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| FSTR > SEC Filings for FSTR > Form 10-Q on 8-May-2009 | All Recent SEC Filings |
8-May-2009
Quarterly Report
Quarterly Results of Operations
Three Months Ended Percent of Total Net Revenues Percent
March 31, Period Ended March 31, Increase/(Decrease)
2009 2008 2009 2008 2009 vs. 2008
Dollars in thousands
Net Sales:
Rail Products $ 54,366 $ 46,191 55.6 % 49.4 % 17.7 %
Construction Products 36,087 39,986 36.9 42.8 (9.8 )
Tubular Products 7,291 7,264 7.5 7.8 0.4
Total Net Sales $ 97,744 $ 93,441 100.0 % 100.0 % 4.6 %
Three Months Ended Gross Profit Percentage Percent
March 31, Period Ended March 31, Increase/(Decrease)
2009 2008 2009 2008 2009 vs. 2008
Dollars in thousands
Gross Profit:
Rail Products $ 4,522 $ 7,097 8.3 % 15.4 % (36.3 )%
Construction Products 7,249 7,657 20.1 19.1 (5.3 )%
Tubular Products 2,014 1,527 27.6 21.0 31.9 %
LIFO Credit (Expense) 250 (293 ) 0.3 (0.3 ) (185.3 )%
Other (353 ) (367 ) (0.4 ) (0.4 ) (3.8 )%
Total Gross Profit $ 13,682 $ 15,621 14.0 % 16.7 % (12.4 )%
Three Months Ended Percent of Total Net Revenues Percent
March 31, Period Ended March 31, Increase/(Decrease)
2009 2008 2009 2008 2009 vs. 2008
Dollars in thousands
Expenses:
Selling and Administrative Expenses $ 9,027 $ 9,366 9.2 % 10.0 % (3.6 )%
Interest Expense 328 555 0.3 0.6 (40.9 )
Gain on Sale of DM&E Investment - (2,022 ) * * (2.2 ) * *
Gain on Sale of Houston, TX Property - (1,486 ) * * (1.6 ) * *
Interest Income (295 ) (815 ) (0.3 ) (0.9 ) (63.8 )
Other (Income) Expense (143 ) 151 (0.1 ) 0.2 (194.7 )
Total Expenses 8,917 5,749 9.1 % 6.2 % 55.1 %
Income Before Income Taxes 4,765 9,872 4.9 % 10.6 % (51.7 )%
Income Tax Expense 1,746 3,566 1.8 3.8 (51.0 )
Net Income $ 3,019 $ 6,306 3.1 % 6.7 % (52.1) %
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** Results of calculation are not material for presentation purposes.
First Quarter 2009 Compared to First Quarter 2008 - Company Analysis
Net income for the first quarter of 2009 was $0.29 per diluted share which
compares to net income for the first quarter of 2008 of $0.57 per diluted share.
Included in net income for the prior year quarter were pre-tax gains from the
receipt of escrow proceeds related to the sale of our investment in the DM&E
Railroad ($2.0 million) and the sale-leaseback of our Houston, TX facility
($1.5 million). Excluding these gains, net income for the prior year period was
$0.36 per diluted share.
Our gross profit margin includes our current estimate of the impact of the LIFO
method of accounting for inventory. Due principally to declining steel prices,
we currently anticipate a positive adjustment resulting from our provision for
LIFO while the prior year period included an estimated negative impact caused by
inflation. Gross profit was adversely affected by the $1.6 million warranty
charge, previously discussed in more detail in Recent Developments, related to
certain concrete ties that failed in track.
Beginning in 2009 we began to see the impacts of our various initiatives
designed to control selling and administrative expenses. The 2009 first quarter
decrease primarily resulted from lower travel and entertainment expenses and
outside services fees, offset in part by increased salaries. Interest expense
decreased from the prior year period due principally to reduced borrowings and,
to a lesser extent, lower interest rates. Reduced average cash and cash
equivalents balances and lower rates contributed to reduced interest income
earned on our various short-term investments during the first quarter of 2009.
Income taxes in the first quarter were recorded at approximately 36.6%, a
nominal increase from the prior year period of 36.1%.
Results of Operations - Segment Analysis
Rail Products
Three Months Ended Percent
March 31, Increase/(Decrease) Increase/(Decrease)
2009 2008 2009 vs. 2008 2009 vs. 2008
Dollars in thousands
Net Sales $ 54,366 $ 46,191 $ 8,175 17.7 %
Gross Profit $ 4,522 $ 7,097 ($2,575 ) -36.3 %
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Gross Profit Percentage 8.3 % 15.4 % -7.0 % -45.9 %
First Quarter 2009 Compared to First Quarter 2008
Increased volumes within our new rail distribution business along with an
increase in selling prices drove the increase in our Rail Products sales over
the 2008 period. The rest of the rail businesses experienced decreased sales in
the first quarter of 2009 compared to the prior year period. Our relay rail
distribution business continues to be negatively impacted by significantly
reduced Industrial market demand and due to low scrap steel prices. Ongoing
reduced UPRR concrete tie purchasing levels continues to negatively impact our
Grand Island, NE and Tucson, AZ facilities. Additionally, customer requested
delivery delays and reduced overall demand have hampered our sales of concrete
ties produced at our Spokane, WA facility. Finally, a lack of government funding
has led to a reduction in sales within our transit products division.
The predominate cause of the decrease in our Rail Products gross profit in the
2009 first quarter was the $1.6 million concrete tie warranty expense recognized
at our Grand Island, NE facility, discussed previously. In addition to the
concrete tie warranty issue, the gross profit at our Grand Island, NE and
Tucson, AZ facilities continues to be negatively impacted by the UPRR volume
reductions, which has also led to increased unabsorbed plant expense. Also, our
relay rail distribution business was negatively impacted by a significant
decrease in the cost of scrap steel prices which has resulted in our selling
higher priced inventory in a declining price environment. Our Spokane, WA
facility has been negatively impacted due to the lack of higher margin sales of
concrete turnout ties as well as competitive pricing pressures. Finally, product
mix and competitive pricing pressures have reduced our gross profit in our
transit products division.
Due to the recessionary economic environment that has negatively impacted
freight railroad car loadings and our expectations that Class 1 railroad capital
spending will decline by approximately 10%, we anticipate Rail Products Segment
sales and gross profit to decline in 2009.
Construction Products
Three Months Ended Percent
March 31, Increase/(Decrease) Increase/(Decrease)
2009 2008 2009 vs. 2008 2009 vs. 2008
Dollars in thousands
Net Sales $ 36,087 $ 39,986 ($3,899 ) -9.8 %
Gross Profit $ 7,249 $ 7,657 ($408 ) -5.3 %
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Gross Profit Percentage 20.1 % 19.1 % 0.9 % 4.9 %
First Quarter 2009 Compared to First Quarter 2008
Decreased volumes of piling products, partially offset by higher selling prices
in the current quarter, led to the overall reduction in Construction Products
sales. Offsetting these reductions in piling sales was improvement from our
concrete buildings division which continues to benefit from increased new orders
and unit installations.
In addition to the impact of volume declines within certain aspects of our
piling division, selling higher priced inventory in a declining price
environment also contributed to the reduction in our Construction Products gross
profit margin. Volume related gross profit margin increases from our concrete
buildings and product mix within our fabricated products divisions partially
offset these decreases.
The heavy civil and public works construction markets that we participate in
were soft nationwide during the first quarter of 2009 leading to a substantial
reduction in bookings and backlog. However, we anticipate that this softening
may be mitigated, in part, by strength in the bridge markets as well as certain
other projects that may be funded from the recently signed American Recovery and
Reinvestment Act stimulus bill.
Tubular Products
Three Months Ended Percent
March 31, Increase/(Decrease) Increase/(Decrease)
2009 2008 2009 vs. 2008 2009 vs. 2008
Dollars in thousands
Net Sales $ 7,291 $ 7,264 $ 27 0.4 %
Gross Profit $ 2,014 $ 1,527 $ 487 31.9 %
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Gross Profit Percentage 27.6 % 21.0 % 6.6 % 31.4 %
First Quarter 2009 Compared to First Quarter 2008
While we believe that the end markets served by our Tubular Products will remain
strong over the long term, downward trends in pricing and demand will reduce our
profitability over the short term.
Changes within our product mix and favorable manufacturing variances have led to
an increase in 2009 gross profit by our Tubular Products segment over the prior
year period.
Liquidity and Capital Resources
The Company's capitalization is as follows:
Debt:
March 31, December 31,
(In millions) 2009 2008
Term Loan, due May 2011 $ 15.2 $ 16.0
Capital Leases and Interim Lease Financing 8.2 9.0
Other (primarily revenue bonds) 2.6 2.5
Total Debt 26.0 27.5
Equity 218.6 217.6
Total Capitalization $ 244.6 $ 245.1
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The Company's need for liquidity relates primarily to seasonal working capital requirements, capital expenditures, common stock repurchases and debt service obligations. We may also use cash to pursue potential strategic acquisitions.
The following table summarizes the year-to-date impact of these items:
March 31,
(In millions) 2009 2008
Liquidity needs:
Working capital and other assets and liabilities ($17.4 ) ($14.2 )
Common stock purchases (1.9 ) -
Capital expenditures (0.6 ) (2.1 )
Scheduled repayments of long-term debt (0.7 ) (0.7 )
Other long-term debt scheduled repayments (0.8 ) (0.8 )
Cash interest paid (0.5 ) (0.5 )
Net liquidity requirements (21.9 ) (18.3 )
Liquidity sources:
Internally generated cash flows before interest paid 5.8 5.4
Proceeds from the sale of DM&E investment - 2.0
Proceeds from asset sales - 6.5
Equity transactions - 0.5
Net liquidity sources 5.8 14.4
Net Change in Cash ($16.1 ) ($3.9 )
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Cash Flow from Operating Activities
During the first quarter of 2009, cash flows from operations used $12.1 million,
an unfavorable increase of $2.9 million compared to the first quarter of 2008.
Net income and adjustments to net income provided $5.2 million for the 2009
period. Offsetting this amount was cash used by certain operating activities of
$17.3 million. The pay down of trade accounts payable, notably in our rail
distribution business, was the primary cause of the reduction in cash for the
three months ended March 31, 2009. Partially offsetting this cash reduction were
the positive impacts from collections of trade accounts receivable and the
utilization of inventories.
Cash Flow from Investing Activities
Capital expenditures were $0.6 million for the first three months of 2009
compared to $2.1 million for the same 2008 period. Current period expenditures
were for plant and equipment improvements as well as technology infrastructure
and application software. We anticipate total capital spending in 2009 will be
approximately $4.0 million and funded by cash flow from operations.
Cash flows provided by investing activities for the three months ended March 31,
2008 included proceeds of $6.5 million and $2.0 million from the aforementioned
threaded products facility and DM&E investment sale respectively.
Cash Flow from Financing Activities
The increase in cash used by financing activities is primarily related to
purchases of 86,141 shares of our Common stock under our share repurchase
program for approximately $1.9 million.
Financial Condition
Included within cash and cash equivalents are principally our investments in
tax-free money market funds with municipal bond issuances as the underlying
securities all of which maintain AAA credit ratings and remain guaranteed by the
United States Treasury. Additionally included therein are our investments in
bank certificates of deposit.
We also have a revolving credit agreement which expires in May 2011 and provides
for up to $90.0 million in borrowings to support our working capital and other
liquidity requirements. Borrowings under this agreement are secured by
substantially all the trade receivables and inventory owned by us, and are
limited to 85% of eligible receivables and 60% of eligible inventory.
Additionally, the revolving credit agreement provided for a $20.0 million term
loan that was immediately applied to pay down existing drawings on the revolving
credit facility. If average availability should fall below $10.0 million over a
30-day period, the loans become immediately secured by a lien on the Company's
equipment that is not encumbered by other liens.
Under the term loan, we had $15.2 million outstanding at March 31, 2009 of which
$12.6 million was noncurrent.
Revolving credit facility borrowings placed in LIBOR contracts are priced at
prevailing LIBOR rates, plus 1.25%. Borrowings placed in other tranches are
priced at the prevailing prime rate, minus 1.00%. The term loan base rate spread
is fixed at minus 0.75% and the LIBOR spread is fixed at plus 1.50%. Under the
credit agreement, we maintain dominion over our cash at all times, as long as
excess availability stays over $5.0 million and there is no uncured event of
default.
In March 2009, we entered into a fifth amendment to the Agreement which became
effective as of December 31, 2008 and changed certain financial covenants
included in the Agreement by creating an exclusion standard in the Agreement.
This standard, which is met when revolving credit facility borrowings do not
exceed $20.0 million and unused borrowing commitment is at least $50.0 million,
allows for certain items, as defined in the amendment, to be excluded in
determining the minimum level for the fixed charge coverage ratio. Additionally,
the amendment redefines our calculation of earnings before interest and taxes by
excluding any charges and credits related to our LIFO method of accounting for
inventory.
The fifth amendment also includes a revised minimum net worth covenant and a
revised maximum level for consolidated capital expenditures. As of March 31,
2009 we were in compliance with all of the Agreement's covenants.
We routinely review our portfolio of businesses and contemplate potential
acquisitions and dispositions from time to time. We are currently assessing a
number of options for the potential use of the above funds and sources of
financing, including, but not limited to, debt reduction, strategic
acquisitions, organic reinvestment in the existing business, continued share
repurchases and other general corporate purposes.
As far as near-term future business activity levels for 2009 are concerned, we
have seen recent evidence of both strength and weakness, with more evidence of
weakness. At the present time we are unable to determine the extent or the
duration of any additional effects that the current credit and economic crisis
will have on our results of operations and financial position.
We do, however, continue in this period of uncertainty in an extremely strong
financial position. As noted, as of March 31, 2009, we had approximately
$99.0 million in cash and short-term instruments and a $90.0 million revolving
credit facility with approximately $85.1 million of availability and
$26.0 million in long-term debt. We believe this capacity will afford us the
flexibility to take advantage of opportunities that we may encounter or weather
the current economic downturn, if need be, as future circumstances dictate.
. . .
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