Worthington Industries, Inc. (WOR) Q4 2012 Earnings Report, Transcript and Summary

Good afternoon, and welcome to the Worthington Industries' Fourth Quarter Earnings Results Conference Call. [Operator Instructions] This conference is being recorded at the request of Worthington Industries and if anyone objects, you may disconnect at this time. I'd like to introduce Ms. Cathy Lyttle, Vice President of Corporate Communications and Investor Relations. Ms. Lyttle, you may begin.

Thank you, Cathy. Good afternoon, everyone. Welcome to our fourth quarter earnings conference call. As a reminder, certain statements made on this call are forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties and could cause actual results to differ from those suggested. Please refer to our fourth quarter earnings release issued this morning for more detail on those factors that could cause actual results to differ materially. For anyone interested in listening to this call again, a replay will be made available on our company website, worthingtonindustries.com. On the call today are John McConnell, Chairman and Chief Executive Officer; George Stoe, President and Chief Operating Officer; Andy Rose, Vice President and Chief Financial Officer; Richard Welch, Controller; and I have the pleasure of welcoming Mark Russell, our incoming President and Chief Operating Officer. John McConnell will lead us off.

Well, thank you, Cathy, and good afternoon to all of you on the call. Thank you for joining us. As you can likely tell from my voice, I am in the midst of working through attack of the creeping crud this summer. While improving somewhat, I'm still prone to sudden and occasional uncontrollable fits of coughing. So I'm going to do my best not to disrupt the call or damage your hearing, but I did want to provide fair warning. I'm pleased to report that we had an excellent fourth quarter and fiscal year, I believe especially strong when you consider we experienced significant inventory holding gains last year and inventory holding losses this year. Also, negatively affecting fiscal 2012 were some of the recall which, while I hope will never happen again, I believe was executed very well and some additional restructuring charges. Andy will speak further about those items. I am very proud of all of our employees and pleased to see their efforts and hard work over 4 years of transformation really beginning to pay off. Let's get started with a deeper look at the quarter and the year as I turn the call over to our Chief Financial Officer, Andy Rose.

Thanks, John, and good afternoon. The company's performance in the fourth quarter of fiscal 2012 was very good, aided by volume increases in cylinders and steel and solid earnings from our newly acquired Engineered Cabs business. Quarterly earnings per share, excluding restructuring, were up 9% from the prior year. Inventory holding gains added approximately $0.03 to our Steel Processing results for the fourth quarter. In the prior year fourth quarter, inventory holding gains added $0.22 a share. For the year, earnings per share excluding restructuring costs were up 13%. Inventory holding losses reduced current year results by $0.12 per share as steel prices declined for most of the year, while inventory-holding gains added $0.19 per share to our earnings in fiscal year 2011. Volume growth was solid in the fourth quarter. Cylinder volumes were up 46% for the quarter, driven by acquisitions and a 3% increase in our legacy Cylinder product lines. Cylinder volumes were up 22% for the year. For the quarter, Steel Processing volumes were up only 3%, but after excluding the MISA Metals acquisition last year, most of which was wound down or sold during the year, volumes were up 13%. Volumes for the year were up 12%. Equity income from our joint ventures during the quarter was down 11% over last year to $22 million, driven by modest volume declines at ClarkDietrich and WAVE, our 2 building product joint ventures. All of our major joint ventures operated a profit during the quarter, and we received dividends of $22 million. Net cash provided by operating activities for the quarter was $37 million, driven by earnings and reduced working capital. The company dispersed $16 million for capital projects, distributed $8 million in dividends to shareholders and repurchased 1.2 million shares of stock for $21 million at an average price of $17.60. Capital expenditures for the year were $32 million. CapEx is forecast to rise in 2013 to $68 million due to several growth initiatives in Cylinders, the purchase of our headquarters building in Columbus, Ohio and the addition of Engineered Cabs. Debt increased -- sorry, debt decreased by $5 million during the quarter. Our balance sheet remains strong with total debt of $534 million, cash of $41 million and almost $300 million in available debt capacity as of quarter end. We also completed the renewal of our $425 million 5-year revolving credit facility. Last year we told you about 2 significant transactions affecting our Metal Framing and Automotive Body Panels segments, where we moved them into joint ventures with partners in an effort to enhance their competitiveness and improve Worthington's overall margin and return on capital profile. Since then, we have netted almost $80 million in cash proceeds from the sale of assets and liquidation of working capital from those transactions. That is $20 million above the original estimate we gave you, and there are still assets remaining for sale that should net another $7 million to $10 million in the next few quarters. Perhaps more importantly, our ongoing interest in both JVs, a 50% interest in ArtiFlex, a growing automotive-stamping business with a unique business model, and a 25% interest in ClarkDietrich, the market-leading metal framing manufacturer, contribute $11 million of equity income in fiscal 2012. We feel strongly that these transactions represent an excellent outcome for the shareholders of Worthington Industries. In addition to our divestitures, we have acquired 10 companies in the past 3 years for just over $380 million. These businesses will contribute significant earnings to the company this year while furthering our objective of raising our margins, free cash flow and return on capital. Several of these companies are in an exciting, high-growth area, the alternative fuel space, and are capable of delivering very high growth rates on the current $60 million revenue base, as natural gas is adopted as a cheaper, greener, more available source of transportation fuel around the world. As we've mentioned previously, our goal is to improve our company's long-term earnings potential. Our improved financial performance in fiscal 2012, despite the headwinds of a slow-growth economy, a cylinder recall and declining steel prices, is evidence that our plan is working. By improving the performance of our existing businesses via the Centers of Excellence and continuing to grow through thoughtful acquisitions and new product innovation, we are demonstrating good progress toward that goal. I will now pass the call to George Stoe, who will discuss the operations.

Thank you, Andy. We are pleased to report that we just concluded a strong year inside our Steel Processing business with direct tons up 5%, toll tons up 20% and revenues up 12% over our 2011 results. These results are buoyed by the continuing strength in the automotive sector. Our transformation teams that are now fully embedded in our Centers of Excellence continue to provide significant benefits to our Steel Processing business. We are confident in our ability to improve our relative performance during every conceivable market condition because of these efforts. In our Cylinders business, improving conditions in most product lines and our aggressive acquisition activity have continued to drive growth. Revenues are up 30% overall this year, and North American revenue is up 30% and foreign revenue is up 32%. We saw considerable strength in 20-pound cylinders, our wide array of consumer products and our rapidly growing alternative fuel business. We created a specific team inside our Cylinders business to concentrate on the alternative fuel market for vehicles to ensure that we are well positioned in this growing market. Our facilities in California, Poland, India and Austria are all actively involved in LPG and CNG for vehicles. We believe this platform provides a significant presence in the alternative fuels arena in both domestic and international markets. We're often asked about what we are seeing in Europe. While our Austrian high-Pressures Cylinder business has not returned to prerecession levels, we did see a 19% increase in revenues year-over-year. Our businesses in Portugal and the Czech Republic that service refrigerant, balloon time, air brake tanks and solar water-heating tanks are steady. We acquired the newest member of the Worthington family, Angus, at the end of calendar 2011. They have performed well in their first 5 months with us. Angus produced more than $100 million in revenues, and we believe they are well positioned for continued growth both domestically and internationally. Our Centers of Excellence will begin our transformation process inside Angus next month in Florence, South Carolina. We see significant opportunities for operational and commercial improvement as we move the transformation process through our 4 Angus facilities. Our JVs created almost $1.7 billion in sales during fiscal 2012 and produced operating income of more than $220 million. WAVE, TWB, WSP, Samuel and Serviacero produced great revenues and operating incomes. Serviacero saw the largest percentage increase of our JVs as a result of the very strong market conditions in Mexico and their relative strength in that marketplace. Our new pickle line in Mexico is scheduled to be commissioned in August, and we believe this equipment will enhance our position in the rapidly expanding Mexican market. Our 2 newest JVs, ClarkDietrich and ArtiFlex, are both operating extremely well. ClarkDietrich in its first full year of operation achieved $565 million in revenues and posted $27 million in operating income. The ArtiFlex JV ended fiscal 2012 with $140 million of revenue and $13 million in operating profit, which exceeded our original expectations. They are well positioned with their unique capabilities in tool and die making and stamping expertise for future growth. Our efforts toward operating our facility safely continues. Our new Director of Environmental Health and Safety is continuing with robust and careful risk assessments at all locations in a further attempt to identify any pre-existing conditions that may be unsafe. We've made tremendous progress over the past 10 years in reducing the number and severity of our incidents. We continue to focus on operational improvements and efficiencies while striving to decrease the volatility of our business. This emphasis leads to the ultimate goal of increasing our shareholders' value. This is my last opportunity to participate in these calls with you. First, I want to thank all of you for your participation and interest in Worthington over the years. Secondly, I'm pleased to turn the duties of President and Chief Operating Officer over to Mark Russell. Mark and I have worked together since our days in the aluminum industry. He is my friend and someone in whom I have the greatest amount of respect and admiration. I am confident he will help to carry the company to new and greater levels of success. I'll now turn the call back to John McConnell for his closing comments.

Thank you, Andy and George. Though previously announced, I would like to again mention that this quarter's call is George Stoe's last as our President and Chief Operating Officer of Worthington Industries. On August 1, Mark Russell will assume the title and responsibilities of that job. George will remain with us in the near term, focused on the continued integration of the recently acquired Angus Industries and the development of international opportunities. George has played a significant role in improving our performance and positioning Worthington Industries for growth. George, I thank you, and we look forward to continuing to work with you in your new capacity. And of course, I look forward to working with Mark in his new role. He has earned and he's ready for his additional responsibilities. With regard to our outlook, I am confident in our ability to continue to grow. I said -- I say that recognizing the macroeconomic uncertainty remains in Europe, which may further impact North American economy. The economic conditions may affect a degree in which we grow, but we will continue to grow organically until the continued integration of and the improving performance of our recent acquisitions. And of course, we will continue to grow through additional acquisitions. I am very pleased with our progress, and now you are seeing the results. At this point, we'll do our best to answer any questions you may have remaining.

[Operator Instructions] And our first question comes from Luke Folta with Jefferies.

First, I just want to wish George farewell on your, I guess, semi-retired state. But going forward, it's been a pleasure working with you and I wish you well. Secondly, at the risk of maybe sounding a little over-promotional, congrats on the results this quarter and also good execution to the downturn. I don't think I cover another company that has done as much to improve their business over the last 2 years as you guys have, so nice work there. A number of questions here. Firstly, I wanted to just touch on the Pressure Cylinders business. I think we had seen some impact over the last quarter or 2 from higher manufacturing and some acquisition-related costs. The margins picked up there pretty nicely sequentially, albeit on a lot more volume. Do you think those manufacturing costs have kind of normalized now, or do you think there's maybe some further room to come down there?

No, I think they have normalized.

Okay. Secondly, as it relates to the Cylinders business, you have just started to really get into the restructuring process there. And also talking with Mark, it seems like there could be some potential for future pricing opportunities on a number of those business lines. Can you give us some sense of how far along you are in this kind of transformation process in Cylinders, and how much we can expect there going forward?

I think we are still in the early stages of transformation of Cylinders.

We just went into the fourth facility, Luke, and have the rest of them to drive the process through.

But it's still pretty young, and I'd say recently attacking the commercial side a little deeper than they have before. So that's also really just beginning.

Okay. Have you started to put through -- I mean, can you just talk about where -- what pricing trends are like in that business, and have you identified any opportunities to expand margins there?

Pricing is always very competitive. It's across a wide array of different products and different ending points. So we really focus on cost takeout every year, and that is one of the driving things that we have. And now of course, we've thrown the transformation on top of that, really for the same purpose.

Okay. And then just on Angus. I mean, there was a pretty nice pickup in margins there sequentially. I guess the question being, what do you think's a better representation of what your kind of go-forward base margins are like in that business? Is it more like the kind of, I think, almost 10% that we saw in the fourth quarter here or kind of a mid-6s, sort of 7% sort of range that we saw in the third quarter?

Well, I'm going to let George largely address that, though, I would say even transformation is about to kick off there, so I would hope to see definitely cost improvements and other things throughout the Angus operation. George?

Luke, we also, if you recall, we had some purchase accounting in the first few months of our operation of the Angus business. We had to write their inventory up to market levels. So I think that you should expect that our margin levels would mirror what you saw in the most recent quarter.

Okay, okay. All right, guys, just one last one. The global construction group, I remember some discussion about -- there were some potential big projects out there that you were looking at. And to the extent that those projects weren't realized or you didn't think that there was -- that they were likely to happen, that you could maybe exit some of those operations, have you made some kind of preliminary decision on that? Or can you just give me your thoughts there?

Well, as far as the large projects go, they certainly have been delayed, though they are not off the table completely. I mean, that's the best way to put it. Certainly, our China joint venture and that building operation has been delayed, though there's no question it will go forward at some point, and opportunities throughout the Middle East and Africa are still in existence. We are taking a very hard look at everything involved in the Global Group, and we'll be further analyzing, really throughout the rest of this fiscal year. We have some very specific targets that must be met, or we will slowly just stop this business, go away.

We'll go next to Arun Viswanathan with Longbow Research.

Yes. So I guess first off, just on the Cylinders business. I mean, your volume definitely had a nice uptick. How much growth is there? Is this kind of a new run rate, or do you think that there was something specific in this quarter that we won't see again?

Cylinder's always going to have some weather influences throughout it, both good and bad. In one segment, it's probably about as slow as we've seen in the heating tank markets, as we had a very warm winter. In other segments, it picks up. And sometimes natural events like the typhoon that just came in to the East Coast is -- causes people to go out and buy alternative power sources, and propane is one of those. So we'll always keep going back and forth. We think we're well positioned for new markets. That's one of our focuses right now. Certainly if natural gas begins to get more headwind, more -- sorry, tailwinds in the -- as an alternative fuel for automobiles, that growth can be exponential. Anyone want to add anything to add to that? George, no?

Okay. And then I guess similarly, since this is one of the earlier quarters where we're seeing the Cabs business perform as well, is this kind of a more typical run rate of what you expect from this business on a quarterly basis, or is there a lot more growth left on the margin side as well here? I'm just trying to get a handle, since it's -- this is a newer business for you guys, historically speaking.

I certainly think that we see some growth opportunities in that business. You may have read recently that one of our large customers announced a new plant down in the southeast, and we've been awarded a portion of that business. So we think that there are nice opportunities going forward, both domestically and internationally.

Okay. And then the last question I had was on the Metals business. Have you seen any difference or changes in customer behavior with changes in prices in the last couple of months? I mean scrap has really come off, and obviously spot pricing in steel has also come off. So just wondering what you're seeing from your customers.

I have not, but I will refer to Mr. Russell if he has any additional light on that.

I think you see the typical waiting for prices to come down. People are not placing their orders until the last possible moment. That's typically what we see when the price bias is down or as it clearly is at the moment.

Our next question is from Michelle Applebaum with Steel Market Intelligence.

Well okay, so getting back to the tough stuff. I was going to ask you -- so I'm just curious, the impacts of Warren, I know, that little RG plant that makes about 1 million tons a year, was a good supplier of yours. Can you talk a little bit about what the impact of that closure has been? And in particular, I'm curious if you're buying any of the more specialty grades from there, because I know only they and Acme are the ones supplying some of that stuff. So could we get into that a little bit?

Michelle, I'll try to answer that for you. I think that -- we had some general concerns about the whole RG situation going forward, and we've set about a careful study and analysis of what we could do to mitigate any problems, if there was something that were to come of that. And I think that we've handled that part of it extremely well. The kind of products that we were buying from Warren we were able to move to other locations and haven't missed a beat there. So we feel like we're in great shape for those kind of grades, the high carbons and things that we were getting from Warren.

Okay. But if you're getting them now from Acme, aren't you in a -- this is a general question, I guess, because middle of labor contract is up on August 31. So if there are -- so one -- question one, they're a single supplier of some products. There's no place else in the U.S. to get some of that stuff. This is so ironic, isn't it, guys? And then number two, in general I'm not asking you to handicap a strike. I don't want that from you, but I want to talk about what you think -- what do you think is in the market? Do you think people are worried about a strike? And what happens with those grades if there is a strike?

Well, I certainly think that Mittal has a significant share of the market here in North America, as much as 30%. And if you factor in the RG capacity, it's even larger than 30%. So I think that if they were to have a stoppage, I think everybody would be somewhat affected by that. I don't think anybody would be immune from having challenges facing that. But I think that we have done everything that we think we can to put ourselves in the position of being able to weather that as well as anyone.

We now have a question from Chris Olin with Cleveland Research.

Can you guys talk a little bit about what the current backlogs or book-to-bill looks like with all this uncertainty? I know macro headlines are weak, but are there any indications in your order flow that something is turning down? I mean anything on auto that's changed over the past couple of weeks?

No, not really. And particularly in autos, remained relatively strong, yet there's normal summer slowdowns that could be happening, though. Most of these guys are, I think, going to take shorter breaks this summer than in previous years.

Is there any market that could be standing out as better than expected going into the next couple of quarters?

I don't think there's a standout. Mark?

I think auto has been stronger than some people have expected. But I think right now, it's just steady at the better-than-expected levels.

Do you have any numbers in terms of what the auto cap looks like today?

What the auto what looks like?

The growth rate.

I don't. I would think it's fairly static at the moment, holding.

Okay. Holding at flat growth, or holding at the same growth rate?

The same growth rate.

Okay, okay. Last question I had, just on the alternative energies market. Can you give us a rough idea of how big this is right now, and where do you think this could be in a couple of years in terms of the growth driver?

Well, we had $60 million in revenue in that business last year, and that was really only part of the year. So we believe, Chris, that that's a rapidly growing area, and we're spending a lot of time and effort. And as I mentioned in my comments, we've dedicated a team inside the Cylinders business to make sure that we're addressing that as well as we can.

Would that include capital funding to hit new markets?

Yes.

Then we'll go next to Mark Parr with KeyBanc.

I heard -- Andy, I think you had mentioned a pickup in the capital-spending budget for this year and talked about a couple of organic growth initiatives. Could you give us some color on that?

Yes. So the pickup, last year I think we spent $32 million. This year, our plan is $68 million. There's a couple of sort of unique items, one that I've called out which is we're going to buy the building that our headquarters is in, which we own most of our real estate but we happen to lease this building. So we've reached an agreement to do that. Beyond that, we have an uptick in Cylinders' CapEx, partially related to the fact that we have acquired several companies in the past couple of years and so we're making some investments there. Also, we have the addition of Angus, which we didn't have last year in terms of their capital budgets. And when you compare that to the Metal Framing business, which we sort of flop those out, if you will, we aren't investing much at all in the Metal Framing business because it was in decline versus Angus which is a growth business. So when you factor all those things together, we've got pretty significant uptick for next year. I wouldn't view that $68 million as kind of a run rate for Worthington. I would view it as more of a -- kind of a big year for us. [indiscernible] probably trending down costs.

That's helpful. I appreciate that.

Mark, I -- just a second. I mentioned in my comments, looking at both the domestic and international opportunities inside Angus, and I think that part of that plan is we're looking at the possibility of expanding that business internationally and have some things that are real possibilities for us in the near future.

Okay. Well, I look forward to announcements on those. I'd also like to talk a little more about the automotive, or I guess what's called a vehicle conversion market to CNG and LNG. Could you -- what -- are you doing that with steel tanks or is that aluminum, or is that like wound fiber? Where are your products positioned in the market?

It's a combination of all of those things. The plant that we have out in California that we bought a few years ago, SCI, that is aluminum liner that's carbon fiber wound, that's used in alternative fuels. And the newest facilities that we have, the one in Poland and the joint venture we have in India that we own 60% of, those are steel primarily, and those are for LPG and CNG vehicles, not LNG.

Okay. And what, the steel tanks work for larger vehicles like trucks or?

Trucks and buses, that kind of thing primarily, Mark.

Okay, all right. Just out of curiosity, what's the cost of a conversion for a car at this point? And are you guys just providing tanks, or are you providing complete systems?

We're not sure. It's under $5,000, maybe in the $2,000 range. That's the best guidance I can give you on that.

And it's -- obviously the answer depends, Mark. But one of the questions earlier, just to make -- provide some scale, the market for alternative fuel tanks globally is about $0.75 billion is our estimate, and growing at 10% to 15% a year. The lion's share of that, roughly 3 million of the 4 million tanks that were sold last year are CNG, compressed natural gas, and then the LNG, which is liquefied natural gas, is the smallest market. Long-haul trucking is sort of the -- the target market there is about $100 million revenue, but obviously forecast to grow quite rapidly, particularly with the spreads in between gasoline and natural gas costs.

And are you guys providing or are you selling a complete systems or just the tanks?

Just the tanks.

Okay, terrific. Well yes, Michelle asked the questions I wanted to ask about, about RG and about Warren and Acme. So I think I feel good you guys have clearly been aggressively addressing that. Congratulations on gaining market share in Steel Processing. Great quarter. George, it's been great working with you and look forward to the -- to Mark's preview next quarter.

Our next question is from John Tumazos with John Tumazos Very Independent Research.

Could you explain the $2 million drop in WAVE's income, whether it was operating or some sort of a charge? I noticed that for the fifth straight quarter, all the other JVs in aggregate were near $8 million, and it's amazing how they're all different. And the steel goes up-and-down in price, but they've been so consistent and maybe you'd want to elaborate on that? And thirdly, there's a new long-term liability account, distributions in excess of investment in unconsolidated affiliates. I think that means that you have some JVs that paid dividends more than their net worth, and that it's not a liability but an equity-like account. And an alternative treatment would have been to not show that $69 million and to have reduced the investments in unconsolidated affiliate assets by the $69 million. Maybe Andy would like to elaborate on the accounting presentation, if I've understood it correctly, and I suspect there might be one person on the call as well as myself that wasn't 100% sure on it.

Sure. I'll walk through your questions, John. The first one, as it relates to WAVE and their drop in equity income for the quarter, their business is impacted by the movement in steel prices, not surprisingly like other businesses. And their customers -- as they pushed price increase in our fiscal third quarter, customers bought ahead as steel prices started to decline as they have in the last 3 or 4 months. Customers have been doing exactly what they do in the Steel Processing business, which is delaying their orders as long as they can. So we feel that -- or WAVE feels that effect than they did in our fiscal fourth quarter. We -- I don't view that as any long-term issue in their business. The second question, you had asked about other joint ventures. There was -- and we didn't call this out but I'm going to do it now. As it relates to ClarkDietrich, they're -- they had some onetime adjustments in this quarter related to the integration activities. They're going through their year-end audit right now. And so we have seen some good progress as it relates to the other JVs, but in ClarkDietrich's instance, they had not significant contribution during the -- during this quarter for us. The third question you asked was about the distributions, the...

The liability account, and why it was a liability account rather a deduction from the asset account?

Yes. Well, we obviously don't want to show it as a liability because it's not a true liability. We don't have any liabilities as it relates to WAVE, let's say, an entity where there's nonrecourse. There is financing on WAVE, but it's nonrecourse financing through us. The accounting literature requires us to show it this way. And you're spot on, which is it's essentially distributions in excess of our invested capital and their earnings. But I think that's really just a testament to how great that business has been. We didn't invest a ton of capital upfront to create WAVE with our partner Armstrong, and it's been an incredibly successful business over the years. And in the last 6 or 7 years, we've added some leverage to the business and distributed that capital.

So if I could make a little follow-on. Once in the 80s, I bought a tax deal that distributed a lot of dividends and depreciated more than it's -– an awful lot as well. So it has a large negative basis. You have a negative book value in WAVE because it's paid so much in dividends and what you're -- what the accounting treatment is doing is illustrating that this wonderful asset that makes at least $5 million a month for you is carried on your books as a negative value.

Essentially yes.

I just want to be educated. That's a great asset that's hard to see on the accounting basis.

We'll go next to Tim Hayes with Davenport & Company.

The questions I have are on the Steel Processing. Just to double check, there's that $2.1 million JV transaction hit. That's actually included in the $32.5 million operating income, is that correct?

Yes.

And just to double check, I -- because the margins in that business certainly were impressive, even compared to a year ago. Is -- just want to see if there's anything unsustainable there, of course recognizing the inventory, small inventory gain from the metal price. That's already been called out. But is there anything else? Because the unit manufacturing costs seem to decline quite nicely from a year ago, even though volumes were only up maybe, say modestly. And it also looked like their -- the unit material cost wasn't quite as high as I modeled, as in, though, maybe you're sourcing something a little cheaper that's not sustainable. If you can give a little bit more color, just to the extent that those margins are sustainable, I'd appreciate that.

Tim, I would say to you that I think that it is an indication of the success we've had with the transformation process and this -- the progress we've made along those lines over the last several years.

Our next question is from Mark Parr with KeyBanc.

J.P., I was wondering if you might be willing to give us a little color, given the fact that steel prices have come down, what you might suspect to be the inventory carrying impact on the August quarter as a result of that.

Well, I probably do not want to answer that question. I don't know if Andy would provide any general...

Without giving you specifics, Mark, the short answer is if you look back 3 months to what the prices are doing and you flow that -- that flows through our earnings, based on the amount of inventory that we have. So I kind of think about it as -- if you look back to the prior quarter, whatever steel prices were doing, if they -- that's what's going to flow through on the next quarter. So this -- in our fourth quarter, steel prices have been declining. So in the first quarter, you would expect some compression as a result.

The next question is from Charles Bradford with Bradford Research.

Now that the Supreme Court has ruled on the healthcare plan, do you have any information or data as to what it might cost you, as the additional features come into effect over the next year or so?

Don't and then probably -- I mean it's something we're going to have to study a little bit, let it sink in and make some best choices we can for the company and for our employees. Obviously, one of the options we would have is to discontinue healthcare. We're currently paying employees -- we're not paying employees, but insurance, because they have a fairly good plan, is approaching $11,000 a head, and that's a lot more than $2,000 penalty. So we'll have some decisions to make along those lines. I want to understand better what that does to our employees. It could be part of an exchange. So anyway, we aren't going to do anything rash here. We're just going to let it settle in and again, study it, make some decisions. Congress may yet act on -- in another manner, so we'll see.

On a slightly different area, apparently the House and the Senate are working on an infrastructure bill. Do you have any details on what impact that might have? Because they claim to have had a meeting of the minds yesterday. Whether that could help you or not?

We were not consulted. And -- I mean generally, infrastructure usually involve some form of steel, whether it's in guardrails or whatever. So I would expect to see some benefit if there's continuous spend on the highway side.

[Operator Instructions] And we have no one else in queue. Please go ahead with any closing remarks.

Again, thank you for joining us today. I'm very proud of our employees for what they have accomplished and seeing those results start to really come to the forefront, and we look forward to talking to you at the end of next quarter. Thank you.

And ladies and gentlemen, this conference will be available for replay after 3:30 p.m. today through midnight, Thursday, July 5. You may access the AT&T Executive playback service at any time by dialing 1 (800) 475-6701 and entering the access code 249564. International callers, dial (320) 365-3844 using the same access code 249564. That does conclude our conference for today. Thank you for your participation and for using AT&T Executive Teleconference. You may now disconnect.