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 June 30, 2000
-------------
Commission File Number 0-10436
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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 August 4, 2000
----- -----------------------------
Common Stock, Par Value $.01 9,508,534 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 4. Results of Votes of Security Holders 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)
June 30, December 31,
2000 1999
---- ----
ASSETS (unaudited)
Current Assets:
Cash and cash equivalents ..................... $ 2,189 $ 1,558
Accounts and notes receivable:
Trade ....................................... 59,643 52,110
Other ....................................... 3,086 1,002
----- -----
62,729 53,112
Inventories .................................... 50,839 45,601
Current deferred tax assets .................... 1,925 1,925
Other current assets ........................... 930 981
Property held for resale ....................... 1,345 2,856
----- -----
Total Current Assets .......................... 119,957 106,033
------- -------
Property, Plant & Equipment - At Cost .......... 54,149 51,747
Less Accumulated Depreciation .................. (23,598) (21,621)
------- -------
30,551 30,126
------ ------
Property Held for Resale ....................... 4,172 4,203
----- -----
Other Assets:
Goodwill and intangibles - net ................ 7,140 7,474
Investments ................................... 9,016 8,610
Deferred tax assets ........................... 1,720 1,720
Other assets .................................. 4,092 6,565
----- -----
Total Other Assets ........................... 21,968 24,369
------ ------
TOTAL ASSETS ................................... $ 176,648 $ 164,731
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term debt .......... $ 1,030 $ 1,141
Short-term borrowings ......................... 8,270 5,000
Accounts payable - trade ...................... 34,756 24,446
Accrued payroll and employee benefits ......... 3,112 3,619
Current deferred tax liabilities .............. 1,857 1,857
Other accrued liabilities ..................... 916 2,233
--- -----
Total Current Liabilities .................... 49,941 38,296
------ ------
Long-Term Borrowings ........................... 40,000 40,000
------ ------
Other Long-Term Debt ........................... 3,828 4,136
----- -----
Deferred Tax Liabilities ....................... 6,293 6,293
----- -----
Other Long-Term Liabilities .................... 1,637 1,356
----- -----
STOCKHOLDERS' EQUITY:
Common stock .................................. 102 102
Paid-in capital ............................... 35,316 35,377
Retained earnings ............................. 43,419 42,505
Treasury stock ................................ (3,907) (3,364)
Accumulated other comprehensive income ........ 19 30
-- --
Total Stockholders' Equity ................... 74,949 74,650
------ ------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ..... $ 176,648 $ 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 Six Months
Ended Ended
June 30, June 30,
2000 1999 2000 1999
---- ---- ---- ----
(unaudited) (unaudited)
Net Sales ...................... $ 71,692 $ 58,743 $ 131,181 $ 112,526
Cost of Goods Sold ............. 61,452 49,798 112,630 96,422
------ ------ ------- -------
Gross Profit ................... 10,240 8,945 18,551 16,104
Selling and Administrative
Expenses ................... 7,950 6,460 15,358 12,447
Interest Expense ............. 997 524 1,935 922
Other Income ................. (293) (299) (874) (659)
------ ------ ------- -------
8,654 6,685 16,419 12,710
------ ------ ------- -------
Income from Continuing Operations,
Before Income Taxes ........ 1,586 2,260 2,132 3,394
Income Tax Expense ............. 636 763 854 1,203
------ ------ ------- -------
Income from Continuing Operations 950 1,497 1,278 2,191
Loss from Discontinued Operations,
Net of Taxes ............... (189) (259) (365) (493)
------ ------ ------- -------
Net Income ..................... $ 761 $ 1,238 $ 913 $ 1,698
======== ======== ========= =========
Basic Earnings Per Common Share From:
Continuing Operations ...... $ 0.10 $ 0.15 $ 0.13 $ 0.22
Discontinued Operations .... (0.02) (0.03) (0.04) (0.05)
------ ------ ------- -------
Basic Earnings Per Common Share $ 0.08 $ 0.12 $ 0.09 $ 0.17
======== ======== ========= =========
Diluted Earnings Per Common Share From:
Continuing Operations ...... $ 0.10 $ 0.15 $ 0.13 $ 0.22
Discontinued Operations .... (0.02) (0.03) (0.04) (0.05)
------ ------ ------- -------
Diluted Earnings Per Common Share $ 0.08 $ 0.12 $ 0.09 $ 0.17
======== ======== ========= =========
See Notes to Condensed Consolidated Financial Statements.
<PAGE>
L.B. Foster Company and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(In Thousands)
Six Months
Ended June 30,
2000 1999
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES: (unaudited)
Income from continuing operations .................... $ 1,278 $ 2,191
Adjustments to reconcile net income to net cash
provided (used) by continuing operations:
Depreciation and amortization ...................... 2,492 1,473
Loss on sale of property, plant
and equipment .................................... 3 21
Change in operating assets and liabilities:
Accounts receivable ................................. (9,617) (1,545)
Inventories ......................................... (5,238) (7,427)
Property held for resale ............................ 1,611 (3)
Other current assets ................................ 51 (303)
Other non-current assets ............................ 2,054 268
Accounts payable - trade ............................ 10,310 (891)
Accrued payroll and employee
benefits .......................................... (507) (1,565)
Other current liabilities ........................... (1,073) (1,926)
Other liabilities ................................... 281 296
------- -------
Net Cash Provided (Used) by Continuing Operations .... 1,645 (9,411)
Net Cash Used by Discontinued Operations ............. (608) (613)
------- -------
Net Cash Provided (Used) by Operating Activities ..... 1,037 (10,024)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property, plant and equipment . 5
Capital expenditures on property, plant and equipment (2,526) (1,497)
Purchase of DM&E stock .............................. (6,000)
Acquisition of business ............................. (17,389)
------- -------
Net Cash Used by Investing Activities ................ (2,526) (24,881)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of revolving
credit agreement borrowings ....................... 3,270 37,045
Exercise of stock options and stock
awards ............................................ 191 329
Treasury share transactions ......................... (796) (1,702)
Repayments of long-term debt ........................ (538) (491)
------- -------
Net Cash Provided by Financing Activities ............ 2,127 35,181
------- -------
Effect of exchange rate on cash ...................... (7) 10
------- -------
Net Increase in Cash and Cash Equivalents ............ 631 286
Cash and Cash Equivalents at Beginning of Period ..... 1,558 874
------- -------
Cash and Cash Equivalents at End of Period ........... $ 2,189 $ 1,160
======== ========
Supplemental Disclosures of Cash Flow Information:
Interest Paid ........................................ $ 2,011 $ 948
======== ========
Income Taxes Paid .................................... $ 1,758 $ 1,767
======== ========
During 2000 and 1999, the Company financed the purchase of 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 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 June 30, 2000 and December
31, 1999 have been reduced by an allowance for doubtful accounts of $(1,528,000)
and $(1,555,000), respectively. Bad debt expense was $(24,000) and $42,000 for
the six month periods ended June 30, 2000 and 1999, respectively.
<PAGE>
4. INVENTORIES
--------------
Inventories of the Company at June 30, 2000 and December 31, 1999 are summarized
as follows in thousands:
June 30, December 31,
2000 1999
---- ----
Finished goods .................... $ 36,408 $ 28,755
Work-in-process ................... 10,472 13,000
Raw materials ..................... 6,411 6,298
--------- ---------
Total inventories at current costs: 53,291 48,053
(Less):
Current costs over LIFO
stated values .................... (1,852) (1,852)
Reserve for decline in market value
of inventories ................... (600) (600)
--------- ---------
$ 50,839 $ 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
---------------------------
June 30, December 31,
(in thousands) 2000 1999
-------------- ---- ----
Location:
Norcross, GA ...................... $3,055 $3,055
Coated pipe assets formerly located
in Newport, KY .................. 1,345 1,345
Pomeroy, OH ....................... 656 665
St. Marys, WV ..................... 461 483
Houston, TX ....................... 1,511
------ ------
Property held for resale .............. $5,517 $7,059
------ ------
Less current portion .................. 1,345 2,856
------ ------
$4,172 $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. 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.
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 six months ended June 30, 2000 includes a net loss from discontinued
operations of approximately $365,000. The Company continues ongoing discussions
with prospective buyers, with an estimated disposal to occur in 2000.
7. BORROWINGS
-------------
In March of 2000, the Company's revolving agreement was reduced 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. The Company has
received a limited waiver from its banks to exclude restructuring charges from
financial covenant calculations from June 30, 2000 through August 28, 2000.
<PAGE>
8. EARNINGS PER COMMON SHARE
----------------------------
The following table sets forth the computation of basic and diluted earnings per
common share:
Three Months Ended Six Months Ended
(in thousands, June 30, June 30,
(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 .............. $ 950 $ 1,497 $ 1,278 $ 2,191
Loss from discontinued
operations .............. (189) (259) (365) (493)
-------- --------- -------- ---------
Net Income .................... $ 761 $ 1,238 $ 913 $ 1,698
======== ========= ======== =========
Denominator:
Weighted average shares ..... 9,491 9,710 9,526 9,748
-------- --------- -------- ---------
Denominator for basic earn-
ings per common share ....... 9,491 9,710 9,526 9,748
Effect of dilutive securities:
Contingent issuable shares
pursuant to the Company's
Incentive Compensation
Plans ..................... 64 53 58 41
Employee stock options ...... 13 251 39 253
-------- --------- -------- ---------
Dilutive potential common
shares ...................... 77 304 97 294
Denominator for diluted earn-
ings per common share -
adjusted weighted average
shares and assumed
conversions.................. 9,568 10,014 9,623 10,042
======== ========= ======== =========
Basic earnings per common
share:
Continuing operations $0.10 $0.15 $0.13 $0.22
Discontinued operations (0.02) (0.03) (0.04) (0.05)
-------- --------- -------- ---------
Basic earnings per common
share........................... $0.08 $0.12 $0.09 $0.17
======== ========= ======== =========
Diluted earnings per common
share:
Continuing operations $0.10 $0.15 $0.13 $0.22
Discontinued operations (0.02) (0.03) (0.04) (0.05)
-------- --------- -------- ---------
Diluted earnings per common
share........................... $0.08 $0.12 $0.09 $0.17
======== ========= ======== =========
<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 June 30, 2000, the Company had outstanding letters of credit of approximately
$4,099,000.
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. The following tables illustrate
revenues and profits/(losses) of the Company by segment:
Three Months Ended Six Months Ended
June 30, 2000 June 30, 2000
------------- -------------
Net Segment Net Segment
(in thousands) Sales Profit/(Loss) Sales Profit/(Loss)
--------------------------------------------------------------------------------
Rail products $35,901 ($147) $68,558 ($698)
Construction products 31,221 2,006 52,948 2,362
Tubular products 4,544 315 9,534 721
--------------------------------------------------------------------------------
Total $71,666 $2,174 $131,040 $2,385
================================================================================
Three Months Ended Six Months Ended
June 30, 1999 June 30, 1999
------------- -------------
Net Segment Net Segment
(in thousands) Sales Profit/(Loss) Sales Profit/(Loss)
--------------------------------------------------------------------------------
Rail products $35,068 $944 $66,485 $1,155
Construction products 15,596 872 30,892 956
Tubular products 8,124 885 14,988 1,319
--------------------------------------------------------------------------------
Total $58,788 $2,701 $112,365 $3,430
================================================================================
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
<PAGE>
following table provides a reconciliation of reportable net profit/(loss) to the
Company's consolidated total:
Three Months Ended Six Months Ended
June 30, June 30,
(in thousands) 2000 1999 2000 1999
--------------------------------------------------------------------------------
Net Profit/(Loss)
--------------------------------------------------------------------------------
Total for reportable segments $2,174 $2,701 $2,385 $3,430
Cost of capital for reportable
segments 2,947 2,542 5,899 4,973
Interest expense (997) (524) (1,935) (922)
Other income 293 299 874 659
Corporate expense and other
unallocated charges (2,831) (2,758) (5,091) (4,746)
--------------------------------------------------------------------------------
Income from continuing
operations, before income
taxes $1,586 $2,260 $2,132 $3,394
================================================================================
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.
11. 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 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:
Six Months Ended
(Dollars in thousands, except per share data) June 30, 1999
--------------------------------------------------------------------------
Net sales $132,191
Income from continuing operations 2,414
Basic earnings per common share from
continuing operations $0.24
==========================================================================
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 $1,111,000 pretax or $0.07 per share after tax were included
in the year to date results. The Company expects to record additional
nonrecurring pretax charges of approximately $500,000 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 Six Months Ended
June 30, June 30,
====================== ========================
2000 1999 2000 1999
====================== ========================
(Dollars in thousands)
Net Sales:
Rail Products $35,901 $35,068 $68,558 $66,485
Construction
Products 31,221 15,595 52,948 30,892
Tubular Products 4,544 8,124 9,534 14,988
Other 26 (44) 141 161
---------------------- --------------------------
Total Net Sales $71,692 $58,743 $131,181 $112,526
====================== ==========================
Gross Profit:
Rail Products $4,413 $4,532 $8,599 $8,171
Construction
Products 5,326 3,351 8,861 5,944
Tubular Products 763 1,427 1,633 2,451
Other (262) (365) (542) (462)
---------------------- --------------------------
Total Gross Profit 10,240 8,945 18,551 16,104
---------------------- --------------------------
Expenses:
Selling and admin-
istrative expenses 7,950 6,460 15,358 12,447
Interest expense 997 524 1,935 922
Other income (293) (299) (874) (659)
---------------------- --------------------------
Total Expenses 8,654 6,685 16,419 12,710
---------------------- --------------------------
Income From Continuing
Operations Before
Income Taxes 1,586 2,260 2,132 3,394
Income Tax Expense 636 763 854 1,203
---------------------- --------------------------
Income From Continuing
Operations 950 1,497 1,278 2,191
Loss From Discontinued
Operations, Net Of Taxes (189) (259) (365) (493)
---------------------- --------------------------
Net Income $761 $1,238 $913 $1,698
====================== ==========================
Gross Profit %:
Rail Products 12.3% 12.9% 12.5% 12.3%
Construction Products 17.1% 21.5% 16.7% 19.2%
Tubular Products 16.8% 17.6% 17.1% 16.4%
Total Gross Profit 14.3% 15.2% 14.1% 14.3%
====================== ==========================
<PAGE>
Second Quarter 2000 Results of Operations
-----------------------------------------
Income from continuing operations for the second quarter of 2000 was $1.0
million or $0.10 per share on net sales of $71.7 million. This compares to a
1999 second quarter income from continuing operations of $1.5 million or $0.15
per share on net sales of $58.7 million.
Net losses from the Monitor Group, classified as a discontinued operation on
December 31, 1999, were $0.2 million and $0.3 million in the second quarters of
2000 and 1999, respectively.
Rail products' 2000 second quarter net sales were $35.9 million or an increase
of 2.4% 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 doubled from the year
earlier quarter as shipments of "H" bearing pile and flat web sheet piling
increased. The addition of CXT's building division also increased construction
products' sales. Tubular products' sales decreased 44% 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 14% in the second quarter
of 2000 and 15% in the 1999 second quarter. Rail products' gross margin
percentage declined to 12% in the second quarter of 2000 from 13% in the year
earlier quarter. This was primarily the result of a decline in margins for used
rail. The gross margin percentage for construction products declined 4.4% from
the year earlier quarter primarily due to the mix of piling products sold and
lower margins on sign structure projects. Tubular products' gross margin
percentage in the second quarter of 2000 declined 0.8% from the same period last
year, primarily due to a decline in pipe coating activity.
Selling and administrative expenses increased 23% over the prior year period due
to the inclusion of expenses associated with CXT operations and a majority of
the special charges discussed later. 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
second quarter of 2000. The second quarter 1999 provision was recorded at 33%
due to the implementation of certain tax planning strategies.
First Six Months of 2000 Results of Operations
----------------------------------------------
Income from continuing operations for the fist six months of 2000 was $1.3
million or $0.13 per share on net sales of $131.2 million. This compares to net
income from continuing operations of $2.2 million or $0.22 per share on net
sales of $112.5 million for the first half of 1999.
Net losses from the Monitor Group, classified as a discontinued operation on
December 31, 1999, were $0.4 million and $0.5 million in the first six months of
2000 and 1999, respectively.
Rail products' net sales in the first half of 2000 were $68.6 million, an
increase of 3.1% over the same period last year. The increased sales volume due
to the CXT acquisition 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' year to date net sales increased
71.4% over the same period last year as shipments of "H" bearing pile
<PAGE>
and flat web sheet piling increased. The addition of CXT's building revenues
also increased construction products' sales. Net sales of tubular products
declined 36.4% due to weakness in the pipe coating market.
The gross margin percentage for the Company in the first six months of 2000 and
1999 was 14%. Rail products' gross margin percentage remained relatively the
same as last year. During the first half of 2000, the gross margin percentage
for construction products declined 2.5% primarily due to the mix of piling
products sold and lower margins on sign structure projects. Tubular products'
gross margin percentage improved approximately 0.7% due to more efficient
operations at the Langfied, TX threading facility which offset weakness in pipe
coating activity.
Selling and administrative expenses have increased 23% 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. The provision for income taxes was recorded at 40% in the
first half of 2000 compared to 35% in 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 approximately $0.6 million pretax or $0.04 per share after
tax were included in the second quarter's results. Additionally, special charges
of $0.5 million pretax or $0.03 per share after tax were included in the first
quarter's results. The Company expects to record additional nonrecurring pretax
charges of approximately $0.5 million 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 six 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
turnover rate for the first six months of 2000 was lower than the same period in
1999, particularly in new and used rail products. Working capital at June 30,
2000 was $70.0 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 June 30, 2000, 408,398 shares had
been purchased under this program at a cost of $2.1 million.
The Company had capital expenditures of approximately $2.5 million in the first
half of 2000. Capital expenditures in 2000, excluding acquisitions, are expected
to be approximately $4.0 million and are anticipated to be funded by cash flow
from operations.
Total revolving credit agreement borrowings at June 30, 2000 and December 31,
1999 were $48.3 million and $45.0 million, respectively. At June 30, 2000 the
Company had $12.5 million in unused borrowing commitment. Outstanding letters
<PAGE>
of credit at June 30, 2000 were $4.1 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. The Company has
received a limited waiver from its banks to exclude restructuring charges from
financial covenant calculations from June 30, 2000 through August 28, 2000.
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 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.
<PAGE>
Other Matters
-------------
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 strike was settled 2 1/2 weeks later and had no
material impact on the Company's financial results.
In March 2000, the Company sold an undeveloped 62-acre portion of a 127-acre
Houston, TX property for approximately $2.0 million.
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 late in the third quarter with no appreciable
production quantities expected this year.
The rail segment of the business depends on one source for fulfilling certain
trackwork contracts. At June 30, 2000, the Company had $11.8 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.
The Company has agreed to contribute 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.
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 June 30, 2000, was approximately $175.7 million. The
following table provides the backlog by business segment:
<PAGE>
Backlog
------------------------------------------------------------------------------
June 30, December 31,
2000 1999 1999
------------------------------------------------------------------------------
Rail Products
excluding CXT $ 54,580 $ 63,293 $ 41,685
CXT 60,603 80,816 69,393
Construction Products 58,281 39,548 41,842
Tubular Products 2,236 2,620 2,012
------------------------------------------------------------------------------
Total Backlog $175,700 $186,277 $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 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 June 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 June 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,
<PAGE>
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.
PART II OTHER INFORMATION
-------------------------
Item 1. LEGAL PROCEEDINGS
-------------------------
See Note 9, "Commitments and Contingent Liabilities", to the Condensed
Consolidated Financial Statements.
Item 4. RESULTS OF VOTES OF SECURITY HOLDERS
--------------------------------------------
At the Company's annual meeting on May 10, 2000, the following individuals were
elected to the Board of Directors:
For Withheld
Name Election Authority
---- -------- ---------
Lee B. Foster II 9,058,776 243,285
Henry J. Massman IV 9,058,776 243,285
John W. Puth 9,063,881 238,180
William H. Rackoff 9,058,776 243,285
Richard L. Shaw 9,058,160 243,901
The stockholders also voted to approve Ernst & Young, LLP as the Company's
independent auditors for the fiscal year ended December 31, 2000. The following
table sets forth the results of the vote for independent auditors:
Against
For Approval Approval Abstained
------------ -------- ---------
9,043,429 192,266 66,366
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
----------------------------------------
a) EXHIBITS
-----------
Unless marked by an asterisk, all exhibits are incorporated by reference:
<PAGE>
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.
<PAGE>
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.
b) Reports on Form 8-K
No reports on Form 8-K were filed by the Registrant during the six month
period ended June 30, 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: August 11, 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)
