UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended March 31, 2000
--------------
Commission File Number 0-10436
-------
L. B. Foster Company
(Exact name of Registrant as specified in its charter)
Pennsylvania 25-13247733
(State of Incorporation) (I.R.S. Employer Identification No.)
415 Holiday Drive, Pittsburgh, Pennsylvania 15220
(Address of principal executive offices) (Zip Code)
(412) 928-3417
(Registrant's telephone number, including area code)
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 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
Indicate the number of shares of each of the registrant's classes of common
stock as of the latest practicable date.
Class Outstanding at May 5, 2000
Common Stock, Par Value $.01 9,558,734 Shares
<PAGE>
L.B. FOSTER COMPANY AND SUBSIDIARIES
INDEX
PART I. Financial Information Page
- ------------------------------
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets 2
Condensed Consolidated Statements of Income 3
Condensed Consolidated Statements of Cash Flows 4
Notes to Condensed Consolidated
Financial Statements 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 12
PART II. Other Information
- ---------------------------
Item 1. Legal Proceedings 18
Item 6. Exhibits and Reports on Form 8-K 18
Signature 21
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
L.B. FOSTER COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
March 31, December 31,
2000 1999
ASSETS (unaudited)
- --------------------------------------------------------------------------------
Current Assets:
Cash and cash equivalents $ 2,919 $ 1,558
Accounts and notes receivable:
Trade 52,370 52,110
Other 1,105 1,002
- --------------------------------------------------------------------------------
53,475 53,112
Inventories 51,548 45,601
Current deferred tax assets 1,925 1,925
Other current assets 1,123 981
Property held for resale 1,345 2,856
- --------------------------------------------------------------------------------
Total Current Assets 112,335 106,033
- --------------------------------------------------------------------------------
Property, Plant & Equipment - At Cost 52,947 51,747
Less Accumulated Depreciation (22,570) (21,621)
- --------------------------------------------------------------------------------
30,377 30,126
- --------------------------------------------------------------------------------
Property Held for Resale 4,171 4,203
- --------------------------------------------------------------------------------
Other Assets:
Goodwill and intangibles - net 7,326 7,474
Investments 8,813 8,610
Deferred tax assets 1,720 1,720
Other assets 6,121 6,565
- --------------------------------------------------------------------------------
Total Other Assets 23,980 24,369
- --------------------------------------------------------------------------------
TOTAL ASSETS $ 170,863 $ 164,731
================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term debt $ 1,098 $ 1,141
Short-term borrowings 5,000 5,000
Accounts payable - trade 31,509 24,446
Accrued payroll and employee benefits 3,446 3,619
Current deferred tax liabilities 1,857 1,857
Other accrued liabilities 1,966 2,233
- --------------------------------------------------------------------------------
Total Current Liabilities 44,876 38,296
- --------------------------------------------------------------------------------
Long-Term Borrowings 40,000 40,000
- --------------------------------------------------------------------------------
Other Long-Term Debt 4,031 4,136
- --------------------------------------------------------------------------------
Deferred Tax Liabilities 6,293 6,293
- --------------------------------------------------------------------------------
Other Long-Term Liabilities 1,389 1,356
- --------------------------------------------------------------------------------
Stockholders' Equity:
Common stock 102 102
Paid-in capital 35,375 35,377
Retained earnings 42,657 42,505
Treasury stock (3,890) (3,364)
Accumulated other comprehensive income 30 30
- --------------------------------------------------------------------------------
Total Stockholders' Equity 74,274 74,650
- --------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 170,863 $ 164,731
================================================================================
See Notes to Condensed Consolidated Financial Statements.
<PAGE>
L. B. FOSTER COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Per Share Amounts)
Three Months
Ended
March 31,
- --------------------------------------------------------------------------------
2000 1999
- --------------------------------------------------------------------------------
(unaudited)
Net Sales $ 59,489 $ 53,783
Cost of Goods Sold 51,178 46,624
- --------------------------------------------------------------------------------
Gross Profit 8,311 7,159
Selling and Administrative
Expenses 7,408 5,987
Interest Expense 938 398
Other Income (581) (360)
- --------------------------------------------------------------------------------
7,765 6,025
- --------------------------------------------------------------------------------
Income from Continuing Operations,
Before Income Taxes 546 1,134
Income Tax Expense 218 440
- --------------------------------------------------------------------------------
Income from Continuing Operations 328 694
Loss from Discontinued Operations,
Net of Taxes (176) (234)
- --------------------------------------------------------------------------------
Net Income $ 152 $ 460
================================================================================
Basic Earnings Per Common Share From:
Continuing Operations $ 0.04 $ 0.07
Discontinued Operations (0.02) (0.02)
- --------------------------------------------------------------------------------
Basic Earnings Per Common Share $ 0.02 $ 0.05
================================================================================
Diluted Earnings Per Common Share From:
Continuing Operations $ 0.04 $ 0.07
Discontinued Operations (0.02) (0.02)
- --------------------------------------------------------------------------------
Diluted Earnings Per Common Share $ 0.02 $ 0.05
================================================================================
See Notes to Condensed Consolidated Financial Statements.
<PAGE>
L.B. Foster Company and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(In Thousands)
Three Months
Ended March 31,
2000 1999
- --------------------------------------------------------------------------------
(unaudited)
Cash Flows from Operating Activities:
Income from continuing operations $ 328 $ 694
Adjustments to reconcile net income to net cash
provided (used) by continuing operatings:
Depreciation and amortization 1,214 782
Loss on sale of property, plant
and equipment 1 19
Change in operating assets and liabilities:
Accounts receivable (363) 510
Inventories (5,947) (2,567)
Property held for resale 1,649
Other current assets (142) (174)
Other non-current assets 234 164
Accounts payable - trade 7,063 (722)
Accrued payroll and employee benefits (173) (1,962)
Other current liabilities (91) (811)
Other liabilities 33 129
- --------------------------------------------------------------------------------
Net Cash Provided (Used) by Continuing Operations 3,806 (3,938)
Net Cash Used by Discontinued Operations (352) (303)
- --------------------------------------------------------------------------------
Net Cash Provided (Used) by Operating Activities 3,454 (4,241)
- --------------------------------------------------------------------------------
Cash Flows from Investing Activities:
Proceeds from sale of property, plant and equipment 4
Capital expenditures on property, plant and equipment (1,298) (544)
Purchase of DM&E stock (6,000)
- --------------------------------------------------------------------------------
Net Cash Used by Investing Activities (1,298) (6,540)
- --------------------------------------------------------------------------------
Cash Flows from Financing Activities:
Proceeds from issuance of revolving
credit agreement borrowings 11,575
Exercise of stock options and stock awards 113 274
Treasury share acquisitions (641) (421)
Repayments of long-term debt (267) (334)
- --------------------------------------------------------------------------------
Net Cash (Used) Provided by Financing Activities (795) 11,094
- --------------------------------------------------------------------------------
Effect of exchange rate on cash 3
- --------------------------------------------------------------------------------
Net Increase in Cash and Cash Equivalents 1,361 316
Cash and Cash Equivalents at Beginning of Period 1,558 874
- --------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Period $ 2,919 $ 1,190
================================================================================
Supplemental Disclosures of Cash Flow Information:
Interest Paid $ 1,056 $ 261
================================================================================
Income Taxes Paid $ 380 $ 544
================================================================================
During 2000 and 1999, the Company financed certain capital
expenditures totaling $119,000 and $246,000, respectively, through the issuance
of capital leases.
See Notes to Condensed Consolidated Financial Statements.
<PAGE>
L. B. FOSTER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. FINANCIAL STATEMENTS
--------------------
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all estimates and
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included, however, actual results could differ from
those estimates. The results of operations for these interim periods are not
necessarily indicative of the results that may be expected for the year ended
December 31, 2000. For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's annual report on Form
10-K for the year ended December 31, 1999.
2. ACCOUNTING PRINCIPLES
---------------------
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes accounting and
reporting standards for derivative financial instruments and hedging activities.
In June 1999, FASB Statement No. 137, "Accounting for Derivative Instruments and
Hedging Activities: Deferral of Effective Date of the FASB Statement No. 133,"
was issued. This statement delays the effective date to all fiscal quarters of
all fiscal years beginning after June 15, 2000. This statement will be adopted
by the Company in 2001 and is not expected to have a material effect on the
consolidated financial statements.
3. ACCOUNTS RECEIVABLE
-------------------
Credit is extended on an evaluation of the customer's financial condition and,
generally, collateral is not required. Credit terms are consistent with industry
standards and practices. Trade accounts receivable at March 31, 2000 and
December 31, 1999 have been reduced by an allowance for doubtful accounts of
$(1,438,000) and $(1,555,000), respectively. Bad debt expense was $(113,000) and
$(14,000) for the three month periods ended March 31, 2000 and 1999,
respectively.
<PAGE>
4. INVENTORIES
- --------------
Inventories of the Company at March 31, 2000 and December 31, 1999 are
summarized as follows in thousands:
March 31, December 31,
2000 1999
- ------------------------------------------------------------------------
Finished goods $ 31,788 $ 28,755
Work-in-process 15,167 13,000
Raw materials 7,045 6,298
- ------------------------------------------------------------------------
Total inventories at current costs: 54,000 48,053
(Less):
Current costs over LIFO
stated values (1,852) (1,852)
Reserve for decline in market value
of inventories (600) (600)
- ------------------------------------------------------------------------
$ 51,548 $ 45,601
========================================================================
Inventories of the Company are generally valued at the lower of last-in,
first-out (LIFO) cost or market. Other inventories of the Company are valued at
average cost or market, whichever is lower. An actual valuation of inventory
under the LIFO method can be made only at the end of each year based on the
inventory levels and costs at that time. Accordingly, interim LIFO calculations
must necessarily be based on management's estimates of expected year-end levels
and costs.
5. PROPERTY HELD FOR RESALE
------------------------
March 31, December 31,
(in thousands) 2000 1999
- --------------------------------------------------------------------
Location:
- --------------------------------------------------------------------
Norcross, GA $3,055 $3,055
Newport, KY 1,345 1,345
Pomeroy, OH 649 665
St. Marys, WV 467 483
Houston, TX 1,511
- --------------------------------------------------------------------
Property held for resale $5,516 $7,059
- --------------------------------------------------------------------
Less current portion 1,345 2,856
- --------------------------------------------------------------------
$4,171 $4,203
====================================================================
<PAGE>
The Norcross, GA location consists of buildings and approximately 28 acres of
land, which are being underutilized by the Company's business.
The Newport, KY location consisting of machinery and equipment was included in
the Company's coated pipe division of the tubular products segment. Due to
unfavorable market conditions, management suspended operations in September 1998
and intends to dispose of the assets. An impairment loss of $183,000 was
recorded in 1999 in anticipation of the disposal cost.
The Pomeroy, OH and St. Marys, WV locations , consisting of machinery and
equipment, buildings, land and land improvements which comprise the Company's
Mining division of the rail products segment, were determined not to meet the
Company's long-range strategic goals. The Company continues to explore the
divestiture of these assets.
In March 2000, the Company sold an undeveloped 62-acre portion of a 127-acre
Houston, TX property for approximately $2,000,000. The pretax gain, after
estimated disposal costs was approximately $100,000.
6. DISCONTINUED OPERATIONS
-----------------------
In the fourth quarter of 1999, the Company made the decision to classify the
operations of the Monitor Group, a developer of portable mass spectrometers, as
a discontinued operation, pending its sale. Accordingly, the operating results
of the Monitor Group have been segregated from continuing operations and
reported as a separate line item on the financial statements.
The Company has restated its financial statements to reflect the operating
results of the Monitor Group as a discontinued operation, for the prior periods
presented.
The three months ended March 31, 2000 includes a net loss from discontinued
operations of approximately $176,000. The Company continues ongoing discussions
with prospective buyers, with an estimated disposal date to occur in 2000.
6. BORROWINGS
In March of 2000, the Company reduced the revolving agreement to $64.9 million.
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 (LIBOR).
The interest rates are established quarterly based upon cash flow and the level
of outstanding borrowings to debt as defined in the agreement. Interest rates
range from prime to prime plus 0.25%, the CD rate plus 0.575% to 1.8%, the LIBOR
rate plus .575% to 1.8%. Borrowings under the agreement, which expires July 1,
2003, are secured by eligible accounts receivable, inventory, and the pledge of
the Company-held DM&E Preferred stock.
<PAGE>
The agreement includes financial covenants requiring a minimum net worth, a
minimum level for the fixed charge coverage ratio, and a maximum level for the
consolidated total indebtedness to EBITDA ratio. The agreement also restricts
investments, indebtedness, and the sale of certain assets.
7. EARNINGS PER COMMON SHARE
-------------------------
The following table sets forth the computation of basic and diluted earnings per
common share:
Three Months Ended
March 31,
(in thousands, except earnings per share) 2000 1999
- ---------------------------------------------------------------------------
Numerator:
Numerator for basic and diluted
earnings per common share -
net income available to common
stockholders:
Income from continuing operations $328 $694
Loss from discontinued operations (176) (234)
------------ -----------
Net Income $152 $460
============ ===========
Denominator:
Weighted average shares 9,561 9,787
------------ -----------
Denominator for basic earnings
per common share 9,561 9,787
Effect of dilutive securities:
Contingent issuable shares pursuant to
the Company's Incentive
Compensation Plans 52 29
Employee stock options 70 235
------------ -----------
Dilutive potential common shares 122 264
Denominator for diluted earnings
per common share - adjusted weighted
average shares and assumed conversions 9,683 10,051
============ ===========
Basic earnings per common share:
Continuing operations $0.04 $0.07
Discontinued operations ($0.02) ($0.02)
------------ -----------
Basic earnings per common share $0.02 $0.05
============ ===========
Diluted earnings per common share:
Continuing operations $0.04 $0.07
Discontinued operations ($0.02) ($0.02)
------------ -----------
Diluted earnings per common share $0.02 $0.05
============ ===========
<PAGE>
8. 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 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 amounts of
ultimate liability with respect to these actions will not materially effect the
financial position of the Company.
At March 31, 2000, the Company had outstanding letters of credit of
approximately $4,362,000.
9. BUSINESS SEGMENTS
-----------------
The Company is organized and evaluated by product group, which is the basis for
identifying reportable segments. The Company is engaged in the manufacture,
fabrication and distribution of rail, construction and tubular products and was
previously engaged in the manufacture and distribution of portable mass
spectrometers. The Company's portable mass spectrometer segment, the Monitor
Group, was classified as a discontinued operation on December 31, 1999. Prior
period results have been adjusted to reflect this classification. The following
tables illustrate revenues and profits/(losses) of the Company by segment:
Three Months Ended
March 31, 2000
Net Segment
(in thousands) Sales Profit/(Loss)
- ---------------------------------------------------------------------
Rail products $32,657 ($517)
Construction products 21,727 352
Tubular products 4,990 406
- ---------------------------------------------------------------------
Total $59,374 $241
=====================================================================
Three Months Ended
March 31, 1999
Net Segment
(in thousands) Sales Profit/(Loss)
- ---------------------------------------------------------------------
Rail products $31,417 $211
Construction products 15,296 78
Tubular products 6,864 434
- ---------------------------------------------------------------------
Total $53,577 $723
=====================================================================
<PAGE>
Segment profits, as shown above, include internal cost of capital charges for
assets used in the segment at a rate of, generally, 1% per month. The following
table provides a reconciliation of reportable net profit/(loss) to the Company's
consolidated total:
Three Months Ended
March 31,
(in thousands) 2000 1999
- -------------------------------------------------------------------------------
Net Profit/(Loss)
- -------------------------------------------------------------------------------
Total for reportable segments $241 $723
Cost of capital for reportable segments 2,950 2,431
Interest expense (938) (399)
Other income 581 360
Corporate expense and other unallocated charges (2,288) (1,981)
- -------------------------------------------------------------------------------
Income from continuing operations,
before income taxes $546 $1,134
===============================================================================
There has been no change in the measurement of segment profit/(loss) from
December 31, 1999. There has been no significant change in segment assets from
December 31, 1999.
10. ACQUISITIONS
On June 30 1999, the Company acquired all of the outstanding stock of CXT
Incorporated (CXT), a Spokane, WA based manufacturer of engineered prestressed
and precast concrete products primarily used in the railroad and transit
industries. The purchase price of $17,514,000 has been preliminarily allocated
based on estimated fair values of the assets acquired and liabilities assumed.
This allocation has resulted in acquired goodwill of approximately $4,221,000,
which is being amortized on a straight-line basis over twenty years. The Company
expects to finalize all purchase accounting adjustments within one year of the
acquisition.
The acquisition was reported using the purchase method of accounting and has
been included in operations since the date of acquisition. The purchase price
was allocated to the assets and liabilities based on estimated fair values as of
the acquisition date.
Had the acquisition been made at the beginning of 1999, the Company's pro forma
unaudited results would have been:
Three Months Ended
March 31, 1999
(In thousands except per share
amounts)
- --------------------------------------------------------------------
Net sales $ 64,499
Income from continuing operations 574
Basic earnings per common share from
continuing operations $ 0.06
- --------------------------------------------------------------------
- --------------------------------------------------------------------
<PAGE>
The unaudited pro forma results have been prepared for comparative purposes only
and do not purport to be indicative of the results of operations which would
have actually resulted had the acquisition been in effect on January 1, 1999, or
of future results of operations.
11. SPECIAL CHARGES
---------------
The Company has formulated plans to consolidate or downsize sales and
administrative functions and several plant operations as part of its overall
plan to increase asset utilization and streamline administrative functions.
Special charges of $503,000 pretax or $0.03 per share after tax were included in
the quarter's results. The Company expects to record additional nonrecurring
pretax charges of approximately $1,100,000 related to these programs by its
fiscal 2001 year-end. Management implemented the initial phase of several of
these programs in the first quarter. The costs accrued for the implemented
programs were based upon management estimates using the latest information
available at the time the accrual was established.
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Three Months Ended
March 31,
- --------------------------------------------------------------------------------
2000 1999
- --------------------------------------------------------------------------------
(Dollars in thousands)
Net Sales:
Rail Products $ 32,657 $ 31,417
Construction Products 21,727 15,296
Tubular Products 4,990 6,864
Other 115 206
- --------------------------------------------------------------------------------
Total Net Sales $ 59,489 $ 53,783
================================================================================
Gross Profit:
Rail Products $ 4,186 $ 3,639
Construction Products 3,535 2,593
Tubular Products 870 1,024
Other (280) (97)
- --------------------------------------------------------------------------------
Total Gross Profit 8,311 7,159
- --------------------------------------------------------------------------------
Expenses:
Selling and Administrative
Expenses 7,408 5,987
Interest Expense 938 398
Other (Income) Expense (581) (360)
- --------------------------------------------------------------------------------
Total Expenses 7,765 6,025
- --------------------------------------------------------------------------------
Income From Continuing Operations
Before Income Taxes 546 1,134
Income Tax Expense 218 440
- --------------------------------------------------------------------------------
Income From Continuing Operations 328 694
Loss From Discontinues Operations,
Net Of Taxes (176) (234)
- --------------------------------------------------------------------------------
Net Income $ 152 $ 460
================================================================================
Gross Profit %:
Rail Products 12.8% 11.6%
Construction Products 16.3% 17.0%
Tubular Products 17.4% 14.9%
Total Gross Profit 14.0% 13.3%
================================================================================
<PAGE>
FIRST QUARTER 2000 RESULTS OF OPERATIONS
- ----------------------------------------
Income from continuing operations for the first quarter of 2000 was $0.3 million
or $0.04 per share on net sales of $59.5 million. This compares to a 1999 first
quarter income from continuing operations of $0.7 million or $0.07 per share on
net sales of $53.8 million.
Net losses from the Monitor Group, classified as a discontinued operation on
December 31, 1999, were $0.2 million in the first quarters of 2000 and 1999.
Rail products' 2000 first quarter net sales were $32.7 million or an increase of
4% over the same period last year. This increase was due to the addition of CXT
Incorporated, which more than offset the decline in rail and transit project
shipments due to increased industry competition resulting from spending cutbacks
by the major railroads. Construction products' net sales increased 42% from the
year earlier quarter as shipments of "H" bearing pile and flat web sheet piling
increased. Tubular products' sales decreased 27% from the same quarter of 1999
due to weakness in the pipe coating market. Changes in net sales are primarily
the result of changes in volume rather than changes in prices.
The gross margin percentage for the total Company was 14% in the first quarter
of 2000 and 13% in the 1999 first quarter. Rail products' gross margin
percentage increased in the first quarter of 2000 to 13% from 12% in the year
earlier quarter. This was primarily the result of increased margins in rail
distribution products which offset losses incurred by CXT. CXT losses were the
result of lower demand from a key major Class I railroad, and anticipated
seasonal weakness. The gross margin percentage for construction products
declined 1% from the year earlier quarter primarily due to the mix of products
sold. Tubular products' gross margin percentage in the first quarter of 2000
increased 2.5% from the same period last year, primarily due to more efficient
operations at the Langfield, TX threading facility.
Selling and administrative expenses increased 24% over the prior year period due
to the inclusion of expenses associated with CXT operations and a majority of
the special charges discussed below. Interest expense increased over the year
earlier quarter due to an increase in outstanding borrowings associated with the
acquisition of CXT. The provision for income taxes was recorded at 40% in the
first quarters of 2000 and 1999.
SPECIAL CHARGES
- ---------------
The Company has formulated plans to consolidate or downsize sales and
administrative functions and several plant operations as part of its overall
plan to increase asset utilization and streamline administrative functions.
Special charges of approximately $0.5 million pretax or $0.03 per share after
tax were included in the quarter's results. The Company expects to record
additional nonrecurring pretax charges of approximately $1.1 million related to
these programs by its fiscal 2001 year-end. Management implemented the initial
phase of several of these programs in the first quarter. The costs accrued for
the implemented programs were based upon management estimates using the latest
information available at the time the accrual was established.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Company generates internal cash flow from the sale of inventory and the
collection of accounts receivable. During the first three months of 2000, the
average turnover rate for accounts receivable was higher than during the same
period last year in all of the Company's segments. The average inventory
<PAGE>
turnover rate for the first quarters of 2000 and 1999 remained the same. Working
capital at March 31, 2000 was $67.5 million compared to $67.7 million at
December 31, 1999.
During the first quarter of 1999, the Company announced a program to purchase up
to 1,000,000 shares of its common stock. As of March 31, 2000, 365,298 shares
had been purchased under this program at a cost of $1.9 million.
The Company had capital expenditures, including capital leases, of approximately
$0.5 million in the first quarter of 2000. Capital expenditures in 2000,
excluding acquisitions, are expected to be approximately $5.0 million and are
anticipated to be funded by cash flow from operations.
Total revolving credit agreement borrowings at March 31, 2000 and December 31,
1999 were $45.0 million. At March 31, 2000 the Company had $15.5 million in
unused borrowing commitment. Outstanding letters of credit at March 31, 2000
were $4.4 million. Management believes its internal and external sources of
funds are adequate to meet anticipated needs.
In March of 2000, the Company reduced the revolving agreement to $64.9 million.
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 (LIBOR).
The interest rates are established quarterly based upon cash flow and the level
of outstanding borrowings to debt as defined in the agreement. Interest rates
range from prime to prime plus 0.25%, the CD rate plus 0.575% to 1.8%, the LIBOR
rate plus .575% to 1.8%. Borrowings under the agreement, which expires July 1,
2003, are secured by eligible accounts receivable, inventory, and the pledge of
the Company held DM&E Preferred stock.
The agreement includes financial covenants requiring a minimum net worth, a
minimum level for the fixed charge coverage ratio, and a maximum level for the
consolidated total indebtedness to EBITDA ratio. The agreement also restricts
investments, indebtedness, and the sale of certain assets.
DAKOTA, MINNESOTA & EASTERN RAILROAD
- ------------------------------------
The Company maintains a significant investment in the Dakota, Minnesota &
Eastern Railroad Corporation (DM&E), a privately-held, regional railroad which
operates over 1,100 miles of track in five states.
At December 31, 1998, the Company's investment in the stock was recorded 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. On January 13,
1999, the Company increased its investment in the DM&E by acquiring $6.0 million
of DM&E Series C Preferred Stock and warrants. On a fully diluted basis, the
Company owns approximately 16% of the DM&E's common stock. Although the market
value of the DM&E is not readily determinable, management believes that this
investment, regardless of the DM&E's Powder River Basin project, 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.
<PAGE>
The Project is subject to approval by the Surface Transportation Board (STB). In
December 1998, the STB made a finding that the DM&E had satisfied the
transportation aspects of applicable regulations. The STB still must address the
extent and nature of the project's environmental impact and whether such impact
can be adequately mitigated. New construction on this project may not begin
until the STB reaches a final decision.
The DM&E has stated that it 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 could increase dramatically.
OTHER MATTERS
- -------------
In March 2000, the Company sold an undeveloped 62-acre portion of a 127-acre
Houston, TX property for approximately $2.0 million. The pretax gain, after
estimated disposal costs was approximately $0.1 million.
On May 2, 2000, a local union of the United Steelworkers of America declared a
strike at the Company's Pomeroy, OH facility which manufactures trackwork for
the mining industry. The Company does not believe that the dispute will have a
material impact on its financial results.
Management continues to evaluate the overall performance of certain operations.
A decision to terminate an existing operation could have a material adverse
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 become Chaparral Steel's exclusive North American distributor of
steel sheet piling and "H" bearing pile. Shipments of "H" bearing pile began
very late in the third quarter of 1999 from Chaparral's new Petersburg, VA
facility, while current mill indications are that the startup of steel sheet
piling production will not commence until sometime in the second quarter with no
appreciable production quantities expected until late in the third quarter.
The rail segment of the business depends on one source for fulfilling certain
trackwork contracts. At March 31, 2000, the Company had $11.0 million committed
to this supplier including inventory progress payments, a note receivable,
equipment, and other receivables, principally interest charges on inventory
progress payments. If, for any reason, this supplier is unable to perform, the
Company could experience a negative short-term effect on earnings.
A substantial portion of the Company's operations is heavily 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
operating results may also be affected by adverse weather conditions.
<PAGE>
Although backlog is not necessarily indicative of future operating results,
total Company backlog at March 31, 2000, was approximately $175.6 million. The
following table provides the backlog by business segment:
Backlog
March 31, December 31,
2000 1999 1999
- --------------------------------------------------------------------------------
Rail Products
Excluding CXT $ 56,413 $ 64,787 $ 41,685
CXT 61,743 69,393
Construction Products 56,127 41,386 41,842
Tubular Products 1,301 5,945 2,012
- --------------------------------------------------------------------------------
Total $175,584 $112,118 $154,932
================================================================================
MARKET RISK AND RISK MANAGEMENT POLICIES
- ----------------------------------------
The Company is not subject to significant exposure to change in foreign currency
exchange rates. The Company does hedge the cash flows of operations of its
Canadian subsidiary. The Company manages its exposures to changes in foreign
currency exchange rates on firm sales commitments by entering into foreign
currency forward contracts. The Company's risk management objective is to reduce
its exposure to the effects of changes in exchange rates on sales revenue over
the duration of the transaction.
At March 31, 2000, the Company had outstanding foreign currency forward
contracts to purchase $212,000 Canadian for approximately $146,000 US.
The Company is also exposed to changes in interest rates primarily from its
long-term debt arrangements. The Company uses interest rate derivative
instruments to manage exposure to interest rate changes.
The Company has entered into an interest rate swap agreement as the fixed rate
payor to reduce the impact of changes in interest rates on a portion of its
revolving borrowings. At March 31, 2000 the swap agreement had a notional value
of $8,000,000 consisting at 5.48% and expires in January 2001. The swap
agreement's floating rate is based on LIBOR. Any amounts paid or received under
the agreement are recognized as adjustments to interest expense. Neither the
fair market value of the agreement nor the interest expense adjustments
associated with the agreement has been material.
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 assessment 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:
<PAGE>
labor disputes, any inability to obtain necessary environmental and government
approvals for the Project in a timely fashion, the expense of environmental
mitigation measures required by the Surface Transportation Board, an inability
to obtain financing for the Project, competitor's response to the Project,
market demand for coal or electricity and changes in environmental 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. Additional delays in Chaparral's production of steel sheet piling
would, for example, have an adverse effect on the Company's performance. The
nonrecurring charges through 2001 are estimates and are subject to change as the
Company further develops its plans. 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. Sentences containing words such as
"anticipates", "expects", or "will" generally should be considered
forward-looking statements.
<PAGE>
PART II OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
See Note 7, "Commitments and Contingent Liabilities", to the Condensed
Consolidated Financial Statements.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
a) EXHIBITS
--------
Unless marked by an asterisk, all exhibits are incorporated by reference:
3.1 Restated Certificate of Incorporation as amended to date, filed as
Appendix B to the Company's April 17, 1998 Proxy Statement.
3.2 Bylaws of the Registrant, as amended to date, filed as Exhibit 3B
to Form 8-K on May 21, 1997.
4.0 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.
4.0.1 Amended Rights Agreement dated as of May 14, 1998, between L. B.
Foster Company and American Stock Transfer & Trust Company, filed
as Exhibit 4.0.1 to Form 10-Q for the quarter ended June 30, 1998.
4.1 Third Amended and Restated Loan Agreement by and among the
Registrant and Mellon Bank, N.A., PNC Bank, National Association,
and First Union National Bank dated as of June 30, 1999 and
filed as Exhibit 4.1 to Form 10-Q for the quarter ended June 30,
1999.
10.12 Lease between CXT Incorporated and Pentzer Development
Corporation, dated April 1, 1993 and filed as Exhibit 10.12 to
Form 10-K for the year ended December 31, 1999.
10.12.1 Amendment dated March 12, 1996 to lease between CXT Incorporated
And Pentzer Development Corporation, filed as Exhibit 10.12.1 to
Form 10-K for the year ended December 31, 1999.
10.13 Lease between CXT Incorporated and Crown West Realty, L.L.C. dated
December 20, 1996 and files as Exhibit 10.13 to Form 10-K for the
year ended December 31, 1999.
10.14 Lease between CXT Incorporated and Pentzer Development
Corporation, dated November 1, 1991 and filed as Exhibit 10.14 to
form 10-K for the year ended December 31, 1999.
10.15 Lease between CXT Incorporated and Union Pacific Railroad Company,
dated February 13, 1998, and filed as Exhibit 10.15 to form 10-K
for the year ended December 31, 1999.
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.
<PAGE>
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, 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, filed as Exhibit 10.19.1 to Form 10-Q for
the quarter ended March 31, 1997.
10.20 Asset Purchase Agreement, dated June 5, 1998, by and among the
Registrant and Northwest Pipe Company, filed as Exhibit 10.0 to
Form 8-K on June 18, 1998.
10.21 Stock Purchase Agreement dated June 3, 1999 by and among the
Registrant and the shareholders of CXT Incorporated, filed as
Exhibit 10.0 to Form 8-K on July 14, 1999.
10.33.2 Amended and Restated 1985 Long-Term Incentive Plan, as amended and
restated February 26, 1997, filed as Exhibit 10.33.2 to Form 10-Q
for the quarter ended June 30, 1997. **
10.34 Amended and Restated 1998 Long-Term Incentive Plan for Officers
and Directors, as amended and restated February 24, 1999 and filed
as Exhibit 10.34 to Form 10-K for the year ended December 31,
1998. **
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, filed as Exhibit 10.46 to
Form 10-K for the year ended December 31, 1997. **
10.50 L.B. Foster Company 2000 Incentive Compensation Plan, filed as
Exhibit 10.50 to Form 10-K for the year ended December 31, 1999.
**
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.
* 27 Financial Data Schedule
** Identifies management contract or compensatory plan or arrangement
required to be filed as an Exhibit.
<PAGE>
b) Reports on Form 8-K
No reports on Form 8-K were filed by the Registrant during the three month
period ended March 31, 2000.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities and 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
--------------------
(Registrant)
Date: May 12, 2000 By /s/ Roger F. Nejes
------------- ---------------------
Roger F. Nejes
Sr. Vice President-
Finance and Administration
& Chief Financial Officer
(Principal Financial Officer
and Duly Authorized Officer
of Registrant)
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 2,919
<SECURITIES> 0
<RECEIVABLES> 53,475
<ALLOWANCES> 1,438
<INVENTORY> 51,548
<CURRENT-ASSETS> 112,335
<PP&E> 61,473
<DEPRECIATION> 25,580
<TOTAL-ASSETS> 170,863
<CURRENT-LIABILITIES> 44,876
<BONDS> 44,031
0
0
<COMMON> 102
<OTHER-SE> 74,172
<TOTAL-LIABILITY-AND-EQUITY> 170,863
<SALES> 59,489
<TOTAL-REVENUES> 59,489
<CGS> 51,178
<TOTAL-COSTS> 51,178
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 938
<INCOME-PRETAX> 546
<INCOME-TAX> 218
<INCOME-CONTINUING> 328
<DISCONTINUED> (176)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 152
<EPS-BASIC> 0.02
<EPS-DILUTED> 0.02
</TABLE>
