UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended September 30, 2002
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)
(412) 928-3417
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No
Indicate the number of shares of each of the registrant's classes of common
stock as of the latest practicable date.
Class Outstanding at November 1, 2002
----- -------------------------------
Common Stock, Par Value $.01 9,527,522 Shares
L.B. FOSTER COMPANY AND SUBSIDIARIES
INDEX
PART I. Financial Information Page
- ------------------------------
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of Income 4
Condensed Consolidated Statements of Cash Flows 5
Notes to Condensed Consolidated
Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 13
PART II. Other Information
Item 1. Legal Proceedings 20
Item 4. Controls and Procedures 20
Item 6. Exhibits and Reports on Form 8-K 20
Signature 23
Certification under Section 302(a) of the
Sarbanes-Oxley Act of 2002 24
Certification under Section 906 of the
Sarbanes-Oxley Act of 2002 26
3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
L. B. FOSTER COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
September 30, December 31,
2002 2001
-------------- ----------------
ASSETS (Unaudited)
Current Assets:
Cash and cash equivalents $1,147 $4,222
Accounts and notes receivable:
Trade 47,591 52,730
Other 182 334
- --------------------------------------------------------------------------------
47,773 53,064
Inventories 32,328 43,444
Current deferred tax assets 1,491 1,491
Other current assets 3,855 814
Property held for resale 1,333 1,333
- --------------------------------------------------------------------------------
Total Current Assets 87,927 104,368
- --------------------------------------------------------------------------------
Property, Plant & Equipment - At Cost 69,127 64,465
Less Accumulated Depreciation (33,457) (30,514)
- --------------------------------------------------------------------------------
35,670 33,951
- --------------------------------------------------------------------------------
Other Assets:
Goodwill 350 5,131
Other intangibles - net 1,537 1,324
Investments 12,470 11,104
Deferred tax assets 2,286 1,184
Other assets 1,438 2,980
- --------------------------------------------------------------------------------
Total Other Assets 18,081 21,723
- --------------------------------------------------------------------------------
TOTAL ASSETS $141,678 $160,042
================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term debt $664 $809
Short-term borrowings - 5,000
Accounts payable - trade 22,666 29,290
Accrued payroll and employee benefits 2,151 2,546
Current deferred tax liabilities 1,201 1,201
Other accrued liabilities 3,341 3,511
- --------------------------------------------------------------------------------
Total Current Liabilities 30,023 42,357
- --------------------------------------------------------------------------------
Long-Term Borrowings 27,790 30,000
- --------------------------------------------------------------------------------
Other Long-Term Debt 3,576 2,758
- --------------------------------------------------------------------------------
Deferred Tax Liabilities 4,968 4,968
- --------------------------------------------------------------------------------
Other Long-Term Liabilites 4,163 2,814
- --------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY:
Common stock 102 102
Paid-in capital 35,143 35,233
Retained earnings 39,937 46,632
Treasury stock (3,629) (3,926)
Accumulated other comprehensive loss (395) (896)
- --------------------------------------------------------------------------------
Total Stockholders' Equity 71,158 77,145
- --------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $141,678 $160,042
================================================================================
See Notes to Condensed Consolidated Financial Statements.
4
L. B. FOSTER COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Per Share Amounts)
Three Months Nine Months
Ended Ended
September 30, September 30,
- ---------------------------------------------------------------------------------------------------------
2002 2001 2002 2001
- ---------------------------------------------------------------------------------------------------------
(Unaudited) (Unaudited)
Net Sales $66,987 $75,884 $200,981 $212,248
Cost of Goods Sold 58,633 66,125 177,122 187,014
- ---------------------------------------------------------------------------------------------------------
Gross Profit 8,354 9,759 23,859 25,234
Selling and Administrative
Expenses 7,044 7,315 20,594 22,791
Interest Expense 669 900 1,976 2,796
Other Expense (Income) 3,834 (203) 3,324 (620)
- ---------------------------------------------------------------------------------------------------------
11,547 8,012 25,894 24,967
- ---------------------------------------------------------------------------------------------------------
(Loss) Income Before Income
Taxes and Cumulative Effect
of Change in Accounting
Principle (3,193) 1,747 (2,035) 267
Income Tax (Benefit) Expense (446) 717 270 111
- ---------------------------------------------------------------------------------------------------------
(Loss) Income Before Cumulative
Effect of Change in Accounting
Principle (2,747) 1,030 (2,305) 156
Cumulative Effect of Change
in Accounting Principle,
Net of Tax - - (4,390) -
- ---------------------------------------------------------------------------------------------------------
Net (Loss) Income ($2,747) $1,030 ($6,695) $156
=========================================================================================================
Basic & Diluted (Loss)
Earnings Per Share:
Before Cumulative Effect
of Change in Accounting
Principle ($0.29) $0.11 ($0.24) $0.02
Cumulative Effect of
Change in Accounting
Principle, Net of Tax - - (0.46) -
- ---------------------------------------------------------------------------------------------------------
Net (Loss) Income ($0.29) $0.11 ($0.71) $0.02
=========================================================================================================
See Notes to Condensed Consolidated Financial Statements.
5
L. B. FOSTER COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
Nine Months
Ended September 30,
2002 2001
- --------------------------------------------------------------------------------
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income before cumulative
effect of accounting change ($2,305) $156
Adjustments to reconcile net (loss) income
to net cash provided by operating activities:
Depreciation and amortization 3,808 4,234
Loss on sale of property, plant and equipment 56 16
Impairment of equity investment 1,793 -
Unrealized loss on derivative mark-to-market 2,260 -
Deferred income taxes (926) -
Change in operating assets and liabilities:
Accounts receivable 5,264 (1,548)
Inventories 11,875 17,518
Other current assets (2,890) (390)
Other noncurrent assets (817) 224
Accounts payable - trade (6,819) (2,734)
Accrued payroll and employee benefits (395) (611)
Other current liabilities (171) (1,015)
Other liabilities (20) 12
- --------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 10,713 15,862
- --------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property, plant
and equipment 243 216
Capital expenditures on property, plant
and equipment (3,920) (2,938)
Purchase of DM&E stock (500) (800)
Acquisition of business (2,214) -
- --------------------------------------------------------------------------------
Net Cash Used by Investing Activities (6,391) (3,522)
- --------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of revolving credit agreement
borrowings (35,000) (10,000)
Proceeds from revolving credit agreement
borrowings 27,790 -
Debt issuance costs (451) -
Exercise of stock options and stock awards 207 92
Treasury stock acquisitions - (75)
Proceeds (repayment) of long-term debt 55 (709)
- --------------------------------------------------------------------------------
Net Cash Used by Financing Activities (7,399) (10,692)
- --------------------------------------------------------------------------------
Effect of exchange rate on cash 2 (35)
- --------------------------------------------------------------------------------
Net (Decrease) Increase in Cash and Cash Equivalents (3,075) 1,613
Cash and Cash Equivalents at Beginning of Period 4,222 -
- --------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Period $1,147 $1,613
================================================================================
Supplemental Disclosure of Cash Flow Information:
Interest Paid $2,349 $3,152
================================================================================
Income Taxes Paid $747 $695
================================================================================
During the first nine months of 2002 and 2001, the Company financed certain
capital expenditures totaling $618,000 and $102,000, respectively, through the
execution of capital leases.
See Notes to Condensed Consolidated Financial Statements.
6
L. B. FOSTER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. FINANCIAL STATEMENTS
--------------------
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all estimates and
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. However, actual results could differ from
those estimates. The results of operations for interim periods are not
necessarily indicative of the results that may be expected for the year ended
December 31, 2002. For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's annual report on Form
10-K for the year ended December 31, 2001.
2. ACCOUNTING PRINCIPLES
---------------------
In June 2001, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 141, "Business Combinations" (SFAS 141)
and Statement of Financial Accounting Standards No. 142, "Goodwill and Other
Intangible Assets" (SFAS 142). These statements change the accounting for
business combinations, goodwill, and intangible assets.
SFAS 141 eliminates the pooling-of-interests method of accounting for business
combinations except for qualifying business combinations that were initiated
prior to July 1, 2001. SFAS 141 supersedes Accounting Principles Board Opinion
No. 16 (APB 16): however, certain purchase accounting guidance in APB 16, as
well as certain of its amendments and interpretations, have been carried forward
to SFAS 141. SFAS 141 changes the criteria to recognize intangible assets
separately from goodwill. The requirements of SFAS 141 are effective for any
business combination accounted for by the purchase method that is completed
after June 30, 2001.
SFAS 142 establishes new accounting and reporting requirements for goodwill and
intangible assets, including new measurement techniques for evaluating the
recoverability of such assets. Under SFAS 142, all goodwill amortization ceased
as of January 1, 2002. Goodwill attributable to each of the Company's reporting
units was tested for impairment by comparing the fair value of each reporting
unit with its carrying value. As a result of the adoption of SFAS 142, the
Company recognized a total pre-tax charge of $4.9 million, of which $3.6 million
related to the Rail products segment (primarily from the 1999 acquisition of CXT
Incorporated), and $1.3 million related to the Construction products segment
(from the 1997 acquisition of the Precise Fabricating Corporation). The fair
values of these reporting units were determined using discounted cash flows
based on the projected financial information of the reporting units. On an
ongoing basis (absent of any impairment indicators), the Company expects to
perform its impairment tests during the fourth quarter.
Under SFAS 142, the impairment charge recognized at adoption is reflected as a
cumulative effect of a change in accounting principle, effective January 1,
2002. Any impairment adjustments recognized on an ongoing basis are recognized
as a component of continuing operations.
The carrying amount of goodwill attributable to each segment, after the non-cash
charges for the adoption of SFAS 142 at January 1, 2002 are detailed as follows:
7
Rail Construction Tubular
Products Products Products
(in thousands) Segment Segment Segment Total
- ------------------------------------------------------------------------------------------------
Balance as of December 31, 2001 $3,664 $1,467 - $5,131
Goodwill impairment - January 1, 2002 (3,664) (1,267) - (4,931)
Goodwill acquired - Greulich Bridge - 150 - 150
- ------------------------------------------------------------------------------------------------
Balance as of September 30, 2002 - $350 - $350
================================================================================================
As required by SFAS 142, the Company reassessed the useful lives of its
identifiable intangible assets and determined that no changes were required. As
the Company has no indefinite lived intangible assets, all intangible assets
will continue to be amortized over their remaining useful lives ranging from 60
to 120 months, with a total weighted average amortization period of less than
eight years. The components of the Company's intangible assets are as follows:
September 30, 2002 December 31, 2001
- ---------------------------------------------------------------------------------------------------
Gross Carrying Accumulated Gross Carrying Accumulated
(in thousands) Amount Amortization Amount Amortization
- ---------------------------------------------------------------------------------------------------
Intellectual property $1,589 ($831) $1,589 ($686)
Licensing agreements 400 (70) 375 (21)
Non-compete agreements 350 (53) - -
Patents 200 (48) 100 (33)
- ---------------------------------------------------------------------------------------------------
Total $2,539 ($1,002) $2,064 ($740)
===================================================================================================
Amortization expense for the nine months ended September 30, 2002 and 2001 was
$263,000 and $184,000, respectively. Future estimated amortization expense is as
follows:
Estimated
Amortization
(in thousands) Expense
- ------------------------------------------------------------------
For the year ended December 31,
2002 $350
2003 350
2004 350
2005 350
Thereafter 400
==================================================================
8
The following table provides comparative earnings and earnings per share had the
non-amortization provisions of SFAS 142 been adopted for all periods presented:
Three Months Ended Nine Months Ended
September 30, September 30,
(in thousands, except per share amounts) 2002 2001 2002 2001
- ---------------------------------------------------------------------------------------------------------------------------
Reported net (loss) income ($2,747) $1,030 ($6,695) $156
Amortization of goodwill, net of tax - 103 - 310
- ---------------------------------------------------------------------------------------------------------------------------
Adjusted net (loss) income ($2,747) $1,133 ($6,695) $466
===========================================================================================================================
Basic and diluted (loss) earnings per share:
Reported net (loss) income ($0.29) $0.11 ($0.71) $0.02
Amortization of goodwill, net of tax - 0.01 - 0.03
- ---------------------------------------------------------------------------------------------------------------------------
Adjusted basic and diluted (loss) earnings per share: ($0.29) $0.12 ($0.71) $0.05
===========================================================================================================================
In June 2001, the FASB issued Statement of Accounting Standards No. 143,
"Accounting for Asset Retirement Obligations" (SFAS 143), effective for fiscal
years beginning after June 15, 2002. SFAS 143 provides accounting requirements
for retirement obligations associated with tangible long-lived assets. The
obligations affected are those for which there is a legal obligation to settle
as a result of existing or enacted law. The Company does not believe this
standard will have an impact on its consolidated financial statements.
In August 2001 the FASB issued Statement of Financial Accounting Standards No.
144, "Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS 144),
effective for fiscal years beginning after December 31, 2001. This statement
supersedes FASB Statement No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of" (SFAS 121), and provides a
single accounting model for long-lived assets to be disposed of. On January 1,
2002, the Company adopted SFAS 144 and the adoption did not have a material
impact on the Company's consolidated financial statements.
In June 2002, the FASB issued Statement of Financial Accounting Standards No.
146 "Accounting for Costs Associated with Exit or Disposal Activities" (SFAS
146), effective for exit or disposal activities initiated after December 31,
2002, with early application encouraged. This statement supercedes EITF Issue
No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and
Other Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring)." SFAS 146 requires that a liability for a cost associated with
an exit or disposal activity be recognized when the liability is incurred,
rather than at the date of an entity's commitment to an exit plan. The Company
does not expect this standard to have a material effect on the Company's
consolidated financial statements.
3. ACCOUNTS RECEIVABLE
-------------------
Credit is extended on an evaluation of the customer's financial condition and,
generally, collateral is not required. Credit terms are consistent with industry
standards and practices. Trade accounts receivable at September 30, 2002 and
December 31, 2001 have been reduced by an allowance for doubtful accounts of
($988,000) and ($812,000), respectively. Bad debt expense was $165,000 and
$249,000 for the nine-month periods ended September 30, 2002 and 2001,
respectively.
4. INVENTORIES
-----------
Inventories of the Company at September 30, 2002 and December 31, 2001 are
summarized as follows in thousands:
9
September 30, December 31,
2002 2001
- ------------------------------------------------------------------------
Finished goods $24,047 $34,070
Work-in-process 5,437 5,551
Raw materials 4,777 5,756
- ------------------------------------------------------------------------
Total inventories at
current costs 34,261 45,377
(Less):
LIFO reserve (1,333) (1,333)
Inventory valuation reserve (600) (600)
- ------------------------------------------------------------------------
$32,328 $43,444
========================================================================
Inventories of the Company are generally valued at the lower of last-in,
first-out (LIFO) cost or market. Other inventories of the Company are valued at
average cost or market, whichever is lower. An actual valuation of inventory
under the LIFO method can be made only at the end of each year based on the
inventory levels and costs at that time. Accordingly, interim LIFO calculations
must necessarily be based on management's estimates of expected year-end levels
and costs.
5. BORROWINGS
On September 26, 2002, the Company entered into a new credit agreement with a
syndicate of three banks led by PNC Bank, N.A. The new agreement provides for a
revolving credit facility of up to $60,000,000 in borrowings to support the
Company's working capital and other liquidity requirements.
The revolving credit facility, which matures in September 2005, is secured by
substantially all of the inventory and trade receivables owned by the Company.
Availability under the agreement is limited by the amount of eligible inventory
and accounts receivable applied against certain advance rates. Proceeds from the
new facility were used to repay and retire the Company's previous credit
agreement, which was to mature in July 2003. Interest on the new credit facility
is based on LIBOR plus a spread ranging from 1.75% to 2.5%.
6. OTHER EXPENSE (INCOME)
----------------------
The components of other expense (income) were as follows:
Three Months Ended Nine Months Ended
September 30 September 30
(in thousands) 2002 2001 2002 2001
- --------------------------------------------------------------------------------
Unrealized loss on derivative
mark-to-market $2,260 $ - $2,260 $ -
Impairment of equity investment 1,793 - 1,793 -
Accrued dividend income on DM&E
Preferred Stock (247) (220) (866) (661)
Other 28 17 137 41
- --------------------------------------------------------------------------------
Other expense (income) $3,834 ($203) $3,324 ($620)
================================================================================
Other expense (income) for the quarter and nine months ended September 30, 2002
includes a non-cash charge of $2,260,000 related to the mark-to-market
accounting for derivative instruments as a result of the Company entering into a
new credit agreement late in the third quarter. The new credit agreement, as
discussed in Note 5, discontinued the hedging relationship of the Company's
interest rate collars with the underlying debt instrument. The Company will
continue to record the mark-to-market adjustments on the interest rate collars,
through 2006, in its consolidated income statement, as the existing interest
rate-related derivatives are not deemed to be effective hedges of the new credit
facility.
10
The 2002 third quarter and nine-month results also include a non-cash charge of
$1,793,000 related to impairment of the Company's investment in its specialty
trackwork supplier. The loss in value of this investment was driven by the
continued deterioration of certain rail markets and was determined to be "other
than temporary" based on discounted cash flow estimates prepared pursuant to the
provisions of APB 18 "The Equity Method of Accounting for Investments in Common
Stock".
7. (LOSS) EARNINGS PER COMMON SHARE
The following table sets forth the computation of basic and diluted earnings per
common share:
Three Months Ended Nine Months Ended
September 30, September 30,
(in thousands, except earnings per share) 2002 2001 2002 2001
- -----------------------------------------------------------------------------------------------------------------
Numerator:
Numerator for basic and diluted
earnings per common share -
net income available to common
stockholders:
- -----------------------------------------------------------------------------------------------------------------
Net (loss) income ($2,747) $1,030 ($6,695) $156
=================================================================================================================
Denominator:
Weighted average shares 9,519 9,435 9,485 9,427
- -----------------------------------------------------------------------------------------------------------------
Denominator for basic earnings
per common share 9,519 9,435 9,485 9,427
Effect of dilutive securities:
Contingent issuable shares pursuant to
the Company's Incentive
Compensation Plans - 55 - 20
Employee stock options - 33 - 36
- -----------------------------------------------------------------------------------------------------------------
Dilutive potential common shares - 88 - 56
Denominator for diluted earnings
per common share - adjusted weighted
average shares and assumed conversions 9,519 9,523 9,485 9,483
=================================================================================================================
Basic (loss) earnings per common share ($0.29) $0.11 ($0.71) $0.02
===================================================================================================================
Diluted (loss) earnings per common share ($0.29) $0.11 ($0.71) $0.02
===================================================================================================================
Since the Company incurred losses applicable to common stockholders in all 2002
periods presented, the inclusion of dilutive securities in the calculation of
weighted average common shares is anti-dilutive and therefore, there is no
difference between basic and diluted earnings per share.
8. COMMITMENTS AND CONTINGENT LIABILITIES
--------------------------------------
The Company is subject to laws and regulations relating to the protection of the
environment and the Company's efforts to comply with environmental regulations
may have an adverse effect on the Company's future earnings. In the opinion of
management, compliance with the present environmental protection laws will not
have a material adverse effect on the financial condition, results of
operations, cash flows, competitive position, or capital expenditures of the
Company.
11
The Company is subject to legal proceedings and claims that arise in the
ordinary course of its business. In the opinion of management, these proceedings
will not materially affect the financial position of the Company.
At September 30, 2002, the Company had outstanding letters of credit of
approximately $2,772,000.
9. BUSINESS SEGMENTS
-----------------
The Company is organized and evaluated by product group, which is the basis for
identifying reportable segments. The Company is engaged in the manufacture,
fabrication and distribution of rail, construction and tubular products. The
following tables illustrate revenues and profits/(losses) of the Company by
segment:
Three Months Ended Nine Months Ended
September 30, 2002 September 30, 2002
Net Segment Net Segment
(in thousands) Sales Profit/(Loss) Sales Profit/(Loss)*
- --------------------------------------------------------------------------------
Rail products $33,299 ($550) $97,569 ($1,508)
Construction products 30,451 622 92,460 1,438
Tubular products 3,237 233 10,952 854
- --------------------------------------------------------------------------------
Total $66,987 $305 $200,981 $784
================================================================================
* Excludes goodwill impairment as a result of adoption of SFAS 142 of $3,664,000
for Rail products and $1,267,000 for Construction products.
Three Months Ended
September 30, 2001
Reported Adjusted
Net Segment Goodwill Segment
(in thousands) Sales Profit/(Loss) Amortization Profit/(Loss)
- --------------------------------------------------------------------------------------------------------------------
Rail products $38,604 ($469) $54 ($415)
Construction products 31,350 1,096 56 1,152
Tubular products 5,930 1,012 - 1,012
- --------------------------------------------------------------------------------------------------------------------
Total $75,884 $1,639 $110 $1,749
====================================================================================================================
Nine Months Ended
September 30, 2001
Reported Adjusted
Net Segment Goodwill Segment
(in thousands) Sales Profit/(Loss) Amortization Profit/(Loss)
- --------------------------------------------------------------------------------------------------------------------
Rail products $109,788 ($3,170) $163 ($3,007)
Construction products 86,073 1,303 169 1,472
Tubular products 16,387 2,290 - 2,290
- --------------------------------------------------------------------------------------------------------------------
Total $212,248 $423 $332 $755
====================================================================================================================
12
In connection with the adoption of SFAS 142 the Company adjusted the reporting
of its segment results to exclude amortization of goodwill from its operating
segments for the prior year periods presented.
Segment profits, as shown above, include internal cost of capital charges for
assets used in the segment at a rate of, generally, 1% per month.
The following table provides a reconciliation of reportable net profit/(loss) to
the Company's consolidated total had the non-amortization provisions of SFAS 142
been adopted for all periods presented:
Three Months Ended Nine Months Ended
September 30, September 30,
(in thousands) 2002 2001 2002 2001
- -------------------------------------------------------------------------------------------------------------------------------
Income (loss) for reportable segments* $305 $1,639 $784 $423
Goodwill amortization for reportable segments - 110 - 332
- -------------------------------------------------------------------------------------------------------------------------------
Adjusted income (loss) for reportable segments 305 1,749 784 755
Cost of capital for reportable segments 3,449 3,364 9,476 9,960
Interest expense (669) (900) (1,976) (2,796)
Other income (expense) (3,834) 203 (3,324) 620
Unallocated goodwill amortization - 28 - 84
Corporate expense and other unallocated charges (2,444) (2,559) (6,995) (7,940)
- -------------------------------------------------------------------------------------------------------------------------------
Adjusted (loss) income before income taxes and
cumulative effect of change in accounting principle ($3,193) $1,885 ($2,035) $683
===============================================================================================================================
* Excludes goodwill impairment as a result of adoption of SFAS 142 of $3,664,000
for Rail products and $1,267,000 for Construction products.
The Company's emphasis on improving working capital utilization has resulted in
a reduction to inventory and accounts receivable for the Rail segment of
approximately $9,700,000, from December 31, 2001. However, the Construction
segment's net assets increased approximately $2,000,000 from December 31, 2001
due primarily to the growth of the Company's Fabricated Products division. This
division acquired assets from the Greulich Bridge Products Division of Harsco
Corporation (See Other Matters section of Management's Discussion and Analysis
of Financial Condition & Results of Operations), and expanded its Bedford, PA
operations.
10. COMPREHENSIVE (LOSS) INCOME
---------------------------
Comprehensive (loss) income represents net (loss) income plus certain
stockholders' equity changes not reflected in the Condensed Consolidated
Statements of Income. The components of comprehensive (loss) income, net of tax,
were as follows:
Three Months Ended Nine Months Ended
September 30 September 30
(in thousands) 2002 2001 2002 2001
- -----------------------------------------------------------------------------------------------------------------------------
Net (loss) income ($2,747) $1,030 ($6,695) $156
Cumulative transition adjustment of a change in accounting
principle (SFAS No. 133) - - - (48)
Unrealized derivative losses on cash flow hedges
(SFAS No. 133) (778) (726) (696) (763)
Reclassification adjustment for derivative losses included
in net losses 1,222 - 1,222 -
Foreign currency translation losses (25) (16) (25) (19)
- -----------------------------------------------------------------------------------------------------------------------------
Comprehensive (loss) income ($2,328) $288 ($6,194) ($674)
=============================================================================================================================
13
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Three Months Ended Nine Months Ended
September 30, September 30,
- --------------------------------------------------------------------------------
2002 2001 2002 2001
- --------------------------------------------------------------------------------
(Dollars in thousands)
Net Sales:
Rail Products $33,299 $38,604 $97,569 $109,788
Construction Products 30,451 31,350 92,460 86,073
Tubular Products 3,237 5,930 10,952 16,387
- --------------------------------------------------------------------------------
Total Net Sales $66,987 $75,884 $200,981 $212,248
================================================================================
Gross Profit:
Rail Products $3,394 $3,773 $9,776 $9,791
Construction Products 4,670 4,665 12,914 12,189
Tubular Products 652 1,469 2,133 3,940
Other (362) (148) (964) (686)
- --------------------------------------------------------------------------------
Total Gross Profit 8,354 9,759 23,859 25,234
- --------------------------------------------------------------------------------
Expenses:
Selling and admin-
istrative expenses 7,044 7,315 20,594 22,791
Interest expense 669 900 1,976 2,796
Other expense (income) 3,834 (203) 3,324 (620)
- --------------------------------------------------------------------------------
Total Expenses 11,547 8,012 25,894 24,967
- --------------------------------------------------------------------------------
(Loss) Income Before
Income Taxes (3,193) 1,747 (2,035) 267
Income Tax (Benefit)
Expense (446) 717 270 111
- --------------------------------------------------------------------------------
(Loss) Income Before
Cumulative Effect
of Change in Account-
ing Principle ($2,747) $1,030 ($2,305) $156
Cumulative Effect of
Change in Accounting
Principle, Net of Tax - - (4,390) -
- --------------------------------------------------------------------------------
Net (Loss) Income ($2,747) $1,030 ($6,695) $156
================================================================================
Gross Profit %:
Rail Products 10.2% 9.8% 10.0% 8.9%
Construction Products 15.3% 14.9% 14.0% 14.2%
Tubular Products 20.1% 24.8% 19.5% 24.0%
Total Gross Profit 12.5% 12.9% 11.9% 11.9%
14
Third Quarter 2002 Results of Operations
- ----------------------------------------
The Company recorded a third quarter 2002 net loss of $2.7 million or $0.29 per
share on net sales of $67.0 million. This compares to net income of $1.0 million
or $0.11 per share on net sales of $75.9 million, for the third quarter of 2001.
Results for last year's third quarter included $0.1 million of goodwill
amortization.
Rail products' 2002 third quarter net sales were $33.3 million, a 13.7% decline
from last year's third quarter net sales of $38.6 million. This decline was due
primarily to weak market conditions in the Company's rail distribution business.
Construction products' net sales declined 2.9% to $30.5 million in the third
quarter of 2002. Pricing pressures on certain piling products had a negative
impact on the Construction segment's revenues. Tubular products' sales declined
over 45% from the same quarter of 2001 due primarily to low demand for coated
pipe.
The gross profit margin for the total Company was 12.5% in the third quarter of
2002 compared to 12.9% in the same quarter last year. Rail products' profit
margin increased by 0.4 percentage points to 10.2% from the same period last
year due to improvement in transit and CXT rail products' margins. Excluding
start-up costs for the Company's Hillsboro, TX precast building facility,
Construction products' margin improved 0.2 percentage points to 15.3% from the
same period last year. This was due primarily to improved margins for certain
fabricated bridge products and precast concrete buildings. Tubular products' 4.7
percentage point drop in gross margin was primarily the result of low volume
inefficiencies at the Birmingham, AL pipe-coating facility caused by the sales
decline, mentioned above.
Excluding the prior year's third quarter amortization expense of $0.1 million,
selling and administrative expenses declined 2.0% compared to the same period of
2001, largely due to reduced travel and entertainment, and general supplies
costs.
Other (income) expense in the third quarter of 2002 includes a non-cash charge
of $2.3 million related to mark-to-market accounting for derivative instruments,
as a result of the Company entering into a new credit agreement late in the
third quarter. Also included in other (income) expense is a non-cash charge of
$1.8 million related to an impairment of the Company's equity investment in its
specialty trackwork supplier (see Other Matters), and $0.2 million accrued
dividend income on DM&E Preferred Stock. Other expense in the same period of
2001 included $0.2 million accrued dividend income on DM&E Preferred Stock. The
decline in interest expense resulted from the reduction of debt. The Company's
effective tax rate increased significantly in 2002 due to continued losses at
its Canadian signaling operations.
First Nine Months of 2002 Results of Operations
- -----------------------------------------------
The Company recorded a net loss of $2.3 million, or $0.24 per share before the
transitional goodwill impairment charges that the Company recorded as a result
of adoption of Statement of Financial Accounting Standards No. 142, "Goodwill
and Other Intangible Assets". The Company recorded a net loss of $6.7 million,
or $0.71 per share after the transitional goodwill impairment charge, on net
sales of $201.0 million for the first nine months of 2002. The transition
impairment was recognized as the cumulative effect of a change in accounting
principle and was retroactively recorded to the required date of adoption,
January 1, 2002. Net income for the same period in 2001 was $0.2 million, or
$0.02 per share on net sales of $212.2 million. Results for the first nine
months of 2001 included nonrecurring pretax charges of $1.5 million related to
the Company's plan to consolidate sales and administrative functions and plant
operations, and $0.4 million of goodwill amortization.
Rail products' net sales for the first nine months of 2002 were $97.6 million,
an 11.1% decline from the prior year period. This decline in sales can be
attributed to poor market conditions for rail distribution products and
management's decision to sell off large quantities of used rail inventory in
2001. Construction products' net sales improved 7.4% from the same period last
year. This improvement was primarily due to a strong 2001 year-end backlog of
fabricated bridge products and the additional backlog received with the Greulich
Bridge Products acquisition. (See Other Matters) The start-up of precast
concrete building production at the Company's new Hillsboro, TX facility also
contributed to the 2002 increase in net sales.
15
Tubular products' sales declined 33.2% due primarily to lower demand for pipe
coating services. Spending for new pipeline capital projects has decreased
significantly due to uncertainties in the energy markets.
The gross margin percentage for the Company was 11.9% during the first nine
months of both 2002 and 2001. The pretax charges, discusses above, reduced the
2001 gross margin by 0.5 percentage points. During the first nine months of
2002, Rail products' profit margin improved to 10.0%, an increase of 1.1
percentage points from the same period in 2001. Last year was negatively
impacted by costs associated with the shutdown of the Company's trackwork
facility in Pomeroy, OH and the reduction of used rail inventory through low
margin sales. Excluding non-recurring pretax charges in the first nine months of
2001, rail products' gross margin improved 0.5 percentage points in 2002.
Construction products' profit margin declined 0.2 percentage points in 2002 as a
result of market pressure on margins of certain piling and fabricated
construction products.
Excluding the prior year's non-recurring pretax charges of $0.5 million and
amortization expense of $0.4 million, selling and administrative expenses
declined 6.0% compared to the same period of 2001. This decline can be
attributed to cost control measures implemented throughout the Company and the
elimination of the sign structure business.
Other (income) expense includes the third quarter non-cash charge of $2.3
million related to mark-to-market accounting for derivative instruments, and the
non-cash charge of $1.8 million related to an impairment of the Company's equity
investment in its specialty trackwork supplier, mentioned above. Also included
in current year other (income) expense is $0.9 million accrued dividend income
on DM&E Preferred Stock. The same period of 2001 included $0.7 million accrued
dividend income on DM&E Preferred Stock. The decline in interest expense
resulted from the reduction of debt. The provision for income taxes reflects a
reserve against the recoverability of deferred tax benefits derived from
continued losses in the Company's Canadian operations. Exclusive of the Canadian
losses, the Company's 2002 effective tax rate is 41%.
Liquidity and Capital Resources
- -------------------------------
The Company generates operational cash flow from the sale of inventory and the
collection of accounts receivable. During the first nine months of 2002, the
average turnover rate for accounts receivable improved over the same period in
2001. The average inventory turnover rate for the first nine months of 2002 also
improved over the average rate for the same period in 2001. Working capital at
September 30, 2002 was $57.9 million compared to $62.0 million at December 31,
2001.
Management's emphasis on improving working capital utilization resulted in a
$11.1 million reduction in inventory and a $5.3 million reduction in receivables
since December 31, 2001. These improvements have allowed the Company to reduce
debt by $6.5 million from year-end 2001.
The Company's Board of Directors has authorized the purchase of up to 1,500,000
shares of its Common stock at prevailing market prices. The timing and extent of
purchases will depend on market conditions and options available to the Company
for alternative uses of its resources. No purchases were made in the first nine
months of 2002. During the same period last year, the Company purchased 25,000
shares at a cost of $75,000. From August 1997 through September 2002, the
Company had repurchased 973,398 shares at a cost of approximately $5.0 million.
Including the Greulich acquisition, discussed in Other Matters, the Company had
capital expenditures of approximately $6.1 million in the first nine months of
2002. Total capital expenditures in 2002 are expected to be approximately $7.7
million and are anticipated to be funded by cash flow from operations and
available external financing sources.
On September 26, 2002, the Company entered into a new credit agreement with a
syndicate of three banks led by PNC Bank, N.A. The new agreement provides for a
revolving credit facility of up to $60.0 million in borrowings to support the
Company's working capital and other liquidity requirements. The revolving credit
facility, which matures in September 2005, is secured by substantially all of
the inventory and trade receivables owned by the Company. Availability under
16
this agreement is limited by the amount of eligible inventory and accounts
receivable applied against certain advance rates. Proceeds from the new facility
were used to repay and retire the Company's previous credit agreement, which was
to mature in July 2003. Interest on the new credit facility is based on LIBOR
plus a spread ranging from 1.75% to 2.5%.
The agreement includes financial covenants requiring a minimum net worth and a
minimum level for the fixed charge coverage ratio. The agreement also restricts
investments, indebtedness, and the sale of certain assets. As of September 30,
2002, the Company was in compliance with all of the agreement's covenants.
Total revolving credit agreement borrowings at September 30, 2002 were $27.8
million, a decrease of $7.2 million from December 31, 2001. This portion of the
borrowings is classified as long-term because the Company does not anticipate
reducing the borrowings below this level over the next twelve months. At
September 30, 2002, remaining available borrowings under this facility were
approximately $13.2 million. Outstanding letters of credit at September 30, 2002
were approximately $2.8 million. The letters of credit expire annually and are
subject to renewal. Management believes its internal and external sources of
funds are adequate to meet anticipated needs.
Dakota, Minnesota & Eastern Railroad
- ------------------------------------
The Company maintains a significant investment in the Dakota, Minnesota &
Eastern Railroad Corporation (DM&E), a privately held, regional railroad, which
operates over 1,100 miles of track in five states.
At September 30, 2002, the Company's investment was comprised of $0.2 million of
DM&E common stock, $1.5 million of Series B Preferred Stock and warrants, $6.0
million of Series C Preferred Stock and warrants, $0.8 million of Preferred
Series C-1 Stock and warrants, and $0.5 million of Series D Preferred Stock and
warrants.
On July 30, 2002, the DM&E announced the acquisition of a 1,400 mile regional
railroad formerly owned by the I&M Rail Link, LLC. The Company participated in
the financing of this acquisition with an additional $0.5 million investment for
Series D Preferred Stock and warrants. On a fully diluted basis, the Company's
ownership in the DM&E is approximately 13.6%. In addition, the Company has a
receivable for accrued dividend income on Preferred Stock of $3.5 million.
In June 1997, the DM&E announced its plan to build an extension from the DM&E's
existing line into the low sulfur coal market of the Powder River Basin in
Wyoming and to rebuild approximately 600 miles of its existing track (the
Project). The estimated cost of this project is expected to be in excess of $2.0
billion. The Project received final approval by the Surface Transportation Board
(STB) in January 2002. Litigation has been initiated challenging the STB's
approval of the Project and the DM&E's right to utilize eminent domain.
If the Project proves to be viable, management believes that the value of the
Company's investment in the DM&E could increase significantly.
Other Matters
- -------------
Specialty trackwork sales of the Company's Rail segment depend primarily on one
source, in which the Company maintains a 30% ownership position. The 2002 third
quarter and nin-month results include a non-cash charge of $1.8 million related
to impairment of the Company's investment in its specialty trackwork supplier.
The loss in value of this investment was driven by the continued deterioration
of certain rail markets and was determined to be "other than temporary" based on
discounted cash flow estimates prepared pursuant to the provisions of APB 18,
"The Equity Method of Accounting for Investments in Common Stock".
17
At September 30, 2002 and 2001, the Company had advanced to this
supplier progress payments of $5.1 million and $6.7 million, respectively.
During the first nine months of 2002 and 2001, the volume of business the
supplier conducted with the Company was approximately $10.0 million and $9.0
million, respectively. If, for any reason, this supplier is unable to perform,
the Company could experience a negative short-term effect on earnings and cash
flows.
In July 2002, the Company agreed to sell substantially all of the assets at its
St. Marys, WV mine tie facility. Management expects this sale to close in the
fourth quarter of 2002 and anticipates a nominal gain on the sale.
On January 4, 2002, the Company acquired substantially all of the equipment,
inventory, intellectual property, and customer backlog of the Greulich Bridge
Products Division of Harsco Corporation. The purchase price of approximately
$2.2 million consisted of: equipment of $1.0 million, inventory (net of trade
payables) of $0.5 million, intangible assets of $0.5 million, and goodwill of
$0.2 million. These assets are being utilized in the Company's fabricated bridge
products operations in the Construction products segment, and the results of
operations of these assets have been included in the consolidated financial
statements since the date of acquisition.
Operations at the Company's Newport, KY pipe-coating facility were suspended in
1998 in response to unfavorable market conditions. In 1999, the Company recorded
an impairment loss to reduce these assets to their anticipated market value.
Management is currently negotiating the sale of these assets and believes the
proceeds will be sufficient to recover their net book value. In the event that
these assets are not sold, the Company will re-evaluate "held for sale"
treatment in accordance with the provisions of SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets."
In 1998, the Company purchased assets, primarily comprised of intellectual
property related to the business of supplying rail signaling and communication
devices, for approximately $1.7 million. To date, this operation, headquartered
in Canada, has not generated significant revenues. The Company continues to
develop and test, in the market, products associated with the acquired
intellectual property. While market acceptance of these products is expected,
the Company is also exploring the sale of the intellectual property or a
strategic joint venture. Projected cash flows from any of these options will be
adequate to support the carrying value of the operation.
Management continues to evaluate the overall performance of its operations. A
decision to terminate an existing operation could have a material adverse effect
on near-term earnings but would not be expected to have a material adverse
effect on the financial condition of the Company.
Outlook
- -------
The Company has an exclusive agreement with a steel mill to distribute sheet
piling in North America. The Company continues to have difficulty in obtaining
piling on a consistent basis, due to production problems at the mill. The
quantity acquired to date has not materially impacted results, and management
does not expect this situation to improve through the remainder of 2002.
The Company's CXT subsidiary and Allegheny Rail Products division are dependent
on one customer which is a Class I railroad for a significant portion of their
business. The Company has a contract with this Class I railroad for a minimum of
420,000 concrete ties per contract year expiring in September 2003. If this
contract is not renewed, it could have a negative impact on the operating
results of the Company. 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, government 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 September 30, 2002, was approximately $118.8 million.
The following table provides the backlog by business segment:
18
Backlog
----------------------------------------------------------
September 30, December 31, September 30,
(In thousands) 2002 2001 2001
- -------------------------------------------------------------------------------
Rail Products $59,160 $64,641 $76,621
Construction Products 58,047 59,808 57,771
Tubular Products 1,632 1,307 3,150
- -------------------------------------------------------------------------------
Total $118,839 $125,756 $137,542
===============================================================================
The reduction in rail segment backlog from a year ago reflects the effect of CXT
billings against long-term production contracts. Total billings under these
contracts were $19.1 million since October 1, 2001.
Critical Accounting Policies
- ----------------------------
The accompanying consolidated financial statements have been prepared in
conformity with accounting principles generally accepted in the United States.
When more than one accounting principle, or method of its application, is
generally accepted, management selects the principle or method that is
appropriate in the Company's specific circumstances. Application of these
accounting principles requires management to make estimates about the future
resolution of existing uncertainties. As a result, actual results could differ
from these estimates. In preparing these financial statements, management has
made its best estimates and judgements of the amounts and disclosures included
in the financial statements giving due regard to materiality. For more
information regarding the Company's critical accounting policies, please see the
discussion in Management's Discussion & Analysis of Financial Condition and
Results of Operations in Form 10-K for the year ended December 31, 2001.
Market Risk and Risk Management Policies
- ----------------------------------------
The Company uses derivative financial instruments to manage interest rate
exposure on variable-rate debt, primarily by using interest rate collars and
variable interest rate swaps. One interest rate collar agreement, which expires
in March 2006, has a notional value of $15.0 million with a maximum annual
interest rate of 5.60%, and a minimum annual interest rate of 5.00%, and is
based on LIBOR. The counter-party to the collar agreement has the option, on
March 6, 2005, to convert the $15.0 million note to a one-year fixed-rate
instrument with interest payable at an annual rate of 5.49%. A second interest
rate collar agreement, which expires in April 2006, has a notional value of
$10.0 million with a maximum annual interest rate of 5.14%, and a minimum annual
interest rate of 4.97%, and is based on LIBOR. The counter-party to the collar
agreement has the option, on April 18, 2004, to convert the $10.0 million note
to a two-year fixed-rate instrument with interest payable at an annual rate of
5.48%. Effective September 26, 2002, and in conjunction with the Company's debt
refinancing, the Company discontinued cash flow hedge accounting treatment for
the interest rate collars and has applied mark-to-market accounting
prospectively. The interest rate swap agreement, which expires in December 2004,
has a notional value of $2.7 million at September 30, 2002 and is designed to
fix the total interest rate at 7.42%. The Company is obligated to pay additional
interest on the swap if LIBOR exceeds 7.249%. The Company continues to apply
cash flow hedge accounting to the interest rate swap.
The Company is not subject to significant exposure to change in foreign currency
exchange rates. The Company does, however, hedge the cash flows of operations of
its Canadian subsidiary. The Company manages its exposures to changes in foreign
currency exchange rates on firm sales and purchase commitments by entering into
foreign currency forward contracts. The Company's risk management objective is
to reduce its exposure to the effects of changes in exchange rates on sales
revenue over the duration of the transaction. At September 30, 2002, the Company
did not have any foreign currency forward contracts outstanding.
19
The three months and nine months ended September 30, 2002 results from
operations include non-cash losses on derivative instruments of approximately
$2.3 million ($1.3 million, net of tax), related to mark-to-market accounting as
a result of the Company entering into a new credit agreement late in the third
quarter. The debt refinancing discontinued the hedging relationship between the
interest rate collars and the underlying debt instrument. The Company will
continue recording the mark-to-market adjustments in its consolidated income
statements as the interest rate-related derivatives are not deemed to be
effective hedges of the new credit facility. For the three and nine months ended
September 30, 2002, the Company reclassified and recognized $1.2 million in
losses (net of tax) from accumulated other comprehensive income (loss) into net
income (loss), resulting from the discontinuation of the hedges. During the
three and nine month periods, the Company recognized $0.1 million for
mark-to-market losses on the interest rate collars subsequent to hedge
discontinuation.
During the three months ended September 30, 2002 and 2001, unrealized net losses
on derivative instruments, recorded as cash flow hedges, of approximately $0.8
million and $0.7 million, respectively, net of related tax effects, were
recorded in comprehensive income (loss). During the nine months ended September
30, 2002 and 2001, unrealized net losses on derivative instruments, recorded as
cash flow hedges, of approximately $0.7 million and $0.8 million, respectively,
net of related tax effects, were recorded in comprehensive income (loss). (See
Footnote 10).
The Company may enter into additional swaps or other financial instruments to
set all or a portion of its borrowings at fixed rates.
Forward-Looking Statements
- --------------------------
Statements relating to the potential value or viability of the DM&E or the
Project, or management's belief as to such matters, are forward-looking
statements and are subject to numerous contingencies and risk factors. The
Company has based its assessment on information provided by the DM&E and has not
independently verified such information. In addition to matters mentioned above,
factors which can adversely affect the value of the DM&E, its ability to
complete the Project or the viability of the Project include the following:
labor disputes, the outcome of certain litigation, any inability to obtain
necessary environmental and government approvals for the Project in a timely
fashion, the DM&E's ability to continue to obtain interim funding to finance the
Project, the expense of environmental mitigation measures required by the
Surface Transportation Board, an inability to obtain financing for the Project,
competitors' response to the Project, market demand for coal or electricity and
changes in environmental laws and regulations.
The Company wishes to caution readers that various factors could cause the
actual results of the Company to differ materially from those indicated by
forward-looking statements made from time to time in news releases, reports,
proxy statements, registration statements and other written communications
(including the preceding sections of this Management's Discussion and Analysis),
as well as oral statements made from time to time by representatives of the
Company. Additional delays in production of steel sheet piling would, for
example, have an adverse effect on the Company's performance. The inability to
negotiate the sale of certain assets could result in an impairment in future
periods. 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.
20
PART II OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
-----------------
See Note 7, "Commitments and Contingent Liabilities", to the Condensed
Consolidated Financial Statements.
Item 4. CONTROLS AND PROCEDURES
-----------------------
a) Within the 90 days prior to the date of this report, L. B. Foster Company
(the Company) carried out an evaluation, under the supervision and with
the participation of the Company's management, including the President
and Chief Executive Officer along with the Chief Financial Officer, of
the effectiveness of the design and operation of the Company's disclosure
controls and procedures pursuant to Exchange Act Rule 13a-14. Based upon
that evaluation, the President and Chief Executive Officer, along with
the Chief Financial Officer concluded that the Company's disclosure
controls and procedures are effective to timely alert them to material
information relating to the Company (including its consolidated
subsidiaries) required to be included in the Company's periodic SEC
filings.
b) There have been no significant changes in the Company's internal controls
or in other factors that could significantly affect internal controls
subsequent to the date the Company carried out this evaluation.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
a) EXHIBITS
--------
Unless marked by an asterisk, all exhibits are incorporated by reference:
3.1 Restated Certificate of Incorporation as amended to date, filed
as Appendix B to the Company's April 17, 1998 Proxy Statement.
3.2 Bylaws of the Registrant, as amended to date, filed as Exhibit
3B to Form 8-K on May 21, 1997.
4.0 Rights Amendment, dated as of May 14, 1998 between L. B.
Foster Company and American Stock Transfer & Trust
Company, including the form of Rights Certificate and the
Summary of Rights attached thereto, filed as Exhibit 4B to
Form 8-A dated May 23, 1997.
4.0.1 Amended Rights Agreement dated as of May 14, 1998 between
L. B. Foster Company and American Stock Transfer & Trust Company,
filed as Exhibit 4.0.1 to Form 10-Q for the quarter ended
June 30, 1998.
* 4.0.2 Revolving Credit and Security Agreement dated as of September 26,
2002, between L. B. Foster Company and PNC Bank, N.A.
10.12 Lease between CXT Incorporated and Pentzer Development
Corporation, dated April 1, 1993, filed as Exhibit 10.12 to
Form 10-K for the year ended December 31, 1999.
10.12.1 Amendment dated March 12, 1996 to lease between CXT Incorporated
and Pentzer Corporation, filed as Exhibit 10.12.1 to Form 10-K
for the year ended December 31, 1999.
10.13 Lease between CXT Incorporated and Crown West Realty, L. L. C.,
21
dated December 20, 1996, filed as Exhibit 10.13 to Form 10-K for
the year ended December 31, 1999.
10.14 Lease between CXT Incorporated and Pentzer Development
Corporation, dated November 1, 1991 and filed as Exhibit 10.14
to Form 10-K for the year ended December 31, 1999.
10.15 Lease between CXT Incorporated and Union Pacific Railroad
Company, dated February 13, 1998, and filed as Exhibit 10.15 to
Form 10-K for the year ended December 31, 1999.
10.16 Lease between Registrant and Greentree Buildings Associates
for Headquarters office, dated as of June 9, 1986, as
amended to date, filed as Exhibit 10.16 to Form 10-K for the
year ended December 31, 1988.
10.16.1 Amendment dated June 19, 1990 to lease between Registrant
and Greentree Buildings Associates, filed as Exhibit 10.16.1
to Form 10-Q for the quarter ended June 30, 1990.
10.16.2 Amendment dated May 29, 1997 to lease between Registrant and
Greentree Buildings Associates, filed as Exhibit 10.16.2 to
Form 10-Q for the quarter ended June 30, 1997.
10.17 Lease between Registrant and the City of Hillsboro for
property located in Hill County, TX, dated February 22, 2002.
10.19 Lease between Registrant and American Cast Iron Pipe Company for
pipe-coating facility in Birmingham, AL dated December 11, 1991,
filed as Exhibit 10.19 to form 10-K for the year ended December
31, 1991.
10.19.1 Amendment to Lease between Registrant and American Cast Iron
Pipe Company for pipe coating facility in Birmingham, AL,
dated November 15, 2000, and filed as Exhibit 10.19.2 to
Form 10-K for the year ended December 31, 2000.
10.20 Asset Purchase Agreement, dated June 5, 1998 by and among
the Registrant and Northwest Pipe Company, filed as Exhibit
10.20 to Form 8-K on June 18, 1998.
10.21 Stock Purchase Agreement, dated June 3, 1999, by and among
the Registrant and the shareholders of CXT Incorporated,
filed as Exhibit 10.0 to Form 8-K on July 14, 1999.
10.33.2 Amended and Restated 1985 Long-Term Incentive Plan, as
amended and restated February 26, 1997, filed as Exhibit
10.33.2 to Form 10-Q for the quarter ended June 30, 1997. **
10.34 Amended and Restated 1998 Long-Term Incentive Plan, as
amended and restated February 2, 2001, filed as Exhibit
10.34 to Form 10-K for the year ended December 31, 2000. **
10.45 Medical Reimbursement Plan, filed as Exhibit 10.45 to Form 10-K
for the year ended December 31, 1992. **
* 10.46 Leased Vehicle Plan, as amended and restated on October 16,
2002. **
10.50 L. B. Foster Company 2002 Incentive Compensation Plan, filed as
Exhibit 10.50 to Form 10-Q for the quarter ended March 31,
2002. **
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.
22
** Identifies management contract or compensatory plan or
arrangement required to be filed as an Exhibit.
b) Reports on Form 8-K
The Registrant filed no reports on Form 8-K during the nine-month
period ended September 30, 2002.
23
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
L.B. FOSTER COMPANY
--------------------
(Registrant)
Date: November 14, 2002 By:/s/David J. Russo
------------------ ---------------------
David J. Russo
Vice President and
Chief Financial Officer
(Duly Authorized Officer of Registrant)
24
Form of Sarbanes-Oxley Section 302(a) Certification
---------------------------------------------------
I, Stan L. Hasselbusch, certify that:
1. I have reviewed this quarterly report on Form 10-Q of L. B. Foster
Company;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
in our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of the registrant's board of directors (or persons
performing the equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: November 14, 2002 /s/Stan L. Hasselbusch
----------------------
Stan L. Hasselbusch
President and Chief Executive Officer
25
Form of Sarbanes-Oxley Section 302(a) Certification
---------------------------------------------------
I, David J. Russo, certify that:
1. I have reviewed this quarterly report on Form 10-Q of L. B. Foster Company;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
in our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 14, 2002 /s/David J. Russo
-----------------
David J. Russo
Vice President and
Chief Financial Officer
26
CERTIFICATION UNDER SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, each of the
undersigned certifies that this periodic report fully complies with the
requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934
and that information contained in this periodic report fairly presents, in all
material respects, the financial condition and results of operations of L. B.
Foster Company.
/s/Stan L. Hasselbusch
----------------------
Stan L. Hasselbusch
President and
Chief Executive Officer
November 14, 2002
/s/David J. Russo
----------------------
David J. Russo
Vice President and
Chief Financial Officer
November 14, 2002