|
|
|
|
|
|
|
|
|
|
|
2012
|
|
|
|
Cost
|
|
|
Fair Value
|
|
|
|
In thousands
|
|
BlackRock Liquidity Temporary Fund Institutional
|
|
$
|
58,620
|
|
|
$
|
58,620
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
|
Cost
|
|
|
Fair Value
|
|
|
|
In thousands
|
|
BlackRock Liquidity Temporary Fund Institutional
|
|
$
|
42,273
|
|
|
$
|
42,273
|
|
|
|
|
|
|
|
|
|
|
The above investment is a money market fund with various underlying securities all of which maintained AAA
credit agency ratings. The carrying amounts approximate fair value because of the short maturity of the instruments.
Cash
equivalents also consisted of investments in bank certificates of deposit of approximately $26,045,000 and $22,520,000 at December 31, 2012 and 2011, respectively. The carrying amounts approximated fair value because of the short maturity of
the instruments.
Cash and cash equivalents held in non-domestic accounts was approximately $38,731,000 and $28,639,000 at
December 31, 2012 and 2011, respectively.
Inventories
Certain inventories are valued at the lower of the last-in, first-out (LIFO) cost or market. Approximately 37% in 2012 and 43% in 2011, of the Companys inventory is valued at average cost or market,
whichever is lower. Slow-moving inventory is reviewed and adjusted regularly, based upon product knowledge, physical inventory observation, and the age of the inventory.
Property, plant and equipment
Maintenance, repairs and minor renewals are
charged to operations as incurred. Major renewals and betterments which substantially extend the useful life of the property are capitalized at cost. Upon sale or other disposition of assets, the costs and related accumulated depreciation and
amortization are removed from the accounts and the resulting gain or loss, if any, is reflected in income.
42
Depreciation and amortization are provided on a straight-line basis over the estimated
useful lives of 25 to 40 years for buildings and 3 to 10 years for machinery and equipment. Leasehold improvements are amortized over 2 to 7 years which represent the lives of the respective leases or the lives of the improvements, whichever is
shorter. The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company did not record any asset impairment charges during 2012, 2011
or 2010.
Allowance for doubtful accounts
The allowance for doubtful accounts is recorded to reflect the ultimate realization of the Companys accounts receivable and includes assessment of the probability of collection and the
credit-worthiness of certain customers. Reserves for uncollectible accounts are recorded as part of selling and administrative expenses on the Consolidated Statements of Operations. The Company records a monthly provision for accounts receivable
that are considered to be uncollectible. In order to calculate the appropriate monthly provision, the Company reviews its accounts receivable aging and calculates an allowance through application of historic reserve factors to overdue receivables.
This calculation is supplemented by specific account reviews performed by the Companys credit department. As necessary, the application of the Companys allowance rates to specific customers are reviewed and adjusted to more accurately
reflect the credit risk inherent within that customer relationship.
Investments
Investments in companies in which the Company has the ability to exert significant influence, but not control, over operating and
financial policies (generally 20% to 50% ownership) are accounted for using the equity method. Under the equity method, investments are initially recorded at cost and adjusted for dividends and undistributed earnings and losses. The equity method of
accounting requires a company to recognize a loss in the value of an equity method investment that is other than a temporary decline.
Goodwill and other intangible assets
Goodwill is tested annually for impairment or more often if there are indicators of impairment. The goodwill impairment test involves comparing the fair value of a reporting unit to its carrying value,
including goodwill. If the carrying amount of the reporting unit exceeds its fair value, a second step is required to measure the goodwill impairment loss. This step compares the implied fair value of the reporting units goodwill to the
carrying amount of that goodwill. If the carrying amount of the goodwill exceeds the implied fair value of the goodwill, an impairment loss equal to the excess is recorded as a component of continuing operating activities. The Company performs its
annual impairment tests as of October 1
st
. No
goodwill impairment was recognized during 2012, 2011 or 2010.
The Company has no significant indefinite-lived intangible
assets. All intangible assets are amortized over their useful lives ranging from 5 to 25 years, with a total weighted average amortization period of approximately 20 years, as of December 31, 2012.
See Note 5, Goodwill and Other Intangible Assets, for additional information including regarding the Companys goodwill
and other intangible assets.
Environmental remediation and compliance
Environmental remediation costs are accrued when the liability is probable and costs are estimable. Environmental compliance costs, which
principally include the disposal of waste generated by routine operations, are expensed as incurred. Capitalized environmental costs, when appropriate, are depreciated over their useful life. Reserves are not reduced by potential claims for
recovery. Claims for recovery are recognized as agreements are reached with third parties or as amounts are received. Reserves are periodically reviewed and adjusted to reflect current remediation progress, prospective estimates of required
activity, and other factors that may be relevant, including changes in technology or regulations. As of December 31, 2012 and 2011, the Company maintained environmental and litigation reserves approximating $2,141,000 and $2,184,000,
respectively.
43
Earnings per share
Basic earnings per share is calculated by dividing net income by the weighted average of common shares outstanding during the year. Diluted earnings per share is calculated by using the weighted average
of common shares outstanding adjusted to include the potentially dilutive effect of outstanding stock options and restricted stock utilizing the treasury stock method.
Revenue recognition
The Companys revenues are composed of product
sales and products and services provided under long-term contracts. For product sales, the Company recognizes revenue upon transfer of title to the customer. Title generally passes to the customer upon shipment. In limited cases, title does not
transfer and revenue is not recognized until the customer has received the products at its physical location. Revenue is recorded net of returns, allowances, customer discounts and incentives. Sales taxes collected from customers and remitted to
governmental authorities are accounted for on a net (excluded from revenues) basis. Shipping and handling costs are included in cost of goods sold. Revenues for products under long-term contracts are generally recognized using the
percentage-of-completion method based upon the proportion of actual costs incurred to estimated total costs. For certain products, the percentage of completion is based upon actual labor costs to estimated total labor costs. At the time a loss
contract becomes known, the entire amount of the estimated loss is recognized in the Consolidated Statement of Operations. Revenues recognized using percentage of completion were less than 10% of the Companys consolidated revenues for the
years ended December 31, 2012, 2011 and 2010.
Revenues from contract change orders and claims are recognized when the
settlement is probable and the amount can be reasonably estimated. Contract costs include all direct material, labor, subcontract costs and those indirect costs related to contract performance. Costs in excess of billings are classified as
work-in-process inventory and generally comprise less than 5% of the Companys inventory at cost.
Fair value of financial instruments
The Companys financial instruments consist of cash equivalents, accounts receivable, investments, accounts payable
and short-term and long-term debt.
The carrying amounts of the Companys financial instruments at December 31, 2012
and 2011 approximate fair value. See Note 20, Fair Value Measurements, for additional information.
Use of estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires
management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
Stock-based compensation
The Company applies the provisions of FASB ASC
718, Compensation Stock Compensation, to account for the Companys share-based compensation. Under the guidance, share-based compensation cost is measured at the grant date based on the calculated fair value of the
award. The expense is recognized over the employees requisite service period, generally the vesting period of the award.
Derivative
financial instruments and hedging activities
The Company does not purchase or hold any derivative financial instruments
for trading purposes.
At contract inception, the Company designates its derivative instruments as hedges. The Company
recognizes all derivative instruments on the balance sheet at fair value. Fluctuations in the fair values of derivative instruments designated as cash flow hedges are recorded in accumulated other comprehensive income and reclassified into
earnings within other income as the underlying hedged items affect earnings. To the extent that a change in the derivative does not perfectly offset the change in value of the risk being hedged, the ineffective portion is recognized in earnings
immediately.
44
The Company is subject to exposures to changes in foreign currency exchange rates. The
Company manages its exposure to changes in foreign currency exchange rates on firm sale and purchase commitments by entering into foreign currency forward contracts. The Companys risk management objective is to reduce its exposure to the
effects of changes in exchange rates on these transactions over the duration of the transactions. No foreign currency hedges remained outstanding as of December 31, 2012 or 2011. Realized gains or losses from foreign currency hedges did not
exceed $100,000 during the twelve month periods ended December 31, 2012, 2011 or 2010.
Product warranty
The Company maintains a current warranty liability for the repair or replacement of defective products. For certain manufactured products,
an accrual is made on a monthly basis as a percentage of cost of sales. For long-term construction products, a warranty is established when the claim is known and quantifiable. The product warranty accrual is periodically adjusted based on the
identification or resolution of known individual product warranty claims or due to changes in the Companys historical warranty experience. At December 31, 2012 and 2011, the product warranty was $15,727,000 and $6,632,000, respectively.
See Note 21, Commitments and Contingencies for additional information regarding the product warranty.
Asset retirement
obligations
The Company maintains liabilities for asset retirement obligations (ARO) in conjunction with the leases of the
Tucson, AZ concrete railroad tie facility and a Pittsburgh, PA Rail Technologies facility.
A reconciliation of our liability
for AROs at December 31, 2012 and 2011:
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
|
2011
|
|
|
|
In thousands
|
|
Asset retirement obligation at beginning of year
|
|
$
|
931
|
|
|
$
|
1,407
|
|
Liabilities settled
|
|
|
(336
|
)
|
|
|
(510
|
)
|
Revisions in estimated cash flows
|
|
|
35
|
|
|
|
|
|
Accretion expense
|
|
|
33
|
|
|
|
34
|
|
|
|
|
|
|
|
|
|
|
Asset retirement obligation at end of year
|
|
$
|
663
|
|
|
$
|
931
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2012, the balance of the ARO was recorded in Other Long-Term Liabilities.
At December 31, 2011, approximately $906,000 was recorded in Other Current Liabilities with the remainder recorded in Other Long-Term Liabilities. The ARO associated with our Tucson, AZ concrete railroad tie facility was
included in Other Current Liabilities at December 31, 2011. At December 31, 2012, this ARO was reclassified to Other Long-Term Liabilities due to the multi-year extension of the lease.
Income taxes
Income
taxes are accounted for under the asset and liability method. The provision for income taxes includes federal, state and foreign income taxes and reflects the taxes to be paid for the period and the change during the period in the deferred tax
assets and liabilities.
The Company files a consolidated U.S. federal income tax return with certain wholly-owned
subsidiaries. The deferred tax assets and/or liabilities are determined by multiplying the differences between the financial reporting and tax reporting bases for assets and liabilities by the enacted tax rates expected to be in effect when such
differences are recovered or settled. The effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date of the change.
The Company makes judgments regarding the recognition of deferred tax assets and the future realization of these assets. As prescribed by
FASB ASC 740 Income Taxes and applicable guidance, valuation allowances must be provided for those deferred tax assets for which it is more likely than not (a likelihood more than 50%) that some portion or all of the deferred tax assets
will not be realized. The guidance requires the Company to evaluate positive and negative evidence regarding the recoverability of deferred tax assets. Determination of
45
whether the positive evidence outweighs the negative and quantification of the valuation allowance requires the Company to make estimates and judgments of future financial results.
The Company evaluates all tax positions taken on federal, state and foreign tax filings to determine if the position is more likely than
not to be sustained upon examination. For positions that meet the more likely than not to be sustained criteria, an evaluation to determine the largest amount of benefit, determined on a cumulative probability basis that is more likely than not to
be realized upon ultimate settlement, is determined.
A previously recognized tax position is derecognized when it is
subsequently determined that a tax position no longer meets the more likely than not threshold to be sustained. The evaluation of the sustainability of a tax position and the probable amount that is more likely than not is based on judgment,
historical experience and on various other assumptions. The results of these estimates, that are not readily apparent from other sources, form the basis for recognizing an uncertain tax position liability. Actual results could differ from those
estimates upon subsequent resolution of identified matters. The Company accrues interest and penalties related to unrecognized tax benefits in its provision for income taxes.
Foreign currency translation
The assets and liabilities of our foreign
subsidiaries are measured using the local currency as the functional currency and are translated into U.S. dollars at exchange rates as of the balance sheet date. Income statement amounts are translated at the weighted-average rates of exchange
during the year. The translation adjustment is accumulated as a separate component of accumulated other comprehensive income (loss). Foreign currency transaction gains and losses are included in determining net income. Included in net income for the
years ended December 31, 2012 and 2010 were foreign currency transaction losses of approximately $238,000 and $83,000, respectively. Included in net income for the year ended December 31, 2011 was a foreign currency transaction gain of
approximately $237,000.
Research and development
The Company expenses research and development costs as costs are incurred. For the years ended December 31, 2012, 2011 and 2010, research and development expenses were $2,926,000, $1,899,000 and
$273,000, respectively, and were principally related to the Companys friction management and railroad monitoring system products.
Reclassifications
Certain accounts in the prior year consolidated financial statements have been reclassified for comparative purposes principally to
conform to the presentation of discontinued operations in the current year period.
Note 2.
Business Segments
L.B. Foster 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 Companys Rail segment provides a full line of new and used rail, trackwork and accessories to railroads, mines and industry. The Rail segment also designs and produces concrete railroad ties,
insulated rail joints, power rail, track fasteners, coverboards and special accessories for mass transit and other rail systems. The Company also engineers, manufactures and assembles friction management products and railway wayside data collection
and management systems.
The Companys Construction segment sells and rents steel sheet piling, H-bearing pile, and other
piling products for foundation and earth retention requirements. In addition, the Companys Fabricated Products division sells bridge decking, bridge railing, structural steel fabrications, expansion joints and other products for highway
construction and repair. The Buildings division produces precast concrete buildings.
46
The Companys Tubular segment supplies pipe coatings for natural gas pipelines and
utilities. Additionally, this segment produces threaded pipe products for industrial water well and irrigation markets.
The
Company markets its products directly in all major industrial areas of the United States, Canada and the United Kingdom, primarily through an internal sales force.
The following table illustrates net sales, profits, assets, depreciation/amortization and expenditures for long-lived assets of the Company by segment from continuing operating activities. Segment profit
is the earnings from continuing operating activities before income taxes and includes internal cost of capital charges for assets used in the segment at a rate of, generally 1% per month. The accounting policies of the reportable segments are
the same as those described in the summary of significant accounting policies except that the Company accounts for inventory on a First-In, First-Out (FIFO) basis at the segment level compared to a Last-In, First-Out (LIFO) basis at the consolidated
level.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenditures
|
|
|
|
Net
|
|
|
Segment
|
|
|
Segment
|
|
|
Depreciation/
|
|
|
for Long-Lived
|
|
|
|
Sales
|
|
|
Profit
|
|
|
Assets
|
|
|
Amortization
|
|
|
Assets
|
|
|
|
In thousands
|
|
Rail Products
|
|
$
|
370,322
|
|
|
$
|
9,074
|
|
|
$
|
204,341
|
|
|
$
|
9,736
|
|
|
$
|
4,180
|
|
Construction Products
|
|
|
169,253
|
|
|
|
7,859
|
|
|
|
73,804
|
|
|
|
2,119
|
|
|
|
474
|
|
Tubular Products
|
|
|
48,966
|
|
|
|
12,854
|
|
|
|
13,573
|
|
|
|
599
|
|
|
|
1,350
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
588,541
|
|
|
$
|
29,787
|
|
|
$
|
291,718
|
|
|
$
|
12,454
|
|
|
$
|
6,004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenditures
|
|
|
|
Net
|
|
|
Segment
|
|
|
Segment
|
|
|
Depreciation/
|
|
|
for Long-Lived
|
|
|
|
Sales
|
|
|
Profit
|
|
|
Assets
|
|
|
Amortization
|
|
|
Assets
|
|
|
|
In thousands
|
|
Rail Products
|
|
$
|
315,133
|
|
|
$
|
18,724
|
|
|
$
|
191,278
|
|
|
$
|
8,908
|
|
|
$
|
5,894
|
|
Construction Products
|
|
|
227,734
|
|
|
|
16,323
|
|
|
|
88,615
|
|
|
|
2,180
|
|
|
|
1,049
|
|
Tubular Products
|
|
|
32,470
|
|
|
|
6,810
|
|
|
|
11,758
|
|
|
|
453
|
|
|
|
3,995
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
575,337
|
|
|
$
|
41,857
|
|
|
$
|
291,651
|
|
|
$
|
11,541
|
|
|
$
|
10,938
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenditures
|
|
|
|
Net
|
|
|
Segment
|
|
|
Segment
|
|
|
Depreciation/
|
|
|
for Long-Lived
|
|
|
|
Sales
|
|
|
Profit
|
|
|
Assets
|
|
|
Amortization
|
|
|
Assets
|
|
|
|
In thousands
|
|
Rail Products
|
|
$
|
211,974
|
|
|
$
|
11,905
|
|
|
$
|
203,263
|
|
|
$
|
6,327
|
|
|
$
|
3,094
|
|
Construction Products
|
|
|
227,865
|
|
|
|
20,356
|
|
|
|
87,121
|
|
|
|
1,761
|
|
|
|
1,398
|
|
Tubular Products
|
|
|
27,219
|
|
|
|
3,949
|
|
|
|
6,207
|
|
|
|
765
|
|
|
|
543
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
467,058
|
|
|
$
|
36,210
|
|
|
$
|
296,591
|
|
|
$
|
8,853
|
|
|
$
|
5,035
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During 2012 and 2010 no single customer accounted for more than 10% of the Companys consolidated net
sales. In 2011, one customer accounted for approximately 10% of consolidated net sales. Sales to this customer were recorded in the Rail Products and Construction Products segments and were approximately $58,715,000 during 2011. Sales between
segments are immaterial.
47
Reconciliations of reportable segment net sales, profits, assets, depreciation/amortization,
and expenditures for long-lived assets from continuing operating activities to the Companys consolidated totals from continuing operating activities are illustrated as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
|
|
In thousands
|
|
Net Sales from Continuing Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Total for reportable segments
|
|
$
|
588,541
|
|
|
$
|
575,337
|
|
|
$
|
467,058
|
|
Other net sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
588,541
|
|
|
$
|
575,337
|
|
|
$
|
467,058
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from Continuing Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Total for reportable segments
|
|
$
|
29,787
|
|
|
$
|
41,857
|
|
|
$
|
36,210
|
|
Adjustment of inventory to LIFO
|
|
|
1,118
|
|
|
|
(2,183
|
)
|
|
|
2,276
|
|
Unallocated interest income
|
|
|
452
|
|
|
|
321
|
|
|
|
403
|
|
Unallocated equity in income/(losses) of nonconsolidated investments
|
|
|
837
|
|
|
|
707
|
|
|
|
(213
|
)
|
Unallocated acquisition costs
|
|
|
|
|
|
|
|
|
|
|
(2,413
|
)
|
Unallocated gain on sale of marketable securities
|
|
|
|
|
|
|
|
|
|
|
1,364
|
|
Unallocated corporate amounts
|
|
|
(8,364
|
)
|
|
|
(8,050
|
)
|
|
|
(5,663
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations, before income taxes
|
|
$
|
23,830
|
|
|
$
|
32,652
|
|
|
$
|
31,964
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Total for reportable segments
|
|
$
|
291,718
|
|
|
$
|
291,651
|
|
|
$
|
296,591
|
|
Unallocated corporate assets
|
|
|
117,639
|
|
|
|
92,888
|
|
|
|
84,294
|
|
LIFO and corporate inventory reserves
|
|
|
(9,235
|
)
|
|
|
(10,443
|
)
|
|
|
(8,226
|
)
|
Unallocated property, plant and equipment
|
|
|
6,000
|
|
|
|
5,798
|
|
|
|
5,743
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
406,122
|
|
|
$
|
379,894
|
|
|
$
|
378,402
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation/Amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
Total for reportable segments
|
|
$
|
12,454
|
|
|
$
|
11,541
|
|
|
$
|
8,853
|
|
Other
|
|
|
519
|
|
|
|
466
|
|
|
|
366
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
12,973
|
|
|
$
|
12,007
|
|
|
$
|
9,219
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenditures for Long-Lived Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Total for reportable segments
|
|
$
|
6,004
|
|
|
$
|
10,938
|
|
|
$
|
5,035
|
|
Expenditures financed under capital leases
|
|
|
|
|
|
|
|
|
|
|
199
|
|
Other expenditures
|
|
|
1,156
|
|
|
|
795
|
|
|
|
687
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
7,160
|
|
|
$
|
11,733
|
|
|
$
|
5,921
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes the Companys sales from continuing operating activities by major
geographic region in which the Company has operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
|
|
In thousands
|
|
United States
|
|
$
|
485,111
|
|
|
$
|
483,889
|
|
|
$
|
443,547
|
|
Canada
|
|
|
40,892
|
|
|
|
41,252
|
|
|
|
9,862
|
|
United Kingdom
|
|
|
18,698
|
|
|
|
14,728
|
|
|
|
627
|
|
Other
|
|
|
43,840
|
|
|
|
35,468
|
|
|
|
13,022
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
588,541
|
|
|
$
|
575,337
|
|
|
$
|
467,058
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
48
The following table summarizes the Companys long-lived assets of continuing operating
activities by geographic region:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
|
|
In thousands
|
|
United States
|
|
$
|
31,961
|
|
|
$
|
35,918
|
|
|
$
|
33,535
|
|
Canada
|
|
|
9,773
|
|
|
|
9,374
|
|
|
|
9,785
|
|
United Kingdom
|
|
|
599
|
|
|
|
545
|
|
|
|
489
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
42,333
|
|
|
$
|
45,837
|
|
|
$
|
43,809
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes the Companys sales by major product line from continuing operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
|
|
In thousands
|
|
Rail distribution products
|
|
$
|
155,832
|
|
|
$
|
115,777
|
|
|
$
|
102,155
|
|
Piling products
|
|
|
114,070
|
|
|
|
162,641
|
|
|
|
146,703
|
|
Rail Technologies products
|
|
|
92,826
|
|
|
|
97,775
|
|
|
|
4,556
|
|
CXT concrete tie products
|
|
|
58,182
|
|
|
|
48,968
|
|
|
|
53,518
|
|
CXT concrete building products
|
|
|
30,195
|
|
|
|
35,557
|
|
|
|
60,091
|
|
Other products
|
|
|
137,436
|
|
|
|
114,619
|
|
|
|
100,035
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
588,541
|
|
|
$
|
575,337
|
|
|
$
|
467,058
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 3.
Acquisitions
Portec Rail Products, Inc.
On December 15, 2010, the Company acquired Portec Rail Products, Inc. (Rail Technologies) and recorded its acquisition in accordance
with ASC 805, Business Combinations. All outstanding shares of common stock of Rail Technologies not owned by the Company were canceled and converted into the right to receive consideration equal to $11.80 per share net to the holder in
cash, without interest thereon. The total consideration paid in cash by the Company for the shares acquired in the merger and tender offer was approximately $113,322,000, including a final payment of $8,952,000 made in January 2011.
The results of the operations of Rail Technologies are included in the Companys Consolidated Statement of Operations as of
December 15, 2010. Net revenues and net loss resulting from Rail Technologies that were included in the Companys operating results were $4,556,000 and $(212,000), respectively, for the year ended December 31, 2010.
The unaudited pro forma results for the periods presented below are prepared as if the transaction occurred as of January 1, 2010.
Pro forma adjustments exclude operating results of the divested rail joint business, and include depreciation and amortization and other adjustments in connection with the acquisition.
|
|
|
|
|
|
|
For the Year Ended
December 31, 2010
|
|
|
|
In thousands, except per
share amounts
|
|
Total net sales
|
|
$
|
564,028
|
|
Earnings before income taxes
|
|
$
|
32,557
|
|
Net income
|
|
$
|
21,817
|
|
Basic earnings per share
|
|
$
|
2.13
|
|
Dilutive earnings per share
|
|
$
|
2.11
|
|
The pro forma results in the above table have not been reclassified to conform to the presentation of
discontinued operations in the current year period. In connection with ASC 805-10-25, the Company remeasured its
49
previously held equity interest in Rail Technologies at the acquisition date fair value and recognized a gain of $1,364,000 on December 15, 2010. Acquisition costs of approximately
$2,413,000 for the period ended December 31, 2010 were classified as Selling and Administrative Expenses.
Interlocking
Deck Systems International, LLC
On March 23, 2010, the Company purchased, pursuant to an Asset Purchase Agreement
(Purchase Agreement), certain assets of Interlocking Deck Systems International, LLC (IDSI) for $7,000,000. The purchase price was $5,050,000 in cash paid on the closing date and $1,000,000 paid on the first anniversary of the closing, as defined in
the Purchase Agreement, and $950,000 payable on the second anniversary of the closing, with the deferred payment obligations being embodied in a promissory note. No liabilities were assumed in this acquisition. The pro forma results for this
acquisition were not material to the Companys financial results.
Note 4.
Discontinued Operations
On June 4, 2012, the Company sold substantially all of the assets and liabilities of its railway securement business, Shipping Systems Division (SSD), for $8,579,000 to Holland, L.P., resulting in a
pre-tax gain of approximately $3,508,000.
On August 30, 2012, the Company sold substantially all of the assets and
liabilities of its precise structural products business, Precise, for $2,643,000 to Cianbro Fabrication and Coating Corporation, resulting in a pre-tax loss of approximately $315,000.
The operations of these divisions qualify as a component of an entity under FASB ASC 205-20, Presentation of Financial
Statements Discontinued Operations and thus, the operations have been reclassified as discontinued and prior periods have been reclassified to conform to this presentation. Future expenses of discontinued operations are not expected to
be material. SSD and Precise were previously reported in the Rail Products and Construction Products segment, respectively.
Net sales and income, including the pre-tax gain of $3,193,000, from discontinued operations were as follows for the years ended
December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
|
|
Dollars in thousands
|
|
Net sales
|
|
$
|
8,705
|
|
|
$
|
15,589
|
|
|
$
|
7,992
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations
|
|
$
|
3,842
|
|
|
$
|
1,287
|
|
|
$
|
778
|
|
Income tax expense
|
|
|
2,418
|
|
|
|
459
|
|
|
|
292
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations
|
|
$
|
1,424
|
|
|
$
|
828
|
|
|
$
|
486
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective income tax rate
|
|
|
63.0
|
%
|
|
|
35.7
|
%
|
|
|
37.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill of $2,588,000 allocated to SSD for discontinued operations was not deductible for income tax
purposes.
50
The following table details balance sheet information for discontinued operations at
December 31:
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
|
2011
|
|
|
|
In thousands
|
|
Current Assets
|
|
$
|
464
|
|
|
$
|
4,864
|
|
|
|
|
|
|
|
|
|
|
Other Assets
|
|
|
|
|
|
|
|
|
Property, plant and equipment-net
|
|
|
|
|
|
|
2,281
|
|
Goodwill
|
|
|
|
|
|
|
2,588
|
|
Other intangibles net
|
|
|
|
|
|
|
177
|
|
|
|
|
|
|
|
|
|
|
Total Other Assets
|
|
|
|
|
|
|
5,046
|
|
Total Assets
|
|
|
464
|
|
|
|
9,910
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
106
|
|
|
|
1,294
|
|
|
|
|
|
|
|
|
|
|
Net assets of discontinued operations
|
|
$
|
358
|
|
|
$
|
8,616
|
|
|
|
|
|
|
|
|
|
|
Note 5.
Goodwill and Other Intangible Assets
On June 4, 2012, the Company divested $2,588,000 in goodwill attributed to the Rail Products segment in connection with the sale of its railway securement business. Intangible assets with net
carrying value of $170,000 were also included with this sale. These intangible assets had a net carrying value of $177,000 at December 31, 2011. More information regarding this sale can be found in Note 4.
Excluding amounts attributed to discontinued operations, the carrying amount of goodwill at December 31, 2012 and 2011 was
$41,237,000, of which $38,026,000 is attributable to the Companys Rail Products segment and $3,211,000 is attributable to the Construction Products segment.
Excluding amounts attributed to discontinued operations, identified intangible assets of $2,305,000 are attributable to the Companys Construction Products segment and $44,506,000 are attributable to
the Companys Rail Products segment at December 31, 2012. The components of the Companys intangible assets are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2012
|
|
|
|
Weighted Average
|
|
|
Gross
|
|
|
|
|
|
Net
|
|
|
|
Amortization Period
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Carrying
|
|
|
|
In Years
|
|
|
Value
|
|
|
Amortization
|
|
|
Amount
|
|
|
|
In thousands
|
|
Non-compete agreements
|
|
|
5
|
|
|
$
|
380
|
|
|
$
|
(367
|
)
|
|
$
|
13
|
|
Patents
|
|
|
10
|
|
|
|
815
|
|
|
|
(412
|
)
|
|
|
403
|
|
Customer relationships
|
|
|
23
|
|
|
|
19,960
|
|
|
|
(2,488
|
)
|
|
|
17,472
|
|
Supplier relationships
|
|
|
5
|
|
|
|
350
|
|
|
|
(143
|
)
|
|
|
207
|
|
Trademarks
|
|
|
17
|
|
|
|
6,280
|
|
|
|
(879
|
)
|
|
|
5,401
|
|
Technology
|
|
|
18
|
|
|
|
19,026
|
|
|
|
(2,357
|
)
|
|
|
16,669
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20
|
|
|
$
|
46,811
|
|
|
$
|
(6,646
|
)
|
|
$
|
40,165
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2011
|
|
|
|
Weighted Average
|
|
|
Gross
|
|
|
|
|
|
Net
|
|
|
|
Amortization Period
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Carrying
|
|
|
|
In Years
|
|
|
Value
|
|
|
Amortization
|
|
|
Amount
|
|
|
|
In thousands
|
|
Non-compete agreements
|
|
|
5
|
|
|
$
|
380
|
|
|
$
|
(361
|
)
|
|
$
|
19
|
|
Patents
|
|
|
10
|
|
|
|
556
|
|
|
|
(181
|
)
|
|
|
375
|
|
Customer relationships
|
|
|
23
|
|
|
|
19,960
|
|
|
|
(1,402
|
)
|
|
|
18,558
|
|
Supplier relationships
|
|
|
5
|
|
|
|
350
|
|
|
|
(73
|
)
|
|
|
277
|
|
Trademarks
|
|
|
17
|
|
|
|
6,280
|
|
|
|
(447
|
)
|
|
|
5,833
|
|
Technology
|
|
|
18
|
|
|
|
19,026
|
|
|
|
(1,217
|
)
|
|
|
17,809
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20
|
|
|
$
|
46,552
|
|
|
$
|
(3,681
|
)
|
|
$
|
42,871
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets are amortized over their useful lives ranging from 5 to 25 years, with a total weighted
average amortization period of approximately 20 years. Amortization expense from continuing operating activities for the years ended December 31, 2012, 2011 and 2010 was $2,961,000, $2,791,000, and $443,000, respectively.
Estimated amortization expense from continuing operating activities for the years 2013 and thereafter is as follows:
|
|
|
|
|
|
|
In thousands
|
|
2013
|
|
$
|
2,781
|
|
2014
|
|
|
2,781
|
|
2015
|
|
|
2,506
|
|
2016
|
|
|
2,412
|
|
2017
|
|
|
2,345
|
|
2018 and thereafter
|
|
|
27,340
|
|
|
|
|
|
|
|
|
$
|
40,165
|
|
|
|
|
|
|
Note 6.
Accounts Receivable
Accounts receivable of continuing operating activities at December 31, 2012 and 2011 are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
|
2011
|
|
|
|
In thousands
|
|
Trade
|
|
$
|
59,308
|
|
|
$
|
66,287
|
|
Allowance for doubtful accounts
|
|
|
(899
|
)
|
|
|
(1,725
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
58,409
|
|
|
|
64,562
|
|
Other
|
|
|
1,264
|
|
|
|
1,934
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
59,673
|
|
|
$
|
66,496
|
|
|
|
|
|
|
|
|
|
|
Bad debt (recovery)/expense was ($319,000), $275,000 and $274,000 in 2012, 2011 and 2010, respectively.
52
The Companys customers are principally in the Rail, Construction and Tubular segments
of the economy. As of December 31, 2012 and 2011, trade receivables, net of allowance for doubtful accounts, from customers in these markets were as follows:
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
|
2011
|
|
|
|
In thousands
|
|
Rail
|
|
$
|
34,886
|
|
|
$
|
31,800
|
|
Construction
|
|
|
18,677
|
|
|
|
29,430
|
|
Tubular
|
|
|
4,846
|
|
|
|
3,332
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
58,409
|
|
|
$
|
64,562
|
|
|
|
|
|
|
|
|
|
|
Credit is extended based upon an evaluation of the customers financial condition and while
collateral is not required, the Company often receives surety bonds that guarantee payment. Credit terms are consistent with industry standards and practices.
Note 7.
Inventory
Inventories of continuing operating activities of the Company at December 31, 2012 and 2011 are summarized in the following table:
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
|
2011
|
|
|
|
In thousands
|
|
Finished goods
|
|
$
|
78,715
|
|
|
$
|
71,758
|
|
Work-in-process
|
|
|
17,693
|
|
|
|
8,004
|
|
Raw materials
|
|
|
19,764
|
|
|
|
19,885
|
|
|
|
|
|
|
|
|
|
|
Total inventories at current costs
|
|
|
116,172
|
|
|
|
99,647
|
|
Less: LIFO reserve
|
|
|
(9,064
|
)
|
|
|
(10,183
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
107,108
|
|
|
$
|
89,464
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2012 and 2011, the LIFO carrying value of inventories for book purposes exceeded the
LIFO value for tax purposes by approximately $11,686,000 and $14,636,000, respectively. During 2012, liquidation of certain LIFO inventory layers carried at costs which were higher than the costs of current purchases. The effect of these reductions
in 2012 was to increase cost of goods sold by $15,000. During 2011, liquidation of LIFO layers carried at costs that were lower than current purchases resulted in a decrease to cost of goods sold of $33,000. During 2010, liquidation of LIFO layers
carried at costs that were higher than current purchases resulted in an increase to cost of goods sold of $1,046,000.
53
Note 8.
Property, Plant and Equipment
Property, plant and equipment of continuing operating activities at December 31, 2012 and 2011 consist of the following:
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
|
2011
|
|
|
|
In thousands
|
|
Land
|
|
$
|
4,764
|
|
|
$
|
4,760
|
|
Improvements to land and leaseholds
|
|
|
23,187
|
|
|
|
22,570
|
|
Buildings
|
|
|
13,715
|
|
|
|
10,748
|
|
Machinery and equipment, including equipment under capitalized leases
|
|
|
80,120
|
|
|
|
81,933
|
|
Construction in progress
|
|
|
1,783
|
|
|
|
4,285
|
|
|
|
|
|
|
|
|
|
|
|
|
|
123,569
|
|
|
|
124,296
|
|
|
|
|
|
|
|
|
|
|
Less accumulated depreciation and amortization, including accumulated amortization of capitalized leases
|
|
|
81,236
|
|
|
|
78,459
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
42,333
|
|
|
$
|
45,837
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense, including amortization of assets under capital leases, for the years ended
December 31, 2012, 2011 and 2010 amounted to $9,979,000, $9,182,000, and $8,441,000, respectively.
Note 9.
Investments
Investments of the Company consist of a nonconsolidated equity method investment of $4,332,000 and $3,495,000 at December 31, 2012 and 2011, respectively.
The Company is a member of a joint venture with L B Industries, Inc. and James Legg until June 30, 2019. The Company and L B
Industries, Inc. each have a 45% ownership interest in the joint venture, L B Pipe & Coupling Products, LLC (JV). The JV manufactures, markets and sells various precision coupling products for the energy, utility and construction markets.
Under the terms of the JV agreement, as amended, the Company was required to make capital contributions totaling approximately $3,000,000. The Company fulfilled these commitments during 2011. The other JV members are required to make proportionate
contributions in accordance with the ownership percentages in the JV agreement.
Under applicable guidance for variable
interest entities in ASC 810, Consolidation, the Company determined that the JV is a variable interest entity, as the JV has not demonstrated that it has sufficient equity to support its operations without additional financial support.
The Company concluded that it is not the primary beneficiary of the variable interest entity, as the Company does not have a controlling financial interest and does not have the power to direct the activities that most significantly impact the
economic performance of the JV. Accordingly, the Company concluded that the equity method of accounting remains appropriate.
The Company recorded equity in the income of the JV of approximately $837,000 and $707,000 for the years ended December 31, 2012 and
2011, respectively. The Company recorded equity in the losses of the JV of approximately $(213,000) for 2010.
54
The Companys exposure to loss results from its capital contributions, net of the
Companys share of the JVs income or loss, and its net investment in the direct financing lease covering the facility used by the JV for its operations. The carrying amounts with the maximum exposure to loss of the Company at
December 31, 2012 and December 31, 2011, respectively, are as follows:
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
|
2011
|
|
|
|
In thousands
|
|
Equity method investment
|
|
$
|
4,332
|
|
|
$
|
3,495
|
|
Net investment in direct financing lease
|
|
|
1,327
|
|
|
|
971
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,659
|
|
|
$
|
4,466
|
|
|
|
|
|
|
|
|
|
|
The Company is leasing five acres of land and two facilities in Magnolia, TX to the JV over a period of
9.5 years, with a 5.5 year renewal period. Monthly rent over the term of the lease is approximately $10,000, with a balloon payment of approximately $488,000 which is required to be paid either at the termination of the lease, allocated over the
renewal period or during the initial term of the lease. This lease qualifies as a direct financing lease under the applicable guidance in ASC 840-30, Leases.
In November 2012, the Company executed the first amendment to the lease with the JV. The Company built a second facility and leased it to the JV. The first amendment added approximately $7,000 to the
monthly rent, bringing the amended monthly rent to approximately $17,000 per month. The first amendment to the lease did not change the remaining terms of the lease.
The Company maintained a net investment in this direct financing lease of approximately $1,327,000 and $971,000 at December 31, 2012 and 2011, respectively.
The following is a schedule of the direct financing minimum lease payments for the years 2013 and thereafter
|
|
|
|
|
|
|
In thousands
|
|
2013
|
|
$
|
106
|
|
2014
|
|
|
114
|
|
2015
|
|
|
122
|
|
2016
|
|
|
131
|
|
2017
|
|
|
140
|
|
2018 and thereafter
|
|
|
714
|
|
|
|
|
|
|
|
|
$
|
1,327
|
|
|
|
|
|
|
Note 10.
Deferred Revenue
Deferred revenue consists of customer payments received for which the revenue recognition criteria have not yet been met. The Company has significantly fulfilled its obligations under the contracts and
the customers have paid, but due to the Companys continuing involvement with the material, revenue is precluded from being recognized until the customer takes possession.
Note 11.
Borrowings
United
States
On May 2, 2011, the Company, its domestic subsidiaries, and certain of its Canadian subsidiaries entered into
a new $125,000,000 Revolving Credit Facility Credit Agreement (Credit Agreement) with PNC Bank, N.A., Bank of America, N.A., Wells Fargo Bank, N.A. and Citizens Bank of Pennsylvania. This Credit Agreement replaced a prior revolving credit facility
with a maximum credit line of $90,000,000 and a $20,000,000 term
55
loan. The Credit Agreement provides for a five-year, unsecured revolving credit facility that permits borrowing up to $125,000,000 for the U.S. borrowers and a sublimit of the equivalent of
$15,000,000 U.S. dollars that is available to the Canadian borrowers. Provided no event of default exists, the Credit Agreement contains a provision that provides for an increase in the revolver facility of $50,000,000 that can be allocated to
existing or new lenders if the Companys borrowing requirements should increase. The Credit Agreement includes a sublimit of $20,000,000 for the issuance of trade and standby letters of credit.
Borrowings under the Credit Agreement will bear interest at rates based upon either the base rate or LIBOR-based rate plus applicable
margins. Applicable margins are dictated by the ratio of the Companys indebtedness less cash on hand to the Companys consolidated EBITDA, as defined in the underlying Credit Agreement. The base rate is the highest of (a) PNC
Banks prime rate, (b) the Federal Funds Rate plus 0.50% or (c) the daily LIBOR rate, as defined in the underlying Credit Agreement, plus 1.00%. The base rate spread ranges from 0.00% to 1.00%. LIBOR-based rates are determined by
dividing the published LIBOR rate by a number equal to 1.00 minus the percentage prescribed by the Federal Reserve for determining the maximum reserve requirements with respect to any Eurocurrency funding by banks on such day. The LIBOR-based rate
spread ranges from 1.00% to 2.00%.
The Credit Agreement includes two financial covenants: (a) the Leverage Ratio, defined
as the Companys Indebtedness less cash on hand divided by the Companys consolidated EBITDA, which must not exceed 3.00 to 1.00 and (b) Minimum Interest Coverage, defined as consolidated EBITDA less Capital Expenditures divided by
consolidated interest expense, which must be no less than 3.00 to 1.00.
The Credit Agreement permits the Company to pay
dividends and distributions and make redemptions with respect to its stock provided no event of default or potential default (as defined in the Credit Agreement) has occurred prior to or after giving effect to the dividend, distribution, or
redemption. Dividends, distributions, and redemptions are capped at $15,000,000 per year when funds are drawn on the facility. If no drawings on the facility exist, dividends, distributions, and redemptions in excess of $15,000,000 per year are
subjected to a limitation of $75,000,000 in aggregate. The $75,000,000 aggregate limitation also includes certain loans, investments, and acquisitions. The Company is permitted to acquire the stock or assets of other entities with limited
restrictions provided that the Leverage Ratio does not exceed 2.50 to 1.00 after giving effect to the acquisition.
Other
restrictions exist at all times including, but not limited to, limitation of the Companys sale of assets, other indebtedness incurred by either the borrowers or the non-borrower subsidiaries of the Company, guaranties, and liens. On
July 9, 2012, the Company amended the Credit Agreement to increase the limitation of the Companys sale of assets from $10,000,000 to $25,000,000.
As of December 31, 2012, the Company was in compliance with the Credit Agreements covenants.
The Company had no outstanding borrowings under the revolving credit facility at December 31, 2012 or 2011 and had available borrowing capacity of $123,829,000 at December 31, 2012.
Letters of Credit
At
December 31, 2012, the Company had outstanding letters of credit of approximately $1,171,000.
United Kingdom
A subsidiary of the Company has a working capital facility with NatWest Bank for its United Kingdom operations which includes an overdraft
availability of £1,500,000 pounds sterling (approximately $2,437,000 at December 31, 2012). This credit facility supports the subsidiarys working capital requirements and is collateralized by substantially all of the assets of its
United Kingdom operations. The interest rate on this facility is the financial institutions base rate plus 1.50%. Outstanding performance bonds reduce availability under this credit facility. The subsidiary of the Company had no outstanding
borrowings under this credit facility as of December 31, 2012. There was approximately $61,000 in outstanding guarantees (as defined in the underlying agreement) at December 31, 2012. There were no borrowings or performance bonds
outstanding on this facility as of December 31, 2011. This credit facility was renewed effective August 30, 2012 with no significant changes
56
to the underlying terms or conditions in the facility. The expiration date of this credit facility is August 30, 2013. It is the Companys intention to renew this credit facility with
NatWest Bank during the annual review over the credit facility in 2013.
The United Kingdom loan agreements contain certain
financial covenants that require that subsidiary to maintain senior interest and cash flow coverage ratios. The subsidiary was in compliance with these financial covenants as of December 31, 2012. The subsidiary had available borrowing capacity
of $2,376,000 at December 31, 2012.
Note 12.
Long-Term Debt and Related Matters
Long-term debt at December 31, 2012 and 2011 consists of the following:
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
|
2011
|
|
|
|
In thousands
|
|
Lease obligations payable in installments through 2015 with a weighted average interest rate of 5.37% at December 31, 2012
and 7.10% at December 31, 2011
|
|
$
|
62
|
|
|
$
|
1,490
|
|
Promissory notes issued in connection with the acquisition of IDSI with imputed interest rates of 2.10%
|
|
|
|
|
|
|
945
|
|
|
|
|
|
|
|
|
|
|
|
|
|
62
|
|
|
|
2,435
|
|
Less current maturities
|
|
|
35
|
|
|
|
2,384
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
27
|
|
|
$
|
51
|
|
|
|
|
|
|
|
|
|
|
The maturities of long-term debt for each of the succeeding three years subsequent to December 31,
2012 are as follows:
|
|
|
|
|
|
|
In thousands
|
|
2013
|
|
$
|
35
|
|
2014
|
|
|
22
|
|
2015
|
|
|
5
|
|
|
|
|
|
|
|
|
$
|
62
|
|
|
|
|
|
|
Note 13.
Stockholders Equity
The Company had authorized shares of 20,000,000 in Common stock with 11,115,779 shares issued at December 31, 2012 and 2011. The Common stock has a par value of $.01 per share and the current
dividend as authorized by the Companys Board of Directors is $0.10 per year or $0.025 per quarter. In February 2013, the Companys Board of Directors authorized an increase to the regular quarterly dividend to $0.03 from $0.025.
At December 31, 2012 and 2011, the Company had authorized shares of 5,000,000 in Preferred stock. No Preferred stock has
been issued. No par value has been assigned to the Preferred stock.
The Companys Board of Directors authorized the
purchase of up to $25,000,000 in shares of its Common stock through a share repurchase program announced in May 2011 at prevailing market prices or privately negotiated transactions. There were no such repurchases of common stock under this program
during 2012. During 2011 the Company purchased 278,655 shares of common stock for approximately $6,480,000. This authorization expires on December 31, 2013.
The Companys Board of Directors authorized the purchase of up to $40,000,000 in shares of its Common stock through share repurchase programs announced in 2008 at prevailing market prices or
privately negotiated transactions. There were no such repurchases of common stock under these programs during 2010. The authorization expired on December 31, 2010.
57
Cash dividends of approximately $1,029,000 and $1,022,000 were paid in 2012 and 2011,
respectively. No cash dividends on Common stock were paid in 2010.
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
Share Activity
|
|
Treasury
|
|
|
Outstanding
|
|
|
|
Number of Shares
|
|
Balance at end of 2009
|
|
|
927,423
|
|
|
|
10,163,964
|
|
Issued for stock-based compensation plans
|
|
|
(113,174
|
)
|
|
|
113,174
|
|
|
|
|
|
|
|
|
|
|
Balance at end of 2010
|
|
|
814,249
|
|
|
|
10,277,138
|
|
Purchased through share repurchase program
|
|
|
278,655
|
|
|
|
(278,655
|
)
|
Issued for stock-based compensation plans
|
|
|
(50,528
|
)
|
|
|
74,920
|
|
|
|
|
|
|
|
|
|
|
Balance at end of 2011
|
|
|
1,042,376
|
|
|
|
10,073,403
|
|
Issued for stock-based compensation plans
|
|
|
(75,995
|
)
|
|
|
75,995
|
|
|
|
|
|
|
|
|
|
|
Balance at end of 2012
|
|
|
966,381
|
|
|
|
10,149,398
|
|
|
|
|
|
|
|
|
|
|
Note 14.
Accumulated Other Comprehensive Loss
The components of accumulated other comprehensive loss, net of tax, for the years ended December 31, 2012 and 2011, are as follows:
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
|
2011
|
|
|
|
In thousands
|
|
Pension liability adjustment
|
|
$
|
(4,204
|
)
|
|
$
|
(3,439
|
)
|
Foreign currency translation adjustments
|
|
|
535
|
|
|
|
(1,189
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(3,669
|
)
|
|
$
|
(4,628
|
)
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments are generally not adjusted for income taxes as they relate to
indefinite investments in non U.S. subsidiaries.
58
Note 15.
Earnings Per Common Share
The following table sets forth the computation of basic and diluted earnings per common share for the three years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
|
|
In thousands, except per
share amounts
|
|
Numerator for basic and diluted earnings per common share
|
|
|
|
|
|
|
|
|
|
|
|
|
Income available to common stockholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
14,764
|
|
|
$
|
22,067
|
|
|
$
|
20,006
|
|
Income from discontinued operations
|
|
|
1,424
|
|
|
|
828
|
|
|
|
486
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
16,188
|
|
|
$
|
22,895
|
|
|
$
|
20,492
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares
|
|
|
10,124
|
|
|
|
10,209
|
|
|
|
10,219
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic earnings per common share
|
|
|
10,124
|
|
|
|
10,209
|
|
|
|
10,219
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee stock options
|
|
|
16
|
|
|
|
29
|
|
|
|
67
|
|
Other stock compensation plans
|
|
|
94
|
|
|
|
74
|
|
|
|
62
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive potential common shares
|
|
|
110
|
|
|
|
103
|
|
|
|
129
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for diluted earnings per common share adjusted weighted average shares and assumed conversions
|
|
|
10,234
|
|
|
|
10,312
|
|
|
|
10,348
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
1.46
|
|
|
$
|
2.16
|
|
|
$
|
1.96
|
|
Discontinued operations
|
|
|
0.14
|
|
|
|
0.08
|
|
|
|
0.05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share
|
|
$
|
1.60
|
|
|
$
|
2.24
|
|
|
$
|
2.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
1.44
|
|
|
$
|
2.14
|
|
|
$
|
1.93
|
|
Discontinued operations
|
|
|
0.14
|
|
|
|
0.08
|
|
|
|
0.05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common share
|
|
$
|
1.58
|
|
|
$
|
2.22
|
|
|
$
|
1.98
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends paid per common share
|
|
$
|
0.10
|
|
|
$
|
0.10
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There were no antidilutive shares in 2012, 2011 and 2010.
59
Note 16.
Income Taxes
Significant components of the Companys deferred tax liabilities and assets as of December 31, 2012 and 2011 are as follows:
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
|
2011
|
|
|
|
In thousands
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Goodwill and other intangibles
|
|
$
|
(12,057
|
)
|
|
$
|
(12,884
|
)
|
Depreciation
|
|
|
(2,745
|
)
|
|
|
(3,499
|
)
|
Inventories
|
|
|
(3,433
|
)
|
|
|
(4,333
|
)
|
Unrepatriated earnings of foreign subsidiary
|
|
|
|
|
|
|
(428
|
)
|
Other-net
|
|
|
(223
|
)
|
|
|
(174
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
(18,458
|
)
|
|
|
(21,318
|
)
|
|
|
|
|
|
|
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Pension liability
|
|
|
2,787
|
|
|
|
3,210
|
|
Warranty reserve
|
|
|
5,752
|
|
|
|
2,058
|
|
Deferred compensation
|
|
|
1,161
|
|
|
|
1,601
|
|
Accounts receivable
|
|
|
358
|
|
|
|
924
|
|
Contingent liabilities
|
|
|
657
|
|
|
|
675
|
|
Deferred gain on sale / leaseback
|
|
|
|
|
|
|
178
|
|
State tax incentives
|
|
|
17
|
|
|
|
5
|
|
Net operating loss carryforwards
|
|
|
59
|
|
|
|
88
|
|
Foreign tax credit carryforwards
|
|
|
112
|
|
|
|
112
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
10,903
|
|
|
|
8,851
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax liability
|
|
$
|
(7,555
|
)
|
|
$
|
(12,467
|
)
|
|
|
|
|
|
|
|
|
|
Significant components of the provision for income taxes are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
|
|
In thousands
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
9,742
|
|
|
$
|
4,123
|
|
|
$
|
10,023
|
|
State
|
|
|
1,977
|
|
|
|
485
|
|
|
|
775
|
|
Foreign
|
|
|
1,910
|
|
|
|
2,493
|
|
|
|
30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current
|
|
|
13,629
|
|
|
|
7,101
|
|
|
|
10,828
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(3,966
|
)
|
|
|
3,446
|
|
|
|
1,204
|
|
State
|
|
|
(155
|
)
|
|
|
553
|
|
|
|
111
|
|
Foreign
|
|
|
(442
|
)
|
|
|
(515
|
)
|
|
|
(185
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred
|
|
|
(4,563
|
)
|
|
|
3,484
|
|
|
|
1,130
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax expense from continuing operating activities
|
|
$
|
9,066
|
|
|
$
|
10,585
|
|
|
$
|
11,958
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company has unrecorded deferred income taxes on the undistributed earnings of its foreign
subsidiaries. It is managements intent and practice to indefinitely reinvest such earnings outside of the U.S. to support the continuing operations of its foreign subsidiaries. As a result of the liquidity and financial strength of the
Companys domestic operations, the Company does not currently anticipate a scenario where repatriation of
60
these earnings would occur. At December 31, 2012, the aggregate undistributed earnings of the foreign subsidiaries (including cumulative unrealized currency gains related to previously taxed
income) amounted to approximately $43,304,000. Upon distribution of these earnings in the form of dividends or otherwise, the Company may be subject to U.S. income taxes and foreign withholding taxes. It is not practical, however, to estimate the
amount of taxes that may be payable on the eventual remittance of these earnings because of the complexity of the calculation.
Income before income taxes, as shown in the accompanying consolidated statements of operations, includes the following components:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
|
|
In thousands
|
|
Domestic
|
|
$
|
16,600
|
|
|
$
|
23,433
|
|
|
$
|
32,067
|
|
Foreign
|
|
|
7,230
|
|
|
|
9,219
|
|
|
|
(103
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations, before income taxes
|
|
$
|
23,830
|
|
|
$
|
32,652
|
|
|
$
|
31,964
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The reconciliation of income tax computed at statutory rates to income tax expense is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
Statutory rate
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
Effect of foreign tax
|
|
|
(3.0
|
)
|
|
|
(2.3
|
)
|
|
|
|
|
State income tax
|
|
|
4.5
|
|
|
|
2.2
|
|
|
|
2.2
|
|
Nondeductible expenses
|
|
|
1.4
|
|
|
|
0.7
|
|
|
|
0.2
|
|
Tax credits
|
|
|
(2.2
|
)
|
|
|
(2.0
|
)
|
|
|
|
|
Other
|
|
|
2.3
|
|
|
|
(1.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
38.0
|
%
|
|
|
32.5
|
%
|
|
|
37.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2012 and 2011, the tax benefit of net operating loss carryforwards available for
state income tax purposes was approximately $59,000 and $88,000, respectively. The net operating loss carryforwards will expire in 2017 through 2024. The Company has foreign tax credit carryforwards in the amount of $112,000 that will expire in 2014
through 2016. The Company anticipates utilizing these credit carryforwards prior to their expiration and, therefore, has not provided a valuation allowance for these amounts. The Company received approximately $903,000 in state tax refunds in 2011
not previously recognized by the Company as realization was not more likely than not.
The following table provides a
reconciliation of unrecognized tax benefits as of December 31, 2012 and 2011:
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
|
2011
|
|
|
|
In thousands
|
|
Unrecognized tax benefits at beginning of period:
|
|
$
|
1,849
|
|
|
$
|
645
|
|
Increases based on tax positions for prior periods
|
|
|
220
|
|
|
|
1,401
|
|
Increases based on tax positions related to current period
|
|
|
|
|
|
|
34
|
|
Decreases related to settlements with taxing authorities
|
|
|
|
|
|
|
(139
|
)
|
Decreases as a result of a lapse of the applicable statute of limitations
|
|
|
(24
|
)
|
|
|
(92
|
)
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
2,045
|
|
|
$
|
1,849
|
|
|
|
|
|
|
|
|
|
|
The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate is
$2,045,000 at December 31, 2012. The Company accrues interest and penalties related to unrecognized tax benefits in its provision for income taxes. At December 31, 2012, the Company had accrued interest and penalties related to
unrecognized tax benefits of $320,000.
The Company files income tax returns in the United States and in various state, local
and foreign jurisdictions. The Company is subject to federal income tax examinations for the period 2009 forward. With respect to the state, local and foreign filings, the Company is generally subject to income tax examinations for the periods 2008
forward.
61
Note 17.
Stock-based Compensation
The Company applies the provisions of FASB ASC 718, Compensation Stock Compensation, to account for the Companys share-based compensation. Share-based compensation cost is
measured at the grant date based on the calculated fair value of the award and is recognized over the employees requisite service period. The Company recorded stock compensation expense of $1,989,000, $1,958,000 and $1,944,000 for the
periods ended 2012, 2011 and 2010, respectively, related to fully-vested stock awards, restricted stock awards and performance unit awards as follows.
Stock Option Awards
The Company has three equity compensation plans: The
1985 Long-Term Incentive Plan (1985 Plan), the 1998 Long-Term Incentive Plan for Officers and Directors, amended and restated in May 2011, (1998 Plan) and the 2006 Omnibus Incentive Plan, amended and restated in May 2011 (Omnibus Plan). The 1985
Plan expired on January 1, 2005. Although no further awards can be made under the 1985 Plan, prior awards are not affected by the termination of the Plan.
The 1998 Plan provides for the award of options to key employees and directors to purchase up to 900,000 shares of Common stock at no less than 100% of fair market value on the date of the grant. The 1998
Plan provides for the granting of nonqualified options and incentive stock options with a duration of not more than ten years from the date of grant. The 1998 Plan also provides that, unless otherwise set forth in the option
agreement, options are exercisable in installments of up to 25% annually beginning one year from date of grant. Non-employee directors were automatically awarded fully vested, nonqualified stock options to acquire 5,000 shares of the Companys
Common stock on each date the outside directors were elected at an annual shareholders meeting to serve as directors. The 1998 Plan was amended in May 2006 to remove the automatic awarding of options to outside directors.
The Omnibus Plan allows for the issuance of 900,000 shares of Common stock through the granting of stock options or stock awards
(including performance units convertible into stock) to key employees and directors at no less than 100% of fair market value on the date of the grant. The Omnibus Plan provides for the granting of nonqualified options with a duration of
not more than ten years from the date of grant. The Omnibus Plan also provides that, unless otherwise set forth in the option agreement, options are exercisable in installments of up to 25% annually beginning one year from the date of grant. No
options have been granted under the Omnibus Plan and, as such, there was no stock compensation expense related to stock options recorded in 2012, 2011 or 2010.
Certain information for the three years ended December 31, 2012 relative to employee stock options is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
Number of shares under the plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding and exercisable at beginning of year
|
|
|
39,950
|
|
|
|
80,950
|
|
|
|
180,950
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
Canceled
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(17,450
|
)
|
|
|
(41,000
|
)
|
|
|
(100,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding and exercisable at end of year
|
|
|
22,500
|
|
|
|
39,950
|
|
|
|
80,950
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of shares available for future grant:
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of year
|
|
|
315,840
|
|
|
|
391,881
|
|
|
|
443,566
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of year
|
|
|
561,655
|
|
|
|
315,840
|
|
|
|
391,881
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The total intrinsic value of options outstanding and exercisable at December 31, 2012 was $743,000,
$773,000 and $2,751,000, respectively.
62
At December 31, 2012, options outstanding and exercisable under the Companys
equity plans had option prices ranging from $7.81 to $14.77, with a weighted average exercise price of $10.41. At December 31, 2011, options outstanding and exercisable under the Companys equity plans had option prices ranging from $4.23
to $14.77, with a weighted average exercise price of $8.94 per share. At December 31, 2010, options outstanding and exercisable under the Companys equity plans had option prices ranging from $2.75 to $14.77, with a weighted average price
of $6.95.
The weighted average remaining contractual life of the stock options outstanding at December 31, 2012, 2011 and
2010 were 2.2, 2.8 and 2.7 years, respectively.
The weighted average exercise price per share of the options exercised in
2012, 2011 and 2010 were $7.03, $5.02 and $4.51, respectively. The total intrinsic value of options exercised during the years ended December 31, 2012, 2011 and 2010 were $457,000, $1,112,000 and $2,483,000, respectively.
Certain information for the year ended December 31, 2012 relative to stock options at respective exercise price ranges is summarized
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding and Exercisable
|
|
Range of Exercise Prices
|
|
Number
of Shares
|
|
|
Weighted Average
Remaining Life
|
|
|
Weighted
Exercise Price
|
|
$7.81 - $8.97
|
|
|
10,000
|
|
|
|
1.9
|
|
|
$
|
8.39
|
|
$9.29 - $14.77
|
|
|
12,500
|
|
|
|
2.5
|
|
|
|
12.03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,500
|
|
|
|
2.2
|
|
|
$
|
10.41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued as a result of stock option exercise generally will be from previously issued shares which
have been reacquired by the Company and held as Treasury shares.
Fully-Vested Stock Awards
Non-employee directors are automatically awarded 3,500 fully vested shares, or a lesser amount determined by the directors, of the
Companys Common stock on each date the non-employee directors are elected at an annual shareholders meeting to serve as directors.
The non-employee directors were granted a total of 12,000, 10,500 and 12,000 fully-vested shares for the years ended December 31, 2012, 2011 and 2010, respectively. Compensation expense recorded by
the Company related to fully-vested stock awards to non-employee directors was approximately $337,000, $370,000 and $340,000 for the years ended December 31, 2012, 2011 and 2010, respectively.
In addition to the 12,000 shares of fully-vested stock granted to the non-employee directors in 2010, the Company granted, pursuant to the
Omnibus Plan approximately 2,000 fully-vested shares to key employees. The grant date fair value of these fully-vested stock grants was $34.73. The weighted average fair value of all the fully-vested stock grants awarded was $28.05, $35.24 and
$29.10 per share for 2012, 2011 and 2010, respectively.
Restricted Stock Awards
The Restricted Stock Awards granted under the Omnibus Plan generally have vesting requirements that are determined by the underlying
Restricted Stock Agreement. These forfeitable Restricted Stock Awards time-vest after a four year holding period, unless indicated otherwise by the underlying Restricted Stock Agreement. Shares issued as a result of Restricted Stock Awards generally
are previously issued shares which have been reacquired by the Company and held as Treasury shares or authorized but previously unissued common stock.
63
For the periods ended December 31, 2012, 2011 and 2010, the Company granted
approximately 43,000, 46,000 and 40,000 shares, respectively, of restricted stock under the Omnibus Plan. During 2012, the Company also granted approximately 66,000 shares of restricted stock to an employee director. A summary of restricted stock
award activity follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grant Date
|
|
Shares
|
|
|
Grant Date
Fair Value
|
|
|
Aggregate
Fair
Value
|
|
|
Vesting Date
|
March 3, 2010
|
|
|
12,185
|
|
|
$
|
31.92
|
|
|
$
|
389,000
|
|
|
March 3, 2014
|
May 28, 2010
|
|
|
2,500
|
|
|
|
28.07
|
|
|
|
70,000
|
|
|
February 28, 2012
|
May 28, 2010
|
|
|
17,500
|
|
|
|
28.07
|
|
|
|
491,000
|
|
|
May 28, 2014
|
October 21, 2010
|
|
|
7,500
|
|
|
|
31.04
|
|
|
|
233,000
|
|
|
October 21, 2014
|
March 15, 2011
|
|
|
24,836
|
|
|
|
38.46
|
|
|
|
955,000
|
|
|
March 15, 2015
|
July 21, 2011
|
|
|
16,600
|
|
|
|
38.44
|
|
|
|
638,000
|
|
|
July 21, 2015
|
August 29, 2011
|
|
|
5,000
|
|
|
|
24.50
|
|
|
|
123,000
|
|
|
August 29, 2014
|
February 1, 2012
|
|
|
66,000
|
|
|
|
30.15
|
|
|
|
1,990,000
|
|
|
February 1, 2016
|
March 6, 2012
|
|
|
18,347
|
|
|
|
27.49
|
|
|
|
504,000
|
|
|
March 6, 2016
|
May 23, 2012
|
|
|
8,000
|
|
|
|
28.05
|
|
|
|
224,000
|
|
|
May 23, 2016
|
December 11, 2012
|
|
|
16,330
|
|
|
|
41.98
|
|
|
|
686,000
|
|
|
December 12, 2015
|
These forfeitable Restricted Stock Awards time-vest after a four-year period, unless indicated otherwise
by the underlying Restricted Stock Agreement. Certain awards of restricted stock included in the above table provide for partial vesting over a period up to the vesting date listed. Shares issued as a result of Restricted Stock Awards generally are
previously issued shares which have been reacquired by the Company and held as Treasury shares or authorized but previously unissued common stock.
Performance Unit Awards
Annually, under separate three-year long-term
incentive plans, pursuant to the Omnibus Plan, the Company grants performance units. Performance units granted during the periods ended December 31, 2012, 2011 and 2010 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incentive Plan
|
|
Grant Date
|
|
Units
|
|
|
Grant Date
Fair Value
|
|
|
Aggregate
Fair
Value
|
|
|
Vesting Date
|
2010 - 2012
|
|
March 2, 2010
|
|
|
36,541
|
|
|
$
|
31.83
|
|
|
$
|
1,163,000
|
|
|
March 2, 2013
|
2011 - 2013
|
|
March 15, 2011
|
|
|
34,002
|
|
|
|
38.46
|
|
|
|
1,308,000
|
|
|
March 15, 2014
|
2012 - 2014
|
|
March 6, 2012
|
|
|
43,042
|
|
|
|
27.49
|
|
|
|
1,183,000
|
|
|
March 6, 2015
|
In addition, on March 15, 2011 the Company awarded, pursuant to the Omnibus Plan, 1,500 special
performance units to a former employee director and 1,000 special performance units to an executive officer. Based on the satisfaction of the underlying performance conditions, these special performance units were converted, net of shares withheld
for applicable income tax purposes, into 1,436 and 957 shares, respectively, of the Companys common stock on March 6, 2012. The grant date fair value of these awards was $38.46 and the aggregate fair value was $58,000 and $38,000,
respectively.
Performance units are subject to forfeiture and will be converted into common stock of the Company based upon
the Companys performance relative to performance measures and conversion multiples as defined in the underlying plan. The aggregate fair value in the above table is based upon achieving 100% of the performance targets as defined in the
underlying plan. During 2012, the Company reversed $807,000 of incentive compensation recognized in prior years under its separate three-year long-term incentive plans caused by the impact of the product warranty charge on Company performance, as it
related to the awards underlying performance conditions. More information on the product warranty charge can be found in Note 21, Commitments and Contingent Liabilities.
64
The number of shares awarded under the respective three year long-term incentive plans was
determined using an average grant date fair value over a ten day period as follows:
|
|
|
|
|
|
|
|
|
Incentive Plan
|
|
Average
Grant date
Fair Value
|
|
|
Ten Day Period
|
|
2010 - 2012
|
|
$
|
29.39
|
|
|
|
February 2010
|
|
2011 - 2013
|
|
|
40.25
|
|
|
|
February 2011
|
|
2012 - 2014
|
|
|
31.60
|
|
|
|
February 2012
|
|
Excluding the fully-vested stock awards granted to non-employee directors, the Company recorded
compensation expense of $1,652,000, $1,588,000 and $1,604,000, respectively, for the periods ended December 31, 2012, 2011 and 2010 related to restricted stock and performance unit awards.
The Company issued, pursuant to the Omnibus Plan, approximately 34,000 fully-vested shares during 2012 which were earned under the 2009
2011 three year long-term incentive plan. This non-cash transaction of $1,130,000 was reflected as a decrease to Treasury Stock in the Consolidated Balance Sheet at December 31, 2012. During 2011 the Company issued, pursuant to the
Omnibus Plan, approximately 20,000 fully-vested shares which were earned under the 2008 2010 three year long-term incentive plan. This non-cash transaction of $670,000 was reflected as a decrease to Treasury Stock in the Consolidated Balance
Sheet at December 31, 2011.
Shares issued as a result of performance unit awards generally are previously issued shares
which have been reacquired by the Company and held as Treasury shares or authorized but previously unissued common stock.
The
excess tax benefit realized for the tax deduction from stock-based compensation approximated $199,000, $425,000 and $961,000 for the years ended December 31, 2012, 2011 and 2010, respectively. This excess tax benefit is included in cash flows
from financing activities in the Condensed Consolidated Statements of Cash Flows.
Note 18.
Retirement Plans
The Company has five retirement plans which cover its hourly and salaried employees in the United States: three defined benefit plans (one active / two frozen) and two defined contribution plans.
Employees are eligible to participate in the appropriate plan based on employment classification. The Companys funding to the defined benefit and defined contribution plans are governed by the Employee Retirement Income Security Act of 1974
(ERISA), applicable plan policy and investment guidelines. The Company policy is to contribute at least the minimum in accordance with the funding standards of ERISA.
The Companys subsidiary, L.B. Foster Rail Technologies (Rail Technologies), maintains two defined contribution plans for its employees in Canada, as well as a post-retirement benefit plan. In the
United Kingdom, Rail Technologies maintains both a defined contribution plan and a defined benefit plan. These plans are discussed in further detail below.
65
United States Defined Benefit Plans
The following tables present a reconciliation of the changes in the benefit obligation, the fair market value of the assets and the funded
status of the plans:
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
|
2011
|
|
|
|
In thousands
|
|
Changes in benefit obligation:
|
|
|
|
|
|
|
|
|
Benefit obligation at beginning of year
|
|
$
|
16,986
|
|
|
$
|
14,955
|
|
Service cost
|
|
|
31
|
|
|
|
30
|
|
Interest cost
|
|
|
748
|
|
|
|
799
|
|
Actuarial losses
|
|
|
980
|
|
|
|
1,896
|
|
Benefits paid
|
|
|
(711
|
)
|
|
|
(694
|
)
|
|
|
|
|
|
|
|
|
|
Benefit obligation at end of year
|
|
$
|
18,034
|
|
|
$
|
16,986
|
|
|
|
|
|
|
|
|
|
|
Change to plan assets:
|
|
|
|
|
|
|
|
|
Fair value of assets at beginning of year
|
|
$
|
12,088
|
|
|
$
|
11,433
|
|
Actual gain on plan assets
|
|
|
1,127
|
|
|
|
266
|
|
Employer contribution
|
|
|
758
|
|
|
|
1,083
|
|
Benefits paid
|
|
|
(711
|
)
|
|
|
(694
|
)
|
|
|
|
|
|
|
|
|
|
Fair value of assets at end of year
|
|
|
13,262
|
|
|
|
12,088
|
|
|
|
|
|
|
|
|
|
|
Funded status at end of year
|
|
$
|
(4,772
|
)
|
|
$
|
(4,898
|
)
|
|
|
|
|
|
|
|
|
|
Amounts recognized in the consolidated balance sheet consist of:
|
|
|
|
|
|
|
|
|
Other long-term liabilities
|
|
$
|
(4,772
|
)
|
|
$
|
(4,898
|
)
|
|
|
|
|
|
|
|
|
|
Amounts recognized in accumulated other comprehensive income consist of:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
4,675
|
|
|
$
|
4,206
|
|
Prior service cost
|
|
|
4
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,679
|
|
|
$
|
4,211
|
|
|
|
|
|
|
|
|
|
|
The actuarial loss included in accumulated other comprehensive loss that will be recognized in net
periodic pension cost during 2013 is $212,000, before taxes.
Net periodic pension costs for the three years ended
December 31, 2012 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
|
|
In thousands
|
|
Components of net periodic benefit cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
31
|
|
|
$
|
30
|
|
|
$
|
31
|
|
Interest cost
|
|
|
748
|
|
|
|
799
|
|
|
|
264
|
|
Expected return on plan assets
|
|
|
(810
|
)
|
|
|
(764
|
)
|
|
|
(286
|
)
|
Amortization of prior service cost
|
|
|
1
|
|
|
|
1
|
|
|
|
|
|
Recognized net actuarial loss
|
|
|
194
|
|
|
|
111
|
|
|
|
106
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
$
|
164
|
|
|
$
|
177
|
|
|
$
|
115
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The weighted average assumptions used to measure the projected benefit obligation for the years ended
December 31, 2012 and 2011 are as follows:
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
|
2011
|
|
Discount rate
|
|
|
4.0
|
%
|
|
|
4.5
|
%
|
|
|
|
|
|
|
|
|
|
66
The weighted average assumptions used to determine net periodic benefit costs for the three
years ended December 31, 2012:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
Discount rate
|
|
|
4.00
|
%
|
|
|
5.48
|
%
|
|
|
6.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected rate of return on plan assets
|
|
|
6.50
|
%
|
|
|
6.70
|
%
|
|
|
7.75
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The expected long-term rate of return is based on numerous factors including the target asset allocation for plan assets,
historical rate of return, long-term inflation assumptions, and current and projected market conditions. Different asset category compositions between the two defined benefit plans led to two different expected rates of return on plan assets in
2011.
Amounts applicable to the Companys pension plans with accumulated benefit obligations in excess of plan assets are as follows:
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
|
2011
|
|
|
|
In thousands
|
|
Projected benefit obligation
|
|
$
|
18,034
|
|
|
$
|
16,986
|
|
Accumulated benefit obligation
|
|
|
18,034
|
|
|
|
16,986
|
|
Fair value of plan assets
|
|
|
13,262
|
|
|
|
12,088
|
|
|
|
|
|
|
|
|
|
|
Plan assets consist primarily of various fixed income and equity investments. The Companys primary
investment objective is to provide long-term growth of capital while accepting a moderate level of risk. The investments are limited to cash and equivalents, bonds, preferred stocks and common stocks. The investment target ranges and actual
allocation of pension plan assets by major category at December 31, 2012 and 2011 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Target
|
|
|
2012
|
|
|
2011
|
|
Asset Category
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
0 - 10
|
%
|
|
|
7
|
%
|
|
|
4
|
%
|
Total fixed income funds
|
|
|
30 - 50
|
|
|
|
31
|
|
|
|
37
|
|
Total mutual funds / equities
|
|
|
50 - 70
|
|
|
|
62
|
|
|
|
59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In accordance with the fair value disclosure requirements with FASB ASC 820, Fair Value Measurements
and Disclosures, the following assets were measured at fair value on a recurring basis at December 31, 2012 and 2011. Additional information regarding FASB ASC 820 and the fair value hierarchy can be found in Note 20, Fair Value
Measurements.
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
|
In thousands
|
|
Asset Category
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
984
|
|
|
$
|
513
|
|
Fixed income funds
|
|
|
|
|
|
|
|
|
Government bonds
|
|
|
|
|
|
|
1,342
|
|
Corporate bonds
|
|
|
4,168
|
|
|
|
3,146
|
|
|
|
|
|
|
|
|
|
|
Total fixed income funds
|
|
|
4,168
|
|
|
|
4,488
|
|
Equity funds and equities
|
|
|
|
|
|
|
|
|
Mutual funds
|
|
|
7,163
|
|
|
|
678
|
|
Common stock
|
|
|
947
|
|
|
|
6,409
|
|
|
|
|
|
|
|
|
|
|
Total equity funds and equities
|
|
|
8,110
|
|
|
|
7,087
|
|
Total
|
|
$
|
13,262
|
|
|
$
|
12,088
|
|
|
|
|
|
|
|
|
|
|
67
Cash equivalents.
The Company uses quoted market prices to determine the fair value
of these investments in interest-bearing cash accounts and they are classified in Level 1 of the fair value hierarchy. The carrying amounts approximate fair value because of the short maturity of the instruments.
Fixed income funds.
Investments within the fixed income funds category consist of fixed income corporate debt and U.S.
government and various state agency obligations. The Company uses quoted market prices to determine the fair value of these fixed income funds. These instruments consist of exchange-traded government and corporate bonds and are classified in
Level 1 of the fair value hierarchy.
Equity funds and equities.
The valuation of investments in registered investment
companies is based on the underlying investments in securities. Securities traded on security exchanges are valued at the latest quoted sales price. Securities traded in the over-the-counter market and listed securities for which no sale was
reported on that date are valued at the average of the last reported bid and ask quotations. These investments are classified in Level 1 of the fair value hierarchy.
The Company expects to contribute approximately $555,000 to its United States defined benefit plans in 2013.
The following benefit payments are expected to be paid:
|
|
|
|
|
|
|
Pension
|
|
|
|
Benefits
|
|
|
|
In thousands
|
|
2013
|
|
$
|
743
|
|
2014
|
|
|
754
|
|
2015
|
|
|
766
|
|
2016
|
|
|
812
|
|
2017
|
|
|
886
|
|
Years 2018 2022
|
|
|
5,184
|
|
United Kingdom Defined Benefit Plans
During 2010, the Conveyors International Limited Pension Plan (Conveyors plan) was merged with the Portec Rail Products (UK) Limited Pension Plan (Portec Rail Plan) a defined benefit pension plan in the
United Kingdom. The combined Portec Rail Plan covers some current employees, former employees and retirees of the original Portec Rail Plan along with former employees of the Conveyors plan. The Portec Rail Plan has been frozen to new entrants since
April 1, 1997 and also covers the former employees of the Conveyors plan after January 2002. Benefits under the Portec Rail Plan, including the former Conveyors plan, were based on years of service and eligible compensation during defined
periods of service. Our funding policy for the Portec Rail Plan is to make minimum annual contributions required by applicable regulations. Contributions of $297,000 and $235,000 were made to the plan on December 31, 2012 and 2011,
respectively.
68
The funded status of the United Kingdom defined benefit plan at year end is as follows:
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
|
2011
|
|
|
|
In thousands
|
|
Changes in benefit obligation:
|
|
|
|
|
|
|
|
|
Benefit obligation at beginning of year
|
|
$
|
6,964
|
|
|
$
|
6,229
|
|
Interest cost
|
|
|
338
|
|
|
|
331
|
|
Actuarial losses
|
|
|
652
|
|
|
|
544
|
|
Plan transfers
|
|
|
|
|
|
|
194
|
|
Benefits paid
|
|
|
(236
|
)
|
|
|
(309
|
)
|
Foreign currency exchange rate changes
|
|
|
316
|
|
|
|
(25
|
)
|
|
|
|
|
|
|
|
|
|
Benefit obligation at end of year
|
|
$
|
8,034
|
|
|
$
|
6,964
|
|
|
|
|
|
|
|
|
|
|
Change to plan assets:
|
|
|
|
|
|
|
|
|
Fair value of assets at beginning of year
|
|
$
|
5,160
|
|
|
$
|
5,293
|
|
Actual gain (loss) on plan assets
|
|
|
596
|
|
|
|
(233
|
)
|
Employer contribution
|
|
|
297
|
|
|
|
235
|
|
Plan transfers
|
|
|
|
|
|
|
194
|
|
Benefits paid
|
|
|
(236
|
)
|
|
|
(309
|
)
|
Foreign currency exchange rate changes
|
|
|
234
|
|
|
|
(20
|
)
|
|
|
|
|
|
|
|
|
|
Fair value of assets at end of year
|
|
|
6,051
|
|
|
|
5,160
|
|
|
|
|
|
|
|
|
|
|
Funded status at end of year
|
|
$
|
(1,983
|
)
|
|
$
|
(1,804
|
)
|
|
|
|
|
|
|
|
|
|
Amounts recognized in the consolidated
|
|
|
|
|
|
|
|
|
balance sheet consist of:
|
|
|
|
|
|
|
|
|
Other long-term liabilities
|
|
$
|
(1,983
|
)
|
|
$
|
(1,804
|
)
|
|
|
|
|
|
|
|
|
|
Net periodic pension costs for the three years ended December 31, 2012 are as follows:
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
|
2011
|
|
|
|
In thousands
|
|
Components of net periodic benefit cost:
|
|
|
|
|
|
|
|
|
Interest cost
|
|
$
|
338
|
|
|
$
|
331
|
|
Expected return on plan assets
|
|
|
(307
|
)
|
|
|
(337
|
)
|
Amortization of transition obligation
|
|
|
(49
|
)
|
|
|
(47
|
)
|
Amortization of prior service cost
|
|
|
23
|
|
|
|
22
|
|
Recognized net actuarial gain
|
|
|
221
|
|
|
|
107
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
$
|
226
|
|
|
$
|
76
|
|
|
|
|
|
|
|
|
|
|
The weighted average assumptions used to measure the benefit obligation for the years ended
December 31 were as follows:
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
|
2011
|
|
Discount rate
|
|
|
4.3
|
%
|
|
|
4.7
|
%
|
|
|
|
|
|
|
|
|
|
Expected rate of return on plan assets
|
|
|
5.2
|
%
|
|
|
5.7
|
%
|
|
|
|
|
|
|
|
|
|
69
Amounts applicable to the Companys pension plans with accumulated benefit obligations
in excess of plan assets are as follows:
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
|
2011
|
|
|
|
In thousands
|
|
Projected benefit obligation
|
|
$
|
8,034
|
|
|
$
|
6,964
|
|
Accumulated benefit obligation
|
|
|
8,034
|
|
|
|
6,964
|
|
Fair value of plan assets
|
|
|
6,051
|
|
|
|
5,160
|
|
|
|
|
|
|
|
|
|
|
The Company has estimated the long-term rate of return on plan assets based primarily on historical
returns on plan assets, adjusted for changes in target portfolio allocations and recent changes in long-term interest rates based on publicly available information.
Plan assets are invested by the trustees in accordance with a written statement of investment principles. This statement permits investment in equities, corporate bonds, United Kingdom government
securities, commercial property and cash, based on certain target allocation percentages.
Asset allocation is primarily based
on a strategy to provide steady growth without undue fluctuations. The target asset allocation percentages for 2012 are as follows:
|
|
|
|
|
Portec Rail
Plan
|
Equity securities
|
|
Up to 100%
|
Commercial property
|
|
Not to exceed 50%
|
U.K. Government securities
|
|
Not to exceed 50%
|
Cash
|
|
Up to 100%
|
Substantially all plan assets held within the Portec Rail Plan consists of marketable securities and are
classified in Level 1 of the fair value hierarchy.
The plan assets by category for the years ended December 31, are as
follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
|
In thousands
|
|
Asset Category
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
520
|
|
|
$
|
180
|
|
Equity securities
|
|
|
2,250
|
|
|
|
2,286
|
|
Bonds
|
|
|
1,529
|
|
|
|
965
|
|
Commercial property
|
|
|
1,636
|
|
|
|
1,264
|
|
Alternatives
|
|
|
116
|
|
|
|
465
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
6,051
|
|
|
$
|
5,160
|
|
|
|
|
|
|
|
|
|
|
United Kingdom regulations require trustees to adopt a prudent approach to funding required contributions
to defined benefit pension plans. The Company anticipates making contributions of $228,000 to the Portec Rail Plan during 2013.
70
The following estimated future benefits payments are expected to be paid under the Portec
Rail Plan:
|
|
|
|
|
|
|
Pension
|
|
|
|
Benefits
|
|
|
|
In thousands
|
|
2013
|
|
$
|
201
|
|
2014
|
|
|
232
|
|
2015
|
|
|
257
|
|
2016
|
|
|
290
|
|
2017
|
|
|
313
|
|
Years 2018 2022
|
|
|
1,960
|
|
Other Post-Retirement Benefit Plan
At Rail Technologies operation near Montreal, Quebec, Canada, it maintains a post-retirement benefit plan, which provides retiree life insurance, health care benefits and, for a closed group of
employees, dental care. Retiring employees with a minimum of 10 years of service are eligible for the plan benefits. The plan is not funded. Cost of benefits earned by employees is charged to expense as services are rendered. The expense related to
this plan was not material for 2012 and 2011. Rail Technologies accrued benefit obligation was $1,130,000 and $879,000 as of December 31, 2012 and 2011, respectively. Benefit payments anticipated for 2012 are not material. Accordingly,
this obligation is recognized within other long-term liabilities.
The weighted average assumptions used to measure the benefit
obligation for the years ended December 31 were as follows:
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
|
2011
|
|
Discount rate
|
|
|
4.4
|
%
|
|
|
5.3
|
%
|
|
|
|
|
|
|
|
|
|
Weighted average health care trend rate
|
|
|
6.6
|
%
|
|
|
7.0
|
%
|
|
|
|
|
|
|
|
|
|
The weighted average health care rate trends downward to an ultimate rate of 4.40% in 2032.
Defined Contribution Plans
The Company has a domestic defined contribution plan that covers all non-union hourly and all salaried employees (Salaried Plan). The Salaried Plan permits both pre-tax and after-tax employee
contributions. Participants can contribute, subject to statutory limitations, between 1% and 75% of eligible pre-tax pay and between 1% and 100% of eligible after-tax pay. The Companys employer match is 100% of the first 1% of deferred
eligible compensation and up to 50% of the next 6%, based on years of service, of deferred eligible compensation, for a total maximum potential match of 4%. The Company may also make discretionary contributions to the Salaried Plan.
The Company also has a domestic defined contribution plan for union hourly employees with contributions made by both the participants and
the Company based on various formulas (Union Plan).
The Companys Rail Technologies subsidiary maintains a defined
contribution plan covering all non-union employees at its Montreal, Quebec, Canada location (Montreal Plan). Under the terms of the Montreal Plan, Rail Technologies may contribute 4% of each employees compensation as a non-elective
contribution and may also contribute 30% of the first 6% of each employees compensation contributed to the Montreal Plan.
The Companys Rail Technologies subsidiary also maintains a defined contribution plan covering substantially all employees at its
United Kingdom locations (U.K. Plan). Benefits under the U.K. Plan are provided under no formal written agreement. Under the terms of the defined contribution U.K. Plan, Rail Technologies may make non-elective contributions of between 3% and 10% of
each employees compensation.
Finally, the Companys Rail Technologies subsidiary maintains a defined contribution
plan covering substantially all of the employees of at its Burnaby, British Columbia, Canada location (Burnaby Plan). Under the
71
terms of the Burnaby Plan, Rail Technologies makes a non-elective contribution of 4% of each employees compensation and may also contribute 30% of the first 6% of each employees
compensation contributed to the Burnaby Plan.
The following table summarizes the expense associated with the contributions
made to these plans. Due to the Company not acquiring Rail Technologies until December 15, 2010, there were no contributions made by the Company to the Montreal, U.K. or Burnaby Plans in 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
|
|
In thousands
|
|
Salaried Plan
|
|
$
|
2,028
|
|
|
$
|
1,846
|
|
|
$
|
1,700
|
|
Union Plan
|
|
|
79
|
|
|
|
62
|
|
|
|
34
|
|
Montreal Plan
|
|
|
126
|
|
|
|
101
|
|
|
|
|
|
U.K. Plan
|
|
|
116
|
|
|
|
122
|
|
|
|
|
|
Burnaby Plan
|
|
|
143
|
|
|
|
106
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,492
|
|
|
$
|
2,237
|
|
|
$
|
1,734
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 19.
Rental and Lease Information
The Company has capital and operating leases for certain plant facilities, office facilities, and equipment. Rental expense for the years ended December 31, 2012, 2011 and 2010 amounted to
$3,762,000, $4,367,000 and $3,674,000, respectively. Generally, land and building leases include escalation clauses.
The
following is a schedule, by year, of the future minimum payments under capital and operating leases, together with the present value of the net minimum payments as of December 31, 2012:
|
|
|
|
|
|
|
|
|
|
|
Capital
|
|
|
Operating
|
|
Year ending December 31,
|
|
Leases
|
|
|
Leases
|
|
|
|
In thousands
|
|
2013
|
|
$
|
37
|
|
|
$
|
3,138
|
|
2014
|
|
|
23
|
|
|
|
2,752
|
|
2015
|
|
|
5
|
|
|
|
2,051
|
|
2016
|
|
|
|
|
|
|
1,525
|
|
2017 and thereafter
|
|
|
|
|
|
|
2,998
|
|
|
|
|
|
|
|
|
|
|
Total minimum lease payments
|
|
|
65
|
|
|
$
|
12,464
|
|
|
|
|
|
|
|
|
|
|
Less amount representing interest
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total present value of minimum payments
|
|
|
62
|
|
|
|
|
|
Less current portion of such obligations
|
|
|
35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term obligations with interest rates ranging from 1.74% to 8.46%
|
|
$
|
27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets recorded under capital leases are as follows:
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
|
2011
|
|
|
|
In thousands
|
|
Land improvements
|
|
$
|
6,373
|
|
|
$
|
6,372
|
|
Machinery and equipment at cost
|
|
|
6,395
|
|
|
|
6,399
|
|
Buildings
|
|
|
399
|
|
|
|
399
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,167
|
|
|
|
13,170
|
|
Less accumulated amortization
|
|
|
12,556
|
|
|
|
11,019
|
|
|
|
|
|
|
|
|
|
|
Net capital lease assets
|
|
$
|
611
|
|
|
$
|
2,151
|
|
|
|
|
|
|
|
|
|
|
72
Included in the Companys Other Income in the Consolidated Statements of
Operations are gains recognized in connection with the Companys 2008 sale-leaseback transaction. During 2011, the Company provided the lessor of the Houston, TX property with written notice of the Companys termination of the lease in its
entirety effective April 30, 2012. As a result of this termination, the Company recognized $577,000 of previously deferred gain and is recorded in other income in the Consolidated Statement of Operations. Including this amount, the Company
recorded approximately $456,000, $1,081,000 and $215,000 within Other Income related to this transaction for the periods ended December 31, 2012, 2011 and 2010, respectively.
Note 20.
Fair Value Measurements
FASB ASC 820, Fair Value Measurements and Disclosures, defines fair value, establishes a framework for measuring fair value in accordance with accounting principles generally accepted in the
United States, and expands disclosures about fair value measurements. The Company applies the provisions of ASC 820 to all its assets and liabilities that are being measured and reported on a fair value basis.
ASC 820 discusses valuation techniques, such as the market approach (comparable market prices), the income approach (present value of
future income or cash flow) and the cost approach (cost to replace the service capacity of an asset or replacement cost). ASC 820 enables readers of financial statements to assess the inputs used to develop those measurements by establishing a
hierarchy, which prioritizes those inputs used, for ranking the quality and reliability of the information used to determine fair values. The standard requires that each asset and liability carried at fair value be classified into one of the
following categories:
Level 1:
Quoted market prices in active markets for identical assets or
liabilities.
Level 2:
Observable market-based inputs or unobservable inputs that are
corroborated by market data.
Level 3:
Unobservable inputs that are not corroborated by market
data.
The Company has an established process for determining fair value for its financial assets and liabilities, principally
cash and cash equivalents and foreign currency exchange contracts. Fair value is based on quoted market prices, where available. If quoted market prices are not available, fair value is based on assumptions that use as inputs market-based
parameters. The following sections describe the valuation methodologies used by the Company to measure different financial instruments at fair value, including an indication of the level in the fair value hierarchy in which each instrument is
generally classified. Where appropriate the description includes details of the key inputs to the valuations and any significant assumptions.
Cash equivalents.
Included within Cash and cash equivalents are investments in money market funds with various underlying securities all of which maintain AAA credit
ratings. Also included within cash equivalents are our investments in non-domestic bank certificates of deposit. The Company uses quoted market prices to determine the fair value of these investments and they are classified in Level 1 of
the fair value hierarchy. The carrying amounts approximate fair value because of the short maturity of the instruments.
IDSI acquisition notes.
The Company issued non-interest bearing notes associated with its 2010 acquisition of Interlocking
Deck Systems International, LLC (IDSI). The Company determined the fair value of these notes by computing the present value of the note payments using an interest rate formula applicable to the Companys long-term debt. This note was paid
during 2012. The note was included within Current maturities of long-term debt at December 31, 2011.
73
The following assets and liabilities of the Company were measured at fair value on a
recurring basis subject to the disclosure requirements of ASC 820 at December 31, 2012 and December 31, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at Reporting Date Using
|
|
|
|
|
|
|
Quoted Prices in
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
Active Markets
|
|
|
Other
|
|
|
Significant
|
|
|
|
|
|
|
for Identical
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
December 31,
|
|
|
Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
|
|
2012
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
|
In thousands
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic money market funds
|
|
$
|
58,620
|
|
|
$
|
58,620
|
|
|
$
|
|
|
|
$
|
|
|
Non domestic bank certificates of deposit
|
|
|
26,045
|
|
|
|
26,045
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents at fair value
|
|
|
84,665
|
|
|
|
84,665
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
84,665
|
|
|
$
|
84,665
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at Reporting Date Using
|
|
|
|
|
|
|
Quoted Prices in
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
Active Markets
|
|
|
Other
|
|
|
Significant
|
|
|
|
|
|
|
for Identical
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
December 31,
|
|
|
Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
|
|
2011
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
|
In thousands
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic money market funds
|
|
$
|
42,273
|
|
|
$
|
42,273
|
|
|
$
|
|
|
|
$
|
|
|
Non domestic bank certificates of deposit
|
|
|
22,520
|
|
|
|
22,520
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents at fair value
|
|
|
64,793
|
|
|
|
64,793
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
64,793
|
|
|
$
|
64,793
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IDSI acquisition short-term note
|
|
$
|
(945
|
)
|
|
$
|
|
|
|
$
|
(945
|
)
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current maturities of other long-term debt
|
|
|
(945
|
)
|
|
|
|
|
|
|
(945
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
$
|
(945
|
)
|
|
$
|
|
|
|
$
|
(945
|
)
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Information regarding the fair value disclosures associated with the assets of the Companys defined
benefit plans can be found in Note 18, Retirement Plans.
Note 21.
Commitments and Contingent Liabilities
Product Liability Claims
On July 12, 2011, the UPRR notified (UPRR
Notice) the Company and its subsidiary, CXT Incorporated (CXT), of a warranty claim under CXTs 2005 supply contract relating to the sale of prestressed concrete railroad ties to the UPRR. The UPRR asserted that a significant percentage of
concrete ties manufactured in 2006 through 2011 at CXTs Grand Island, NE facility failed to meet contract specifications, had workmanship defects and were cracking and failing prematurely. Approximately 1.6 million ties were sold from
Grand Island, NE to the UPRR during the period the UPRR had claimed nonconformance. The 2005 contract called for each concrete tie which failed to conform to the specifications or had a material defect in workmanship to be replaced with 1.5 new
concrete ties, provided, that UPRR within five years of the sale of a concrete tie, notified CXT of such failure to conform or such defect in workmanship. The UPRR Notice did not specify how many ties manufactured during this period were defective
nor the exact nature of the alleged workmanship defect. Additionally, UPRR
74
notified the Company that a customer of the UPRR asserted that a representative sample of ties manufactured by the Companys Grand Island, NE facility failed a test contained in the contract
specification. At the customers request, UPRR removed approximately 115,000 concrete ties, which were a subset of the ties subject to the UPRR Notice.
Beginning in July 2011 through the second quarter of 2012, the Company worked with material scientists and prestressed concrete experts to test a representative sample of Grand Island, NE concrete ties
and assess warranty claims for certain concrete ties made in its Grand Island, NE facility between 1998 and 2011. The Company discontinued manufacturing operations in Grand Island, NE in early 2011.
During 2012, the Company completed sufficient testing and analysis to further understand this matter. Additionally, in a combined effort
with UPRR, the Company analyzed Grand Island, NE concrete ties in track. Based upon these findings, the Company believed it discovered conditions, which largely related to the 2006 to 2007 manufacturing period, that can shorten the life of the
concrete ties produced during this period. The Company also agreed on a process with the UPRR for identifying, prioritizing and replacing ties that meet the criteria for replacement. This process will be applied to the ties the Company shipped to
the UPRR from its Grand Island, NE facility from 1998 to 2011. During most of this period the Companys warranty policy for UPRR carried a 5 year warranty with a 1.5:1 replacement ratio for any defective ties. In order to accommodate the UPRR
and other customer concerns, the Company reverted to a previously used warranty policy. This will result in all concrete ties with a 5 year warranty and a 1.5:1 replacement ratio, now having a 15 year warranty and a 1:1 replacement ratio. This
change will provide an additional 10 years of warranty protection. The 1:1 replacement ratio will furnish one tie for each tie replaced under the Companys claims process. During the fourth quarter of 2012, the Company reached agreement with
the UPRR resulting in the Company and the UPRR working together to identify and replace defective ties. The process of planning and documenting will be done by both the Company and the UPRR to ensure this is done in a timely manner. In connection
with this agreement, the Company and the UPRR agreed on a cash payment of $12.0 million to the UPRR as compensation for concrete ties replaced by the UPRR during the investigation period.
During 2012, as a result of testing the Company conducted on concrete ties manufactured at its former Grand Island, NE facility and of the
related developments of the UPRR and other customer matters, the Company recorded pre-tax warranty charges of approximately $22.0 million in Cost of Goods Sold within its Rail Products segment based on the Companys estimate of the
number of defective concrete ties that will ultimately require replacement during the applicable warranty periods.
The Company
is subject to product warranty claims that arise in the ordinary course of its business. For certain manufactured products, the Company maintains a product warranty accrual which is adjusted on a monthly basis as a percentage of cost of sales. This
product warranty accrual is periodically adjusted based on the identification or resolution of known individual product warranty claims. The following table sets forth the Companys continuing operating activities product warranty accrual:
|
|
|
|
|
|
|
In thousands
|
|
Balance at December 31, 2010
|
|
$
|
4,403
|
|
Additions to warranty liability
|
|
|
4,437
|
|
Warranty liability utilized
|
|
|
(2,208
|
)
|
|
|
|
|
|
Balance at December 31, 2011
|
|
|
6,632
|
|
Additions to warranty liability
|
|
|
24,252
|
|
Warranty liability utilized
|
|
|
(15,157
|
)
|
|
|
|
|
|
Balance at December 31, 2012
|
|
$
|
15,727
|
|
|
|
|
|
|
Included within the above table are concrete tie warranty reserves of approximately $14,837,000,
$5,160,000 and $1,966,000, respectively, as of December 31, 2012, 2011 and 2010. For the periods ended December 31, 2012, 2011 and 2010, the Company recorded approximately $23,019,000, $3,469,000 and $750,000, respectively, in pre-tax
concrete tie warranty charges within Cost of Goods Sold in the Companys Rail Products segment primarily related to concrete ties manufactured at the Companys former Grand Island, NE facility.
75
While the Company believes this is a reasonable estimate of these potential warranty claims,
these estimates could change due to new information and future events. There can be no assurance at this point that future potential costs pertaining to these claims or other potential future claims will not have a material impact on the
Companys results of operations.
Environmental and Legal Proceedings
The Company is subject to national, state, foreign, provincial and/or local laws and regulations relating to the protection of the
environment. The Company is monitoring its potential environmental exposure related to current and former Rail Technologies facilities. The Companys efforts to comply with environmental regulations may have an adverse effect on its 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 also 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 condition or liquidity of the Company. The resolution, in any reporting period, of one or
more of these matters could have a material effect on the Companys results of operations for that period.
As of
December 31, 2012 and December 31, 2011, the Company maintained environmental and litigation reserves approximating $2,141,000 and $2,184,000, respectively.
On January 11, 2012, CXT received a subpoena from the United States Department of Transportation Inspector General (IG) requesting records related to its manufacture of concrete railroad ties in
Grand Island, NE. CXT and the Company have been cooperating fully with the IG.
76
Note 22.
Quarterly Financial Information (Unaudited)
As more fully described in Note 4 of the Notes to the Consolidated Financial Statements, Discontinued Operations, the Company sold its SSD and Precise businesses in June 2012 and August 2012,
respectively. The operations of these divisions qualify as a component of an entity under FASB ASC 205-20 and thus, the operations have been reclassified as discontinued and prior periods have been reclassified to conform to this
presentation.
Quarterly financial information for the years ended December 31, 2012 and 2011 is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
|
|
|
|
Quarter
|
|
|
Quarter(1)
|
|
|
Quarter(2)
|
|
|
Quarter
|
|
|
Total
|
|
|
|
In thousands, except per share amounts
|
|
Net sales
|
|
$
|
114,291
|
|
|
$
|
163,180
|
|
|
$
|
170,346
|
|
|
$
|
140,724
|
|
|
$
|
588,541
|
|
Gross profit
|
|
$
|
21,652
|
|
|
$
|
12,334
|
|
|
$
|
30,713
|
|
|
$
|
27,570
|
|
|
$
|
92,269
|
|
Income from continuing operations
|
|
$
|
2,979
|
|
|
$
|
(3,321
|
)
|
|
$
|
8,463
|
|
|
$
|
6,643
|
|
|
$
|
14,764
|
|
Income from discontinued operations
|
|
$
|
390
|
|
|
$
|
1,250
|
|
|
$
|
(238
|
)
|
|
$
|
22
|
|
|
$
|
1,424
|
|
Net income
|
|
$
|
3,369
|
|
|
$
|
(2,071
|
)
|
|
$
|
8,225
|
|
|
$
|
6,665
|
|
|
$
|
16,188
|
|
Basic earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From continuing operations
|
|
$
|
0.30
|
|
|
$
|
(0.33
|
)
|
|
$
|
0.83
|
|
|
$
|
0.65
|
|
|
$
|
1.46
|
|
From discontinued operations
|
|
$
|
0.04
|
|
|
$
|
0.12
|
|
|
$
|
(0.02
|
)
|
|
$
|
|
|
|
$
|
0.14
|
|
Basic earnings per common share
|
|
$
|
0.33
|
|
|
$
|
(0.20
|
)
|
|
$
|
0.81
|
|
|
$
|
0.66
|
|
|
$
|
1.60
|
|
Diluted earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From continuing operations
|
|
$
|
0.29
|
|
|
$
|
(0.33
|
)
|
|
$
|
0.83
|
|
|
$
|
0.65
|
|
|
$
|
1.44
|
|
From discontinued operations
|
|
$
|
0.04
|
|
|
$
|
0.12
|
|
|
$
|
(0.02
|
)
|
|
$
|
|
|
|
$
|
0.14
|
|
Diluted earnings per common share
|
|
$
|
0.32
|
|
|
$
|
(0.20
|
)
|
|
$
|
0.81
|
|
|
$
|
0.65
|
|
|
$
|
1.58
|
|
Dividends paid per common share
|
|
$
|
0.025
|
|
|
$
|
0.025
|
|
|
$
|
0.025
|
|
|
$
|
0.025
|
|
|
$
|
0.10
|
|
(1)
|
Includes a pre-tax gain of approximately $3,508,000 from the Companys sale of SSD.
|
(2)
|
Includes a pre-tax loss of approximately $315,000 from the Companys sale of Precise.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
|
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter(3)
|
|
|
Quarter
|
|
|
Total
|
|
|
|
In thousands, except per share amounts
|
|
Net sales
|
|
$
|
113,688
|
|
|
$
|
169,591
|
|
|
$
|
158,323
|
|
|
$
|
133,735
|
|
|
$
|
575,337
|
|
Gross profit
|
|
$
|
16,986
|
|
|
$
|
25,306
|
|
|
$
|
29,594
|
|
|
$
|
26,524
|
|
|
$
|
98,410
|
|
Income from continuing operations
|
|
$
|
605
|
|
|
$
|
6,294
|
|
|
$
|
9,351
|
|
|
$
|
5,817
|
|
|
$
|
22,067
|
|
Income from discontinued operations
|
|
$
|
(76
|
)
|
|
$
|
229
|
|
|
$
|
389
|
|
|
$
|
286
|
|
|
$
|
828
|
|
Net income
|
|
$
|
529
|
|
|
$
|
6,523
|
|
|
$
|
9,740
|
|
|
$
|
6,103
|
|
|
$
|
22,895
|
|
Basic earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From continuing operations
|
|
$
|
0.06
|
|
|
$
|
0.61
|
|
|
$
|
0.92
|
|
|
$
|
0.58
|
|
|
$
|
2.16
|
|
From discontinued operations
|
|
$
|
(0.01
|
)
|
|
$
|
0.02
|
|
|
$
|
0.04
|
|
|
$
|
0.03
|
|
|
$
|
0.08
|
|
Basic earnings per common share
|
|
$
|
0.05
|
|
|
$
|
0.63
|
|
|
$
|
0.96
|
|
|
$
|
0.61
|
|
|
$
|
2.24
|
|
Diluted earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From continuing operations
|
|
$
|
0.06
|
|
|
$
|
0.60
|
|
|
$
|
0.91
|
|
|
$
|
0.57
|
|
|
$
|
2.14
|
|
From discontinued operations
|
|
$
|
(0.01
|
)
|
|
$
|
0.02
|
|
|
$
|
0.04
|
|
|
$
|
0.03
|
|
|
$
|
0.08
|
|
Diluted earnings per common share
|
|
$
|
0.05
|
|
|
$
|
0.63
|
|
|
$
|
0.95
|
|
|
$
|
0.60
|
|
|
$
|
2.22
|
|
Dividends paid per common share
|
|
$
|
|
|
|
$
|
0.050
|
|
|
$
|
0.025
|
|
|
$
|
0.025
|
|
|
$
|
0.10
|
|
(3)
|
Includes a pre-tax gain of approximately $577,000 associated with the early termination of the lease associated with the Companys sale-leaseback transaction.
|
77