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 March 31, 2002
--------------
Commission File Number 0-10436
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L. B. Foster Company
(Exact name of Registrant as specified in its charter)
Pennsylvania 25-13247733
(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 the number of shares of each of the registrant's classes of common
stock as of the latest practicable date.
Class Outstanding at April 30, 2002
----- -----------------------------
Common Stock, Par Value $.01 9,495,238 Shares
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 Income 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 11
PART II. Other Information
- ---------------------------
Item 1. Legal Proceedings 17
Item 6. Exhibits and Reports on Form 8-K 17
Signature 19
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
L. B. FOSTER COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
March 31, December 31,
2002 2001
ASSETS (Unaudited)
Current Assets:
Cash and cash equivalents $2,846 $4,222
Accounts and notes receivable:
Trade 45,830 52,730
Other 180 334
- ------------------------------------------------------------------------------
46,010 53,064
Inventories 41,838 43,444
Current deferred tax assets 1,491 1,491
Other current assets 1,163 814
Property held for resale 1,333 1,333
- ------------------------------------------------------------------------------
Total Current Assets 94,681 104,368
- ------------------------------------------------------------------------------
Property, Plant & Equipment - At Cost 67,588 64,465
Less Accumulated Depreciation (31,702) (30,514)
- ------------------------------------------------------------------------------
35,886 33,951
- ------------------------------------------------------------------------------
Other Assets:
Goodwill 5,281 5,131
Other intangibles - net 1,712 1,324
Investments 11,463 11,104
Deferred tax assets 1,062 1,184
Other assets 2,966 2,980
- ------------------------------------------------------------------------------
Total Other Assets 22,484 21,723
- ------------------------------------------------------------------------------
TOTAL ASSETS $153,051 $160,042
==============================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term debt $782 $809
Short-term borrowings - 5,000
Accounts payable - trade 28,168 29,290
Accrued payroll and employee benefits 2,430 2,546
Current deferred tax liabilities 1,201 1,201
Other accrued liabilities 2,939 3,511
- ------------------------------------------------------------------------------
Total Current Liabilities 35,520 42,357
- ------------------------------------------------------------------------------
Long-Term Borrowings 30,000 30,000
- ------------------------------------------------------------------------------
Other Long-Term Debt 2,998 2,758
- ------------------------------------------------------------------------------
Deferred Tax Liabilities 4,968 4,968
- ------------------------------------------------------------------------------
Other Long-Term Liabilites 2,507 2,814
- ------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY:
Common stock 102 102
Paid-in capital 35,208 35,233
Retained earnings 46,343 46,632
Treasury stock (3,846) (3,926)
Accumulated other comprehensive loss (749) (896)
- ------------------------------------------------------------------------------
Total Stockholders' Equity 77,058 77,145
- ------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $153,051 $160,042
==============================================================================
See Notes to Condensed Consolidated Financial Statements.
L. B. FOSTER COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Per Share Amounts)
Three Months
Ended
March 31,
- ------------------------------------------------------------------------------
2002 2001
- ------------------------------------------------------------------------------
(Unaudited)
Net Sales $63,173 $56,090
Cost of Goods Sold 56,378 50,750
- ------------------------------------------------------------------------------
Gross Profit 6,795 5,340
Selling and Administrative Expenses 6,690 7,755
Interest Expense 674 961
Other Income (280) (214)
- ------------------------------------------------------------------------------
7,084 8,502
- ------------------------------------------------------------------------------
Loss Before Income Taxes (289) (3,162)
Income Tax Benefit - (1,297)
- ------------------------------------------------------------------------------
Net Loss ($289) ($1,865)
==============================================================================
Basic & Diluted Loss Per Share ($0.03) ($0.20)
==============================================================================
See Notes to Condensed Consolidated Financial Statements.
L. B. FOSTER COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
Three Months
Ended March 31,
2002 2001
- -------------------------------------------------------------------------------
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss ($289) ($1,865)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization 1,285 1,570
Loss on sale of property, plant and equipment 31 15
Change in operating assets and liabilities:
Accounts receivable 7,029 7,760
Inventories 2,365 4,710
Other current assets (349) (139)
Other noncurrent assets (345) 451
Accounts payable - trade (1,317) (6,704)
Accrued payroll and employee benefits (116) (569)
Other current liabilities (572) (2,063)
Other liabilities (11) (13)
- -------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 7,711 3,153
- -------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property, plant and equipment 163 34
Capital expenditures on property, plant and equipment (1,684) (690)
Acquisition of business (2,214) -
- -------------------------------------------------------------------------------
Net Cash Used by Investing Activities (3,735) (656)
- -------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of revolving credit agreement
borrowings (5,000) (1,000)
Exercise of stock options and stock awards 55 95
Treasury stock acquisitions - (75)
Repayment of long-term debt (405) (238)
- -------------------------------------------------------------------------------
Net Cash Used by Financing Activities (5,350) (1,218)
- -------------------------------------------------------------------------------
Effect of exchange rate on cash (2) (42)
- -------------------------------------------------------------------------------
Net (Decrease) Increase in Cash and Cash Equivalents (1,376) 1,237
Cash and Cash Equivalents at Beginning of Period 4,222 -
- -------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Period $2,846 $1,237
===============================================================================
Supplemental Disclosure of Cash Flow Information:
Interest Paid $800 $1,230
===============================================================================
Income Taxes Paid $314 $358
===============================================================================
During 2002 and 2001, the Company financed certain capital expenditures totaling
$618,000 and $98,000, respectively, through the execution of capital leases.
See Notes to Condensed Consolidated Financial Statements.
L. B. FOSTER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. FINANCIAL STATEMENTS
--------------------
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all estimates and
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included, however, actual results could differ from
those estimates. The results of operations for these interim periods are not
necessarily indicative of the results that may be expected for the year ended
December 31, 2002. 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, 2001.
2. ACCOUNTING PRINCIPLES
---------------------
In June 2001, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 141, "Business Combinations" (SFAS 141)
and Statement of Financial Accounting Standards No. 142, "Goodwill and Other
Intangible Assets" (SFAS 142). These statements change the accounting for
business combinations, goodwill, and intangible assets.
SFAS 141 eliminates the pooling-of-interests method of accounting for business
combinations except for qualifying business combinations that were initiated
prior to July 1, 2001. SFAS 141 supersedes Accounting Principles Board Opinion
No. 16 (APB 16): however, certain purchase accounting guidance in APB 16, as
well as certain of its amendments and interpretations, have been carried forward
to SFAS 141. SFAS 141 changes the criteria to recognize intangible assets
separately from goodwill. The requirements of SFAS 141 are effective for any
business combination accounted for by the purchase method that is completed
after June 30, 2001.
The Company adopted the non-amortization provisions of SFAS 142 on January 1,
2002, which resulted in a $0.1 million decrease to the first quarter's net loss
and is expected to increase full-year net income by approximately $0.4 million.
The Company has approximately $5.1 million of goodwill subject to the impairment
testing provisions of SFAS 142. The expected impairment charge, while not yet
quantified, will be retroactively recorded to the required date of adoption,
January 1, 2002. Management anticipates this charge could have a material impact
on its consolidated financial statements.
The following table provides comparative earnings and earnings per share had the
non-amortization provisions of SFAS 142 been adopted for all periods presented:
Three Months Ended
March 31,
(In thousands, except per share amounts) 2002 2001
- ------------------------------------------------------------------------
Reported net loss ($289) ($1,865)
Amortization of goodwill, net of tax - 103
- ------------------------------------------------------------------------
Adjusted net loss ($289) ($1,762)
========================================================================
Basic and diluted loss per share:
Reported net loss ($0.03) ($0.20)
Amortization of goodwill, net of tax - 0.01
- ------------------------------------------------------------------------
Adjusted basic and diluted loss per share ($0.03) ($0.19)
========================================================================
As of March 31, 2002, the Company had $1.7 million of intangible assets that
will continue to be amortized over their remaining useful lives ranging from 60
to 120 months. The Company had no indefinite-lived intangible assets.
In June 2001, the FASB issued Statement of Accounting Standards No. 143,
"Accounting for Asset Retirement Obligations" (SFAS 143), effective for fiscal
years beginning after June 15, 2002. SFAS 143 provides accounting requirements
for retirement obligations associated with tangible long-lived assets. The
obligations affected are those for which there is a legal obligation to settle
as a result of existing or enacted law. The Company does not believe this
standard will have an impact on its consolidated financial statements.
In August 2001 the FASB issued Statement of Financial Accounting Standards No.
144, "Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS 144),
effective for fiscal years beginning after December 31, 2001. This statement
supersedes FASB Statement No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of" (SFAS 121), and provides a
single accounting model for long-lived assets to be disposed of. On January 1,
2002, the Company adopted SFAS 144 and the adoption did not have a material
impact on the Company's consolidated financial statements.
3. ACCOUNTS RECEIVABLE
-------------------
Credit is extended on an evaluation of the customer's financial condition and,
generally, collateral is not required. Credit terms are consistent with industry
standards and practices. Trade accounts receivable at March 31, 2002 and
December 31, 2001 have been reduced by an allowance for doubtful accounts of
($854,000) and ($812,000), respectively. Bad debt expense was $37,000 and
$82,000 for the three-month periods ended March 31, 2002 and 2001, respectively.
4. INVENTORIES
-----------
Inventories of the Company at March 31, 2002 and December 31, 2001 are
summarized as follows in thousands:
March 31, December 31,
2002 2001
- ------------------------------------------------------------------------
Finished goods $31,307 $34,070
Work-in-process 7,505 5,551
Raw materials 4,959 5,756
- ------------------------------------------------------------------------
Total inventories at current costs 43,771 45,377
(Less):
Current costs over LIFO
stated values (1,333) (1,333)
Inventory valuation reserve (600) (600)
- ------------------------------------------------------------------------
$41,838 $43,444
========================================================================
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. BORROWINGS
----------
On December 31, 2001, the Company's $64,025,000 maximum borrowing capacity under
the revolving credit agreement was reduced to $63,000,000 in accordance with the
original terms and conditions of the revolving credit agreement. The interest
rate is, at the Company's option, based on the prime rate, the domestic
certificate of deposit rate (CD rate) or the Euro-bank rate (LIBOR). The
interest rates are established quarterly based upon cash flow and the level of
outstanding borrowings to debt as defined in the agreement. Interest rates range
from prime, to prime plus 0.25%, the CD rate plus 0.575% to 1.8%, and the LIBOR
rate plus 0.575% to 1.8%. Borrowings under the agreement, which expires July 1,
2003, are secured by eligible accounts receivable, inventory, and the pledge of
the Company-held DM&E Railroad Preferred Stock.
The agreement includes financial covenants requiring a minimum net worth, a
minimum level for the fixed charge coverage ratio, and a maximum level for the
consolidated total indebtedness to EBITDA ratio. The agreement also restricts
investments, indebtedness, and the sale of certain assets. As of March 31, 2002,
the Company was in compliance with all of the agreement's covenants.
6. NET LOSS PER COMMON SHARE
-------------------------
The Company computes basic and diluted earnings per share in accordance with
Statement of Financial Accounting Standards No. 128, "Earnings per Share" (SFAS
128). SFAS 128 requires the Company to report both basic earnings per share,
which is based on the weighted average number of common shares outstanding, and
diluted earnings per share, which is based on the weighted average number of
common shares outstanding and all dilutive potential common shares outstanding.
Since the Company incurred losses applicable to common stockholders for all
periods presented, the inclusion of dilutive securities in the calculation of
weighted average common shares is anti-dilutive and therefore, there is no
difference between basic and diluted earnings per share.
7. 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, the amount of
ultimate liability with respect to these actions will not materially affect the
financial position of the Company.
At March 31, 2002, the Company had outstanding letters of credit and bankers
acceptance of approximately $3,532,000.
8. 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
March 31, 2002
Net Segment
(in thousands) Sales Profit/(Loss)
- ---------------------------------------------------
Rail products $29,955 ($734)
Construction products 30,034 107
Tubular products 3,184 145
- ---------------------------------------------------
Total $63,173 ($482)
===================================================
Three Months Ended
March 31, 2001
Reported Adjusted
Net Segment Goodwill Segment
(in thousands) Sales Profit/(Loss) Amortization Profit/(Loss)
- --------------------------------------------------------------------------------
Rail products $26,909 ($3,000) 54 (2,946)
Construction products 24,004 (607) 56 (551)
Tubular products 5,177 514 - 514
- --------------------------------------------------------------------------------
Total $56,090 ($3,093) 110 (2,983)
================================================================================
In connection with the adoption of SFAS 142, in the first quarter of 2002, the
Company adjusted the reporting of its segment results to exclude amortization of
goodwill from its operating segments for the period presented prior to the date
of adoption.
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.
The following table provides a reconciliation of reportable net profit/(loss) to
the Company's consolidated total:
Three Months Ended
March 31,
(in thousands) 2002 2001
- --------------------------------------------------------------------------------
Net loss for reportable segments ($482) ($3,093)
Goodwill amortization for reportable segments - $110
- --------------------------------------------------------------------------------
Adjusted net loss for reportable segments ($482) ($2,983)
Cost of capital for reportable segments 2,749 3,227
Interest expense (674) (961)
Other income 280 214
Unallocated goodwill amortization - 28
Corporate expense and other unallocated charges (2,162) (2,549)
- --------------------------------------------------------------------------------
Adjusted net loss before income taxes ($289) ($3,024)
================================================================================
The Company's emphasis on improving working capital utilization has resulted in
a reduction to inventory and accounts receivable for the Rail segment of
approximately $6,000,000, from December 31, 2001. However, the Construction
segment's net assets increased approximately $6,000,000 from December 31, 2002.
This increase was primarily due to the acquisition of net assets from the
Greulich Bridge Products Division of Harsco Corporation (See Other Matters
section of Management's Discussion and Analysis of Financial Condition & Results
of Operations), and an increase in expenditures for plant equipment and
inventory by the Company's Buildings division.
10. COMPREHENSIVE LOSS
------------------
Comprehensive loss represents net loss plus certain stockholders' equity changes
not reflected in the Condensed Consolidated Statements of Income. The components
of comprehensive loss, net of tax, were as follows:
Three Months Ended
March 31,
(in thousands) 2002 2001
- --------------------------------------------------------------------------
Net loss ($289) ($1,865)
Cumulative transition adjustment of a change in
accounting principle (SFAS No. 133) - (48)
Unrealized derivative gains (losses) on cash flow
hedges (SFAS No. 133) 177 (112)
Foreign currency translation losses (30) (29)
- --------------------------------------------------------------------------
Comprehensive loss ($142) ($2,054)
==========================================================================
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Three Months Ended
March 31,
- ---------------------------------------------------------------------------
2002 2001
- ---------------------------------------------------------------------------
(Dollars in thousands)
Net Sales:
Rail Products $29,955 $26,909
Construction Products 30,034 24,004
Tubular Products 3,184 5,177
- ---------------------------------------------------------------------------
Total Net Sales $63,173 $56,090
===========================================================================
Gross Profit:
Rail Products $2,852 $1,350
Construction Products 3,647 3,082
Tubular Products 551 1,235
Other (255) (327)
- ---------------------------------------------------------------------------
Total Gross Profit 6,795 5,340
- ---------------------------------------------------------------------------
Expenses:
Selling and administrative expenses 6,690 7,755
Interest expense 674 961
Other income - net (280) (214)
- ---------------------------------------------------------------------------
Total Expenses 7,084 8,502
- ---------------------------------------------------------------------------
Loss Before Income Taxes (289) (3,162)
Income Tax Benefit - (1,297)
- ---------------------------------------------------------------------------
Net Loss ($289) ($1,865)
===========================================================================
Gross Profit %:
Rail Products 9.5% 5.0%
Construction Products 12.1% 12.8%
Tubular Products 17.3% 23.9%
Total Gross Profit 10.8% 9.5%
===========================================================================
First Quarter 2002 Results of Operations
- ----------------------------------------
The Company recorded a net loss for the first quarter of 2002 of $0.3 million or
$0.03 per share on net sales of $63.2 million. This compares to a net loss of
$1.9 million or $0.20 per share on net sales of $56.1 million, for the first
quarter of 2001. Results for the first quarter of 2002 do not include the
transitional goodwill impairment charges that the Company expects to record as a
result of Statement of Financial Accounting Standards No. 142, "Goodwill and
Other Intangible Assets". The Company has approximately $5.1 million of goodwill
subject to the impairment testing provisions of SFAS 142. The expected
impairment charge, while not yet quantified, will be retroactively recorded to
the required date of adoption, January 1, 2002. Management anticipates this
charge could have a material impact on its consolidated financial statements.
Results for last year's first quarter included nonrecurring pretax charges of
$1.4 million related to the Company's plan to consolidate sales and
administrative functions and plant operations, and $0.1 million of goodwill
amortization.
Rail products' 2002 first quarter net sales were $30.0 million, an 11.3%
improvement over last year's first quarter net sales of $26.9 million. This
improvement was due primarily to an increase in revenue recognized for new rail
project work. Construction products' net sales increased 25.1% to $30.0 million
in the first quarter of 2002, as a result of an increase in revenue recognized
for sheet piling and fabricated bridge products. Tubular products' sales
declined 38.5% from the same quarter of 2001 due primarily to low demand for
pipe coating services as a result of a mild winter. Changes in net sales are
generally the result of changes in volume rather than changes in prices.
The gross profit margin for the total Company was 10.8% in the first quarter of
2002 compared to 9.5% in the same quarter last year. The 2001 first quarter
nonrecurring pretax charges discussed above reduced gross margin by 1.7
percentage points. Rail products' profit margin increased 4.5 percentage points
to 9.5% from the same period last year. Excluding nonrecurring pretax charges in
the first quarter of 2001, rail products' profit margin for the first quarter of
2002 increased 2.1 percentage points. Last year's first quarter was adversely
affected by costs associated with the shut-down of the Company's trackwork
facility in Pomeroy, OH and the relay rail group's efforts to reduce inventory,
selling much of it at lower than normal margins. Construction products' margin
declined 0.7 percentage points, primarily as a result of costs associated with
the start-up of the Company's Hillsboro, TX facility, which produces precast
concrete buildings. Tubular products' 6.6 percentage point drop in gross margin
was primarily the result of low volume inefficiencies at the Birmingham, AL
pipe-coating facility which resulted from the sales decline, mentioned above.
Excluding the prior year's first quarter non-recurring pretax charges of $0.5
million and amortization expense of $0.1 million, selling and administrative
expenses declined 7.3% compared to the first quarter of 2001. This decline can
be attributed to cost control measures and the elimination of the sign structure
business. Other income in the first quarter of 2002 includes approximately $0.4
million accrued dividend income on the DM&E Preferred Stock. Other income in the
same period of 2001 included $0.2 million accrued dividend income on the DM&E
Preferred Stock. The decline in interest expense resulted from the reduction of
debt. The Company expects its effective tax rate to increase significantly in
2002 due to continued losses at its Canadian signaling operations. There was no
tax benefit provided for in the current period due to the Company recording a
valuation allowance on its Canadian net losses. The provision for income taxes
was recorded at 41% in the first quarter of 2001.
Liquidity and Capital Resources
- -------------------------------
The Company generates operational cash flow from the sale of inventory and the
collection of accounts receivable. During the first three months of 2002, the
average turnover rate for accounts receivable improved over the same period in
2001. The average inventory turnover rate for the first three months of 2002
also improved over the average rate for the same period in 2001. Working capital
at March 31, 2002 was $59.2 million compared to $62.0 million at December 31,
2001.
Management's emphasis on improving working capital utilization resulted in a
$13.3 million reduction in inventory and a $3.9 million reduction in receivables
since March 31, 2001. These improvements have allowed the Company to reduce debt
by $16.0 million from March 31, 2001.
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. The timing and extent of
purchases will depend on market conditions and options available to the Company
for alternative uses of its resources. No purchases were made in the first
quarter of 2002. In the first quarter of 2001, the Company purchased 25,000
shares at a cost of $75,000. As of March 31, 2002, the Company had repurchased
973,398 shares at a cost of approximately $5.0 million.
The Company had capital expenditures of approximately $2.7 million in the first
quarter of 2002. Capital expenditures in 2002, including the Greulich
acquisition discussed in Other Matters, are expected to be approximately $5.5
million and are anticipated to be funded by cash flow from operations and
available external financing sources.
Total revolving credit agreement borrowings at March 31, 2002 were $30.0
million, a decrease of $5.0 million from December 31, 2001. At March 31, 2002
the Company had $14.6 million in unused borrowing commitment. Outstanding
letters of credit and bankers acceptance at March 31, 2002 were approximately
$3.5 million. The letters of credit expire annually and are subject to renewal.
A bankers acceptance for $1.3 million is payable on its May 28, 2002 maturity
date. Management believes its internal and external sources of funds are
adequate to meet anticipated needs.
The revolving credit agreement interest rate is, at the Company's option, based
on the prime rate, the domestic certificate of deposit rate (CD rate) or the
Euro-bank rate (LIBOR). The interest rates are established quarterly based upon
cash flow and the level of outstanding borrowings to debt as defined in the
agreement. Interest rates range from prime to prime plus 0.25%, the CD rate plus
0.575% to 1.8%, and the LIBOR rate plus 0.575% to 1.8%. Borrowings under the
agreement, which expires July 1, 2003, are secured by eligible accounts
receivable, inventory, and the pledge of the Company-held Dakota, Minnesota &
Eastern Railroad Corporation Preferred Stock.
The agreement includes financial covenants requiring a minimum net worth, a
minimum level for the fixed charge coverage ratio, and a maximum level for the
consolidated total indebtedness to EBITDA ratio. The agreement also restricts
investments, indebtedness, and the sale of certain assets. As of March 31, 2002,
the Company was in compliance with all of the agreement's covenants.
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
operates over 1,100 miles of track in five states.
At March 31, 2002, the Company's investment was comprised of, $0.2 million of
DM&E common stock, $1.5 million of the Series B Preferred Stock and warrants,
$6.0 million of the Series C Preferred Stock and warrants, and $0.8 million of
DM&E Preferred Series C-1 Stock and warrants. In addition, the Company has a
receivable for accrued dividend income on Preferred Stock of $3.0 million. On a
fully diluted basis, the Company owns approximately 16% of the DM&E's common
stock.
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 $1.5
billion. The Project received final approval by the Surface Transportation Board
(STB) in January 2002. Litigation has been initiated challenging the STB's
approval of 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 dramatically.
Other Matters
- -------------
On January 4, 2002, the Company acquired substantially all of the equipment,
inventory, intellectual property, and customer backlog of the Greulich Bridge
Products Division of Harsco Corporation. The purchase price of approximately
$2.2 million consisted of: equipment of $1.0 million, inventory (net of trade
payables) of $0.5 million, intangible assets of $0.5 million, and goodwill of
$0.2 million. These assets will be utilized in the Company's fabricated bridge
products operations in the Construction products segment, and the results of
operations of these assets have been included in the consolidated financial
statements since the date of acquisition. The acquisition established the
Company as the leading supplier of bridge decking, in the United States, and is
expected to result in production efficiencies and increased business volume. The
goodwill associated with this transaction is expected to be deductible for tax
purposes.
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 these assets to their anticipated market value.
Management is currently negotiating the sale of these assets and believes that
the equipment will be sold in 2002.
In 1998, the Company purchased assets, primarily comprised of intellectual
property related to the business of supplying rail signaling and communication
devices, for approximately $1.7 million. To date, this operation has not
generated significant revenues. The Company continues to develop and test, in
the market, products associated with the acquired intellectual property.
Management believes that upon market acceptance of these products, the carrying
amount of the intellectual property will be recovered.
Management continues to evaluate the overall performance of its operations. A
decision to terminate an existing operation could have a material adverse effect
on near-term earnings but would not be expected to have a material adverse
effect on the financial condition of the Company.
Outlook
- -------
The Company has an exclusive agreement with a steel mill to distribute sheet
piling in North America. Although production of sheet piling commenced in the
first quarter of 2001, the Company continues to have difficulty in obtaining
piling on a consistent basis. The quantity acquired to date has not materially
impacted results, and management does not expect this situation to improve in
the second quarter of 2002.
Specialty trackwork sales of the Company's Rail segment depend primarily on one
source, in which the Company maintains a 30% ownership position. At March 31,
2002 and 2001, the Company had advanced to this supplier inventory progress
payments of $5.2 million and $6.3 million, respectively. During the first three
months of 2002 and 2001, the volume of business the supplier conducted with this
Company was approximately $2.2 million and $1.5 million, respectively. If, for
any reason, this supplier is unable to perform, the Company could experience a
negative short-term effect on earnings.
The Company's CXT subsidiary and Allegheny Rail Products division are dependent
on one Class I railroad for a significant portion of their business. In
addition, 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 March 31, 2002, was approximately $136.3 million. The
following table provides the backlog by business segment:
Backlog
-----------------------------------------------
March 31, December 31, March 31,
(In thousands) 2002 2001 2001
- -------------------------------------------------------------------------------
Rail Products $65,353 $64,641 $103,461
Construction Products 67,027 59,808 58,278
Tubular Products 3,890 1,307 2,601
- -------------------------------------------------------------------------------
Total $136,270 $125,756 $164,340
===============================================================================
The reduction in rail segment backlog from a year ago reflects the effect of CXT
billings against long-term production contracts. Total billings under these
contracts were $17.5 million since April 1, 2001.
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 judgements of the amounts and disclosures included
in the financial statements giving due regard to materiality. For more
information regarding the Company's critical accounting policies, please see the
discussion in Management Discussion & Analysis of Financial Condition and
Results of Operations in Form 10-K for the year ended December 31, 2001.
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. One interest rate collar agreement, which expires
in March 2006, has a notional value of $15.0 million with a maximum annual
interest rate of 5.60%, and a minimum annual interest rate of 5.00%, and is
based on LIBOR. The counter-party to the collar agreement has the option, on
March 6, 2005, to convert the $15.0 million note to a one-year fixed-rate
instrument with interest payable at an annual rate of 5.49%. A second interest
rate collar agreement, which expires in April 2006, has a notional value of
$10.0 million with a maximum annual interest rate of 5.14%, and a minimum annual
interest rate of 4.97%, and is based on LIBOR. The counter-party to the collar
agreement has the option, on April 18, 2004, to convert the $10.0 million note
to a two-year fixed-rate instrument with the interest payable at an annual rate
of 5.48%. The interest rate swap agreement, which expires in December 2004, has
a notional value of $3.0 million at March 31, 2002 and is designed to fix the
total interest rate at 7.42%. The Company is obligated to pay additional
interest on the swap if LIBOR exceeds 7.249%.
The Company is not subject to significant exposure to change in foreign currency
exchange rates. The Company does, however, hedge the cash flows of operations of
its Canadian subsidiary. The Company manages its exposures to changes in foreign
currency exchange rates on firm sales and purchase commitments by entering into
foreign currency forward contracts. The Company's risk management objective is
to reduce its exposure to the effects of changes in exchange rates on sales
revenue over the duration of the transaction. At March 31, 2002, the Company had
outstanding foreign currency forward contracts to purchase $1.1 million Canadian
for approximately $0.7 million US.
During the three months ended March 31, 2002 and 2001, unrealized net gains
(losses) on derivative instruments of approximately $177,000 and ($112,000),
respectively, net of related tax effects, were recorded in other comprehensive
loss.
The Company may enter into additional swaps or other financial instruments to
set all or a portion of its borrowings at fixed rates.
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, 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 through the approval process, the
expense of environmental mitigation measures required by the Surface
Transportation Board, an inability to obtain financing for the Project,
competitor's 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 releases, reports,
proxy statements, registration statements and other written communications
(including the preceding sections of this Management's Discussion and Analysis),
as well as oral statements made from time to time by representatives of the
Company. Additional delays in a Virginia steel mill's production of steel sheet
piling would, for example, have an adverse effect on the Company's performance.
The estimate for nonrecurring charges through 2001 are subject to change as the
Company further develops its plans. Except for historical information, matters
discussed in such oral and written communications are forward-looking statements
that involve risks and uncertainties, including but not limited to general
business conditions, the availability of material from major suppliers, the
impact of competition, the seasonality of the Company's business, taxes,
inflation and governmental regulations. Sentences containing words such as
"anticipates", "expects", or "will" generally should be considered
forward-looking statements.
PART II OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
See Note 7, "Commitments and Contingent Liabilities", to the Condensed
Consolidated Financial Statements.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
a) EXHIBITS
--------
Unless marked by an asterisk, all exhibits are incorporated by reference:
3.1 Restated Certificate of Incorporation as amended to date, filed as
Appendix B to the Company's April 17, 1998 Proxy Statement.
3.2 Bylaws of the Registrant, as amended to date, filed as Exhibit 3B to
Form 8-K on May 21, 1997.
4.0 Rights Amendment, dated as of May 14, 1998 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 4B to Form 8-A dated May 23, 1997.
4.0.1 Amended Rights Agreement dated as of May 14, 1998 between L. B. Foster
Company and American Stock Transfer & Trust Company, filed as Exhibit
4.0.1 to Form 10-Q for the quarter ended June 30, 1998.
4.1 Third Amended and Restated Loan Agreement by and among the Registrant
and Mellon Bank, N. A., PNC Bank, National Association and First Union
National Bank, Dated as of June 30, 1999 and filed as Exhibit 4.1 to
Form 10-Q for the quarter ended June 30, 1999.
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.
10.13 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.
10.14 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.
10.16 Lease between Registrant and Greentree Buildings Associates for Head-
quarters office, dated as of June 9, 1986, as amended to date, filed
as Exhibit 10.16 to Form 10-K for the year ended December 31, 1988.
10.16.1 Amendment dated June 19, 1990 to lease between Registrant and Green-
tree Buildings Associates, filed as Exhibit 10.16.1 to Form 10-Q for
the quarter ended June 30, 1990.
10.16.2 Amendment dated May 29, 1997 to lease between Registrant and Greentree
Buildings Associates, filed as Exhibit 10.16.2 to Form 10-Q for the
quarter ended June 30, 1997.
*10.17 Lease between Registrant and the City of Hillsboro for property
located in Hill County, TX, dated February 22, 2002.
10.19 Lease between Registrant and American Cast Iron Pipe Company for 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, 1991.
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.
10.20 Asset Purchase Agreement, dated June 5, 1998 by and among the
Registrant and Northwest Pipe Company, filed as Exhibit 10.20 to Form
8-K on June 18, 1998.
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 amended and
restated February 26, 1997, filed as Exhibit 10.33.2 to Form 10-Q for
the quarter ended June 30, 1997. **
10.34 Amended and Restated 1998 Long-Term Incentive Plan, as amended and
restated 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, 1992. **
10.46 Leased Vehicle Plan, as amended and restated, filed as Exhibit 10.46
to form 10-K for the year ended December 31, 2000. **
*10.50 L. B. Foster Company 2002 Incentive Compensation Plan. **
10.51 Supplemental Executive Retirement Plan, filed as Exhibit 10.51 to Form
10-K for the year ended December 31, 1994. **
19 Exhibits marked with an asterisk are filed herewith.
** Identifies management contract or compensatory plan or arrangement
required to be filed as an Exhibit.
b) Reports on Form 8-K
The Registrant filed no reports on Form 8-K during the three-month
period ended March 31, 2002.
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: May 13, 2002 By /s/Stan L. Hasselbusch
------------ ---------------------------------
Stan L. Hasselbusch
President and
Chief Executive Officer
(Duly Authorized Officer of Registrant)
LEASE AGREEMENT THE STATE OF TEXAS COUNTY OF HILL This agreement of a lease made this 22nd day of February 2002 by and between the CITY OF HILLSBORO, TEXAS, hereinafter referred to as "Lessor," and L. B. FOSTER CORPORATION, hereinafter referred to as Lessee. In contemplation of the mutual consideration set forth herein the parties hereby agree as follows: Lessor does by these presents lease and demise unto Lessee the real property described in "Exhibit A," attached hereto and incorporated by reference herein including all improvements situated thereon, for a term of ten (10) years, commencing upon the date of this lease, unless sooner terminated by virtue of the terms and provisions herein contained. This lease is made upon and subject to the following conditions and covenants, to-wit: I. RENTAL Rental for the above designated property, which Lessee agrees to pay to Lessor is as follows: The total lease amount is Seven Hundred Thousand and No/100 Dollars ($700,000.00). Rental shall be payable in one hundred nineteen (119) equal monthly installments of Five Thousand Eight Hundred Thirty-Three Dollars and 33/100 Dollars ($5833.33) each and one (1) final payment of Five Thousand Eight Hundred Thirty-Three Dollars and 73/100 Dollars ($5833.73) (1). The payments shall commence on the first day of the month after the date of this lease, continuing in a like amount on the first day of each month thereafter throughout the term of the lease. Lease payments received 10 calendar days or more past the due date will be assessed a late charge/fee of five percent (5%) of the payment amount. Payments will be made to the City of Hillsboro, Texas at 214 E. Elm Street, P.O. Box 568 Hillsboro, Texas, 76645, or such address as may be designated from time to time by the Lessor. II. OCCUPANCY Lessor warrants and represents to Lessee that it has complete and lawful right to lease the premises, and that upon paying the rents and performing the other terms and conditions, hereof, Lessee shall have quiet and peaceful possession of the premises, subject to Lessee's compliance with the provisions of this Lease Agreement. Ill. CARE AND MAINTENANCE OF PREMISES Lessee shall promptly make all repairs and perform all maintenance on the building and parking lot, and shall keep all areas of the property, including the parking lot, in proper condition, repair, and maintenance. Lessee agrees to pay all costs associated with the care and maintenance ofthe premises. Failure to adequately maintain the premises shall be deemed a default of the Lease Agreement and shall entitle the Lessor to all remedies stated herein. IV. ALTERATIONS Upon written approval of the Lessor, Lessee shall have the right, at its own expense, to make alterations and improvements and to install such fixtures, machinery, and equipment in and about the premises, and to post or attach such signs to the interior and exterior of said premises as Lessee may deem desirable. All alterations, improvements, signs, fixtures (including lights), and machinery which have been or may be installed, placed, and attached in or about the premises by Lessee shall always remain the property of Lessee and upon termination by expiration or otherwise of this lease, or of any renewal thereof, or at any prior time or times, Lessee will, as it desires to do so, be permitted to remove within a reasonable time all or any of said alterations, improvements, signs, fixtures, machinery and equipment so installed, placed, or attached; provided, however, that any damage caused to the premises by reason of such removal shall be repaired by Lessee, and the Lessee shall restore the premises to their original condition. V. UTILITIES Lessee hereby agrees to pay for all electricity, gas, water, and other utilities used by Lessee upon the premises. VI. REAL PROPERTY TAXES AND PERSONAL PROPERTY TAXES In contemplation of the fact that the lessor is a governmental entity and the real property may be tax exempt, the lessee herein agrees to provide payment in lieu of taxes to all taxing entities for the real property as follows: I. 50% of the assessable taxes based on the appraised value of the property for the City of Hillsboro and Hill County. II. 100% of the assessable taxes based on the appraised value of the property for all other taxing entities. During the term of this agreement, Lessee shall make payment in lieu of taxes by January 31 of each year, payable directly to the Lessor at the address in Section XVI of the agreement. Lessee agrees to pay when due all taxes and assessments of every nature, kind, and description levied and assessed by the taxing authorities against personal properties, betterments, and improvements contained in the building as the same may become due from time to time during the term of this lease. Lessee hereby certifies that all taxes on such property are current (paid in full as of the date hereof).
VII. INSURANCE The Lessee shall, at Lessee's own expense, maintain insurance coverage as set forth below: General Liability Insurance: Bodily Injury $1,000,000 per occurrence Property damage $1,000,000 per occurrence Aggregate $2,000,000 products/completed operations $2,000,000 aggregate Environmental Liability Coverage $1,000,000 Workers Compensation Statutory Limits Standard form fire extended coverage property insurance insuring in an amount of at least $1,000,000 against the perils of fire, extended coverage, vandalism, malicious mischief, special extended coverage ("all risk"). The Lessee shall not occupy the premises under this Lease Agreement until the Lessee has obtained all the insurance required under this Lease Agreement and such insurance has been approved by the Lessor. All required policies shall name Lessor as an additional insured, except the Worker's Compensation Insurance (as applicable). As proof of the insurance coverage, the Lessee shall furnish to Lessor valid certificates of insurance of the types and limits required herein, prior to occupying the premises. In addition, the required insurance coverage shall contain a provision that coverage afforded under the policies will not be materially changed or canceled without provision of thirty (30) days written notice to Lessor. The insurance requirements shall remain in effect throughout the term of this Lease Agreement. Concerning insurance to be furnished by the Lessee, it is a condition precedent to the acceptability thereof that: 1. Any policy submitted shall not be subject to limitations, conditions or restrictions deemed inconsistent with the intent of the requirements to be fulfilled by the Lessee; 2. All policies are to be written through companies duly approved to transact that class of insurance in the State of Texas. The Lessee agrees to the following: 1. The Lessee hereby waives subrogation rights for loss or damage to the extent same are covered by insurance. Insurers shall not have the right to recovery or subrogation against Lessor, it being the intention that the insurance policies shall protect all parties to the Lease Agreement and be primary coverage for all losses covered by the policies;
2. Companies issuing the insurance policies and the Lessee shall have no recourse against Lessor for payment of any premiums, or assessments for any deductible, as all such premiums are the sole responsibility and risk of the Lessee. 3. Approval, disapproval or failure to act by Lessor regarding any insurance supplied by the Lessee shall not relieve Lessee of full responsibility or liability, if any, for damages and accidents as set forth in ,the Lease Agreement. Neither shall the insolvency or denial of liability by the insurance company exonerate the Lessee from liability. 4. Any of the insurance policies required under this section may be written in combination with any of the others, where legally permitted, but none of the specified limits may be lowered thereby. VIII. LIABILITY AND INDEMNIFICATION The Lessee hereby accepts responsibility and liability for the Lessee's employees, agents, sub-contractors, guests or other's use or occupation of the premises contemplated by this Lease Agreement. The Lessee shall be solely and completely responsible for the use and/or occupation of the leased premises. The Lessee herein agrees to comply with the requirements of all applicable laws, rules and regulations and shall exonerate, indemnify and hold the Lessor harmless from any and all liability or damages resulting from failure to do so. In addition, the Lessee agrees to keep, save and hold the Lessor harmless from any and all actions, liabilities, damages, judgments, costs and expenses including reasonable attorneys' fees, in case an action is filed or does in any way accrue against the Lessor, its officials, officers, and employees in consequence of this Lease Agreement or for any act, negligence or omission of the Lessee in the use or occupation of the premises. It is specifically understood and agreed by the Lessee that such indemnity is indemnity by the Lessee to indemnify and protect the Lessor from liability, claims, suits, losses, damages or causes of action due to the Lessee's use of the premises under this Lease Agreement. Lessor shall not be held responsible for and shall be expressly held harmless by Lessee from any and all liability resulting from any injury, loss, or damage to any person or property occurring in or about the lease premises, whether the loss, injury, or damage be to personal property of the Lessee or any other person, except in instances where such loss, injury, or damage is caused by or through the negligence of Lessor, its agents and employees. IX. HAZARDOUS MATERIALS Lessee shall defend, indemnify, and hold harmless Lessor from any and all liabilities (including strict liability), actions, demands, penalties, losses, costs, or expenses (including, without limitation, attorneys' fees and expenses and remediation costs), suits, costs of any settlement or judgment and claims of any and every kind whatsoever which may now or in the future be paid, incurred, or suffered by, or asserted against Lessor by any person or entity or governmental agency for, with respect to, or as a direct or indirect result of, the presence on or under, or the escape,
seepage, leakage, spillage, discharge, emission, or release from the lease premises of any hazardous materials or any hazardous materials contamination, or arise out of or result from the environmental condition of the lease premises or the applicability of any governmental requirements relating to hazardous materials (including, without limitation, CERCLA or any federal, state, or local so-called "Superfund" or "Superlien" laws, statute, law, ordinance, code, rule, regulation, order, or decree), caused by or within the control of Lessee. The representations, covenants, warranties, and indemnification contained in this paragraph shall survive the term of this lease. X. PARTIAL OR TOTAL DESTRUCTION OF PREMISES In the event the premises are hereinafter partially damaged or destroyed or rendered partially unfit for their accustomed use by fire or other casualty insured by fire and extended coverage insurance, then Lessor shall, with insurance proceeds, promptly repair said premises and restore the same to substantially the same condition in which the premises were immediately prior to the occurrence of such damage, but in no event shall Lessor be required to expend any funds other than the insurance proceeds. From and after the date of damage, the rental required to be paid by Lessee to Lessor shall be reduced to that portion of the annual rent which the value of the part of the lease premises not damaged bears to the value of the total premises, such value to be determined as of the date of the damage. The lease term shall be extended to such times as to compensate for the rent abatement. Lessee shall provide to Lessor a Certificate of Insurance with Lessor as loss payee and with instruction that Lessor will be notified if Lessee fails to pay insurance premiums in a timely manner. XI. CONDEMNATION Should the whole or any part of the lease premises be condemned or taken by a competent authority for any public or quasi-public use or purpose, each party shall be entitled to retain, as its own property, any award payable to it. In the event that a single award is made on account of the condemnation, each party will be entitled to take such proportion of said award as may be fair and reasonable. If the whole of the lease premises shall be so condemned or taken, Lessor shall not be liable to Lessee except and as its rights are preserved in this paragraph. In determining such proportion to be divided, the parties will take into account all improvements made by Lessee and the transfer of the real estate to Lessor. XII. TERMINATION OF LEASE AND DEFAULTS OF LESSEE 1) This lease shall terminate upon expiration of the lease term or if this lease expressly and in writing provides for any option or options, and if any such option is exercised by Lessee, then this lease will terminate at the expiration of the option term or terms. Upon default in the payment of rental herein or upon any other default by Lessee in accordance with the terms and provisions of this lease, this lease may at the option of Lessor be canceled and forfeited. Provided, however, before any such cancellation and forfeiture except as provided in XII(2)
below, Lessor shall give Lessee a written notice specifying the default, or defaults, and stating that this lease will be canceled and forfeited thirty (30) days after the giving of such notice, unless such default, or defaults, are remedied within such grace period. Lessee shall have the right to exercise the option to purchase under XV below during the thirty (30) day grace period. 2) In the event Lessee is adjudicated bankrupt or in the event of a judicial sale or other transfer of Lessee's leasehold interest by reason of any bankruptcy or insolvency proceedings or any other operation of law, and such bankruptcy, judicial sale, or transfer has not been vacated or set aside within thirty (30) days from giving of notice thereof by Lessor to Lessee, then and in any such event, Lessor may, at its option, immediately terminate this lease, re-enter the premises, upon giving thirty (30) days written notice by Lessor to Lessee, all to the extent permitted by applicable law. 3) In (1) and (2) above, waiver as to any default shall not constitute a waiver of any subsequent default or defaults. 4) Acceptance of keys, advertising, and re-renting by Lessor upon the Lessee's default shall be construed only as an effort to mitigate damages by the Lessor, and not as an agreement to terminate this lease. XIII. RIGHTS OF EITHER PARTY TO MAKE GOOD ANY DEFAULT OF THE OTHER If default shall be made by either party in the performance of, or compliance with, any of the terms, covenants, or conditions of this lease, and such default shall have continued for thirty (30) days after written notice thereof from one party to the other, the party aggrieved, in addition to all other remedies now or hereafter provided by law, may, but need not, perform such term, covenant, or condition, or make good such default and any amount advanced shall be repaid forthwith on demand within ten (10) days from the date of said advance. XIV. ASSIGNABILITY The Lessee shall not assign, mortgage, or encumber this lease, or sublet or permit the lease premises or any part thereof to be used by others, without the prior written consent of Lessor in each instance. If this lease is assigned, or if the lease premises or any part thereof is sublet or occupied by anybody other than the Lessee and affiliated companies, the Lessor may, after default by the Lessee, collect rent from the assignee, subtenant, or occupant and apply the net amount collected to the rent herein reserved. No such assignment, subletting occupancy, or collection shall be deemed a waiver of this covenant, nor the acceptance of the assignee, subtenant, or occupant as a Lessee, or a release of the Lessee from the further performance by the Lessee of the covenants in this lease. The consent by Lessor to an assignment or subletting shall not be construed to relieve the Lessee from obtaining the consent in writing of the Lessor to any further assignment or subletting. Lessee agrees to forward all payments received from subleasee, if one is approved, to Lessor during the term hereof. Not withstanding the foregoing, Lessee, any merge or consolidate with another entity so long
as the surviving entity is bound to the terms of this Lease Agreement. XV. OPTION TO PURCHASE At any time after the expiration of five (5) years from the date of this lease, during the lease term or any extension thereof, Lessee is given the option to purchase the leased premises together with all improvements thereon for the unpaid principal lease amount. The Lessee shall exercise this option to purchase by giving to Lessor written notice of its intention to purchase. If this option to purchase is exercised, Lessor shall deliver to Lessee within thirty (30) days after having received such notice a Special Warranty Deed and Lessee shall deliver to Lessor, on the date that the deed is delivered, a cashier's check for the unpaid principal balance of the lease payments. If Lessee has not previously exercised its option to purchase, Lessee's payment of the last payment owed hereunder shall be lessees' exercise of said option. Lessees' obligations to make the rental payments on the lease shall be suspended after Lessee notifies Lessor of its intention to exercise the option to purchase. XVI. NOTICES Any notice or communication required or permitted hereunder or under this Lease Agreement shall be in writing, sent certified mail return receipt requested and addressed as follows: To Lessor: City Manager City of Hillsboro 214 E. Elm P.O. Box 568 Hillsboro, Texas 76645 To Lessee: L. B. Foster Company c/o David Minor 901 N. Highway 77 Hillsboro, Texas 76645 Either party may change the address to which notices are to be sent it by giving the other party written notice of the new address in the manner provided in this section. XVII. RIGHTS CUMULATIVE The various rights, powers, options, elections, and remedies of either party provided in this lease shall be construed as cumulative and not one of them is exclusive of the others, or exclusive of any rights, remedies, or priorities allowed either party by law, and shall in one way affect or impair the right of either party to pursue any other equitable or legal remedy to which either party may be entitled as long as any default remains in any way unremedied, unsatisfied, or undischarged. XVIII. BENEFITS TO BIND AND BENEFITS OF SUCCESSORS ASSIGNS ETC.
The provisions of this lease shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and/or assigns. XIX. TEXAS CAPITAL FUND REQUIREMENTS Lessee is aware that Lessor has acquired funds from the Texas Capital Fund. Any terms or conditions contained in this lease which contradict any of the rules and regulations of Texas Capital Fund shall be void. Lessee acknowledges that Lessee is familiar with the rules and regulations of Texas Capital Fund. Any amendments to the lease agreement shall require prior written approval by the Texas Department of Economic Development. Any change in the total lease amount will result in an adjustment of the monthly lease payment and the calculation of a revised payment schedule. XX. EQUIPMENT FINANCING Lessor disclaims any right or interest in certain equipment, whether or not considered to be fixtures, described in Exhibit B hereto (the "Equipment"), which Equipment is subject to a Lease Agreement among GE Capital Public Finance Inc. ("GEPF"), Hillsboro Industrial Development Corporation and Lessee (the "Equipment Lease"). Lessor agrees to give GEPF and its assigns access to the Equipment and the right to store on the premises the Equipment in the event Lessee should default under the Equipment Lease for a period not to exceed 60 days from any lease termination resulting from such default. Lessor agrees to execute documents reasonably requested by Lessee in connection with the provisions of this Article XX herein. XXI. OPEN MEETINGS ACT COMPLIANCE This lease has been approved by the City Council of the City of Hillsboro, meeting in an open session on the 5th day of February 2002 and all provisions of the Texas Open Meetings Acts have been complied with by City of Hillsboro. IN WITNESS WHEREOF, the parties hereunto have executed duplicate originals of this document by their proper officers duly authorized to so act and with the intent to be bound by the terms stated herein.
EXHIBIT A TRACT 1: FIELD NOTES for a lot, tract, or parcel of land containing 7.277 acres lying and situated in the J.E. Ross Survey A-150 in Hillsboro, Hill County, Texas. Said land is that certain 7.285 acre tract described in a deed from Spartan Copper, Incorporated to Hillsboro Loan Investors, L. P. a recorded in Volume 864, Page 134 of the official Public Records of Hill County, and is more particularly described by metes and bounds as follows: BEGINNING at a 1/2' iron rod found in the northwest line of U.S. Highway 77 for the south corner of said 7.285 acre tract, said point being the most easterly corner of a tract described, in a deed to Franklin Industries, Inc. as recorded in Volume 928, Page 772 of the Official Public Records of Hill County; THENCE: N 44 deg 53 mm 0 sac W 599.95 feet along Franklin's northeast line to a 5/8 iron rod found for corner; THENCE: N 35 deg 54 mm 0 sec E 94.55 feet and N 50 deg 11 min 15 sec W 82.27 feet and N 31 deg 49 min 30 sec E 259.24 feet along Franklin's line, 5/8 iron rods found at all corners; THENCE: S 85 deg 52 mm 0 sec E 369.45 feet to a 1/2 iron rod set for corner THENCE: S 42 deg 37 mm 15 sec E 181.00 feet to a railroad spike found for corner; THENCE: S 21 deg 51 mm 0 sec E 118.04 feet to a railroad spike found for corner in the northwest line of said U.S. Highway 71; THENCE: Around a curve to the left with radius 2024.86 feet an arc distance of"255.26 feet (Chord: S 26 deg 19 win 30 sec W 255.09 feet) to a 1/2 iron rod set for corner; THENCE: S 29 deg 7 min 10 sec W 190.88 feet to a 1/2" iron rod set for corner; THENCE: S 17 deg 26 win 10 sec W 115.00 feet to the point of beginning, containing 7.277 acres of land. TRACT 2: FIELD NOTES for a lot, tract, or parcel of land containing 1.356 acres lying and situated in the J.H. Ross Survey A-750 in Hillsboro, Hill County, Texas. Said land is that certain 1.52 acre tract described in a deed from Hillsboro Lake Park Association to Robintech, Inc. as recorded in Volume 486, Page 779 of the Deed Records of Hill County, and in a Quit Claim Deed from Hillsboro Lake Park Association to Robintech, Inc. a recorded in Volume 501, Page 491 of the Deed Records of Hill County. Said land is more particularly described by metes and bounds as follows: BEGINNING at railroad spike found for the most easterly corner of a tract described in a deed to Hillsboro Loan Investors, L. P. as recorded in Volume 864, Page 134 of the Official Public Records of Hill County; THENCE: 14 21 deg 51 min 8 sec W 118.04 feet to a railroad spike found for coiner; THENCE: F-I 42 deg 37 min 15 sec W 181.00 feet to a 1/2" iron rod set for corner; THENCE: N 05 deg 52 min 0 sec W 369.45 feet (, a 5/8" iron rod found for corner ; THENCE: N 30 deg 43 min 0 sec E 99.05 feet to a 1/2" iron rod found for corner; THENCE: S 80 deg 18 min 55 sec E 299.57 feet and S 68 deg 39 mm 37 sec E 321.05 feet along a fence, 5/8" iron rods found for corners; THENCE: S 31 deg 57 min 50 sec W 219.12 feet to the point of beginning, containing 1.356 acres of land.
EXHIBIT B SCHEDULE OF EQUIPMENT AND RENTAL PAYMENTS Description of Equipment The following Equipment is the subject of the Lease Agreement dated as of July 1, 2001 among GE Capital Public Finance, Inc. ("Lessor"), Hillsboro Industrial Development Corporation("Issuer") and L. B. Foster Company ("Sublessee"): Description of Equipment Manufacturer or Vendor JH35-TMI Horizontal design natural gas made up system Bessam-Air Inc. Spray system model TMS 0201 8-SP Finishing Consutlants Crane running rail Konecrances, Inc. Crane footings CSTC Batch System Standley Batch Systems, Inc. Mi-Jack Travelift Model 650C Mi-Jack Products Wagner S-6 Series/33-70 (6) Finishing Consultants Concrete Buckets (3.5 yd) M&B Mag Ltd. Stud welding system-4800-model 101 Nelson Stud Welding rebar cutter ender electric Rod Chomper Direct contact water heater Ludell Manufacturing Batch controller Command Alkron Sales Vault, forms and tables Hamilton Forms Trunnion Spreader bar Hamilton Forms 1 Mud cart and 2 "A" frames Gary Fjell snf P.B. Quality Control Equipment Hart/Latimer Associates, Inc. The Equipment is located at the following address. Prior to the relocation of the Equipment or any portion thereof. Sublessee will provide 30 days prior written to Lessor: 901 N. Highway 77, Hillsboro, Texas
April 10, 2002
L. B. FOSTER COMPANY 2002
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 2002 Management Incentive Compensation Plan. The definitions
shall be subject to such adjustments as, from time to time, may be, by the
Corporation's Chief Executive Officer.
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 2002, 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
2002 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 prior to adjustments pursuant to Article IV, 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.
2.5 "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 Fexco, Ltd.
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 and subject to Article IV.
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 the lower of: (a) twice the
amount of a Participant's Target Award; or (b) the Participant's Target Award
allocable 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 and Foster Technologies), Piling, Fabricated Products, Foster Technologies
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)
and/or with respect to a Rail Business Unit under Section 3.5(B)(b)(iii) and
(iv).
2.11 "Participant" shall mean a salaried employee of the Corporation who
satisfies all of the eligibility requirements set forth in Article V hereof.
2.12 "Performance Percentage" shall be each of the Percentages earned by an
Operating Unit and/or Rail Business Unit under Section 3(B)(b) and which
together equal the Operating Unit Performance Percentage.
2.13 "Plan" shall mean the L. B. Foster Company 2002 Management Incentive
Compensation Plan, which Plan shall be in effect only with respect to the fiscal
year ending December 31, 2002.
2.14 "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.
2.15 "Pre-Incentive Income" shall mean the audited pre-tax income, after,
inter alia, deductions for benefits payable under the 2002 Sales Incentive Plan,
of the Corporation for the fiscal year ending December 31, 2002 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.
2.16 "Pre-Tax Income" shall mean an Operating Unit's and/or a Rail Business
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 2002 Sales
Incentive Plan.
2.17 "Target Award" shall mean the product of a Participant's Base
Compensation multiplied by said Participant's Target Percentage.
2.18 "Target Percentage" shall mean those percentages assigned to
Participants pursuant to Section 3.2 hereof.
III. PLAN DESCRIPTION
3.1 Base Fund. Subject to Article IV, the amount of the Base Fund shall be
calculated by adding the flat rate contribution determined in 3.1A to the
marginal rate contributions determined in 3.1B.
3.1A Flat Rate Contribution. The flat rate contribution shall be determined
by multiplying the Corporation's Pre-Incentive Income by the following
percentages:
Pre-Incentive Income Percentage Flat Rate Contribution
$0 - $5,999,999 0 0
$6,000,000 and Over 13 $780,000 and Over
3.1B Marginal Rate Contribution. If the Corporation achieves any of the
following levels of Pre-Incentive Income, the marginal rate contribution shall
be determined by adding together the marginal rate contributions through the
level of Pre-Incentive Income actually achieved.
Marginal Maximum Marginal Rate
Pre-Incentive Income Percentage Rate Contribution
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
$0 - $6,999,999 0 0
- --------------------------------------------------------------------------------
$7,000,000 - $7,999,999 2 $20,000
- --------------------------------------------------------------------------------
$8,000,000 - $8,999,999 4 $40,000
- --------------------------------------------------------------------------------
$9,000,000 - $9,999,999 6 $60,000
- --------------------------------------------------------------------------------
$10,000,000 and over 8 $80,000 and over
- --------------------------------------------------------------------------------
Example: If the Corporation earned $11,500,000 in Pre-Incentive Income the Base
Fund would be $1,735,000, calculated as follows:
a. Calculate Flat Rate Contribution
$11,500,000 X 13% = $1,495,000
b. Calculate Marginal Rate Contribution
$20,000 + $40,000 + $60,000 + ($1,500,000 X 8%) = $240,000
c. Calculate Base Fund
$1,495,000+ $240,000 = $1,735,000
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, 2002, as follows:
% Of Base
Grade Levels Compensation
Grade 6 I Sales 15.0
Grade 7 I, Sales 15.0
Grade 8 I, Sales 20.0
Grade 10 I, Sales/Management 22.0
Grade 10 P, Professional/ Management 12.5
Grade 11 I, Sales/ Management 23.0
Grade 11 P, Professional/ Management 15.0
Grade 12, Management Positions 25.0
Grade 13, Management Positions 27.0
Grade 14, Management Positions 30.0
Grade 15, Management Positions 32.0
Grade 16, Management Positions 36.0
Grade 17, Management Positions 38.0
Grade 18, Management Positions 39.0
Grade 19, Management Positions 40.0
Grade 20, Management Positions 50.0
Grade 21, Management Positions 52.0
Grade 22, Management Positions 54.0
Grade 23 and Above 60.0
Other Employees selected, in writing, by L. B. Foster Company's Chairman of the
Board or Chief Executive Officer may also be made Participants in the Plan on
such terms as may be approved by the Chairman of the Board or 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, 2002 shall
have a Target Percentage based upon their grade level at death or retirement.
3.3 Discretionary Payments. Ten percent (10%) of the Base Fund, plus
amounts reallocated pursuant to Section 6, 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 at least 25% of each Participant's Target Award
being allocated 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 1:
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 Base Fund
($7,100,000) x 13%) + ($100,000 x 2%) = $925,000
(b) Calculate Fund By Deducting 10% For "Discretionary Awards"
$ 925,000 x 90% = $832,500
(c) Determine Amount of Each Pool
1. General Pool
$1,000,000
--------------- x $832,500 = $396,429
$2,100,000
2. Product Pool
$1,100,000
--------------- x $832,500 = $436,071
$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 2:
THE GENERAL POOL IS $396,429. 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 $396,429 = $7,611
$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.
(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 2002 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 2002
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 2002 Operating Pre-Tax Income Plan is $200,000 and
in 2002 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 2002 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 2002 Operating Plan Pre-Tax
Income.
(ii) 25% if the Operating Unit met or exceeded its Return on
Investment set forth in such Operating Unit's 2002 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
such Operating Units. Amounts not payable because of this limitation shall
be used for discretionary payments under Section 3.3.
EXAMPLE 1:
THE PRODUCT POOL IS $436,071. 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 $436,071 = $ 24,529
--------
$800,000 (sum of all Adjusted
Operating Target Awards)
EXAMPLE 2:
The Product Pool is $436,071. Manager Jones' Target Award allocated to the
Product Pool is $50,000, with 50% being allocated to Geotech and 50% allocated
to CXT Buildings. Geotech's Operating Unit Income is 88% of its 2002 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 2002 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 30% 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 $436,071 = $17,034
-------
$800,000 (Product Pool)
For Geotech:
$11,250 X $436,071 = $6,132
-------
$800,000
Total Individual Incentive Award $23,166 (excluding General Pool)
Award
EXAMPLE 3:
Same facts as Example 2, 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
30% X $300,000 = $90,000
(b) Determine Manager Jones' Share
Jones' Adjusted Operating Unit Target Award X Maximum Aggregate
- -------------------------------------------
Sum of All CXT Building Adjusted Operating CXT Building Incentive Awards
Unit Target Awards
$31,250 X $90,000 = $14,062
-------
$200,000
(c) Determine Amount Available for Discretionary Payments
($100,646 - $90,000) = $10,646
(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 for each Performance Percentage earned by the
Participant's applicable Operating Unit under each of 3(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. STOCK IN LIEU OF CASH FOR EXECUTIVE OFFICERS
Notwithstanding any other provision of this Plan, the Corporation's
executive officers, as determined by the Committee, shall receive shares of the
Corporation's Common Stock ("Stock"), subject to such restrictions on
transferability as the Corporation's legal counsel may deem necessary or
appropriate (such restrictions shall provide for no less than a two-year
restriction on the voluntary transfer of such stock), in lieu of cash equal to
25% of the Individual Incentive Awards (without taking into account any
discretionary payments under Section 3.3) that would otherwise be payable to
such officers under the Plan. In the event such restriction on transferability
should be violated, all proceeds derived from such transaction shall be
forfeited to the Company. Such stock shall be forfeited and revert to the
Company in the event the Participant's employment with the Company should cease
within two (2) years after the date of grant, unless such forfeiture is waived
by the Committee or said termination is attributable to the Participant's death,
permanent disability, retirement with the consent of the Company's Chief
Executive Officer or in the event of a "Change of Control". The amount of stock
to be granted to an executive officer shall be calculated by: (a) dividing the
average closing price of the stock for the ten business days preceding the date
cash distributions are made under the Plan into a sum equal to 25% of the
Individual Incentive Award that, but for this Article IV, would have been
payable to such executive officer; and (b) multiplying the resulting quotient by
115% with fractional share interest being rounded to the nearest number of whole
shares. Stock shall be deemed distributed to the executive officers on the first
day of the calendar month following the date cash distributions are made or as
soon thereafter as is practicable but the corporation shall retain custody of
such shares until the Participant's risk of forfeiture has ended. Cash which
would have been payable to executive officers, but for this Article IV, shall
not be distributed and shall remain the property of the Corporation.
"Change of Control" shall mean: (i) any person or group of persons (as used
in Sections 13 and 14 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and the rules and regulations thereunder) shall have become the
beneficial owner (as defined in Rules 13d-3 and 13d-5 promulgated by the
Securities and Exchange Commission (the "SEC") under the Exchange Act) of 20% or
more of the combined voting power of all the outstanding voting securities of
the Corporation or, (ii) at any time following any merger, consolidation,
acquisition, sale of assets or other corporate restructuring of Corporation,
during any period of six consecutive calendar months, individuals who were
directors of the Corporation on the first day of such period, together with
individuals elected as directors by not less than two-thirds of the individuals
who were directors of the Corporation on the first day of such period, shall
cease to constitute a majority of the members of the board of directors of the
Corporation.
V. 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:
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 Fexco, Ltd. 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.
Notwithstanding the foregoing, Brian N. Southon, George H. Nelson
and Franklin B. Davis shall not be Participants in the Plan.
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).
VI. REALLOCATIONS
Any portion of the Fund not otherwise distributed shall be
available for discretionary payments under Section 3.3.
VII. PAYMENT OF AWARDS
Payment of Individual Incentive Awards will be made on or before
March 15, 2003, except that the timing of the distribution of stock
pursuant to Article IV shall be governed by Article IV.
VIII. 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.
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 independent public accountants will review and
verify the Corporation's determination of Pre-Incentive Income. The
Corporation's Internal Audit Department will review and verify the
calculation of Individual Incentive Awards.
Employees are expected to act in the best interests of the
Company and in accordance with Company policies. Any actions that
conflict with these expectations may result in disciplinary action, up
to and including termination.