UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITES EXCHANGE ACT OF 1934 (No Fee Required)
For the Fiscal Year Ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (No Fee Required)
For the Transition Period from __________ to __________
Commission File Number 0-10436
L. B. FOSTER COMPANY
(Exact name of registrant as specified in its charter)
Delaware 25-1324733
(State of Incorporation) (I.R.S. Employer Identification No.)
415 Holiday Drive, Pittsburgh, Pennsylvania 15220
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (412) 928-3400
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange On
Title of Each Class Which Registered
None
Securities registered pursuant to Section 12(g) of the Act:
Class A Common Stock, Par Value $.01
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III or this Form 10-K or any
amendment to this Form 10-K. [x]
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
The aggregate market value on March 18, 1998 of the voting stock
held by nonaffiliates of the Company was $54,063,818.
Indicate the number of shares outstanding of each of the
registrant's classes of common stock as of the latest
practicable date.
Class Outstanding at March 18, 1998
Class A Common Stock, Par Value $.01 9,999,801 Shares
Documents Incorporated by Reference:
Portions of the Proxy Statement prepared for the 1997 annual
meeting of stockholders are incorporated by reference in Items
10, 11, 12 and 13 of Part III.
PAGE 1
<PAGE>
PART I
ITEM 1. BUSINESS
Summary Description of Businesses
L. B. Foster Company is engaged in the manufacture, fabrication
and distribution of rail and trackwork, piling, highway products
and tubular products. As used herein, "Foster" or the "Company"
means L. B. Foster Company and its divisions and subsidiaries,
unless the context otherwise requires.
For rail markets, Foster provides a full line of new and used
rail, trackwork and accessories to railroads, mines and
industry. The Company also designs and produces insulated rail
joints, power rail, track fasteners, catenary systems,
coverboards and special accessories for mass transit and other
rail systems, worldwide.
For the construction industry, the Company sells and rents steel
sheet piling and H-bearing pile for foundation and earth
retention requirements. In addition, Foster supplies bridge
decking, expansion joints, overhead sign structures and other
products for highway construction and repair.
For tubular markets, the Company supplies pipe and pipe coatings
for pipelines and utilities. The Company produces pipe-related
products for special markets, including water wells and irrigation.
The Company classifies its activities into three business
segments: rail products, construction products and tubular
products. Financial information concerning the segments is set
forth in Note 20 to the financial statements included in the
Company's Annual Report to Stockholders for 1997. The following
table shows for the last three fiscal years the net sales
generated by each of the current business segments as a
percentage of total net sales.
<TABLE>
<CAPTION> Percentage of Net Sales
1997 1996 1995
- ---------------------------------------------------------
<S> <C> <C> <C>
Rail Products 51% 46% 42%
Construction Products 25% 32% 34%
Tubular Products 24% 22% 24%
- ---------------------------------------------------------
100% 100% 100%
</TABLE>
PAGE 2
<PAGE>
RAIL PRODUCTS
L. B. Foster Company's rail products include heavy and light
rail, relay rail, insulated rail joints, rail accessories, and
transit products. The Company is a major rail products supplier
to industrial plants, contractors, railroads, mines and mass
transit systems.
The Company sells heavy rail mainly to transit authorities,
industrial companies, and rail contractors for railroad sidings,
plant trackage, and other carrier and material handling
applications. Additionally, the Company makes some sales of
heavy rail to railroad companies and to foreign buyers. The
Company sells light rail for mining and material handling applications.
Rail accessories include trackwork, ties, track spikes, bolts,
angle bars and other products required to install or maintain
rail lines. These products are sold to railroads, rail
contractors and industrial customers and are manufactured within
the company or purchased from other manufacturers.
The Company's Allegheny Rail Products (ARP) division engineers
and markets insulated rail joints and related accessories for
the railroad and mass transit industries, worldwide. Insulated
joints are made in-house and subcontracted.
The Company's Transit Products Division supplies power rail,
direct fixation fasteners, catenary systems, coverboards and
special accessories primarily for mass transit systems. Most of
these products are manufactured by subcontractors and are
usually sold by sealed bid to transit authorities or to rail
contractors, worldwide.
The Company's Mining Division sells new and used rail, rail
accessories, trackwork from the Pomeroy, Ohio plant and iron
clad ties from the Watson-Haas Lumber Division in St. Mary's,
West Virginia. The Pomeroy, Ohio plant also produces trackwork
for industrial and export markets.
CONSTRUCTION PRODUCTS
L. B. Foster Company's construction products consist of sheet
and bearing piling and fabricated highway products.
Sheet piling products are interlocking structural steel sections
that are generally used to provide lateral support at
construction sites. Bearing piling products are steel H-beam
sections which, in their principal use, are driven into the
ground for support of structures such as bridge piers and
high-rise buildings. Sheet piling is sold or leased and bearing
piling is sold principally to contractors and construction companies.
Other construction products consist of fabricated highway
products. Fabricated highway products consist principally of
bridge decking, aluminum bridge rail, overhead sign structures
and other bridge products, which are fabricated by the Company.
The major purchasers of these products are contractors for
state, municipal and other governmental projects.
Sales of the Company's construction products are partly
dependent upon the level of activity in the construction
industry. Accordingly, sales of these products have
traditionally been somewhat higher during the second and third
quarters than during the first and fourth quarters of each year.
TUBULAR PRODUCTS
L. B. Foster Company is a distributor of coated pipe. Coated
line pipe is used for oil and gas transmission and for refinery,
petrochemical plant and power plant construction, as well as
water transmission. The Company, with the exception of
Fosterweld pipe, generally purchases the pipe it sells from pipe
manufacturers.
PAGE 3
<PAGE>
The Company adds value to purchased tubular products by
preparing them to meet customer specifications using various
fabricating processes, including the finishing of oil country
tubular goods and the welding, coating, wrapping and lining of
other pipe products.
The Company provides fusion bond and other coatings for
corrosion protection on oil, gas and other pipelines.
The Company also supplies special pipe products such as water
well casing, column pipe, couplings, and related products for
agricultural, municipal and industrial water wells.
MARKETING AND COMPETITION
L. B. Foster Company generally markets its rail, construction
and tubular products directly in all major industrial areas of
the United States through a national sales force of 47
salespeople. The Company maintains 9 sales offices and 15 plants
or warehouses nationwide. During 1997, approximately 3% of the
Company's total sales were for export.
The major markets for the Company's products are highly
competitive. Product availability, quality, service and price
are principal factors of competition within each of these
markets. No other company provides the same product mix to the
various markets the Company serves. There are one or more
companies that compete with the Company in each product line.
Therefore, the Company faces significant competition from
different groups of companies.
RAW MATERIALS AND SUPPLIES
Most of the Company's inventory is purchased in the form of
finished or semifinished product. With the exception of relay
rail which is purchased from railroads or rail take-up
contractors, the Company purchases most of its inventory from
domestic and foreign steel producers. There are few domestic
suppliers of new rail products and the Company could be
adversely affected if a domestic supplier ceased making such
material available to the Company. Additionally, the Company
has not had a domestic sheet piling supplier since March 1997.
See Note 18 to the consolidated financial statements for
additional information on this matter.
The Company's purchases from foreign suppliers are subject to
the usual risks associated with changes in international
conditions and to United States laws which could impose import
restrictions on selected classes of products and antidumping
duties if products are sold in the United States below certain
prices.
BACKLOG
The dollar amount of firm, unfilled customer orders at December
31, 1997 and 1996 by segment follows:
<TABLE>
<CAPTION>
(in thousands) December 31, 1997 December 31, 1996
- --------------------------------------------------------------
<S> <C> <C>
Rail Products $51,584 $36,100
Construction Products 23,284 28,080
Tubular Products 3,955 11,328
- --------------------------------------------------------------
$78,823 $75,508
- --------------------------------------------------------------
</TABLE>
Approximately 95% of the December 31, 1997 backlog is expected
to be shipped in 1998.
PAGE 4
<PAGE>
RESEARCH AND DEVELOPMENT
The Company's expenditures for research and development are
negligible.
ENVIRONMENTAL DISCLOSURES
While it is not possible to quantify with certainty the
potential impact of actions regarding environmental matters,
particularly for future remediation and other compliance
efforts, in the opinion of management compliance with
environmental protection laws will not have a material adverse
effect on the financial condition, competitive position, or
capital expenditures of the Company. However, the Company's
efforts to comply with increasingly stringent environmental
regulations may have an adverse effect on the Company's future
earnings.
EMPLOYEES AND EMPLOYEE RELATIONS
The Company has 563 employees, of whom 310 are hourly production
workers and 253 are salaried employees. Approximately 108 of the
hourly paid employees are represented by unions. The Company has
not suffered any major work stoppages during the past five years
and considers its relations with its employees to be satisfactory.
Substantially all of the Company's hourly paid employees are
covered by one of the Company's noncontributory, defined benefit
plans and a defined contribution plan. Substantially all of the
Company's salaried employees are covered by a defined
contribution plan established by the Company.
PAGE 5
<PAGE>
ITEM 2. PROPERTIES
The location and general description of the principal properties
which are owned or leased by L. B. Foster Company, together with
the segment of the Company's business using the properties, are
set forth in the following table:
<TABLE>
<CAPTION>
Business Lease
Location Function Acres Segment Expires
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Birmingham, Alabama Pipe coating. 32 Tubular 2002
Doraville, Georgia Fabrication of 28 Tubular, Owned
components for Rail and
highways. Construction
Yard storage.
Newport, Kentucky Pipe coating. 20 Tubular 1999
Niles, Ohio Rail fabrication. 35 Rail Owned
Yard storage.
Pomeroy, Ohio Trackwork manufac- 5 Rail Owned
turing.
Houston, Texas Casing, upset tub- 127 Tubular, Owned
ing, threading, Rail and
heat treating and Construction
painting. Yard
storage.
Bedford, Bridge component 10 Construction Owned
Pennsylvania fabricating plant.
Pittsburgh, Corporate Head- - Corporate 2007
Pennsylvania quarters.
Parkersburg, Fosterweld pipe 93 Tubular 1998
West Virginia manufacturing.
Pipe coating and
wrapping. Yard
storage.
Georgetown, Bridge component 11 Construction Owned
Massachusetts fabricating plant.
</TABLE>
Including the properties listed above, the Company has 9 sales
offices and 15 warehouse, plant and yard facilities located
throughout the country. The Company's facilities are in good
condition and the Company believes that its production
facilities are adequate for its present and foreseeable requirements.
PAGE 6
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED MATTERS
Stock Market Information
- ------------------------
The Company had 1,156 common shareholders of record on January
30, 1998. Common stock prices are quoted daily through the
National Association of Security Dealers, Inc. in its
over-the-counter NASDAQ quotation service (Symbol FSTRA). The
quarterly high and low bid price quotations for common shares
(which represent prices between broker-dealers and do not
include markup, markdown or commission and may not necessarily
represent actual transactions) follow:
<TABLE>
<CAPTION>
1997 1996
Quarter High Low High Low
- ----------------------------------------------------------------------
<S> <C> <C> <C> <C>
First $ 4 1/8 $ 3 11/16 $ 4 3/8 $ 3 3/8
- ----------------------------------------------------------------------
Second 5 3 1/4 4 1/8 3 1/2
- ----------------------------------------------------------------------
Third 5 7/8 4 1/2 4 1/4 3 5/8
- ----------------------------------------------------------------------
Fourth 6 4 7/8 4 1/8 3 5/8
- ----------------------------------------------------------------------
</TABLE>
Dividends
- ---------
No cash dividends were paid on the Company's Common stock during
1997 and 1996. Cash dividends on the Company's Common stock are
restricted under the terms of the Company's Revolving Credit
Agreement (see Note 8 to consolidated financial statements).
PAGE 7
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
(All amounts are in thousands except per share data)
<TABLE>
<CAPTION> Year Ended December 31,
Income Statement Data 1997(1) 1996 1995(2) 1994 1993(3)
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $220,343 $243,071 $264,985 $234,262 $212,291
- ----------------------------------------------------------------------------
Operating profit 7,164 8,195 6,769 6,184 3,103
- ----------------------------------------------------------------------------
Income before cumulative
effect of change in
accounting principle 3,287 3,858 5,043 5,440 899
- ----------------------------------------------------------------------------
Net income 3,287 3,858 4,824 5,440 1,569
- ----------------------------------------------------------------------------
Basic earnings per
common share before
cumulative effect of
change in accounting
principle 0.32 0.39 0.51 0.55 0.09
- ----------------------------------------------------------------------------
Basic earnings per
common share 0.32 0.39 0.49 0.55 0.16
- ----------------------------------------------------------------------------
Diluted earnings per
common share
before cumulative effect of
change in accounting
principle 0.32 0.38 0.50 0.55 0.09
- ----------------------------------------------------------------------------
Diluted earnings per
common share 0.32 0.38 0.48 0.55 0.16
- ----------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION> December 31,
Balance Sheet Data 1997 1996 1995 1994 1993
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total assets $ 126,969 $ 123,004 $ 124,423 $ 122,585 $ 108,137
- ----------------------------------------------------------------------------
Working capital 60,077 62,675 57,859 52,519 49,755
- ----------------------------------------------------------------------------
Long-term debt 17,530 21,816 25,034 22,377 25,584
- ----------------------------------------------------------------------------
Stockholders' equity 70,508 67,181 63,173 58,319 52,879
- ----------------------------------------------------------------------------
</TABLE>
(1) In 1997, the Company adopted Financial Accounting Standards
Board (FASB) Statement No. 128, "Earnings Per Share". As
required, all earnings per share amounts, where necessary, have been restated.
(2) Effective January 1, 1995, the Company adopted FASB
Statement No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of." The effect
of the adoption was to decrease net income by $219,000 or $0.02 per share.
(3) Effective January 1, 1993, the Company adopted FASB
Statement No. 109, "Accounting for Income Taxes." The effect of
the adoption was to increase net income by $670,000 or $0.07 per share.
PAGE 8
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
(Dollars in thousands)
<TABLE>
<CAPTION> Three Months Ended TwelveMonths Ended
December 31, December 31,
1997 1996 1997 1996 1995
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Sales:
Rail Products $ 32,883 $ 34,184 $112,685 $111,780 $111,582
Construction Products 10,745 19,352 55,909 77,954 88,735
Tubular Products 11,570 10,949 51,749 53,337 64,668
- ----------------------------------------------------------------------------
Total Net Sales $ 55,198 $ 64,485 $220,343 $243,071 $264,985
- ----------------------------------------------------------------------------
Gross Profit:
Rail Products $ 4,367 $ 4,679 $ 14,678 $ 15,770 $ 14,507
Construction Products 2,211 2,420 9,538 10,360 9,780
Tubular Products 794 857 5,426 4,830 4,928
Other (288) (565)
- ----------------------------------------------------------------------------
Total Gross Profit 7,084 7,956 29,077 30,960 29,215
- ----------------------------------------------------------------------------
Expenses:
Selling and Admin-
istrative Expenses 5,431 5,795 21,913 22,765 22,446
Interest Expense 650 584 2,495 2,365 2,840
Other (Income) Expense (161) (38) (475) (600) (777)
- ----------------------------------------------------------------------------
Total Expenses 5,920 6,341 23,933 24,530 24,509
- ----------------------------------------------------------------------------
Income Before Income Taxes 1,164 1,615 5,144 6,430 4,706
Income Tax Expense (Benefit) 367 650 1,857 2,572 (337)
- ----------------------------------------------------------------------------
Income Before Cumulative Effect
of Change in Accounting
Principle 797 965 3,287 3,858 5,043
Cumulative Effect of Change
in Accounting Principle (219)
- ----------------------------------------------------------------------------
Net Income $ 797 $ 965 $ 3,287 $ 3,858 $ 4,824
- ----------------------------------------------------------------------------
Gross Profit %:
Rail Products 13.3% 13.7% 13.0% 14.1% 13.0%
Construction Products 20.6% 12.5% 17.1% 13.3% 11.0%
Tubular Products 6.9% 7.8% 10.5% 9.1% 7.6%
Total Gross Profit % 12.8% 12.3% 13.2% 12.7% 11.0%
- ----------------------------------------------------------------------------
</TABLE>
Fourth Quarter of 1997 vs. Fourth Quarter of 1996
- -------------------------------------------------
The net income for the current quarter was $0.8 million or $0.08
per share. This compares to a 1996 fourth quarter net income of
$1.0 million or $0.10 per share. Net sales in 1997 were $55.2
million or 14% lower than the comparable quarter last year.
Rail products' net sales of $32.9 million decreased 4% from the
1996 fourth quarter, primarily due to lack of rail car
availability. Construction products' net sales in the 1997
fourth quarter decreased 44% from the year earlier quarter. This
decline was due primarily to the loss of the Company's sheet
piling supplier. Tubular products' net sales increased 6% over
last year's fourth quarter.
PAGE 9
<PAGE>
Changes in net sales are primarily the result of changes in
volume rather than changes in pricing.
The gross margin percentage for the total Company increased to
13% in the 1997 fourth quarter compared to 12% from the same
period last year. The gross margin percentage for the rail
products segment decreased from 14% to 13% primarily due to the
increase in LIFO cost. Construction products' gross margin
percentage increased to 21% as a result of the limited supply of
sheet piling since the Company's primary supplier ceased
operations in March of 1997. The gross margin percentage for
tubular products decreased to 7% from 8% primarily as a result
of lower margins on Fosterweld products in the fourth quarter of
1997, due to a change in product mix.
Selling and administrative expenses decreased 6% from the same
period last year as a result of cost reductions. Interest
expense increased 11% as a result of higher borrowing costs
associated with the acquisitions made during 1997. The income
tax rate for the quarter reflects the year to date impact of the
effective rate as discussed in the year comparison section below.
The Year 1997 Compared to the Year 1996
- ---------------------------------------
The net income for 1997 was $3.3 million or $0.32 per share.
This compares to 1996 net income of $3.9 million or $0.39 per share.
Rail products' 1997 sales were unchanged from 1996. Construction
products' net sales decreased 28% in 1997 due primarily to the
loss of the Company's sheet piling supplier. Sales of tubular
products declined 3% as a result of lower coated pipe and
Fosterweld spiralweld pipe sales. Changes in net sales are
primarily the result of changes in volume rather than changes in
pricing.
The gross profit margin percentage for the Company remained at
13% in 1997. Rail products' gross margin percentage in 1997
declined slightly to 13% from 14% in 1996. This decline is the
result of increased competition in industrial and mining
trackwork and transit products. The gross margin percentage for
construction products in 1997 increased to 17% from 13% in 1996
as a result of a limited supply of sheet piling due to the
Company's primary supplier ceasing operations in March of 1997.
Tubular products' gross margin percentage increased to 10% in
1997 as a result of increased prices and improved productivity
for coating products.
In 1997, selling and administrative expense declined 4%
principally because of a decline in incentive bonus related
expenses. Interest expense increased 5% due to higher
borrowings related to the acquisitions of the assets of the
Monitor Group, Precise Fabricating Corporation, and Watson-Haas
Lumber Company. The effective income tax rate declined to 36%
from 40% due primarily to the effect of favorable adjustments
to prior year tax liabilities.
The Year 1996 Compared to the Year 1995
- ---------------------------------------
The net income for 1996 was $3.9 million or $0.39 per share.
This compares to 1995 net income of $4.8 million or $0.49 per
share. The Company's pretax income was $6.4 million in 1996
versus $4.7 million in 1995. In 1996, the Company recorded an
income tax provision of $2.6 million versus an income tax
benefit of $0.3 million in 1995.
Rail products' 1996 net sales were unchanged from 1995.
Construction products' net sales decreased 12% in 1996 primarily
due to the reduced availability of piling products. Sales of
tubular products decreased 18% in 1996 as a result of the
Company's withdrawal from the warehouse pipe market and a
weakness in coating activity, which were partially offset by an
increase in Fosterweld pipe sales. Changes in net sales are
primarily the result of changes in volume rather than changes in pricing.
The gross profit margin percentage for the Company in 1996
increased to 13% from 11% in 1995. Rail products' gross margin
percentage increased slightly to 14% due primarily to the higher
margins in transit products business. Construction products'
gross profit percentage increased to 13% in 1996 versus 11% in
1995 as a result of higher margins on fabricated highway
products and a reduction in the sale of lower margin piling
products. The gross margin percentage for the tubular products
segment increased slightly in 1996 to 9% from 8% in 1995.
Increased expenses were incurred to overcome production problems
at the Birmingham pipe coating facility and volume at the
Newport plant was lower than anticipated. These costs were
offset by Fosterweld's increased gross profit contributions
which resulted from improved market conditions.
Selling and administrative expenses for 1996 remained unchanged compared to
1995, while interest expense decreased 17% due primarily to
PAGE 10
<PAGE>
lower borrowings. Other income in 1996 included
$0.4 million of interest income. Other income in 1995 included
$0.3 million of interest income and a $0.2 million gain on the
sale of equipment held for disposal.
The income tax rate increased above the statutory rate in 1996
as a result of certain non-deductible expenses. In 1993, the
Company recorded prior year net operating loss (NOL)
carryforwards as assets to comply with Statement of Financial
Accounting Standards No. 109 "Accounting for Income Taxes". In
addition, the Company also established a valuation reserve to
account for the possibility that all of the NOLs may not have
been used. As the Company's taxable income has grown in recent
years, the need for a reserve to reduce the value of NOLs was no
longer necessary. During 1995 and 1994, the income tax rate was
less than the statutory rate principally due to reductions in
the valuation reserve. At December 31, 1996, the valuation
reserve related to the potential non-recoverability of certain
state NOLs was $150,000. Cash payments for income taxes were
approximately $0.4 million. At the end of 1996, the Company had
approximately $2.5 million in federal income tax NOLs and $1.1
million in Alternative Minimum Tax (AMT) credits.
The Company expects to provide for income taxes at approximately
the statutory rate in 1997, while cash flow for taxes paid is
expected to remain favorable until the remaining NOLs and AMT
credits are used. See Note 13 to the consolidated financial
statements for additional information on income taxes.
Liquidity and Capital Resources
- -------------------------------
The Company generates internal cash flow from the sale of
inventory and the collection of accounts receivable. During
1997, the average turnover rate for accounts receivable was
higher than in 1996 due to an increase in collection rate. The
average turnover rate for inventory was slightly lower in 1997
than in 1996 due to increased stockpiled sheet piling to
maintain the Company's rental program through 1998. Working
capital at December 31, 1997 was $60.1 million compared to $62.7
million in 1996.
During 1997, the Company had capital expenditures of $2.1
million. In addition, the Company purchased the long-term assets
of the Monitor Group for $2.5 million, Precise Fabricating
Corporation for $3.7 million, Watson-Haas Lumber Company for
$0.5 million, increased its investment in the Dakota, Minnesota
& Eastern Railroad Corporation by $1.5 million, and repurchased
$0.5 million of its common stock in accordance with the
Company's previously announced buy-back program. Management
anticipates completing this program in 1998. Capital
expenditures in 1998 are expected to be consistent with 1997 and
are anticipated to be funded by cash flows from operations.
Total revolving credit agreement borrowings at December 31,
1997, were $33.1 million or an increase of $9.1 million from the
end of the prior year primarily due to the aforementioned asset
acquisitions. Outstanding letters of credit at December 31,
1997, were $0.9 million. At December 31, 1997 the Company had
approximately $11.0 million in unused borrowing commitment.
Management believes its internal and external sources of funds
are adequate to meet anticipated needs.
Other Matters
- -------------
The Company owns 13% of the Dakota, Minnesota & Eastern Railroad
Corporation (DM&E), a privately-held, regional railroad which
operates over 1,100 miles of track in five states. The
Company's investment in the stock is recorded in the Company's
accounts at its historical cost of $1.7 million, comprised of,
$0.2 million of common stock and $1.5 million of the DM&E's
Series B Preferred Stock and warrants. Although this
investment's market value is not readily determinable,
management believes that this investment, disregarding the
DM&E's Powder River Basin project discussed below, is worth
significantly more than its historical cost.
The DM&E announced in June 1997 that it plans to build an
extension from the DM&E's existing line into the low sulfur coal
market of the Powder River Basin in Wyoming and to rebuild
approximately 600 miles of its existing track (the "Project").
The DM&E also has announced that the estimated cost of this
project is $1.4 billion.
In February 1998, the DM&E filed its application with the
Surface Transportation Board seeking authority to construct
approximately 280 miles of new railroad line. The DM&E has
indicated that this new railroad line could be available to
carry Powder River Basin coal within two years after regulation
approval is obtained.
PAGE 11
<PAGE>
Morgan Stanley & Co., Inc. has been retained by the DM&E to
assist in identifying strategic partners or potential acquirers
of all or a portion of the equity of the DM&E. The DM&E has
stated that the DM&E could repay project debt and cover its
operating costs if it captures a 5% market share in the Powder
River Basin. If the Project proves to be viable, management
believes that the value of the Company's investment in the DM&E
should increase dramatically.
In May of 1997, the Company acquired the assets of the Monitor
Group for $2,500,000. The Monitor Group designs, develops and
assembles portable mass spectrometers. Mass spectrometers are
used to measure gas compositions and concentrations for various
applications, including monitoring air quality for the mining
industry and serving as a process monitor and diagnostic tool in
chemical manufacturing industries. The Company has placed
instruments in various facilities for field testing and no
revenues have been realized through December 31, 1997.
In November of 1997, the Company acquired the assets of Precise
Fabricating Corporation, a Georgetown, Massachusetts steel
fabricator for $3,694,000 plus the assumption of certain
liabilities. This acquisition provides the Company with a
regional manufacturing facility in the New England market.
Precise's AISC Certification for Complex Bridges and Buildings
enables the Company to offer a more complete package of
components for the highway, bridge and transit markets.
In December of 1997, the Company acquired the assets of
Watson-Haas Lumber Company of St. Mary's, West Virginia, a
supplier of iron clad and steel ties to the mining industry
since 1958, for $545,000 plus the assumption of certain
liabilities. This acquisition complements the Company's Midwest
Steel Division and enables the Company to offer a complete
package of all rail and track requirements to the mining
industry.
In February of 1998, the Company entered into a letter of intent
to sell its spiralweld pipe manufacturing facility located in
Parkersburg, West Virginia to Northwest Pipe Company of
Portland, Oregon. The Fosterweld division generates
approximately $12 million in revenues and employs approximately
50 people. Completion of the transaction is subject to due
diligence and the execution of a definitive purchase agreement.
The transaction is expected to close in the early spring of
1998. Management anticipates that the proceeds from this
transaction will exceed its current investment of $4 million of
fixed assets and $5 million of working capital.
The Company's integrated accounting and distribution software is
licensed from a national vendor. The current releases of this
vendor's software is year 2000 compliant. The Company expects
to install the year 2000 compliant version in the first half of
1998. Management believes that this schedule is achievable and
does not anticipate any adverse impact in becoming year 2000
compliant.
In June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income", and Statement of Financial Accounting
Standards No. 131,"Disclosures about Segments of an Enterprise
and Related Information." These statements will be adopted by
the Company in 1998 and are not expected to have a material
effect on the consolidated financial statements.
Management continues to evaluate the overall performance of
certain operations. A decision to terminate an existing
operation could have a material effect on near-term earnings but
would not be expected to have a material adverse effect on the
financial condition of the Company.
Outlook
- -------
The Company has not had a domestic sheet piling supplier since
March, 1997. The Company, however, will become Chaparral
Steel's exclusive domestic distributor of steel sheet piling
when Chaparral Steel's manufacturing facility, to be constructed
in Richmond, Virginia, begins operations in 1999.
The rail segment of the business depends on one source for
fulfilling certain trackwork contracts. The Company has
provided $6.4 million of working capital to this supplier in the
form of loans and progress payments. If, for any reason, this
supplier is unable to perform, the Company could experience a
negative short-term effect on earnings and liquidity.
The Company's operations are in part dependent on governmental
funding of infrastructure projects. Significant changes in the
level of government funding of these projects could have a
favorable or unfavorable impact on the operating results of the
Company. Additionally, governmental actions concerning
taxation, tariffs, the environment or other matters could impact
the operating results of the Company. The Company is also
dependent on the availability of rail cars and welded rail trains
to ship its products. The Company has experienced delays in certain
PAGE 12
<PAGE>
projects due to the lack of availability of rail
cars. The current merger activity in the railroads has
exacerbated this problem. The Company can provide no assurances
that a solution to the problem will occur in the near-term. The
Company's operating results may also be affected by adverse
weather conditions.
Although backlog is not necessarily indicative of future
operating results, total Company backlog at December 31, 1997,
was approximately $78.8 million or 4.0% higher than the backlog
at the end of the previous year. The following table provides
the backlog by business segment.
<TABLE>
<CAPTION>
(Dollars in thousands) December 31,
- ----------------------------------------------------------------------
1997 1996 1995
- ----------------------------------------------------------------------
Backlog:
<S> <C> <C> <C>
Rail Products $51,584 $36,100 $43,879
Construction Products 23,284 28,080 28,239
Tubular Products 3,955 11,328 8,857
- -----------------------------------------------------------------------
Total Backlog $78,823 $75,508 $80,975
- -----------------------------------------------------------------------
</TABLE>
Forward-Looking Statements
- --------------------------
Statements relating to the potential value or viability of the
DM&E or the Project, or management's belief as to such matters,
are forward-looking statements and are subject to numerous
contingencies and risk factors. The Company has based its
assessments on information provided by the DM&E and has not
independently verified such information. In addition to matters
mentioned above, factors which can adversely affect the value of
the DM&E, its ability to complete the Project or the viability
of the Project include the following: labor disputes, any
inability to obtain necessary environmental and governmental
approvals for the Project in a timely fashion, an inability to
obtain financing for the Project, competitors' responses to the
Project, market demand for coal or electricity and changes in
environmental and other laws and regulations.
The Company wishes to caution readers that various factors could
cause the actual results of the Company to differ materially
from those indicated by forward-looking statements made from
time to time in news releases, reports, proxy statements,
registration statements and other written communications
(including the preceding sections of this Management's
Discussion and Analysis), as well as oral statements made from
time to time by representatives of the Company. Except for
historical information, matters discussed in such oral and
written communications are forward-looking statements that
involve risks and uncertainties, including but not limited to
general business conditions, the availability of material from
major suppliers, the impact of competition, the seasonality of
the Company's business, taxes, inflation and governmental regulations.
/s/Roger F. Nejes
Roger F. Nejes
Senior Vice President
Finance and Administration
Chief Financial Officer
/s/Donald F. Vukmanic
Donald F. Vukmanic
Vice President
Controller
PAGE 13
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
ASSETS (In thousands) 1997 1996
- -----------------------------------------------------------------------
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 1,156 $ 1,201
Accounts receivable 47,586 49,918
Inventories 43,365 42,925
Current deferred tax assets 123 362
Other current assets 557 398
Property held for resale 3,461
- -----------------------------------------------------------------------
Total Current Assets 96,248 94,804
- -----------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT -
at cost 20,775 20,467
- -----------------------------------------------------------------------
PROPERTY HELD FOR RESALE 615 4,022
- -----------------------------------------------------------------------
DEFERRED TAX ASSETS 458
- -----------------------------------------------------------------------
OTHER ASSETS :
Goodwill and intangibles 4,484 184
Investments 1,693 193
Other assets 3,154 2,876
- -----------------------------------------------------------------------
Total Other Assets 9,331 3,253
- -----------------------------------------------------------------------
TOTAL ASSETS $ 126,969 $123,004
- -----------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY (In thousands, except share data)
CURRENT LIABILITIES:
Short-term borrowings $ 18,111 $ 6,000
Current maturities of long-term debt 1,309 1,366
Accounts payable - trade 12,524 19,060
Accrued payroll and employee benefits 3,008 3,543
Other accrued liabilities 1,219 2,160
- -----------------------------------------------------------------------
Total Current Liabilities 36,171 32,129
- -----------------------------------------------------------------------
LONG-TERM DEBT 17,530 21,816
- -----------------------------------------------------------------------
DEFERRED TAX LIABILITIES 554
- -----------------------------------------------------------------------
OTHER LONG-TERM LIABILITIES 2,206 1,878
- -----------------------------------------------------------------------
COMMITMENTS AND CONTINGENT LIABILITIES (Note 17)
STOCKHOLDERS' EQUITY:
Class A Common stock, issued 10,228,739
shares in 1997 and in 1996 102 102
Paid-in capital 35,434 35,276
Retained earnings 35,625 32,338
Treasury stock - at cost, Class A Common
stock, 161,501 shares in 1997 and
246,001 shares in 1996 (653) (535)
- -----------------------------------------------------------------------
Total Stockholders' Equity 70,508 67,181
- -----------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 126,969 $ 123,004
- -----------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
PAGE 14
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE YEARS ENDED
DECEMBER 31, 1997
<TABLE>
<CAPTION>
(In thousands, except per share data) 1997 1996 1995
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES $ 220,343 $ 243,071 $ 264,985
- ---------------------------------------------------------------------------
COSTS AND EXPENSES:
Cost of goods sold 191,266 212,111 235,770
Selling and administrative expenses 21,913 22,765 22,446
Interest expense 2,495 2,365 2,840
Other income (475) (600) (777)
- --------------------------------------------------------------------------
215,199 236,641 260,279
- --------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES AND
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE 5,144 6,430 4,706
INCOME TAX EXPENSE (BENEFIT) 1,857 2,572 (337)
- --------------------------------------------------------------------------
INCOME BEFORE CUMULATIVE EFFECT
OF CHANGE IN ACCOUNTING PRINCIPLE 3,287 3,858 5,043
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLE (219)
- -------------------------------------------------------------------------
NET INCOME $ 3,287 $ 3,858 $ 4,824
- -------------------------------------------------------------------------
BASIC EARNINGS PER COMMON SHARE:
Income before cumulative effect of change
in accounting principle $ 0.32 $ 0.39 $ 0.51
Cumulative effect of change in accounting
principle (0.02)
- -------------------------------------------------------------------------
BASIC EARNINGS PER COMMON SHARE $ 0.32 $ 0.39 $ 0.49
- -------------------------------------------------------------------------
DILUTED EARNINGS PER COMMON SHARE:
Income before cumulative effect of change
in accounting principle $ 0.32 $ 0.38 $ 0.50
Cumulative effect of change in accounting
principle (0.02)
- -------------------------------------------------------------------------
DILUTED EARNINGS PER COMMON SHARE $ 0.32 $ 0.38 $ 0.48
- -------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
PAGE 15
<PAGE>
CONSOLIDATED STATEMENTS OF
CASH FLOWS FOR THE THREE YEARS
ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
(In thousands) 1997 1996 1995
- ----------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net income $ 3,287 $ 3,858 $ 4,824
Adjustments to reconcile net income
to net cash provided (used) by
operating activities:
Deferred income taxes 1,251 2,203 (565)
Depreciation and amortization 2,687 3,169 2,774
Gain on sale of property, plant
and equipment (112) (540) (532)
Impairment of long-lived assets 219
Change in operating assets and liabilities:
Accounts receivable 3,471 (1,641) (1,856)
Inventory 770 (2,621) 2,878
Property held for resale (54) 1,508
Other current assets (159) 433 (165)
Other noncurrent assets (340) (1,020) (171)
Accounts payable - trade (8,742) 995 (1,710)
Accrued payroll and employee benefits (537) 861 158
Other current liabilities (941) (945) (174)
Other liabilites 328 530 (245)
- ----------------------------------------------------------------------------
Net Cash Provided by Operating
Activities 909 6,790 5,435
- ----------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property, plant
and equipment 1,578 2,277 3,880
Capital expenditures on property,
plant and equipment (2,068) (2,336) (4,074)
Purchase of DM&E stock (1,500)
Acquisition of businesses (6,739)
- ----------------------------------------------------------------------------
Net Cash Used by Investing
Activities (8,729) (59) (194)
- ----------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds (repayments) of revolving credit
agreement borrowings 9,111 (5,750) (4,170)
Exercise of stock options 571 150 30
Treasury shares purchased (531)
Repayments of long-term debt (1,376) (1,255) (956)
- ----------------------------------------------------------------------------
Net Cash Provided (Used) by
Financing Activities 7,775 (6,855) (5,096)
- ----------------------------------------------------------------------------
Net (Decrease) Increase in Cash and
Cash Equivalents (45) (124) 145
Cash and Cash Equivalents at Beginning
of Year 1,201 1,325 1,180
- -----------------------------------------------------------------------------
Cash and Cash Equivalents at End of Year $ 1,156 $ 1,201 $ 1,325
- -----------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest Paid $ 2,493 $ 2,376 $ 2,906
- ----------------------------------------------------------------------------
Income Taxes Paid $ 627 $ 410 $ 188
- ----------------------------------------------------------------------------
</TABLE>
During 1997, 1996, and 1995, the Company financed certain
capital expenditures and related maintenance agreements totaling
$33,500, $137,000 and $4,081,000, respectively, through the
issuance of capital leases.
See Notes to Consolidated Financial Statements.
PAGE 16
<PAGE>
CONSOLIDATED STATEMENTS OF
STOCKHOLDERS' EQUITY
FOR THE THREE YEARS ENDED
DECEMBER 31, 1997
<TABLE>
<CAPTION> Class A
Common Paid-in Retained Treasury
(In thousands) Stock Capital Earnings Stock Total
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1995 $ 102 $ 35,118 $ 23,656 $(557) $ 58,319
Net Income 4,824 4,824
Exercise of option to pur-
chase 10,000 shares of
Class A Common stock 30 30
- -----------------------------------------------------------------------------
Balance, December 31, 1995 102 35,148 28,480 (557) 63,173
Net Income 3,858 3,858
Exercise of option to pur-
chase 50,000 shares of
Class A Common stock 128 22 150
- -----------------------------------------------------------------------------
Balance, December 31, 1996 102 35,276 32,338 (535) 67,181
Net Income 3,287 3,287
Exercise of options to pur-
chase 190,000 shares of
Class A Common stock 158 413 571
Treasury stock purchases
of 105,500 shares (531) (531)
- -----------------------------------------------------------------------------
Balance, December 31, 1997 $ 102 $ 35,434 $ 35,625 $(653) $ 70,508
- -----------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
PAGE 17
<PAGE>
Notes to Consolidated Financial Statements
Note 1.
Summary of Significant Accounting Policies
- ------------------------------------------
Basis of financial statement presentation - The consolidated
financial statements include the accounts of the Company and its
wholly owned subsidiaries. All significant intercompany
transactions have been eliminated. The term "Company" refers to
L. B. Foster Company and its subsidiaries, as the context requires.
Cash equivalents - The Company considers securities with
maturities of three months or less, when purchased, to be cash equivalents.
Inventories - Inventories are generally valued at the lower of
the last-in, first-out (LIFO) cost or market. Other inventories
of the Company, approximately 9% in 1997 and 13% in 1996, are
valued at average cost or market, whichever is lower.
Property, plant and equipment - Maintenance, repairs and minor
renewals are charged to operations as incurred. Major renewals
and betterments which substantially extend the useful life of
the property are capitalized. Upon sale or other disposition of
assets, the cost and related accumulated depreciation and
amortization are removed from the accounts and the resulting
gain or loss, if any, is reflected in income. Depreciation and
amortization are provided on a straight-line basis over the
estimated useful lives of 30 to 40 years for buildings and 5 to
10 years for machinery and equipment. Leasehold improvements
are amortized over 2 to 7 years which represent the lives of
the respective leases or the lives of the improvements,
whichever is shorter. Pile driving equipment held for rental is
classified as property, plant and equipment.
Goodwill - Goodwill represents the excess of the purchase price
over the estimated fair value of the net assets acquired.
Goodwill is being amortized on a straight-line basis over
periods of ten years. When factors indicate that goodwill
should be evaluated for impairment, the excess of the
unamortized goodwill over the fair value determined using a
multiple of cash flows from operations will be charged to operations.
Interest rate agreements - To offset exposures to changes in interest
rates on variable rate debt, the Company enters into
interest rate swap agreements. The effects of movements in
interest rates on these instruments are recognized as they occur.
Environmental remediation and compliance - Environmental
remediation costs are accrued based on estimates of known
environmental remediation exposures. Environmental compliance
costs, which principally include the disposal of waste generated
by routine operations, are expensed as incurred. Capitalized
environmental costs are depreciated, when appropriate, over their useful life.
Earnings per share - In 1997, the Financial Accounting Standards
Board issued Statement No. 128, "Earnings Per Share". Under the
new provisions for calculating earnings per share, the dilutive
effect of stock options has been excluded in the determination
of "basic" earnings per share and only included in the "diluted"
earnings per share. All earnings per share amounts for all
periods have been presented, and where appropriate, restated to
conform to the Statement No. 128 requirements.
Net sales - Customers are invoiced and income is recognized when
material is shipped from stock or when the Company is billed for
material shipped directly from the vendor. Gross sales are
reduced by sales taxes, discounts and freight to determine net sales.
Income taxes - The Company accounts for income tax expense and
liabilities under the liability method.
Use of estimates - The preparation of financial statements in
conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Stock-based compensation - The Company grants stock options for
a fixed number of shares to employees with an exercise price
equal to the fair value of the shares at the date of grant. The
Company follows the requirements of Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" in
accounting for stock-based compensation, and, accordingly,
recognizes no compensation expense for stock option grants.
Reclassification - Certain items previously reported in specific financial
statement captions have been reclassified to conform with the 1997
PAGE 18
<PAGE>
presentation. The reclassifications have no effect on income.
New accounting pronouncements - In June 1997, the Financial
Accounting Standards Board issued Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income",
and Statement of Financial Accounting Standards No.
131,"Disclosures about Segments of an Enterprise and Related
Information." These statements will be adopted by the Company
in 1998 and are not expected to have a material effect on the
consolidated financial statements.
Note 2.
Change in Accounting Principles
- -------------------------------
The Company adopted the provisions of the Statement of Financial
Accounting Standards (SFAS) No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of," in its financial statements for the year ended
December 31, 1995. The cumulative effect as of January 1, 1995
of adopting Statement 121 decreased net income by $219,000, net
of an income tax benefit of $134,000, or $0.02 per share.
Note 3.
Accounts Receivable
- -------------------
Accounts receivable at December 31, 1997 and 1996 are summarized
as follows
<TABLE>
<CAPTION>
(in thousands): 1997 1996
- -------------------------------------------------------------
<S> <C> <C>
Trade $46,490 $51,271
Allowance for doubtful accounts (1,468) (1,803)
Other 2,564 450
- -------------------------------------------------------------
$47,586 $49,918
- -------------------------------------------------------------
</TABLE>
The Company's customers are in the rail, construction and
tubular segments of the economy. As of December 31, 1997 and
1996, trade receivables, net of allowance for doubtful accounts,
from customers in these markets were as follows (in thousands):
<TABLE>
<CAPTION> 1997 1996
- -------------------------------------------------------------
<S> <C> <C>
Rail $ 26,258 $ 27,234
Construction 11,177 15,586
Tubular 7,587 6,648
- -------------------------------------------------------------
$ 45,022 $ 49,468
- -------------------------------------------------------------
</TABLE>
Credit is extended on an evaluation of the customer's financial
condition and generally collateral is not required.
Note 4.
Inventories
- -----------
Inventories at December 31, 1997 and 1996 are summarized as
follows:
<TABLE>
<CAPTION>
(in thousands) 1997 1996
- --------------------------------------------------------------
<S> <C> <C>
Finished goods $30,380 $31,347
Work-in-process 7,826 11,117
Raw materials 8,369 3,135
- --------------------------------------------------------------
Total inventories at current costs 46,575 45,599
- --------------------------------------------------------------
Less:
Current cost over LIFO
stated values (2,610) (2,074)
Reserve for decline in market
value of inventories (600) (600)
- --------------------------------------------------------------
$43,365 $42,925
- --------------------------------------------------------------
</TABLE>
At December 31, 1997 and 1996, the LIFO carrying value of
inventories for book purposes exceeded the LIFO carrying value
for tax purposes by approximately $5,418,000 and $5,170,000,
respectively. During 1997, inventory quantities were reduced
resulting in a liquidation of certain LIFO inventory layers
carried at costs which were higher than the costs of current
purchases. The effect of these reductions in 1997 and 1996 was
to increase cost of goods sold by $21,000 and $217,000, respectively.
Note 5.
Property Held for Resale
- ------------------------
Property held for resale at December 31, 1997 and 1996 consists
of the following (in thousands):
<TABLE>
<CAPTION>
Location 1997 1996
- -----------------------------------------------------------
<S> <C> <C>
Parkersburg, WV $3,200 $3,003
Marrero, LA 615 615
Houston, TX 261 261
Other 143
- ------------------------------------------------------------
Property held for resale 4,076 4,022
- ------------------------------------------------------------
Less current portion 3,461
- ------------------------------------------------------------
$ 615 $4,022
- ------------------------------------------------------------
</TABLE>
The Parkersburg, West Virginia location produces Fosterweld
spiralweld pipe used for water transmission and other
applications. During 1995, the Company decided that this
product did not meet the Company's long-term strategic goals.
The assets of this operation include machinery and equipment,
buildings and leasehold improvements. During 1997 and 1996,
the location generated net sales and operat-
PAGE 19
<PAGE>
ing profit of approximately $12,200,000 and $1,600,000 and $13,300,000 and
$2,000,000, respectively, which are included in the Company's
tubular segment. The Company has entered into a letter of
intent to sell this facility. Completion of the transaction is
subject to due diligence and the execution of a definitive
purchase agreement.
The Marrero, Louisiana location was formerly used for yard
storage. Assets of the location consist of land no longer used
in the Company's business. The land is currently being leased
to a third party. The Company is currently negotiating the sale
of this land.
The Houston, Texas location was formerly a pipe coal tar coating
facility. Assets of the location consist of land no longer
used in the Company's business.
All negotiations for property held for resale are in excess of
recorded values.
Note 6.
Property, Plant and Equipment
- -----------------------------
Property, plant and equipment at December 31, 1997 and 1996
consists of the following
<TABLE>
<CAPTION>
(in thousands): 1997 1996
- --------------------------------------------------------------
<S> <C> <C>
Land $ 6,930 $ 6,700
Improvements to land and leaseholds 4,186 3,984
Buildings 3,760 2,642
Machinery and equipment, including
equipment under capitalized
leases of $7,295 in 1997
and $7,434 in 1996 25,905 23,774
Rental pile driving equipment 1,178 3,668
Construction in progress 175 197
- --------------------------------------------------------------
42,134 40,965
- --------------------------------------------------------------
Less accumulated depreciation and
amortization, including accumulated
amortization of capitalized leases
of $3,162 in 1997 and $2,259 in 1996 21,359 20,498
- --------------------------------------------------------------
$20,775 $20,467
- --------------------------------------------------------------
</TABLE>
The remaining rental pile driving equipment is under a lease
with an option to purchase.
Property, plant and equipment include certain capitalized leases.
The following is a schedule, by year, of the future minimum
payments under these leases, together with the present value of
the net minimum payments as of December 31, 1997:
<TABLE>
<CAPTION>
(In thousands) Amount
- ----------------------------------------------------
Year ending December 31,
<S> <C>
1998 $1,562
1999 1,194
2000 842
2001 462
2002 and thereafter 335
- --------------------------------------------------
Total minimum lease payments 4,395
Less amount representing interest 556
- --------------------------------------------------
Total present value of minimum
payments (Note 9) 3,839
Less current portion of such obligations 1,309
- --------------------------------------------------
Long-term obligations with interest rates
ranging from 7.25% to 8.95% $2,530
- --------------------------------------------------
</TABLE>
Note 7.
Other Assets and Investments
- ----------------------------
At December 31, 1997 and 1996, other assets include notes
receivable and accrued interest totaling $2,258,000 and
$2,072,000, respectively, from investors in the Dakota,
Minnesota & Eastern Railroad Corporation (DM&E). Additionally,
the Company owns stock in the DM&E. The Company's investment in
the DM&E's stock is recorded at its historical cost of
$1,693,000, comprised of, $193,000 of common stock and
$1,500,000 of Series B Preferred Stock and warrants. Although
its market value is not readily determinable, management
believes the fair value of this investment exceeds its carrying amount.
Note 8.
Short-Term Borrowings
- ---------------------
Effective November 1995, the Company renegotiated its
$45,000,000 revolving credit agreement. The interest rate is,
at the Company's option, based on the prime rate, the domestic
certificate of deposit rate (CD rate) or the Euro-bank rate. The
interest rates are adjusted quarterly based on the fixed charge
coverage ratio defined in the agreement. The ranges are prime
to prime plus 0.25%, the CD rate plus 0.45% to the CD rate plus
1.125%, and the Euro-bank rate plus 0.45% to the Euro-bank rate
plus 1.125%. Borrowings under the agreement, which expires July
1, 1999, are secured by accounts receivable and inventory.
The agreement includes financial covenants requiring a minimum
net worth, and minimum levels for the fixed charge coverage
ratio, the leverage ratio and the current ratio. The agreement
also restricts dividends, investments, capital expenditures,
indebtedness and sales of certain assets. At December 31, 1997,
$4,223,000 was available for future dividend payments.
PAGE 20
<PAGE>
As of December 31, 1997, the Company was in compliance with all
the agreement's covenants. At December 31, 1997, the Company
had borrowed $33,111,000 under the agreement of which
$15,000,000 was classified as long- term (see Note 9). Under
the agreement, the Company had approximately $10,972,000 in
unused borrowing commitment at December 31, 1997.
Note 9.
Long-Term Debt and Related Matters
- ----------------------------------
Long-term debt at December 31, 1997 and 1996 consists of the
following:
<TABLE>
<CAPTION>
(In thousands) 1997 1996
- ----------------------------------------------------------------
<S> <C> <C>
Revolving Credit Agreement with
weighted average interest rate of
7.06% at December 31, 1997 and
6.42% at December 31, 1996,
expiring July 1, 1999 $15,000 $18,000
- -----------------------------------------------------------------
Lease obligations payable in
installments through 2003 with a
weighted average interest rate of
7.93% at December 31, 1997 and
7.96% at December 31, 1996 3,839 5,182
- -----------------------------------------------------------------
18,839 23,182
Less current maturities 1,309 1,366
- -----------------------------------------------------------------
$17,530 $21,816
- -----------------------------------------------------------------
</TABLE>
The $15,000,000 revolving credit borrowings included in
long-term debt were obtained under the revolving loan agreement
discussed in Note 8 and are subject to the same terms and
conditions. This portion of the borrowings is classified as
long-term because the Company does not anticipate reducing the
borrowings below $15,000,000 during 1998.
During 1995, the Company entered into an interest rate swap
agreement to reduce the impact of changes in interest rates on a
portion of its revolving credit borrowings. The LIBOR interest
rate on the $10,000,000 swap agreement, which expires June 1999,
is 6.142%. The Company believes that the credit and market
risks associated with this agreement are not material. Any
additional interest expense incurred under the agreement is
accrued and paid quarterly.
The maturities of long-term debt for each of the succeeding five
years subsequent to December 31, 1997 are as follows:
1998 - $1,309,000; 1999 - $16,037,000; 2000 - $753,000; 2001
- - $418,000; 2002 - $251,000; and 2003 and beyond $71,000.
Note 10.
Stockholders' Equity
- --------------------
At December 31, 1997 and 1996, the number of authorized shares
of the Company's Class A Common stock were 20,000,000 shares and
Class B Common stock were 1,391,000 shares. No Class B Common
shares were issued. The Company's Class A and Class B Common
stock each have a par value of $.01 per share and are generally
identical except that the Class B Common stock has no
stockholder voting rights, and except that such holders shall be
entitled to one vote per share on matters such as consolidation
or merger of the Company. Class B Common stock may be converted
at any time on a share-for-share basis into Class A Common stock.
The Company's Board of Directors declared a dividend of common
share purchase rights as a part of a Stockholder Rights Plan on
May 15, 1997. Under the terms of the Plan, stock purchase
rights were distributed at the rate of one right for each share
of Class A Common stock held as of the close of business on May
21, 1997. Stockholders did not actually receive certificates
for the rights at that time, but the rights became part of each
common share. The number of rights outstanding is subject to
adjustment under certain circumstances and all rights expire on
May 15, 2007.
Each right will entitle holders of the Company's Class A Common
stock to buy one share of Class A Common stock of the Company at
an exercise price of $30.00, subject to adjustment. The rights
will be exercisable and will trade separately from the common
shares only if a person or group acquires beneficial ownership
of 20% or more of the Company's common shares or commences a
tender or exchange offer that, if culminated, would result in
such person or group owning 20% or more of the common shares.
Only when one or more of these events occur will stockholders
receive certificates for the rights.
If any person actually acquires 20% or more of the Company's
common shares (other than through an offer for all shares that
provide fair value for such shares) or if a 20%-or-more
stockholder engages in a merger or other business combination in
which the Company survives and its common shares remain
outstanding, the other stockholders will be able to exercise the
rights and receive the Company's common shares (or in certain
other circumstances, cash, property or other securities of the
Company) having twice the value of the exercise price of the
rights. Additionally, if the Company is involved in certain
other mergers where its shares are exchanged or certain major
sales of its assets occur, stockholders will be able to purchase
PAGE 21
<PAGE>
the other party's shares in an amount equal to twice the value
of the exercise price of the rights.
The Company generally will be entitled to redeem the rights at
$0.05 per right at any time until the 10th day following public
announcement that a person has acquired a 20% ownership position
in Company common shares. The Company may in its discretion
extend the period during which it can redeem the rights.
The Company's Board of Directors authorized the purchase of up
to 500,000 shares of its common stock at prevailing market
prices. The timing and extent of the purchases will depend on
market conditions. 500,000 shares represents approximately 5%
of the Company's outstanding common stock.
No cash dividends on Common stock were paid in 1997, 1996, and 1995.
Note 11.
Stock Options
- -------------
The 1985 Long-Term Incentive Plan (Plan) of the Company, as
amended and restated in March 1994, provides for the award of
options to key employees and directors to purchase up to
1,500,000 shares of Common stock at no less than 100% of fair
market value on the date of the grant. The Plan provides for
the granting of "nonqualified options" and "incentive stock
options" with a duration of not more than ten years from the
date of grant. The Plan also provides that, unless otherwise
set forth in the option agreement, options are exercisable in
installments of up to 25% annually beginning one year from date
of grant. Stock to be offered under the Plan may be authorized
but unissued Common stock or previously issued shares which have
been reacquired by the Company and held as Treasury shares. At
December 31, 1997, 1996 and 1995, Common stock options
outstanding under the Plan had option prices ranging from $2.63
to $6.00, with a weighted average price of $3.71, $3.40, and
$3.35 per share, respectively.
The weighted average remaining contractual life of the stock
options outstanding for the three years ended December 31, 1997
are: 1997 - 5.2 years; 1996 - 4.2 years; and 1995 - 4.7 years.
The Option Committee of the Board of Directors which administers
the Plan may, at its discretion, grant stock appreciation rights
at any time prior to six months before an option's expiration
date. Upon exercise of such rights, the participant surrenders
the exercisable portion of the option in exchange for payment
(in cash and/or Common stock valued at its fair market value) of
an amount not greater than the spread, if any, by which the
average of the high and low sales prices quoted in the
Over-the-Counter Exchange on the trading day immediately
preceding the date of exercise of the stock appreciation right
exceeds the option price. No stock appreciation rights were
issued or outstanding during 1997, 1996 or 1995.
Options exercised during 1997, 1996 and 1995 totaled 190,000,
50,000 and 10,000 shares, respectively, at an exercise price of
$3.00 per share.
Certain information for the three years ended December 31, 1997
relative to employee stock options is summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
- ---------------------------------------------------------------------
<S> <C> <C> <C>
Number of shares under
Incentive Plan option:
Outstanding at begin-
ning of year 944,000 965,000 975,000
Granted 141,500 40,000 25,000
Canceled (37,000) (11,000) (25,000)
Exercised (190,000) (50,000) (10,000)
- ---------------------------------------------------------------------
Outstanding at end of year 858,500 944,000 965,000
- ---------------------------------------------------------------------
Exercisable at end of year 659,250 806,250 748,000
- ---------------------------------------------------------------------
Number of shares available
for future grant:
Beginning of year 287,250 316,250 316,250
- ---------------------------------------------------------------------
End of year 182,750 287,250 316,250
- ---------------------------------------------------------------------
</TABLE>
The weighted average fair value of options granted at December
31, 1997, 1996, and 1995 were $2.94, $2.65 and $2.56, respectively.
The Company has adopted the disclose-only provisions of SFAS No.
123, "Accounting for Stock-Based Compensation," but applies
Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" and related interpretations in
accounting for its stock option plans. Accordingly, no
compensation expense has been recognized. Had compensation
expense for the Company's stock option plans been determined
using the method required by SFAS No. 123, the effect to the
Company's net income and earnings per share would have been
reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
(In thousands except
per share amounts) 1997 1996 1995
- --------------------------------------------------------------------
<S> <C> <C> <C>
Net Income $3,248 $3,787 $4,818
- ---------------------------------------------------------------------
Basic earnings per share $ 0.32 $ 0.38 $ 0.49
- ---------------------------------------------------------------------
Diluted earnings per share $ 0.32 $ 0.38 $ 0.48
- ---------------------------------------------------------------------
</TABLE>
The fair value of stock options used to compute pro forma net
income and earnings per share disclosures is the estimated
present value at grant date using the Black-Sholes
option-pricing model with the following weighted-average
PAGE 22
<PAGE>
assumptions used for grants in 1997, 1996 and 1995 respectively:
risk-free interest rates of 6.29% , 6.83% and 6.51%; dividend
yield of 0.0% for all three years; volatility factors of the
expected market price of the Company's common stock of .38, .41
and .52; and a weighted-average expected life of the option of
10 years.
Note 12.
Earnings Per Common Share
- -------------------------
The earnings per share amounts prior to 1997 have been restated
to comply with Statement of Financial Accounting Standard No.
128, "Earnings Per Share" (SFAS No. 128). SFAS No. 128 replaced
the calculation of primary and fully diluted earnings per share
with basic and diluted earnings per share.
Unlike primary earnings per share, basic earnings per share
excludes any dilutive effects of options, warrants, and certain
convertible securities. Basic earnings per share are computed
by dividing net income by the weighted average number of Class A
Common shares outstanding during the year. The weighted average
number of Class A Common shares outstanding during the years
ended December 31, 1997, 1996 and 1995 were approximately
10,122,000, 9,953,000 and 9,927,000, respectively.
Diluted earnings per share uses the average market prices during
the period in calculating the dilutive effect of options under
the treasury stock method. Using this method, the weighted
average number of Class A Common shares outstanding during 1997,
1996 and 1995 were approximately 10,287,000, 10,086,000 and
10,062,000, respectively, with the dilutive effect of option
shares being approximately 165,000, 133,000 and 135,000 for the
years ended December 31, 1997, 1996 and 1995, respectively.
Note 13.
Income Taxes
- ------------
At December 31, 1997, the tax benefit of net operating loss
carryforwards available for state income tax purposes was
approximately $821,000. The Company also has alternative
minimum federal tax credit carryforwards at December 31, 1997,
of approximately $1,292,000. For financial reporting purposes,
a valuation allowance of $150,000 has been recognized to offset
the deferred tax assets related to the state income tax
carryforwards. Deferred income taxes reflect the net tax
effects of temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the
amounts used for tax purposes. Significant components of the
Company's deferred tax liabilities and assets as of December 31,
1997 and 1996, are as follows:
<TABLE>
<CAPTION>
(In thousands) 1997 1996
- ----------------------------------------------------------------
<S> <C> <C>
Deferred tax liabilities:
Depreciation $ 1,817 $ 1,535
Inventories 1,473 1,435
- ----------------------------------------------------------------
Total deferred tax liabilities 3,290 2,970
- ----------------------------------------------------------------
Deferred tax assets:
Net operating loss
carryforwards 821 1,730
Tax credit carryforwards 1,292 1,084
Other - net 896 1,126
- ----------------------------------------------------------------
Total deferred tax assets 3,009 3,940
Valuation allowance for
deferred tax assets 150 150
- ----------------------------------------------------------------
Deferred tax assets 2,859 3,790
- ----------------------------------------------------------------
Net deferred tax (liability) assets $ (431) $ 820
- ----------------------------------------------------------------
</TABLE>
The valuation allowance for deferred tax assets was unchanged
during 1997 and was reduced by $50,000 and $2,499,000 during
1996 and 1995, respectively.
Significant components of the provision for income taxes are as
follows:
<TABLE>
<CAPTION>
(In thousands) 1997 1996 1995
- ----------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $ 466 $ 163 $ 102
State 140 206 126
- ----------------------------------------------------------------
Total current 606 369 228
- ----------------------------------------------------------------
Deferred:
Federal 1,082 2,258 (339)
State 169 (55) (360)
- ----------------------------------------------------------------
Total deferred 1,251 2,203 (699)
- ----------------------------------------------------------------
Total income tax
expense (benefit) $1,857 $2,572 $ (471)
- ----------------------------------------------------------------
</TABLE>
Income tax expense (benefit) is included in the consolidated
statements of income as follows:
<TABLE>
<CAPTION>
(In thousands) 1997 1996 1995
- --------------------------------------------------------------
<S> <C> <C> <C>
Continuing operations $1,857 $2,572 $ (337)
Cumulative effect of
accounting change (134)
- --------------------------------------------------------------
$1,857 $2,572 $ (471)
- --------------------------------------------------------------
</TABLE>
The reconciliation of income tax computed at statutory rates to
income tax expense (benefit) is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
- ---------------------------------------------------------------
<S> <C> <C> <C>
Statutory rate 34.0% 34.0% 34.0%
State income tax 4.0 1.6 (3.0)
Nondeductible expenses 1.7 2.2 3.0
Net operating loss (22.9)
Change in valuation reserve (30.2)
Prior period tax (3.6) 2.0 13.2
Other 0.2 (1.3)
- ---------------------------------------------------------------
36.1% 40.0% (7.2)%
- ---------------------------------------------------------------
</TABLE>
PAGE 23
<PAGE>
Note 14.
Rental and Lease Information
- ----------------------------
The Company leases certain plant facilities, office facilities
and equipment. Rental expense for the years ended December 31,
1997, 1996 and 1995 amounted to $1,801,000, $1,814,000, and
$1,867,000, respectively.
At December 31, 1997, the Company is committed to total minimal
rental payments under all noncancelable operating leases of
$5,734,000. Generally, these leases include escalation clauses.
The minimum future rental commitments are payable as follows:
1998 - $831,000; 1999 - $753,000; 2000 - $656,000; 2001
$570,000; 2002 - $544,000 and $2,380,000 after 2002.
Note 15.
Acquisitions
- ------------
In May 1997, the Company acquired the assets of the Monitor
Group for $2,500,000, of which $2,250,000 was allocated to
goodwill. The Monitor Group designs, develops and assembles
portable mass spectrometers. Mass spectrometers are used to
measure gas compositions and concentrations for various
applications, including monitoring air quality for the mining
industry and serving as a process monitor and diagnostic tool in
chemical manufacturing industries.
In November 1997, the Company acquired the assets of Precise
Fabricating Corporation (Precise), a Georgetown, Massachusetts
steel fabricator for $3,694,000 plus the assumption of certain
liabilities, of which $2,142,000 was allocated to goodwill.
This acquisition provides the Company with a regional
manufacturing facility in the New England market. Precise's
AISC Certification for Complex Bridges and Buildings enables the
Company to offer a more complete package of components for the
highway, bridge and transit markets.
In December of 1997, the Company acquired the assets of
Watson-Haas Lumber Company (Watson-Haas) of St. Mary's, West
Virginia, a supplier of iron clad and steel ties to the mining
industry since 1958 for $545,000 plus the assumption of certain
liabilities, of which $85,000 was allocated to goodwill. This
acquisition compliments the Company's Midwest Steel Division and
enables the Company to offer a complete package of all rail and
track requirements to the mining industry.
The acquisitions have been reported using the purchase method of
accounting and have been included in operations since the date
of acquisition. For each acquisition, the purchase price was
allocated to the assets and liability based on their estimated
fair values as of the acquisition date. Cost in excess of net
assets acquired is being amortized on a straight-line basis over
10 years. Pro forma results of the Monitor Group and
Watson-Haas acquisitions, assuming they have been made at the
beginning of each year, would not be materially different from
reported results.
Had the Precise acquisition been made at the beginning of 1996,
the Company's pro forma unaudited results would have been:
<TABLE>
<CAPTION>
12 Months
(In thousands except ended
per share amounts) 12/31/97 12/31/96
- -----------------------------------------------------------------
<S> <C> <C>
Net sales $224,703 $247,222
Net income 3,803 3,841
Basic earnings per share $0.38 $0.39
- -----------------------------------------------------------------
</TABLE>
The pro forma results do not represent the Company's actual
operating results had the acquisition been made at the beginning
of 1997 and 1996 or the results that may be expected in the future.
The pro forma impact of the Monitor Group and Watson-Haas were
not material to net sales, net income or basic earnings per share.
Note 16.
Retirement Plans
- ----------------
Substantially all of the Company's hourly paid employees are
covered by one of the Company's noncontributory, defined benefit
plans and a defined contribution plan. Substantially all of
the Company's salaried employees are covered by a defined
contribution plan established by the Company.
Benefits for hourly employees over age 21 are generally based on
hours of service. The salaried plan for employees over age 21
is based on years of qualifying service.
The Company's funding policy for defined benefit plans is to
contribute the minimum required by the Employee Retirement
Income Security Act of 1974. Net periodic pension cost for the
three years ended December 31, 1997 is summarized as follows:
<TABLE>
<CAPTION>
(In thousands) 1997 1996 1995
- ----------------------------------------------------
<S> <C> <C> <C>
Service cost $ 82 $ 81 $ 71
Interest cost 138 136 121
Actual return on
plan assets (293) (176) (131)
Other 143 39 (3)
- -----------------------------------------------------
Net periodic
pension cost $ 70 $ 80 $ 58
- -----------------------------------------------------
</TABLE>
PAGE 24
<PAGE>
The hourly plan assets consist of various mutual fund
investments. The following table presents a reconciliation of
the funded status of the defined benefit plans at December 31,
1997 and 1996 with the accrued pension cost included in other
current liabilities on the Company's balance sheet:
<TABLE>
<CAPTION>
(In thousands) 1997 1996
- -----------------------------------------------------------------------------
Overfunded Underfunded
Plan Plan
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Projected benefit obligation:
Vested benefits $1,603 $ 508 $1,979
Nonvested benefits 29 23 55
- -----------------------------------------------------------------------------
Total projected benefit obligation 1,632 531 2,034
- -----------------------------------------------------------------------------
Fair value of plan assets 1,727 411 1,867
- -----------------------------------------------------------------------------
Excess (deficit) of plan assets over
projected benefit obligation 95 (120) (167)
Unrecognized net transition asset (98) (4) (112)
Unrecognized prior service cost 6 83 81
Unrecognized net (gain) loss (192) 23 6
Adjustment for minimum liability (102) (133)
- -----------------------------------------------------------------------------
Accrued pension cost included in accrued
payroll and employee benefits on the
balance sheet. $ (189) $(120) $ (325)
- -----------------------------------------------------------------------------
</TABLE>
An assumed discount rate of 7% and an expected rate of return on
plan assets of 8% were used to measure the projected benefit
obligation and develop net periodic pension costs for the three
years ended December 31, 1997, 1996 and 1995.
The Company's defined contribution plan, available to
substantially all salaried employees, contains a matched savings
provision that permits both pretax and after-tax employee
contributions. Participants can contribute from 2% to 15% of
their annual compensation and receive a 50% matching employer
contribution on up to 6% of their annual compensation.
Further, the plan requires an additional matching employer
contribution, based on the ratio of the Company's pretax income
to equity, up to 50% of 6% of the employee's annual
compensation. Additionally, the Company contributes 1% of all
salaried employees' annual compensation to the plan without
regard for employee contribution. The Company may also make
additional discretionary contributions to the plan. The defined
contribution plan expense was: $756,000 in 1997, $827,000 in
1996 and $727,000 in 1995.
PAGE 25
<PAGE>
Note 17.
Commitments and Contingent Liabilities
- --------------------------------------
The Company is subject to laws and regulations relating to the
protection of the environment and the Company's efforts to
comply with increasingly stringent environmental regulations may
have an adverse effect on the Company's future earnings. In the
opinion of management, compliance with the present environmental
protection laws will not have a material adverse effect on the
financial condition, competitive position, or capital
expenditures of the Company.
The Company is subject to legal proceedings and claims which
arise in the ordinary course of its business. In the opinion of
management, the amount of ultimate liability with respect to
these actions will not materially affect the financial position
of the Company.
At December 31, 1997, the Company had outstanding letters of
credit of approximately $917,000.
Note 18.
Risks and Uncertainties
- -----------------------
The Company's future operating results may be affected by a
number of factors. The Company is dependent upon a number of
major suppliers. If a supplier had operational problems or
ceased making material available to the Company, operations
could be adversely affected.
The Company has not had a domestic sheet piling supplier since
March, 1997. The Company, however, will become Chaparral
Steel's exclusive domestic distributor of steel sheet piling
when Chaparral Steel's manufacturing facility in Richmond,
Virginia begins operations. Chaparral has announced that this
facility should become operational in 1999.
The rail segment of the business depends on one source for
fulfilling certain trackwork contracts. The Company has
provided working capital for this supplier and a revolving note
receivable which total $6,400,000. If, for any reason, this
supplier is unable to perform, the Company could experience a
negative short term effect on earnings and liquidity.
The Company is also dependent on the availability of rail cars
and welded rail trains to ship its products. The Company has
experienced delays in certain projects due to the lack of
availability of rail cars. The current merger activity in the
railroads has exacerbated this problem. The Company can provide
no assurance that a solution to the problem will occur in the
near term.
The Company's operations are in part dependent on governmental
funding of infrastructure projects. Significant changes in the
level of government funding of these projects could have a
favorable or unfavorable impact on the operating results of the Company.
Additionally, governmental actions concerning taxation, tariffs,
the environment or other matters could impact the operating
results of the Company.
The Company's operations results may also be affected by adverse
weather conditions.
Note 19.
Fair Values of Financial Instruments
- ------------------------------------
The Company's financial instruments consist of accounts
receivable, accounts payable, short term and long term debt, and
an interest rate swap agreement.
The carrying amounts of the Company's financial instruments at
December 31, 1997, approximate fair value.
PAGE 26
<PAGE>
Note 20.
Business Segments
- ------------------
L. B. Foster Company is engaged in the manufacture, fabrication
and distribution of rail, construction and tubular products. The
Company's rail segment provides a full line of new and used
rail, trackwork and accessories to railroads, mines and
industry. The Company also designs and produces bonded rail
joints, power rail, track fasteners, catenary systems,
coverboards and special accessories for mass transit and other
rail systems.
The Company's construction segment sells and rents steel sheet
piling and H-bearing pile for foundation and earth retention
requirements. In addition, the Company sells bridge decking,
expansion joints, sign structures and other products for highway
construction and repair.
The Company's tubular segment supplies pipe and pipe coatings
for pipelines and utilities. Additionally, the Company
manufactures spiralweld pipe for water transmission lines,
foundation piling and many other applications. The Company also
produces pipe-related products for special markets, including
water wells and irrigation.
The Company markets its products directly in all major
industrial areas of the United States primarily through a
national sales force.
A summary of revenues, operating profit, identifiable assets,
depreciation and amortization, and capital expenditures of each
business segment for the three years ended December 31, 1997,
follows (in thousands):
<TABLE>
<CAPTION>
1997
- ----------------------------------------------------------------------------
Net Operating Identifiable Depreciation/ Capital
Sales Profit (Loss) Assets Amortization Expenditures
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Rail products $112,685 $ 5,031 $ 57,212 $ 642 $ 538
Construction
products 55,909 3,076 29,746 523 663
Tubular products 51,749 2,163 30,004 1,358 841
Other (748) 2,371 150 5
- -----------------------------------------------------------------------------
220,343 9,522 119,333 2,673 2,047
- -----------------------------------------------------------------------------
Corporate and
other 7,636 14 21
- -----------------------------------------------------------------------------
Total $220,343 9,522 $126,969 $ 2,687 $ 2,068
Nonoperating
income (expense):
General corpor-
ate expense
and unallocated
other income
and expense
-net (1,883)
Interest expense (2,495)
- -----------------------------------------------------------------------------
Income before
income taxes 5,144
- -----------------------------------------------------------------------------
</TABLE>
Capital expenditures for 1997 do not include capitalized leases of $34,000.
PAGE 27
<PAGE>
<TABLE>
<CAPTION>
1996
- -----------------------------------------------------------------------------
Net Operating Identifiable Depreciation/ Capital
Sales Profit Assets Amortization Expenditures
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Rail products $ 111,780 $ 5,865 $ 59,025 $ 626 $ 716
Construction
products 77,954 3,337 29,231 936 951
Tubular products 53,337 1,147 28,414 1,439 649
- -----------------------------------------------------------------------------
243,071 10,349 116,670 3, 001 2,316
- -----------------------------------------------------------------------------
Corporate and other 6,334 168 20
- -----------------------------------------------------------------------------
Total $243,071 10,349 $123,004 $ 3,169 $ 2,336
- -----------------------------------------------------------------------------
Nonoperating income
(expense):
General corporate expense
and unallocated other
income and expense net (1,554)
Interest expense (2,365)
- -----------------------------------------------------------------------------
Income before income taxes $ 6,430
- -----------------------------------------------------------------------------
</TABLE>
Capital expenditures for 1996 do not include capitalized leases
of $137,000 for the tubular segment.
<TABLE>
<CAPTION>
1995
- -----------------------------------------------------------------------------
Net Operating Identifiable Depreciation/ Capital
Sales Profit/Loss Assets Amortization Expenditures
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Rail products $ 111,582 $ 5,705 $ 48,622 $ 570 $ 347
Construction
products 88,735 2,592 32,652 1,018 1,346
Tubular products 64,668 720 33,658 1,160 2,375
- -----------------------------------------------------------------------------
264,985 9,017 114,932 2,748 4,068
- -----------------------------------------------------------------------------
Corporate and other 9,491 26 6
- -----------------------------------------------------------------------------
Total $ 264,985 9,017 $ 124,423 $ 2,774 $ 4,074
- -----------------------------------------------------------------------------
Nonoperating income
(expense):
General corporate expense
and unallocated other
income and expense net (1,471)
Interest expense (2,840)
- -----------------------------------------------------------------------------
Income before income taxes $ 4,706
- -----------------------------------------------------------------------------
</TABLE>
Capital expenditures for 1995 do not include the following
capitalized leases: rail - $1,377,000; construction - $53,000;
tubular - $2,587,000; corporate and other - $64,000.
Sales to any individual customer do not exceed 10% of
consolidated net sales. Sales between segments are immaterial.
Identifiable assets by segment are those assets that are used
exclusively by such segments. Corporate assets are principally
cash and investments.
PAGE 28
<PAGE>
Note 21.
Quarterly Financial Information (Unaudited)
- -------------------------------------------
Quarterly financial information for the years ended December 31,
1997 and 1996 is presented below (in thousands, except per share amounts):
<TABLE>
<CAPTION>
1997
- ----------------------------------------------------------------------------
First Second Third Fourth
Quarter(1) Quarter(1) Quarter(1) Quarter Total
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $ 54,494 $ 53,716 $ 56,935 $ 55,198 $220,343
- -----------------------------------------------------------------------------
Gross profit $ 6,367 $ 7,527 $ 8,099 $ 7,084 $ 29,077
- -----------------------------------------------------------------------------
Net income $ 407 $ 871 $ 1,212 $ 797 $ 3,287
- -----------------------------------------------------------------------------
Basic earnings per
common share $ 0.04 $ 0.08 $ 0.12 $ 0.08 $ 0.32
- -----------------------------------------------------------------------------
Diluted earnings
per common share $ 0.04 $ 0.08 $ 0.12 $ 0.08 $ 0.32
- -----------------------------------------------------------------------------
</TABLE>
(1) Gross profit has been adjusted by $67,000, $201,000 and
$323,000 in the first, second and third quarters, respectively,
to reflect a reclassification of certain expenses from selling
and administrative to cost of sales.
<TABLE>
<CAPTION>
1996
- -----------------------------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $ 48,303 $ 64,758 $ 65,525 $ 64,485 $243,071
- -----------------------------------------------------------------------------
Gross profit $ 6,199 $ 8,194 $ 8,611 $ 7,956 $ 30,960
- -----------------------------------------------------------------------------
Net income $ 220 $ 1,255 $ 1,418 $ 965 $ 3,858
- -----------------------------------------------------------------------------
Basic earnings per
common share $ 0.02 $ 0.13 $ 0.14 $ 0.10 $ 0.39
- -----------------------------------------------------------------------------
Diluted earnings per
common share $ 0.02 $ 0.12 $ 0.14 $ 0.10 $ 0.38
- -----------------------------------------------------------------------------
</TABLE>
The fourth quarter of 1996 includes the following: 1) a
$388,000 reduction in the LIFO provision, 2) a $300,000
reduction in the accrual for employee medical expense and 3) a
$200,000 provision for equipment obsolescence reserve.
PAGE 29
<PAGE>
REPORT OF INDEPENDENT AUDITORS AND
RESPONSIBILITY FOR FINANCIAL STATEMENTS
To the Board of Directors and Stockholders
of L. B. Foster Company:
We have audited the accompanying consolidated balance sheets of
L. B. Foster Company and subsidiaries at December 31, 1997 and
1996, and the related consolidated statements of income, cash
flows and stockholders' equity for each of the three years in
the period ended December 31, 1997. Our audits also included the
financial statement schedule listed in the index at Item 14 (a).
These financial statements and schedule are the responsibility
of the Company's management. Our responsibility is to express
an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of L. B. Foster Company and subsidiaries at
December 31, 1997 and 1996, and the consolidated results of
their operations and their cash flows for each of the three
years in the period ended December 31, 1997, in conformity with
generally accepted accounting principles. Also, in our opinion,
the related financial statement schedule, when considered in
relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set
forth therein.
As discussed in Note 2 to the financial statements, in 1995, the
Company changed its methods of accounting for long-lived assets.
/s/Ernst & Young LLP
Pittsburgh, Pennsylvania
January 21, 1998
L. B. FOSTER COMPANY AND SUBSIDIARIES
To the Stockholders of L. B. Foster Company:
The management of L. B. Foster Company is responsible for the
integrity of all information in the accompanying consolidated
financial statements and other sections of the annual report.
Management believes the financial statements have been prepared
in conformity with generally accepted accounting principles that
reflect, in all material respects, the substance of events and
transactions, and that the other information in the annual
report is consistent with those statements. In preparing the
financial statements, management makes informed judgments and
estimates of the expected effects of events and transactions
being accounted for currently.
The Company maintains a system of internal accounting control
designed to provide reasonable assurance that assets are
safeguarded and that transactions are executed in accordance
with management's authorization and are properly recorded to
permit the preparation of financial statements in accordance
with generally accepted accounting principles. Underlying the
concept of reasonable assurance is the evaluation of the costs
and benefits derived from control. This evaluation requires
estimates and judgments by the Company. The Company believes
that its internal accounting controls provide an appropriate
balance between costs and benefits.
The Board of Directors pursues its oversight role with respect
to the financial statements through the Finance and Audit
Committee which is composed of outside directors. The Finance
and Audit Committee meets periodically with management, internal
auditors and our independent auditors to discuss the adequacy of
the internal accounting control, the quality of financial
reporting and the nature, extent and results of the audit
effort. Both the internal auditors and the independent auditors
have free access to the Finance and Audit Committee.
/s/ Lee B. Foster II
Lee B. Foster II
President and Chief Executive Officer
/s/Roger F. Nejes
Roger F. Nejes
Senior Vice President
Finance and Administration
and Chief Financial Officer
PAGE 30
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning the directors is set forth under
"Election of Directors" in the Company's Proxy Statement for the
1998 annual meeting of stockholders ("1998 Proxy Statement").
Such information is incorporated herein by reference.
Information concerning the executive officers who are not
directors of the Company is set forth below. With respect to the
period prior to August 18, 1977, references to the Company are
to the Company's predecessor, Foster Industries, Inc.
<TABLE>
<CAPTION>
Name Age Position
- ----------------------------------------------------------------------------
<S> <C> <C>
Anthony G. Cipicchio 51 Vice President Operations
William S. Cook, Jr. 56 Vice President Strategic Planning &
Acquisitions
Paul V. Dean 66 Vice President - Piling Products
Samuel K. Fisher 45 Vice President - Rail Procurement
Dean A. Frenz 54 Senior Vice President - Rail Products
Steven L. Hart 51 Vice President
Stan L. Hasselbusch 50 Senior Vice President - Construction
and Tubular Products
David L. Minor 54 Vice President - Treasurer
Roger F. Nejes 55 Senior Vice President - Finance and
Administration and Chief Financial
Officer
Henry M. Ortwein, Jr. 55 Group Vice President - Rail
Manufactured Products
Robert W. Sigle 68 Vice President - Tubular Products
Linda M. Terpenning 52 Vice President - Human Resources
David L. Voltz 45 Vice President, General Counsel and
Secretary
Donald F. Vukmanic 46 Vice President - Controller
</TABLE>
PAGE 31
<PAGE>
Mr. Cipicchio joined the Company in May 1997 and was elected
Vice President - Operations. Prior to joining the Company, Mr.
Cipicchio was Vice President of Operations for Omsco Industries,
a supplier of drill string components to the oil and gas industry.
Mr. Cook was elected Vice President - Strategic Planning &
Acquisitions in October 1993. Prior to joining the Company in
March 1993 as Director of Strategic Planning and Acquisitions,
he was President of Cook Corporate Development, a business and
financial advisory firm.
Mr. Dean was named a Vice President in September 1987. Prior to
September 1987, he served in various other capacities with the
Company since his employment in 1964.
Mr. Fisher was elected Vice President - Rail Procurement in
October 1997, having previously served as Vice President - Relay
Rail since October 1996. Prior to October 1996, he served in
various other capacities with the Company since his employment in 1977.
Mr. Frenz has served as Senior Vice President - Rail Products
since December 1996, having previously served as Senior Vice
President - Rail and Tubular Products from September, 1995,
through November, 1996, Senior Vice President - Product
Management from October 1993, Vice President - Rail Products
from June 1992 to September 1993 and as Vice President - Sales
from August 1987 to May 1992. Mr. Frenz joined the Company in 1966.
Mr. Hart was elected Vice President in December 1997, having
previously served in various other capacities with the Company
since his employment in 1977.
Mr. Hasselbusch was elected Senior Vice President - Construction
and Tubular Products in December, 1996, having previously served
as Senior Vice President - Construction Products since September
1995 and as Senior Vice President - Sales from October 1993. Mr.
Hasselbusch was the Company's Central/Western Regional Sales
Manager from September 1990 through September 1993. Mr.
Hasselbusch joined the Company in 1972.
Mr. Minor was elected Treasurer in February 1988 and was elected
to the additional office of Vice President in February 1997. Mr.
Minor joined the Company in 1983.
Mr. Nejes was elected Senior Vice President - Finance and
Administration and Chief Financial Officer in October 1993,
having served as Vice President - Finance and Chief Financial
Officer from February 1988.
Mr. Ortwein was appointed Group Vice President - Rail
Manufactured Products in March 1997. Additionally, he served as
Vice President - Rail Manufacturing from October 1993, President
of Allegheny Rail Products, Inc. from May 1992 and as its Chief
Operating Officer from January 1992. Previously, he was Midwest
Steel Corporation's Vice President of Sales from January 1991 to
December 1991 and its National Sales Manager from November 1989
to December 1990. Prior to joining Midwest Steel Corporation, he
was a Regional Sales Manager for Bethlehem Steel Corporation
from July 1986 to October 1989.
Mr. Sigle was elected Vice President - Tubular Products in
December 1990, having served as Vice President - Tubular and
Coating Sales Development since September 1987, and in various
capacities with the Company since his employment in 1965.
Ms. Terpenning was elected Vice President - Human Resources in
October 1987. Ms. Terpenning joined the Company in 1985.
Mr. Voltz was elected Vice President, General Counsel and
Secretary in December 1987, having previously served as General
Counsel and Secretary since December 1986. Mr. Voltz joined the
Company in 1981.
Mr. Vukmanic was elected Controller in February 1988 and was
elected to the additional office of Vice President in February
PAGE 32
<PAGE>
1997. Mr. Vukmanic joined the Company in 1977.
Officers are elected annually at the organizational meeting of
the Board of Directors following the annual meeting of stockholders.
ITEM 11. EXECUTIVE COMPENSATION
The information set forth under "Executive Compensation" in the
1998 Proxy Statement is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information set forth under "Ownership of Securities by
Management" and "Principal Stockholders" in the 1998 Proxy
Statement is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information set forth under "Certain Transactions" in the
1998 Proxy Statement is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this Report:
1. Financial Statements
--------------------
The following consolidated financial statements, accompanying
notes and Report of Independent Auditors in the Company's Annual Report
to Stockholders for 1997 have been included in Item 8 of this Report:
Consolidated Balance Sheets at December 31, 1997 and 1996.
Consolidated Statements of Income For the Three Years Ended
December 31, 1997, 1996 and 1995.
Consolidated Statements of Cash Flows For the Three Years Ended
December 31, 1997, 1996 and 1995.
Consolidated Statements of Stockholders' Equity for the Three
Years Ended December 31, 1997, 1996 and 1995.
Notes to Consolidated Financial Statements.
Report of Independent Auditors.
2. Financial Statement Schedule
----------------------------
Schedules for the Three Years Ended December 31, 1997, 1996 and 1995:
II - Valuation and Qualifying Accounts.
The remaining schedules are omitted because of the absence of
the conditions upon which they are required.
PAGE 33
<PAGE>
3. Exhibits
--------
The exhibits marked with an asterisk are filed herewith. All
exhibits are incorporated herein by reference:
3.1 Restated Certificate of Incorporation as amended to date,
filed as Exhibit 3.1 to Form 10-Q for the quarter ended
March 31, 1987.
* 3.2 Bylaws of the Registrant, as amended to date.
4A Rights Agreement, dated as of May 15, 1997, between
L.B. Foster Company and American Stock Transfer & Trust Company,
including the form of Rights Certificate and the Summary of
Rights attached thereto, filed as Exhibit 4A to Form 8-A dated
May 23, 1997.
4.1 Amended and Restated Loan Agreement by and among the
Registrant and Mellon Bank, N.A., NBD Bank, and Corestates Bank,
N.A. dated as of November 1, 1995 and filed as Exhibit 4.1 to
Form 10-K for the year ended December 31, 1995.
* 4.1.1 First Amendment to Amended and Restated Loan
Agreement dated January 1, 1996.
* 4.1.2 Second Amendment to Amended and Restated Loan
Agreement dated December 31, 1996.
* 4.1.3 Third Amendment to Amended and Restated Loan
Agreement dated April 9, 1997.
* 4.1.4 Fourth Amendment to Amended and Restated Loan
Agreement dated November 12, 1997.
10.15 Lease between the Registrant and Amax, Inc. for
manufacturing facility at Parkersburg, West Virginia, dated as
of October 19, 1978, filed as Exhibit 10.15 to Registration
Statement No. 2-72051.
10.16 Lease between Registrant and Greentree Building
Associates for Headquarters office, dated as of June 9, 1986, as
amended to date, filed as Exhibit 10.16 to Form 10-K for the
year ended December 31, 1988.
10.16.1 Amendment dated June 19, 1990 to lease between
Registrant and Greentree Building Associates, filed as Exhibit
10.16.1 to Form 10-Q for the quarter ended June 30, 1990.
10.16.2 Amendment dated May 29, 1997 to lease between
Registrant and Greentree Building Associates. Filed as Exhibit
10.16.2 to Form 10-Q for the quarter ended June 30, 1997.
10.19 Lease Between the Registrant and American Cast Iron
Pipe Company for Pipe-Coating Facility in Birmingham, Alabama
dated December 11, 1991 and filed as Exhibit 10.19 to Form 10-K
for the year ended December 31, 1991.
10.19.1 Amendment to Lease between the Registrant and
American Cast Iron Pipe Company for Pipe Coating Facility in
Birmingham, Alabama dated April 15, 1997.
10.33.2 Amended and Restated 1985 Long Term Incentive Plan,
as amended and restated February 26, 1997. **
PAGE 34
<PAGE>
10.45 Medical Reimbursement Plan, filed as Exhibit 10.45
to Form 10-K for the year ended December 31, 1992. **
* 10.46 Leased Vehicle Plan, as amended to date. **
10.49 Lease agreement between Newport Steel Corporation and
L. B. Foster Company dated as of October 12, 1994 and filed as
Exhibit 10.49 to Form 10-Q for the quarter ended September 30,
1994.
* 10.49.1 Amendment to lease between Registrant and Newport
Steel Corporation dated March 13, 1998.
* 10.50 L. B. Foster Company 1998 Incentive Compensation Plan. **
10.51 Supplemental Executive Retirement Plan. Filed as
Exhibit 10.51 to Form 10-K for the year ended December 31, 1994.
**
19 Exhibits marked with an asterisk are filed herewith.
* 23.7 Consent of Independent Auditors.
* 27 Financial Date Schedule for the year ended December 31, 1997.
* 27.1 Restated Financial Data Schedules for the years ended December
31, 1996, December 31, 1995 and the quarter ended June 31, 1996.
** Identifies management contract or compensatory plan
or arrangement required to be filed as an Exhibit.
(b) Reports on Form 8-K
On June 2, 1997, the Registrant filed a Current Report on
Form 8-K announcing that L.B. Foster Company declared a dividend
distribution of stock purchase rights.
On November 25, 1997, the Registrant filed a Current
Report on Form 8-K announcing that L.B. Foster Company acquired
the assets of Precise Manufacturing Corporation.
On January 21, 1998, the Registrant filed an Amended Current Report
on Form 8-K/A, amending the Current Report filed on Form 8-K on
November 25, 1997. The Amended Current Report provides financial
statements of Precise Fabricating Corporation and pro forma
financial information.
PAGE 35
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
L. B. FOSTER COMPANY
March 27, 1998
By /s/ Lee B. Foster II
---------------------------
(Lee B. Foster II, President
and Chief Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the Registrant and in the capacities and on the
dates indicated.
Name Position Date
By: /s/ Lee B. Foster II President, Chief Executive March 27, 1998
- ------------------------ Officer and Director
(Lee B. Foster II)
By: /s/ Roger F. Nejes Senior Vice President - March 27, 1998
- ------------------------ Finance & Administration
(Roger F. Nejes) and Chief Financial Officer
By: Director
- ------------------------ --------------
(John W. Puth)
By: Director
- ------------------------ --------------
(William H. Rackoff)
By: /s/ Richard L. Shaw Director March 27, 1998
- -----------------------
(Richard L. Shaw)
By: /s/Donald F. Vukmanic Vice President Controller March 27, 1998
- -------------------------
(Donald F. Vukmanic)
By: /s/ James W. Wilcock Chairman of the Board March 27, 1998
- -------------------------
(James W. Wilcock)
PAGE 36
<PAGE>
L. B. FOSTER COMPANY AND SUBSIDIARIES
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
(In Thousands)
<TABLE>
<CAPTION>
Additions
Balance at Charged to Balance
Beginning Costs and at End
of Year Expenses Other Deductions of Year
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1997
- ----
Deducted from assets to
which they apply:
Allowance for doubtful
accounts $ 1,803 $ 199 $ - $ 534(1) $1,468
Provision for decline
in market value of
inventories $ 600 $ - $ - $ - $ 600
Not deducted from assets:
Provision for special
termination benefits $ 22 $ 1 $ - $ 11(2) $ 12
Provision for environ-
mental compliance &
remediation $ 242 $ 61 $ - $ 19(2) $ 284
1996
- ----
Deducted from assets to
which they apply:
Allowance for doubtful
accounts $ 1,800 $ 55 $ - $ 52(1) $1,803
Provision for decline
in market value of
inventories $ 600 $ - $ - $ - $ 600
Not deducted from assets:
Provision for special
termination benefits $ 63 $ 6 $ - $ 47(2) $ 22
Provision for environ
mental compliance &
remediation $ 260 $ 91 $ - $ 109(2) $ 242
1995
- ----
Deducted from assets to
which they apply:
Allowance for doubtful
accounts $ 1,615 $ 232 $ - $ 47(1) $1,800
Provision for decline
in market value of
inventories $ 600 $ - $ - $ - $ 600
Not deducted from assets:
Provision for special
termination benefits $ 82 $ 10 $ - $ 29(2) $ 63
Provision for environ
mental compliance &
remediation $ 279 $ 91 $ - $ 110(2) $ 260
</TABLE>
(1) Notes and accounts receivable written off as uncollectible.
(2) Payments made on amounts accrued and reversals of accruals.
S-1
<PAGE>
L.B. FOSTER COMPANY
STANDARD PRACTICE
HUMAN RESOURCES
LEASED VEHICLE PLAN
DATE: March 1, 1998
STANDARD PRACTICE NO: SP-P-10
SUPERSEDES: SP-P-10
October 1, 1997
1. GENERAL POLICY
It is the policy of the L.B. Foster Company to provide a
leased vehicle to employees holding one of the following
positions:
President;
Corporate officer;
District sales manager or product manager with a job level of 12 or above;
Other manager with a job level of 15 or above;
Outside sales person or sales manager with a job level between 6 and 10 or;
An employee who drives 15,000 business miles annually.
2. PURPOSE
To provide a competitive environment in the area of employee
benefits to attract and retain qualified personnel for eligible
management and sales positions and to reduce Company expenses
through the Leased Vehicle Plan by avoiding personal automobile
mileage reimbursement for high business mileage use.
3. ELIGIBILITY
Monthly
Standard equipped employee
Class: Group: vehicle, choice of: deduction:
A President Olds Aurora $70.00
B Corporate Officers Buick LaSabre Limited $70.00
Oldsmobile Regency
Toyota Avalon
Crysler Concorde
<PAGE>
SP-P-10
Page 2
C Sales Managers Buick Century Limited $65.00
and product managers Oldsmobile 88
with a job level of 12 and Toyota Camry
above and other managers Dodge Intrepid ES
with a job level of 15 and
above
D Outside sales personnel, Chevrolet Lumina $50.00
and sales managers Ford Taurus GL
with a job level between Chrysler Cirrus
6 and 10; other Dodge Stratus ES
participants who drive
15,000 business miles
annually
At the driver's discretion, automobile options may be added
and are available at the invoice prices quoted at the time the
order is placed. The cost for driver paid options must be paid
by the employee to the leasing company (prior to placing the
order with the manufacturer) through the Human Resources
Department. The driver shall also be responsible for any and
all State Tax attributable to the options. Should the driver
fail to reimburse the Company for the sales tax within 60 days
following the initial request for payment, such amount will be
deducted from the employee's pay check.
4. RESPONSIBILITY
A. Plan Participants
1. It shall be the responsibility of each employee to
monitor and report odometer readings as of each November 1st and
on the date his/her vehicle is replaced to validate the personal
mileage assumption. These odometer readings are to be turned
into the Payroll Department during the first week of November on
the Company Automobile Odometer Form (attachment SP-P-10.1).
2. If a form is not received, mileage will be reported
at 100% personal and reported as such on the employee's W-2. It
shall be the responsibility of each employee to maintain records
documenting all business and personal mileage
<PAGE>
SP-P-10
Page 3
usage in accordance with record keeping requirements which may,
from time to time, be required by the Internal
Revenue Service, and to note this on the Company Automobile
Odometer Form (attachment SP-P-10.1).
3. Any costs not covered by warranty, due to driver
neglect of maintenance, will be payable by the employee.
B. Accounting and Payroll Departments
It shall be the responsibility of the Accounting and
Payroll Departments to maintain and verify the records of all
Leased Vehicle Plan participants with regards to payroll
deductions, individual taxability calculations and W-2 reporting.
C. Human Resources Department
1. It shall be the responsibility of the Human Resources
Department to monitor (including the acquisition and disposal of
leased vehicles) the fleet of Company leased automobiles in
service, to provide lease values, to ensure that the appropriate
forms are provided to each driver, and to acquire and dispose of
all Company leased automobiles.
2. The Vice President, Human Resources shall be
responsible for the interpretation and application of the
provisions of the Leased Vehicle Plan.
5. PRACTICE
A. Pursuant to the Tax Reform Act of 1984, the value of the
personal use of an employer provided automobile must be included
in the employee's income and subjected to withholding.
B. The annual lease value of an automobile shall be based
on its fair market value as determined through the Black Book
New Car Invoice Guide, or for vehicles with lease dates
beginning in 1997 or thereafter, value as determined through the
Black Book New Car Invoice Guide or the manufacture's invoice
price plus 4%.
<PAGE>
SP-P-10
Page 4
C. The percentage of personal usage of the annual lease
value shall represent an additional non-cash item which shall be
included as employee income.
D. The annual lease value shall include all maintenance and
insurance but not fuel.
E. Fuel shall be valued at $0.055 cents per personal
mile driven.
F. Driver is to use the fuel and maintenance card to
charge fuel, maintenance, and repair expenses. Those expenses
not charged through this program shall be reimbursed through the
Weekly Expense Report. For body damage and repairs refer to 9(C)(1).
G. Monthly deductions for Company automobiles shall be
reclassified on the employee pay stub as federal withholding tax.
H. The dollar value of the Company automobile personal
use benefit will appear as additional earnings on the employee
pay stub and W-2.
I. For participants in groups A and B any difference
between the employee tax liability to the Internal Revenue
Service and the employee leased car deductions will be paid by
the Company to the Internal Revenue Service. For purposes of
computing the federal tax liability, federal income tax will be
calculated based on the federal tax table Y-1 (using the
assumption that the employee is married with 2 exemptions filing
jointly and reflected on the employee's W-2 as federal
withholding tax.
6. TRANSFER
The transfer of any Company provided automobile between
employees must be authorized by the Human Resources Department.
7. REPLACEMENT
A. Company leased vehicles shall be eligible for replacement
after fifty (50) months of service or 60,000 miles, whichever comes first.
B. Automobiles ready for replacement may be purchased
for 75% of the current Automotive Market Report (AMR) "clean" value,
<PAGE>
SP-P-10
Page 5
adjusted proportionally for any amount originally paid by the
driver, plus any transfer taxes or other costs.
C. The automobile may be purchased by the assigned driver
or a member of his/her immediate family only (spouse and
children). The assigned driver is not authorized to purchase the
vehicle merely for the purpose of selling the vehicle for profit
to another individual.
D. Other employees may submit sealed bids for no less than
75% of the AMR "clean" value should the assigned driver refuse
the purchase opportunity. The high bidder will be awarded the
purchase. Notwithstanding, the bids of employees in the Company
Leased Vehicle Plan will be considered only if no other employee
bids for the vehicle.
E. Automobiles not purchased by employees (for use by the
employee or his/her family) will be disposed of by the Human
Resources Department.
F. An employee who purchases an automobile under this
standard practice must provide proof of ownership for one year
following the purchase. If the employee is unable to provide
proof of ownership for one year then such employee will be
required to pay the Company the difference between the purchase
price and the Fair Market Value of the automobile at the time
the car was purchased. The employee will be required to pay the
Company the difference within 30 days or such amount will be
deducted from his/her paycheck.
8. TERMINATION
A. At the Company's option, terminating employees may be
authorized by the President or Vice President - Human Resources
to purchase their assigned vehicle for themselves or members of
their immediate family for 85% of the current AMR "clean" value,
adjusted proportionally for any amount originally paid by the
driver, plus any transfer taxes or other costs.
<PAGE>
SP-P-10
Page 6
B. The immediate supervisor of a terminated employee shall
be responsible for ensuring that the terminated employee
deposits the leased vehicle and keys at the Company facility
prior to or on the day of termination. If the employee wishes
to purchase the automobile, he/she shall take possession of the
car only when the sale has been finalized.
C. The Human Resources Department shall be responsible for
authorizing the purchase price and release of the automobile to
the terminated employee who has elected to purchase the vehicle.
9. ACCIDENT AND LOSS RESPONSIBILITY
A. Personal property
The Corporate Vehicle Insurance Plan does not cover personal
articles. Employees must secure their own insurance in the form
of a homeowner's policy attachment or specific policy to cover
such articles.
B. Company property
Samples, literature, equipment, and supplies which are in the
direct possession of an employee shall be the responsibility of
the employee if lost, stolen, or damaged.
C. Accident and loss reports
All accidents and property losses must be reported
immediately to the employee's manager and the Insurance
Department by personal contact and by use of the Preliminary
Property Loss Report. A sample form is attached (see SP-P-10.2).
10. TRAFFIC VIOLATIONS
It shall be the responsibility of the employee assigned the
leased vehicle at the time of the traffic violation to pay any
incurred traffic or parking tickets and/or fines. Should the
employee fail to reimburse the Company (for any delinquent
ticket) within 60 days following notification of the
<PAGE>
SP-P-10
Page 7
amount due, such amount will be deducted from the employee's
paycheck.
Prepared by: Approved by:
_________________________ _________________________
Linda M. Terpenning Lee B. Foster II
Vice President - Human Resources President & CEO
<PAGE>
AMENDMENT
This 13th day of March, 1998, Newport Steel Corporation
("Lessor") and L.B. Foster Company ("Lessee") agree as to amend
the Lease Agreement originally dated as of October 12, 1994 (the
"Lease") in the manner set forth in Paragraph 1 below:
1. Section 2.1 of the Lease is hereby deleted and the following
is inserted in lieu thereof:
2.1 Initial Term This Lease shall be for an initial term
(the "Initial Term") commencing on July 1, 1995 and ending on
January 1, 1999.
2. Except as expressly amended hereby, all provisions of the
Lease shall remain in full force and effect.
3. This Amendment may be executed in any number of
counterparts, each of which shall be an original but all of
which shall constitute one and the same instrument.
IN WITNESS THEREOF, the parties hereto have hereunto set their
hands as of the day and year first above written.
SIGNED AND ACKNOWLEDGED LESSOR:
IN THE PRESENCE OF:
NEWPORT STEEL CORPORATION
By: /s/Ronald R. Noel
------------------
Name: Ronald R. Noel
-----------------
Title: President
----------------
LESSEE:
L.B. FOSTER COMPANY
/s/David L. Voltz By: /s/Lee B. Foster
- ----------------- ------------------
/s/Linda J. Moore Name: Lee B. Foster
- ----------------- -----------------
Title: President and CEO
-------------------
<PAGE>
LESSOR'S ACKNOW,EDGEMENT:
COMMOMWEALTH OF KENTUCKY )
)
COUNTY OF CAMPBELL ) SS:
The foregoing instrument was acknowledge before me this 16th
day of March, 1998 by Ronald R. Noel, the President of Newport
Steel Corporation, a Kentucky corporation, on behalf of the
corporation.
/s/Patricia Montgomery
-----------------------
Notary Public
LESSEE'S ACKNOWLEGEMENT:
STATE OF PENNSYLVANIA )
) SS:
COUNTY OF ALLEGHENY )
The foregoing instrument was acknowledge before me this 9th
day of March, 1998 by Lee B. Foster II, the President of L.B.
Foster Company, a Delaware corporation, on behalf of the corporation.
/s/Diane K. Close
----------------
Notary Public
L. B. FOSTER COMPANY 1998 INCENTIVE COMPENSATION PLAN
I.PURPOSE
To provide incentives and rewards to salaried employees based
upon overall corporate profitability and the performance of
individual operating units.
II.CERTAIN DEFINITIONS
The terms below shall be defined as follows for the purposes of
the L. B. Foster Company 1998 Incentive Compensation Plan. The
definitions of accounting terms shall be subject to such
adjustments as are approved by the Corporation's Chief Executive Officer.
2.1 "Average Unit Income" shall mean for each Operating Unit the
sum of such Operating Unit's "Operating Unit Income" for the
years 1995, 1996 and 1997 divided by three, subject to such
adjustments as may be made by the Chief Executive Officer.
2.2 "Base Compensation" shall mean the total base salary,
rounded to the nearest whole dollar, actually paid to a
Participant during 1998, excluding payment of overtime,
incentive compensation, commissions, severance, reimbursement of
expenses incurred for the Participant's benefit, or any other
payments not deemed part of a Participant's base salary;
provided, however, that the Participant's contributions to the
Corporation's Voluntary Investment Plan shall be included in
Base Compensation. Base Compensation for employees who die,
retire or are terminated shall include only such compensation
paid to such employee during 1998 with respect to the period
prior to death, retirement or termination.
2.3 "Base Fund" shall mean the aggregate amount of all cash
payments to be made pursuant to this Plan prior to adjustments
pursuant to Article IV, which amount shall be determined
pursuant to Section 3.1 hereof.
2.4 "Committee" shall mean the Personnel and Compensation
Committee of the Board of Directors and any successors thereto.
2.5 "Corporation" shall mean L. B. Foster Company and those
subsidiaries thereof in which L.B. Foster Company owns 100% of
the outstanding common stock, excluding (except for the purpose of
calculating "Pre-Incentive Income") Natmaya, Inc. and Fosmart, Inc.
<PAGE>
2.6 "Cost of Capital" shall mean a charge imposed on an Operating
Unit based upon the assets employed by such Operating Unit, as
determined by the Chief Executive Officer.
2.7 "Fund" shall mean the aggregate amount of all payments made
to Plan Participants under this Plan, after deducting all
discretionary payments made pursuant to Section 3.3 hereof and
subject to Article IV.
2.8 "Individual Incentive Award" shall mean the amount paid to a
Participant pursuant to this Plan, which amount shall be
determined pursuant to Section 3.5 hereof and which award shall
not exceed the lower of: (i) twice the amount of a
Participant's Target Award; or (ii) the Participant's Target
Award multiplied by a percentage equal to twice the percentage
of Target Award paid to Participants in the General Pool;
subject, however, to the provisions of Article VII of this Plan.
The limitations herein shall not affect amounts distributed
under Sections 3.3 or 6.2.
2.9 "Operating Unit" shall mean each unit or division reported in
the Company's internal financial statements: Foster Coated
Pipe, Threaded Products, Fosterweld Tested, Allegheny Rail
Products, New Rail, Relay Rail, Transit Products, Midwest,
Piling, Equipment and Fabricated Products, subject to such
adjustments as may be made by the Chief Executive Officer.
2.10 "Operating Unit Income" shall mean an Operating Unit's 1998
gross profit at actual plus (minus) other income (expense) less
allocated and direct sales expense and direct administrative
expense and Cost of Capital, subject to such adjustments as may
be made by the Chief Executive Officer.
2.11 "Participant" shall mean a salaried employee of the
Corporation who satisfies all of the eligibility requirements
set forth in Article V hereof.
2.12 "Plan" shall mean the L. B. Foster Company 1998 Incentive
Compensation Plan, which Plan shall be in effect only with
respect to the fiscal year ending December 31, 1998.
2.13 "Pool" shall mean the Product Pool and/or General Pool, as
calculated pursuant to Section 3.4 hereof, subject to such
adjustments as are approved by the Chief Executive Officer.
<PAGE>
2.14 "Pre-Incentive Income" shall mean the audited pre-tax
income of the Corporation for the fiscal year ending December
31, 1998 determined in accordance with generally-accepted
accounting principles, excluding (i) benefits payable under this
Plan; and (ii) any portion of gains or losses arising from
transactions not in the ordinary course of business which the
Committee, in its sole discretion, determines to exclude.
2.15 "Target Award" shall mean the product of a Participant's
Base Compensation multiplied by said Participant's Target
Percentage.
2.16 "Target Percentage" shall mean those percentages assigned
to Participants pursuant to Section 3.2 hereof.
III. PLAN DESCRIPTION
3.1 Base Fund. Subject to Article IV, the amount of the Base
Fund shall be calculated by multiplying the Corporation's
Pre-Incentive Income by specified percentages, as follows:
<TABLE>
<CAPTION>
Pre-Incentive Income Percentage Base Fund
- -------------------- ---------- ---------
<S> <C> <C>
$0 - $2,999,999 0 0
$3,000,000 - $3,499,999 10 $300,000 - $349,999
$3,500,000 - $3,999,999 11 $385,000 - $439,999
$4,000,000 - $4,499,999 12 $480,000 - $539,999
$4,500,000 - $4,999,999 13 $585,000 - $649,999
$5,000,000 - $5,999,999 14 $700,000 - $839,000
$6,000,000 - $6,999,999 15 $900,000 - $1,049,994
$7,000,000 - $7,999,999 16 $1,120,000 - $1,279,999
$8,000,000 - $8,999,999 17 $1,360,000 - $1,529,999
$9,000,000 - $9,999,999 18 $1,620,000 - $1,799,999
$10,000,000 $10,999,999 19 $1,900,000 - $2,089,999
$11,000,000 and Over 20 $2,200,000 and Over
</TABLE>
<PAGE>
3.2 Target Percentages. Subject to adjustment as set forth
below, each Participant shall have a Target Percentage based
upon the grade level of such Participant, unless determined
otherwise by the Chief Executive Officer, on July 1, 1998, as follows:
<TABLE>
<CAPTION>
Result: % Of Base
Grade Levels Compensation
- ------------- ---------------------
<S> <C>
Grade 10, Plant Managers 12.5
Grade 10, Product Managers 12.5
Grade 11, Plant Managers 15.0
Grade 11, Product Managers 15.0
Grade 6, Sales Positions 15.0
Grade 8, Sales Positions 20.0
Grade 9, Sales Positions 21.0
Grade 10, Sales Positions 22.0
Grade 11, Sales Positions 23.0
Grade 12, Sales or Management Positions 25.0
Grade 13, Sales or Management Positions 27.0
Grade 14, Sales or Management Positions 30.0
Grade 15, Sales or Management Positions 32.0
Grade 16, Sales or Management Positions 36.0
Grade 17, Sales or Management Positions 38.0
Grade 18, Sales or Management Positions 39.0
Grade 19, Sales or Management Positions 40.0
Grade 20, Sales or Management Positions 50.0
Grade 21, Sales or Management Positions 52.0
Grade 22, Sales or Management Positions 54.0
Grade 23 and Above 60.0
</TABLE>
Other Employees selected, in writing, by L. B. Foster Company's
Chairman of the Board and Chief Executive Officer may also be
made Participants in the Plan on such terms as may be approved
by the Chairman of the Board and Chief Executive Officer.
The Chief Executive Officer may determine performance goals for
Participants selected by the Chief Executive and the Target
Percentage for each such Participant will be adjusted upward or
downward based upon such Participant's achievement of such
goals. The precise method for determining such adjustments for
each such Participant shall be separately scheduled and deemed
incorporated herein by reference.
Those Participants who have retired or died prior to July 1,
1998 shall have a Target Percentage based upon their grade level
at death or retirement.
3.3 Discretionary Payments. Ten percent (10%) of the Base
Fund, plus amounts reallocated pursuant to Section 6.1, shall be
reserved for discretionary payments to employees. The
recipients of all such awards and the amounts of any such awards
initially shall be selected by the Chief Executive Officer,
subject to final approval by the Committee. If any amounts are
not paid from the amount herein reserved, such remaining amount
shall be allocated to the Fund for distribution among the Pools.
3.4 Calculation of Pools. Each Participant and all or any
portion of each Participant's Target Award shall be assigned to
a Pool or Pools by the Chief Executive Officer of the Company.
In the absence of a contrary determination by the Chief
Executive Officer, 25% of the Target Awards of Participants in
the Product Pool shall be allocated to the General Pool. The
dollar amount of each Pool will be determined by dividing the
portion of the Target Awards assigned to the Pool by the total
Target Awards of all Participants and then multiplying such
amount by the Fund.
EXAMPLE 1:
THE CORPORATION'S PRE-INCENTIVE INCOME IS $5,100,000. THE TOTAL
OF ALL TARGET AWARDS FOR ALL PLAN PARTICIPANTS IS $2,100,000,
WITH $1,000,000 ALLOCATED TO THE GENERAL POOL AND $1,100,000
ALLOCATED TO THE PRODUCT POOL. THE DOLLAR AMOUNT OF EACH POOL
WOULD BE CALCULATED AS FOLLOWS:
(a) Determine Base Fund
$5,100,000 x 14% = $714,000
(b) Calculate Fund By Deducting 10% For "Discretionary Awards"
$714,000 x 90% = $642,600
(c) Determine Amount of Each Pool
1. General Pool
$1,000,000
--------------- x $642,600 = $306,000
$2,100,000
2. Product Pool
$1,100,000
--------------- x $642,600 = $336,600
$2,100,000
<PAGE>
3.5 Calculation of Individual Incentive Awards. The
calculation of an Individual Incentive Award shall be determined
based on the Pool(s) to which a Participant is assigned.
3.5A General Pool Individual Incentive Awards. A General
Pool Participant's Individual Incentive Award shall be
calculated, subject to the limitations in Section 2.8, as follows:
(a) Divide Participant's Target Award allocated to General
Pool by the sum of all Target Awards allocated to General Pool;
(b) Multiply (a) by amount of General Pool.
EXAMPLE 2:
THE GENERAL POOL IS $306,000. THE SUM OF ALL GENERAL POOL
PARTICIPANTS' TARGET AWARDS IS $1,000,000. MANAGER JONES HAS A
TARGET AWARD OF $19,200:
$ 19,200
------------- x $306,000 = $5,875 (Individual Incentive Award)
$1,000,000
3.5B Product Pool Individual Incentive Awards. The Product
Pool shall be divided based upon the relative improvement in the
Operating Units' "Operating Unit Income" and the Operating
Units' respective shares of all Units' "Operating Unit Income".
All Participants in the Product Pool shall be assigned to one or
more Operating Unit(s) and their respective Target Awards shall
be allocated among one or more Operating Unit(s), all as
determined by the Chief Executive Officer. Individual awards
shall be calculated, subject to the limitations in Section 2.8,
as follows:
(a) Add together: (i) all Operating Units' "Operating
Unit Income" (disregarding any annual loss which an Operating
Unit may have sustained); and (ii) the total improvement in all
Units' "Operating Unit Income" over all Units' "Average Unit
Income" (disregarding any Unit that did not improve and, for
purposes of calculating improvement, counting only a reduced
percentage of such improvement, as determined by the Chief
Executive Officer but in no event greater than 50%, which
represents a reduction from negative "Average Unit Income" to zero).
<PAGE>
(b) Divide (a) into the sum of all Operating Units'
Operating Unit Income (calculated in the same manner as in (a)
above) and multiply the resulting quotient by the amount in the
Product Pool (the "Product Operating Income Subpool").
(c) Divide (a) into the sum of all improvement in all
Units' Operating Unit Income over such Units' respective Average
Unit Incomes (calculated in the same manner as in (a) above) and
multiply the resulting quotient by the amount in the Product
Pool (the "Product Improvement Subpool").
(d) To determine an Operating Unit's share of the Product
Operating Income Subpool, multiply the amount in the Product
Operating Income Subpool by a fraction, the numerator of which
is the Operating Unit's Operating Income and the denominator is
the sum of all Units' Operating Income (calculated in the same
manner as in (a) above).
(e) To determine an Operating Unit's share of the Product
Improvement Subpool, multiply the amount of the Product
Improvement Subpool by a fraction, the numerator of which is the
Operating Unit's improvement (calculated in the same manner as
in (a) above) and the denominator of which is the sum of all
Operating Units' improvement (calculated in the same manner as
in (a) above).
(f) To determine a Participant's share of the Product
Operating Income Subpool, multiply the amount calculated in (d)
above by a fraction, the numerator of which is the Participants'
Target Bonus allocated to the Operating Unit and the denominator
of which is the sum of all Target Bonuses allocated to the
Operating Unit.
(g) To determine a Participant's share of the Product
Improvement Subpool, multiply the amount calculated in (e) above
by a fraction, the numerator of which is the Participants'
Target Bonus allocated to the Operating Unit and the denominator
of which is the sum of all Target Bonuses allocated to the
Operating Unit.
<PAGE>
EXAMPLE 3:
THE PRODUCT POOL IS $336,600. RELAY RAIL'S OPERATING UNIT
INCOME IS $900,000 WHILE ITS AVERAGE UNIT INCOME IS A LOSS OF
$100,000. THE SUM OF ALL OPERATING UNITS' "OPERATING UNIT
INCOME" IS $6,800,000 AND THE SUM OF ALL OPERATING UNITS'
IMPROVEMENT OVER THE SUM OF THEIR "AVERAGE UNIT INCOMES" IS
$1,900,000. PRODUCT MANAGER SMITH HAS A TARGET AWARD OF $20,000
AND THE SUM OF ALL TARGET AWARDS ALLOCATED TO RELAY RAIL IS
$120,000. TWENTY-FIVE PERCENT (25%) OF SMITH'S TARGET AWARD IS
ALLOCATED TO THE GENERAL POOL, TEN PERCENT (10%) IS ALLOCATED TO
MIDWEST AND SIXTY-FIVE PERCENT (65%) IS ALLOCATED TO RELAY RAIL.
IT HAS BEEN DETERMINED THAT FIFTY PERCENT (50%) OF IMPROVEMENT
FOR REDUCTION OF LOSSES SHALL BE COUNTED. THE PORTION OF
SMITH'S INDIVIDUAL INCENTIVE AWARD ATTRIBUTABLE TO RELAY RAIL IS
CALCULATED AS FOLLOWS:
(a) Determine Allocation Between Product Operating Income
Subpool and Product Improvement Subpool:
1. $6,800,000 + $ 1,900,000 = $8,700,000
2. $6,800,000 / $ 8,700,000 = 78.16%
3. $1,900,000 / $ 8,700,000 = 21.84%
4. $ 336,600 x 78.16% = $263,087
("Product Operating Income Subpool")
5. $ 336,600 x 21.84% = $ 73,513
("Product Improvement Subpool")
(b) Determine Relay Rail's share of Product Operating Income Subpool and
Product Improvement Subpool:
1. $ 900,000
--------------- x $263,087 = $34,820
$ 6,800,000 (Relay Rail's Share of Product
Operating Income Subpool)
2. $ 900,000 + ($100,000 X 50%)
--------------- x $ 73,513 = $36,757
$ 1,900,000 (Relay Rail's Share of Product
Improvement Subpool)
<PAGE>
(c) Determine Smith's Individual Award from Relay Rail:
1. $ 20,000 x 65% = $13,000
(Smith's Target Award
Allocable to Relay Rail)
2. $ 13,000
------------ x $34,820 = $ 3,772
$ 120,000 (Smith's Share of Product
Operating Income Subpool)
3. $ 13,000
------------- x $36,757 = $ 3,982
$ 120,000 (Smith's Share of Product
Improvement Income Subpool)
Smith would also be able to receive an additional award based
upon Midwest's performance and a portion of the General Pool.
IV. STOCK IN LIEU OF CASH FOR EXECUTIVE OFFICERS
Notwithstanding any other provision of this Plan, the
Corporation's executive officers, as determined by the
Committee, shall receive shares of the Corporation's Class A
Common Stock ("Stock"), subject to such restrictions on
transferability as the Corporation's legal counsel may deem
necessary or appropriate (such restrictions shall provide for no
less than a two-year restriction on the voluntary transfer of
such stock), in lieu of cash equal to 25% of the Individual
Incentive Awards (without taking into account any discretionary
payments under Section 3.3) that would otherwise be payable to
such officers under the Plan. In the event such restriction on
transferability should be violated, all proceeds derived from
such transaction shall be forfeited to the Company. Such stock
shall be forfeited and revert to the Company in the event the
Participant's employment with the Company should cease within
two (2) years after the date of grant, unless such forfeiture is
waived by the Committee or said termination is attributable to
the Participant's death, permanent disability, retirement with
the consent of the Company's Chief Executive Officer or in the
event of a "Change of Control". The amount of stock to be
granted to an executive officer shall be calculated by: (a)
dividing the closing price of the stock on the day preceding the
date cash distributions are made under the Plan into a sum equal
to 25% of the Individual Incentive Award that, but for this
Article IV, would have been payable to such executive officer;
and (b) multiplying the resulting quotient by 115% with
fractional share interest being rounded to the nearest number of
whole shares. Stock shall be deemed distributed to the
executive officers on the first day of the calendar month
following the date cash distributions are made or as soon
thereafter as is practicable but the corporation shall retain
custody of such shares until the Participant's risk of
forfeiture has ended. Cash which would have been payable to
executive officers, but for this Article IV, shall not be
distributed and shall remain the property of the Corporation.
<PAGE>
"Change of Control" shall mean: (i) any person or group of
persons (as used in Sections 13 and 14 of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the
rules and regulations thereunder) shall have become the
beneficial owner (as defined in Rules 13d-3 and 13d-5
promulgated by the Securities and Exchange Commission (the
"SEC") under the Exchange Act) of 20% or more of the combined
voting power of all the outstanding voting securities of the
Corporation or, (ii) at any time following any merger,
consolidation, acquisition, sale of assets or other corporate
restructuring of Corporation, during any period of six
consecutive calendar months, individuals who were directors of
the Corporation on the first day of such period, together with
individuals elected as directors by not less than two-thirds of
the individuals who were directors of the Corporation on the
first day of such period, shall cease to constitute a majority
of the members of the board of directors of the Corporation.
V. ELIGIBILITY
Unless changed or amended by the Committee, an employee shall
be deemed a Participant in the Plan only if all of the following
requirements are satisfied:
A. A Participant must be a salaried employee of the
Corporation, at a grade level set forth in Section 3.2 or as
otherwise approved by L. B. Foster Company's Chairman of the
Board and Chief Executive Officer for at least six (6) months of
the entire fiscal year, unless deceased or retired.
B. A Participant must not have: (i) been terminated for
cause; (ii) voluntarily have resigned (other than due to
retirement with the Company's consent) prior to the date
Individual Incentive Awards are paid; or (iii) unless the
Corporation agrees in writing that the employee shall remain a
Participant in this Plan, been terminated for any reason
whatsoever and have received money from the Corporation in
connection with said termination.
C. A Participant's services must not primarily be provided to
the Corporation's Monitor Group Division, unless otherwise
approved by the Chief Executive Officer.
As used herein, "cause" to terminate employment shall exist
upon (i) the failure of an employee to substantially perform his
duties with the Corporation; (ii) the engaging by an employee in
any criminal act or in other conduct injurious to the
Corporation; or (iii) the failure of an employee to follow the
reasonable directives of the employee's superior(s).
<PAGE>
VI. REALLOCATIONS
6.1 In the event an employee has satisfied the eligibility
criteria set forth in Article V(A), but has not satisfied the
eligibility criteria set forth in Article V(B), the portion of
the Individual Incentive Awards allocable to the Product Pool
shall be calculated as though such employee was a Participant
and any amounts which would have been payable to such employee
from the Product Pool shall be used for discretionary payments
under Section 3.3.
6.2 Any portion of the Fund not otherwise distributed
("Excess Funds") shall be awarded to each Participant in an
amount calculated by multiplying the amount of the Excess Funds
by a fraction, the numerator of which shall be the Participant's
Target Bonus and the denominator of which shall be the sum of
all Participants' Target Bonuses.
VII. PAYMENT OF AWARDS
Payment of Individual Incentive Awards will be made on or
before March 15, 1999, except that the timing of the
distribution of stock pursuant to Article IV shall be governed
by Article IV.
VIII. LIMITATIONS ON AWARDS
Notwithstanding any other provision of this Plan, Individual
Incentive Awards shall normally be limited to twice the amount
of a Participant's Target Award.
ADMINISTRATION AND INTERPRETATION OF THE PLAN
A determination by the Committee in carrying out,
administering or interpreting this Plan shall be final and
binding for all purposes and upon all interested persons and
their heirs, successors and personal representatives.
The Committee may, from time to time, amend the Plan;
provided, however, that the Committee may not amend, terminate
or suspend the Plan so as to reduce the Base Fund payable under
the Plan.
The Chief Executive Officer may delegate any of his duties herein.
The Corporation's independent public accountants will review
and verify the Corporation's determination of Pre-Incentive Income.
<PAGE>
Consent of Independent Auditors
We consent to incorporation by reference in the Registration
Statements (Form S-8 Nos. 33-17073, 33-35152, and 33-79450)
pertaining to the 1985 Long-Term Incentive Plan of L. B. Foster
Company, as amended and restated, of our report dated January
21, 1998, with respect to the consolidated financial statements
and schedule of L. B. Foster Company included in the Form 10-K
for the year ended December 31, 1997.
/s/Ernst & Young LLP
--------------------
Ernst & Young LLP
Pittsburgh, Pennsylvania
March 27, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 1,156
<SECURITIES> 0
<RECEIVABLES> 49,054
<ALLOWANCES> 1,468
<INVENTORY> 43,365
<CURRENT-ASSETS> 96,248
<PP&E> 52,187
<DEPRECIATION> 27,336
<TOTAL-ASSETS> 126,969
<CURRENT-LIABILITIES> 36,171
<BONDS> 17,530
0
0
<COMMON> 102
<OTHER-SE> 70,406
<TOTAL-LIABILITY-AND-EQUITY> 126,969
<SALES> 220,343
<TOTAL-REVENUES> 220,343
<CGS> 191,266
<TOTAL-COSTS> 191,266
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,495
<INCOME-PRETAX> 5,144
<INCOME-TAX> 1,857
<INCOME-CONTINUING> 3,287
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,287
<EPS-PRIMARY> 0.32
<EPS-DILUTED> 0.32
</TABLE>
L. B. FOSTER COMPANY
BY-LAWS
ARTICLE I
MEETING OF STOCKHOLDERS
Section 1. Place of Meeting and Notice. Meetings of the
stockholders of the Corporation shall be held at such place
either within or without the State of Delaware as the Board of
Directors may determine.
Section 2. Annual and Special Meetings. Annual meetings of
stockholders shall be held at a date, time and place fixed by
the Board of Directors and stated in the notice of meeting, to
elect a Board of Directors and to transact such other business
as may properly come before the meeting. Special meetings of
the stockholders may be called by the President for any purpose
and shall be called by the President or Secretary if directed by
the Board of Directors.
Section 3. Notice. Except as otherwise provided by law, at
least ten (10) and not more than sixty (60) days before each
meeting of stockholders, written notice of the time, date and
place of the meeting, and, in the case of a special meeting, the
purpose or purposes for which the meeting is called, shall be
given to each stockholder entitled to vote thereat.
Section 4. Quorum. At any meeting of stockholders, the holders
of record, present in person or by proxy, of a majority of the
Corporation's issued and outstanding capital stock entitled to
vote at the meeting, shall constitute a quorum for the
transaction of business, except as otherwise provided by law. In
the absence of a quorum, any officer entitled to preside at or
to act as secretary or the meeting shall have power to adjourn
the meeting from time to time until a quorum is present.
Section 5. Voting. Except as otherwise required by law or by
the Certificate of Incorporation, in all matters, other than the
election of directors, the affirmative vote of the majority of
shares present in person or represented by proxy at the meeting
and entitled to vote on the subject matter shall be the act of
the stockholders. Directors shall be elected by a plurality of
the votes of the shares present in person or represented by
proxy at the meeting and entitled to vote on the election of Directors.
Section 6. Advance notice of nominations and proposals. A
nomination of a person for election as a director or a proposal
on any subject that, in either case, is made by a stockholder
shall not be considered at any special or annual meeting of
stockholders unless written notice thereof has been received by
the Secretary not less than 90 days in advance of the meeting
or, if later, the seventh calendar day following the first
public announcement of the date of the meeting. The stockholder
making the nomination or proposal shall, upon request, promptly
furnish to the Board of Directors such information as the Board
of Directors shall reasonably request to enable it to evaluate
the nominee or proposal and formulate a recommendation to the
stockholders with respect to the nominee or proposal. For
purposes of this Section 6, a meeting that is held pursuant to
the adjournment for any reason of a previous meeting shall be
<PAGE>
deemed to be the same meeting as the previous meeting, and the
date by which notice must be received pursuant to this Section 6
shall be determined with reference to the date of the first
meeting that was adjourned. If inspectors of election have not
been appointed for a meeting, the presiding officer of the
meeting may conclusively determine whether a nomination or
proposal has been made in accordance with this Section 6. The
procedures of this Section 6 shall not be deemed to create any
right on the part of a stockholder to propose any particular
business at a meeting of the stockholders.
ARTICLE II
DIRECTORS
Section 1. Number, Election and Removal of Directors. The
number of Directors that shall constitute the Board of Directors
shall be not less than one (1) nor more than fifteen (15). The
first Board of Directors shall consist of three (3) Directors.
Thereafter, within the limits specified above, the number of
Directors shall be determined by the Board of Directors or by
the holders of the capital stock of the Corporation entitled to
vote. The Directors shall be elected at the annual meeting of
the stockholders by the holders of the capital stock of the
Corporation entitled to vote. Vacancies and newly created
directorships resulting from any increase in the number of
Directors may be filled by a majority of the Directors then in
office, although less than quorum, or by a sole remaining
Director or by the stockholders. A Director may be removed with
or without cause by the holders of the capital stock of the
Corporation entitled to vote at an election of Directors.
Section 2. Meetings. Regular meetings of the Board of
Directors shall be held at such times and places as may from
time to time be fixed by the Board of Directors or as may be
specified in a notice of meeting. Special meetings of the Board
of Directors may be held at any time upon the call of the
President and shall be called by the President or Secretary if
directed by the Board of Directors. Telegraphic or written
notice of each special meeting of the Board of Directors shall
be sent to each Director not less than two (2) days before such
meeting. A meeting of the Board of Directors may be held
without notice immediately after the annual meeting of
stockholders. Notice need not be given of regular meetings of
the Board of Directors.
Section 3. Quorum. A majority of the total number of Directors
shall constitute a quorum for the transaction of business. If a
quorum is not present at any meeting of the Board of Directors,
the Directors present may adjourn the meeting, from time to
time, without notice other than announcement at the meeting
until such a quorum is present. Except as otherwise provided by
law, the Certificate of Incorporation of the Corporation, these
By-Laws or any contract or agreement to which the Corporation is
a party, the act of a majority of the Directors shall be the act
of the Board of Directors.
Section 4. Committees of Directors. The Board of Directors may,
by resolution adopted by a majority of the whole Board,
designate one or more committees, including, without limitation,
an Executive Committee to have and exercise such power and
authority as the Board of Directors shall specify. In the
absence or disqualification of a member of a committee, the
member or members thereof present at any meeting and not
disqualified from voting, whether or not he or they constitute a
<PAGE>
quorum, may unanimously appoint another Director to act at the
meeting in place of any such absent or disqualified member
ARTICLE III
OFFICERS
The officers of the Corporation shall consist of:
Chairman of the Board
President
Senior Vice President(s)
Vice President(s)
Secretary
Treasurer
Controller
General Counsel
with such designations as the Board of Directors shall
determine, all of whom shall be chosen by and shall serve at the
pleasure of the Board of Directors. Such officers shall have
the usual powers and shall perform all of the usual duties
incident to their respective offices. All officers shall be
subject to the supervision and direction of the Board of
Directors. The authority, duties or responsibilities of any
officer of the Corporation may be suspended by the President
with or without cause. Any officer elected or appointed by the
Board of Directors may be removed by the Board of Directors with
or without cause. The Chairman of the Board and the President
may appoint such other officers of the Corporation as they deem
appropriate, to hold such office at the pleasure of the Chairman
and President.
ARTICLE IV
INDEMNIFICATION
Section 1. To the fullest extent permitted by Delaware law, the
Corporation shall, in the case of directors and/or officers, and
may, at the discretion of the Board of Directors in the case of
employees and/or agents of the Corporation, defend, indemnify
and hold harmless any such person who was or is a party to any
threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative
(including, without limitation, an action, suit or proceeding by
or in the right of the Corporation) by reason of the fact that
he is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit
or proceeding. The indemnification provided by, or granted
pursuant to, this Article IV shall, unless otherwise provided
when authorized or ratified in the case of an employee or agent,
continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such person.
<PAGE>
ARTICLE V
GENERAL PROVISIONS
Section 1. Notices. Whenever any statute, the Certificate of
Incorporation or these By-Laws require notice to be given to any
Director or Stockholder, such notice may be given in writing by
mail, addressed to such Director or stockholder at his address
as it appears on the records of the Corporation, with postage
thereon prepaid. Such notice shall be deemed to have been given
when it is deposited in the United States mail. Notice to
Directors may also be given by telegram.
Section 2. Fiscal Year. The fiscal year of the Corporation
shall be fixed by the Board of Directors.
Section 3. Amendment. Except as provided in this Section 3
with respect to this Section 3 and Article I, Section 6, these
By-Laws may be amended either (i) by vote of the stockholders at
any duly organized annual or special meeting of stockholders, or
(ii) regardless of whether the stockholders have previously
adopted or approved the By-Law being amended, by action of the
Board of Directors. The stockholders may amend Article I,
Section 6, or this Section 3 only by the affirmative vote of not
less than two-thirds of the votes that all stockholders, voting
as single class, are entitled to cast thereon. The notice of a
meeting of the stockholders that will act on an amendment to
these By-Laws must state that one of the purposes of the meeting
is to consider an amendment of the By-Laws and there shall be
included in or with the notice a copy of the proposed amendment.
As Amended 2/25/98
FIRST AMENDMENT TO AMENDED AND RESTATED LOAN AGREEMENT
THIS FIRST AMENDMENT TO AMENDED AND RESTATED LOAN
AGREEMENT (this "Amendment"), dated as January 1, 1996, by
and among L.B. FOSTER COMPANY, a Delaware Corporation (the
"Borrower"), and MELLON BANK, N.A., NBD BANK and CORESTATES BANK,
N.A. (separately called a "Bank" and collectively the "Banks")
and MELLON BANK, N.A., as agent for the Banks (in such capacity, the
"Agent").
RECITALS:
WHEREAS the Borrower, the Banks and the Agent entered into an
Amended and Restated Loan Agreement, dated as of November 1,
1995 (the "Restated Agreement"), pursuant to which the Banks
have extended credit to the Borrower;
WHEREAS, the Borrower and the Banks desire to amend the Restated
Agreement; and
WHEREAS, capitalized terms not otherwise defined herein shall
have the meanings assigned thereto in the Restated Agreement.
NOW, THEREFORE, the parties hereto, in consideration of their
mutual covenants and agreements hereinafter set forth and
intending to be legally bound hereby agree as follows:
Section 1. Amendments to Restated Agreement. Section 2.02(c) of
the Restated Agreement is hereby deleted and replaced with the
following:
(c) Letter of Credit Fees. In lieu of any letter of credit
fronting fees provided for in the Applications or otherwise, the
Borrower agrees to pay to the Agent upon the issuance of each
Standby Letter of Credit a fee equal to 1/10 of 10-. of the face
amount of such Standby Letter of Credit, and the Borrower
further agrees to pay to the Agent from time to time any
issuance, amendment, payment, telex, postage and courier fees,
at the Agent's standard rates (a schedule of which has been
provided to the Borrower), in respect of Letters of Credit. The
Borrower agrees that upon and following the issuance of a
Standby Letter of Credit, the Agent shall be paid a fee per
annum based upon the amount of the Standby Letter of Credit
issued, which fee shall be calculated at a rate per annum for
each day equal to the Applicable Margin with respect to the
Euro-Rate in effect pursuant to Section 2.05(h) hereof for such
day. Such letter of credit commission shall be payable on the
last Business Day of each calendar quarter, and on the last date
on which any Standby Letter of Credit issued hereunder expires,
<PAGE>
in each case for the preceding period for which such fee has not
been paid. The Borrower agrees that upon the issuance of a
Documentary Letter of Credit, the Agent shall be paid a fee
equal to 1/2 of 1% of the face amount of the Documentary Letter
of Credit issued; provided, however, that in the case of the
acceptance by the Agent of any time draft with respect to a
Documentary Letter of Credit issued hereunder, the Borrower
agrees to pay to the Agent an acceptance fee per annum based
upon the amount of the Documentary Letter of Credit issued,
which acceptance fee shall be calculated at a rate per annum for
each day during the period from the acceptance of such draft
through its maturity equal to the Applicable Margin with respect
to the Euro-Rate in effect pursuant to Section 2.05(h) hereof at
the time of the acceptance of any such time draft.
Section 2. Representations and Warranties of Borrower. The
Borrower hereby represents and warrants to each Bank and the
Agent that this Amendment has been duly and validly executed and
delivered by the Borrower and constitutes the legal, valid and
binding obligation of the Borrower enforceable in accordance
with the terms hereof, except as enforceability may be limited
by bankruptcy, insolvency or other similar laws of general
application affecting the enforcement of creditors, rights or by
general principles of equity limiting the availability of
equitable remedies.
Section 3. Miscellaneous. (a) This Amendment shall become
effective as of the date hereof, upon execution and delivery
hereof by the Banks, the Borrower and the Agent. The execution
below by the Banks shall constitute a direction to the Agent to
execute this Amendment.
(b) The Restated Agreement, as amended by this Amendment, is in
all respects ratified, approved and confirmed and shall, as so
amended, remain in full force and effect. From and after the
date hereof, all references to the "Agreement" in the Restated
Agreement and in the other Loan Documents shall be deemed to be
references to the Restated Agreement as amended by this
Amendment.
(c) This Amendment, and the rights and obligations of the
parties hereto, shall be governed by and construed and enforced
in accordance with the laws of the Commonwealth of Pennsylvania,
excluding its rules relating to the conflict of laws.
(d) This Amendment may be executed in any number of
counterparts and by the different parties hereto on separate
counterparts, each of which, when so executed, shall be deemed
an original, but all such counterparts shall constitute but one
and the same instrument.
<PAGE>
IN WITNESS WHEREOF, the parties hereto, by their officers
thereunto duly authorized, have executed and delivered this
Agreement as of the date first above written.
L. B. FOSTER COMPANY
By: /s/Roger F. Nejes
Title: Sr. VP Finance Admin CFO
Mellon BANK, N. A., individually and as Agent
By:
Title:
NBD BANK
By:
Title:
CORESTATES BANK, N.A.
By:
Title:
SECOND AMENDMENT TO AMENDED AND RESTATED LOAN AGREEMENT
THIS SECOND AMENDMENT TO AMENDED AND RESTATED LOAN AGREEMENT
(this "Amendment"), dated as of December 31, 1996, by and among
L.B. FOSTER COMPANY, a Delaware corporation (the "Borrower"),
and MELLON BANK, N.A., PNC BANK, NATIONAL ASSOCIATION and
CORESTATES BANK, N.A. (separately called a "Bank" and
collectively the "Banks") and MELLON BANK, N.A., as agent for
the Banks (in such capacity, the "Agent").
RECITALS:
WHEREAS the Borrower, the Banks and the Agent entered into an
Amended and Restated Loan Agreement, dated as of November 1,
1995, which has been amended by a First Amendment to Amended and
Restated Loan Agreement, dated as of January 1, 1996 (as so
amended, the "Restated Agreement"), pursuant to which the Banks
have extended credit to the Borrower;
WHEREAS, the Borrower and the Banks desire to amend the Restated
Agreement; and
WHEREAS, capitalized terms not otherwise defined herein shall
have the meanings assigned thereto in the Restated Agreement.
NOW, THEREFORE, the parties hereto, in consideration of their
mutual covenants and agreements hereinafter set forth and
intending to be legally bound hereby agree as follows:
Section 1. Amendment to Section 5.02(f) of the Restated
Agreement. Section 5.02(f) of the Restated Agreement is hereby
amended by replacing the word "and" immediately prior to clause
(viii) thereof with a ",11 and by adding the following new
clause at the end of Section 5.02(f):
"and (ix) after notice to the Agent and the Banks, and with the
approval of the Borrower's board of directors, the sale of all
or any portion of the Borrower's Parkersburg, West Virginia
manufacturing plant, and the equipment, inventory, books and
records and other property related thereto at any time on or
prior to June 30, 1997.11
Section 2. Amendment to 5.02(g) (7) of the Restated Agreement.
Section 5.02(g)(7) of the Restated Agreement is hereby amended
to read in its entirety as follows:
"(7) Advances to RPF under the Loan and Security Agreement,
dated June 8, 1995, between the Borrower and RPF, aggregating,
on a cumulative basis, not more than
$2,500,000. At the option of the Borrower and RPF, all
<PAGE>
or any portion of such advances, once made to RPF, may be
converted into equity interests in RPF at any time thereafter,
but such conversions, if any, shall not have the effect of
increasing the cumulative amount of advances permitted under
this Section 5.02(g)(7) above $2,500,000 in the aggregate. If
requested by the Agent or the Banks, the Borrower will cause
RPF's repayment obligation to be evidenced by a promissory note;
and"
Section 3. Amendment to Section 5.02(g) of the Restated
Agreement. Section 5.02(g) of the Restated Agreement is hereby
amended by adding a new subsection (8) thereto, to read as
follows:
" (8) loans to officers of the Borrower and its Subsidiaries for
the sole purpose of purchasing common stock of the Borrower,
such loans (i) not to exceed $1,200,000 in the aggregate and
$60,000 per officer, (ii) to be made pursuant to a plan approved
by the board of directors of the Borrower and (iii) to be
secured by the common stock purchased with the proceeds thereof."
Section 4. Amendment to 5.02(i) of the Restated Agreement.
Section 5.02(i) of the Restated Agreement is hereby amended by
adding the following clause at the end thereof:
"and Borrower may make loans to officers of the Borrower and its
Subsidiaries for the sole purpose of purchasing common stock of
the Borrower, such loans (i) not to exceed $1,200,000 in the
aggregate and $60,000 per officer, (ii) to be made pursuant to a
plan approved by the board of directors of the Borrower and
(iii) to be secured by the common stock purchased with the
proceeds thereof."
Section 5. Representations and Warranties of Borrower. The
Borrower hereby represents and warrants to each Bank and the
Agent that this Amendment has been duly and validly executed and
delivered by the Borrower and constitutes the legal, valid and
binding obligation of the Borrower enforceable in accordance
with the terms hereof, except as enforceability may be limited
by bankruptcy, insolvency or other similar laws of general
application affecting the enforcement of creditors' rights or by
general principles of equity limiting the availability of
equitable remedies.
Section 6. Miscellaneous.
(a) This Amendment shall become effective as of the date hereof,
upon execution and delivery hereof by the Banks, the Borrower
and the Agent. The execution below by the Banks shall constitute
a direction to the Agent to execute this Amendment.
<PAGE>
(b) The Restated Agreement, as amended by this Amendment, is in
all respects ratified, approved and confirmed and shall, as so
amended, remain in full force and effect. From and after the
date hereof, all references to the "Agreement" in the Restated
Agreement and in the other Loan Documents shall be deemed to be
references to the Restated Agreement as amended by this
Amendment.
(c) This Amendment, and the rights and obligations of the
parties hereto, shall be governed by and construed and enforced
in accordance with the laws of the Commonwealth of Pennsylvania,
excluding its rules relating to the conflict of laws.
(d) This Amendment may be executed in any number of counterparts
and by the different parties hereto on separate counterparts,
each of which, when so executed, shall be deemed an original,
but all such counterparts shall constitute but one and the same
instrument.
IN WITNESS WHEREOF, the parties hereto, by their officers
thereunto duly authorized, have executed and delivered this
Amendment as of the date first above written.
L.B. FOSTER COMPANY
By: /s/D. Minor
Title: Treasurer
MELLON BANK, N.A., individually and as Agent
Title:
PNC BANK, NATIONAL ASSOCIATION
By:
Title:
THIRD AMENDMENT TO AMENDED AND RESTATED LOAN AGREEMENT
THIS THIRD AMENDMENT TO AMENDED AND RESTATED LOAN AGREEMENT
(this "Amendment"), dated as of April 9, 1997, by and among L.B.
FOSTER COMPANY, a Delaware corporation (the "Borrower), and
MELLON BANK, N.A., PNC BANK, NATIONAL ASSOCIATION and CORESTATES
BANK, N.A. (separately called a "Bank" and collectively the
"Banks;,") and MELLON BANK, N.A., as agent for the Banks (in
such capacity, the "Agent").
RECITALS:
WHEREAS the Borrower, the Banks and the Agent entered into an
Amended and Restated Loan Agreement, dated as of November 1,
1995, which has been amended by a First Amendment to Amended and
Restated Loan Agreement, dated as of January 1, 1996 and by a
Second Amendment to Amended and Restated Loan Agreement, dated
as of December 31, 1996 (as so amended, the "Restated
Agreement"), pursuant to which the Banks have extended credit to
the Borrower;
WHEREAS, the Borrower and the Banks desire to amend the Restated
Agreement; and
WHEREAS, capitalized terms not otherwise defined herein shall
have the meanings assigned thereto in the Restated Agreement.
NOW, THEREFORE, the parties hereto, in consideration of their
mutual covenants and agreements hereinafter set forth and
intending to be legally bound hereby agree as follows:
Section 1. Amendment to Section 5.02(g) of the Restated
Agreement. Section 5.02(g) of the Restated Agreement is hereby
amended by adding new subsections (9) and (10) thereto, to read
as follows:
"(9) an Investment, the amount of which shall not exceed
$2,500,000, consisting of all of the assets of The Monitor
Group, purchased from Industrial Scientific Corporation an or
before December 31, 1997, and any contribution of some or all of
such assets to a Subsidiary; and
<PAGE>
(10) an additional equity Investment, the amount of which shall
not exceed $2,500,000, made on or before December 31, 1997 in
The Dakota, Minnesota & Eastern Railroad Corporation.
Section 2. Representations and Warranties of Borrower. The
Borrower hereby represents and warrants to each Bank and the
Agent that this Amendment has been duly and validly executed and
delivered by the Borrower and constitutes the legal, valid and
binding obligation of the Borrower enforceable in accordance
with the terms hereof, except as enforceability may be limited
by bankruptcy, insolvency or other similar laws of general
application affecting the enforcement of creditors' rights or by
general principles of equity limiting the availability of equitable remedies.
Section 3. Miscellaneous
(a) This Amendment shall become effective as of the date hereof,
upon execution and delivery hereof by the Banks, the Borrower
and the Agent. The execution below by the Banks shall constitute
a direction to the Agent to execute this Amendment.
(b) The Restated Agreement, as amended by this Amendment, is in
all respects ratified, approved and confirmed and shall, as so
amended, remain in full force and effect. From and after the
date hereof, all references to the "Agreement" in the Restated
Agreement and in the other Loan Documents shall be deemed to be
references to the Restated Agreement as amended by this Amendment.
(c) This Amendment, and the rights and obligations of the
parties hereto, shall be governed by and construed and enforced
in accordance with the laws of the Commonwealth of Pennsylvania,
excluding its rules relating to the conflict of laws.
(d) This Amendment may be executed in any number of counterparts
and by the different parties hereto on separate counterparts,
each of which, when so executed, shall be deemed an original,
but all such counterparts shall constitute but one and the same instrument.
FOURTH AMENDMENT TO AMENDED AND RESTATED LOAN AGREEMENT
THIS FOURTH AMENDMENT TO AMENDED AND RESTATED LOAN AGREEMENT
(this "Amendment"), dated as of November 12, 1997, by and among
L.B. FOSTER COMPANY, a Delaware corporation ("Foster" or the
"Borrower"), and Mellon Bank, N.A., PNC BANK, NATIONAL
ASSOCIATION and CORESTATES BANK, N.A. (separately, a "Bank", and
collectively, the "Banks") and MELLON BANK, N.A., as agent for
the Banks (in such capacity, the "Agent").
RECITALS:
WHEREAS, the Borrower, the Banks and the Agent entered into that
certain Amended and Restated Loan Agreement, dated as of
November 1, 1995 (as amended by that certain First Amendment to
Amended and Restated Loan Agreement, dated as of January 1,
1996, that certain Second Amendment to Amended and Restated Loan
Agreement, dated as of December 31, 1996, and that certain Third
Amendment to Amended and Restated Loan Agreement, dated as of
April 9, 1997, the "Restated Agreement");
WHEREAS, the Borrower and the Banks desire to further amend the
Restated Agreement; and
WHEREAS, capitalized terms not otherwise defined herein shall
have the meanings assigned thereto in the Restated Agreement.
NOW, THEREFORE, the parties hereto, in consideration of their
mutual covenants and agreements hereinafter set forth and
intending to be legally bound, hereby agree as follows:
Section 1. Amendment to Section 1.01 of Restated Agreement.
Section 1.01 of the Restated Agreement is hereby amended by
adding after the definition of "CD Rate Portion" a definition of
"Change of Control", such definition to read in its entirety as
follows:
"'Change of Control' shall mean any person or group of persons
(as used in Sections 13 and 14 of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and the rules and
regulations thereunder) shall have become the beneficial owner
(as defined in Rules 13d-3 and 13d-5 promulgated by the
Securities and Exchange Commission (the "SEC") under the
Exchange Act) of 20% or more of the combined voting power of all
the outstanding voting securities of the Borrower and, at any
time following any merger, consolidation, acquisition, sale of
assets or other corporate restructuring of Borrower, during any
period of six consecutive calendar months, individualsWho were
directors of the Borrower on the first day of such
<PAGE>
period, together with individuals elected as directors by not
less than two-thirds of the individuals who were directors of
the Borrower on the first day of such period, shall cease to
constitute a majority of the members of the board of directors
of the Borrower."
Section 2. Amendment to Section 3.05 of Restated Agreement.
Section 3.05 of the Restated Agreement is hereby amended to read
in its entirety as follows:
"Section 3.05. Material Adverse Change. Since December 31, 1994,
there has been no material adverse change in the business,
assets or financial condition of the total enterprise
represented by Foster and its Subsidiaries on a consolidated
basis."
Section 3. Amendment to Section 5.02(b) of the Restated
Agreement. Section 5.02(b) of the Restated Agreement is hereby
amended by adding thereto a new subsection (8) to read as
follows:
" (8) Indebtedness assumed by Foster not exceeding $2,000,000
principal amount evidenced by, or in connection with, industrial
development revenue bonds relatIng to facilities of Precise
Fabricating Corporation acquired by Foster."
Section 4. Amendment to Section 5.02(g) of the Restated
Agreement. Section 5.02(g) of the Restated Agreement is hereby
amended by adding thereto a new subsection (11) to read as
follows:
" (11) an Investment not exceeding $6,000,000 (minus the
principal amount of any Indebtedness assumed) in certain assets
acquired from Precise Fabricating Corporation and an Investment
not exceeding $1,000,000 in certain assets acquired from
Watson-Haas Lumber Company."
Section 5. Amendment to Section 5.02(h) of the Restated
Agreement. Section 5.02(h) of the Restated Agreement is hereby
amended to read in its entirety as follows:
"(h) Restrictions on Distributions and Retirements, Purchases
and Redemptions. Directly or indirectly, or through any of its
Subsidiaries, declare, pay, make or incur any liability to make
any Distribution, except for (i) Distributions made by any
Subsidiary to Borrower, and (ii) (A) Distributions made in the
form of Dividends in respect of common stock of Foster at any
time on or after January 1, 1997, and (B) purchases,
redemptions, acquisitions or other retirements, directly or
indirectly, of any sha2~es of any class of capital stock of
Foster at any time on or
<PAGE>
after January 1, 1997; provided, that the aggregate cumulative
amount of all such transactions permitted under clause (A) and
(B) above and of payments and redemptions contemplated by
Section 5.02(j) hereof, other than payments or redemptions of
Indebtedness at stated redemption dates or stated maturity
dates, shall not exceed the sum of $3,410,000 plus 25% of any
Consolidated Net Income for the period from January 1, 1997, to
and including the end of the fiscal quarter most recently ended
at the time in question."
Section 6. Amendment to Section 5.02 of Restated Agreement.
Section 5.U2(j) of the Restated Agreement is hereby amended to
read in its entirety as follows:
"(j) Debt Retirement, Purchases and Redemptions. (i)
Voluntarily purchase, prepay, redeem or otherwise
retire any preferred or preference stock, subordinated
debentures, sinking fund debentures, promissory notes
or other securities issued by Borrower or any
subsidiary, or agree to the rescheduling to shorten
scheduled maturities or principal payments of or to
increase the rate of interest payable on outstanding
indebtedness under any agreement or instrument
evidencing an obligation for borrowed money of Borrower
or any Subsidiary, or permit any of its subsidiaries to
do so, other than the Indebtedness referred to in
paragraph (8) of Section 5.02(b) hereof or (ii)
purchase, redeem, acquire or otherwise retire, directly
or indirectly, any shares of common stock of Foster, or
permit any of its Subsidiaries to do so.
Notwithstanding clauses (i) and (ii) above, Foster may
purchase, redeem, acquire or otherwise retire shares of
common stock of Foster, preferred or preference stock
of Foster, subordinated indentures of Foster, sinking
fund debentures of Foster, promissory notes of Foster
or other securities of Foster or stock purchase rights
of Foster if, and only if, the aggregate amount of all
such payments or redemptions, other than payments or
redemptions at stated redemption dates or stated
maturity dates, does not exceed the limits set forth in
Section 5.02(h).
Section 7. Amendment to Section 5.02 of Restated Agreement.
Section 5.02 of the Restated Agreement is hereby amended by
adding a new subsection (m) thereto, such new subsection (m) to
read in its entirety as follows:
"(m) Change of Control. Enter into any merger, consolidation,
reorganization, corporation restructuring or other transaction,
or take any other action, that shall cause or result in, or for
any reason suffer, a Change of Control."
<PAGE>
Section 8. Amendment to Section 6.01(d) of the Restated
Agreement. Section 6.01(d) of the Restated Agreement is hereby
amended to read in its entirety as follows:
11(d) A Default shall occur under Section 5.01(h),
5.01(i), 5.01(i), 5.02(a), 5.02(e), 5.02(h), 5.02(i),
5.02(j), 5.02(k) or 5.02(m) hereof or an Event of
Default shall occur under the Security Agreement, the
Pledge Agreement, or the Guaranty and Suretyship
Agreements; or"
Section 9. Representations and Warranties of Borrower. The
Borrower hereby represents and warrants to each Bank and the
Agent that this Amendment has been duly and validly executed and
delivered by Borrower and constitutes the legal, valid and
binding obligation of the Borrower enforceable in accordance
with the terms hereof, except as the enforceability may be
limited by bankruptcy, insolvency or other similar laws of
general application affecting the enforcement of creditors'
rights or by genera'l principles of equity limiting the
availability of equitable remedies.
Section 10. Miscellaneous.
(a) This Amendment shall become effective as of the date hereof,
upon execution and delivery hereof by the Banks or the Required
Banks as permitted or required by Section 8.01 of the Restated
Agreement, the Borrower and the Agent. The execution below by
the Banks or Required Banks (as the case may be) shall
constitute a direction to the Agent to execute this Amendment.
(b) The Restated Agreement, as amended by this Amendment, is in
all respects ratified, approved and confirmed and shall, as so
amended, remain in full force and effect. From and after the
date hereof, all references to the "Agreement" in the Restated
Agreement and in the other Loan Documents shall be deemed to be
references to the Restated Agreement as amended by this
Amendment.
(c) This Amendment, and the rights and obligations of the
parties hereto, shall be governed by and construed and enforced
in accordance with the laws of the Commonwealth of Pennsylvania,
exclusive of choice and conflict of law principles.
(d) This Amendment may be executed in any number of counterparts
and by the different parties hereto on separate counterparts,
each of which, when so executed, shall be deemed an original,
but all such counterparts shall constitute but one and the same
instrument.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Restated Financial Data Schedules to reflect the adoption of FAS 128, "Earnings
Per Share" for affected periods.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> 6-MOS YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996 DEC-31-1995
<PERIOD-END> JUN-30-1996 DEC-31-1996 DEC-31-1995
<CASH> 1537 1201 1325
<SECURITIES> 0 0 0
<RECEIVABLES> 49891 49918 48277
<ALLOWANCES> 1770 1803 1800
<INVENTORY> 46577 42925 40304
<CURRENT-ASSETS> 99569 95656 92727
<PP&E> 61597 52717 61465
<DEPRECIATION> 33270 28228 33330
<TOTAL-ASSETS> 125950 123398 124423
<CURRENT-LIABILITIES> 35284 32129 34868
<BONDS> 24505 21816 25034
0 0 0
0 0 0
<COMMON> 102 102 102
<OTHER-SE> 64606 67079 63071
<TOTAL-LIABILITY-AND-EQUITY> 125950 123398 124423
<SALES> 113061 243071 264985
<TOTAL-REVENUES> 113061 243071 264985
<CGS> 98668 212111 235770
<TOTAL-COSTS> 98668 212111 235770
<OTHER-EXPENSES> 0 0 0
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 1175 2365 2840
<INCOME-PRETAX> 2541 6430 4706
<INCOME-TAX> 1066 2572 (337)
<INCOME-CONTINUING> 1475 3858 5043
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 (219)
<NET-INCOME> 1475 3858 4824
<EPS-PRIMARY> 0.15 0.39 0.49
<EPS-DILUTED> 0.14 0.38 0.48
</TABLE>
