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 September 30, 2000
------------------
Commission File Number 0-10436
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L. B. Foster Company
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(Exact name of Registrant as specified in its charter)
Pennsylvania 25-13247733
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(State of Incorporation) (I.R.S. Employer Identification No.)
415 Holiday Drive, Pittsburgh, Pennsylvania 15220
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(Address of principal executive offices) (Zip Code)
(412) 928-3417
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(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 November 7, 2000
-------------------------------
Common Stock, Par Value $.01 9,503,112 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 20
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
L.B. FOSTER COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
September 30, December 31,
2000 1999
---- ----
ASSETS (Unaudited)
Current Assets:
Cash and cash equivalents $ 1,292 $ 1,558
Accounts and notes receivable:
Trade 65,219 52,110
Other 2,257 1,002
------- -------
67,476 53,112
Inventories 58,463 45,601
Current deferred tax assets 1,925 1,925
Other current assets 836 981
Property held for resale 1,333 2,856
------- -------
Total Current Assets 131,325 106,033
------- -------
Property, Plant & Equipment - At Cost 55,693 51,747
Less Accumulated Depreciation (24,505) (21,621)
------- -------
31,188 30,126
------- -------
Property Held for Resale 4,148 4,203
------- -------
Other Assets:
Goodwill and other intangibles - net 6,955 7,474
Investments 9,220 8,610
Deferred tax assets 1,720 1,720
Other assets 3,932 6,565
------- -------
Total Other Assets 21,827 24,369
------- -------
TOTAL ASSETS $ 188,488 $ 164,731
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term debt $ 989 $ 1,141
Short-term borrowings 9,915 5,000
Accounts payable - trade 40,175 24,446
Accrued payroll and employee benefits 3,834 3,619
Current deferred tax liabilities 1,857 1,857
Other accrued liabilities 2,897 2,233
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Total Current Liabilities 59,667 38,296
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Long-Term Borrowings 40,000 40,000
------- -------
Other Long-Term Debt 3,700 4,136
------- -------
Deferred Tax Liabilities 6,293 6,293
------- -------
Other Long-Term Liabilities 1,776 1,356
------- -------
STOCKHOLDERS' EQUITY:
Common stock 102 102
Paid-in capital 35,306 35,377
Retained earnings 45,536 42,505
Treasury stock (3,904) (3,364)
Accumulated other comprehensive income 12 30
------- -------
Total Stockholders' Equity 77,052 74,650
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 188,488 $ 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 Nine Months
Ended Ended
September 30, September 30,
---------------------------------------
2000 1999 2000 1999
---------------------------------------
(Unaudited) (Unaudited)
Net Sales $74,428 $63,025 $205,609 $175,551
Cost of Goods Sold 64,269 53,063 176,899 149,485
------ ------ ------- -------
Gross Profit 10,159 9,962 28,710 26,066
Selling and Administrative
Expenses 7,993 7,332 23,351 19,779
Interest Expense 1,195 1,237 3,130 2,160
Other Income (1,331) (233) (2,205) (893)
------ ------ ------- -------
7,857 8,336 24,276 21,046
------ ------ ------- -------
Income from Continuing Operations,
Before Income Taxes 2,302 1,626 4,434 5,020
Income Tax Expense 920 600 1,774 1,803
------ ------ ------- -------
Income from Continuing Operations 1,382 1,026 2,660 3,217
Income/(Loss) from Discontinued
Operations, Net of Taxes 736 (174) 371 (667)
------ ------ ------- -------
Net Income $ 2,118 $ 852 $ 3,031 $ 2,550
======= ======= ======= ========
Basic Earnings Per Common Share From:
Continuing Operations $ 0.15 $ 0.11 $ 0.28 $ 0.33
Discontinued Operations 0.08 (0.02) 0.04 (0.07)
------ ------ ------- -------
Basic Earnings Per Common Share $ 0.23 $ 0.09 $ 0.32 $ 0.26
======= ======= ======= ========
Diluted Earnings Per Common Share From:
Continuing Operations $ 0.15 $ 0.11 $ 0.28 $ 0.33
Discontinued Operations 0.08 (0.02) 0.04 (0.07)
------ ------ ------- -------
Diluted Earnings Per Common Share $ 0.23 $ 0.09 $ 0.32 $ 0.26
======= ======= ======= ========
See Notes to Condensed Consolidated Financial Statements.
<PAGE>
L.B. Foster Company and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(In Thousands)
Nine Months
Ended September 30,
2000 1999
-----------------------
CASH FLOWS FROM OPERATING ACTIVITIES: (Unaudited)
Income from continuing operations $ 2,660 $ 3,217
Adjustments to reconcile net income to net cash
provided (used) by continuing operations:
Depreciation and amortization 3,828 2,730
(Gain) Loss on sale of property, plant
and equipment (766) 72
Change in operating assets and liabilities:
Accounts receivable (14,364) 2,364
Inventories (12,862) (8,649)
Property held for resale (57) (18)
Other current assets 145 (1,008)
Other non-current assets 2,004 1,133
Accounts payable - trade 15,729 1,988
Accrued payroll and employee benefits 215 (1,388)
Other current liabilities 81 (785)
Other liabilities 420 239
-------- -------
Net Cash Used by Continuing Operations (2,967) (105)
Net Cash Provided (Used) by Discontinued Operations 954 (777)
-------- -------
Net Cash Used by Operating Activities (2,013) (882)
-------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property, plant and equipment 1,690 206
Capital expenditures on property, plant and equipment (3,423) (3,727)
Purchase of DM&E stock (6,000)
Acquisition of business (17,389)
-------- -------
Net Cash Used by Investing Activities (1,733) (26,910)
-------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of revolving
credit agreement borrowings 4,915 30,000
Exercise of stock options and stock awards 185 329
Treasury share acquisitions (796) (1,702)
Repayments of long-term debt (813) (749)
-------- -------
Net Cash Provided by Financing Activities 3,491 27,878
-------- -------
Effect of exchange rate on cash (11) 13
-------- -------
Net (Decrease) Increase in Cash and Cash Equivalents (266) 99
Cash and Cash Equivalents at Beginning of Period 1,558 874
-------- -------
Cash and Cash Equivalents at End of Period $ 1,292 $ 973
======== =======
Supplemental Disclosures of Cash Flow Information:
Interest Paid $ 3,097 $ 1,274
======== =======
Income Taxes Paid $ 1,797 $ 2,261
======== =======
During 2000 and 1999, the Company financed certain capital
expenditures totaling $225,000 and $1,056,000, 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 December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin (SAB) 101, "Revenue Recognition in Financial Statements." SAB 101
outlines the basic criteria that must be met to recognize revenue and provides
guidelines for disclosure related to revenue recognition policies. As required,
the Company will implement SAB 101 in the fourth quarter of 2000 and does not
expect it to have a material effect on its consolidated financial statements.
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 September 30, 2000 and
December 31, 1999 have been reduced by an allowance for doubtful accounts of
$(1,609,000) and $(1,555,000), respectively. Bad debt expense was $58,000 and
$100,000 for the nine month periods ended September 30, 2000 and 1999,
respectively.
<PAGE>
4. INVENTORIES
-----------
Inventories of the Company at September 30, 2000 and December 31, 1999 are
summarized as follows in thousands:
September 30, December 31,
2000 1999
------------------------------------------------------------------------
Finished goods $ 51,755 $ 28,755
Work-in-process 3,427 13,000
Raw materials 5,808 6,298
------------------------------------------------------------------------
Total inventories at current costs: 60,990 48,053
(Less):
Current costs over LIFO
stated values (1,927) (1,852)
Reserve for the decline in market
value of inventories (600) (600)
------------------------------------------------------------------------
$ 58,463 $ 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
------------------------
September 30, December 31,
(in thousands) 2000 1999
-------------------------------------------------------------------------------
Location:
-------------------------------------------------------------------------------
Norcross, GA $3,059 $3,055
Coated pipe assets formerly located
in Newport, KY 1,333 1,345
Pomeroy, OH 646 665
St. Marys, WV 443 483
Houston, TX 1,511
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Property held for resale $5,481 $7,059
Less current portion 1,333 2,856
-------------------------------------------------------------------------------
$4,148 $4,203
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-------------------------------------------------------------------------------
The Norcross, GA location consists of buildings and approximately 28 acres of
land, which are being underutilized by the Company's business.
The former Newport, KY facility consisting of machinery and equipment was
included in the Company's coated pipe division of the tubular products segment.
<PAGE>
Due to unfavorable market conditions, management suspended operations in
September 1998 and intends to dispose of the assets. The Newport machinery and
equipment was dismantled in 2000 and the assets were moved to an off-site
storage location in Birmingham, AL. 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 with an approximate gain of
$800,000.
6. DISCONTINUED OPERATIONS
-----------------------
In September 2000, the Company sold the assets of the Monitor Group for $1.5
million cash. Additional revenues may be derived from an earnout agreement that
is based upon the buyer's future sales.
The nine months ended September 30, 2000 includes net income from discontinued
operations of approximately $371,000 which consists of a $900,000 gain (net of
tax) on the sale and an operating loss of approximately $529,000 (net of tax).
In the fourth quarter of 1999, the Company classified the operations of the
Monitor Group, a developer of portable mass spectrometers, as a discontinued
operation, pending its sale.
7. BORROWINGS
----------
In accordance with the original terms and conditions of the Company's revolving
credit agreement, the line of credit was reduced from $70.0 million to $64.0
million in September of 2000 due to asset sales. 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.
<PAGE>
8. EARNINGS PER COMMON SHARE
-------------------------
The following table sets forth the computation of basic and diluted earnings per
common share:
Three Months Ended Nine Months Ended
September 30, September 30,
(in thousands,
except earnings per share) 2000 1999 2000 1999
--------------------------------------------------------------------------------
Numerator:
Numerator for basic and
diluted earnings per
common share -
net income available
to common stockholders:
Income from continuing
operations $1,382 $1,026 $2,660 $3,217
Income (loss) from dis-
continued operations 736 (174) 371 (667)
------- ------- ------- -------
Net Income $2,118 $852 $3,031 $2,550
======= ======= ======= =======
Denominator:
Weighted average shares 9,456 9,581 9,502 9,692
------- ------- ------- -------
Denominator for basic earnings
per common share 9,456 9,581 9,502 9,692
Effect of dilutive securities:
Contingent issuable shares
pursuant to the Company's
Incentive Compensation Plans 49 53 56 45
Employee stock options 6 272 27 252
------- ------- ------- -------
Dilutive potential common shares 55 325 83 297
Denominator for diluted
earnings per common share -
adjusted weighted average
shares and assumed
conversions 9,511 9,906 9,585 9,989
======= ======= ======= =======
Basic earnings per common share:
Continuing operations $0.15 $0.11 $0.28 $0.33
Discontinued operations 0.08 (0.02) 0.04 (0.07)
------- ------- ------- -------
Basic earnings per common share $0.23 $0.09 $0.32 $0.26
======= ======= ======= =======
Diluted earnings per common share:
Continuing operations $0.15 $0.11 $0.28 $0.33
Discontinued operations 0.08 (0.02) 0.04 (0.07)
------- ------- ------- -------
Diluted earnings per common share $0.23 $0.09 $0.32 $0.26
======= ======= ======= =======
<PAGE>
9. 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 September 30, 2000, the Company had outstanding letters of credit of
approximately $3,987,000.
10. 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. 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. Additionally, the prior period
presentation has been restated to reflect the January 1, 2000 change in
reporting segment of the buildings division from rail to construction. The
following tables illustrate revenues and profits/(losses) of the Company by
segment:
Three Months Ended Nine Months Ended
September 30, 2000 September 30, 2000
Net Segment Net Segment
(in thousands) Sales Profit/(Loss) Sales Profit/(Loss)
--------------------------------------------------------------------------------
Rail products $38,862 $415 $107,420 ($283)
Construction products 30,148 1,322 83,096 3,684
Tubular products 5,381 527 14,915 1,249
--------------------------------------------------------------------------------
Total $74,391 $2,264 $205,431 $4,650
================================================================================
Three Months Ended Nine Months Ended
September 30, 1999 September 30, 1999
Net Segment Net Segment
(in thousands) Sales Profit/(Loss) Sales Profit/(Loss)
--------------------------------------------------------------------------------
Rail products $36,121 $933 $102,606 $2,088
Construction products 20,819 604 51,711 1,560
Tubular products 5,988 503 20,976 1,822
--------------------------------------------------------------------------------
Total $62,928 $2,040 $175,293 $5,470
================================================================================
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:
<PAGE>
Three Months Ended Nine Months Ended
September 30, September 30,
(in thousands) 2000 1999 2000 1999
--------------------------------------------------------------------------------
Net Profit/(Loss)
--------------------------------------------------------------------------------
Total for reportable
segments $2,264 $2,040 $4,650 $5,470
Cost of capital for
reportable segments 3,156 3,002 9,054 7,927
Interest expense (1,195) (1,237) (3,130) (2,160)
Other income 1,331 233 2,205 893
Corporate expense and
other unallocated charges (3,254) (2,412) (8,345) (7,110)
--------------------------------------------------------------------------------
Income from continuing
operations, before
income taxes $2,302 $1,626 $4,434 $5,020
================================================================================
There has been no change in the measurement of segment profit/(loss) from
December 31, 1999. There has been a significant increase in the construction
segment's inventory and accounts receivable from December 31, 1999 due to the
availability of flat web sheet piling and "H" bearing pile.
11. ACQUISITIONS
------------
In August of 2000, the Company contributed a note, having principal and interest
of approximately $2.7 million, to a limited liability company created by the
Company and its trackwork supplier in exchange for a 30% ownership position.
This resulted in acquired goodwill of $1.7 million, which is being amortized
on a straight-line basis over fifteen years.
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 allocated based on 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 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:
Nine Months Ended
(Dollars in thousands, except per share data) September 30, 1999
--------------------------------------------------------------------------
Net sales $195,264
Income from continuing operations 2,755
Basic earnings per common share from
continuing operations $0.28
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.
<PAGE>
12. 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 $1,226,000 pretax or $0.08 per share after tax were included
in the year to date results. The Company expects to record additional
nonrecurring pretax charges of approximately $400,000 related to these programs
by its fiscal 2001 year-end. 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 Nine Months Ended
September 30, September 30,
===================== =======================
2000 1999 2000 1999
===================== =======================
(Dollars in thousands)
Net Sales:
Rail Products $38,862 $36,121 $107,420 $102,606
Construction Products 30,148 20,819 83,096 51,711
Tubular Products 5,381 5,988 14,915 20,976
Other 37 97 178 258
---------------------- -------------------------
Total Net Sales $74,428 $63,025 $205,609 $175,551
====================== =========================
Gross Profit:
Rail Products $4,534 $5,620 $13,133 $13,791
Construction Products 4,856 3,550 13,717 9,494
Tubular Products 990 969 2,623 3,420
Other (221) (177) (763) (639)
----------------------- ------------------------
Total Gross Profit 10,159 9,962 28,710 26,066
----------------------- ------------------------
Expenses:
Selling and admin-
istrative expenses 7,993 7,332 23,351 19,779
Interest expense 1,195 1,237 3,130 2,160
Other income (1,331) (233) (2,205) (893)
----------------------- ------------------------
Total Expenses 7,857 8,336 24,276 21,046
----------------------- ------------------------
Income From Cont-
inuing Operations
Before Income Taxes 2,302 1,626 4,434 5,020
Income Tax Expense 920 600 1,774 1,803
----------------------- ------------------------
Income From Cont-
inuing Operations 1,382 1,026 2,660 3,217
Income/(Loss) From
Discontinued Op-
erations, Net Of
Taxes 736 (174) 371 (667)
---------------------- -------------------------
Net Income $2,118 $852 $3,031 $2,550
====================== =========================
Gross Profit %:
Rail Products 11.7% 15.6% 12.2% 13.4%
Construction Products 16.1% 17.1% 16.5% 18.4%
Tubular Products 18.4% 16.2% 17.6% 16.3%
Total Gross Profit 13.6% 15.8% 14.0% 14.8%
====================== =========================
Note: As of January 1, 2000, the Company elected to change the reporting segment
of its buildings division from rail to construction. The 1999 results have been
restated to conform to the current presentation.
<PAGE>
Third Quarter 2000 Results of Operations
----------------------------------------
Income from continuing operations for the third quarter of 2000 was $1.4 million
or $0.15 per share on net sales of $74.4 million. This compares to a 1999 third
quarter income from continuing operations of $1.0 million or $0.11 per share on
net sales of $63.0 million.
Net operating losses from the Monitor Group, classified as a discontinued
operation on December 31, 1999, were $0.3 million in the third quarters of 2000
and 1999.
Rail products' 2000 third quarter net sales were $38.9 million or an increase of
7.6% over the same period last year. Construction products' net sales increased
44.8% from the year earlier quarter as shipments of "H" bearing pile and flat
web sheet piling, and sales from the Company's Geotechnical division increased.
Tubular products' sales decreased 10.1% from the same quarter of 1999 due to the
lack of pipe coating projects at the Birmingham, AL facility. 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 13.6% in the third quarter
of 2000 and 15.8% in the 1999 third quarter. Rail products' gross margin
percentage declined to 11.7% in the third quarter of 2000 from 15.6% in the year
earlier quarter. These results reflect the continuing downturn in the rail
supply industry resulting from reduced capital spending by the Class I
railroads. The gross margin percentage for construction products declined 1.0%
from the year earlier quarter primarily due to the mix of piling products sold
and lower margins on certain sign structure projects. Tubular products' gross
margin percentage in the third quarter of 2000 increased 2.2% from the same
period last year, primarily due to higher profit margins on threaded products.
Selling and administrative expenses increased 9% over the prior year period due
to profit sharing accruals and the special charges discussed later. Other income
for the third quarter of 2000 includes $700,000 from the sale of Houston, TX
property and $350,000 income on the collection of certain notes receivable. The
provision for income taxes was recorded at 40% in the third quarter of 2000. The
third quarter of 1999 provision was recorded at 37% due to the implementation of
certain tax planning strategies.
First Nine Months of 2000 Results of Operations
-----------------------------------------------
Income from continuing operations for the fist nine months of 2000 was $2.7
million or $0.28 per share on net sales of $205.6 million. This compares to net
income from continuing operations of $3.2 million or $0.33 per share on net
sales of $175.6 million for the first nine months of 1999.
Net operating losses from the Monitor Group, classified as a discontinued
operation on December 31, 1999, were $0.9 million and $1.1 million in the first
nine months of 2000 and 1999, respectively.
Rail products' net sales in the first nine months of 2000 were $107.4 million,
an increase of 4.7% over the same period last year. Sales volume increased due
to the inclusion of nine months of CXT shipments in 2000 versus three months in
1999. The CXT shipments more than offset the decline in rail shipments which was
the result of increased industry competition due to spending cutbacks by the
major railroads. Construction products' year to date net sales increased 60.7%
over the same period last year as shipments of "H" bearing pile and flat web
sheet piling increased. The inclusion of nine months of CXT's building revenues
in 2000 versus three months revenues in 1999, along with increased sales from
the Company's Geotechnical division, also contributed to the increase in
construction products' sales. Net sales of tubular products declined 28.9% in
the first nine months of 2000 compared to the same period in 1999. This was the
result of the depletion of the Newport, KY inventory in 1999 and a downturn in
the pipe coating market.
<PAGE>
The gross margin percentage for the Company in the first nine months of 2000 and
1999 was 14.0% and 14.8%, respectively. Rail products' gross margin percentage
declined 1.2% due to the continuing downturn in the rail supply industry
resulting from reduced capital spending from the Class I railroads. During the
first nine months of 2000, the gross margin percentage for construction products
declined 1.9% primarily due to the mix of piling products sold and lower margins
on sign structure projects. Tubular products' gross margin percentage improved
1.3% due to more efficient operations at the Langfied, TX threading facility
which partially offset weakness in pipe coating activity.
Selling and administrative expenses have increased 18% over the same period last
year due to the inclusion of expenses associated with CXT operations and 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. Other income in 2000 includes $800,000 from the sale of
Houston, TX property and $400,000 income on the collection of certain notes
receivable. The provision for income taxes was recorded at 40% in 2000 compared
to 35.8% in the first nine months of 1999. The 1999 provision reflected the
implementation of certain tax planning strategies.
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 $115,000 pretax were included in the third quarter's results.
Year to date, special charges of $1.2 million pretax or $0.08 per share after
tax have been recorded. The Company expects to record additional nonrecurring
pretax charges of approximately $400,000 related to these programs by its fiscal
2001 year-end. 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 nine months of 2000, the
average turnover rate for accounts receivable remained relatively the same as in
the same period last year. The average inventory turnover rate for the first
nine months of 2000 was lower than the same period in 1999, particularly in new
rail products and fabricated sign structures. Working capital at September 30,
2000 was $71.7 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 September 30, 2000, 408,398
shares had been purchased under this program at a cost of $2.1 million. No
shares were purchased in the third quarter of 2000.
The Company had capital expenditures of approximately $3.4 million in the first
nine months of 2000. Capital expenditures in 2000, excluding acquisitions, are
expected to be approximately $4.8 million and are anticipated to be funded by
cash flow from operations or available external sources.
Total revolving credit agreement borrowings at September 30, 2000 and December
31, 1999 were $49.9 million and $45.0 million, respectively. At September 30,
2000 the Company had $10.1 million in unused borrowing commitment. Outstanding
letters of credit at September 30, 2000 were $4.0 million. Management believes
its internal and external sources of funds are adequate to meet anticipated
needs.
<PAGE>
In accordance with the original terms and conditions of the Company's revolving
credit agreement, the line of credit was reduced from $70.0 million to $64.0
million in September of 2000 due to asset sales. 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, if the DM&E's Powder River Basin project is successful, will be
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.
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 issued a draft
environmental impact statement for the Project in September of 2000, with a
comment period extending to January 5, 2001. 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 September 2000, the Company sold the assets of the Monitor Group division for
$1.5 million cash. Additional revenues may be derived from an earnout agreement
that is based upon the buyer's future sales.
In August of 2000, the Company contributed a note, having principal and interest
of approximately $2.7 million, to a limited liability company created by the
Company and its trackwork supplier in exchange for a 30% ownership position.
<PAGE>
In March 2000, the Company sold an undeveloped 62-acre portion of a 127-acre
Houston, TX property for approximately $2.0 million. The gain on the sale of
$800,000 was finalized in the third quarter of 2000.
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 TXI Chaparral'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 TXI Chaparral's new Petersburg, VA
facility. Current mill indications are that the startup of steel sheet piling
production will not commence until the first quarter of 2001 with no appreciable
production quantities expected until the second quarter of 2001.
The rail segment of the business depends on one source, in which the Company
currently maintains a 30% ownership position, for fulfilling certain trackwork
contracts. At September 30, 2000, the Company had $7.9 million committed to this
supplier including inventory progress payments, leased 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. In November, the Company received
$700,000 as a payout for the leased equipment.
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.
Although backlog is not necessarily indicative of future operating results,
total Company backlog at September 30, 2000, was $150.6 million. The following
table provides the backlog by business segment:
Backlog
September 30, December 31,
2000 1999 1999
------------------------------------------------------------------------------
(Dollars in thousands)
Rail Products $ 95,642 $116,695 $107,457
Construction Products 52,717 48,023 45,463
Tubular Products 2,252 1,543 2,012
------------------------------------------------------------------------------
Total Backlog $150,611 $166,261 $154,932
------------------------------------------------------------------------------
------------------------------------------------------------------------------
Note: The prior year presentation has been restated to reflect the January 1,
2000 change in reporting segment of the buildings division from rail to
construction.
<PAGE>
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 from 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 September 30, 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 September 30, 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:
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 TXI 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 9, "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.
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.
* 10.22 Agreement of Purchase and Sale dated September 13, 2000, by
and among the Registrant and Monitor Acquisition Co. LLC.
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.
b) Reports on Form 8-K
No reports on Form 8-K were filed by the Registrant during the nine month
period ended September 30, 2000.
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: November 13, 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)
