UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended March 31, 1997
Commission File Number 0-10436
L. B. Foster Company
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(Exact name of registrant as specified in its charter)
Delaware 25-1324733
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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 such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the registrant's
classes of common stock as of the latest practicable date.
Class Outstanding at May 8, 1997
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Class A Common Stock, Par Value $.01 10,162,738 Shares
L. B. FOSTER COMPANY AND SUBSIDIARIES
INDEX
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PART I. Financial Information Page
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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 8
PART II. Other Information
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Item 1. Legal Proceedings 12
Item 6. Exhibits and Reports on Form 8-K 12
Signature 14
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
L. B. FOSTER COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
March 31, December 31,
ASSETS 1997 1996
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Current Assets:
Cash and cash equivalents $ 2,846 $ 1,201
Accounts and notes receivable (Note 3):
Trade 42,114 49,468
Other 2,436 450
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44,550 49,918
Inventories (Note 4) 52,662 42,925
Current deferred tax assets 1,018 1,214
Other current assets 405 398
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Total current assets 101,481 95,656
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Property, Plant & Equipment-At Cost 40,376 40,965
Less Accumulated Depreciation (20,368) (20,498)
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20,008 20,467
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Property Held for Resale 4,053 4,022
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Other Assets 3,407 3,253
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TOTAL ASSETS $128,949 $123,398
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LIABILITIES AND STOCKHOLDERS' EQUITY
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Current Liabilities:
Current maturities of long-term debt $ 1,335 $ 1,366
Short-term borrowings (Note 5) 12,730 6,000
Accounts payable 19,224 19,060
Accrued payroll and employee benefits payable 2,180 3,543
Other current liabilities 1,450 2,160
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Total current liabilities 36,919 32,129
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Long-Term Debt 21,494 21,816
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Deferred Tax Liabilities 418 394
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Other Long-Term Liabilities 1,990 1,878
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Stockholders' Equity:
Class A Common stock 102 102
Paid-in capital 35,425 35,276
Retained earnings 32,745 32,338
Treasury stock (144) (535)
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Total stockholders' equity 68,128 67,181
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $128,949 $123,398
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See Notes to Condensed Consolidated Financial Statements.
L. B. FOSTER COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Per Share Amounts)
Three Months
Ended
March 31,
1997 1996
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Net Sales $54,494 $48,303
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Costs and Expenses:
Cost of Goods Sold 48,060 42,104
Selling and Administrative Expenses 5,302 5,403
Interest Expense 535 564
Other (Income) Expense (83) (128)
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53,814 47,943
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Income Before Income Taxes 680 360
Income Tax Expense 273 140
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Net Income 407 220
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Earnings Per Common Share (Note 6) $0.04 $0.02
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Average Number of Common
Shares Outstanding 10,131 9,934
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Cash Dividend per Common Share
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See Notes to Condensed Consolidated Financial Statements.
L. B. FOSTER COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
Three Months
Ended March 31,
1997 1996
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Cash Flows from Operating Activities:
Net Income $ 407 $ 220
Adjustments to Reconcile Net Income to Net Cash
Provided (Used) by Operating Activities:
Deferred income taxes 220 140
Depreciation and amortization 646 874
Gain on sale of property, plant and equipment (157) (178)
Change in Operating Assets and Liabilities:
Accounts receivable 5,368 6,166
Inventories (9,737) (3,153)
Property held for resale (31) 358
Other current asset (7) 33
Other non-current assets (195) (288)
Accounts payable-trade 164 2,156
Accrued payroll and employee benefits (1,363) (476)
Other current liabilities (710) (1,239)
Other liabilities 112 93
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Net Cash (Used) Provided by Operating Activities (5,283) 4,706
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Cash Flows from Investing Activities:
Proceeds from sale of property, plant
and equipment 563 1,079
Capital expenditures on property, plant
and equipment (518) (596)
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Net Cash Provided by Investing Activities 45 483
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Cash Flows from Financing Activities:
Proceeds (repayments) from issuance of
revolving credit agreement borrowings 6,730 (4,665)
Exercise of stock options 540 15
Repayments of long-term debt (387) (331)
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Net Cash Provided (Used) by Financing Activities 6,883 (4,981)
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Net Increase in Cash and Cash Equivalents 1,645 208
Cash and Cash Equivalents at Beginning of Period 1,201 1,325
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Cash and Cash Equivalents at End of Period $ 2,846 $ 1,533
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Supplemental Disclosures of Cash Flow Information:
Interest Paid $ 524 $ 602
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Income Taxes Paid $ 17 $ 34
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During 1997 and 1996, the Company financed the purchase of certain capital
expenditures totaling $33,500 and $117,000, respectively, through the
issuance of capital leases.
See Notes to Condensed Consolidated Financial Statements.
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. Operating results for the
three months ended March 31, 1997 are not necessarily indicative of the
results that may be expected for the year ended December 31, 1997. 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, 1996.
2. ACCOUNTING PRINCIPLES
In October 1995, the FASB issued Statement of Financial Accounting Standards
(SFAS) No. 123, "Accounting for Stock-Based Compensation". The Company
follows the requirements of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," in accounting for stock-based
compensation, and, accordingly, recognizes no compensation expense for stock
option grants, but provides, when material, the pro forma disclosures
required by SFAS No. 123.
3. ACCOUNTS RECEIVABLE
Credit is extended on an evaluation of the customer's financial condition
and, generally, collateral is not required. Credit terms are consistent with
industry standards and practices. Trade accounts receivable at March 31,
1997 and December 31, 1996 have been reduced by an allowance for doubtful
accounts of $1,854,000 and $1,803,000, respectively. Bad debt expense was
$51,000 and $57,000 for the three month periods ended March 31, 1997 and
1996, respectively.
4. INVENTORIES
Inventories of the Company at March 31, 1997 and December 31, 1996 are
summarized as follows (in thousands):
March 31, December 31,
1997 1996
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Finished goods $ 40,766 $ 31,347
Work-in-process 11,560 11,117
Raw materials 3,160 3,135
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Total inventories at current costs: 55,486 45,599
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(Less):
Current costs over LIFO
stated values (2,224) (2,074)
Reserve for decline in
market value of inventories (600) (600)
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$ 52,662 $ 42,925
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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. SHORT-TERM BORROWINGS
The Company maintains a $45,000,000 revolving credit agreement. The
interest rate is, at the Company's option, based on the prime rate, the
domestic certificate of deposit rate (CD rate) or the Euro-bank rate. The
interest rates are adjusted quarterly based on the fixed charge coverage
ratio defined in the agreement. The ranges are prime to prime plus 0.25%,
the CD rate plus 0.45% to the CD rate plus 1.125%, and the Euro-bank rate
plus 0.45% to the Euro-bank rate plus 1.125%. Borrowings under the agreement,
which expires July 1, 1999, are secured by accounts receivable and inventory.
The agreement includes financial covenants requiring a minimum net worth, a
fixed charge coverage ratio, a leverage ratio and a current ratio. The
agreement also places restrictions on dividends, investments, capital
expenditures, indebtedness and sales of certain assets.
6. EARNINGS PER COMMON SHARE
Earnings per common share are computed by dividing net income by the average
number of Class A common shares and common stock equivalents outstanding
during the periods ended March 31, 1997 and 1996 of approximately 10,131,000
and 9,934,000, respectively.
Common stock equivalents are the net additional number of shares which would
be issuable upon the exercise of the outstanding common stock options,
assuming that the Company used the proceeds to purchase additional shares at
market value. Common stock equivalents had no material effect on the
computation of earnings per share for the periods ending March 31, 1997 and
1996.
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings per Share", which is required to be adopted on December
31, 1997. At that time, the Company will be required to change the method
currently used to compute earnings per share and to restate all prior
periods. Under the new requirements for calculating primary earnings per
share, the dilutive effect of stock options will be excluded. The impact of
Statement 128 on the calculations of primary and fully diluted earnings per
share for the first quarters ended March 31, 1997 and March 31, 1996 is not
material.
7. COMMITMENTS AND CONTINGENT LIABILITIES
The Company is subject to laws and regulations relating to the protection of
the environment. While it is not possible to quantify with certainty the
potential impact of actions regarding environmental matters, particularly
any future remediation and other compliance efforts, in the opinion of
management, compliance with the present environmental protection laws will
not have a material adverse effect on the financial position, competitive
position, or capital expenditures of the Company. The Company will provide for
any liability as defined in SOP 96-1,"Environmental Remediation Liabilities."
However, the Company's efforts to comply with increasingly stringent
environmental regulations may have an adverse effect on the Company's future
earnings.
The Company is subject to legal proceedings and claims which arise in the
ordinary course of its business. In the opinion of management, the amount
of ultimate liability with respect to these actions will not materially
affect the financial position of the Company.
At March 31, 1997, the Company had outstanding letters of credit of
approximately $1,172,000.
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Three Months Ended
March 31,
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1997 1996
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(Dollars in thousands)
Net Sales:
Rail Products $23,546 $23,519
Construction Products 19,198 16,018
Tubular Products 11,750 8,766
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Total Net Sales 54,494 48,303
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Gross Profit:
Rail Products 2,687 3,514
Construction Products 2,378 2,076
Tubular Products 1,369 609
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Total Gross Profit 6,434 6,199
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Expenses:
Selling and administrative expenses 5,302 5,403
Interest expense 535 564
Other (income) expense (83) (128)
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Total Expenses 5,754 5,839
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Income Before Income Taxes 680 360
Income Tax Expense 273 140
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Net Income $ 407 $ 220
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RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1997
The net income for the 1997 first quarter was $0.4 million or $0.04 per
share on net sales of $54.5 million. This compares to a 1996 first quarter
net income of $0.2 million or $0.02 per share on net sales of $48.3 million.
Rail products' first quarter net sales in both 1997 and 1996 were $23.5
million. Construction products' first quarter net sales increased 20% from
the year earlier quarter, which suffered from harsh winter weather. Tubular
products' net sales in the quarter were $11.8 million or an increase of 34%
which reflects the improvement in the Coated Pipe Division. 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 in the 1997 first quarter
decreased to 12% from 13% in the 1996 first quarter. Rail products' gross
margin percentage decreased to 11% from 15% in the first quarter of 1996 due
to increased competitive pricing pressures in the rail market. Construction
products' gross margin percentage decreased slightly to 12% from 13% due to
implementation of the Company's plan to get out of the pile driving equipment
business. The gross margin percentage for tubular products climbed to 12%
from 7% as a result of improvements in the Coated Pipe Division's Birmingham
operations.
Selling and administrative expenses decreased 2% in the 1997 first quarter
from the same period last year while interest expense decreased 5%.
LIQUIDITY AND CAPITAL RESOURCES
The Company's ability to generate internal cash flow ("liquidity") results
from the sale of inventory and the collection of accounts receivable. During
the first three months of 1997, the average turnover rate for inventory
decreased slightly from the prior year primarily due to the purchase of
Bethlehem piling for stock. The turnover rate for accounts receivable during
the first three months of 1997 was higher than during the same period of the
prior year due to an increase in collection rate. Working capital at
March 31, 1997 was $64.6 million compared to $63.5 million at December 31,
1996.
During the first three months of 1997, the Company had capital expenditures
of $0.5 million. Excluding acquisitions, capital expenditures in 1997 are
not expected to exceed $3.0 million and are anticipated to be funded by
cash flows from operations.
Total revolving credit agreement borrowings at March 31, 1997 were $30.7
million or an increase of $6.7 million from the end of the prior year. At
March 31, 1997, the Company had approximately $13.2 million in available
unused borrowing commitment. Management believes its internal and external
sources of funds are adequate to meet anticipated needs.
OTHER MATTERS
The Company owns approximately 13% of the common stock in the Dakota,
Minnesota & Eastern Railroad Corporation (DM&E), a privately-held, regional
railroad which operates over 1,100 miles of track located principally in
South Dakota and Minnesota. The market value of this investment is not
readily determinable and, therefore, the investment is recorded in the
Company's accounts at its historical cost of $0.2 million. The book value
of this stock, as reflected in the DM&E's records is about $2 million. If
this business is sold, the Company believes that the potential sale price
could significantly exceed DM&E's book value.
As stated previously, the Company has made a decision to divest its
Fosterweld operations and does not expect to complete any potential sale in
the near-term. Additionally, the Company has decided to exit the pile
driving equipment business through sales and leases of its remaining assets.
On May 6, 1997 the Company acquired the assets of the Monitor Group, a
division of Industrial Scientific of Delaware, Inc. The Monitor Group
designs, develops and assembles portable mass spectrometers. Mass
spectrometers are used to measure gas compositions and concentrations for
various applications, including monitoring air quality for the mining
industry and serving as a process monitor and diagnostic tool in chemical
manufacturing industries. For the balance of 1997, the Company anticipates
that the Monitor Group's operating costs will exceed the Division's revenue.
Management continues to evaluate the overall performance of certain
operations. A decision to terminate an existing operation could have a
material effect on near-term earnings but would not be expected to have a
material adverse effect on the financial condition of the Company.
OUTLOOK
The Company's primary supplier of piling products, Bethlehem Structural
Products Corporation, has shut down its hot rolled sheet piling and
structural products facility in Bethlehem, PA as of March 1997. The Company
purchased Bethlehem's remaining piling production and will use a portion of
this inventory to maintain its rental piling business beyond 1997.
The Company has agreed, in principal, to become Chaparral Steel Corporation's
exclusive distributor of piling products manufactured at Chaparral's
proposed new structural mill. Chaparral previously has announced that the
new mill would be located in the eastern United States and should be
operational in the first half of 1999.
The rail segment of the business depends on one source for fulfilling
certain trackwork contracts. The Company has provided $5.2 million of
working capital to this supplier in the form of loans and advanced payments.
If, for any reason, this supplier is unable to perform, the Company could
experience a negative short term effect on earnings.
The Company's operations are in part dependent on governmental funding of
infrastructure projects. Significant changes in the level of government
funding of these projects could have a favorable or unfavorable impact on
the operating results of the Company. Additionally, governmental actions
concerning taxation, tariffs, the environment or other matters could impact
the operating results of the Company. The Company's operations results may
also be affected by the weather.
Although backlog is not necessarily indicative of future operating results,
total Company backlog at March 31, 1997, was approximately $68 million.
This does not include the previously awarded Tren-Urbano project which will
have an order value of $17 - $20 million. If this project was included in
the following table, Rail Products' backlog would be, at a minimum, $51
million and the total backlog would be $85 million.
Backlog
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March 31, December 31,
1997 1996 1996
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(Dollars in thousands)
Rail Products $ 33,928 $ 43,722 $ 36,100
Construction Products 22,048 37,562 28,080
Tubular Products 12,523 13,872 11,328
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Total Backlog $ 68,499 $ 95,156 $ 75,508
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FORWARD-LOOKING STATEMENTS
The Company wishes to caution readers that various factors could cause the
actual results of the Company to differ materially from those indicated by
forward-looking statements made from time to time in news releases, reports,
proxy statements, registration statements and other written communications
(including the preceding sections of this Management's Discussion and
Analysis), as well as oral statements made from time to time by
representatives of the Company. Except for historical information, matters
discussed in such oral and written communications are forward-looking
statements that involve risks and uncertainties, including but not limited to
general business conditions, the availability of material from major
suppliers, the impact of competition, the seasonality of the Company's
business, taxes, inflation and governmental regulations.
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
See Note 7, "Commitments and Contingent Liabilities", to the
Condensed Consolidated Financial Statements.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
a) EXHIBITS
Unless marked by an asterisk, all exhibits are incorporated herein
by reference:
3.1 Restated Certificate of Incorporation as amended to date
filed as Exhibit 3.1 to Form 10-Q for the quarter ended March
31, 1987.
3.2 Bylaws of the Registrant, as amended to date, filed as
Exhibit 3.2 to Form 10-K for the year ended December 31,
1993.
4.1 Amended and Restated Loan Agreement by and among the
Registrant and Mellon Bank, N.A., NBD Bank, and Corestates
Bank, N.A. dated as of November 1, 1995 and filed as
Exhibit 4.1 to Form 10-K for the year ended December 31,
1995.
10.15 Lease between the Registrant and Amax, Inc. for manufacturing
facility at Parkersburg, West Virginia, dated as of October
19, 1978, filed as Exhibit 10.15 to Registration Statement
No. 2-72051.
10.16 Lease between Registrant and Greentree Building Associates
for Headquarters office, dated as of June 9, 1986, as
amended to date, filed as Exhibit 10.16 to Form 10-K for
the year ended December 31, 1988.
10.16.1 Amendment dated June 19, 1990 to lease between Registrant and
Greentree Building Associates, filed as Exhibit 10.16.1 to
Form 10-Q for the quarter ended June 30, 1990.
10.19 Lease between the Registrant and American Cast Iron Pipe
Company for Pipe Coating Facility in Birmingham, Alabama
dated December 11, 1991 and filed as Exhibit 10.19 to
Form 10-K for the year ended December 31, 1991.
* 10.19.1 Amendment to Lease between the Registrant and American Cast
Iron Pipe Company for Pipe Coating Facility in Birmingham,
Alabama dated April 15, 1997.
10.33.2 Amended and Restated 1985 Long-Term Incentive Plan, as
amended and restated February 26, 1997 and filed as Exhibit
10.33.2 to Form 10-K for the year ended December 31, 1996.
**
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, 1993. **
10.49 Lease agreement between Newport Steel Corporation and L.B.
Foster Company dated as of October 12, 1994 and filed as
Exhibit 10.49 to Form 10-Q for the quarter ended September
30, 1994.
10.50 L. B. Foster Company 1997 Incentive Compensation Plan. Filed
as Exhibit 10.50 to Form 10-K for the year ended December 31,
1996. **
10.51 Supplemental Executive Retirement Plan. Filed as Exhibit
10.51 to Form 10-K for the year ended December 31, 1994. **
10.52 L. B. Foster Company Officer Loan Program. Filed as Exhibit
10.52 to Form 10-Q for the quarter ended September 30, 1996.
10.53 Amendment to L. B. Foster Company Officer Loan Program.
Filed as Exhibit 10.53 to Form 10-K for the year ended
December 31, 1996.
19 Exhibits marked with an asterisk are filed herewith.
** Identified 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 three month
period ended March 31, 1997.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
L. B. FOSTER COMPANY
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(Registrant)
Date: May 15, 1997 By /s/Roger F. Nejes
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Roger F. Nejes
Sr. Vice President-
Finance and Administration
& Chief Financial Officer
(Principal Financial Officer
and Duly Authorized Officer
of Registrant)