UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended March 31, 2001
Commission File Number 0-10436
L. B. Foster Company
(Exact name of Registrant as specified in its charter)
Pennsylvania 25-13247733
(State of Incorporation) (I. R. S. Employer Identification No.)
415 Holiday Drive, Pittsburgh, Pennsylvania 15220
(Address of principal executive offices) (Zip Code)
(412) 928-3417
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No
Indicate the number of shares of each of the registrant's classes of common
stock as of the latest practicable date.
Class Outstanding at May 3, 2001
Common Stock, Par Value $.01 9,468,534 Shares
L.B. FOSTER COMPANY AND SUBSIDIARIES
INDEX
PART I. Financial Information Page
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of Income 4
Condensed Consolidated Statements of Cash Flows 5
Notes to Condensed Consolidated
Financial Statements 6
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
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
L. B. FOSTER COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
March 31, December 31,
2001 2000
- ------------------------------------------------------------------------------
ASSETS (Unaudited)
Current Assets:
Cash and cash equivalents $ 1,237 $ -
Accounts and notes receivable:
Trade 49,530 56,472
Other 339 1,134
- ------------------------------------------------------------------------------
49,869 57,606
Inventories 55,101 59,811
Current deferred tax assets 2,055 2,055
Other current assets 1,014 373
Property held for resale 1,333 1,333
- ------------------------------------------------------------------------------
Total Current Assets 110,609 121,178
- ------------------------------------------------------------------------------
Property, Plant & Equipment - At Cost 59,025 58,499
Less Accumulated Depreciation (26,300) (25,476)
- ------------------------------------------------------------------------------
32,725 33,023
- ------------------------------------------------------------------------------
Property Held for Resale 747 1,089
- ------------------------------------------------------------------------------
Other Assets:
Goodwill and other intangibles - net 6,604 6,772
Investments 9,643 9,423
Deferred tax assets 1,242 1,242
Other assets 3,217 4,420
- ------------------------------------------------------------------------------
Total Other Assets 20,706 21,857
- ------------------------------------------------------------------------------
TOTAL ASSETS $164,787 $177,147
==============================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term debt $ 958 $ 926
Short-term borrowings 5,500 6,500
Accounts payable - trade 26,304 33,008
Accrued payroll and employee benefits 2,934 3,503
Current deferred tax liabilities 1,947 1,947
Other accrued liabilities 1,911 3,817
- ------------------------------------------------------------------------------
Total Current Liabilities 39,554 49,701
- ------------------------------------------------------------------------------
Long-Term Borrowings 40,000 40,000
- ------------------------------------------------------------------------------
Other Long-Term Debt 3,312 3,484
- ------------------------------------------------------------------------------
Deferred Tax Liabilities 5,413 5,413
- ------------------------------------------------------------------------------
Other Long-Term Liabilites 1,177 1,190
- ------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY:
Common stock 102 102
Paid-in capital 35,238 35,306
Retained earnings 44,130 45,995
Treasury stock (3,921) (4,009)
Accumulated other comprehensive loss (218) (35)
- ------------------------------------------------------------------------------
Total Stockholders' Equity 75,331 77,359
- ------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $164,787 $177,147
==============================================================================
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,
- ------------------------------------------------------------------------------
2001 2000
- ------------------------------------------------------------------------------
(Unaudited)
Net Sales $56,090 $59,489
Cost of Goods Sold 50,750 51,178
- ------------------------------------------------------------------------------
Gross Profit 5,340 8,311
Selling and Administrative Expenses 7,755 7,408
Interest Expense 961 938
Other Income (214) (581)
- ------------------------------------------------------------------------------
8,502 7,765
- ------------------------------------------------------------------------------
Income (Loss) From Continuing Operations,
Before Income Taxes (3,162) 546
Income Tax (Benefit) Expense (1,297) 218
- ------------------------------------------------------------------------------
Income (Loss) From Continuing Operations (1,865) 328
Loss From Discontinued Operations,
Net of Taxes 0 (176)
- ------------------------------------------------------------------------------
Net Income (Loss) ($1,865) $152
==============================================================================
Basic Earnings (Loss) Per Common Share From:
Continuing Operations ($0.20) $0.04
Discontinued Operations 0.00 (0.02)
- ------------------------------------------------------------------------------
Basic Earnings (Loss) Per Common Share ($0.20) $0.02
==============================================================================
Diluted Earnings (Loss) Per Common Share From:
Continuing Operations ($0.20) $0.04
Discontinued Operations 0.00 (0.02)
- ------------------------------------------------------------------------------
Diluted Earnings (Loss) Per Common Share ($0.20) $0.02
==============================================================================
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,
2001 2000
- -------------------------------------------------------------------------------
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Income (Loss) from continuing operations ($1,865) $ 328
Adjustments to reconcile net income to net
cash provided by continuing operations:
Depreciation and amortization 1,570 1,214
Gain (loss) on sale of property, plant
and equipment 15 (256)
Change in operating assets and liabilities:
Accounts receivable 7,760 (363)
Inventories 4,710 (5,947)
Other current assets (139) (142)
Other noncurrent assets 451 234
Accounts payable - trade (6,704) 7,063
Accrued payroll and employee benefits (569) (173)
Other current liabilities (2,063) (91)
Other liabilities (13) 33
- -------------------------------------------------------------------------------
Net Cash Provided by Continuing Operations 3,153 1,900
Net Cash Used by Discontinued Operations (352)
- -------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 3,153 1,548
- -------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property, plant
and equipment 34 1,911
Capital expenditures on property, plant
and equipment (690) (1,303)
- -------------------------------------------------------------------------------
Net Cash (Used) Provided by Investing Activities (656) 608
- -------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of revolving credit agreement
borrowings (1,000)
Exercise of stock options and stock awards 95 113
Treasury share transactions (75) (641)
Repayment of long-term debt (238) (267)
- -------------------------------------------------------------------------------
Net Cash Used by Financing Activities (1,218) (795)
- -------------------------------------------------------------------------------
Effect of exchange rate on cash (42)
- -------------------------------------------------------------------------------
Net Increase in Cash and Cash Equivalents 1,237 1,361
Cash and Cash Equivalents at Beginning of Period - 1,558
- -------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Period $1,237 $2,919
===============================================================================
Supplemental Disclosure of Cash Flow Information:
Interest Paid $1,230 $1,056
===============================================================================
Income Taxes Paid $ 358 $ 380
===============================================================================
During 2001 and 2000, the Company financed certain capital expenditures totaling
$98,000 and $119,000, respectively, through the execution 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. 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, 2001. 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, 2000.
2. ACCOUNTING PRINCIPLES
On January 1, 2001, the Company adopted Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" (SFAS No. 133). SFAS No. 133 establishes accounting and reporting
standards for derivative financial instruments and hedging activities and
requires the transition adjustment from adoption to be reported in net income or
other comprehensive income, as appropriate, as the cumulative effect of a change
in accounting principle. In accordance with the transition provisions of SFAS
No. 133, the Company recorded a cumulative transition adjustment to decrease
other comprehensive income by approximately $48,000, net of related tax effects,
to recognize the fair value of its derivative instruments as of the date of
adoption. During the quarter ended March 31, 2001, unrealized net losses on
derivative instruments of approximately $112,000, net of related tax effects,
were recorded in other comprehensive income. See Note 12 Comprehensive income
(loss) in the Notes to Condensed Consolidated Financial Statements.
The Company uses derivative financial instruments to manage interest rate
exposure on variable-rate debt, primarily by using interest rate collars and
variable interest rate swaps. The Company has a LIBOR-based interest rate collar
agreement, which expires in March 2005, with a notional value of $15.0 million,
a maximum annual interest rate of 5.60%, and a minimum annual interest rate of
5.00%. The counter-party to the collar agreement has the option, at the end of
the collar agreement, to convert the $15.0 million note to a one-year fixed-rate
instrument with interest payable at an annual rate of 5.49%. The fair value of
the collar at March 31, 2001, which is designated as a cash flow hedge
instrument, is a $0.1 million liability and is classified within other current
liabilities on the Condensed Consolidated Balance Sheets. The Company also has a
LIBOR-based interest rate collar agreement, which became effective in April 2001
and expires in April 2006, with a notional value of $10.0 million, a maximum
annual interest rate of 5.14%, and a minimum annual interest rate of 4.97%. The
counter-party to the collar agreement has the option, on April 18, 2004, to
convert the $10.0 million note to a two-year fixed-rate instrument with the
interest payable at an annual rate of 5.48%. The Company also has an interest
rate swap agreement, which expires in December 2004, with a notional value of
$3.6 million at March 31, 2001 that is designed to fix the total interest rate
at 7.42%. The Company is obligated to pay additional interest on the swap if
LIBOR exceeds 7.249%. The fair value of the swap at March 31, 2001 is a $0.1
million liability and is classified within other current liabilities on the
Condensed Consolidated Balance Sheets. At the current fair value based on
prevailing interest rates as of March 31, 2001, the $0.2 million of other
comprehensive loss related to these derivatives will be reclassified into
earnings over the term of the agreements.
The Company is not subject to significant exposure to change in foreign currency
exchange rates. The Company does, however, hedge the cash flows of operations of
its Canadian subsidiary. The Company manages its exposures to changes in foreign
currency exchange rates on firm sales and purchase commitments by entering into
foreign currency forward contracts. The Company's risk management objective is
to reduce its exposure to the effects of changes in exchange rates on sales
revenue over the duration of the transaction. At March 31, 2001, the Company had
outstanding foreign currency forward contracts to purchase $0.486 million
Canadian for approximately $0.326 million US.
The Company recognizes all derivative instruments on the balance sheet at fair
value at the end of each quarter. Fluctuations in the fair values of derivative
instruments designated as cash flow hedges are recorded in accumulated other
comprehensive income, and reclassified into earnings as the underlying hedged
item affects earnings. To the extent that a change in an interest rate
derivative does not perfectly offset the change in value of the interest rate
being hedged, the ineffective portion is recognized in earnings immediately. For
the quarter ended March 31, 2001, hedge ineffectiveness was not material.
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, 2001 and
December 31, 2000 have been reduced by an allowance for doubtful accounts of
$(1,648,000) and $(1,564,000), respectively. Bad debt expense was $82,000 and
$(113,000) for the three- month periods ended March 31, 2001 and 2000,
respectively.
4. INVENTORIES
Inventories of the Company at March 31, 2001 and December 31, 2000 are
summarized as follows in thousands:
March 31, December 31,
2001 2000
- --------------------------------------------------------------------------------
Finished goods $ 39,445 $ 41,618
Work-in-process 10,563 13,519
Raw materials 7,383 6,964
- --------------------------------------------------------------------------------
Total inventories at current costs: 57,391 62,101
(Less):
Current costs over LIFO
stated values (1,690) (1,690)
Inventory valuation reserve (600) (600)
- --------------------------------------------------------------------------------
$ 55,101 $ 59,811
================================================================================
Inventories of the Company are generally valued at the lower of last-in,
first-out (LIFO) cost or market. Other inventories of the Company are valued at
average cost or market, whichever is lower. An actual valuation of inventory
under the LIFO method can be made only at the end of each year based on the
inventory levels and costs at that time. Accordingly, interim LIFO calculations
must necessarily be based on management's estimates of expected year-end levels
and costs.
5. PROPERTY HELD FOR RESALE
March 31, December 31,
(in thousands) 2001 2000
- -------------------------------------------------------------------------------
Location:
- -------------------------------------------------------------------------------
Birmingham, AL $1,333 $1,333
Pomeroy, OH 319 653
St. Marys, WV 428 436
- -------------------------------------------------------------------------------
Property held for resale $2,080 $2,422
- -------------------------------------------------------------------------------
Less current portion 1,333 1,333
- -------------------------------------------------------------------------------
$747 $1,089
===============================================================================
Operations at the Newport, KY facility were suspended in September 1998 in
response to unfavorable market conditions. In 1999, the Company recorded an
impairment loss of $183,000 to reduce these assets to their anticipated market
value. Machinery and equipment previously utilized in the Company's Newport, KY
pipe coating facility were dismantled and transferred to the Company's
Birmingham, AL location during 2000. Management is actively pursuing the sale of
these assets.
The Company continues to explore the divestiture of its Mining division, which
consists of machinery and equipment, buildings, land and land improvements at
its Pomeroy, OH and St. Marys, WV locations. During the first quarter of 2001,
the Company recorded an impairment loss of $307,000 to reduce the assets at its
mine trackwork production facility in Pomeroy, OH to their anticipated market
value. This charge has been included in plant manufacturing costs incurred in
the quarter.
In 2000, the Company sold an undeveloped 62-acre portion of a 127-acre Houston,
TX property and recorded an approximate pretax gain of $800,000. In the second
quarter of 2001, the Company has agreed to sell the remaining 65 acres for
approximately $3,300,000. The Company plans to lease back about 11 acres to
support its current operations located onsite.
6. DISCONTINUED OPERATIONS
In the fourth quarter of 1999, the Company made the decision to discontinue the
operations of the Monitor Group, a developer of portable mass spectrometers,
pending its sale. During the first quarter of 2000, net losses from the Monitor
Group were $176,000. In September of 2000, the Company sold the assets of the
Monitor Group for $1,500,000 cash.
7. BORROWINGS
In accordance with the original terms and conditions of the Company's revolving
credit agreement, the line of credit was reduced to $64,025,000 due to asset
sales. The interest rate is, at the Company's option, based on the Euro-bank
rate (LIBOR), the domestic certificate of deposit rate (CD rate) or the prime
rate. 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 the LIBOR rate plus 0.575% to 1.8%, the CD rate plus 0.575% to
1.8%, to the prime rate to prime plus 0.25%. 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.
8. EARNINGS PER COMMON SHARE
The following table sets forth the computation of basic and diluted earnings per
common share:
Three Months Ended
March 31,
(in thousands, except earnings per share) 2001 2000
- ------------------------------------------------------------------------------
Numerator:
Numerator for basic and diluted earnings per
common share - net income
available to common stockholders:
Income (Loss) from continuing operations ($1,865) $328
Loss from discontinued operations (176)
- ------------------------------------------------------------------------------
Net Income (Loss) ($1,865) $152
==============================================================================
Denominator:
Weighted average shares 9,416 9,561
- ------------------------------------------------------------------------------
Denominator for basic earnings
per common share 9,416 9,561
Effect of dilutive securities:
Contingent issuable shares pursuant to
the Company's Incentive
Compensation Plans 36 52
Employee stock options 7 70
- ------------------------------------------------------------------------------
Dilutive potential common shares 43 122
Denominator for diluted earnings
per common share - adjusted weighted
average shares and assumed conversions 9,459 9,683
==============================================================================
Basic earnings (loss) per common share:
Continuing operations ($0.20) $0.04
Discontinued operations 0.00 (0.02)
- ------------------------------------------------------------------------------
Basic earnings (loss) per common share ($0.20) $0.02
==============================================================================
Diluted earnings (loss) per common share:
Continuing operations ($0.20) $0.04
Discontinued operations 0.00 (0.02)
- ------------------------------------------------------------------------------
Diluted earnings (loss) per common share ($0.20) $0.02
==============================================================================
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, results of
operations, cash flows, competitive position, or capital expenditures of the
Company.
The Company is subject to legal proceedings and claims that 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.
The Miami-Dade Transit Agency has asserted a claim of approximately $1,100,000
in alleged liquidated damages against the Company due to the late delivery of
trackwork and related items. The Company does not believe that it is liable for
these penalties and is vigorously contesting them.
At March 31, 2001, the Company had outstanding letters of credit of
approximately $3,866,000.
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
following tables illustrate revenues and profits/(losses) of the Company by
segment:
Three Months Ended
March 31, 2001
Net Segment
(in thousands) Sales Profit/(Loss)
- -------------------------------------------------------------------------
Rail products $26,909 ($3,000)
Construction products 24,004 (607)
Tubular products 5,177 514
- -------------------------------------------------------------------------
Total $56,090 ($3,093)
=========================================================================
Three Months Ended
March 31, 2000
Net Segment
(in thousands) Sales Profit/(Loss)
- -------------------------------------------------------------------------
Rail products $32,657 ($517)
Construction products 21,727 352
Tubular products 4,990 406
- -------------------------------------------------------------------------
Total $59,374 $241
=========================================================================
Segment profits, as shown above, include internal cost of capital charges for
assets used in the segment at a rate of, generally, 1% per month. The following
table provides a reconciliation of reportable net profit/(loss) to the Company's
consolidated total:
Three Months Ended
March 31,
(in thousands) 2001 2000
- ----------------------------------------------------------------------------
Net Profit/(Loss)
- ----------------------------------------------------------------------------
Total for reportable segments ($3,093) $241
Cost of capital for reportable segments 3,227 2,950
Interest expense (961) (938)
Other income 214 581
Corporate expense and other unallocated charges (2,549) (2,288)
- ----------------------------------------------------------------------------
Income (loss) from continuing operations,
before income taxes ($3,162) $546
============================================================================
There has been no change in the measurement of segment profit/(loss) from
December 31, 2000. There has been no significant change in segment assets from
December 31, 2000.
11. SPECIAL CHARGES
Results for the first quarter of 2001 include a nonrecurring pretax charge of
$1,356,000 ($0.09 per share after tax), including $587,000 related to the
Company's previously announced plan to improve its financial performance by
consolidating sales and administrative functions and plant operations.
Additional charges associated with this plan consist of $769,000 of inventory
write-downs, legal fees, and personnel related costs. The prior year's first
quarter results include nonrecurring pretax charges of $503,000 ($0.03 per share
after tax). The total nonrecurring pretax charges recorded to date associated
with the shutdown and relocation of Company operations are approximately
$2,700,000, with a current planned estimate of $3,200,000 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.
12. COMPREHENSIVE INCOME (LOSS)
Comprehensive income (loss) represents net income (loss) plus certain
non-stockholders' equity changes not reflected in the Condensed Consolidated
Statements of Income. The components of comprehensive income (loss), net of tax,
were as follows:
Three Months Ended
March 31,
(in thousands) 2001 2000
------------------------------------------------------------------------------
Net Income/(Loss) ($1,865) $152
Cumulative transition adjustment of a change
in accounting principle (SFAS No. 133) (48) 0
Unrealized derivative losses on cash flow
hedges (SFAS No. 133) (112) 0
Foreign currency translation losses (29) 0
- -------------------------------------------------------------------------------
Comprehensive income (loss) ($2,054) $152
===============================================================================
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Three Months Ended
March 31,
- --------------------------------------------------------------------------------
2001 2000
- --------------------------------------------------------------------------------
(Dollars in thousands)
Net Sales:
Rail Products $26,909 $32,657
Construction Products 24,004 21,727
Tubular Products 5,177 4,990
Other 0 115
- --------------------------------------------------------------------------------
Total Net Sales $56,090 $59,489
================================================================================
Gross Profit:
Rail Products $1,350 $4,186
Construction Products 3,082 3,535
Tubular Products 1,235 870
Other (327) (280)
- --------------------------------------------------------------------------------
Total Gross Profit 5,340 8,311
- --------------------------------------------------------------------------------
Expenses:
Selling and administrative expenses 7,755 7,408
Interest expense 961 938
Other (income) expense (214) (581)
- --------------------------------------------------------------------------------
Total Expenses 8,502 7,765
- --------------------------------------------------------------------------------
Income (Loss) From Continuing Operations
Before Income Taxes (3,162) 546
Income Tax (Benefit) Expense (1,297) 218
- --------------------------------------------------------------------------------
Income (Loss) From Continuing Operations (1,865) 328
Loss From Discontinued Operations,
Net of Taxes 0 (176)
- --------------------------------------------------------------------------------
Net Income (Loss) ($1,865) $152
================================================================================
Gross Profit %:
Rail Products 5.0% 12.8%
Construction Products 12.8% 16.3%
Tubular Products 23.9% 17.4%
Total Gross Profit 9.5% 14.0%
================================================================================
First Quarter 2001 Results of Operations
The Company recorded a net loss from continuing operations for the first quarter
of 2001 of $1.9 million or $0.20 per diluted share on net sales of $56.1
million. This compares to a 2000 first quarter income from continuing operations
of $0.3 million or $0.04 per diluted share on net sales of $59.5 million. The
Monitor Group, classified as a discontinued operation on December 31, 1999, and
sold in the third quarter of 2000, had net losses of $0.2 million in the first
quarter of 2000.
Results for the first quarter of 2001 include a nonrecurring pretax charge of
$1.4 million ($0.09 per share after tax), including $0.6 million related to the
Company's previously announced plan to improve its financial performance by
consolidating sales and administrative functions and plant operations.
Additional charges associated with this plan consist of $0.8 million of
inventory write-downs, legal fees, and personnel related costs. The prior year's
first quarter results include nonrecurring pretax charges of $0.5 million ($0.03
per share after tax). The total nonrecurring pretax charges recorded to date
associated with the shutdown and relocation of Company operations are
approximately $2.7 million, with a current planned estimate of $3.2 million.
Rail products' 2001 first quarter net sales were $26.9 million, a decline of
17.6% over the same period last year. The decline in rail and transit project
shipments reflects the downturn in the rail supply industry due to increased
competition resulting from spending cutbacks by the major railroads. First
quarter rail order entry, particularly for transit projects, increased
significantly over the prior year although margins continue to reflect the
difficult competitive environment. Construction products' net sales were $24.0
million, an increase of 10.5% from the year earlier quarter due primarily to
sales of mechanically stabilized earth walls and concrete buildings. Tubular
products' sales increased 3.7% from the same quarter of 2000 due to an improved
pipe coating market. Changes in net sales are generally the result of changes in
volume rather than changes in prices.
The gross margin percentage for the total Company was 9.5% in the first quarter
of 2001 and 14.0% in the 2000 first quarter. The nonrecurring pretax charges
discussed above reduced the first quarter gross margin percentages by 1.5 and
0.1 percentage points in 2001 and 2000, respectively. Rail products' gross
margin percentage declined in the first quarter of 2001 to 5.0% from 12.8% in
the year earlier quarter. Excluding the nonrecurring pretax charges discussed
above, the gross margin percentage for rail products in the 2001 first quarter
was 7.4%. The competitive environment created by Class I railroad spending
cutbacks continues to have a negative impact on margins. In addition, pricing
weakness in the used rail market combined with a Company effort to reduce
inventory, particularly used rail, adversely impacted gross margins. The gross
margin percentage for construction products declined 3.5 percentage points to
12.8% from the year earlier quarter primarily due to pricing weakness in the
bearing pile market. Tubular products' gross margin percentage in the first
quarter of 2001 increased 6.5 percentage points to 23.9% from the same period
last year. This increase in margin is a result of greater efficiencies and lower
powder costs at the Birmingham, AL coated pipe facility.
Selling and administrative expenses increased 4.7% over the prior year period.
Other income in the 2001 first quarter includes $0.2 million accrued dividend
income on the DM&E Preferred Stock. Other income in the same period of 2000
includes an estimated gain on the sale of property in Langfield, TX, and accrued
interest on DM&E notes that were subsequently paid in full. The provision for
income taxes was recorded at 41% and 40% in the first quarters of 2001 and 2000,
respectively.
Liquidity and Capital Resources
The Company generates internal cash flow from the sale of inventory and the
collection of accounts receivable. The average turnover rate for accounts
receivable remained relatively the same during the first three months of 2001
and 2000. The average inventory turnover rate for the first quarter of 2001 was
lower than the same period in 2000 particularly for piling products and new rail
projects. Working capital at March 31, 2001 was $71.1 million compared to $71.5
million at December 31, 2000.
During the first quarter of 1999, the Company announced a program to purchase up
to 1,000,000 shares of its common stock. In the first quarter of 2001, the
Company purchased 25,000 shares at a cost of $75,000. Purchases under this
program total 473,398 shares at a cost of $2.3 million.
The Company had capital expenditures of approximately $0.7 million in the first
quarter of 2001. Capital expenditures in 2001 are expected to be at similar
levels as during the previous year and are anticipated to be funded by cash flow
from operations and available external financing sources.
Total revolving credit agreement borrowings at March 31, 2001 were $45.5
million, a decrease of $1.0 million from December 31, 2000. At March 31, 2001
the Company had $6.9 million in unused borrowing commitment. Outstanding letters
of credit at March 31, 2001 were $3.9 million. Management believes its internal
and external sources of funds are adequate to meet anticipated needs.
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 March 31, 2001, the Company's investment was comprised of, $0.2 million of
DM&E common stock, $1.5 million of the Series B Preferred Stock and warrants and
$6.0 million of the Series C Preferred Stock and warrants. In May 2001, the
Company purchased $0.8 million of DM&E Preferred Series C-1 Stock and warrants.
On a fully diluted basis, the Company owns approximately 16% of the DM&E's
common stock. 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 estimated cost of this project is expected to
be in excess of $1.5 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 2000, with a comment
period ending March 6, 2001. The STB will issue a final environmental impact
statement upon completion of its review of the comments. 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. Although the market value of
the DM&E is not readily determinable, management believes that this investment,
regardless of the DM&E's Powder River Basin project, is worth more than its
historical cost.
Other Matters
The Company has agreed to sell its 65 acres of Houston, TX property for
approximately $3.3 million. The Company plans to lease back about 11 acres to
support its current operations located onsite.
During the first quarter of 2001, the Company decided to expand its concrete
products operations, primarily the fabrication of precast buildings. In order to
better serve the southwest and southern markets, the Company entered into
agreements to lease land, a building and production equipment in Hillsboro, TX.
The Company expects production to commence in the third quarter of 2001.
Also in the first quarter of 2001, the Company decided to terminate its sign
structure business. Costs related to this decision, including the closing of the
Ephrata production facility totaling $0.2 million, were recorded in the first
quarter. The remaining backlog will be completed at the Company's Doraville, GA
facility or subcontracted.
During the first quarter of 2001, the Company decided to terminate operations at
one of its rail manufacturing facilities. Costs related to this decision,
totaling $0.5 million, were recorded in the first quarter of 2001.
In August 1998, the Company purchased assets primarily comprised of intellectual
properties related to the business of supplying rail signaling and communication
devices for approximately $1.7 million. Management continues to evaluate the
performance of this operation, as product development has been slower than
anticipated. Initial sales are expected in the second quarter with completion of
product development in the third quarter.
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 March 31, 2001, the Company had inventory progress payments of
$6.3 million committed to this supplier. If, for any reason, this supplier is
unable to perform, the Company could experience a negative short-term effect on
earnings.
The Company's CXT subsidiary and Allegheny Rail Products division are dependent
on one Class I railroad customer for a significant portion of their business. In
addition, much of the Company's business depends 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.
Management continues to evaluate the overall performance of its 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 is TXI Chaparral's exclusive North American distributor of steel
sheet piling and H-bearing pile. Shipments of H-bearing pile began in the third
quarter of 1999 from Chaparral's Petersburg, VA facility. The long awaited
startup of sheet piling production at TXI Chaparral's Virginia mill commenced in
late March. Current mill forecasts indicate that production quantities of sheet
piling will be available in the second quarter.
Although backlog is not necessarily indicative of future operating results,
total Company backlog at March 31, 2001, was approximately $164.3 million. The
following table provides the backlog by business segment:
Backlog
- -------------------------------------------------------------------------------
March 31, December 31, March 31,
2001 2000 2000
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Rail Products $103,461 $ 86,351 $118,156
Construction Products 58,278 52,779 56,127
Tubular Products 2,601 2,219 1,301
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Total $164,340 $141,349 $175,584
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- -------------------------------------------------------------------------------
The reduction in rail segment backlog from a year ago reflects the effect of CXT
long-term production contracts. Total shipments under these contracts were $16.7
million since April 1, 2000.
Market Risk and Risk Management Policies
On January 1, 2001 the Company adopted the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting Standards No. 133, "Accounting
for Derivative Instruments and Hedging Activities." This statement established
accounting and reporting standards for derivative financial instruments and
hedging activities.
The Company uses derivative financial instruments to manage interest rate
expense on variable-rate debt, primarily by using interest rate collars, as well
as, variable interest rate swaps. One interest rate collar agreement, which
expires in March 2005, has a notional value of $15.0 million with a maximum
annual interest rate of 5.60%, and a minimum annual interest rate of 5.00%, and
is based on LIBOR. The counter-party to the collar agreement has the option, at
the end of the collar agreement, to convert the $15.0 million note to a one-year
fixed-rate instrument with interest payable at an annual rate of 5.49%. A second
interest rate collar agreement, which expires in April 2006, has a notional
value of $10.0 million with a maximum annual interest rate of 5.14%, and a
minimum annual interest rate of 4.97%, and is based on LIBOR. The counter-party
to the collar agreement has the option, on April 18, 2004, to convert the $10.0
million note to a two-year fixed-rate instrument with the interest payable at an
annual rate of 5.48%. The interest rate swap agreement, which expires in
December 2004, has a notional value of $3.6 million at March 31, 2001 and is
designed to fix the total interest rate at 7.42%. The Company is obligated to
pay additional interest on the swap if LIBOR exceeds 7.249%.
The Company is not subject to significant exposure to change in foreign currency
exchange rates. The Company does, however, hedge the cash flows of operations of
its Canadian subsidiary. The Company manages its exposures to changes in foreign
currency exchange rates on firm sales and purchase commitments by entering into
foreign currency forward contracts. The Company's risk management objective is
to reduce its exposure to the effects of changes in exchange rates on sales
revenue over the duration of the transaction. At March 31, 2001, the Company had
outstanding foreign currency forward contracts to purchase $0.486 million
Canadian for approximately $0.326 million US.
During the quarter ended March 31, 2001, unrealized net losses on derivative
instruments of approximately $0.2 million, net of related tax effects, were
recorded in comprehensive income (loss).
The Company plans to enter into additional swaps or other financial instruments
to set all or a portion of its borrowings at fixed rates.
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 DM&E's ability to continue to
obtain interim funding to finance the project through the approval process, the
expense of environmental mitigation measures required by the Surface
Transportation Board, an inability to obtain financing for the Project,
competitor's response to the Project, market demand for coal or electricity and
changes in environmental laws and regulations.
The Company wishes to caution readers that various factors could cause the
actual results of the Company to differ materially from those indicated by
forward-looking statements made from time to time in news releases, reports,
proxy statements, registration statements and other written communications
(including the preceding sections of this Management's Discussion and Analysis),
as well as oral statements made from time to time by representatives of the
Company. Additional delays in Chaparral's production of steel sheet piling
would, for example, have an adverse effect on the Company's performance. The
nonrecurring charges through 2001 are estimates and are subject to change as the
Company further develops its plans. Except for historical information, matters
discussed in such oral and written communications are forward-looking statements
that involve risks and uncertainties, including but not limited to general
business conditions, the availability of material from major suppliers, the
impact of competition, the seasonality of the Company's business, taxes,
inflation and governmental regulations. Sentences containing words such as
"anticipates", "expects", or "will" generally should be considered
forward-looking statements.
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 Amendment, dated as of May 14, 1998 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 4B 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 Reg-
istrant 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 Corpora-
tion, dated April 1, 1993, 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 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, filed as Exhibit 10.13 to Form 10-K for
the year ended December 31, 1999.
10.14 Lease between CXT Incorporated and Pentzer Development Corpora-
tion, 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 Buildings 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 Buildings 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 Buildings Associates, filed as Exhibit 10.16.2 to Form
10-Q for the quarter ended June 30, 1997.
10.17 Lease between Registrant and Hillsboro Loan Investors, L. P. for
property located in Hill County, TX, dated February 14, 2001,
filed as Exhibit 10.17 to Form 10-K for the year ended December
31, 2000.
10.19 Lease between Registrant and American Cast Iron Pipe Company for
pipe-coating facility in Birmingham, AL 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 Registrant and American Cast Iron Pipe
Company for pipe coating facility in Birmingham, AL, dated Nov-
ember 15, 2000.
10.20 Asset Purchase Agreement, dated June 5, 1998 by and among the
Registrant and Northwest Pipe Company, filed as Exhibit 10.20 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, as amended and
restated February 2, 2001, filed as Exhibit 10.34 to Form 10-K for
the year ended December 31, 2000. **
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 and restated, filed as Exhibit
10.46 to form 10-K for the year ended December 31, 2000. **
10.50 L.B. Foster Company 2001 Incentive Compensation Plan, filed as
Exhibit 10.50 to Form 10-K for the year ended December 31, 2000.
**
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.
** 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
three-month period ended March 31, 2001.
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
L.B. FOSTER COMPANY
(Registrant)
Date: May 15, 2001 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)