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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITES EXCHANGE
ACT OF 1934 (No Fee Required)
For the Fiscal Year Ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (No Fee Required)
For the Transition Period from to
-------- -----------
Commission File Number 0-10436
L. B. FOSTER COMPANY
(Exact name of registrant as specified in its charter)
Delaware 25-1324733
(State of Incorporation) (I.R.S. Employer Identification No.)
415 Holiday Drive, Pittsburgh, Pennsylvania 15220
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (412) 928-3400
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange On
Title of Each Class Which Registered
None
Securities registered pursuant to Section 12(g) of the Act:
Class A Common Stock, Par Value $.01
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III or this Form 10-K or any
amendment to this Form 10-K. [x]
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
The aggregate market value on March 20, 1997 of the voting stock
held by nonaffiliates of the Company was $37,784,153.
Indicate the number of shares outstanding of each of the
registrant's classes of common stock as of the latest
practicable date.
Class Outstanding at March 20, 1997
Class A Common Stock, Par Value $.01 10,162,738 Shares
Documents Incorporated by Reference:
Portions of the Proxy Statement prepared for the 1997 annual
meeting of stockholders are incorporated by reference in Items
10, 11, 12 and 13 of Part III.
PART I
ITEM 1. BUSINESS
Summary Description of Businesses
L. B. Foster Company is engaged in the manufacture, fabrication
and distribution of rail and trackwork, piling, pile driving
equipment, highway products and tubular products. As used
herein, "Foster" or the "Company" means L. B. Foster Company and
its divisions and subsidiaries, unless the context otherwise
requires.
For rail markets, Foster provides a full line of new and used
rail, trackwork and accessories to railroads, mines and
industry. The Company also designs and produces insulated rail
joints, power rail, track fasteners, catenary systems,
coverboards and special accessories for mass transit and other
rail systems, worldwide.
For the construction industry, the Company sells and rents steel
sheet piling and H-bearing pile for foundation and earth
retention requirements and pile driving equipment and
accessories for driving piling. In addition, Foster supplies
bridge decking, expansion joints, overhead sign structures and
other products for highway construction and repair.
For tubular markets, the Company supplies pipe and pipe coatings
for pipelines and utilities. Foster manufactures spiralweld pipe
for water transmission lines, foundation piling, slurry lines
and many other applications. In addition, the Company produces
pipe-related products for special markets, including water wells
and irrigation.
The Company classifies its activities into three business
segments: rail products, construction products and tubular
products. Financial information concerning the segments is set
forth in Note 19 to the financial statements included in the
Company's Annual Report to Stockholders for 1996. The following
table shows for the last three fiscal years the net sales
generated by each of the current business segments as a
percentage of total net sales.
Percentage of Net Sales
--------------------------------
1996 1995 1994
--------------------------------
Rail Products 46% 42% 38%
Construction Products 32% 34% 36%
Tubular Products 22% 24% 26%
--------------------------------
100% 100% 100%
--------------------------------
--------------------------------
RAIL PRODUCTS
L. B. Foster Company's rail products include heavy and light
rail, relay rail, insulated rail joints, rail accessories, and
transit products. The Company is a major rail products supplier
to industrial plants, contractors, railroads, mines and mass
transit systems.
The Company sells heavy rail mainly to transit authorities,
industrial companies, and rail contractors for railroad sidings,
plant trackage, and other carrier and material handling
applications. Additionally, the Company makes some sales of
heavy rail to railroad companies and to foreign buyers. The
Company sells light rail for mining and material handling
applications.
Rail accessories include trackwork, ties, track spikes, bolts,
angle bars and other products required to install or maintain
rail lines. These products are sold to railroads, rail
contractors and industrial customers and are manufactured within
the company or purchased from other manufacturers.
The Company's Allegheny Rail Products (ARP) division engineers
and markets insulated rail joints and related accessories for
the railroad and mass transit industries, worldwide. Insulated
joints are made in-house and subcontracted.
The Company's Transit Products Division supplies power rail,
direct fixation fasteners, catenary systems, coverboards and
special accessories primarily for mass transit systems. Most of
these products are manufactured by subcontractors and are
usually sold by sealed bid to transit authorities or to rail
contractors, worldwide.
The Company's Midwest Steel Division in Pomeroy, Ohio is the
country's leading manufacturer of light trackwork for the mining
industry. It also produces new heavy trackwork for industrial
and export markets.
CONSTRUCTION PRODUCTS
L. B. Foster Company's construction products consist of sheet
and bearing piling, fabricated highway products and pile
driving/extracting and related equipment.
Sheet piling products are interlocking structural steel sections
that are generally used to provide lateral support at
construction sites. Bearing piling products are steel H-beam
sections which, in their principal use, are driven into the
ground for support of structures such as bridge piers and
high-rise buildings. Sheet piling is sold or leased and bearing
piling is sold principally to contractors and construction
companies.
Other construction products consist of fabricated highway
products and pile driving/extracting equipment. Fabricated
highway products consist principally of bridge decking, aluminum
bridge rail, overhead sign structures and other bridge products,
which are fabricated by the Company. The major purchasers of
these products are contractors for state, municipal and other
governmental projects.
Two types of pile driving equipment, diesel and vibratory, have
historically been sold or leased by the Company. Vibratory pile
drivers also function as pile extractors. The majority of the
Company's sales and leases of pile drivers, extractors and other
construction equipment are to contractors. The Company also
distributes a hydraulic pile driving hammer manufactured by a
company located in the Netherlands.
Sales of the Company's construction products are partly
dependent upon the level of activity in the construction
industry. Accordingly, sales of these products have
traditionally been somewhat higher during the second and third
quarters than during the first and fourth quarters of each year.
TUBULAR PRODUCTS
L. B. Foster Company is a distributor of coated pipe. Coated
line pipe is used for oil and gas transmission and for refinery,
petrochemical plant and power plant construction, as well as
water transmission. The Company, with the exception of
Fosterweld pipe, generally purchases the pipe it sells from pipe
manufacturers.
The Company includes within the tubular products segment,
manufactured Fosterweld pipe and oil country tubular goods.
Generally, the Company adds value to purchased tubular products
by preparing them to meet customer specifications using various
fabricating processes, including the finishing of oil country
tubular goods and the welding, coating, wrapping and lining of
other pipe products.
By converting purchased steel coils into pipe in continuous
forming mills, Fosterweld pipe can be produced in sizes up to
120 inches in diameter and 100 feet or more in length for use in
water transmission lines and other applications such as dredge
pipe, slurry lines, pneumatic lines, ventilation pipe,
foundation piling and caissons.
The Company provides fusion bond and other coatings for
corrosion protection on oil, gas and other pipelines.
The Company also supplies special pipe products such as water
well casing, column pipe, couplings, and related products for
agricultural, municipal and industrial water wells.
MARKETING AND COMPETITION
L. B. Foster Company generally markets its rail, construction
and tubular products directly in all major industrial areas of
the United States through a national sales force of 49
salespeople. The Company maintains 10 sales offices and 14
plants or warehouses nationwide. During 1996, approximately 7%
of the Company's total sales were for export.
The major markets for the Company's products are highly
competitive. Product availability, quality, service and price
are principal factors of competition within each of these
markets. No other company provides the same product mix to the
various markets the Company serves. There are one or more
companies that compete with the Company in each product line.
Therefore, the Company faces significant competition from
different groups of companies.
RAW MATERIALS AND SUPPLIES
Most of the Company's inventory is purchased in the form of
finished or semifinished product. With the exception of relay
rail which is purchased from railroads or rail take-up
contractors, the Company purchases most of its inventory from
domestic and foreign steel producers. There are few domestic
suppliers of new rail and piling products and the Company could
be adversely affected if a domestic supplier ceased making such
material available to the Company. Approximately 62% of the
materials sold by the construction products segment are
purchased from Bethlehem Structural Products Corporation which
has announced the shutdown of its hot rolled sheet piling
facility in the first quarter of 1997. See Note 17 to the
consolidated financial statements for additional information on
this matter.
The Company's purchases from foreign suppliers are subject to
the usual risks associated with changes in international
conditions and to United States laws which could impose import
restrictions on selected classes of products and antidumping
duties if products are sold in the United States below certain
prices.
BACKLOG
The dollar amount of firm, unfilled customer orders at December
31, 1996 and 1995 by segment follows (in thousands):
December 31, 1996 December 31, 1995
----------------------------------------
Rail Products $36,100 $43,879
Construction Products 28,080 28,239
Tubular Products 11,328 8,857
----------------------------------------
$75,508 $80,975
----------------------------------------
----------------------------------------
Approximately 95% of the December 31, 1996 backlog is expected
to be shipped in 1997.
RESEARCH AND DEVELOPMENT
The Company's expenditures for research and development are
negligible.
ENVIRONMENTAL DISCLOSURES
While it is not possible to quantify with certainty the
potential impact of actions regarding environmental matters,
particularly for future remediation and other compliance
efforts, in the opinion of management compliance with
environmental protection laws will not have a material adverse
effect on the financial condition, competitive position, or
capital expenditures of the Company. However, the Company's
efforts to comply with increasingly stringent environmental
regulations may have an adverse effect on the Company's future
earnings.
EMPLOYEES AND EMPLOYEE RELATIONS
The Company has 526 employees, of whom 276 are hourly production
workers and 250 are salaried employees. Approximately 82 of the
hourly paid employees are represented by unions. The Company has
not suffered any major work stoppages during the past five years
and considers its relations with its employees to be
satisfactory.
Substantially all of the Company's hourly paid employees are
covered by one of the Company's noncontributory, defined benefit
plans and a defined contribution plan. Substantially all of the
Company's salaried employees are covered by a defined
contribution plan established by the Company.
ITEM 2. PROPERTIES
The location and general description of the principal properties
which are owned or leased by L. B. Foster Company, together with
the segment of the Company's business using the properties, are
set forth in the following table:
Business Lease
Location Function Acres Segment Expires
- -----------------------------------------------------------------------------
Birmingham, Alabama Pipe coating. 32 Tubular 1997
Doraville, Georgia Fabrication of 28 Tubular, Owned
components for Rail and
highways. Construction
Yard storage.
Newport, Kentucky Pipe coating. 20 Tubular 1998
Niles, Ohio Rail fabrication. 35 Rail Owned
Yard storage.
Pomeroy, Ohio Trackwork manufac- 5 Rail Owned
turing.
Houston, Texas Casing, upset tub- 127 Tubular, Owned
ing, threading, Rail and
heat treating and Construction
painting. Yard
storage.
Bedford, Bridge component 10 Construction Owned
Pennsylvania fabricating plant.
Pittsburgh, Corporate Head- - Corporate 1997
Pennsylvania quarters.
Parkersburg, Fosterweld pipe 93 Tubular 1998
West Virginia manufacturing.
Pipe coating and
wrapping. Yard
storage.
Including the properties listed above, the Company has 10 sales
offices and 14 warehouse, plant and yard facilities located
throughout the country. The Company's facilities are in good
condition and the Company believes that its production
facilities are adequate for its present and foreseeable
requirements.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED MATTERS
STOCK MARKET INFORMATION
The Company had 1,249 common shareholders of record on January
28, 1997. Common stock prices are quoted daily through the
National Association of Security Dealers, Inc. in its over-the-counter
NASDAQ quotation service (Symbol FSTRA). The quarterly high and low
bid price quotations for common shares (which represent prices
between broker-dealers and do not include markup, markdown or commission
and may not necessarily represent actual transactions) follow:
1996 1995
- --------------------------------------------------------------------------
Quarter High Low High Low
- --------------------------------------------------------------------------
First $ 4 3/8 $ 3 3/8 $ 4 $ 3
- ---------------------------------------------------------------------------
Second 4 1/8 3 1/2 4 1/8 3 1/2
- ---------------------------------------------------------------------------
Third 4 1/4 3 5/8 4 3/4 4
- ----------------------------------------------------------------------------
Fourth 4 1/8 3 5/8 4 1/2 4
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
DIVIDENDS
No dividends were paid on the Company's Common stock
during 1996 and 1995. Cash dividends on the Company's Common
stock are restricted under the terms of the Company's Revolving
Credit Agreement (see Note 8 to consolidated financial
statements).
ITEM 6. SELECTED FINANCIAL DATA
(All amounts are in thousands except per share data.)
Year Ended December 31,
Income Statement Data 1996 1995(1) 1994 1993(2) 1992
- ------------------------------------------------------------------------------
Net sales $ 243,071 $ 264,985 $ 234,262 $212,291 $ 204,961
- ------------------------------------------------------------------------------
Operating Profit 8,195 6,769 6,184 3,103 1,100
- ------------------------------------------------------------------------------
Income before cumulative
effect of change in
accounting principle 3,858 5,043 5,440 899 411
- ------------------------------------------------------------------------------
Net income 3,858 4,824 5,440 1,569 411
- ------------------------------------------------------------------------------
Earnings per common share
before cumulative effect
of change in accounting
principle 0.39 0.51 0.55 0.09 0.04
- ------------------------------------------------------------------------------
Earnings per common share 0.39 0.49 0.55 0.16 0.04
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
December 31,
Balance Sheet Data 1996 1995(1) 1994 1993(2) 1992
- ------------------------------------------------------------------------------
Total assets $ 123,398 $ 124,423 $ 122,585 $108,137 $ 104,952
- ------------------------------------------------------------------------------
Working capital 63,527 57,859 52,519 49,755 48,163
- ------------------------------------------------------------------------------
Long-term debt 21,816 25,034 22,377 25,584 26,072
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Stockholders' equity 67,181 63,173 58,319 52,879 51,310
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
(1) Effective January 1, 1995, the Company adopted Financial
Accounting Standards Board (FASB) Statement No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of." The effect of the adoption was to
decrease net income by $219,000 or $0.02 per share.
(2) Effective January 1, 1993, the Company adopted FASB
Statement No. 109, "Accounting for Income Taxes." The effect of
the adoption was to increase net income by $670,000 or $0.07 per
share. As permitted, prior periods were not restated.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
(Dollars in thousands)
Three Months Ended Twelve Months Ended
December 31, December 31,
1996 1995 1996 1995 1994
- ------------------------------------------------------------------------------
Net Sales:
Rail Products $ 34,184 $ 29,262 $ 111,780 $111,582 $ 88,862
Construction Products 19,352 19,161 77,954 88,735 85,488
Tubular Products 10,949 12,880 53,337 64,668 59,912
- ------------------------------------------------------------------------------
Total Net Sales $ 64,485 $ 61,303 $ 243,071 $264,985 $234,262
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Gross Profit:
Rail Products $ 4,679 $ 4,178 $ 15,770 $ 14,507 $ 13,745
Construction Products 2,420 2,222 10,360 9,780 10,350
Tubular Products 857 360 4,830 4,928 3,502
- ------------------------------------------------------------------------------
Total Gross Profit 7,956 6,760 30,960 29,215 27,597
- ------------------------------------------------------------------------------
Expenses:
Selling and Admin-
istrative Expenses 5,795 5,694 22,765 22,446 21,413
Interest Expense 584 697 2,365 2,840 2,067
Other (Income) Expense (38) (186) (600) (777) (274)
- ------------------------------------------------------------------------------
Total Expenses 6,341 6,205 24,530 24,509 23,206
- ------------------------------------------------------------------------------
Income Before Income Taxes 1,615 555 6,430 4,706 4,391
Income Tax Expense
(Benefit) 650 (337) 2,572 (337) (1,049)
Income Before Cumulative
Effect of Changes in
Accounting Principles 965 892 3,858 5,043 5,440
Cumulative Effect of Changes
in Accounting Principles (219)
- ------------------------------------------------------------------------------
Net Income $ 965 $ 892 $ 3,858 $ 4,824 $ 5,440
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
FOURTH QUARTER of 1996 VS. FOURTH QUARTER of 1995
The net income for the current quarter was $1.0 million or $0.10
per share. This compares to a 1995 fourth quarter net income of
$0.9 million or $0.09 per share. The Company's fourth quarter
pretax income climbed to $1.6 million in 1996 versus $0.6
million in 1995. Net sales in 1996 were $64.5 million or 5%
higher than the comparable quarter last year.
Rail products' net sales of $34.2 million increased 17% from the
comparable period last year due to three large December
shipments of new rail products, a general increase in relay rail
business, and an increase in volume of Allegheny Rail Products'
business. Construction products' net sales in the 1996 fourth
quarter remained relatively unchanged in comparison to the
fourth quarter of 1995. Tubular products' net sales declined
15% from 1995 as a result of the Company's withdrawal from the
warehouse pipe market and lower sales of coated and Fosterweld
pipe. Changes in net sales are primarily the result of changes
in volume rather than changes in pricing.
The gross margin percentage for the total company in the 1996
fourth quarter increased to 12% versus 11% in the same quarter
of 1995. The gross margin percentage for the Company's rail
products segment remained relatively unchanged at 14% in both
the 1996 and 1995 fourth quarters. Construction products' gross
margin percentage in the fourth quarter of 1996 increased
slightly to 13% as a result of higher margins on fabricated
highway products. The gross profit margin percentage for
tubular products increased to 8% in the 1996 fourth quarter from
3% in the year earlier quarter. The increase was primarily due
to the continued improvement in Fosterweld pipe margins.
In the 1996 fourth quarter, selling and administrative expenses
increased 2% from the same period in the prior year. Interest
expense decreased 16% due primarily to lower borrowings. The
income tax rate increased above the statutory rate in 1996 due
to certain non-deductible expenses. The income tax rate was
less than the statutory rate in 1995 principally as a result of
a reduction in the deferred tax asset valuation reserve. See
the year comparison section for a more detailed discussion of
the income tax provisions.
THE YEAR 1996 COMPARED TO THE YEAR 1995
The net income for 1996 was $3.9 million or $0.39 per share.
This compares to 1995 net income of $4.8 million or $0.49 per
share. The Company's pretax income was $6.4 million in 1996
versus $4.7 million in 1995. In 1996, the Company recorded an
income tax provision of $2.6 million versus an income tax
benefit of $0.3 million in 1995.
Rail products' 1996 net sales were unchanged from 1995.
Construction products' net sales decreased 12% in 1996 primarily
due to the reduced availability of piling products. Sales of
tubular products decreased 18% in 1996 as a result of the
Company's withdrawal from the warehouse pipe market and a
weakness in coating activity, which were partially offset by an
increase in Fosterweld products sales. Changes in net sales are
primarily the result of changes in volume rather than changes in
pricing.
The gross profit margin percentage for the Company in 1996
increased to 13% from 11% in 1995. Rail products' gross margin
percentage increased slightly to 14% due primarily to the higher
margins in transit products business. Construction products'
gross profit percentage increased to 13% in 1996 versus 11% in
1995 as a result of higher margins on fabricated highway
products and a reduction in the sale of lower margin piling
products. The gross margin percentage for the tubular products
segment increased slightly in 1996 to 9% from 8% in 1995.
Increased expenses were incurred to overcome production problems
at the Birmingham pipe coating facility and volume at the
Newport plant was lower than anticipated. These costs were
offset by Fosterweld's increased gross profit contributions
which resulted from improved market conditions.
Selling and administrative expenses for 1996 remained unchanged
compared to 1995, while interest expense decreased 17% due
primarily to lower borrowings. Other income in 1996 included
$0.4 million of interest income. Other income in 1995 included
$0.3 million of interest income and a $0.2 million gain on the
sale of equipment held for disposal.
The income tax rate increased above the statutory rate in 1996
as a result of certain non-deductible expenses. In 1993, the
Company recorded prior year net operating loss (NOL)
carryforwards as assets to comply with Statement of Financial
Accounting Standards No. 109 "Accounting for Income Taxes".
In addition, the Company also established a valuation reserve to
account for the possibility that all of the NOLs may not have
been used. As the Company's taxable income has grown in recent
years, the need for a reserve to reduce the value of NOLs was no
longer necessary. During 1995 and 1994, the income tax rate was
less than the statutory rate principally due to reductions in
the valuation reserve. At December 31, 1996, the valuation
reserve related to the potential non-recoverability of certain
state NOLs was $150,000. Cash payments for income taxes were
approximately $0.4 million. At the end of 1996, the Company had
approximately $2.5 million in federal income tax NOLs and $1.1
million in Alternative Minimum Tax (AMT) credits.
The Company expects to provide for income taxes at approximately
the statutory rate in 1997, while cash flow for taxes paid is
expected to remain favorable until the remaining NOLs and AMT
credits are used. See Note 13 to the consolidated financial
statements for additional information on income taxes.
THE YEAR 1995 COMPARED TO THE YEAR 1994
The net income for 1995 was $4.8 million or $0.49 per share.
This compares to 1994 net income of $5.4 million or $0.55 per
share. Net sales in 1995 were $265.0 million or 13% higher than
in 1994.
Rail products' net sales improved 26% in 1995 to $111.6 million
as sales of new rail products increased. Despite a fourth
quarter weakness in piling products, construction products' net
sales for 1995 of $88.7 million were 4% higher than 1994 as
increased shipments of piling and fabricated products offset
reductions in pile driving equipment revenue. Tubular products'
net sales in 1995 increased to $64.7 million or 8% from the
prior year due to increased pipe coating volume at the Company's
Birmingham, Alabama facility. Changes in net sales are
primarily the result of changes in volume rather than changes
in prices.
The gross margin percentage for the total company declined to
11% from 12% in 1994. Rail products' gross margin percentage
decreased to 13% from approximately 16% in 1994 as a result of
lower margins on running rail and used rail products.
Construction products' gross margin percentage declined to 11%
from 12% in 1994 as a result of lower margins on fabricated
products and vibratory pile driving equipment. The gross margin
percentage for the Company's tubular products increased to 8%
from 6% last year. The increase was the result of a change in
the mix of pipe coating products sold and improved Fosterweld
pipe margins.
Selling and administrative expenses in 1995 of $22.4 million
increased 5% from the prior year primarily as a result of the
change in the employee vacation policy which reduced 1994
expense. Interest expense increased 37% principally as a
result of higher borrowings. Other income in 1995 included $0.3
million of interest income and a $0.2 million gain on the sale
of equipment held for disposal. Other income in 1994 included a
gain of $0.3 million from the sale of the Company's Houston,
Texas sales office and equipment depot.
The income tax rate is less than the statutory rate in both the
1995 and 1994 periods principally as a result of changes in net
deferred tax assets and liabilities. The Company's deferred tax
assets include net operating loss (NOL) carryforwards. In 1993,
the Company recorded all available NOL carryforwards as assets
net of a valuation reserve which reduced the carrying value of
the NOL carryforwards to the amount projected to actually be
used in future years (i.e. the net realizable value) in
accordance with Statement of Financial Accounting Standards No.
109 "Accounting for Income Taxes". The net realizable value
of the Company's NOL carryforwards is computed based on the
average taxable income for the most recent three years projected
forward for three years. During 1995 and 1994, the net
realizable value of the NOL carryforwards increased and the
Company reduced the valuation reserve related to the NOL
carryforwards by $2.5 million and $2.4 million, respectively.
These favorable adjustments of the valuation reserve were
recorded as reductions of income tax expense. Expected
utilization of the net deferred tax assets is contingent upon
the Company earning in the aggregate approximately $11 million
of taxable income in future years.
Effective January 1, 1995, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 121 "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of," and recorded a charge of $0.2 million, net of
income tax benefit, principally related to a Fosterweld facility
held for sale (see Note 2 to consolidated financial statements).
LIQUIDITY AND CAPITAL RESOURCES
The Company generates internal cash flow ("liquidity") from the
sale of inventory and the collection of accounts receivable.
During 1996, the average turnover rates for accounts receivables
and inventories were relatively unchanged from the prior year.
Working capital at December 31, 1996 was $63.5 million
compared to $57.9 million at December 31, 1995.
During 1996, the Company had capital expenditures of $2.3
million. Capital expenditures in 1997 are expected to be
approximately $3 million and are anticipated to be funded by
cash flows from operations.
Total revolving credit agreement borrowings at December 31, 1996
were $24.0 million or a decrease of $5.8 million from the end of
the prior year. Outstanding letters of credit at December 31,
1996 were $0.8 million. At December 31, 1996, the Company had
approximately $20.2 million in unused borrowing commitment.
Management believes its internal and external sources of funds
are adequate to meet anticipated needs.
OTHER MATTERS
The Company currently owns stock with a book value of
approximately $2.0 million in a privately-held corporation.
The market value of the stock is not readily determinable and,
therefore, the investment is recorded in the Company's
accounts at its historical cost of $0.2 million (see Note 7 to
consolidated financial statements). If this business is sold,
the Company believes that the potential sales price could
significantly exceed the privately-held corporation's book value.
As stated previously, the Company has made a decision to divest
its Fosterweld operations at the Parkersburg, West Virginia
facility, which has fixed assets with a carrying value of $3.0
million. Currently, discussions are taking place with several
potential buyers. (See Note 5 to consolidated financial
statements). Additionally, the Company is considering the
divestiture of its $3.0 million pile driving equipment product
line. These actions are not expected to have a material impact
on the financial condition of the Company.
Management continues to evaluate the overall performance of
certain operations. A decision to terminate an existing
operation could have a material effect on near-term earnings but
would not be expected to have a material adverse effect on the
financial condition of the Company.
OUTLOOK
The Company's primary supplier of piling products, Bethlehem
Structural Products Corporation, has announced that its hot
rolled sheet piling and structural products facility in
Bethlehem, Pennsylvania, will be shut down in the first quarter
of 1997. The Company has agreed to purchase Bethlehem's
remaining piling production. A portion of this inventory will
enable the Company to maintain its rental piling business beyond
1997. The Company is actively pursuing other options to
preserve its position in the piling distribution market. Gross
profit of the Bethlehem Structural Products Corporation's
piling distribution business accounted for less than 10% of the
Company's 1996 gross profit.
The rail segment of the business depends on one source for
fulfilling certain trackwork contracts. The Company has
provided $5,000,000 of working capital to this supplier in the
form of loans and advance payments. If, for any reason, this
supplier is unable to perform, the Company could experience a
negative short term effect on earnings.
The Company's operations are in part dependent on governmental
funding of infrastructure projects. Significant changes in the
level of government funding of these projects could have a
favorable or unfavorable impact on the operating results of the
Company. Additionally, governmental actions concerning
taxation, tariffs, the environment or other matters could
impact the operating results of the Company. The Company's
operations results may also be affected by the weather.
Although backlog is not necessarily indicative of future
operating results, total Company backlog at December 31, 1996
was approximately $76 million or 7.0% lower than the backlog at
the end of the previous year. The following table provides the
backlog by business segment.
December 31,
- ------------------------------------------------------------------------------
1996 1995 1994
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(Dollars in thousands)
Backlog:
Rail Products $36,100 $43,879 $47,582
Construction Products 28,080 28,239 18,574
Tubular Products 11,328 8,857 14,776
- ------------------------------------------------------------------------------
Total Backlog $75,508 $80,975 $80,932
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
FORWARD-LOOKING STATEMENTS
The Company wishes to caution readers that various factors could
cause the actual results of the Company to differ materially
from those indicated by forward-looking statements made from
time to time in news releases, reports, proxy statements,
registration statements and other written communications
(including the preceding sections of this Management's
Discussion and Analysis), as well as oral statements made from
time to time by representatives of the Company. Except for
historical information, matters discussed in such oral and
written communications are forward-looking statements that
involve risks and uncertainties, including but not limited to
general business conditions, the availability of material from
major suppliers, the impact of competition, the seasonality of
the Company's business, taxes, inflation, and governmental
regulations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
ASSETS (In thousands) 1996 1995
- ------------------------------------------------------------------------------
CURRENT ASSETS:
Cash and cash equivalents $ 1,201 $ 1,325
Accounts receivable (Note 3) 49,918 48,277
Inventories (Note 4) 42,925 40,304
Current deferred tax assets (Note 13) 1,214 1,005
Other current assets 398 831
Property held for resale (Note 5) 985
- ------------------------------------------------------------------------------
Total Current Assets 95,656 92,727
- ------------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT -
at cost (Note 6) 20,467 22,605
- ------------------------------------------------------------------------------
PROPERTY HELD FOR RESALE (Note 5) 4,022 4,545
- ------------------------------------------------------------------------------
DEFERRED TAX ASSETS (Note 13) 2,018
- --------------------------------------------------------------------------------
OTHER ASSETS (Note 7) 3,253 2,528
- ------------------------------------------------------------------------------
TOTAL ASSETS $ 123,398 $ 124,423
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY (In thousands, except share data)
- ------------------------------------------------------------------------------
CURRENT LIABILITIES:
Short-term borrowings (Note 8) $ 6,000 $ 9,750
Current maturities of long-term debt (Note 9) 1,366 1,266
Accounts payable - trade 19,060 18,065
Accrued payroll and employee benefits 3,543 2,682
Other accrued liabilities 2,160 3,105
- ------------------------------------------------------------------------------
Total Current Liabilities 32,129 34,868
- ------------------------------------------------------------------------------
LONG-TERM DEBT (Note 9) 21,816 25,034
- ------------------------------------------------------------------------------
DEFERRED TAX LIABILITIES (Note 13) 394
- ------------------------------------------------------------------------------
OTHER LONG-TERM LIABILITIES 1,878 1,348
- ------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENT LIABILITIES (Note 16)
- ------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY (Notes 8, 10 and 11):
Class A Common stock, issued 10,228,739 shares
in 1996 and 10,188,739 shares in 1995 102 102
Paid-in capital 35,276 35,148
Retained earnings 32,338 28,480
Treasury stock - at cost, Class A Common stock,
246,001 shares in 1996 and 256,001 shares
in 1995 (535) (557)
- --------------------------------------------------------------------------------
Total Stockholders' Equity 67,181 63,173
- ------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 123,398 $ 124,423
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE YEARS ENDED
DECEMBER 31, 1996
(In thousands, except per share data) 1996 1995 1994
- ------------------------------------------------------------------------------
NET SALES $ 243,071 $ 264,985 $ 234,262
- ------------------------------------------------------------------------------
COSTS AND EXPENSES:
Cost of goods sold 212,111 235,770 206,665
Selling and administrative expenses 22,765 22,446 21,413
Interest expense 2,365 2,840 2,067
Other (income) expense (600) (777) (274)
- ------------------------------------------------------------------------------
236,641 260,279 229,871
- ------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES AND
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE 6,430 4,706 4,391
INCOME TAX EXPENSE (BENEFIT) (Note 13) 2,572 (337) (1,049)
- ------------------------------------------------------------------------------
INCOME BEFORE CUMULATIVE EFFECT
OF CHANGE IN ACCOUNTING PRINCIPLE 3,858 5,043 5,440
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE (Note 2) (219)
- -------------------------------------------------------------------------------
NET INCOME $ 3,858 $ 4,824 $ 5,440
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
EARNINGS PER COMMON SHARE:
- ------------------------------------------------------------------------------
Income before cumulative effect of
change in accounting principle $ 0.39 $ 0.51 $ 0.55
Cumulative effect of change in
accounting principle (0.02)
- ------------------------------------------------------------------------------
EARNINGS PER COMMON SHARE (Note 12) $ 0.39 $ 0.49 $ 0.55
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF
CASH FLOWS FOR THE THREE YEARS
ENDED DECEMBER 31, 1996
(In thousands) 1996 1995 1994
- ------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,858 $ 4,824 $ 5,440
Adjustments to reconcile net income
to net cash provided (used) by
operating activities:
Deferred income taxes 2,203 (565) (1,228)
Depreciation and amortization 3,169 2,774 2,932
Gain on sale of property, plant and
equipment (540) (532) (635)
Cumulative effect of change in
accounting principle 219
Change in operating assets and liabilities:
Accounts receivable (1,641) (1,856) (10,560)
Inventory (2,621) 2,878 (4,240)
Property held for resale 1,508
Other current assets 433 (165) 49
Other noncurrent assets (1,020) (171) 309
Accounts payable - trade 995 (1,710) 2,526
Accrued payroll and employee benefits 861 158 354
Other current liabilities (945) (174) (238)
Other liabilites 530 (245) (384)
- ------------------------------------------------------------------------------
Net Cash Provided (Used) by
Operating Activities 6,790 5,435 (5,675)
- ------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property, plant
and equipment 2,277 3,880 2,107
Capital expenditures on property,
plant and equipment (2,336) (4,074) (2,800)
- ------------------------------------------------------------------------------
Net Cash Used by Investing Activities (59) (194) (693)
- ------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
(Repayments) proceeds of revolving
credit agreement borrowings (3,750) (4,170) 7,420
Exercise of stock options 150 30
Repayments of long-term debt (Note 9) (3,255) (956) (1,085)
- ------------------------------------------------------------------------------
Net Cash (Used) Provided by
Financing Activities (6,855) (5,096) 6,335
- ------------------------------------------------------------------------------
Net (Decrease) Increase in Cash and
Cash Equivalents (124) 145 (33)
Cash and Cash Equivalents at
Beginning of Year 1,325 1,180 1,213
- ------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Year $ 1,201 $ 1,325 $ 1,180
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest Paid $ 2,376 $2,906 $ 1,933
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Income Taxes Paid $ 410 $ 188 $ 78
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
During 1996, 1995, and 1994, the Company financed certain capital
expenditures and related maintenance agreements totaling $137,000,
$4,081,000 and $415,000, respectively, through the issuance of capital leases.
See Notes to Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE THREE YEARS ENDED
DECEMBER 31, 1996
Class A
Common Paid-in Retained Treasury
(In thousands) Stock Capital Earnings Stock Total
- ------------------------------------------------------------------------------
Balance, January 1, 1994 $ 102 $ 35,118 $ 18,216 $ (557) $ 52,879
Net Income 5,440 5,440
- ------------------------------------------------------------------------------
Balance, December 31, 1994 102 35,118 23,656 (557) 58,319
Net Income 4,824 4,824
Exercise of option to pur-
chase 10,000 shares of Class
A Common stock (Note 11) 30 30
- ------------------------------------------------------------------------------
Balance, December 31, 1995 102 35,148 28,480 (557) 63,173
Net Income 3,858 3,858
Exercise of option to pur-
chase 50,000 shares of Class
A Common stock (Note 11) 128 22 150
- ------------------------------------------------------------------------------
Balance, December 31, 1996 $ 102 $ 35,276 $ 32,338 $ (535) $ 67,181
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of financial statement presentation - The consolidated financial
statements include the accounts of the Company and its wholly owned
subsidiaries. All significant intercompany transactions have
been eliminated. The term "Company" refers to L. B. Foster
Company and its subsidiaries, as the context requires.
Cash equivalents - The Company considers securities with
maturities of three months or less, when purchased, to be cash
equivalents.
Inventories - Inventories are generally valued at the lower of
the last-in, first-out (LIFO) cost or market. Other inventories
of the Company, approximately 13 % in 1996 and 11% in 1995, are
valued at average cost or market, whichever is lower.
Property, plant and equipment - Maintenance, repairs and minor
renewals are charged to operations as incurred. Major renewals
and betterments which substantially extend the useful life of
the property are capitalized. Upon sale or other disposition of
assets, the cost and related accumulated depreciation and
amortization are removed from the accounts and the resulting
gain or loss, if any, is reflected in income. Depreciation and
amortization are provided based upon the estimated useful lives
principally under the straight-line method. Leasehold
improvements are amortized over the lives of the respective
leases or the lives of the improvements, whichever is shorter.
Pile driving equipment held for rental is classified as
property, plant and equipment.
Financial derivatives - To hedge against exposures to changes in
interest rates on variable rate debt, the Company enters into
interest rate swap agreements. The effects of movements in
interest rates on these instruments are recognized as they
occur.
Environmental remediation and compliance - Environmental
remediation costs are accrued, except to the extent costs can be
capitalized, based on estimates of known environmental
remediation exposures. Environmental compliance costs, which
principally include the disposal of waste generated by routine
operations, are expensed as incurred. Capitalized environmental
costs are depreciated, when appropriate, over their useful life.
The Company is required to adopt Statement of Position 96-1,
"Environmental Remediation Liabilities" as of January 1, 1997.
The effect of the adoption will not be material.
Net sales - Customers are invoiced and income is recognized when
material is shipped from stock or when the Company is billed for
material shipped directly from the vendor. Gross sales are
reduced by sales taxes, discounts and freight to determine net
sales.
Income taxes - The Company accounts for income tax expense and
liabilities under the liability method.
Use of estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported
in the financial statements and accompanying notes. Actual
results could differ from those estimates.
Stock-based compensation - The Company grants stock options for
a fixed number of shares to employees with an exercise price
equal to the fair value of the shares at the date of grant. The
Company follows the requirements of Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" in
accounting for stock-based compensation, and, accordingly,
recognizes no compensation expense for stock option grants, but
provides, when material, the pro forma disclosures required by
the Statement of Financial Accounting Standards (SFAS)
Statement No. 123, "Accounting for Stock-Based Compensation."
NOTE 2.
CHANGE IN ACCOUNTING PRINCIPLES
The Company adopted the provisions of the Statement of Financial
Accounting Standards (SFAS) No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," in its
financial statements for the year ended December 31, 1995. The
cumulative effect as of January 1, 1995 of adopting Statement
121 decreased net income by $219,000, net of an income tax
benefit of $134,000, or $0.02 per share.
NOTE 3.
ACCOUNTS RECEIVABLE
Accounts receivable at December 31, 1996 and 1995 are
summarized as follows (in thousands):
1996 1995
- ---------------------------------------------------------------
Trade $ 51,271 $ 49,966
Allowance for doubtful accounts (1,803) (1,800)
Other 450 111
- ---------------------------------------------------------------
$ 49,918 $ 48,277
- ---------------------------------------------------------------
- ---------------------------------------------------------------
The Company's customers are in the rail, construction and
tubular segments of the economy. As of December 31, 1996 and
1995, trade receivables, net of allowance for doubtful accounts,
from customers in these markets were as follows (in thousands):
1996 1995
- ---------------------------------------------------------------
Rail $ 27,234 $ 21,366
Construction 15,586 17,169
Tubular 6,648 9,631
- ---------------------------------------------------------------
$ 49,468 $ 48,166
- ---------------------------------------------------------------
- ---------------------------------------------------------------
Credit is extended on an evaluation of the customer's financial
condition and generally collateral is not required.
NOTE 4.
INVENTORIES
Inventories at December 31, 1996 and 1995 are summarized as follows (in
thousands):
1996 1995
- ----------------------------------------------------------------
Finished goods $ 31,347 $ 33,570
Work-in-process 11,117 6,687
Raw materials 3,135 2,659
- ----------------------------------------------------------------
Total inventories at current costs 45,599 42,916
- ----------------------------------------------------------------
- ----------------------------------------------------------------
Less:
Current cost over LIFO
stated values (2,074) (2,012)
Reserve for decline in market
value of inventories (600) (600)
- ----------------------------------------------------------------
$ 42,925 $ 40,304
- ----------------------------------------------------------------
- ----------------------------------------------------------------
At December 31, 1996 and 1995, the LIFO carrying value of
inventories for book purposes exceeded the LIFO carrying value
for tax purposes by approximately $5,241,000 and $5,441,000,
respectively. During 1996, inventory quantities were reduced
resulting in a liquidation of certain LIFO inventory layers
carried at costs which were higher than the costs of current
purchases. The effect of these reductions in 1996 and 1995 was
to increase cost of goods sold by $217,000 and $287,000,
respectively.
NOTE 5.
PROPERTY HELD FOR RESALE
Property held for resale at December 31, 1996 and 1995 consists of
the following (in thousands):
Location 1996 1995
- -----------------------------------------------------------------------
Parkersburg, WV $ 3,003 $ 2,920
Windsor, NJ 985
Marrero, LA 615 615
Houston, TX 261 261
Navasota, TX 356
Other 143 393
- -----------------------------------------------------------------------
Property held for resale 4,022 5,530
- -----------------------------------------------------------------------
Assets having sales commit-
ments within one year 985
- -----------------------------------------------------------------------
$ 4,022 $ 4,545
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
The Parkersburg, West Virginia location produces Fosterweld
spiralweld pipe used for water transmission and other
applications. During 1995, the Company decided that this
product did not meet the Company's long-term strategic goals.
The assets of this operation include machinery and equipment,
buildings and leasehold improvements. During 1996 and 1995, the
location generated net sales and operating profit of
approximately $13,300,000 and $2,000,000 and $10,300,000 and
$300,000, respectively, which are included in the Company's
tubular segment. The Company is currently negotiating with
several buyers. However, the outcome of these discussions is
uncertain at this time.
The Windsor, New Jersey, location formerly produced Fosterweld
pipe and was used for yard storage. Assets of the location
consisted of land and land improvements. During 1995, the
effect of adopting SFAS No. 121 included an impairment loss of
$268,000 based on the estimated sales value of the assets. The
Company disposed of these assets in 1996 and received proceeds
equal to the net book value of these assets.
The Marrero, Louisiana location was formerly used for yard
storage. Assets of the location consist of land no longer used
in the Company's business. The land is currently being leased
to a third party. The Company does not anticipate disposing of
the land during 1997.
The Houston, Texas location was formerly a pipe coal tar
coating facility. Assets of the location consist of land no
longer used in the Company's business. The land has been listed
for sale, although no assurances can be given that the land will
be sold during 1997.
The Navasota, Texas, location produced couplings used in the
Company's threaded products business and was included in the
tubular products business segment. The assets of this operation
included machinery and equipment, buildings and land. Seperate
net sales and operating profits for this location can not be
identified. During 1996, the Company disposed of these assets
through a capitalized lease and is recognizing the gain on these
assets by using the installment method of accounting for this
capitalized lease. The gain recognized was immaterial in 1996.
NOTE 6.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at December 31, 1996 and 1995 consists of the
following (in thousands):
1996 1995
- ---------------------------------------------------------------------
Land $ 6,700 $ 6,700
Improvements to land and leaseholds 3,984 3,867
Buildings 2,642 2,563
Machinery and equipment, including
equipment under capitalized
leases of $7,434 in 1996
and $7,728 in 1995 23,774 23,862
Rental pile driving equipment 3,668 6,251
Construction in progress 197 318
- ---------------------------------------------------------------------
40,965 43,561
- ---------------------------------------------------------------------
Less accumulated depreciation and
amortization, including accumulated
amortization of capitalized leases
of $2,259 in 1996 and $1,663 in 1995 20,498 20,956
- ---------------------------------------------------------------------
$ 20,467 $ 22,605
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
Property, plant and equipment include certain capitalized
leases. The following is a schedule, by year, of the future
minimum payments under these leases, together with the present
value of the net minimum payments as of December 31, 1996 (in
thousands):
Year ending December 31, Amount
- -------------------------------------------------------------------
1997 $ 2,004
1998 1,907
1999 1,299
2000 842
2001 and thereafter 797
- -------------------------------------------------------------------
Total minimum lease payments 6,849
Less amount representing interest 1,667
- -------------------------------------------------------------------
Total present value of minimum
payments (Note 9) 5,182
Less current portion of such obligations 1,366
- -------------------------------------------------------------------
Long-term obligations with interest rates
ranging from 7.25% to 9.75% $ 3,816
- -------------------------------------------------------------------
- -------------------------------------------------------------------
NOTE 7.
OTHER ASSETS
At December 31, 1996 and 1995, other assets include notes receivable
and accrued interest totaling $2,072,000 and $1,896,000, respectively,
from investors in a private corporation. The notes, which are
recorded at face value, are due if there is a change in ownership of
the private corporation or March 1997, whichever occurs earlier. However,
the Company has agreed, in principle, subject to the execution
of satisfactory documentation, to extend the due date until
August 1998. Additionally, the Company owns stock in the
private corporation which is recorded at historical cost of
$193,000.
NOTE 8.
SHORT-TERM BORROWINGS
Effective November 1995, the Company renegotiated its $45,000,000
revolving credit agreement. The interest rate is, at the Company's
option, based on the prime rate, the domestic certificate of deposit rate (CD
rate) or the Euro-bank rate. The interest rates are adjusted
quarterly based on the fixed charge coverage ratio defined in
the agreement. The ranges are prime to prime plus 0.25%, the CD
rate plus 0.45% to the CD rate plus 1.125%, and the Euro-bank
rate plus 0.45% to the Euro-bank rate plus 1.125%. Borrowings
under the agreement, which expires July 1, 1999, are secured by
accounts receivable and inventory.
The agreement includes financial covenants requiring a minimum
net worth, and minimum levels for the fixed charge coverage
ratio, the leverage ratio and the current ratio. The agreement
also restricts dividends, investments, capital expenditures,
indebtedness and sales of certain assets.
As of December 31, 1996, the Company was in compliance with all
the agreement's covenants. At December 31, 1996, the Company
had borrowed $24,000,000 under the agreement of which
$18,000,000 was classified as long-term (see Note 9). Under the
agreement, the Company had approximately $20,154,000 in unused
borrowing commitment at December 31, 1996. At December 31, 1996,
$3,436,000 was available for future dividend payments.
NOTE 9.
LONG-TERM DEBT AND RELATED MATTERS
Long-term debt at December 31, 1996 and 1995 consists of the following (in
thousands):
1996 1995
- ----------------------------------------------------------------------
Revolving Credit Agreement with
weighted average interest rate of
6.42% at December 31, 1996 and
6.57% at December 31, 1995,
expiring July 1, 1999 $ 18,000 $ 20,000
- ----------------------------------------------------------------------
Lease obligations payable in
installments through 2003 with a
weighted average interest rate of
8.0% at December 31, 1996 and 1995 5,182 6,300
- ----------------------------------------------------------------------
23,182 26,300
Less current maturities 1,366 1,266
- ----------------------------------------------------------------------
$ 21,816 $ 25,034
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
The $18,000,000 revolving credit borrowings included in long-term debt
were obtained under the revolving loan agreement discussed in Note 8
and are subject to the same terms and conditions. This portion of
the borrowings is classified as long-term because the Company does
not anticipate reducing the borrowings below $18,000,000 during 1997.
During 1995, the Company entered into an interest rate swap
agreement to reduce the impact of changes in interest rates on a
portion of its revolving credit borrowings. The LIBOR interest
rate on the $10,000,000 swap agreement, which expires June 1999,
is 6.142%. The Company believes that the credit and market
risks associated with this agreement are not material. Any
additional interest expense incurred under the agreement is
accrued currently and paid quarterly.
The maturities of long-term debt for each of the succeeding five
years subsequent to December 31, 1996 are as follows:
1997 - $1,366,000; 1998 - $1,299,000; 1999 - $19,025,000;
2000 - $753,000; 2001 - $418,000; and 2002 and beyond -
$321,000.
NOTE 10.
STOCKHOLDERS' EQUITY
At December 31, 1996 and 1995, the number of authorized shares of
the Company's Class A Common stock were 20,000,000 shares and
Class B Common stock were 1,391,000 shares. No Class B Common shares
were issued. The Company's Class A and Class B Common stock each
have a par value of $.01 per share and are generally identical except
that the Class B Common stock has no stockholder voting rights, and
except that such holders shall be entitled to one vote per share
on matters such as consolidation or merger of the Company.
Class B Common stock may be converted at any time on a
share-for-share basis into Class A Common stock.
No cash dividends on Common stock were paid in 1996, 1995, and
1994.
NOTE 11.
STOCK OPTIONS
The 1985 Long-Term Incentive Plan (Plan) of the Company, as amended
and restated in March 1994, provides for the award of options to
key employees and directors to purchase up to 1,500,000 shares of
Common stock at no less than 100% of fair market value on the date of
the grant. The Plan provides for the granting of "nonqualified options"
and "incentive stock options" with a duration of not more than
ten years from the date of grant. The Plan also provides that,
unless otherwise set forth in the option agreement, options are
exercisable in installments of up to 25% annually beginning one
year from date of grant. Stock to be offered under the Plan may
be authorized but unissued Common stock or previously issued
shares which have been reacquired by the Company and held as
Treasury shares. At December 31, 1996, 1995 and 1994, Common
stock options outstanding under the Plan had option prices
ranging from $2.63 to $6.00, with a weighted average price of
$3.40, $3.35, and $3.33 per share, respectively.
The weighted average remaining contractual life of the stock
options outstanding for the three years ended December 31, 1996
are: 1996 - 4.2 years; 1995 - 4.7 years; and 1994 - 5.7 years.
The Option Committee of the Board of Directors which administers
the Plan may, at its discretion, grant stock appreciation rights
at any time prior to six months before the option's expiration
date. Upon exercise of such rights, the participant surrenders
the exercisable portion of the option in exchange for payment
(in cash and/or Common stock valued at its fair market value) of
an amount not greater than the spread, if any, by which the
average of the high and low sales prices quoted in the
Over-the-Counter Exchange on the trading day immediately
preceding the date of exercise of the stock appreciation right
exceeds the option price. No stock appreciation rights were
issued or outstanding during 1996, 1995 or 1994.
Options exercised during 1996 and 1995 totaled 50,000 and
10,000 shares, respectively, at an exercise price of $3.00 per
share. There were no options exercised during 1994.
Certain information for the three years ended December 31, 1996
relative to employee stock options is summarized as follows:
1996 1995 1994
- ---------------------------------------------------------------------------
Number of shares under
Incentive Plan option:
Outstanding at beginning of year 965,000 975,000 725,000
Granted 40,000 25,000 256,000
Canceled (11,000) (25,000) (6,000)
Exercised (50,000) (10,000)
- ------------------------------------------------------------------------------
Outstanding at end of year 944,000 965,000 975,000
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Exercisable at end of year 806,250 748,000 712,500
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Number of shares available
for future grant:
Beginning of year 316,250 316,250 66,250
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
End of year 287,250 316,250 316,250
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
The Company has adopted the disclose-only provisions of SFAS No.
123, "Accounting for Stock-Based Compensation," but applies
Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" and related interpretations in
accounting for its stock option plans. Accordingly, no
compensation expense has been recognized. Had compensation
expense for the Company's stock option plans been determined
using the method required by SFAS No. 123, the effect to the
Company's net income and earnings per share would not be
material.
NOTE 12.
EARNINGS PER COMMON SHARE
Earnings per common share are computed by dividing net income by
the average number of Class A Common shares and common stock
equivalents outstanding during the year. The weighted average number
of Class A Common shares outstanding during the year ended December
31, 1996 were approximately 9,953,000 and approximately 9,927,000 and
9,923,000, respectively, during the years ended 1995 and 1994.
Common stock equivalents are the net additional number of shares
which would be issuable upon the exercise of the outstanding
common stock options (see Note 11), assuming that the Company
used the proceeds to purchase additional shares at market value.
Common stock equivalents had no material effect on the
computation of earnings per share for the three years ended
December 31, 1996.
NOTE 13.
INCOME TAXES
At December 31, 1996, the Company has available net operating loss
carryforwards of approximately $2,450,000 for federal income tax
purposes that expire in 2001. The federal carryforwards resulted from
losses generated in 1986. The tax benefit of net operating loss
carryforwards available for state income tax purposes was approximately
$898,000 as of December 31, 1996. The Company also has
alternative minimum federal tax credit carryforwards at December
31, 1996 of approximately $1,084,000. For financial purposes, a
valuation allowance of $150,000 has been recognized to offset
the deferred tax assets related to the state income
carryforwards. Deferred income taxes reflect the net tax effects
of temporary differences between the carrying amounts of assets
and liabilities for financial reporting purposes and the amounts
used for income tax purposes. Significant components of the
Company's deferred tax liabilities and assets as of December 31,
1996 and 1995 are as follows (in thousands):
1996 1995
- --------------------------------------------------------------------------
Deferred tax liabilities:
Depreciation $ 1,535 $ 1,227
Other - net 309 (60)
- --------------------------------------------------------------------------
Total deferred tax liabilities 1,844 1,167
- --------------------------------------------------------------------------
Deferred tax assets:
Net operating loss carryforwards 1,730 3,419
Tax credit carryforwards 1,084 971
- --------------------------------------------------------------------------
Total deferred tax assets 2,814 4,390
Valuation allowance for
deferred tax assets 150 200
- --------------------------------------------------------------------------
Deferred tax assets 2,664 4,190
Net deferred tax assets $ 820 $ 3,023
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
The valuation allowance for deferred tax assets was reduced by
$50,000, $2,499,000 and $2,374,000 during 1996, 1995 and 1994,
respectively.
Significant components of the provision for income taxes are as
follows (in thousands):
1996 1995 1994
- ----------------------------------------------------------------------------
Current:
Federal $ 163 $ 102 $ 81
State 206 126 98
- ----------------------------------------------------------------------------
Total current 369 228 179
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
Deferred:
Federal 2,258 (339) (1,182)
State (55) (360) (46)
- ----------------------------------------------------------------------------
Total deferred 2,203 (699) (1,228)
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
Total income tax expense
(benefit) $ 2,572 $ (471) $(1,049)
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
Income tax expense (benefit) is included in the consolidated statements of
income as follows (in thousands):
1996 1995 1994
- ----------------------------------------------------------------------------
Continuing operations $ 2,572 $ (337) $(1,049)
Cumulative effect of
accounting change (134)
- ----------------------------------------------------------------------------
$ 2,572 $ (471) $(1,049)
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
The reconciliation of income tax computed at statutory rates to
income tax expense (benefit) is as follows:
1996 1995 1994
- ----------------------------------------------------------------------------
Statutory rate 34.0% 34.0% 34.0%
State income tax 1.6 (3.0) 0.7
Nondeductible expenses 2.2 3.0 3.1
Net operating loss (22.9) (28.6)
Change in valuation reserve (30.2) (25.5)
Prior period tax 2.0 13.2 (11.5)
Other .2 (1.3) 3.9
- ----------------------------------------------------------------------------
40.0% (7.2)% (23.9)%
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
NOTE 14.
RENTAL AND LEASE INFORMATION
The Company leases certain plant facilities, office
facilities and equipment. Rental expense for the years ended
December 31, 1996, 1995 and 1994 amounted to $1,814,000,
$1,867,000, and $1,693,000, respectively.
At December 31, 1996, the Company is committed to total minimal
rental payments under all noncancelable operating leases of $968,000.
Generally, these leases include escalation clauses.
The minimum future rental commitments are payable as follows:
1997 - $548,000; 1998 - $211,000; 1999 - $133,000; 2000 -
$65,000; and 2001 - $11,000.
NOTE 15.
RETIREMENT PLANS
Substantially all of the Company's hourly paid employees are covered
by one of the Company's noncontributory, defined benefit plans and a defined
contribution plan. Substantially all of the Company's salaried
employees are covered by a defined contribution plan established
by the Company.
Benefits for hourly employees over age 21 are generally based on
hours of service. The salaried plan for employees over age 21
is based on years of qualifying service.
The Company's funding policy for defined benefit plans is to
contribute the minimum required by the Employee Retirement Income
Security Act of 1974. Net periodic pension cost for the three
years ended December 31, 1996 is summarized as follows (in thousands):
1996 1995 1994
- ---------------------------------------------------------------------
Service cost $ 81 $ 71 $ 78
Interest cost 136 121 110
Actual return on plan assets (176) (131) (120)
Other 39 (3) (3)
- ---------------------------------------------------------------------
Net periodic pension cost $ 80 $ 58 $ 65
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
The hourly plan assets consist of various mutual fund
investments. The following table presents a reconciliation of
the funded status of the defined benefit plans at December 31,
1996 and 1995 with the accrued pension cost included in other
current liabilities on the Company's balance sheet:
(in thousands) 1996 1995
- ---------------------------------------------------------------------
Projected benefit obligation:
Vested benefits $ 1,979 $ 1,810
Nonvested benefits 55 67
- ---------------------------------------------------------------------
Total projected benefit obligation 2,034 1,877
- ---------------------------------------------------------------------
Fair value of plan assets 1,867 1,718
- ---------------------------------------------------------------------
Deficit of plan assets over
projected benefit obligation (167) (159)
Unrecognized net transition asset (112) (121)
Unrecognized prior service cost 81 88
Unrecognized net loss 6 31
Adjustment for minimum liability (133) (126)
- ---------------------------------------------------------------------
Accrued pension cost included in accrued
payroll and employee benefits on the
balance sheet. $ (325) $ (287)
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
Assumptions used to measure the projected benefit obligation and
develop net periodic pension costs for the three years ended
December 31, 1996 were:
1996 1995 1994
- ------------------------------------------------------------------------
Assumed discount rate 7% 7% 8%
- ------------------------------------------------------------------------
Expected rate of return on
plan assets 8% 8% 8%
- ------------------------------------------------------------------------
There was no change to the discount rate in 1996. As a result of the
change in the discount rate in 1995, the projected benefit obligation
as of December 31, 1995 was approximately $270,000 more than it would
have been using the previous 8% discount rate. The change had no
effect on net pension cost in 1995.
The Company's defined contribution plan, available to
substantially all salaried employees, contains a matched savings
provision that permits both pretax and after-tax employee
contributions. Participants can contribute from 2% to 15% of
their annual compensation and receive a 50% matching employer
contribution on up to 6% of their annual compensation.
Further, the plan requires an additional matching employer
contribution, based on the ratio of the Company's pretax income
to equity, up to 50% of 6% of the employee's annual
compensation. Additionally, the Company contributes 1% of all
salaried employees' annual compensation to the plan without
regard for employee contribution. The Company may also make
additional discretionary contributions to the plan. The defined
contribution plan expense was: $827,000 in 1996, $727,000 in
1995 and $710,000 in 1994.
NOTE 16.
COMMITMENTS AND CONTINGENT LIABILITIES
The Company is subject to laws and regulations relating to the protection of
the environment and the Company's efforts to comply with increasingly
stringent environmental regulations may have an adverse effect on the
Company's future earnings. In the opinion of management, compliance with
the present environmental protection laws will not have a material adverse
effect on the financial condition, competitive position, or capital
expenditures of the Company.
The Company is subject to legal proceedings and claims which
arise in the ordinary course of its business. In the opinion of
management, the amount of ultimate liability with respect to these
actions will not materially affect the financial position of the Company.
At December 31, 1996, the Company had outstanding letters of
credit of approximately $846,000.
NOTE 17.
RISKS AND UNCERTAINTIES
The Company's future operating results may be affected by a number of
factors. The Company is dependent upon a number of major suppliers. If a
supplier had operational problems or ceased making material
available to the Company, operations could be adversely affected.
The Company's primary supplier of piling products, Bethlehem Structural
Products Corporation, has announced that their hot rolled sheet piling
and structural products facility in Bethlehem, Pennsylvania, will be shut
down in the first quarter of 1997. The Company has agreed to purchase
Bethlehem's remaining piling production. A portion of this inventory will
enable the Company to maintain its rental piling business beyond 1997.
The Company is actively pursuing other options to preserve its position
in the piling distribution market. Gross profit of the Bethlehem
Structural Products Corporation's piling distribution business accounted
for less than 10% of the Company's 1996 gross profit.
The rail segment of the business depends on one source for
fulfilling certain trackwork contracts. The Company has
provided working capital for this supplier and a revolving note
receivable which total $5,000,000. If, for any reason, this
supplier is unable to perform, the Company could experience a
negative short term effect on earnings.
The Company's operations are in part dependent on governmental
funding of infrastructure projects. Significant changes in the level
of government funding of these projects could have a favorable or
unfavorable impact on the operating results of the Company.
Additionally, governmental actions concerning taxation, tariffs,
the environment or other matters could impact the operating
results of the Company. The Company's operations results may
also be affected by the weather.
NOTE 18.
FAIR VALUES OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist of accounts
receivable, accounts payable, short term and long term debt, and
an interest rate swap agreement.
The carrying amounts of the Company's financial instruments at
December 31, 1996, approximate fair value with the exception of
the interest rate swap agreement. At December 31, 1996, the
interest rate swap agreement had no book value but had an
intrinsic value of $(32,000) if the swap agreement had been
canceled according to its terms on December 31, 1996.
NOTE 19.
BUSINESS SEGMENTS
L. B. Foster Company is engaged in the manufacture, fabrication and
distribution of rail, construction and tubular products. The Company's
rail segment provides a full line of new and used rail, trackwork and
accessories to railroads, mines and industry. The Company also
designs and produces bonded rail joints, power rail, track
fasteners, catenary systems, coverboards and special accessories
for mass transit and other rail systems.
The Company's construction segment sells and rents steel sheet
piling and H-bearing pile for foundation and earth retention
requirements and pile driving equipment and accessories for
driving piling. In addition, the Company sells bridge decking,
expansion joints, sign structures and other products for highway
construction and repair.
The Company's tubular segment supplies pipe and pipe coatings
for pipelines and utilities. Additionally, the Company
manufactures spiralweld pipe for water transmission lines,
foundation piling, slurry lines and many other applications.
The Company also produces pipe-related products for special
markets, including water wells and irrigation.
The Company markets its products directly in all major industrial
areas of the United States through a national sales force.
A summary of revenues, operating profit, identifiable assets,
depreciation and amortization, and capital expenditures of each
business segment for the three years ended December 31, 1996,
follows (in thousands):
1996
- --------------------------------------------------------------------------------
Operating Identifiable Depreciation/ Capital
Net Sales Profit Assets Amortization Expenditures
- --------------------------------------------------------------------------------
Rail products $111,780 $ 5,865 $ 59,025 $ 626 $ 716
Construction
products 77,954 3,337 29,231 936 951
Tubular products 53,337 1,147 28,414 1,439 649
- ------------------------------------------------------------------------------
243,071 10,349 116,670 3,001 2,316
- ------------------------------------------------------------------------------
Corporate and other 6,728 168 20
- ------------------------------------------------------------------------------
Total $243,071 10,349 $123,398 $ 3,169 $ 2,336
- ------------------------------------------------------------------------------
Nonoperating income (expense):
General corporate expense
and unallocated other income
and expense - net (1,554)
Interest expense (2,365)
- ------------------------------------------------------------------------------
Income before income taxes $ 6,430
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Capital expenditures for 1996 do not include capitalized leases of $137,000
for the tubular segment.
1995
- ------------------------------------------------------------------------------
Operating Identifiable Depreciation/ Capital
Net Sales Profit Assets Amortization Expenditures
- ------------------------------------------------------------------------------
Rail products $111,582 $ 5,705 $ 48,622 $ 570 $ 347
Construction
products 88,735 2,592 32,652 1,018 1,346
Tubular products 64,668 720 33,658 1,160 2,375
- ------------------------------------------------------------------------------
264,985 9,017 114,932 2,748 4,068
- ------------------------------------------------------------------------------
Corporate and other 9,491 26 6
- ------------------------------------------------------------------------------
Total $264,985 9,017 $124,423 $ 2,774 $ 4,074
- ------------------------------------------------------------------------------
Nonoperating income (expense):
General corporate expense
and unallocated other income
and expense - net (1,471)
Interest expense (2,840)
- ------------------------------------------------------------------------------
Income before income taxes $4,706
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Capital expenditures for 1995 do not include the following capitalized
leases: rail - $1,377,000; construction - $53,000; tubular - $2,587,000;
corporate and other - $64,000.
1994
- ------------------------------------------------------------------------------
Operating Identifiable Depreciation/ Capital
Net Sales Profit/Loss Assets Amortization Expenditures
- ------------------------------------------------------------------------------
Rail products $ 88,862 $ 6,052 $ 46,426 $ 357 $ 319
Construction
products 85,488 4,245 34,923 1,079 1,709
Tubular products 59,912 (2,063) 33,579 1,347 763
- ------------------------------------------------------------------------------
234,262 8,234 114,928 2,783 2,791
- ------------------------------------------------------------------------------
Corporate and other 7,657 149 9
- ------------------------------------------------------------------------------
Total $234,262 8,234 $122,585 $ 2,932 $ 2,800
- ------------------------------------------------------------------------------
Nonoperating income (expense):
General corporate expense
and unallocated other income
and expense - net (1,776)
Interest expense (2,067)
- ------------------------------------------------------------------------------
Income before income taxes $ 4,391
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Capital expenditures for 1994 do not include capitalized leases of $415,000
for corporate and other.
Sales to any individual customer do not exceed 10% of consolidated net
sales. Sales between segments are immaterial. Identifiable assets
by segment are those assets that are used exclusively by such segments.
Corporate assets are principally cash, investments and deferred tax assets.
Depreciation and capital expenditure amounts for the construction
products segment include the regular replacement and depreciation of
rental pool assets.
NOTE 20.
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Quarterly financial information for the years ended December 31, 1996
and 1995 is presented below (in thousands, except per share amounts):
1996
- ------------------------------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
- ------------------------------------------------------------------------------
Net sales $ 48,303 $ 64,758 $ 65,525 $ 64,485 $243,071
- ------------------------------------------------------------------------------
Gross profit $ 6,199 $ 8,194 $ 8,611 $ 7,956 $ 30,960
- ------------------------------------------------------------------------------
Net income $ 220 $ 1,255 $ 1,418 $ 965 $ 3,858
- ------------------------------------------------------------------------------
Earnings per common share $ 0.02 $ 0.13 $ 0.14 $ 0.10 $ 0.39
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
The fourth quarter of 1996 includes the following: 1) a $388,000
reduction in the LIFO provision, 2) a $300,000 reduction in the
accrual for employee medical expense and 3) a $200,000 provision
for equipment obsolescence reserve.
1995
- ------------------------------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
- ------------------------------------------------------------------------------
Net sales $ 55,456 $ 72,564 $ 75,662 $ 61,303 $264,985
- ------------------------------------------------------------------------------
Gross profit $ 6,424 $ 7,748 $ 8,283 $ 6,760 $ 29,215
- ------------------------------------------------------------------------------
Income before cumulative
effect of change in
accounting principle $ 402 $ 1,724 $ 2,025 $ 892 $ 5,043
- ------------------------------------------------------------------------------
Net income $ 183 $ 1,724 $ 2,025 $ 892 $ 4,824
- ------------------------------------------------------------------------------
Earnings per common share
before cumulative effect
of change in accounting
principle $ 0.04 $ 0.17 $ 0.21 $ 0.09 $ 0.51
- ------------------------------------------------------------------------------
Earnings per common share $ 0.02 $ 0.17 $ 0.21 $ 0.09 $ 0.49
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Effective January 1, 1995, the Company adopted SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of." This change in accounting
reduced net income reported for the first quarter of 1995 by
$219,000 or $0.02 per share and increased income from continuing
operations in the third quarter of 1995 by $250,000 or $0.03 per
share. The second quarter of 1995 includes a change in estimate
with respect to interest income of $197,000. The third quarter
of 1995 includes a gain of $180,000 from the sale of equipment
held for disposal. The fourth quarter of 1995 includes a tax
benefit of $337,000 principally for changes in net operating
loss recognition and the valuation reserve.
REPORT OF INDEPENDENT AUDITORS AND RESPONSIBILITY FOR
FINANCIAL STATEMENTS
To the Board of Directors and Stockholders of L. B. Foster Company:
We have audited the accompanying consolidated balance sheets of
L. B. Foster Company and subsidiaries at December 31, 1996 and
1995, and the related consolidated statements of income, cash
flows and stockholders' equity for each of the three years in
the period ended December 31, 1996. Our audits also included the
financial statement schedule listed in the index at Item 14 (a).
These financial statements and schedule are the responsibility
of the Company's management. Our responsibility is to express
an opinion on these financial statements and schedule based on
our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of L. B. Foster Company and subsidiaries at
December 31, 1996 and 1995, and the consolidated results of
their operations and their cash flows for each of the three
years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles. Also, in our opinion,
the related financial statement schedule, when considered in
relation to the basic financial statements taken as a whole,
presents fairly in all material respects.
As discussed in Note 2 to the financial statements, in 1995, the
Company changed its methods of accounting for long-lived assets.
/s/Ernst & Young LLP
January 24, 1997
Pittsburgh, PA
L. B. FOSTER COMPANY AND SUBSIDIARIES
To the Stockholders of L. B. Foster Company:
The management of L. B. Foster Company is responsible for the
integrity of all information in the accompanying consolidated
financial statements and other sections of the annual report.
Management believes the financial statements have been prepared
in conformity with generally accepted accounting principles that
reflect, in all material respects, the substance of events and
transactions, and that the other information in the annual
report is consistent with those statements. In preparing the
financial statements, management makes informed judgments and
estimates of the expected effects of events and transactions
being accounted for currently.
The Company maintains a system of internal accounting control
designed to provide reasonable assurance that assets are
safeguarded and that transactions are executed in accordance
with management's authorization and are properly recorded to
permit the preparation of financial statements in accordance
with generally accepted accounting principles. Underlying the
concept of reasonable assurance is the evaluation of the costs
and benefits derived from control. This evaluation requires
estimates and judgments by the Company. The Company believes
that its internal accounting controls provide an appropriate
balance between costs and benefits.
The Board of Directors pursues its oversight role with respect
to the financial statements through the Finance and Audit
Committee which is composed of outside directors. The Finance
and Audit Committee meets periodically with management, internal
auditors and our independent auditors to discuss the adequacy of
the internal accounting control, the quality of financial
reporting and the nature, extent and results of the audit
effort. Both the internal auditors and the independent auditors
have free access to the Finance and Audit Committee.
/s/Lee B. Foster II
- -------------------
Lee B. Foster II
President and Chief Executive Officer
/s/Roger F. Nejes
- -----------------
Roger F. Nejes
Senior Vice President
Finance and Administration
and Chief Financial Officer
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning the directors is set forth under
"Election of Directors" in the Company's Proxy Statement for the
1997 annual meeting of stockholders ("1997 Proxy Statement").
Such information is incorporated herein by reference.
Information concerning the executive officers who are not
directors of the Company is set forth below. With respect to the
period prior to August 18, 1977, references to the Company are
to the Company's predecessor, Foster Industries, Inc.
Name Age Position
- ---------------------------------------------------------------------------
William S. Cook, Jr. 55 Vice President - Strategic Planning &
Acquisitions
Paul V. Dean 65 Vice President - Piling Products
Dean A. Frenz 53 Senior Vice President - Rail Products
Samuel K. Fisher 44 Vice President - Relay Rail
Stan L. Hasselbusch 49 Senior Vice President - Construction
and Tubular Products
David L. Minor 53 Vice President - Treasurer
Roger F. Nejes 54 Senior Vice President - Finance and
Administration and Chief Financial
Officer
Henry M. Ortwein, Jr. 54 Group Vice President - Rail
Manufacturing Products
John L. Rice 49 Vice President - Rail Distribution
Robert W. Sigle 67 Vice President - Tubular Products
Linda M. Terpenning 51 Vice President - Human Resources
David L. Voltz 44 Vice President, General Counsel and
Secretary
Donald F. Vukmanic 45 Vice President - Controller
Mr. Cook was elected Vice President - Strategic Planning &
Acquisitions in October 1993. Prior to joining the Company in
March 1993 as Director of Strategic Planning and Acquisitions,
he was President of Cook Corporate Development, a business and
financial advisory firm.
Mr. Dean was named a Vice President in September 1987. Prior to
September 1987, he served in various other capacities with the
Company since his employment in 1964.
Mr. Fisher was elected Vice President - Relay Rail in October
1996. Prior to October 1996, he served in various other
capacities with the Company since his employment in 1977.
Mr. Frenz has served as Senior Vice President - Rail Products
since December 1996, having previously served as Senior Vice
President - Rail and Tubular Products from September, 1995,
through November 1996, Senior Vice President - Product
Management from October 1993, Vice President - Rail Products
from June 1992 to September 1993 and as Vice President - Sales
from August 1987 to May 1992. Mr. Frenz joined the Company in
1966.
Mr. Hasselbusch was elected Senior Vice President - Construction
and Tubular Products in December, 1996, having previously served
as Senior Vice President - Construction Products since September
1995 and as Senior Vice President - Sales from October 1993. Mr.
Hasselbusch was the Company's Central/Western Regional Sales
Manager from September 1990 through September 1993. Mr.
Hasselbusch joined the Company in 1972.
Mr. Minor was elected Treasurer in February 1988 and was elected
to the additional office of Vice President in February 1997. Mr.
Minor joined the Company in 1983.
Mr. Nejes was elected Senior Vice President - Finance and
Administration and Chief Financial Officer in October 1993,
having served as Vice President - Finance and Chief Financial
Officer from February 1988.
Mr. Ortwein was appointed Group Vice President - Rail
Manufacturing Products in March 1997. Additionally, he served
as Vice President - Rail Manufacturing from October 1993,
President of Allegheny Rail Products, Inc. from May 1992 and as
its Chief Operating Officer from January 1992. Previously, he
was Midwest Steel Corporation's Vice President of Sales from
January 1991 to December 1991 and its National Sales Manager
from November 1989 to December 1990. Prior to joining Midwest
Steel Corporation, he was a Regional Sales Manager for Bethlehem
Steel Corporation from July 1986 to October 1989.
Mr. Rice was elected Vice President - Rail Distribution in
October 1993, after having served as Manager - New Rail Products
since 1985. Mr. Rice joined the Company in 1972.
Mr. Sigle was elected Vice President - Tubular Products in
December 1990, having served as Vice President - Tubular and
Coating Sales Development since September 1987, and in various
capacities with the Company since his employment in 1965.
Ms. Terpenning was elected Vice President - Human Resources in
October 1987. Ms. Terpenning joined the Company in 1985.
Mr. Voltz was elected Vice President, General Counsel and
Secretary in December 1987, having previously served as General
Counsel and Secretary since December 1986. Mr. Voltz joined the
Company in 1981.
Mr. Vukmanic was elected Controller in February 1988 and was
elected to the additional office of Vice President in February
1997. Mr. Vukmanic joined the Company in 1977.
Officers are elected annually at the organizational meeting of
the Board of Directors following the annual meeting of
stockholders.
ITEM 11. EXECUTIVE COMPENSATION
The information set forth under "Executive Compensation" in the
1997 Proxy Statement is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information set forth under "Ownership of Securities by
Management" and "Principal Stockholders" in the 1997 Proxy
Statement is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information set forth under "Certain Transactions" in the
1997 Proxy Statement is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this Report:
1. Financial Statements
The following consolidated financial statements, accompanying
notes and report of independent auditors in the Company's Annual
Report to stockholders for 1996 have been included in Item 8 of
this Report:
Consolidated Balance Sheets at December 31, 1996 and 1995.
Consolidated Statements of Income For the Three Years Ended
December 31, 1996, 1995 and 1994.
Consolidated Statements of Cash Flows For the Three Years Ended
December 31, 1996, 1995 and 1994.
Consolidated Statements of Stockholders' Equity for the Three
Years Ended December 31, 1996, 1995 and 1994.
Notes to Consolidated Financial Statements.
Report of Independent Auditors.
2. Financial Statement Schedule
Schedules for the Three Years Ended December 31, 1996, 1995 and 1994:
II - Valuation and Qualifying Accounts.
The remaining schedules are omitted because of the absence of
the conditions upon which they are required.
3. Exhibits
The exhibits marked with an asterisk are filed herewith. All
exhibits are incorporated herein by reference:
3.1 Restated Certificate of Incorporation as amended to date, filed
as Exhibit 3.1 to Form 10-Q for the quarter ended March 31,
1987.
3.2 Bylaws of the Registrant, as amended to date, filed as Exhibit
3.2 to Form 10-K for the year ended December 31, 1993.
4.1 Amended and Restated Loan Agreement by and among the Registrant
and Mellon Bank, N.A., NBD Bank, and Corestates Bank, N.A.
dated as of November 1, 1995 and filed as Exhibit 4.1 to Form
10-K for the year ended December 31, 1995.
10.15 Lease between the Registrant and Amax, Inc. for manufacturing
facility at Parkersburg, West Virginia, dated as of October 19,
1978, filed as Exhibit 10.15 to Registration Statement No.
2-72051.
10.16 Lease between Registrant and Greentree Building Associates for
Headquarters office, dated as of June 9, 1986, as amended to
date, filed as Exhibit 10.16 to Form 10-K for the year ended
December 31, 1988.
10.16.1 Amendment dated June 19, 1990 to lease between Registrant and
Greentree Building Associates, filed as Exhibit 10.16.1 to
Form 10-Q for the quarter ended June 30, 1990.
10.19 Lease Between the Registrant and American Cast Iron Pipe
Company for Pipe-Coating Facility in Birmingham, Alabama dated
December 11, 1991 and filed as Exhibit 10.19 to Form 10-K for
the year ended December 31, 1991.
* 10.33.2 Amended and Restated 1985 Long Term Incentive Plan, as amended
and restated February 26, 1997. **
10.45 Medical Reimbursement Plan, filed as Exhibit 10.45 to Form 10-K
for the year ended December 31, 1992. **
10.46 Leased Vehicle Plan, as amended to date. Filed as Exhibit
10.46 to Form 10-K for the year ended December 31, 1993. **
10.49 Lease agreement between Newport Steel Corporation and L. B.
Foster Company dated as of October 12, 1994 and filed as
Exhibit 10.49 to Form 10-Q for the quarter ended September
30, 1994.
* 10.50 L. B. Foster Company 1997 Incentive Compensation Plan. **
10.51 Supplemental Executive Retirement Plan. Filed as Exhibit 10.51
to form 10-K for the year ended December 31, 1994. **
10.52 L. B. Foster Company Officer Loan Program. Filed as Exhibit
10.52 to Form 10-Q quarter ended September 30, 1996.
* 10.53 Amendment to L. B. Foster Company Officer Loan Program.
19 Exhibits marked with an asterisk are filed herewith.
* 23.7 Consent of Independent Auditors.
* 27 Financial Data Schedule
** Identifies management contract or compensatory plan or
arrangement required to be filed as an Exhibit.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the fourth quarter
of 1996.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
L. B. FOSTER COMPANY
March 26, 1997
By /s/ Lee B. Foster II
-----------------------------
(Lee B. Foster II, President
and Chief Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the Registrant and in the capacities and on the
dates indicated.
Name Position Date
- ------------------------------------------------------------------------------
By: /s/ Lee B. Foster II President, Chief Executive March 26, 1997
- --------------------------- Officer and Director
(Lee B. Foster II)
By: /s/ Roger F. Nejes Senior Vice President - March 26, 1997
- --------------------------- Finance & Administration
(Roger F. Nejes) and Chief Financial Officer
By: /s/ John W. Puth Director March 26, 1997
- ---------------------------
(John W. Puth)
By: /s/ William H. Rackoff Director March 26, 1997
- ---------------------------
(William H. Rackoff)
By: /s/ Richard L. Shaw Director March 26, 1997
- ---------------------------
(Richard L. Shaw)
By: /s/Donald F. Vukmanic Vice President - Controller March 26, 1997
- ---------------------------
(Donald F. Vukmanic)
By: /s/ James W. Wilcock Chairman of the Board March 26, 1997
- ---------------------------
(James W. Wilcock)
L. B. FOSTER COMPANY AND SUBSIDIARIES
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
(In Thousands)
Additions
-----------------
Balance at Charged to Balance
Beginning Costs and at End
1996 of Year Expenses Other Deductions of Year
- ---- ---------- ---------- ------ ---------- --------
Deduct from assets to
which they apply:
Allowance for doubtful
accounts $ 1,800 $ 55 $ $ 52 (1) $ 1,803
Provision for the
decline in market
value of inventories $ 600 $ $ $ $ 600
Not deducted from assets:
Provision for special
termination benefits $ 63 $ 6 $ $ 47 (3) $ 22
Provision for environ-
mental compliance &
remediation $ 260 $ 91 $ $ 109 (3) $ 242
1995
- ----
Deduct from assets to
which they apply:
Allowance for doubtful
accounts $ 1,615 $ 232 $ $ 47 (1) $ 1,800
Provision for the
decline in market
value of inventories $ 600 $ $ $ $ 600
Not deducted from assets:
Provision for special
termination benefits $ 82 $ 10 $ $ 29 (3) $ 63
Provision for environ-
mental compliance &
remediation $ 279 $ 91 $ $ 110 (3) $ 260
1994
- ----
Deduct from assets to
which they apply:
Allowance for doubtful
accounts $ 1,598 $ 345 $ $ 328 (1) $1,615
Provision for the
decline in market
value of inventories $ 999 $ $ $ 399 (2) $ 600
Not deducted from assets:
Provision for special
termination benefits $ 113 $ 12 $ $ 43 (3) $ 82
Provision for environ-
mental compliance &
remediation $ 452 $ 172 $ $ 345 (3) $ 279
(1) Notes and accounts receivable written off as uncollectible.
(2) The deduction is a result of a reduction in the specific
tubular inventories to which the reserve applies.
(3) Payments made on amounts accrued and reversals of accruals.