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, 2003
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Commission File Number 0-10436
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L. B. Foster Company
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(Exact name of Registrant as specified in its charter)
Pennsylvania 25-1324733
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(State of Incorporation) (I. R. S. Employer Identification No.)
415 Holiday Drive, Pittsburgh, Pennsylvania 15220
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(Address of principal executive offices) (Zip Code)
(412) 928-3417
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for 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 by checkmark whether the registrant is an accelerated filer (as defined
in Rule 12b-2 of the Act).
Yes [ ] No [X]
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 3, 2003
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Common Stock, Par Value $.01 9,613,770 Shares
L.B. FOSTER COMPANY AND SUBSIDIARIES
INDEX
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PART I. Financial Information Page
- ------------------------------
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of Operations 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
Item 3. Quantitative and Qualitative Disclosures about
Market Risk 20
Item 4. Controls and Procedures 20
PART II. Other Information
- ---------------------------
Item 1. Legal Proceedings 21
Item 6. Exhibits and Reports on Form 8-K 21
Signature 24
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
L. B. FOSTER COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
September 30, December 31,
2003 2002
---------------- ----------------
ASSETS (Unaudited)
Current Assets:
Cash and cash equivalents $17 $3,653
Accounts and notes receivable:
Trade 49,741 39,294
Other 144 69
---------------- ----------------
49,885 39,363
Inventories 36,910 32,925
Current deferred tax assets 1,494 1,494
Other current assets 1,044 696
Property held for resale 446 -
Current assets of discontinued
operations - 138
---------------- ----------------
Total Current Assets 89,796 78,269
---------------- ----------------
Property, Plant & Equipment - At Cost 70,890 72,023
Less Accumulated Depreciation (36,966) (35,940)
---------------- ----------------
33,924 36,083
---------------- ----------------
Other Assets:
Goodwill 350 350
Other intangibles - net 625 739
Investments 13,460 12,718
Deferred tax assets 6,021 4,454
Other assets 979 1,175
Assets of discontinued operations 1 196
---------------- ----------------
Total Other Assets 21,436 19,632
---------------- ----------------
TOTAL ASSETS $145,156 $133,984
================ ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term debt $724 $825
Short-term borrowings 1,172 -
Accounts payable - trade 30,490 24,094
Accrued payroll and employee benefits 3,172 2,413
Current deferred tax liabilities 1,474 1,474
Other accrued liabilities 4,146 2,695
Liabilities of discontinued operations 148 74
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Total Current Liabilities 41,326 31,575
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Long-Term Borrowings 21,000 23,000
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Other Long-Term Debt 3,615 3,991
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Deferred Tax Liabilities 4,195 4,195
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Other Long-Term Liabilities 4,762 5,210
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STOCKHOLDERS' EQUITY:
Common stock 102 102
Paid-in capital 34,972 35,143
Retained earnings 39,053 35,208
Treasury stock (3,155) (3,629)
Accumulated other comprehensive loss (714) (811)
---------------- ----------------
Total Stockholders' Equity 70,258 66,013
---------------- ----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $145,156 $133,984
================ ================
See Notes to Condensed Consolidated Financial Statements.
L. B. FOSTER COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Amounts)
Three Months Nine Months
Ended Ended
September 30, September 30,
--------------------------------- ----------------------------------
2003 2002 2003 2002
--------------------------------- ----------------------------------
(Unaudited) (Unaudited)
Net Sales $75,802 $66,965 $211,117 $200,944
Cost of Goods Sold 66,261 58,621 185,447 177,104
-------------- -------------- --------------- ---------------
Gross Profit 9,541 8,344 25,670 23,840
Selling and Administrative Expenses 7,096 6,732 20,493 19,624
Interest Expense 576 669 1,733 1,976
Other (Income) Expense (381) 3,834 (755) 3,324
-------------- -------------- --------------- ---------------
7,291 11,235 21,471 24,924
-------------- -------------- --------------- ---------------
Income (Loss) From Continuing Operations Before
Income Taxes and Cumulative Effect of Change in
Accounting Principle 2,250 (2,891) 4,199 (1,084)
Income Taxes 871 (446) 1,633 270
-------------- -------------- --------------- ---------------
Income (Loss) From Continuing Operations Before
Cumulative Effect of Change in Accounting
Principle 1,379 (2,445) 2,566 (1,354)
Discontinued Operations:
Loss From Operations of Foster Technologies (70) (302) (510) (951)
Income Tax Benefit (1,616) - (1,789) -
-------------- -------------- --------------- ---------------
Income (Loss) on Discontinued Operations 1,546 (302) 1,279 (951)
Cumulative Effect of Change in Accounting Principle,
Net of Tax - - - (4,390)
-------------- -------------- --------------- ---------------
Net Income (Loss) $2,925 ($2,747) $3,845 ($6,695)
============== ============== =============== ===============
Earnings (Loss) Per Common Share:
Basic and Diluted:
From Continuing Operations Before Cumulative
Effect of Change in Accounting Principle $0.14 ($0.26) $0.27 ($0.14)
From Discontinued Operations, Net of Tax 0.16 (0.03) 0.13 (0.10)
Cumulative Effect of Change in Accounting
Principle, Net of Tax - - - (0.46)
-------------- -------------- --------------- ---------------
Net Income (Loss) $0.30 ($0.29) $0.40 ($0.71)
============== ============== =============== ===============
See Notes to Condensed Consolidated Financial Statements.
L. B. FOSTER COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
Nine Months
Ended September 30,
2003 2002
------------- --------------
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Income (loss) from continuing operations $2,566 ($1,354)
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
Deferred income taxes - (926)
Depreciation and amortization 3,831 3,641
Loss on sale of property, plant and equipment 211 56
Impairment of equity investment and advances - 1,793
Unrealized (gain) loss on derivative mark-to-market (217) 2,260
Change in operating assets and liabilities:
Accounts receivable (10,522) 5,237
Inventories (3,774) 11,969
Other current assets (348) (2,895)
Other noncurrent assets (548) (817)
Accounts payable - trade 6,396 (6,811)
Accrued payroll and employee benefits 759 (395)
Other current liabilities 1,457 (170)
Other liabilities (379) (20)
------------- --------------
Net Cash (Used) Provided by Operating Activities (568) 11,568
------------- --------------
Net Cash Provided (Used) by Discontinued Operations 147 (865)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property, plant and equipment 9 243
Capital expenditures on property, plant and equipment (2,037) (3,908)
Purchase of DM&E stock - (500)
Acquisition of business - (2,214)
------------- --------------
Net Cash Used by Investing Activities (2,028) (6,379)
------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of revolving credit agreement borrowings (828) (35,000)
Proceeds of revolving credit agreement - 27,790
Debt issuance costs - (451)
Exercise of stock options and stock awards 304 207
(Repayments) proceeds of long-term debt (663) 55
------------- --------------
Net Cash Used by Financing Activities (1,187) (7,399)
------------- --------------
Net Decrease in Cash and Cash Equivalents (3,636) (3,075)
Cash and Cash Equivalents at Beginning of Period 3,653 4,222
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Cash and Cash Equivalents at End of Period $17 $1,147
============= ==============
Supplemental Disclosure of Cash Flow Information:
Interest Paid $1,559 $2,349
============= ==============
Income Taxes Paid $269 $747
============= ==============
During the first nine months of 2003 and 2002, the Company financed certain
capital expenditures totaling $186,000 and $618,000, respectively, through the
execution of capital leases.
See Notes to Condensed Consolidated Financial Statements.
L. B. FOSTER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. FINANCIAL STATEMENTS
- -----------------------
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all estimates and
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. However, actual results could differ from
those estimates. The results of operations for interim periods are not
necessarily indicative of the results that may be expected for the year ended
December 31, 2003. Amounts included in the balance sheet as of December 31, 2002
were derived from our audited balance sheet. 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, 2002.
2. ACCOUNTING PRINCIPLES
- ------------------------
In January 2003, the FASB issued FASB Interpretation No. 46, "Consolidation of
Variable Interest Entities, and Interpretation of ARB No. 51", (FIN 46). FIN 46
requires certain variable interest entities to be consolidated by the primary
beneficiary of the entity if the equity investors in the entity do not have the
characteristics of a controlling financial interest or do not have sufficient
equity at risk for the entity to finance its activities without additional
subordinated financial support from other parties. FIN 46 is effective for all
new variable interest entities created or acquired after January 31, 2003. For
variable interest entities created or acquired prior to February 1, 2003, the
provisions of FIN 46 must be applied at the first interim or annual period
beginning after December 15, 2003. The Company has not identified any variable
interest entities for which consolidation under FIN 46 is reasonably possible.
In April 2003, the FASB issued Statement of Financial Accounting Standards No.
149, "Amendment of Statement 133 on Derivative Instruments and Hedging
Activities," (SFAS 149). SFAS 149 amends and clarifies financial accounting and
reporting for derivative instruments embedded in other contracts and for hedging
activities under SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities." It is effective for contracts entered into or modified
after June 30, 2003, except as stated within the statement, and should be
applied prospectively. This statement has not had a material effect on the
Company's consolidated financial statements.
In June 2003, the FASB issued Statement of Financial Accounting Standards No.
150, "Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equity," (SFAS 150). This standard requires that certain
financial instruments embodying an obligation to transfer assets or to issue
equity securities be classified as liabilities. It is effective for financial
instruments entered into or modified after May 31, 2003, and otherwise is
effective July 1, 2003. This standard has no impact on the Company's financial
statements.
Stock-based compensation
- ------------------------
In December 2002, the FASB issued Statement of Financial Accounting Standards
No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure -
an amendment of FASB Statement No. 123" (SFAS 148) effective for fiscal years
ending after December 31, 2002 and for interim periods beginning after December
15, 2002. This statement amends Statement of Financial Accounting Standards No.
123, "Accounting for Stock Stock-Based Compensation" (SFAS 123), to provide
alternative methods of transition for a voluntary change to the fair value based
method of accounting for stock-based employee compensation. In addition, SFAS
148 amends the disclosure requirements of SFAS 123 to require prominent
disclosures in both annual and interim financial statements about the method of
accounting for stock-based employee compensation and the effect of the method
used on reported results.
The Company has adopted the disclosure provisions of SFAS 123 and applies the
intrinsic value method of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25) and related interpretations
in accounting for its stock option plans. Accordingly, no compensation expense
has been recognized.
The following table illustrates the effect on the Company's income from
continuing operations and earnings per share had compensation expense for the
Company's stock option plans been applied using the method required by SFAS 123.
Three Months Ended Nine Months Ended
September 30, September 30,
In thousands, except per share amounts 2003 2002 2003 2002
- -----------------------------------------------------------------------------------------------------------------------
Net income from continuing operations, as reported $1,379 ($2,445) $2,566 ($1,354)
Add: Stock-based employee compensation expense included in
reported net income, net of related tax effects - - - -
Deduct: Total stock-based employee compensation expense
determined under fair value method for all awards, net of
related tax effects 61 64 203 215
- -----------------------------------------------------------------------------------------------------------------------
Pro forma income from continuing operations $1,318 ($2,509) $2,363 ($1,569)
=======================================================================================================================
Earnings per share from continuing operations:
Basic, as reported $0.14 ($0.26) $0.27 ($0.14)
Basic, pro forma $0.14 ($0.26) $0.25 ($0.17)
Diluted, as reported $0.14 ($0.26) $0.27 ($0.14)
Diluted, pro forma $0.13 ($0.26) $0.24 ($0.17)
=======================================================================================================================
Pro forma information regarding net income and earnings per share for options
granted has been determined as if the Company had accounted for its employee
stock options under the fair value method of Statement No. 123. 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-Scholes
option-pricing model. There were no stock options granted in the third quarter
of 2003. The following weighted-average assumptions were used for grants in the
third quarter of 2002: risk-free interest rates of 4.56%; dividend yield of
0.0%; volatility factors of the expected market price of the Company's Common
stock of .32; and a weighted-average expected life of the option of ten years.
The weighted-average fair value of the options granted in the third quarter of
2002 was $2.25. The following weighted-average assumptions were used for grants
in the nine months ending September 30, 2003 and 2002, respectively: risk-free
interest rates of 3.56% and 5.04%; dividend yield of 0.0% for both quarters;
volatility factors of the expected market price of the Company's Common stock of
..32 for both quarters; and a weighted-average expected life of the option of ten
years. The weighted-average fair value of the options granted in the nine months
ending September 30, 2003 and 2002 was $2.11 and $2.82, respectively.
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, 2003 and
December 31, 2002 have been reduced by an allowance for doubtful accounts of
($1,111,000) and ($1,063,000), respectively. Bad debt expense was $123,000 and
$165,000 for the nine-month periods ended September 30, 2003 and 2002,
respectively.
4. INVENTORIES
- --------------
Inventories of the Company at September 30, 2003 and December 31, 2002 are
summarized as follows in thousands:
September 30, December 31,
2003 2002
- -----------------------------------------------------------------------------
Finished goods $23,980 $21,700
Work-in-process 9,213 6,343
Raw materials 5,566 6,731
- -----------------------------------------------------------------------------
Total inventories at current costs 38,759 34,774
(Less):
LIFO reserve (1,249) (1,249)
Inventory valuation reserve (600) (600)
- -----------------------------------------------------------------------------
$36,910 $32,925
=============================================================================
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. DISCONTINUED OPERATIONS
- --------------------------
During the fourth quarter of 2002, the Company started negotiations and
committed to a plan to sell the assets related to its rail signaling and
communication device business and recorded a $660,000 non-cash impairment loss
to adjust these assets to their fair value. In February 2003, substantially all
of the assets of this business were sold for $300,000. The operations of the
rail signaling and communication device business qualify as a "component of an
entity" under Statement of Financial Accounting Standards No. 144 "Accounting
for the Impairment or Disposal of Long-Lived Assets" and thus, the operations
have been classified as discontinued, and prior periods have been restated.
During the third quarter of 2003, the Company recognized a $1.6 million income
tax benefit from the release of a valuation allowance against foreign net
operating losses that are expected to be utilized as a result of the imminent
dissolution of this subsidiary. Future expenses related to this business are
expected to be immaterial. The final shutdown and dissolution of this subsidiary
is expected in 2003.
Net sales and income (loss) from discontinued operations were as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
In thousands 2003 2002 2003 2002
- ----------------------------------------------------------------------------------------------------------------------
Net sales $ - $ 21 $ 1 $ 37
- ----------------------------------------------------------------------------------------------------------------------
Pretax operating loss (70) (302) (440) (951)
Pretax loss on disposal - - (70) -
Income tax benefit 1,616 - 1,789 -
- ----------------------------------------------------------------------------------------------------------------------
Income (loss) from discontinued operations $ 1,546 $ (302) $1,279 $ (951)
======================================================================================================================
6. 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 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. At September 30,
2003, the remaining available borrowings under this agreement were approximately
$21,530 000. 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
2.50%.
The agreement includes financial covenants requiring a minimum net worth, a
minimum level for the fixed charge coverage ratio and a maximum level for
consolidated capital expenditures. The agreement also restricts investments,
indebtedness, the sale of certain assets, and other items. On September 8, 2003,
the first amendment to this agreement allowed for the sale of the Company's
equity interest in a specialty trackwork supplier. For more information
regarding the transaction, see "Other Matters" in the Management's Discussion
and Analysis section of this report. As of September 30, 2003, the Company was
in compliance with all of the agreement's covenants.
7. EARNINGS (LOSS) PER COMMON SHARE
- -----------------------------------
The following table sets forth the computation of basic and diluted earnings
(loss) per common share:
Three Months Ended Nine Months Ended
September 30, September 30,
(in thousands, except earnings per share) 2003 2002 2003 2002
- ------------------------------------------------------------------------------------------------------------------------------------
Numerator:
Numerator for basic and diluted
earnings per common share - net income (loss)
available to common stockholders:
Income (loss) from continuing operations $1,379 ($2,445) $2,566 ($1,354)
Income (loss) from discontinued operations 1,546 (302) 1,279 (951)
Cumulative effect of change in accounting principle - - - (4,390)
- ------------------------------------------------------------------------------------------------------------------------------------
Net income (loss) $2,925 ($2,747) $3,845 ($6,695)
====================================================================================================================================
Denominator:
Weighted average shares 9,593 9,519 9,562 9,485
- ------------------------------------------------------------------------------------------------------------------------------------
Denominator for basic earnings
per common share 9,593 9,519 9,562 9,485
Effect of dilutive securities:
Contingent issuable shares - - 1 -
Employee stock options 181 - 119 -
- ------------------------------------------------------------------------------------------------------------------------------------
Dilutive potential common shares 181 - 120 -
Denominator for diluted earnings
per common share - adjusted weighted
average shares and assumed conversions 9,774 9,519 9,682 9,485
====================================================================================================================================
Earnings (loss) per common share,
Basic and diluted:
Continuing operations $0.14 ($0.26) $0.27 ($0.14)
Discontinued operations 0.16 (0.03) 0.13 (0.10)
Cumulative effect of change in accounting principle - - - (0.46)
- ------------------------------------------------------------------------------------------------------------------------------------
Basic and diluted earnings (loss) per common share $0.30 ($0.29) $0.40 ($0.71)
====================================================================================================================================
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 for the 2002 periods is anti-dilutive.
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.
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.
The Company was convicted in December 2000, after a jury trial in Houston, TX,
of unlawful disposal of used oil and hazardous waste at its facility in Houston,
TX, and was fined $20,000 for the used oil conviction and $150,000 for the
hazardous waste conviction. The Texas Court of Appeals reversed the Company's
conviction for the unlawful disposal of hazardous waste and upheld the
conviction for the unlawful disposal of used oil. The Company has requested that
the Texas Supreme Court review the used oil conviction and the State has
requested that the Texas Supreme Court review the reversal of the hazardous
waste conviction.
At September 30, 2003, the Company had outstanding letters of credit of
approximately $2,670,000.
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, 2003 September 30, 2003
----------------------------------------------------------------------------------
Net Segment Net Segment
(in thousands) Sales Profit Sales Profit
- ------------------------------------------------------------------------------------------------------------------------------------
Rail products $35,790 $546 $105,125 $2,422
Construction products 35,228 1,553 92,661 1,834
Tubular products 4,784 840 13,331 1,763
- ------------------------------------------------------------------------------------------------------------------------------------
Total $75,802 $2,939 $211,117 $6,019
====================================================================================================================================
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 $33,277 ($215) $97,532 ($457)
Construction products 30,451 622 92,460 1,438
Tubular products 3,237 233 10,952 854
- ------------------------------------------------------------------------------------------------------------------------------------
Total $66,965 $640 $200,944 $1,835
====================================================================================================================================
Foster Technologies, the Company's rail signaling and communications device
business, was classified as a discontinued operation on December 31, 2002. Prior
period results have been adjusted to reflect this classification. See Note 5,
"Discontinued Operations".
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. There has
been no change in the measurement of segment profit/(loss) from December 31,
2002.
The following table provides a reconciliation of reportable net profit/(loss) to
the Company's consolidated total:
Three Months Ended Nine Months Ended
September 30, September 30,
(in thousands) 2003 2002 2003 2002
- -------------------------------------------------------------------------------------------------------------------------------
Income for reportable segments $2,939 $640 $6,019 $1,835
Cost of capital for reportable segments 2,552 4,115 7,639 9,377
Interest expense (576) (669) (1,733) (1,976)
Other income 381 (3,834) 755 (3,324)
Corporate expense and other unallocated charges (3,046) (3,143) (8,481) (6,996)
- -------------------------------------------------------------------------------------------------------------------------------
Income from continuing operations, before income
taxes and cumulative effect of change in
accounting principle $2,250 ($2,891) $4,199 ($1,084)
===============================================================================================================================
10. COMPREHENSIVE INCOME (LOSS)
- -------------------------------
Comprehensive income (loss) represents net income (loss) plus certain
stockholders' equity changes not reflected in the Condensed Consolidated
Statements of Operations. The components of comprehensive income (loss), net of
tax, were as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
(in thousands) 2003 2002 2003 2002
- -----------------------------------------------------------------------------------------------------------------------
Net income (loss) $2,925 ($2,747) $3,845 ($6,695)
- -----------------------------------------------------------------------------------------------------------------------
Unrealized derivative gains (losses) on cash flow hedges (SFAS No. 133) 17 (778) 41 (696)
Foreign currency translation gains (losses) - (25) 8 (25)
Reclassification adjustment for foreign currency translation losses
included in net income - 1,222 48 1,222
- -----------------------------------------------------------------------------------------------------------------------
Comprehensive income (loss) $2,942 ($2,328) $3,942 ($6,194)
=======================================================================================================================
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------- -------------------------------
2003 2002 2003 2002
------------------------------- -------------------------------
(Dollars in thousands)
Net Sales:
Rail Products $35,790 $33,277 $105,125 $97,532
Construction Products 35,228 30,451 92,661 92,460
Tubular Products 4,784 3,237 13,331 10,952
------------------------------- -------------------------------
Total Net Sales $75,802 $66,965 $211,117 $200,944
=============================== ===============================
Gross Profit:
Rail Products $3,727 $3,384 $11,735 $9,756
Construction Products 5,144 4,670 12,307 12,914
Tubular Products 1,224 652 3,076 2,133
Other (554) (362) (1,448) (963)
------------------------------- -------------------------------
Total Gross Profit 9,541 8,344 25,670 23,840
------------------------------- -------------------------------
Expenses:
Selling and administrative expenses 7,096 6,732 20,493 19,624
Interest expense 576 669 1,733 1,976
Other (income) expense (381) 3,834 (755) 3,324
------------------------------- -------------------------------
Total Expenses 7,291 11,235 21,471 24,924
------------------------------- -------------------------------
Income (Loss) From Continuing Operations Before
Income Taxes and Cumulative Effect of
Change in Accounting Principle 2,250 (2,891) 4,199 (1,084)
Income Tax Expense (Benefit) 871 (446) 1,633 270
------------------------------- -------------------------------
Income (Loss) From Continuing Operations Before
Cumulative Effect of Change in
Accounting Principle 1,379 (2,445) 2,566 (1,354)
Discontinued Operations:
Loss From Operations of Foster Technologies (70) (302) (510) (951)
Income Tax Benefit (1,616) - (1,789) -
------------------------------- -------------------------------
Income (Loss) From Discontinued Operations 1,546 (302) 1,279 (951)
Cumulative Effect of Change in Accounting
Principle, Net of Tax - - - (4,390)
------------------------------- -------------------------------
Net Income (Loss) $2,925 ($2,747) $3,845 ($6,695)
=============================== ===============================
Gross Profit %:
Rail Products 10.4% 10.2% 11.2% 10.0%
Construction Products 14.6% 15.3% 13.3% 14.0%
Tubular Products 25.6% 20.1% 23.1% 19.5%
Total Gross Profit 12.6% 12.5% 12.2% 11.9%
=============================== ===============================
Third Quarter 2003 Results of Operations
- ----------------------------------------
The Company's third quarter income from continuing operations was $1.4 million
($0.14 per share) on net sales of $75.8 million. The third quarter of 2002
resulted in a loss from continuing operations of $2.4 million ($0.26 per share)
on net sales of $67.0 million.
Including net income of $1.5 million ($0.16 per share) from the discontinued
operations of the Company's Foster Technologies subsidiary, net income for the
third quarter of 2003 was $2.9 million ($0.30 per share). The income from
discontinued operations for the current quarter comes primarily from the release
of a $1.6 million valuation allowance against foreign net operating losses that
is expected to be utilized as a result of the imminent dissolution of this
subsidiary. During the same period last year, the Company had a net loss of $2.7
million ($0.29 per share) which included a $0.3 million ($0.03 per share) loss
from discontinued operations.
Net sales for the third quarter of 2003 improved 13.2% compared to the same
period in 2002. Sales in all segments of the Company improved in comparison to
last year's third quarter. Rail segment sales increased 7.6% primarily due to an
increase in welded rail. Construction products' net sales increased 15.7% due to
an increase in sheet piling and mechanically stabilized earth retention systems.
Tubular products' sales increased 47.8% compared to last year's third quarter
due primarily to higher demand for pipe coating services.
The Company's gross profit margin was 12.6% in the third quarter of 2003
compared to 12.5% in the same period last year. Rail products' profit margin
increased by 0.2 percentage points due primarily to an improvement in margin for
used rail and trackwork. The 0.7 percentage point decline in Construction
products' margin was due primarily to the competitive market created by a
reduction in state spending for infrastructure projects, and the mix of products
sold. Tubular products' 5.5 percentage point increase in gross margin was
primarily due to plant efficiencies gained by the increase in volume.
Selling and administrative expenses increased $0.4 million, or approximately 5%
compared to the third quarter of 2002. This increase was primarily due to
employee compensation costs accrued in the third quarter of 2003. Third quarter
interest expense declined 14% from the prior year period due principally to a
$5.5 million reduction in corporate debt. Other (income) expense improved by
$4.2 million primarily resulting from adjustments in the prior year third
quarter which included a $2.3 million charge related to mark-to-market
accounting for derivative instruments and a $1.8 million charge related to the
impairment of the Company's equity investment in a specialty trackwork supplier.
The third quarter 2003 effective tax rate for continuing operations was
approximately 39%. The effective tax rate for continuing operations in the third
quarter of 2002 was 41%, exclusive of a valuation allowance recorded against the
previously-mentioned impairment of an investment in a specialty trackwork
supplier.
First Nine Months of 2003 Results of Operations
- -----------------------------------------------
For the first nine months of 2003, income from continuing operations was $2.6
million ($0.27 per share) on net sales of $211.1 million. The same period last
year included a loss from continuing operations of $1.4 million ($0.14 per
share) on net sales of $200.9 million.
Including net income of $1.3 million ($.13 per share) from the discontinued
operations of Foster Technologies, net income for the nine months ended
September 30, 2003 was $3.8 million ($0.40 per share). This compares favorably
to a net loss of $6.7 million ($0.71 per share) for the same period of 2002. The
2002 period included a loss from discontinued operations of $1.0 million ($0.10
per share) and a non-cash charge of $4.4 million ($0.46 per share) from the
adoption of Statement of Financial Accounting Standards No. 142, "Goodwill and
Other Intangible Assets".
Year to date sales increased $10.2 million compared to sales in the same period
of 2002. Rail products' 2003 net sales increased 7.8% to $105.1 million. Sales
improved for many products within the rail segment, primarily, welded rail. Net
sales of Construction products were practically the same compared to
the prior year period. A decline in sales of fabricated bridge products and
concrete buildings was offset by increases for mechanically stabilized earth
wall systems and piling products. Tubular products' sales increased 21.7% to
$13.3 million due to a stronger energy market.
The gross margin percentage for the Company was 12.2% in the first nine months
of 2003 compared to 11.9% in the same period of 2002. Rail products' margin
improved to 11.2% from 10.0% due to improved relay rail margins and more
efficient trackwork operations. Construction product's margin declined to 13.3%
from 14.0% due to the competitive market created by a reduction in state
spending for infrastructure projects. Tubular products' gross margin percentage
increased to 23.1% from 19.5% as a result of lower raw material costs and the
mix of products sold.
During the first nine months of 2003, selling and administrative expenses
increased $0.9 million or 4.4% over the prior year period. The increase can be
attributed primarily to increased expenses for employee compensation and
benefits. Interest expense fell 12.3% as a result of the reduction in corporate
debt. Other (income) expense in 2003 was comprised primarily of accrued dividend
income on DM&E Preferred stock while the first nine months of 2002 were impacted
negatively by the previously mentioned $2.3 million charge related to
mark-to-market accounting for derivative instruments and the $1.8 million charge
related to the impairment of the Company's equity investment in a specialty
trackwork supplier.
The 2003 effective tax rate for continuing operations was approximately 39%.
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 2003, the
average turnover rate, as a function of billings, for accounts receivable was
higher than during the same period a year ago due to increased collections. The
average inventory turnover rate in the current period is slightly higher than
the average rate for the same period of 2002. Inventory turnover for the Rail
and Tubular segments improved. Working capital at September 30, 2003 was $48.5
million compared to $46.7 million at December 31, 2002.
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. No purchases have been
made since the first quarter of 2001. From August 1997 through March 2001, the
Company had repurchased 973,398 shares at a cost of approximately $5.0 million.
The timing and extent of future purchases will depend on market conditions and
options available to the Company for alternate uses of its resources.
Capital expenditures were $2.0 million for the nine months ended September 30,
2003, compared to $3.9 million for capital improvements and $2.2 million for the
Greulich acquisition in the same period of 2002. Capital expenditures for 2003
are expected to be approximately $3.0 million and funded by cash flow from
operations and available external financing sources.
The Company has an agreement that 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 this agreement is limited
by the amount of eligible inventory and accounts receivable applied against
certain advance rates. Interest on the credit facility is based on LIBOR plus a
spread ranging from 1.75% to 2.5%. Total revolving credit agreement borrowings
at September 30, 2003 were $22.2 million, a decrease of $0.8 million from
December 31, 2002. At September 30, 2003, remaining available borrowings under
this facility were approximately $21.5 million. Outstanding letters of credit at
September 30, 2003 were approximately $2.7 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.
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. On September 8, 2003, the first amendment to this agreement
allowed for the sale of the Company's equity interest in a specialty trackwork
supplier. For more information regarding the transaction, see "Other Matters".
As of September 30, 2003, the Company was in compliance with all of the
agreement's covenants.
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
controls over 2,500 miles of track in eight states.
At September 30, 2003, 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. In addition, the Company has a receivable for accrued dividend income
on Preferred Stock of approximately $4.5 million. The Company owns approximately
13.6% of the DM&E.
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 Surface Transportation Board (STB) approved the Project in January
2002. In October 2003, however, the 8th U.S. Circuit Court of Appeals remanded
the matter to the STB and instructed the STB to address, in its environmental
impact statement, the Project's effects on air quality, noise and vibration, and
preservation of historic sites.
If the Project proves to be viable, management believes that the value of the
Company's investment in the DM&E could increase significantly. If the Project
does not come to fruition, management believes that the value of the Company's
investment is supported by the DM&E's existing business.
Other Matters
- -------------
During the first quarter of 2003, the Company finalized the sale of certain
assets and liabilities of its Foster Technologies subsidiary engaged in the rail
signaling and communication device business. The first quarter 2003 loss from
this business, which has been classified as a discontinued operation, was
principally due to losses incurred up to the sale date as well as certain
charges taken primarily related to employee severance costs and an accrual for
the remaining lease obligation. The second quarter loss from this business was
immaterial. The third quarter income resulted primarily from the release of a
$1.6 million valuation allowance against foreign net operating losses that are
expected to be utilized as a result of the imminent dissolution of this
subsidiary.
Specialty trackwork sales of the Company's Rail segment depend primarily on one
supplier. In 2002, the Company wrote off its $1.9 million investment and $5.4
million of advances related to this supplier. In the third quarter of 2003, the
Company exchanged its 30% ownership interest and advances to this supplier for a
$5.5 million promissory note from the supplier's owner, with principal and
accrued interest to be repaid beginning in January 2008. The value of this note
has been fully reserved and no gain or loss has been recorded on this
transaction. During the first nine months of 2003 and 2002, the volume of
business the supplier conducted with the Company was approximately $7.9 million
and $10.0 million, respectively, although the Company expects future activity in
this market to decrease significantly. If this supplier is unable to perform, it
could have a further negative impact on earnings and cash flows.
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 the assets related to this operation to their
anticipated market value. The anticipated 2002 sale of these assets, which
consist of machinery and equipment, did not materialize. Therefore, during the
fourth quarter of 2002, the Company removed the "held for resale" designation of
these assets, reclassified them as "in service", and in accordance with SFAS
144, immediately recorded a $0.8 million write-down to reflect depreciation not
recorded while under the "held for resale" designation. In August 2003, the
Company reached an agreement to sell, modify and install the machinery and
equipment. The Company expects to record a gain upon successful installation of
this equipment and anticipates completing its obligations within the first half
of 2004.
Outlook
- -------
The Company has an exclusive agreement with a steel mill to distribute steel
sheet piling in North America. Sheet piling production commenced in 2001 but the
quantity produced had not materially impacted results until the second quarter
of 2003. Going forward, the Company expects an increasingly consistent supply of
sheet piling from this mill.
The Company's CXT subsidiary and Allegheny Rail Products division are dependent
on a Class I railroad for a significant portion of their business. The Company
had a five year contract with this Class I railroad which provided for minimum
quantities of concrete ties per contract year which expired in September 2003.
Although the contract has not been renewed, the railroad has agreed in principle
to continue to purchase its concrete tie needs from the Company without monthly
minimums through October 2004.
The Company has recently received an invitation from this Class I railroad to
bid on a new long-term contract to supply concrete ties. The bidding process is
to occur late in the fourth quarter of 2003 and management expects negotiations
to occur subsequent to the initial bidding/elimination process. Should the
Company be successful in this process, it may be required to establish new
facilities, which would require a significant capital investment. If the Company
were to be unsuccessful, it may cause the value of its two existing concrete tie
manufacturing facilities with total net assets of approximately $8.0 million to
be partially impaired.
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. The current highway
and transportation bill (TEA-21) which was to expire on September 30, 2003 has
been extended five months due to a delay in reauthorizing a successive bill. A
new highway and transportation bill is important to the future growth and
profitability of many of the Company's businesses. 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 negatively by adverse weather conditions.
Although backlog is not necessarily indicative of future operating results,
total Company backlog at September 30, 2003, was approximately $101.0 million.
The following table provides the backlog by business segment:
Backlog
----------------------------------------------------------
September 30, December 31, September 30,
(In thousands) 2003 2002 2002
- --------------------------------------------------------------------------------
Rail Products $25,084 $45,371 $59,160
Construction Products 74,219 59,774 58,047
Tubular Products 1,731 3,995 1,632
- --------------------------------------------------------------------------------
Total $101,034 $109,140 $118,839
================================================================================
The reduction in Rail segment backlog from September 30, 2002 reflects the
absence of firm renewal commitments on contracts under negotiation and a
reduction in specialty trackwork backlog.
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 judgments of the amounts and disclosures included in
the financial statements giving due regard to materiality. There have been no
material changes in the Company's policies or estimates since December 31, 2002.
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,
2002.
New Accounting Pronouncements
- -----------------------------
In June 2002, the Financial Accounting Standards Board (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 earlier adoption 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 has adopted this standard and it did not
have a material effect on its consolidated financial statements.
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure - an amendment of FASB Statement No.
123" (SFAS 148) effective for fiscal years ending after December 31, 2002. This
statement amends Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" (SFAS 123), to provide alternative
methods of transition for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. In addition, SFAS 148 amends
the disclosure requirements of SFAS 123 to require prominent disclosures in both
annual and interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method used on reported
results.
The Company has adopted the disclosure provisions of SFAS 123, and applies the
intrinsic value method of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25) and related interpretations
in accounting for its stock option plans. However, the Company has adopted the
enhanced disclosure provisions as defined in SFAS 148 effective for the first
quarter ended March 31, 2003.
In January 2003, the FASB issued FASB Interpretation No. 46, "Consolidation of
Variable Interest Entities, and Interpretation of ARB No. 51", (FIN 46). FIN 46
requires certain variable interest entities to be consolidated by the primary
beneficiary of the entity if the equity investors in the entity do not have the
characteristics of a controlling financial interest or do not have sufficient
equity at risk for the entity to finance its activities without additional
subordinated financial support from other parties. FIN 46 is effective for all
new variable interest entities created or acquired after January 31, 2003. For
variable interest entities created or acquired prior to February 1, 2003, the
provisions of FIN 46 must be applied at the first interim or annual period
beginning after December 15, 2003. The Company has not identified any variable
interest entities for which consolidation under FIN 46 is reasonably possible.
In April 2003, the FASB issued Statement of Financial Accounting Standards No.
149, "Amendment of Statement 133 on Derivative Instruments and Hedging
Activities," (SFAS 149). SFAS 149 amends and clarifies financial accounting and
reporting for derivative instruments embedded in other contracts and for hedging
activities under SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities." It is effective for contracts entered into or modified
after June 30, 2003, except as stated within the statement, and should be
applied prospectively. This statement has not affected the Company's
consolidated financial statements.
In June 2003, the FASB issued Statement of Financial Accounting Standards No.
150, "Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equity," (SFAS 150). This standard requires that certain
financial instruments embodying an obligation to transfer assets or to issue
equity securities be classified as liabilities. It is effective for financial
instruments entered into or modified after May 31, 2003, and otherwise is
effective July 1, 2003. This standard has no impact on the Company's financial
statements.
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. In conjunction with the Company's debt refinancing
in the third quarter of 2002, the Company discontinued cash flow hedge
accounting treatment for its interest rate collars and has applied
mark-to-market accounting prospectively. Although these derivatives are not
deemed to be effective hedges of the new credit facility in accordance with the
provisions of SFAS 133, the Company will continue to record the mark-to-market
adjustments on the interest rate collars, through 2006, in its consolidated
statement of operations. The fair value of the interest rate collars on
September 30, 2003 was a $2.0 million liability and the Company recorded
approximately $0.3 million of income in "other income" in the third quarter of
2003 on the Condensed Consolidated Statements of Operations to adjust these
instruments to fair value. For the nine months ended September 30, 2003, the
Company has recorded $0.2 million of income in "other income" to adjust these
instruments to fair value. The Company continues to apply cash flow hedge
accounting to interest rate swaps.
The Company recognizes all derivative instruments on the balance sheet at fair
value. Fluctuations in the fair values of derivative instruments designated as
cash flow hedges are recorded in accumulated other comprehensive income (loss),
and reclassified into earnings as the underlying hedged items affect earnings.
To the extent that a change in interest rate derivative does not perfectly
offset the change in value of the interest rate being hedged, the ineffective
portion is recognized in earnings immediately.
The Company's primary source of variable-rate debt comes from its revolving
credit agreement. While not specifically correlated with the revolving credit
agreement, the Company maintains an economic hedge of this variable rate through
the maintenance of two interest rate collar agreements with a weighted average
minimum annual interest rate of 4.99% to a maximum weighted average annual
interest rate of 5.42%. Since the interest rate on the debt floats with the
short-term market rate of interest, the Company is exposed to the risk that
these interest rates may decrease below the minimum annual interest rates on the
two interest rate collar agreements. The effect of a 1% decrease in rate of
interest below the 4.99% weighted average minimum annual interest rate on $21.0
million of outstanding floating rate debt would result in increased annual
interest costs of approximately $0.2 million.
The Company is not subject to significant exposures to changes in foreign
currency exchange rates.
See the Company's Annual Report on Form 10-K for more information on the
Company's derivative financial instruments.
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, such as references made to the future profitability,
made from time to time by representatives of the Company. Additional delays in a
Virginia steel mill's production of sheet piling products, or failure to produce
substantial quantities of sheet piling products could adversely impact the
Company's earnings. The inability to satisfy the installation requirements of
the sales agreement for the pipe coating equipment could have an adverse effect
on future results. The inability to successfully negotiate a new sales contract
with a current Class I railroad customer could have a negative impact on the
operating results of the Company. Except for historical information, matters
discussed in such oral and written communications are forward- looking
statements that involve risks and uncertainties, including but not limited to
general business conditions, the availability of material from major suppliers,
the impact of competition, the seasonality of the Company's business, the
adequacy of internal and external sources of funds to meet financing needs,
taxes, inflation and governmental regulations. Sentences containing words such
as "anticipates", "expects", or "will" generally should be considered
forward-looking statements.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- ------------------------------------------------------------------
See the "Market Risk and Risk Management Policies" section under Item 2,
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
Item 4. CONTROLS AND PROCEDURES
- -------------------------------
a) As of the end of the period covered by 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
Chief Executive Officer and the Chief Financial Officer, of the
effectiveness of the design and operation of the Company's disclosure
controls and procedures pursuant to Exchange Act Rules 13a - 15(e) and
15d - 15(e). Based upon that evaluation, the Chief Executive Officer
and 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 over financial reporting that occurred in the period covered
by this report that have materially affected or are likely to
materially affect the Company's internal controls over financial
reporting.
PART II OTHER INFORMATION
-------------------------
Item 1. LEGAL PROCEEDINGS
- -------------------------
See Note 8, "Commitments and Contingent Liabilities", to the Condensed
Consolidated Financial Statements.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
- -----------------------------------------
a) EXHIBITS
-----------
Unless marked by an asterisk, all exhibits are incorporated by reference:
3.1 Restated Certificate of Incorporation, filed as Exhibit 3.1 to Form
10-Q for the quarter ended March 31, 2003.
3.2 Bylaws of the Registrant, as amended to date, filed as Exhibit 3.2 to
Form 10-K for the year ended December 31, 2002.
4.0 Rights Amendment, 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 there-
to, filed as Exhibit 4.0 to Form 10-K for the year ended December 31,
2002.
4.0.1 Amended Rights Agreement dated as of May 14, 1998 between L.B. Foster
Company and American Stock Transfer and Trust Company, filed as
Exhibit 4.0.1 to Form 10-Q for the quarter ended March 31, 2003.
4.0.2 Revolving Credit and Security Agreement dated as of September 26,
2002, between L. B. Foster Company and PNC Bank, N. A., filed as
Exhibit 4.0.2 to Form 10-Q for the quarter ended September 30, 2002.
* 4.0.3 First Amendment to Revolving Credit and Security Agreement dated
September 8, 2003, between the Registrant 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
Crown West Realty, LLC, successor, filed as Exhibit 10.12.1 to Form
10-K for the year ended December 31, 1999.
10.12.2 Amendment dated November 7, 2002 to lease between CXT Incorporated
and Crown West Realty, LLC, filed as Exhibit 10.12.2 to Form 10-K for
the year ended December 31, 2002.
10.13 Lease between CXT Incorporated and Crown West Realty, L. L. C., dated
December 20, 1996, filed as Exhibit 10.13 to Form 10-K for the year
ended December 31, 1999.
10.13.1 Amendment dated June 29, 2001 between CXT Incorporated and Crown West
Realty, filed as Exhibit 10.13.1 to Form 10-K for the year ended
December 31, 2002.
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.
10.17 Lease between Registrant and the City of Hillsboro, TX dated February
22, 2002, filed as Exhibit 10.17 to Form 10-K for the year ended
December 31, 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,
2002.
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 Equipment Purchase and Service Agreement by and between the Reg-
istrant and LaBarge Coating LLC, dated July 31, 2003.
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 of February 26,
1997, filed as Exhibit 10.33.2 to Form 10-Q for the quarter ended
March 31, 2003. **
10.34 Amended and Restated 1998 Long-Term Incentive Plan as of 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, 2002. **
10.46 Leased Vehicle Plan as amended and restated on October 16, 2002,
filed as Exhibit 10.46 to Form 10-Q for the quarter ended September
30, 2002. **
10.51 Supplemental Executive Retirement Plan, filed as Exhibit 10.51 to
Form 10-K for the year ended December 31, 2002. **
10.52 Outside Directors' Stock Award Plan, filed as Exhibit 10.52 to Form
10-K for the year ended December 31, 2002. **
10.53 Directors' resolutions dated May 13, 2003, under which directors'
compensation was established, filed as Exhibit 10.53 to Form 10-Q for
the quarter ended June 30, 2003. **
10.54 Management Incentive Compensation Plan for 2003, filed as Exhibit
10.54 to Form 10-Q for the quarter ended June 30, 2003. **
19 Exhibits marked with an asterisk are filed herewith.
* 31.1 Certification of Chief Executive Officer under Section 302 of the
Sarbanes-Oxley Act of 2002.
* 31.2 Certification of Chief Financial Officer under Section 302 of the
Sarbanes-Oxley Act of 2002.
* 32.0 Certification of Chief Executive Officer and Chief Financial Officer
under Section 906 of the Sarbanes-Oxley Act of 2002.
** Identifies management contract or compensatory plan or arrangement
required to be filed as an Exhibit.
b) Reports on Form 8-K
On April 23, 2003, the Registrant filed a current report on Form
8-K under Item 9 FD disclosure announcing first quarter results.
On July 23, 2003, the Registrant filed a current report on Form
8-K under Item 9 FD disclosure announcing second quarter results.
On October 21, 2003, the Registrant filed a current report on Form
8-K under Item 12 announcing third quarter results.
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 13, 2003 By: /s/David J. Russo
----------------- -----------------
David J. Russo
Senior Vice President,
Chief Financial Officer and Treasurer
(Duly Authorized Office of Registrant)