2014

L.B. Foster Reports Second Quarter Operating Results Takes Charge for Product Claim

Record Order Entry for Quarter

PITTSBURGH, Aug. 8, 2012 /PRNewswire/ -- L.B. Foster Company (NASDAQ: FSTR), a leading manufacturer, fabricator, and distributor of products and services for rail, construction, energy and utility markets, today reported its second quarter 2012 operating results highlighted by a record for orders booked during any quarter in its history of $212.3 million.  The Company also announced a $19.0 million pre-tax charge ($1.27 per diluted share) related to a product warranty claim the Company has been investigating since July 2011.

Second Quarter Results

  • Second quarter net sales of $164.9 million decreased by $6.6 million or 3.8% due to a 32.0% decline in Construction segment sales, partially offset by a 14.1% increase in Rail segment sales and a 44.4% increase in Tubular segment sales.
  • Gross profit margin was 7.7%, 720 basis points lower than the prior year, due to the $19.0 million warranty charge recorded in the second quarter to reflect management's best estimate of the cost it expects to incur to settle a product claim related to concrete railroad ties manufactured in our Grand Island, NE facility that was shut down in February 2011.  Gross profit in the second quarter of 2011 included $4.4 million ($0.26 per diluted share) of unfavorable gross profit adjustments related to the closure of this facility and certain warranty costs.  Excluding concrete tie charges from both second quarter periods would result in gross profit margins of 19.2% in 2012 compared to 17.5% in 2011.
  • Second quarter loss from continuing operations was $3.2 million or $0.31 per diluted share compared to income from continuing operations of $6.2 million or $0.59 per diluted share last year.  Excluding concrete tie charges from both second quarter periods, second quarter earnings from continuing operations per diluted share would have been $0.87 and $0.86 in 2012 and 2011, respectively.
  • Second quarter bookings were $212.3 million compared to $125.3 million last year, an increase of 69.4%.  The June 2012 backlog was $255.3 million, 34.4% higher than June 2011.
  • Selling and administrative expense increased by $0.6 million or 3.6%, due principally to the costs related to concrete tie testing as well as increased salaries and benefits expenses.  Approximately $1.2 million ($0.08 per diluted share) of incentive compensation expense was reversed in the second quarter of 2012 as a result of the warranty adjustment.
  • The Company's income tax rate from continuing operations was 27.3% compared to 30.3% in the prior year.
  • Cash provided from continuing operating activities for the second quarter of 2012 was $5.8 million compared to cash used by continuing operating activities of $5.8 million in the second quarter of 2011.
  • The Company sold the assets and liabilities of its railway load securement business during the second quarter of 2012 to Holland L.P.  The operating results of this division as well as a $3.5 million pre-tax gain on the sale have been classified as discontinued operations.

CEO Comments

Robert P. Bauer, L.B. Foster's President and Chief Executive Officer, commented,  "For the last three quarters, we have been reporting on the status of the Union Pacific warranty claim involving the performance of concrete ties made at our Grand Island facility between 2006 and 2011.  We have completed sufficient testing and analysis that has helped us better understand Union Pacific's concern.  In a combined effort, we analyzed ties in Union Pacific track.  In parallel, we conducted more significant forensic analyses of our own.  Based upon our findings, we believe we have discovered conditions that can shorten the life of a concrete tie.  All of this testing, analysis and recent findings, as well as our ability to perform field testing during the second quarter, were critical steps to enable us to uncover and define the scope of the problem and, ultimately, the corrective action plan.  We have taken a $19.0 million charge this quarter to support our corrective action plan.  While we are eager to put this problem behind us, we are also very focused on proceeding in a manner that will satisfy our customers."   

Mr. Bauer went on to say, "It is important to note that our underlying business performance was very good this quarter.  Excluding the charge, diluted EPS from continuing operations would have been $0.87 and our backlog ended the quarter at $255.3 million.  The record bookings this quarter is a reflection of our customer's confidence in L.B. Foster.  Winning several marquee projects this quarter has raised our confidence in the rail and energy markets."

Product Warranty Claim

L.B. Foster has taken a warranty charge of $19.0 million.  This charge is based upon the number of ties that do not meet our quality standards and will require replacement.  We believe the conditions causing the quality issues were largely concentrated during a manufacturing period between 2006 and 2007.  In addition to the Union Pacific, we are in the process of handling other customer claims as well.  While the Company is making every effort to satisfy customer concerns, no assurance can be given:

i. that our customers will agree to our estimates used to settle these claims;
ii. that we will not have to provide more replacement ties in order to settle these claims, which would result in additional warranty charges;
iii. regarding the ultimate outcome and cost of potential litigation if these claims are not settled.

Business Segment Highlights
($000)

Rail  Segment

Rail segment sales increased 14.1% driven by strong sales in our core new rail and concrete tie businesses, and the insulated joint product line.  We continue to see rail customers embrace our friction management products which also had a good quarter including strong operating margins in the United States.  We received our largest order ever ($60 million) for an elevated transit system in Honolulu, HI and capital spending by the Class 1 railroads should continue through the year and has contributed to a very strong backlog at our concrete tie manufacturing plants for the remainder of 2012.  The $19.0 million tie adjustment negatively impacted gross profit in 2012.


2012

2011

  Variance

Sales

$101,369

$88,824

14.1%

Gross Profit

$1,798

$13,025


Gross Profit  %

1.8%

14.7%


Construction Segment

Construction sales declined 32.0% in the quarter.  This comparison was due principally to the Piling product line, although all construction segment businesses experienced declines.  Our CXT buildings business was up in the quarter compared to the prior two quarters.  The recently announced transportation bill was viewed by most as a 27 month extension of SAFETEA-LU.  Despite the tough market conditions, we were able to keep gross profit margins in line with the prior year period.


2012

2011

  Variance

Sales

$49,624

$73,026

(32.0%)

Gross Profit

$7,416

$11,123


Gross Profit  %

14.9%

15.2%


Tubular Segment

Tubular product sales were very strong in the second quarter as end markets in oil & gas and water well applications are driven by energy and agriculture.  The growth in these two sectors should continue in 2012, but at a lower rate than the first half.  Our Birmingham, AL coating facility has implemented a second shift due to the current backlog and our expectation that this sector will remain strong through 2013. Gross profit margins reached 29.0% reflecting considerable leverage on the higher sales and our ability to efficiently run the plants. 


2012

2011

  Variance

Sales

$13,949

$9,661

44.4%

Gross Profit

$4,039

$2,487


Gross Profit  %

29.0%

25.7%


First Half 2012 Results

  • Net sales for the first six months of 2012 decreased by $6.0 million or 2.1%, due to a 25.2% decline in Construction segment sales, partially offset by a 10.8% increase in Rail segment sales and a 50.8% improvement in Tubular segment sales.
  • Gross profit margin was 12.4%, 240 basis points lower than the prior year period due to the aforementioned concrete tie warranty charge.
  • Selling and administrative expenses increased $2.4 million or 7.6% from the prior year due primarily to concrete tie testing costs as well as salaries and benefits expense, partially offset by the incentive compensation reversal required due to the product claim warranty charge.  
  • Income from continuing operations was less than $0.1 million or $0.00 per diluted share compared to $6.8 million or $0.65 per diluted share in 2011.
  • Cash provided from continuing operating activities was $3.5 million for the first half of 2012 compared to $9.6 million of cash used by continuing operating activities in 2011.

L.B. Foster Company will conduct a conference call and webcast to discuss its second quarter 2012 operating results on Wednesday August 8, 2012 at 11:00am ET.  The call will be hosted by Mr. Robert Bauer, President and Chief Executive Officer.  Listen via audio on the L.B. Foster web site: www.lbfoster.com, by accessing the Investor Relations page.  The replay can also be heard via telephone at (888) 843-7419 by entering pass code 33046212#.

This release may contain forward-looking statements that involve risks and uncertainties. Statements that do not relate strictly to historical or current facts are forward-looking. When we use the words "believe," "intend," "expect," "may," "should," "anticipate," "could," "estimate," "plan," "predict," "project," or their negatives, or other similar expressions, the statements which include those words are usually forward-looking statements. Actual results could differ materially from the results anticipated in any forward-looking statement.  Accordingly, investors should not place undue reliance on forward-looking statements as a prediction of actual results. The Company has based these forward-looking statements on current expectations and assumptions about future events. While the Company considers these expectations and assumptions to be reasonable, they are inherently subject to significant business, economic, competitive, regulatory and other risks and uncertainties, most of which are difficult to predict and many of which are beyond the Company's control. The risks and uncertainties that may affect the operations, performance and results of the Company's business and forward-looking statements include, but are not limited to, an economic slowdown in the markets we serve; a decrease in freight or passenger rail traffic; a lack of state or federal funding for new infrastructure projects; an increase in manufacturing or material costs; resolution of the product claim and the Inspector General subpoena; and those matters set forth in Item 8, Footnote 21, "Commitments and Contingent Liabilities" and in Item 1A, "Risk Factors" of the Company's Form 10-K for the year ended December 31, 2011, as updated by any subsequent Form 10-Qs.  The Company urges all interested parties to read these reports to gain a better understanding of the many business and other risks that the Company faces.  The forward-looking statements contained in this press release are made only as of the date hereof, and the Company assumes no obligation and does not intend to update or revise these statements, whether as a result of new information, future events or otherwise.

Contact

David Russo  

Phone: 412.928.3417  

L.B. Foster Company


Email: Investors@Lbfoster.com

415 Holiday Drive


Website: www.lbfoster.com

Pittsburgh, PA 15220

 

L.B. FOSTER COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In Thousands, Except Per Share Amounts)





















Three Months Ended


Six Months Ended



June 30,


June 30,



2012


2011


2012


2011



(Unaudited)


(Unaudited)










NET SALES


$164,942


$171,511


$280,905


$286,857










COSTS AND EXPENSES:









Cost of goods sold


152,212


145,945


246,020


244,338

Selling and administrative expenses


16,801


16,210


33,919


31,532

Amortization expense


697


701


1,394


1,398

Interest expense


123


135


263


273

(Gain) loss on joint venture


(309)


(196)


(332)


(283)

Interest income


(94)


(94)


(194)


(150)

Other (income) expense


(122)


(46)


(608)


41



169,308


162,655


280,462


277,149










(LOSS) INCOME FROM CONTINUING OPERATIONS,









BEFORE INCOME TAXES


(4,366)


8,856


443


9,708










INCOME TAX (BENEFIT) EXPENSE


(1,193)


2,679


427


2,937










(LOSS) INCOME FROM CONTINUING OPERATIONS


(3,173)


6,177


16


6,771










INCOME FROM DISCONTINUED OPERATIONS,









BEFORE INCOME TAXES


3,320


302


3,608


434










INCOME TAX EXPENSE


2,217


106


2,325


153










INCOME FROM DISCONTINUED OPERATIONS


1,103


196


1,283


281










NET (LOSS) INCOME


($2,070)


$6,373


$1,299


$7,052










BASIC (LOSS) EARNINGS PER COMMON SHARE:









FROM CONTINUING OPERATIONS


($0.31)


$0.60


$0.00


$0.66

FROM DISCONTINUED OPERATIONS


$0.11


$0.02


$0.13


$0.03

BASIC (LOSS) EARNINGS PER COMMON SHARE


($0.20)


$0.62


$0.13


$0.69










DILUTED (LOSS) EARNINGS PER COMMON SHARE:









FROM CONTINUING OPERATIONS


($0.31)


$0.59


$0.00


$0.65

FROM DISCONTINUED OPERATIONS


$0.11


$0.02


$0.13


$0.03

DILUTED (LOSS) EARNINGS PER COMMON SHARE


($0.20)


$0.61


$0.13


$0.68



















AVERAGE NUMBER OF COMMON SHARES OUTSTANDING - BASIC


10,121


10,303


10,105


10,294










AVERAGE NUMBER OF COMMON SHARES









OUTSTANDING - DILUTED*


10,121


10,418


10,194


10,410










* Since the Company incurred a loss applicable to common shareholders in the three months ended June 30, 2012 period, the inclusion of dilutive securities in the calculation of weighted average common shares is anti-dilutive and therefore, there is no difference between basic and diluted earnings per share.

 

L.B. Foster Company and Subsidiaries 

Condensed Consolidated Balance Sheets

(In thousands)








June 30,

December 31,


2012

2011

ASSETS

(Unaudited)





CURRENT ASSETS:



   Cash and cash items

$77,243

$73,727

   Accounts and notes receivable:



      Trade

92,251

65,819

      Other

802

1,934

   Inventories

84,742

90,516

   Current deferred tax assets

5,386

0

   Prepaid income tax

4,173

3,684

   Other current assets

2,754

1,768

   Current assets of discontinued operations

138

2,545

Total Current Assets

267,489

239,993




OTHER ASSETS:



   Property, plant & equipment-net

47,353

47,991

   Goodwill

41,237

41,237

   Other intangibles - net

41,618

42,871

   Investments

3,826

3,495

   Other non-current assets

1,398

1,415

   Assets of discontinued operations

0

2,892

Total Other Assets

135,432

139,901





$402,921

$379,894




LIABILITIES AND STOCKHOLDERS' EQUITY






CURRENT LIABILITIES:



   Current maturities on other long-term debt

$689

$2,384

   Accounts payable-trade and other

58,172

49,645

   Deferred revenue

5,006

6,833

   Accrued payroll and employee benefits

7,138

9,483

   Current deferred tax liabilities

0

759

   Accrued warranty

25,309

6,632

   Other accrued liabilities

11,143

8,134

   Current liabilities of discontinued operations

121

862

     Total Current Liabilities

107,578

84,732




OTHER LONG-TERM DEBT

38

51

DEFERRED TAX LIABILITIES

11,244

11,708

OTHER LONG-TERM LIABILITIES

13,021

13,588




STOCKHOLDERS' EQUITY:



   Class A Common stock

111

111

   Paid-in capital

45,499

47,349

   Retained earnings

255,937

255,152

   Treasury stock

(26,080)

(28,169)

   Accumulated other comprehensive loss

(4,427)

(4,628)

     Total Stockholders' Equity

271,040

269,815





$402,921

$379,894

L.B. Foster Company
Non-GAAP Financial Measures

This earnings release contains certain non-GAAP financial measures.  These financial measures include gross profit margins excluding concrete tie costs and earnings per share from continuing operations excluding concrete tie costs.  The Company believes that these non-GAAP measures are useful to investors in order to provide a better understanding of these measures excluding certain costs incurred in both 2011 and 2012 related to its Grand Island facility closing as well as warranty and other charges taken related to concrete ties manufactured at this facility. 

These non-GAAP financial measures are not a substitute for GAAP financial results and should only be considered in conjunction with Foster's financial information that is presented in accordance with GAAP. Quantitative reconciliations of the GAAP measures are presented below:

 

Reconciliation of Non-GAAP Financial Measures
(Dollars in thousands except per share amounts)






Three Months Ended


Six Months Ended

Gross Profit margins excluding concrete tie charges

June 30,


June 30,


2012

2011


2012

2011


(Unaudited)


(Unaudited)







Net Sales, as reported

$   164,942

$    171,511


$  280,905

$  286,857

Cost of Goods Sold, as reported

152,212

145,945


246,020

244,338

Gross Profit, as reported

12,730

25,566


34,885

42,519







Product Warranty Charges, before income tax

19,000

1,427


19,000

1,427

Charges to fulfill customer contractual obligations, before income tax

-

2,976


-

2,976


19,000

4,403


19,000

4,403







Gross Profit, excluding certain charges

$    31,730

$     29,969


$    53,885

$    46,922







Gross Profit  percentage, as reported

7.72%

14.91%


12.42%

14.82%

Gross Profit percentage, excluding certain charges

19.24%

17.47%


19.18%

16.36%









Income from Continuing Operations (including diluted earnings per share) excluding concrete tie charges

Three Months Ended

June 30,


Six Months Ended

June 30,


2012

2011


2012

2011


(Unaudited)


(Unaudited)







(Loss) Income from Continuing Operations, as reported

$     (3,173)

$       6,177


$           16

$      6,771







Product Warranty Charges, net of income tax

12,827

890


12,827

890







Charges to fulfill customer contractual obligations, net of income tax

-

1,857


-

1,857







Incentive compensation, net of income tax

(781)

-


(781)

-







Income from Continuing Operations, excluding certain charges

$      8,873

$       8,924


$    12,062

$      9,518







DILUTED (LOSS) EARNINGS PER COMMON SHARE:






 FROM CONTINUING OPERATIONS, as reported

($0.31)

$0.59


$0.00

$0.65

DILUTED EARNINGS PER COMMON SHARE, excluding certain charges

$0.87

$0.86


$1.18

$0.91

AVERAGE NUMBER OF COMMON SHARES

OUTSTANDING – DILUTED, as reported

10,121

10,303


10,105

10,294

AVERAGE NUMBER OF COMMON SHARES

OUTSTANDING – DILUTED, excluding certain charges

10,191

10,418


10,216

10,410

 

SOURCE L.B. Foster Company



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