SEC Company Response from FOSTER L B CO (FSTR) (CIK 0000352825) (FSTR) — May 10, 2007
FOSTER L B CO (FSTR) (CIK 0000352825)
Date: May 10, 2007 · CIK: 0000352825 · Accession: 0000352825-07-000016
AI Filing Summary & Sentiment
File numbers found in text: 000-10436
Letter
Via Facsimile and EDGAR Mr. David Humphrey Branch Chief Securities and Exchange Commission 100 F Street N.E. Washington, D.C. 20549-3561
RE: L.B. Foster Company Form 10-K for fiscal year ended December 31, 2006 Filed March 15, 2007 File No. 000-10436
Dear Mr. Humphrey,
We are writing in response to the comment letter received from the Staff of the Securities and Exchange Commission (the "SEC") dated April 9, 2007, with respect to L.B. Foster Company's (the "Company") Form 10-K for the fiscal year ended December 31, 2006. The italicized paragraphs below restate the numbered paragraphs in the Staff's comment letter, and the discussion set out below each such paragraph is the Company's response to the Staff's comments.
Form 10-K for the year ended December 31, 2006 ----------------------------------------------
Item 7. Management's Discussion and Analysis -------------------------------------------- Results of Operations, Page 20 ------------------------------ 1) Please revise your year to year comparison of operations to discuss and analyze underlying causes of all material changes in results of operations. For example, you state that rail segment sales increased due to increase revenues from concrete rail ties, rail distribution and transit products. However, you do not discuss any underlying causes for the increase in sales, nor the probability this trend will continue. Generally, the focus and content of MD&A should be on material information, identification and disclosure of known trends and uncertainties, and discussion and analysis of both past and prospective financial matters. We refer you to Item 303 of Regulations S-K and FR-72 for additional guidance.
<PAGE>
The Company acknowledges the Staff's comment regarding its Management's Discussion and Analysis. Accordingly, commencing with the Company's next periodic filing with the SEC, the Company will include the following type of expanded discussion:
Fourth Quarter of 2006 vs. Fourth Quarter of 2005 ------------------------------------------------- Income from continuing operations was $3.0 million ($0.27 per diluted share) for the fourth quarter of 2006 on net sales of $110.5 million. This compares favorably to income from continuing operations for the fourth quarter of 2005 of $0.4 million ($0.04 per diluted share) on net sales of $76.7 million.
Net income for the fourth quarter of 2006 was $3.0 million ($0.27 per diluted share) and included a minimal loss from the discontinued operations of the Company's former Geotechnical division. During the same period in 2005, the Company had net income of $0.9 million ($0.08 per diluted share) which included income from discontinued operations of $0.4 million ($0.04 per diluted share).
Net sales for the fourth quarter of 2006 increased $33.7 million, or 43.9%, over the same prior-year quarter. Rail products' net sales increased 45.3% due to sales increases in rail distribution, transit products and concrete railroad ties due to the overall strength of the rail market. We believe that transit products sales will continue to be strong in 2007 due to the positive impact from the 2005 transportation legislation that authorized funding for transit projects (SAFETEA-LU) and anticipated increased usage of public transit systems across the country. Concrete tie sales increased due principally to our Grand Island facility running at strong volumes in 2006 compared to 2005 when the facility was in the commissioning phase after being refurbished with new manufacturing equipment. Additionally, concrete tie sales are expected to increase in 2007 over 2006 as our newer Tucson facility ramps up production to accommodate rail construction initiatives by the Union Pacific Railroad. Construction products' sales increased 49.3% in comparison to the fourth quarter of 2005. This increase was due primarily to an increase in piling sales, mainly sheet piling, and to a lesser extent an increase in concrete buildings sales. The piling sales increase was due to the continued marketplace acceptance of the sheet piling products that we sell as well as continuing strong demand in heavy civil and non-residential markets. Sales of tubular products were 9.3% lower than the prior-year. We anticipate that 2007 will be an improved year for our coated products business as we entered 2007 year with an increased backlog and robust bidding activity.
Liquidity and Capital Resources, Page 22 ---------------------------------------- 2) We note your disclosure of debt as a percentage of total capitalization. However, the description of your revolving credit facility states that borrowings are limited to certain percentages of eligible receivables and inventory. As a result, it is unclear why you disclose debt as a percentage of total capitalization. Please expand your disclosure to explain why this percentage is meaningful and how investors should interpret increases or decreases in such percentage. <PAGE>
We disclose that our revolving credit facility, which is an asset-backed facility, provides for borrowings based upon advance rates on eligible inventory and accounts receivable with a maximum capacity of $75 million. We view this to be critical information to better understand the Company's capital structure; however, this information is not really related to the disclosure of debt as a percentage of capitalization. Debt as a percentage of capitalization is one of several "point in time" measures that financial analysts use to evaluate a company's financial condition. Additionally, while borrowings under the revolving credit agreement are restricted to the aforementioned advance limits, the Company is not similarly limited, as it has outstanding debt from sources other than its revolving credit facility, which amounted to $18.9 million at December 31, 2006 or more than 32% of outstanding debt.
Tabular Disclosure of Contractual Obligations, Page 24 ------------------------------------------------------ 3) We note that you have included excluded interest from your table of contractual obligations. We generally believe you should also include estimated interest payments in the table as these represent a contractual obligation. Your tabular disclosure should be accompanied by a footnote explanation of the methodology used in the calculation. See Section IV.A of FR-72 for guidance and revise or advise.
We acknowledge the Staff's comment and set forth below is our revised disclosure of contractual obligations including interest expense which will be included in future periodic filings with the SEC:
As-Filed in the 2006 10-K: -------------------------- Tabular Disclosure of Contractual Obligations
A summary of the Company's required payments under financial instruments and other commitments, excluding interest, are presented in the following table:
<TABLE> <CAPTION>
<S> <C> <C> <C> <C> <C> Less than 1-3 4-5 More than (in thousands) Total 1 year years years 5 years ------------------------------------------------------------------------------------------------------------------ Contractual Cash Obligations Long-term borrowings $ 42,444 $ 193 $ 376 $41,875 $ - Short-term borrowings 726 726 - - - Capital leases 14,934 2,912 6,102 4,554 1,366 Operating leases 5,828 1,594 2,078 1,760 396 Purchase obligations not reflected in the financial statements 51,551 51,551 - - - ----------------------------------------------------------------------------------------------------------------- Total contractual cash obligations $115,483 $56,976 $ 8,556 $48,189 $1,762 -----------------------------------------------------------------------------------------------------------------
Other Financial Commitments Standby letters of credit $ 3,243 $ 603 $ 2,335 $ 305 $ - -----------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> As Revised for Future Filings: ------------------------------
Tabular Disclosure of Contractual Obligations
A summary of the Company's required payments under financial instruments and other commitments are presented in the following table:
<TABLE> <CAPTION>
<S> <C> <C> <C> <C> <C> Less than 1-3 4-5 More than (in thousands) Total 1 year years years 5 years --------------------------------------------------------------------------------------------- Contractual Cash Obligations Other long-term borrowings (1) $ 42,444 $ 193 $ 376 $39,597 $ 2,278 Interest on long-term borrowings (1) 6,128 1,723 3,466 719 220 Short-term borrowings (2) 726 726 - - - Interest on short-term borrowings (2) 53 53 - - - Capital leases (3) 14,934 2,912 6,102 4,554 1,366 Interest on capital leases (3) 2,800 968 1,297 479 56 Operating leases 5,828 1,594 2,078 1,760 396 Purchase obligations not reflected in the financial statements 51,551 51,551 - - - --------------------------------------------------------------------------------------------- Total contractual cash obligations $124,464 $59,720 $13,319 $47,109 $ 4,316 ---------------------------------------------------------------------------------------------
Other Financial Commitments Standby letters of credit $ 3,243 $ 603 $ 2,335 $ 305 $ - ---------------------------------------------------------------------------------------------
</TABLE> (1) Borrowings of $39.2 million under the revolving credit agreement mature in May 2010. Estimated interest on these borrowings is payable monthly and was calculated using the weighted average interest rate on December 31, 2006 of 7.47%. The $2.0 million Massachusetts Industrial Revenue Bond matures in March 2013. Interest on this bond is payable monthly and was calculated using the interest rate at December 31, 2006 of 3.70%. The Citizens Asset Finance Mortgage of $0.7 million is payable in installments from 2006 through 2011, with a balloon payment due in 2011. Interest on this mortgage is fixed at 7.01% and is payable monthly. The Pennsylvania Economic Development Financing Authority Tax Exempt Pooled Bond of $0.4 million is payable in installments from 2006 through 2021. Interest was calculated using the interest rate of 3.70% at December 31, 2006 and is payable monthly. The $0.2 million Pennsylvania Department of Community and Economic Development Machinery and Equipment Loan is payable in installments through 2009. Interest on this loan is fixed at 3.75% and is payable monthly.
(2) Short-term borrowings consist of an interim financing arrangement with one bank and the Company plans to convert these borrowings to an operating lease during 2007. Interest on these borrowings is calculated using an interest rate of 7.32% and is payable monthly.
(3) Capital lease obligations are payable in installments through 2012 and have interest rates, payable monthly, ranging from 5.58% to 13.62%.
Dakota, Minnesota and Eastern Railroad, Page 24 ----------------------------------------------- 4) We note your disclosure regarding the FRA's denial of the DM&E's loan application for the Project. This denial appears to be based, at least in part, on an independent analysis prepared in 2006 to assess DM&E's ability to repay the loan. The letter of presentation, dated May 8, 2006, accompanying the independent analysis describes DM&E as an undercapitalized and financially precarious company. Also, the executive summary included in the aforementioned analysis states that DM&E's credit history with suppliers, debt holders and preferred stockholders appears poor. Supplementally tell us what consideration has been given to this independent analysis when (i) determining the collectibility of dividends accruing on your investment in DM&E, and (ii) determining the fair value of your investment in DM&E. <PAGE>
We have supplementally provided information which provides a general explanation of our approach to valuing the DM&E and recording dividends accruing to the Company.
Note 1. Summary of Significant Accounting Policies, Page 35 ----------------------------------------------------------- 5) Please add disclosure of the accounting policy for investments, such as your investment in DM&E. The description of this accounting policy should include how management determines whether a decrease in value of any investment has occurred which is other than temporary. See APB 18, and the related FASB Staff Position 115-1 and 124-1, for guidance.
The Company's accounting policy for investments is specifically directed to its sole investments in the DM&E Railroad. Note 7 "Other Assets and Investments" provides disclosure as to the nature of, and accounting for this investment. While we could move this disclosure to our Summary of Significant Accounting Policies, we felt that the significance of the investment warranted a separate footnote.
Note 7. Other Assets and Investments, Page 42 --------------------------------------------- 6) We note your significant investment in the stock of DM&E, including the large sum of recorded and unrecorded dividends receivable. In this regard, you state that although the market values of the investments are not readily determinable, you believe that the fair value of this investment exceeds its carrying amount. In light of there being no readily determinable market value for this stock, please tell us how you determined the fair value of this investment. The discussion on page 17 states that you only record a portion of the dividends receivable from DM&E based on your estimate of future cash flows. Please provide us with a summary of these cash flow estimates. Also, explain how such estimates compare with those used, if any, in your determination of the fair value of your investment in DM&E. According to your disclosure on page 25, you believe the value of your investment in DM&E is "significantly" more than the $16.7 million carried on your balance sheet. Please explain the basis for this assertion by management.
Our estimate of the fair value of the DM&E Railroad is performed annually by an internal review of the audited financial statements of the DM&E. Particular attention i
Show Raw Text
<DOCUMENT>
<TYPE>CORRESP
<SEQUENCE>1
<FILENAME>filename1.txt
<TEXT>
Via Facsimile and EDGAR
Mr. David Humphrey
Branch Chief
Securities and Exchange Commission
100 F Street N.E.
Washington, D.C. 20549-3561
RE: L.B. Foster Company
Form 10-K for fiscal year ended December 31, 2006
Filed March 15, 2007
File No. 000-10436
Dear Mr. Humphrey,
We are writing in response to the comment letter received from the Staff of the
Securities and Exchange Commission (the "SEC") dated April 9, 2007, with respect
to L.B. Foster Company's (the "Company") Form 10-K for the fiscal year ended
December 31, 2006. The italicized paragraphs below restate the numbered
paragraphs in the Staff's comment letter, and the discussion set out below each
such paragraph is the Company's response to the Staff's comments.
Form 10-K for the year ended December 31, 2006
----------------------------------------------
Item 7. Management's Discussion and Analysis
--------------------------------------------
Results of Operations, Page 20
------------------------------
1) Please revise your year to year comparison of operations to discuss and
analyze underlying causes of all material changes in results of operations.
For example, you state that rail segment sales increased due to increase
revenues from concrete rail ties, rail distribution and transit products.
However, you do not discuss any underlying causes for the increase in
sales, nor the probability this trend will continue. Generally, the focus
and content of MD&A should be on material information, identification and
disclosure of known trends and uncertainties, and discussion and analysis
of both past and prospective financial matters. We refer you to Item 303 of
Regulations S-K and FR-72 for additional guidance.
<PAGE>
The Company acknowledges the Staff's comment regarding its Management's
Discussion and Analysis. Accordingly, commencing with the Company's next
periodic filing with the SEC, the Company will include the following type
of expanded discussion:
Fourth Quarter of 2006 vs. Fourth Quarter of 2005
-------------------------------------------------
Income from continuing operations was $3.0 million ($0.27 per diluted
share) for the fourth quarter of 2006 on net sales of $110.5 million. This
compares favorably to income from continuing operations for the fourth
quarter of 2005 of $0.4 million ($0.04 per diluted share) on net sales of
$76.7 million.
Net income for the fourth quarter of 2006 was $3.0 million ($0.27 per
diluted share) and included a minimal loss from the discontinued operations
of the Company's former Geotechnical division. During the same period in
2005, the Company had net income of $0.9 million ($0.08 per diluted share)
which included income from discontinued operations of $0.4 million ($0.04
per diluted share).
Net sales for the fourth quarter of 2006 increased $33.7 million, or 43.9%,
over the same prior-year quarter. Rail products' net sales increased 45.3%
due to sales increases in rail distribution, transit products and concrete
railroad ties due to the overall strength of the rail market. We believe
that transit products sales will continue to be strong in 2007 due to the
positive impact from the 2005 transportation legislation that authorized
funding for transit projects (SAFETEA-LU) and anticipated increased usage
of public transit systems across the country. Concrete tie sales increased
due principally to our Grand Island facility running at strong volumes in
2006 compared to 2005 when the facility was in the commissioning phase
after being refurbished with new manufacturing equipment. Additionally,
concrete tie sales are expected to increase in 2007 over 2006 as our newer
Tucson facility ramps up production to accommodate rail construction
initiatives by the Union Pacific Railroad. Construction products' sales
increased 49.3% in comparison to the fourth quarter of 2005. This increase
was due primarily to an increase in piling sales, mainly sheet piling, and
to a lesser extent an increase in concrete buildings sales. The piling
sales increase was due to the continued marketplace acceptance of the sheet
piling products that we sell as well as continuing strong demand in heavy
civil and non-residential markets. Sales of tubular products were 9.3%
lower than the prior-year. We anticipate that 2007 will be an improved year
for our coated products business as we entered 2007 year with an increased
backlog and robust bidding activity.
Liquidity and Capital Resources, Page 22
----------------------------------------
2) We note your disclosure of debt as a percentage of total capitalization.
However, the description of your revolving credit facility states that
borrowings are limited to certain percentages of eligible receivables and
inventory. As a result, it is unclear why you disclose debt as a percentage
of total capitalization. Please expand your disclosure to explain why this
percentage is meaningful and how investors should interpret increases or
decreases in such percentage.
<PAGE>
We disclose that our revolving credit facility, which is an asset-backed
facility, provides for borrowings based upon advance rates on eligible
inventory and accounts receivable with a maximum capacity of $75 million.
We view this to be critical information to better understand the Company's
capital structure; however, this information is not really related to the
disclosure of debt as a percentage of capitalization. Debt as a percentage
of capitalization is one of several "point in time" measures that financial
analysts use to evaluate a company's financial condition. Additionally,
while borrowings under the revolving credit agreement are restricted to the
aforementioned advance limits, the Company is not similarly limited, as it
has outstanding debt from sources other than its revolving credit facility,
which amounted to $18.9 million at December 31, 2006 or more than 32% of
outstanding debt.
Tabular Disclosure of Contractual Obligations, Page 24
------------------------------------------------------
3) We note that you have included excluded interest from your table of
contractual obligations. We generally believe you should also include
estimated interest payments in the table as these represent a contractual
obligation. Your tabular disclosure should be accompanied by a footnote
explanation of the methodology used in the calculation. See Section IV.A of
FR-72 for guidance and revise or advise.
We acknowledge the Staff's comment and set forth below is our revised
disclosure of contractual obligations including interest expense which will
be included in future periodic filings with the SEC:
As-Filed in the 2006 10-K:
--------------------------
Tabular Disclosure of Contractual Obligations
A summary of the Company's required payments under financial instruments
and other commitments, excluding interest, are presented in the following
table:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Less than 1-3 4-5 More than
(in thousands) Total 1 year years years 5 years
------------------------------------------------------------------------------------------------------------------
Contractual Cash Obligations
Long-term borrowings $ 42,444 $ 193 $ 376 $41,875 $ -
Short-term borrowings 726 726 - - -
Capital leases 14,934 2,912 6,102 4,554 1,366
Operating leases 5,828 1,594 2,078 1,760 396
Purchase obligations not reflected in the financial statements 51,551 51,551 - - -
-----------------------------------------------------------------------------------------------------------------
Total contractual cash obligations $115,483 $56,976 $ 8,556 $48,189 $1,762
-----------------------------------------------------------------------------------------------------------------
Other Financial Commitments
Standby letters of credit $ 3,243 $ 603 $ 2,335 $ 305 $ -
-----------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
As Revised for Future Filings:
------------------------------
Tabular Disclosure of Contractual Obligations
A summary of the Company's required payments under financial instruments
and other commitments are presented in the following table:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Less than 1-3 4-5 More than
(in thousands) Total 1 year years years 5 years
---------------------------------------------------------------------------------------------
Contractual Cash Obligations
Other long-term borrowings (1) $ 42,444 $ 193 $ 376 $39,597 $ 2,278
Interest on long-term borrowings (1) 6,128 1,723 3,466 719 220
Short-term borrowings (2) 726 726 - - -
Interest on short-term borrowings (2) 53 53 - - -
Capital leases (3) 14,934 2,912 6,102 4,554 1,366
Interest on capital leases (3) 2,800 968 1,297 479 56
Operating leases 5,828 1,594 2,078 1,760 396
Purchase obligations not reflected
in the financial statements 51,551 51,551 - - -
---------------------------------------------------------------------------------------------
Total contractual cash obligations $124,464 $59,720 $13,319 $47,109 $ 4,316
---------------------------------------------------------------------------------------------
Other Financial Commitments
Standby letters of credit $ 3,243 $ 603 $ 2,335 $ 305 $ -
---------------------------------------------------------------------------------------------
</TABLE>
(1) Borrowings of $39.2 million under the revolving credit
agreement mature in May 2010. Estimated interest on these borrowings is payable
monthly and was calculated using the weighted average interest rate on December
31, 2006 of 7.47%. The $2.0 million Massachusetts Industrial Revenue Bond
matures in March 2013. Interest on this bond is payable monthly and was
calculated using the interest rate at December 31, 2006 of 3.70%. The Citizens
Asset Finance Mortgage of $0.7 million is payable in installments from 2006
through 2011, with a balloon payment due in 2011. Interest on this mortgage is
fixed at 7.01% and is payable monthly. The Pennsylvania Economic Development
Financing Authority Tax Exempt Pooled Bond of $0.4 million is payable in
installments from 2006 through 2021. Interest was calculated using the interest
rate of 3.70% at December 31, 2006 and is payable monthly. The $0.2 million
Pennsylvania Department of Community and Economic Development Machinery and
Equipment Loan is payable in installments through 2009. Interest on this loan is
fixed at 3.75% and is payable monthly.
(2) Short-term borrowings consist of an interim financing arrangement with one
bank and the Company plans to convert these borrowings to an operating lease
during 2007. Interest on these borrowings is calculated using an interest rate
of 7.32% and is payable monthly.
(3) Capital lease obligations are payable in installments through 2012 and have
interest rates, payable monthly, ranging from 5.58% to 13.62%.
Dakota, Minnesota and Eastern Railroad, Page 24
-----------------------------------------------
4) We note your disclosure regarding the FRA's denial of the DM&E's loan
application for the Project. This denial appears to be based, at least in
part, on an independent analysis prepared in 2006 to assess DM&E's ability
to repay the loan. The letter of presentation, dated May 8, 2006,
accompanying the independent analysis describes DM&E as an undercapitalized
and financially precarious company. Also, the executive summary included in
the aforementioned analysis states that DM&E's credit history with
suppliers, debt holders and preferred stockholders appears poor.
Supplementally tell us what consideration has been given to this
independent analysis when (i) determining the collectibility of dividends
accruing on your investment in DM&E, and (ii) determining the fair value of
your investment in DM&E.
<PAGE>
We have supplementally provided information which provides a general
explanation of our approach to valuing the DM&E and recording dividends
accruing to the Company.
Note 1. Summary of Significant Accounting Policies, Page 35
-----------------------------------------------------------
5) Please add disclosure of the accounting policy for investments, such as
your investment in DM&E. The description of this accounting policy should
include how management determines whether a decrease in value of any
investment has occurred which is other than temporary. See APB 18, and the
related FASB Staff Position 115-1 and 124-1, for guidance.
The Company's accounting policy for investments is specifically directed to
its sole investments in the DM&E Railroad. Note 7 "Other Assets and
Investments" provides disclosure as to the nature of, and accounting for
this investment. While we could move this disclosure to our Summary of
Significant Accounting Policies, we felt that the significance of the
investment warranted a separate footnote.
Note 7. Other Assets and Investments, Page 42
---------------------------------------------
6) We note your significant investment in the stock of DM&E, including the
large sum of recorded and unrecorded dividends receivable. In this regard,
you state that although the market values of the investments are not
readily determinable, you believe that the fair value of this investment
exceeds its carrying amount. In light of there being no readily
determinable market value for this stock, please tell us how you determined
the fair value of this investment. The discussion on page 17 states that
you only record a portion of the dividends receivable from DM&E based on
your estimate of future cash flows. Please provide us with a summary of
these cash flow estimates. Also, explain how such estimates compare with
those used, if any, in your determination of the fair value of your
investment in DM&E. According to your disclosure on page 25, you believe
the value of your investment in DM&E is "significantly" more than the $16.7
million carried on your balance sheet. Please explain the basis for this
assertion by management.
Our estimate of the fair value of the DM&E Railroad is performed annually
by an internal review of the audited financial statements of the DM&E.
Particular attention i