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 ------------------------------------------------------ (Exact name of registrant as specified in its charter) Delaware 25-1324733 ------------------- ---------------------------- (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 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 ------ ----------------------- Class A Common Stock, Par Value $.01 10,162,738 Shares
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 8 PART II. Other Information - --------------------------- 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 <TABLE> <CAPTION> L. B. FOSTER COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (In Thousands) March 31, December 31, ASSETS 1997 1996 - ----------------------------------------------------------------------------- <S> <C> <C> 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 - ----------------------------------------------------------------------------- 44,550 49,918 Inventories (Note 4) 52,662 42,925 Current deferred tax assets 1,018 1,214 Other current assets 405 398 - ----------------------------------------------------------------------------- Total current assets 101,481 95,656 - ----------------------------------------------------------------------------- Property, Plant & Equipment-At Cost 40,376 40,965 Less Accumulated Depreciation (20,368) (20,498) - ----------------------------------------------------------------------------- 20,008 20,467 - ----------------------------------------------------------------------------- Property Held for Resale 4,053 4,022 - ----------------------------------------------------------------------------- Other Assets 3,407 3,253 - ----------------------------------------------------------------------------- TOTAL ASSETS $128,949 $123,398 - ----------------------------------------------------------------------------- - ----------------------------------------------------------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY - ----------------------------------------------------------------------------- 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 - ----------------------------------------------------------------------------- Total current liabilities 36,919 32,129 - ----------------------------------------------------------------------------- Long-Term Debt 21,494 21,816 - ----------------------------------------------------------------------------- Deferred Tax Liabilities 418 394 - ----------------------------------------------------------------------------- Other Long-Term Liabilities 1,990 1,878 - ----------------------------------------------------------------------------- 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) - ----------------------------------------------------------------------------- Total stockholders' equity 68,128 67,181 - ----------------------------------------------------------------------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $128,949 $123,398 - ----------------------------------------------------------------------------- - ----------------------------------------------------------------------------- </TABLE> See Notes to Condensed Consolidated Financial Statements.
<TABLE> <CAPTION> L. B. FOSTER COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (In Thousands, Except Per Share Amounts) Three Months Ended March 31, 1997 1996 - ----------------------------------------------------------------------------- <S> <C> <C> Net Sales $54,494 $48,303 - ----------------------------------------------------------------------------- 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) - ----------------------------------------------------------------------------- 53,814 47,943 - ----------------------------------------------------------------------------- Income Before Income Taxes 680 360 Income Tax Expense 273 140 - ----------------------------------------------------------------------------- Net Income 407 220 - ----------------------------------------------------------------------------- - ----------------------------------------------------------------------------- Earnings Per Common Share (Note 6) $0.04 $0.02 - ----------------------------------------------------------------------------- - ----------------------------------------------------------------------------- Average Number of Common Shares Outstanding 10,131 9,934 - ----------------------------------------------------------------------------- Cash Dividend per Common Share - ----------------------------------------------------------------------------- </TABLE> See Notes to Condensed Consolidated Financial Statements.
<TABLE> <CAPTION> L. B. FOSTER COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands) Three Months Ended March 31, 1997 1996 - ----------------------------------------------------------------------------- <S> <C> <C> 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 - ----------------------------------------------------------------------------- Net Cash (Used) Provided by Operating Activities (5,283) 4,706 - ----------------------------------------------------------------------------- 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) - ----------------------------------------------------------------------------- Net Cash Provided by Investing Activities 45 483 - ----------------------------------------------------------------------------- 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) - ----------------------------------------------------------------------------- Net Cash Provided (Used) by Financing Activities 6,883 (4,981) - ----------------------------------------------------------------------------- Net Increase in Cash and Cash Equivalents 1,645 208 Cash and Cash Equivalents at Beginning of Period 1,201 1,325 - ----------------------------------------------------------------------------- Cash and Cash Equivalents at End of Period $ 2,846 $ 1,533 - ----------------------------------------------------------------------------- - ----------------------------------------------------------------------------- Supplemental Disclosures of Cash Flow Information: Interest Paid $ 524 $ 602 - ----------------------------------------------------------------------------- - ----------------------------------------------------------------------------- Income Taxes Paid $ 17 $ 34 - ----------------------------------------------------------------------------- - ----------------------------------------------------------------------------- </TABLE> 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): <TABLE> <CAPTION> March 31, December 31, 1997 1996 - ----------------------------------------------------------------------------- <S> <C> <C> Finished goods $ 40,766 $ 31,347 Work-in-process 11,560 11,117 Raw materials 3,160 3,135 - ----------------------------------------------------------------------------- Total inventories at current costs: 55,486 45,599 - ----------------------------------------------------------------------------- - ----------------------------------------------------------------------------- (Less): Current costs over LIFO stated values (2,224) (2,074) Reserve for decline in market value of inventories (600) (600) - ----------------------------------------------------------------------------- $ 52,662 $ 42,925 - ----------------------------------------------------------------------------- - ----------------------------------------------------------------------------- </TABLE> 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 <TABLE> <CAPTION> Three Months Ended March 31, - ----------------------------------------------------------------------------- 1997 1996 - ----------------------------------------------------------------------------- (Dollars in thousands) <S> <C> <C> Net Sales: Rail Products $23,546 $23,519 Construction Products 19,198 16,018 Tubular Products 11,750 8,766 - ----------------------------------------------------------------------------- Total Net Sales 54,494 48,303 - ----------------------------------------------------------------------------- - ----------------------------------------------------------------------------- Gross Profit: Rail Products 2,687 3,514 Construction Products 2,378 2,076 Tubular Products 1,369 609 - ----------------------------------------------------------------------------- Total Gross Profit 6,434 6,199 - ----------------------------------------------------------------------------- Expenses: Selling and administrative expenses 5,302 5,403 Interest expense 535 564 Other (income) expense (83) (128) - ----------------------------------------------------------------------------- Total Expenses 5,754 5,839 - ----------------------------------------------------------------------------- Income Before Income Taxes 680 360 Income Tax Expense 273 140 - ----------------------------------------------------------------------------- Net Income $ 407 $ 220 - ----------------------------------------------------------------------------- - ----------------------------------------------------------------------------- </TABLE> 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. <TABLE> <CAPTION> Backlog --------------------------------------- March 31, December 31, 1997 1996 1996 --------------------------------------- (Dollars in thousands) <S> <C> <C> <C> Rail Products $ 33,928 $ 43,722 $ 36,100 Construction Products 22,048 37,562 28,080 Tubular Products 12,523 13,872 11,328 ---------------------------------------- Total Backlog $ 68,499 $ 95,156 $ 75,508 ---------------------------------------- ---------------------------------------- </TABLE> 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 -------------------------- (Registrant) Date: May 15, 1997 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)