-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, tGYCY8ys9SxfkKZWbGXCHReZRQshHVCv63GYlIC66nNtedClHQ/1ABCVwLIUusg8 fOx20KnRgIQrvBk0D0PYuw== 0000079570-95-000005.txt : 199507120000079570-95-000005.hdr.sgml : 19950711 ACCESSION NUMBER: 0000079570-95-000005 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 19941231 FILED AS OF DATE: 19950328 SROS: CBOE SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PORTEC INC CENTRAL INDEX KEY: 0000079570 STANDARD INDUSTRIAL CLASSIFICATION: CONSTRUCTION MACHINERY & EQUIP [3531] IRS NUMBER: 361637250 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 001-00500 FILM NUMBER: 95523801 BUSINESS ADDRESS: STREET 1: 122 W 22ND ST STE 100 CITY: OAK BROOK STATE: IL ZIP: 60521 BUSINESS PHONE: 7085734600 MAIL ADDRESS: STREET 1: 122 WEST 22ND STREET CITY: OAK BROOK STATE: IL ZIP: 60521 FORMER COMPANY: FORMER CONFORMED NAME: POOR & CO DATE OF NAME CHANGE: 19680816 10-K405 1 ANNUAL REPORT FORM 10-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 (Mark One) ( X ) Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (Fee required) For the fiscal year ended December 31, 1994 or ( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (No Fee Required) Commission file number 1-500 PORTEC, INC. (Exact name of Registrant as specified in its charter) Delaware 36-1637250 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) One Hundred Field Drive, Lake Forest, Illinois 60045 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (708) 735-2800 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange on Title of each class which registered Common Stock -- $1 par value New York Stock Exchange (voting) Chicago Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes X No ___. Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. (X) As of March 24, 1995, 4,295,353 shares of Registrant's common stock were issued and outstanding and the aggregate market value of such shares (based upon the closing price for such shares shown on the Composite Tape on that date) held by non-affiliates of Registrant was approximately $43,246,000. For this purpose, non-affiliates are deemed to be all stockholders other than directors and officers of the Registrant. Portions of Registrant's 1994 Annual Report to Stockholders (Parts I, II and IV of Form 10-K) and portions of PORTEC, Inc.'s Proxy Statement for its 1995 Annual Meeting of Stockholders (Parts I and III of Form 10-K) are incorporated herein by reference. PART I Item 1. Description Of Business. (a) General Development Of Business. Registrant (hereinafter referred to as the "Company") was incorporated in Delaware in 1928 as Poor & Company, combining the businesses of several compa- nies which supplied the railroad industry with a line of track components and equipment and supplied other industries with steel forgings. Since then, the Company has changed the scope of its operations through internal development, acquisitions and dispositions to include the manufacture and sale of track components, load securement systems, construction equipment and materials handling equipment. Additional information regarding the Company's business is contained on pages 4 through 9 of the Company's 1994 Annual Report to Stockholders ("1994 Annual Report") and said Section is incorporated herein by reference. The Company's name was changed to PORTEC, Inc. in 1968. The Company executed a Credit Agreement amended as of April 26, 1994 ("Credit Agreement") with the NBD Bank which provides the Company with a term loan and a revolving credit facility. None of the Company's assets were required to be pledged as security under the amended Credit Agreement. Portec, Ltd., a wholly-owned subsidiary of the Company, executed a Credit Authorization as of July 15, 1994 with NBD Bank, Canada which provides for a term loan of $4,000,000 on an unsecured basis. For additional information on the Credit Agreement and Credit Authorization see Note 5 of the Notes to Consolidated Financial Statements appearing on page 23 of the 1994 Annual Report. During the past five years, the Company has made acquisitions as follows: On November 1, 1993, Portec, Ltd., the Company's Canadian subsidiary, acquired the assets of Welland Vale, Ltd. Located in St-Jean, Quebec, Welland Vale, Ltd. had been the principal supplier of rail anchors, the primary product of Portec Ltd., for many years. In November 1993, the Company acquired the assets of Nor-East Equipment, a manufacturer of conveyor systems for solid waste recycling facilities. In December, Portec (U.K.) Ltd., the Company's subsidiary in the United Kingdom, purchased the assets of PVH Engineering which added a number of products related to existing materials handling lines. On April 29, 1994, the Company acquired certain of the assets of Count Recycling Systems, Inc. Located in Des Moines, Iowa, Count Recycling Systems, Inc. is a supplier of materials recovery facilities (MRF's) for the sorting and recycling of residential and commercial solid waste. The Company acquired certain assets of Innovator Manufacturing, Inc. on July 18, 1994. Innovator Manufacturing, Inc., located in London, Ontario, Canada, is a producer of equipment used for the processing of green yard waste, waste wood and demolition debris. Immediately following the purchase, production was transferred from London, Ontario to Yankton, South Dakota. Portec, Ltd., a wholly-owned subsidiary of the Company acquired the stock of Innovator Holdings on July 20, 1994. (b) Financial Information About Industry Segments. Financial information and identifiable assets' information applicable to the Company's business segments are contained in the Section entitled "Busi- 2 ness Segments", appearing on page 10 of the 1994 Annual Report. Note 14 of the Notes to Consolidated Financial Statements appearing on page 31 of the 1994 Annual Report contains additional information related to the business segments, and said Section and Note are incorporated herein by reference. (c) Narrative Description Of Business. (i) Description Of Business, Products And Markets. A description of the Company's continuing business and descriptive information about the Company's products, business units and methods of distribution included in each business segment are contained on pages 4 through 9 of the 1994 Annual Report and those pages are incorporated herein by reference. Principal markets served are reflected in the Company's three business segment's namely,Construction Equip- ment, Materials Handling and Railroad. (ii) Announced New Products Or Segments Of Material Importance. The Company regularly makes improvements to its existing products and develops new products. However, during 1994 these activities did not require the invest- ment of a material amount of the assets of the Company and this practice is expected to continue in 1995. (iii) Sources And Availability Of Materials. Steel and steel fabrica- tions are the principal materials used in the Company's products. There are a large number of domestic and foreign suppliers of these materials. (iv) Patents, Trademarks And Licenses. The Company owns a number of patents, trademarks and licenses applicable to each of its business segments and considers them, in the aggregate, to be of competitive importance. However, the Company does not consider that any single patent, trademark or license or group of patents, trademarks or licenses is of such importance that its or their loss would materially affect the Company's business as a whole. (v) Seasonality Of Business. The demand for certain of the Company's products is subject to seasonal fluctuations. In particular, the Company's Construction Equipment and Railroad product lines experience normal downturns in sales during the end of the third and throughout the fourth quarters due in large part to reductions in construction and track work. This reduction in sales generally has a negative impact on the Company's fourth quarter results. (vi) Working Capital. The Company's working capital requirements are consistent with those of other industrial companies with which it is in competition. As pointed out in the immediately preceding paragraph (v), the demand for certain of the Company's products is subject to seasonal fluctua- tions. These fluctuations result in a need for increased working capital during the first six months of a year. The Company had current ratios of 1.6, 1.5 and 1.5 to 1 at December 31, 1994, 1993 and 1992, respectively. (vii) Principal Customers Of Business Segments. No segment of the Com- pany's business is dependent upon a single customer; however, the Company's Railroad segment is mainly dependent upon sales to United States and Canadian railroads and TTX Company. In 1994, no single customer accounted for 10 perce or more of the Company's consolidated revenues. (viii) Backlog Of Orders. The Company's backlog of orders at December 31, 1994, was $24,339,000, compared with backlog at December 31, 1993, of $21,055,000. The backlog at December 31, 1994, is believed to be firm and 100% is deliverable in 1995. Orders received in 1994 were $100,687,000, an 18% increase from $84,996,000 in orders received in 1993. 3 (ix) Government Contracts. The Company provides goods to various branches or departments of the United States Government. These sales are routine in nature and do not comprise a significant amount of the Company's business. (x) Competitive Conditions. The markets in which the Company sells its products are highly competitive in the areas of price, delivery, service, warranty and product performance. In each of its business segments, the Company competes with several different companies, some of which are larger and have greater financial resources. (xi) Research And Development. The Company estimates research expendi- tures for continuing operations related to the development of new products and improvements of existing products were $510,000, $475,000 and $445,000 for the years 1994, 1993 and 1992, respectively. Customer-spon- sored research activities were not material in those years. (xii) Environment Expenditures. Compliance with federal, state and local laws relating to the discharge of materials into the environment or otherwise relating to the protection of the environment did not have a material effect upon capital expenditures, earnings or competitive position of the Company in 1994 and are not expected to have a material effect on 1995 results. In regard to environmental matters, see the Subsection entitled "Environmental" of the Section entitled "Management's Discussion And Analysis" appearing on page 15 of the 1994 Annual Report and said Subsection is incorporated herein by reference. (xiii) Number Of Employees. The number of persons employed by the Company as of December 31, 1994, was 779 compared with 619 at December 31, 1993. (d) Financial Information About Foreign And Domestic Operations And Exports Sales. The Section entitled "Geographic Areas" appearing on page 11 of the 1994 Annual Report contains information as to the Company's United States, interna- tional and export net sales, operating profit and identifiable assets and said Section is incorporated herein by reference for each of the years 1994, 1993 and 1992. The Company is not aware of any extraordinary risks related to its foreign operations. Item 2. Properties. The Company's principal operations are conducted at the designated properties listed below. The buildings on these properties are of various ages and construction, generally considered satisfactorily maintained and suitable for the Company's operations and, except as otherwise indicated, are owned by the Company. United States Properties: Approx. Principal Business Sq. Ft. Segments Using Location of Bldg. Description Property Lake Forest, Illinois 3,200 Principal office of the Company Corporate Office occupied under lease expiring October 21, 1999. Canon City, Colorado 61,000 Flomaster and Pathfinder (c) 4 Divisions' production facility. Canon City, Colorado 58,800 Material Handling Group's (c) principal office and production facility. Des Moines, Iowa 5,000 Count Recycling Systems Division's (c) principal offices occupied under lease expiring October 1999. Huntington, West Virginia 103,600 Railway Maintenance Products (b) Division's principal production facility occupied under lease expiring October 1999. Minneapolis, Minnesota 139,000 Pioneer Division's former - office and production facility. (d) Oak Brook, Illinois 5,200 Principal offices of the (b) Shipping Systems Division occupied under lease expiring November 1997 with option to cancel on January 31, 1996. Pittsburgh, Pennsylvania 166,000 Railway Maintenance Products (b) Division's office and former railway maintenance equipment production facility. (e) Troy, New York 137,000 Railway Maintenance Products - Division's former rail joint production facility. (d) Yankton, South Dakota 230,000 Construction Equipment (a) Division's principal offices and production facilities. Foreign Properties: Approx. Principal Business Sq. Ft. Segments Using Location of Bldg. Description Property Birmingham, England 3,800 PORTEC (U.K.) Ltd's Research & (b) Development office occupied under lease expiring March 1, 1998. Ruabon, Wrexham Clwyd, Wales 22,000 Portec (U.K.) Ltd.'s principal (b) office and production facility. Stoke on Trent 65,000 Portec (U.K.) Ltd.'s production (b) Staffordshire, England facility - occupied under lease expiring November 30, 1996. Montreal, Canada 6,300 Portec, Ltd.'s principal (b) office - occupied under lease expiring April 30, 1996. 5 Saint-Jean, Canada 35,000 Portec, Ltd.'s principal (b) production facility St. Thomas, Canada 4,000 Innovator Holdings principal (a) office occupied under lease expiring November 11, 1997. (a) Construction Equipment Segment. (b) Railroad Segment. (c) Materials Handling Segment. (d) Presently being offered for sale. (e) Presently leased to a tenant who has an option to buy.
Item 3. Legal Proceedings. The Company was a defendant in a suit entitled "Dellelce Construction and Equipment v. PORTEC, Inc. and Kesmark Ltd." in the Supreme Court of Ontario, District of York, Canada, Case No. 4490A/81. This case involved a rock crushing plant manufactured by the Company and purchased by Dellelce in 1977. Dellelce claimed that the plant did not perform to specifications and request- ed damages of several million dollars related primarily to alleged lost profits. The case was heard by the Court which decided in May 1990 that the Company was not responsible for damages to Dellelce. An appeal of this decision by Dellelce and the successor of Kesmark Ltd. is pending before the Ontario Court of Appeal in Toronto, Canada. The Company was a defendant in a case entitled Northern Engineering Industries, plc. Parsons-Peebles Electric Products Inc. and NEI Cranes Ltd. vs. PORTEC, Inc. (RMC Division) in the Circuit Court of Cook County, Illinois, Case No. 84-CH-9086. The case commenced in November 1984. On November 1, 1984, the final payment of $900,000 was due the Company on a note from Parsons-Peebles Electric Products, Inc., the company which bought Portec's Electric Products Division in 1979, and said amount was guaranteed by Northern Engineering Industries ("NEI"). The plaintiffs claimed that the Company defaulted under its license agreement with NEI Cranes, Ltd., also a subsidiary of NEI, and, as a result, NEI Cranes lost royalties and profits, etc. in an amount in excess of ten million dollars. As part of their claim for damages, plaintiffs alleged that the Company fraudulently induced NEI Cranes to enter into the license agreement. On November 15, 1994 a settlement agreement was entered into whereby the plaintiff paid the Company $2,002,000 in cash and the charges against the Company were dismissed. Interest of $1,102,000 on the note had not been accrued by the Company. There are various other lawsuits and claims pending against the Company. In the opinion of management, any liabilities that may result from such lawsuits and claims will not materially affect the consolidated financial position of the Company. Item 4. Submission Of Matters To A Vote Of Security Holders. During the fourth quarter of 1994, there were no matters submitted to a vote of security holders of the Company through the solicitation of proxies or otherwise. Executive Officers Of The Company. The following is a list of the Company's executive officers, their ages, and their positions and offices as of March 24, 1995: 6 Name of Age as of Current Position with Officer Executive March 24, 1995 The Company Since Albert Fried, Jr. 65 Chairman of the Board 1989 Michael T. Yonker 52 President and Chief 1988 Executive Officer and Director John S. Cooper 60 Senior Vice President, 1983 Group Executive of the Railroad Group and General Manager of the Railway Maintenance Products Division Nancy A. Dedert-Kindl 53 Vice President, 1982 Treasurer, Secretary, Controller and Chief Financial Officer Family Relationships And Agreements There are no family relationships among the officers. Each executive officer except Mr. Fried has an agreement with the Company relating to his or her employment as generally described in the Section entitled "Employment, Termination, and Change-in-Control Agreements" appearing on pages 13 and 14 of the Company's 1995 Proxy Statement and said Section is incorporated herein by reference. The Company's officers are chosen by its Board of Directors. Any officer elected or appointed by the Board may be removed with or without cause at any time by the affirmative vote of the majority of the whole Board. Business Experience Mr. Albert Fried, Jr. became a member of the Company's Board of Directors in December 1988 and the Company's Chairman of the Board in October 1989. He has been a member of the Company's Nominating Committee since December 1989. He has been the Managing Partner of Albert Fried & Company, New York, New York (investment banking) for more than ten years and also is the Managing Partner of Buttonwood Specialists, L.P. New York, New York, specialists on the New York Stock Exchange. He is a member of the New York Stock Exchange, Inc. and the New York Futures Exchange. He is a director and vice-chairman of Oneita Industries, Inc. and is also a director of various civic and philanthropic organizations. Mr. Michael T. Yonker joined the Company as President and Chief Executive Officer in December 1988, and continues to serve the Company in that capacity. He became a director in December 1989 and has been a member of the Company's Nominating Committee since December 1989. For the period of October 1981 until December 1988, he was the Vice President and Drive Division Manager of P. T. Components, Inc., of Philadelphia, Pennsylvania (industrial gear drives) which was formed as a private company in October 1981. He is a director of Crown Andersen, Inc., Modine Manufacturing Company and Woodward Governor Company. Mr. John S. Cooper was employed by the Company in July 1979 as Division Vice President of Operations of the Company's Railcar Division, became Division Vice President and General Manager of the Railcar Division in August 1980, Vice President and Group Executive in June 1983, Vice President and General Manager of the RMC Division in April 1985 and Senior Vice President and Group Executive of the Railroad Group in February 1987. 7 Ms. Nancy A. Dedert-Kindl was employed by the Company in August 1974, and has held various accounting, auditing, tax and other financial positions with the Company. She left the Company in December 1988 to take a position with Amoco Technology Company as the Director of Acquisition Projects and returned to the Company in November 1989 to fill the position of Vice President, Treasurer and Controller. She also assumed the positions of Secretary and Chief Financial Officer effective January 1, 1993. Other There have been no events under any bankruptcy act, no criminal proceed- ings and no judgments or injunctions material to the evaluation of the ability and integrity of the above-name executive officers during the past five years. PART II Item 5. Market For The Company's Common Stock And Related Stockholder Matters. (a) Principal Markets. The principal markets on which the Company's common stock is traded are the: New York Stock Exchange and Chicago Stock Exchange. (b) Approximate Number of Holders of Common Stock. Based on information provided by the Company's stock transfer agent, the number of holders of record of the Company's common stock as of March 24, 1995 was 1,321. (c) Stock Prices and Dividend Information. The information contained in the Section entitled "Quarterly Stock & Dividend Information" appearing on page 36 of the 1994 Annual Report presents for the years 1994 and 1993 quarterly high and low prices of the Company's common stock, and said Section is incorporated herein by reference. There were no cash dividends paid in 1994 or 1993; however, a 10 percent stock dividend was paid on the shares of common stock on December 14, 1993 and on December 15, 1994. The closing price for shares of common stock on the Composite Tape on March 24, 1995 was $12.25. The Company's Agreement with NBD Bank limits the Company's right to pay cash dividends to an amount not to exceed 50% of the cumulative consolidated net income of the Company and its subsidiaries earned after February 12, 1993. Item 6. Selected Financial Data. The Section entitled "Five-Year Summary" appearing on page 1 of the 1994 Annual Report contains selected financial data relating to the Company and should be read in conjunction with the Consolidated Financial Statements and Notes thereto appearing on pages 17 through 32 of the 1994 Annual Report. Said Section and pages 17 through 32 are incorporated herein by reference. Also, Item 1.(a) of this Report should be read in conjunction with this item. Item 7. Management's Discussion And Analysis Of Financial Condition And Results Of Operations. The Section entitled "Management's Discussion And Analysis" appearing on pages 12 through 16 of the 1994 Annual Report contains information as to the Company's financial condition, changes in financial condition and results of operations and said Section is incorporated herein by reference. Also, the letter "To Our Stockholders and Employees" appearing on pages 2 and 3, of the 1994 Annual Report, is incorporated herein by reference. 8 Item 8. Financial Statements And Supplementary Data. The Consolidated Financial Statements, and Notes thereto appearing on pages 17 through 32 in the 1994 Annual Report, together with the report thereon of Price Waterhouse LLP dated February 16, 1995, appearing on page 33 in the 1994 Annual Report contain financial information relating to the Company and are incorporated herein by reference. Item 9. Changes In And Disagreements With Accountants On Accounting and Financial Disclosure. None. PART III Item 10. Directors And Executive Officers Of The Company. The Sections entitled "Nominees For Election As Directors", "Directors Whose Term Continue Until 1996", and "Directors Whose Term Continue Until 1997" appearing on pages 3 through 5, of the Company's 1995 Proxy Statement contain information relating to directors and nominees for directors and are incorporated herein by reference. Certain information as to the Company's executive officers is contained in the Section entitled "Executive Officers Of The Company" in Part I of this Form 10-K. Item 11. Executive Compensation. The Section entitled "Compensation Of Executive Officers" and the Subsec- tions thereunder appearing on pages 10 through 17 of the 1995 Proxy Statement, the Section entitled "Employment, Termination, and Change-in-Control Agree- ments" appearing on pages 13 and 14 of the 1995 Proxy Statement, the Subsec- tion entitled "Compensation" of the Section entitled "Board of Director's Matters" appearing on page 6 of the 1995 Proxy Statement, the Section entitled "Compensation Committee Interlocks and Insider Participation" appearing on page 7 of the 1995 Proxy Statement, the Section entitled "Report Of The Stock Option and Compensation Committee Of The Board of Directors" appearing on pages 14 through 16 of the 1995 Proxy Statement and the Section entitled "Performance Graph" appearing on page 17 of the 1995 Proxy Statement are incorporated herein by reference and contain certain information relating to past and prospective remuneration matters applicable to directors and execu- tive officers of the Company and said Sections and Subsections are incor- porated herein by reference. Item 12. Security Ownership Of Certain Beneficial Owners And Management. The Section entitled "Stock Ownership" appearing on pages 7 through 9 of the 1995 Proxy Statement contains information relating to ownership of common stock of the Company by certain beneficial owners and management, and said Section is incorporated herein by reference. Item 13. Certain Relationships And Related Transactions. None. PART IV 9 Item 14. Exhibits, Financial Statement Schedules And Reports On Form 8-K. (a)(1) Consolidated Financial Statements of PORTEC, Inc.: Page In 1994 Annual Report Consolidated Statements of Income For the Years Ended December 31, 1994, 1993 and 1992............... 17 Consolidated Balance Sheets at December 31, 1994 and 1993... 18 Consolidated Statements of Cash Flows For the Years Ended Decenber 31, 1994, 1993 and 1992..................... 19 Notes to Consolidated Financial Statements (including Unaud- ited Quarterly Financial Information)...................... 20 Report of Independent Accountants........................... 33 (2) Financial Statement Schedules: Report of Independent Accountants on Financial Statement Schedules................................................... 17 Valuation and Qualifying Accounts and Reserves (Schedule VIII)....................................................... 18 All other schedules are omitted, because they are not applicable or the required information is shown in the financial statements or notes thereto. (3) Exhibits: 3(a) The Company's Certificate of Incorporation, as amended to April 29, 1987, a copy of which was included as Item 6(a)3 of the Company's Form 10-Q Report for the quarter ended March 31, 1987.* 3(b) The Company's By-Laws, as amended April 23, 1991, a copy of which was included as Item 6(a) 3 of the Company's Form 10-Q Report for the quarter ended March 31, 1991.* 4(a) Credit Agreement dated as of February 12, 1993 by and between NBD Bank and the Company, a copy of which was included as Item 7 (4)(a) of the Company's Form 8-K Report dated March 18, 1993.* 4(b) First amendment to Credit Agreement dated as of April 26, 1994 by and between NBD Bank and the Company. 10(a) The Division Management Incentive Compensation Plan effective January 1, 1995.(x) 10 10(b) The Key Management Incentive Compensation Plan effective January 1, 1995.(x) 10(c) The Company's Supplemental Non-Qualified Retirement Income Plan For Designated Executive Employees as amended effective January 1, 1994. (x) 10(d) The 1982 PORTEC, Inc. Employees' Stock Benefit Plan, as amended effec- tive April 24, 1984, a copy of which was included as Item 14(a)(3)10- (l) of Part IV of the Company's Form 10-K Report for the year ended December 31, 1984.*(x) 10(e) The 1988 PORTEC, Inc. Employees' Stock Benefit Plan, as amended effec- tive April 26, 1994.(x) 10(f) Amendment to The 1988 PORTEC, Inc. Employees' Stock Benefit Plan, a copy of which was included as Proposal 2 on pages 18 through 25 of the Company's 1995 Proxy Statement.*(x) 10(g) Agreement dated February 28, 1989, between the Company and M. T. Yonker, a copy of which was included as Item 14 (a)(3)10(o) of Part IV of the Company's Form 10-K Report for the year ended December 31, 1988.*(x) 10(h) Letter Agreement dated December 12, 1989, between the Company and M. T. Yonker which amended the agreement dated February 28, 1989, between the Company and M. T. Yonker, a copy of which was included as Item 14(a)(3)10(o) of Part IV of the Company's Form 10-K Report for the year ended December 31, 1989.*(x) 10(i) Agreement and Release made January 9, 1990, between the Company and John S. Cooper, a copy of which was included as Item 14(a)(3)10(p) of Part IV of the Company's Form 10-K Report for the year ended December 31, 1989.*(x) 10(j) Employment Agreement dated November 16, 1989, between the Company and N. A. Dedert-Kindl, a copy of which was included as Item 14(a)(3)10(r) of Part IV of the Company's Form 10-K Report for the year ended December 31, 1989.*(x) 11 The Company's statement regarding computations of per share earnings. 13 The Company's 1994 Annual Report to Stockholders.** 21 List of the Company's subsidiaries. 23 Consent of Independent Accountants. 27 Financial Data Schedule * Incorporated herein by reference. ** The 1994 Annual Report to Stockholders, except for those portions thereof which are expressly incorporated by reference in this Report on Form 10-K, is furnished for the information of the Securities and Exchange Commission only and is not to be deemed filed as part of this filing. (x) Management contract or compensatory plan or arrangement. 11 (b) Reports on Form 8-K: There were no reports on Form 8-K filed by the Registrant during the fourth quarter of 1994. For purposes of complying with the amendments to the rules governing Form S-8 (effective July 13, 1990) under the Securities Act of 1933, the undersigned Registrant hereby undertakes as follows, which undertaking shall be incorpo- rated by reference into Part II of Registrant's Registration Statements on Form S-8 File No. 2-76476; File No. 2-79004; and File No. 33-32700. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant, the Registrant has been advised that in the opinion of the Securi- ties and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter had been settled by controlling precedent, submit to a court of appropriate jurisdic- tion the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULES To the Board of Directors of PORTEC, Inc. Our audits of the consolidated financial statements referred to in our report dated February 16, 1995 appearing on page 33 of the 1994 Annual Report to Stockholders of PORTEC, Inc., (which report and consolidated financial state- ments are incorporated by reference in this Annual Report on Form 10-K) also included an audit of the Financial Statement Schedules listed in Item 14(a) of this Form 10-K. In our opinion, these Financial Statement Schedules present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Price Waterhouse LLP Chicago, Illinois February 16, 1995 Schedule VIII PORTEC, Inc. AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS AND RESERVES Years Ended December 31, 1994, 1993, 1992 ($000's omitted) Additions Charged Balance to Costs Balance Beginning and Deductions at End of Year Expenses from Reserve of Year 1994 Allowance for doubtful accounts $ 337 $ 214 $ 88 $ 463 1993 Allowance for doubtful accounts 226 165 54 337 1992 Allowance for doubtful accounts 482 23 279 226
SIGNATURES Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange of 1934, PORTEC, Inc. has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. PORTEC, Inc. By: /S/Michael T. Yonker Michael T. Yonker President and Chief Executive Officer and Director By: /S/Nancy A. Dedert-Kindl Nancy A. Dedert-Kindl Vice President - Finance, Treasurer, Controller, and Secretary (Chief Financial and Accounting Officer) March 24, 1995 Pursuant to the requirements of the Securities Exchange Act of 1934, this report on Form 10-K has been signed below by the following persons on behalf of PORTEC, Inc. and in the capacities and on the dates indicated: Signature Title Date /S/ Albert Fried, Jr. Chairman March 24, 1995 Albert Fried, Jr. of the Board /S/ J. Grant Beadle Director March 24, 1995 J. Grant Beadle /S/ Frederick J. Mancheski Director March 24, 1995 Frederick J. Mancheski /S/ John F. McKeon Director March 24, 1995 John F. McKeon /S/ Arthur McSorley, Jr. Director March 24, 1995 Arthur McSorley, Jr. Robert D. Musgjerd /S/ Michael T. Yonker Director March 24, 1995 16 Michael T. Yonker /S/ L. L. White, Jr. Director March 24, 1995 L. L. White, Jr. EXHIBIT INDEX Page No. Within Sequential Numbering System of Exhibit Exhibit Description 3(a) The Company's Certificate of Incorporation, as amended to April 29, 1987, a copy of which was included as Item 6(a)3 of the Company's Form 10-Q Report for the quarter ended March 31, 1987.* 3(b) The Company's By-Laws, as amended April 23, 1991, a copy of which was included as Item 6(a)3 of the Company's Form 10-Q Report for the quarter ended March 31, 1991.* 4(a) Credit Agreement dated as of February 12, 1993 by and between NBD Bank and the Company, a copy of which was included as Item 7(4)(a) of the Company's Form 8-K Report dated March 18, 1993* 4(b) First amendment to Credit Agreement dated as of April 26, 1994 by and between NBD Bank and the Company. 10(a) The Division Management Incentive Compensation Plan effective January 1, 1995.(x) 10(b) The Key Management Incentive Compensation Plan effective January 1, 1995.(x) 10(c) The Company's Supplemental Non-Qualified Retirement Income Plan For Designated Executive Employees as amended effective January 1, 1994.(x) 10(d) The 1982 PORTEC, Inc. Employees' Stock Benefit Plan, as amended effec- tive April 24, 1984, a copy of which was included as Item 14(a)(3)10(1) of Part IV of the Company's Form 10-K Report for the year ended December 31, 1984.*(x) 10(e) The 1988 PORTEC, Inc. Employees' Stock Benefit Plan, as amended effec- tive April 26, 1994.(x) 17 10(f) Amendment to The 1988 PORTEC, Inc. Employees' Stock Benefit Plan, a copy of which was included as Proposal 2 on pages 18 through 25 of the Company's 1995 Proxy Statement.*(x) 10(g) Agreement dated February 28, 1989, between the Company and M. T. Yonker, a copy of which was included as Item 14(a)(3)10(o) of Part IV of the Company's Form 10-K Report for the year ended December 31, 1988.*(x) 10(h) Letter Agreement dated December 12, 1989, between the Company and M. T. Yonker which amended the agreement dated February 28, 1989, between the Company and M. T. Yonker, a copy of which was included as Item 14(a)(3)10(o) of Part IV of the Company's Form 10-K Report for the year ended December 31, 1989.*(x) 10(i) Agreement and Release made January 9, 1990, between the Company and John S. Cooper, a copy of which was included as Item 14(a)(3)10(p) of Part IV of the Company's Form 10-K Report for the year ended December 31, 1989.*(x) 10(j) Employment Agreement dated November 16, 1989, between the Company and N. A. Dedert-Kindl, a copy of which was included as Item 14(a)(3)10(r) of Part IV of the Company's Form 10-K Report for the year ended December 31, 1989.*(x) 11 The Company's statement regarding computations of per share earnings. 13 The Company's 1994 Annual Report to Stockholders. 21 List of the Company's subsidiaries. 23 Consent of Independent Accountants. 27 Financial Data Schedule * Incorporated herein by reference. (x) Management contract or compensatory plan or arrangement. EX-4.B 2 BANK CREDIT AGREEMENT Exhibit 4(b) FIRST AMENDMENT TO CREDIT AGREEMENT This First Amendment to Credit Agreement ("First Amendment"), dated as of April 26, 1994, by and between PORTEC, INC., a Delaware corporation (the "Company"), and NBD BANK, an Illinois banking corporation (the "Bank"). WITNESSETH: WHEREAS, the Company and the Bank have executed a Credit Agreement (the "Credit Agreement"), dated as of February 12, 1993 to provide for, among other things a term loan in the principal amount of $6,000,000 and a revolving credit facility in aggregate principal amount not to exceed $12,000,000. WHEREAS, the Company has requested that the Bank amend certain provisions of the Credit Agreement, and the Bank has agreed to do so on the terms and conditions set forth herein. NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: 1. Upon satisfaction by the Company of the conditions set forth in paragraph 3 hereof, the Credit Agreement shall be amended as of the effective date hereof as follows: (a) The definitions of "Borrowing Base", "Borrowing Base Certificate", "Eligible Accounts Receivable", "Eligible Inventory", and "Pledge Agreement" in Section 1.1 of the Credit Agreement are hereby deleted. (b) The definition of "Security Documents" in Section 1.1 of the Credit Agreement is hereby amended by deleting the words "Pledge Agreement" therefrom. (c) The definition of "Termination Date" in Section 1.1 of the Credit Agreement is hereby amended by deleting the date "April 30, 1996" therefrom and inserting the date "April 30, 1997" in place thereof. (d) Section 2.1(a) of the Credit Agreement is hereby amended by deleting the clause "the lesser of (i) the amount of the Borrowing Base shown on the most recent Borrowing Base Certificate delivered by the Company to the Bank, and (ii)" therefrom. (e) Section 2.10 of the Credit Agreement is hereby deleted. (f) Section 3.1(d) of the Credit Agreement is hereby deleted and the phrase "intentionally omitted" is substituted as Section 3.1(d) in place thereof. (g) Section 4.14 of the Credit Agreement is hereby deleted. (h) Section 5.1(d)(iv) of the Credit Agreement is hereby amended in its entirety to read as follows: (iv) As soon as available and in any event within 90 days after the end of each fiscal year of the Company, a copy of the consolidated balance sheet of the Company and its Subsidiaries as of the end of such fiscal year and the related con- solidated statements of income and cash flow of the Company for such fiscal year, with a customary audit report of Price Waterhouse, or other inde- pendent certified public accountants selected by the Company and acceptable to the Bank, without qualifications unacceptable to the Bank; (i) Section 5.1(d)(v) of the Credit Agreement is hereby deleted and the phrase "intentionally deleted" is substituted as Section 5.1(d)(v) in place thereof. (j) Section 5.2(k)(iii) of the Credit Agreement is hereby amended by deleting the figure "$1,500,000" and substituting the figure "$3,000,000" in place thereof. (k) Exhibit C to the Credit Agreement is hereby deleted. Exhibit C shall be deemed intentionally omitted. 2. From and after the effective date hereof, references to the Credit Agreement in the Credit Agreement, the Notes and the Security Documents and all other documents executed pursuant to the Credit Agreement shall be deemed to be references to the Credit Agreement as amended hereby. 3. This First Amendment shall not become effective until: (a) The Company shall have delivered to the Bank certificate of recent date of the appropriate government official certifying as to the corpo- rate existence of the Company; (b) The Company and the Bank shall have each executed and delivered this First Amendment; and (c) The Company shall have delivered to the Bank a certified copy of resolutions of the board of directors of the Company authorizing execution and delivery of this First Amendment. 4. Upon satisfaction by the Company of the conditions set forth in paragraph 3 hereof, the Bank shall release and cancel that certain Pledge Agreement dated as of February 12, 1993 executed by the Company in favor of the Bank relating to the shares of capital stock of Portec (UK) Limited, and shall promptly return to the Company the original share certificates of Portec (UK) Limited stock. 5. The Company represents and warrants to the Bank that: (a) The execution, delivery and performance of this First Amendment by the Company have been duly authorized by all necessary partnership action and will not require any consent or approval of its stockholders, violate any provision of any law, rule, regulation, order, writ, judgment, injunction, decree, determination or award presently in effect having applicability to it or constitute a default under any indenture or loan or credit agreement or any other agreement, lease or instrument to which the Company is a party or by which it or its properties may be bound or affected; (b) No consent, approval or authorization of or declaration or filing with any governmental authority or any non-governmental person or entity, including without limitation, any creditor or partner of the Company is required on the part of the Company, in connection with the execution, delivery and performance of this First Agreement or transactions contemplated hereby and thereby: (c) This First Amendment is the legal, valid and binding obligations of the Company, enforceable against it in accordance with the terms thereof; (d) After giving effect to the amendments contained herein and effective pursuant hereto, the representations and warranties contained in Article IV of the Credit Agreement are true and correct on and as of the effective date hereof in the same force and effect as if made on and as of such effective date: (e) The most recent audited financial statements of the Company delivered to the Bank are complete and accurate in all material respects and present fairly the financial condition of the Company and its subsidiaries as of such date in accordance with generally accepted accounting principles. There has been no adverse material change in the condition of the business properties, operations or condition, financial or otherwise of the Company since the date of such financial statements. There are no liabilities of the Company or any of its subsidiaries, fixed or contingent, which are material but not reflected on such financial statements or in the notes thereto; and (f) No Event of Default and no event or condition which would become an Event of Default after the lapse of time or the giving of notice or both, shall have occurred and be continuing or exist under the Credit Agreement, as amended hereby, as of the effective date hereof. 6. The Company agrees to pay and save the Bank harmless from liability for the payment of all costs and expenses arising in connection with this First Amendment, including the reasonable fees and expenses of Dickinson, Wright, Moon, Van Dusen & Freeman, counsel to the Bank, in connection with the preparation and review of this First Amendment and any related documents. 7. The capitalized terms used but not defined herein shall have the respective meanings ascribed thereto in the Credit Agreement. Except as expressly contemplated hereby, the Credit Agreement, the Security Documents and all related notes, guaranties, certificates, instruments and other documents are hereby ratified and confirmed and shall remain in full force and effect. 8. This First Amendment shall be governed by and construed in accordance with the laws of the State of Illinois. 9. The First Amendment may be executed in two counterparts, each of which together shall constitute the same agreement. IN WITNESS WHEREOF, the parties hereto have caused this First Amend- ment to be duly executed and delivered as of the day and year first above written. NBD BANK By: Peter K. Gillespie Its: Vice President PORTEC, INC, By: Nancy A. Dedert Its: Vice President & CFO Exhibit 1 AMENDMENT TO CREDIT AGREEMENT PORTEC, INC. WHEREAS, this Corporation desires to amend certain provisions of a Credit Agreement (the "Credit Agreement") entered into in favor of NBD Bank, dated February 12, 1993 NOW, THEREFORE, BE IT RESOLVED, that the President and any Vice President of this Corporation is hereby authorized and directed to enter into, execute and deliver on behalf of this Corporation the First Amendment to Credit Agreement and any and all instruments or other documents incidental or related thereto, and to take such further action as he or she may deem reasonable, necessary or proper in order to consummate the transaction contemplated herein. Dated: April 26, 1994 EX-10.A 3 DIV. MNGMNT. INCENTIVE COMPENSATION DIVISION MANAGEMENT INCENTIVE COMPENSATION PLAN The following Plan is to be in effect for the calendar year 1995. It will be reviewed at the close of that year and will be continued, modified, or cancelled with respect to succeeding years solely at the discretion of the Stock Option and Compensation Committee of the PORTEC, Inc. Board of Directors. 1. PARTICIPATION a. The President & General Manager and key management employees of each division, employed as of January 1 of the year, will, upon recommenda- tion by the President & General Manager and subject to approval of the President & Chief Executive Officer of PORTEC, Inc., participate in the plan for such division. Persons promoted or employed subsequent to January 1 to fill an eligible management position vacancy may be included in the division's incentive compensation program on a pro rata basis, upon the President & Chief Executive Officer's approval. The incentive compensation payable to such an employee shall be based on the number of calendar months during the year the person has held that management position. However, the inclusion of such an employee in the program shall not result in a reduction of the Total Target Bonus Fund, defined below, for the other participants. b. "Individual Target Bonus Levels" for each eligible position will be established as a percentage of actual salary paid during the calendar year, or portion of the years determined by date of entry into the program, in accordance with the corporate standards relating to the position of the participant (Exhibit A attached). Exceptions to these standards require approval of the President & Chief Executive Officer. "Individual Maximum Bonus Levels" shall equal double the Individual Target Bonus Levels. 2. DIVISION TARGET BONUS FUND a. A "Total Target Bonus Fund" will be calculated for each division by means of bonus formulas such that if certain targets for Pre-Tax Profit and Working Capital to Sales Objectives are satisfactorily attained, an amount equal to the sum of the Individual Target Bonus Levels for eligible management people in that division will accrue. b. The minimum point below which no bonus fund will be developed relating to the Pre-Tax Profit and Working Capital to Sales Objectives is called the "threshold" which will generally be established at 70 percent of the target performance. Below this level, no bonus will be paid. DIVISION TARGET BONUS FUND (CONTINUED) c. The "Total Maximum Bonus Fund" shall equal twice the Total Target Bonus Fund and will generally be established in the range of 130 percent to 150 percent of the target performance. d. The bonus fund (meaning the total actual bonuses paid) will be limited to 8 percent of Pre-Tax Profits, regardless of other calculations. 3. GENERAL PERFORMANCE OBJECTIVES a. Shortly after the beginning of each year, the President & Chief Executive Officer will consider the approved profit plan, current backlog, and invested capital of each division together with such other factors as he deems appropriate to set Pre-Tax Profit and Working Capital to Sales Objectives for each Division subject to approval of the Board of Directors' Stock Option and Compensation Committee. These targets will normally be determined at the performance level set by the approved business plan for that year. However, the President & Chief Executive Officer may set targets which are different than profit plan performance depending on specific circumstances. b. The percentage of such Total Target Bonus Fund for each division related to Pre-Tax Profit and Working Capital to Sales Objectives, and the objectives established for Pre-Tax Profits and Working Capital to Sales are shown in Exhibit B. 4. INDIVIDUAL ALLOCATION AND ADJUSTMENT a. Customary practice will be to distribute available bonus funds pro rata over the Target Bonus levels of participants. However, unless a participant is actively at work for the Company on December 31, or retires (within the meaning of the Company's plan), becomes disabled, or dies during the operating year, no incentive compensation shall be payable to him. If any participant shall retire, become disabled, or die during the year, the incentive compensation for such year payable to him, his estate or designee, shall be based on the number of months during the year he was in the active employ of the Company. Incentive compensation that would have been payable to participants had they remained in the employ of the Company during the full calendar year, but not payable to them under the foregoing provisions, shall not be used to increase the incentive compensation of the other participants. INDIVIDUAL ALLOCATION AND ADJUSTMENT (CONTINUED) b. Notwithstanding, the preceding paragraph, the President & General Manager can adjust the bonus level of any participant, other than himself by a factor of 75 percent to 125 percent to reflect low or high personal performance during the year. The President & General Manager's bonus level may be adjusted in the same manner as recom- mended and approved by the President & Chief Executive Officer. However, such adjustments cannot increase the Total Bonus Fund as determined in Paragraph 2 or exceed a participant's Individual Maximum Bonus Level. Available bonus funds will then be distributed pro rata over the bonus levels which exclude these adjustments. c. The adjustment recommendations of each President & General Manager will be submitted to and will be subject to the final approval of the President & Chief Executive Officer of PORTEC, Inc. Recommendations as to the incentive compensation to be paid to General Managers will be made by the President & Chief Executive Officer. 5. PAYMENT a. Payment of incentive compensation for the year will not be made until after the completion of the year-end Company audit by the outside Public Accountants. Payment should generally be made not later than February 28 of the next succeeding year. However, the President & Chief Executive Officer may elect to pay 80% of the estimated bonus amounts prior to December 31, with the remainder of the bonus amounts paid after the year-end audit. For the purpose of pension plan computations and for making deductions for withholding and social security taxes, incentive compensation payments will be taken into account in the year of payment. Incentive compensation payments will not influence levels of group insurance coverage. b. Total bonus amounts payable for each individual shall be rounded to the nearest dollar. 6. ACCOUNTING PROCEDURES a. PRE-TAX PROFIT: This portion of the bonus will be determined by the relationship of actual Pre-Tax Profit relative to the Pre-Tax Profit target. In the determination of Pre-Tax Profits, standard accounting practices (as shown below and covered in the Accounting Procedures Manual of PORTEC, Inc.) currently in effect at PORTEC, Inc. will be continued, including practices as to depreciation charges, allocation of general office expense, methods of inventory valuation, retirement fund provisions, divisional charges, and other operating procedures. Gains or ACCOUNTING PROCEDURES (CONTINUED) losses on the disposition of fixed assets will be excluded except for those realized in the ordinary course of business. Incentive compensation will be included in the calculation of both target and actual Pre-Tax Profit. b. WORKING CAPITAL TO SALES (WC/S): This portion of the bonus will be determined by the relationship of the actual WC/S ratio relative to the Plan ratio for that year. The WC/S ratio for this purpose is defined as: Average (A/R + Inventory - A/P) Working Capital to Sales = ------------------------------- Gross Sales Where: A/R = Net Accounts Receivable Trade balance at month-end. INVENTORY = Net Inventory balance at month-end. A/P = Net Accounts Payable Trade & Unvouchered balance at month-end. GROSS SALES = Gross sales for the year. In the determination of these items, standard accounting practices as shown in the current Accounting Procedures Manual of Portec, Inc. will be continued. Twelve month-end balances for (January through December) A/R, A/P, and Inventory will be averaged for the numerator of the ratio. 7. ADJUSTMENTS TO THE PLAN a. Changes of major significance not contemplated at the time the Pre-Tax Profit Objectives are determined for a division, such as but not limited to, acquisitions of products or businesses, major expenditures for plant or equipment expansion or modernization, and disposition of assets or a product line may require a revision in the Pre-Tax Profit Objectives for a particular division. In such cases, the President & Chief Executive Officer can adjust the Pre-Tax Profit Objectives, subject to the approval of the Board of Directors' Stock Option and Compensation Committee, in order to establish a revised basis for the computation of incentive compensation. b. In unusual circumstances, it may not be possible to construct a bonus formula meeting all of these criteria to provide reasonable incentives for division management. In this event, the President & Chief Executive Officer can seek approval of an alternative bonus formula from the Stock Option and Compensation Committee of the Board of Directors. EXHIBIT A TARGET BONUS SCHEDULE TARGET BONUS POSITION AS % OF SALARY GENERAL MANAGER 25% DIRECT REPORTS TO G.M. OF: MANUFACTURING, ACCOUNTING, SALES, OR ENGINEERING(1) 20% ALL OTHER PARTICIPANTS 15% NOTES: (1) ALSO INCLUDES PLANT MANAGERS OF MAJOR REMOTELY LOCATED MANUFACTURING FACILITIES. EXHIBIT B 1995 BONUS PERFORMANCE OBJECTIVES DIVISION: CATEGORY WEIGHT THRESHOLD TARGET MAXIMUM PRE-TAX PROFITS $ $ $ WORKING CAPITAL TO SALES TOTAL 100% DISTRIBUTED ONLY TO THE APPLICABLE DIVISION EX-10.B 4 KEY MNGMNT. INCENTIVE COMPENSATION KEY MANAGEMENT INCENTIVE COMPENSATION PLAN 1. The officers and other key executive employees entitled to participate in the Plan for each calendar year and the Target Bonus levels for each position shall be recommended by the President and Chief Executive Officer and approved by the Stock Option and Compensation Committee of the Board of Directors, preferably prior to the beginning of such calendar year. Customary practice will be to distribute available bonus funds pro rata over the Target Bonus levels of participants. However, unless a partici- pant is actively at work for the Company on December 31, or retires (within the meaning of the Company's plan), becomes disabled, or dies during the operating year, no incentive compensation shall be payable to him. If any participant shall retire, become disabled, or die during the year, the incentive compensation for such year payable to him, his estate or designee, shall be based on the number of months during the year he was in the active employ of the Company. Incentive compensation that would have been payable to participants had they remained in the employ of the Company during the full calendar year, but not payable to them under the foregoing provisions, shall not be used to increase the incentive compensation of the other participants. 2. "Target Bonus" and "Maximum Bonus" levels for each eligible position shall be established by multiplying the applicable percentages shown in Exhibit A by the participant's base salary for the calendar year. Maximum Bonus amounts shall be converted to earned bonus amounts by the application of a Corporate Bonus Percentage. This percentage will be determined as described in the following paragraphs. 3. A predetermined percent of the Corporate Bonus Percentage shall be determined by actual financial performance compared to the Profit Plan. This quantitative portion of the bonus will include two factors: A. PRE-TAX PROFIT: A predetermined percent of the bonus will be determined by the relationship of actual Pre-Tax Profit relative to Pre-Tax Profit in the approved business plan for the year. Pre-Tax Profit for this purpose is income before provision for taxes on income, and before: (i) interest on long-term debt (debt due after one year); (ii) profits and losses derived from the sale or other disposition of property other than in the ordinary course of business; (iii) income and all charges against income from or on account of the disposal or permanent termination of the operations of any plant, division, operating unit, or significant segment thereof, a significant product line of the company in its entirety or substantially in its entirety; (iv) income and all charges against income from or on the account of any unbudgeted expenses associated with: start-up, acquisition, or major capital expansion of a plant, division, operating unit, or significant segment thereof, or a significant product line of the company in its entirety or substantially in its entirety; and (v) translation gains or losses due to currency changes. B. WORKING CAPITAL TO SALES (WC/S): A predetermined percent of the bonus will be determined by the relationship of the actual WC/S ratio relative to the Plan ratio for that year. The WC/S ratio for this purpose is defined as: Average (A/R + Inventory - A/P) Working Capital to Sales = Gross Sales Where: A/R = Net Accounts Receivable Trade balance at month-end. INVENTORY = Net Inventory balance at month-end. A/P = Net Accounts Payable Trade & Unvouchered balance at month-end. GROSS SALES = Gross sales for the year. In the determination of these items, standard accounting practices as shown in the current Accounting Procedures Manual of Portec, Inc. will be continued. Twelve month-end balances for (January through December) A/R, A/P, and Inventory will be averaged for the numerator of the ratio. 4. A predetermined percent of the Corporate Bonus Percentage will be determined by the accomplishment of non-financial objectives of Key Management Bonus participants. The factor for this portion of the bonus will depend upon a review of planned and unplanned non-financial events which occurred during the year. The Chairman or Chief Executive Officer will make recommendations to the Stock Option and Compensation Committee for this portion of the bonus. 5. In addition to the aggregate of bonus amounts payable to officers, the Stock Option and Compensation Committee may approve an amount payable for key executive employees other than officers as identified by the President & Chief Executive Officer. This portion of the Key Management Incentive Compensation Plan (President's Key Executive Fund) may equal an amount based on a Maximum Bonus percentage of 30% of salaries of such individuals as of the beginning of the year. The method of calculating the Key Executive Fund is not necessarily indicative of the bonus amount payable to any individual participating in the Fund. 6. The bonus amount payable to any individual is subject to judgmental variation by the President & Chief Executive Officer, but such variation shall not result in increasing the calculated total bonus fund or to exceed Maximum Bonus for that position. At the President's & Chief Executive Officer's discretion, these funds may also be used for discretionary awards to other employees. The Stock Option and Compensation Committee shall approve the total bonus amount to be paid under the President's Key Executive Fund. 7. Payment of incentive compensation for the year will not be made until after the completion of the year-end Company audit by the outside Public Accountants. Payment should generally be made not later than February 28 of the next succeeding year. However, the President & Chief Executive Officer may elect to pay 80% of the estimated bonus amounts prior to December 31, with the remainder of the bonus amounts paid after the year- end audit. For the purpose of pension plan computations and for making deductions for withholding and social security taxes, incentive compensa- tion payments will be taken into account in the year of payment. Incentive compensation payments will not influence levels of group insurance coverage. 8. All determinations of the Board or any Committee thereof, made under the Plan, shall be final, conclusive, and binding upon all persons participating in the plan; and in making such determination the Board, or any such Committee, may rely and shall be fully protected in relying, upon any statements prepared or reviewed by the independent accountants examining the books of account of the Corporation. 9. The Board reserves the right at any time and from time to time to amend or terminate the Plan, provided, however, that no such amendment or termination shall be made after the beginning of any calendar year which shall adversely affect the rights under the Plan of any officer or any other employee as theretofore determined, but it is expressly understood and agreed that nothing in the Plan shall in any manner prejudice or adversely affect the right of the Corporation at any time to terminate the employment of any officer or other employee. EXHIBIT A TARGET AND MAXIMUM BONUS SALARY PERCENTAGES Target Bonus Maximum Bonus Position Percentage Percentage President and Chief Executive Officer 50 100 Chief Operating Officer 40 80 Sr. Vice President 35 70 Vice President 30 60 Chairman of the Board 25 50 President's Key Exec. Fund Participants 15 30 All Other Participants 5 10 EXHIBIT B CORPORATE BONUS PERCENTAGE I. PRE-TAX PROFIT OBJECTIVE PORTION (75% Weighting) Earned % of % Achievement Target Bonus 70% & Below 0.0% 100% 75.0% 130% & Above 150.0% II. WORKING CAPITAL/SALES PORTION (25% Weighting) Earned % of % Achievement Target Bonus 70% & Below 0.0% 100% 25.0% 130% & Above 50.0% III . NON-FINANCIAL PORTION (0% Weighting) Earned % of % Achievement Target Bonus This percentage will be determined 0.0% by the Stock Option and Compensation to Committee after recommendations by the 0.0% Chairman or Chief Executive Officer. IV. DETERMINATION OF CORPORATE BONUS PERCENTAGE Levels of profit goal achievement and working capital management return between the amounts shown above will earn bonuses proportional to the amounts actually shown, i.e. the amounts will be interpolated from the tables above. The Corporate earned bonus percentage will be the sum of the earned percentages derived from Tables I, II, and III. EXHIBIT C PARTICIPANT LIST OFFICERS PARTICIPANT'S NAME POSITION TITLE MICHAEL T. YONKER PRESIDENT & CHIEF EXECUTIVE OFFICER NANCY A. KINDL VICE PRESIDENT & TREASURER ALBERT FRIED CHAIRMAN OF THE BOARD PRESIDENT'S KEY EXECUTIVE FUND PARTICIPANTS PARTICIPANT'S NAME POSITION TITLE PATRICIA A. RICCIO EMPLOYEE BENEFITS MANAGER ALL OTHER PARTICIPANTS PARTICIPANT'S NAME POSITION TITLE D. MICHAEL DUTLER TAX/GENERAL ACCOUNTANT CAROLINA D. GURSKI BENEFITS ADMINISTRATOR JOHN W. KERR ACCOUNTANT SANDRA J. OZIER ADMINISTRATIVE SECRETARY MELINDA M. WARD PAYROLL/TAX ACCOUNTANT EXHIBIT D 1995 BONUS PERFORMANCE OBJECTIVES CATEGORY WEIGHT THRESHOLD TARGET MAXIMUM Pre-Tax Profits 75 $ $ $ Working Capital to Sales 25 Non-Financial 0 TOTAL 100% EX-10.C 5 SUPPLEMENTAL NON-QUALIFIED RETIREMENT INCOME PLAN SUPPLEMENTAL RETIREMENT INCOME PLAN FOR SALARIED EMPLOYEES OF PORTEC, INC. As Amended and Restated Effective January 1, 1994 The Supplemental Retirement Income Plan for Salaried Employees of Portec, Inc., as amended and restated effective as of January 1, 1994 (the "Plan"), is hereby adopted. The Plan has been established and maintained by Portec, Inc. solely for the purpose of providing benefits for certain of its salaried employees who participate in the Portec, Inc. Employees' Retirement Program (or any predecessor, successor or replacement employees' retirement plan) in excess of any limitations on benefits imposed by the Internal Revenue Code of 1986 on qualified retirement plans. Accordingly, Portec, Inc. hereby adopts the Plan as amended and restated, effective January 1, 1994, pursuant to the terms and provisions set forth below: ARTICLE I Definitions Wherever used herein the following terms shall have the meanings hereinafter set forth: 1.1 "Board" means the Board of Directors of the Company. 1.2 "Code" means the Internal Revenue Code of 1986, as amended from time to time, and any regulations relating thereto. 1.3 "Company" means Portec, Inc., a Delaware corporation, or, to the extent provided in Section 7.9 below, any successor corporation or other entity resulting from a merger or consolidation into or with the Company or a transfer or sale of substantially all of the assets of the Company. 1.4 "Earnings" means the amount taken into account pursuant to Section 2.1(n) of the Qualified Plan (or any successor section), without regard to any dollar limitations imposed by the Code. Notwithstanding the foregoing, however, a Participant's Earnings taken into account under the Plan for any Plan Year shall be limited to $350,000. 1.5 "Normal Retirement Date" means the first day of the calendar month coinciding with or next following a Participant's 65th birthday. 1.6 "Participant" means a salaried employee of the Company who is a participant under the Qualified Plan and to whom or with respect to whom a benefit is payable under the Plan. 1.7 "Plan" means this Supplemental Retirement Income Plan for Salaried Employees of Portec, Inc. 1.8 "Plan Year" means the year ending December 31, or any other twelve-consecutive-month period that may hereafter be designated by the Company as the fiscal year of the Plan 1.9 "Qualified Plan" means the Portec, Inc. Employees' Retirement Program, as amended and restated effective January 1, 1992, and each predecessor, successor or replacement employees' retirement plan. 1.10 "Qualified Plan Retirement Benefit" means the aggregate benefit payable to a Participant pursuant to all Qualified Plans and all annuities purchased for the Participant under all Qualified Plans (whether or not terminated) by reason of his termination of employment with the Company and all affiliates for any reason other than death. 1.11 "Qualified Plan Surviving Spouse Benefit" means the aggregate benefit payable to the Surviving Spouse of a Participant pursuant to all Qualified Plans and all annuities purchased for the Participant under all Qualified Plans (whether or not terminated) in the event of the death of the Participant at any time prior to commencement of payment of his Qualified Plan Retirement Benefit. 1.12 "Supplemental Retirement Benefit" means the benefit payable to a Participant pursuant to the Plan by reason of his termination of employment with the Company and all affiliates for any reason other than death. 1.13 "Surviving Spouse" means a person who is married to a Participant at the date of his death and for at least one year prior thereto. 1.14 "Supplemental Surviving Spouse Benefit" means the benefit payable to a Surviving Spouse pursuant to the Plan. 1.15 Words in the masculine gender shall include the feminine and the singular shall include the plural, and vice versa, unless qualified by the context. Any headings used herein are included for ease of reference only, and are not to be construed so as to alter the terms hereof. ARTICLE II Eligibility A participant who is eligible to receive a Qualified Plan Retirement Benefit, the amount of which is reduced by reason of the application of any limitations on benefits imposed by any provision of the Code, as in effect on the date for commencement of the Qualified Plan Retirement Benefit, or as in effect at any time thereafter, to the Qualified Plan shall be eligible to receive a Supplement Retirement Benefit. The Surviving Spouse of a Participant described in the preceding sentence who dies prior to commencement of payment of his Qualified Plan Retirement Benefit shall be eligible to receive a Supplemental Surviving Spouse Benefit. ARTICLE III Supplemental Retirement Benefit 3.1 Amount. The Supplemental Retirement Benefit payable to an eligible Participant, in the form of a straight life annuity over the lifetime of the Participant only, commencing on his Normal Retirement Date, shall be a monthly amount equal to the difference between (a) and (b) below: (a) the monthly amount of the Qualified Plan Retirement Benefit to which the Participant would have been entitled under the Qualified Plan if such Benefit were computed (i) without giving effect to any limitations on benefits imposed by any provisions of the Code, and (ii) by using the definition of Earning set forth in Section 1.4 of this Plan in lieu of the definition set forth in Section 1.10 of the Qualified Plan; LESS (b) the monthly amount of the Qualified Plan Retirement Benefit actually payable to the Participant under the Qualified Plan. The amounts described in (a) and (b) shall be computed as of the date of termination of employment of the Participant with the Company and all affiliates, in the form of a straight life annuity payable over the lifetime of the Participant only, commencing on his Normal Retirement Date. 3.2 Form of Benefit. Except as otherwise provided herein, the Supplemental Retirement Benefit payable to a Participant shall be paid in the same form under which the Qualified Plan Retirement Benefit is payable to the Participant. Except as otherwise provided herein, the Participant's election under the Qualified Plan of any optional form of payment of his Qualified Plan Retirement Benefit (with the valid consent of his Surviving Spouse where required under the Qualified Plan) shall also be applicable to the payment of his Supplemental Retirement Benefit. 3.3 Commencement of Benefit. Payment of the Supplemental Retirement Benefit to a Participant shall commence on the same date as payment of the Qualified Plan Retirement Benefit to the Participant commences. Any election under the Qualified Plan made by the Participant with respect to the commencement of payment of his Qualified Plan Retirement Benefit shall also be applicable with respect to the commencement of payment of his Supplemental Retirement Benefit. 3.4 Approval of Company. Notwithstanding the provisions of sections 3.2 and 3.3 above, an election made by the Participant under the Qualified Plan with respect to the form of payment of his Qualified Plan Retirement Benefit (with the valid consent of his surviving Spouse where required under the Qualified Plan), or the date for commencement of payment thereof, shall not be effective with respect to the form of payment or date for commencement of payment of his Supplemental Retirement Benefit hereunder unless such election is expressly approved in writing by the Company with respect to his Supplemental Retirement Benefit. If the Company shall not approve such election in writing, then the form of payment or date for commencement of payment of the Participant's Supplemental Retirement Benefit shall be selected by the Company in its sole discretion. Notwithstanding the foregoing, however, if the Company in its sole discretion deems it in the best interests of the Participant, the Company shall pay the actuarial equivalent of the value of the Participant's Supplemental Retirement Benefit to him in a single lump sum in lieu of any other form under which the Qualified Plan Retirement Benefit is payable. 3.5 Actuarial Equivalent. A Supplemental Retirement Benefit that is payable in any form other than a straight life annuity over the lifetime of the Participant, or which commences at any time prior to the Participant's Normal Retirement Date, or a Supplemental Surviving Spouse Benefit that is payable in a lump sum, shall be the actuarial equivalent of the Supplemental Retirement Benefit set forth in Section 3.1 above, or the Supplemental Surviving Spouse Benefit set forth in Section 4.1 below, as determined by the same actuarial adjustments as those specified in the Qualified Plan, at the time for commencement of payment, with respect to the determination of the amount of the Qualified Plan Retirement Benefit or the Qualified Plan Surviving Spouse Benefit. ARTICLE IV Supplemental Surviving Spouse Benefit 4.1 Amount. If a Participant dies prior to commencement of payment of his Qualified Plan Retirement Benefit under circumstances in which a Qualified Plan Surviving Spouse Benefit is payable to his Surviving Spouse, then a Supplemental Surviving Spouse Benefit is payable to his Surviving Spouse as hereinafter provided. The monthly amount of the Supplemental Surviving Spouse Benefit payable to a Surviving Spouse shall be equal to the difference between (a) and (b) below: (a) the monthly amount of the Qualified Plan Surviving Spouse Benefit to which the Surviving Spouse would have been entitled under the Qualified Plan if such Benefit were computed (i) without giving effect to any limitations on benefits imposed by any provision of the Code, and (ii) by using the definition of Earnings set forth in Section 1.4 of this Plan in lieu of the definition set forth in Section 1.10 of the Qualified Plan; LESS (b) the monthly amount of the Qualified Plan Surviving Spouse Benefit actually payable to the Surviving Spouse under the Qualified Plan. 4.2 Form and Commencement of Benefit. A Supplemental Surviving Spouse Benefit shall be payable over the lifetime of the Surviving Spouse, only in monthly installments, commencing on the date for commencement of payment of the Qualified Plan Surviving Spouse Benefit to the Surviving Spouse and terminating on the date of the last payment of the Qualified Plan Surviving Spouse Benefit made before the Surviving Spouse's death; provided, however, that if the Company in its sole discretion deems it in the best interests of the Surviving Spouse, the Company shall pay the actuarial equivalent of the value of the Supplemental Surviving Spouse Benefit to the Surviving Spouse in a single lump sum in lieu of a monthly installment form of benefit. ARTICLE V Administration of the Plan 5.1 Administration by the Company. The Company shall be responsible for the general operation and administration of the Plan and for carrying out the provisions thereof. 5.2 General Powers of Administration. All provisions set forth in the Qualified Plan with respect to the administrative powers and duties of the Company, expenses of administration, and procedures for filing claims shall also be applicable with respect to the Plan. The Company shall be entitled to rely conclusively upon all tables, valuations, certificates, opinions and reports furnished by any actuary, accountant, controller, counsel or other person employed or engaged by the Company with respect to the Plan. ARTICLE VI Amendment or Termination 6.1 Amendment or Termination. The Company intends the Plan to be permanent but reserves the right to amend or terminate the Plan when, in the sole opinion of the Company, such amendment or termination is advisable. Any such amendment or termination shall be made pursuant to a resolution of the Board and shall be effective as of the date of such resolution. 6.2 Effect of Amendment or Termination. No amendment or termination of the Plan shall directly or indirectly deprive any Participant or Surviving Spouse of all or any portion of any Supplemental Retirement Benefit or Supplemental Surviving Spouse Benefit, payment of which has commenced prior to the effective date of such amendment or termination. If a Participant is fully vested under the Qualified Plan upon termination of his employment with the Company and all affiliates thereof, no amendment or termination of the Plan, whether made prior to or contemporaneously with such termination of employment, shall reduce the Supplemental Retirement Benefit payable to the Participant, or the Supplemental Surviving Spouse Benefit payable to his Surviving Spouse, as the case may be, to a monthly amount, payable in the form of a straight life annuity over the lifetime of the Participant or the Surviving Spouse, that shall be less than a monthly amount equal to the difference between (a) and (b) below: (a) The monthly amount of the Qualified Plan Retirement Benefit or Qualified Plan Surviving Spouse Benefit to which the Participant or Surviving Spouse would have been entitled under the Qualified Plan, as of the effective date of such amendment or termination, if such Benefit were (i) computed without giving effect to any limitations on benefits imposed by any provisions of the Code, and (ii) by using the definition of Earnings set forth in Section 1.4 of this Plan in lieu of the definition set forth in Section 1.10 of the Qualified Plan; LESS (b) The monthly amount of the Qualified Plan Retirement Benefit or Qualified Plan Surviving Spouse Benefit to which the Participant or the Surviving Spouse is then actually entitled under the Qualified Plan. For Purposes of determining the Qualified Plan Retirement Benefit or the Qualified Plan Surviving Spouse Benefit payable to a Participant or Surviving Spouse pursuant to (b) above, the limitations on benefits imposed by the Code, as in effect on the date of termination of the Participant's employment with the Company and all affiliates, shall apply. ARTICLE VII General Provisions 7.1 Funding. The Plan at all times shall be entirely unfunded and no provision shall at any time be made with respect to segregating any assets of the Company or any affiliate for payment of any benefits hereunder. No Participant, Surviving Spouse or any other person shall have any interest in any particular assets of the Company or any affiliate by reason of the right to receive a benefit under the Plan and any such Participant, Surviving Spouse or other person shall have only the rights of a general unsecured creditor of the Company and its affiliates with respect to any rights under the Plan. 7.2 General Conditions. Except as otherwise expressly provided herein, all terms and conditions of the Qualified Plan applicable to a Qualified Plan Retirement Benefit or a Qualified Plan Surviving Spouse Benefit shall also be applicable to a Supplemental Retirement Benefit or a Supplemental Surviving Spouse Benefit payable hereunder. Any Qualified Plan Retirement Benefit or Qualified Plan Surviving Spouse Benefit, or any other benefit payable under the Qualified Plan, shall be paid solely in accordance with the terms and conditions of the Qualified Plan and nothing in this Plan shall operate or be construed in any way to modify, amend or affect the terms and provisions of the Qualified Plan. 7.3 No Guaranty of Benefits. Nothing contained in the Plan shall constitute a guaranty by the Company or any affiliate or any other entity or person that the assets of the Company or any affiliate will be sufficient to pay any benefit hereunder. 7.4 No Enlargement of Employee Rights. No Participant or Surviving Spouse shall have any right to a benefit under the Plan except in accordance with the terms of the Plan. Establishment of the Plan shall not be construed to give any Participant the right to be retained in the service of the Company or any affiliate. 7.5 Spendthrift Provision. No interest of any person or entity in, or right to receive a benefit under, the Plan shall be subject in any manner to sale, transfer, assignment, pledge, attachment, garnishment, or other alienation or encumbrance of any kind; nor may such interest or right to receive a benefit be taken, either voluntarily or involuntarily, for the satisfaction of the debts of, or other obligations or claims against, such person or entity, including claims for alimony, support, separate maintenance and claims in bankruptcy proceedings. 7.6 Applicable Law. The Plan shall be construed and administered under the laws of the State of Illinois except to the extent preempted by applicable federal law. 7.7 Small Benefits. If the actuarial value of any Supplemental Retirement Benefit or Supplemental Surviving Spouse Benefit, or any remaining portion thereof, is less than $25,000, the Company may pay the actuarial value of such Benefit to the Participant or Surviving Spouse in a single lump sum in lieu of any further benefit payments hereunder. 7.8 Incapacity of Recipient. If any person entitle to a benefit payment under the Plan is deemed by the Company to be incapable of personally receiving and giving a valid receipt for such payment, then, unless and until claim therefor shall have been made by a duly appointed guardian or other legal representative of such person, the Company may provide for such payment or any part thereof to be made to any other person or institution then contributing toward or providing for the care and maintenance of such person. Any such payment shall be a payment for the account of such person and a complete discharge of any liability of the Company and the Plan therefor. 7.9 Corporate Successors. The Plan shall not be automatically terminated by a transfer or sale of assets of the Company, or by the merger or consolidation of the Company into or with any other corporation or other entity, but the Plan shall be continued after such sale, merger or consolidation only if and to the extent that the transferee, purchaser or successor entity agrees to continue the Plan. In the event that the Plan is not continued by the transferee, purchaser or successor entity, then the Plan shall terminate subject to the provisions of Section 6.2. 7.10 Unclaimed Benefit. Each Participant shall keep the Company informed of his current address and the current address of his spouse. The Company shall not be obligated to search for the whereabouts of any person. If the location of a Participant is not made known to the Company within three (3) years after the date on which payment of the Participant's Supplemental Retirement Benefit may first be made, payment may be made as though the Participant had died at the end of the three-year period. If, within one additional year after such three-year period has elapsed, or, within three years after the actual death of a Participant, the Company is unable to locate any Surviving Spouse of the Participant, then the Company shall have no further obligation to pay and benefit hereunder to such Participant or Surviving Spouse or any other person and such benefit shall be irrevocably forfeited. 7.11 Limitations on Liability. Notwithstanding any of the preceding provisions of the Plan, neither the Company, nor any individual acting as an employee or agent of the Company, shall be liable to any Participant, former Participant, Surviving Spouse or any other person for any claim, loss, liability or expense incurred in connection with the Plan. IN WITNESS WHEREOF, Portec, Inc., by its duly authorized officer, has executed this Plan on this 16th day of June, 1994. PORTEC. INC. By: /S/ N. A. Kindl N. A. Kindl EX-10.E 6 EMPLOYEES' STOCK BENEFIT PLAN EXHIBIT (e) 1988 PORTEC, INC. EMPLOYEES' STOCK BENEFIT PLAN 1. PURPOSE The purpose of the 1988 Portec, Inc. Employees' Stock Benefit Plan (the "Plan") for officers and executive personnel ("key employees") of Portec, Inc., a Delaware corporation (the "Company"), and each corporation with respect to which the Company directly or indirectly controls 50% or more of the combined voting power of all classes of stock ("subsidiary"), and for non-employee members ("non-employee directors") of the Board of Directors (the "Board") of the Company, is to provide an incentive for key employees to join or remain with the Company and its subsidiaries, to provide an incentive for non-employee directors to have a greater proprietary interest in, and closer identity with, the Company and its subsidiaries and with their financial success, and to provide an incentive for key employees and non-employee directors to continue to promote the best interest of the Company and its subsidiaries and to enhance their long term performance. 2. ADMINISTRATION (a) Board of Directors. The Plan shall be administered by the Stock Option and Compensation Committee (the "Committee") appointed by the Board and composed of not less than three non-employee directors who shall be appointed from time to time by the Board, none of whom shall have received an award entitling him to stock, restricted stock, stock options, stock appreciation rights, limited rights or any other derivative security of the Company under this Plan, or any similar plan of the Company or its subsidiaries, during his tenure on the Committee, or during the twelve month period prior to commencing service on the Committee, except as permitted by Rule 16b-3(c)(2)(i)(A) through (D), or any successor provisions, under the Securities Exchange Act of 1934. Members of the Committee shall be subject to any additional restrictions necessary to satisfy the requirements for disinterested administration of the Plan as set forth in Rule 16b-3 as it may be amended from time to time. References hereinafter to the Committee shall be deemed to include the Board acting as such provided that the employee members of the Board shall not participate in the Board's deliberations and actions when the Board is acting as such Committee. (b) Committee. Subject to approval of the Board, the Committee shall determine, within the limits of the express provisions of the Plan: (i) the key employees to whom awards shall be granted, (ii) the time or times at which such awards shall be granted and exercisable, (iii) the form and amount of the awards, and (iv) the limitations, restrictions and conditions applicable to any such award. In making such determinations, the Committee may take into account the nature of the services rendered by such employees or classes of employees, their present and potential contributions to the Company's success and such other factors as the Committee in its discretion shall deem relevant. Any decision or determination which is reduced to writing and signed by all of the members of the Committee shall be as fully effective as if it had been made by majority vote at a meeting of the Committee duly called and held. The Committee may make such rules and regulations for the conduct of its business as it shall deem advisable. (c) Interpretations. Subject to the express provisions of the Plan, the Committee may interpret the Plan, prescribe, amend and rescind rules and regulations relating to it, determine the terms and provisions of the respective awards and make all other determinations it deems necessary or advisable for the administration of the Plan. (d) Determinations. The determinations of the Committee on all matters regarding the Plan shall be conclusive. No member of the Board or the Committee shall be liable for any action taken or determination made in good faith. Service on the Committee shall constitute service as a director of the Company so that members of the Committee shall be entitled to such indemnification and reimbursement as they may be entitled as a director. (e) Nonuniform Determinations. The Committee's determinations under the Plan, including without limitation, determinations as to the persons to receive awards, the terms and provisions of such awards and the agreements evidencing the same, need not be uniform and may be made by it selectively among persons who receive or are eligible to receive awards under the Plan, whether or not such persons are similarly situated. 3. AWARDS UNDER THE PLAN (a) Form. Awards under the Plan may be granted as follows: 1. Awards may be granted to key employees in any one of the following forms: (i) incentive stock options ("Incentive Stock Options"), as described in Section 4, (ii) non-qualified stock options ("Non-qualified Stock Options"), as described in Section 5, (iii) stock appreciation rights ("Rights"), as described in Section 6, (iv) restricted stock awards ("Awards"), as described in Section 7, and (v) performance units ("Units"), as described in Section 8. 2. Non-employee directors shall be granted Non-qualified Stock Options as described in Section 4A. Incentive Stock Options and Non-qualified Stock Options granted to key employees are sometimes referred to collectively as "Options." Non-qualified Stock Options granted to non-employee directors also are sometimes referred to as "Options." An eligible key employee (sometimes referred to as a "Grantee") may be granted one or more awards under the Plan. A non-employee director is sometimes referred to herein as a "Grantee" with respect to an award of Non- qualified Stock Options pursuant to Section 4A. (b) Maximum Limitations. The aggregate number of Units that may be granted under the Plan, and the aggregate number of common shares of the Company ("Common Stock" or "Common Shares") available for grant as Options, Rights or Awards, or in payment of Units, under the Plan, is increased from 450,000 to 850,000, subject to adjustment pursuant to Section 9 hereof and subject to the provisions of the remainder of this paragraph. Shares of Common Stock issued pursuant to the Plan may be either authorized but unissued shares or issued shares now or hereafter held in the treasury of the Company. In the event that, prior to the end of the period during which an Option, Right, Award or Unit may be granted under the Plan, (i) any Option granted under the Plan expires unexercised or is terminated, surrendered or cancelled (other than in connection with the exercise of a Right) without being exercised, in whole or in part, for any reason, (ii) any Award is forfeited, in whole or in part, for any reason or (iii) all or any part of the Units included in a Performance Unit Agreement are terminated or unearned for any reason, then the number of shares theretofore subject to the unexercised, terminated, forfeited or unearned portion thereof shall be added to the remaining number of shares of the Company's Common Stock and of Units available for grant as an Option, Right, Award or Unit under the Plan, including a grant to a former holder of such an Option, Right, Award or Unit upon such terms and conditions as the Committee shall determine, which terms may be more or less favorable than those applicable to such former Option, Right, Award or Unit. 4. INCENTIVE STOCK OPTIONS (a) Intended Legal Status of Options. It is intended that Incentive Stock Options granted pursuant to this Section shall constitute incentive stock options within the meaning of Section 422A of the Internal Revenue Code of 1986, as amended (the "Code"). (b) Eligible Employees. Any key employee eligible to receive awards under the Plan may receive Incentive Stock Options, provided such employee, at the time the Incentive Stock Option is granted does not own (as defined in Section 425(d) of the Code) stock possessing more than 10 percent of the total combined voting power of all classes of stock of the Company, its parent or any subsidiary. However, the foregoing limitation with respect to any employee who owns more than 10 percent of the total combined voting power of all classes of stock of the Company, its parent or any subsidiary shall not apply if at the time the Incentive Stock Option is granted, the option price is at least 110 percent of the fair market value of the Common Stock subject to the Incentive Stock Option and such Incentive Stock Option by its terms is not exercisable after the expiration of five years from the date such Incentive Stock Option is granted. (c) Terms of Options. Incentive Stock Options may be granted under the Plan for the purchase of shares of Common Stock of the Company. Incentive Stock Options shall be in such form and upon such terms and conditions as the Committee shall from time to time determine, subject to the following: (i) Option Prices. Except as otherwise provided in Section 4(b) above, the option price of each Incentive Stock Option to purchase shares of Common Stock shall be at least 100% of the fair market value of the Common Stock at the date such option is granted; provided, however, that the option price shall not be less than the par value of the Common Stock subject to such Incentive Stock Option. (ii) Exercise and Expiration Dates. Each Incentive Stock Option shall become exercisable as determined by the Committee. Each Incentive Stock Option shall expire on the first to occur of: (A) the date determined by the Committee, provided that such Incentive Stock Option by its terms shall not be exercisable after the expiration of ten years from the date granted, and (B) upon the exercise of any Right (granted under Section 6 hereof) related to such Incentive Stock Option. (iii) Limitation on Amount. The aggregate fair market value (determined with respect to each Incentive Stock Option as of the time such Incentive Stock Option is granted) of the capital stock with respect to which Incentive Stock Options are exercisable for the first time by a Grantee during any calendar year (under this Plan or any other plan of the Company or the parent or any subsidiary of the Company) shall not exceed $100,000. (iv) Other Terms. The Committee may prescribe such other terms and conditions for the Incentive Stock Options granted under the Plan which are neither inconsistent with, nor prohibited by, the Plan or Section 422A of the Code. (v) Severability. No term of the Plan inconsistent with Section 422A of the Code shall be applicable to Incentive Stock Options. 4A. GRANTS TO NON-EMPLOYEE DIRECTORS (a) Grants. Each non-employee director shall automatically be granted a Non-qualified Stock Option to purchase 1,000 shares of Common Stock on the date, and as of the time on such date, of each annual meeting of the Board held on and after April 26, 1994 while he is a member of the Board and while the Plan is in existence. (b) Exercise Price. The per share exercise price of each Non-qualified Stock Option granted to a non-employee director pursuant to this Section shall be 100% of the Fair Market Value (determined pursuant to Section 12(k) below) of a share of Common Stock on the date of grant. (c) Exercise Period. Each Non-qualified Stock Option granted to a non- employee director pursuant to this Section may be exercised, in whole or in part, not earlier than six months after the date of grant and shall expire on the date ten years from the date of grant. (d) Payment of Exercise Price. Payment of the exercise price of each Non- qualified Stock Option granted to a non-employee director pursuant to this Section shall be made pursuant to any of the methods set forth in Section 12(a), or by a combination thereof, as determined at the time of exercise by the non- employee director to whom the Non-qualified Stock Option is granted. (e) Termination of Service. If the service of a non-employee director as a member of the Board ceases for any reason other than death, he may exercise all of his then unexercised Non-qualified Stock Options at any time during the period ending on the first to occur of (1) the date three months after the date his service ceases, and (2) the date ten years from the date of grant of the applicable Non-qualified Stock Option. If a non-employee director dies while a member of the Board, or within three months after his cessation of service as a member of the Board, his estate or the person that acquires his Non-qualified Stock Options by bequest or inheritance or by reason of this death, shall have the right to exercise all of his then unexercised Non-qualified Stock Options at any time within one year from the date of death. In any such event, unless so exercised within such one year period, his Non-qualified Stock Options shall terminate at the expiration of said period. (f) Miscellaneous. It is intended that each Non-qualified Stock Option granted to a non-employee director pursuant to this Section shall not qualify as an incentive stock option under Section 422 of the Code. Each such Non- qualified Stock Option shall be subject to the provisions of this Section, and not to any other section of the Plan, except that the provisions of Sections 9, 10(b) and 12 (except to the extent otherwise provided in paragraph (d) of this Section) shall apply to each Non-qualified Stock Option granted to a non- employee director hereunder. 5. NON-QUALIFIED STOCK OPTIONS (a) Intended Legal Status of Non-qualified Stock Options. It is intended that Non-qualified Stock Options granted pursuant to the Plan shall not qualify as incentive stock options under Section 422A of the Code. (b) Terms of Options. Non-qualified Stock Options may be granted under the Plan for the purchase of shares of Common Stock of the Company. Non-qualified Stock Options shall be in such form and upon such terms and conditions as the Committee shall from time to time determine, subject to the following: (i) Option Prices. The option price of each Non-qualified Stock Option to purchase Common Stock shall be such price as shall be set forth in an individual option agreement with the Grantee; provided, however, that the option price shall not be less than the greater of 50% of the fair market value or the par value of the Common Stock subject to such Non-qualified Stock Option. (ii) Exercise and Expiration Dates. Each Non-qualified Stock Option shall become exercisable as determined by the Committee. Each Non-qualified Stock Option shall expire on the first to occur of: (A) the date determined by the Committee, provided that such Non-qualified Stock Option by its terms shall not be exercisable after the expiration of ten years from the date granted, and (B) upon the exercise of any Right (granted under Section 6 hereof) related to such Non-qualified Stock Option. 6. STOCK APPRECIATION RIGHTS (a) Award. If deemed by the Committee to be in the best interests of the Company, any Option granted under the Plan may include a Stock Appreciation Right either at the time of grant or thereafter while the Option is outstanding. Notwithstanding the preceding sentence, in no event shall a Right be granted in connection with any Incentive Stock Option in such a manner as will disqualify the Incentive Stock Option under Section 422A of the Code. (b) Terms of Rights. Rights shall be subject to such terms and conditions not inconsistent with the Plan as the Committee shall determine, provided that: (i) Limitation. A Right shall be exercisable to the extent, and only to the extent, the Option to which it relates is exercisable and shall be exercisable only for such period as the Committee may determine (which period may expire prior to the expiration date of such Option). (ii) Exercise of Right. A Right shall entitle the Grantee, to the extent the related Option, or portion thereof, is unexercised, to receive from the Company in exchange therefor the number of shares of Common Stock having an aggregate fair market value equal to the excess of the fair market value of one share as of the trading date next preceding the date on which the Right is exercised over the option price per share specified in such Option, multiplied by the number of shares of Common Stock subject to the Option, or portion thereof. Upon the exercise of a Right, the unexercised Option, or portion thereof, to which the Right is related, shall expire. The Company shall be entitled to elect to settle any part or all of its obligation arising out of the exercise of a Right by the payment of cash in lieu of part or all of the shares of Common Stock it would otherwise be obligated to deliver. If shares of Common Stock are to be received upon the exercise of a Right, cash shall be delivered in lieu of any fractional shares. (iii) Cancellation of Stock Appreciation Rights. The exercise of any Option shall cancel that number of the Rights related to such Option, which is equal to the number of shares subject to such exercise. (c) Cash Settlement Restriction. Notwithstanding Sections 6(b) and 10 hereof, so long as the Grantee of a Right is an officer, director or holder of more than 10% of any class of equity securities of the Company, the Company's right to elect to settle any part or all of its obligation arising out of the exercise of a Right by the payment of cash shall not apply unless such exercise occurs either; (A) pursuant to the provisions of subsection (i) below, or (B) during the period beginning on the third business day following the date of release for publication of quarterly and annual summary statements of sales and earnings of the Company and ending on the twelfth business day following such date, unless a different period is specified in Rule 16b-3 under the Securities Exchange Act of 1934, as in effect at the time of such exercise, or any law, rule, regulation or other provision that may hereafter replace such Rule (the "Window Period"). (i) Exercise Upon Reorganization. In the event that, pursuant to Section 10 hereof, the Company shall cancel all unexercised Options as of the effective date of a merger or other transaction provided therein or in the cases of dissolution of the Company, each Right held by a Grantee shall be automatically exercised on such date within 30 days prior to the effective date of such transaction or dissolution as the Committee shall determine and, in the absence of such determination, on the last business day immediately prior to such effective date, unless both the Committee and the Grantee agree in writing that the Right shall not be exercised at that time. 7. RESTRICTED STOCK AWARDS (a) Award. Restricted Stock Awards may be granted under the Plan with respect to shares of Common Stock of the Company. Awards shall be granted upon such terms and conditions as the Committee may determine, subject to the following: (b) Agreements. Awards issued under the Plan shall be evidenced by written agreements ("Restricted Stock Agreements") in such form as the Committee may from time to time determine. (c) Receipt of Shares. Each Restricted Stock Agreement shall set forth the number of shares of Common Stock issuable under the Award evidenced thereby. Subject to the provisions of Sections 7(d) and (e) hereof, the number of shares of Common Stock granted under an Award shall be issued or transferred from the Company to the Grantee thereof, on the date of grant of such Award or as soon as may be practicable thereafter as a bonus paid to the Grantee. (d) Rights of Grantees. Subject to the provisions of Section 7(e) hereof and the restrictions set forth in the related Restricted Stock Agreement, the Grantee of an Award shall thereupon be a stockholder with respect to all the shares of Common Stock represented by such certificate or certificates and shall have all the rights of a stockholder with respect to such shares, including the right to vote such shares and to receive dividends and other distributions paid with respect to such shares. In aid of such restrictions, certificates for shares awarded hereunder, together with a suitably executed stock power signed by each Grantee, shall be held by the Company in its control for the account of such Grantee until the restrictions under the related Restricted Stock Agreement lapse pursuant to the Agreement or such shares are theretofore forfeited to the Company as provided by the Plan or the Agreement. (e) Restrictions. Each share of Common Stock issued pursuant to an Award shall be subject, in addition to any other restrictions set forth in the related Restricted Stock Agreement, to the following restrictions, except to the extent that such restrictions have lapsed pursuant to Section 7(f) below: (i) Disposition. None of such shares shall be sold, exchanged, transferred, pledged, hypothecated or otherwise disposed of; provided, however, that such shares may be transferred upon the death of the Grantee to such of his legal representatives, heirs and legatees as may be entitled thereto by will or the laws of intestacy. (ii) Forfeiture. All of such shares shall be forfeited to the Company without notice and without consideration therefor immediately upon the occurrence of any of the following events: (A) the termination of the Grantee's employment with the Company and all subsidiaries for any reason other than (1) retirement pursuant to a retirement plan of the Company or any subsidiary, (2) disability as determined by the Committee or (3) death; or (B) without the express written consent of the Company, the performance of services by the Grantee, as an employee, consultant or independent contractor for, or the acquisition of an ownership interest in excess of 5% in, any competitor of the Company or any subsidiary at a time when the Grantee is an employee of the Company or any subsidiary; or (C) an attempt to transfer such shares in violation of Section 7(e)(i) hereof. (f) Lapse of Restrictions. Unless otherwise stated in the related Restricted Stock Agreement, the restrictions set forth in Section 7(e) hereof on shares of Common Stock issued under an Award, to the extent such shares have not theretofore been forfeited pursuant to Section 7(e)(ii) hereof, shall lapse, and certificates for the shares shall be appropriately distributed: (i) on the first to happen of: (A) the death of the Grantee or (B) the termination of the Grantee's employment by reason of his retirement or disability as determined by the Committee, and (ii) as otherwise determined by the Committee. 8. PERFORMANCE UNITS (a) Grant. The Board may, from time to time, subject to the provisions of the Plan and such other terms and conditions as the Committee may prescribe, grant one or more Performance Units to any key employee. (b) Performance Unit Agreements. Units granted under the Plan shall be evidenced by written agreements ("Performance Unit Agreements") in such form as the Committee may from time to time determine. (c) Conditions. Upon making an award of Units, the Committee shall determine, and the Performance Unit Agreement shall state: (i) the number of Units included therein, (ii) the stated value (("Stated Value") of each such Unit (which shall be 100% of the fair market value of a share of Common Stock of the Company on the trading date next preceding the date such Units are granted), and (iii) the primary and minimum performance targets ("Performance Targets") for such Units as described in Section 8(f) hereof for a specified period not exceeding five years ("Award Period"). (d) Payments of Performance Units. Subject to the provisions of Section 11(e) hereof, payment in respect of Units shall be made to the Grantee thereof within 90 days after the Award Period for such Units has ended, but only with respect to those Units which have been earned as hereinafter described. Such payment shall be an amount equal to the Stated Value of the Units earned. (e) Method of Payment. Payment for Units shall be made in cash or shares of Common Stock of the Company, or partly in cash and partly in shares of Common Stock, as the Committee shall determine. To the extent that payment is made in shares of Common Stock, the number of shares shall be determined by dividing the dollar amount of such payment by the fair market value per share of the Common Stock on the trading date next preceding the date payment is made. (f) Performance Targets. Performance Targets for any Award Period may be expressed as an increase in the Company's earnings per share, net income or return on equity or in terms of any other such standard as the Committee may determine. Attainment by the Company of the primary Performance Target in respect of an Award Period will result in the Stated Value of all the related Units included in the Performance Unit Agreement being earned. Failure by the Company to attain the minimum Performance Target will result in no portion of the Stated Value of any of the related Units being earned. Attainment between the primary and the minimum Performance Targets in respect of an Award Period shall result in the Stated Value of a proportionate number of the related Units as specified in the Performance Unit Agreement being earned. (g) Creation of Reserve. Upon making an award of Units the Committee shall reserve from the aggregate maximum number of shares of Common Stock and of Units otherwise available for grant under the Plan a number of shares equal to the number of Units included in such award. At the end of the related Award Period, the number of Units, if any, which are unearned under the award and the number of reserved shares of Common Stock not issued to pay Units shall be released from such reserve and shall again become available for grant in accordance with Section 3(b) hereof. 9. ADJUSTMENTS (a) Incentive Stock Options, Non-qualified Stock Options, Stock Appreciation Rights, Restricted Stock Awards and Performance Units. The aggregate number of shares of Common Stock and of Units available for issuance or grant, as the case may be, under the Plan, the number of shares of Common Stock subject to each outstanding Option, Right and Award and the option price per share of each such Option, may all be appropriately adjusted, as the Committee may determine, for any increase or decrease in the number of shares of issued Common Stock of the Company resulting from a subdivision or consolidation of shares, whether through reorganization, recapitalization, stock split-up, stock distribution or combination of shares, or the payment of a share dividend or other increase or decrease in the number of such shares of Common Stock outstanding effected without receipt of consideration by the Company. Adjustments under this Section 9 shall be made according to the sole discretion of the Committee, and its decisions shall be binding and conclusive. (b) Performance Units. The Committee may in its discretion and for purposes of determining whether Performance Targets set pursuant to Section 8(f) hereof have been met, equitably restate the Company's earnings per share, net income or any other factor utilized in establishing the Performance Targets in order to take into account the effect, if any, of (i) acquisitions or dispositions of businesses by the Company, (ii) extraordinary and non-recurring events, (iii) an event set forth in Section 9(a) hereof and (iv) changes in accounting practices, tax laws or other laws or regulations that significantly affect the Company's financial performance. 10. REORGANIZATION AND DISSOLUTION (a) Reorganization and Changes in Control. Subject to any required action by the stockholders, in the event the Company shall be a party to a transaction involving a sale of all or substantially all of its assets, a merger or a consolidation ("Transaction"), the Committee may in its discretion revise, alter, amend or modify any Option, Right, Award or Unit outstanding under the Plan in any one or more of the following respects: (i) Substitution of Securities. In respect of a Transaction, any or all Options, Rights and Awards may be deemed to pertain and apply to the securities to which a holder of the number of shares of Common Stock subject to the respective Option, Right or Award would have been entitled if the Grantee actually owned such shares immediately prior to the time the Transaction became effective. (ii) Cancellation of Options. In respect of a Transaction, any or all unexercised Options may be cancelled as of the effective date of the Transaction by the giving of notice to holders thereof of the Company's intention so to cancel and by permitting the exercise of all partly or wholly unexercised Options in full (without regard to installment exercise limitations) during not less than 30 days preceding such effective date. (iii) Change of Exercise Dates. The dates upon which outstanding Options and Rights related thereto may be exercised may be advanced (without regard to installment exercise limitations). (iv) Reduction or Elimination of Restrictions. Any or all of the restrictions on any or all Awards may be reduced or eliminated. (v) Adjustment of Performance Units. Equitable adjustments may be made to any or all Units, including the modification of Performance Targets and acceleration of Award Periods. (vi) Settlement of Company's Obligations. Subject to the provisions of Section 6(c) hereof, obligations of the Company under any Option, Right, Award or Unit may be settled in whole or in part in cash, in Common Stock or in other securities substituted for Common Stock pursuant to this Section 10(a). (vii) Miscellaneous Adjustments. Other adjustments may be made in the discretion of the Committee as may be appropriate to provide Grantees of awards payable in Common Stock with equivalent benefits offered or provided to stockholders of the Company generally in connection with the Transaction. (b) Dissolution. In the case of the dissolution of the Company: (i) Termination of Options or Rights. Every outstanding Option, and Right included therein, if any, shall terminate; provided, however, that each Grantee shall have 30 days prior written notice of such event, during which time he shall have a right to exercise all or part of his unexercised Option, and Right included therein, if any (without regard to installment exercise limitations). (ii) Lapse of Restrictions. Any and all restrictions on all Awards shall lapse and such shares shall be and become freely transferable at least 30 days prior to such dissolution. (iii) Adjustment of Performance Units. The Committee may, in its discretion, make equitable adjustments to any or all Units, including modifications of Performance Targets and acceleration of Award Periods. 11. TERMINATION OF EMPLOYMENT In the event that a Grantee under the Plan shall die or cease to be employed by the Company and its subsidiaries, his rights under the Plan shall be affected as provided in this Section. (a) Cessation. Except as otherwise set forth in (b) next below, a Grantee shall be deemed to cease to be employed by the Company and its subsidiaries upon (i) retirement pursuant to a retirement plan of the Company or its subsidiaries, (ii) death or (iii) upon the actual cessation of employment, whichever occurs earlier. (b) Former Employee with Options. A former employee who holds Options or Rights under the Plan and whose employment ceases for any reason other than death, may exercise his Option or Right at any time within the period ending on the first to occur of (1) the date three months after the date his employment ceases, and (2) the date such Option or Right expires pursuant to Section 4(c)(ii) or 5(b)(ii), but only to the extent his Option or Right was exercisable at the date his employment ceased. The Committee, in its discretion, may provide that if a former employee who holds a Non-qualified Stock Option or a Right, enters into a non-compete agreement with the Company at the date his actual employment with the Company ceases, his employment will be deemed to cease for purposes of his right to exercise such Option or Right pursuant to this Section 11 on the first to occur of (1) the date of the expiration of such Option or Right pursuant to Section 4(c)(ii) or 5(b)(ii), (2) the date of his violation of such agreement, or (3) the date of termination of such agreement. (c) Death of a Grantee. If a Grantee of an Option or Right dies while in the employ of the Company, its parent or its subsidiaries, or within three months after the cessation of his employment, his estate or the person that acquires his Options or Rights by bequest or inheritance or by reason of his death shall have the right to exercise his Options and Rights at any time within one year from the date of cessation of employment but only to the extent the Options or Rights were exercisable on the date of his cessation of employment. In any such event, unless so exercised within such one-year period, the Options and Rights shall terminate at the expiration of said period. (d) Forfeiture of Restricted Stock Award. All shares of Common Stock subject to an Award shall be forfeited upon the termination of employment of the Grantee with the Company and all subsidiaries to the extent set forth in Sections 7(e)(ii) and 7(f) above. (e) Termination of Performance Units. Except as provided in Sections 10 and 11(f) hereof, or as otherwise determined by the Committee, all Units granted to a Grantee under the Plan shall terminate immediately without notice or payment upon his death, retirement or other termination of employment with the Company and its subsidiaries. (f) Post-Employment Performance Unit Payments. Grantees of Units whose employment ceases prior to the expiration of the applicable Award Period, or the legal representatives, heirs or legatees of a deceased Grantee who may be so entitled by will or the laws of intestacy, shall be entitled to receive within 120 days after the end of the Award Period, payment with respect to such Units to the same extent, if at all, as would the Grantee if the Grantee were an employee throughout the Award Period; provided, however, that such payment shall be adjusted by multiplying the amount earned under the award by a fraction, the numerator of which shall be the number of full calendar months between the date of the award of the Unit and the date that employment terminated, and the denominator of which shall be the number of full calendar months from the date of the award to the end of the Award Period. 12. MISCELLANEOUS Except as otherwise provided above: (a) Manner of Exercise of Options and Payment for Common Stock. Options may be exercised by giving written notice to the Secretary of the Company stating the number of shares of Common Stock with respect to which the Option is being exercised and tendering payment therefor. No Common Shares shall be delivered pursuant to the exercise of any Option, in whole or in part, until qualified for delivery under any applicable securities laws and regulations and until payment in full of the option price is received by the Company (i) in cash, (ii) by check, (iii) in shares of Common Stock previously acquired by the Grantee, valued at fair market value on the last trading day preceding the date of delivery of such shares, (iv) a combination of the above, (v) if authorized by the Committee and accomplished in accordance with such authorization, by delivery to the Company of a properly executed exercise notice together with a copy of irrevocable instructions to a broker or dealer to sell an amount of Common Stock, the proceeds of which are sufficient to pay the option price, and to deliver promptly to the Company such proceeds, or (vi) if authorized by the Committee and accomplished in accordance with such authorization, by delivery to the Company of a properly executed exercise notice together with a copy of irrevocable instructions to a broker to lend sufficient funds to pay the option price and to deliver promptly to the Company such funds; provided, that if the proceeds of such loan are not sufficient to pay fully the option price, then no shares shall be delivered until the Company has received payment in another manner provided by this Section in an amount sufficient to cover any such deficiency. Neither the Grantee of an Option nor such Grantee's legal representative, legatee, or distributee shall be deemed to be a holder of any shares of Common Stock subject to such Option unless and until a certificate or certificates therefor is issued in his or her name or in the name of a person designated by him or her. (b) Non-Transferability. No Option, Right, Award or Unit hereunder may be transferred, assigned, pledged or hypothecated (whether by operation of law or otherwise), except as provided by will or by the applicable laws of descent and distribution, and no Option, Right, Award or Unit shall be sub- ject to execution, attachment or similar process. Any attempted assignment, transfer, pledge, hypothecation or other disposition of an Option, Right, Award or Unit, or levy of attachment or similar process upon the Option, Right, Award or Unit, not specifically permitted herein shall be null and void and without effect. An Option or Right may be exercised only by a Grantee during his or her lifetime, or pursuant to Section 11, by his or her estate or the person who acquires the right to exercise such Option or Right upon his or her death by bequest or inheritance. (c) Legal and Other Requirements. The obligation of the Company to sell and deliver Common Stock under the Plan shall be subject to all applicable laws, regulations, rules and approvals, including, but not by way of limitation, the effectiveness of a registration statement under the Securities Act of 1933 if deemed necessary or appropriate by the Company and the listing upon any stock exchange upon which the Common Stock reserved for issuance under the Plan is listed. Shares of Common Stock issued hereunder may be legended as the Committee shall deem appropriate to reflect the restrictions imposed under the Plan, the agreements evidencing the award, or by securities laws generally. (d) No Obligation to Exercise Options. The granting of an Option shall impose no obligation upon the Grantee to exercise such Option. (e) Termination and Amendment of Plan. The Board, without further action on the part of the stockholders of the Company, may from time to time alter, amend or suspend the Plan or any Option, Right, Unit, Award or Agreement granted hereunder, or may at any time terminate the Plan, except that it may not (except to the extent provided in Section 9(a) hereof) (i) change the total number of shares of Common Stock and of Units available for grant or award under the Plan, (ii) extend the duration of the Plan, (iii) increase the maximum term of Options, (iv) decrease the minimum option price below the par value per share of the Common Stock or (v) change the class of employees eligible to be granted Options, Rights, Units or Awards under the Plan. No such action enumerated above in this Section 12(e) may materially and adversely affect any outstanding Option, Right, Award, Unit or Agreement without the consent of the Grantee thereof. (f) Application of Funds. The proceeds received by the Company from the sale of Common Stock pursuant to Options will be used for general corporate purposes. (g) Withholding Taxes. Each Grantee receiving or exercising an Option, Right, Unit or Award, as a condition to such receipt or exercise, shall pay to the Company the amount, if any, required to be withheld from distributions resulting from such receipt or exercise under applicable Federal and State income tax laws ("Withholding Taxes"). Such Withholding Taxes shall be payable as of the date income from the Option, Right, Unit or Award, is includible in the Grantee's gross income for Federal income tax purposes (the "Tax Date"). The Grantee may satisfy this requirement by electing one of the following methods (or a combination thereof), which election is subject to the approval of the Committee: (i) remitting to the Company in cash or by check the amount of such Withholding Taxes, (ii) remitting to the Company a number of shares of Common Stock having an aggregate fair market value as of the last trading date preceding the Tax Date equal to the amount of such Withholding Taxes, (iii) if a taxable event occurs with respect to the Grantee in connection with an Option, Right, Unit or Award and the Grantee receives cash as a result thereof, electing to have the Company withhold from the resulting cash distribution an amount equal to the amount of such Withholding Taxes, or (iv) if a taxable event occurs with respect to the Grantee in connection with an Option, Right, Unit or Award and the Grantee receives shares of Common Stock as a result thereof, electing to have the Company withhold from such distribution the number of shares of Common Stock having an aggregate fair market value as of the last trading date preceding the Tax Date equal to the amount of such Withholding Taxes. Any election by a Grantee pursuant to clauses (ii), (iii) or (iv) of this Section 12(g) must be made on or prior to the Tax Date and will be irrevocable. In addition, if the Grantee is a director, officer or holder of more than 10% of the equity securities of the Company, an election pursuant to clauses (ii) or (iii) of this Section 12(g) cannot be made until at least six months after the grant of the Option, Right, Unit or Award (except that this limitation shall not apply in the event the death or disability of the Grantee occurs prior to the expiration of the six-month period), and such election must be made either by the date which is at least six months prior to the Tax Date or during a Window Period which begins prior to the Tax Date. (h) Right to Terminate Employment. Nothing in the Plan or any agreement entered into pursuant to the Plan shall confer upon any Grantee the right to continue in the employment of the Company or any subsidiary or affect any right which the Company or any subsidiary may have to terminate the employment of such Grantee. (i) Rights as a Stockholder. Subject to the provisions of Section 7 hereof, the Grantee of any award under the Plan shall have no rights as a stockholder with respect thereto unless and until certificates for shares of Common Stock are issued to him. (j) Leaves of Absence and Disability. The Committee shall be entitled to make such rules, regulations, and determinations as it deems appropriate under the Plan in respect of any leave of absence taken by, or disability of, the Grantee of any Option, Right, Unit or Award. Without limiting the generality of the foregoing, the Committee shall be entitled to determine (i) whether or not any such leave of absence shall constitute a termination of employment within the meaning of the Plan, and (ii) the impact, if any, of any such leave of absence on awards under the Plan theretofore made to any Grantee who takes such leave of absence. (k) Fair Market Value. Unless otherwise provided in the Plan, whenever the fair market value of Common Stock is to be determined under the Plan as of a given date, such fair market value shall be: (i) If the Common Stock is listed on a national securities exchange, the average of the high and low reported sales prices of a share of Common Stock on the Composite Tape for the ten consecutive trading days immediately preceding such given date; (ii) If the Common Stock is traded on the over-the-counter market, the average of the mean between the bid and the asked price for the Common Stock at the close of trading for the ten consecutive trading days immediately preceding such given date; and (iii) If the Common Stock is neither traded on the over-the-counter market nor listed on a national securities exchange, such value as the Committee, in good faith, shall determine. (l) Notices. Every direction, revocation or notice authorized or required by the Plan shall be deemed delivered to the Company (a) on the date it is personally delivered to the Secretary of the Company at its principle executive offices or (b) three business days after it is sent by registered or certified mail, postage prepaid, addressed to the Secretary at such offices; and shall be deemed delivered to a Grantee (a) on the date it is personally delivered to him or her or (b) three business days after it is sent by registered or certified mail, postage prepaid, addressed to him or her at the last address shown for him or her on the records of the Company. (m) Applicable Law. All questions pertaining to the validity, construction and administration of the Plan and awards granted hereunder shall be determined in conformity with the laws of the State of Illinois, to the extent not inconsistent with Section 422A of the Code with respect to Incentive Stock Options. (n) Elimination of Fractional Shares. If under any provision of the Plan which requires a computation of the number of shares of Common Stock subject to an award, the number so computed is not a whole number of shares of Common Stock, such number of shares of Common Stock shall be rounded down to the next whole number. 13. EFFECTIVE DATE The Plan as amended became effective on December 16, 1993, the date it was adopted by the Board of Directors, subject to the approval of the first amendment to the Plan by the holders of a majority of the shares of Common Stock of the Company present or represented at the 1994 Annual Meeting of Stockholders of the Company and entitled to vote; provided, that if such approval is not obtained, the first amendment shall be null and void and of no effect and each Option, Right, Award or Unit granted pursuant to the provisions of the first amendment hereunder shall, notwithstanding the preceding provisions of this Plan, be null and void and of no effect. If such approval of the stockholders of the Company of the first amendment is not obtained, the Plan as in existence prior to the effective date of the first amendment shall continue in full force and effect pursuant to the provisions thereof. There shall be no Options, Rights, Awards or Units granted or awarded under the Plan as amended after June 2, 1998; provided, however, that all Options, Rights, Awards and Units granted or awarded under the Plan as amended prior to such date shall remain in effect and subject to adjustment and amendment as herein provided, until they have been satisfied or terminated in accordance with the Plan as amended and the terms of the respective awards and the related agreements. EX-11 7 EARNINGS PER SHARE Exhibit 11 PORTEC, Inc. COMPUTATION OF NET INCOME PER COMMON SHARE Year Ended December 31, 1994 1993 1992 Average shares outstanding 4,572,468 4,464,877* 4,034,571* Net income $6,825,000 $4,696,000 $5,513,000 Per share amount $ 1.49 $ 1.05* $ 1.37* * Adjusted retroactively for 10% stock dividends paid in December 1994 and 1993. EX-13 8 ANNUAL REPORT TO STOCKHOLDERS CORPORATE PROFILE Portec is a leading manufacturer of quality engineered products for the construction, materials handling and railroad industries. Founded in 1906, Portec completed a successful restructuring in the late 1980's. Since 1990, the focus has been on achieving above average growth in sales and earnings through new product development, acquisitions of related businesses, continuous cost reduction and international market development. Financial performance in 1994 showed significant gains over 1993, continuing a steady trend over the last several years. Headquartered near Chicago, Illinois, Portec's shares are traded on the New York and Chicago stock exchanges under the symbol POR. Principal product groups are: MAJOR PRODUCTS APPLICATIONS CONSTRUCTION EQUIPMENT (Pie Chart Depicting 40% of Sales) o Aggregate Equipment o Produce and recycle crushed stone, sand and gravel-the primary components of asphalt and concrete. o Environmental Equipment o Treat contaminated soils and sludges. Process and recycle green yard waste, waste wood and demolition debris, reducing landfill requirements. MATERIALS HANDLING (Pie Chart Depicting 18% of Sales) o Specialty Belt Conveyors o Automated handling of baggage, packages, food and pharmaceutical products, newspaper, etc. to lower material handling cost. o Recycling Conveyors and o Separate glass, plastics and metals from municipal Systems solid waste for recycling, also reducing landfill requirements. RAILROAD PRODUCTS (Pie Chart Depicting 42% of Sales) o Track Components o Fasten rails to rails and rails to ties in railroad and mass transit track systems worldwide. o Railcar Components o Secure loads to railcars, including intermodal container cars, lumber cars and automobile rack cars. o Jacking Systems o Lift locomotives and railcars for maintenance and service.
CONTENTS PORTEC, Inc. 1994 Annual Report Letter to Stockholders and Employees 2 Construction Equipment Segment . . . 4 Materials Handling Segment . . . . . 6 Railroad Products Segment . . . . . 8 Business Segments . . . . . . . . . 10 Geographic Areas . . . . . . . . . . 11 Management's Discussion and Analysis 12 Consolidated Statements of Income . 17 Consolidated Balance Sheets . . . . 18 Consolidated Statements of Cash Flows 19 Notes to Consolidated Financial Statements . 20 Report of Independent Accountants . 33 Corporate Information . . . . . . . 34 Stockholders' Information . . . . . 36 FIVE-YEAR SUMMARY For Years Ended December 31 (Dollars in thousands)(1) 1994 1993 1992 1991 1990 INCOME AND OPERATING DATA Net sales $ 96,474 $ 76,324 $ 68,638 $ 65,027 $ 80,551 Cost of products sold 65,681 51,387 46,232 45,262 55,301 Selling, general and administrative expense 21,718 18,309 13,854 16,052 19,101 Depreciation and amortization 2,012 1,478 1,376 1,493 1,572 Other income, net 1,091 559 378 1,054 1,691 Interest expense 829 750 1,220 1,665 2,003 Income before income taxes and extraordinary credit 7,325 4,959 6,334 1,609 4,265 Income tax provision 500 263 821 1,064 2,152 Income before extraordinary credit 6,825 4,696 5,513 545 2,113 Extraordinary credit - tax loss carryforward - - - 262 1,368 Net income 6,825 4,696 5,513 807 3,481 FINANCIAL DATA Working capital $ 12,797 $ 8,554 $ 7,924 $ 4,543 $ 3,143 Property, plant and equipment-net 13,372 12,129 9,671 10,053 10,847 Total assets 57,522 42,478 38,045 38,707 40,595 Long-term debt 7,623 5,277 8,094 10,408 11,179 Stockholders' equity 24,959 17,744 12,309 7,912 6,778 PER SHARE OF COMMON STOCK(2) Income before extraordinary credit 1.49 1.05 1.37 .14 .54 Extraordinary credit - tax loss carryforward - - - .06 .35 Net income 1.49 1.05 1.37 .20 .89 Stockholders' equity-end of year 5.83 4.19 3.03 1.97 1.73 Average shares outstanding 4,572,468 4,464,877 4,034,571 3,994,365 3,912,269 Number of employees 779 619 518 499 612 Number of stockholders 1,335 1,412 1,473 1,527 1,613 (1) Dollars in thousands except per share data, number of stockholders, average number of shares outstanding and number of employees. (2) Adjusted retroactively for 10% stock dividends paid in December 1992, 1993 and 1994. (Bar Graph Depicting Last Five Years of Net Sales as itemized in above table.) (Bar Graph Depicting Last Five Years of Net Income as itemized in above table, except for nonrecurring gain in 1992 of 3.3 million.)
(Bar Graph Depicting Last Five Years of Net Worth as itemized in above table.) TO OUR STOCKHOLDERS AND EMPLOYEES: Portec had another excellent year in 1994, with significant increases in sales, earnings and stockholders' equity. Our performance was helped by a generally strong economy, but, more importantly, the growth strategy which we have described and pursued during recent years is showing results. SALES, EARNINGS AND NET WORTH UP Sales in 1994 increased to $96.5 million from $76.3 million in 1993, a 26% year- to-year gain. During the year, we made two acquisitions and these accounted for approximately one-third of the $20.2 million volume increase. The remaining increase was generated by market growth, market share expansion and new product introductions. Net income in 1994 was $6.8 million, our highest level since 1981. This represents an increase of 45% over 1993 net income of $4.7 million. The dramatic earnings improvement was a result of the significant volume gain and our on-going focus on continuous cost reduction and productivity improvement. Stockholders' equity increased to $25.0 million. This represents a 41% increase over the year earlier level of $17.7 million and continues the favorable trend of recent years. ALL SEGMENTS STRONG Each of our three business segments achieved strong results in 1994. Construction Equipment, which represents 40% of our overall sales, saw sales volume increase by 30% over 1993. Major factors in the increase included a recovery in traditional aggregate equipment, continued expansion of soil and sludge remediation equipment, and the acquisition of Innovator Manufacturing, a supplier of green waste recycling equipment. Profits at Construction Equipment were up 134% on the higher volume and some improvement in price levels. Our Materials Handling segment accounted for 18% of total 1994 sales and achieved a 37% volume increase over 1993. About half of the revenue gain was due to strong activity in our specialty conveyor business, with the remaining increase from solid waste recycling conveyors, including the acquisition of Count Recycling Systems. Operating profit in the Materials Handling segment increased by 45% as greater volume, and our ability to leverage fixed costs, more than offset somewhat lower margins in the recycling conveyor products. Sales of Railroad Products comprised 42% of our 1994 revenue and increased by 20% from the 1993 level. The largest gain was registered at Portec (U.K.) Ltd., our United Kingdom operation, where sales more than doubled due to the acquisition of PVH Industries. Although the bulk of Portec U.K.'s business has historically been in railroad products, PVH's principal business is fabricated steel products. Strong sales gains were also recorded in our railroad load securement business which shipped a large order for hold-down devices on flatcars. Despite the volume increase, the Railroad segment profit was about the same as last year's strong performance. Earnings increases in securement products and U.S. track components were offset by weak market conditions in Canada and by a loss at PVH in the United Kingdom. TWO SIGNIFICANT ACQUISITIONS During 1994, we made two significant acquisitions. The first, in April, was of Count Recycling Systems, a leading supplier of sorting systems for solid waste recycling. Count's systems are sold to materials recycling facilities (MRF's) and allow the efficient separation of glass, plastic and metals for recycling, PORTEC, Inc. 1994 Annual Report while reducing the volume of waste which goes to a landfill. The Count acquisition greatly enhances our position and product offering in this fast growing market. Demand for these conveyors and systems was strong during the last half of 1994, prompting an expansion of our Materials Handling manufacturing plant in Canon City, Colorado. The 30,000 square foot addition should be in full operation by the third quarter of 1995. In July, we acquired Innovator Manufacturing, a producer of grinding and screening equipment used to process green waste, waste wood and demolition debris. These products are used by municipalities and private waste haulers in composting and recycling operations which create useful end products, while again, reducing landfill requirements. Production of Innovator products has been transferred to our Construction Equipment manufacturing facility in Yankton, South Dakota, and the line has been enthusiastically received by our existing dealer network. Although Innovator had little impact on our 1994 sales volume, we expect a growing, positive contribution during 1995. We believe that both of these acquisitions offer considerable marketing and manufacturing synergy with our existing operations. In addition, each of these new businesses promises above average growth potential. FUNDAMENTALS REMAIN POSITIVE The macro factors which drive our businesses remain generally strong. In the Construction Equipment segment, the ISTEA program for federally funded infrastructure projects helped to boost aggregate production by 6% to 7% in 1994. ISTEA continues through 1997 and industry analysts expect aggregate production in 1995 to match 1994's growth. Also, environmental regulations continue to force the removal of underground storage tanks and the remediation of contaminated soils. Finally, more than 40 states have set long-term recycling objectives which attempt to reduce landfill usage, and this should drive a 12% to 15% per year growth rate in the market for Innovator products. In Materials Handling, airline baggage systems will be driven by worldwide passenger seat mile growth which is nearly double the expected GDP growth. In addition, a broad range of industries continues to search for productivity improvements in their material handling operations and automated conveyor systems are often the best solution. Finally, the growing need to handle and sort the nearly 600,000 tons of solid waste produced each day in the U.S. is both an enormous challenge and an enormous opportunity for our recycling products and systems. Our Railroad Products segment should benefit from strong fundamentals in the North American rail industry. Reflecting advantages in fuel efficiency, lower pollution and public safety, U.S. railroads are increasing their share of inter- city freight markets. In 1994, ton miles of freight carried by railroads increased by over 8%, with intermodal traffic increasing by more than 14%. We have been highlighting this growth for several years and believe that the trend will continue for at least the rest of this decade. LOOKING AHEAD During the last several years, we have followed a strategy whose objective is to create above average growth in Portec sales and earnings. The major elements of the strategy are: 1) to introduce five to 10 new products each year, 2) to seek acquisitions in related businesses (such as Count and Innovator in 1994), 3) to emphasize continuous cost reduction and productivity improvement (capital expenditures in 1994 increased to $3.6 million, largely for manufacturing cost reduction projects), and 4) to increase international market share (sales outside the U.S. increased from $18.7 million in 1993, to $27.7 million in 1994, a 48% increase). We believe this strategy has served us well to date, as witnessed by our favorable financial performance, and we intend to continue with this approach. Looking at the year ahead, there is more uncertainty in the general economic outlook than there was one year ago. However, our backlog at December 31, 1994, was $24.4 million, a 16% increase over the year earlier level, and order rates in the first several months of this year continue strong. In addition, we do feel there are some very positive factors underlying the markets we serve, regardless of short-term economic swings. We appreciate the continued support from our stockholders and Board of Directors. We also thank our customers for their valued business and our employees for their dedication and commitment to the Company's success. Albert Fried, Jr. Michael T. Yonker Chairman of the Board President and CEO AGGREGATE PRODUCTS (5 photographs of equipment as described by captions) A Pioneer 5260 impact crusher and Kolberg conveyors at work producing aggregate from recycled concrete (left and below). This Kolberg classifying system sizes and cleans sand products for the aggregate industry (left). ENVIRONMENTAL PRODUCTS PORTEC, Inc. 1994 Annual Report A Kolberg Model 52 pugmill mixing a lime-based additive with flyash to produce roadbed material (left). A patented Innovator Tumble Grinder shredding wood waste prior to composting (right). CONSTRUCTION EQUIPMENT DIVISION Portec's Construction Equipment Division is headquartered in Yankton, South Dakota, and accounted for 40% of total Company sales in 1994. Historically, the division's product lines have been used by the construction and road building industries for the production of crushed stone, sand and gravel-the basic raw materials for concrete and asphalt. In recent years, new products have been developed or acquired which have applications in environmental markets, primarily soil remediation, sludge treatment and green waste processing. 1994 FINANCIAL PERFORMANCE During 1994, the Construction Equipment segment had sales of $38.8 million, up 30% from $29.9 million in 1993. The significant increase in volume was a result of strong sales in both aggregate and environmental product lines. The acquisition of Innovator Manufacturing accounted for less than $1 million of the $9 million year-to-year sales increase. Operating profit in 1994 was $2.9 million, more than double last year's $1.3 million. Volume, market pricing and cost control all contributed to this outstanding profit improvement. INNOVATOR ACQUISITION In July 1994, we acquired the stock of Innovator Manufacturing, a privately held company, in London, Ontario, Canada. Innovator has developed a patented line of grinders and screens for the processing of green yard waste, waste wood and demolition debris. The common thread in all these applications is the desire to produce useful products from what has often been considered waste material. An added benefit is a reduction in the waste stream taken to landfills, helping to reduce tipping fees and meet recycling mandates as well. Our market research shows that the related equipment markets will nearly double in the next five years. In addition to positioning us in a growth market, the Innovator acquisition provides the following benefits: 1) MANUFACTURING SYNERGY. The Innovator products are very similar, in a manufacturing sense, to our existing products, and can be manufactured efficiently in our existing facility. Shortly after the purchase of Innovator in July, 1994, we closed the leased plant in London, and started the transfer of production to Yankton. This move should be complete by the end of the first quarter, 1995. 2) MARKETING SYNERGY. The Innovator line fits well with the new environmental products which we have introduced in recent years. We have been able to add the Innovator products into our existing sales organization with few changes, and many of our current dealers are very enthusiastic. In the twelve months prior to the acquisition, Innovator sales were approximately $5 million. In 1995, our goal is to increase Innovator volume by at least 50%, and we are expanding Innovator's new product development efforts for the future. PRODUCTIVITY IMPROVEMENT One of the keys for growth in our Construction Equipment business is the ability to produce a high quality product at low cost, in order to compete effectively in our price sensitive markets. During 1994, we continued with an aggressive capital expenditures program, spending more than $2.2 million on new machinery and equipment to improve our productivity. In addition, we have made a concerted effort to standardize and modularize products to take advantage of better fixturing and tooling. In 1995, nearly 50% of our equipment sales will be in the standard category. LINE PRODUCTS APPLICATION MARKET SALES CHANNELS Pioneer o Crushers o Production, sizing, o Construction o Direct & through dealers & o Conveyors & stackers cleaning & handling o Mining to end-users of bulk materials Kolberg o Screens & feeders o Soil remediation o Roadbuilding o Washers & classifierso Sludge treatment o Recycling o Pugmills o Environmental remediation Innovator o Tumble grinders o Size reduction for green waste, o Recycling o Direct & through dealers o Tub grinders waste wood & demolition debris o Composting to end-users o Trommel screens o Sizing & cleaning of wet, sticky materials
SPECIALTY CONVEYORS (6 photographs of equipment as described by captions) Flomaster belt turns in a check-in counter baggage handling system (left). A Flomaster spiral belt conveyor moving inventory in a parts warehouse (right). RECYCLING CONVEYORS PORTEC, Inc. 1994 Annual Report A Count Recycling McMRF 500 sorting glass, plastic and metal containers in a materials recycling facility (left and above). PATHFINDER PRODUCTS This Pathfinder automatic steering kit guides a narrow aisle forklift truck automati- cally freeing operator to pick stock more efficiently (left). MATERIALS HANDLING GROUP Portec's Materials Handling segment consists of three business units-the Flomaster Division and the Pathfinder Division, located in Canon City, Colorado, and Count Recycling Systems in Des Moines, Iowa. In 1994, this segment accounted for 18% of total Portec revenues. Product lines include specialty belt conveyor components, electronic wire guidance packages for lift trucks and conveyor systems for solid waste recycling. The common thread in all products is the automation of material handling activities in our customer's facilities, resulting in lower costs, higher production and improved productivity. 1994 FINANCIAL PERFORMANCE During 1994, Materials Handling sales were $16.9 million, up 37% from $12.4 million in 1993. Contributing to the sales increase was a strong performance at Flomaster and the acquisition of Count Recycling Systems in April, 1994. The Count acquisition accounted for approximately one-half of the $4.5 million sales increase. Operating profit in 1994 was $2.5 million, an increase of 45% over 1993's $1.7 million. Greater volume was the predominant factor behind the profitability improvement. COUNT ACQUISITION In April, 1994, we acquired the stock of Count Recycling Systems, of Des Moines, Iowa. Count's principal business is the supply of sorting and conveyor systems to materials recycling facilities (MRF's). One patented Count design uses magnets, air streams, and an eddy current device to automatically remove steel and aluminum containers from the solid waste stream, while diverting plastic and glass containers to different sorting conveyors. This system dramatically reduces the number of people required by a MRF operator for the sorting operation. The Count product line compliments the heavy duty conveyor design used primarily for fiber recycling, which we obtained through the acquisition of Nor-East Equipment in late 1993. The market for recycling equipment is growing rapidly. In the last five years, the number of curbside recycling programs in the U.S. has increased from 1,000 to 6,600. The economics of recycling have improved dramatically with rising prices for recycled materials, and increasing tipping fees for landfill disposal. In addition, recycling efforts enjoy wide popular support. In excess of 40 states now have mandated recycling objectives. More than 20 states have adopted an objective to recycle more than 40% of their solid waste stream, and this represents twice the actual recycling rate in 1994. All in all, we believe that this is an exciting equipment market, and that a growing demand for lower handling costs through more automation will play to our historical strengths. In the twelve months prior to our acquisition, Count's revenues were approximately $3 million. In 1995, it is our objective to nearly double this volume. PLANT EXPANSION UNDERWAY Our traditional specialty conveyor products generated a record volume in 1994, and entered 1995 with a strong order backlog and quotation rate. Encouragingly, the record volume came from a variety of end-use industries and not just one or two large orders. Due to this strength in our traditional products and the expected growth in recycling conveyors, we have decided to expand our manufacturing capacity at Canon City. We are currently in the process of adding 30,000 square feet to the Flomaster facility. The new addition has been designed especially for the efficient manufacture of heavy duty recycling conveyors, but will be able to take any overflow of Flomaster products as well. UNIT PRODUCTS APPLICATION MARKET SALES CHANNELS Flomaster o Belt power turns o Transport of materials o Baggage & package handling o Direct & through o Spiral belt conveyors through turns & from o Warehousing & distribution representatives to o Angle merge conveyors one level to another o Printing OEM's & end-users o Food & pharmaceutical Pathfinder o Electronic wire guidanceo Automatic steering for o Warehousing & distribution o Direct & through for lift trucks manned lift trucks o General industry representatives to o Automatic control of o Hospitals OEM's & end-users unmanned lift trucks Count Recycling o Conveyor systems o Handling & sortation o Municipal & private materials oDirect & through of solid waste recycling facilities representatives to end- users
TRACK PRODUCTS (4 photographs of equipment as decribed by captions) Portec rail joints, such as this polyurethane encapsulated joint (foreground) fasten rails together. We also supply rail anchors (inset) which transfer forces from the rails to the ties (left). PORTEC, Inc. 1994 Annual Report This Portec electric rail lubricator senses a passing train, and applies grease between the rail head and wheel flange, reducing wear and fuel usage (right). FREIGHT SECUREMENT SYSTEMS Shipping Systems Division supplies locking devices to secure containers to railcars in the high growth intermodal freight market (left). RAILCAR JACKING SYSTEMS A Portec jack system positions and lifts a railcar to allow maintenance or repair (right). RAILROAD PRODUCTS The Railroad Products segment includes four business units: the Railway Maintenance Products Division in Pittsburgh, Pennsylvania; the Shipping Systems Division in Oak Brook, Illinois; Portec, Ltd. in Lachine, Quebec; and Portec (U.K.) Ltd., our British subsidiary located in North Wales. In 1994, Railroad Products accounted for 42% of total Portec revenues. Product lines include a broad range of track components including rail joints, rail anchors and lubricators, securement devices for holding loads on railroad cars and jacking systems for railroad car repair facilities. 1994 FINANCIAL PERFORMANCE In 1994, sales in the Railroad Products segment totalled $40.7 million, up 20% from $34.0 million in the prior year. Contributing to the increase was strong performance in our freight securement products, U.S. track components business and Portec (U.K.) Ltd. The Portec U.K. increase was a result of the acquisition of PVH Industries, whose principal business is general steel fabrication. Reflecting poor operating conditions for Canada's two major railroads, Portec Canada's sales of track components declined. Operating profit for Railroad Products was $3.0 million, about the same as last year's $3.1 million, which represented a five-year high for the segment. Gains in securement systems products and U.S. track components were offset by lower profitability in both Canada and the United Kingdom. Specifically at Portec U.K., the PVH acquisition added nearly $3.0 million to sales, but produced an operating loss. We are currently reviewing a number of options to improve this unit's performance by mid-year 1995. U.S. RAIL INDUSTRY UP For the eighth consecutive year, railroad freight traffic set a new record. Overall ton miles were up 8% over the prior year and intermodal container traffic was up nearly 15%. These rates of increase were roughly double the rate of traffic increase in recent years. The driving forces behind the traffic increase continue to be: 1) Railroads are more fuel efficient than trucks. 2) Railroads produce less pollution per ton-mile than trucks. 3) The safety record for railroads exceeds that of trucks. As if to footnote these factors, cooperative ventures between trucking companies and railroads continue to expand, and we believe the growth of rail traffic will continue through the end of this decade. NEW PRODUCTS During the year, we introduced several new track lubricator products, adding to our leadership position in this market segment. The Road RunnerTM is a portable lubrication unit which can be used with existing hi-rail inspection vehicles to lubricate low volume trackage where wayside lubricators are not economically justified. Another new product, the Centrac on-board lubricator has primary application on transit systems. The Centrac system utilizes solid lubricant sticks which are positioned against both sides of the transit cars wheel flanges, eliminating wear and noise in tight corners. Both of these products can be handled easily by our existing sales and service network. UNIT PRODUCTS APPLICATION MARKET SALES CHANNELS Railway Main- o Car repair systems o Lift railcars for service o Repair shops o Direct & through tenance Products & o Rail joints o Join track sections o Railroads worldwide representatives to Portec (U.K.) Ltd. o Rail lubricators o Lubricate track for reduced o Transit authorities end-users wear & fuel usage o Industrial track owners Portec, Ltd. o Rail anchors o Transfer rail forces to ties Shipping Systems o Securement devices o Secure loads to railcars o Railroads & railcar lessors BUSINESS SEGMENTS (Dollars in thousands) 1994 1993 1992 1991 1990 NET SALES Construction equipment $ 38,806 $ 29,922 $ 25,203 $ 25,393 $ 31,837 Materials handling 16,943 12,394 12,979 11,235 14,399 Railroad 40,725 34,008 30,456 28,399 34,315 Total $ 96,474 $ 76,324 $ 68,638 $ 65,027 $ 80,551 PORTEC, Inc. 1994 Annual Report OPERATING PROFIT (LOSS) Construction equipment $ 2,942 $ 1,256 $ 73 $ (305) $ 1,128 Materials handling 2,472 1,703 2,451 2,194 2,581 Railroad 3,033 3,051 2,118 1,209 2,776 Total 8,447 6,010 4,642 3,098 6,485 General corporate and litigation expenses (1,384) (860) 2,534 (878) (1,908) Interest expense (829) (750) (1,220) (1,665) (2,003) Other income 1,091 559 378 1,054 1,691 Income before income taxes and extraordinary credit $ 7,325 $ 4,959 $ 6,334 $ 1,609 $ 4,265 IDENTIFIABLE ASSETS AT DECEMBER 31 Construction equipment $ 26,251 $ 14,257 $ 13,274 $ 14,105 $ 18,619 Materials handling 7,101 4,198 5,289 4,946 5,038 Railroad 16,881 17,348 11,894 12,094 10,065 50,233 35,803 30,457 31,145 33,722 Corporate 7,289 6,675 7,588 7,562 6,873 Total $ 57,522 $ 42,478 $ 38,045 $ 38,707 $ 40,595 GEOGRAPHIC AREAS (Dollars in thousands) 1994 1993 1992 1991 1990 NET SALES United States $ 81,852 $ 65,372 $ 55,593 $ 53,570 $ 69,791 International(1) 14,622 10,952 13,045 11,457 10,760 Total $ 96,474 $ 76,324 $ 68,638 $ 65,027 $ 80,551 EXPORT SALES $ 13,121 $ 7,787 $ 8,592 $ 7,000 $ 6,670 OPERATING PROFIT United States $ 7,801 $ 4,448 $ 2,808 $ 1,847 $ 5,171 International(1) 646 1,562 1,834 1,251 1,314 Total 8,447 6,010 4,642 3,098 6,485 General corporate and litigation expenses (1,384) (860) 2,534 (878) (1,908) Interest expense (829) (750) (1,220) (1,665) (2,003) Other income 1,091 559 378 1,054 1,691 Income before income taxes and extraordinary credit $ 7,325 $ 4,959 $ 6,334 $ 1,609 $ 4,265 IDENTIFIABLE ASSETS AT DECEMBER 31 United States $ 44,962 $ 32,497 $ 31,892 $ 32,812 $ 36,443 International(1) 12,560 9,981 6,153 5,895 4,152 Total $ 57,522 $ 42,478 $ 38,045 $ 38,707 $ 40,595 (1) Sales in Canada were $6,570,000, $7,789,000, $8,475,000, $8,274,000 and $7,315,000 for 1994, 1993, 1992, 1991 and 1990, respectively. Sales in Canada were greater than 10% of total sales for 1993, 1992 and 1991. Operating profits in Canada were $361,000, $1,251,000, $1,345,000, $1,169,000 and $1,087,000 for the respective years. The Canadian operating profits do not include the Corporate allocations. Identifiable assets in Canada were $7,885,000, $5,842,000, $4,135,000, $3,470,000 and $1,736,000 for 1994, 1993, 1992, 1991 and 1990, respectively.
MANAGEMENT'S DISCUSSION AND ANALYSIS Management's discussion and analysis of the Company's financial condition and results of operations consists of the Business Segments information on pages 4 through 11, the Company's Financial Statements and notes thereto on pages 17 through 32, Five-Year Summary on page 1 and the following information: RESULTS OF OPERATIONS 1994 COMPARED WITH 1993 Net sales for the year ended December 31, 1994, were $96,474,000, an increase of $20,150,000 or 26% from the corresponding period last year. Construction Equipment sales of $38,806,000 were up 30% from the $29,922,000 sold in 1993 due to strong market conditions in the aggregate-related markets and to growth in new product introductions. Materials Handling net sales for 1994 were $16,943,000, a 37% increase over the same period in 1993. The acquisition of Count Recycling Systems, Inc. during the second quarter of 1994 contributed 62% of the overall increase. New product sales and an improved general economy resulted in the remaining increase. Railroad Products sales of $40,725,000 were 20% above those of last year. The high sales were primarily due to growth in railroad traffic in the domestic market and improved demand for rail products in certain foreign markets. The Company's net income for the year ended Decem- ber 31, 1994, was $6,825,000 compared with net income of $4,696,000 for 1993. The 45% increase in net income was attributed to higher sales volume and an increase in other income. The Construction Equipment segment reported an operating profit for 1994 of $2,942,000 compared with $1,256,000 in 1993. This increase was due to the higher sales volume and improved gross margins. The acquisitionof the assets of Innovator Manufacturing, Inc. in July of 1994 materially reduced the operating performance in the last two quarters of 1994 due to the disruption caused by the transfer of manufacturing to the Yankton, South Dakota, plant. The operating profit of the Materials Handling segment increased from $1,703,000 in 1993 to $2,472,000 in 1994. Higher sales volume and some improvement in pricing resulted in this positive change. The Railroad Products segment had operating profit of $3,033,000 for 1994 compared with $3,051,000 in 1993. Gross margins were down in 1994 due to a shift in product mix. Net other income increased from $559,000 in 1993 to $1,091,000 in 1994. The settlement of a case entitled Northern Engineering Industries plc, Parsons- Pebbles Electric Products Inc. and NEI Cranes Ltd. vs. Portec, Inc. (RMC Division) resulted in the recording of $1,102,000 in interest income. Plant relocation expenses, lower sales commissions and reduced other interest income were offset by this gain. Other expense of $683,000 in 1994, $523,000 in 1993 and $225,000 in 1992 were legal and related expenses associated with the above case. The Company's cost of products sold, exclusive of depreciation and amortization, was up from 67% in 1993 to 68% in 1994. The increase was attributable to the impact of the Innovator Manufacturing, Inc. production transfer and shifts in product mix. Selling, general and administrative expense of $21,035,000 was 22% of sales in 1994 compared with 23% in 1993. Depreciation and amortization increased $534,000 in 1994 compared with the prior year. Amortization of $168,000 in 1994 related to goodwill from acquisitions. Depreciation expense PORTEC, Inc. 1994 Annual Report was greater in 1994 due to the acquisition of fixed assets and capital expenditures made in 1994 and 1993. Interest expense of $829,000 was up 11% above the prior year due to the Company's higher interest rates, increased borrowing related to acquisitions and increased working capital needs. The 1994 income tax provision of $500,000 included $376,000 related to income tax on earnings of the Company's foreign subsidiaries. At December 31, 1993, a net deferred asset of $500,000 was reflected on the balance sheet after recording a valuation reserve of $7,074,000. At December 31, 1994, the valuation reserve was reduced $2,764,000 for deferred tax assets realized through reversing temporary differences. An additional $200,000 reduction in the valuation reserve was reflected based on management's estimation of future taxable income. This assessment considered budgeted operating results and projected taxable income taking into consideration the uncertainty in the general economic outlook. Current assets of the Company at December 31, 1994, were up $9,640,000 from the prior year. Accounts receivable, inventory and other current assets grew due to acquisitions and increased sales. The decrease in cash and cash equivalents of $1,881,000 during 1994 was attributable to acquisitions. At December 31, 1994, goodwill of $3,032 was due to the acquisition of Count Recycling Systems, Inc. and Innovator. Other assets and deferred charges increased by $931,000, primarily because of patents associated with the Innovator Manufacturing, Inc. asset acquisition. The increase in current liabilities from $17,367,000 to $22,764,000 during 1994 was partially the result of the assumption of the current portion of long-term debt associated with the acquisition of Innovator Holdings which was used to finance working capital needs. Accounts payable and other accrued liabilities grew as a result of the working capital required to support the additional sales volume. Long-term debt at December 31, 1994, was $7,623,000, an increase of $2,346,000 from the prior year. These funds along with the funds generated from operations were used primarily for capital expenditures and acquisitions. The Company's stockholders' equity increased $7,215,000 from December 31, 1993, to December 31, 1994, to a level of $24,959,000, primarily due to earnings and the issuance of common stock. Common stock was issued upon exercise of stock options and for the Company's contribution to the Savings and Investment Plan for Company employees. Inflation, which was comparable to 1993, did not adversely affect the Company in 1994. Bookings in 1994 of $100,687,000, up $15,691,000 or 18% over those of 1993, were attributable to strengthening of demand in markets served by the Company and to the acquisition of the assets of Count Recycling Systems, Inc. and Innovator Manufacturing, Inc. The year-end order backlog of $24,339,000 was 16% above the backlog at December 31, 1993. 1993 COMPARED WITH 1992 Net sales for 1993 were $76,324,000, an increase of 11% from sales of $68,638,000 in 1992. Construction Equipment sales of $29,922,000 were 19% above those of the prior year due to increased demand from the construction, mining and road building industries. Materials Handling net sales decreased 5% to $12,394,000, reflecting a slowdown in major project activity. Railroad Products sales of $34,008,000 were 12% above those of last year. The higher sales were primarily the result of increased maintenance expenditures and railcar conversion programs by the domestic railroad industry. This was partially offset by lower demand for rail products in the foreign markets which the Company serves. Net income for 1993 was $4,696,000 compared with net income of $5,513,000 for 1992. The net income for 1992 included a non-recurring gain of approximately $3,300,000 related to a reduction of a judgement in a case entitled The Read Corporation and F. T. Read and Sons, Inc. vs. Portec, Inc. Excluding this gain, net income in 1993 increased by $2,483,000 due to higher sales volume, lower interest expense and a lower income tax provision. The Construction Equipment segment reported an operating profit in 1993 of $1,256,000 compared with operating profit of $73,000 in 1992. This increase was due to higher sales volume and improved gross margins. The operating profit of the Materials Handling segment decreased from $2,451,000 in 1992 to $1,703,000 in 1993. The reduction was due to the lower volume in sales and the related decrease in gross margins. The Railroad Products segment had operating profit of $3,051,000 in 1993 compared with $2,118,000 in 1992. The increase in operating profit reflected the higher sales volume and improved gross margins. Net other income increased $181,000 in 1993. The increase was primarily due to a lower net loss from translation of foreign currencies. The cost of products sold, exclusive of depreciation and amortization, was 67% of sales in both 1993 and 1992. LIFO liquidation reduced the cost of products sold in 1992 by $564,000. There was minimal impact from LIFO liquidation in 1993. Selling, general and administrative expense increased $4,157,000. Selling, general and administrative expense was reduced $3,300,000 in 1992 by a non-recurring gain related to a case entitled The Read Corporation and F. T. Read & Sons, Inc. vs. Portec, Inc. During 1993, travel and entertainment expense and environmental expense increased and deferred costs associated with Assets Held For Sale were recognized. Interest expense of $750,000 in 1993 was 39% below the prior year due to the reduction in the Company's borrowings and the lower interest rates granted by a bank under the credit agreement entered into on February 12, 1993. The net income tax provision of $263,000 for 1993 included $657,000 related to income tax on earnings of the Company's foreign subsidiaries. The Company implemented Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes," as of January 1, 1992. At December 31, 1992, the net deferred asset was $100,000 after recording a valuation reserve of $8,391,000. The valuation reserve reflected management's uncertainty as to whether future taxable income would be sufficient to ensure realization of future tax benefits. At December 31, 1993, the valuation reserve was reduced $917,000 for deferred tax assets realized through reversing temporary differences. An additional $400,000 reduction in the valuation reserve was reflected based on management's estimation of future taxable income. This assessment considered budgeted operating results and projected taxable income. Current assets at December 31, 1993, were up $3,006,000 from the prior year due to an increase in inventory which was needed to support the higher order backlog. Cash and cash equivalents also increased $528,000 during 1993 reflecting the cash generated from operations offset by cash used for capital expenditures and the repayment of debt. These increases were partially offset by a reduction in accounts receivable due to improved collections and a decrease in other assets. The reduction in other assets and deferred charges reflected the merger of several hourly pension plans into the Portec, Inc. Employees' Retirement PORTEC, Inc. 1994 Annual Report Program. The related prepaid pension cost was consolidated with the unfunded accrued pension costs as a deferred credit. Current liabilities increased from $14,991,000 at Decem-ber 31, 1992, to $17,367,000 at December 31, 1993. The increase reflected higher accounts payable of $1,611,000 due to the increase in inventory and higher other accrued liabilities of $813,000. Long-term debt at December 31, 1993, was $5,277,000, a decrease of $2,817,000 from the prior year. Included in this decrease was a reduction of $2,720,000 in the revolving credit and term loan. Total stockholders' equity increased $5,435,000 from December 31, 1992, to December 31, 1993, to a level of $17,744,000, primarily due to earnings and to the issuance of common stock. Common stock was issued upon exercise of stock options and for the Company's contribution to the Savings and Investment Plan for Company employees. Inflation, which was comparable to 1992, did not adversely affect the Company in 1993. Bookings in 1993 were $84,996,000, an increase of 14% from those of 1992, which reflected the strengthening of the market demand in the segments served by the Company. The year-end order backlog of $21,055,000 was 45% above the backlog at December 31, 1992. LIQUIDITY On February 12, 1993, the Company entered into a credit agreement with a bank which was amended on April 26, 1994. The agreement provides for a term loan of $6,000,000 and up to $12,000,000 of credit available as either cash or letters of credit. The provisions of the agreement include minimum net worth, interest coverage, net working capital and leverage ratio requirements and limit cash dividend payments and additional indebtedness. On July 15, 1994, Portec, Ltd., a wholly-owned subsidiary of the Company, entered into an unsecured agreement with a bank for a term loan of $4,000,000. The provisions of the loan are similar to those in the above agreement. The Company does not have available lines of credit beyond its existing bank agreements and is prohibited by these agreements from making other borrowings. The Company presently has a facility for sale or lease in Troy, New York. Due to economic conditions and other factors, the efforts to sell this property have not been successful. A portion of property located in Minneapolis, Minnesota, was sold in March 1995 and a commitment letter has been signed for the remaining site. The property in Pittsburgh, Pennsylvania, has been leased on a long-term lease with an option to buy. The proceeds from the sale and lease of these properties should improve the Company's liquidity position. Due to the seasonal fluctuation in the Company's working capital needs and the limitations on borrowing, the Company will need to exert careful cash controls. However, management believes its existing line of credit and anticipated operating results will provide the Company with sufficient funds for working capital, capital expenditures and acquisitions to support anticipated growth. The Company's working capital ratios were 1.6, 1.5 and 1.5 to 1 at December 31, 1994, 1993 and 1992, respectively. At December 31, 1994, the Company had available $7,061,000 of unused credit under its loan agreement, plus cash and cash equivalents of $3,398,000 compared with $8,223,000 of unused credit and $5,279,000 of cash and cash equivalents at December 31, 1993. CAPITAL RESOURCES The Company does not have any material commitments for capital expenditures. Management estimates that capital expenditures for 1995 will be $4,000,000. Two acquisitions of assets were made in 1994. Certain assets of Count Recycling Systems, Inc. were purchased by the Company's Materials Handling segment. The Company's Construction Equipment segment purchased certain assets of Innovator Manufacturing, Inc. In addition, Portec, Ltd., the Company's Canadian subsidiary, purchased the stock of Innovator Holdings. ENVIRONMENTAL During 1989, each of the Company's domestic manufacturing facilities, including those former manufacturing facilities included in the balance sheet classification as Assets Held For Sale, were reviewed for compliance with local and federal environmental regulations. As a result of these reviews, the Company initiated the remedial actions necessary to comply with such regulations and these remedial actions have been completed. Management continues to review several sites for possible future actions and a reserve has been established to cover management's estimate of the maximum cost to remediate these sites, if any. The most significant site is a former manufacturing facility in Pennsylvania which is now leased as a warehouse. The Company has been in discussion with the Pennsylvania Department of Environmental Resources for several years concerning soil and groundwater contamination at this site, and these discussions continued during 1994. The Company is currently monitoring groundwater quality at the site and may at some time in the future be required to take remedial actions. The Company believes that the continuation of a monitoring program, without remediation, is the appropriate course of action. During 1994, the Company and several other parties reached an agreement with the Illinois Environmental Protection Agency for the clean-up of a site in Illinois which contained drums of paint and other toxic paint-like materials. The Company's share of the clean-up costs were $45,000, and these were taken against a reserve established in 1993. Management believes that this situation has been fully resolved. CONSOLIDATED STATEMENTS OF INCOME For the Years Ended December 31 (Dollars in thousands except per share data) 1994 1993 1992 REVENUES Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 96,474 $ 76,324 $ 68,638 Other income, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,091 559 378 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97,565 76,883 69,016 COSTS AND EXPENSES Cost of products sold (exclusive of depreciation and amortization) . . . . . . . . . . . . . . . . . . . . . . . . . . . 65,681 51,387 46,232 Selling, general and administrative . . . . . . . . . . . . . . . . . . . 21,035 17,786 13,629 Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . 2,012 1,478 1,376 Other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 683 523 225 Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 829 750 1,220 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90,240 71,924 62,682 INCOME BEFORE INCOME TAXES . . . . . . . . . . . . . . . . . . . . . . . . . 7,325 4,959 6,334 INCOME TAX PROVISION . . . . . . . . . . . . . . . . . . . . . . . . . . . . 500 263 821 NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,825 $ 4,696 $ 5,513 PORTEC, Inc. 1994 Annual Report EARNINGS PER COMMON SHARE(1) NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1.49 $ 1.05 $ 1.37 The accompanying notes are an integral part of these financial statements. (1) Adjusted retroactively for 10% stock dividends paid in December 1992, 1993 and 1994. CONSOLIDATED BALANCE SHEETS December 31 (Dollars in thousands) 1994 1993 ASSETS CURRENT ASSETS Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,398 $ 5,279 Accounts and notes receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,224 9,250 Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,473 10,085 Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,466 1,307 Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35,561 25,921 PROPERTY, PLANT AND EQUIPMENT, AT COST Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 220 295 Buildings and improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,437 9,594 Machinery and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,805 17,269 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29,462 27,158 Less accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (16,090) (15,029) Total property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . 13,372 12,129 ASSETS HELD FOR SALE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,269 2,070 GOODWILL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,212 181 OTHER ASSETS AND DEFERRED CHARGES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,108 2,177 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 57,522 $ 42,478 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Current portion of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,253 $ 1,293 Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,248 9,455 Other accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,263 6,619 Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,764 17,367 LONG-TERM DEBT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,623 5,277 DEFERRED CREDITS Pensions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,997 1,696 Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 179 394 Total deferred credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,176 2,090 COMMITMENTS AND CONTINGENT LIABILITIES (NOTE 11) STOCKHOLDERS' EQUITY Common stock, $1 par value; authorized - 10,000,000 shares; issued - 4,283,260 and 3,845,652 shares . . . . . . . . . . . . . . . . . . . 4,283 3,845 Additional capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46,518 40,847 Cumulative translation adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . (455) (444) Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (25,387) (26,504) Total stockholders' equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,959 17,744 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 57,522 $ 42,478 The accompanying notes are an integral part of these financial statements. CONSOLIDATED STATEMENTS OF CASH FLOWS For the Years Ended December 31 (Dollars in thousands) 1994 1993 1992 CASH FLOWS FROM OPERATING ACTIVITIES: Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,825 $ 4,696 $ 5,513 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . 2,012 1,478 1,376 (Gain) loss on sales of property, plant and equipment . . . . . . . . . (25) 5 16 Changes in other balance sheet accounts: Decrease (increase) in receivables . . . . . . . . . . . . . . . . . (3,974) 861 (343) Decrease (increase) in inventories . . . . . . . . . . . . . . . . . (1,573) (3,773) 1,877 Decrease (increase) in other current assets . . . . . . . . . . . . . (124) 495 (563) Increase (decrease) in accounts payable and accruals . . . . . . . . (333) 2,424 (2,447) Decrease in other assets and liabilities . . . . . . . . . . . . . . 845 408 1,097 Net cash provided by operating activities . . . . . . . . . . . . . 3,653 6,594 6,526 CASH FLOWS FROM INVESTING ACTIVITIES: Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,908) (1,828) - Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,601) (2,130) (1,197) Proceeds from disposal of property, plant and equipment . . . . . . . . . . 168 18 6 Net cash used by investing activities . . . . . . . . . . . . . . . . . (7,341) (3,940) (1,191) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from (repayment of) revolving credit agreement . . . . . . . . . 3,550 (1,520) (989) Principal payments of long-term debt . . . . . . . . . . . . . . . . . . . (2,060) (1,200) (1,000) Repayment of other long-term debt . . . . . . . . . . . . . . . . . . . . . (73) (145) (145) Issuance of common stock . . . . . . . . . . . . . . . . . . . . . . . . . 401 611 156 (Purchase) sale of treasury stock . . . . . . . . . . . . . . . . . . . . . - 66 (66) Net cash provided (used) by financing activities . . . . . . . . . . . . 1,818 (2,188) (2,044) EFFECT OF EXCHANGE RATE CHANGE . . . . . . . . . . . . . . . . . . . . . . . (11) 62 (1,206) NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS . . . . . . . . . . . . (1,881) 528 2,085 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR . . . . . . . . . . . . . . . 5,279 4,751 2,666 CASH AND CASH EQUIVALENTS AT END OF YEAR . . . . . . . . . . . . . . . . . . $ 3,398 $ 5,279 $ 4,751 SUPPLEMENTAL DISCLOSURES: Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 792 $ 788 $ 1,080 Income taxes paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 952 585 923 Non-cash transaction-10% stock dividend . . . . . . . . . . . . . . . . . . 5,708 3,258 1,251
The accompanying notes are an integral part of these financial statements. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. SIGNIFICANT ACCOUNTING POLICIES CONSOLIDATION The consolidated financial statements include the accounts of all subsidiaries. All material intercompany transactions and balances have been eliminated in the consolidation. CASH EQUIVALENTS Short-term and highly liquid investments with a maturity of nine months or less are considered to be cash equivalents. ACCOUNTS RECEIVABLE PORTEC, Inc. 1994 Annual Report As of December 31, 1994, approximately 34% of the Company's accounts receivable were concentrated with companies in the railroad industry. Economic and other factors impacting the railroad industry could hinder these customers' ability to satisfy their obligations. The Company does not require collateral for its credit sales which are typically due within 30 days. INVENTORIES Inventories are stated at the lower of cost or market. Cost is determined on the last-in, first-out (LIFO) method for domestic inventories, representing 82% of total inventories, and on the first-in, first-out (FIFO) method for foreign inventories. PROPERTY, PLANT AND EQUIPMENT Depreciation is computed using the straight-line method over the estimated useful lives of the assets, ranging generally from 10 to 25 years for buildings and from 5 to 18 years for machinery and equipment. Maintenance, repairs, minor renewals and betterments are charged to expense as incurred; major renewals and betterments are capitalized. The cost and related accumulated depreciation of assets replaced, retired or otherwise disposed of are eliminated from the property accounts, and any gain or loss is reflected in income. INTANGIBLE ASSETS Goodwill is amortized on a straight-line basis over fifteen years and is recorded net of accumulated amortization of $168,000, 0 and 0 for 1994, 1993 and 1992, respectively. Costs of patents and license agreements are amortized on a straight-line basis over the shorter of the legal or estimated useful life of the asset. Amortization was $41,000 for 1994, $32,000 for 1993 and $7,000 for 1992. RESEARCH EXPENDITURES Expenditures for research and development are charged to expense as incurred and amounted to approximately $510,000 for 1994, $475,000 in 1993 and $445,000 in 1992. NET INCOME PER SHARE Income per common and common equivalent share is computed based on the weighted average number of common shares outstanding during the year plus outstanding common stock equivalent shares subject to stock options, if dilutive. Income per share amounts have been restated to give retroactive effect to 10% stock dividends paid December 15, 1994, December 14, 1993 and December 1, 1992, as if paid on January 1, 1992. 1994 1993 1992 AVERAGE SHARES OF COMMON STOCK AND EQUIVALENTS OUTSTANDING Primary 4,572,468 4,464,877 4,034,571 FINANCIAL PRESENTATION CHANGES Certain reclassifications have been made to conform prior year amounts with the current year presentations. NOTE 2. ACCOUNTS AND NOTES RECEIVABLE The components of accounts and notes receivable at December 31, 1994, and 1993, were as follows: (Dollars in thousands) 1994 1993 Trade receivables net of allowance for doubtful accounts of $403 and $337, respectively . . . . . . . $13,100 $ 8,223 Notes receivable . . . . . . . . . . . . . . . . . . . . 124 1,027 Total . . . . . . . . . . . . . . . . . . . . . . . . $ 13,224 $ 9,250 NOTE 3. INVENTORIES The difference between LIFO value and approximate replacement cost of the LIFO inventories was $7,213,000, $6,986,000 and $7,130,000 at December 31, 1994, 1993 and 1992, respectively. Liquidation of LIFO inventory quantities carried at lower costs compared with the cost of purchases increased net income by $564,000 or $.14 per share for 1992. The components of inventories at December 31, 1994, and 1993, were as follows: (Dollars in thousands) 1994 1993 Raw material and supplies $ 5,297 $3,897 Work-in-process 5,058 2,715 Finished goods 7,118 3,473 Total $17,473 $10,085 Inventories, at LIFO value, are net of lower of cost or market reserves of $1,203,000 in 1994 and $1,516,000 in 1993. NOTE 4. INCOME TAXES Effective January 1, 1992, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes." and, accordingly, deferred income taxes represent the tax effect, at current statutory rates, of temporary differences in the bases of assets and liabilities for financial reporting and income tax purposes. Pre-tax income from continuing operations was taxed under the following jurisdictions: (Dollars in thousands) 1994 1993 1992 Domestic . . . . . . . . . . . . . . . . . . . $ 6,999 $2,983 $4,015 Foreign . . . . . . . . . . . . . . . . . . . 326 1,976 2,319 Total . . . . . . . . . . . . . . . . . . $ 7,325 $4,959 $6,334 The provision for income taxes charged to operations was as follows: (Dollars in thousands) 1994 1993 1992 Current expense: Federal . . . . . . . . . . . . . . . . . . $ 309 $ - $ - State and Foreign . . . . . . . . . . . . . 331 663 921 Total Current . . . . . . . . . . . . . . 640 663 921 Deferred tax expense: Federal . . . . . . . . . . . . . . . . . . (196) (392) (98) PORTEC, Inc. 1994 Annual Report State and Foreign . . . . . . . . . . . . . 56 (8) (2) Total Deferred . . . . . . . . . . . . . . (140) (400) (100) Total provision . . . . . . . . . . . . . . . $ 500 $ 263 $ 821 Deferred tax liabilities (assets) at December 31, 1994, and 1993, include the following: (Dollars in thousands) 1994 1993 Depreciation . . . . . . . . . . . . . . . . . . . . . . . $1,734 $1,575 Plant closing costs . . . . . . . . . . . . . . . . . . . 853 739 Gross deferred tax liabilities . . . . . . . . . . . . . 2,587 2,314 Net operating loss carryforward . . . . . . . . . . . . . (2,077) (4,831) Accrued liabilities . . . . . . . . . . . . . . . . . . . (988) (922) Inventory . . . . . . . . . . . . . . . . . . . . . . . . (1,103) (1,293) Employee benefits . . . . . . . . . . . . . . . . . . . . (1,041) (968) Product liability and warranty . . . . . . . . . . . . . . (1,178) (914) Other . . . . . . . . . . . . . . . . . . . . . . . . . . (392) (390) Tax credit carryforward . . . . . . . . . . . . . . . . . (618) (570) Gross deferred tax assets . . . . . . . . . . . . . . . (7,397) (9,888) Deferred tax assets valuation allowance . . . . . . . . . 4,110 7,074 Net deferred assets . . . . . . . . . . . . . . . . . . . $ (700) $ (500) The difference between the statutory federal income tax rate and the effective income tax rate was as follows: 1994 1993 1992 Statutory federal income tax rate . . . . . . 34.0% 34.0% 34.0% Difference resulting from: Realization of deferred tax assets not previously recognized . . . . . . . . . . . (30.9) (28.5) (23.1) Foreign operations . . . . . . . . . . . . . 3.6 (.3) 1.7 State income taxes, net . . . . . . . . . . .1 .1 .4 6.8% 5.3% 13.0% Domestic net operating losses of $5,768,000 expiring in 2001-2007 are available to offset future taxable income for federal income tax purposes. The Tax Reform Act of 1986 imposes an annual limitation on the amount of tax loss carryforward which could be utilized by the Company if certain substantial changes in the Company's ownership should occur. NOTE 5. DEBT The components of debt at December 31, 1994, and 1993, were as follows: (Dollars in thousands) 1994 1993 Revolving credit and term loan . . . . . . . . . . . . . . $ 11,805 $6,410 Other . . . . . . . . . . . . . . . . . . . . . . . . . . 71 160 11,876 6,570 Less current maturities . . . . . . . . . . . . . . . . . 4,253 1,293 Total long-term debt . . . . . . . . . . . . . . . . . . $7,623 $5,277 On February 12, 1993, the Company entered into a three-year unsecured credit agreement with a bank which was amended on April 26, 1994. The Company borrowed $6,000,000 under the term loan provision and can borrow up to $12,000,000 in cash or under letters of credit on a revolving basis. The interest rate currently applicable to the revolving line of credit is the bank's prime interest rate or, at the Company's election, 1.5 percent over the London Interbank Offered Rate (LIBOR). The interest rate currently applicable to the term loan is .25 percent above the bank's prime interest rate or, at the Company's election, 1.75 percent over LIBOR. The interest rates can vary from prime to .50 percent over the bank's prime interest rate or, at the Company's election, 1.5 or 2.5 percent over LIBOR depending on the Company's performance. Principal payments under the term loan are $1,200,000 per annum, payable quarterly, while any amounts outstanding on the revolving credit are due in 1997. The provisions of the credit agreement include minimum net worth, interest coverage, working capital and leverage ratio requirements, and limit additional indebtedness and cash dividend payments during the term of the agreement. On July 15, 1994, Portec, Ltd., a wholly-owned Canadian subsidiary of the Company, entered into an unsecured credit agreement with a bank for a term loan of $4,000,000 to finance working capital needs related to the acquisition of Innovator Holdings. Portec, Ltd., may borrow in either U.S. or Canadian dollars. The interest rate applicable to the U.S. dollar loan is the bank's U.S. dollar prime rate, or at Portec, Ltd.'s election, 1.5 percent over LIBOR. The interest rate applicable to the Canadian dollar loan is the bank's Canadian prime rate or, at Portec, Ltd.'s election, 1.5 percent over a rate negotiated based on the bank's cost of funds. The loan expires June 30, 1995. At December 31, 1994, a total of $3,046,000 remained outstanding on this loan. The Company's previous lending arrangement was a three-year secured loan agreement with a bank. The interest rate on the previous loan was prime plus .25 percent on the revolving line of credit and prime plus .75 percent on the term loan. NOTE 6. PENSION PLANS The Company merged several noncontributory defined benefit plans into one noncontributory defined benefit plan effective January 1, 1993, that covers substantially all employees. Benefits under this plan are based on years of service and, for salaried employees, the employee's average compensation during defined periods of service. The Company's funding policy is to make the minimum annual contributions required by applicable regulations. Net pension cost for the pension plan and supplemental pension plan in 1994 and 1993 and the several predecessor pension plans in 1992 is summarized as follows: (Dollars in thousands) 1994 1993 1992 Service cost . . . . . . . . . . . . . . . . . $ 609 $ 450 $ 484 Interest cost . . . . . . . . . . . . . . . . 1,148 1,091 983 Expected return on assets . . . . . . . . . . (515) (1,039) (984) Net amortization and deferral . . . . . . . . (614) (148) (202) Net pension cost . . . . . . . . . . . . . . . $ 628 $ 354 $ 281 PORTEC, Inc. 1994 Annual Report Plan assets are stated at fair value and consist primarily of cash, corporate equity and debt securities. The following table sets forth the funded status of the plans and amounts recognized in the Company's consolidated balance sheets at December 31, 1994, and 1993. As a result of the restructuring of the Railway Maintenance Products Division (Note 17), certain predecessor plans were curtailed and increased benefit obligations incurred. The amount of such charges were deferred together with the other costs of consolidating the Railway Maintenance Products Division. The assumptions used in 1993 to develop the periodic pension costs were as follows: the unit credit cost actuarial method; a discount rate of 7.5%; the expected long-term rate of return on assets of 8.0%; and the rate of increase in compensation levels of 4.5%. In 1994, the discount rate was increased to 8%. (Dollars in thousands) Accumulated Benefit Current Plan Assets Obligations Exceed Accumulated Exceed Current Benefit Obligation Plan Assets 1994 1993 1994 1993 Actuarial present value of benefit obligation: Vested benefit obligation . . . . . . . . . . . $ 12,793 $ 12,750 $ 571 $ 457 Non-vested benefit obligation . . . . . . . . . 453 337 - - Accumulated benefit obligation . . . . . . . . . 13,246 13,087 571 457 Excess of projected benefit obligation over accumulated benefit obligation . . . . . 1,641 1,588 - - Projected benefit obligation . . . . . . . . . . 14,887 14,675 571 457 Plan assets at fair value . . . . . . . . . . . 13,960 14,837 - - Projected benefit obligation (in excess of) less than plan assets . . . . . (927) 162 (571) (457) Unrecognized net loss . . . . . . . . . . . . . (869) (1,556) - - Unrecognized prior service cost . . . . . . . . 34 38 - - Unrecognized net (asset) obligation . . . . . . (293) (569) 13 26 Unfunded accrued pension cost . . . . . . . . . $ (2,055) $ (1,925) $ (558) $ (431)
NOTE 7. SAVINGS AND INVESTMENT PLAN Under the Company's Savings and Investment Plan, qualified under Section 401(k) of the Internal Revenue Code, generally all domestic salaried and hourly employees, including officers, at least twenty-one years old may elect to defer a portion of their compensation to a trust established under the plan. Depending on its sales and net income for the year, the Company may contribute up to an amount equal to the participating employees' contributions, but not in excess of six percent of the participating employees' earnings. Contributions of $371,000, $321,000 and $298,000 were made for the years ended December 31, 1994, 1993 and 1992, respectively, representing 80%, 70% and 90% of eligible employees' contributions. The plan permits the Company's contribution to be made in shares of the Company's common stock. NOTE 8. OTHER POST-RETIREMENT BENEFIT PLANS The Company has defined benefit post-retirement medical and life insurance plans covering most full-time salaried and hourly employees. The post-retirement health care plan is contributory, with retiree contributions adjusted annually, and contains other cost-sharing features such as deductibles and coinsurance. The life insurance plan is non-contributory. Effective January 1, 1992, the Company adopted SFAS No. 106, "Employees' Accounting for Post-retirement Benefits other than Pensions." The effect of adopting the new guidelines increased the net periodic post-retirement benefit expense for the above defined plans and decreased earnings from continuing operations by $107,000 or $.02 per share in 1993 and $80,000 or $.02 per share in 1992. The Company's current policy is to fund the cost of the post-retirement medical and life insurance benefits on a pay-as-you-go basis, as in prior years. The following table presents the status of the plans at December 31, 1994, and 1993: (Dollars in thousands) 1994 1993 Accumulated post-retirement benefit obligation (APBO): Retirees . . . . . . . . . . . . . . . . . . . . . . . . $1,074 $1,283 Actives . . . . . . . . . . . . . . . . . . . . . . . . 597 452 Total . . . . . . . . . . . . . . . . . . . . . . . . 1,671 1,735 Plan assets at fair value . . . . . . . . . . . . . . . . - - APBO in excess of plan assets . . . . . . . . . . . . . . (1,671) (1,735) Unrecognized transition obligation . . . . . . . . . . . . 1,692 1,792 Unrecognized prior service costs . . . . . . . . . . . . . (356) (407) Unrecognized actuarial loss . . . . . . . . . . . . . . . 269 163 Accrued post-retirement benefit costs . . . . . . . . . . $ (66) $ (187) Net periodic post-retirement benefit expense for 1994, 1993 and 1992 included the following components: (Dollars in thousands) 1994 1993 1992 Service cost . . . . . . . . . . . . . . . . . $ 58 $ 41 $ 32 Interest cost . . . . . . . . . . . . . . . . 123 127 162 Amortization of transition obligation over 20 years . . . . . . . . . . . . . . . 100 99 99 Unrecognized prior service cost . . . . . . . (43) (50) - Net periodic post-retirement benefit expense . $ 238 $ 217 $ 293 For measurement purposes, the assumed trend rate for post-retirement medical benefits during 1994 and 1993 was 12.6% and 13.4%, respectively, for employees less than age-65 and 10.9% and 11.6%, respectively, for employees 65 and older. These rates decrease gradually to 7.0% and 6.0%, respectively, by 2001 and remain at that level thereafter. The health care cost trend rate assumption has a significant effect on the amounts reported. For example, increasing the assumed health care cost trend rates by one percentage point in each year would increase the accumulated post-retirement benefit obligation as of December 31, 1994, and 1993, by approximately $139,000 and $70,000, respectively, and the aggregate of the service and interest cost components of net periodic post- retirement benefit cost for 1994 by approximately $25,000 and for 1993 by approximately $13,000. The discount rate used in determining the accumulated post-retirement benefit obligation was 8.0% at December 31, 1994, and 7.5% at December 31, 1993. NOTE 9. INCENTIVE PROGRAM PORTEC, Inc. 1994 Annual Report The 1982 PORTEC, Inc. Employees' Stock Benefit Plan was adopted by stockholders in 1982 and amended in 1984, and provided for the granting of awards thereunder to key employees. This plan provided for the granting of incentive and nonqualified stock options; tandem Stock Appreciation Rights (SARs) in relation to such options, restricted stock awards and performance units. There were no SAR's, restricted stock awards or performance units outstanding under the plan at December 31, 1994. SARs entitle the optionee to receive the appreciation in value of the shares (i.e. the difference between market value price of a share at time of exercise of the SARs and the option price) in cash, shares or a combination thereof. SARs utilize the same shares reserved for issuance of options, and the exercise of a SAR or an option automatically cancels the related option or SAR. Options and related SARs were granted at prices which were not less than the fair market value of such shares on the date the option was granted, and may be exercisable for periods of up to 10 years from the date of grant. This plan permitted the Company's Board of Directors to make restricted stock awards to key employees whereby designated employees would have shares issued in their names which would be restricted as to the right of sale and other disposition until certain predetermined performance and/or time requirements were met. Also, the Board could contract with key employees to issue shares to them upon their accomplishment of predetermined performance targets. There were 2,662 shares reserved for issuance under this plan at December 31, 1994, after adjustment for 10% stock dividends in 1992, 1993 and 1994, and no additional awards could be made under this plan. The 1988 PORTEC, Inc. Employees' Stock Benefit Plan was adopted by stockholders in 1988 and amended in 1994, and provides for the granting of awards of the same type and duration as provided by the 1982 PORTEC, Inc. Employees' Stock Benefit Plan. The plan was amended in 1994 to increase by 440,000 the shares available for grant under the plan and to grant non-employee directors a 1,000 share non- qualified stock option on the anniversary of each Annual Meeting starting in 1994. Options may be granted at prices not less than the greater of 50% of the fair market value of the shares or the par value of the shares. The granting of awards under this plan may be made until June 2, 1998. By prior agreement, all 145,000 outstanding SAR's under this plan are exercisable only at the discretion of the Company. There were 886,535 shares reserved for issuance under this plan at Decem- ber 31, 1994, after adjustment for 10% stock dividends in 1992, 1993 and 1994. 1994 1993 Option Average Option Average Shares Option Shares Option Price Price STOCK OPTIONS: Outstanding beginning of year . 474,683 $3.55 588,786 $3.10 Granted . . . . . . . . . . . . 149,600 12.73 38,720 8.47 Exercised . . . . . . . . . . . (25,993) 3.04 (152,823) 3.05 Cancelled or expired . . . . . . - - - - Outstanding end of year . . . . 598,290 $5.87 474,683 $3.55 Exercisable end of year . . . . 565,290 $5.35 435,963 $3.12 Available for grant . . . . . . 290,460 - 60 -
NOTE 10. STOCKHOLDERS EQUITY Changes in components of stockholders' equity for the years 1992 through 1994 follow: (Dollars in thousands except share data) Cumulative No. of Shares Common Additional Treasury Accum. Translation Common Stock Stock Capital Stock Deficit Adjustment Issued Balance at December 31, 1991 $ 3,013 $ 36,323 $ - $(32,124) $ 700 3,013,361 Net income - - - 5,513 - - Company's 1991 Investment Plan contribution 20 59 - - - 19,675 Stock dividend-10% 303 948 - (1,251) - 303,292 Exercise of stock options 21 56 - - - 21,390 Treasury stock acquired - - (66) - - - Current year translation adjustment - - - - (1,206) - Balance at December 31, 1992 $ 3,357 $ 37,386 $ (66) $ (27,862) $ (506) 3,357,718 Net income - - - 4,696 - - Company's 1992 Investment Plan contribution 32 267 - - - 31,606 Exercise of stock options 106 286 - - - 106,723 Stock dividend-10% 350 2,908 - (3,258) - 349,605 Treasury stock retired - - 66 (80) - - Current year translation adjustment - - - - 62 - Balance at December 31, 1993 $ 3,845 $ 40,847 $ - $(26,504) $ (444) 3,845,652 Net income - - - 6,825 - - Company's 1993 Investment Plan contribution 25 297 - - - 24,591 Exercise of stock options 24 55 - - - 23,630 Stock dividend-10% 389 5,319 - (5,708) - 389,387 Current year translation adjustment - - - - (11) - Balance at December 31, 1994 $ 4,283 $ 46,518 $ - $(25,387) $ (455) 4,283,260
On October 26, 1993, the Company declared a 10 percent stock dividend to shareholders of record November 10, 1993, paid on December 14, 1993. The transaction was valued based on the closing market price of the Company's stock on October 25, 1993. Accumulated deficit was charged $3,258,000 as a result of the issuance of 349,605 shares of the Company's common stock and cash of $5,000 was paid in lieu of fractional shares. On October 26, 1994, the Company declared a 10 percent stock dividend to shareholders of record November 9, 1994, paid on December 15, 1994. The transaction was valued based on the closing market price of the Company's stock on October 25, 1994. Accumulated deficit was charged $5,708,000 as a result of the issuance of 389,387 shares of the Company's common stock and cash of $7,000 was paid in lieu of fractional shares. The Company has 1,000,000 authorized, but unissued, shares of no par preferred stock. PORTEC, Inc. 1994 Annual Report NOTE 11. COMMITMENTS AND CONTINGENT LIABILITIES There are various lawsuits and claims pending against the Company. In the opinion of management, any liabilities that may result from such lawsuits and claims will not materially affect the consolidated financial position of the Company. The Company has provided for the estimated costs of any known losses. The Company leases the Shipping Systems Division facility in Oak Brook, Illinois, the Railway Maintenance Products Division facility in Huntington, West Virginia, the corporate headquarters in Lake Forest, Illinois, the PORTEC, Ltd. (Canada) offices in Lachine, Quebec, several other properties and various transportation and data processing equipment. Future minimum rent payments for major operating leases as of December 31, 1994, which expire on or after December 31, 1995, are as follows: (Dollars in thousands) Year ending December 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $500 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 507 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 310 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 201 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 157 Later years . . . . . . . . . . . . . . . . . . . . . . . . . . . 0 Total minimum payments . . . . . . . . . . . . . . . . . . . . . . $1,675 Amortization of deferred gains from a sale and lease-back transaction reduced base rents for operating leases by $486,000 for 1992. Net rent expense of $618,000, $412,000 and $366,000 was recorded in 1994, 1993 and 1992, respectively. The Oak Brook, Illinois, office lease may be cancelled on February 1, 1996, with six months' written notice. NOTE 12. OTHER EXPENSE Other expense reflects legal and other related expenses associated with a case entitled Northern Engineering Industries plc, Parsons-Pebbles Electric Products Inc. and NEI Cranes Ltd. vs. Portec, Inc. (RMC Division) which was finalized in 1994. NOTE 13. UNAUDITED QUARTERLY FINANCIAL INFORMATION Included in the results of operations for the three months ended December 31, 1994, was a net gain of $707,000 related to a settlement of a judgment on a case entitled Northern Engineering Industries plc, Parsons-Pebbles Electric Products Inc. and NEI Cranes Ltd. vs. Portec, Inc. (RMC Division). (Dollars in thousands except per share data) First Second Third Fourth Quarter Quarter Quarter Quarter 1994 Net Sales . . . . . . . . . . . . . . . . . . . . . . . $ 25,500 $ 27,687 $ 23,160 $ 20,127 Gross Margin . . . . . . . . . . . . . . . . . . . . . . 8,343 8,768 6,499 5,811 Income before income taxes . . . . . . . . . . . . . . . 2,314 2,648 1,190 1,173 Income tax provision . . . . . . . . . . . . . . . . . . 500 443 (232) (211) Net Income . . . . . . . . . . . . . . . . . . . . . . . $ 1,814 $ 2,205 $ 1,422 $ 1,384 Earnings per common share . . . . . . . . . . . . . . . $ .40 $ .48 $ .31 $ .30 (Dollars in thousands except per share data) First Second Third Fourth Quarter Quarter Quarter Quarter 1993 Net Sales . . . . . . . . . . . . . . . . . . . . . . . $ 20,094 $ 21,913 $ 18,009 $ 16,308 Gross Margin . . . . . . . . . . . . . . . . . . . . . . 6,185 6,593 5,633 5,611 Income before income taxes . . . . . . . . . . . . . . . 1,438 1,747 924 850 Income tax provision . . . . . . . . . . . . . . . . . . 327 260 20 (344) Net Income . . . . . . . . . . . . . . . . . . . . . . . $ 1,111 $ 1,487 $ 904 $ 1,194 Earnings per common share . . . . . . . . . . . . . . . $ .25 $ .33 $ .20 $ .27
NOTE 14. FINANCIAL INFORMATION BY BUSINESS SEGMENTS AND GEOGRAPHIC AREAS Pages 4 through 11 of this Annual Report to Stockholders contain certain information by business segments and geographic areas for the years 1990 through 1994. The following table summarizes additional financial information by business segments for the years 1994, 1993 and 1992. (Dollars in thousands) 1994 1993 1992 DEPRECIATION AND AMORTIZATION Construction Equipment . . . . . . . . . . . . . $1,022 $ 817 $ 807 Materials Handling . . . . . . . . . . . . . . . 337 247 219 Railroad . . . . . . . . . . . . . . . . . . . . 601 359 317 Corporate . . . . . . . . . . . . . . . . . . . 52 55 33 Total . . . . . . . . . . . . . . . . . . . . $2,012 $ 1,478 $1,376 CAPITAL EXPENDITURES Construction Equipment . . . . . . . . . . . . . $2,231 $ 681 $ 382 Materials Handling . . . . . . . . . . . . . . . 397 283 95 Railroad . . . . . . . . . . . . . . . . . . . . 938 859 463 Corporate . . . . . . . . . . . . . . . . . . . 35 307 257 Total . . . . . . . . . . . . . . . . . . . . $3,601 $ 2,130 $1,197 NOTE 15. LITIGATION SETTLEMENT On July 10, 1992, the U.S. Court of Appeals for the Federal Circuit reduced a judgment against the Company in a case entitled The Read Corporation and F. T. Read & Sons, Inc. vs. Portec, Inc. The Court of Appeals affirmed the Company's liability for infringement of one of the two patents involved in this case; reversed liability for infringement of the other patent; vacated the enhanced damages against the Company; vacated the award of attorney fees to Read; and remanded the case to the U.S. District Court for the District of Delaware for modification of its injunction and for reconsideration of the award of attorney fees in light of this decision. The net reduction in accrued litigation expense PORTEC, Inc. 1994 Annual Report was $3,300,000. On September 29, 1992, a settlement of $1,900,000 was reached with Read for the unreduced portion of the original judgment, post judgment interest, costs and attorneys fees. The Company had accrued the original judgment at December 31, 1989. On November 16, 1994, the Company entered into a settlement agreement in a case entitled Northern Engineering Industries plc, Parsons-Pebbles Electric Products Inc. and NEI Cranes Ltd. vs. Portec, Inc. (RMC Division). The terms of the agreement resulted in the recognition of a net increase in operating income of $419,000 in 1994. NOTE 16. ACQUISITIONS In October 1993, Portec, Ltd., a wholly-owned Canadian subsidiary of the Company, acquired for cash of $1,828,000 and an earnout based on future production, certain assets of Allegheny International Canada, Ltd., a manufacturer of rail anchors. In April 1994, the Company acquired certain assets of Count Recycling Systems, Inc., a supplier of materials recovery facilities in the sorting and recycling of residential and commercial solid waste. In July 1994, the Company acquired certain assets of Innovator Manufacturing, Inc. and Portec, Ltd., a wholly-owned Canadian subsidiary of the Company, acquired the outstanding shares of Innovator Holdings. Innovator Manufacturing, Inc. is a leading producer of equipment used for the processing of green yard waste, waste wood and demolition debris. The two businesses acquired in 1994 were acquired for cash of approximately $3,908,000 and earnouts to be based upon the future profitability of the respective businesses. The earnouts are payable annually for a period of three years. All of the acquisitions in the two-year period ended December 31, 1994, have been accounted for as purchases. The operating results of each acquisition have been included in the Company's consolidated statements of income since the date of acquisition. Assuming the 1994 acquisitions occurred on January 1, 1993, the Company estimates that consolidated net sales would have been increased by 5 percent and 10 percent in 1994 and 1993, respectively, while net income would not have been materially different from amounts reported in 1994 and approximately 11 percent more than reported in 1993. Goodwill acquired, aggregating $3,263,000, will be amortized over no more than fifteen years using the straight-line method. NOTE 17. RESTRUCTURING COSTS In 1989, the Company sold the operations of its track machinery business and consolidated its former domestic manufacturing facilities into a single manufacturing facility in Huntington, West Virginia. Excess properties located in Troy, New York, and Pittsburgh, Pennsylvania, are included in the balance sheet under the caption Assets Held For Sale at the lower of their cost or estimated net realizable value. Management estimates that the gain from the sale of the Company's track machinery business combined with the anticipated gains from the sale of the related Assets Held For Sale will offset the costs of consolidation of the Railway Maintenance Products Division. Accordingly, the Company has deferred the costs of consolidation of the Railway Maintenance Products Division. A net deferred charge of $1,194,000 is reflected in the balance sheet as a part of Other Assets and Deferred Charges at December 31, 1994, 1993 and 1992. The Company expensed $190,000 and $334,000 in 1993 and 1992, respectively, relating to costs and maintenance of Assets Held For Sale since management does not expect gains to be sufficient to offset these additional costs. REPORT OF INDEPENDENT ACCOUNTANTS To the Stockholders and Board of Directors of PORTEC, Inc. In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income and accumulated deficit and of cash flows present fairly, in all material respects, the financial position of PORTEC, Inc. and its subsidiaries at December 31, 1994, and 1993, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1994, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. Price Waterhouse LLP Chicago, Illinois February 16, 1995 CORPORATE INFORMATION BOARD OF DIRECTORS J. GRANT BEADLE, 62, has been a director since 1984. From October 1991 to June 1993, he served as Associate Director at The Institute for the Learning Sciences at Northwestern University in Chicago, involved in educational research. Currently, he serves as Chairman of the Advisory Board for the Institute. Prior PORTEC, Inc. 1994 Annual Report to this, Mr. Beadle was Chairman and Chief Executive Officer of Union Special Corporation, a Chicago-based manufacturer of industrial sewing machines. He held this position from 1984 through 1991 and spent over 30 years with the firm. Mr. Beadle also serves as a director for Woodward Governor Company, Batts, Inc. and Oliver Products Company. * o ! ALBERT FRIED, JR., 65, has been a director since 1988 and Chairman of the Board since October 1989. For more than 10 years, Mr. Fried has been Managing Partner of Albert Fried & Company, a New York-based investment banking firm. He also is the Managing Partner of Buttonwood Specialists, L.P., specialists on the New York Stock Exchange. In addition, Mr. Fried is a member of the New York Stock Exchange, Inc., the New York Futures Exchange, Inc. and a director and vice chairman of Oneita Industries, Inc., a manufacturer and marketer of activewear including T- shirts and fleecewear. He is also a director of various civic and philanthropic organizations. o FREDERICK J. MANCHESKI, 68, has been a director since 1990. Mr. Mancheski is Chairman and Chief Executive Officer of Echlin, Inc., a Branford, Connecticut, manufacturer of products that improve motor vehicle safety and efficiency. He has held this position since 1969. Mr. Mancheski also is a director of RB&W Corporation. * ! JOHN F. MCKEON, 69, has been a director since 1987. Prior to his retirement in 1989, he served as President of Link-Belt Construction Equipment Company, owned by FMC Corporation and Sumitomo Heavy Industries Ltd. In addition, Mr. McKeon was Group Vice President of FMC Corporation, which manufactured construction equipment, a position he held for more than 10 years. He serves on the boards of Link-Belt Construction Equipment Company, LBS-Spa, Atwood Industries and Dumore Corporation. * ARTHUR MCSORLEY, JR., 66, has been a director since 1977. He is President and a Director of Casey Company, a Pittsburgh-based construction management firm. Mr. McSorley has held this position with Casey and its predecessor company for more than 10 years. o ! ROBERT D. MUSGJERD, 71, has been a director since 1990. Prior to his retirement in 1991, he served as Senior Vice President -- Marketing for the Construction Equipment Division of Komatsu-Dresser Company, a worldwide construction equipment firm. He held the same position with its predecessor company, Dresser Industries, Inc., for more than seven years. * ! L. L. WHITE, JR., 67, has been a director since 1988. Mr. White served as Portec's Chairman of the Board from 1988 through 1989 and was acting Chief Executive Officer in December 1988. Prior to his retirement in 1984, Mr. White held a number of executive positions with Portec, most recently as Senior Vice President -- Commercial and Government Relations. Since then, he has been a private investor. o ! MICHAEL T. YONKER, 52, has been a director since 1989. He has served as Portec's President and Chief Executive Officer since December 1988. From 1981 through 1988, Mr. Yonker was Vice President and Drive Division Manager of P. T. Components, Inc., a Philadelphia-based manufacturer of industrial gear drives. Prior to P. T. Components, Mr. Yonker held several Division Manager positions with FMC Corporation. He also is a director for Crown Andersen, Inc., Modine Manufacturing Company and Woodward Governor Company. o CODES * Member of the Audit Committee o Member of the Nominating Committee ! Member of the Stock Option and Compensation Committee OFFICERS ALBERT FRIED, JR. Chairman of the Board MICHAEL T. YONKER President and Chief Executive Officer JOHN S. COOPER Senior Vice President NANCY A. KINDL Vice President, Secretary, Treasurer and Chief Financial Officer GENERAL MANAGERS JOHN S. COOPER General Manager Railway Maintenance Products Division 900 Freeport Road Pittsburgh, Pennsylvania 15238 (412) 782-6000 (412) 782-1037-Fax WALTER G. LOCK President and General Manager Construction Equipment Division 700 West 21st Street Yankton, South Dakota 57078 (605) 665-9311 (605) 665-2623-Fax JOHN F. O'BRIEN President PORTEC, Ltd. 2044 - 32nd Avenue Lachine, Quebec H8T 3H7 Canada (514) 636-5590 (514) 636-5747-Fax KEVIN C. RORKE President and General Manager Materials Handling Group 1 Forge Road Canon City, Colorado 81212 (719) 275-7471 (719) 269-3750-Fax L. J. "COOK" SIEJA President and General Manager Shipping Systems Division 122 W. 22nd Street, Suite 101 Oak Brook, Illinois 60521 (708) 573-4778 (708) 573-4659-Fax GRAHAM TARBUCK Managing Director PORTEC (U.K.) Ltd. Vauxhall Industrial Estate Ruabon, Wrexham, Clwyd LL14 6UY United Kingdom 44-978-820820 44-978-821439-Fax PORTEC, Inc. 1994 Annual Report STOCKHOLDERS' INFORMATION STOCK TRANSFER AGENT AND REGISTRAR COUNSEL (Communications concerning: Schiff Hardin & Waite ostock transfer, Chicago, Illinois odividend disbursement, ochange of address, STOCK LISTING oloss of a stock certificate, or New York Stock Exchange ononreceipt or loss of a dividend Chicago Stock Exchange check Trading Symbol: POR should be directed to:) Harris Trust and Savings Bank EXECUTIVE OFFICES Corporate Trust Operations - 11th Floor PORTEC, Inc. 311 W. Monroe St. 100 Field Dr, Ste 120 Chicago, Illinois 60606 Lake Forest, Illinois 60045 (312) 461-6838 (708) 735-2800 (708) 735-2828-Fax INDEPENDENT ACCOUNTANTS Price Waterhouse Chicago, Illinois FORM 10-K ANNUAL MEETING A copy of Form 10-K for 1994, as filed The Annual Meeting will be held at with the Securities and Exchange 10:00 A.M. on Commission will be available to stock- Tuesday, April 25, 1995, in Room 710 of holders at no charge (except for the exhibits) after March 31, 1995, by Union League Club, 312 South Federal writing to the: Street, Secretary, PORTEC, Inc., One Hundred Chicago, Illinois. Field Drive, Suite 120, Lake Forest, Illinois 60045. QUARTERLY STOCK & DIVIDEND INFORMATION First Second Third Fourth Common Stock Prices(1) Quarter Quarter Quarter Quarter 1994 Common Stock Prices High . . . . . . . . . . . . . . . . . $ 13.63 $ 14.75 $ 15.50 $ 16.88 Low . . . . . . . . . . . . . . . . . 10.25 12.25 12.50 11.75 1993 Common Stock Prices High . . . . . . . . . . . . . . . . . $ 12.50 $ 15.13 $ 14.50 $ 12.63 Low . . . . . . . . . . . . . . . . . 6.63 10.13 8.88 9.25 (1) The high and low prices are based on prices as reported on the Composite Tape. Stock dividends of 10% were paid in December 1992, 1993 and 1994. EX-21 9 COMPANY'S SUBSIDIARIES Exhibit 21 SUBSIDIARIES PERCENTAGE OF VOTING STOCK OWNED PLACE OF BY PORTEC, INC. AND NAME INCORPORATION SUBSIDIARIES Active (1) PORTEC Ltd. Canada 100% PORTEC (U.K.) Ltd. United Kingdom 100% (2) PORTEC Overseas, Inc. Delaware 100% PORTEC International, U.S. Virgin Islands 100% Inc. Kolberg Manufacturing Delaware 100% Corporation PORTEC B.V. Netherlands 100% RPLeasing, Inc. Delaware 100% PORTEC Railway Delaware 100% Products, Inc. 1. This list does not include non-operating subsidiaries, maintained for the purpose of name protection only. 2. This percentage does not include directors' qualifying shares. EX-23 10 CONSENT OF INDEPENDENT ACCOUNTANTS CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Commission Registration File No. 2-76476; File No. 2-79004; and File No. 33-32700) of PORTEC, INC. of our report dated February 16, 16, 1995 appearing on page 33 of the 1994 Annual Report to Stockholders which is incorporated in this Annual Report on form 10-K. We also consent to the incorporation by reference of our report on the Financial Statement Schedules, which appears on page 17 of this Form 10-K. Price Waterhouse LLP Chicago, Illinois March 24, 1995 EX-27 11 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted Portec, Inc. 1994 10-K and Annual Report and is qualified in its entirety by reference to such 10-K and Annual Report. 1,000 YEAR DEC-31-1994 DEC-31-1994 3398 0 13687 463 17473 35561 29462 16090 57522 22764 0 4283 0 0 0 57522 96474 97565 65681 88728 683 0 829 7325 500 6825 0 0 0 6825 1.49 1.49
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