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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, 1998
Or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (No Fee Required)
For the Transition Period from __________ to __________
Commission File Number 0-10436
L. B. FOSTER COMPANY
(Exact name of registrant as specified in its charter)
Pennsylvania 25-1324733
(State of Incorporation) (I.R.S. Employer Identification No.)
415 Holiday Drive, Pittsburgh, Pennsylvania 15220
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (412) 928-3400
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: 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 $45,422,431.
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, 1999
Common Stock, Par Value $.01 9,839,404 Shares
Documents Incorporated by Reference:
Portions of the Proxy Statement prepared for the 1998 annual meeting of
stockholders are incorporated by reference in Items 10, 11, 12 and 13 of Part
III.
Part I
ITEM 1. BUSINESS
Summary Description of Businesses
L. B. Foster Company is engaged in the manufacture, fabrication and distribution
of rail and trackwork, piling, highway products, earth wall systems, tubular
products, and portable mass spectrometers. 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, signaling and communication devices, 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,
mechanically stabilized earth wall systems 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 four business segments: rail
products, construction products, tubular products, the Monitor Group, and other.
Financial information concerning the segments is set forth in Note 19 to the
financial statements included in the Company's Annual Report to Stockholders for
1998. 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
-----------------------
1998 1997 1996
---- ---- ----
Rail Products 55% 51% 46%
Construction Products 24% 25% 32%
Tubular Products 21% 24% 22%
Monitor Group 0% 0% 0%
Other 0% 0% 0%
- - -
100% 100% 100%
=== === ===
RAIL PRODUCTS
L. B. Foster Company's rail products include heavy and light rail, relay rail,
insulated rail joints, rail accessories, transit products and signaling and
communication devices. The Company is a major rail products supplier to
industrial plants, contractors, railroads, mines and mass transit systems.
The Company sells heavy rail mainly to transit authorities, industrial
companies, and rail contractors for railroad sidings, plant trackage, and other
carrier and material handling applications. Additionally, the Company makes some
sales of heavy rail to railroad companies and to foreign buyers. The Company
sells light rail for mining and material handling applications.
Rail accessories include trackwork, ties, track spikes, bolts, angle bars and
other products required to install or maintain rail lines. These products are
sold to railroads, rail contractors and industrial customers and are
manufactured within the company or purchased from other manufacturers.
The Company's Allegheny Rail Products (ARP) division engineers and markets
insulated rail joints and related accessories for the railroad and mass transit
industries, worldwide. Insulated joints are made in-house and subcontracted.
The Company's Transit Products division supplies power rail, direct fixation
fastener, coverboards and special accessories primarily for mass transit
systems. Most of these products are manufactured by subcontractors and are
usually sold by sealed bid to transit authorities or to rail contractors,
worldwide.
The Company's Mining division sells new and used rail, rail accessories,
trackwork from the Pomeroy, 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.
The Company's Rail Technologies subsidiary supplies rail signaling and
communication devices to North American railroads.
CONSTRUCTION PRODUCTS
L. B. Foster Company's construction products consist of sheet and bearing piling
and fabricated highway products.
Sheet piling products are interlocking structural steel sections that are
generally used to provide lateral support at construction sites. Bearing piling
products are steel H-beam sections which, in their principal use, are driven
into the ground for support of structures such as bridge piers and high-rise
buildings. Sheet piling is sold or leased and bearing piling is sold principally
to contractors and construction companies.
Other construction products consist of fabricated highway products. Fabricated
highway products consist principally of bridge decking, aluminum bridge rail,
overhead sign structures and other bridge products, which are fabricated by the
Company, as well as mechanically stabilized earth wall systems. The major
purchasers of these products are contractors for state, municipal and other
governmental projects.
Sales of the Company's construction products are partly dependent upon the level
of activity in the construction industry. Accordingly, sales of these products
have traditionally been somewhat higher during the second and third quarters
than during the first and fourth quarters of each year.
TUBULAR PRODUCTS
The Company adds value to purchased tubular products by preparing them to meet
customer specifications using various fabricating processes, including the
finishing of oil country tubular goods and the welding, coating, wrapping and
lining of other pipe products.
The Company provides fusion bond and other coatings for corrosion protection on
oil, gas and other pipelines.
The Company also supplies special pipe products such as water well casing,
column pipe, couplings, and related products for agricultural, municipal and
industrial water wells.
MONITOR GROUP
The Company's Monitor Group designs, develops, assembles and sells 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.
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 46 salespeople. The Company maintains 15 sales offices
and 15 plants or warehouses nationwide. During 1998, approximately 4% 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 17 to the consolidated financial statements for additional
information on this matter.
The Company's purchases from foreign suppliers are subject to the usual risks
associated with changes in international conditions and to United States laws
which could impose import restrictions on selected classes of products and
antidumping duties if products are sold in the United States below certain
prices.
BACKLOG
The dollar amount of firm, unfilled customer orders at December 31, 1998 and
1997 by segment follows:
(in thousands) December 31, 1998 December 31, 1997
- --------------------------------------------------------------------------------
Rail Products $ 62,481 $ 51,584
Construction Products 42,542 23,284
Tubular Products excluding Fosterweld 3,541 1,660
Fosterweld 2,295
Monitor Group
- --------------------------------------------------------------------------------
$ 108,564 $ 78,823
================================================================================
Approximately 95% of the December 31, 1998 backlog is expected to be shipped in
1999.
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 529 employees, of whom 262 are hourly production workers and 267
are salaried employees. Approximately 80 of the hourly paid employees are
represented by unions. The Company has not suffered any major work stoppages
during the past five years and considers its relations with its employees to be
satisfactory.
Substantially all of the Company's hourly paid employees are covered by one of
the Company's noncontributory, defined benefit plans and a defined contribution
plan. Substantially all of the Company's salaried employees are covered by a
defined contribution plan established by the Company.
ITEM 2. PROPERTIES
The location and general description of the principal properties which are owned
or leased by L. B. Foster Company, together with the segment of the Company's
business using the properties, are set forth in the following table:
Business Lease
Location Function Acres Segment Expires
- --------------------------------------------------------------------------------
Birmingham, Alabama Pipe coating. 32 Tubular 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.
Georgetown, Bridge component 11 Construction Owned
Massachusetts fabricating plant
Including the properties listed above, the Company has 15 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.
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 882 common shareholders of record on January 29, 1999. Common
stock prices are quoted daily through the National Association of Security
Dealers, Inc. in its over-the-counter NASDAQ quotation service (Symbol FSTR).
The quarterly high and low bid price quotations for common shares (which
represent prices between broker-dealers and do not include markup, markdown or
commission and may not necessarily represent actual transactions) follow:
1998 1997
- --------------------------------------------------------------------------------
Quarter High Low High Low
- --------------------------------------------------------------------------------
First $ 5 5/8 $ 4 3/8 $ 4 1/8 $ 3 11/16
- --------------------------------------------------------------------------------
Second 5 9/16 5 5 3 1/4
- --------------------------------------------------------------------------------
Third 5 7/8 4 3/8 5 7/8 4 1/2
- --------------------------------------------------------------------------------
Fourth 6 5/8 3 3/4 6 4 7/8
================================================================================
Dividends
No cash dividends were paid on the Company's Common stock during 1998 and 1997.
================================================================================
ITEM 6. SELECTED FINANCIAL DATA
(All amounts are in thousands except per share data)
Year Ended December 31,
INCOME STATEMENT DATA 1998 (1) 1997 1996 1995 (2) 1994
- --------------------------------------------------------------------------------
Net sales $219,475 $220,343 $243,071 $264,985 $234,262
- --------------------------------------------------------------------------------
Operating profit 7,313 7,164 8,195 6,769 6,184
- --------------------------------------------------------------------------------
Income before cumulative
effect of change
in accounting principle 4,377 3,287 3,858 5,043 5,440
- --------------------------------------------------------------------------------
Net income 4,377 3,287 3,858 4,824 5,440
- --------------------------------------------------------------------------------
Basic earnings per
common share before
cumulative effect of
change in accounting
principle 0.44 0.32 0.39 0.51 0.55
- --------------------------------------------------------------------------------
Basic earnings per
common share 0.44 0.32 0.39 0.49 0.55
- --------------------------------------------------------------------------------
Diluted earnings per
common share before
cumulative effect of
change in accounting
principle 0.43 0.32 0.38 0.50 0.55
- --------------------------------------------------------------------------------
Diluted earnings per
common share 0.43 0.32 0.38 0.48 0.55
================================================================================
December 31,
BALANCE SHEET DATA
1998 1997 1996 1995 1994
- --------------------------------------------------------------------------------
Total assets $119,434 $126,969 $123,004 $124,423 $122,585
- --------------------------------------------------------------------------------
Working capital 54,891 60,096 62,675 57,859 52,519
- --------------------------------------------------------------------------------
Long-term debt 13,829 17,530 21,816 25,034 22,377
- --------------------------------------------------------------------------------
Stockholders' equity 73,494 70,527 67,181 63,173 58,319
================================================================================
(1) In 1998, the Company recognized a gain on the sale of the Fosterweld
division of the tubular segment of approximately $1,700,000, a write down of
approximately $900,000 on a property subject to a sale negotiation, and a
provision for losses of approximately $900,000 relating to certain sign
structure contracts in the construction segment.
(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.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
(Dollars in thousands)
Three Months Ended Twelve Months Ended
December 31, December 31,
1998 1997 1998 1997 1996
- --------------------------------------------------------------------------------
Net Sales:
Rail Products $ 38,322 $ 32,882 $121,271 $112,712 $111,750
Construction Products 13,697 10,745 51,870 55,923 77,933
Tubular Products 8,850 11,570 46,044 51,762 53,323
Monitor Group 26
Other 21 1 264 (54) 65
- --------------------------------------------------------------------------------
Total Net Sales $ 60,890 $ 55,198 $219,475 $220,343 $243,071
================================================================================
Gross Profit:
Rail Products $ 5,913 $ 4,450 $ 18,675 $ 15,025 $ 15,551
Construction Products 2,384 2,132 9,440 9,608 10,234
Tubular Products 1,009 1,156 5,675 5,661 5,069
Monitor Group (297) (288) (958) (565)
Other 14 (366) (579) (652) 106
- --------------------------------------------------------------------------------
Total Gross Profit 9,023 7,084 32,253 29,077 30,960
- --------------------------------------------------------------------------------
Expenses:
Selling and Admin-
istrative Expenses 7,157 5,431 24,940 21,913 22,765
Interest Expense 254 650 1,631 2,495 2,365
Other (Income) Expense (198) (161) (1,731) (475) (600)
- --------------------------------------------------------------------------------
Total Expenses 7,213 5,920 24,840 23,933 24,530
- --------------------------------------------------------------------------------
Income Before Income
Taxes 1,810 1,164 7,413 5,144 6,430
Income Tax Expense 793 367 3,036 1,857 2,572
- --------------------------------------------------------------------------------
Net Income $ 1,017 $ 797 $ 4,377 $ 3,287 $ 3,858
================================================================================
Gross Profit %:
Rail Products 15.4% 13.5% 15.4% 13.3% 13.9%
Construction Products 17.4% 19.8% 18.2% 17.2% 13.1%
Tubular Products 11.4% 10.0% 12.3% 10.9% 9.5%
Monitor Group N/A N/A N/A N/A N/A
Other N/A N/A N/A N/A N/A
Total Gross Profit % 14.8% 12.8% 14.7% 13.2% 12.7%
================================================================================
FOURTH QUARTER OF 1998 VS. FOURTH QUARTER OF 1997
The net income for the current quarter was $1.0 million or $0.11 basic earnings
per share. This compares to a 1997 fourth quarter net income of $0.8 million or
$0.08 basic earnings per share. Net sales in 1998 were $60.9 million or 10%
higher than the comparable quarter last year.
Rail products' net sales of $38.3 million increased 17% from the 1997 fourth
quarter, primarily due to higher sales volume in project sales primarily to
transit systems. Construction products' net sales in the 1998 fourth quarter
increased 27% from the year earlier quarter. This increase was the result of
sales generated by the Foster Geotechnical Division acquired in August of 1998
and the sale of piling products other than sheet piling. Tubular products' net
sales declined 24% over last year's fourth quarter which reflects the June 1998
sale of the Company's Fosterweld division. 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 15% in the 1998
fourth quarter compared to 13% from the same period last year. The gross margin
percentage for the rail products segment increased to 15% from 14% primarily due
to a shift to higher margin products. Construction products' gross margin
percentage declined to 17% from 20% due to a shift in mix resulting from the
diminishing supply of sheet piling and an increase in the sale of other piling
products. The gross margin percentage for tubular products increased to 11% from
10% in the fourth quarter of 1998 which reflects the suspension of production of
lower margin coating operations at the Newport facility.
The Monitor Group had costs and expenses totaling $0.3 million in the fourth
quarter of 1998 compared to $0.4 million in the same period of 1997 and no
revenues in the fourth quarter of 1998 or 1997.
Selling and administrative expenses increased 32% from the same period last year
principally due to expenses associated with recent acquisitions. Interest
expense decreased 61% over the year earlier quarter due to a reduction in
outstanding borrowings, principally resulting from the receipt of Fosterweld
sale proceeds. The income tax provision for the fourth quarter of 1998 was
recorded at 44% compared to 32% in the same period last year due primarily to
the effect of adjustments to prior year tax liabilities. See Note 12 for more
information regarding income taxes.
The Year 1998 Compared to the Year 1997
Net income for 1998 was $4.4 million or $0.44 basic earnings per share on net
sales of $219.5 million. This compares to a net income of $3.3 million or $0.32
basic earnings per share for 1997 on net sales of $220.3 million.
Rail products' 1998 net sales were $121.3 million compared to $112.7 million in
1997. This 8% increase resulted primarily from higher sales volume of project
sales primarily to transit systems. Construction products' net sales declined 7%
to $51.9 million compared to $55.9 million in 1997, as the loss of sheet piling
sales more than offset increased volume brought about by an entire years' sales
of the Precise fabricating division. Net sales of tubular products declined 11%
in 1998 as a result of the sale of the Company's Fosterweld division.
The gross margin percentage for the Company in 1998 increased to 15% from 13% in
1997. Rail products' gross margin percentage increased to 15% from 13% primarily
due to higher gross margin on certain relay rail and transit projects. The gross
profit percentage for construction products increased to 18% from 17% last year
as a result of high demand for a limited supply of sheet piling products and the
addition of the Foster Geotechnical division which offset losses associated with
certain catenary fabrication contracts. Tubular products' gross margin
percentage increased to 12% in 1998 from 11% in 1997 primarily due to higher
margins on coated pipe products and the effect of the suspension of operations
of the Newport facility.
The Monitor Group had costs and expenses totaling $1.2 million in 1998 and $0.7
million in 1997 including $0.2 million in both 1998 and 1997 for the
amortization of intangible assets. Revenues for 1998 were negligible and below
management expectations and there were no revenues in 1997.
Selling and administrative expenses for 1998 were 14% higher than in 1997. The
increase was primarily due to added expenses associated with the operation of
the Company's recently acquired Precise and Geotechnical divisions and increased
incentive related compensation associated with increased corporate profits.
Interest expense decreased 35% due to a reduction in outstanding borrowings,
principally resulting from the receipt of Fosterweld sale proceeds. Other income
in 1998 included the $1.7 million gain on the sale of the Fosterweld division,
the $0.9 million write down of the recorded land value at the Langfield, Texas
facility, and gains on sales of other assets totaling $0.6 million. The
provision for income taxes in 1998 is recorded at 41% versus 36% in 1997. The
increase in the effective tax rate from 1997 is due primarily to the effect of
adjustments to prior year tax liabilities. See Note 12 to the consolidated
financial statements for more information regarding income taxes.
The Year 1997 Compared to the Year 1996
The net income for 1997 was $3.3 million or $0.32 basic earnings per share. This
compares to 1996 net income of $3.9 million or $0.39 basic earnings 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 was 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 11% in 1997 as a result of increased prices and improved productivity for
coating products.
The Monitor Group, acquired in May 1997, had costs and expenses totaling $0.7
million and no revenues in 1997.
In 1997, selling and administrative expense declined 4% principally because of a
decline in incentive related compensation 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.
Liquidity and Capital Resources
The Company generates internal cash flow from the sale of inventory and the
collection of accounts receivable. During 1998, the average turnover rate for
accounts receivable was higher than in 1997 due to an increase in collection
rate for piling and certain rail products. The average turnover rate for
inventory was higher in 1998 than in 1997 primarily in new and relay rail.
Working capital at December 31, 1998 was $54.9 million compared to $60.1 million
in 1997.
During 1998, the Company had capital expenditures of $2.8 million. In addition,
the Company repurchased $1.8 million of its common stock in accordance with the
Company's previously announced program to repurchase up to 500,000 shares. Since
inception of this program, through December 31, 1998, the Company repurchased
436,489 shares at $2.3 million. During the first quarter of 1999, the Company
completed this program for a total of $2.8 million. The Company has announced
another program to purchase an additional 1.0 million shares. Capital
expenditures in 1999, excluding acquisitions, are expected to increase
approximately $1.5 million over 1998 due to the planned creation of a piling
storage yard near the Chaparral plant currently being built in Virginia. Capital
expenditures are anticipated to be funded by cash flows from operations.
Total revolving credit agreement borrowings at December 31, 1998, were $12.3
million or a decrease of $20.8 million from the end of the prior year. At
December 31, 1998, the Company had $30.0 million in unused borrowing commitment.
The Company borrowed $2.0 million through an industrial revenue bond to finance
part of the Precise Fabricating Corporation acquisition. Outstanding letters of
credit at December 31, 1998, were $2.7 million. Management believes its internal
and external sources of funds are adequate to meet anticipated needs.
On August 13, 1998, the Company amended its $45,000,000 senior secured revolving
credit agreement. The amended agreement replaced the November 1995 revolving
credit agreement that had a maturity date of July 1999. This amended agreement
expires August 13, 2002 and can be extended at the mutual consent of the Company
and its lenders. 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 ratio of total
indebtedness to earnings before income taxes, depreciation and amortization
("EBITDA") as defined in the agreement. The ranges are prime to prime plus
0.125%, the CD rate plus 0.35% to the CD rate plus 1.375%, and the Euro-bank
rate plus 0.35% to the Euro-bank rate plus 1.375%. Borrowings under the
agreement are secured by accounts receivable and inventory.The agreement
includes financial convenants requiring a minimum net worth, a fixed charge
coverage ratio, and a maximum ratio of total indebtedness to EBITDA.
Dakota, Minnesota and Eastern Railroad
The Company maintains a significant investment in the Dakota, Minnesota &
Eastern Railroad Corporation (DM&E), a privately-held, regional railroad which
operates over 1,100 miles of track in five states. At December 31, 1998, the
Company's investment in the stock was recorded 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. On January 13,
1999, the Company increased its investment in the DM&E by acquiring $6.0 million
of DM&E Series C Preferred Stock and warrants. On a fully diluted basis, the
Company owns approximately 16% of the DM&E's common stock. Although the market
value of the DM&E is not readily determinable, management believes that this
investment, regardless of the DM&E's Powder River Basin project, is worth
significantly more than its historical cost.
The DM&E announced in June 1997 that it plans to build an extension from the
DM&E's existing line into the low sulfur coal market of the Powder River Basin
in Wyoming and to rebuild approximately 600 miles of its existing track (the
"Project"). The DM&E also has announced that the estimated cost of this project
is $1.4 billion. The Project is subject to approval by the Surface
Transportation Board ("STB"). 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.
In December 1998, the STB made a finding that the DM&E had satisfied the
transportation aspects of applicable regulations. The STB still must address the
extent and nature of the project's environmental impact and whether such impact
can be adequately mitigated. New construction on this project may not begin
until the STB reaches a final decision.
The DM&E has stated that 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 could increase dramatically.
Other Matters
In May 1997, the Company acquired the assets of the Monitor Group for $2.5
million, of which $2.2 million was allocated to intangible assets. In addition,
the Company has funded operating and development expenses totaling $1.9 million
at December 31, 1998 including $0.4 million for amortization of intangibles.
Results to date have been well below management expectations. A comprehensive
review of Monitor Group's progress is currently underway. Management believes
that the ultimate outcome of the review will not materially affect the financial
position or cash flows of the Company although the outcome could be material to
the reported results of operations for the period in which it occurs.
In May 1998, with the approval of its shareholders, the Company reincorporated
from Delaware to Pennsylvania. The principal reason for reincorporating the
Company in Pennsylvania was to eliminate the Company's liability for Delaware
franchise tax. Pennsylvania corporations that have a class of stock registered
under the Securities Exchange Act of 1934 are automatically subject to certain
anti-takeover provisions of the Pennsylvania Business Corporation Law of 1988,
as amended, unless the articles of incorporation provide that those provisions
shall not apply to the corporation. The Company has opted out of those
anti-takeover provisions by having its articles of incorporation expressly state
that they shall not apply to the corporation.
In June 1998, the Company sold to Northwest Pipe Company of Portland, Oregon,
the plant, equipment, inventory, leasehold and contract rights and miscellaneous
assets related to its Fosterweld division for a gain of $1.7 million. The
purchase price for the plant, buildings, equipment, leasehold and contract
rights and miscellaneous assets was $5.3 million and inventory net of payables
of approximately $2.0 million.
Also in June 1998, the Company agreed, subject to certain contingencies, to sell
certain Houston, Texas property for approximately $3.8 million. In anticipation
of this sale, the Company accrued $0.9 million for the loss. Although the
original sales agreement has terminated, negotiations are continuing for sale of
a portion of this 127 acre site.
In July 1998, the Company purchased, for approximately $1.7 million, assets
primarily comprised of intellectual property related to the business of
supplying rail signaling and communication devices.
In August 1998, the Company purchased $2.0 million of assets and $0.1 million of
intangibles of the Geotechnical Division of VSL Corporation. The Geotechnical
Division is a leading designer and supplier of mechanically-stabilized earth
wall systems.
In September 1998, the Company suspended production at its Newport, Kentucky
pipe coating facility due to unfavorable market conditions. Management is
currently evaluating the long term viability of this operation. Management
options include resumption of operations, relocation, or sale of the assets. The
net book value of the Newport facility coating assets at December 31, 1998 was
$1.5 million. Management continues to evaluate the overall performance of its
operations. A decision to terminate an existing operation could have a material
adverse effect on near-term earnings but would not be expected to have a
material adverse effect on the financial condition of the Company.
Year 2000 Impact On Computer Systems
Because many existing computer programs have been programmed to use a two digit
number to represent the year (e.g., "98" for "1998"), the Company has analyzed
its computer software systems to ensure that they are capable of correctly
identifying the year "2000" and beyond in all computer transactions. The Company
understands the seriousness of this issue and its Board of Directors has
requested an update of the Company's year 2000 compliance at each Board meeting.
The Company installed integrated accounting and distribution software licensed
from a national vendor in 1992 and has periodically installed updated releases
of the software to take advantage of technological advances and improvements
over prior releases in the ordinary course of business. The current releases of
this vendor's software are year 2000 compliant. The Company installed the year
2000 compliant release including modifications unrelated to the year 2000 issue
to suit the Company's business in May 1998. The Company completed the testing of
these modifications and placed these systems in production in January 1999.
Management does not anticipate any adverse impact on becoming year 2000
compliant. The costs associated with the installation of the year 2000 compliant
release are considered by management to be in the ordinary course of business
and are not material to its financial results.
In addition, the Company has conducted a review of its production equipment and
has determined that it is year 2000 compliant. The Company has also surveyed key
vendors and suppliers to determine the extent of their year 2000 compliance
readiness and planned action to become year 2000 compliant.
The Company has minimal direct or indirect computer data transfer with outside
customers, vendors and suppliers other than major banks, whose year 2000
compliance efforts are well underway. Based on this fact, as well as internal
assessments, and formal and informal communications with customers, vendors and
suppliers, the Company presently believes that the year 2000 compliance issue
should not have an adverse impact on the Company's financial position, results
of operation or cash flow. A failure of third party vendors or suppliers to be
year 2000 compliant could affect these beliefs and is not quantifiable.
The most reasonably likely worse case scenario of failure by the Company or its
suppliers or customers to resolve year 2000 problems would be a temporary
inability on the part of the Company to timely process orders and to deliver
finished products to customers. Delays in meeting customers' orders would affect
the timing of billings to and payments received from customers in respect of
orders and could result in other liabilities. Customers' year 2000 problems
could also delay the timing of payments to the Company for orders.
Outlook
The Company has not had a domestic sheet piling supplier since March, 1997.
Revenues from piling products have declined and will continue to be at reduced
levels as the Company's remaining piling inventory is liquidated. The Company,
however, will become Chaparral Steel's exclusive North American distributor of
steel sheet piling and "H" bearing pile when Chaparral's new Richmond, Virginia
facility begins operations. This mill will produce structural shape beams, sheet
piling, "H" pile sections and other structural shapes and beams. It is
anticipated that this new facility will commence operations in May 1999, with
piling production anticipated during the second half of 1999.
The rail segment of the business depends on one source for fulfilling certain
trackwork contracts. The Company has provided $9.5 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.
The Company is also dependent on the availability of specially designed weld
trains to ship certain products. The Company has experienced delays in certain
projects due to the lack of availability of weld trains. The Company can provide
no assurances that a solution to the problem will occur in the near-term.
A substantial portion of the Company's operations are heavily dependent on
governmental funding of infrastructure projects. Significant changes in the
level of government funding of these projects could have a favorable or
unfavorable impact on the operating results of the Company. Additionally,
governmental actions concerning taxation, tariffs, the environment or other
matters could impact the operating results of the Company. The Company's
operating results may also be affected by adverse weather conditions.
Although backlog is not necessarily indicative of future operating results,
total Company backlog at December 31, 1998, was approximately $108.6 million.
The following table provides the backlog by business segment.
(Dollars in thousands) December 31,
1998 1997 1996
- --------------------------------------------------------------------------------
Backlog:
Rail Products $ 62,481 $ 51,584 $ 36,100
Construction Products 42,542 23,284 28,080
Tubular Products
excluding Fosterweld 3,541 1,660 6,426
Fosterweld 2,295 4,902
Monitor Group 0 0 -
- --------------------------------------------------------------------------------
Total Backlog $108,564 $ 78,823 $ 75,508
================================================================================
Market Risk and Risk Management Policies
The Company is not subject to significant exposure to change in foreign currency
exchange rates. The Company does not hedge the cash flows of the operations of
its foreign subsidiary. The Company manages its exposures to changes in foreign
currency exchange rates on firm sales commitments by entering into foreign
currency forward contracts. The Company's risk management objective is to reduce
its exposure to the effects of changes in exchange rates on sales revenue over
the duration of the transaction.
At year end, no foreign currency forward contracts were outstanding.
The Company is also exposed to changes in interest rates primarily from its
long-term debt arrangements. The Company uses interest rate derivative
instruments to manage exposure to interest rate changes.
The Company has entered into interest rate swap agreements as the fixed rate
payor to reduce the impact of changes in interest rates on a portion of its
revolving borrowings. At December 31, 1998, these swap agreements had a notional
value of $18,000,000, consisting of $8,000,000 at 5.48%, expiring in January
2001, and $10,000,000, at 6.14%, expiring in June 1999. The swap agreements'
floating rates are based on LIBOR. Any amounts paid or received under the
agreements are recognized as adjustments to interest expense. Neither the fair
market value of the agreements nor the interest expense adjustments associated
with the agreements has been material.
Forward-Looking Statements
Statements relating to the potential value or viability of the DM&E or the
Project, or management's belief as to such matters, are forward-looking
statements and are subject to numerous contingencies and risk factors. The
Company has based its assessments on information provided by the DM&E and has
not independently verified such information. In addition to matters mentioned
above, factors which can adversely affect the value of the DM&E, its ability to
complete the Project or the viability of the Project include the following:
labor disputes, any inability to obtain necessary environmental and governmental
approvals for the Project in a timely fashion, 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/Linda K. Patterson
Linda K. Patterson
Controller
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
ASSETS (In thousands) 1998 1997
- --------------------------------------------------------------------------------
CURRENT ASSETS:
Cash and
cash equivalents $ 874 $ 1,156
Accounts receivable 47,311 47,586
Inventories 36,418 43,365
Current deferred tax assets 123
Other current assets 614 557
Property held for resale 3,461
- --------------------------------------------------------------------------------
Total Current Assets 85,217 96,248
- --------------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT -
at cost 20,445 20,775
- --------------------------------------------------------------------------------
PROPERTY HELD FOR RESALE 615 615
- --------------------------------------------------------------------------------
OTHER ASSETS :
Goodwill and intangibles 5,666 4,484
Investments 1,693 1,693
Other assets 5,798 3,154
- --------------------------------------------------------------------------------
Total Other Assets 13,157 9,331
- --------------------------------------------------------------------------------
TOTAL ASSETS $ 119,434 $ 126,969
================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY (In thousands, except share data)
- --------------------------------------------------------------------------------
CURRENT LIABILITIES:
Short-term borrowings $ 2,275 $ 18,111
Current maturities of long-term debt 1,098 1,309
Accounts payable - trade 19,667 12,524
Accrued payroll and employee benefits 4,498 3,008
Current deferred tax liabilities 334
Other accrued liabilities 2,454 1,200
- --------------------------------------------------------------------------------
Total Current Liabilities 30,326 36,152
- --------------------------------------------------------------------------------
LONG-TERM DEBT 13,829 17,530
- --------------------------------------------------------------------------------
DEFERRED TAX LIABILITIES 678 554
- --------------------------------------------------------------------------------
OTHER LONG-TERM LIABILITIES 1,107 2,206
- --------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENT LIABILITIES (Note 16)
- --------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY:
Common stock, issued 10,228,739 shares
in 1998 and in 1997 102 102
Paid-in capital 35,431 35,434
Retained earnings 40,002 35,625
Treasury stock - at cost, Common stock,
378,233 shares in 1998 and 161,501
shares in 1997 (2,046) (653)
Accumulated other comprehensive income 5 19
- --------------------------------------------------------------------------------
Total Stockholders' Equity 73,494 70,527
- --------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 119,434 $ 126,969
================================================================================
See Notes to Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE YEARS ENDED
DECEMBER 31, 1998
(In thousands, except per share data) 1998 1997 1996
- --------------------------------------------------------------------------------
NET SALES $ 219,475 $ 220,343 $ 243,071
- --------------------------------------------------------------------------------
COSTS AND EXPENSES:
Cost of goods sold 187,222 191,266 212,111
Selling and admin-
istrative expenses 24,940 21,913 22,765
Interest expense 1,631 2,495 2,365
Other income (1,731) (475) (600)
- --------------------------------------------------------------------------------
212,062 215,199 236,641
- --------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 7,413 5,144 6,430
INCOME TAX EXPENSE 3,036 1,857 2,572
- --------------------------------------------------------------------------------
NET INCOME $ 4,377 $ 3,287 $ 3,858
================================================================================
BASIC EARNINGS PER COMMON SHARE $ 0.44 $ 0.32 $ 0.39
================================================================================
DILUTED EARNINGS PER COMMON SHARE $ 0.43 $ 0.32 $ 0.38
================================================================================
See Notes to Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF
CASH FLOWS FOR THE THREE YEARS
ENDED DECEMBER 31, 1998
(In thousands) 1998 1997 1996
- --------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 4,377 $ 3,287 $ 3,858
Adjustments to reconcile net income to
net cash provided (used) by operating
activities:
Deferred income taxes 581 1,251 2,203
Depreciation and amortization 3,051 2,687 3,169
Gain on sale of property, plant and
equipment (1,360) (112) (540)
Change in operating assets and liabilities:
Accounts receivable 1,738 3,471 (1,641)
Inventory 3,261 770 (2,621)
Property held for resale 261 (54) 1,508
Other current assets (46) (159) 433
Other noncurrent assets (2,673) (340) (1,020)
Accounts payable - trade 8,394 (8,742) 995
Accrued payroll and employee benefits 1,490 (537) 861
Other current liabilities 1,254 (941) (945)
Other liabilites (1,099) 328 530
- --------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 19,229 909 6,790
- --------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property, plant and
equipment 1,269 1,578 2,277
Proceeds from the sale of Fosterweld division 7,258
Capital expenditures on property, plant and
equipment (2,784) (2,068) (2,336)
Purchase of DM&E stock (1,500)
Acquisition of businesses (3,774) (6,739)
- --------------------------------------------------------------------------------
Net Cash Provided (Used) by Investing
Activities 1,969 (8,729) (59)
- --------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
(Repayments) proceeds of revolving credit
agreement borrowings (20,836) 9,111 (5,750)
Proceeds from industrial revenue bond 2,045
Exercise of stock options and stock awards 412 571 150
Treasury share transactions (1,808) (531)
Repayments of long-term debt (1,293) (1,376) (1,255)
- --------------------------------------------------------------------------------
Net Cash (Used) Provided by Financing
Activities (21,480) 7,775 (6,855)
- --------------------------------------------------------------------------------
Net Decrease in Cash and Cash Equivalents (282) (45) (124)
Cash and Cash Equivalents at Beginning of Year 1,156 1,201 1,325
- --------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Year $ 874 $ 1,156 $ 1,201
================================================================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest Paid $ 1,839 $ 2,493 $ 2,376
================================================================================
Income Taxes Paid $ 2,136 $ 627 $ 410
================================================================================
During 1998, 1997, and 1996, the Company financed certain capital expenditures
and related maintenance agreements totaling $336,000, $33,500 and $137,000,
respectively, through the issuance of capital leases.
See Notes to Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF
STOCKHOLDERS' EQUITY
FOR THE THREE YEARS ENDED
DECEMBER 31, 1998 Accum-
ulated
Other
Class A Compre-
Common Paid-in Retained Treasury hensive
(In thousands) Stock Capital Earnings Stock Income Total
- --------------------------------------------------------------------------------
Balance, January 1, 1996 $102 $35,148 $28,480 $ (557) $63,173
================================================================================
Net Income 3,858 3,858
- --------------------------------------------------------------------------------
Comprehensive income 3,858 3,858
Exercise of option to
purchase 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
Other comprehensive income
net of tax:
Minimum pension liability
adjustment $19 19
- --------------------------------------------------------------------------------
Comprehensive income 3,287 19 3,306
Exercise of options to
purchase 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) 19 70,527
================================================================================
Net Income 4,377 4,377
Other comprehensive income
net of tax:
Foreign currency transla-
tion losses (14) (14)
- --------------------------------------------------------------------------------
Comprehensive income 4,377 (14) 4,363
Exercise of options to
purchase 93,200 shares
of Common stock and stock
awards of 21,057 shares (3) 415 412
Treasury stock purchases
of 330,989 shares (1,808) (1,808)
================================================================================
Balance, December 31, 1998 $102 $35,431 $40,002 $(2,046) $ 5 $73,494
================================================================================
See Notes to Consolidated Financial Statements.
Notes to Consolidated Financial Statements
NOTE 1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF FINANCIAL STATEMENT PRESENTATION - The consolidated financial
statements include the accounts of the Company and its wholly owned
subsidiaries. All significant intercompany transactions have been eliminated.
The term "Company" refers to L. B. Foster Company and its subsidiaries, as the
context requires.
CASH EQUIVALENTS - The Company considers securities with maturities of three
months or less, when purchased, to be cash equivalents.
INVENTORIES - Inventories are generally valued at the lower of the last-in,
first-out (LIFO) cost or market. Other inventories of the Company, approximately
5% in 1998 and 9% in 1997, 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.
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. Goodwill amortization expense was
$521,000, $178,000 and $9,000 in 1998, 1997 and 1996, respectively.
INTEREST RATE AGREEMENTS - To offset exposures to changes in interest rates on
variable rate debt, the Company enters into interest rate swap agreements. The
effects of movements in interest rates on these instruments are recognized as
they occur.
ENVIRONMENTAL REMEDIATION AND COMPLIANCE - Environmental remediation costs are
accrued when the liability is probable and costs are estimable. Environmental
compliance costs, which principally include the disposal of waste generated by
routine operations, are expensed as incurred. Capitalized environmental costs
are depreciated, when appropriate, over their useful life.
EARNINGS PER SHARE - Basic earnings per share is calculated by dividing net
income available to common shareholders by the weighted average of common shares
outstanding during the year. Diluted earnings per share is calculated by using
the weighted average of common shares outstanding adjusted to include the
potentially dilutive effect of outstanding stock options.
REVENUE RECOGNITION - Customers are invoiced and income is recognized when
material is shipped from stock or when the Company is billed for material
shipped directly from the vendor. Gross sales are reduced by sales taxes,
discounts and freight to determine net sales.
USE OF ESTIMATES - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
STOCK-BASED COMPENSATION - The Company grants stock options for a fixed number
of shares to employees with an exercise price equal to the fair value of the
shares at the date of grant. The Company follows the requirements of Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," in
accounting for stock-based compensation, and, accordingly, recognizes no
compensation expense for stock option grants.
NEW ACCOUNTING PRONOUNCEMENTS - In June 1998, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 133, "Accounting
for Derivative Instruments and Hedging Activities." This statement establishes
accounting and reporting standards for derivative financial instruments and
hedging activities. This statement will be adopted by the Company in 2000 and is
not expected to have a material effect on the consolidated financial statements.
FOREIGN CURRENCY TRANSLATION - To avoid foreign exchange exposure whenever
possible, where it is necessary to deal in foreign currency, the Company will
not take a speculative position. Hedging techniques are used to protect
transaction costs and profits.
NOTE 2.
ACCOUNTS RECEIVABLE
Accounts receivable at December 31, 1998 and 1997 are summarized as follows:
(in thousands) 1998 1997
- --------------------------------------------------------------------------------
Trade $47,948 $46,490
Allowance for doubtful accounts (1,438) (1,468)
Other 801 2,564
- --------------------------------------------------------------------------------
$47,311 $47,586
================================================================================
The Company's customers are principally in the rail, construction and tubular
segments of the economy. As of December 31, 1998 and 1997, trade receivables,
net of allowance for doubtful accounts, from customers in these markets were as
follows:
(in thousands) 1998 1997
- --------------------------------------------------------------------------------
Rail $30,676 $26,258
Construction 12,478 11,177
Tubular 3,329 7,587
Monitor Group 27
- --------------------------------------------------------------------------------
$46,510 $45,022
================================================================================
Credit is extended on an evaluation of the customer's financial condition and
generally collateral is not required.
NOTE 3.
INVENTORIES
Inventories at December 31, 1998 and 1997 are summarized as follows:
(in thousands) 1998 1997
- --------------------------------------------------------------------------------
Finished goods $26,877 $30,380
Work-in-process 7,779 7,826
Raw materials 4,546 8,369
- --------------------------------------------------------------------------------
Total inventories at current costs 39,202 46,575
================================================================================
Less:
Current cost over LIFO
stated values (2,184) (2,610)
Reserve for decline in market
value of inventories (600) (600)
- --------------------------------------------------------------------------------
$36,418 $43,365
================================================================================
At December 31, 1998 and 1997, the LIFO carrying value of inventories for book
purposes exceeded the LIFO carrying value for tax purposes by approximately
$4,345,000 and $4,843,000, respectively. During 1998 and 1997 inventory
quantities were reduced resulting in a liquidation of certain LIFO inventory
layers. The majority of these quantities were carried at costs which were higher
than current purchases. The net effect of these reductions in 1998 and 1997 was
to increase cost of goods sold by $146,000 and $21,000, respectively.
NOTE 4.
PROPERTY HELD FOR RESALE
Property held for resale at December 31, 1998 and 1997 consists of the
following:
(in thousands) 1998 1997
- --------------------------------------------------------------------------------
Location
Parkersburg, WV $3,200
Marrero, LA $ 615 615
Houston, TX 261
- --------------------------------------------------------------------------------
Property held for resale 615 4,076
- --------------------------------------------------------------------------------
Less current portion 3,461
- --------------------------------------------------------------------------------
$ 615 $ 615
================================================================================
The Parkersburg, West Virginia location consisting of machinery and equipment,
buildings and leasehold improvements which comprised the Company's Fosterweld
spiralweld pipe division of the tubular segment, was sold in May, 1998 at a gain
of approximately $1,700,000, which is included in Other Income in the
Consolidated Statements of Income. The Fosterweld division had sales and
operating profit of $5,200,000 and $800,000 and $12,200,000 and $1,600,000 for
the years ended December 31, 1998 amd 1997, respectively. The Company had
previously determined that this product line did not meet the Company's
long-range strategic goals.
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 Houston, Texas location was formerly a pipe coal tar coating facility. The
Company disposed of the assets in 1998 and recorded a gain on the sale of the
facility of approximately $200,000.
NOTE 5.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at December 31, 1998 and 1997 consists of the
following:
(in thousands) 1998 1997
- --------------------------------------------------------------------------------
Land $ 6,038 $ 6,930
Improvements to land and leaseholds 4,458 4,186
Buildings 3,879 3,760
Machinery and equipment, including
equipment under capitalized
leases of $6,867 in 1998
and $7,295 in 1997 28,572 25,905
Rental pile driving equipment 1,178
Construction in progress 626 175
- --------------------------------------------------------------------------------
43,573 42,134
- --------------------------------------------------------------------------------
Less accumulated depreciation and
amortization, including accumulated
amortization of capitalized leases
of $3,291 in 1998 and $3,162 in 1997 23,128 21,359
- --------------------------------------------------------------------------------
$20,445 $20,775
================================================================================
In the second quarter of 1998, the Company recorded an impairment write down to
the recorded value of land at the Langfield, Texas facility of approximately
$900,000, which was classified within Other income on the Consolidated
Statements of Income. The impairment was determined based upon management's
estimate of fair value arising from ongoing negotiations to sell the facility.
The negotiations were not consummated; however, management considers the
estimate to continue to be an appropriate measure of fair value. The Langfield
facility is utilized in the Company's rail, construction and tubular operating
segments.
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,
1998:
(In thousands) Amount
- --------------------------------------------------------------------------------
Year ending December 31,
1999 $1,284
2000 933
2001 553
2002 355
2003 and thereafter 140
- --------------------------------------------------------------------------------
Total minimum lease payments 3,265
Less amount representing interest 383
- --------------------------------------------------------------------------------
Total present value of minimum
payments (Note 8) 2,882
Less current portion of such obligations 1,098
- --------------------------------------------------------------------------------
Long-term obligations with interest rates
ranging from 7.25% to 8.86% $1,784
================================================================================
NOTE 6.
OTHER ASSETS AND INVESTMENTS
At December 31, 1998 and 1997, other assets include notes receivable and accrued
interest totaling $2,445,000 and $2,258,000, respectively, from investors in the
Dakota, Minnesota & Eastern Railroad Corporation (DM&E). The Company also holds
investments in the stock of the DM&E, which is recorded at its historical cost
of $1,693,000, comprised of, $193,000 of DM&E Common Stock and $1,500,000 of
DM&E's Series B Preferred Stock and Common Stock warrants. In January 1999, the
Company invested an additional $6,000,000 in DM&E Series C Preferred Stock (see
Note 21, Other Subsequent Events). Although the market value of the investments
in DM&E stock are not readily determinable, management believes the fair value
of this investment exceeds its carrying amount.
Additionally, at December 31, 1998, the Company has classified as non current a
$2,000,000 note receivable from a major trackwork supplier (See Note 17, Risks
and Uncertainties).
NOTE 7.
BORROWINGS
Effective August 1998, 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 consolidated total
indebtedness to EBITDA ratio defined in the agreement. The ranges are prime to
prime plus 0.125%, the CD rate plus 0.35% to the CD rate plus 1.375%, and the
Euro-bank rate plus 0.35% to the Euro-bank rate plus 1.375%. Borrowings under
the agreement, which expires August 13, 2002, are secured by eligible accounts
receivable and inventory.
The agreement includes financial covenants requiring a minimum net worth, and
minimum levels for the fixed charge coverage ratio and the consolidated total
indebtedness to EBITDA ratio. The agreement also restricts investments, capital
expenditures, indebtedness and sales of certain assets.
As of December 31, 1998, the Company was in compliance with all the agreement's
covenants. The weighted average interest rate on short term borrowings was
6.95%, 7.06% and 6.42% in 1998, 1997 and 1996, respectively. At December 31,
1998, the Company had borrowed $12,275,000 under the agreement of which
$10,000,000 was classified as long-term (see Note 8). Under the agreement, the
Company had approximately $29,990,000 in unused borrowing commitment at December
31, 1998.
NOTE 8.
LONG-TERM DEBT AND RELATED MATTERS
Long-term debt at December 31, 1998 and 1997 consists of the following:
(In thousands) 1998 1997
- --------------------------------------------------------------------------------
Revolving Credit Agreement with
weighted average interest rate of
6.95% at December 31, 1998 and
7.06% at December 31, 1997,
expiring August 13, 2002 $10,000 $15,000
- --------------------------------------------------------------------------------
Lease obligations payable in
installments through 2003 with a
weighted average interest rate of
7.99% at December 31, 1998 and
7.93% at December 31, 1997 2,882 3,839
- --------------------------------------------------------------------------------
Massachusettes Industrial Revenue
Bond with an average interest
rate of 3.73% at December 31,
1998, payable March 1, 2013 2,045
- --------------------------------------------------------------------------------
14,927 18,839
Less current maturities 1,098 1,309
- --------------------------------------------------------------------------------
$13,829 $17,530
================================================================================
The $10,000,000 revolving credit borrowings included in long-term debt were
obtained under the revolving loan agreement discussed in Note 7 and are subject
to the sameterms and conditions. This portion of the borrowings is classified as
long-term because the Company does not anticipate reducing the borrowings below
$10,000,000 during 1999.
The Company has entered into interest rate swap agreements as the fixed rate
payor to reduce the impact of changes in interest rates on a portion of its
revolving borrowings. At December 31, 1998, these swap agreements had a notional
value of $18,000,000, consisting of $8,000,000 at 5.48%, expiring in January
2001, and $10,000,000, at 6.14%, expiring in June 1999. The swap agreements'
floating rates are based on LIBOR. Any amounts paid or received under the
agreements are recognized as adjustments to interest expense. Neither the fair
market value of the agreements nor the interest expense adjustments associated
with the agreements has been material.
The maturities of long-term debt for each of the succeeding five years
subsequent to December 31, 1998 are as follows: 1999 - $1,098,000; 2000 -
$822,000; 2001 - $492,000; 2002 - $10,332,000; 2003 and beyond - $2,183,000.
The Massachusetts Industrial Revenue Bond is secured by a $2,085,000 stand-by
letter of credit.
NOTE 9.
STOCKHOLDERS' EQUITY
At December 31, 1997, 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. On December 31, 1998, and as a
result of the Company's reincorporation in Pennsylvania in May, 1998, the
Company had authorized shares of 20,000,000 in Common stock and 5,000,000 in
Preferred stock. No preferred stock has been issued. The Common stock has a par
value of $.01 per share. No par value has been assigned to the Preferred stock.
The Company's Board of Directors 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. In addition, rights shall be issued in respect of old shares of Common
stock issued after May 21, 1997 and, generally, until the earlier of May 15,
2007 or the rights becoming exercisable. 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. After the Company
reincorporated and merged into a Pennsylvania corporation in May 1998, all
rights became part of the Common stock of this Pennsylvania corporation.
Each right will entitle holders of the Company's Common stock to buy one share
of 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, other than through a "qualifying offer" as defined in the
Plan, a person or group acquires, or has obtained the rights to acquire
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 a qualifying offer, i.e. an offer for all shares that
provide in the judgment of the "continuing" directors specified in the Plan,
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 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% or more 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. As of December 31,
1998, the Company had repurchased 436,489 shares at a total cost of
approximately $2,338,900.
No cash dividends on Common stock were paid in 1998, 1997,or 1996.
NOTE 10.
STOCK OPTIONS
The Company has two stock option plans currently in effect under which future
grants may be issued: The 1985 Long-Term Incentive Plan (1985 Plan) and the 1998
Long-Term Incentive Plan for Officers and Directors (1998 Plan).
The 1985 Plan, as amended and restated in March 1994, provides for the award of
options to key employees and directors to purchase up to 1,500,000 shares of
Common stock at no less than 100% of fair market value on the date of the grant.
The 1998 Plan effective October 23, 1998, provides for the award of options to
officers and directors to purchase up to 25,000 shares of Common stock at no
less than 100% of fair market value on the date of the grant. Both Plans provide
for the granting of "nonqualified options" and "incentive stock options" with a
duration of not more than ten years from the date of grant. The Plans also
provide that, unless otherwise set forth in the option agreement, options are
exercisable in installments of up to 25% annually beginning one year from date
of grant. Stock to be offered under the Plans may be authorized but unissued
Common stock or previously issued shares which have been reacquired by the
Company and held as Treasury shares. At December 31, 1998, 1997 and 1996, Common
stock options outstanding under the Plans had option prices ranging from $2.63
to $6.00, with a weighted average price of $3.96, $3.71 and $3.40 per share,
respectively.
The weighted average remaining contractual life of the stock options outstanding
for the three years ended December 31, 1998 are: 1998 - 5.9 years; 1997 - 5.2
years; and 1996 - 4.2 years.
The Option Committee of the Board of Directors which administers the Plans may,
at its discretion, grant stock appreciation rights at any time prior to six
months before an option's expiration date. Upon exercise of such rights, the
participant surrenders the exercisable portion of the option in exchange for
payment (in cash and/or Common stock valued at its fair market value) of an
amount not greater than the spread, if any, by which the average of the high and
low sales prices quoted in the Over-the-Counter Exchange on the trading day
immediately preceding the date of exercise of the stock appreciation right
exceeds the option price. No stock appreciation rights were issued or
outstanding during 1998, 1997 or 1996.
Options exercised during 1998, 1997 and 1996 totaled 93,200, 190,000 and 50,000
shares, respectively. The exercise price of the options in 1998 was $3.31 per
share. The exercise price of the options in 1997 and 1996 was $3.00 per share.
Certain information for the three years ended December 31, 1998 relative to
employee stock options is summarized as follows:
1998 1997 1996
- --------------------------------------------------------------------------------
Number of shares under
Incentive Plan option:
Outstanding at beginning of year 858,500 944,000 965,000
Granted 215,000 141,500 40,000
Canceled (12,800) (37,000) (11,000)
Exercised (93,200) (190,000) (50,000)
- --------------------------------------------------------------------------------
Outstanding at end of year 967,500 858,500 944,000
================================================================================
Exercisable at end of year 723,875 659,250 806,250
================================================================================
Number of shares available for
future grant:
Beginning of year 182,750 287,250 316,250
- --------------------------------------------------------------------------------
End of year 5,550 182,750 287,250
================================================================================
The weighted average fair value of options granted at December 31, 1998, 1997,
and 1996 were $2.40, $2.94 and $2.65, respectively.
The Company has adopted the disclose-only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation," but applies Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees" and related
interpretations in accounting for its stock option plans. Accordingly, no
compensation expense has been recognized. Had compensation expense for the
Company's stock option plans been determined using the method required by SFAS
No. 123, the effect to the Company's net income and earnings per share would
have been reduced to the pro forma amounts that follow:
(In thousands except
per share amounts) 1998 1997 1996
- --------------------------------------------------------------------------------
Net income $4,199 $3,248 $3,787
================================================================================
Basic earnings per share $ 0.42 $ 0.32 $ 0.38
================================================================================
Diluted earnings per share $ 0.42 $ 0.32 $ 0.38
================================================================================
The fair value of stock options used to compute pro forma net income and
earnings per share disclosures is the estimated present value at grant date
using the Black-Sholes option-pricing model with the following weighted-average
assumptions used for grants in 1998, 1997 and 1996, respectively: risk-free
interest rates of 4.77% , 6.29% and 6.83%; dividend yield of 0.0% for all three
years; volatility factors of the expected market price of the Company's common
stock of .31, .38 and .41; and a weighted-average expected life of the option of
ten years.
NOTE 11.
EARNINGS PER COMMON SHARE
The following table sets forth the computation of basic and diluted earnings per
common share:
(in thousands Years ended December 31,
except per share amounts) 1998 1997 1996
- --------------------------------------------------------------------------------
Numerator:
Numerator for basic
and diluted earnings
per common share -
net income available
to common stockholders $ 4,377 $ 3,287 $ 3,858
================================================================================
Denominator:
Weighted average shares 9,988 10,122 9,953
- --------------------------------------------------------------------------------
Denominator for basic earn-
ings per common share 9,988 10,122 9,953
Effect of dilutive securities:
Contingent issuable shares
pursuant to the Company's
1997 Incentive Compensa-
tion Plan 15
Employee stock options 205 165 133
- --------------------------------------------------------------------------------
Dilutive potential common
shares 220 165 133
Denominator for diluted
earnings per common
share - adjusted weighted
average shares and
assumed conversions 10,208 10,287 10,086
================================================================================
Basic earnings per
common share $ 0.44 $ 0.32 $ 0.39
================================================================================
Diluted earnings per
common share $ 0.43 $ 0.32 $ 0.38
================================================================================
Weighted average anti-dilutive
stock options 54 36 57
================================================================================
NOTE 12.
INCOME TAXES
At December 31, 1998, the tax benefit of net operating loss carryforwards
available for foreign and state income tax purposes was approximately $631,000.
The Company also has alternative minimum federal tax credit carryforwards at
December 31, 1998, of approximately $131,000. For financial reporting purposes,
a valuation allowance of $125,000 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, 1998 and 1997, are as follows:
(In thousands) 1998 1997
- --------------------------------------------------------------------------------
Deferred tax liabilities:
Depreciation $ 1,318 $ 1,817
Inventories 1,272 1,473
- --------------------------------------------------------------------------------
Total deferred tax liabilities 2,590 3,290
================================================================================
Deferred tax assets:
Accounts receivables 533 558
Net operating loss
carryforwards 631 821
Tax credit carryforwards 131 1,292
Other - net 408 338
- --------------------------------------------------------------------------------
Total deferred tax assets 1,703 3,009
Valuation allowance for
deferred tax assets 125 150
- --------------------------------------------------------------------------------
Deferred tax assets 1,578 2,859
- --------------------------------------------------------------------------------
Net deferred tax liability $(1,012) $ (431)
================================================================================
The valuation allowance for deferred tax assets was reduced by $25,000 during
1998, remained unchanged during 1997 and was reduced by $50,000 during 1996.
Significant components of the provision for income taxes are as follows:
(In thousands) 1998 1997 1996
- --------------------------------------------------------------------------------
Current:
Federal $2,117 $ 466 $ 163
State 338 140 206
- --------------------------------------------------------------------------------
Total current 2,455 606 369
================================================================================
Deferred:
Federal 507 1,082 2,258
Foreign (106)
State 180 169 (55)
- --------------------------------------------------------------------------------
Total deferred 581 1,251 2,203
================================================================================
Total income tax expense $3,036 $1,857 $2,572
================================================================================
The reconciliation of income tax computed at statutory rates to income tax
expense (benefit) is as follows:
1998 1997 1996
- --------------------------------------------------------------------------------
Statutory rate 34.0% 34.0% 34.0%
State income tax 4.6 4.0 1.6
Foreign income tax 1.3
Nondeductible expenses 1.8 1.7 2.2
Prior period tax (0.3) (3.6) 2.0
Other (0.4) 0.2
- --------------------------------------------------------------------------------
41.0% 36.1% 40.0%
================================================================================
NOTE 13.
RENTAL AND LEASE INFORMATION
The Company leases certain plant facilities, office facilities and equipment.
Rental expense for the years ended December 31, 1998, 1997 and 1996 amounted to
$1,885,000, $1,801,000, and $1,814,000, respectively.
At December 31, 1998, the Company is committed to total minimal rental payments
under all noncancelable operating leases of $6,547,000. Generally, these leases
include escalation clauses.
The minimum future rental commitments are payable as follows: 1999 - $1,161,000;
2000 - $1,057,000; 2001 - $878,000; 2002 - $815,000; 2003 and after -
$2,636,000.
NOTE 14.
ACQUISITIONS
In July 1998, the Company purchased assets related to the business of supplying
rail signaling and communication devices for $1,668,000, of which $1,440,000 is
revenue producing intellectual property which was determined to have a ten year
useful life. The acquisition of this technology enables the Company to broaden
its product mix and enhance its marketing strategy to North American Class I
railroads.
In August 1998, the Company acquired the assets and patents of the Geotechnical
Division of VSL Corporation for $2,100,000, plus the assumption of certain
liabilities, of which $100,000 was assigned to a patent. The Geotechnical
Division is a leading designer and supplier of mechanically stabilized earth
wall systems. The patented Retained Earth System is one of the most widely used
mechanically stabilized earth systems in the world.
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, assembles and sells 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 complemented the Company's Midwest Steel Division and enabled 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 acquisitions, with the exception of Precise, 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:
Twelve Months Ended
(In thousands, except December 31,
per share amounts) 1997 1996
- --------------------------------------------------------------------------------
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.
NOTE 15.
RETIREMENT PLANS
Substantially all of the Company's hourly paid employees are covered by one of
the Company's noncontributory, defined benefit plans and a defined contribution
plan. Substantially all of the Company's salaried employees are covered by a
defined contribution plan established by the Company.
The hourly plan assets consist of various mutual fund investments. The following
tables present a reconciliation of the changes in the benefit obligation, the
fair market value of the assets and the funded status of the plan, with the
accrued pension cost in other current liabilities in the Company's balance
sheets:
(in thousands) 1998 1997
- --------------------------------------------------------------------------------
Changes in benefit obligation:
Benefit obligation at beginning
of year $ 2,163 $ 1,867
Service cost 85 82
Interest cost 147 138
Actuarial losses (gains) 8 149
Benefits paid (108) (73)
- --------------------------------------------------------------------------------
Benefit obligation at end
of year $ 2,295 $ 2,163
================================================================================
Change to plan assets:
Fair value of assets at
beginning of year $ 2,138 $ 1,863
Actual return on plan assets 212 293
Employer contribution 45 55
Benefits paid (108) (73)
- --------------------------------------------------------------------------------
Fair value of assets at
end of year $ 2,287 $ 2,138
================================================================================
Funded status $ (8) $ (25)
Unrecognized actuarial gain (200) (168)
Unrecognized net transition
asset (92) (102)
Unrecognized prior service
cost 81 88
Minimum pension liability (61) (102)
- --------------------------------------------------------------------------------
Net amount recognized $ (280) $ (309)
================================================================================
Amounts recognized in the statement
of financial position consist of:
Prepaid benefit cost $ (204) $ (184)
Accrued benefit liability (76) (125)
Intangible asset 61 83
Minimum pension liability (61) (102)
Accumulated other
comprehensive income 19
- --------------------------------------------------------------------------------
Net amount recognized $ (280) $ (309)
================================================================================
The Company's funding policy for defined benefit plans is to contribute the
minimum required by the Employee Retirement Income Security Act of 1974. Net
periodic pension costs for the three years ending December 31, 1998, is as
follows:
(In thousands) 1998 1997 1996
- --------------------------------------------------------------------------------
Components of net periodic benefit cost:
Service cost $ 85 $ 82 $ 81
Interest cost 147 138 136
Actual return on
plan assets (212) (293) (176)
Amortization of prior
service cost 7 8 7
Recognized actuarial gain 31 135 32
- --------------------------------------------------------------------------------
Net periodic
pension cost $ 58 $ 70 $ 80
================================================================================
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, 1998, 1997 and
1996.
Amounts applicable to the Company's pension plan with accumulated benefit
obligations in excess of plan assets are as follows:
(in thousands) 1998 1997 1996
- --------------------------------------------------------------------------------
Projected benefit obligation $ 575 $ 531 $ 467
Accumulated benefit obligation 575 531 467
Fair value of plan assets 499 411 308
================================================================================
The Company's defined contribution plan, available to substantially all salaried
employees, contains a matched savings provision that permits both pretax and
after-tax employee contributions. Participants can contribute from 2% to 15% of
their annual compensation and receive a 50% matching employer contribution on up
to 6% of their annual compensation.
Further, the plan requires an additional matching employer contribution, based
on the ratio of the Company's pretax income to equity, up to 50% of 6% of the
employees' annual compensation. Additionally, the Company contributes 1% of all
salaried employees annual compensation to the plan without regard for employee
contribution. The Company may also make discretionary contributions to the plan.
The defined contribution plan expense was $874,000 in 1998, $756,000 in 1997,
and $827,000 in 1996.
NOTE 16.
COMMITMENTS AND CONTINGENT LIABILITIES
The Company is subject to laws and regulations relating to the protection of the
environment and the Company's efforts to comply with increasingly stringent
environmental regulations may have an adverse effect on the Company's future
earnings. In the opinion of management, compliance with the present
environmental protection laws will not have a material adverse effect on the
financial condition, competitive position, or capital expenditures of the
Company.
The Company is subject to legal proceedings and claims which arise in the
ordinary course of its business. In the opinion of management, the amount of
ultimate liability with respect to these actions will not materially affect the
financial position of the Company.
At December 31, 1998, the Company had outstanding letters of credit of
approximately $2,735,000.
NOTE 17.
RISKS AND UNCERTAINTIES
The Company's future operating results may be affected by a number of factors.
The Company is dependent upon a number of major suppliers. If a supplier had
operational problems or ceased making material available to the Company,
operations could be adversely affected.
The Company has not had a domestic sheet piling supplier since March, 1997.
Revenues from piling products have declined and will continue to be at reduced
levels as the Company's remaining piling inventory is liquidated. The Company,
however, will become Chaparral Steel's exclusive North American distributor of
steel sheet piling and "H" bearing pile when Chaparral's new Richmond, Virginia
facility begins operations. This mill will produce structural shape beams, sheet
piling, "H" pile sections and other structural shapes and beams. It is
anticipated that this new facility will commence operations in May 1999, with
piling production anticipated during the second half of 1999.
The rail segment of the business depends on one source for fulfilling certain
trackwork contracts. The Company has provided $9,500,000 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.
The Company is also dependent on the availability of specially designed weld
trains to ship certain rail products. The Company has experienced delays in
certain projects due to the lack of availability of weld trains. The Company can
provide no assurance that a solution to the problem will occur in the near term.
In May 1997, the Company acquired the assets of the Monitor Group for
$2,500,000, of which $2,250,000 was allocated to intangible assets. In addition,
the Company has funded operating and development expenses totaling $1,931,000 at
December 31, 1998 including $375,000 amortization of intangibles. Results to
date have been well below management expectations. A comprehensive review is
currently underway. Management believes that the ultimate outcome of the review
will not materially affect the financial position or cash flows of the Company
although the outcome could be material to the reported results of operations for
the period in which it occurs.
A substantial portion of the Company's operations are heavily dependent on
governmental funding of infrastructure projects. Significant changes in the
level of government funding of these projects could have a favorable or
unfavorable impact on the operating results of the Company. Additionally,
governmental actions concerning taxation, tariffs, the environment or other
matters could impact the operating results of the Company. The Company's
operating results may also be affected by adverse weather conditions.
NOTE 18.
FAIR VALUES OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist of accounts receivable, accounts
payable, short term and long term debt, and interest rate swap agreements.
The carrying amounts of the Company's financial instruments at December 31, 1998
approximate fair value.
NOTE 19.
BUSINESS SEGMENTS
In June 1997, the Financial Accounting Standards Board issued Statement No. 131,
"Disclosures About Segments of an Enterprise and Related Information". Statement
131 requires an enterprise to present segment information based on how
management internally evaluates the operating performance of its business units.
L. B. Foster Company is organized and evaluated by product group, which is the
basis for identifying reportable segments. The Company is engaged in the
manufacture, fabrication and distribution of rail, construction, tubular
products and portable mass spectrometers.
The Company's rail segment provides a full line of new and used rail, trackwork
and accessories to railroads, mines and industry. The Company also designs and
produces 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 recently acquired
Geotechnical division is a leading designer and supplier of
mechanically-stabilized earth wall systems.
The Company's tubular segment supplies pipe and pipe coatings for pipelines and
utilities. Additionally, the Company also produces pipe-related products for
special markets, including water wells and irrigation.
The Company's Monitor Group segment designs, develops, assembles and sells
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 markets its products directly in all major industrial areas of the
United States primarily through a national sales force.
The following table illustrates revenues, profits or losses, assets,
depreciation/amortization and capital expenditures of the Company by segment.
Segment profit/(loss) is the earnings before income taxes. The accounting
policies of the reportable segments are the same as those described in the
summary of significant accounting policies except that the Company accounts for
inventory on a First-In, First-Out (FIFO) basis at the segment level compared to
a Last-In, First-Out (LIFO) basis at the consolidated level. As required by
Statement 131, prior periods were restated.
(in thousands) 1998
- --------------------------------------------------------------------------------
Expend-
itures
for Long-
Net Segment Segment Depreciation/ Lived
Sales Profit/(Loss) Assets Amortization Assets
- --------------------------------------------------------------------------------
Rail products $121,271 $ 6,320 $ 60,500 $ 470 $ 1,042
Construction
products 51,870 551 26,063 667 2,022
Tubular products 46,044 1,698 13,437 1,043 771
Monitor group 26 (1,436) 2,174 226 9
- --------------------------------------------------------------------------------
Total $219,211 $ 7,133 $102,174 $ 2,406 $ 3,844
================================================================================
(in thousands) 1997
- --------------------------------------------------------------------------------
Expend-
itures
for Long-
Net Segment Segment Depreciation/ Lived
Sales Profit/(Loss) Assets Amortization Assets
- --------------------------------------------------------------------------------
Rail products $112,712 $ 3,033 $ 54,894 $ 436 $ 1,214
Construction
products 55,923 1,810 27,848 357 4,292
Tubular products 51,762 902 24,651 1,171 1,063
Monitor group (945) 2,371 150 2,255
- --------------------------------------------------------------------------------
Total $220,397 $ 4,800 $109,764 $ 2,114 $ 8,824
================================================================================
(in thousands) 1996
- --------------------------------------------------------------------------------
Expend-
itures
for Long-
Net Segment Segment Depreciation/ Lived
Sales Profit/(Loss) Assets Amortization Assets
- --------------------------------------------------------------------------------
Rail products $111,750 $ 3,848 $ 59,087 $ 473 $ 671
Construction
products 77,933 2,421 27,536 763 903
Tubular products 53,323 29 22,963 1,076 851
- --------------------------------------------------------------------------------
Total $243,006 $ 6,298 $109,586 $ 2,312 $ 2,425
================================================================================
Sales to any individual customer do not exceed 10% of consolidated revenues.
Sales between segments are immaterial.
Reconciliations of reportable segment net sales, profit or loss, assets,
depreciation and amortization, and expenditures for long-lived assets to the
Company's consolidated totals are illustrated as follows (in thousands):
Net Sales 1998 1997 1996
- --------------------------------------------------------------------------------
Total for reportable segments $219,211 $220,397 $243,006
Other net sales 264 (54) 65
- --------------------------------------------------------------------------------
Net Sales $219,475 $220,343 $243,071
================================================================================
Net Profit/(Loss)
- --------------------------------------------------------------------------------
Total for reportable segments $ 7,133 $ 4,800 $ 6,298
Adjustment of inventory to LIFO 426 (536) (62)
Unallocated other income 1,731 475 600
Other unallocated amounts (1,877) 405 (406)
- --------------------------------------------------------------------------------
Income before income taxes $ 7,413 $ 5,144 $ 6,430
================================================================================
Assets
- --------------------------------------------------------------------------------
Total for reportable segments $102,174 $109,764 $109,586
Unallocated corporate assets 11,745 10,038 6,849
LIFO and market value inventory
reserves (2,784) (3,210) (2,674)
Unallocated property, plant
and equipment 8,299 10,377 9,243
- --------------------------------------------------------------------------------
Total consolidated assets $119,434 $126,969 $123,004
================================================================================
Depreciation/Amortization
- --------------------------------------------------------------------------------
Total reportable for segments $ 2,406 $ 2,114 $ 2,312
Other 645 573 857
- --------------------------------------------------------------------------------
Total consolidated depreciation/
amortization $ 3,051 $ 2,687 $ 3,169
================================================================================
Expenditures for Long-Lived Assets
- --------------------------------------------------------------------------------
Total for reportable segments $ 3,844 $ 8,824 $ 2,425
Expenditures included in
acquisition of business (1,069) (6,589)
Expenditures financed under
capital leases (137)
Expenditures included in
Property Held for Sale (60) (272) (90)
Other unallocated expenditures 69 105 138
- --------------------------------------------------------------------------------
Total consolidated expenditures $ 2,784 $ 2,068 $ 2,336
================================================================================
Approximately 96% of the Company's total net sales were to customers in North
America, and a majority of the remaining sales were to countries in Central and
South America.
All of the Company's long-lived assets are located in North America and almost
100% of those assets are located in the United States.
NOTE 20.
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Quarterly financial information for the years ended December 31, 1998 and 1997
is presented below:
(in thousands, except per share amounts) 1998
- --------------------------------------------------------------------------------
First Second Third Fourth
Quarter Quarter(1) Quarter(2) Quarter Total
- --------------------------------------------------------------------------------
Net sales $49,341 $58,876 $50,368 $60,890 $219,475
- --------------------------------------------------------------------------------
Gross profit $ 7,094 $ 8,923 $ 7,213 $ 9,023 $ 32,253
- --------------------------------------------------------------------------------
Net income $ 706 $ 1,941 $ 713 $ 1,017 $ 4,377
- --------------------------------------------------------------------------------
Basic earnings per
common share $ 0.07 $ 0.19 $ 0.07 $ 0.11 $ 0.44
- --------------------------------------------------------------------------------
Diluted earnings per
common share $ 0.07 $ 0.19 $ 0.07 $ 0.10 $ 0.43
================================================================================
(1) The second quarter includes a gain on the sale of the Company's Fosterweld
facility of $1,700,000 and a $900,000 write down for a property which was under
a sales agreement. (2) The third quarter of 1998 includes a provision for losses
on certain catenary sign structure contracts of approximately $900,000.
(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 was 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.
NOTE 21.
OTHER SUBSEQUENT EVENTS
On January 13, 1999, the Company increased its investment in the Dakota,
Minnesota & Eastern Railroad Corporation (DM&E) by acquiring $6,000,000 of the
DM&E Series C Preferred Stock and Common stock warrants. On a fully diluted
basis, the Company owns approximately 16% of the DM&E's common stock. The
offering proceeds will be used by the DM&E to pay expenses incurred in
connection with its ongoing capital expenditure program and its current
operations, as well as to further its planned expansion into the low sulfur coal
fields of the Powder River Basin. The DM&E is a privately held regional railroad
with approximately 1,100 miles of track located principally in South Dakota and
Minnesota.
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, 1998 and 1997, and the related
consolidated statements of income, cash flows and stockholders' equity for each
of the three years in the period ended December 31, 1998. 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, 1998 and 1997, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1998, 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.
/s/Ernst & Young LLP
Pittsburgh, Pennsylvania
January 20, 1999
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,
the internal auditing department and our independent auditors to discuss the
adequacy of the internal accounting control, the quality of financial reporting
and the nature, extent and results of the audit effort. Both the internal
auditing department and the independent auditors have free access to the Finance
and Audit Committee.
/s/Lee B. Foster II
- -------------------
Lee B. Foster II
President and Chief Executive Officer
/s/Roger F. Nejes
- -----------------
Roger F. Nejes
Senior Vice President
Finance and Administration
and Chief Financial Officer
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
Part III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning the directors is set forth under "Election of Directors"
in the Company's Proxy Statement for the 1999 annual meeting of stockholders
("1999 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 52 Vice President - Fabricated Products
William S. Cook, Jr. 57 Vice President - Strategic Planning &
Acquisitions
Paul V. Dean 67 Senior Vice President - Piling Products
Samuel K. Fisher 46 Vice President - Rail Procurement
Dean A. Frenz 55 Senior Vice President - Rail Distribution
Products
Steven L. Hart 52 Vice President - Operations
Stan L. Hasselbusch 51 Executive Vice President and
Chief Operating Officer
David L. Minor 55 Vice President - Treasurer
Roger F. Nejes 56 Senior Vice President - Finance and
Administration and Chief Financial Officer
Henry M. Ortwein, Jr. 56 Senior Vice President - Rail Manufactured
Products
Linda K. Patterson 49 Controller
Robert W. Sigle 69 Vice President - Tubular Products
Linda M. Terpenning 53 Vice President - Human Resources
David L. Voltz 46 Vice President, General Counsel and
Secretary
Mr. Cipicchio was elected Vice President - Fabricated Products in August 1998.
Mr. Cipicchio joined the Company in May 1997 and initially held the position of
Vice President - Operations. Prior to joining the Company, Mr. Cipicchio was
Vice President of Operations for Omsco Industries, a supplier of drill string
components to the oil and gas industry.
Mr. Cook was elected Vice President - Strategic Planning & Acquisitions in
October 1993. Prior to joining the Company in March 1993 as Director of
Strategic Planning and Acquisitions, he was President of Cook Corporate
Development, a business and financial advisory firm.
Mr. Dean was elected Senior Vice President - Piling Products in May 1998, having
previously been a Vice President since September 1987. Mr. Dean joined the
Company in 1964.
Mr. Fisher was elected Vice President - Rail Procurement in October 1997, having
previously served as Vice President - Relay Rail since October 1996. Prior to
October 1996, he served in various other capacities with the Company since his
employment in 1977.
Mr. Frenz was elected Senior Vice President - Rail Distribution Products in
August 1998. Previously Mr. Frenz served as Senior Vice President - Rail
Products from December 1996 to August 1998, Senior Vice President - Rail and
Tubular Products from September, 1995, through November, 1996, and Senior Vice
President - Product Management from October 1993 to September 1995.
Mr. Frenz joined the Company in 1966.
Mr. Hart was elected Vice President - Operations in October, 1998 having
previously served as Vice President from December 1997 to October 1998 and in a
variety of capacities prior to December 1997. Mr. Hart joined the Company in
1977.
Mr. Hasselbusch was elected Executive Vice President and Chief Operating Officer
in January 1999 having previously served as Senior Vice President - Construction
and Tubular Products from December, 1996 to December 1998, Senior Vice President
- - Construction Products from September 1995 to December 1996, and as Senior Vice
President - Sales from October 1993 to September 1995. Mr. Hasselbusch joined
the Company in 1972.
Mr. Minor was elected Treasurer in February 1988 and was elected to the
additional office of Vice President in February 1997. Mr. Minor joined the
Company in 1983.
Mr. Nejes was elected Senior Vice President - Finance and Administration and
Chief Financial Officer in October 1993, previously having served as Vice
President - Finance and Chief Financial Officer from February 1988.
Mr. Ortwein was elected Senior Vice President - Rail Manufactured Products in
May 1998. Mr. Ortwein was Group Vice President - Rail Manufactured Products from
March 1997 to May 1998. Additionally, he served as Vice President - Rail
Manufacturing from October 1993 to March 1997. Mr. Ortwein joined the Company in
1992.
Ms. Patterson was elected Controller in February 1999, having previously served
as Assistant Controller since May 1997 and Manager of Accounting since March
1988. Prior to March 1988, she served in various other capacities with the
Company since her employment in 1977.
Mr. Sigle was elected Vice President - Tubular Products in December 1990. Mr.
Sigle joined the Company in 1965.
Ms. Terpenning was elected Vice President - Human Resources in October 1987. Ms.
Terpenning joined the Company in 1985.
Mr. Voltz was elected Vice President, General Counsel and Secretary in December
1987, having previously served as General Counsel and Secretary since December
1986. Mr. Voltz joined the Company in 1981.
Officers are elected annually at the organizational meeting of the Board of
Directors following the annual meeting of stockholders.
ITEM 11. EXECUTIVE COMPENSATION
The information set forth under "Executive Compensation" in the 1999 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 1999 Proxy Statement is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information set forth under "Certain Transactions" in the 1999 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 1998 have been included in Item 8 of this Report:
Consolidated Balance Sheets at December 31, 1998 and 1997.
Consolidated Statements of Income For the Three Years Ended December 31,
1998, 1997 and 1996.
Consolidated Statements of Cash Flows For the Three Years Ended December
31, 1998, 1997 and 1996.
Consolidated Statements of Stockholders' Equity for the Three Years Ended
December 31, 1998, 1997 and 1996.
Notes to Consolidated Financial Statements.
Report of Independent Auditors.
2. Financial Statement Schedule
Schedules for the Three Years Ended December 31, 1998, 1997 and 1996:
II - Valuation and Qualifying Accounts.
The remaining schedules are omitted because of the absence of the
conditions upon which they are required.
3. Exhibits
The exhibits marked with an asterisk are filed herewith. All exhibits are
incorporated herein by reference:
3.1 Restated Certificate of Incorporation as amended to date, filed
as Appendix B to the Company's April 17, 1998 Proxy Statement.
3.2 Bylaws of the Registrant, as amended to date, filed as Exhibit
3B to Form 8-K on May 21, 1997.
4.0 Rights Agreement, dated as of May 15, 1997, between L.B. Foster
Company and American Stock Transfer & Trust Company, including
the form of Rights Certificate and the Summary of Rights
attached thereto, filed as Exhibit 4A to Form 8-A dated May 23,
1997.
4.0.1 Amended Rights Agreement dated as of May 14, 1998 between L. B.
Foster Company and American Stock Transfer & Trust Company,
filed as Exhibit 4.0.1 to Form 10-Q for the quarter ended June
30, 1998.
4.1 Second Amended and Restated Loan Agreement by and among the
Registrant and Mellon Bank, N.A., PNC Bank, National Association
and First Union National Bank, dated as of August 13, 1998 and
filed as Exhibit 4.1 to Form 10-Q for the quarter ended
September 30, 1998.
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, filed as Exhibit 10.19 to Form 10-K for the year ended
December 31, 1991.
10.19.1 Amendment to Lease between the Registrant and American Cast Iron
Pipe Company for Pipe Coating Facility in Birmingham, Alabama
dated April 15, 1997, filed as Exhibit 10.19.1 to Form 10-Q for
the quarter ended March 31, 1997.
10.20 Asset Purchase Agreement, dated June 5, 1998 by and among the
Registrant and Northwest Pipe Company, filed as Exhibit 10.0 to
Form 8-K on June 18, 1998.
10.33.2 Amended and Restated 1985 Long Term Incentive Plan, as amended
and restated February 26, 1997, filed as Exhibit 10.33.2 to Form
10-Q for the quarter ended June 30, 1997. **
* 10.34 Amended and Restated 1998 Long-Term Incentive Plan for
Officers and Directors, as amended and restated February 24,
1999.
10.45 Medical Reimbursement Plan, filed as Exhibit 10.45 to Form 10-K
for the year ended December 31, 1992. **
10.46 Leased Vehicle Plan, as amended to date, filed as Exhibit 10.46
to Form 10-K for the year ended December 31, 1997. **
10.49 Lease agreement between Newport Steel Corporation and Registrant
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 and filed as Exhibit 10.49.1 to
Form 10-K for the year ended December 31, 1997.
* 10.50 L. B. Foster Company 1999 Incentive Compensation Plan. **
10.51 Supplemental Executive Retirement Plan, filed as Exhibit 10.51
to Form 10-K for the year ended December 31, 1994. **
19 Exhibits marked with an asterisk are filed herewith.
* 23.7 Consent of Independent Auditors.
* 27 Financial Data Schedule
** Identifies management contract or compensatory plan or arrange-
ment required to be filed as an Exhibit.
(b) Reports on Form 8-K
On May 21, 1998, the Registrant filed a Current Report on Form 8-K announcing
the reincorporation of the Company from Delaware to Pennsylvania effective May
14, 1998.
On June 18, 1998, the Registrant filed a Current Report on Form 8-K and an
Amended Current Report on Form 8-K/A announcing that L. B. Foster Company sold
its spiralweld pipe manufacturing facility to Northwest Pipe Company.
On June 24, 1998, the Registrant filed an Amended Current Report on Form 8-K/A,
amending the Current Report filed on Form 8-K on June 18, 1998. The Amended
Current Report provides pro forma financial information.
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 30, 1999
By /s/ Lee B. Foster II
Lee B. Foster II, President,
Chief Executive Officer and
Chairman of the Board)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
NAME POSITION DATE
- --------------------------------------------------------------------------------
By: /s/Lee B. Foster II President, Chief Executive March 30, 1999
(Lee B. Foster II) Officer, Chairman of the Board
and Director
By: /s/Henry J. Massman, IV Director March 30, 1999
(Henry J. Massman, IV)
By: /s/Roger F. Nejes Senior Vice President - March 30, 1999
(Roger F. Nejes) Finance & Administration
and Chief Financial Officer
By: /s/Linda K. Patterson Controller March 30, 1999
(Linda K. Patterson)
By: /s/John W. Puth Director March 30, 1999
(John W. Puth)
By: /s/William H. Rackoff Director March 30, 1999
(William H. Rackoff)
By: /s/Richard L. Shaw Director March 30, 1999
(Richard L. Shaw)
L. B. FOSTER COMPANY AND SUBSIDIARIES
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
(In Thousands)
Additions
-------------------
Balance at Charged to Balance
Beginning Costs and at End
of Year Expenses Other Deductions of Year
--------- ---------- ----- ---------- -------
1998
Deducted from assets
to which they apply:
Allowance for
doubtful accounts $1,468 $ 10 $ $ 40(1) $1,438
====== ======= ====== ======= ======
Provision for decline
in market
value of inventories $ 600 $ $ $ $ 600
====== ======= ====== ======= ======
Not deducted from assets:
Provision for special
termination benefits $ 12 $ $ $ 7(2) $ 5
====== ======= ====== ======= ======
Provision for environ-
mental compliance &
remediation $ 284 $ 184 $ $ 139(2) $ 329
====== ======= ====== ======= ======
1997
Deducted from assets
to which they apply:
Allowance for
doubtful accounts $1,803 $ 199 $ $ 534(1) $1,468
====== ======= ====== ======= ======
Provision for 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
====== ======= ====== ======= ======
(1) Notes and accounts receivable written off as uncollectible.
(2) Payments made on amounts accrued and reversals of accruals.