end of 2013 and expect to produce the remainder of the approximately 36,000-ton order through the first part of the second quarter of 2014. While this line pipe order is significant, rising coil costs, stagnant pipe prices and still depressed demand continue to put pressure on energy tubular goods margins. In addition, our Kansas facility is currently shut down while we complete the capacity expansion project, which is installing a new hydrotester and replacing the front end of the 16-inch mill. This shutdown will cause our Tubular Products costs to increase in the first quarter. Therefore, we expect margins in the Tubular Products business will be about breakeven in the first quarter. As we announced at the beginning of 2014, we acquired Permalok Corporation on December 30, 2013. These plants have been integrated into our Water Transmission operations. We expect that this will add about 10% to Water Transmission sales in the future with similar margins to our current Water Transmission business. However, as this acquisition is relatively small and has been fully integrated into Water Transmission, we will not be reporting separate results for Permalok in the future. We expect between $16 million and $20 million of total capital expenditures for 2014, which includes the remainder of the Atchison expansion currently under way and normal capital maintenance. We expect the Atchison expansion project will be completed by the end of March. The balance on our credit agreement is currently around $63 million, a decrease of about $25 million from year end. We continue to closely manage our current assets to provide the company with the maximum flexibility for achieving our future growth objectives. As we previously announced, we're in the process of exploring strategic alternatives for our oil tubular goods -- or Oil Country Tubular Goods business. There can be no assurances that the exploration of alternatives will result in a transaction or as to the terms, conditions or timetable of any such transaction. It is our policy not to comment on any specific discussions or any potential corporate transactions unless and until we enter into a definitive agreement with respect to such transaction. In conclusion, we anticipate a challenging first quarter as we have not yet seen a significant benefit from the trade case on Oil Country Tubular Goods. We believe volumes and margins in Tubular Products will remain compressed for the near term. While there are some larger projects in Water Transmission forecasted to start production in the second half of 2014, our order book is expected to remain at low levels for the near term. During this period of time, we will continue to work on driving costs from all of our facilities so that as the market improves, we are positioned to take advantage of our stronger cost position as we go forward. At this time, we'd be happy to answer any questions.

[Operator Instructions] We have a question coming from Mr. Matt Sherwood.

Good cost discipline in a very tough environment. Just my first question is can you walk through the -- you mentioned the lower cost to [indiscernible] market adjustments. How much did that impact the fourth quarter versus just over the course of the year in the tubular segment?

It impacted the fourth quarter by about $1.5 million compared to the rest of the year. So we've been getting hit all through the year.

Okay, got you. So -- but without the -- but eventually, hopefully, pricing stabilizes. And the -- operationally, I guess you had a positive gross margin in tubular? Just with low come and flow?

Yes.

Great. And then just in terms of the second quarter improvements to the tubular business through the heat treating arrangement and also from the capital program with the water tester and the changes to the front end of the mill at Atchison, can you sort of talk about how those could impact you in the second quarter and beyond?

I think that on the OCTG business with heat treating, obviously, as we've discussed in previous calls, at this point we don't control any of that heat treating business or the heat treating processing of our own products. So we are basically paying the spot market price for the heat treating. The arrangements that we have going forward are at an advantaged cost to what the markets are and really give us a significantly better cost position on the OCTG business as we move into the second quarter and that heat-treating arrangement comes online. I think on the line pipe or the Atchison side of the business, the installation up to this point of the 2 accumulators has really started to bear fruit for the facilities. Our uptimes are up significantly at -- on both of the mills that we have at Atchison, and our prime yields are also up significantly. And I think that when you look at Atchison independently, which we don't break these out on our statements, Atchison has performed strong in the past and continued to perform strong in 2013 even with a compression between the pipe selling price and the coil selling price of over $50 a ton. I think some of the cost improvements -- many of the cost improvements that we've been able to make at Atchison really helped us offset that margin compression to a great extent. So I think what's going on in that is we've really got a pretty strong platform at the Atchison facility. And with the installation of the capacity expansion project or the modernization project that we're doing at Atchison right now, we think that it creates an even stronger platform and gives us more strength into the future to compete from a better cost position as we go forward. So I think we are -- we see some very positive signs there.

So it sounds like everything else being equal, if pricing stayed the same, volume stayed the same, you guys would have materially better performance from the tubular segment in Q2 and beyond relative to Q1 and Q4, et cetera?

Yes, I think that, well, you've got to kind of break it into 2 pieces. I think that when you look at the OCTG piece, you're looking at a situation where we've all seen the impact of what the trade case has been. It really hasn't been anything to date. Not saying that in the final determination, that the margins won't be placed against the South Koreans. But I think the impact of that, along with the increased domestic capacity coming online in 2014 in the OCTG business, really, really makes that ramp-up even a little bit slower even with an advantaged heat treating cost. I think that there'll still be pressure on the OCTG prices as we go forward in the market. So even though we've got an advantaged heat-treat cost, and I think that our strength is more in line with improving margins there, I think the extra capacity and really the imports that show that they're really not letting up continues to have an impact on the OCTG business. I think on the line pipe side of the business, like I said with the improvements that we've made at Atchison, with the cost that's already been taken out of Atchison and with the additional cost after the modernization project, I think that the platform for competing even in this market -- and like I said, Atchison did pretty well even in 2013 in a very tough market with depressed pricing. I think the platform for being even more competitive in, quite frankly, a bigger market because obviously, as we've discussed, modernization project virtually doubles the available market to us because of the wall thickness and the strength levels that we can make, I think that the platform for Atchison to continue to do better in the future is very strong.

And our next question comes from Mr. Scott Graham.

So I was just curious about whether you thought that the more recent decline in steel prices maybe fans the flame on legislation in your favor going forward. If there's that revision that you're talking about, if there is one, does this fan those flames a little bit?

In what way? To the positive or the negative? I think...

To the positive, right? Because if prices are once again declining, right, I would think that they'd be more sympathetic here, no?

Yes, I think one of the things that we saw, though, through the end of last year was really into January, a run-up in the steel prices. So part of what we saw was that during 2013, just in that year, looking at fourth quarter of '12 to fourth quarter of '13, we saw a pipe price -- and whether you're looking at it on the line pipe side or the OCTG side, that came down somewhere between $80 and $85 a ton, and we saw steel price that was only down year-over-year about $30 a ton. So we still have significant margin compression going on. So we would hope that as they consider the final determination for the trade case, that, that would play into it. But as we've said in the past conference calls that we've had, we cannot rely on trade cases for the long-term viability of our facilities. So our focus continues to be driving every bit of cost out of these facilities that we possibly can so that we can compete in any market situation, whether it's high import levels or the advantage you get by having low import levels. But I think, Scott, for the trade case, I would hope that the continued compression on the margins and then the falling of the steel prices would have them looking at other things before the final determination.

Got it, okay. Now on that, though, I know that you have really been a champion of declining costs to rightsize your cost structure to that again, as you just said, whatever this price of steel is and whoever is bidding it. My question is kind of where do you think you are on that curve, Scott? So -- and maybe -- and here's maybe the way I'd frame the question, maybe you can ask it -- answer it this way. If steel prices did not change and the level of import activity did not change from today, where do you think -- or, I should say, better yet, when do you believe that you can get to a -- in a sustainable, let's say, mid-20s or higher gross margin and a sustainable 10% gross margin in tubular? How much longer do you think it will take you to get there?

You're talking about the 20% margin on water, the water business, and 12-whatever percent on tubular? On the water business, I think part of it was demonstrated in 2013 where quite frankly, you see the revenue in the top line generated by the water business and what was able to happen on the margin side. We've focused very hard on reducing our man hours per ton. But on top of that, we've gotten a little bit more granular with that, with looking at our cost per man hour. And we've really focused on attacking the -- really the indirect portion of overhead and taking a lot -- and continue to take a lot out of our cost per man hour, which obviously contributes to the man hours per ton figure. So I think the question on the Water Transmission side, I guess the beginning part of it is where are we in reducing cost on the Water Transmission side? If we were -- if I compared this to a Major League baseball game, I would say that we're still in the first inning of reducing costs. So we've got a long way to go to drive the costs out of the business. But I think what really will start to demonstrate that on the Water Transmission side is when the market levels begin to return to, I guess, something that we would consider somewhat more of normal versus what we saw in the last couple of quarters of 2013. Because what we saw in 2013, if you look at the last 36 quarters that we've had in Water Transmission, we saw the 2 lowest top line quarters of the last 36 quarters in a row. So obviously, when you start getting into that kind of situation in the business and the bidding activity as low as it is, that really, really starts to bring out the aggressiveness of everybody bidding. So I think once we get into a more normalized pattern of what the Water Transmission business had looked like in maybe 2011 and a good part of 2012, that's when you start seeing those margins come out in Water Transmission side because I think some of those have been demonstrated in 2013. On the tubular side of the business, again I think the things that we're doing in our Atchison facility, your -- there's strength at that facility where the margin generation there which has still been pretty good in 2013 even with the market situation, I think we continue to build on that with the modernization project that's being installed now. The OCTG business is a little bit of rougher road because the new domestic capacity coming online, along with the higher level of imports, and if that stays the same, there's -- we're not as competitively strong on the OCTG side cost-wise as we are at Atchison. So I think the ascent there is a little bit longer. But with the heat treating that we have now and the agreements that we have, we think that, that puts us on the right track.

Last question is, do you, Robin, know where you -- where to expect the tax rate to come in next year?

Yes, it'll be around 34%.

And our next question comes from Mr. Tom Van Buskirk.

Just a couple of quick things. First, on the strategic review. I know you can't really talk about it but if you can maybe just give a sense of the time frame for that. And then the second thing is with regard to the tubular -- to the OCTG facilities. You had the write-down at Bossier City. What was unique about Bossier that drove that? And do you expect any additional impairments going forward? Or are there any factors that contribute to that, that we might see crop up in other facilities?

Well, first of all, I'll answer the question on the strategic review and then let Robin talk about the fixed-asset impairment at Bossier City. On the strategic review, the only thing I can say right now is that we are down the road on a process at this point, with reviewing those and what our plans are. And really, I can't make any further comments on that at this point in time.

In terms of the write-down at Bossier, of course the factors in the OCTG market caused us to really look at those fixed assets and say, "What's going on there?" If we look at the carrying value and compare that to fair value, how does it look? So we took a look at the value of all of the fixed assets, so the equipment, the land, all of that. And in Houston, which is our other OCTG, we were okay on the fixed asset side. Bossier, we were -- basically, our carrying values were higher than the fair value. So that's what led to the write-down. In terms of if there's anything down the road, if there were, I -- if I could see anything, I probably would have had to take it. But right now, we believe that we have written it to its fair value. And so right now for Bossier, we believe that we're set.

Okay. And then just to reiterate, to -- I know I think you mentioned it before but just to clarify on the timing of IPL revenue for the first segment. Assuming that the bids are read and that you win that on schedule with when they were expecting it, when would production start for that? And when would you start realizing revenue?

Well, we would expect -- if we were fortunate enough to get the first segment of the IPL project, we'd expect it to start getting revenue sometime in mid-second quarter.

And our next question comes from Mr. Ben Ovison [ph].

I just had a quick question about the project you mentioned coming in 2014 and 2015. Do you have any sort of number that you put on that as far as potential bid revenue, I guess?

The projects in '14 and '15 or beyond '14?

Like the ones you mentioned like Wyoming, Odessa.

No, we don't at this point because I think with -- there are -- specifications are still being drawn together and part of the fittings and the fabrication work that would have to be done is still being quantified. But what we understand about the Odessa project is it could be 40 miles, okay? And obviously pipeline differences -- the first segment of IPL is about 15 miles. So that gives you a little bit of a view size-wise. The one later in 2015, which is the Red River project that's basically bringing water from the Missouri River over to the Red River to feed water into the Dakotas and the cities in the Dakotas, that project, we hear, is anywhere from 130 to 140 miles long. So very major projects. So -- but I don't really have any revenue numbers on those projects at this point.

Okay, that's helpful. And then I guess for the backlog. So potentially, sometime in 2014 or '15, there could be some pretty lumpy quarters of backlog where one quarter would be significantly more than...

Ben [ph] I can't hear you very well but I think you asked about the backlog in 2014, throughout the year. I think when you look at 2014, we're starting with a relatively low backlog at $103 million. So outside of some of the bigger jobs that we've talked about in 2014, like the 2 sections of IPL, that one has bid and we're waiting to hear the results of that and the other one is what we're hearing is sometime in November, then the 22-mile Madison pipeline in Wyoming and then some smaller projects. We don't expect that the overall bidding activity increases really from 2013. There's just a couple of major jobs in there that I think will cause the backlog to spike for periods of time. It depends when they hit and how it works into the existing backlog. But I think that the backlog is going to remain maybe not quite as low as it was at the end of 2013. It's going to remain at relatively low levels in 2014. With the expectation -- with the additional work that we think we're going to see, and there's some pretty large projects out there for 2015, that, that probably starts really making its upward trend in sometime in 2015.

Great, okay. Yes, that's what I wanted to hear. And then also, on the OCTG business in Bossier City, does that only produce OCTG products?

No, Bossier City makes some smaller sizes of line pipe products but really in the smaller segment of the market. But the -- virtually 85-or-so percent to 90% of the production, in some months it's 100% of production is OCTG products. The main -- the -- our line pipe mill, obviously, as we have discussed, is our Atchison facility.

Great. And then this one is probably one you can't answer but as far as that asset impairment charge, about what percentage, some ballpark you could give, of the value of the OCTG business was that?

Well, the accounting standards set out kind of what you need to do there. We had to go out and, for the purposes of closing the books, get appraisals on the property. So you're really looking at what the appraised value is of the equipment and the land. And so it's really not necessarily an indication of the value of the business. That's not how you look at it.

And our next question comes from Mr. Gerry Sweeney.

Question on -- just to circle back to the IPL project. You said it was 15 miles. What kind of tonnage would that be?

We're looking at somewhere in the area of around 23,000 tons for the first segment. That's just the first segment. Now obviously, there's many segments with this and the entire job, which takes the span of several years and, quite frankly even beyond that, is said to be somewhere around 150,000 tons or so. So it is about 23,000 tons, the first segment.

Do you know how much tonnage, I guess, Section 12 and 13, which are -- was going to go to a bid this summer, is?

The bid on the next section is a fourth quarter bid. And from what we understand, it will be similar. But we think the tons are probably a little bit less on the next segment.

Okay. And then looking at Water Transmission going into Q1, similar revenue, but it looks like margins are going to take a little bit of hit in Q1. And this is compared to Q3 and Q4 where they -- you did a very nice job of keeping them up there into the 16% area. What's the differential or the delta that's occurring between, say, Q4 and Q1 that's going to drop margins down?

Well, I think you've got to look back into 2013 and look at how low the bidding level was, especially in the middle part of 2013, which is -- really just the middle of 2013, which is the stuff that we're producing now. There were some months where we booked $3 million worth of work and the next month $5 million worth of work. And it wasn't just a Northwest Pipe thing, it's an entire market thing with all the bidding activity being so far off of the number of jobs that we've normally seen. So what you saw is very competitive pricing and very aggressive stances by everybody bidding on that. And at that point in time when the activity is so low, it's really like throwing a group of starving people a sandwich. I mean, everybody's going after it with everything they have, and we're seeing some of the result of that in the first quarter. Now we have seen a little bit of an uptick in the bidding activity with things that we bidded in the late fourth quarter of last year into the first quarter of this year, which starts making the look -- if you look going forward, a bit better. But that first quarter is what I would say is definitely in the trough of the business. So the difference was the low number of jobs bidding and the aggressive stance of pretty much everybody in the market in quoting on those jobs.

Okay, that makes sense. And then just another, -- maybe a question on the overall market. Obviously, Water Transmission is municipally driven. It seems as though state finances, maybe even some municipal finances, are starting to repair themselves. A lot of talk about some drought, climate change in the West. Water's a big issue there. I mean, what do you watch as to -- are we going to start getting a potential sea change here? Or what do you watch to see, if there's a pickup in demand, how things may change?

Well, we have -- we've got about a 3-year horizon on jobs out there that we're tracking. Obviously, the third year out is a little bit fuzzy. But we've got a pretty solid look at what it looks like 2 years out in jobs that are out there. Now, obviously, those jobs can get pushed out or pulled up. So we've got a pretty good look at that. So we know that the jobs are out there. I think when you're looking at state funding, and the one that -- the state that's obviously in really good shape because of the activity that's going on there is Texas. And that's a significant amount of what we're seeing, obviously IPL driven. As we go out into the future, there is a couple of very large segments of a San Antonio job in 2015 and 2016. So Texas is carrying a lot of the load on the state funding. And obviously, they're the ones that are spending the money due to the drought situation right now currently, and that's a big reason why we invested in upgrading the plant in Saginaw, Texas, with what we think is in front of us and our ability to compete and to participate on those jobs. So we watch those jobs out in the future. The other thing is, obviously, that what's been in the news recently is the drought condition in California. And I was looking at a drought map of California a couple of days ago and virtually 95% of the state is in a severe to exceptional drought situation. So we haven't really seen anything popping in California yet. Obviously, there's some reliner work and repair work going on down there to existing pipelines but one would assume that, that drought situation is going to create something as we go forward. We just haven't seen anything yet. And I think the recovery of the housing market and housing starts and the way that they're actually driving the improvement in the construction market ultimately starts to transition into requirements for more water in various places, especially in more arid regions where there's a lot of population growth going on. So we watch a pretty wide swathe of things to make sure that we've got a good view on what the market's doing.

Sir, at this time, I don't any questions on the queue. [Operator Instructions]

Any other questions?

Yes, we have a question here coming from Mr. Barry Vogel.

We've had -- you had a lot of questions asked, but I got a couple that perhaps you can help me on. Scott, if you had to talk about your bolt-on acquisition strategy going forward, and this is after, obviously, you bought this Permalok, which seems to make a lot of sense, what would your strategy be going forward, if you had to describe it briefly, in acquisitions?

Well, we don't really talk about our M&A-type activity. But I think, Barry, if you look back to the press release that we did back in September, we talked about certainly making sure that we are not only fortifying our Water Transmission business but driving growth in our Water Transmission business. So I think that gives a little bit of an insight into the things that we're looking at. And I don't know -- the Permalok acquisition was a smaller acquisition and a bolt-on, but I think that we look at the wide range of acquisitions that may make sense all the way from something that's really big to things that are small that may be in developing sectors in the water-related market. Whether it's wastewater or potable water or whatever it is, we're constantly looking at those things and making sure that we're taking a view of where we're going. But I would say that my contention has been that the company has a lot of strength in the Water Transmission business and that we certainly need to be able to build on the strength of the Water Transmission business. Now with that being said, obviously we've invested a lot of money in our line pipe business in Atchison, Kansas, and certainly we expect that to bear fruit going forward. But I think you really have to look back at -- and look at the press release to kind of get that view of where we're focused.

Now as far as Atchison is concerned, and you've talked about it in the past, as of, let's say, the middle of this calendar year, given an average mix of business for the facility, what would your capacity be in tons by the middle of '14?

In -- at the Atchison facility alone?

Yes, yes.

Okay. So we're -- before the modernization project, we're somewhere in the area of about 250,000 tons of capacity. After the installation of the 2 accumulators, we think that we'll be about 325,000 tons of capacity or have the ability to run 325,000 tons. Now the whole idea behind this is also to have equipment that we can operate better, at better conversion costs, at better yields to be even more competitive on the same volume that we have now at the Atchison facility even without increasing the volume. So I think the focus is, is how do we continue to drive cost out of that and make Atchison a bigger part of the profitability picture as we go forward. I think the extra capacity online just is, is something that we'll begin to, I guess, move into as we have the heavier wall and higher strength level products. But I think you can say right now, depending on the mix, that our capacity at Atchison is somewhere in the area of 325,000 tons.

So If we go to into 2015, other than maintenance costs, do you foresee trying to expand one way or the other the capacity of the Atchison facility because it's such a good facility?

No. I mean, we're always looking at that. What we have planned out in the future right now, obviously, is the maintenance capital related to that. But there are other potential things that can be done with Atchison to continue to drive cost out of that business. So we're evaluating those every quarter as we review where we are in our 3-year strategic plan. So there are things that we could look at to continue to expand that, yes.

Now are you serious when you said you were in the first inning as it concerns cost reductions in Water Transmission?

Yes. Yes.

Even though you've accomplished a lot in a very short time?

Well, I think that when you go into a program like this, you tend to get significant gains early on, and then the gains get a little bit harder to get. But we're in the mode with we have to continue to drive cost out, drive cost out until the operating people say, "Hey, this is what we can do with the current configuration of the equipment. In order to do something different, we have to look at a different configuration of the plants -- or the plant, the way the plant's laid out." But we, I think, Barry, have -- we have quite a ways to go on the cost reduction side from where we are right now. I mean, a lot of it right now has been focused on making sure that we get our headcounts right and that when the market's slow, that we are reducing our headcounts where we have to. But we are just implementing the lean manufacturing model at our water transmission plants now. It's gone in at Saginaw, they're through Phase 1 and moving into Phase 2 of that and it's going to Denver next. And they are just getting into Phase 1 at Denver. We have the rest of the water transmission plants to do throughout this year. We may not get to the Permalok facilities this year because we're still really integrating them into the culture of the company. But I think lean manufacturing is going to play big into this as we go forward.

How long do you think it would take -- given the number of plants that you have and the fact you're in the first inning, how do long do you think it would take objectively to accomplish all of this?

Well, you never finish working on costs, right? So I think where we -- one, we've got to get a market situation that allows us to run and operate our assets at what I would call a relatively normal level. And I mean, you can see obviously in the fourth quarter of 2013 how low they were. And you're hearing us allude to what 2014 first quarter looks like. I think once you get to a normal level, which may not be until sometime in '15, then you get to a point where I can start giving you a decent projection on how long I think it takes to get there. But I would tell you that you'll probably never hear me say we're much past the fifth inning because there's always more to do on the cost side.

Okay, that's good. I have 2 questions for Robin. To Robin, what's your D&A projection for 2014?

I would project it to be around $24 million.

And on that credit agreement that -- I think you used the term -- I wasn't sure what you were talking about. You said you had $63 million left on the credit agreement. What did that mean?

I think that was in my statement. We were -- we had about $63 million used out of our revolver at this point, and that was down $25 million from year end. We focused hard on our current assets and driving those down to give us maximum flexibility going forward, so...

Okay. And Robin, can you tell us the terms of that note?

It is a $165 million credit facility. It -- we refinanced this just over 1 year ago. It expires in October 2017, and it has some financial covenants in it. But it's basically just looking at what our income is compared to our debt.

So what's the interest -- what's the cost of the facility percentage-wise? What's the...

We are at about LIBOR plus -- or, excuse me, it's LIBOR-plus. And so right at the end of the year it was about 2.6%.

At this time, we don't have any questions on the queue.

Okay, well, I'd like to thank everybody for attending the call, and we look forward to our next call, which is at the beginning of May, to talk about what the first quarter looks like. And at that point, we'll see everybody then. Thank you very much.

Thank you.

Thank you. And that concludes today's conference. Thank you for joining, and you may now disconnect.