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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, 1997
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 18, 1998 of the voting stock
held by nonaffiliates of the Company was $54,063,818.
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 18, 1998
Class A Common Stock, Par Value $.01 9,999,801 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.
PAGE 1
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, 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. 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. The Company produces pipe-related
products for special markets, including water wells and irrigation.
The Company classifies its activities into three business
segments: rail products, construction products and tubular
products. Financial information concerning the segments is set
forth in Note 20 to the financial statements included in the
Company's Annual Report to Stockholders for 1997. 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
1997 1996 1995
- ---------------------------------------------------------
Rail Products 51% 46% 42%
Construction Products 25% 32% 34%
Tubular Products 24% 22% 24%
- ---------------------------------------------------------
100% 100% 100%
PAGE 2
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 Mining Division sells new and used rail, rail
accessories, trackwork from the Pomeroy, Ohio plant and iron
clad ties from the Watson-Haas Lumber Division in St. Mary's,
West Virginia. The Pomeroy, Ohio plant also produces trackwork
for industrial and export markets.
CONSTRUCTION PRODUCTS
L. B. Foster Company's construction products consist of sheet
and bearing piling and fabricated highway products.
Sheet piling products are interlocking structural steel sections
that are generally used to provide lateral support at
construction sites. Bearing piling products are steel H-beam
sections which, in their principal use, are driven into the
ground for support of structures such as bridge piers and
high-rise buildings. Sheet piling is sold or leased and bearing
piling is sold principally to contractors and construction companies.
Other construction products consist of fabricated highway
products. Fabricated highway products consist principally of
bridge decking, aluminum bridge rail, overhead sign structures
and other bridge products, which are fabricated by the Company.
The major purchasers of these products are contractors for
state, municipal and other governmental projects.
Sales of the Company's construction products are partly
dependent upon the level of activity in the construction
industry. Accordingly, sales of these products have
traditionally been somewhat higher during the second and third
quarters than during the first and fourth quarters of each year.
TUBULAR PRODUCTS
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.
PAGE 3
The Company adds value to purchased tubular products by
preparing them to meet customer specifications using various
fabricating processes, including the finishing of oil country
tubular goods and the welding, coating, wrapping and lining of
other pipe products.
The Company provides fusion bond and other coatings for
corrosion protection on oil, gas and other pipelines.
The Company also supplies special pipe products such as water
well casing, column pipe, couplings, and related products for
agricultural, municipal and industrial water wells.
MARKETING AND COMPETITION
L. B. Foster Company generally markets its rail, construction
and tubular products directly in all major industrial areas of
the United States through a national sales force of 47
salespeople. The Company maintains 9 sales offices and 15 plants
or warehouses nationwide. During 1997, approximately 3% of the
Company's total sales were for export.
The major markets for the Company's products are highly
competitive. Product availability, quality, service and price
are principal factors of competition within each of these
markets. No other company provides the same product mix to the
various markets the Company serves. There are one or more
companies that compete with the Company in each product line.
Therefore, the Company faces significant competition from
different groups of companies.
RAW MATERIALS AND SUPPLIES
Most of the Company's inventory is purchased in the form of
finished or semifinished product. With the exception of relay
rail which is purchased from railroads or rail take-up
contractors, the Company purchases most of its inventory from
domestic and foreign steel producers. There are few domestic
suppliers of new rail products and the Company could be
adversely affected if a domestic supplier ceased making such
material available to the Company. Additionally, the Company
has not had a domestic sheet piling supplier since March 1997.
See Note 18 to the consolidated financial statements for
additional information on this matter.
The Company's purchases from foreign suppliers are subject to
the usual risks associated with changes in international
conditions and to United States laws which could impose import
restrictions on selected classes of products and antidumping
duties if products are sold in the United States below certain
prices.
BACKLOG
The dollar amount of firm, unfilled customer orders at December
31, 1997 and 1996 by segment follows:
(in thousands) December 31, 1997 December 31, 1996
- --------------------------------------------------------------
Rail Products $51,584 $36,100
Construction Products 23,284 28,080
Tubular Products 3,955 11,328
- --------------------------------------------------------------
$78,823 $75,508
- --------------------------------------------------------------
Approximately 95% of the December 31, 1997 backlog is expected
to be shipped in 1998.
PAGE 4
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 563 employees, of whom 310 are hourly production
workers and 253 are salaried employees. Approximately 108 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.
PAGE 5
ITEM 2. PROPERTIES
The location and general description of the principal properties
which are owned or leased by L. B. Foster Company, together with
the segment of the Company's business using the properties, are
set forth in the following table:
Business Lease
Location Function Acres Segment Expires
- -----------------------------------------------------------------------------
Birmingham, Alabama Pipe coating. 32 Tubular 2002
Doraville, Georgia Fabrication of 28 Tubular, Owned
components for Rail and
highways. Construction
Yard storage.
Newport, Kentucky Pipe coating. 20 Tubular 1999
Niles, Ohio Rail fabrication. 35 Rail Owned
Yard storage.
Pomeroy, Ohio Trackwork manufac- 5 Rail Owned
turing.
Houston, Texas Casing, upset tub- 127 Tubular, Owned
ing, threading, Rail and
heat treating and Construction
painting. Yard
storage.
Bedford, Bridge component 10 Construction Owned
Pennsylvania fabricating plant.
Pittsburgh, Corporate Head- - Corporate 2007
Pennsylvania quarters.
Parkersburg, Fosterweld pipe 93 Tubular 1998
West Virginia manufacturing.
Pipe coating and
wrapping. Yard
storage.
Georgetown, Bridge component 11 Construction Owned
Massachusetts fabricating plant.
Including the properties listed above, the Company has 9 sales
offices and 15 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.
PAGE 6
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 1,156 common shareholders of record on January
30, 1998. 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:
1997 1996
Quarter High Low High Low
- ----------------------------------------------------------------------
First $ 4 1/8 $ 3 11/16 $ 4 3/8 $ 3 3/8
- ----------------------------------------------------------------------
Second 5 3 1/4 4 1/8 3 1/2
- ----------------------------------------------------------------------
Third 5 7/8 4 1/2 4 1/4 3 5/8
- ----------------------------------------------------------------------
Fourth 6 4 7/8 4 1/8 3 5/8
- ----------------------------------------------------------------------
Dividends
- ---------
No cash dividends were paid on the Company's Common stock during
1997 and 1996. 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).
PAGE 7
ITEM 6. SELECTED FINANCIAL DATA
(All amounts are in thousands except per share data)
Year Ended December 31,
Income Statement Data 1997(1) 1996 1995(2) 1994 1993(3)
- ----------------------------------------------------------------------------
Net sales $220,343 $243,071 $264,985 $234,262 $212,291
- ----------------------------------------------------------------------------
Operating profit 7,164 8,195 6,769 6,184 3,103
- ----------------------------------------------------------------------------
Income before cumulative
effect of change in
accounting principle 3,287 3,858 5,043 5,440 899
- ----------------------------------------------------------------------------
Net income 3,287 3,858 4,824 5,440 1,569
- ----------------------------------------------------------------------------
Basic earnings per
common share before
cumulative effect of
change in accounting
principle 0.32 0.39 0.51 0.55 0.09
- ----------------------------------------------------------------------------
Basic earnings per
common share 0.32 0.39 0.49 0.55 0.16
- ----------------------------------------------------------------------------
Diluted earnings per
common share
before cumulative effect of
change in accounting
principle 0.32 0.38 0.50 0.55 0.09
- ----------------------------------------------------------------------------
Diluted earnings per
common share 0.32 0.38 0.48 0.55 0.16
- ----------------------------------------------------------------------------
December 31,
Balance Sheet Data 1997 1996 1995 1994 1993
- ----------------------------------------------------------------------------
Total assets $ 126,969 $ 123,004 $ 124,423 $ 122,585 $ 108,137
- ----------------------------------------------------------------------------
Working capital 60,077 62,675 57,859 52,519 49,755
- ----------------------------------------------------------------------------
Long-term debt 17,530 21,816 25,034 22,377 25,584
- ----------------------------------------------------------------------------
Stockholders' equity 70,508 67,181 63,173 58,319 52,879
- ----------------------------------------------------------------------------
(1) In 1997, the Company adopted Financial Accounting Standards
Board (FASB) Statement No. 128, "Earnings Per Share". As
required, all earnings per share amounts, where necessary, have been restated.
(2) Effective January 1, 1995, the Company adopted 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.
(3) 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.
PAGE 8
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
(Dollars in thousands)
Three Months Ended TwelveMonths Ended
December 31, December 31,
1997 1996 1997 1996 1995
- ----------------------------------------------------------------------------
Net Sales:
Rail Products $ 32,883 $ 34,184 $112,685 $111,780 $111,582
Construction Products 10,745 19,352 55,909 77,954 88,735
Tubular Products 11,570 10,949 51,749 53,337 64,668
- ----------------------------------------------------------------------------
Total Net Sales $ 55,198 $ 64,485 $220,343 $243,071 $264,985
- ----------------------------------------------------------------------------
Gross Profit:
Rail Products $ 4,367 $ 4,679 $ 14,678 $ 15,770 $ 14,507
Construction Products 2,211 2,420 9,538 10,360 9,780
Tubular Products 794 857 5,426 4,830 4,928
Other (288) (565)
- ----------------------------------------------------------------------------
Total Gross Profit 7,084 7,956 29,077 30,960 29,215
- ----------------------------------------------------------------------------
Expenses:
Selling and Admin-
istrative Expenses 5,431 5,795 21,913 22,765 22,446
Interest Expense 650 584 2,495 2,365 2,840
Other (Income) Expense (161) (38) (475) (600) (777)
- ----------------------------------------------------------------------------
Total Expenses 5,920 6,341 23,933 24,530 24,509
- ----------------------------------------------------------------------------
Income Before Income Taxes 1,164 1,615 5,144 6,430 4,706
Income Tax Expense (Benefit) 367 650 1,857 2,572 (337)
- ----------------------------------------------------------------------------
Income Before Cumulative Effect
of Change in Accounting
Principle 797 965 3,287 3,858 5,043
Cumulative Effect of Change
in Accounting Principle (219)
- ----------------------------------------------------------------------------
Net Income $ 797 $ 965 $ 3,287 $ 3,858 $ 4,824
- ----------------------------------------------------------------------------
Gross Profit %:
Rail Products 13.3% 13.7% 13.0% 14.1% 13.0%
Construction Products 20.6% 12.5% 17.1% 13.3% 11.0%
Tubular Products 6.9% 7.8% 10.5% 9.1% 7.6%
Total Gross Profit % 12.8% 12.3% 13.2% 12.7% 11.0%
- ----------------------------------------------------------------------------
Fourth Quarter of 1997 vs. Fourth Quarter of 1996
- -------------------------------------------------
The net income for the current quarter was $0.8 million or $0.08
per share. This compares to a 1996 fourth quarter net income of
$1.0 million or $0.10 per share. Net sales in 1997 were $55.2
million or 14% lower than the comparable quarter last year.
Rail products' net sales of $32.9 million decreased 4% from the
1996 fourth quarter, primarily due to lack of rail car
availability. Construction products' net sales in the 1997
fourth quarter decreased 44% from the year earlier quarter. This
decline was due primarily to the loss of the Company's sheet
piling supplier. Tubular products' net sales increased 6% over
last year's fourth quarter.
PAGE 9
Changes in net sales are primarily the result of changes in
volume rather than changes in pricing.
The gross margin percentage for the total Company increased to
13% in the 1997 fourth quarter compared to 12% from the same
period last year. The gross margin percentage for the rail
products segment decreased from 14% to 13% primarily due to the
increase in LIFO cost. Construction products' gross margin
percentage increased to 21% as a result of the limited supply of
sheet piling since the Company's primary supplier ceased
operations in March of 1997. The gross margin percentage for
tubular products decreased to 7% from 8% primarily as a result
of lower margins on Fosterweld products in the fourth quarter of
1997, due to a change in product mix.
Selling and administrative expenses decreased 6% from the same
period last year as a result of cost reductions. Interest
expense increased 11% as a result of higher borrowing costs
associated with the acquisitions made during 1997. The income
tax rate for the quarter reflects the year to date impact of the
effective rate as discussed in the year comparison section below.
The Year 1997 Compared to the Year 1996
- ---------------------------------------
The net income for 1997 was $3.3 million or $0.32 per share.
This compares to 1996 net income of $3.9 million or $0.39 per share.
Rail products' 1997 sales were unchanged from 1996. Construction
products' net sales decreased 28% in 1997 due primarily to the
loss of the Company's sheet piling supplier. Sales of tubular
products declined 3% as a result of lower coated pipe and
Fosterweld spiralweld pipe 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 remained at
13% in 1997. Rail products' gross margin percentage in 1997
declined slightly to 13% from 14% in 1996. This decline is the
result of increased competition in industrial and mining
trackwork and transit products. The gross margin percentage for
construction products in 1997 increased to 17% from 13% in 1996
as a result of a limited supply of sheet piling due to the
Company's primary supplier ceasing operations in March of 1997.
Tubular products' gross margin percentage increased to 10% in
1997 as a result of increased prices and improved productivity
for coating products.
In 1997, selling and administrative expense declined 4%
principally because of a decline in incentive bonus related
expenses. Interest expense increased 5% due to higher
borrowings related to the acquisitions of the assets of the
Monitor Group, Precise Fabricating Corporation, and Watson-Haas
Lumber Company. The effective income tax rate declined to 36%
from 40% due primarily to the effect of favorable adjustments
to prior year tax liabilities.
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 pipe 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
PAGE 10
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.
Liquidity and Capital Resources
- -------------------------------
The Company generates internal cash flow from the sale of
inventory and the collection of accounts receivable. During
1997, the average turnover rate for accounts receivable was
higher than in 1996 due to an increase in collection rate. The
average turnover rate for inventory was slightly lower in 1997
than in 1996 due to increased stockpiled sheet piling to
maintain the Company's rental program through 1998. Working
capital at December 31, 1997 was $60.1 million compared to $62.7
million in 1996.
During 1997, the Company had capital expenditures of $2.1
million. In addition, the Company purchased the long-term assets
of the Monitor Group for $2.5 million, Precise Fabricating
Corporation for $3.7 million, Watson-Haas Lumber Company for
$0.5 million, increased its investment in the Dakota, Minnesota
& Eastern Railroad Corporation by $1.5 million, and repurchased
$0.5 million of its common stock in accordance with the
Company's previously announced buy-back program. Management
anticipates completing this program in 1998. Capital
expenditures in 1998 are expected to be consistent with 1997 and
are anticipated to be funded by cash flows from operations.
Total revolving credit agreement borrowings at December 31,
1997, were $33.1 million or an increase of $9.1 million from the
end of the prior year primarily due to the aforementioned asset
acquisitions. Outstanding letters of credit at December 31,
1997, were $0.9 million. At December 31, 1997 the Company had
approximately $11.0 million in unused borrowing commitment.
Management believes its internal and external sources of funds
are adequate to meet anticipated needs.
Other Matters
- -------------
The Company owns 13% of the Dakota, Minnesota & Eastern Railroad
Corporation (DM&E), a privately-held, regional railroad which
operates over 1,100 miles of track in five states. The
Company's investment in the stock is recorded in the Company's
accounts at its historical cost of $1.7 million, comprised of,
$0.2 million of common stock and $1.5 million of the DM&E's
Series B Preferred Stock and warrants. Although this
investment's market value is not readily determinable,
management believes that this investment, disregarding the
DM&E's Powder River Basin project discussed below, is worth
significantly more than its historical cost.
The DM&E announced in June 1997 that it plans to build an
extension from the DM&E's existing line into the low sulfur coal
market of the Powder River Basin in Wyoming and to rebuild
approximately 600 miles of its existing track (the "Project").
The DM&E also has announced that the estimated cost of this
project is $1.4 billion.
In February 1998, the DM&E filed its application with the
Surface Transportation Board seeking authority to construct
approximately 280 miles of new railroad line. The DM&E has
indicated that this new railroad line could be available to
carry Powder River Basin coal within two years after regulation
approval is obtained.
PAGE 11
Morgan Stanley & Co., Inc. has been retained by the DM&E to
assist in identifying strategic partners or potential acquirers
of all or a portion of the equity of the DM&E. The DM&E has
stated that the DM&E could repay project debt and cover its
operating costs if it captures a 5% market share in the Powder
River Basin. If the Project proves to be viable, management
believes that the value of the Company's investment in the DM&E
should increase dramatically.
In May of 1997, the Company acquired the assets of the Monitor
Group for $2,500,000. The Monitor Group designs, develops and
assembles portable mass spectrometers. Mass spectrometers are
used to measure gas compositions and concentrations for various
applications, including monitoring air quality for the mining
industry and serving as a process monitor and diagnostic tool in
chemical manufacturing industries. The Company has placed
instruments in various facilities for field testing and no
revenues have been realized through December 31, 1997.
In November of 1997, the Company acquired the assets of Precise
Fabricating Corporation, a Georgetown, Massachusetts steel
fabricator for $3,694,000 plus the assumption of certain
liabilities. This acquisition provides the Company with a
regional manufacturing facility in the New England market.
Precise's AISC Certification for Complex Bridges and Buildings
enables the Company to offer a more complete package of
components for the highway, bridge and transit markets.
In December of 1997, the Company acquired the assets of
Watson-Haas Lumber Company of St. Mary's, West Virginia, a
supplier of iron clad and steel ties to the mining industry
since 1958, for $545,000 plus the assumption of certain
liabilities. This acquisition complements the Company's Midwest
Steel Division and enables the Company to offer a complete
package of all rail and track requirements to the mining
industry.
In February of 1998, the Company entered into a letter of intent
to sell its spiralweld pipe manufacturing facility located in
Parkersburg, West Virginia to Northwest Pipe Company of
Portland, Oregon. The Fosterweld division generates
approximately $12 million in revenues and employs approximately
50 people. Completion of the transaction is subject to due
diligence and the execution of a definitive purchase agreement.
The transaction is expected to close in the early spring of
1998. Management anticipates that the proceeds from this
transaction will exceed its current investment of $4 million of
fixed assets and $5 million of working capital.
The Company's integrated accounting and distribution software is
licensed from a national vendor. The current releases of this
vendor's software is year 2000 compliant. The Company expects
to install the year 2000 compliant version in the first half of
1998. Management believes that this schedule is achievable and
does not anticipate any adverse impact in becoming year 2000
compliant.
In June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income", and Statement of Financial Accounting
Standards No. 131,"Disclosures about Segments of an Enterprise
and Related Information." These statements will be adopted by
the Company in 1998 and are not expected to have a material
effect on the consolidated financial statements.
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 has not had a domestic sheet piling supplier since
March, 1997. The Company, however, will become Chaparral
Steel's exclusive domestic distributor of steel sheet piling
when Chaparral Steel's manufacturing facility, to be constructed
in Richmond, Virginia, begins operations in 1999.
The rail segment of the business depends on one source for
fulfilling certain trackwork contracts. The Company has
provided $6.4 million of working capital to this supplier in the
form of loans and progress payments. If, for any reason, this
supplier is unable to perform, the Company could experience a
negative short-term effect on earnings and liquidity.
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 is also
dependent on the availability of rail cars and welded rail trains
to ship its products. The Company has experienced delays in certain
PAGE 12
projects due to the lack of availability of rail
cars. The current merger activity in the railroads has
exacerbated this problem. The Company can provide no assurances
that a solution to the problem will occur in the near-term. The
Company's operating results may also be affected by adverse
weather conditions.
Although backlog is not necessarily indicative of future
operating results, total Company backlog at December 31, 1997,
was approximately $78.8 million or 4.0% higher than the backlog
at the end of the previous year. The following table provides
the backlog by business segment.
(Dollars in thousands) December 31,
- ----------------------------------------------------------------------
1997 1996 1995
- ----------------------------------------------------------------------
Backlog:
Rail Products $51,584 $36,100 $43,879
Construction Products 23,284 28,080 28,239
Tubular Products 3,955 11,328 8,857
- -----------------------------------------------------------------------
Total Backlog $78,823 $75,508 $80,975
- -----------------------------------------------------------------------
Forward-Looking Statements
- --------------------------
Statements relating to the potential value or viability of the
DM&E or the Project, or management's belief as to such matters,
are forward-looking statements and are subject to numerous
contingencies and risk factors. The Company has based its
assessments on information provided by the DM&E and has not
independently verified such information. In addition to matters
mentioned above, factors which can adversely affect the value of
the DM&E, its ability to complete the Project or the viability
of the Project include the following: labor disputes, any
inability to obtain necessary environmental and governmental
approvals for the Project in a timely fashion, an inability to
obtain financing for the Project, competitors' responses to the
Project, market demand for coal or electricity and changes in
environmental and other laws and regulations.
The Company wishes to caution readers that various factors could
cause the actual results of the Company to differ materially
from those indicated by forward-looking statements made from
time to time in news releases, reports, proxy statements,
registration statements and other written communications
(including the preceding sections of this Management's
Discussion and Analysis), as well as oral statements made from
time to time by representatives of the Company. 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.
/s/Roger F. Nejes
Roger F. Nejes
Senior Vice President
Finance and Administration
Chief Financial Officer
/s/Donald F. Vukmanic
Donald F. Vukmanic
Vice President
Controller
PAGE 13
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
ASSETS (In thousands) 1997 1996
- -----------------------------------------------------------------------
CURRENT ASSETS:
Cash and cash equivalents $ 1,156 $ 1,201
Accounts receivable 47,586 49,918
Inventories 43,365 42,925
Current deferred tax assets 123 362
Other current assets 557 398
Property held for resale 3,461
- -----------------------------------------------------------------------
Total Current Assets 96,248 94,804
- -----------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT -
at cost 20,775 20,467
- -----------------------------------------------------------------------
PROPERTY HELD FOR RESALE 615 4,022
- -----------------------------------------------------------------------
DEFERRED TAX ASSETS 458
- -----------------------------------------------------------------------
OTHER ASSETS :
Goodwill and intangibles 4,484 184
Investments 1,693 193
Other assets 3,154 2,876
- -----------------------------------------------------------------------
Total Other Assets 9,331 3,253
- -----------------------------------------------------------------------
TOTAL ASSETS $ 126,969 $123,004
- -----------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY (In thousands, except share data)
CURRENT LIABILITIES:
Short-term borrowings $ 18,111 $ 6,000
Current maturities of long-term debt 1,309 1,366
Accounts payable - trade 12,524 19,060
Accrued payroll and employee benefits 3,008 3,543
Other accrued liabilities 1,219 2,160
- -----------------------------------------------------------------------
Total Current Liabilities 36,171 32,129
- -----------------------------------------------------------------------
LONG-TERM DEBT 17,530 21,816
- -----------------------------------------------------------------------
DEFERRED TAX LIABILITIES 554
- -----------------------------------------------------------------------
OTHER LONG-TERM LIABILITIES 2,206 1,878
- -----------------------------------------------------------------------
COMMITMENTS AND CONTINGENT LIABILITIES (Note 17)
STOCKHOLDERS' EQUITY:
Class A Common stock, issued 10,228,739
shares in 1997 and in 1996 102 102
Paid-in capital 35,434 35,276
Retained earnings 35,625 32,338
Treasury stock - at cost, Class A Common
stock, 161,501 shares in 1997 and
246,001 shares in 1996 (653) (535)
- -----------------------------------------------------------------------
Total Stockholders' Equity 70,508 67,181
- -----------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 126,969 $ 123,004
- -----------------------------------------------------------------------
See Notes to Consolidated Financial Statements.
PAGE 14
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE YEARS ENDED
DECEMBER 31, 1997
(In thousands, except per share data) 1997 1996 1995
- ---------------------------------------------------------------------------
NET SALES $ 220,343 $ 243,071 $ 264,985
- ---------------------------------------------------------------------------
COSTS AND EXPENSES:
Cost of goods sold 191,266 212,111 235,770
Selling and administrative expenses 21,913 22,765 22,446
Interest expense 2,495 2,365 2,840
Other income (475) (600) (777)
- --------------------------------------------------------------------------
215,199 236,641 260,279
- --------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES AND
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE 5,144 6,430 4,706
INCOME TAX EXPENSE (BENEFIT) 1,857 2,572 (337)
- --------------------------------------------------------------------------
INCOME BEFORE CUMULATIVE EFFECT
OF CHANGE IN ACCOUNTING PRINCIPLE 3,287 3,858 5,043
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLE (219)
- -------------------------------------------------------------------------
NET INCOME $ 3,287 $ 3,858 $ 4,824
- -------------------------------------------------------------------------
BASIC EARNINGS PER COMMON SHARE:
Income before cumulative effect of change
in accounting principle $ 0.32 $ 0.39 $ 0.51
Cumulative effect of change in accounting
principle (0.02)
- -------------------------------------------------------------------------
BASIC EARNINGS PER COMMON SHARE $ 0.32 $ 0.39 $ 0.49
- -------------------------------------------------------------------------
DILUTED EARNINGS PER COMMON SHARE:
Income before cumulative effect of change
in accounting principle $ 0.32 $ 0.38 $ 0.50
Cumulative effect of change in accounting
principle (0.02)
- -------------------------------------------------------------------------
DILUTED EARNINGS PER COMMON SHARE $ 0.32 $ 0.38 $ 0.48
- -------------------------------------------------------------------------
See Notes to Consolidated Financial Statements.
PAGE 15
CONSOLIDATED STATEMENTS OF
CASH FLOWS FOR THE THREE YEARS
ENDED DECEMBER 31, 1997
(In thousands) 1997 1996 1995
- ----------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,287 $ 3,858 $ 4,824
Adjustments to reconcile net income
to net cash provided (used) by
operating activities:
Deferred income taxes 1,251 2,203 (565)
Depreciation and amortization 2,687 3,169 2,774
Gain on sale of property, plant
and equipment (112) (540) (532)
Impairment of long-lived assets 219
Change in operating assets and liabilities:
Accounts receivable 3,471 (1,641) (1,856)
Inventory 770 (2,621) 2,878
Property held for resale (54) 1,508
Other current assets (159) 433 (165)
Other noncurrent assets (340) (1,020) (171)
Accounts payable - trade (8,742) 995 (1,710)
Accrued payroll and employee benefits (537) 861 158
Other current liabilities (941) (945) (174)
Other liabilites 328 530 (245)
- ----------------------------------------------------------------------------
Net Cash Provided by Operating
Activities 909 6,790 5,435
- ----------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property, plant
and equipment 1,578 2,277 3,880
Capital expenditures on property,
plant and equipment (2,068) (2,336) (4,074)
Purchase of DM&E stock (1,500)
Acquisition of businesses (6,739)
- ----------------------------------------------------------------------------
Net Cash Used by Investing
Activities (8,729) (59) (194)
- ----------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds (repayments) of revolving credit
agreement borrowings 9,111 (5,750) (4,170)
Exercise of stock options 571 150 30
Treasury shares purchased (531)
Repayments of long-term debt (1,376) (1,255) (956)
- ----------------------------------------------------------------------------
Net Cash Provided (Used) by
Financing Activities 7,775 (6,855) (5,096)
- ----------------------------------------------------------------------------
Net (Decrease) Increase in Cash and
Cash Equivalents (45) (124) 145
Cash and Cash Equivalents at Beginning
of Year 1,201 1,325 1,180
- -----------------------------------------------------------------------------
Cash and Cash Equivalents at End of Year $ 1,156 $ 1,201 $ 1,325
- -----------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest Paid $ 2,493 $ 2,376 $ 2,906
- ----------------------------------------------------------------------------
Income Taxes Paid $ 627 $ 410 $ 188
- ----------------------------------------------------------------------------
During 1997, 1996, and 1995, the Company financed certain
capital expenditures and related maintenance agreements totaling
$33,500, $137,000 and $4,081,000, respectively, through the
issuance of capital leases.
See Notes to Consolidated Financial Statements.
PAGE 16
CONSOLIDATED STATEMENTS OF
STOCKHOLDERS' EQUITY
FOR THE THREE YEARS ENDED
DECEMBER 31, 1997
Class A
Common Paid-in Retained Treasury
(In thousands) Stock Capital Earnings Stock Total
- ----------------------------------------------------------------------------
Balance, January 1, 1995 $ 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 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 128 22 150
- -----------------------------------------------------------------------------
Balance, December 31, 1996 102 35,276 32,338 (535) 67,181
Net Income 3,287 3,287
Exercise of options to pur-
chase 190,000 shares of
Class A Common stock 158 413 571
Treasury stock purchases
of 105,500 shares (531) (531)
- -----------------------------------------------------------------------------
Balance, December 31, 1997 $ 102 $ 35,434 $ 35,625 $(653) $ 70,508
- -----------------------------------------------------------------------------
See Notes to Consolidated Financial Statements.
PAGE 17
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 9% in 1997 and 13% in 1996, 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 on a straight-line basis over the
estimated useful lives of 30 to 40 years for buildings and 5 to
10 years for machinery and equipment. Leasehold improvements
are amortized over 2 to 7 years which represent the lives of
the respective leases or the lives of the improvements,
whichever is shorter. Pile driving equipment held for rental is
classified as property, plant and equipment.
Goodwill - Goodwill represents the excess of the purchase price
over the estimated fair value of the net assets acquired.
Goodwill is being amortized on a straight-line basis over
periods of ten years. When factors indicate that goodwill
should be evaluated for impairment, the excess of the
unamortized goodwill over the fair value determined using a
multiple of cash flows from operations will be charged to operations.
Interest rate agreements - To offset exposures to changes in interest
rates on variable rate debt, the Company enters into
interest rate swap agreements. The effects of movements in
interest rates on these instruments are recognized as they occur.
Environmental remediation and compliance - Environmental
remediation costs are accrued 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.
Earnings per share - In 1997, the Financial Accounting Standards
Board issued Statement No. 128, "Earnings Per Share". Under the
new provisions for calculating earnings per share, the dilutive
effect of stock options has been excluded in the determination
of "basic" earnings per share and only included in the "diluted"
earnings per share. All earnings per share amounts for all
periods have been presented, and where appropriate, restated to
conform to the Statement No. 128 requirements.
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.
Reclassification - Certain items previously reported in specific financial
statement captions have been reclassified to conform with the 1997
PAGE 18
presentation. The reclassifications have no effect on income.
New accounting pronouncements - In June 1997, the Financial
Accounting Standards Board issued Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income",
and Statement of Financial Accounting Standards No.
131,"Disclosures about Segments of an Enterprise and Related
Information." These statements will be adopted by the Company
in 1998 and are not expected to have a material effect on the
consolidated financial statements.
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, 1997 and 1996 are summarized
as follows
(in thousands): 1997 1996
- -------------------------------------------------------------
Trade $46,490 $51,271
Allowance for doubtful accounts (1,468) (1,803)
Other 2,564 450
- -------------------------------------------------------------
$47,586 $49,918
- -------------------------------------------------------------
The Company's customers are in the rail, construction and
tubular segments of the economy. As of December 31, 1997 and
1996, trade receivables, net of allowance for doubtful accounts,
from customers in these markets were as follows (in thousands):
1997 1996
- -------------------------------------------------------------
Rail $ 26,258 $ 27,234
Construction 11,177 15,586
Tubular 7,587 6,648
- -------------------------------------------------------------
$ 45,022 $ 49,468
- -------------------------------------------------------------
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, 1997 and 1996 are summarized as
follows:
(in thousands) 1997 1996
- --------------------------------------------------------------
Finished goods $30,380 $31,347
Work-in-process 7,826 11,117
Raw materials 8,369 3,135
- --------------------------------------------------------------
Total inventories at current costs 46,575 45,599
- --------------------------------------------------------------
Less:
Current cost over LIFO
stated values (2,610) (2,074)
Reserve for decline in market
value of inventories (600) (600)
- --------------------------------------------------------------
$43,365 $42,925
- --------------------------------------------------------------
At December 31, 1997 and 1996, the LIFO carrying value of
inventories for book purposes exceeded the LIFO carrying value
for tax purposes by approximately $5,418,000 and $5,170,000,
respectively. During 1997, 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 1997 and 1996 was
to increase cost of goods sold by $21,000 and $217,000, respectively.
Note 5.
Property Held for Resale
- ------------------------
Property held for resale at December 31, 1997 and 1996 consists
of the following (in thousands):
Location 1997 1996
- -----------------------------------------------------------
Parkersburg, WV $3,200 $3,003
Marrero, LA 615 615
Houston, TX 261 261
Other 143
- ------------------------------------------------------------
Property held for resale 4,076 4,022
- ------------------------------------------------------------
Less current portion 3,461
- ------------------------------------------------------------
$ 615 $4,022
- ------------------------------------------------------------
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 1997 and 1996,
the location generated net sales and operat-
PAGE 19
ing profit of approximately $12,200,000 and $1,600,000 and $13,300,000 and
$2,000,000, respectively, which are included in the Company's
tubular segment. The Company has entered into a letter of
intent to sell this facility. Completion of the transaction is
subject to due diligence and the execution of a definitive
purchase agreement.
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 is currently negotiating the sale
of this land.
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.
All negotiations for property held for resale are in excess of
recorded values.
Note 6.
Property, Plant and Equipment
- -----------------------------
Property, plant and equipment at December 31, 1997 and 1996
consists of the following
(in thousands): 1997 1996
- --------------------------------------------------------------
Land $ 6,930 $ 6,700
Improvements to land and leaseholds 4,186 3,984
Buildings 3,760 2,642
Machinery and equipment, including
equipment under capitalized
leases of $7,295 in 1997
and $7,434 in 1996 25,905 23,774
Rental pile driving equipment 1,178 3,668
Construction in progress 175 197
- --------------------------------------------------------------
42,134 40,965
- --------------------------------------------------------------
Less accumulated depreciation and
amortization, including accumulated
amortization of capitalized leases
of $3,162 in 1997 and $2,259 in 1996 21,359 20,498
- --------------------------------------------------------------
$20,775 $20,467
- --------------------------------------------------------------
The remaining rental pile driving equipment is under a lease
with an option to purchase.
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, 1997:
(In thousands) Amount
- ----------------------------------------------------
Year ending December 31,
1998 $1,562
1999 1,194
2000 842
2001 462
2002 and thereafter 335
- --------------------------------------------------
Total minimum lease payments 4,395
Less amount representing interest 556
- --------------------------------------------------
Total present value of minimum
payments (Note 9) 3,839
Less current portion of such obligations 1,309
- --------------------------------------------------
Long-term obligations with interest rates
ranging from 7.25% to 8.95% $2,530
- --------------------------------------------------
Note 7.
Other Assets and Investments
- ----------------------------
At December 31, 1997 and 1996, other assets include notes
receivable and accrued interest totaling $2,258,000 and
$2,072,000, respectively, from investors in the Dakota,
Minnesota & Eastern Railroad Corporation (DM&E). Additionally,
the Company owns stock in the DM&E. The Company's investment in
the DM&E's stock is recorded at its historical cost of
$1,693,000, comprised of, $193,000 of common stock and
$1,500,000 of Series B Preferred Stock and warrants. Although
its market value is not readily determinable, management
believes the fair value of this investment exceeds its carrying amount.
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. At December 31, 1997,
$4,223,000 was available for future dividend payments.
PAGE 20
As of December 31, 1997, the Company was in compliance with all
the agreement's covenants. At December 31, 1997, the Company
had borrowed $33,111,000 under the agreement of which
$15,000,000 was classified as long- term (see Note 9). Under
the agreement, the Company had approximately $10,972,000 in
unused borrowing commitment at December 31, 1997.
Note 9.
Long-Term Debt and Related Matters
- ----------------------------------
Long-term debt at December 31, 1997 and 1996 consists of the
following:
(In thousands) 1997 1996
- ----------------------------------------------------------------
Revolving Credit Agreement with
weighted average interest rate of
7.06% at December 31, 1997 and
6.42% at December 31, 1996,
expiring July 1, 1999 $15,000 $18,000
- -----------------------------------------------------------------
Lease obligations payable in
installments through 2003 with a
weighted average interest rate of
7.93% at December 31, 1997 and
7.96% at December 31, 1996 3,839 5,182
- -----------------------------------------------------------------
18,839 23,182
Less current maturities 1,309 1,366
- -----------------------------------------------------------------
$17,530 $21,816
- -----------------------------------------------------------------
The $15,000,000 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 $15,000,000 during 1998.
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 and paid quarterly.
The maturities of long-term debt for each of the succeeding five
years subsequent to December 31, 1997 are as follows:
1998 - $1,309,000; 1999 - $16,037,000; 2000 - $753,000; 2001
- - $418,000; 2002 - $251,000; and 2003 and beyond $71,000.
Note 10.
Stockholders' Equity
- --------------------
At December 31, 1997 and 1996, 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.
The Company's Board of Directors declared a dividend of common
share purchase rights as a part of a Stockholder Rights Plan on
May 15, 1997. Under the terms of the Plan, stock purchase
rights were distributed at the rate of one right for each share
of Class A Common stock held as of the close of business on May
21, 1997. Stockholders did not actually receive certificates
for the rights at that time, but the rights became part of each
common share. The number of rights outstanding is subject to
adjustment under certain circumstances and all rights expire on
May 15, 2007.
Each right will entitle holders of the Company's Class A Common
stock to buy one share of Class A Common stock of the Company at
an exercise price of $30.00, subject to adjustment. The rights
will be exercisable and will trade separately from the common
shares only if a person or group acquires beneficial ownership
of 20% or more of the Company's common shares or commences a
tender or exchange offer that, if culminated, would result in
such person or group owning 20% or more of the common shares.
Only when one or more of these events occur will stockholders
receive certificates for the rights.
If any person actually acquires 20% or more of the Company's
common shares (other than through an offer for all shares that
provide fair value for such shares) or if a 20%-or-more
stockholder engages in a merger or other business combination in
which the Company survives and its common shares remain
outstanding, the other stockholders will be able to exercise the
rights and receive the Company's common shares (or in certain
other circumstances, cash, property or other securities of the
Company) having twice the value of the exercise price of the
rights. Additionally, if the Company is involved in certain
other mergers where its shares are exchanged or certain major
sales of its assets occur, stockholders will be able to purchase
PAGE 21
the other party's shares in an amount equal to twice the value
of the exercise price of the rights.
The Company generally will be entitled to redeem the rights at
$0.05 per right at any time until the 10th day following public
announcement that a person has acquired a 20% ownership position
in Company common shares. The Company may in its discretion
extend the period during which it can redeem the rights.
The Company's Board of Directors authorized the purchase of up
to 500,000 shares of its common stock at prevailing market
prices. The timing and extent of the purchases will depend on
market conditions. 500,000 shares represents approximately 5%
of the Company's outstanding common stock.
No cash dividends on Common stock were paid in 1997, 1996, and 1995.
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, 1997, 1996 and 1995, Common stock options
outstanding under the Plan had option prices ranging from $2.63
to $6.00, with a weighted average price of $3.71, $3.40, and
$3.35 per share, respectively.
The weighted average remaining contractual life of the stock
options outstanding for the three years ended December 31, 1997
are: 1997 - 5.2 years; 1996 - 4.2 years; and 1995 - 4.7 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 an option's expiration
date. Upon exercise of such rights, the participant surrenders
the exercisable portion of the option in exchange for payment
(in cash and/or Common stock valued at its fair market value) of
an amount not greater than the spread, if any, by which the
average of the high and low sales prices quoted in the
Over-the-Counter Exchange on the trading day immediately
preceding the date of exercise of the stock appreciation right
exceeds the option price. No stock appreciation rights were
issued or outstanding during 1997, 1996 or 1995.
Options exercised during 1997, 1996 and 1995 totaled 190,000,
50,000 and 10,000 shares, respectively, at an exercise price of
$3.00 per share.
Certain information for the three years ended December 31, 1997
relative to employee stock options is summarized as follows:
1997 1996 1995
- ---------------------------------------------------------------------
Number of shares under
Incentive Plan option:
Outstanding at begin-
ning of year 944,000 965,000 975,000
Granted 141,500 40,000 25,000
Canceled (37,000) (11,000) (25,000)
Exercised (190,000) (50,000) (10,000)
- ---------------------------------------------------------------------
Outstanding at end of year 858,500 944,000 965,000
- ---------------------------------------------------------------------
Exercisable at end of year 659,250 806,250 748,000
- ---------------------------------------------------------------------
Number of shares available
for future grant:
Beginning of year 287,250 316,250 316,250
- ---------------------------------------------------------------------
End of year 182,750 287,250 316,250
- ---------------------------------------------------------------------
The weighted average fair value of options granted at December
31, 1997, 1996, and 1995 were $2.94, $2.65 and $2.56, respectively.
The Company has adopted the disclose-only provisions of SFAS No.
123, "Accounting for Stock-Based Compensation," but applies
Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" and related interpretations in
accounting for its stock option plans. Accordingly, no
compensation expense has been recognized. Had compensation
expense for the Company's stock option plans been determined
using the method required by SFAS No. 123, the effect to the
Company's net income and earnings per share would have been
reduced to the pro forma amounts indicated below:
(In thousands except
per share amounts) 1997 1996 1995
- --------------------------------------------------------------------
Net Income $3,248 $3,787 $4,818
- ---------------------------------------------------------------------
Basic earnings per share $ 0.32 $ 0.38 $ 0.49
- ---------------------------------------------------------------------
Diluted earnings per share $ 0.32 $ 0.38 $ 0.48
- ---------------------------------------------------------------------
The fair value of stock options used to compute pro forma net
income and earnings per share disclosures is the estimated
present value at grant date using the Black-Sholes
option-pricing model with the following weighted-average
PAGE 22
assumptions used for grants in 1997, 1996 and 1995 respectively:
risk-free interest rates of 6.29% , 6.83% and 6.51%; dividend
yield of 0.0% for all three years; volatility factors of the
expected market price of the Company's common stock of .38, .41
and .52; and a weighted-average expected life of the option of
10 years.
Note 12.
Earnings Per Common Share
- -------------------------
The earnings per share amounts prior to 1997 have been restated
to comply with Statement of Financial Accounting Standard No.
128, "Earnings Per Share" (SFAS No. 128). SFAS No. 128 replaced
the calculation of primary and fully diluted earnings per share
with basic and diluted earnings per share.
Unlike primary earnings per share, basic earnings per share
excludes any dilutive effects of options, warrants, and certain
convertible securities. Basic earnings per share are computed
by dividing net income by the weighted average number of Class A
Common shares outstanding during the year. The weighted average
number of Class A Common shares outstanding during the years
ended December 31, 1997, 1996 and 1995 were approximately
10,122,000, 9,953,000 and 9,927,000, respectively.
Diluted earnings per share uses the average market prices during
the period in calculating the dilutive effect of options under
the treasury stock method. Using this method, the weighted
average number of Class A Common shares outstanding during 1997,
1996 and 1995 were approximately 10,287,000, 10,086,000 and
10,062,000, respectively, with the dilutive effect of option
shares being approximately 165,000, 133,000 and 135,000 for the
years ended December 31, 1997, 1996 and 1995, respectively.
Note 13.
Income Taxes
- ------------
At December 31, 1997, the tax benefit of net operating loss
carryforwards available for state income tax purposes was
approximately $821,000. The Company also has alternative
minimum federal tax credit carryforwards at December 31, 1997,
of approximately $1,292,000. For financial reporting purposes,
a valuation allowance of $150,000 has been recognized to offset
the deferred tax assets related to the state income tax
carryforwards. Deferred income taxes reflect the net tax
effects of temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the
amounts used for tax purposes. Significant components of the
Company's deferred tax liabilities and assets as of December 31,
1997 and 1996, are as follows:
(In thousands) 1997 1996
- ----------------------------------------------------------------
Deferred tax liabilities:
Depreciation $ 1,817 $ 1,535
Inventories 1,473 1,435
- ----------------------------------------------------------------
Total deferred tax liabilities 3,290 2,970
- ----------------------------------------------------------------
Deferred tax assets:
Net operating loss
carryforwards 821 1,730
Tax credit carryforwards 1,292 1,084
Other - net 896 1,126
- ----------------------------------------------------------------
Total deferred tax assets 3,009 3,940
Valuation allowance for
deferred tax assets 150 150
- ----------------------------------------------------------------
Deferred tax assets 2,859 3,790
- ----------------------------------------------------------------
Net deferred tax (liability) assets $ (431) $ 820
- ----------------------------------------------------------------
The valuation allowance for deferred tax assets was unchanged
during 1997 and was reduced by $50,000 and $2,499,000 during
1996 and 1995, respectively.
Significant components of the provision for income taxes are as
follows:
(In thousands) 1997 1996 1995
- ----------------------------------------------------------------
Current:
Federal $ 466 $ 163 $ 102
State 140 206 126
- ----------------------------------------------------------------
Total current 606 369 228
- ----------------------------------------------------------------
Deferred:
Federal 1,082 2,258 (339)
State 169 (55) (360)
- ----------------------------------------------------------------
Total deferred 1,251 2,203 (699)
- ----------------------------------------------------------------
Total income tax
expense (benefit) $1,857 $2,572 $ (471)
- ----------------------------------------------------------------
Income tax expense (benefit) is included in the consolidated
statements of income as follows:
(In thousands) 1997 1996 1995
- --------------------------------------------------------------
Continuing operations $1,857 $2,572 $ (337)
Cumulative effect of
accounting change (134)
- --------------------------------------------------------------
$1,857 $2,572 $ (471)
- --------------------------------------------------------------
The reconciliation of income tax computed at statutory rates to
income tax expense (benefit) is as follows:
1997 1996 1995
- ---------------------------------------------------------------
Statutory rate 34.0% 34.0% 34.0%
State income tax 4.0 1.6 (3.0)
Nondeductible expenses 1.7 2.2 3.0
Net operating loss (22.9)
Change in valuation reserve (30.2)
Prior period tax (3.6) 2.0 13.2
Other 0.2 (1.3)
- ---------------------------------------------------------------
36.1% 40.0% (7.2)%
- ---------------------------------------------------------------
PAGE 23
Note 14.
Rental and Lease Information
- ----------------------------
The Company leases certain plant facilities, office facilities
and equipment. Rental expense for the years ended December 31,
1997, 1996 and 1995 amounted to $1,801,000, $1,814,000, and
$1,867,000, respectively.
At December 31, 1997, the Company is committed to total minimal
rental payments under all noncancelable operating leases of
$5,734,000. Generally, these leases include escalation clauses.
The minimum future rental commitments are payable as follows:
1998 - $831,000; 1999 - $753,000; 2000 - $656,000; 2001
$570,000; 2002 - $544,000 and $2,380,000 after 2002.
Note 15.
Acquisitions
- ------------
In May 1997, the Company acquired the assets of the Monitor
Group for $2,500,000, of which $2,250,000 was allocated to
goodwill. The Monitor Group designs, develops and assembles
portable mass spectrometers. Mass spectrometers are used to
measure gas compositions and concentrations for various
applications, including monitoring air quality for the mining
industry and serving as a process monitor and diagnostic tool in
chemical manufacturing industries.
In November 1997, the Company acquired the assets of Precise
Fabricating Corporation (Precise), a Georgetown, Massachusetts
steel fabricator for $3,694,000 plus the assumption of certain
liabilities, of which $2,142,000 was allocated to goodwill.
This acquisition provides the Company with a regional
manufacturing facility in the New England market. Precise's
AISC Certification for Complex Bridges and Buildings enables the
Company to offer a more complete package of components for the
highway, bridge and transit markets.
In December of 1997, the Company acquired the assets of
Watson-Haas Lumber Company (Watson-Haas) of St. Mary's, West
Virginia, a supplier of iron clad and steel ties to the mining
industry since 1958 for $545,000 plus the assumption of certain
liabilities, of which $85,000 was allocated to goodwill. This
acquisition compliments the Company's Midwest Steel Division and
enables the Company to offer a complete package of all rail and
track requirements to the mining industry.
The acquisitions have been reported using the purchase method of
accounting and have been included in operations since the date
of acquisition. For each acquisition, the purchase price was
allocated to the assets and liability based on their estimated
fair values as of the acquisition date. Cost in excess of net
assets acquired is being amortized on a straight-line basis over
10 years. Pro forma results of the Monitor Group and
Watson-Haas acquisitions, assuming they have been made at the
beginning of each year, would not be materially different from
reported results.
Had the Precise acquisition been made at the beginning of 1996,
the Company's pro forma unaudited results would have been:
12 Months
(In thousands except ended
per share amounts) 12/31/97 12/31/96
- -----------------------------------------------------------------
Net sales $224,703 $247,222
Net income 3,803 3,841
Basic earnings per share $0.38 $0.39
- -----------------------------------------------------------------
The pro forma results do not represent the Company's actual
operating results had the acquisition been made at the beginning
of 1997 and 1996 or the results that may be expected in the future.
The pro forma impact of the Monitor Group and Watson-Haas were
not material to net sales, net income or basic earnings per share.
Note 16.
Retirement Plans
- ----------------
Substantially all of the Company's hourly paid employees are
covered by one of the Company's noncontributory, defined benefit
plans and a defined contribution plan. Substantially all of
the Company's salaried employees are covered by a defined
contribution plan established by the Company.
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, 1997 is summarized as follows:
(In thousands) 1997 1996 1995
- ----------------------------------------------------
Service cost $ 82 $ 81 $ 71
Interest cost 138 136 121
Actual return on
plan assets (293) (176) (131)
Other 143 39 (3)
- -----------------------------------------------------
Net periodic
pension cost $ 70 $ 80 $ 58
- -----------------------------------------------------
PAGE 24
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,
1997 and 1996 with the accrued pension cost included in other
current liabilities on the Company's balance sheet:
(In thousands) 1997 1996
- -----------------------------------------------------------------------------
Overfunded Underfunded
Plan Plan
- -----------------------------------------------------------------------------
Projected benefit obligation:
Vested benefits $1,603 $ 508 $1,979
Nonvested benefits 29 23 55
- -----------------------------------------------------------------------------
Total projected benefit obligation 1,632 531 2,034
- -----------------------------------------------------------------------------
Fair value of plan assets 1,727 411 1,867
- -----------------------------------------------------------------------------
Excess (deficit) of plan assets over
projected benefit obligation 95 (120) (167)
Unrecognized net transition asset (98) (4) (112)
Unrecognized prior service cost 6 83 81
Unrecognized net (gain) loss (192) 23 6
Adjustment for minimum liability (102) (133)
- -----------------------------------------------------------------------------
Accrued pension cost included in accrued
payroll and employee benefits on the
balance sheet. $ (189) $(120) $ (325)
- -----------------------------------------------------------------------------
An assumed discount rate of 7% and an expected rate of return on
plan assets of 8% were used to measure the projected benefit
obligation and develop net periodic pension costs for the three
years ended December 31, 1997, 1996 and 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: $756,000 in 1997, $827,000 in
1996 and $727,000 in 1995.
PAGE 25
Note 17.
Commitments and Contingent Liabilities
- --------------------------------------
The Company is subject to laws and regulations relating to the
protection of the environment and the Company's efforts to
comply with increasingly stringent environmental regulations may
have an adverse effect on the Company's future earnings. In the
opinion of management, compliance with the present environmental
protection laws will not have a material adverse effect on the
financial condition, competitive position, or capital
expenditures of the Company.
The Company is subject to legal proceedings and claims which
arise in the ordinary course of its business. In the opinion of
management, the amount of ultimate liability with respect to
these actions will not materially affect the financial position
of the Company.
At December 31, 1997, the Company had outstanding letters of
credit of approximately $917,000.
Note 18.
Risks and Uncertainties
- -----------------------
The Company's future operating results may be affected by a
number of factors. The Company is dependent upon a number of
major suppliers. If a supplier had operational problems or
ceased making material available to the Company, operations
could be adversely affected.
The Company has not had a domestic sheet piling supplier since
March, 1997. The Company, however, will become Chaparral
Steel's exclusive domestic distributor of steel sheet piling
when Chaparral Steel's manufacturing facility in Richmond,
Virginia begins operations. Chaparral has announced that this
facility should become operational in 1999.
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 $6,400,000. If, for any reason, this
supplier is unable to perform, the Company could experience a
negative short term effect on earnings and liquidity.
The Company is also dependent on the availability of rail cars
and welded rail trains to ship its products. The Company has
experienced delays in certain projects due to the lack of
availability of rail cars. The current merger activity in the
railroads has exacerbated this problem. The Company can provide
no assurance that a solution to the problem will occur in the
near term.
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 adverse
weather conditions.
Note 19.
Fair Values of Financial Instruments
- ------------------------------------
The Company's financial instruments consist of accounts
receivable, accounts payable, short term and long term debt, and
an interest rate swap agreement.
The carrying amounts of the Company's financial instruments at
December 31, 1997, approximate fair value.
PAGE 26
Note 20.
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. 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 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 primarily 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, 1997,
follows (in thousands):
1997
- ----------------------------------------------------------------------------
Net Operating Identifiable Depreciation/ Capital
Sales Profit (Loss) Assets Amortization Expenditures
- -----------------------------------------------------------------------------
Rail products $112,685 $ 5,031 $ 57,212 $ 642 $ 538
Construction
products 55,909 3,076 29,746 523 663
Tubular products 51,749 2,163 30,004 1,358 841
Other (748) 2,371 150 5
- -----------------------------------------------------------------------------
220,343 9,522 119,333 2,673 2,047
- -----------------------------------------------------------------------------
Corporate and
other 7,636 14 21
- -----------------------------------------------------------------------------
Total $220,343 9,522 $126,969 $ 2,687 $ 2,068
Nonoperating
income (expense):
General corpor-
ate expense
and unallocated
other income
and expense
-net (1,883)
Interest expense (2,495)
- -----------------------------------------------------------------------------
Income before
income taxes 5,144
- -----------------------------------------------------------------------------
Capital expenditures for 1997 do not include capitalized leases of $34,000.
PAGE 27
1996
- -----------------------------------------------------------------------------
Net Operating Identifiable Depreciation/ Capital
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 6,334 168 20
- -----------------------------------------------------------------------------
Total $243,071 10,349 $123,004 $ 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
- -----------------------------------------------------------------------------
Net Operating Identifiable Depreciation/ Capital
Sales Profit/Loss 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.
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 and investments.
PAGE 28
Note 21.
Quarterly Financial Information (Unaudited)
- -------------------------------------------
Quarterly financial information for the years ended December 31,
1997 and 1996 is presented below (in thousands, except per share amounts):
1997
- ----------------------------------------------------------------------------
First Second Third Fourth
Quarter(1) Quarter(1) Quarter(1) Quarter Total
- -----------------------------------------------------------------------------
Net sales $ 54,494 $ 53,716 $ 56,935 $ 55,198 $220,343
- -----------------------------------------------------------------------------
Gross profit $ 6,367 $ 7,527 $ 8,099 $ 7,084 $ 29,077
- -----------------------------------------------------------------------------
Net income $ 407 $ 871 $ 1,212 $ 797 $ 3,287
- -----------------------------------------------------------------------------
Basic earnings per
common share $ 0.04 $ 0.08 $ 0.12 $ 0.08 $ 0.32
- -----------------------------------------------------------------------------
Diluted earnings
per common share $ 0.04 $ 0.08 $ 0.12 $ 0.08 $ 0.32
- -----------------------------------------------------------------------------
(1) Gross profit has been adjusted by $67,000, $201,000 and
$323,000 in the first, second and third quarters, respectively,
to reflect a reclassification of certain expenses from selling
and administrative to cost of sales.
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
- -----------------------------------------------------------------------------
Basic earnings per
common share $ 0.02 $ 0.13 $ 0.14 $ 0.10 $ 0.39
- -----------------------------------------------------------------------------
Diluted earnings per
common share $ 0.02 $ 0.12 $ 0.14 $ 0.10 $ 0.38
- -----------------------------------------------------------------------------
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.
PAGE 29
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, 1997 and
1996, and the related consolidated statements of income, cash
flows and stockholders' equity for each of the three years in
the period ended December 31, 1997. 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, 1997 and 1996, and the consolidated results of
their operations and their cash flows for each of the three
years in the period ended December 31, 1997, 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 the information set
forth therein.
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
Pittsburgh, Pennsylvania
January 21, 1998
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
PAGE 30
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
1998 annual meeting of stockholders ("1998 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
- ----------------------------------------------------------------------------
Anthony G. Cipicchio 51 Vice President Operations
William S. Cook, Jr. 56 Vice President Strategic Planning &
Acquisitions
Paul V. Dean 66 Vice President - Piling Products
Samuel K. Fisher 45 Vice President - Rail Procurement
Dean A. Frenz 54 Senior Vice President - Rail Products
Steven L. Hart 51 Vice President
Stan L. Hasselbusch 50 Senior Vice President - Construction
and Tubular Products
David L. Minor 54 Vice President - Treasurer
Roger F. Nejes 55 Senior Vice President - Finance and
Administration and Chief Financial
Officer
Henry M. Ortwein, Jr. 55 Group Vice President - Rail
Manufactured Products
Robert W. Sigle 68 Vice President - Tubular Products
Linda M. Terpenning 52 Vice President - Human Resources
David L. Voltz 45 Vice President, General Counsel and
Secretary
Donald F. Vukmanic 46 Vice President - Controller
PAGE 31
Mr. Cipicchio joined the Company in May 1997 and was elected
Vice President - Operations. Prior to joining the Company, Mr.
Cipicchio was Vice President of Operations for Omsco Industries,
a supplier of drill string components to the oil and gas industry.
Mr. Cook was elected Vice President - Strategic Planning &
Acquisitions in October 1993. Prior to joining the Company in
March 1993 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 - Rail Procurement in
October 1997, having previously served as Vice President - Relay
Rail since October 1996. Prior to October 1996, he served in
various other capacities with the Company since his employment in 1977.
Mr. Frenz 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. Hart was elected Vice President in December 1997, having
previously served in various other capacities with the Company
since his employment in 1977.
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
Manufactured 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. 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
PAGE 32
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
1998 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 1998 Proxy
Statement is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information set forth under "Certain Transactions" in the
1998 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 1997 have been included in Item 8 of this Report:
Consolidated Balance Sheets at December 31, 1997 and 1996.
Consolidated Statements of Income For the Three Years Ended
December 31, 1997, 1996 and 1995.
Consolidated Statements of Cash Flows For the Three Years Ended
December 31, 1997, 1996 and 1995.
Consolidated Statements of Stockholders' Equity for the Three
Years Ended December 31, 1997, 1996 and 1995.
Notes to Consolidated Financial Statements.
Report of Independent Auditors.
2. Financial Statement Schedule
----------------------------
Schedules for the Three Years Ended December 31, 1997, 1996 and 1995:
II - Valuation and Qualifying Accounts.
The remaining schedules are omitted because of the absence of
the conditions upon which they are required.
PAGE 33
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.
4A Rights Agreement, dated as of May 15, 1997, between
L.B. Foster Company and American Stock Transfer & Trust Company,
including the form of Rights Certificate and the Summary of
Rights attached thereto, filed as Exhibit 4A to Form 8-A dated
May 23, 1997.
4.1 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.
* 4.1.1 First Amendment to Amended and Restated Loan
Agreement dated January 1, 1996.
* 4.1.2 Second Amendment to Amended and Restated Loan
Agreement dated December 31, 1996.
* 4.1.3 Third Amendment to Amended and Restated Loan
Agreement dated April 9, 1997.
* 4.1.4 Fourth Amendment to Amended and Restated Loan
Agreement dated November 12, 1997.
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.
10.16.2 Amendment dated May 29, 1997 to lease between
Registrant and Greentree Building Associates. Filed as Exhibit
10.16.2 to Form 10-Q for the quarter ended June 30, 1997.
10.19 Lease Between the Registrant and American Cast Iron
Pipe Company for Pipe-Coating Facility in Birmingham, Alabama
dated December 11, 1991 and filed as Exhibit 10.19 to Form 10-K
for the year ended December 31, 1991.
10.19.1 Amendment to Lease between the Registrant and
American Cast Iron Pipe Company for Pipe Coating Facility in
Birmingham, Alabama dated April 15, 1997.
10.33.2 Amended and Restated 1985 Long Term Incentive Plan,
as amended and restated February 26, 1997. **
PAGE 34
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. **
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.
* 10.49.1 Amendment to lease between Registrant and Newport
Steel Corporation dated March 13, 1998.
* 10.50 L. B. Foster Company 1998 Incentive Compensation Plan. **
10.51 Supplemental Executive Retirement Plan. Filed as
Exhibit 10.51 to Form 10-K for the year ended December 31, 1994.
**
19 Exhibits marked with an asterisk are filed herewith.
* 23.7 Consent of Independent Auditors.
* 27 Financial Date Schedule for the year ended December 31, 1997.
* 27.1 Restated Financial Data Schedules for the years ended December
31, 1996, December 31, 1995 and the quarter ended June 31, 1996.
** Identifies management contract or compensatory plan
or arrangement required to be filed as an Exhibit.
(b) Reports on Form 8-K
On June 2, 1997, the Registrant filed a Current Report on
Form 8-K announcing that L.B. Foster Company declared a dividend
distribution of stock purchase rights.
On November 25, 1997, the Registrant filed a Current
Report on Form 8-K announcing that L.B. Foster Company acquired
the assets of Precise Manufacturing Corporation.
On January 21, 1998, the Registrant filed an Amended Current Report
on Form 8-K/A, amending the Current Report filed on Form 8-K on
November 25, 1997. The Amended Current Report provides financial
statements of Precise Fabricating Corporation and pro forma
financial information.
PAGE 35
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 27, 1998
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 27, 1998
- ------------------------ Officer and Director
(Lee B. Foster II)
By: /s/ Roger F. Nejes Senior Vice President - March 27, 1998
- ------------------------ Finance & Administration
(Roger F. Nejes) and Chief Financial Officer
By: Director
- ------------------------ --------------
(John W. Puth)
By: Director
- ------------------------ --------------
(William H. Rackoff)
By: /s/ Richard L. Shaw Director March 27, 1998
- -----------------------
(Richard L. Shaw)
By: /s/Donald F. Vukmanic Vice President Controller March 27, 1998
- -------------------------
(Donald F. Vukmanic)
By: /s/ James W. Wilcock Chairman of the Board March 27, 1998
- -------------------------
(James W. Wilcock)
PAGE 36
L. B. FOSTER COMPANY AND SUBSIDIARIES
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
(In Thousands)
Additions
Balance at Charged to Balance
Beginning Costs and at End
of Year Expenses Other Deductions of Year
- ----------------------------------------------------------------------------
1997
- ----
Deducted from assets to
which they apply:
Allowance for doubtful
accounts $ 1,803 $ 199 $ - $ 534(1) $1,468
Provision for decline
in market value of
inventories $ 600 $ - $ - $ - $ 600
Not deducted from assets:
Provision for special
termination benefits $ 22 $ 1 $ - $ 11(2) $ 12
Provision for environ-
mental compliance &
remediation $ 242 $ 61 $ - $ 19(2) $ 284
1996
- ----
Deducted from assets to
which they apply:
Allowance for doubtful
accounts $ 1,800 $ 55 $ - $ 52(1) $1,803
Provision for decline
in market value of
inventories $ 600 $ - $ - $ - $ 600
Not deducted from assets:
Provision for special
termination benefits $ 63 $ 6 $ - $ 47(2) $ 22
Provision for environ
mental compliance &
remediation $ 260 $ 91 $ - $ 109(2) $ 242
1995
- ----
Deducted from assets to
which they apply:
Allowance for doubtful
accounts $ 1,615 $ 232 $ - $ 47(1) $1,800
Provision for decline
in market value of
inventories $ 600 $ - $ - $ - $ 600
Not deducted from assets:
Provision for special
termination benefits $ 82 $ 10 $ - $ 29(2) $ 63
Provision for environ
mental compliance &
remediation $ 279 $ 91 $ - $ 110(2) $ 260
(1) Notes and accounts receivable written off as uncollectible.
(2) Payments made on amounts accrued and reversals of accruals.
S-1