UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended March 31, 1997
Commission File Number 0-10436
L. B. Foster Company
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(Exact name of registrant as specified in its charter)
Delaware 25-1324733
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(State of Incorporation) (I.R.S. Employer Identification No.)
415 Holiday Drive, Pittsburgh, Pennsylvania 15220
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(Address of principal executive offices) (Zip Code)
(412) 928-3417
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the registrant's
classes of common stock as of the latest practicable date.
Class Outstanding at May 8, 1997
------ -----------------------
Class A Common Stock, Par Value $.01 10,162,738 Shares
L. B. FOSTER COMPANY AND SUBSIDIARIES
INDEX
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PART I. Financial Information Page
- ----------------------------- ----
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets 2
Condensed Consolidated Statements of Income 3
Condensed Consolidated Statements of Cash Flows 4
Notes to Condensed Consolidated
Financial Statements 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
PART II. Other Information
- ---------------------------
Item 1. Legal Proceedings 12
Item 6. Exhibits and Reports on Form 8-K 12
Signature 14
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
L. B. FOSTER COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
March 31, December 31,
ASSETS 1997 1996
- -----------------------------------------------------------------------------
Current Assets:
Cash and cash equivalents $ 2,846 $ 1,201
Accounts and notes receivable (Note 3):
Trade 42,114 49,468
Other 2,436 450
- -----------------------------------------------------------------------------
44,550 49,918
Inventories (Note 4) 52,662 42,925
Current deferred tax assets 1,018 1,214
Other current assets 405 398
- -----------------------------------------------------------------------------
Total current assets 101,481 95,656
- -----------------------------------------------------------------------------
Property, Plant & Equipment-At Cost 40,376 40,965
Less Accumulated Depreciation (20,368) (20,498)
- -----------------------------------------------------------------------------
20,008 20,467
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Property Held for Resale 4,053 4,022
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Other Assets 3,407 3,253
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TOTAL ASSETS $128,949 $123,398
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- -----------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
- -----------------------------------------------------------------------------
Current Liabilities:
Current maturities of long-term debt $ 1,335 $ 1,366
Short-term borrowings (Note 5) 12,730 6,000
Accounts payable 19,224 19,060
Accrued payroll and employee benefits payable 2,180 3,543
Other current liabilities 1,450 2,160
- -----------------------------------------------------------------------------
Total current liabilities 36,919 32,129
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Long-Term Debt 21,494 21,816
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Deferred Tax Liabilities 418 394
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Other Long-Term Liabilities 1,990 1,878
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Stockholders' Equity:
Class A Common stock 102 102
Paid-in capital 35,425 35,276
Retained earnings 32,745 32,338
Treasury stock (144) (535)
- -----------------------------------------------------------------------------
Total stockholders' equity 68,128 67,181
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $128,949 $123,398
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
See Notes to Condensed Consolidated Financial Statements.
L. B. FOSTER COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Per Share Amounts)
Three Months
Ended
March 31,
1997 1996
- -----------------------------------------------------------------------------
Net Sales $54,494 $48,303
- -----------------------------------------------------------------------------
Costs and Expenses:
Cost of Goods Sold 48,060 42,104
Selling and Administrative Expenses 5,302 5,403
Interest Expense 535 564
Other (Income) Expense (83) (128)
- -----------------------------------------------------------------------------
53,814 47,943
- -----------------------------------------------------------------------------
Income Before Income Taxes 680 360
Income Tax Expense 273 140
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Net Income 407 220
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
Earnings Per Common Share (Note 6) $0.04 $0.02
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
Average Number of Common
Shares Outstanding 10,131 9,934
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Cash Dividend per Common Share
- -----------------------------------------------------------------------------
See Notes to Condensed Consolidated Financial Statements.
L. B. FOSTER COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
Three Months
Ended March 31,
1997 1996
- -----------------------------------------------------------------------------
Cash Flows from Operating Activities:
Net Income $ 407 $ 220
Adjustments to Reconcile Net Income to Net Cash
Provided (Used) by Operating Activities:
Deferred income taxes 220 140
Depreciation and amortization 646 874
Gain on sale of property, plant and equipment (157) (178)
Change in Operating Assets and Liabilities:
Accounts receivable 5,368 6,166
Inventories (9,737) (3,153)
Property held for resale (31) 358
Other current asset (7) 33
Other non-current assets (195) (288)
Accounts payable-trade 164 2,156
Accrued payroll and employee benefits (1,363) (476)
Other current liabilities (710) (1,239)
Other liabilities 112 93
- -----------------------------------------------------------------------------
Net Cash (Used) Provided by Operating Activities (5,283) 4,706
- -----------------------------------------------------------------------------
Cash Flows from Investing Activities:
Proceeds from sale of property, plant
and equipment 563 1,079
Capital expenditures on property, plant
and equipment (518) (596)
- -----------------------------------------------------------------------------
Net Cash Provided by Investing Activities 45 483
- -----------------------------------------------------------------------------
Cash Flows from Financing Activities:
Proceeds (repayments) from issuance of
revolving credit agreement borrowings 6,730 (4,665)
Exercise of stock options 540 15
Repayments of long-term debt (387) (331)
- -----------------------------------------------------------------------------
Net Cash Provided (Used) by Financing Activities 6,883 (4,981)
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Net Increase in Cash and Cash Equivalents 1,645 208
Cash and Cash Equivalents at Beginning of Period 1,201 1,325
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Cash and Cash Equivalents at End of Period $ 2,846 $ 1,533
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- -----------------------------------------------------------------------------
Supplemental Disclosures of Cash Flow Information:
Interest Paid $ 524 $ 602
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- -----------------------------------------------------------------------------
Income Taxes Paid $ 17 $ 34
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- -----------------------------------------------------------------------------
During 1997 and 1996, the Company financed the purchase of certain capital
expenditures totaling $33,500 and $117,000, respectively, through the
issuance of capital leases.
See Notes to Condensed Consolidated Financial Statements.
L. B. FOSTER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. FINANCIAL STATEMENTS
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all estimates and adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included, however,
actual results could differ from those estimates. Operating results for the
three months ended March 31, 1997 are not necessarily indicative of the
results that may be expected for the year ended December 31, 1997. For
further information, refer to the consolidated financial statements and
footnotes thereto included in the Company's annual report on Form 10-K for
the year ended December 31, 1996.
2. ACCOUNTING PRINCIPLES
In October 1995, the FASB issued Statement of Financial Accounting Standards
(SFAS) No. 123, "Accounting for Stock-Based Compensation". 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, but provides, when material, the pro forma disclosures
required by SFAS No. 123.
3. ACCOUNTS RECEIVABLE
Credit is extended on an evaluation of the customer's financial condition
and, generally, collateral is not required. Credit terms are consistent with
industry standards and practices. Trade accounts receivable at March 31,
1997 and December 31, 1996 have been reduced by an allowance for doubtful
accounts of $1,854,000 and $1,803,000, respectively. Bad debt expense was
$51,000 and $57,000 for the three month periods ended March 31, 1997 and
1996, respectively.
4. INVENTORIES
Inventories of the Company at March 31, 1997 and December 31, 1996 are
summarized as follows (in thousands):
March 31, December 31,
1997 1996
- -----------------------------------------------------------------------------
Finished goods $ 40,766 $ 31,347
Work-in-process 11,560 11,117
Raw materials 3,160 3,135
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Total inventories at current costs: 55,486 45,599
- -----------------------------------------------------------------------------
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(Less):
Current costs over LIFO
stated values (2,224) (2,074)
Reserve for decline in
market value of inventories (600) (600)
- -----------------------------------------------------------------------------
$ 52,662 $ 42,925
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- -----------------------------------------------------------------------------
Inventories of the Company are generally valued at the lower of last-in,
first-out (LIFO) cost or market. Other inventories of the Company are valued
at average cost or market, whichever is lower. An actual valuation of
inventory under the LIFO method can be made only at the end of each year
based on the inventory levels and costs at that time. Accordingly, interim
LIFO calculations must necessarily be based on management's estimates of
expected year-end levels and costs.
5. SHORT-TERM BORROWINGS
The Company maintains a $45,000,000 revolving credit agreement. The
interest rate is, at the Company's option, based on the prime rate, the
domestic certificate of deposit rate (CD rate) or the Euro-bank rate. The
interest rates are adjusted quarterly based on the fixed charge coverage
ratio defined in the agreement. The ranges are prime to prime plus 0.25%,
the CD rate plus 0.45% to the CD rate plus 1.125%, and the Euro-bank rate
plus 0.45% to the Euro-bank rate plus 1.125%. Borrowings under the agreement,
which expires July 1, 1999, are secured by accounts receivable and inventory.
The agreement includes financial covenants requiring a minimum net worth, a
fixed charge coverage ratio, a leverage ratio and a current ratio. The
agreement also places restrictions on dividends, investments, capital
expenditures, indebtedness and sales of certain assets.
6. EARNINGS PER COMMON SHARE
Earnings per common share are computed by dividing net income by the average
number of Class A common shares and common stock equivalents outstanding
during the periods ended March 31, 1997 and 1996 of approximately 10,131,000
and 9,934,000, respectively.
Common stock equivalents are the net additional number of shares which would
be issuable upon the exercise of the outstanding common stock options,
assuming that the Company used the proceeds to purchase additional shares at
market value. Common stock equivalents had no material effect on the
computation of earnings per share for the periods ending March 31, 1997 and
1996.
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings per Share", which is required to be adopted on December
31, 1997. At that time, the Company will be required to change the method
currently used to compute earnings per share and to restate all prior
periods. Under the new requirements for calculating primary earnings per
share, the dilutive effect of stock options will be excluded. The impact of
Statement 128 on the calculations of primary and fully diluted earnings per
share for the first quarters ended March 31, 1997 and March 31, 1996 is not
material.
7. COMMITMENTS AND CONTINGENT LIABILITIES
The Company is subject to laws and regulations relating to the protection of
the environment. While it is not possible to quantify with certainty the
potential impact of actions regarding environmental matters, particularly
any future remediation and other compliance efforts, in the opinion of
management, compliance with the present environmental protection laws will
not have a material adverse effect on the financial position, competitive
position, or capital expenditures of the Company. The Company will provide for
any liability as defined in SOP 96-1,"Environmental Remediation Liabilities."
However, the Company's efforts to comply with increasingly stringent
environmental regulations may have an adverse effect on the Company's future
earnings.
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 March 31, 1997, the Company had outstanding letters of credit of
approximately $1,172,000.
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Three Months Ended
March 31,
- -----------------------------------------------------------------------------
1997 1996
- -----------------------------------------------------------------------------
(Dollars in thousands)
Net Sales:
Rail Products $23,546 $23,519
Construction Products 19,198 16,018
Tubular Products 11,750 8,766
- -----------------------------------------------------------------------------
Total Net Sales 54,494 48,303
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- -----------------------------------------------------------------------------
Gross Profit:
Rail Products 2,687 3,514
Construction Products 2,378 2,076
Tubular Products 1,369 609
- -----------------------------------------------------------------------------
Total Gross Profit 6,434 6,199
- -----------------------------------------------------------------------------
Expenses:
Selling and administrative expenses 5,302 5,403
Interest expense 535 564
Other (income) expense (83) (128)
- -----------------------------------------------------------------------------
Total Expenses 5,754 5,839
- -----------------------------------------------------------------------------
Income Before Income Taxes 680 360
Income Tax Expense 273 140
- -----------------------------------------------------------------------------
Net Income $ 407 $ 220
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1997
The net income for the 1997 first quarter was $0.4 million or $0.04 per
share on net sales of $54.5 million. This compares to a 1996 first quarter
net income of $0.2 million or $0.02 per share on net sales of $48.3 million.
Rail products' first quarter net sales in both 1997 and 1996 were $23.5
million. Construction products' first quarter net sales increased 20% from
the year earlier quarter, which suffered from harsh winter weather. Tubular
products' net sales in the quarter were $11.8 million or an increase of 34%
which reflects the improvement in the Coated Pipe Division. Changes in net
sales are primarily the result of changes in volume rather than changes in
prices.
The gross margin percentage for the total company in the 1997 first quarter
decreased to 12% from 13% in the 1996 first quarter. Rail products' gross
margin percentage decreased to 11% from 15% in the first quarter of 1996 due
to increased competitive pricing pressures in the rail market. Construction
products' gross margin percentage decreased slightly to 12% from 13% due to
implementation of the Company's plan to get out of the pile driving equipment
business. The gross margin percentage for tubular products climbed to 12%
from 7% as a result of improvements in the Coated Pipe Division's Birmingham
operations.
Selling and administrative expenses decreased 2% in the 1997 first quarter
from the same period last year while interest expense decreased 5%.
LIQUIDITY AND CAPITAL RESOURCES
The Company's ability to generate internal cash flow ("liquidity") results
from the sale of inventory and the collection of accounts receivable. During
the first three months of 1997, the average turnover rate for inventory
decreased slightly from the prior year primarily due to the purchase of
Bethlehem piling for stock. The turnover rate for accounts receivable during
the first three months of 1997 was higher than during the same period of the
prior year due to an increase in collection rate. Working capital at
March 31, 1997 was $64.6 million compared to $63.5 million at December 31,
1996.
During the first three months of 1997, the Company had capital expenditures
of $0.5 million. Excluding acquisitions, capital expenditures in 1997 are
not expected to exceed $3.0 million and are anticipated to be funded by
cash flows from operations.
Total revolving credit agreement borrowings at March 31, 1997 were $30.7
million or an increase of $6.7 million from the end of the prior year. At
March 31, 1997, the Company had approximately $13.2 million in available
unused borrowing commitment. Management believes its internal and external
sources of funds are adequate to meet anticipated needs.
OTHER MATTERS
The Company owns approximately 13% of the common stock in the Dakota,
Minnesota & Eastern Railroad Corporation (DM&E), a privately-held, regional
railroad which operates over 1,100 miles of track located principally in
South Dakota and Minnesota. The market value of this investment is not
readily determinable and, therefore, the investment is recorded in the
Company's accounts at its historical cost of $0.2 million. The book value
of this stock, as reflected in the DM&E's records is about $2 million. If
this business is sold, the Company believes that the potential sale price
could significantly exceed DM&E's book value.
As stated previously, the Company has made a decision to divest its
Fosterweld operations and does not expect to complete any potential sale in
the near-term. Additionally, the Company has decided to exit the pile
driving equipment business through sales and leases of its remaining assets.
On May 6, 1997 the Company acquired the assets of the Monitor Group, a
division of Industrial Scientific of Delaware, Inc. The Monitor Group
designs, develops and assembles portable mass spectrometers. Mass
spectrometers are used to measure gas compositions and concentrations for
various applications, including monitoring air quality for the mining
industry and serving as a process monitor and diagnostic tool in chemical
manufacturing industries. For the balance of 1997, the Company anticipates
that the Monitor Group's operating costs will exceed the Division's revenue.
Management continues to evaluate the overall performance of certain
operations. A decision to terminate an existing operation could have a
material effect on near-term earnings but would not be expected to have a
material adverse effect on the financial condition of the Company.
OUTLOOK
The Company's primary supplier of piling products, Bethlehem Structural
Products Corporation, has shut down its hot rolled sheet piling and
structural products facility in Bethlehem, PA as of March 1997. The Company
purchased Bethlehem's remaining piling production and will use a portion of
this inventory to maintain its rental piling business beyond 1997.
The Company has agreed, in principal, to become Chaparral Steel Corporation's
exclusive distributor of piling products manufactured at Chaparral's
proposed new structural mill. Chaparral previously has announced that the
new mill would be located in the eastern United States and should be
operational in the first half of 1999.
The rail segment of the business depends on one source for fulfilling
certain trackwork contracts. The Company has provided $5.2 million of
working capital to this supplier in the form of loans and advanced 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 operations are in part dependent on governmental funding of
infrastructure projects. Significant changes in the level of government
funding of these projects could have a favorable or unfavorable impact on
the operating results of the Company. Additionally, governmental actions
concerning taxation, tariffs, the environment or other matters could impact
the operating results of the Company. The Company's operations results may
also be affected by the weather.
Although backlog is not necessarily indicative of future operating results,
total Company backlog at March 31, 1997, was approximately $68 million.
This does not include the previously awarded Tren-Urbano project which will
have an order value of $17 - $20 million. If this project was included in
the following table, Rail Products' backlog would be, at a minimum, $51
million and the total backlog would be $85 million.
Backlog
---------------------------------------
March 31, December 31,
1997 1996 1996
---------------------------------------
(Dollars in thousands)
Rail Products $ 33,928 $ 43,722 $ 36,100
Construction Products 22,048 37,562 28,080
Tubular Products 12,523 13,872 11,328
----------------------------------------
Total Backlog $ 68,499 $ 95,156 $ 75,508
----------------------------------------
----------------------------------------
FORWARD-LOOKING STATEMENTS
The Company wishes to caution readers that various factors could cause the
actual results of the Company to differ materially from those indicated by
forward-looking statements made from time to time in news releases, reports,
proxy statements, registration statements and other written communications
(including the preceding sections of this Management's Discussion and
Analysis), as well as oral statements made from time to time by
representatives of the Company. Except for historical information, matters
discussed in such oral and written communications are forward-looking
statements that involve risks and uncertainties, including but not limited to
general business conditions, the availability of material from major
suppliers, the impact of competition, the seasonality of the Company's
business, taxes, inflation and governmental regulations.
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
See Note 7, "Commitments and Contingent Liabilities", to the
Condensed Consolidated Financial Statements.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
a) EXHIBITS
Unless marked by an asterisk, all exhibits are incorporated herein
by reference:
3.1 Restated Certificate of Incorporation as amended to date
filed as Exhibit 3.1 to Form 10-Q for the quarter ended March
31, 1987.
3.2 Bylaws of the Registrant, as amended to date, filed as
Exhibit 3.2 to Form 10-K for the year ended December 31,
1993.
4.1 Amended and Restated Loan Agreement by and among the
Registrant and Mellon Bank, N.A., NBD Bank, and Corestates
Bank, N.A. dated as of November 1, 1995 and filed as
Exhibit 4.1 to Form 10-K for the year ended December 31,
1995.
10.15 Lease between the Registrant and Amax, Inc. for manufacturing
facility at Parkersburg, West Virginia, dated as of October
19, 1978, filed as Exhibit 10.15 to Registration Statement
No. 2-72051.
10.16 Lease between Registrant and Greentree Building Associates
for Headquarters office, dated as of June 9, 1986, as
amended to date, filed as Exhibit 10.16 to Form 10-K for
the year ended December 31, 1988.
10.16.1 Amendment dated June 19, 1990 to lease between Registrant and
Greentree Building Associates, filed as Exhibit 10.16.1 to
Form 10-Q for the quarter ended June 30, 1990.
10.19 Lease between the Registrant and American Cast Iron Pipe
Company for Pipe Coating Facility in Birmingham, Alabama
dated December 11, 1991 and filed as Exhibit 10.19 to
Form 10-K for the year ended December 31, 1991.
* 10.19.1 Amendment to Lease between the Registrant and American Cast
Iron Pipe Company for Pipe Coating Facility in Birmingham,
Alabama dated April 15, 1997.
10.33.2 Amended and Restated 1985 Long-Term Incentive Plan, as
amended and restated February 26, 1997 and filed as Exhibit
10.33.2 to Form 10-K for the year ended December 31, 1996.
**
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, 1993. **
10.49 Lease agreement between Newport Steel Corporation and L.B.
Foster Company dated as of October 12, 1994 and filed as
Exhibit 10.49 to Form 10-Q for the quarter ended September
30, 1994.
10.50 L. B. Foster Company 1997 Incentive Compensation Plan. Filed
as Exhibit 10.50 to Form 10-K for the year ended December 31,
1996. **
10.51 Supplemental Executive Retirement Plan. Filed as Exhibit
10.51 to Form 10-K for the year ended December 31, 1994. **
10.52 L. B. Foster Company Officer Loan Program. Filed as Exhibit
10.52 to Form 10-Q for the quarter ended September 30, 1996.
10.53 Amendment to L. B. Foster Company Officer Loan Program.
Filed as Exhibit 10.53 to Form 10-K for the year ended
December 31, 1996.
19 Exhibits marked with an asterisk are filed herewith.
** Identified management contract or compensatory plan or
arrangement required to be filed as an exhibit.
b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed by the Registrant during the three month
period ended March 31, 1997.
SIGNATURE
Pursuant to the requirements 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
--------------------------
(Registrant)
Date: May 15, 1997 By /s/Roger F. Nejes
--------------------------
Roger F. Nejes
Sr. Vice President-
Finance and Administration
& Chief Financial Officer
(Principal Financial Officer
and Duly Authorized Officer
of Registrant)
5
1000
3-MOS
DEC-31-1997
MAR-31-1997
2,846
0
44,550
1,854
52,662
101,481
50,541
26,480
128,949
36,919
21,494
0
0
102
68,128
128,949
54,494
54,494
48,060
48,060
0
0
535
680
273
407
0
0
0
407
.04
.04
AMENDMENT TO SUBLEASE AGREEMENT
(as amended)
BETWEEN
AMERICAN CAST IRON PIPE COMPANY
AND
L.B. FOSTER COMPANY
Dated as of December 11, 1991
AMENDMENT NO. 3
Dated as of April 15 , 1997
AMENDMENT NO. 3
TO SUBLEASE AGREEMENT
THIS AMENDMENT TO SUBLEASE AGREEMENT dated December 11, 1991, as amended,
("Sublease") by and between AMERICAN CAST IRON PIPE COMPANY, a Georgia
corporation, ("Landlord") and L.B. FOSTER COMPANY, a Delaware corporation,
("Tenant") is made and entered into between Landlord and Tenant on and as of
this the 15th day of April, 1997 ("Amendment").
WITNESSETH:
WHEREAS, Landlord and Tenant desire to further amend the Sublease which has
heretofore been amended by Amendment No. 1 amending Exhibit "A" to the
Sublease and by Amendment which provides that the Commencement Date of the
Sublease is April 1, 1992, and extends the term of the Sublease; and
WHEREAS, Tenant has requested that Landlord construct the improvements
identified on Exhibit 2A to this Amendment on the "demised premises"
(as herein defined), and Landlord is willing to construct the improvements
("Improvement" or "Improvements") on and subject to the terms and conditions
set forth in this Amendment.
NOW, THEREFORE, in consideration of the premises and the mutual undertakings,
covenants, promises, and agreements herein contained, and for other good and
valuable consideration, receipt of which is acknowledged, Landlord and Tenant
agree as follows:
A. CERTAIN AGREEMENTS.
1. Except as otherwise provided herein, all defined terms in the Sublease
are incorporated by reference into this Amendment.
2. As used in the Sublease:
(a) the term, "demised premises" is hereby redefined to mean the coating
yard described on Amended Exhibit "A" to the Sublease and any and all
improvements located on the demised premises;
(b) the term, "building" means the building referenced in Exhibit "B" to the
Sublease (such building is referred to herein as "building" or "Original
Building") and the term "buildings" means any and all enclosed structures
located on the demised premises, including, without limitation, the
Improvement or Improvements and the Original Building;
(c) the term, "Supplemental Commencement Date," means the first day of the
first month immediately following the earlier of (i) the date on which the
Landlord's representative responsible for supervising construction shall
certify in writing to Landlord or the Prime Landlord that the Improvement is
substantially complete and ready for use (except for the personal property
required to be installed or supplied by Tenant), or (ii) the date of the
issuance by the appropriate governmental authority of a temporary certificate
of occupancy for the building comprising the Improvement or (iii) the date on
which Tenant commences business in such building;
(d) the term, "Supplemental Sublease Year," means the period of twelve (12)
consecutive months commencing on the Supplemental Commencement Date and on
each annual anniversary of the Supplemental Commencement Date during the
term of this Sublease; and
(e) the term "rent" or "rents" or "rental" or "rentals" as used in Article 7,
Article 13, Article 15(d) and 15(f), Article 16, Article 19(b), and Article
28(a) shall mean and include "Basic Rent," "Additional Rent," and
"Supplemental Rent," as those terms are defined in the Sublease.
B. FURTHER AGREEMENTS AND AMENDMENTS.
1. ARTICLE 1. PREMISES AND TERM. Article 1 (Premises and Term) is hereby
amended,
(a) by changing and amending the first paragraph of Article 1 to read as
follows:
"Landlord subleases to Tenant, and Tenant does sublease and take from
Landlord, the demised premises." and,
(b) by changing and amending the second paragraph of Article 1 to read
as follows:
"TO HAVE AND TO HOLD the said demised premises, together with all and
singular the improvements "thereunto belonging or in any manner appertaining,
unto Tenant for a term commencing on the Commencement Date set forth in
Article 3 hereof, and continuing thereafter to and including the fifth (5th)
anniversary of the Supplemental Commencement Date, subject, however, to
earlier termination as provided elsewhere in this sublease."
2. The following is hereby added as Article 2A:
ARTICLE 2A. CONSTRUCTION OF IMPROVEMENTS. Landlord agrees to
construct or cause to be constructed the Improvements on the Demised
Premises, in accordance with the plans and specifications prepared by
Landlord's engineering department, and dated ________, 1997, copies of which
are attached hereto and incorporated herein as Exhibit "2A" and have been
initialed by Landlord and Tenant, which plans and specifications the parties
have carefully reviewed and specifically approved."
3. (a) The parties agree that Article 3(a) of the Sublease has been fully
executed and performed, and that the Commencement Date was April 1, 1992;
(b) Article 3(b) (Fixed Commencement Date) is hereby amended to read as
follows:
"(b) Recordable Declaration. Upon the demand of either Landlord or Tenant,
the parties hereto will execute a written declaration in recordable form
expressing the specific commencement and termination dates of the term of
this Sublease."
4. Article 6(a) is hereby amended by changing and amending the last
sentence thereof to read as follows:
"In addition to the Basic Rent, Tenant shall pay additional rent and
supplemental rent based upon a percentage of Tenant's gross revenues from
business operations conducted on the demised premises, as hereinafter set
forth."
5. Article 6(b) is hereby amended as follows:
(a) by changing and amending the first paragraph of Article 6(b)(ii) to
read as follows:
"(ii) During each subsequent Sublease Year or, in the event of termination of
this Sublease prior to the expiration of twelve (12) months from the date of
commencement of any such Sublease Year, the part of the Sublease Year
remaining until the expiration or earlier termination of the term of this
Sublease, in addition to the Basic Rent, Tenant shall pay to Landlord an
Additional Rent for the demised premises equal to a mutually agreed upon
percentage of Tenant's gross revenues earned by Tenant's pipe coating
operations conducted in the demised premises."
(b) by changing and amending the first sentence of the second paragraph
of Article 6(b)(ii) to read as follows:
"If Tenant and Landlord are unable to agree upon a mutually acceptable
percentage of gross revenues to be paid by Tenant as Additional Rent at least
ninety (90) days prior to commencement of each succeeding year or part year
to which such percentages shall apply, the following shall apply for the
following year or part thereof remaining until the expiration or earlier
termination of the term of this Sublease."
(c) by adding the following as Article 6(b)(iii):
"(iii) During each Supplemental Sublease Year or, in the event of
termination of this Sublease prior to the expiration of twelve (12) months
from the date of commencement of any such Supplemental Sublease Year, the
part of the Supplemental Sublease Year remaining until the expiration or
earlier termination of the term of this Sublease, in addition to the
Additional Rent, Tenant shall pay the Landlord additional rent for the
demised premises ("Supplemental Rent") equal to three-quarters of one percent
(0.75%) of "gross revenues" (as defined in the Sublease) earned in the
coating of pipe by Tenant (regardless of pipe size) in the demised premises."
6. Article 6(d) (Method of Payment of Additional Rent) is hereby amended by
adding the words, "and Supplemental Rent" after the words "Additional Rent"
wherever "Additional Rent" appears in Article 6(d), and by changing the verb
"is" to "are" wherever required for grammatical correctness as a result of
such addition of the words "and Supplemental Rent."
7. (a) Article 6(e)(i) is hereby amended to read as follows:
"(i) Within thirty (30) days after the end of each calendar quarter during
the Sublease term and after the expiration or earlier termination of the
Sublease term if such expiration or termination shall occur during a calendar
quarter, Tenant shall furnish to Landlord a verified, detailed statement
certified as to its accuracy by an officer of Tenant, setting forth the
amount of gross revenues of Tenant from coating operations during the
preceding quarter or, if applicable, part thereof, showing the
amount of Additional Rent and Supplemental Rent required to be paid by
Tenant for such quarter or, if applicable, shorter period, and providing a
breakdown of the calculations of the Additional Rent and Supplemental Rent.
Simultaneously with the delivery of such statement, Tenant shall pay to
Landlord all such Additional Rent and Supplemental Rent other than the
Additional Rent and Supplemental Rent to be deducted by Landlord from
Tenant's invoices. Tenant shall keep a full and accurate set of records
adequately showing the amount of gross revenues arising out of operations
conducted on the demised premises each month during the Sublease term."
(b) Article 6(e)(ii) is hereby amended as follows:
(1) by deleting the period at the end of the first sentence of Article
6(e)(ii) and there inserting the words, "or part thereof that shall have
expired as of the expiration of the term or earlier termination of this
Sublease."; and
(2) by deleting the last two sentences thereof and, in lieu of such sentences,
inserting the following:
"If an inspection accurately discloses that further Additional Rent or
Supplemental Rent is owed by Tenant, the Tenant will immediately deliver its
payment of such Additional Rent or Supplemental Rent or both. The acceptance
by Landlord of Additional Rent or Supplemental Rent shall not be deemed a
waiver of its rights to claim further Additional Rent or Supplemental Rent
or both after a review and inspection of Tenant's books and records."
(c) Article 6(e)(iii) is hereby amended by adding the words "or Supplemental
Rent" after the words "Additional Rent" where "Additional Rent" appears in
Article 6(b)(iii).
8. Article 8(a)(i) (Insurance -- All Risks of Physical Loss or Damage) is
hereby amended to read as follows:
"(i) All Risks of Physical Loss or Damage. During the term of this Sublease,
Tenant shall reimburse Landlord for the amount of the annual premium paid by
Landlord to maintain insurance on any improvements located on the demised
premises against all risks of physical loss or damage as provided by the
insurance. The insurance shall be maintained in an amount at all times not
less than 100% of the full insurable value thereof, subject to a
deductible of $25,000 per occurrence. The term "full insurable value" shall
mean actual replacement value of any buildings or other improvements. Full
insurable value shall be determined from time to time (but not more
frequently than once in any twelve (12) calendar months) at the request of
Landlord by the insurer or, at the option of Landlord, by an appraiser,
engineer, architect, or contractor who shall be mutually acceptable to
Landlord and the Prime Landlord. The Landlord shall be the named insured and
the Prime Landlord shall be an additional named insured. All payments for
loss shall be paid to Landlord. Tenant agrees to pay Landlord the
replacement value of any physical loss or damage to any of the buildings
that is, by virtue of the deductible only, not covered by insurance."
9. Article 13 (Maintenance and Repairs) is hereby amended by changing and
amending the first paragraph of said Article to read as follows:
"It is understood and agreed that Landlord shall, at its sole cost and
expense, keep and maintain during the term of this Sublease or any extension
or renewal thereof the foundations, roofs, and structural support portions of
the exterior of all buildings in proper condition and in a good state of
repair. Landlord shall be responsible for the initial painting of the
Improvement and Tenant shall be responsible for thereafter painting the
Improvement and any other buildings. Landlord shall not be responsible
for any maintenance or repair caused by the fault or neglect of Tenant or due
to hazards and risks covered or required to be covered by insurance hereunder
except as insurance proceeds are available therefor. All other
maintenance and repair of the buildings, including cleaning of exteriors
(other than the initial painting of the Improvement) and interior walls, and
maintenance and repairs, and replacement of equipment, shall be the sole
responsibility of Tenant."
l0. Article 14 (Fire or Other Casualty Losses) is hereby amended to read as
follows:
"ARTICLE 14. FIRE OR OTHER CASUALTY LOSSES. If any improvement or
improvements located on the demised premises should be damaged or destroyed
during the Sublease Term by fire or other insurable casualty without the
fault of Tenant, Landlord shall repair and/or restore the same to
substantially the condition such improvement or improvements was in
immediately prior to such damage or destruction, except as in this Article
provided. Landlord's obligation under this Article shall in no event exceed
the scope of the work required to be done by Landlord in the original
construction of any such improvement. Landlord shall not be required to, but
Tenant, unless otherwise agreed by Landlord, may with due dispatch replace or
restore forthwith any trade fixture, signs, or other
installations theretofore installed by Tenant. Basic Rent payable under this
Sublease shall be abated if such fire or other insurable casualty renders the
Original Building unusable by Tenant, but if any such casualty is caused by
the fault of Tenant, there shall be no abatement of rent. Such abatement
shall continue for the period commencing with such casualty and
ending with the completion by Landlord of such work or repair and/or
reconstruction as Landlord is obligated to do. If, however, the Original
Building shall be damaged or destroyed by any cause so that the Landlord
shall decide to demolish or abandon, or completely rebuild it, Landlord may,
within sixty (60) days after such damage or destruction, give Tenant written
notice of such decision, and thereupon this Sublease shall be deemed to have
terminated as of the date of the damage or destruction and Tenant shall
immediately quit and surrender the demised premises to Landlord; provided
that Tenant shall have sixty (60) days thereafter to remove its property
from the demised premises."
11. Article 15 (Eminent Domain) is hereby amended as follows:
(a) by inserting the words "Supplemental Rent" after "Rent," in the fifth
line of
Article 15(b);
(b) by changing and amending subpart (c) to read as follows:
"(c) Partial Condemnation. (i) If less than the whole or less than
substantially all of the demised premises shall be taken in such proceedings,
and the part so taken shall consist only of the property and improvements
surrounding the Original Building or any part thereof, but not the Original
Building itself, the Sublease shall terminate only as to the portion so
taken; this Sublease shall continue for the balance of its term as to the
part of the demised premises remaining after such taking and the rents to be
paid by Tenant after such taking for the remaining part of the demised
premises shall be reduced by an amount agreed upon by Landlord and Tenant,
taking into account all factors that are reasonably relevant in the
circumstances. If Landlord and Tenant are unable to agree on the amount of
such reduction within thirty (30) days after the mailing by Landlord of a
written notice to Tenant that the premises have been so taken, then the
reduction shall be an amount as shall be determined by arbitration as
provided in this Sublease."
"(ii) If the part so taken shall include all or substantially all of the
Original Building, Tenant shall have the right to cancel and terminate this
Sublease as of the date of such taking by giving the Landlord notice in
writing of such election within thirty (30) days after the mailing by
Landlord of a written notice to Tenant that the premises have been so taken
and the Basic Rent, Additional Rent, and Supplemental Rent and all of the
sums and charges in this Sublease provided to be paid by Tenant shall be
apportioned and paid to the date of such termination.
If Tenant shall not elect to terminate, this Sublease shall continue for the
balance of its term as to the part of the demised premises remaining with no
adjustment in rents payable hereunder; provided, that if the taking shall
render the Improvement unusable by Tenant for the purposes set forth in
Article 5 hereof, the Supplemental Rent shall abate."
(c) by changing and amending subpart (d) to read as follows:
"(d) Restoration. If less than the whole or less than all or substantially
all of the Original Building shall be taken in such proceedings, and Tenant
shall not have elected to terminate this Sublease if permitted by the terms
hereof, Landlord shall, with reasonable dispatch, repair the remaining
portion of such structure or structures so as to restore it or them complete,
but Landlord shall not be obligated to extend any part of such structure
beyond any boundary of the real property described on Exhibit "A" to this
Sublease or to restore any structure in violation of any applicable zoning
ordinances or regulations or other laws; Landlord shall not be obligated to
expend on any structure more than the sum allowed to Landlord in such
proceeding for damage to the structure, less all expenses incurred by
Landlord in such proceeding; nor shall there be any abatement of any rent
due hereunder during such restoration; provided, that if the expense of such
restoration would be greater than the sum allowed to Landlord, less such
expenses in the condemnation proceeding, then Landlord shall have an option,
for a period of thirty (30) days after such partial taking, within which to
decide whether to make the restoration or terminate this Sublease. If,
within such thirty-day period, Landlord shall give written notice to Tenant
of termination, this Sublease and the term hereof shall terminate and expire
on the last day of the calendar month following the month in which such
notice shall be given and the Basic Rent, Additional Rent, Supplemental Rent,
and other sums or charges in this Sublease provided to be paid by Tenant
shall be paid to the date of such termination; provided, that if Tenant
shall agree in writing, within twenty (20) days after receiving any such
notice of termination from Landlord, to pay the difference by which the cost
of such restoration exceeds the sum allowed to Landlord in such condemnation
proceeding, less such expenses, then Landlord's notice of termination and
right to terminate hereunder shall cease and Landlord shall make such
such restoration as herein before required."
(d) by changing and amending subpart (e) to read as follows:
"(e) Substantially all of the Premises or Original Building. For the purposes
of this Article, aubstantially all of the demised premises or of the Original
Building shall be deemed to be taken if the portion of the demised premises
or Original Building not so taken does not constitute, or cannot be repaired
or reconstructed so as to constitute, a complete plot and structures or,
in the case of the Original Building, so as to constitute a complete
structure, useable by Tenant as an entity for the proper conduct of its
business as such business is described in Article 5. In the event of any
dispute between Landlord and Tenant as to whether "substantially all" of the
demised premises or of the Original Building are taken, such dispute shall be
submitted to and determined by arbitration as provided in this Sublease."
(e) by changing and amending subpart (f) to read as follows:
"(f) Rents During Arbitration. The rents hereunder shall not abate during any
arbitration proceeding or pending any arbitration award pursuant to this
Article, but an adjustment in such rents, including a retroactive adjustment
for any period during which Tenant may have been deprived of the use of
either the Improvement or the Original Building, or any part of either, shall
be made as soon as the exact amount thereof payable shall have been
determined by the arbitration award."
12. Article 16 (Default) is hereby amended by changing and amending subpart
(a)(i) thereof to read as follows:
"(i) Rent Default. Tenant shall fail to pay installment of any of the rents
due hereunder on the date that any thereof is due and such failure shall
continue for a period of ten (l0) days after the giving of notice by
Landlord of written demand for such payment; provided, however, that three
(3) or more successive failures to pay any such rent within ten (10) days of
the due date thereof shall constitute an event of default without the
necessity of Landlord making any written demand;"
13. Article 19 (Subordination and Attornment) is hereby amended by changing
and amending subparagraph (b) thereof to read as follows:
"(b) Nondisturbance. So long as Tenant is not in default in the payment of
any rents due hereunder or in the performance of any of the terms of this
Sublease, the Tenant's possession of the demised premises and the Tenant's
rights and privileges under the Sublease or any renewal thereof shall not be
diminished or interfered with by the mortgagee."
14. Article 21 (Assignment and Subleasing) is hereby amended by changing the
word "Foster" to "Tenant" and the word "American" to "Landlord" as the same
appear in said Article.
15. (a) The heading of Article 22 is changed to read: SERVICE AGREEMENT AND
SUBLEASE TERMINATION.
(b) The first and second paragraphs of Article 22 (Automatic Renewal) are
hereby deleted.
16. Article 23 is hereby amended by adding, "Supplemental Rent," after the
words, "Additional Rent," in the second line of said Article.
17. Article 31 (Notices) is hereby amended by changing the address of Samuel
W. Oliver, Jr., Esq. to read as follows:
Samuel W. Oliver, Jr., Esq.
Burr & Forman LLP
420 North 20th Street, Suite 3100 (35203)
P.O. Box 830719
Birmingham, Alabama 35283-0719
and by changing and amending the last paragraph of Article 31 to read as
follows:
"All notices shall be deemed to be given when actually received by or for
the intended recipient at such recipient's address."
C. Except as amended hereby, all provisions of the Sublease shall remain in
full force and effect.
IN WITNESS WHEREOF, Landlord and Tenant have duly executed and affixed their
respective seals to this instrument, being duly authorized in the premises,
on the day and year first above written.
LANDLORD:
American Cast Iron Pipe Company,
a Georgia corporation
By: /s/J. M. O'Brien
Its: V.P. Sales
TENANT:
L. B. Foster Company,
a Deleware Corporation
By: /s/Lee B. Foster
Its: President
