L.B. Foster Reports Second Quarter Operating Results
August 09 2016 - 7:00AM
Records Non-Cash Impairment Charge
PITTSBURGH, Aug. 09, 2016 (GLOBE
NEWSWIRE) -- 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 2016 operating results which include:
- A sales decrease of 20.7% from the
prior year quarter to $136.0 million.
- Gross profit margin of 20.5%
compared to 21.6% in the prior year.
- A $128.9 million ($90.9 million net
of tax or $8.86 per share) non-cash impairment charge related to
the write-down of goodwill, definitive lived intangible assets and
property, plant and equipment at four of the Company's reporting
units within our Tubular and Energy Services ("Tubular") and Rail
Products and Services ("Rail") segments.
- Cash flow provided by operating
activities of $11.7 million compared to $5.5 million provided in
the prior year quarter, the majority of which was used to reduce
borrowings.
Second Quarter
Results
- Second quarter net sales of $136.0
million decreased by $35.4 million, or 20.7%, compared to the prior
year quarter due to a 19.6% decrease in Tubular and Energy Services
("Tubular") segment sales, a 22.3% decline in Rail Products and
Services ("Rail") segment sales and an 18.5% decrease in
Construction segment sales. Our rail distribution and piling
distribution businesses together declined by $17.0 million, or
27.5% in the second quarter, accounting for nearly half of the
decline.
- Gross profit margin was 20.5%, 120
basis points lower than the prior year quarter. The reduction
was due to decreased Tubular and Rail segment margins, partially
offset by increased Construction segment margins.
- Second quarter net loss was $92.0
million or $8.96 per diluted share compared to net income of $5.4
million, or $0.52 per diluted share, last year. Excluding the
impairment charge1, the net loss would have been $1.1 million, or
$0.11 per diluted share.
- Second quarter Adjusted EBITDA was
$7.5 million compared to $16.7 million in the second quarter of
2015.
- Selling and administrative expense
decreased by $1.0 million, or 4.0%, due principally to cost
reduction initiatives and prior year costs related to acquisition
and integration activities. These reductions were partially
offset by increased litigation expenses of $0.9 million related to
the UPRR lawsuit as well as $0.8 million of increased ERP related
costs.
- Interest expense was $1.7 million in
the second quarter of 2016 compared to $1.3 million in the prior
year quarter, the increase being attributable to a $0.3 million
write-off of deferred financing costs resulting from the second
quarter 2016 amendment to the credit agreement.
- Second quarter bookings were $140.1
million, a 14.1% decrease from the prior year quarter, due to a
38.0% decline in Tubular segment orders and a 18.2% reduction in
Rail segment orders, partially offset by a 12.7% increase in
Construction segment orders.
- The Company's income tax rate was
28.9% compared to 31.5% in the prior year quarter. The
Company's effective income tax rate was significantly impacted by
the asset impairment charge, which related to both tax deductible
and nondeductible assets.
- Cash flow from operating activities
for the second quarter of 2016 generated $11.7 million compared to
$5.5 million of cash generated in the second quarter of 2015.
The current year quarter was favorably impacted by improved working
capital management.
Impairment
Charge
As a result of weaker than anticipated performance and downward
revisions to projected results of the Tubular and Rail segments, as
well as a significant reduction in the Company's market value in
the second quarter, the Company determined that an impairment
analysis was required. The Company's second quarter
impairment analyses indicated that four different reporting units
within these segments had carrying values in excess of fair value
and required the following impairment charges:
Tubular segment |
|
(millions) |
Precision measurement systems
(Chemtec) |
|
$ |
26.1 |
|
Test and inspection services
(IOS) |
|
|
57.9 |
|
Coated Products &
Services |
|
|
16.6 |
|
|
|
|
Rail segment |
|
|
Rail Technologies |
|
|
28.3 |
|
Total |
|
$ |
128.9 |
|
|
|
|
|
|
CEO
Comments
Robert P. Bauer, L.B. Foster Company's President and Chief
Executive Officer, commented, "In response to weak energy and rail
markets, we have been working diligently to reduce costs through
the first half of this year, continuously examining ways to
maximize cash flow and restore profitability. Our gross
profit margins have held up very well as several actions we've
taken improved operational efficiency. Certain investments we
made over the last two years have improved productivity in several
factories that have enabled gross profit margins to remain strong
despite lower volume. During the first half of 2016, we have
taken actions to reduce our salaried workforce costs that will
produce $6 million of annualized savings. In addition,
discretionary spending cuts will result in $1 million of annual
savings. We have already identified additional actions to
reduce expenses further in 2017.
"During the quarter, we also divested
our rail car repair fixtures division, eliminating a business that
was not strategic and was not accretive to results. We are
continuing to evaluate other operating units that are not earning
acceptable returns on capital."
Mr. Bauer concluded by saying, "60%
of our business activity has been adversely impacted by freight
rail and energy market weakness. When business conditions
improve in those sectors, the cost actions we have taken will leave
us better positioned to capitalize on the recovery. Our
businesses which comprise the other 40% of sales continue to
perform well and are positioned to win more business."
First Half 2016
Results
- Net sales for the first six months
of 2016 decreased by $47.0 million, or 15.2%, due to a 19.9%
decline in Rail segment sales, a 13.8% decrease in Construction
segment sales and a 4.4% decline in Tubular segment sales.
The Rail sales decline was driven by reductions across all product
categories with the exception of Transit Products while the
Construction decrease was due to piling and bridge products
reductions. The Tubular decline was due principally to test
and inspection services sales declines.
- Net sales in the first half of 2016
for the Rail segment were adversely affected by the reduction in
inventory on the part of freight rail carriers.
- Gross profit margin was 19.7%, down
220 basis points from the prior year period. The margin
decline was due to declines in the Rail and Tubular segment
margins, while Construction margins were flat with the prior
year.
- Selling and administrative expense
decreased by $0.4 million, due principally to cost reduction
initiatives and prior year costs related to acquisition and
integration activities. These reductions were partially
offset by increased costs of acquired businesses, increased
litigation expenses related to the UPRR lawsuit as well as
increased ERP related costs.
- Interest expense was $2.8 million in
the first half of 2016 compared to $1.9 million in the comparable
prior year period. The increase was attributable to higher
average borrowings for the six-month period as well as a $0.3
million write-off of deferred financing costs resulting from the
second quarter 2016 amendment to the credit agreement.
- Net loss was $94.8 million, or $9.25
per diluted share, compared to net income of $9.7 million, or $0.93
per diluted share, last year. Excluding the previously
discussed impairment charge, the net loss would have been $3.9
million or $0.38 per diluted share.
- Adjusted EBITDA for the first half
of 2016 was $11.5 million compared to $28.7 million in the prior
year, a decrease of $17.2 million or 60.0%.
- The Company's income tax rate from
continuing operations was 29.0%, compared to 33.4% in the prior
year six-month period. The Company's effective income tax
rate was significantly impacted by the asset impairment charges,
which related to both tax deductible and nondeductible
assets.
- Cash provided by operating
activities was $6.6 million for the first half of 2016, compared to
a $1.9 million use of cash in the prior year period. The
favorable variance from the prior year is due principally to
improved working capital management in 2016. Capital
expenditures were $5.1 million in the first half of 2016 compared
to $8.2 million in the prior year.
L.B. Foster Company will conduct a
conference call and webcast to discuss its second quarter 2016
operating results on Tuesday, August 9, 2016 at 8:00 am ET.
The call will be hosted by Mr. Robert Bauer, President and Chief
Executive Officer. Listen via audio and access the slide
presentation on the L.B. Foster web site: www.lbfoster.com,
under the Investor Relations page. The conference call can be
accessed by dialing 877-407-0784 and providing access code
13641064.
About L.B.
Foster Company
L.B. Foster is a leading
manufacturer, fabricator, and distributor of products and services
for the rail, construction, energy and utility markets with
locations in North America and Europe. For more information,
please visit www.lbfoster.com.
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 or a
continuation of the current economic slowdown in the markets we
serve; the risk of doing business in international markets; our
ability to effectuate our strategy including evaluating potential
opportunities such as strategic acquisitions, joint ventures, and
other initiatives, and our ability to effectively integrate new
businesses and realize anticipated benefits; costs of and impacts
associated with shareholder activism; a decrease in freight or
passenger rail traffic; the timeliness and availability of material
from our major suppliers; labor disputes; the effective
implementation of an enterprise resource planning system; changes
in current accounting estimates and their ultimate outcomes; the
adequacy of internal and external sources of funds to meet
financing needs; the Company's ability to manage its working
capital requirements and indebtedness; domestic and international
taxes; foreign currency fluctuations; inflation; domestic and
foreign government regulations; economic conditions and regulatory
changes caused by the United Kingdom's likely exit from the
European Union; continued and sustained declines in energy prices;
a lack of state or federal funding for new infrastructure projects;
increased regulation including conflict minerals; an increase in
manufacturing or material costs; the ultimate number of concrete
ties that will have to be replaced pursuant to the previously
disclosed product warranty claim of the Union Pacific Railroad
("UPRR") and an overall resolution of the related contract claims
as well as the possible costs associated with the outcome of the
lawsuit filed by the UPRR; risks inherent in litigation and those
matters set forth in Item 8, Footnote 19, "Commitments and
Contingent Liabilities" and in Item 1A, "Risk Factors" of the
Company's Form 10-K for the year ended December 31, 2015 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, except
as required by securities laws.
1 See non-GAAP reconciliation
tables at the end of this press release for information regarding
the non-GAAP measures (including reconciliation of Net loss to
Adjusted EBITDA and measures excluding the impairment charge) used
in this release.
L.B. FOSTER COMPANY AND
SUBSIDIARIES |
CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS |
(In thousands, except per
share data) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2016 |
|
|
2015 |
|
|
2016 |
|
|
2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited) |
|
|
(Unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales of goods |
|
$ |
|
118,070 |
|
|
$ |
|
146,780 |
|
|
$ |
|
225,985 |
|
|
$ |
|
269,576 |
|
Sales of services |
|
|
|
17,924 |
|
|
|
|
24,639 |
|
|
|
|
36,319 |
|
|
|
|
39,750 |
|
Total net sales |
|
|
|
135,994 |
|
|
|
|
171,419 |
|
|
|
|
262,304 |
|
|
|
|
309,326 |
|
Cost of goods sold |
|
|
|
92,638 |
|
|
|
|
114,793 |
|
|
|
|
179,031 |
|
|
|
|
210,987 |
|
Cost of services sold |
|
|
|
15,543 |
|
|
|
|
19,537 |
|
|
|
|
31,500 |
|
|
|
|
30,596 |
|
Total cost of sales |
|
|
|
108,181 |
|
|
|
|
134,330 |
|
|
|
|
210,531 |
|
|
|
|
241,583 |
|
Gross profit |
|
|
|
27,813 |
|
|
|
|
37,089 |
|
|
|
|
51,773 |
|
|
|
|
67,743 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and administrative
expenses |
|
|
|
23,317 |
|
|
|
|
24,278 |
|
|
|
|
46,134 |
|
|
|
|
46,528 |
|
Amortization expense |
|
|
|
2,789 |
|
|
|
|
3,456 |
|
|
|
|
6,055 |
|
|
|
|
5,613 |
|
Asset impairments |
|
|
|
128,938 |
|
|
|
|
- |
|
|
|
|
128,938 |
|
|
|
|
- |
|
Interest expense |
|
|
|
1,652 |
|
|
|
|
1,288 |
|
|
|
|
2,822 |
|
|
|
|
1,901 |
|
Interest income |
|
|
|
(52 |
) |
|
|
|
(37 |
) |
|
|
|
(107 |
) |
|
|
|
(94 |
) |
Equity in loss of
nonconsolidated investments |
|
|
|
487 |
|
|
|
|
186 |
|
|
|
|
683 |
|
|
|
|
13 |
|
Other expense (income) |
|
|
|
107 |
|
|
|
|
95 |
|
|
|
|
822 |
|
|
|
|
(708 |
) |
|
|
|
|
157,238 |
|
|
|
|
29,266 |
|
|
|
|
185,347 |
|
|
|
|
53,253 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income
taxes |
|
|
|
(129,425 |
) |
|
|
|
7,823 |
|
|
|
|
(133,574 |
) |
|
|
|
14,490 |
|
Income tax (benefit)
expense |
|
|
|
(37,429 |
) |
|
|
|
2,461 |
|
|
|
|
(38,746 |
) |
|
|
|
4,841 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
|
$ |
|
(91,996 |
) |
|
$ |
|
5,362 |
|
|
$ |
|
(94,828 |
) |
|
$ |
|
9,649 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic (loss) earnings per
common share |
|
$ |
|
(8.96 |
) |
|
$ |
|
0.52 |
|
|
$ |
|
(9.25 |
) |
|
$ |
|
0.94 |
|
Diluted (loss) earnings per
common share |
|
$ |
|
(8.96 |
) |
|
$ |
|
0.52 |
|
|
$ |
|
(9.25 |
) |
|
$ |
|
0.93 |
|
Dividends paid per common
share |
|
$ |
|
0.04 |
|
|
$ |
|
0.04 |
|
|
$ |
|
0.08 |
|
|
$ |
|
0.08 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average number of common
shares outstanding - Basic |
|
|
|
10,263 |
|
|
|
|
10,284 |
|
|
|
|
10,248 |
|
|
|
|
10,272 |
|
Average number of common
shares outstanding - Diluted |
|
|
|
10,263 |
|
|
|
|
10,370 |
|
|
|
|
10,248 |
|
|
|
|
10,385 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
L.B. FOSTER COMPANY AND
SUBSIDIARIES |
CONDENSED CONSOLIDATED BALANCE
SHEETS |
(In thousands) |
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2016 |
|
|
2015 |
|
|
|
(Unaudited) |
|
|
|
ASSETS |
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
|
32,805 |
|
|
$ |
|
33,312 |
|
Accounts receivable - net |
|
|
|
81,396 |
|
|
|
|
78,487 |
|
Inventories - net |
|
|
|
95,150 |
|
|
|
|
96,396 |
|
Prepaid income tax |
|
|
|
5,197 |
|
|
|
|
1,131 |
|
Other current assets |
|
|
|
6,779 |
|
|
|
|
5,148 |
|
Total current assets |
|
|
|
221,327 |
|
|
|
|
214,474 |
|
Property, plant and equipment - net |
|
|
|
108,625 |
|
|
|
|
126,745 |
|
Other assets: |
|
|
|
|
|
|
Goodwill |
|
|
|
23,972 |
|
|
|
|
81,752 |
|
Other intangibles - net |
|
|
|
70,420 |
|
|
|
|
134,927 |
|
Deferred tax assets |
|
|
|
37,794 |
|
|
|
|
226 |
|
Investments |
|
|
|
4,638 |
|
|
|
|
5,321 |
|
Other assets |
|
|
|
3,240 |
|
|
|
|
3,215 |
|
Total Assets |
|
$ |
|
470,016 |
|
|
$ |
|
566,660 |
|
LIABILITIES AND STOCKHOLDERS' EQUITY |
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
Accounts payable |
|
$ |
|
58,280 |
|
|
$ |
|
55,804 |
|
Deferred revenue |
|
|
|
9,154 |
|
|
|
|
6,934 |
|
Accrued payroll and employee benefits |
|
|
|
7,612 |
|
|
|
|
10,255 |
|
Accrued warranty |
|
|
|
8,749 |
|
|
|
|
8,755 |
|
Current maturities of long-term debt |
|
|
|
1,335 |
|
|
|
|
1,335 |
|
Other accrued liabilities |
|
|
|
11,380 |
|
|
|
|
8,563 |
|
Total current
liabilities |
|
|
|
96,510 |
|
|
|
|
91,646 |
|
Long-term debt |
|
|
|
167,030 |
|
|
|
|
167,419 |
|
Deferred tax liabilities |
|
|
|
6,968 |
|
|
|
|
8,926 |
|
Other long-term liabilities |
|
|
|
15,447 |
|
|
|
|
15,837 |
|
Stockholders' equity: |
|
|
|
|
|
|
Class A Common Stock |
|
|
|
111 |
|
|
|
|
111 |
|
Paid-in capital |
|
|
|
44,003 |
|
|
|
|
46,681 |
|
Retained earnings |
|
|
|
180,914 |
|
|
|
|
276,571 |
|
Treasury stock |
|
|
|
(19,747 |
) |
|
|
|
(22,591 |
) |
Accumulated other comprehensive loss |
|
|
|
(21,220 |
) |
|
|
|
(17,940 |
) |
Total stockholders'
equity |
|
|
|
184,061 |
|
|
|
|
282,832 |
|
TOTAL
LIABILITIES AND STOCKHOLDERS' EQUITY |
|
$ |
|
470,016 |
|
|
$ |
|
566,660 |
|
|
|
|
|
|
|
|
This earnings release discloses
earnings before interest, taxes, depreciation, and amortization
("EBITDA") adjusted for asset impairments ("Adjusted EBITDA") and
adjusted diluted earnings per share, which are non-GAAP financial
measures. The Company believes that EBITDA is useful to
investors in order to provide a more complete understanding of the
ongoing operations of the Company's business. Similarly, adjusted
EBITDA and adjusted diluted earnings per share displays the
performance of the Company without the impact of asset impairments
in order to enhance investors' understanding of our day to day
operations. In addition, management believes that these non-GAAP
financial measures are useful to investors in the assessment of the
use of our assets without regard to financing methods, capital
structure, or historical cost basis and the significant asset
impairment. Additionally, EBITDA is a financial measurement that
management and the board of directors use in the determination of
certain compensation programs.
Non-GAAP financial measures are not a substitute for GAAP financial
results and should only be considered in conjunction with the
Company's financial information that is presented in accordance
with GAAP. Quantitative reconciliations of the GAAP measures
are presented below: |
|
Three
Months Ended |
|
Six
Months Ended |
|
June 30, |
|
June 30, |
Adjusted
EBITDA Reconciliation |
2016 |
|
2015 |
|
2016 |
|
2015 |
Net (loss) income |
$ |
(91,996 |
) |
|
$ |
5,362 |
|
|
$ |
(94,828 |
) |
|
$ |
9,649 |
|
Interest expense, net |
|
1,600 |
|
|
|
1,251 |
|
|
|
2,715 |
|
|
|
1,807 |
|
Income tax (benefit)
expense |
|
(37,429 |
) |
|
|
2,461 |
|
|
|
(38,746 |
) |
|
|
4,841 |
|
Depreciation |
|
3,598 |
|
|
|
4,156 |
|
|
|
7,325 |
|
|
|
6,775 |
|
Amortization |
|
2,789 |
|
|
|
3,456 |
|
|
|
6,055 |
|
|
|
5,613 |
|
Total EBITDA |
|
(121,438 |
) |
|
|
16,686 |
|
|
|
(117,479 |
) |
|
|
28,685 |
|
|
|
|
|
|
|
|
|
Asset impairments |
|
128,938 |
|
|
|
- |
|
|
|
128,938 |
|
|
|
- |
|
Adjusted EBITDA |
$ |
7,500 |
|
|
$ |
16,686 |
|
|
$ |
11,459 |
|
|
$ |
28,685 |
|
|
|
|
|
|
|
|
|
|
Three
Months Ended |
|
Six
Months Ended |
|
June 30, |
|
June 30, |
Adjusted
Diluted (Loss) Earnings Per Share Reconciliation |
2016 |
|
2015 |
|
2016 |
|
2015 |
Net (loss) income, as
reported |
$ |
(91,996 |
) |
|
$ |
5,362 |
|
|
$ |
(94,828 |
) |
|
$ |
9,649 |
|
Asset impairments, net of tax
benefits of $38,038 |
|
90,900 |
|
|
|
- |
|
|
|
90,900 |
|
|
|
- |
|
Adjusted net (loss)
income |
$ |
(1,096 |
) |
|
$ |
5,362 |
|
|
$ |
(3,928 |
) |
|
$ |
9,649 |
|
|
|
|
|
|
|
|
|
Average number of common
shares outstanding - Diluted |
|
10,263 |
|
|
|
10,370 |
|
|
|
10,248 |
|
|
|
10,385 |
|
Diluted (loss) earnings per
common share, as reported |
$ |
(8.96 |
) |
|
$ |
0.52 |
|
|
$ |
(9.25 |
) |
|
$ |
0.93 |
|
Diluted (loss) earnings per
common share, as adjusted |
$ |
(0.11 |
) |
|
$ |
0.52 |
|
|
$ |
(0.38 |
) |
|
$ |
0.93 |
|
Investor Relations:
David Russo
(412) 928-3417
investors@lbfoster.com
L.B. Foster Company
415 Holiday Drive
Pittsburgh, PA 15220 |
This
announcement is distributed by NASDAQ OMX Corporate Solutions on
behalf of NASDAQ OMX Corporate Solutions clients.
The issuer of this announcement warrants that they are solely
responsible for the content, accuracy and originality of the
information contained therein.
Source: L.B. Foster Company via Globenewswire
HUG#2033935
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