L.B. Foster Company
Notes to Financial Statements
December 31, 2016 and 2015
1.
Description of Plan
The following brief description of the L.B. Foster Company Savings Plan for Bargaining Unit Employees (the “Plan”) is
provided for general information purposes only. Participants should refer to the summary plan description for more complete information.
General
The Plan is a defined contribution plan extended to union hourly employees of L.B. Foster Company (the “Company”) who have attained age 18
and are employed at locations specified by the Plan. Eligible employees are automatically enrolled in the Plan. The L.B. Foster Company Investment Committee, appointed by the Board of Directors of the Company, serves as the plan administrator. The
Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974 (“ERISA”) as amended.
Contributions and Forfeitures
Contributions under the Plan are made by both the participants and the Company. A participant may elect to make deferred savings contributions on a
pretax basis ranging up to 75% of annual compensation subject to Internal Revenue Code (the “Code”) limitations. A participant who elects to make deferred savings contributions of at least 5% can also elect to make additional voluntary
contributions on an after-tax basis provided, however, that the sum of the deferred savings and voluntary employee contributions does not exceed 100% of the participant’s annual compensation. Participant and Company contributions are invested
in accordance with participant elections. The Plan contains an auto-enrollment provision of 3%. In the event that a participant does not make an investment election, contributions are invested in the Fidelity Freedom Fund (target date retirement
fund) that coincides with the participant’s date of normal retirement age, until such time as an election is made by the participant. The participant may transfer contributions defaulted to these funds into other investment options at the
participant’s discretion.
Company contributions are made pursuant to the terms of the collective bargaining agreements applicable to the
Company’s specific locations. Effective January 1, 2015, the Spokane, Washington and Bedford, Pennsylvania Union Agreements were amended to provide a Company match of 100% of the first 1% of their eligible compensation and 50% of the next
6% of their eligible compensation for a maximum Company match of 4%. The Company’s contributions may
4
1. Description of Plan (continued)
be reduced by accumulated forfeitures. At December 31, 2016 and 2015, forfeitures of $8,045 and $5,808, respectively, were available to reduce future Company contributions. During 2016 and
2015, forfeitures of $9,524 and $0 were utilized to reduce plan expenses.
Participant Accounts
Each participant account is credited with the participant’s contributions, the participant’s allocable share of Company contributions, and related
earnings (losses) of the funds. Participant accounts may be invested in 10% increments into Company stock or any of the mutual funds available under the Plan at the direction of the participant.
Vesting
A participant’s vested interest in the Plan
on any date is equal to the sum of the values of (a) that portion of the participant’s account attributable to the participant’s contributions and (b) that portion of the participant’s account attributable to the
Company’s contributions multiplied by the applicable vesting percentage, (c) plus related earnings (losses). Participants are 100% vested in the Company’s contributions after three years of eligible service or attaining age 65.
Notwithstanding the above, a participant who terminates from the Plan by reason of retirement, disability, or death is fully vested in their participant
account.
Benefit Payments
Normal retirement age is
65. Early retirement age is 55 provided that the participant has at least five years of service. In addition, a participant may obtain an early retirement distribution prior to reaching age 55, provided that the participant will turn 55 in the year
distribution occurs and that the participant has completed at least five years of service. The Plan also allows for age 59
1
⁄
2
in-service withdrawals of any
portion or all of the participant’s vested account balance.
As provided by the Plan, the distribution to which a participant is entitled by reason
of normal, early, or disability retirement, death, or termination of employment may be made in the form of a direct rollover, annuity, cash, or partly in cash and partly as an annuity. The amount of such distribution is equal to the
participant’s vested account balance on the valuation date.
In the event of hardship and subject to certain restrictions and limitations, as defined
by the plan document, a participant may withdraw their vested interest in the portion of their account attributable to deferred savings contributions and related earnings.
5
1. Description of Plan (continued)
Notes Receivable from Participants
A participant may borrow from the vested portion of his or her account, subject to a minimum of $1,000 and a maximum of $50,000. The loan proceeds are deducted
from the participant’s account and are repaid by means of payroll deductions. Loans are required to be repaid within 60 months from the date on which the loan is originally granted and may be prepaid early without penalty at any time. The
repayment period for a loan that is obtained for purchasing a primary residence may be as long as 120 months. The loan carries a reasonable interest rate as determined by the plan sponsor. The interest rate is computed on the date the loan is
requested and remains fixed for the full term of the loan.
Plan Termination
Although it has not expressed any intention to do so, the Company has the right under the Plan to discontinue its contributions at any time and to terminate
the Plan subject to the provisions of ERISA. Should the Plan be terminated, participants will become fully vested in their accounts, and the assets of the Plan would be distributed to the participants based on their individual account balances as
determined under the plan provisions.
2. Summary of Significant Accounting Policies
Basis of Accounting
The financial statements of the Plan
are maintained under the accrual method of accounting in conformity with the accounting principles generally accepted in the United States (“GAAP”).
Use of Estimates
The preparation of financial statements
in accordance with GAAP requires management to make estimates that affect the amounts reported in the financial statements, accompanying notes, and supplemental schedule. Actual results could differ from those estimates.
Risks and Uncertainties
The Plan invests in various
investment securities. Investment securities are exposed to various risks such as interest rate, market, and credit risks. Due to the level of risk associated with certain investment securities, it is at least reasonably possible that changes in the
values of investment securities will occur in the near term and that such changes could materially affect participants’ account balances and the amounts reported in the statements of net assets available for benefits.
6
2. Summary of Significant Accounting Policies (continued)
Market values for investments may decline for a number of reasons, including changes in prevailing market and
interest rates, increases in defaults, and credit rating downgrades. The fair values assigned to the investments by the Plan are based upon available information believed to be reliable, which may be affected by conditions in the financial markets.
The Plan may not be able to sell its investments when it desires to do so or to realize what it perceives to be its fair value in the event of a sale.
Valuation of Investments and Income Recognition
Investments are reported at fair value Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. See Note 4 for discussion of fair value measurements.
Net appreciation includes the
Plan’s gains and losses on investments bought and sold as well as held during the year. Dividend income is recorded on the ex-dividend date and interest income is accrued as earned. Plan assets are concentrated in mutual funds consisting
primarily of stocks, bonds, and Company stock. Realization of the Plan’s net assets available for benefits is dependent on the results of these markets.
Notes Receivable from Participants
Notes receivable from
participants represent participant loans that are recorded at their unpaid principal balance, plus any accrued but unpaid interest. Interest income on notes receivable from participants is recorded when it is earned and is reported within interest
and dividends on the statement of changes in net assets available for benefits. No allowance for credit losses has been recorded as of December 31, 2016 or 2015. If a participant ceases to make loan repayments and the plan administrator deems
the participant loan to be a distribution, the participant loan balance is reduced and a benefit payment is recorded.
Benefit Payments
Benefits are recorded upon distribution.
7
2. Summary of Significant Accounting Policies (continued)
Administrative Expenses
The Company, as provided by the Plan, pays expenses of the Plan. Certain administrative functions are performed by employees of the Company. No such employee
receives compensation from the Plan. Expenses incurred to establish and maintain a loan are charged to the applicable participant.
Subsequent Events
The Plan’s management concluded that there were no subsequent events requiring adjustments to the financial statements or additional disclosures
as stated herein.
3. Income Tax Status
The
underlying volume submitter plan has received an advisory letter from the Internal Revenue Service (“IRS”) dated March 31, 2014 stating that the form of the plan is qualified under Section 401 of the Code and therefore, the
related trust is tax-exempt. In accordance with Revenue Procedures 2013-6 and 2011-49, the plan administrator has determined that it is eligible to and has chosen to rely on the current IRS volume submitter advisory letter. Once qualified, the Plan
is required to operate in conformity with the Code to maintain its qualified status. The plan administrator believes the Plan is being operated in compliance with the applicable requirements of the Code and therefore believes the Plan is qualified
and the related trust is tax-exempt.
GAAP requires plan management to evaluate uncertain tax positions taken by the Plan. The financial statement effects
of a tax position are recognized when the position is more likely than not, based on the technical merits, to be sustained upon examination by the IRS. The plan administrator has analyzed the tax positions taken by the Plan, and has concluded that
as of December 31, 2016, there are no uncertain positions taken or expected to be taken. The Plan has recognized no interest or penalties related to uncertain tax positions. The Plan is subject to routine audits by taxing jurisdictions;
however, there are currently no audits for any tax periods in progress.
8
4. Fair Value Measurements
The Plan applies the provisions of Accounting Standards Codification Topic 820,
Fair Value Measurements and Disclosures
(ASC 820), to its
financial assets carried in the financial statements at fair value on a recurring basis. ASC 820 defines fair value as the exchange price that would be received to sell an asset in an orderly transaction between market participants at the
measurement date. ASC 820 also establishes a fair value hierarchy and requires categorization of assets measured at fair value into one of three levels based on the inputs used in the valuation. Assets are classified in their entirety based on the
lowest level of input significant to the fair value measurement. The three levels are defined as:
|
|
•
|
|
Level 1 – Observable inputs based on quoted prices (unadjusted) in active markets for identical assets.
|
|
|
•
|
|
Level 2 – Observable inputs, other than those included in Level 1, based on quoted prices for similar assets in active markets or quoted prices for identical assets in inactive markets.
|
|
|
•
|
|
Level 3 – Unobservable inputs that reflect an entity’s own assumptions about the inputs a market participant would use in pricing the asset based on the best information available in the
circumstances.
|
There have been no changes in the methodologies used at December 31, 2016 and 2015, nor have there been any transfers
between levels during the years presented. The following is a description of the investments and valuation methodologies used for assets measured at fair value:
Common stock
L.B. Foster common stock is the only common
stock investment available to the Plan and is valued daily at the closing price reported on the active market.
Mutual funds
Various mutual funds are offered to the Plan participants. Mutual funds are publicly traded investments and are valued daily at the closing price reported on
the active market on which the funds are traded.
9
4. Fair Value Measurements (Continued)
Stable value collective trust fund
Fidelity Managed Income Portfolio Class 1 (“MIP CL 1 Fund”) is the only stable value collective trust fund available to the Plan. The Plan uses the
Net Asset Value (“NAV”) per share of the MIP CL 1 Fund provided by the trustee as a practical expedient to estimate fair value. The practical expedient would not be used if it is determined to be probable that the fund will sell the
investment for an amount different from the reported NAV. Participant transactions (purchases and sales) may occur daily. If the Plan initiates a full redemption of the MIP CL 1 Fund, the trustee reserves the right to require 12 months’
notification in order to ensure that securities liquidations will be carried out in an orderly business manner. The MIP CL 1 Fund’s units are issued and redeemed daily at the constant NAV of $1 per unit. The Fund’s investment objective is
stability of principal and high current income.
Investments included in the statements of net assets available for benefits include mutual funds totaling
$2,083,800 and $1,920,722, the Company’s common stock fund of $5,292 and $4,730, and the Company’s Stock Purchase Account of $881 and $856, which are stated at fair value as of December 31, 2016 and 2015, respectively. These
investments are valued using daily unadjusted quoted prices and are Level 1 fair value measurements.
Excluded from the fair value disclosure above,
the investment in the stable value collective trust fund is measured at net asset value per share. The net asset value as of December 31, 2016 and 2015 for the investment in the MIP CL 1 Fund is $5,398 and $3,040, respectively. There are no
unfunded commitments in regards to the MIP CL I Fund at December 31, 2016.
10
5. Transactions with Parties-in-Interest
Certain trustee, accounting, and administrative expenses relating to the maintenance of participant records and the Plan’s administration are absorbed by
the Company and may qualify as party-in-interest transactions under ERISA. The Plan also invests in Company stock. The Company is the plan sponsor, and therefore, transactions with the Company may qualify as exempt party-in-interest. Notes
receivable from participants also qualify as exempt party-in-interest transactions.
6. Reconciliation of Financial Statements to Form 5500
The Form 5500 has been prepared using the fair value of the underlying investments held by the stable value investment fund, instead of using NAV as the
practical expedient to estimate fair value (see Note 4). The following is a reconciliation of the net assets available for benefits per the financial statements to Schedule H of Form 5500 as of December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
Net assets available for benefits per financial statements
|
|
$
|
2,309,927
|
|
|
$
|
2,135,408
|
|
|
Adjustment from NAV to fair value for stable value collective trust fund investment
|
|
|
12
|
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets available for benefits per Form 5500
|
|
$
|
2,309,939
|
|
|
$
|
2,135,428
|
|
|
|
|
|
|
|
|
|
|
|
The following is a reconciliation of the net increase before transfers in the Statement of Changes in Net Assets Available for
Benefits per the financial statements for the year ended December 31, 2016, to net per Form 5500:
|
|
|
|
|
|
|
Net increase per the financial statements
|
|
$
|
181,222
|
|
|
Net change in adjustment from NAV to fair value for stable value collective trust fund
investment
|
|
|
(8
|
)
|
|
|
|
|
|
|
|
Net income per Form 5500
|
|
$
|
181,214
|
|
|
|
|
|
|
|
11
Supplemental Schedule
12