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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITES
EXCHANGE ACT OF 1934
(No Fee Required)
For the Fiscal Year Ended December 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (No Fee Required)
For the Transition Period from __________ to __________
Commission File Number 0-10436
L. B. FOSTER COMPANY
(Exact name of registrant as specified in its charter)
Pennsylvania 25-1324733
(State of Incorporation) (I.R.S. Employer Identification No.)
415 Holiday Drive, Pittsburgh, Pennsylvania 15220
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (412) 928-3417
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange On
Title of Each Class Which Registered
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, Par Value $.01
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III or this Form 10-K or any amendment to this
Form 10-K. [x]
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
The aggregate market value on March 16, 2000 of the voting stock held by
nonaffiliates of the Company was $42,103,229. 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 March 16, 2000
Common Stock, Par Value $.01 9,599,106 Shares
Documents Incorporated by Reference:
Portions of the Proxy Statement prepared for the 2000 annual meeting of
stockholders are incorporated by reference in Items 10, 11, 12 and 13 of Part
III.
PART I
ITEM 1. BUSINESS
Summary Description of Businesses
L. B. Foster Company is engaged in the manufacture, fabrication and distribution
of products that serve the nation's surface transportation infrastructure. As
used herein, "Foster" or the "Company" means L. B. Foster Company and its
divisions and subsidiaries, unless the context otherwise requires.
For rail markets, Foster provides a full line of new and used rail, trackwork,
and accessories to railroads, mines and industry. The Company also designs and
produces concrete ties, bonded rail joints, power rail, track fasteners,
coverboards, signaling and communication devices, and special accessories for
mass transit and other rail systems.
For the construction industry, the Company sells and rents steel sheet piling
and H-bearing pile for foundation and earth retention requirements. In addition,
Foster supplies bridge decking, expansion joints, overhead sign structures,
mechanically stabilized earth wall systems and other products for highway
construction and repair.
For tubular markets, the Company supplies pipe coatings for pipelines and
utilities. The Company produces pipe-related products for special markets,
including water wells and irrigation.
The Company classifies its activities into three business segments: rail
products, construction products, and tubular products. Financial information
concerning the segments is set forth in Note 20 to the financial statements
included in the Company's Annual Report to Stockholders for 1999. The following
table shows for the last three fiscal years the net sales generated by each of
the current business segments as a percentage of total net sales.
Percentage of Net Sales
1999 1998 1997
- ------------------------------------------------------------------------------
Rail Products ........................... 61% 55% 51%
Construction Products ................... 29% 24% 25%
Tubular Products ........................ 10% 21% 24%
- ------------------------------------------------------------------------------
100% 100% 100%
==============================================================================
RAIL PRODUCTS
L. B. Foster Company's rail products include heavy and light rail, relay rail,
concrete ties, insulated rail joints, rail accessories, transit products and
signaling and communication devices. The Company is a major rail products
supplier to industrial plants, contractors, railroads, mines and mass transit
systems.
The Company sells heavy rail mainly to transit authorities, industrial
companies, and rail contractors for railroad sidings, plant trackage, and other
carrier and material handling applications. Additionally, the Company makes some
sales of heavy rail to railroad companies and to foreign buyers. The Company
sells light rail for mining and material handling applications.
Rail accessories include trackwork, ties, track spikes, bolts, angle bars and
other products required to install or maintain rail lines. These products are
sold to railroads, rail contractors and industrial customers and are
manufactured within the company or purchased from other manufacturers.
The Company's Allegheny Rail Products (ARP) division engineers and markets
insulated rail joints and related accessories for the railroad and mass transit
industries, worldwide. Insulated joints are made in-house and subcontracted.
The Company's Transit Products division supplies power rail, direct fixation
fastener, coverboards and special accessories primarily for mass transit
systems. Most of these products are manufactured by subcontractors and are
usually sold by sealed bid to transit authorities or to rail contractors,
worldwide.
The Company's Mining division sells new and used rail, rail accessories,
trackwork from the Pomeroy, OH plant and iron clad ties from the Watson-Haas
Lumber division in St. Mary's, WV. The Pomeroy, OH plant also produces trackwork
for industrial and export markets.
The Company's Rail Technologies subsidiary supplies rail signaling and
communication devices to North American railroads.
The Company's CXT subsidiary manufactures engineered concrete products for the
railroad and transit industries. CXT's product line includes prestressed
concrete railroad ties, grade railroad crossing panels, and precast concrete
buildings.
CONSTRUCTION PRODUCTS
L. B. Foster Company's construction products consist of sheet and bearing piling
and fabricated highway products.
Sheet piling products are interlocking structural steel sections that are
generally used to provide lateral support at construction sites. Bearing piling
products are steel H-beam sections which, in their principal use, are driven
into the ground for support of structures such as bridge piers and high-rise
buildings. Sheet piling is sold or leased and bearing piling is sold principally
to contractors and construction companies.
Other construction products consist of fabricated highway products. Fabricated
highway products consist principally of bridge decking, aluminum bridge rail,
overhead sign structures and other bridge products, which are fabricated by the
Company, as well as mechanically stabilized earth wall systems. The major
purchasers of these products are contractors for state, municipal and other
governmental projects.
Sales of the Company's construction products are partly dependent upon the level
of activity in the construction industry. Accordingly, sales of these products
have traditionally been somewhat higher during the second and third quarters
than during the first and fourth quarters of each year.
TUBULAR PRODUCTS
The Company adds value to purchased tubular products by preparing them to meet
customer specifications using various fabricating processes, including the
finishing of oil country tubular goods and the welding, coating, wrapping and
lining of other pipe products.
The Company provides fusion bond and other coatings for corrosion protection on
oil, gas and other pipelines.
The Company also supplies special pipe products such as water well casing,
column pipe, couplings, and related products for agricultural, municipal and
industrial water wells.
MARKETING AND COMPETITION
L. B. Foster Company generally markets its rail, construction and tubular
products directly in all major industrial areas of the United States through a
national sales force of 52 salespeople. The Company maintains 18 sales offices
and 18 plants or warehouses nationwide. During 1999, less than 5% of the
Company's total sales were for export.
The major markets for the Company's products are highly competitive. Product
availability, quality, service and price are principal factors of competition
within each of these markets. No other company provides the same product mix to
the various markets the Company serves. There are one or more companies that
compete with the Company in each product line. Therefore, the Company faces
significant competition from different groups of companies.
RAW MATERIALS AND SUPPLIES
Most of the Company's inventory is purchased in the form of finished or
semifinished product. With the exception of relay rail which is purchased from
railroads or rail take-up contractors, the Company purchases most of its
inventory from domestic and foreign steel producers. There are few domestic
suppliers of new rail products and the Company could be adversely affected if a
domestic supplier ceased making such material available to the Company.
Additionally, the Company has not had a domestic sheet piling supplier since
March 1997. The Company has become Chaparral Steel's exclusive North American
distributor of steel sheet piling and "H" bearing pile. Shipments of "H" bearing
pile began very late in the third quarter of 1999 from Chaparral's new
Petersburg, VA facility, while current mill projections are to begin initial
test rollings of sheet piling during the second quarter of 2000. The Company
does not expect production of sheet piling in meaningful quantities until the
third quarter of 2000. See Note 18 to the consolidated financial statements for
additional information on this matter.
The Company's purchases from foreign suppliers are subject to the usual risks
associated with changes in international conditions and to United States laws
which could impose import restrictions on selected classes of products and
antidumping duties if products are sold in the United States below certain
prices.
BACKLOG
The dollar amount of firm, unfilled customer orders at December 31, 1999 and
1998 by segment follows:
(in thousands) December 31, 1999 December 31, 1998
- --------------------------------------------------------------------------------
Rail Products ............................ $111,078 $ 62,481
Construction Products .................... 41,842 42,542
Tubular Products ......................... 2,012 3,541
- --------------------------------------------------------------------------------
$154,932 $108,564
================================================================================
Approximately $73,000,000 of the December 31, 1999 backlog is attributable to
CXT, recently acquired as part of the rail segment. Aproximately 65% of the
December 31, 1999 backlog is expected to be shipped in 2000.
RESEARCH AND DEVELOPMENT
The Company's expenditures for research and development are negligible.
ENVIRONMENTAL DISCLOSURES
While it is not possible to quantify with certainty the potential impact of
actions regarding environmental matters, particularly for future remediation and
other compliance efforts, in the opinion of management compliance with
environmental protection laws will not have a material adverse effect on the
financial condition, competitive position, or capital expenditures of the
Company. However, the Company's efforts to comply with stringent environmental
regulations may have an adverse effect on the Company's future earnings.
EMPLOYEES AND EMPLOYEE RELATIONS
The Company has 719 employees, of whom 407 are hourly production workers and 312
are salaried employees. Approximately 233 of the hourly paid employees are
represented by unions. The Company has not suffered any major work stoppages
during the past five years and considers its relations with its employees to be
satisfactory.
Substantially all of the Company's hourly paid employees are covered by one of
the Company's noncontributory, defined benefit plans and a defined contribution
plan. Substantially all of the Company's salaried employees are covered by a
defined contribution plan.
ITEM 2. PROPERTIES
The location and general description of the principal properties which are owned
or leased by L. B. Foster Company, together with the segment of the Company's
business using the properties, are set forth in the following table:
Business Lease
Location Function Acres Segment Expires
- --------------------------------------------------------------------------------
Birmingham,
Alabama Pipe coating. 32 Tubular 2002
Doraville,
Georgia Fabrication of 28 Tubular, Owned
components for Rail and
highways. Construction
Yard storage.
Niles, Ohio Rail fabrication. 35 Rail Owned
Yard storage.
Pomeroy, Ohio Trackwork manufac- 5 Rail Owned
turing.
Houston, Texas Casing, upset tub- 127 Tubular, Owned
ing, threading, Rail and
heat treating and Construction
painting. Yard
storage.
Bedford, Bridge component 10 Construction Owned
Pennsylvania fabricating plant.
Pittsburgh, Corporate Head- - Corporate 2007
Pennsylvania quarters.
Georgetown, Bridge component 11 Construction Owned
Massachusetts fabricating plant
Spokane, CXT concrete tie, 26 Rail 2003
Washington crossings and pre-
cast plants. Yard
storage.
Grand Island, CXT concrete tie 9 Rail 2003
Nebraska plant
Including the properties listed above, the Company has 18 sales offices and 18
warehouse, plant and yard facilities located throughout the country. The
Company's facilities are in good condition and the Company believes that its
production facilities are adequate for its present and foreseeable requirements.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED MATTERS
Stock Market Information
- ------------------------
The Company had 825 common shareholders of record on January 31, 2000. Common
stock prices are quoted daily through the National Association of Security
Dealers, Inc. in its over-the-counter NASDAQ quotation service (Symbol FSTR).
The quarterly high and low bid price quotations for common shares (which
represent prices between broker-dealers and do not include markup, markdown or
commission and may not necessarily represent actual transactions) follow:
1999 1998
Quarter High Low High Low
- --------------------------------------------------------------------------------
First $ 6 1/2 $ 4 9/16 $ 5 5/8 $ 4 3/8
- --------------------------------------------------------------------------------
Second 5 31/32 4 5/8 5 9/16 5
- --------------------------------------------------------------------------------
Third 5 15/16 4 13/16 5 7/8 4 3/8
- --------------------------------------------------------------------------------
Fourth 5 3/8 4 5/8 6 5/8 3 3/4
================================================================================
Dividends
- ---------
No cash dividends were paid on the Company's Common stock during 1999 and 1998.
ITEM 6. SELECTED FINANCIAL DATA
(All amounts are in thousands except per share data)
Year Ended December 31,
Income Statement Data 1999 1998(1)(2) 1997(1) 1996 1995
- --------------------------------------------------------------------------------
Net sales $ 241,923 $ 219,449 $ 220,343 $ 243,071 $ 264,985
- --------------------------------------------------------------------------------
Operating profit 9,327 8,478 7,912 8,195 6,769
- --------------------------------------------------------------------------------
Income from cont-
inuing operations 4,618 5,065 3,765 3,858 5,043
Loss from discont-
inued operations,
net of tax (2,115) (688) (478)
- --------------------------------------------------------------------------------
Net income before
cumulative effect of
change in account-
ing principle 2,503 4,377 3,287 3,858 5,043
- --------------------------------------------------------------------------------
Net income 2,503 4,377 3,287 3,858 4,824
- --------------------------------------------------------------------------------
Basic earnings per common share:
Continuing operations 0.48 0.51 0.37 0.39 0.51
Discontinued opera-
tions (0.22) (0.07) (0.05)
- --------------------------------------------------------------------------------
Basic earnings per common
share before
cumulative effect of
change in
accounting principle 0.26 0.44 0.32 0.39 0.51
- --------------------------------------------------------------------------------
Basic earnings per
common share 0.26 0.44 0.32 0.39 0.49
- --------------------------------------------------------------------------------
Diluted earnings per common share:
Continuing operations 0.46 0.50 0.37 0.38 0.50
Discontinued opera-
tions (0.21) (0.07) (0.05)
- --------------------------------------------------------------------------------
Diluted earnings per
common share
before cumulative
effect of change
in accounting principle 0.25 0.43 0.32 0.38 0.50
- --------------------------------------------------------------------------------
Diluted earnings per
common share 0.25 0.43 0.32 0.38 0.48
================================================================================
December 31,
Balance Sheet Data 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------
Total assets $ 164,731 $ 119,434 $ 126,969 $ 123,004 $ 124,423
- --------------------------------------------------------------------------------
Working capital 67,737 54,604 60,096 62,675 57,859
- --------------------------------------------------------------------------------
Long-term debt 44,136 13,829 17,530 21,816 25,034
- --------------------------------------------------------------------------------
Stockholders' equity 74,650 73,494 70,527 67,181 63,173
================================================================================
(1) 1998 and 1997 were restated to reflect the classification of the Monitor
Group as a discontinued operation.
(2) In 1998, the Company recognized a pretax gain on the sale of the Fosterweld
division of the tubular segment of approximately $1,700,000, a write-down of
approximately $900,000 on a property subject to a sale negotiation, and a
provision for losses of approximately $900,000 relating to certain sign
structure contracts in the construction segment.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
(Dollars in thousands)
Three Months Ended Twelve Months Ended
December 31, December 31,
1999 1998 1999 1998 1997
- --------------------------------------------------------------------------------
Net Sales:
Rail Products $42,176 $38,322 $148,296 $121,271 $112,712
Construction Products 20,469 13,697 68,666 51,870 55,923
Tubular Products 3,700 8,850 24,676 46,044 51,762
Other 27 21 285 264 (54)
- --------------------------------------------------------------------------------
Total Net Sales $66,372 $60,890 $241,923 $219,449 $220,343
================================================================================
Gross Profit:
Rail Products $ 7,092 $ 5,913 $ 21,440 $ 18,675 $ 15,025
Construction Products 3,734 2,384 12,671 9,440 9,608
Tubular Products 532 1,009 3,952 5,675 5,661
Other (339) 14 (978) (578) (652)
- --------------------------------------------------------------------------------
Total Gross Profit 11,019 9,320 37,085 33,212 29,642
- --------------------------------------------------------------------------------
Expenses:
Selling and Admin-
istrative Expenses 7,980 7,114 27,758 24,734 21,730
Interest Expense 1,072 254 3,230 1,631 2,495
Other Income (293) (198) (1,184) (1,731) (475)
- --------------------------------------------------------------------------------
Total Expenses 8,759 7,170 29,804 24,634 23,750
- --------------------------------------------------------------------------------
Income from Continuing
Operations,
Before Income Taxes 2,260 2,150 7,281 8,578 5,892
Income Tax Expense 859 932 2,663 3,513 2,127
- --------------------------------------------------------------------------------
Income from Continuing
Operations $ 1,401 $ 1,218 $ 4,618 $ 5,065 $ 3,765
Loss from Discontinued
Operations,
Net of Tax $(1,448) $ (201) $ (2,115) $ (688) $ (478)
- --------------------------------------------------------------------------------
Net Income $ (47) $ 1,017 $ 2,503 $ 4,377 $ 3,287
================================================================================
Gross Profit %:
Rail Products 16.8% 15.4% 14.5% 15.4% 13.3%
Construction Products 18.2% 17.4% 18.5% 18.2% 17.2%
Tubular Products 14.4% 11.4% 16.0% 12.3% 10.9%
Total Gross Profit % 16.6% 15.3% 15.3% 15.1% 13.5%
================================================================================
FOURTH QUARTER OF 1999 VS. FOURTH QUARTER OF 1998
The income from continuing operations for the current quarter was $1.4 million
or $0.15 per share. This compares to a 1998 fourth quarter income from
continuing operations of $1.2 million or $0.13 per share. Net sales in 1999 were
$66.4 million or 9% higher than the comparable quarter last year.
The fourth quarter of 1999 also includes a nonrecurring, non-cash charge of $1.2
million resulting from the Company's decision to classify the Monitor Group, the
Company's portable mass spectrometer segment, as a discontinued operation,
pending its sale. Fourth quarter net operating losses from the unit were $0.2
million in 1999 and 1998.
Rail products' net sales of $42.2 million increased 10% from the 1998 fourth
quarter, primarily due to sales by the recently acquired CXT Incorporated (CXT).
Construction products' net sales in the 1999 fourth quarter increased 49% from
the year earlier quarter. This increase was the result of sales generated by the
Foster Geotechnical and the Fabricated Products divisions' operations. Tubular
products' net sales declined 58% from last year's fourth quarter as a result of
closing the Company's Newport, KY pipe coating facility in September, 1998,
along with lower production volume at the Company's Birmingham, AL pipe coating
facility in the fourth quarter of 1999. Changes in net sales are primarily the
result of changes in volume rather than changes in pricing.
The gross margin percentage for the total Company increased to 17% in the 1999
fourth quarter compared to 15% from the same period last year. The gross margin
percentage for the rail products segment increased to 17% from 15% primarily due
to CXT results. Construction products' gross margin percentage increased from
17% to 18% due to increased margins in fabricated products and geotechnical
units which more than offset reduced margins in piling. The gross margin
percentage for tubular products increased to 14% from 11%, in the fourth quarter
of 1999 as a result of more efficient operations at the Langfield, TX pipe
threading facility.
Selling and administrative expenses increased 12% from the same period last year
principally due to the inclusion of expenses associated with CXT operations.
Interest expense increased over the year earlier quarter due to an increase in
outstanding borrowings associated with the acquisition of CXT. The income tax
provision for the fourth quarter of 1999 was recorded at 38% compared to 43% in
the same period last year due primarily to the effect of adjustments to prior
year tax liabilities. See Note 13 to the consolidated financial statements for
more information regarding income taxes.
THE YEAR 1999 COMPARED TO THE YEAR 1998
Income from continuing operations for 1999 was $4.6 million or $0.48 per share
on net sales of $241.9 million. This compares to an income from continuing
operations of $5.1 million or $0.51 per share for 1998 on net sales of $219.4
million.
Net operating losses from the Monitor Group, classified as a discontinued
operation on December 31, 1999, were $0.9 million in 1999 versus $0.7 million in
1998.
Rail products' 1999 net sales were $148.3 million compared to $121.3 million in
1998. This 22% increase was primarily due to sales by CXT. Additionally, new
rail and transit products' increased sales volumes offset lower volumes in
Allegheny Rail Products and relay rail products' operations. Construction
products' net sales rose 32% to $68.7 million in 1999, as the Company benefitted
from an entire year of Foster Geotechnical sales, as well as increased volume of
"H" bearing pile, flat web sheet piling, and fabricated products shipments. Net
sales of tubular products declined 46% in 1999 as a result of the sale of the
Company's Fosterweld division and the closing of the Newport, KY pipe coating
facility.
The gross margin percentage for the Company was 15% in 1999 and 1998. Rail
products' gross margin percentage declined 1% from 1998, primarily due to lower
margins on certain relay rail, Allegheny Rail Products, and transit projects.
The gross profit percentage for construction products remained at approximately
18% in 1999, as improved fabricated products and geotechnical margins offset
reduced piling margins . Tubular products' gross margin percentage increased to
16% in 1999 from 12% in 1998 primarily due to more efficient operations at the
Langfield, TX pipe threading facility, and the closure of the Newport, KY coated
pipe facility.
Selling and administrative expenses for 1999 were 12% higher than in 1998. The
increase was primarily due to added expenses associated with the operation of
CXT, as well as an entire year of expenses related to the Company's geotechnical
and rail technologies operations. Interest expense rose 98% due to an increase
in outstanding borrowings, associated with the CXT acquisition. Other income in
1999 included dividend income and accrued interest on the DM&E stock owned by
the Company. The provision for income taxes in 1999 is recorded at 37% versus
41% in 1998. The decrease in the effective tax rate from 1998 is due primarily
to the effect of adjustments to prior year tax liabilities. See Note 13 to the
consolidated financial statements for more information regarding income taxes.
THE YEAR 1998 COMPARED TO THE YEAR 1997
Income from continuing operations for 1998 was $5.1 million or $0.51 per share
on net sales of $219.4 million. This compares to an income from continuing
operations of $3.8 million or $0.37 per share for 1997 on net sales of $220.3
million.
Net operating losses from the Monitor Group, classified as a discontinued
operation on December 31, 1999, were $0.7 million in 1998 versus $0.5 million in
1997.
Rail products' 1998 net sales were $121.3 million compared to $112.7 million in
1997. This 8% increase resulted primarily from higher sales volume of project
sales primarily to transit systems. Construction products' net sales declined 7%
to $51.9 million compared to $55.9 million in 1997, as the loss of sheet piling
sales more than offset increased volume brought about by an entire years' sales
of the Precise fabricating division. Net sales of tubular products declined 11%
in 1998 as a result of the sale of the Company's Fosterweld division.
The gross margin percentage for the Company in 1998 increased to 15% from 13% in
1997. Rail products' gross margin percentage increased to 15% from 13% primarily
due to higher gross margin on certain relay rail and transit projects. The gross
profit percentage for construction products increased to 18% from 17% in 1997 as
a result of high demand for a limited supply of sheet piling products and the
addition of the Foster Geotechnical division which offset losses associated with
certain catenary fabrication contracts. Tubular products' gross margin
percentage increased to 12% in 1998 from 11% in 1997 primarily due to higher
margins on coated pipe products and the effect of the suspension of operations
of the Newport, KY facility.
Selling and administrative expenses for 1998 were 14% higher than in 1997. The
increase was primarily due to added expenses associated with the operation of
the Company's Precise and Geotechnical divisions and increased incentive related
compensation associated with increased corporate profits. Interest expense
decreased 35% due to a reduction in outstanding borrowings, principally
resulting from the receipt of Fosterweld sale proceeds. Other income in 1998
included the $1.7 million gain on the sale of the Fosterweld division, the $0.9
million write down of the recorded land value at the Langfield, TX facility, and
gains on sales of other assets totaling $0.6 million. The provision for income
taxes in 1998 is recorded at 41% versus 36% in 1997. The increase in the
effective tax rate from 1997 is due primarily to the effect of adjustments to
prior year tax liabilities.
LIQUIDITY AND CAPITAL RESOURCES
The Company generates internal cash flow from the sale of inventory and the
collection of accounts receivable. During 1999, the average turnover rate for
accounts receivable was lower than in 1998 due to slower collections of certain
transit and fabricated products' projects. The average turnover rate for
inventory was higher in 1999 than in 1998 primarily in coated pipe products.
Working capital at December 31, 1999 was $67.7 million compared to $54.6 million
in 1998.
The Company completed an initial 500,000 share buy-back of its common stock in
January 1999. The cost of this program which commenced in 1997, was $2.8
million. During the first quarter of 1999, the Company announced another program
to purchase up to an additional 1,000,000 shares. As of December 31, 1999,
225,298 shares had been purchased under this program at a cost of $1.3 million.
Excluding the CXT acquisition, the Company had capital expenditures, including
capital leases, of $6.5 million, in 1999. Capital expenditures in 2000,
excluding acquisitions, are expected to be approximately $4.0 million and are
anticipated to be funded by cash flow from operations.
Total revolving credit agreement borrowings at December 31, 1999, were $45.0
million, an increase of $32.7 million from the end of the prior year. At
December 31, 1999, the Company had $11.7 million in unused borrowing commitment.
Outstanding letters of credit at December 31, 1999, were $2.7 million.
Management believes its internal and external sources of funds are adequate to
meet anticipated needs.
Effective June 1999, the Company's $45.0 million revolving credit agreement was
amended and increased to $70.0 million. On December 30, 1999, the Company
reduced the revolving credit agreement to $65.8 million. The interest rate is,
at the Company's option, based on the prime rate, the domestic certificate of
deposit rate (CD rate) or the Euro-bank rate (LIBOR). The interest rates are
established quarterly based upon cash flow and the level of outstanding
borrowings to debt as defined in the agreement. Interest rates range from prime
to prime plus 0.25%, the CD rate plus 0.575% to 1.8%, LIBOR rate plus .575% to
1.8%. Borrowings under the agreement, which expires July 1, 2003, are secured by
eligible accounts receivable, inventory, and the pledge of the Company held
Dakota Minnesota & Eastern Railroad Preferred stock.
The agreement includes financial convenants 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 AND EASTERN RAILROAD
The Company maintains a significant investment in the Dakota, Minnesota &
Eastern Railroad Corporation (DM&E), a privately-held, regional railroad which
operates over 1,100 miles of track in five states.
At December 31, 1998, the Company's investment in the stock was recorded at its
historical cost of $1.7 million, comprised of $0.2 million of common stock and
$1.5 million of the DM&E's Series B Preferred Stock and warrants. On January 13,
1999, the Company increased its investment in the DM&E by acquiring $6.0 million
of DM&E Series C Preferred Stock and warrants. On a fully diluted basis, the
Company owns approximately 16% of the DM&E's common stock. Although the market
value of the DM&E is not readily determinable, management believes that this
investment, regardless of the DM&E's Powder River Basin project, is worth
significantly more than its historical cost.
The DM&E announced in June 1997 that it plans to build an extension from the
DM&E's existing line into the low sulfur coal market of the Powder River Basin
in Wyoming and to rebuild approximately 600 miles of its existing track (the
Project). The DM&E also has announced that the estimated cost of this project is
$1.4 billion.
The Project is subject to approval by the Surface Transportation Board (STB). In
December 1998, the STB made a finding that the DM&E had satisfied the
transportation aspects of applicable regulations. The STB still must address the
extent and nature of the project's environmental impact and whether such impact
can be adequately mitigated. New construction on this project may not begin
until the STB reaches a final decision.
The DM&E has stated that it could repay project debt and cover its operating
costs if it captures a 5% market share in the Powder River Basin. If the Project
proves to be viable, management believes that the value of the Company's
investment in the DM&E could increase dramatically.
OTHER MATTERS
In September 1998, the Company suspended production at its Newport, KY pipe
coating facility due to unfavorable market conditions. Management intends to
dispose of the assets and has reclassified the machinery and equipment as assets
held for resale.
On June 30, 1999, the Company acquired CXT, based in Spokane, WA. CXT is a
manufacturer of engineered prestressed and precast concrete products primarily
used in the railroad and transit industries. The addition of CXT is viewed by
management as an opportunity to vertically integrate the Company's transit
products segment and to increase the Company's product offerings to Class I
railroads.
In August 1999, the Company executed an agreement to sell, subject to certain
contingencies, an undeveloped 62 acre portion of a 127 acre Houston, TX property
for approximately $2.0 million. The sale, if consummated, is expected to be
completed by the end of the first quarter of 2000 and will not have a material
impact on the Company's earnings.
The Company continues to explore the divestiture of its real estate located in
Doraville, GA, as well as its Mining division, which is comprised of facilities
and inventory located at Pomeroy, OH and St. Marys, WV.
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.
IMPACT OF YEAR 2000
In prior years, the Company discussed the nature and progress of its plans to
become Year 2000 ready. In January, 1999, the Company completed its remediation
and testing of systems. As a result of those planning and implementation
efforts, the Company experienced no significant disruptions in mission-critical
information technology and non-information technology systems and believes those
systems successfully responded to the Year 2000 date change. The costs
associated with the installation of the year 2000 compliant release are
considered by management to be in the ordinary course of business and are not
material to its financial results.
The Company is not aware of any material problems resulting from Year 2000
issues, either with its products, its internal systems, or the products and
services of third parties. The Company will continue to monitor its mission
critical computer applications and those of its suppliers and vendors throughout
the year to ensure that any latent year 2000 matters that may arise are
addressed promptly.
OUTLOOK
Revenues from piling products declined following the closure of Bethlehem's
structural mill in April 1997 and continue to be at reduced levels as the
Company's remaining sheet piling inventory is liquidated. The Company has become
Chaparral Steel's exclusive North American distributor of steel sheet piling and
"H" bearing pile. Shipments of "H" bearing pile began very late in the third
quarter of 1999 from Chaparral's new Petersburg, VA facility, while current mill
projections are to begin initial test rollings of Z-shaped sheet piling during
the second quarter of 2000. The Company does not expect production of Z-shaped
sheet piling in meaningful quantities until the third quarter of 2000.
The rail segment of the business depends on one source for fulfilling certain
trackwork contracts. At December 31, 1999, the Company had $9.7 million
committed to this supplier including inventory progress payments, a note
receivable, equipment, and other receivables, principally interest charges on
inventory progress payments. If, for any reason, this supplier is unable to
perform, the Company could experience a negative short-term effect on earnings.
The Company's CXT subsidiary and Allegheny Rail Products division are dependent
on one customer for a significant portion of their business. In addition, a
substantial portion of the Company's operations is heavily dependent on
governmental funding of infrastructure projects. Significant changes in the
level of government funding of these projects could have a favorable or
unfavorable impact on the operating results of the Company. Additionally,
governmental actions concerning taxation, tariffs, the environment or other
matters could impact the operating results of the Company. The Company's
operating results may also be affected by adverse weather conditions.
Although backlog is not necessarily indicative of future operating results,
total Company backlog at December 31, 1999, was approximately $154.9 million.
The following table provides the backlog by business segment.
December 31,
(in thousands) 1999 1998 1997
- --------------------------------------------------------------------------------
Backlog:
Rail Products
excluding CXT $ 41,685 $ 62,481 $ 51,584
CXT 69,393
Construction Products 41,842 42,542 23,284
Tubular Products
excluding Fosterweld 2,012 3,541 1,660
Fosterweld 2,295
- --------------------------------------------------------------------------------
Total Backlog $154,932 $ 108,564 $ 78,823
================================================================================
MARKET RISK AND RISK MANAGEMENT POLICIES
The Company is not subject to significant exposure to change in foreign currency
exchange rates. The Company does hedge the cash flows of the operations of its
Canadian subsidiary. The Company manages its exposures to changes in foreign
currency exchange rates on firm sales commitments by entering into foreign
currency forward contracts. The Company's risk management objective is to reduce
its exposure to the effects of changes in exchange rates on sales revenue over
the duration of the transaction.
At year end, the Company had foreign currency forward contracts to purchase
$200,000 Canadian for approximately $137,000 US.
The Company has entered into an interest rate swap agreement as the fixed rate
payor to reduce the impact of changes in interest rates on a portion of its
revolving borrowings. At December 31, 1999, the swap agreement had a notional
value of $8,000,000 at 5.48%, and expires in January 2001. The swap agreement's
floating rate is based on LIBOR. Any amount paid or received under the agreement
is recognized as an adjustment to interest expense. Neither the fair market
value of the agreement nor the interest expense adjustments associated with the
agreement has been material.
FORWARD-LOOKING STATEMENTS
Statements relating to the potential value or viability of the DM&E or the
Project, or management's belief as to such matters, are forward-looking
statements and are subject to numerous contingencies and risk factors. The
Company has based its assessments 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 governmental
approvals for the Project in a timely fashion, the expense of environmental
mitigation measures required by the Surface Transportation Board, an inability
to obtain financing for the Project, competitors' responses to the Project,
market demand for coal or electricity and changes in environmental and other
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. 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.
/s/Roger F. Nejes
Roger F. Nejes
Senior Vice President
Finance and Administration
Chief Financial Officer
/s/Linda K. Patterson
Linda K. Patterson
Controller
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
L. B. FOSTER COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
ASSETS (in thousands) 1999 1998
- --------------------------------------------------------------------------------
CURRENT ASSETS:
Cash and cash equivalents $ 1,558 $ 874
Accounts receivable - net 53,112 47,283
Inventories 45,601 36,159
Current deferred tax assets 1,925
Other current assets 981 614
Property held for resale 2,856
- --------------------------------------------------------------------------------
Total Current Assets 106,033 84,930
- --------------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT - NET 30,126 20,433
- --------------------------------------------------------------------------------
PROPERTY HELD FOR RESALE 4,203 615
- --------------------------------------------------------------------------------
OTHER ASSETS:
Goodwill and other intangibles - net 7,474 3,791
Investments 8,610 1,693
Net assets of discontinued operations 2,174
Deferred tax assets 1,720
Other assets 6,565 5,798
- --------------------------------------------------------------------------------
Total Other Assets 24,369 13,456
- --------------------------------------------------------------------------------
TOTAL ASSETS $164,731 $119,434
================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt $ 1,141 $ 1,098
Short-term borrowings 5,000 2,275
Accounts payable - trade 24,446 19,667
Accrued payroll and employee benefits 3,619 4,498
Current deferred tax liabilities 1,857 334
Other accrued liabilities 2,233 2,454
- --------------------------------------------------------------------------------
Total Current Liabilities 38,296 30,326
- --------------------------------------------------------------------------------
LONG-TERM DEBT 44,136 13,829
- --------------------------------------------------------------------------------
DEFERRED TAX LIABILITIES 6,293 678
- --------------------------------------------------------------------------------
OTHER LONG-TERM LIABILITIES 1,356 1,107
- --------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENT LIABILITIES (Note 17)
- --------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Common stock, issued 10,228,739 shares in 1999 and 1998 102 102
Paid-in capital 35,377 35,431
Retained earnings 42,505 40,002
Treasury stock - at cost, Common stock, 590,133 shares
in 1999 and 378,233 shares in 1998 (3,364) (2,046)
Accumlated other comprehensive income 30 5
- --------------------------------------------------------------------------------
Total Stockholders' Equity 74,650 73,494
- --------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $164,731 $119,434
================================================================================
See Notes to Consolidated Financial Statements.
L. B. FOSTER COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME FOR
THE THREE YEARS ENDED DECEMBER 31, 1999
(in thousands, except per share data) 1999 1998 1997
- --------------------------------------------------------------------------------
NET SALES $241,923 $219,449 $220,343
- --------------------------------------------------------------------------------
COSTS AND EXPENSES:
Cost of goods sold 204,838 186,237 190,701
Selling and administrative expenses 27,758 24,734 21,730
Interest expense 3,230 1,631 2,495
Other income (1,184) (1,731) (475)
- --------------------------------------------------------------------------------
234,642 210,871 214,451
- --------------------------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS,
BEFORE INCOME TAXES 7,281 8,578 5,892
INCOME TAX EXPENSE 2,663 3,513 2,127
- --------------------------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS 4,618 5,065 3,765
- --------------------------------------------------------------------------------
LOSS FROM DISCONTINUED OPERATIONS,
NET OF TAX (2,115) (688) (478)
- --------------------------------------------------------------------------------
NET INCOME $2,503 $ 4,377 $ 3,287
================================================================================
BASIC EARNINGS PER COMMON SHARE:
CONTINUING OPERATIONS $0.48 $0.51 $ 0.37
DISCONTINUED OPERATIONS (0.22) (0.07) (0.05)
- --------------------------------------------------------------------------------
BASIC EARNINGS PER COMMON SHARE $0.26 $0.44 $ 0.32
================================================================================
DILUTED EARNINGS PER COMMON SHARE:
CONTINUING OPERATIONS $0.46 $0.50 $ 0.37
DISCONTINUED OPERATIONS (0.21) (0.07) (0.05)
- --------------------------------------------------------------------------------
DILUTED EARNINGS PER COMMON SHARE $0.25 $0.43 $ 0.32
================================================================================
1998 and 1997 results have been restated to reflect the classification of the
Monitor Group segment as a discontinued operation.
See Notes to Consolidated Financial Statements.
L. B. FOSTER COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR
THE THREE YEARS ENDED DECEMBER 31, 1999
(in thousands) 1999 1998 1997
- --------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Income from continuing operations $4,618 $5,065 $3,765
Adjustments to reconcile net
income to net cash provided
by operating activities:
Deferred income taxes (133) 581 1,251
Depreciation and amortization 4,493 2,825 2,537
Loss (gain) on sale of property,
plant and equipment 76 (1,360) (112)
Change in operating assets and
liabilities:
Accounts receivable 2,243 1,766 3,471
Inventory (5,839) 3,253 787
Property held for resale (30) 261 (54)
Other current assets (208) (46) (159)
Other noncurrent assets (839) (2,673) (340)
Accounts payable - trade 544 8,394 (8,742)
Accrued payroll and employee
benefits (1,576) 1,490 (537)
Other current liabilities 862 1,731 (671)
Other liabilities 249 (1,099) 328
- --------------------------------------------------------------------------------
Net Cash Provided by
Continuing Operations 4,460 20,188 1,524
Net Cash Used by Dis-
continued Operations (1,159) (968) (620)
- --------------------------------------------------------------------------------
Net Cash Provided by
Operating Activities 3,301 19,220 904
- --------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale of property,
plant and equipment 4,410 1,269 1,578
Proceeds from the sale of Fosterweld
division 7,258
Capital expenditures on property,
plant and equipment (5,001) (2,775) (2,063)
Purchase of DM&E stock (6,000) (1,500)
Acquisition of business (17,514) (3,774) (6,739)
- --------------------------------------------------------------------------------
Net Cash (Used) Provided by
Investing Activities (24,105) 1,978 (8,724)
- --------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds (repayments) of revolving
credit agreement borrowings 32,725 (20,836) 9,111
Proceeds from industrial revenue bond 2,045
Exercise of stock options and
stock awards 330 412 571
Treasury share transactions (1,702) (1,808) (531)
Repayments of long-term debt (9,881) (1,293) (1,376)
- --------------------------------------------------------------------------------
Net Cash Provided (Used) by
Financing Activities 21,472 (21,480) 7,775
- --------------------------------------------------------------------------------
Effect of exchange rate changes
on cash 16
- --------------------------------------------------------------------------------
Net Increase (Decrease) in Cash
and Cash Equivalents 684 (282) (45)
Cash and Cash Equivalents at
Beginning of Year 874 1,156 1,201
- --------------------------------------------------------------------------------
Cash and Cash Equivalents at
End of Year $1,558 $ 874 $ 1,156
================================================================================
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Interest Paid $2,376 $1,839 $2,493
================================================================================
Income Taxes Paid $2,869 $2,136 $627
================================================================================
During 1999, 1998 and 1997, the Company financed certain capital expenditures
totaling $1,502,000, $336,000 and $33,500, respectively, through the issuance of
capital leases.
See Notes to Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF
STOCKHOLDERS' EQUITY
FOR THE THREE YEARS ENDED
DECEMBER 31, 1999
Accum-
ulated
Other
Compre-
(in thousands, Common Paid-in Retained Treasury hensive
except share data) Stock Capital Earnings Stock Income Total
================================================================================
Balance,
January 1, 1997 $102 $35,276 $32,338 $(535) $67,181
================================================================================
Net Income 3,287 3,287
Other comprehensive
income net of tax:
Minimum pension lia-
bility adjustment $19 19
- --------------------------------------------------------------------------------
Comprehensive income 3,306
Exercise of options to
purchase 190,000
shares of Common stock 158 413 571
Treasury stock purchases
of 105,500 shares (531) (531)
================================================================================
Balance,
December 31, 1997 102 35,434 35,625 (653) 19 70,527
================================================================================
Net Income 4,377 4,377
Other comprehensive
income net of tax:
Foreign currency trans-
lation losses (14) (14)
- --------------------------------------------------------------------------------
Comprehensive income 4,363
Exercise of options to
purchase 93,200
shares of Common stock (3) 415 412
Treasury stock purchases
of 330,989 shares (1,808) (1,808)
================================================================================
Balance,
December 31, 1998 102 35,431 40,002 (2,046) 5 73,494
================================================================================
Net Income 2,503 2,503
Other comprehensive
income net of tax:
Foreign currency trans-
lation adjustment 25 25
- --------------------------------------------------------------------------------
Comprehensive income 2,528
Exercise of options to
purchase 39,000
shares of Common stock (54) 384 330
Treasury stock purchases
of 288,809 shares (1,702) (1,702)
================================================================================
Balance,
December 31, 1999 $102 $35,377 $42,505 $(3,364) $30 $74,650
================================================================================
See Notes to Consolidated Financial Statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF FINANCIAL STATEMENT PRESENTATION - The consolidated financial
statements include the accounts of the Company and its wholly owned
subsidiaries. All significant intercompany transactions have been eliminated.
The term "Company" refers to L. B. Foster Company and its subsidiaries, as the
context requires.
CASH EQUIVALENTS - The Company considers securities with maturities of three
months or less, when purchased, to be cash equivalents.
INVENTORIES - Inventories are generally valued at the lower of the last-in,
first-out (LIFO) cost or market. Approximately 14% in 1999 and 5% in 1998 of the
Company's inventory is valued at average cost or market, whichever is lower.
PROPERTY,PLANT AND EQUIPMENT - Maintenance, repairs and minor renewals are
charged to operations as incurred. Major renewals and betterments which
substantially extend the useful life of the property are capitalized. Upon sale
or other disposition of assets, the cost and related accumulated depreciation
and amortization are removed from the accounts and the resulting gain or loss,
if any, is reflected in income. Depreciation and amortization are provided on a
straight-line basis over the estimated useful lives of 30 to 40 years for
buildings and 3 to 10 years for machinery and equipment. Leasehold improvements
are amortized over 2 to 7 years which represent the lives of the respective
leases or the lives of the improvements, whichever is shorter.
GOODWILL - Goodwill represents the excess of the purchase price over the
estimated fair value of the net assets acquired. Goodwill is being amortized on
a straight-line basis over periods of 10 to 20 years. Useful life is established
at the time of acquisition based upon the estimated period of future benefit.
When factors indicate that goodwill should be evaluated for impairment, the
excess of the unamortized goodwill over the fair value determined using a
multiple of cash flows from operations will be charged to operations. Goodwill
amortization expense was $660,000, $513,000 and $178,000 in 1999, 1998 and 1997,
respectively.
INTEREST RATE AGREEMENTS - To offset exposures to changes in interest rates on
variable rate debt, the Company enters into interest rate swap agreements. The
effects of movements in interest rates on these instruments are recognized as
they occur.
ENVIRONMENTAL REMEDIATION AND COMPLIANCE - Environmental remediation costs are
accrued when the liability is probable and costs are estimable. Environmental
compliance costs, which principally include the disposal of waste generated by
routine operations, are expensed as incurred. Capitalized environmental costs
are depreciated, when appropriate, over their useful life.
EARNINGS PER SHARE - Basic earnings per share is calculated by dividing net
income by the weighted average of common shares outstanding during the year.
Diluted earnings per share is calculated by using the weighted average of common
shares outstanding adjusted to include the potentially dilutive effect of
outstanding stock options.
REVENUE RECOGNITION - Customers are invoiced and income is recognized when
material is shipped from stock or when the Company is billed for material
shipped directly from the vendor. Gross sales are reduced by sales taxes,
discounts and freight to determine net sales.
USE OF ESTIMATES - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
STOCK-BASED COMPENSATION - The Company grants stock options for a fixed number
of shares to employees with an exercise price equal to the fair value of the
shares at the date of grant. 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.
NEW ACCOUNTING PRONOUNCEMENTS - In June 1998, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 133, "Accounting
for Derivative Instruments and Hedging Activities." This statement establishes
accounting and reporting standards for derivative financial instruments and
hedging activities. In June 1999, FASB Statement No. 137, "Accounting for
Derivative Instruments and Hedging Activities: Deferral of Effective Date of the
FASB Statement No. 133," was issued. This statement delays the effective date to
all fiscal quarters of all fiscal years beginning after June 15, 2000. This
statement will be adopted by the Company in 2001 and is not expected to have a
material effect on the consolidated financial statements.
FOREIGN CURRENCY TRANSLATION - To avoid foreign exchange exposure whenever
possible, hedging techniques are used to protect transaction costs and profits.
NOTE 2.
ACCOUNTS RECEIVABLE
Accounts receivable at December 31, 1999 and 1998 are summarized as follows:
(in thousands) 1999 1998
- --------------------------------------------------------------------------------
Trade $53,665 $47,921
Allowance for doubtful accounts (1,555) (1,438)
Other 1,002 800
- --------------------------------------------------------------------------------
$53,112 $47,283
================================================================================
The Company's customers are principally in the rail, construction and tubular
segments of the economy. As of December 31, 1999 and 1998, trade receivables,
net of allowance for doubtful accounts, from customers in these markets were as
follows:
(in thousands) 1999 1998
- --------------------------------------------------------------------------------
Rail $33,278 $30,676
Construction 17,116 12,478
Tubular 1,716 3,329
- --------------------------------------------------------------------------------
$52,110 $46,483
================================================================================
Credit is extended on an evaluation of the customer's financial condition and
generally collateral is not required.
NOTE 3. INVENTORIES
Inventories at December 31, 1999 and 1998 are summarized as follows:
(in thousands) 1999 1998
- --------------------------------------------------------------------------------
Finished goods $28,755 $26,877
Work-in-process 13,000 7,520
Raw materials 6,298 4,546
- --------------------------------------------------------------------------------
Total inventories at current costs 48,053 38,943
================================================================================
Less:
Current cost over LIFO
stated values (1,852) (2,184)
Inventory valuation reserve (600) (600)
- --------------------------------------------------------------------------------
$45,601 $36,159
================================================================================
At December 31, 1999 and 1998, the LIFO carrying value of inventories for book
purposes exceeded the LIFO carrying value for tax purposes by approximately
$4,106,000 and $4,427,000, respectively. During 1999 and 1998, inventory
quantities were reduced resulting in a liquidation of certain LIFO inventory
layers. The majority of these quantities were carried at costs which were higher
than current purchases. The net effect of these reductions in 1999 and 1998 was
to increase cost of goods sold by $531,000 and $146,000, respectively.
NOTE 4.
PROPERTY HELD FOR RESALE
Property held for resale at December 31, 1999 and 1998 consists of the
following:
(in thousands) 1999 1998
- --------------------------------------------------------------------------------
Location:
Norcross, GA $ 3,055
Houston, TX 1,511
Newport, KY 1,345
Pomeroy, OH 665
St. Marys, WV 483
Marrero, LA $ 615
- --------------------------------------------------------------------------------
Property held for resale 7,059 615
- --------------------------------------------------------------------------------
Less current portion 2,856
- --------------------------------------------------------------------------------
$ 4,203 $ 615
================================================================================
The Norcross, GA location consists of buildings and approximately 28 acres of
land, which are being underutilized in the Company's business.
In the second quarter of 1998, the Company recorded an impairment write-down to
the recorded value of the entire parcel of land at the Houston, TX location of
approximately $900,000, which was classified within Other Income on the
Consolidated Statements of Income. The impairment was determined based upon
management's estimate of fair value arising from ongoing negotiations to sell
the facility. The negotiations were not consummated; however, management
considers the estimate to continue to be an appropriate measure of fair value. A
portion of the remaining Houston property is utilized in the Company's rail,
construction and tubular operating segments.
In August 1999, the Company executed an agreement to sell, subject to certain
contingencies, an undeveloped 62-acre portion of a 127-acre Houston, TX property
for approximately $2,000,000. The sale, if consummated, is expected to be
completed by the end of the first quarter of 2000 and will not have a material
impact on the Company's earnings.
The Newport, KY location consisting of machinery and equipment was included in
the Company's coated pipe division of the tubular products segment. Due to
unfavorable market conditions, management suspended operations in September 1998
and intends to dispose of the assets. An impairment loss of $183,000 was
recorded in 1999 in anticipation of the disposal cost.
The St. Marys, WV and Pomeroy, OH locations, consisting of machinery and
equipment, buildings, land and land improvements which comprise the Company's
Mining division of the rail products segment, were determined not to meet the
Company's long-range strategic goals. The Company continues to explore the
divestiture of these assets.
The Marrero, LA location was formerly leased to a third party, but is currently
planned to be used for yard storage in the future. This land has been
reclassified to property, plant and equipment.
NOTE 5.
DISCONTINUED OPERATIONS
In the fourth quarter of 1999, the Company made the decision to classify the
Monitor Group, a developer of portable mass spectrometers, as a discontinued
operation, pending its sale. Accordingly, the operating results of the Monitor
Group, including a complete write-off of assets have been segregated from
continuing operations and reported as separate line items on the financial
statements.
The Company has restated its financial statements to reflect the operating
results of the Monitor Group as a discontinued operation, for the prior periods
presented.
Operating results, excluding corporate interest charges, from discontinued
operations are as follows:
(in thousands) 1999 1998 1997
- --------------------------------------------------------------------------------
Net sales $ 73 $ 26
Cost of goods sold 1,276 985 $ 565
Selling and admin-
istrative expenses 144 206 183
- --------------------------------------------------------------------------------
Operating loss (1,347) (1,165) (748)
Provision for disposal
of assets (1,984)
- --------------------------------------------------------------------------------
Loss before income taxes (3,331) (1,165) (748)
Income tax credits (1,216) (477) (270)
- --------------------------------------------------------------------------------
Loss from discontinued
operations ($2,115) ($ 688) ($ 478)
================================================================================
The asset write-off consists of the following components, in thousands:
Intangibles .................$1,764
Inventory ................... 209
Equipment ................... 11
------
$1,984
======
NOTE 6.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at December 31, 1999 and 1998 consists of the
following:
(in thousands) 1999 1998
- --------------------------------------------------------------------------------
Land $ 3,138 $ 6,038
Improvements to land and leaseholds 4,632 4,458
Buildings 3,382 3,879
Machinery and equipment, including
equipment under capitalized
leases (see Note 14, Rental
and Lease Information) 38,877 28,558
Construction in progress 1,718 626
- --------------------------------------------------------------------------------
51,747 43,559
- --------------------------------------------------------------------------------
Less accumulated depreciation
and amortization, including
accumulated amortization of
capitalized leases (see Note
14, Rental and Lease
Information) 21,621 23,126
- --------------------------------------------------------------------------------
$30,126 $20,433
================================================================================
NOTE 7.
OTHER ASSETS AND INVESTMENTS
At December 31, 1999 and 1998, other assets include notes receivable and accrued
interest totaling $2,679,000 and $2,445,000, respectively, from investors in the
Dakota, Minnesota & Eastern Railroad Corporation (DM&E). The Company also holds
investments in the stock of the DM&E, which is recorded at its historical cost
of $7,693,000 and $1,693,000 at December 31, 1999 and 1998, respectively. This
investment is comprised of $193,000 of DM&E Common Stock, $1,500,000 of DM&E's
Series B Preferred Stock and Common Stock warrants, and $6,000,000 in DM&E
Series C Preferred Stock and warrants. The Company has accrued dividend income
on the Series B and C Preferred Stock of $872,000 and $78,750 in 1999 and 1998,
respectively. Although the market value of the investments in DM&E stock are not
readily determinable, management believes the fair value of this investment
exceeds its carrying amount.
Additionally, at December 31, 1999 and 1998, the Company has classified as
noncurrent a $2,000,000 note receivable from a major trackwork supplier (see
Note 18, Risks and Uncertainties).
NOTE 8.
BORROWINGS
Effective June 1999, the Company's $45,000,000 revolving credit agreement was
amended and increased to $70,000,000. On December 30, 1999, the Company reduced
the revolving credit agreement to $65,800,000. The interest rate is, at the
Company's option, based on the prime rate, the domestic certificate of deposit
rate (CD rate) or the Euro-bank rate (LIBOR). The interest rates are established
quarterly based upon cash flow and the level of outstanding borrowings to debt
as defined in the agreement. Interest rates range from prime, to prime plus
0.25%, the CD rate plus 0.575% to 1.8%, and the LIBOR rate plus 0.575% to 1.8%.
Borrowings under the agreement, which expires July 1, 2003, are secured by
eligible accounts receivable, inventory, and the pledge of the Company-held
Dakota, Minnesota & Eastern Railroad Corporation 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.
As of December 31, 1999, the Company was in compliance with all the agreement's
covenants. At December 31, 1999, 1998 and 1997, the weighted average interest
rate on short term borrowings was 6.78%, 6.95% and 7.06%, respectively. At
December 31, 1999, the Company had borrowed $45,000,000 under the agreement of
which $40,000,000 was classified as long-term (see Note 9). Under the agreement,
the Company had approximately $11,667,000 in unused borrowing commitment at
December 31, 1999.
NOTE 9.
LONG-TERM DEBT AND RELATED MATTERS
Long-term debt at December 31, 1999 and 1998 consists of the following:
(in thousands) 1999 1998
- --------------------------------------------------------------------------------
Revolving Credit Agreement with
weighted average interest rate of
6.78% at December 31, 1999 and
6.95% at December 31, 1998,
expiring July 1, 2003 $40,000 $10,000
- --------------------------------------------------------------------------------
Lease obligations payable in
installments through 2004
with a weighted average
interest rate of 8.07% at
December 31, 1999 and
7.99% at December 31, 1998 3,232 2,882
- --------------------------------------------------------------------------------
Massachusetts Industrial Revenue
Bond with an average interest
rate of 3.53% at December 31,
1999 and 3.73% at December 31,
1998, payable March 1, 2013 2,045 2,045
- --------------------------------------------------------------------------------
45,277 14,927
Less current maturities 1,141 1,098
- --------------------------------------------------------------------------------
$44,136 $13,829
================================================================================
The $40,000,000 revolving credit borrowings included in long-term debt were
obtained under the revolving loan agreement discussed in Note 8 and are subject
to the same terms and conditions. This portion of the borrowings is classified
as long-term because the Company does not anticipate reducing the borrowings
below $40,000,000 during 2000.
The Massachusetts Industrial Revenue Bond is secured by a $2,085,000 standby
letter of credit.
The Company has entered into an interest rate swap agreement as the fixed rate
payor to reduce the impact of changes in interest rates on a portion of its
revolving borrowings. At December 31, 1999, the swap agreement had a notional
value of $8,000,000 at 5.48%, expiring in January 2001. The swap agreement's
floating rate is based on LIBOR. Any amounts paid or received under the
agreement are recognized as adjustments to interest expense. Neither the fair
market value of the agreement nor the interest expense adjustments associated
with the agreement has been material.
The maturities of long-term debt for each of the succeeding five years
subsequent to December 31, 1999 are as follows: 2000 - $1,141,000; 2001 -
$837,000; 2002 - $693,000; 2003 - $40,417,000; 2004 and after - $2,189,000.
NOTE 10.
STOCKHOLDERS' EQUITY
At December 31, 1999 and 1998, and as a result of the Company's reincorporation
in Pennsylvania in May, 1998, the Company had authorized shares of 20,000,000 in
Common stock and 5,000,000 in Preferred stock. No Preferred stock has been
issued. The Common stock has a par value of $.01 per share. No par value has
been assigned to the Preferred stock.
The Company's Board of Directors authorized the purchase of up to 1,500,000
shares of its Common stock at prevailing market prices. The timing and extent of
the purchases will depend on market conditions. 1,500,000 shares represent
approximately 15% of the Company's outstanding Common stock. As of December 31,
1999, the Company had repurchased 725,298 shares at a total cost of
approximately $4,040,600.
No cash dividends on Common stock were paid in 1999, 1998, or 1997.
NOTE 11.
STOCK OPTIONS
The Company has two stock option plans currently in effect under which future
grants may be issued: The 1985 Long-Term Incentive Plan (1985 Plan) and the 1998
Long-Term Incentive Plan (1998 Plan).
The 1985 Plan, as amended and restated in March 1994, provides for the award of
options to key employees and directors to purchase up to 1,500,000 shares of
Common stock at no less than 100% of fair market value on the date of the grant.
The 1998 Plan, as amended and restated in February 1999, provides for the award
of options to key employees and directors to purchase up to 450,000 shares of
Common stock at no less than 100% of fair market value on the date of the grant.
Both Plans provide for the granting of "nonqualified options" and "incentive
stock options" with a duration of not more than ten years from the date of
grant. The Plans also provide that, unless otherwise set forth in the option
agreement, options are exercisable in installments of up to 25% annually
beginning one year from date of grant. Stock to be offered under the Plans may
be authorized from unissued Common stock or previously issued shares which have
been reacquired by the Company and held as Treasury shares. At December 31,
1999, 1998 and 1997, Common stock options outstanding under the Plans had option
prices ranging from $2.63 to $6.00, with a weighted average price of $4.24,
$3.96 and $3.71 per share, respectively.
The weighted average remaining contractual life of the stock options outstanding
for the three years ended December 31, 1999 are: 1999 - 6.3 years; 1998 - 5.9
years; and 1997 - 5.2 years.
The Option Committee of the Board of Directors which administers the Plans may,
at its discretion, grant stock appreciation rights at any time prior to six
months before an option's expiration date. Upon exercise of such rights, the
participant surrenders the exercisable portion of the option in exchange for
payment (in cash and/or Common stock valued at its fair market value) of an
amount not greater than the spread, if any, by which the average of the high and
low sales prices quoted in the Over-the-Counter Exchange on the trading day
immediately preceding the date of exercise of the stock appreciation right
exceeds the option price. No stock appreciation rights were issued or
outstanding during 1999, 1998 or 1997.
Options exercised during 1999, 1998 and 1997 totaled 39,000, 93,200 and 190,000
shares, respectively. The weighted average exercise price per share of the
options in 1999, 1998 and 1997 was $3.35, $3.31 and $3.00, respectively.
Certain information for the three years ended December 31, 1999 relative to
employee stock options is summarized as follows:
1999 1998 1997
- --------------------------------------------------------------------------------
Number of shares under Incentive Plan:
Outstanding at begin-
ning of year 967,500 858,500 944,000
Granted 135,000 215,000 141,500
Canceled (113,000) (12,800) (37,000)
Exercised (39,000) (93,200) (190,000)
- --------------------------------------------------------------------------------
Outstanding at end of year 950,500 967,500 858,500
================================================================================
Exercisable at end of year 656,875 723,875 659,250
================================================================================
Number of shares available for
future grant:
Beginning of year 5,550 182,750 287,250
================================================================================
End of year 408,550 5,550 182,750
================================================================================
The weighted average fair value of options granted at December 31, 1999, 1998,
and 1997 was $2.68, $2.40 and $2.94, respectively.
The Company has adopted the disclose-only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation," but applies Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees," and related
interpretations in accounting for its stock option plans. Accordingly, no
compensation expense has been recognized. Had compensation expense for the
Company's stock option plans been determined using the method required by SFAS
No. 123, the effect to the Company's net income and earnings per share would
have been reduced to the pro forma amounts that follow:
(in thousands, except
per share amounts) 1999 1998 1997
- --------------------------------------------------------------------------------
Net income from
continuing operations $4,478 $4,887 $3,726
Loss from discontinued
operations, net of tax (2,115) (688) (478)
- --------------------------------------------------------------------------------
Net income $2,363 $4,199 $3,248
================================================================================
Basic earnings per common share:
Continuing operations $ 0.46 $ 0.49 $ 0.37
Discontinued operations (0.22) (0.07) (0.05)
- --------------------------------------------------------------------------------
Basic earnings per common share $ 0.24 $ 0.42 $ 0.32
================================================================================
Diluted earnings per common share:
Continuing operations $ 0.45 $ 0.49 $ 0.37
Discontinued operations (0.21) (0.07) (0.05)
- --------------------------------------------------------------------------------
Diluted earnings per
common share $ 0.24 $ 0.42 $ 0.32
================================================================================
The fair value of stock options used to compute pro forma net income and
earnings per share disclosures is the estimated present value at grant date
using the Black-Sholes option-pricing model with the following weighted average
assumptions used for grants in 1999, 1998 and 1997, respectively: risk-free
interest rates of 6.14% , 4.77% and 6.29%; dividend yield of 0.0% for all three
years; volatility factors of the expected market price of the Company's Common
stock of .30, .31 and .38; and a weighted average expected life of the option of
ten years.
NOTE 12.
EARNINGS PER COMMON SHARE
The following table sets forth the
computation of basic and diluted earnings per common share:
(in thousands, except Years ended December 31,
per share amounts) 1999 1998 1997
- --------------------------------------------------------------------------------
Numerator:
Numerator for basic
and diluted earnings
per common share -
net income available
to common stockholders:
Income from continuing
operations $ 4,618 $ 5,065 $ 3,765
Loss from discontinued
operations (2,115) (688) (478)
- --------------------------------------------------------------------------------
Net income $ 2,503 $ 4,377 $ 3,287
================================================================================
Denominator:
Weighted average shares 9,664 9,988 10,122
- --------------------------------------------------------------------------------
Denominator for basic earn-
ings per common share 9,664 9,988 10,122
Effect of dilutive securities:
Contingent issuable shares
pursuant to the Company's
1998 & 1997 Bonus Plan 51 15
Employee stock options 231 205 165
- --------------------------------------------------------------------------------
Dilutive potential common
shares 282 220 165
Denominator for diluted
earnings per common
share - adjusted weighted
average shares and
assumed conversions 9,946 10,208 10,287
================================================================================
Basic earnings per common share:
Continuing operations $ 0.48 $ 0.51 $ 0.37
Discontinued operations (0.22) (0.07) (0.05)
- --------------------------------------------------------------------------------
Basic earnings per
common share $ 0.26 $ 0.44 $ 0.32
================================================================================
Diluted earnings per common share:
Continuing operations $ 0.46 $ 0.50 $ 0.37
Discontinued operations (0.21) (0.07) (0.05)
- --------------------------------------------------------------------------------
Diluted earnings per
common share $ 0.25 $ 0.43 $ 0.32
================================================================================
Weighted average antidilutive
stock options 42 54 36
================================================================================
NOTE 13.
INCOME TAXES
At December 31, 1999 and 1998 the tax benefit of net operating loss
carryforwards available for foreign and state income tax purposes was
approximately $1,063,000 and $631,000, respectively. The Company also has
alternative minimum federal tax credit carryforwards at December 31, 1999 and
1998, of approximately $430,000 and $131,000, respectively. For financial
reporting purposes, a valuation allowance of $460,000 at December 31, 1999 and
$125,000 at December 31, 1998 has been recognized to offset the deferred tax
assets related to the foreign and state income tax carryforwards. Deferred
income taxes reflect the net tax effects of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and
the amounts used for tax purposes. Significant components of the Company's
deferred tax liabilities and assets as of December 31, 1999 and 1998, are as
follows:
(in thousands) 1999 1998
- --------------------------------------------------------------------------------
Deferred tax liabilities:
Depreciation $ 5,537 $ 1,318
Inventories 1,154 1,272
- --------------------------------------------------------------------------------
Total deferred tax liabilities 6,691 2,590
================================================================================
Deferred tax assets:
Accounts receivables 531 533
Net operating loss
carryforwards 1,063 631
Tax credit carryforwards 430 131
Other - net 622 408
- --------------------------------------------------------------------------------
Total deferred tax assets 2,646 1,703
Valuation allowance for
deferred tax assets 460 125
- --------------------------------------------------------------------------------
Deferred tax assets 2,186 1,578
- --------------------------------------------------------------------------------
Net deferred tax liability $ (4,505) $ (1,012)
================================================================================
The valuation allowance for deferred tax assets was increased by $335,000 during
1999 and reduced by $25,000 during 1998.
Significant components of the provision for income taxes are as follows:
(in thousands) 1999 1998 1997
- --------------------------------------------------------------------------------
Current:
Federal $2,746 $2,594 $ 736
State 50 338 140
- --------------------------------------------------------------------------------
Total current 2,796 2,932 876
- --------------------------------------------------------------------------------
Deferred:
Federal 8 507 1,082
Foreign 32 (106)
State (173) 180 169
- --------------------------------------------------------------------------------
Total deferred (133) 581 1,251
================================================================================
Total income tax expense $2,663 $3,513 $ 2,127
================================================================================
The reconciliation of income tax computed at statutory rates to income tax
expense (benefit) is as follows:
1999 1998 1997
- --------------------------------------------------------------------------------
Statutory rate 34.0% 34.0% 34.0%
State income tax (2.1) 4.6 4.0
Foreign income tax 8.4 1.3
Nondeductible expenses 3.9 1.8 1.7
Prior period tax (7.0) (0.3) (3.6)
Other (0.6) (0.4)
- --------------------------------------------------------------------------------
36.6% 41.0% 36.1%
================================================================================
NOTE 14.
RENTAL AND LEASE INFORMATION
The Company has capital and operating leases for certain plant facilities,
office facilities, and equipment. Rental expense for the years ended December
31, 1999, 1998, and 1997 amounted to $2,449,000, $1,885,000 and $1,801,000,
respectively. Generally, the land and building leases include escalation
clauses.
On December 30, 1999, the Company entered into a $4,200,000 sale-leaseback
transaction whereby the Company sold and leased back the assets of the Grand
Island, NE facility. The resulting lease is being accounted for as an
operating lease. There was no gain or loss recorded on the sale. The lease base
term is five years with balloon payment options at amounts approximating fair
value at the end of the base term. The interest rate for this transaction is
7.42% with escalation provisions if LIBOR exceeds 7.249%.
The following is a schedule, by year, of the future minimum payments under
capital operating leases, together with the present value of the net minimum
payments as of December 31, 1999:
Capital Operating
(in thousands) Leases Leases
- --------------------------------------------------------------------------------
Year ending December 31,
2000 $ 1,355 $ 2,723
2001 976 2,507
2002 765 2,412
2003 511 1,898
2004 and thereafter 146 2,653
- --------------------------------------------------------------------------------
Total minimum lease payments 3,753 $12,193
Less amount representing interest 521
- --------------------------------------------------------------------------------
Total present value of minimum
payment 3,232
Less current portion of such
obligations 1,141
- --------------------------------------------------------------------------------
Long-term obligations with
interest rates ranging from
3.66% to 8.86% $2,091
================================================================================
Assets recorded under capital leases are as follows:
(in thousands) 1999 1998
- --------------------------------------------------------------------------------
Machinery and equipment
at cost $4,117 $6,867
Construction in progress 180
- --------------------------------------------------------------------------------
4,297 6,867
Less accumulated amortization 1,757 3,291
- --------------------------------------------------------------------------------
Net property, plant and
equipment 2,540 3,576
- --------------------------------------------------------------------------------
Machinery and equipment held
for resale, at cost 2,046
Less accumulated amortization/
valuation 843
- --------------------------------------------------------------------------------
Net property held for resale 1,203
Net prepaid expenses 121 45
- --------------------------------------------------------------------------------
Net capital lease assets $3,864 $3,621
================================================================================
NOTE 15.
ACQUISITIONS
On June 30, 1999, the Company acquired all of the outstanding stock of CXT
Incorporated, a Spokane, WA based manufacturer of engineered prestressed and
precast concrete products primarily used in the railroad and transit industries.
The purchase price of $17,514,000 has been preliminarily allocated based on the
estimated fair values of the assets acquired and liabilities assumed. This
allocation has resulted in acquired goodwill of approximately $4,221,000, which
is being amortized on a straight-line basis over twenty years. The Company
expects to finalize all purchase accounting adjustments within one year of the
acquisition, none of which is expected to be significant.
In 1998, the Company purchased assets related to the business of supplying rail
signaling and communication devices for $1,668,000. In addition, the Company
acquired the assets and patents of the Geotechnical division of VSL Corporation
for $2,100,000, plus the assumption of certain liabilities, of which $100,000
was assigned to a patent. The Geotechnical division is a leading supplier of
mechanically stabilized earth systems.
The acquisitions have been reported using the purchase method of accounting and
have been included in operations since the date of acquisition. For each
acquisition, the purchase price was allocated to the assets and liabilities
based on their estimated fair values as of the acquisition date.
Cost in excess of net assets acquired is being amortized on a straight-line
basis over ten years, with the exception of CXT Incorporated. Pro forma results
of the acquisitions, excluding CXT, assuming they had been made at the beginning
of each year, would not be materially different from reported results.
Had the CXT acquisition been made at the beginning of 1998, the Company's pro
forma unaudited results would have been:
Twelve Months Ended
(in thousands, except December 31,
per share amounts) 1999 1998
- --------------------------------------------------------------------------------
Net sales $261,588 $251,553
Income from continuing
operations 4,762 4,213
Basic earnings per share
from continuing operations $0.49 $0.42
================================================================================
The unaudited pro forma results have been prepared for comparative purposes only
and do not purport to be indicative of the results of operations which would
have actually resulted had the acquisition been in effect on January 1, 1998, or
of future results of operations.
NOTE 16.
RETIREMENT PLANS
Substantially all of the Company's hourly paid employees are covered by one of
the Company's noncontributory, defined benefit plans and a defined contribution
plan. Substantially all of the Company's salaried employees are covered by a
defined contribution plan established by the Company.
The hourly plan assets consist of various mutual fund investments. The following
tables present a reconciliation of the changes in the benefit obligation, the
fair market value of the assets and the funded status of the plan, with the
accrued pension cost in other current liabilities in the Company's balance
sheets:
(in thousands) 1999 1998
- --------------------------------------------------------------------------------
CHANGES IN BENEFIT OBLIGATION:
Benefit obligation at beginning
of year $ 2,295 $ 2,163
Service cost 77 85
Interest cost 155 147
Actuarial losses 8 8
Benefits paid (83) (108)
- --------------------------------------------------------------------------------
Benefit obligation at end
of year $ 2,452 $ 2,295
================================================================================
CHANGE TO PLAN ASSETS:
Fair value of assets at
beginning of year $ 2,287 $ 2,138
Actual return on plan assets 468 212
Employer contribution 46 45
Benefits paid (83) (108)
- --------------------------------------------------------------------------------
Fair value of assets at
end of year $ 2,718 $ 2,287
================================================================================
Funded status $ 266 $ (8)
Unrecognized actuarial gain (478) (200)
Unrecognized net transition
asset (83) (92)
Unrecognized prior service
cost 73 81
Minimum pension liability (18) (61)
- --------------------------------------------------------------------------------
Net amount recognized $ (240) $ (280)
================================================================================
Amounts recognized in the statement
of financial position consist of:
Prepaid benefit cost $ (213) $ (204)
Accrued benefit liability (27) (76)
Intangible asset 18 61
Minimum pension liability (18) (61)
Accumulated other
comprehensive income
- --------------------------------------------------------------------------------
Net amount recognized $ (240) $ (280)
================================================================================
The Company's funding policy for defined benefit plans is to contribute the
minimum required by the Employee Retirement Income Security Act of 1974. Net
periodic pension costs for the three years ended December 31, 1999 are as
follows:
(in thousands) 1999 1998 1997
- --------------------------------------------------------------------------------
COMPONENTS OF NET
PERIODIC BENEFIT COST:
Service cost $ 77 $ 85 $ 82
Interest cost 155 147 138
Actual return on
plan assets (468) (212) (293)
Amortization of prior
service cost (2) 7 8
Recognized actuarial gain 287 31 135
- --------------------------------------------------------------------------------
Net periodic
benefit cost $ 49 $ 58 $ 70
================================================================================
An assumed discount rate of 7% and an expected rate of return on plan assets of
8% were used to measure the projected benefit obligation and develop net
periodic pension costs for the three years ended December 31, 1999.
Amounts applicable to the Company's pension plan with accumulated benefit
obligations in excess of plan assets are as follows:
(in thousands) 1999 1998 1997
- --------------------------------------------------------------------------------
Projected benefit obligation $ 657 $ 575 $ 531
Accumulated benefit obligation 657 575 531
Fair value of plan assets 629 499 411
================================================================================
The Company's defined contribution plan, available to substantially all salaried
employees, contains a matched savings provision that permits both pretax and
after-tax employee contributions. Participants can contribute from 2% to 15% of
their annual compensation and receive a 50% matching employer contribution on up
to 6% of their annual compensation.
Further, the plan requires an additional matching employer contribution, based
on the ratio of the Company's pretax income to equity, up to 50% of 6% of the
employees' annual compensation. Additionally, the Company contributes 1% of all
salaried employees annual compensation to the plan without regard for employee
contribution. The defined contribution plan expense was $863,000 in 1999,
$874,000 in 1998, and $756,000 in 1997.
NOTE 17.
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 increasingly stringent
environmental regulations may have an adverse effect on the Company's future
earnings. In the opinion of management, compliance with the present
environmental protection laws will not have a material adverse effect on the
financial condition, competitive position, or capital expenditures of the
Company.
The Company is subject to legal proceedings and claims which arise in the
ordinary course of its business. In the opinion of management, the amount of
ultimate liability with respect to these actions will not materially affect the
financial position of the Company.
At December 31, 1999, the Company had outstanding letters of credit of
approximately $2,653,000.
NOTE 18.
RISKS AND UNCERTAINTIES
The Company's future operating results may be affected by a number of factors.
The Company is dependent upon a number of major suppliers. If a supplier had
operational problems or ceased making material available to the Company,
operations could be adversely affected.
Revenues from piling products declined following the closure of Bethlehem's
structural mill in April 1997, and continue to be at reduced levels, as the
majority of the Company's sheet piling inventory has been liquidated since the
closure. The Company has become Chaparral Steel's exclusive North American
distributor of steel sheet piling and "H" bearing pile. Shipments of "H" bearing
pile began very late in the third quarter of 1999 from Chaparral's new
Petersburg, Virginia facility while current mill projections are to begin
initial test rollings of Z-shaped sheet piling during the second quarter of
2000. The Company does not expect production of Z-shaped sheet piling in
meaningful quantities until the third quarter of 2000.
The rail segment of the business depends on one source for fulfilling certain
trackwork contracts. At December 31, 1999, the Company had committed to this
supplier $9,700,000 including inventory progress payments, a note receivable,
equipment, and other receivables, principally interest charges on inventory
progress payments. If, for any reason, this supplier is unable to perform, the
Company could experience a negative short-term effect on earnings.
The Company's CXT subsidiary and Allegheny Rail Products division are dependent
on one customer for a significant portion of their business. In addition, a
substantial portion of the Company's operations are heavily dependent on
governmental funding of infrastructure projects. Significant changes in the
level of government funding of these projects could have a favorable or
unfavorable impact on the operating results of the Company. Additionally,
governmental actions concerning taxation, tariffs, the environment or other
matters could impact the operating results of the Company. The Company's
operating results may also be affected by adverse weather conditions.
NOTE 19.
FAIR VALUES OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist of accounts receivable, accounts
payable, short-term and long-term debt, and interest rate swap agreements.
The carrying amounts of the Company's financial instruments at December 31, 1999
approximate fair value.
NOTE 20.
BUSINESS SEGMENTS
L. B. Foster 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 and was previously engaged in the manufacture and distribution of
portable mass spectrometers.
The Company's rail segment provides a full line of new and used rail, trackwork
and accessories to railroads, mines and industry. The Company also designs and
produces concrete ties, bonded rail joints, power rail, track fasteners,
coverboards and special accessories for mass transit and other rail systems.
The Company's construction segment sells and rents steel sheet piling and
H-bearing pile for foundation and earth retention requirements. In addition, the
Company's Fabricated Products division sells bridge decking, heavy steel
fabrications, expansion joints, sign structures and other products for highway
construction and repair. The Company's Geotechnical division designs and
supplies mechanically-stabilized earth wall systems.
The Company's tubular segment supplies pipe coatings for pipelines and
utilities. Additionally, the Company also produces pipe-related products for
special markets, including water wells and irrigation.
The Company's portable mass spectrometer segment, the Monitor Group, was
classified as a discontinued operation on December 31, 1999. Prior period
results have been adjusted to reflect this classification (see Note 5,
Discontinued Operations).
The Company markets its products directly in all major industrial areas of the
United States primarily through a national sales force.
The following table illustrates revenues, profits, assets, depreciation/
amortization and capital expenditures of the Company by segment. Segment profit
is the earnings before income taxes. The accounting policies of the reportable
segments are the same as those described in the summary of significant
accounting policies except that the Company accounts for inventory on a
first-in, first-out (FIFO) basis at the segment level compared to a last-in,
first-out (LIFO) basis at the consolidated level.
(in thousands) 1999
- --------------------------------------------------------------------------------
Depreci- Expend-
ation/ itures for
Net Segment Segment Amortiz- Long-Lived
Sales Profit Assets ation Assets
- --------------------------------------------------------------------------------
Rail Products $148,296 $ 4,080 $ 91,089 $ 775 $ 20,125
Construction
Products 68,666 2,296 31,786 975 3,465
Tubular
Products 24,676 1,889 8,270 772 323
- --------------------------------------------------------------------------------
Total $241,638 $ 8,265 $131,145 $ 2,522 $ 23,913
================================================================================
(in thousands) 1998
- --------------------------------------------------------------------------------
Depreci- Expend-
ation/ itures for
Net Segment Segment Amortiz- Long-Lived
Sales Profit Assets ation Assets
- --------------------------------------------------------------------------------
Rail Products $121,271 $ 6,320 $ 60,500 $ 470 $ 1,042
Construction
Products 51,870 551 26,063 667 2,022
Tubular
Products 46,044 1,698 13,437 1,043 771
- --------------------------------------------------------------------------------
Total $219,185 $ 8,569 $100,000 $ 2,180 $ 3,835
================================================================================
(in thousands) 1997
- --------------------------------------------------------------------------------
Depreci- Expend-
ation/ itures for
Net Segment Segment Amortiz- Long-Lived
Sales Profit Assets ation Assets
- --------------------------------------------------------------------------------
Rail Products $112,712 $ 3,033 $ 54,894 $ 436 $ 1,214
Construction
Products 55,923 1,810 27,848 357 4,292
Tubular
Products 51,762 902 24,651 1,171 1,063
- --------------------------------------------------------------------------------
Total $220,397 $ 5,745 $107,393 $ 1,964 $ 6,569
================================================================================
Sales to any individual customer do not exceed 10% of consolidated revenues.
Sales between segments are immaterial.
Reconciliations of reportable segment net sales, profit, assets, depreciation
and amortization, and expenditures for long-lived assets to the Company's
consolidated totals are illustrated as follows (in thousands):
Net Sales 1999 1998 1997
- --------------------------------------------------------------------------------
Total for reportable segments $ 241,638 $ 219,185 $ 220,397
Other net sales 285 264 (54)
- --------------------------------------------------------------------------------
$ 241,923 $ 219,449 $ 220,343
================================================================================
Net Profit
- --------------------------------------------------------------------------------
Total for reportable segments $ 8,265 $ 8,569 $ 5,745
Adjustment of inventory to LIFO 332 426 (536)
Unallocated other income 1,184 1,731 475
Other unallocated amounts (2,500) (2,148) 208
- --------------------------------------------------------------------------------
Income from continuing operations,
before income taxes $ 7,281 $ 8,578 $ 5,892
================================================================================
Assets
- --------------------------------------------------------------------------------
Total for reportable segments $ 131,145 $ 100,000 $ 107,393
Unallocated corporate assets 27,527 13,919 12,409
LIFO and market value inventory
reserves (2,452) (2,784) (3,210)
Unallocated property, plant
and equipment 8,511 8,299 10,377
- --------------------------------------------------------------------------------
Total assets $ 164,731 $ 119,434 $ 126,969
================================================================================
Depreciation/Amortization
- --------------------------------------------------------------------------------
Total reportable for segments $ 2,522 $ 2,180 $ 1,964
Other 1,971 645 573
- --------------------------------------------------------------------------------
$ 4,493 $ 2,825 $ 2,537
================================================================================
Expenditures for Long-Lived
Assets
- --------------------------------------------------------------------------------
Total for reportable segments $ 23,913 $ 3,835 $ 6,569
Expenditures included in acqui-
sition of business (17,961) (1,069) (6,589)
Expenditures financed under
capital leases (1,386)
Expenditures included in
Property Held for Sale (30) (60) (272)
Other unallocated expenditures 465 69 2,355
- --------------------------------------------------------------------------------
$ 5,001 $ 2,775 $ 2,063
================================================================================
Approximately 98% of the Company's total net sales were to customers in North
America, and a majority of the remaining sales were to countries in Central and
South America.
All of the Company's long-lived assets are located in North America and almost
100% of those assets are located in the United States.
NOTE 21.
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Quarterly financial information for the years ended December 31, 1999 and 1998
is presented below:
(in thousands, except
per share amounts) 1999
- --------------------------------------------------------------------------------
First Second Third Fourth
Quarter(1) Quarter(1) Quarter(1)(2) Quarter(2) Total
- --------------------------------------------------------------------------------
Net sales $53,783 $58,743 $63,025 $66,372 $241,923
- --------------------------------------------------------------------------------
Gross profit $ 7,159 $ 8,945 $ 9,962 $11,019 $ 37,085
- --------------------------------------------------------------------------------
Income from cont-
inuing operations $ 694 $ 1,497 $ 1,026 $ 1,401 $ 4,618
- --------------------------------------------------------------------------------
Loss from discont-
inued operations ($ 234) ($ 259) ($ 174) ($ 1,448) ($ 2,115)
- --------------------------------------------------------------------------------
Net income/(loss) $ 460 $ 1,238 $ 852 ($ 47) $ 2,503
================================================================================
Basic earnings per common share:
From continuing
operations $ 0.07 $ 0.15 $ 0.11 $ 0.15 $ 0.48
From discontinued
operations ($ 0.02) ($ 0.03) ($ 0.02) ($ 0.15) ($ 0.22)
- --------------------------------------------------------------------------------
Basic earnings per
common share $ 0.05 $ 0.12 $ 0.09 $ 0.00 $ 0.26
================================================================================
Diluted earnings per common share:
From continuing
operations $ 0.07 $ 0.15 $ 0.11 $ 0.14 $ 0.46
From discontinued
operations ($ 0.02) ($ 0.03) ($ 0.02) ($ 0.14) ($ 0.21)
- --------------------------------------------------------------------------------
Diluted earnings per
common share $ 0.05 $ 0.12 $ 0.09 $ 0.00 $ 0.25
================================================================================
(1) The first, second and third quarters were restated to reflect the
classification of the Monitor Group segment as a discontinued operation. (2) The
second half results reflect the June 30, 1999 acquisition of CXT, Incorporated
which accounted for the majority of the reported sales increase.
(in thousands, except
per share amounts) 1998
- --------------------------------------------------------------------------------
First Second Third Fourth
Quarter(1) Quarter(1)(2) Quarter(1)(3) Quarter(1) Total(1)
- --------------------------------------------------------------------------------
Net sales $49,341 $58,850 $50,368 $60,890 $219,449
- --------------------------------------------------------------------------------
Gross profit $ 7,309 $ 9,135 $ 7,448 $ 9,320 $ 33,212
Income from cont-
inuing operations $ 867 $ 2,106 $ 874 $ 1,218 $ 5,065
- --------------------------------------------------------------------------------
Loss from discont-
inued operations ($ 161) ($ 165) ($ 161) ($ 201) ($ 688)
- --------------------------------------------------------------------------------
Net income $ 706 $ 1,941 $ 713 $ 1,017 $ 4,377
================================================================================
Basic earnings per common share:
From continuing
operations $ 0.09 $ 0.21 $ 0.08 $ 0.13 $ 0.51
From discontinued
operations ($ 0.02) ($ 0.02) ($ 0.01) ($ 0.02) ($ 0.07)
- --------------------------------------------------------------------------------
Basic earnings per
common share $ 0.07 $ 0.19 $ 0.07 $ 0.11 $ 0.44
================================================================================
Diluted earnings per common share:
From continuing
operations $ 0.09 $ 0.21 $ 0.08 $ 0.12 $ 0.50
From discontinued
operations ($ 0.02) ($ 0.02) ($ 0.01) ($ 0.02) ($ 0.07)
- --------------------------------------------------------------------------------
Diluted earnings per
common share $ 0.07 $ 0.19 $ 0.07 $ 0.10 $ 0.43
================================================================================
(1) All quarters of 1998 were restated to reflect the classification of the
Monitor Group segment as a discontinued operation. (2) The second quarter
includes a pretax gain on the sale of the Fosterweld division of approximately
$1,700,000 and a $900,000 write-down for a property subject to a sale
negotiation. (3) The third quarter included a provision for losses relating to
certain catenary sign structure contracts of approximately $900,000.
REPORT OF INDEPENDENT AUDITORS AND RESPONSIBILITY FOR FINANCIAL STATEMENTS
To the Board of Directors and Stockholders of L. B. Foster Company:
We have audited the accompanying consolidated balance sheets of L. B. Foster
Company and subsidiaries at December 31, 1999 and 1998, and the related
consolidated statements of income, cash flows and stockholders' equity for each
of the three years in the period ended December 31, 1999. Our audits also
included the financial statement schedule listed in the index at Item 14 (a).
These financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of L. B. Foster
Company and subsidiaries at December 31, 1999 and 1998, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1999, in conformity with accounting principles
generally accepted in the United States. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
/s/Ernst & Young LLP
Pittsburgh, Pennsylvania
January 25, 2000
To the Stockholders of L. B. Foster Company:
The management of L. B. Foster Company is responsible for the integrity of all
information in the accompanying consolidated financial statements and other
sections of the annual report. Management believes the financial statements have
been prepared in conformity with generally accepted accounting principles that
reflect, in all material respects, the substance of events and transactions, and
that the other information in the annual report is consistent with those
statements. In preparing the financial statements, management makes informed
judgments and estimates of the expected effects of events and transactions being
accounted for currently.
The Company maintains a system of internal accounting control designed to
provide reasonable assurance that assets are safeguarded and that transactions
are executed in accordance with management's authorization and are properly
recorded to permit the preparation of financial statements in accordance with
generally accepted accounting principles. Underlying the concept of reasonable
assurance is the evaluation of the costs and benefits derived from control. This
evaluation requires estimates and judgments by the Company. The Company believes
that its internal accounting controls provide an appropriate balance between
costs and benefits.
The Board of Directors pursues its oversight role with respect to the financial
statements through the Finance and Audit Committee which is composed of outside
directors. The Finance and Audit Committee meets periodically with management,
the internal auditing department and our independent auditors to discuss the
adequacy of the internal accounting control, the quality of financial reporting
and the nature, extent and results of the audit effort. Both the internal
auditing department and the independent auditors have free access to the Finance
and Audit Committee.
/s/Lee B. Foster
Lee B. Foster II
Chairman of the Board
and Chief Executive Officer
/s/Roger F. Nejes
Roger F. Nejes
Senior Vice President
Finance and Administration
and Chief Financial Officer
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning the directors is set forth under "Election of Directors"
in the Company's Proxy Statement for the 2000 annual meeting of stockholders
("2000 Proxy Statement"). Such information is incorporated herein by reference.
Information concerning the executive officers who are not directors of the
Company is set forth below. With respect to the period prior to August 18, 1977,
references to the Company are to the Company's predecessor, Foster Industries,
Inc.
NAME AGE POSITION
Alec C. Bloem 49 Senior Vice President - Concrete Products
Anthony G. Cipicchio 53 Vice President - Fabricated Products
William S. Cook, Jr. 58 Vice President - Strategic Planning &
Acquisitions
Paul V. Dean 68 Senior Vice President - Piling Products
Samuel K. Fisher 47 Vice President - Rail Procurement
Dean A. Frenz 56 Senior Vice President - Rail Distribution
Products
Steven L. Hart 53 Vice President - Operations
Stan L. Hasselbusch 52 President and Chief Operating Officer
David L. Minor 56 Vice President - Treasurer
Roger F. Nejes 57 Senior Vice President - Finance and
Administration and Chief Financial Officer
Henry M. Ortwein, Jr. 57 Senior Vice President - Rail Manufactured
Products
Linda K. Patterson 50 Controller
Gary E. Ryker 50 Executive Vice President - Rail Products
Robert W. Sigle 70 Vice President - Tubular Products
Linda M. Terpenning 54 Vice President - Human Resources
David L. Voltz 47 Vice President, General Counsel and
Secretary
Mr. Bloem was elected Senior Vice President - Concrete Products in March 2000,
having previously served as Vice President Geotechnical and Precast Division
from October 1999, and President - Geotechnical Division from August 1998. Prior
to joining the Company in August 1998, Mr. Bloem served as Vice President- VSL
Corporation.
Mr. Cipicchio was elected Vice President - Fabricated Products in August 1998.
Mr. Cipicchio joined the Company in May 1997 and initially held the position of
Vice President - Operations. Prior to joining the Company, Mr. Cipicchio was
Vice President of Operations for Omsco Industries, a supplier of drill string
components to the oil and gas industry.
Mr. Cook was elected Vice President - Strategic Planning & Acquisitions in
October 1993. Prior to joining the Company in March 1993, Mr. Cook was President
of Cook Corporate Development, a business and financial advisory firm.
Mr. Dean was elected Senior Vice President - Piling Products in May 1998, having
previously been a Vice President since September 1987. Mr. Dean joined the
Company in 1964.
Mr. Fisher was elected Vice President - Rail Procurement in October 1997, having
previously served as Vice President - Relay Rail since October 1996. Prior to
October 1996, he served in various other capacities with the Company since his
employment in 1977.
Mr. Frenz was elected Senior Vice President - Rail Distribution Products in
August 1998. Previously Mr. Frenz served as Senior Vice President - Rail
Products from December 1996 to August 1998, Senior Vice President - Rail and
Tubular Products from September, 1995, through November, 1996, and Senior Vice
President - Product Management from October 1993 to September 1995. Mr. Frenz
joined the Company in 1966.
Mr. Hart was elected Vice President - Operations in October, 1998 having
previously served as Vice President from December 1997 to October 1998 and in a
variety of capacities prior to December 1997. Mr. Hart joined the Company in
1977.
Mr. Hasselbusch was elected President and Chief Operating Officer in March, 2000
having previously served as Executive Vice President and Chief Operating Officer
from January 1999, Vice President - Construction and Tubular Products from
December, 1996 to December 1998, Senior Vice President - Construction Products
from September 1995 to December 1996, and as Senior Vice President - Sales from
October 1993 to September 1995. Mr. Hasselbusch joined the Company in 1972.
Mr. Minor was elected Treasurer in February 1988 and was elected to the
additional office of Vice President in February 1997. Mr. Minor joined the
Company in 1983.
Mr. Nejes was elected Senior Vice President - Finance and Administration and
Chief Financial Officer in October 1993, previously having served as Vice
President - Finance and Chief Financial Officer from February 1988.
Mr. Ortwein was elected Senior Vice President - Rail Manufactured Products in
May 1998. Mr. Ortwein was Group Vice President - Rail Manufactured Products from
March 1997 to May 1998. Additionally, he served as Vice President - Rail
Manufacturing from October 1993 to March 1997. Mr. Ortwein joined the Company in
1992.
Ms. Patterson was elected Controller in February 1999, having previously served
as Assistant Controller since May 1997 and Manager of Accounting since March
1988. Prior to March 1988, she served in various other capacities with the
Company since her employment in 1977.
Mr. Ryker was elected Executive Vice President - Rail Products in March 2000.
Prior to joining the Company in March 2000, Mr. Ryker served from February 1999
as President of Motor Coils Manufacturing, a manufacturer of equipment for
locomotives, as President and Chief Executive Officer of Union Switch & Signal
Inc., a signaling company, from September 1997 to August 1998, and as Executive
Vice President of Harmon Industries, a signaling company, from April 1992 until
September 1997.
Mr. Sigle was elected Vice President - Tubular Products in December 1990. Mr.
Sigle joined the Company in 1965.
Ms. Terpenning was elected Vice President - Human Resources in October 1987. Ms.
Terpenning joined the Company in 1985.
Mr. Voltz was elected Vice President, General Counsel and Secretary in December
1987. Mr. Voltz joined the Company in 1981.
Officers are elected annually at the organizational meeting of the Board of
Directors following the annual meeting of stockholders.
ITEM 11. EXECUTIVE COMPENSATION
The information set forth under "Executive Compensation" in the 2000 Proxy
Statement is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information set forth under "Ownership of Securities by Management" and
"Principal Stockholders" in the 2000 Proxy Statement is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information set forth under "Certain Transactions" in the 2000 Proxy
Statement is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this Report:
1. FINANCIAL STATEMENTS
The following consolidated financial statements, accompanying notes and
Report of Independent Auditors in the Company's Annual Report to
Stockholders for 1999 have been included in Item 8 of this Report:
Consolidated Balance Sheets at December 31, 1999 and 1998.
Consolidated Statements of Income For the Three Years Ended December 31,
1999, 1998 and 1997.
Consolidated Statements of Cash Flows For the Three Years Ended December
31, 1999, 1998 and 1997.
Consolidated Statements of Stockholders' Equity for the Three Years Ended
December 31, 1999, 1998 and 1997.
Notes to Consolidated Financial Statements.
Report of Independent Auditors.
2. FINANCIAL STATEMENT SCHEDULE
Schedules for the Three Years Ended December 31, 1999, 1998 and 1997:
II - Valuation and Qualifying Accounts.
The remaining schedules are omitted because of the absence of the
conditions upon which they are required.
3. EXHIBITS
The exhibits marked with an asterisk are filed herewith. All exhibits are
incorporated herein by reference:
3.1 Restated Certificate of Incorporation as amended to date, filed
as Appendix B to the Company's April 17, 1998 Proxy Statement.
3.2 Bylaws of the Registrant, as amended to date, filed as Exhibit
3B to Form 8-K on May 21, 1997.
4.0 Rights Agreement, dated as of May 15, 1997, between L.B. Foster
Company and American Stock Transfer & Trust Company, including
the form of Rights Certificate and the Summary of Rights
attached thereto, filed as Exhibit 4A to Form 8-A dated May 23,
1997.
4.0.1 Amended Rights Agreement dated as of May 14, 1998 between L. B.
Foster Company and American Stock Transfer & Trust Company,
filed as Exhibit 4.0.1 to Form 10-Q for the quarter ended June
30, 1998.
4.1 Third Amended and Restated Loan Agreement by and among the
Registrant and Mellon Bank, N.A., PNC Bank, National Association
and First Union National Bank, dated as of June 30, 1999 and
filed as Exhibit 4.1 to Form 10-Q for the quarter ended June 30,
1999.
* 10.12 Lease between CXT Incorporated and Pentzer Development
Corporation, dated April 1, 1993.
* 10.12.1 Amendment dated March 12, 1996 to lease between CXT
Incorporated and Pentzer Corporation.
* 10.13 Lease between CXT Incorporated and Crown West Realty, L.L.C.,
dated December 20, 1996.
* 10.14 Lease between CXT Incorporated and Pentzer Development
Corporation, dated November 1, 1991.
* 10.15 Lease between CXT Incorporated and Union Pacific Railroad
Company, dated February 13, 1998.
10.16 Lease between Registrant and Greentree Building Associates for
Headquarters office, dated as of June 9, 1986, as amended to
date, filed as Exhibit 10.16 to Form 10-K for the year ended
December 31, 1988.
10.16.1 Amendment dated June 19, 1990 to lease between Registrant and
Greentree Building Associates, filed as Exhibit 10.16.1 to Form
10-Q for the quarter ended June 30, 1990.
10.16.2 Amendment dated May 29, 1997 to lease between Registrant and
Greentree Building Associates, filed as Exhibit 10.16.2 to Form
10-Q for the quarter ended June 30, 1997.
10.19 Lease Between the Registrant and American Cast Iron Pipe Company
for Pipe-Coating Facility in Birmingham, Alabama dated December
11, 1991, filed as Exhibit 10.19 to Form 10-K for the year ended
December 31, 1991.
10.19.1 Amendment to Lease between the Registrant and American Cast Iron
Pipe Company for Pipe Coating Facility in Birmingham, Alabama
dated April 15, 1997, filed as Exhibit 10.19.1 to Form 10-Q for
the quarter ended March 31, 1997.
10.20 Asset Purchase Agreement, dated June 5, 1998 by and among the
Registrant and Northwest Pipe Company, filed as Exhibit 10.0 to
Form 8-K on June 18, 1998.
10.21 Stock Purchase Agreement dated June 3, 1999, by and among the
Registrant and the shareholders of CXT Incorporated, filed as
Exhibit 10.0 to Form 8-K on July 14, 1999.
10.33.2 Amended and Restated 1985 Long Term Incentive Plan, as amended
and restated February 26, 1997, filed as Exhibit 10.33.2 to Form
10-Q for the quarter ended June 30, 1997. **
10.34 Amended and Restated 1998 Long-Term Incentive Plan for Officers
and Directors, as amended and restated February 24, 1999 and
filed as Exhibit 10.34 to Form 10-K for the year ended December
31, 1998. **
10.45 Medical Reimbursement Plan, filed as Exhibit 10.45 to Form 10-K
for the year ended December 31, 1992. **
10.46 Leased Vehicle Plan, as amended to date, filed as Exhibit 10.46
to Form 10-K for the year ended December 31, 1997. **
* 10.50 L. B. Foster Company 2000 Incentive Compensation Plan. **
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.
* 23.7 Consent of Independent Auditors.
* 27 Financial Data Schedule
** Identifies management contract or compensatory plan or arrangement
required to be filed as an Exhibit.
(b) Reports on Form 8-K
On July 14, 1999, the Registrant filed a Current Report on Form 8-K announcing
the June 30, 1999 purchase of all outstanding stock of CXT Incorporated.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
March 28, 2000
By /s/ Lee B. Foster II
(Lee B. Foster II, Chief
Executive Officer and
Chairman of the Board)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Name Position Date
- --------------------------------------------------------------------------------
By: /s/ Lee B. Foster II Chief Executive March 28, 2000
(Lee B. Foster II) Officer, Chairman of the
Board and Director
By: /s/Henry J. Massman, IV Director March 28, 2000
(Henry J. Massman, IV)
By: /s/ Roger F. Nejes Senior Vice President - March 28, 2000
(Roger F. Nejes) Finance & Administration
and Chief Financial Officer
By: /s/Linda K. Patterson Controller March 28, 2000
(Linda K. Patterson)
By: /s/John W. Puth Director March 28, 2000
(John W. Puth)
By: /s/William H. Rackoff Director March 28, 2000
(William H. Rackoff)
By: /s/ Richard L. Shaw Director March 28, 2000
(Richard L. Shaw)
L. B. FOSTER COMPANY AND SUBSIDIARIES
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
(In Thousands)
Additions
------------------
Balance at Charged to Balance
Beginning Costs and at End
of Year Expenses Other Deductions of Year
---------- ----------- ----- ---------- -------
1999
Deducted from assets
to which they apply:
Allowance for
doubtful accounts $ 1,438 $ 180 $ - $ 63 (1) $1,555
================================================================================
Provision for de-
cline in market
value of inven-
tories $ 600 $ - $ - $ - $ 600
================================================================================
Not deducted from
assets:
Provision for
special termina-
tion benefits $ 5 $ - $ - $ - $ 5
================================================================================
Provision for
environmental
compliance &
remediation $ 329 $ 12 $ - $ 127 (2) $ 214
================================================================================
1998
Deducted from assets
to which they apply:
Allowance for
doubtful accounts $ 1,468 $ 10 $ - $ 40 (1) $1,438
================================================================================
Provision for de-
cline in market
value of inven-
tories $ 600 $ - $ - $ - $ 600
================================================================================
Not deducted from
assets:
Provision for
special termina-
tion benefits $ 12 $ - $ - $ 7 (2) $ 5
================================================================================
Provision for
environmental
compliance &
remediation $ 284 $ 184 $ - $ 139 (2) $ 329
================================================================================
1997
Deducted from assets
to which they apply:
Allowance for
doubtful accounts $ 1,803 $ 199 $ - $ 534 (1) $1,468
================================================================================
Provision for de-
cline in market
value of inven-
tories $ 600 $ - $ - $ - $ 600
================================================================================
Not deducted from
assets:
Provision for
special termina-
tion benefits $ 22 $ 1 $ - $ 11 (2) $ 12
================================================================================
Provision for
environmental
compliance &
remediation $ 242 $ 61 $ - $ 19 (2) $ 284
================================================================================
(1) Notes and accounts receivable written off as uncollectible.
(2) Payments made on amounts accrued and reversals of accruals.