UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended June 30, 2003
Commission File Number 0-10436
L. B. Foster Company
(Exact name of Registrant as specified in its charter)
Pennsylvania 25-1324733
(State of Incorporation) (I. R. S. Employer Identification No.)
415 Holiday Drive, Pittsburgh, Pennsylvania 15220
(Address of principal executive offices) (Zip Code)
(412) 928-3417
(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 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 by checkmark whether the registrant is an accelerated filer (as defined
in Rule 12b-2 of the Act). Yes [ ] No [X]
Indicate the number of shares of each of the registrant's classes of common
stock as of the latest practicable date.
Class Outstanding at August 1, 2003
Common Stock, Par Value $.01 9,590,770 Shares
2
L.B. FOSTER COMPANY AND SUBSIDIARIES
INDEX
PART I. Financial Information Page
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of Operations 4
Condensed Consolidated Statements of Cash Flows 5
Notes to Condensed Consolidated
Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 12
Item 3. Quantitative and Qualitative Disclosures about
Market Risk 19
Item 4. Controls and Procedures 19
PART II. Other Information
Item 1. Legal Proceedings 20
Item 4. Results of Votes of Security Holders 20
Item 6. Exhibits and Reports on Form 8-K 20
Signature 23
3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
L. B. FOSTER COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
June 30, December 31,
2003 2002
---------------- ----------------
ASSETS (Unaudited)
Current Assets:
Cash and cash equivalents $2,319 $3,653
Accounts and notes receivable:
Trade 44,047 39,294
Other 147 69
---------------- ----------------
44,194 39,363
Inventories 40,690 32,925
Current deferred tax assets 1,494 1,494
Other current assets 1,122 696
Current assets of discontinued operations 7 138
---------------- ----------------
Total Current Assets 89,826 78,269
---------------- ----------------
Property, Plant & Equipment - At Cost 72,937 72,023
Less Accumulated Depreciation (37,944) (35,940)
---------------- ----------------
34,993 36,083
---------------- ----------------
Other Assets:
Goodwill 350 350
Other intangibles - net 663 739
Investments 13,213 12,718
Deferred tax assets 4,436 4,454
Other assets 1,026 1,175
Assets of discontinued operations 1 196
---------------- ----------------
Total Other Assets 19,689 19,632
---------------- ----------------
TOTAL ASSETS $144,508 $133,984
================ ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term debt $805 $825
Accounts payable - trade 34,354 24,094
Accrued payroll and employee benefits 2,602 2,413
Current deferred tax liabilities 1,474 1,474
Other accrued liabilities 3,591 2,695
Liabilities of discontinued operations 203 74
---------------- ----------------
Total Current Liabilities 43,029 31,575
---------------- ----------------
Long-Term Borrowings 21,000 23,000
---------------- ----------------
Other Long-Term Debt 3,712 3,991
---------------- ----------------
Deferred Tax Liabilities 4,195 4,195
---------------- ----------------
Other Long-Term Liabilites 5,313 5,210
---------------- ----------------
STOCKHOLDERS' EQUITY:
Common stock 102 102
Paid-in capital 35,013 35,143
Retained earnings 36,128 35,208
Treasury stock (3,253) (3,629)
Accumulated other comprehensive loss (731) (811)
---------------- ----------------
Total Stockholders' Equity 67,259 66,013
---------------- ----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $144,508 $133,984
================ ================
See Notes to Condensed Consolidated Financial Statements.
4
L. B. FOSTER COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Amounts)
Three Months Six Months
Ended Ended
June 30, June 30,
--------------------------------- ----------------------------------
2003 2002 2003 2002
--------------------------------- ----------------------------------
(Unaudited) (Unaudited)
Net Sales $75,796 $70,806 $135,315 $133,979
Cost of Goods Sold 66,600 62,106 119,186 118,484
-------------- -------------- --------------- ---------------
Gross Profit 9,196 8,700 16,129 15,495
Selling and Administrative Expenses 6,830 6,518 13,397 12,891
Interest Expense 578 633 1,157 1,307
Other Income (54) (230) (374) (510)
-------------- -------------- --------------- ---------------
7,354 6,921 14,180 13,688
-------------- -------------- --------------- ---------------
Income From Continuing Operations Before Income
Taxes and Cumulative Effect of Change in
Accounting Principle 1,842 1,779 1,949 1,807
Income Taxes 719 716 762 716
-------------- -------------- --------------- ---------------
Income From Continuing Operations Before Cumulative
Effect of Change in Accounting Principle 1,123 1,063 1,187 1,091
Discontinued Operations:
Loss From Operations of Foster Technologies (60) (332) (440) (649)
Income Tax Benefit (23) - (173) -
-------------- -------------- --------------- ---------------
Loss on Discontinued Operations (37) (332) (267) (649)
Cumulative Effect of Change in Accounting Principle,
Net of Tax - - - (4,390)
-------------- -------------- --------------- ---------------
Net Income (Loss) $1,086 $731 $920 ($3,948)
============== ============== =============== ===============
Basic Earnings (Loss) Per Common Share:
From Continuing Operations Before Cumulative
Effect of Change in Accounting Principle $0.12 $0.11 $0.12 $0.12
From Discontinued Operations, Net of Tax - (0.03) (0.03) (0.07)
Cumulative Effect of Change in Accounting
Principle, Net of Tax - - - (0.46)
-------------- -------------- --------------- ---------------
Net Income (Loss) $0.11 $0.08 $0.10 ($0.42)
============== ============== =============== ===============
Diluted Earnings (Loss) Per Common Share:
From Continuing Operations Before Cumulative
Effect of Change in Accounting Principle $0.12 $0.11 $0.12 $0.11
From Discontinued Operations, Net of Tax - (0.03) (0.03) (0.07)
Cumulative Effect of Change in Accounting
Principle, Net of Tax - - - (0.46)
-------------- -------------- --------------- ---------------
Net Income (Loss) $0.11 $0.08 $0.10 ($0.42)
============== ============== =============== ===============
See Notes to Condensed Consolidated Financial Statements.
5
L. B. FOSTER COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
Six Months
Ended June 30,
2003 2002
------------- -------------
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Income from continuing operations $1,187 $1,091
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 2,597 2,444
Loss on sale of property, plant and equipment 6 19
Unrealized loss on derivative mark-to-market 110 -
Change in operating assets and liabilities:
Accounts receivable (4,831) 3,044
Inventories (7,765) 7,885
Other current assets (426) (333)
Other noncurrent assets (347) (587)
Accounts payable - trade 10,260 (2,111)
Accrued payroll and employee benefits 189 (121)
Other current liabilities 786 (532)
Other liabilities 145 (20)
------------- -------------
Net Cash Provided by Operating Activities 1,911 10,779
------------- -------------
Net Cash Provided (Used) by Discontinued Operations 245 (620)
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property, plant and equipment 2 238
Capital expenditures on property, plant and equipment (1,281) (2,929)
Acquisition of business - (2,214)
------------- -------------
Net Cash Used by Investing Activities (1,279) (4,905)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of revolving credit agreement borrowings (2,000) (5,000)
Exercise of stock options and stock awards 246 168
Repayments of long-term debt (457) (243)
------------- -------------
Net Cash Used by Financing Activities (2,211) (5,075)
------------- -------------
Net (Decrease) Increase in Cash and Cash Equivalents (1,334) 179
Cash and Cash Equivalents at Beginning of Period 3,653 4,222
------------- -------------
Cash and Cash Equivalents at End of Period $2,319 $4,401
============= =============
Supplemental Disclosure of Cash Flow Information:
Interest Paid $1,071 $1,462
============= =============
Income Taxes Paid $260 $729
============= =============
During the first six months of 2003 and 2002, the Company financed certain
capital expenditures totaling $158,000 and $618,000, respectively, through the
execution of capital leases.
See Notes to Condensed Consolidated Financial Statements.
6
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. The results of operations for interim periods are not
necessarily indicative of the results that may be expected for the year ended
December 31, 2003. Amounts included in the balance sheet as of December 31, 2002
were derived from our audited balance sheet. 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, 2002.
2. ACCOUNTING PRINCIPLES
In January 2003, the FASB issued FASB Interpretation No. 46, "Consolidation of
Variable Interest Entities, and Interpretation of ARB No. 51", (FIN 46). FIN 46
requires certain variable interest entities to be consolidated by the primary
beneficiary of the entity if the equity investors in the entity do not have the
characteristics of a controlling financial interest or do not have sufficient
equity at risk for the entity to finance its activities without additional
subordinated financial support from other parties. FIN 46 is effective for all
new variable interest entities created or acquired after January 31, 2003. For
variable interest entities created or acquired prior to February 1, 2003, the
provisions of FIN 46 must be applied at the first interim or annual period
beginning after June 15, 2003. The Company has not identified any variable
interest entities for which consolidation under FIN 46 is appropriate.
In April 2003, the FASB issued Statement of Financial Accounting Standards No.
149, "Amendment of Statement 133 on Derivative Instruments and Hedging
Activities," (SFAS 149). SFAS 149 amends and clarifies financial accounting and
reporting for derivative instruments embedded in other contracts and for hedging
activities under SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities." It is effective for contracts entered into or modified
after June 30, 2003, except as stated within the statement, and should be
applied prospectively. The Company does not expect this statement to have a
material effect on its consolidated financial statements.
In June 2003, the FASB issued Statement of Financial Accounting Standards No.
150, "Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equity," (SFAS 150). This standard requires that certain
financial instruments embodying an obligation to transfer assets or to issue
equity securities be classified as liabilities. It is effective for financial
instruments entered into or modified after May 31, 2003, and otherwise is
effective July 1, 2003. This standard has no impact on the Company's financial
statements.
Stock-based compensation
- ------------------------
In December 2002, the FASB issued Statement of Financial Accounting Standards
No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure -
an amendment of FASB Statement No. 123" (SFAS 148) effective for fiscal years
ending after December 31, 2002 and for interim periods beginning after December
15, 2002. This statement amends Statement of Financial Accounting Standards No.
123, "Accounting for Stock Stock-Based Compensation" (SFAS 123), to provide
alternative methods of transition for a voluntary change to the fair value based
method of accounting for stock-based employee compensation. In addition, SFAS
148 amends the disclosure requirements of SFAS 123 to require prominent
disclosures in both annual and interim financial statements about the method of
accounting for stock-based employee compensation and the effect of the method
used on reported results.
7
The Company has adopted the disclosure provisions of SFAS 123 and applies the
intrinsic value method of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25) and related interpretations
in accounting for its stock option plans. Accordingly, no compensation expense
has been recognized.
The following table illustrates the effect on the Company's income from
continuing operations and earnings per share had compensation expense for the
Company's stock option plans been applied using the method required by SFAS 123.
Three Months Ended Six Months Ended
June 30, June 30,
In thousands, except per share amounts 2003 2002 2003 2002
- --------------------------------------------------------------------------------
Net income from continuing operations,
as reported $1,123 $1,063 $1,187 $1,091
Add: Stock-based employee compensa-
tion expense included in reported
net income, net of related tax
effects - - - -
Deduct: Total stock-based employee
compensation expense determined
under fair value method for all
awards, net of related tax effects 79 93 141 151
- --------------------------------------------------------------------------------
Pro forma income from continuing
operations $1,044 $970 $1,046 $940
================================================================================
Earnings per share from continuing
operations:
Basic, as reported $0.12 $0.11 $0.12 $0.12
Basic, pro forma $0.11 $0.10 $0.11 $0.10
Diluted, as reported $0.12 $0.11 $0.12 $0.11
Diluted, pro forma $0.11 $0.10 $0.11 $0.10
================================================================================
Pro forma information regarding net income and earnings per share for options
granted has been determined as if the Company had accounted for its employee
stock options under the fair value method of Statement No. 123. The fair value
of stock options used to compute pro forma net income and earnings per share
disclosures is the estimated present value at grant date using the Black-Scholes
option-pricing model with the following weighted-average assumptions used for
grants in the second quarter of 2003 and 2002, respectively: risk-free interest
rates of 3.56% and 5.16%; dividend yield of 0.0% for both quarters; volatility
factors of the expected market price of the Company's Common stock of .32 for
both quarters; and a weighted-average expected life of the option of ten years.
The weighted-average fair value of the options granted in the second quarter of
2003 and 2002 was $2.11 and $2.99, respectively. There were no stock options
granted in the first quarter of 2003 or 2002.
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 June 30, 2003 and December
31, 2002 have been reduced by an allowance for doubtful accounts of ($1,072,000)
and ($1,063,000), respectively. Bad debt expense was $85,000 and $82,000 for the
six-month periods ended June 30, 2003 and 2002, respectively.
8
4. INVENTORIES
Inventories of the Company at June 30, 2003 and December 31, 2002 are summarized
as follows in thousands:
June 30, December 31,
2003 2002
- --------------------------------------------------------------------------
Finished goods $26,296 $21,700
Work-in-process 10,818 6,343
Raw materials 5,425 6,731
- --------------------------------------------------------------------------
Total inventories at current costs 42,539 34,774
(Less):
LIFO reserve (1,249) (1,249)
Inventory valuation reserve (600) (600)
- --------------------------------------------------------------------------
$40,690 $32,925
==========================================================================
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. DISCONTINUED OPERATIONS
During the fourth quarter of 2002, the Company started negotiations and
committed to a plan to sell the assets related to its rail signaling and
communication device business and recorded a $660,000 non-cash impairment loss
to adjust these assets to their fair value. In February 2003, substantially all
of the assets of this business were sold for $300,000. The operations of the
rail signaling and communication device business qualify as a "component of an
entity" under Statement of Financial Accounting Standards No. 144 "Accounting
for the Impairment or Disposal of Long-Lived Assets" and thus, the operations
have been classified as discontinued, and prior periods have been restated.
Future expenses related to this business as it winds down are expected to be
immaterial.
Net sales and loss from discontinued operations were as follows:
Three Months Ended Six Months Ended
June 30, June 30,
In thousands 2003 2002 2003 2002
- --------------------------------------------------------------------------------
Net sales $ - $ 16 $ 1 $ 16
- --------------------------------------------------------------------------------
Pretax operating loss (60) (332) (370) (649)
Pretax loss on disposal - - (70) -
Income tax benefit 23 - 173 -
- --------------------------------------------------------------------------------
Loss from discontinued
operations $ (37) $ (332) $ (267) $ (649)
================================================================================
6. BORROWINGS
On September 26, 2002, the Company entered into a new credit agreement with a
syndicate of three banks led by PNC Bank, N.A. The agreement provides for a
revolving credit facility of up to $60,000,000 in borrowings to support the
Company's working capital and other liquidity requirements.
9
The revolving credit facility, which matures in September 2005, is secured by
substantially all of the inventory and trade receivables owned by the Company.
Availability under the agreement is limited by the amount of eligible inventory
and accounts receivable applied against certain advance rates. Proceeds from the
new facility were used to repay and retire the Company's previous credit
agreement, which was to mature in July 2003. Interest on the new credit facility
is based on LIBOR plus a spread ranging from 1.75% to 2.50%.
The agreement includes financial covenants requiring a minimum net worth, a
minimum level for the fixed charge coverage ratio and a maximum level for
consolidated capital expenditures. The agreement also restricts investments,
indebtedness, and the sale of certain assets. As of June 30, 2003, the Company
was in compliance with all of the agreement's covenants.
7. EARNINGS (LOSS) PER COMMON SHARE
The following table sets forth the computation of basic and diluted earnings
(loss) per common share:
Three Months Ended Six Months Ended
June 30, June 30,
(in thousands, except earnings per share) 2003 2002 2003 2002
- ----------------------------------------------------------------------------------------------------------------------------------
Numerator:
Numerator for basic and diluted
earnings per common share -
net income (loss) available to common
stockholders:
Income from continuing operations $ 1,123 $ 1,063 $ 1,187 $ 1,091
Loss from discontinued operations (37) (332) (267) (649)
Cumulative effect of change in accounting principle - - - (4,390)
- ----------------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 1,086 $ 731 $ 920 $(3,948)
==================================================================================================================================
Denominator:
Weighted average shares 9,568 9,495 9,546 9,468
- ----------------------------------------------------------------------------------------------------------------------------------
Denominator for basic earnings
per common share 9,568 9,495 9,546 9,468
Effect of dilutive securities:
Contingent issuable shares - 7 2 19
Employee stock options 103 220 85 205
- ----------------------------------------------------------------------------------------------------------------------------------
Dilutive potential common shares 103 227 87 224
Denominator for diluted earnings
per common share - adjusted weighted
average shares and assumed conversions 9,671 9,722 9,633 9,692
==================================================================================================================================
Basic earnings (loss) per common share
Continuing operations $ 0.12 $ 0.11 $ 0.12 $ 0.12
Discontinued operations - (0.03) (0.03) (0.07)
Cumulative effect of change in accounting principle - - - (0.46)
- ----------------------------------------------------------------------------------------------------------------------------------
Basic earnings (loss) per common share $ 0.11 $ 0.08 $ 0.10 $ (0.42)
==================================================================================================================================
Diluted earnings (loss) per common share
Continuing operations $ 0.12 $ 0.11 $ 0.12 $ 0.11
Discontinued operations - (0.03) (0.03) (0.07)
Cumulative effect of change in accounting principle - - - (0.46)
- ----------------------------------------------------------------------------------------------------------------------------------
Diluted earnings (loss) per common share $ 0.11 $ 0.08 $ 0.10 $ (0.42)
==================================================================================================================================
10
8. COMMITMENTS AND CONTINGENT LIABILITIES
The Company is subject to laws and regulations relating to the protection of the
environment and the Company's efforts to comply with environmental regulations
may have an adverse effect on the Company's future earnings. In the opinion of
management, compliance with the present environmental protection laws will not
have a material adverse effect on the financial condition, results of
operations, cash flows, competitive position, or capital expenditures of the
Company.
The Company is subject to legal proceedings and claims that arise in the
ordinary course of its business. In the opinion of management, these proceedings
will not materially affect the financial position of the Company.
The Company was convicted in December 2000, after a jury trial in Houston, TX,
of unlawful disposal of used oil and hazardous waste at its facility in Houston,
TX, and was fined $20,000 for used oil conviction and $150,000 for hazardous
waste conviction. The Texas Court of Appeals reversed the Company's conviction
for the unlawful disposal of hazardous waste and upheld the conviction for the
unlawful disposal of used oil. The Company has filed a further appeal on the
used oil conviction and the State has filed an appeal from the reversal of the
hazardous waste conviction.
At June 30, 2003, the Company had outstanding letters of credit of approximately
$2,689,000.
9. BUSINESS SEGMENTS
The Company is organized and evaluated by product group, which is the basis for
identifying reportable segments. The Company is engaged in the manufacture,
fabrication and distribution of rail, construction and tubular products. The
following tables illustrate revenues and profits/(losses) of the Company by
segment:
Three Months Ended, Six Months Ended,
June 30, 2003 June 30, 2003
- --------------------------------------------------------------------------------
Net Segment Net Segment
(in thousands) Sales Profit Sales Profit
- --------------------------------------------------------------------------------
Rail products $37,709 $1,195 $69,335 $1,876
Construction products 33,469 808 57,433 281
Tubular products 4,618 558 8,547 923
- --------------------------------------------------------------------------------
Total $75,796 $2,561 $135,315 $3,080
================================================================================
Three Months Ended, Six Months Ended,
June 30, 2002 June 30, 2002
- --------------------------------------------------------------------------------
Net Segment Net Segment
(in thousands) Sales Profit Sales Profit/(Loss)
- --------------------------------------------------------------------------------
Rail products $34,300 $142 $64,255 ($242)
Construction products 31,975 709 62,009 816
Tubular products 4,531 476 7,715 621
- --------------------------------------------------------------------------------
Total $70,806 $1,327 $133,979 $1,195
================================================================================
Foster Technologies, the Company's rail signaling and communications device
business, was classified as a discontinued operation on December 31, 2002. Prior
period results have been adjusted to reflect this classification. See Note 5,
"Discontinued Operations".
Segment profits, as shown above, include internal cost of capital charges for
assets used in the segment at a rate of, generally, 1-% per month. There has
been no change in the measurement of segment profit/(loss) from December 31,
2002.
The following table provides a reconciliation of reportable net profit/(loss) to
the Company's consolidated total:
11
Three Months Ended Six Months Ended
June 30, June 30,
(in thousands) 2003 2002 2003 2002
- -------------------------------------------------------------------------------
Income for reportable segments $2,561 $1,327 $3,080 $1,195
Cost of capital for reportable
segments 2,662 2,546 5,087 5,262
Interest expense (578) (633) (1,157) (1,307)
Other income 54 230 374 510
Corporate expense and other
unallocated charges (2,857) (1,691) (5,435) (3,853)
- -------------------------------------------------------------------------------
Income from continuing oper-
ations, before income taxes
and cumulative effect of
change in accounting principle $1,842 $1,779 $1,949 $1,807
===============================================================================
10. COMPREHENSIVE INCOME (LOSS)
Comprehensive income (loss) represents net income (loss) plus certain
stockholders' equity changes not reflected in the Condensed Consolidated
Statements of Operations. The components of comprehensive income (loss), net of
tax, were as follows:
Three Months Ended Six Months Ended
June 30, June 30,
(in thousands) 2003 2002 2003 2002
- -------------------------------------------------------------------------------
Net income (loss) $1,086 $731 $920 ($3,948)
Unrealized derivative gains
(losses) on cash flow hedges
(SFAS No. 133) 14 (95) 24 82
Foreign currency translation gains - 30 8 -
Reclassification adjustment for
foreign currency translation losses
included in net income - - 48 -
- -------------------------------------------------------------------------------
Comprehensive income (loss) $1,100 $666 $1,000 ($3,866)
===============================================================================
The change in accumulated other comprehensive loss through June 30, 2003, is
comprised solely of unrealized derivative gains on the Company's interest rate
swap agreement.
12
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Three Months Ended Six Months Ended
June 30, June 30,
- --------------------------------------------------------------------------------
2003 2002 2003 2002
- --------------------------------------------------------------------------------
(Dollars in thousands)
Net Sales:
Rail Products $37,709 $34,300 $69,335 $64,255
Construction Products 33,469 31,975 57,433 62,009
Tubular Products 4,618 4,531 8,547 7,715
- --------------------------------------------------------------------------------
Total Net Sales $75,796 $70,806 $135,315 $133,979
================================================================================
Gross Profit:
Rail Products $4,222 $3,520 $8,008 $6,372
Construction Products 4,357 4,597 7,163 8,244
Tubular Products 1,050 930 1,852 1,481
Other (433) (347) (894) (602)
- --------------------------------------------------------------------------------
Total Gross Profit 9,196 8,700 16,129 15,495
- --------------------------------------------------------------------------------
Expenses:
Selling and admin-
istrative expenses 6,830 6,518 13,397 12,891
Interest expense 578 633 1,157 1,307
Other income (54) (230) (374) (510)
- --------------------------------------------------------------------------------
Total Expenses 7,354 6,921 14,180 13,688
- --------------------------------------------------------------------------------
Income From Continuing
Operations Before Income
Taxes and Cumulative Effect
of Change in Accounting
Principle 1,842 1,779 1,949 1,807
Income Tax Expense 719 716 762 716
- --------------------------------------------------------------------------------
Income From Continuing
Operations Before Cumulative
Effect of Change in
Accounting Principle 1,123 1,063 1,187 1,091
Discontinued Operations:
Loss From Operations of
Foster Technologies (60) (332) (440) (649)
Income Tax Benefit (23) - (173) -
- --------------------------------------------------------------------------------
Loss From Discontinued
Operations (37) (332) (267) (649)
Cumulative Effect of
Change in Accounting
Principle, Net of Tax - - - (4,390)
- --------------------------------------------------------------------------------
Net Income (Loss) $1,086 $731 $920 ($3,948)
================================================================================
Gross Profit %:
Rail Products 11.2% 10.3% 11.5% 9.9%
Construction Products 13.0% 14.4% 12.5% 13.3%
Tubular Products 22.7% 20.5% 21.7% 19.2%
Total Gross Profit 12.1% 12.3% 11.9% 11.6%
================================================================================
13
Second Quarter 2003 Results of Operations
- -----------------------------------------
The Company's second quarter income from continuing operations was $1.1 million
($0.12 per share) on net sales of $75.8 million. During the second quarter of
2002, income from continuing operations was $1.1 million ($0.11 per share) on
net sales of $70.8 million.
Including a minimal net loss from the discontinued operations of the Company's
Foster Technologies subsidiary, net income for the second quarter of 2003 was
$1.1 million ($0.11 per share). During the same period last year, the Company
had net income of $0.7 million ($0.08 per share) which included a $0.3 million
($0.03 per share) loss from discontinued operations.
Net sales for the second quarter of 2003 improved 7.0% compared to the same
period in 2002. Sales in all segments of the Company improved in comparison to
last year's second quarter. The greatest improvement was a 10% increase in Rail
segment sales as revenue recognized for transit products and welded rail
projects increased. Construction products' net sales increased 4.7% to $33.5
million, primarily due to an increase in revenue recognized for mechanically
stabilized earth retention systems. Sheet piling sales also contributed to the
Construction segment revenue increase. Tubular products' sales increased 1.9%
compared to last year's second quarter due primarily to an improved energy
market.
The Company's gross profit margin was 12.1% in the second quarter of 2003
compared to 12.3% in the same period last year. Rail products' profit margin
increased by 0.9 percentage points due primarily to an improvement in margin for
concrete rail products. The 1.4 percentage point decline in Construction
products' margin was due primarily to increased competition in the fabricated
products market and lower margins on revenues recognized for mechanically
stabilized earth wall systems. Tubular products' 2.2 percentage point increase
in gross margin was primarily due to a decline in raw material cost for coated
pipe products.
Selling and administrative expenses increased $0.3 million, or approximately 5%
compared to the second quarter of 2002, primarily due to additions to the sales
force and related employee benefits, along with higher insurance costs. Second
quarter interest expense declined 9% from the prior year due principally to an
$8.4 million reduction in corporate debt. Other income declined $0.2 million
primarily as a result of the mark-to-market adjustments recorded by the Company
related to its interest rate collars.
The second quarter 2003 effective tax rate for continuing operations was 39%
compared to 40% in last year's second quarter.
First Six Months of 2003 Results of Operations
- ----------------------------------------------
For the first six months of 2003, income from continuing operations was $1.2
million ($0.12 per diluted share) on net sales of $135.3 million. During the
same period last year, income from continuing operations was $1.1 million ($0.11
per diluted share) on net sales of $134.0 million.
Including a $0.3 million ($0.3 per share) net loss from the discontinued
operations of Foster Technologies, net income for the six months ended June 30,
2003 was $0.9 million ($0.10 per share). This compares favorably to a net loss
of $3.9 million ($0.42 per share) for the same period of 2002. The 2002 period
included a loss from discontinued operations of $0.6 million ($0.07 per share)
and a non-cash charge of $4.4 million ($0.46 per share) from the adoption of
Statement of Financial Accounting Standards No. 142, "Goodwill and Other
Intangible Assets".
Year to date sales increased $1.3 million compared to sales in the first half of
2002. Rail products' 2003 net sales increased 7.9% to $69.3 million compared to
the same period of 2002. Many of the rail divisions had an increase in revenues,
particularly the transit products division. Net sales of Construction products
declined $4.6 million, or 7.4%, in the year to date comparison. A decline in
government spending for infrastructure projects due to state budget shortfalls
had a direct effect on the Fabricated Products division, while the late awarding
of certain 2003 state contracts contributed to a decline in concrete building
sales.
14
A weaker market for H-bearing pile in the first half of 2003 also had a negative
impact on the Piling division's sales. Tubular products' sales increased 10.8%
to $8.5 million due to a stronger energy market.
The gross margin percentage for the Company was 11.9% in the first six months of
2003 compared to 11.6% in the same period of 2002. Rail products' margin
improved to 11.5% from 9.9% due to favorable job close-outs in the relay rail
division, and more efficient track panel, trackwork, and concrete rail
operations. Construction product's margin declined to 12.5% due to the
competitive market created by a reduction in state spending for infrastructure
projects. Tubular products' gross margin percentage increased to 21.7% as a
result of lower raw material costs and the mix of products sold.
During the first six months of 2003, selling and administrative expenses
increased $0.5 million or 4% over the prior year period. As mentioned
previously, the increase can be attributed primarily to additions to the sales
force and related employee benefits, along with increased insurance costs.
Interest expense fell 11.5% as a result of the reduction in debt. The 2003
reduction of "other income" (comprised primarily of accrued dividend income on
DM&E Preferred stock) resulted from losses on mark-to-market adjustments
recorded by the Company related to its interest rate collars.
Liquidity and Capital Resources
- -------------------------------
The Company generates operational cash flow from the sale of inventory and the
collection of accounts receivable. Cash flow from operations remained positive
for the six months ended June 30, 2003 and combined with cash on hand from 2002,
was adequate enough to fund a $2.3 million reduction in corporate borrowings
from December 31, 2002. During the first half of 2003, the average turnover rate
for accounts receivable was higher than during the same period a year ago due to
increased collections. The average inventory turnover rate in the current period
declined slightly from the average rate for the same period of 2002 as a result
of lower Construction segment sales related to the previously mentioned drop in
government funding of infrastructure projects. Working capital at June 30, 2003
was $46.8 million compared to $46.7 million at December 31, 2002.
The Company's Board of Directors has authorized the purchase of up to 1,500,000
shares of its Common stock at prevailing market prices. No purchases have been
made since the first quarter of 2001. From August 1997 through March 2001, the
Company had repurchased 973,398 shares at a cost of approximately $5.0 million.
The timing and extent of future purchases will depend on market conditions and
options available to the Company for alternate uses of its resources.
Capital expenditures were $1.3 million for the six months ended June 30, 2003,
compared to $2.9 million for capital improvements and $2.2 million for the
Greulich acquisition in the same period of 2002. Capital expenditures for 2003,
excluding acquisitions, are expected to be approximately $5.0 million and funded
by cash flow from operations and available external financing sources.
On September 26, 2002, the Company entered into a credit agreement with a
syndicate of three banks led by PNC Bank, N.A. This new agreement provides for a
revolving credit facility of up to $60.0 million in borrowings to support the
Company's working capital and other liquidity requirements. The revolving credit
facility, which matures in September 2005, is secured by substantially all of
the inventory and trade receivables owned by the Company. Availability under
this agreement is limited by the amount of eligible inventory and accounts
receivable applied against certain advance rates. Proceeds from the new facility
were used to repay and retire the Company's previous credit agreement, which was
to mature in July 2003. Interest on the new credit facility is based on LIBOR
plus a spread ranging from 1.75% to 2.5%.
The agreement includes financial covenants requiring a minimum net worth and a
minimum level for the fixed charge coverage ratio. The agreement also restricts
investments, indebtedness, and the sale of certain assets. As of June 30, 2003,
the Company was in compliance with all of the agreement's covenants.
Total revolving credit agreement borrowings at June 30, 2003 were $21.0 million,
a decrease of $2.0 million from December 31, 2002. At June 30, 2003, remaining
available borrowings under this facility were
15
approximately $21.4 million. Outstanding letters of credit at June 30, 2003 were
approximately $2.7 million. The letters of credit expire annually and are
subject to renewal. Management believes its internal and external sources of
funds are adequate to meet anticipated needs.
Dakota, Minnesota & Eastern Railroad
- ------------------------------------
The Company maintains a significant investment in the Dakota, Minnesota &
Eastern Railroad Corporation (DM&E), a privately held, regional railroad, which
controls over 2,500 miles of track in eight states.
At June 30, 2003, the Company's investment was comprised of $0.2 million of DM&E
common stock, $1.5 million of Series B Preferred Stock and warrants, $6.0
million of Series C Preferred Stock and warrants, $0.8 million of Preferred
Series C-1 Stock and warrants, and $0.5 million of Series D Preferred Stock and
warrants. In addition, the Company has a receivable for accrued dividend income
on Preferred Stock of approximately $4.2 million.
On July 30, 2002, the DM&E announced the acquisition of a 1,400 mile regional
railroad formerly owned by the I&M Rail Link, LLC. The Company participated in
the financing of this acquisition with a $0.5 million investment in Series D
Preferred Stock and warrants. On a fully diluted basis, the Company's ownership
in the DM&E is approximately 13.6%.
In June 1997, the DM&E announced its plan to build an extension from the DM&E's
existing line into the low sulfur coal market of the Powder River Basin in
Wyoming and to rebuild approximately 600 miles of its existing track (the
Project). The estimated cost of this project is expected to be in excess of $2.0
billion. The Project received final approval by the Surface Transportation Board
(STB) in January 2002. Litigation has been initiated appealing the STB's
approval of the Project. The DM&E does not believe litigation enforcing an
eminent domain statute will affect the Project.
If the Project proves to be viable, management believes that the value of the
Company's investment in the DM&E could increase significantly. If the Project
does not come to fruition, management believes that the value of the Company's
investment is supported by the DM&E's existing business.
Other Matters
- -------------
During the first quarter of 2003, the Company finalized the sale of certain
assets and liabilities of its Foster Technologies subsidiary engaged in the rail
signaling and communication device business. The first quarter 2003 loss from
this business, which has been classified as a discontinued operation, was
principally due to losses incurred up to the sale date as well as certain
charges taken primarily related to employee severance costs and an accrual for
the remaining lease obligation. The second quarter loss from this business was
immaterial, and future expenses related to the shutdown of this business are
also expected to be immaterial.
The Company has a $1.6 million valuation allowance related to prior net
operating losses from this discontinued operation. The Company believes that the
dissolution of this operation may result in the recognition of some portion of
these net operating losses and the release of the associated valuation
allowance. The final shutdown and dissolution of this subsidiary is expected in
2003.
Specialty trackwork sales of the Company's Rail segment depend primarily on one
supplier. In 2002, the Company wrote off a $1.9 million investment and $5.4
million of advances related to this supplier. During the first half of 2003 and
2002, the volume of business the supplier conducted with the Company was
approximately $6.6 million and $6.8 million, respectively, although the Company
expects future activity in this market to decrease significantly. If, for any
reason, this supplier is unable to perform, it could have a further negative
impact on earnings and cash flows.
Operations at the Company's Newport, KY pipe-coating facility were suspended in
1998 in response to unfavorable market conditions. In 1999, the Company recorded
an impairment loss to reduce the assets related to this operation to their
anticipated market value. The anticipated 2002 sale of these assets, which
consist of machinery and equipment, did not
16
materialize. Therefore, during the fourth quarter of 2002, the Company removed
the "held for resale" designation of these assets, reclassified them as "in
service", and in accordance with SFAS 144, immediately recorded a $0.8 million
write-down to reflect depreciation not recorded while under the "held for
resale" designation. In August 2003, the Company reached an agreement to sell,
modify and install the machinery and equipment. The Company expects to record a
gain upon successful installation of this equipment and anticipates completing
its obligations within the next six months.
Outlook
- -------
The Company has an exclusive agreement with a steel mill to distribute steel
sheet piling in North America. Sheet piling production commenced in 2001 but the
quantity produced had not materially impacted results until the second quarter
of 2003. Going forward, the Piling division expects earnings will improve from a
consistent supply of sheet piling from this mill.
The Company's CXT subsidiary and Allegheny Rail Products division are dependent
on a Class I railroad for a significant portion of their business. The Company
has a contract with this Class I railroad which provides for minimum quantities
of concrete ties per contract year expiring in September 2003. Although the
contract is not expected to be renewed before its expiration, the Company
anticipates it will continue to sell ties to the railroad at reduced volumes.
A substantial portion of the Company's operations is heavily 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,
government actions concerning taxation, tariffs, the environment, or other
matters could impact the operating results of the Company. The Company's
operating results may also be affected by adverse weather conditions.
Although backlog is not necessarily indicative of future operating results,
total Company backlog at June 30, 2003, was approximately $120.2 million. The
following table provides the backlog by business segment:
Backlog
----------------------------------------------------------
June 30, December 31, June 30,
(In thousands) 2003 2002 2002
- --------------------------------------------------------------------------------
Rail Products $41,023 $45,371 $58,829
Construction Products 74,780 59,774 69,262
Tubular Products 4,421 3,995 2,791
- --------------------------------------------------------------------------------
Total $120,224 $109,140 $130,882
================================================================================
The reduction in Rail segment backlog from June 30, 2002 reflects the absence of
firm renewal commitments on contracts under negotiation and a reduction in
specialty trackwork backlog.
Critical Accounting Policies
- ----------------------------
The accompanying consolidated financial statements have been prepared in
conformity with accounting principles generally accepted in the United States.
When more than one accounting principle, or method of its application, is
generally accepted, management selects the principle or method that is
appropriate in the Company's specific circumstances. Application of these
accounting principles requires management to make estimates about the future
resolution of existing uncertainties. As a result, actual results could differ
from these estimates. In preparing these financial statements, management has
made its best estimates and judgments of the amounts and disclosures included in
the financial statements giving due regard to materiality. There have been no
material changes in the Company's policies or estimates since December 31, 2002.
For more information regarding the Company's critical accounting policies,
please see the
17
discussion in Management's Discussion & Analysis of Financial Condition and
Results of Operations in Form 10-K for the year ended December 31, 2002.
New Accounting Pronouncements
- -----------------------------
In June 2002, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 146, "Accounting for Costs Associated with
Exit or Disposal Activities" (SFAS 146), effective for exit or disposal
activities initiated after December 31, 2002, with earlier adoption encouraged.
This statement supercedes EITF Issue No. 94-3, "Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring)". SFAS 146 requires that a
liability for a cost associated with an exit or disposal activity be recognized
when the liability is incurred, rather than at the date of an entity's
commitment to an exit plan. The Company has adopted this standard and it did not
have a material effect on its consolidated financial statements.
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure - an amendment of FASB Statement No.
123" (SFAS 148) effective for fiscal years ending after December 31, 2002. This
statement amends Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" (SFAS 123), to provide alternative
methods of transition for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. In addition, SFAS 148 amends
the disclosure requirements of SFAS 123 to require prominent disclosures in both
annual and interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method used on reported
results.
The Company has adopted the disclosure provisions of SFAS 123, and applies the
intrinsic value method of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25) and related interpretations
in accounting for its stock option plans. However, the Company has adopted the
enhanced disclosure provisions as defined in SFAS 148 effective for the first
quarter ended March 31, 2003.
In January 2003, the FASB issued FASB Interpretation No. 46, "Consolidation of
Variable Interest Entities, and Interpretation of ARB No. 51", (FIN 46). FIN 46
requires certain variable interest entities to be consolidated by the primary
beneficiary of the entity if the equity investors in the entity do not have the
characteristics of a controlling financial interest or do not have sufficient
equity at risk for the entity to finance its activities without additional
subordinated financial support from other parties. FIN 46 is effective for all
new variable interest entities created or acquired after January 31, 2003. For
variable interest entities created or acquired prior to February 1, 2003, the
provisions of FIN 46 must be applied at the first interim or annual period
beginning after June 15, 2003. The Company has not identified any variable
interest entities for which consolidation under FIN 46 is appropriate.
In April 2003, the FASB issued Statement of Financial Accounting Standards No.
149, "Amendment of Statement 133 on Derivative Instruments and Hedging
Activities," (SFAS 149). SFAS 149 amends and clarifies financial accounting and
reporting for derivative instruments embedded in other contracts and for hedging
activities under SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities." It is effective for contracts entered into or modified
after June 30, 2003, except as stated within the statement, and should be
applied prospectively. The Company does not expect this statement to have a
material effect on its consolidated financial statements.
In June 2003, the FASB issued Statement of Financial Accounting Standards No.
150, "Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equity," (SFAS 150). This standard requires that certain
financial instruments embodying an obligation to transfer assets or to issue
equity securities be classified as liabilities. It is effective for financial
instruments entered into or modified after May 31, 2003, and otherwise is
effective July 1, 2003. This standard has no impact on the Company's financial
statements.
18
Market Risk and Risk Management Policies
- ----------------------------------------
The Company uses derivative financial instruments to manage interest rate
exposure on variable-rate debt, primarily by using interest rate collars and
variable interest rate swaps. In conjunction with the Company's debt refinancing
in the third quarter of 2002, the Company discontinued cash flow hedge
accounting treatment for its interest rate collars and has applied
mark-to-market accounting prospectively. Although these derivatives are not
deemed to be effective hedges of the new credit facility in accordance with the
provisions of SFAS 133, the Company has retained these instruments as protection
against interest rate risk associated with the new credit agreement and the
Company will continue to record the mark-to-market adjustments on the interest
rate collars, through 2006, in its consolidated income statement. The fair value
of the interest rate collars on June 30, 2003 was a $2,342,000 liability and the
company recorded approximately $121,000 of expense in "other income" in the
second quarter of 2003 on the Condensed Consolidated Statements of Operations to
adjust these instruments to fair value. For the six months ended June 30, 2003,
the Company has recorded $110,000 of expense in "other income" to adjust these
instruments to fair value. The Company continues to apply cash flow hedge
accounting to interest rate swaps.
The Company recognizes all derivative instruments on the balance sheet at fair
value. Fluctuations in the fair values of derivative instruments designated as
cash flow hedges are recorded in accumulated other comprehensive income (loss),
and reclassified into earnings as the underlying hedged items affect earnings.
To the extent that a change in interest rate derivative does not perfectly
offset the change in value of the interest rate being hedged, the ineffective
portion is recognized in earnings immediately.
The Company's primary source of variable-rate debt comes from its revolving
credit agreement. While not specifically correlated with the revolving credit
agreement, the Company maintains an economic hedge of this variable rate through
the maintenance of two interest rate collar agreements with a weighted average
minimum annual interest rate of 4.99% to a maximum weighted average annual
interest rate of 5.42%. Since the interest rate on the debt floats with the
short-term market rate of interest, the Company is exposed to the risk that
these interest rates may decrease below the minimum annual interest rates on the
two interest rate collar agreements. The effect of a 1% decrease in rate of
interest below the 4.99% weighted average minimum annual interest rate on $21.0
million of outstanding floating rate debt would result in increased annual
interest costs of approximately $0.2 million.
The Company is not subject to significant exposures to changes in foreign
currency exchange rates.
See the Company's Annual Report on Form 10-K for more information on the
Company's derivative financial instruments.
Forward-Looking Statements
- --------------------------
Statements relating to the potential value or viability of the DM&E or the
Project, or management's belief as to such matters, are forward-looking
statements and are subject to numerous contingencies and risk factors. The
Company has based its assessment on information provided by the DM&E and has not
independently verified such information. In addition to matters mentioned above,
factors which can adversely affect the value of the DM&E, its ability to
complete the Project or the viability of the Project include the following:
labor disputes, the outcome of certain litigation, any inability to obtain
necessary environmental and government approvals for the Project in a timely
fashion, the DM&E's ability to continue to obtain interim funding to finance the
Project, the expense of environmental mitigation measures required by the
Surface Transportation Board, an inability to obtain financing for the Project,
competitors' response to the Project, market demand for coal or electricity and
changes in environmental laws and regulations.
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
19
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, such as references made to the future
profitability, made from time to time by representatives of the Company.
Additional delays in a Virginia steel mill's production of sheet piling
products, or failure to produce substantial quantities of sheet piling products
could adversely impact the Company's earnings. The inability to satisfy the
installation requirements of the sales agreement for the pipe coating equipment
could have an adverse effect on future results. The inability to successfully
negotiate a new sales contract with a current Class I railroad customer could
have a negative impact on the operating results 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, the adequacy of internal and external
sources of funds to meet financing needs, taxes, inflation and governmental
regulations. Sentences containing words such as "anticipates", "expects", or
"will" generally should be considered forward-looking statements.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- ------------------------------------------------------------------
See the "Market Risk and Risk Management Policies" section under Item 2,
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
Item 4. CONTROLS AND PROCEDURES
- -------------------------------
a) Within the 90 days prior to the date of this report, L. B. Foster Company
(the Company) carried out an evaluation, under the supervision and with the
participation of the Company's management, including the President and
Chief Executive Officer along with the Chief Financial Officer, of the
effectiveness of the design and operation of the Company's disclosure
controls and procedures pursuant to Exchange Act Rule 13a-14. Based upon
that evaluation, the President and Chief Executive Officer, along with the
Chief Financial Officer concluded that the Company's disclosure controls
and procedures are effective to timely alert them to material information
relating to the Company (including its consolidated subsidiaries) required
to be included in the Company's periodic SEC filings.
b) There have been no significant changes in the Company's internal controls
or in other factors that could significantly affect internal controls
subsequent to the date the Company carried out this evaluation.
20
PART II OTHER INFORMATION
-------------------------
Item 1. LEGAL PROCEEDINGS
- -------------------------
See Note 8, "Commitments and Contingent Liabilities", to the Condensed
Consolidated Financial Statements.
Item 4. RESULTS OF VOTES OF SECURITY HOLDERS
- --------------------------------------------
At the Company's annual meeting on May 13, 2003, the following individuals
were elected to the Board of Directors:
For Withheld
Name Election Authority
- --------------------------------------------------------------------------------
Lee B. Foster II 8,894,056 591,933
Stan L. Hasselbusch 8,894,041 591,948
Henry J. Massman IV 9,394,302 91,687
Diane B. Owen 9,395,608 90,381
John W. Puth 9,370,520 115,469
William H. Rackoff 9,394,302 91,687
The stockholders voted to approve Ernst & Young LLP as the Company's independent
auditors for the fiscal year ended December 31, 2003. The following table sets
forth the results of the vote for independent auditors:
For Against
Approval Approval Abstained
- -------------------------------------------------------------------------------
8,054,741 768,979 662,269
The stockholders also voted to approve the outside directors' stock award plan.
The following table sets forth the results of the vote for the plan:
For Against
Approval Approval Abstained
- -------------------------------------------------------------------------------
9,319,724 72,270 93,995
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
a) EXHIBITS
Unless marked by an asterisk, all exhibits are incorporated by reference:
21
3.1 Restated Certificate of Incorporation, filed as Exhibit 3.1 to Form
10-Q for the quarter ended March 31, 2003.
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, 2002.
4.0 Rights Amendment, dated as of May 15, 1997 between L. B. Foster
Company and American Stock Transfer & Trust Company, including the
form of Rights Certificate and the Summary of Rights attached
thereto, filed as Exhibit 4.0 to Form 10-K for the year ended
December 31, 2002.
4.0.1 Amended Rights Agreement dated as of May 14, 1998 between L. B.
Foster Company and American Stock Transfer and Trust Company, filed
as Exhibit 4.0.1 to Form 10-Q for the quarter ended March 31, 2003.
4.0.2 Revolving Credit and Security Agreement dated as of September 26,
2002, between L. B. Foster Company and PNC Bank, N. A., filed as
Exhibit 4.0.2 to Form 10-Q for the quarter ended September 30, 2002.
10.12 Lease between CXT Incorporated and Pentzer Development Corporation,
dated April 1, 1993, filed as Exhibit 10.12 to Form 10-K for the
year ended December 31, 1999.
10.12.1 Amendment dated March 12, 1996 to lease between CXT Incorporated and
Pentzer Corporation, filed as Exhibit 10.12.1 to Form 10-K for the
year ended December 31, 1999.
10.12.2 Amendment dated November 7, 2002 to lease between CXT Incorporated
and Pentzer Development Corporation, filed as Exhibit 10.12.2 to
Form 10-K for the year ended December 31, 2002.
10.13 Lease between CXT Incorporated and Crown West Realty, L. L. C.,
dated December 20, 1996, filed as Exhibit 10.13 to Form 10-K for the
year ended December 31, 1999.
10.13.1 Amendment dated June 29, 2001 between CXT Incorporated and Crown
West Realty, filed as Exhibit 10.13.1 to Form 10-K for the year
ended December 31, 2002.
10.14 Lease between CXT Incorporated and Pentzer Development Corporation,
dated November 1, 1991 and filed as Exhibit 10.14 to Form 10-K for
the year ended December 31, 1999.
10.15 Lease between CXT Incorporated and Union Pacific Railroad Company,
dated February 13, 1998, and filed as Exhibit 10.15 to Form 10-K for
the year ended December 31, 1999.
10.17 Lease between Registrant and the City of Hillsboro, TX dated
February 22, 2002, filed as Exhibit 10.17 to Form 10-K for the year
ended December 31, 2002.
10.19 Lease between Registrant and American Cast Iron Pipe Company for
a pipe-coating facility in Birmingham, AL dated December 11, 1991,
filed as Exhibit 10.19 to Form 10-K for the year ended December 31,
2002.
10.19.1 Amendment to Lease between Registrant and American Cast Iron Pipe
Company for pipe-coating facility in Birmingham, AL dated November
15, 2000, and filed as Exhibit 10.19.2 to Form 10-K for the year
ended December 31, 2000.
10.21 Stock Purchase Agreement, dated June 3, 1999 by and among the
Registrant and the shareholders of CXT Incorporated, filed as
Exhibit 10.0 to Form 8-K on July 14, 1999.
10.33.2 Amended and Restated 1985 Long-Term Incentive Plan as of February
26, 1997, filed as Exhibit 10.33.2 to Form 10-Q for the quarter
ended March 31, 2003. **
22
10.34 Amended and Restated 1998 Long-Term Incentive Plan as of February 2,
2001, filed as Exhibit 10.34 to Form 10-K for the year ended
December 31, 2000. **
10.45 Medical Reimbursement Plan, filed as Exhibit 10.45 to Form 10-K for
the year ended December 31, 2002. **
10.46 Leased Vehicle Plan as amended and restated on October 16, 2002,
filed as Exhibit 10.46 to Form 10-Q for the quarter ended September
30, 2002. **
10.51 Supplemental Executive Retirement Plan, filed as Exhibit 10.51 to
Form 10-K for the year ended December 31, 2002. **
10.52 Outside Directors' Stock Award Plan, filed as Exhibit 10.52 to Form
10-K for the year ended December 31, 2002. **
* 10.53 Directors' resolutions dated May 13, 2003, under which directors'
compensation was established. **
* 10.54 Management Incentive Compensation Plan for 2003. **
19 Exhibits marked with an asterisk are filed herewith.
* 31.1 Certification of Chief Executive Officer under Section 302 of the
Sarbanes-Oxley Act of 2002.
* 31.2 Certification of Chief Financial Officer under Section 302 of the
Sarbanes-Oxley Act of 2002.
* 32.1 Certification of Chief Executive Officer under Section 906 of the
Sarbanes-Oxley Act of 2002.
* 32.2 Certification of Chief Financial Officer under Section 906 of the
Sarbanes-Oxley Act of 2002.
** Identifies management contract or compensatory plan or arrangement
required to be filed as an Exhibit.
b) Reports on Form 8-K
On April 23, 2003, the Registrant filed a current report on Form
8-K under Item 9 FD disclosure announcing first quarter results.
On July 23, 2003, the Registrant filed a current report on Form
8-K under Item 9 FD disclosure announcing second quarter results.
23
SIGNATURE
Pursuant to the requirements of the Securities and 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: August 13, 2003 By:/s/David J. Russo
---------------- ---------------------------------------
David J. Russo
Senior Vice President,
Chief Financial Officer and Treasurer
(Duly Authorized Officer of Registrant)
Final Exhibit 10.54
L. B. FOSTER COMPANY 2003
MANAGEMENT INCENTIVE COMPENSATION PLAN
I. PURPOSE
To provide incentives and rewards to salaried non-sales managers based upon
overall corporate profitability and the performance of individual operating
units.
II. CERTAIN DEFINITIONS
The terms below shall be defined as follows for the purposes of the L. B.
Foster Company 2003 Management Incentive Compensation Plan. The definitions
shall be subject to such adjustments as, from time to time, may be made, by the
Committee.
2.1 "Adjusted Operating Unit Target Award" shall be a Participant's
Operating Unit Target Award multiplied by the applicable Operating Unit
Performance Percentage determined under Section 3.5B(b).
2.2 "Base Compensation" shall mean the total base salary, rounded to the
nearest whole dollar, actually paid to a Participant during 2003, excluding
payment of overtime, incentive compensation, commissions, reimbursement of
expenses, severance, car allowances or any other payments not deemed part of a
Participant's base salary; provided, however, that the Participant's
contributions to the Corporation's Voluntary Investment Plan shall be included
in Base Compensation. Base Compensation for employees who die, retire or are
terminated shall include only such compensation paid to such employee during
2003 with respect to the period prior to death, retirement or termination.
2.3 "Base Fund" shall mean the aggregate amount of all cash payments to be
made pursuant to this Plan which amount shall be determined pursuant to Section
3.1 hereof.
2.4 "Committee" shall mean the Personnel and Compensation Committee of the
Board of Directors and any successors thereto.
2
2.5 "Corporation" shall mean L. B. Foster Company and those subsidiaries
thereof in which L.B. Foster Company owns 100% of the outstanding common stock,
excluding (except for the purpose of calculating "Pre-Incentive Income")
Natmaya, Inc., Fosmart, Inc. and Foster Technologies.
2.6 "Fund" shall mean the aggregate amount of all payments made to Plan
Participants under this Plan, after deducting all discretionary payments made
pursuant to Section 3.3 hereof.
2.7 "Individual Incentive Award" shall mean the amount paid to a
Participant pursuant to this Plan, which amount shall be determined pursuant to
Section 3.5 hereof and which award shall not exceed twice the amount of a
Participant's Target Award. In addition, the portion of an Individual Incentive
Award derived from the Product Pool should not exceed the portion of the Target
Award allocated to the Product Pool multiplied by a percentage equal to twice
the percentage of Target Award paid to Participants in the General Pool. The
limitations herein shall not affect amounts distributed under Section 3.3.
2.8 "Operating Unit" shall mean the following units or divisions which are
reported in the Company's internal financial statements: CXT Rail, CXT
Buildings, Foster Coated Pipe, Threaded Products, Rail Products (excluding CXT
Rail), Piling, Fabricated Products and Geotech, subject to such adjustments as
may be made by the Chief Executive Officer.
2.9 "Operating Unit Target Award" shall mean the portion of a Participant's
Target Award allocated to a specific Operating Unit pursuant to Section 3.5B(a).
2.10 "Operating Unit Performance Percentage" shall mean the sum of the
percentages earned by the applicable Operating Unit pursuant to Section 3.5B(b).
2.11 "Participant" shall mean a salaried employee of the Corporation who
satisfies all of the eligibility requirements set forth in Article IV hereof.
2.12 "Performance Percentage" shall be each of the Percentages earned by an
Operating Unit under Section 3.5(B)(b) and which together equal the Operating
Unit Performance Percentage.
2.13 "Plan" shall mean the L. B. Foster Company 2003 Management Incentive
Compensation Plan, which Plan shall be in effect only with respect to the fiscal
year ending December 31, 2003.
2.14 "Planned Income" shall mean Pre-Incentive Income of $6,885,000
2.15 "Planned Contribution" shall mean $895,000.
3
2.16 "Pool" shall mean the Product Pool and the General Pool, as calculated
pursuant to Section 3.4 hereof, subject to such adjustments as may be made by
the Chief Executive Officer.
2.17 "Pre-Incentive Income" shall mean the audited pre-tax income, after,
inter alia, deductions for benefits payable under the 2003 Sales Incentive
Plans, of the Corporation for the fiscal year ending December 31, 2003
determined in accordance with generally-accepted accounting principles,
excluding (i) benefits payable under this Plan; and (ii) any portion of gains or
losses arising from transactions not in the ordinary course of business which
the Committee, in its sole discretion, determines to exclude.
2.18 "Pre-Tax Income" shall mean an Operating Unit's Pre-Tax Income as
shown in the Corporation's financial statements and subject to such adjustments
as may be made by the Chief Executive Officer, without taking into account
incentive compensation under the 2003 Sales Incentive Plan.
2.19 "Target Award" shall mean the product of a Participant's Base
Compensation multiplied by said Participant's Target Percentage.
2.20 "Target Percentage" shall mean those percentages assigned to
Participants pursuant to Section 3.2 hereof.
4
III. PLAN DESCRIPTION
3.1 Base Fund. The amount of the Base Fund shall be calculated based upon
the percentage of Pre-Incentive Income to Planned Income, calculated as follows:
- --------------------------------------- ------------------------------------ -------------------------------------
I II III
- --------------------------------------- ------------------------------------ -------------------------------------
- --------------------------------------- ------------------------------------ -------------------------------------
Pre-Incentive Income as Percentage of Percentage of Planned Contribution Base Fund
Planned Income ($6,885,000) ($895,000) to be Made
- --------------------------------------- ------------------------------------ -------------------------------------
70% 50% $ 447,500
- --------------------------------------- ------------------------------------ -------------------------------------
75% 60% 537,000
- --------------------------------------- ------------------------------------ -------------------------------------
80% 70% 626,500
- --------------------------------------- ------------------------------------ -------------------------------------
85% 78% 698,100
- --------------------------------------- ------------------------------------ -------------------------------------
90% 86% 769,700
- --------------------------------------- ------------------------------------ -------------------------------------
95% 93% 832,350
- --------------------------------------- ------------------------------------ -------------------------------------
100% 100% 895,000
- --------------------------------------- ------------------------------------ -------------------------------------
105% 110% 984,500
- --------------------------------------- ------------------------------------ -------------------------------------
110% 120% 1,074,000
- --------------------------------------- ------------------------------------ -------------------------------------
115% 130% 1,163,500
- --------------------------------------- ------------------------------------ -------------------------------------
120% 140% 1,253,000
- --------------------------------------- ------------------------------------ -------------------------------------
125% 150% 1,342,500
- --------------------------------------- ------------------------------------ -------------------------------------
130% 160% 1,432,000
- --------------------------------------- ------------------------------------ -------------------------------------
135% 170% 1,521,500
- --------------------------------------- ------------------------------------ -------------------------------------
140% 180% 1,611,000
- --------------------------------------- ------------------------------------ -------------------------------------
145% 190% 1,700,500
- --------------------------------------- ------------------------------------ -------------------------------------
150% and above 200% plus $1,790,000 and up
26% of Pre-tax Income over
$10,327,500
- --------------------------------------- ------------------------------------ -------------------------------------
The Percentage of Planned Contribution Percentage in Column II will not increase
until the next specified level of Pre-Incentive Income as Percentage of Planned
Income in Column I has been achieved.
Example: If the Corporation earned $11,500,000 in Pre-Incentive Income the Base
Fund would be $2,094,850:
a. Determine Percentage of Pre-Incentive Income to Planned Income plus
Pre-Incentive Income in excess of 150% of Planned Income.
$11,500,000
------------ = 150% of Planned Income + $1,172,500 (i.e. $11,500,000 -
$ 6,885,000 $10,327,500)
5
b. Locate Base Fund in Column III
$1,790,000 + (26% X $1,172,500) = $2,094,850
3.2 Target Percentages. Subject to adjustment as set forth below, each
Participant shall have a Target Percentage based upon the grade level of
such Participant, unless determined otherwise by the Chief Executive
Officer, on July 1, 2003, as follows:
- ----------------------------------------------- --------------------------------
Grade Levels % of Base Compensation
- ----------------------------------------------- --------------------------------
- ----------------------------------------------- --------------------------------
Grade 6 I, Sales 15
- ----------------------------------------------- --------------------------------
Grade 7 I, Sales 15
- ----------------------------------------------- --------------------------------
Grade 8 I, Sales 20
- ----------------------------------------------- --------------------------------
Grade 10 I, Sales/Management 22
- ----------------------------------------------- --------------------------------
Grade 10 P, Professional/Management 12.5
- ----------------------------------------------- --------------------------------
Grade 11 I, Sales/Management 23
- ----------------------------------------------- --------------------------------
Grade 11 P, Professional/Management 15
- ----------------------------------------------- --------------------------------
Grade 12, Management Positions 25
- ----------------------------------------------- --------------------------------
Grade 13, Management Positions 27
- ----------------------------------------------- --------------------------------
Grade 14, Management Positions 30
- ----------------------------------------------- --------------------------------
Grade 15, Management Positions 32
- ----------------------------------------------- --------------------------------
Grade 16, Management Positions 36
- ----------------------------------------------- --------------------------------
Grade 17, Management Positions 38
- ----------------------------------------------- --------------------------------
Grade 18, Management Positions 39
- ----------------------------------------------- --------------------------------
Grade 19, Management Positions 40
- ----------------------------------------------- --------------------------------
Grade 20, Management Positions 50
- ----------------------------------------------- --------------------------------
Grade 21, Management Positions 52
- ----------------------------------------------- --------------------------------
Grade 22, Management Positions 54
- ----------------------------------------------- --------------------------------
Grade 23 and Above 60
- ----------------------------------------------- --------------------------------
Other Employees selected, in writing, by L. B. Foster Company's Chairman of the
Board and Chief Executive Officer may also be made Participants in the Plan on
such terms as may be approved by the Chairman of the Board and Chief Executive
Officer.
The Committee may determine performance goals for the Chief Executive
Officer and such other officers as the Committee may, in its discretion, select
and the Target Percentage for each such Participant will be adjusted upward or
downward based upon such Participant's achievement of such goals. The precise
method for determining such adjustments for each such Participant shall be
separately scheduled and deemed incorporated herein by reference.
Those Participants who have retired or died prior to July 1, 2003 shall
have a Target Percentage based upon their grade level at death or retirement.
6
3.3 Discretionary Payments. Ten percent (10%) of the Base Fund, plus
amounts reallocated pursuant to Article V, shall be reserved for discretionary
payments to employees of the Corporation. The recipients of all such awards and
the amounts of any such awards initially shall be selected by the Chief
Executive Officer, subject to final approval by the Committee. If any amounts
are not paid from the amount herein reserved, such remaining amount shall, at
the discretion of the Chief Executive Officer, either revert to the Corporation
or be allocated to Participants in proportion to their respective Individual
Incentive Awards prior to the allocation herein.
3.4 Calculation of Pools. Each Participant and all or any portion of each
Participant's Target Award shall be assigned to a Pool by the Chief Executive
Officer of the Company with (i) 100% of the Target Award of a Participant not
assigned to an Operating Unit being assigned to the General Pool and (ii) 75% of
the Target Award of a Participant assigned to an Operating Unit(s) being
assigned to the Product Pool and 25% of such Participant's Target Award being
assigned to the General Pool. . The dollar amount of each Pool will be
determined by dividing the portion of the Target Awards assigned to the Pool by
the total Target Awards of all Participants and then multiplying such amount by
the Fund.
EXAMPLE :
THE CORPORATION'S PRE-INCENTIVE INCOME IS $7,100,000. THE TOTAL OF ALL TARGET
AWARDS FOR ALL PLAN PARTICIPANTS IS $2,100,000, WITH $1,000,000 ALLOCATED TO THE
GENERAL POOL AND $1,100,000 ALLOCATED TO THE PRODUCT POOL. THE DOLLAR AMOUNT OF
EACH POOL WOULD BE CALCULATED AS FOLLOWS:
(a) Determine Pre-Incentive Income as Percentage of Planned Income
Pre-Incentive Income is:
$7,100,000
-------------- = 103%
$6,885,000
(b) Determine Base Fund Under Column III
103% of Planned Income will yield 100% of the
Planned Contribution, or $895,000
(c) Calculate Fund by deducting 10% for "Discretionary Awards"
$895,000 X 90% = $805,500
7
(d) Determine Amount of Each Pool
1. General Pool
$1,000,000
--------------- x $805,500 = $383,571
$2,100,000
2. Product Pool
$1,100,000
--------------- x $805,500 = $421,929
$2,100,000
3.5 Calculation of Individual Incentive Awards. The calculation of an
Individual Incentive Award shall be determined based on the Pool(s) to which a
Participant is assigned.
3.5A General Pool Individual Incentive Awards. A General Pool Participant's
Individual Incentive Award shall be calculated, subject to the limitations in
Section 2.9, as follows:
(a) Divide Participant's Target Award allocated to General Pool by the sum of
all Target Awards allocated to General Pool;
(b) Multiply (a) by amount of General Pool.
EXAMPLE:
THE GENERAL POOL IS $383,571. THE SUM OF ALL GENERAL POOL PARTICIPANTS' TARGET
AWARDS IS $1,000,000. MANAGER JONES HAS A TARGET AWARD OF $19,200:
$ 19,200
------------- x $383,571 = $7,365
$ 1,000,000 (Individual Incentive Award)
3.5B Product Pool Individual Incentive Awards
(a) The Chief Executive Officer shall assign all or any portion of a
Participant's Target Award to an Operating Unit for purposes of calculating
percentages earned under 3.5(B)(b)(i), and (b)(ii), may adjust such
allocation(s) at any time (the "Operating Unit Target Award"). The Participant's
Individual Incentive Award shall be calculated by: (i) multiplying each such
Operating Unit Target Award by the sum of the percentages (the "Operating Unit
Performance Percentage") earned by the Operating Unit under 3.5B(b), with the
resulting product being the "Adjusted Operating Unit Target Award" and (ii)
multiplying the amount in the Product Pool by a fraction, the numerator of which
is the Participant's Adjusted Operating Unit Target Award and the denominator of
which is the sum of all Adjusted Operating Unit Target Awards of all
Participants in the Product Pool.
8
(b) The Operating Unit Performance Percentage with respect to the
applicable Operating Unit shall be the sum of the following percentages:
(i) The single "Pre-Tax Income Performance Percentage" set forth below
opposite the "Pre-Tax Income as % of the Operating Unit's 2003 Operating
Plan" earned by the applicable Operating Unit (subject to the $5,000
thresholds set forth below and subject to adjustment by the Chief Executive
Officer):
- ---------------------------------------------------------- ---------------------
Pre-Tax Income as % of Operating Pre-Tax Income
Unit's 2002 Operating Plan* Performance Percentage
- ---------------------------------------------------------- ---------------------
75% 5%
- ---------------------------------------------------------- ---------------------
80% 10%
- ---------------------------------------------------------- ---------------------
85% 20%
- ---------------------------------------------------------- ---------------------
90% 30%
- ---------------------------------------------------------- ---------------------
95% 40%
- ---------------------------------------------------------- ---------------------
100% 50%
- ---------------------------------------------------------- ---------------------
110% 65%
- ---------------------------------------------------------- ---------------------
120% 80%
- ---------------------------------------------------------- ---------------------
130% and up 100%
- ---------------------------------------------------------- ---------------------
* Once an Operating Unit has achieved 75% of the Operating Unit's 2003
Operating Plan Pre-Tax Income, the Operating Unit shall receive credit for
additional percentage points under the column on the left above only to the
extent each such percentage point represents at least $5,000 in Pre-Tax
Income.
EXAMPLE:
An Operating Unit's 2003 Operating Pre-Tax Income Plan is $200,000 and
in 2003 the Operating Unit achieves exactly $200,000 in Operating Income.
Since $150,000 in Pre-Tax Income ($200,000 X 75%) was required to meet
the threshold for any Performance Percentage to be earned under 3.5(b)(i),
the $50,000 "excess" ($200,000 - $150,000) will be used to calculate
additional Performance Percentages, i.e. $50,000 / $5,000 = 10.
Accordingly, the Operating Unit would be considered to have achieved 85% of
the Operating Unit's 2003 Operating Plan (75% + 10%) and to have earned a
20% Performance Percentage instead of the 50% Performance Percentage that
otherwise would have been earned due to the Operating Unit achieving 100%
of its 2003 Operating Plan Pre-Tax Income.
9
(ii) 25% if the Operating Unit met or exceeded its Return on
Investment set forth in such Operating Unit's 2003 Operating Plan
(subject to adjustment by the Chief Executive Officer), otherwise 0%.
(c) Notwithstanding any provision herein to the contrary, the sum of
all Individual Incentive Awards allocable to an Operating Unit may not
exceed 25% of such Operating Unit's Operating Unit Income. A Participant
assigned to an Operating Unit affected by this limit shall receive a share
of the available Operating Unit Income (i.e. 25% of the Operating Unit's
Operating Unit Income) equal to the Participant's applicable Adjusted
Operating Unit Target Award divided by the sum of applicable Adjusted
Operating Unit Target Awards for all applicable Participants assigned to
that Operating Unit. Amounts not payable because of this limitation shall
be used for discretionary payments under Section 3.3.
EXAMPLE :
THE PRODUCT POOL IS $421,929. MANAGER SMITH'S TARGET AWARD
ALLOCATED TO THE PRODUCT POOL is $50,000 and IS ALLOCATED TO CXT RAIL.
THE ADJUSTED TARGET AWARD OF ALL PARTICIPANTS IN THE PRODUCT POOL IS
$800,000. CXT RAIL MEETS THE REQUIREMENTS OF b(i) and b(ii) AND HAS
ALSO EXCEEDED ITS PLANNED PRE-TAX INCOME BY 10% AND $500,000. MANAGER
SMITH'S BONUS WOULD BE CALCULATED AS FOLLOWS:
(a) Operating Performance Percentage
65% + 25% = 90%
(i) (ii)
(b) Determine Smith's Adjusted Operating Target Award
$50,000 X 90% = $45,000
(c) Determine Smith's Individual Award from the Product Pool
$ 45,000 X $421,929 = $23,734
--------
$800,000 (sum of all Adjusted Operating Target Awards)
10
EXAMPLE:
The Product Pool is $421,929. Manager Jones' Target Award allocated to the
Product Pool is $50,000, with 50% allocated to Geotech and 50% allocated to CXT
Buildings. Geotech's Operating Unit Income is 88% of its 2003 Planned Pre-Tax
Income and Geotech has achieved its planned return on investment. CXT Building's
Operating Unit Income is both $1M above and 200% of its 2003 Planned Pre-Tax
Income and CXT Buildings has satisfied all requirements under 3.5B(b). The sum
of Adjusted Operating Unit Target Awards for all Participants with respect to
Geotech is $100,000, for all Participants with respect to CXT Buildings is
$200,000 and for all Participants within all Operating Units is $800,000.
Disregarding the requirement that awards may not exceed 25% of the Operating
Unit Income for the applicable Operating Unit, Manager Jones' Individual
Incentive Award would be calculated as follows:
(a) Operating Unit Performance Percentage
For CXT Buildings:
100% + 25% = 125%
b(i) + b(ii)
For Geotech
20% + 25% = 45%
b(i) + b(ii)
(b) Determine Jones' Adjusted Operating Unit Target Awards
For CXT Buildings:
($50,000 X 50%) X 125% = $31,250
For Geotech:
($50,000 X 50%) X 45% = $11,250
(c) Determine Jones' Individual Incentive Award
For CXT Buildings:
$ 31,250 X $421,929 = $16,482
----------
$800,000 (Product Pool)
11
For Geotech:
$ 11,250 X $421,929 = $ 5,933
----------
$800,000
Total Individual Incentive Award $22,415 (excluding General
Pool Award)
EXAMPLE:
Same facts in the preceding Example, except that CXT Building's Operating
Unit Income is $300,000 and the sum of CXT Building's Individual Incentive
Awards would be, but for the limits in 3.5B(c), $100,646.
(a) Determine Maximum Individual Incentive Awards for CXT Building's
Participants
25% X $300,000 = $ 75,000
(b) Determine Manager Jones' Share
Jones' Adjusted Operating Unit Target Award X Maximum Aggregate
- ------------------------------------------- CXT Building Incentive Awards
Sum of All CXT Building Adjusted Operating
Unit Target Awards
$ 31,250 X $ 75,000 = $ 11,719
----------
$200,000
(c) Determine Amount Available for Discretionary Payments
($100,646 - $ 75,000) = $ 25,646
(d) Notwithstanding any provision herein to the contrary, a
Participant's Individual Incentive Award from the Product Pool may not
exceed twice the applicable Performance Percentage earned by the
Participant's applicable Operating Unit under each of 3.5(B)(b)(i) and (ii)
multiplied by the Participant's applicable Operating Unit Target Award.
Amounts not payable because of this limitation shall be available for
discretionary payments under Section 3.3.
IV. ELIGIBILITY
Unless changed or amended by the Committee, an employee shall be
deemed a Participant in the Plan only if all of the following requirements
are satisfied:
12
A. A Participant must be a salaried employee of the Corporation, at
a grade level set forth in Section 3.2 or as otherwise approved
by L. B. Foster Company's Chairman of the Board or Chief
Executive Officer, for at least six (6) months of the entire
fiscal year, unless deceased or retired.
B. A Participant may not have: (i) been terminated for cause; (ii)
voluntarily have resigned (other than due to retirement with the
Company's consent) prior to the date Individual Incentive Awards
are paid; or (iii), unless the Corporation agrees in writing that
the employee shall remain a Participant in this Plan, been
terminated for any reason whatsoever and have received money from
the Corporation in connection with said termination.
C. A Participant's services may not primarily be provided to the
Natmaya, Inc., Fosmart, Inc. or Foster Technologies Inc. unless
otherwise approved by the Chief Executive Officer.
D. A Participant may not, unless agreed to in writing by the Chief
Executive Officer, be a participant in any other incentive plan
maintained by the Corporation, other than the Corporation's stock
option plans.
As used herein, "cause" to terminate employment shall exist upon (i)
the failure of an employee to substantially perform his duties with the
Corporation; (ii) the engaging by an employee in any criminal act or in
other conduct injurious to the Corporation; or (iii) the failure of an
employee to follow the reasonable directives of the employee's superior(s).
V. REALLOCATIONS
Any portion of the Fund not otherwise distributed shall be available
for discretionary payments under Section 3.3.
VI. PAYMENT OF AWARDS
Payment of Individual Incentive Awards will be made on or before March
15, 2004.
VII. ADMINISTRATION AND INTERPRETATION OF THE PLAN
The Chief Executive Officer, if there is a dispute, shall determine
the Operating Unit(s) that will receive credit for any sale and/or how
credit for any sale is to be allocated among any Operating Units. The Chief
Executive Officer's decisions are subject to final review by the Committee
if the Committee requests such review.
13
A determination by the Committee in carrying out, administering or
interpreting this Plan shall be final and binding for all purposes and upon
all interested persons and their heirs, successors and personal
representatives.
The Committee may, from time to time, amend the Plan; provided,
however, that the Committee may not amend, terminate or suspend the Plan so
as to reduce the Base Fund payable under the Plan, subject to any
reversions permitted under Section 3.3.
The Chief Executive Officer may delegate any of his duties herein.
The Corporation's Internal Audit Department will review and verify the
calculation of Individual Incentive Awards.
Exhibit 31.1
Form of Sarbanes-Oxley Section 302(a) Certification
I, Stan L. Hasselbusch, certify that:
1. I have reviewed this quarterly report on Form 10-Q of L. B. Foster
Company;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based in our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of the registrant's board of directors (or persons
performing the equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: August 13, 2003 /s/Stan L. Hasselbusch
-------------------------------------
Stan L. Hasselbusch
President and Chief Executive Officer
Exhibit 31.2
Form of Sarbanes-Oxley Section 302(a) Certification
I, David J. Russo, certify that:
1. I have reviewed this quarterly report on Form 10-Q of L. B. Foster Company;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness
of the disclosure controls and procedures based in our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: August 13, 2003 /s/David J. Russo
-----------------
David J. Russo
Senior Vice President,
Chief Financial Officer and Treasurer
Exhibit 32.1
CERTIFICATION UNDER SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned
certifies that this periodic report fully complies with the requirements of
Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that
information contained in this periodic report fairly presents, in all material
respects, the financial condition and results of operations of L. B. Foster
Company.
/s/Stan L. Hasselbusch
-------------------------
Stan L. Hasselbusch
President and
Chief Executive Officer
August 13, 2003
Exhibit 32.2
CERTIFICATION UNDER SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned
certifies that this periodic report fully complies with the requirements of
Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that
information contained in this periodic report fairly presents, in all material
respects, the financial condition and results of operations of L. B. Foster
Company.
/s/David J. Russo
--------------------------
David J. Russo
Senior Vice President,
Chief Financial Officer and
Treasurer
August 13, 2003
Board Resolution Exibit 10.53 May 13, 2003 RESOLVED, that in addition to the options awarded under the 1998 Long-Term Incentive Plan, as Amended and Restated, the annual fee paid to each of the Corporation's outside directors, effective May 1, 2003, shall be the sum of (i) a $16,500 annual base fee for the Chairperson of the Audit Committee and Compensation Committee and a $14,000 annual base fee for other outside directors, plus $1,000 for each non-telephonic Board of Directors meeting attended (whether such attendance is in person or via telephone), $500 for each Committee meeting (telephonic or non-telephonic) attended and $500 for each telephonic Board of Directors meeting attended, payable quarterly in arrears: and (ii) one annual grant of 2,500 shares of the Corporation's common stock as of each Annual Shareholders' Meeting at which the outside director is elected (or re-elected) as a director of the Corporation.