ITEM 1. BUSINESS
Summary Description of Businesses
L. B. Foster Company is engaged in the manufacture, fabrication and distribution of products that serve the nation's surface transportation infrastructure. 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 concrete ties, bonded rail joints, power rail, track fasteners, coverboards, signaling and communication devices, and special accessories for mass transit and other rail systems.
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 coatings for pipelines and utilities. The Company produces pipe-related products for special markets, including water wells and irrigation.
The Company classifies its activities into three business segments: rail products, construction products, and tubular products. Financial information concerning the segments is set forth in Note 20 to the financial statements included in the Company's Annual Report to Stockholders for 1999. 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
1999 1998 1997 - ------------------------------------------------------------------------------ Rail Products ........................... 61% 55% 51% Construction Products ................... 29% 24% 25% Tubular Products ........................ 10% 21% 24% - ------------------------------------------------------------------------------ 100% 100% 100% ==============================================================================
RAIL PRODUCTS
L. B. Foster Company's rail products include heavy and light rail, relay rail, concrete ties, 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, OH plant and iron clad ties from the Watson-Haas Lumber division in St. Mary's, WV. The Pomeroy, OH 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.
The Company's CXT subsidiary manufactures engineered concrete products for the railroad and transit industries. CXT's product line includes prestressed concrete railroad ties, grade railroad crossing panels, and precast concrete buildings.
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.
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 52 salespeople. The Company maintains 18 sales offices and 18 plants or warehouses nationwide. During 1999, less than 5% 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. The Company has become Chaparral Steel's exclusive North American distributor of steel sheet piling and "H" bearing pile. Shipments of "H" bearing pile began very late in the third quarter of 1999 from Chaparral's new Petersburg, VA facility, while current mill projections are to begin initial test rollings of sheet piling during the second quarter of 2000. The Company does not expect production of sheet piling in meaningful quantities until the third quarter of 2000. See Note 18 to the consolidated financial statements for additional information on this matter.
The Company's purchases from foreign suppliers are subject to the usual risks associated with changes in international conditions and to United States laws which could impose import restrictions on selected classes of products and antidumping duties if products are sold in the United States below certain prices.
BACKLOG
The dollar amount of firm, unfilled customer orders at December 31, 1999 and 1998 by segment follows:
(in thousands) December 31, 1999 December 31, 1998 - -------------------------------------------------------------------------------- Rail Products ............................ $111,078 $ 62,481 Construction Products .................... 41,842 42,542 Tubular Products ......................... 2,012 3,541 - -------------------------------------------------------------------------------- $154,932 $108,564 ================================================================================
Approximately $73,000,000 of the December 31, 1999 backlog is attributable to CXT, recently acquired as part of the rail segment. Aproximately 65% of the December 31, 1999 backlog is expected to be shipped in 2000.
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 stringent environmental regulations may have an adverse effect on the Company's future earnings.
EMPLOYEES AND EMPLOYEE RELATIONS
The Company has 719 employees, of whom 407 are hourly production workers and 312 are salaried employees. Approximately 233 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.
ITEM 2.
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.
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
Spokane, CXT concrete tie, 26 Rail 2003 Washington crossings and pre- cast plants. Yard storage.
Grand Island, CXT concrete tie 9 Rail 2003 Nebraska plant
Including the properties listed above, the Company has 18 sales offices and 18 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.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED MATTERS
Stock Market Information - ------------------------ The Company had 825 common shareholders of record on January 31, 2000. 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:
1999 1998 Quarter High Low High Low - -------------------------------------------------------------------------------- First $ 6 1/2 $ 4 9/16 $ 5 5/8 $ 4 3/8 - -------------------------------------------------------------------------------- Second 5 31/32 4 5/8 5 9/16 5 - -------------------------------------------------------------------------------- Third 5 15/16 4 13/16 5 7/8 4 3/8 - -------------------------------------------------------------------------------- Fourth 5 3/8 4 5/8 6 5/8 3 3/4 ================================================================================
Dividends - --------- No cash dividends were paid on the Company's Common stock during 1999 and 1998.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA (All amounts are in thousands except per share data)
Year Ended December 31, Income Statement Data 1999 1998(1)(2) 1997(1) 1996 1995 - -------------------------------------------------------------------------------- Net sales $ 241,923 $ 219,449 $ 220,343 $ 243,071 $ 264,985 - -------------------------------------------------------------------------------- Operating profit 9,327 8,478 7,912 8,195 6,769 - -------------------------------------------------------------------------------- Income from cont- inuing operations 4,618 5,065 3,765 3,858 5,043 Loss from discont- inued operations, net of tax (2,115) (688) (478) - -------------------------------------------------------------------------------- Net income before cumulative effect of change in account- ing principle 2,503 4,377 3,287 3,858 5,043 - -------------------------------------------------------------------------------- Net income 2,503 4,377 3,287 3,858 4,824 - -------------------------------------------------------------------------------- Basic earnings per common share: Continuing operations 0.48 0.51 0.37 0.39 0.51 Discontinued opera- tions (0.22) (0.07) (0.05) - -------------------------------------------------------------------------------- Basic earnings per common share before cumulative effect of change in accounting principle 0.26 0.44 0.32 0.39 0.51 - -------------------------------------------------------------------------------- Basic earnings per common share 0.26 0.44 0.32 0.39 0.49 - -------------------------------------------------------------------------------- Diluted earnings per common share: Continuing operations 0.46 0.50 0.37 0.38 0.50 Discontinued opera- tions (0.21) (0.07) (0.05) - -------------------------------------------------------------------------------- Diluted earnings per common share before cumulative effect of change in accounting principle 0.25 0.43 0.32 0.38 0.50 - -------------------------------------------------------------------------------- Diluted earnings per common share 0.25 0.43 0.32 0.38 0.48 ================================================================================
December 31, Balance Sheet Data 1999 1998 1997 1996 1995 - -------------------------------------------------------------------------------- Total assets $ 164,731 $ 119,434 $ 126,969 $ 123,004 $ 124,423 - -------------------------------------------------------------------------------- Working capital 67,737 54,604 60,096 62,675 57,859 - -------------------------------------------------------------------------------- Long-term debt 44,136 13,829 17,530 21,816 25,034 - -------------------------------------------------------------------------------- Stockholders' equity 74,650 73,494 70,527 67,181 63,173 ================================================================================
(1) 1998 and 1997 were restated to reflect the classification of the Monitor Group as a discontinued operation.
(2) In 1998, the Company recognized a pretax 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.
ITEM 7.
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, 1999 1998 1999 1998 1997 - -------------------------------------------------------------------------------- Net Sales: Rail Products $42,176 $38,322 $148,296 $121,271 $112,712 Construction Products 20,469 13,697 68,666 51,870 55,923 Tubular Products 3,700 8,850 24,676 46,044 51,762 Other 27 21 285 264 (54) - -------------------------------------------------------------------------------- Total Net Sales $66,372 $60,890 $241,923 $219,449 $220,343 ================================================================================ Gross Profit: Rail Products $ 7,092 $ 5,913 $ 21,440 $ 18,675 $ 15,025 Construction Products 3,734 2,384 12,671 9,440 9,608 Tubular Products 532 1,009 3,952 5,675 5,661 Other (339) 14 (978) (578) (652) - -------------------------------------------------------------------------------- Total Gross Profit 11,019 9,320 37,085 33,212 29,642 - -------------------------------------------------------------------------------- Expenses: Selling and Admin- istrative Expenses 7,980 7,114 27,758 24,734 21,730 Interest Expense 1,072 254 3,230 1,631 2,495 Other Income (293) (198) (1,184) (1,731) (475) - -------------------------------------------------------------------------------- Total Expenses 8,759 7,170 29,804 24,634 23,750 - -------------------------------------------------------------------------------- Income from Continuing Operations, Before Income Taxes 2,260 2,150 7,281 8,578 5,892 Income Tax Expense 859 932 2,663 3,513 2,127 - -------------------------------------------------------------------------------- Income from Continuing Operations $ 1,401 $ 1,218 $ 4,618 $ 5,065 $ 3,765 Loss from Discontinued Operations, Net of Tax $(1,448) $ (201) $ (2,115) $ (688) $ (478) - -------------------------------------------------------------------------------- Net Income $ (47) $ 1,017 $ 2,503 $ 4,377 $ 3,287 ================================================================================ Gross Profit %: Rail Products 16.8% 15.4% 14.5% 15.4% 13.3% Construction Products 18.2% 17.4% 18.5% 18.2% 17.2% Tubular Products 14.4% 11.4% 16.0% 12.3% 10.9% Total Gross Profit % 16.6% 15.3% 15.3% 15.1% 13.5% ================================================================================
FOURTH QUARTER OF 1999 VS. FOURTH QUARTER OF 1998
The income from continuing operations for the current quarter was $1.4 million or $0.15 per share. This compares to a 1998 fourth quarter income from continuing operations of $1.2 million or $0.13 per share. Net sales in 1999 were $66.4 million or 9% higher than the comparable quarter last year.
The fourth quarter of 1999 also includes a nonrecurring, non-cash charge of $1.2 million resulting from the Company's decision to classify the Monitor Group, the Company's portable mass spectrometer segment, as a discontinued operation, pending its sale. Fourth quarter net operating losses from the unit were $0.2 million in 1999 and 1998.
Rail products' net sales of $42.2 million increased 10% from the 1998 fourth quarter, primarily due to sales by the recently acquired CXT Incorporated (CXT). Construction products' net sales in the 1999 fourth quarter increased 49% from the year earlier quarter. This increase was the result of sales generated by the Foster Geotechnical and the Fabricated Products divisions' operations. Tubular products' net sales declined 58% from last year's fourth quarter as a result of closing the Company's Newport, KY pipe coating facility in September, 1998, along with lower production volume at the Company's Birmingham, AL pipe coating facility in the fourth quarter of 1999. 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 17% in the 1999 fourth quarter compared to 15% from the same period last year. The gross margin percentage for the rail products segment increased to 17% from 15% primarily due to CXT results. Construction products' gross margin percentage increased from 17% to 18% due to increased margins in fabricated products and geotechnical units which more than offset reduced margins in piling. The gross margin percentage for tubular products increased to 14% from 11%, in the fourth quarter of 1999 as a result of more efficient operations at the Langfield, TX pipe threading facility.
Selling and administrative expenses increased 12% from the same period last year principally due to the inclusion of expenses associated with CXT operations. Interest expense increased over the year earlier quarter due to an increase in outstanding borrowings associated with the acquisition of CXT. The income tax provision for the fourth quarter of 1999 was recorded at 38% compared to 43% in the same period last year due primarily to the effect of adjustments to prior year tax liabilities. See Note 13 to the consolidated financial statements for more information regarding income taxes.
THE YEAR 1999 COMPARED TO THE YEAR 1998
Income from continuing operations for 1999 was $4.6 million or $0.48 per share on net sales of $241.9 million. This compares to an income from continuing operations of $5.1 million or $0.51 per share for 1998 on net sales of $219.4 million.
Net operating losses from the Monitor Group, classified as a discontinued operation on December 31, 1999, were $0.9 million in 1999 versus $0.7 million in 1998.
Rail products' 1999 net sales were $148.3 million compared to $121.3 million in 1998. This 22% increase was primarily due to sales by CXT. Additionally, new rail and transit products' increased sales volumes offset lower volumes in Allegheny Rail Products and relay rail products' operations. Construction products' net sales rose 32% to $68.7 million in 1999, as the Company benefitted from an entire year of Foster Geotechnical sales, as well as increased volume of "H" bearing pile, flat web sheet piling, and fabricated products shipments. Net sales of tubular products declined 46% in 1999 as a result of the sale of the Company's Fosterweld division and the closing of the Newport, KY pipe coating facility.
The gross margin percentage for the Company was 15% in 1999 and 1998. Rail products' gross margin percentage declined 1% from 1998, primarily due to lower margins on certain relay rail, Allegheny Rail Products, and transit projects. The gross profit percentage for construction products remained at approximately 18% in 1999, as improved fabricated products and geotechnical margins offset reduced piling margins . Tubular products' gross margin percentage increased to 16% in 1999 from 12% in 1998 primarily due to more efficient operations at the Langfield, TX pipe threading facility, and the closure of the Newport, KY coated pipe facility.
Selling and administrative expenses for 1999 were 12% higher than in 1998. The increase was primarily due to added expenses associated with the operation of CXT, as well as an entire year of expenses related to the Company's geotechnical and rail technologies operations. Interest expense rose 98% due to an increase in outstanding borrowings, associated with the CXT acquisition. Other income in 1999 included dividend income and accrued interest on the DM&E stock owned by the Company. The provision for income taxes in 1999 is recorded at 37% versus 41% in 1998. The decrease in the effective tax rate from 1998 is due primarily to the effect of adjustments to prior year tax liabilities. See Note 13 to the consolidated financial statements for more information regarding income taxes.
THE YEAR 1998 COMPARED TO THE YEAR 1997
Income from continuing operations for 1998 was $5.1 million or $0.51 per share on net sales of $219.4 million. This compares to an income from continuing operations of $3.8 million or $0.37 per share for 1997 on net sales of $220.3 million.
Net operating losses from the Monitor Group, classified as a discontinued operation on December 31, 1999, were $0.7 million in 1998 versus $0.5 million in 1997.
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% in 1997 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, KY facility.
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 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, TX 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.
LIQUIDITY AND CAPITAL RESOURCES
The Company generates internal cash flow from the sale of inventory and the collection of accounts receivable. During 1999, the average turnover rate for accounts receivable was lower than in 1998 due to slower collections of certain transit and fabricated products' projects. The average turnover rate for inventory was higher in 1999 than in 1998 primarily in coated pipe products. Working capital at December 31, 1999 was $67.7 million compared to $54.6 million in 1998.
The Company completed an initial 500,000 share buy-back of its common stock in January 1999. The cost of this program which commenced in 1997, was $2.8 million. During the first quarter of 1999, the Company announced another program to purchase up to an additional 1,000,000 shares. As of December 31, 1999, 225,298 shares had been purchased under this program at a cost of $1.3 million.
Excluding the CXT acquisition, the Company had capital expenditures, including capital leases, of $6.5 million, in 1999. Capital expenditures in 2000, excluding acquisitions, are expected to be approximately $4.0 million and are anticipated to be funded by cash flow from operations.
Total revolving credit agreement borrowings at December 31, 1999, were $45.0 million, an increase of $32.7 million from the end of the prior year. At December 31, 1999, the Company had $11.7 million in unused borrowing commitment. Outstanding letters of credit at December 31, 1999, were $2.7 million. Management believes its internal and external sources of funds are adequate to meet anticipated needs.
Effective June 1999, the Company's $45.0 million revolving credit agreement was amended and increased to $70.0 million. On December 30, 1999, the Company reduced the revolving credit agreement to $65.8 million. 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 (LIBOR). The interest rates are established quarterly based upon cash flow and the level of outstanding borrowings to debt as defined in the agreement. Interest rates range from prime to prime plus 0.25%, the CD rate plus 0.575% to 1.8%, LIBOR rate plus .575% to 1.8%. Borrowings under the agreement, which expires July 1, 2003, are secured by eligible accounts receivable, inventory, and the pledge of the Company held Dakota Minnesota & Eastern Railroad Preferred stock.
The agreement includes financial convenants requiring a minimum net worth, a minimum level for the fixed charge coverage ratio, and a maximum level for the consolidated total indebtedness to EBITDA ratio. The agreement also restricts investments, indebtedness, and the sale of certain assets.
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 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). 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 it 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 September 1998, the Company suspended production at its Newport, KY pipe coating facility due to unfavorable market conditions. Management intends to dispose of the assets and has reclassified the machinery and equipment as assets held for resale.
On June 30, 1999, the Company acquired CXT, based in Spokane, WA. CXT is a manufacturer of engineered prestressed and precast concrete products primarily used in the railroad and transit industries. The addition of CXT is viewed by management as an opportunity to vertically integrate the Company's transit products segment and to increase the Company's product offerings to Class I railroads.
In August 1999, the Company executed an agreement to sell, subject to certain contingencies, an undeveloped 62 acre portion of a 127 acre Houston, TX property for approximately $2.0 million. The sale, if consummated, is expected to be completed by the end of the first quarter of 2000 and will not have a material impact on the Company's earnings.
The Company continues to explore the divestiture of its real estate located in Doraville, GA, as well as its Mining division, which is comprised of facilities and inventory located at Pomeroy, OH and St. Marys, WV.
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.
IMPACT OF YEAR 2000
In prior years, the Company discussed the nature and progress of its plans to become Year 2000 ready. In January, 1999, the Company completed its remediation and testing of systems. As a result of those planning and implementation efforts, the Company experienced no significant disruptions in mission-critical information technology and non-information technology systems and believes those systems successfully responded to the Year 2000 date change. 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.
The Company is not aware of any material problems resulting from Year 2000 issues, either with its products, its internal systems, or the products and services of third parties. The Company will continue to monitor its mission critical computer applications and those of its suppliers and vendors throughout the year to ensure that any latent year 2000 matters that may arise are addressed promptly.
OUTLOOK
Revenues from piling products declined following the closure of Bethlehem's structural mill in April 1997 and continue to be at reduced levels as the Company's remaining sheet piling inventory is liquidated. The Company has become Chaparral Steel's exclusive North American distributor of steel sheet piling and "H" bearing pile. Shipments of "H" bearing pile began very late in the third quarter of 1999 from Chaparral's new Petersburg, VA facility, while current mill projections are to begin initial test rollings of Z-shaped sheet piling during the second quarter of 2000. The Company does not expect production of Z-shaped sheet piling in meaningful quantities until the third quarter of 2000.
The rail segment of the business depends on one source for fulfilling certain trackwork contracts. At December 31, 1999, the Company had $9.7 million committed to this supplier including inventory progress payments, a note receivable, equipment, and other receivables, principally interest charges on inventory 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's CXT subsidiary and Allegheny Rail Products division are dependent on one customer for a significant portion of their business. In addition, a substantial portion of the Company's operations is heavily dependent on governmental funding of infrastructure projects. Significant changes in the level of government funding of these projects could have a favorable or unfavorable impact on the operating results of the Company. Additionally, 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, 1999, was approximately $154.9 million. The following table provides the backlog by business segment.
December 31, (in thousands) 1999 1998 1997 - -------------------------------------------------------------------------------- Backlog: Rail Products excluding CXT $ 41,685 $ 62,481 $ 51,584 CXT 69,393 Construction Products 41,842 42,542 23,284 Tubular Products excluding Fosterweld 2,012 3,541 1,660 Fosterweld 2,295 - -------------------------------------------------------------------------------- Total Backlog $154,932 $ 108,564 $ 78,823 ================================================================================
MARKET RISK AND RISK MANAGEMENT POLICIES
The Company is not subject to significant exposure to change in foreign currency exchange rates. The Company does hedge the cash flows of the operations of its Canadian 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, the Company had foreign currency forward contracts to purchase $200,000 Canadian for approximately $137,000 US.
The Company has entered into an interest rate swap agreement as the fixed rate payor to reduce the impact of changes in interest rates on a portion of its revolving borrowings. At December 31, 1999, the swap agreement had a notional value of $8,000,000 at 5.48%, and expires in January 2001. The swap agreement's floating rate is based on LIBOR. Any amount paid or received under the agreement is recognized as an adjustment to interest expense. Neither the fair market value of the agreement nor the interest expense adjustments associated with the agreement 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, the expense of environmental mitigation measures required by the Surface Transportation Board, 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. Additional delays in Chaparral's production of steel sheet piling would, for example, have an adverse effect on the Company's performance. Except for historical information, matters discussed in such oral and written communications are forward-looking statements that involve risks and uncertainties, including but not limited to general business conditions, the availability of material from major suppliers, the impact of competition, the seasonality of the Company's business, taxes, inflation and governmental regulations. Sentences containing words such as "anticipates", "expects", or "will" generally should be considered forward-looking statements.
/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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
L. B. FOSTER COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1999 AND 1998
ASSETS (in thousands) 1999 1998 - -------------------------------------------------------------------------------- CURRENT ASSETS: Cash and cash equivalents $ 1,558 $ 874 Accounts receivable - net 53,112 47,283 Inventories 45,601 36,159 Current deferred tax assets 1,925 Other current assets 981 614 Property held for resale 2,856 - -------------------------------------------------------------------------------- Total Current Assets 106,033 84,930 - -------------------------------------------------------------------------------- PROPERTY, PLANT AND EQUIPMENT - NET 30,126 20,433 - -------------------------------------------------------------------------------- PROPERTY HELD FOR RESALE 4,203 615 - -------------------------------------------------------------------------------- OTHER ASSETS: Goodwill and other intangibles - net 7,474 3,791 Investments 8,610 1,693 Net assets of discontinued operations 2,174 Deferred tax assets 1,720 Other assets 6,565 5,798 - -------------------------------------------------------------------------------- Total Other Assets 24,369 13,456 - -------------------------------------------------------------------------------- TOTAL ASSETS $164,731 $119,434 ================================================================================ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Current maturities of long-term debt $ 1,141 $ 1,098 Short-term borrowings 5,000 2,275 Accounts payable - trade 24,446 19,667 Accrued payroll and employee benefits 3,619 4,498 Current deferred tax liabilities 1,857 334 Other accrued liabilities 2,233 2,454 - -------------------------------------------------------------------------------- Total Current Liabilities 38,296 30,326 - -------------------------------------------------------------------------------- LONG-TERM DEBT 44,136 13,829 - -------------------------------------------------------------------------------- DEFERRED TAX LIABILITIES 6,293 678 - -------------------------------------------------------------------------------- OTHER LONG-TERM LIABILITIES 1,356 1,107 - -------------------------------------------------------------------------------- COMMITMENTS AND CONTINGENT LIABILITIES (Note 17) - -------------------------------------------------------------------------------- STOCKHOLDERS' EQUITY Common stock, issued 10,228,739 shares in 1999 and 1998 102 102 Paid-in capital 35,377 35,431 Retained earnings 42,505 40,002 Treasury stock - at cost, Common stock, 590,133 shares in 1999 and 378,233 shares in 1998 (3,364) (2,046) Accumlated other comprehensive income 30 5 - -------------------------------------------------------------------------------- Total Stockholders' Equity 74,650 73,494 - -------------------------------------------------------------------------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $164,731 $119,434 ================================================================================ See Notes to Consolidated Financial Statements.
L. B. FOSTER COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE YEARS ENDED DECEMBER 31, 1999
(in thousands, except per share data) 1999 1998 1997 - -------------------------------------------------------------------------------- NET SALES $241,923 $219,449 $220,343 - -------------------------------------------------------------------------------- COSTS AND EXPENSES: Cost of goods sold 204,838 186,237 190,701 Selling and administrative expenses 27,758 24,734 21,730 Interest expense 3,230 1,631 2,495 Other income (1,184) (1,731) (475) - -------------------------------------------------------------------------------- 234,642 210,871 214,451 - -------------------------------------------------------------------------------- INCOME FROM CONTINUING OPERATIONS, BEFORE INCOME TAXES 7,281 8,578 5,892 INCOME TAX EXPENSE 2,663 3,513 2,127 - -------------------------------------------------------------------------------- INCOME FROM CONTINUING OPERATIONS 4,618 5,065 3,765 - -------------------------------------------------------------------------------- LOSS FROM DISCONTINUED OPERATIONS, NET OF TAX (2,115) (688) (478) - -------------------------------------------------------------------------------- NET INCOME $2,503 $ 4,377 $ 3,287 ================================================================================
BASIC EARNINGS PER COMMON SHARE: CONTINUING OPERATIONS $0.48 $0.51 $ 0.37 DISCONTINUED OPERATIONS (0.22) (0.07) (0.05) - -------------------------------------------------------------------------------- BASIC EARNINGS PER COMMON SHARE $0.26 $0.44 $ 0.32 ================================================================================
DILUTED EARNINGS PER COMMON SHARE: CONTINUING OPERATIONS $0.46 $0.50 $ 0.37 DISCONTINUED OPERATIONS (0.21) (0.07) (0.05) - -------------------------------------------------------------------------------- DILUTED EARNINGS PER COMMON SHARE $0.25 $0.43 $ 0.32 ================================================================================
1998 and 1997 results have been restated to reflect the classification of the Monitor Group segment as a discontinued operation.
See Notes to Consolidated Financial Statements.
L. B. FOSTER COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE YEARS ENDED DECEMBER 31, 1999
(in thousands) 1999 1998 1997 - -------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Income from continuing operations $4,618 $5,065 $3,765 Adjustments to reconcile net income to net cash provided by operating activities: Deferred income taxes (133) 581 1,251 Depreciation and amortization 4,493 2,825 2,537 Loss (gain) on sale of property, plant and equipment 76 (1,360) (112) Change in operating assets and liabilities: Accounts receivable 2,243 1,766 3,471 Inventory (5,839) 3,253 787 Property held for resale (30) 261 (54) Other current assets (208) (46) (159) Other noncurrent assets (839) (2,673) (340) Accounts payable - trade 544 8,394 (8,742) Accrued payroll and employee benefits (1,576) 1,490 (537) Other current liabilities 862 1,731 (671) Other liabilities 249 (1,099) 328 - -------------------------------------------------------------------------------- Net Cash Provided by Continuing Operations 4,460 20,188 1,524 Net Cash Used by Dis- continued Operations (1,159) (968) (620) - -------------------------------------------------------------------------------- Net Cash Provided by Operating Activities 3,301 19,220 904 - -------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from the sale of property, plant and equipment 4,410 1,269 1,578 Proceeds from the sale of Fosterweld division 7,258 Capital expenditures on property, plant and equipment (5,001) (2,775) (2,063) Purchase of DM&E stock (6,000) (1,500) Acquisition of business (17,514) (3,774) (6,739) - -------------------------------------------------------------------------------- Net Cash (Used) Provided by Investing Activities (24,105) 1,978 (8,724) - -------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds (repayments) of revolving credit agreement borrowings 32,725 (20,836) 9,111 Proceeds from industrial revenue bond 2,045 Exercise of stock options and stock awards 330 412 571 Treasury share transactions (1,702) (1,808) (531) Repayments of long-term debt (9,881) (1,293) (1,376) - -------------------------------------------------------------------------------- Net Cash Provided (Used) by Financing Activities 21,472 (21,480) 7,775 - -------------------------------------------------------------------------------- Effect of exchange rate changes on cash 16 - -------------------------------------------------------------------------------- Net Increase (Decrease) in Cash and Cash Equivalents 684 (282) (45) Cash and Cash Equivalents at Beginning of Year 874 1,156 1,201 - -------------------------------------------------------------------------------- Cash and Cash Equivalents at End of Year $1,558 $ 874 $ 1,156 ================================================================================ SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Interest Paid $2,376 $1,839 $2,493 ================================================================================ Income Taxes Paid $2,869 $2,136 $627 ================================================================================
During 1999, 1998 and 1997, the Company financed certain capital expenditures totaling $1,502,000, $336,000 and $33,500, 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, 1999 Accum- ulated Other Compre- (in thousands, Common Paid-in Retained Treasury hensive except share data) Stock Capital Earnings Stock Income Total ================================================================================ Balance, January 1, 1997 $102 $35,276 $32,338 $(535) $67,181 ================================================================================ Net Income 3,287 3,287 Other comprehensive income net of tax: Minimum pension lia- bility adjustment $19 19 - -------------------------------------------------------------------------------- Comprehensive income 3,306 Exercise of options to purchase 190,000 shares of 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 trans- lation losses (14) (14) - -------------------------------------------------------------------------------- Comprehensive income 4,363 Exercise of options to purchase 93,200 shares of Common stock (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 ================================================================================ Net Income 2,503 2,503 Other comprehensive income net of tax: Foreign currency trans- lation adjustment 25 25 - -------------------------------------------------------------------------------- Comprehensive income 2,528 Exercise of options to purchase 39,000 shares of Common stock (54) 384 330 Treasury stock purchases of 288,809 shares (1,702) (1,702) ================================================================================ Balance, December 31, 1999 $102 $35,377 $42,505 $(3,364) $30 $74,650 ================================================================================ 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. Approximately 14% in 1999 and 5% in 1998 of the Company's inventory is 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 3 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 10 to 20 years. Useful life is established at the time of acquisition based upon the estimated period of future benefit. 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 $660,000, $513,000 and $178,000 in 1999, 1998 and 1997, 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 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. In June 1999, FASB Statement No. 137, "Accounting for Derivative Instruments and Hedging Activities: Deferral of Effective Date of the FASB Statement No. 133," was issued. This statement delays the effective date to all fiscal quarters of all fiscal years beginning after June 15, 2000. This statement will be adopted by the Company in 2001 and is not expected to have a material effect on the consolidated financial statements.
FOREIGN CURRENCY TRANSLATION - To avoid foreign exchange exposure whenever possible, hedging techniques are used to protect transaction costs and profits.
NOTE 2. ACCOUNTS RECEIVABLE
Accounts receivable at December 31, 1999 and 1998 are summarized as follows:
(in thousands) 1999 1998 - -------------------------------------------------------------------------------- Trade $53,665 $47,921 Allowance for doubtful accounts (1,555) (1,438) Other 1,002 800 - -------------------------------------------------------------------------------- $53,112 $47,283 ================================================================================
The Company's customers are principally in the rail, construction and tubular segments of the economy. As of December 31, 1999 and 1998, trade receivables, net of allowance for doubtful accounts, from customers in these markets were as follows:
(in thousands) 1999 1998 - -------------------------------------------------------------------------------- Rail $33,278 $30,676 Construction 17,116 12,478 Tubular 1,716 3,329 - -------------------------------------------------------------------------------- $52,110 $46,483 ================================================================================
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, 1999 and 1998 are summarized as follows:
(in thousands) 1999 1998 - -------------------------------------------------------------------------------- Finished goods $28,755 $26,877 Work-in-process 13,000 7,520 Raw materials 6,298 4,546 - -------------------------------------------------------------------------------- Total inventories at current costs 48,053 38,943 ================================================================================ Less: Current cost over LIFO stated values (1,852) (2,184) Inventory valuation reserve (600) (600) - -------------------------------------------------------------------------------- $45,601 $36,159 ================================================================================
At December 31, 1999 and 1998, the LIFO carrying value of inventories for book purposes exceeded the LIFO carrying value for tax purposes by approximately $4,106,000 and $4,427,000, respectively. During 1999 and 1998, 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 1999 and 1998 was to increase cost of goods sold by $531,000 and $146,000, respectively.
NOTE 4. PROPERTY HELD FOR RESALE
Property held for resale at December 31, 1999 and 1998 consists of the following:
(in thousands) 1999 1998 - -------------------------------------------------------------------------------- Location: Norcross, GA $ 3,055 Houston, TX 1,511 Newport, KY 1,345 Pomeroy, OH 665 St. Marys, WV 483 Marrero, LA $ 615 - -------------------------------------------------------------------------------- Property held for resale 7,059 615 - -------------------------------------------------------------------------------- Less current portion 2,856 - -------------------------------------------------------------------------------- $ 4,203 $ 615 ================================================================================
The Norcross, GA location consists of buildings and approximately 28 acres of land, which are being underutilized in the Company's business.
In the second quarter of 1998, the Company recorded an impairment write-down to the recorded value of the entire parcel of land at the Houston, TX location 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. A portion of the remaining Houston property is utilized in the Company's rail, construction and tubular operating segments.
In August 1999, the Company executed an agreement to sell, subject to certain contingencies, an undeveloped 62-acre portion of a 127-acre Houston, TX property for approximately $2,000,000. The sale, if consummated, is expected to be completed by the end of the first quarter of 2000 and will not have a material impact on the Company's earnings.
The Newport, KY location consisting of machinery and equipment was included in the Company's coated pipe division of the tubular products segment. Due to unfavorable market conditions, management suspended operations in September 1998 and intends to dispose of the assets. An impairment loss of $183,000 was recorded in 1999 in anticipation of the disposal cost.
The St. Marys, WV and Pomeroy, OH locations, consisting of machinery and equipment, buildings, land and land improvements which comprise the Company's Mining division of the rail products segment, were determined not to meet the Company's long-range strategic goals. The Company continues to explore the divestiture of these assets.
The Marrero, LA location was formerly leased to a third party, but is currently planned to be used for yard storage in the future. This land has been reclassified to property, plant and equipment.
NOTE 5. DISCONTINUED OPERATIONS
In the fourth quarter of 1999, the Company made the decision to classify the Monitor Group, a developer of portable mass spectrometers, as a discontinued operation, pending its sale. Accordingly, the operating results of the Monitor Group, including a complete write-off of assets have been segregated from continuing operations and reported as separate line items on the financial statements.
The Company has restated its financial statements to reflect the operating results of the Monitor Group as a discontinued operation, for the prior periods presented.
Operating results, excluding corporate interest charges, from discontinued operations are as follows:
(in thousands) 1999 1998 1997 - -------------------------------------------------------------------------------- Net sales $ 73 $ 26 Cost of goods sold 1,276 985 $ 565 Selling and admin- istrative expenses 144 206 183 - -------------------------------------------------------------------------------- Operating loss (1,347) (1,165) (748) Provision for disposal of assets (1,984) - -------------------------------------------------------------------------------- Loss before income taxes (3,331) (1,165) (748) Income tax credits (1,216) (477) (270) - -------------------------------------------------------------------------------- Loss from discontinued operations ($2,115) ($ 688) ($ 478) ================================================================================
The asset write-off consists of the following components, in thousands:
Intangibles .................$1,764 Inventory ................... 209 Equipment ................... 11 ------ $1,984 ======
NOTE 6. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at December 31, 1999 and 1998 consists of the following:
(in thousands) 1999 1998 - -------------------------------------------------------------------------------- Land $ 3,138 $ 6,038 Improvements to land and leaseholds 4,632 4,458 Buildings 3,382 3,879 Machinery and equipment, including equipment under capitalized leases (see Note 14, Rental and Lease Information) 38,877 28,558 Construction in progress 1,718 626 - -------------------------------------------------------------------------------- 51,747 43,559 - -------------------------------------------------------------------------------- Less accumulated depreciation and amortization, including accumulated amortization of capitalized leases (see Note 14, Rental and Lease Information) 21,621 23,126 - -------------------------------------------------------------------------------- $30,126 $20,433 ================================================================================
NOTE 7. OTHER ASSETS AND INVESTMENTS
At December 31, 1999 and 1998, other assets include notes receivable and accrued interest totaling $2,679,000 and $2,445,000, 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 $7,693,000 and $1,693,000 at December 31, 1999 and 1998, respectively. This investment is comprised of $193,000 of DM&E Common Stock, $1,500,000 of DM&E's Series B Preferred Stock and Common Stock warrants, and $6,000,000 in DM&E Series C Preferred Stock and warrants. The Company has accrued dividend income on the Series B and C Preferred Stock of $872,000 and $78,750 in 1999 and 1998, respectively. 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, 1999 and 1998, the Company has classified as noncurrent a $2,000,000 note receivable from a major trackwork supplier (see Note 18, Risks and Uncertainties).
NOTE 8. BORROWINGS
Effective June 1999, the Company's $45,000,000 revolving credit agreement was amended and increased to $70,000,000. On December 30, 1999, the Company reduced the revolving credit agreement to $65,800,000. 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 (LIBOR). The interest rates are established quarterly based upon cash flow and the level of outstanding borrowings to debt as defined in the agreement. Interest rates range from prime, to prime plus 0.25%, the CD rate plus 0.575% to 1.8%, and the LIBOR rate plus 0.575% to 1.8%. Borrowings under the agreement, which expires July 1, 2003, are secured by eligible accounts receivable, inventory, and the pledge of the Company-held Dakota, Minnesota & Eastern Railroad Corporation Preferred Stock.
The agreement includes financial covenants requiring a minimum net worth, a minimum level for the fixed charge coverage ratio and a maximum level for the consolidated total indebtedness to EBITDA ratio. The agreement also restricts investments, indebtedness, and the sale of certain assets.
As of December 31, 1999, the Company was in compliance with all the agreement's covenants. At December 31, 1999, 1998 and 1997, the weighted average interest rate on short term borrowings was 6.78%, 6.95% and 7.06%, respectively. At December 31, 1999, the Company had borrowed $45,000,000 under the agreement of which $40,000,000 was classified as long-term (see Note 9). Under the agreement, the Company had approximately $11,667,000 in unused borrowing commitment at December 31, 1999.
NOTE 9. LONG-TERM DEBT AND RELATED MATTERS
Long-term debt at December 31, 1999 and 1998 consists of the following:
(in thousands) 1999 1998 - -------------------------------------------------------------------------------- Revolving Credit Agreement with weighted average interest rate of 6.78% at December 31, 1999 and 6.95% at December 31, 1998, expiring July 1, 2003 $40,000 $10,000 - -------------------------------------------------------------------------------- Lease obligations payable in installments through 2004 with a weighted average interest rate of 8.07% at December 31, 1999 and 7.99% at December 31, 1998 3,232 2,882 - -------------------------------------------------------------------------------- Massachusetts Industrial Revenue Bond with an average interest rate of 3.53% at December 31, 1999 and 3.73% at December 31, 1998, payable March 1, 2013 2,045 2,045 - -------------------------------------------------------------------------------- 45,277 14,927 Less current maturities 1,141 1,098 - -------------------------------------------------------------------------------- $44,136 $13,829 ================================================================================
The $40,000,000 revolving credit borrowings included in long-term debt were obtained under the revolving loan agreement discussed in Note 8 and are subject to the same terms and conditions. This portion of the borrowings is classified as long-term because the Company does not anticipate reducing the borrowings below $40,000,000 during 2000.
The Massachusetts Industrial Revenue Bond is secured by a $2,085,000 standby letter of credit.
The Company has entered into an interest rate swap agreement as the fixed rate payor to reduce the impact of changes in interest rates on a portion of its revolving borrowings. At December 31, 1999, the swap agreement had a notional value of $8,000,000 at 5.48%, expiring in January 2001. The swap agreement's floating rate is based on LIBOR. Any amounts paid or received under the agreement are recognized as adjustments to interest expense. Neither the fair market value of the agreement nor the interest expense adjustments associated with the agreement has been material.
The maturities of long-term debt for each of the succeeding five years subsequent to December 31, 1999 are as follows: 2000 - $1,141,000; 2001 - $837,000; 2002 - $693,000; 2003 - $40,417,000; 2004 and after - $2,189,000.
NOTE 10. STOCKHOLDERS' EQUITY
At December 31, 1999 and 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 authorized the purchase of up to 1,500,000 shares of its Common stock at prevailing market prices. The timing and extent of the purchases will depend on market conditions. 1,500,000 shares represent approximately 15% of the Company's outstanding Common stock. As of December 31, 1999, the Company had repurchased 725,298 shares at a total cost of approximately $4,040,600.
No cash dividends on Common stock were paid in 1999, 1998, or 1997.
NOTE 11. 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 (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, as amended and restated in February 1999, provides for the award of options to key employees and directors to purchase up to 450,000 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 from unissued Common stock or previously issued shares which have been reacquired by the Company and held as Treasury shares. At December 31, 1999, 1998 and 1997, Common stock options outstanding under the Plans had option prices ranging from $2.63 to $6.00, with a weighted average price of $4.24, $3.96 and $3.71 per share, respectively.
The weighted average remaining contractual life of the stock options outstanding for the three years ended December 31, 1999 are: 1999 - 6.3 years; 1998 - 5.9 years; and 1997 - 5.2 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 1999, 1998 or 1997.
Options exercised during 1999, 1998 and 1997 totaled 39,000, 93,200 and 190,000 shares, respectively. The weighted average exercise price per share of the options in 1999, 1998 and 1997 was $3.35, $3.31 and $3.00, respectively.
Certain information for the three years ended December 31, 1999 relative to employee stock options is summarized as follows:
1999 1998 1997 - -------------------------------------------------------------------------------- Number of shares under Incentive Plan: Outstanding at begin- ning of year 967,500 858,500 944,000 Granted 135,000 215,000 141,500 Canceled (113,000) (12,800) (37,000) Exercised (39,000) (93,200) (190,000) - -------------------------------------------------------------------------------- Outstanding at end of year 950,500 967,500 858,500 ================================================================================ Exercisable at end of year 656,875 723,875 659,250 ================================================================================ Number of shares available for future grant: Beginning of year 5,550 182,750 287,250 ================================================================================ End of year 408,550 5,550 182,750 ================================================================================
The weighted average fair value of options granted at December 31, 1999, 1998, and 1997 was $2.68, $2.40 and $2.94, 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) 1999 1998 1997 - -------------------------------------------------------------------------------- Net income from continuing operations $4,478 $4,887 $3,726 Loss from discontinued operations, net of tax (2,115) (688) (478) - -------------------------------------------------------------------------------- Net income $2,363 $4,199 $3,248 ================================================================================ Basic earnings per common share: Continuing operations $ 0.46 $ 0.49 $ 0.37 Discontinued operations (0.22) (0.07) (0.05) - -------------------------------------------------------------------------------- Basic earnings per common share $ 0.24 $ 0.42 $ 0.32 ================================================================================ Diluted earnings per common share: Continuing operations $ 0.45 $ 0.49 $ 0.37 Discontinued operations (0.21) (0.07) (0.05) - -------------------------------------------------------------------------------- Diluted earnings per common share $ 0.24 $ 0.42 $ 0.32 ================================================================================
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 1999, 1998 and 1997, respectively: risk-free interest rates of 6.14% , 4.77% and 6.29%; dividend yield of 0.0% for all three years; volatility factors of the expected market price of the Company's Common stock of .30, .31 and .38; and a weighted average expected life of the option of ten years.
NOTE 12. EARNINGS PER COMMON SHARE
The following table sets forth the computation of basic and diluted earnings per common share:
(in thousands, except Years ended December 31, per share amounts) 1999 1998 1997 - -------------------------------------------------------------------------------- Numerator: Numerator for basic and diluted earnings per common share - net income available to common stockholders: Income from continuing operations $ 4,618 $ 5,065 $ 3,765 Loss from discontinued operations (2,115) (688) (478) - -------------------------------------------------------------------------------- Net income $ 2,503 $ 4,377 $ 3,287 ================================================================================ Denominator: Weighted average shares 9,664 9,988 10,122 - -------------------------------------------------------------------------------- Denominator for basic earn- ings per common share 9,664 9,988 10,122
Effect of dilutive securities: Contingent issuable shares pursuant to the Company's 1998 & 1997 Bonus Plan 51 15 Employee stock options 231 205 165 - -------------------------------------------------------------------------------- Dilutive potential common shares 282 220 165 Denominator for diluted earnings per common share - adjusted weighted average shares and assumed conversions 9,946 10,208 10,287 ================================================================================ Basic earnings per common share: Continuing operations $ 0.48 $ 0.51 $ 0.37 Discontinued operations (0.22) (0.07) (0.05) - -------------------------------------------------------------------------------- Basic earnings per common share $ 0.26 $ 0.44 $ 0.32 ================================================================================ Diluted earnings per common share: Continuing operations $ 0.46 $ 0.50 $ 0.37 Discontinued operations (0.21) (0.07) (0.05) - -------------------------------------------------------------------------------- Diluted earnings per common share $ 0.25 $ 0.43 $ 0.32 ================================================================================ Weighted average antidilutive stock options 42 54 36 ================================================================================
NOTE 13. INCOME TAXES
At December 31, 1999 and 1998 the tax benefit of net operating loss carryforwards available for foreign and state income tax purposes was approximately $1,063,000 and $631,000, respectively. The Company also has alternative minimum federal tax credit carryforwards at December 31, 1999 and 1998, of approximately $430,000 and $131,000, respectively. For financial reporting purposes, a valuation allowance of $460,000 at December 31, 1999 and $125,000 at December 31, 1998 has been recognized to offset the deferred tax assets related to the foreign and 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, 1999 and 1998, are as follows:
(in thousands) 1999 1998 - -------------------------------------------------------------------------------- Deferred tax liabilities: Depreciation $ 5,537 $ 1,318 Inventories 1,154 1,272 - -------------------------------------------------------------------------------- Total deferred tax liabilities 6,691 2,590 ================================================================================ Deferred tax assets: Accounts receivables 531 533 Net operating loss carryforwards 1,063 631 Tax credit carryforwards 430 131 Other - net 622 408 - -------------------------------------------------------------------------------- Total deferred tax assets 2,646 1,703 Valuation allowance for deferred tax assets 460 125 - -------------------------------------------------------------------------------- Deferred tax assets 2,186 1,578 - -------------------------------------------------------------------------------- Net deferred tax liability $ (4,505) $ (1,012) ================================================================================
The valuation allowance for deferred tax assets was increased by $335,000 during 1999 and reduced by $25,000 during 1998.
Significant components of the provision for income taxes are as follows:
(in thousands) 1999 1998 1997 - -------------------------------------------------------------------------------- Current: Federal $2,746 $2,594 $ 736 State 50 338 140 - -------------------------------------------------------------------------------- Total current 2,796 2,932 876 - -------------------------------------------------------------------------------- Deferred: Federal 8 507 1,082 Foreign 32 (106) State (173) 180 169 - -------------------------------------------------------------------------------- Total deferred (133) 581 1,251 ================================================================================ Total income tax expense $2,663 $3,513 $ 2,127 ================================================================================
The reconciliation of income tax computed at statutory rates to income tax expense (benefit) is as follows:
1999 1998 1997 - -------------------------------------------------------------------------------- Statutory rate 34.0% 34.0% 34.0% State income tax (2.1) 4.6 4.0 Foreign income tax 8.4 1.3 Nondeductible expenses 3.9 1.8 1.7 Prior period tax (7.0) (0.3) (3.6) Other (0.6) (0.4) - -------------------------------------------------------------------------------- 36.6% 41.0% 36.1% ================================================================================
NOTE 14. RENTAL AND LEASE INFORMATION
The Company has capital and operating leases for certain plant facilities, office facilities, and equipment. Rental expense for the years ended December 31, 1999, 1998, and 1997 amounted to $2,449,000, $1,885,000 and $1,801,000, respectively. Generally, the land and building leases include escalation clauses.
On December 30, 1999, the Company entered into a $4,200,000 sale-leaseback transaction whereby the Company sold and leased back the assets of the Grand Island, NE facility. The resulting lease is being accounted for as an operating lease. There was no gain or loss recorded on the sale. The lease base term is five years with balloon payment options at amounts approximating fair value at the end of the base term. The interest rate for this transaction is 7.42% with escalation provisions if LIBOR exceeds 7.249%.
The following is a schedule, by year, of the future minimum payments under capital operating leases, together with the present value of the net minimum payments as of December 31, 1999:
Capital Operating (in thousands) Leases Leases - -------------------------------------------------------------------------------- Year ending December 31, 2000 $ 1,355 $ 2,723 2001 976 2,507 2002 765 2,412 2003 511 1,898 2004 and thereafter 146 2,653 - -------------------------------------------------------------------------------- Total minimum lease payments 3,753 $12,193 Less amount representing interest 521 - -------------------------------------------------------------------------------- Total present value of minimum payment 3,232 Less current portion of such obligations 1,141 - -------------------------------------------------------------------------------- Long-term obligations with interest rates ranging from 3.66% to 8.86% $2,091 ================================================================================
Assets recorded under capital leases are as follows:
(in thousands) 1999 1998 - -------------------------------------------------------------------------------- Machinery and equipment at cost $4,117 $6,867 Construction in progress 180 - -------------------------------------------------------------------------------- 4,297 6,867 Less accumulated amortization 1,757 3,291 - -------------------------------------------------------------------------------- Net property, plant and equipment 2,540 3,576 - -------------------------------------------------------------------------------- Machinery and equipment held for resale, at cost 2,046 Less accumulated amortization/ valuation 843 - -------------------------------------------------------------------------------- Net property held for resale 1,203
Net prepaid expenses 121 45 - -------------------------------------------------------------------------------- Net capital lease assets $3,864 $3,621 ================================================================================
NOTE 15. ACQUISITIONS
On June 30, 1999, the Company acquired all of the outstanding stock of CXT Incorporated, a Spokane, WA based manufacturer of engineered prestressed and precast concrete products primarily used in the railroad and transit industries. The purchase price of $17,514,000 has been preliminarily allocated based on the estimated fair values of the assets acquired and liabilities assumed. This allocation has resulted in acquired goodwill of approximately $4,221,000, which is being amortized on a straight-line basis over twenty years. The Company expects to finalize all purchase accounting adjustments within one year of the acquisition, none of which is expected to be significant.
In 1998, the Company purchased assets related to the business of supplying rail signaling and communication devices for $1,668,000. In addition, 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 supplier of mechanically stabilized earth systems.
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 liabilities 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 ten years, with the exception of CXT Incorporated. Pro forma results of the acquisitions, excluding CXT, assuming they had been made at the beginning of each year, would not be materially different from reported results.
Had the CXT acquisition been made at the beginning of 1998, the Company's pro forma unaudited results would have been:
Twelve Months Ended (in thousands, except December 31, per share amounts) 1999 1998 - -------------------------------------------------------------------------------- Net sales $261,588 $251,553 Income from continuing operations 4,762 4,213 Basic earnings per share from continuing operations $0.49 $0.42 ================================================================================
The unaudited pro forma results have been prepared for comparative purposes only and do not purport to be indicative of the results of operations which would have actually resulted had the acquisition been in effect on January 1, 1998, or of future results of operations.
NOTE 16. RETIREMENT PLANS
Substantially all of the Company's hourly paid employees are covered by one of the Company's noncontributory, defined benefit plans and a defined contribution plan. Substantially all of the Company's salaried employees are covered by a defined contribution plan established by the Company.
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) 1999 1998 - -------------------------------------------------------------------------------- CHANGES IN BENEFIT OBLIGATION: Benefit obligation at beginning of year $ 2,295 $ 2,163 Service cost 77 85 Interest cost 155 147 Actuarial losses 8 8 Benefits paid (83) (108) - -------------------------------------------------------------------------------- Benefit obligation at end of year $ 2,452 $ 2,295 ================================================================================ CHANGE TO PLAN ASSETS: Fair value of assets at beginning of year $ 2,287 $ 2,138 Actual return on plan assets 468 212 Employer contribution 46 45 Benefits paid (83) (108) - -------------------------------------------------------------------------------- Fair value of assets at end of year $ 2,718 $ 2,287 ================================================================================ Funded status $ 266 $ (8) Unrecognized actuarial gain (478) (200) Unrecognized net transition asset (83) (92) Unrecognized prior service cost 73 81 Minimum pension liability (18) (61) - -------------------------------------------------------------------------------- Net amount recognized $ (240) $ (280) ================================================================================ Amounts recognized in the statement of financial position consist of: Prepaid benefit cost $ (213) $ (204) Accrued benefit liability (27) (76) Intangible asset 18 61 Minimum pension liability (18) (61) Accumulated other comprehensive income - -------------------------------------------------------------------------------- Net amount recognized $ (240) $ (280) ================================================================================
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 ended December 31, 1999 are as follows:
(in thousands) 1999 1998 1997 - -------------------------------------------------------------------------------- COMPONENTS OF NET PERIODIC BENEFIT COST: Service cost $ 77 $ 85 $ 82 Interest cost 155 147 138 Actual return on plan assets (468) (212) (293) Amortization of prior service cost (2) 7 8 Recognized actuarial gain 287 31 135 - -------------------------------------------------------------------------------- Net periodic benefit cost $ 49 $ 58 $ 70 ================================================================================
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, 1999.
Amounts applicable to the Company's pension plan with accumulated benefit obligations in excess of plan assets are as follows:
(in thousands) 1999 1998 1997 - -------------------------------------------------------------------------------- Projected benefit obligation $ 657 $ 575 $ 531 Accumulated benefit obligation 657 575 531 Fair value of plan assets 629 499 411 ================================================================================
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 defined contribution plan expense was $863,000 in 1999, $874,000 in 1998, and $756,000 in 1997.
NOTE 17. COMMITMENTS AND CONTINGENT LIABILITIES
The Company is subject to laws and regulations relating to the protection of the environment, and the Company's efforts to comply with increasingly stringent environmental regulations may have an adverse effect on the Company's future earnings. In the opinion of management, compliance with the present environmental protection laws will not have a material adverse effect on the financial condition, competitive position, or capital expenditures of the Company.
The Company is subject to legal proceedings and claims which arise in the ordinary course of its business. In the opinion of management, the amount of ultimate liability with respect to these actions will not materially affect the financial position of the Company.
At December 31, 1999, the Company had outstanding letters of credit of approximately $2,653,000.
NOTE 18. RISKS AND UNCERTAINTIES
The Company's future operating results may be affected by a number of factors. The Company is dependent upon a number of major suppliers. If a supplier had operational problems or ceased making material available to the Company, operations could be adversely affected.
Revenues from piling products declined following the closure of Bethlehem's structural mill in April 1997, and continue to be at reduced levels, as the majority of the Company's sheet piling inventory has been liquidated since the closure. The Company has become Chaparral Steel's exclusive North American distributor of steel sheet piling and "H" bearing pile. Shipments of "H" bearing pile began very late in the third quarter of 1999 from Chaparral's new Petersburg, Virginia facility while current mill projections are to begin initial test rollings of Z-shaped sheet piling during the second quarter of 2000. The Company does not expect production of Z-shaped sheet piling in meaningful quantities until the third quarter of 2000.
The rail segment of the business depends on one source for fulfilling certain trackwork contracts. At December 31, 1999, the Company had committed to this supplier $9,700,000 including inventory progress payments, a note receivable, equipment, and other receivables, principally interest charges on inventory 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's CXT subsidiary and Allegheny Rail Products division are dependent on one customer for a significant portion of their business. In addition, 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 19. 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, 1999 approximate fair value.
NOTE 20. BUSINESS SEGMENTS
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 and tubular products and was previously engaged in the manufacture and distribution of 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 concrete ties, bonded rail joints, power rail, track fasteners, 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's Fabricated Products division sells bridge decking, heavy steel fabrications, expansion joints, sign structures and other products for highway construction and repair. The Company's Geotechnical division designs and supplies mechanically-stabilized earth wall systems.
The Company's tubular segment supplies 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 portable mass spectrometer segment, the Monitor Group, was classified as a discontinued operation on December 31, 1999. Prior period results have been adjusted to reflect this classification (see Note 5, Discontinued Operations).
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, assets, depreciation/ amortization and capital expenditures of the Company by segment. Segment profit 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.
(in thousands) 1999 - -------------------------------------------------------------------------------- Depreci- Expend- ation/ itures for Net Segment Segment Amortiz- Long-Lived Sales Profit Assets ation Assets - -------------------------------------------------------------------------------- Rail Products $148,296 $ 4,080 $ 91,089 $ 775 $ 20,125 Construction Products 68,666 2,296 31,786 975 3,465 Tubular Products 24,676 1,889 8,270 772 323 - -------------------------------------------------------------------------------- Total $241,638 $ 8,265 $131,145 $ 2,522 $ 23,913 ================================================================================
(in thousands) 1998 - -------------------------------------------------------------------------------- Depreci- Expend- ation/ itures for Net Segment Segment Amortiz- Long-Lived Sales Profit Assets ation 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 - -------------------------------------------------------------------------------- Total $219,185 $ 8,569 $100,000 $ 2,180 $ 3,835 ================================================================================
(in thousands) 1997 - -------------------------------------------------------------------------------- Depreci- Expend- ation/ itures for Net Segment Segment Amortiz- Long-Lived Sales Profit Assets ation 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 - -------------------------------------------------------------------------------- Total $220,397 $ 5,745 $107,393 $ 1,964 $ 6,569 ================================================================================
Sales to any individual customer do not exceed 10% of consolidated revenues. Sales between segments are immaterial.
Reconciliations of reportable segment net sales, profit, assets, depreciation and amortization, and expenditures for long-lived assets to the Company's consolidated totals are illustrated as follows (in thousands):
Net Sales 1999 1998 1997 - -------------------------------------------------------------------------------- Total for reportable segments $ 241,638 $ 219,185 $ 220,397 Other net sales 285 264 (54) - -------------------------------------------------------------------------------- $ 241,923 $ 219,449 $ 220,343 ================================================================================
Net Profit - -------------------------------------------------------------------------------- Total for reportable segments $ 8,265 $ 8,569 $ 5,745 Adjustment of inventory to LIFO 332 426 (536) Unallocated other income 1,184 1,731 475 Other unallocated amounts (2,500) (2,148) 208 - -------------------------------------------------------------------------------- Income from continuing operations, before income taxes $ 7,281 $ 8,578 $ 5,892 ================================================================================
Assets - -------------------------------------------------------------------------------- Total for reportable segments $ 131,145 $ 100,000 $ 107,393 Unallocated corporate assets 27,527 13,919 12,409 LIFO and market value inventory reserves (2,452) (2,784) (3,210) Unallocated property, plant and equipment 8,511 8,299 10,377 - -------------------------------------------------------------------------------- Total assets $ 164,731 $ 119,434 $ 126,969 ================================================================================
Depreciation/Amortization - -------------------------------------------------------------------------------- Total reportable for segments $ 2,522 $ 2,180 $ 1,964 Other 1,971 645 573 - -------------------------------------------------------------------------------- $ 4,493 $ 2,825 $ 2,537 ================================================================================
Expenditures for Long-Lived Assets - -------------------------------------------------------------------------------- Total for reportable segments $ 23,913 $ 3,835 $ 6,569 Expenditures included in acqui- sition of business (17,961) (1,069) (6,589) Expenditures financed under capital leases (1,386) Expenditures included in Property Held for Sale (30) (60) (272) Other unallocated expenditures 465 69 2,355 - -------------------------------------------------------------------------------- $ 5,001 $ 2,775 $ 2,063 ================================================================================
Approximately 98% 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 21. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Quarterly financial information for the years ended December 31, 1999 and 1998 is presented below:
(in thousands, except per share amounts) 1999 - -------------------------------------------------------------------------------- First Second Third Fourth Quarter(1) Quarter(1) Quarter(1)(2) Quarter(2) Total - -------------------------------------------------------------------------------- Net sales $53,783 $58,743 $63,025 $66,372 $241,923 - -------------------------------------------------------------------------------- Gross profit $ 7,159 $ 8,945 $ 9,962 $11,019 $ 37,085 - -------------------------------------------------------------------------------- Income from cont- inuing operations $ 694 $ 1,497 $ 1,026 $ 1,401 $ 4,618 - -------------------------------------------------------------------------------- Loss from discont- inued operations ($ 234) ($ 259) ($ 174) ($ 1,448) ($ 2,115) - -------------------------------------------------------------------------------- Net income/(loss) $ 460 $ 1,238 $ 852 ($ 47) $ 2,503 ================================================================================ Basic earnings per common share: From continuing operations $ 0.07 $ 0.15 $ 0.11 $ 0.15 $ 0.48 From discontinued operations ($ 0.02) ($ 0.03) ($ 0.02) ($ 0.15) ($ 0.22) - -------------------------------------------------------------------------------- Basic earnings per common share $ 0.05 $ 0.12 $ 0.09 $ 0.00 $ 0.26 ================================================================================ Diluted earnings per common share: From continuing operations $ 0.07 $ 0.15 $ 0.11 $ 0.14 $ 0.46 From discontinued operations ($ 0.02) ($ 0.03) ($ 0.02) ($ 0.14) ($ 0.21) - -------------------------------------------------------------------------------- Diluted earnings per common share $ 0.05 $ 0.12 $ 0.09 $ 0.00 $ 0.25 ================================================================================ (1) The first, second and third quarters were restated to reflect the classification of the Monitor Group segment as a discontinued operation. (2) The second half results reflect the June 30, 1999 acquisition of CXT, Incorporated which accounted for the majority of the reported sales increase.
(in thousands, except per share amounts) 1998 - -------------------------------------------------------------------------------- First Second Third Fourth Quarter(1) Quarter(1)(2) Quarter(1)(3) Quarter(1) Total(1) - -------------------------------------------------------------------------------- Net sales $49,341 $58,850 $50,368 $60,890 $219,449 - -------------------------------------------------------------------------------- Gross profit $ 7,309 $ 9,135 $ 7,448 $ 9,320 $ 33,212 Income from cont- inuing operations $ 867 $ 2,106 $ 874 $ 1,218 $ 5,065 - -------------------------------------------------------------------------------- Loss from discont- inued operations ($ 161) ($ 165) ($ 161) ($ 201) ($ 688) - -------------------------------------------------------------------------------- Net income $ 706 $ 1,941 $ 713 $ 1,017 $ 4,377 ================================================================================ Basic earnings per common share: From continuing operations $ 0.09 $ 0.21 $ 0.08 $ 0.13 $ 0.51 From discontinued operations ($ 0.02) ($ 0.02) ($ 0.01) ($ 0.02) ($ 0.07) - -------------------------------------------------------------------------------- Basic earnings per common share $ 0.07 $ 0.19 $ 0.07 $ 0.11 $ 0.44 ================================================================================ Diluted earnings per common share: From continuing operations $ 0.09 $ 0.21 $ 0.08 $ 0.12 $ 0.50 From discontinued operations ($ 0.02) ($ 0.02) ($ 0.01) ($ 0.02) ($ 0.07) - -------------------------------------------------------------------------------- Diluted earnings per common share $ 0.07 $ 0.19 $ 0.07 $ 0.10 $ 0.43 ================================================================================ (1) All quarters of 1998 were restated to reflect the classification of the Monitor Group segment as a discontinued operation. (2) The second quarter includes a pretax gain on the sale of the Fosterweld division of approximately $1,700,000 and a $900,000 write-down for a property subject to a sale negotiation. (3) The third quarter included a provision for losses relating to certain catenary sign structure contracts of approximately $900,000.
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, 1999 and 1998, and the related consolidated statements of income, cash flows and stockholders' equity for each of the three years in the period ended December 31, 1999. 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 auditing standards generally accepted in the United States. 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, 1999 and 1998, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States. 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 25, 2000
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 Lee B. Foster II Chairman of the Board and Chief Executive Officer
/s/Roger F. Nejes Roger F. Nejes Senior Vice President Finance and Administration and Chief Financial Officer
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10.
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 2000 annual meeting of stockholders ("2000 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
Alec C. Bloem 49 Senior Vice President - Concrete Products
Anthony G. Cipicchio 53 Vice President - Fabricated Products
William S. Cook, Jr. 58 Vice President - Strategic Planning & Acquisitions
Paul V. Dean 68 Senior Vice President - Piling Products
Samuel K. Fisher 47 Vice President - Rail Procurement
Dean A. Frenz 56 Senior Vice President - Rail Distribution Products
Steven L. Hart 53 Vice President - Operations
Stan L. Hasselbusch 52 President and Chief Operating Officer
David L. Minor 56 Vice President - Treasurer
Roger F. Nejes 57 Senior Vice President - Finance and Administration and Chief Financial Officer
Henry M. Ortwein, Jr. 57 Senior Vice President - Rail Manufactured Products
Linda K. Patterson 50 Controller
Gary E. Ryker 50 Executive Vice President - Rail Products
Robert W. Sigle 70 Vice President - Tubular Products
Linda M. Terpenning 54 Vice President - Human Resources
David L. Voltz 47 Vice President, General Counsel and Secretary
Mr. Bloem was elected Senior Vice President - Concrete Products in March 2000, having previously served as Vice President Geotechnical and Precast Division from October 1999, and President - Geotechnical Division from August 1998. Prior to joining the Company in August 1998, Mr. Bloem served as Vice President- VSL Corporation.
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, Mr. Cook 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 President and Chief Operating Officer in March, 2000 having previously served as Executive Vice President and Chief Operating Officer from January 1999, 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. Ryker was elected Executive Vice President - Rail Products in March 2000. Prior to joining the Company in March 2000, Mr. Ryker served from February 1999 as President of Motor Coils Manufacturing, a manufacturer of equipment for locomotives, as President and Chief Executive Officer of Union Switch & Signal Inc., a signaling company, from September 1997 to August 1998, and as Executive Vice President of Harmon Industries, a signaling company, from April 1992 until September 1997.
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. 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.
ITEM 11. EXECUTIVE COMPENSATION
The information set forth under "Executive Compensation" in the 2000 Proxy Statement is incorporated herein by reference.
ITEM 12.
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 2000 Proxy Statement is incorporated herein by reference.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information set forth under "Certain Transactions" in the 2000 Proxy Statement is incorporated herein by reference.
PART IV
ITEM 14.
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 1999 have been included in Item 8 of this Report:
Consolidated Balance Sheets at December 31, 1999 and 1998.
Consolidated Statements of Income For the Three Years Ended December 31, 1999, 1998 and 1997.
Consolidated Statements of Cash Flows For the Three Years Ended December 31, 1999, 1998 and 1997.
Consolidated Statements of Stockholders' Equity for the Three Years Ended December 31, 1999, 1998 and 1997.
Notes to Consolidated Financial Statements.
Report of Independent Auditors.
2. FINANCIAL STATEMENT SCHEDULE
Schedules for the Three Years Ended December 31, 1999, 1998 and 1997:
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 Third 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 June 30, 1999 and filed as Exhibit 4.1 to Form 10-Q for the quarter ended June 30, 1999.
* 10.12 Lease between CXT Incorporated and Pentzer Development Corporation, dated April 1, 1993.
* 10.12.1 Amendment dated March 12, 1996 to lease between CXT Incorporated and Pentzer Corporation.
* 10.13 Lease between CXT Incorporated and Crown West Realty, L.L.C., dated December 20, 1996.
* 10.14 Lease between CXT Incorporated and Pentzer Development Corporation, dated November 1, 1991.
* 10.15 Lease between CXT Incorporated and Union Pacific Railroad Company, dated February 13, 1998.
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.
10.21 Stock Purchase Agreement dated June 3, 1999, by and among the Registrant and the shareholders of CXT Incorporated, filed as Exhibit 10.0 to Form 8-K on July 14, 1999.
10.33.2 Amended and Restated 1985 Long Term Incentive Plan, as amended and restated February 26, 1997, filed as Exhibit 10.33.2 to Form 10-Q for the quarter ended June 30, 1997. **
10.34 Amended and Restated 1998 Long-Term Incentive Plan for Officers and Directors, as amended and restated February 24, 1999 and filed as Exhibit 10.34 to Form 10-K for the year ended December 31, 1998. **
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. **
* 10.50 L. B. Foster Company 2000 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 arrangement required to be filed as an Exhibit.
(b) Reports on Form 8-K
On July 14, 1999, the Registrant filed a Current Report on Form 8-K announcing the June 30, 1999 purchase of all outstanding stock of CXT Incorporated.
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 28, 2000 By /s/ Lee B. Foster II (Lee B. Foster II, 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 Chief Executive March 28, 2000 (Lee B. Foster II) Officer, Chairman of the Board and Director
By: /s/Henry J. Massman, IV Director March 28, 2000 (Henry J. Massman, IV)
By: /s/ Roger F. Nejes Senior Vice President - March 28, 2000 (Roger F. Nejes) Finance & Administration and Chief Financial Officer
By: /s/Linda K. Patterson Controller March 28, 2000 (Linda K. Patterson)
By: /s/John W. Puth Director March 28, 2000 (John W. Puth)
By: /s/William H. Rackoff Director March 28, 2000 (William H. Rackoff)
By: /s/ Richard L. Shaw Director March 28, 2000 (Richard L. Shaw)
L. B. FOSTER COMPANY AND SUBSIDIARIES SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997 (In Thousands)
Additions ------------------ Balance at Charged to Balance Beginning Costs and at End of Year Expenses Other Deductions of Year ---------- ----------- ----- ---------- ------- Deducted from assets to which they apply: Allowance for doubtful accounts $ 1,438 $ 180 $ - $ 63 (1) $1,555 ================================================================================ Provision for de- cline in market value of inven- tories $ 600 $ - $ - $ - $ 600 ================================================================================
Not deducted from assets: Provision for special termina- tion benefits $ 5 $ - $ - $ - $ 5 ================================================================================
Provision for environmental compliance & remediation $ 329 $ 12 $ - $ 127 (2) $ 214 ================================================================================
Deducted from assets to which they apply: Allowance for doubtful accounts $ 1,468 $ 10 $ - $ 40 (1) $1,438 ================================================================================
Provision for de- cline in market value of inven- tories $ 600 $ - $ - $ - $ 600 ================================================================================
Not deducted from assets: Provision for special termina- tion benefits $ 12 $ - $ - $ 7 (2) $ 5 ================================================================================
Provision for environmental compliance & remediation $ 284 $ 184 $ - $ 139 (2) $ 329 ================================================================================
Deducted from assets to which they apply: Allowance for doubtful accounts $ 1,803 $ 199 $ - $ 534 (1) $1,468 ================================================================================
Provision for de- cline in market value of inven- tories $ 600 $ - $ - $ - $ 600 ================================================================================
Not deducted from assets: Provision for special termina- tion benefits $ 22 $ 1 $ - $ 11 (2) $ 12 ================================================================================
Provision for environmental compliance & remediation $ 242 $ 61 $ - $ 19 (2) $ 284 ================================================================================ (1) Notes and accounts receivable written off as uncollectible. (2) Payments made on amounts accrued and reversals of accruals.