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 (No Fee Required)
For the fiscal year ended December 31, 1996 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, Suite 120, Lake Forest, Illinois 60045
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (847) 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 26, 1997, 4,373,552 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
$44,829,000. For this purpose, non-affiliates are deemed to be all
stockholders other than directors and officers of the Registrant.
Portions of Registrant's 1996 Annual Report to Stockholders (Parts I,
II and IV of Form 10-K) and portions of PORTEC, Inc.'s Proxy Statement for
its 1997 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 companies 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 1996 Annual Report to Stockholders
("1996 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 June 13, 1995
("Credit Agreement") with the NBD Bank which provides the Company with 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 provided for a term loan of
$4,000,000 on an unsecured basis. This term loan was paid in full during
1995. For additional information on the Credit Agreement and Credit
Authorization see Note 6 of the Notes to Consolidated Financial Statements
appearing on page 24 of the 1996 Annual Report.
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. In July
1995, Portec (U.K.) Ltd. sold the assets of PVH Engineering after
transferring several of PVH's proprietary materials handling product lines
to the Portec (U.K.) Ltd. manufacturing facility.
On April 29, 1994, the Company acquired certain of the assets of
Count Recycling Systems, Inc (renamed Countec). Located in Des Moines, Iowa,
Countec 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, was 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. During the fourth
quarter of 1995, a Canadian research and development facility acquired as a
part of Innovator Holdings was closed. For additional information on the
closing of Innovator Holdings see Note 15 of the Notes to Consolidated
Financial Statements appearing on page 31 of the 1996 Annual Report.
On July 16, 1996, the Company acquired certain assets of Moore &
Steele Corporation. Moore & Steele Corporation is a supplier of a full
line of rail lubrication systems for the railroad industry.
(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
"Business Segments", appearing on page 10 of the 1996 Annual Report. Note
13 of the Notes to Consolidated Financial Statements appearing on page 30
of the 1996 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 1996
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 Equipment, 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 1996 these activities did not require the
investment of a material amount of the assets of the Company and this
practice is expected to continue in 1997.
(iii) Sources And Availability Of Materials. Steel and steel
fabrications 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 fluctuations. These fluctuations result in a need for increased
working capital during the first six months of a year. The Company had
current ratios of 2.6, 2.1 and 1.6 to 1 at December 31, 1996, 1995 and
1994, respectively.
(vii) Principal Customers Of Business Segments. No segment of the
Company'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 1996, no single customer
accounted for 10 percent or more of the Company's consolidated revenues.
(viii) Backlog Of Orders. The Company's backlog of orders at
December 31, 1996, was $20,885,000, compared with backlog at December 31,
1995, of $21,590,000. The backlog at December 31, 1996, is believed to
be firm and 100% is deliverable in 1997. Orders received in 1996 were
$97,498,000, a 2% increase from $95,848,000 in orders received in 1995.
(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
expenditures for continuing operations related to the development
of new products and improvements of existing products were $784,000,
$900,000 and $510,000 for the years 1996, 1995 and 1994, respectively.
Customer-sponsored 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 1996 and are not expected to have a material effect on
1997 results. In regard to environmental matters, see the Subsection
entitled "Environmental" of the Section entitled "Management's Discussion
And Analysis" appearing on page 16 of the 1996 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, 1996, was 671 compared with 637 at December 31,
1995.
(d) Financial Information About Foreign And Domestic Operations And
Exports Sales.
The Section entitled "Geographic Areas" appearing on page 11 of the
1996 Annual Report contains information as to the Company's United States,
international and export net sales, operating profit and identifiable
assets and said Section is incorporated herein by reference for each of the
years 1996, 1995 and 1994. The Company's Canadian operation, Portec, Ltd.,
is a supplier to the two major Canadian railroads. While the performance
of these railroads improved in 1996, the Company could be negatively
impacted by future disruptions related to restructuring of these railroads.
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.
<TABLE>
<S><C>
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)
Divisions' production facility.
Canon City, Colorado 22,000 Flomaster Division's production (c)
facility occupied under lease
expiring December 1997.
Canon City, Colorado 91,800 Material Handling Group's (c)
principal office and
production facility.
Des Moines, Iowa 5,000 Countec principal offices (c)
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.
Oak Brook, Illinois 5,200 Principal offices of the (b)
Shipping Systems Division
occupied under lease expiring
November 1997.
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 former -
office occupied under lease
expiring March 1, 1998. (f)
Ruabon, Wrexham
Clwyd, Wales 23,600 Portec (U.K.) Ltd.'s principal (b)
office and production facility.
Montreal, Canada 6,300 Portec, Ltd.'s principal (b)
office - occupied under lease
expiring April 30, 2001.
Saint-Jean, Canada 35,000 Portec, Ltd.'s principal (b)
production facility
St. Thomas, Canada 4,000 Innovator Holdings former -
principal office occupied
under lease expiring
November 11, 1997. (f)
(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 which has been exercised.
(f) Presently unoccupied.
</TABLE>
Item 3. Legal Proceedings.
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.
Item 4. Submission Of Matters To A Vote Of Security Holders.
During the fourth quarter of 1996, 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 27, 1997:
Name of Age as of Current Position with Officer
Executive March 25, 1997 The Company Since
Albert Fried, Jr. 67 Chairman of the Board 1989
Michael T. Yonker 54 President and Chief 1988
Executive Officer and Director
John S. Cooper 62 Senior Vice President, 1983
Group Executive of the
Railroad Group and
General Manager of the
Railway Maintenance
Products Division
Nancy A. Kindl 55 Vice President, 1982
Treasurer, Secretary,
Controller and Chief
Financial Office
Kevin C. Rorke 48 Vice President, 1995
Group Executive of
Materials Handling Group
Family Relationships And Agreements
There are no family relationships among the officers. Each executive officer
except Mr. Fried and Mr. Rorke 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
12 and 13 of the Company's 1997 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 of
EMCOR Group, 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 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.
Ms. Nancy A. 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.
Mr. Kevin C. Rorke was employed by the Company in February 1987, as
Manager of Project Management of the Automated Systems Division, became
General Manager of the Automated Systems Division in June 1988 and Group
Executive of the Materials Handling Group in November 1988. In June 1995,
he assumed the position of Vice President and Group Executive of the Materials
Handling Group. For the period 1978 until February 1987, he was Project Manager
of AGVS and Towline Systems for FMC Corporation's Material Handling Systems
Division.
Other
There have been no events under any bankruptcy act, no criminal
proceedings 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 25, 1997 was 1,165.
(c) Stock Prices and Dividend Information. The information
contained in the Section entitled "Quarterly Stock & Dividend Information"
appearing on page 36 of the 1996 Annual Report presents for the years 1996 and
1995 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 1995. During the fourth quarter of 1996, the Company resumed paying
quarterly cash dividends at the rate of 8 cents per common share. The first
quarterly dividend was paid on December 16, 1996. The closing price for shares
of common stock on the Composite Tape on March 25, 1997 was $10.125.
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 in the
preceding fiscal year of the Company.
Item 6. Selected Financial Data.
The Section entitled "Five-Year Summary" appearing on page 1 of the
1996 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 1996 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 1996 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
1996 Annual Report, is incorporated herein by reference.
Item 8. Financial Statements And Supplementary Data.
The Consolidated Financial Statements, and Notes thereto appearing on
pages 17 through 32 in the 1996 Annual Report, together with the report
thereon of Price Waterhouse LLP dated February 18, 1997, appearing on page 33
in the 1996 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 1998", and "Directors Whose Term
Continue Until 1999" appearing on pages 2 through 5, of the Company's 1997
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
Subsections thereunder appearing on pages 9 through 15 of the 1997 Proxy
Statement, the Section entitled "Employment, Termination, and Change-in-Control
Agreements" appearing on pages 12 and 13 of the 1997 Proxy Statement, the
Subsection entitled "Compensation" of the Section entitled "Board of Director's
Matters" appearing on page 5 of the 1997 Proxy Statement, the Section
entitled "Compensation Committee Interlocks and Insider Participation"
appearing on page 6 of the 1997 Proxy Statement, the Section entitled
"Report Of The Stock Option and Compensation Committee Of The Board of
Directors" appearing on pages 13 through 15 of the 1997 Proxy Statement and
the Section entitled "Performance Graph" appearing on page 16 of the 1997
Proxy Statement are incorporated herein by reference and contain certain
information relating to past and prospective remuneration matters applicable to
directors and executive officers of the Company and said Sections and
Subsections are incorporated herein by reference.
Item 12. Security Ownership Of Certain Beneficial Owners And Management.
The Section entitled "Stock Ownership" appearing on pages 6 through 8
of the 1997 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
Item 14. Exhibits, Financial Statement Schedules And Reports On Form 8-K.
(a)(1) Consolidated Financial Statements of PORTEC, Inc.:
Page In 1996
Annual Report
Consolidated Statements of Income For the
Years Ended December 31, 1996, 1995 and 1994............... 17
Consolidated Balance Sheets at December 31, 1996 and 1995... 18
Consolidated Statements Of Cash Flows For the Years
Ended December 31, 1996, 1995 and 1994..................... 19
Notes to Consolidated Financial Statements (including Unaud-
ited Quarterly Financial Information)...................... 20
Report of Independent Accountants........................... 33
(2) Financial Statement Schedule:
Page In
This Report
Report of Independent Accountants on Financial Statement
Schedules................................................... 16
Valuation and Qualifying Accounts and Reserves (Schedule
II)......................................................... 17
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, a copy of which was included as
Item 14(a)(3)4(b) of Part IV of the Company's Form 10-K Report for the
year ended December 31, 1994.*
4(c) Second amendment to Credit Agreement dated as of June 13, 1995 by and
between NBD Bank and the Company, a copy of which was included as Item
14(a)(3)4(c) of Part IV of the Company's Form 10-K Report for the year
ended December 31, 1995.*
10(a) The Division Management Incentive Compensation Plan effective January 1,
1997.(x)
10(b) The Key Management Incentive Compensation Plan effective January 1,
1997.(x)
10(c) The Company's Supplemental Non-Qualified Retirement Income Plan For
Designated Executive Employees as amended effective January 1, 1994,
a copy of which was included as Item 14(a)(3)10(c) of Part IV of the
Company's Form 10-K Report for the year ended December 31, 1994.*(x)
10(d) The 1982 PORTEC, Inc. Employees' Stock Benefit Plan, as amended
effective 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
effective April 26, 1994, a copy of which was included as Item 14(a)(3)
10(e) of Part IV of the Company's Form 10-K Report for the year ended
December 31, 1994.*(x)
10(f) Amendment to The 1988 PORTEC, Inc. Employees' Stock Benefit Plan,
effective as of April 25, 1995, a copy of which was included as
Item 14(a)(3)10(f) of Part IV of the Company's Form 10-K Report for the
year ended December 31, 1995.*(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. 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 1996 Annual Report to Stockholders.**
21 List of the Company's subsidiaries.
23 Consent of Independent Accountants.
27 Financial Data Schedule.
99(a) 11-K Report for 1996 for the PORTEC, Inc. Savings and Investment
Plan.(x)
99(b) Important Factors and Assumptions Regarding Forward-Looking Statements.
* Incorporated herein by reference.
** The 1996 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 arrange- ment.
(b) Reports on Form 8-K:
There were no reports on Form 8-K filed by the Registrant during the fourth
quarter of 1996.
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
incorporated 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
Securities 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 jurisdiction 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 18, 1997 appearing on page 33 of the 1996 Annual Report to
Stockholders of PORTEC, Inc. (which report and consolidated financial
statements are incorporated by reference in this Annual Report on Form 10-K)
also included an audit of the Financial Statement Schedule listed in Item 14(a)
of this Form 10-K. In our opinion, this Financial Statement Schedule presents
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 18, 1997
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Schedule II
PORTEC, Inc. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
Years Ended December 31, 1996, 1995, 1994
($000's omitted)
Additions
Charged
Balance to Costs Balance
Beginning and Deductions at End
of Year Expenses from Reserve of Year
1996 Allowance for doubtful accounts $ 463 $ 233 $ 339 $ 357
1995 Allowance for doubtful accounts 403 152 92 463
1994 Allowance for doubtful accounts 337 154 88 403
(1) Write Offs, Net of Recoveries
Balance Reversal of Balance
Beginning Timing Reevaluation at End
of Year Differences of Reserve of Year
1996 Deferred tax assets
valuation allowance $ 3,133 $ (1,668) $ (1,465) $ 0
1995 Deferred tax assets
valuation allowance 4,110 (977) - 3,133
1994 Deferred tax assets
valuation allowance 7,074 (2,764) (200) 4,110
</TABLE>
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. Kindl
Nancy A. Kindl
Vice President -
Finance, Treasurer,
Controller, and Secretary
(Chief Financial and
Accounting Officer)
March 25, 1997
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 28, 1997
Albert Fried, Jr. of the Board
/S/ J. Grant Beadle Director March 28, 1997
J. Grant Beadle
/S/ Frank T. MacInnis Director March 28, 1997
Frank T. MacInnis
/S/ Frederick J. Mancheski Director March 28, 1997
Frederick J. Mancheski
/S/ John F. McKeon Director March 21, 1997
John F. McKeon
/S/ Arthur McSorley, Jr. Director March 28, 1997
Arthur McSorley, Jr.
/S/ Michael T. Yonker Director March 28, 1997
Michael T. Yonker
/S/ L. L. White, Jr. Director March 28, 1997
L. L. White, Jr.
19 - 26
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, a copy of which was included as
Item 14(a)(3)4(b) of Part IV of the Company's
Form 10-K Report for the year ended December 31,
1994.*
4(c) Second amendment to Credit Agreement dated as of
June 13, 1995 by and between NBD Bank and the
Company, a copy of which was included as
Item 14(a)(3)4(c) of Part IV of the Company's
Form 10-K Report for the year ended December 31, 1995.*
10(a) The Division Management Incentive Compensation 29
Plan effective January 1, 1997.(x)
10(b) The Key Management Incentive Compensation Plan 35
effective January 1, 1997.
10(c) The Company's Supplemental Non-Qualified Retirement
Income Plan For Designated Executive Employees as
amended effective January 1, 1994, a copy of which
was included as Item 14(a)(3)10(c) of Part IV of
the Company's Form 10-K Report for the year ended
December 31, 1994.*(x)
10(d) The 1982 PORTEC, Inc. Employees' Stock Benefit
Plan, as amended effective 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 effective April 26, 1994, a copy of which
was included as Item 14(a)(3)10(e) of Part IV of the
Company's Form 10-K Report for the year ended
December 31, 1994.*(x)
10(f) Amendment to The 1988 PORTEC, Inc. Employees' Stock
Benefit Plan, effective as of April 25, a copy of
which was included as Item 14(a)(3)10(f) of Part IV
of the Company's Form 10-K Report for the year ended
December 31, 1995.*(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 42
of per share earnings.
13 The Company's 1996 Annual Report to Stockholders. 43
21 List of the Company's subsidiaries. 83
23 Consent of Independent Accountants. 84
27 Financial Data Schedule. 85
99(a) 11-K Report for 1996 for the PORTEC, Inc. Savings and 86
Investment Plan.(x)
99(b) Important Factors and Assumptions Regarding Forward-Looking 106
Statements.
* Incorporated herein by reference.
(x) Management contract or compensatory plan or arrangement.
SUBJECT: Division Management Incentive Compensation Plan
The following Plan is to be in effect for the calendar year 1997. 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 Direc-
tors.
1. PARTICIPATION
a. The President & General Manager and key management employees of
each division, employed as of January 1 of the year, will, upon
recommendation 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 calen-
dar 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 satis-
factorily attained, an amount equal to the sum of the Individual
Target Bonus Levels for eligible management people in that divi-
sion 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 Objec-
tives 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 partici-
pant 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 compensa-
tion that would have been payable to participants had they re-
mained 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 recommended 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 distrib-
uted pro rata over the bonus levels which exclude these adjust-
ments.
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. Recommen-
dations 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 invento-
ry valuation, retirement fund provisions, divisional charges, and
other operating procedures. Gains or losses on the disposition of
fixed assets will be excluded except for those realized in the
ordinary course of business. Incentive compensation will be in-
cluded 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 rela-
tive 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, AND
ENGINEERING(1) 20%
ALL OTHER PARTICIPANTS 15%
NOTES:
(1) ALSO INCLUDES PLANT MANAGERS OF MAJOR REMOTELY LOCATED MANUFACTURING
FACILITIES.
EXHIBIT A
TARGET BONUS SCHEDULE
MATERIALS HANDLING GROUP
TARGET BONUS
POSITION AS % OF SALARY
------------------ --------------
VICE PRESIDENT &
GENERAL MANAGER 30%
DIRECT REPORTS TO G.M. OF:
MANUFACTURING,
ACCOUNTING,
SALES, AND
ENGINEERING(1) 20%
ALL OTHER PARTICIPANTS 15%
NOTES:
(1) ALSO INCLUDES PLANT MANAGERS OF MAJOR REMOTELY LOCATED MANUFACTURING
FACILITIES.
EXHIBIT B
1997 BONUS PERFORMANCE OBJECTIVES
DIVISION:
CATEGORY WEIGHT THRESHOLD TARGET MAXIMUM
PRE-TAX PROFITS $ $ $
WORKING CAPITAL
TO SALES
TOTAL 100%
DISTRIBUTED ONLY TO THE
APPLICABLE DIVISION
SUBJECT: 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 calen-
dar year.
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.
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 disposi-
tion 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 en-
tirety 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 prac-
tices 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 Execu-
tive Officer will make recommendations to the Stock Option and Compen-
sation 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 Manage-
ment 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 varia-
tion 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 Compen-
sation 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 compensation 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 PERCENT
- -------- ------------ ---------
AGE
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
------------------ --------------
CAROLINA D. GURSKI BENEFITS ADMINISTRATOR
SANDRA J. OZIER ADMINISTRATIVE SECRETARY
KELLY M. GOODMAN ACCOUNTANT
MELINDA M. WARD PAYROLL/TAX ACCOUNTANT
EXHIBIT D
1997 BONUS PERFORMANCE OBJECTIVES
CATEGORY WEIGHT THRESHOLD TARGET MAXIMUM
Pre-Tax Profits 75 $ $ $
Working Capital
to Sales 25
Non-Financial 0
TOTAL 100%
Exhibit 11
PORTEC, Inc.
COMPUTATION OF NET INCOME PER COMMON SHARE
Year Ended December 31,
1996 1995 1994
Average shares outstanding 4,576,358 4,596,469 4,572,468
Net income $6,891,000 $2,898,000 $6,825,000
Per share amount $ 1.50 $ .63 $ 1.49
COMPANY 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. 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
o Aggregate Equipment o Produce and recycle crushed
stone, sand and gravel-
the primary components
of asphalt and concrete.
(Pie Chart Depicting 34% of Sales)
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
o Specialty Belt Conveyors o Automate handling of baggage,
packages, food and pharmaceutical
products, newspaper, etc. to
lower material handling costs.
(Pie Chart Depicting 28 % of Sales)
o Recycling Conveyors and o Separate glass, plastics and
Systems metals from municipal solid
waste for recycling, also
reducing landfill requirements.
RAILROAD PRODUCTS
o Track Components o Fasten rails to rails and
rails to ties in railroad
and mass transit track
systems worldwide.
(Pie Chart Depicting 38% of Sales)
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
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 (1)
For Years Ended December 31
<TABLE>
<S><C>
1996 1995 1994 1993 1992
INCOME AND OPERATING DATA
Net sales $ 97,338 $ 97,072 $ 96,474 $ 76,324 $ 68,638
Cost of products sold 68,409 68,539 65,681 51,387 46,232
Selling, general and administrative expense 18,808 19,974 21,718 18,309 13,854
Depreciation and amortization 2,442 2,173 2,012 1,478 1,376
Loss on impaired assets - 2,372 - - -
Other income, net 368 578 1,091 559 378
Interest expense 1,095 1,680 829 750 1,220
Income before income taxes 6,952 2,912 7,325 4,959 6,334
Income tax provision 61 14 500 263 821
Net income 6,891 2,898 6,825 4,696 5,513
FINANCIAL DATA
Working capital $ 25,981 $ 19,375 $ 12,797 $ 8,554 $ 7,924
Property, plant and equipment-net 14,543 14,171 13,372 12,129 9,671
Total assets 65,950 57,818 57,522 42,478 38,045
Long-term debt 10,768 10,117 7,623 5,277 8,094
Stockholders' equity 34,986 28,028 24,959 17,744 12,309
Average common and common equivalent
shares outstanding 4,576,358 4,596,469 4,572,468 4,464,877 4,034,571
PER SHARE OF COMMON STOCK (2)
Net income $ 1.50 $ .63 $ 1.49 $ 1.05 $ 1.37
Stockholders' equity-end of year 8.00 6.47 5.83 4.19 3.03
Number of employees 671 637 779 619 518
Number of stockholders 1,168 1,262 1,335 1,412 1,473
(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.
</TABLE>
(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 a successful year in 1996. Total sales were up only slightly, but
net income was more than double the prior year's level, and each of our three
business segments contributed to the improved profit picture.
SALES, EARNINGS AND NET WORTH UP
Our sales in 1996 were $97.3 million, up slightly from $97.1 million last
year. Volume in our Materials Handling and Railroad Products segments
increased, offsetting a decline in Construction Equipment segment sales.
Net income in 1996 was $6.9 million, up 138% from $2.9 million in 1995. Last
year's net income was reduced by a $2.4 million non-recurring charge resulting
from a write-down of certain inventories and goodwill related to the Innovator
product line.
Stockholders' equity at December 31, 1996, was $35.0 million. This represents
an increase of 25% over the prior year's level of $28.0 million.
ALL SEGMENTS REPORT PROFIT INCREASES
Our foremost goal in 1996 was to improve on the disappointing profit reported
for 1995. We were able to achieve this by stronger performance in each of our
three business segments. In the Construction Equipment business, our focus
was on regaining positive momentum in our traditional aggregate equipment
products. These had declined approximately 8% in 1995 due to distractions
from the acquisition of Innovator Manufacturing, Inc. in late 1994. In 1996,
this decline was reversed and sales of crushers, screens, washing equipment
and conveyors increased by 5%. Total sales for the Construction Equipment
segment declined by 11% due largely to lower Innovator sales, but operating
profit rebounded from a loss of $1.0 million in 1995 to a positive $1.3
million in 1996.
The Materials Handling segment had another strong year, with sales increasing
nearly 10% to $27.2 million, and operating profit increasing 15% to $4.6
million. Our Flomaster specialty conveyor business was helped by a large
order for the U.S. Post Office, which added nearly $1.5 million to 1996 sales.
Pathfinder products for industrial lift trucks were up nearly 8%, reflecting
continued strength in the lift truck industry and the growth of new products.
Finally, sales of Countec conveyor and sorting systems for materials recycling
facilities were up 8%, although profitability was down by nearly 15% due to
more competitive pricing. Overall, Materials Handling segment sales and
operating profit have grown by an impressive 110% and 89%, respectively, over
the last five-year period.
Sales in our Railroad Products segment increased by 5% in 1996, to $37.1
million. Operating profit increased by 54% to $2.2 million. Our track
components business in the U.S. was strengthened by the acquisition of Moore &
Steele Corporation's rail lubrication products at mid-year. The Company now
has the broadest product offering, by far, in rail lubrication products world
wide. In Canada, our track components business improved slightly as the two
major Canadian railroads completed restructuring and reported record earnings.
Also, we saw a major year to year improvement at Portec (U.K.) Ltd. In 1995,
Portec (U.K.) Ltd. reported a loss resulting from an unprofitable steel
fabrication business which we exited late in that year.
OUTLOOK
While we are pleased with the rebound in earnings in 1996, we did not meet our
sales growth objective. We realize that sales growth is necessary to achieve
continuing increases in shareholder value and to create advancement
opportunities for our employees. We are committed to a financial plan in 1997
with minimum sales growth of 7%, assuming no acquisitions. As always, there
are both opportunities and challenges in each of our businesses which will
affect our efforts to grow.
In Railroad Products, we believe the railroad industry is in a long-term
growth trend. In the U.S., ton-miles of freight carried by railroads set a
new record in 1996 for the tenth straight year. Relative to trucks, railroads
have advantages in fuel efficiency, lower pollution and public safety, and
their share of intercity freight has grown in recent years following a 50-year
decline. Several mergers of large U.S. railroads have occurred in the last
two years. In the short-term, these have had a negative impact on our U.S.
track components business as some initial confusion and project delays occur.
However, the improved efficiency and service capabilities of the new railroads
should ultimately boost rail traffic - the underlying source of demand for our
products.
In the international railroad market, we have significant involvement in
Mexico, Canada and the United Kingdom. In each country, nationalized rail
systems have been privatized during the last several years. This has created
even more confusion and delay than have the mergers in the U.S. Also, in the
case of Mexico, we have been faced with a severe downturn in the economy.
Although the short-term impact on our business has been negative, we believe
that the privatization efforts will result in much stronger rail systems in
each country, and above average growth rates in rail traffic. We saw some
improvement in the U.K. and Canadian markets during 1996, and we expect Mexico
to join the trend in 1997.
In our Construction Equipment business, we expect to increase sales in 1997,
following two years of decline. The Innovator Manufacturing acquisition has
been a major challenge for us in 1995 and 1996. During 1996, we established a
focused sales and dealer network for Innovator products, refined application
guidelines and improved product design. Although 1996 sales declined
substantially from the prior year, these efforts should produce higher
shipments in 1997.
The market for our traditional aggregate processing equipment correlates with
the production of crushed stone, sand and gravel which, in turn, is determined
by construction activity. The outlook for 1997 is one of continued optimism
by construction equipment dealers. In a recent survey, nearly 90% of dealers
believe that 1997 will be as good or better than 1996, with nearly 50%
believing it will be better. Overall construction activity is expected to
increase by roughly 4%, with increases in public works and non-residential
construction offsetting a 7% decline in residential housing starts. One
uncertainty in the forecast is the future of the federal highway funding
program known as ISTEA, which expires in September 1997. Current proposals
for renewal of the act project yearly spending at a relatively strong $21
billion to $26 billion level.
Our Materials Handling segment has shown excellent growth over the last five
years, and we expect this to continue in the coming year. Airline baggage
handling is a key market for some of our traditional conveyor products, and
activity continues to be strong as airline passenger seat-miles grow at twice
the rate of the general economy in the U.S. and even faster in international
markets. In addition, we were successful in supplying specialty conveyors to
the U.S. Post Office in 1996, and expect to expand this business in 1997.
The U.S. Post Office is in the process of a $14 billion capital expenditure
program to increase efficiency and on-time performance, and this should provide
significant opportunities for us over the next several years.
On the challenge list for Materials Handling is a significant decline in the
market for recyclables sorting systems produced by our Countec operation.
Countec had a strong performance in 1996 due to a large backlog entering the
year. However, prices for recycled materials dropped precipitously in late
1995, and capital expenditures by municipalities and private waste haulers
followed suit. Although material prices have bottomed out, they remain at
historically low levels, and the timing of a complete recovery is uncertain.
QUARTERLY DIVIDEND ANNOUNCED
During the fourth quarter of 1996, the Company's Board of Directors declared
an $0.08 quarterly cash dividend. This action reflects the Board's
satisfaction with the overall performance of the Company in recent years and
anticipated future progress. The Company last paid a cash dividend ten years
ago, prior to a major restructuring. As a result of that restructuring and
improved operating results, the Company has reduced bank debt from $35.7
million at December 31, 1987, to $10.7 million at December 31, 1996.
Shareholders' equity of $2.9 million at December 31, 1989, has increased more
than twelve-fold to $35.0 million at December 31, 1996.
We appreciate the 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
(3 photographs of equipment as described by captions.)
Portec designed
and built this
large system for
the production of
stone and sand.
A model 4030
Recycler at work
producing reclaimed
aggregate from
concrete demolition
material.
The new model 241
hydraulic screen
plant provides an
economical solution
to light duty
screening applications
such as top soil.
CONSTRUCTION EQUIPMENT SEGMENT
Portec's Construction Equipment Division is headquartered in Yankton, South
Dakota, and accounted for 34% of total Company sales in 1996. 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 added which have applications in environmental markets, primarily
soil remediation, sludge treatment and green waste processing.
1996 FINANCIAL PERFORMANCE
Construction Equipment segment sales declined by 11% to $33.0 million from
$36.9 million in 1995. The sales decline occurred predominately in Innovator
green waste processing equipment. The Innovator line is sold through dealers,
who, by and large, were overstocked with these products at the end of 1995,
severely limiting new sales in 1996. In addition, the major focus in 1996 was
on establishing a new sales and dealer organization and on developing new
application guidelines and product enhancements rather than on new sales. We
expect to see increased shipments of Innovator products in 1997 as a result of
these efforts.
Sales of our traditional aggregate processing equipment increased by 5% during
1996, reversing an 8% decline in the prior year. Despite lower shipments,
operating profit for the Construction Equipment segment in 1996 was $1.3
million, compared to a loss of $1.0 million in the prior year which was the
result of the write-off of Innovator goodwill and inventory. Our backlog at
December 31, 1996, was $9.4 million, 71% greater than the year earlier level.
This gives us a strong start in 1997, and we expect Construction Equipment
sales this year to reverse the declines of the last two years.
NEW PRODUCTS INTRODUCED
Construction Equipment sales in 1997 should also benefit from several new
products which were introduced in 1996. Our model 4030 portable impact
crusher was introduced to recycle used asphalt and concrete into useful
aggregate products. Growth in this market segment has been above average in
recent years. We also introduced the model 1814 wash plant as a portable,
cost efficient alternative for small sand and gravel producers. Finally, we
shipped the first model 241 hydraulic screen plant for topsoil, environmental
and light duty sand and gravel applications. This product addresses the cost
conscious producer and compliments several larger models in our hydraulic
screen family.
OPERATIONS IMPROVED
During the year, the Construction Equipment Division undertook several
programs to improve the efficiency and customer responsiveness of our
business. Formal classes in continuous productivity improvement, process flow
and waste elimination were provided to half of the divisions' employees, with
the remaining half scheduled for 1997.
Product quality is being addressed through an overhaul of the quality system.
A new quality manual and procedures are being implemented according to the ISO
9001 standards. The emphasis is on establishing consistent inspection
criteria, corrective action feedback and internal audits. The payback for
these efforts will be greater customer satisfaction and lower product warranty
costs.
<TABLE>
<S><C>
LINE PRODUCTS APPLICATION MARKET SALES CHANNELS
Pioneer o Crushers o Production, sizing, cleaning o Construction o Direct & through dealers
& o Conveyors & stackers & handling of bulk materials o Mining to end-users
Kolberg o Screens & feeders o Soil remediation o Roadbuilding
o Washers & classifiers o 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 wood waste & demolition debris o Composting to end-users
o Trommel screens o Sizing & cleaning of wet,
sticky materials
</TABLE>
(3 photographs of equipment as described by captions)
Flomaster Division
is supplying these
conveyors and other
equipment to postal
facilities
throughout the
United States (above
and center).
Glass sorting
systems supplied
by Countec
produce saleable
recycled materials
while decreasing
disposal costs (right).
This unmanned
ADS,or automatic
delivery system,
by Pathfinder
reduces material
handling cost in
a large warehouse
operation (left).
MATERIALS HANDLING SEGMENT
Portec's Materials Handling segment consists of three business units - the
Flomaster Division and the Pathfinder Division, located in Canon City,
Colorado, and the Countec Division (formerly called Count Recycling Systems)
in Des Moines, Iowa. Product lines include specialty belt conveyor
components, electronic wire guidance packages for lift trucks and conveyor
systems for solid waste recycling.
1996 FINANCIAL PERFORMANCE
Sales in our Materials Handling segment in 1996 were $27.2 million, an
increase of 10% over 1995's $24.8 million. This continues the pattern of
growth which has brought this segment to 28% of total company sales in 1996
compared to just 17% of the total five years ago. Each of the three
businesses in this segment contributed to the growth in sales. Operating
profit was up 15% to $4.6 million compared to $4.0 million in 1995, with
increases at Flomaster and Pathfinder offsetting a decline at Countec.
NEW PRODUCTS DRIVE SALES
Sales at Flomaster increased largely because of a $3 million order for
specialty conveyors included in a new flat mail sorting system being installed
by the U.S. Post Office. Roughly half of the initial order for 100
installations was shipped in 1996, with the balance scheduled for 1997. We
expect that there will be a continuation of this program which would involve
at least 200 additional installations to be split between 1997 and 1998
shipments. In addition, we are involved with a number of other post office
projects which look promising for future years. In order to meet delivery
schedules on these contracts without damaging our service levels to other
customers, we added 22,000 square feet of additional manufacturing space in
early 1996.
At Pathfinder, we had good success in the second year of a new product called
the ADS, or Automatic Delivery System. This product line utilizes some of the
wire guidance technology from our automatic steering units for manned fork
lift trucks and applies it to unmanned lift trucks. An ADS can move loads
from one place in a warehouse or factory to another, automatically and without
operators. During 1996, shipments of these labor saving systems quadrupled,
providing the bulk of the 8% sales growth posted by Pathfinder.
COUNTEC BROADENS LINE
As 1996 progressed, prices for recycled materials such as newsprint,
corrugated paper and plastics weakened. This dramatically reduced the number
of new materials recycling facility (MRF) projects and the demand for
Countec's traditional handling and sorting systems. Although we believe this
condition is temporary, Countec broadened its product line in late 1996 to
help weather the storm. A new glass sorting system was introduced which has
appeal to existing MRF operators. The system allows a MRF operator to
automatically sort broken glass in the waste stream by color and to remove
ceramic materials, providing a saleable product while reducing the waste
tonnage which must be landfilled. A typical glass sorting system, including
screens, conveyors and glass sorter, sells for between $200,000 and $500,000.
Countec installed three systems in 1996 and had additional bids outstanding as
we entered 1997.
<TABLE>
<S><C>
UNIT PRODUCTS APPLICATION MARKET SALES CHANNELS
Flomaster o Belt power turns o Transportation 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 guidance o 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
Countec o Conveyor systems o Handling & sortation o Municipal & private materials o Direct & through
of solid waste recycling facilities representatives to
end-users
</TABLE>
(3 photographs of equipment as described by captions)
This web strapping
system was designed
by Shipping Systems
Division to secure
large paper rolls for
rail shipment.
An automatic furnace
feeder helps reduce
rail joint cost at
our Huntington,
West Virginia,
manufacturing plant.
This Moore & Steele
hi-rail lubricator is
often used on low
traffic lines or after
a rail grinding
operation.
RAILROAD PRODUCTS SEGMENT
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 1996,
Railroad Products accounted for 38% of total Company sales. 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.
1996 FINANCIAL PERFORMANCE
In 1996, our Railroad Products segment increased sales by 5% to $37.1 million.
Approximately two-thirds of the increase resulted from an acquisition, with
the remainder provided by growth at all operations except Shipping Systems
Division. The U.S. market for track components was hurt by project delays and
uncertainties associated with recent or pending mergers of our large railroad
customers. However, Portec, Ltd. experienced a stronger market in 1996 as the
restructurings at the Canadian National Railway and Canadian Pacific
Railway were completed and both railroads registered strong financial
performance. Helped by the additional sales volume, operating profit of our
Railroad Products segment increased to $2.2 million from $1.5 million in
1995. Also contributing to profit growth was a turnaround at Portec (U.K.) Ltd.
which had generated a loss in 1995.
MOORE & STEELE ACQUISITION
In mid-1996, we acquired the rail lubrication products of Moore & Steele
Corporation, Owego, New York. Rail lubrication involves placing a film of
grease between the flanges of locomotive or railcar wheels and the head of the
rail. This film can be created by a fixed station at the side of the track
(wayside lubrication), by a specially equipped truck as it moves along the rails
(hi-rail lubrication), or by units mounted on a locomotive or transit car
(on-board lubrication). The purpose of the grease film, regardless of how it
is applied, is to reduce friction between the wheel flange and rail head,
thereby reducing wear and fuel costs. In some high wear areas such as tight
curves, effective lubrication can roughly double flange and rail life and can
reduce fuel usage by the locomotive by 7% to 8%. As the trend to heavier axle
loads and higher utilization of main lines by railroads continues, track
lubrication becomes more and more important.
Portec had supplied rail lubrication products to North American and
international railroad markets for decades prior to the Moore & Steele
acquisition. However, with the acquisition, our product lines in the
hydraulic wayside and hi-rail segments are considerably stronger, giving us
clear leadership in the market. We can now offer our U.S. and international
customers the widest choice of lubrication products and field service
capability for nearly anyapplication.
CONTINUOUS COST IMPROVEMENT
A challenge in all of our railroad businesses is strong price competition and
the continuing battle to achieve acceptable margins. During 1996, Portec,
Ltd. fully implemented a new rail anchor forming press which had been
installed in late 1995. The new equipment reduced our labor cost per anchor
by more than 25%, decreased scrap rate by two-thirds and increased material
utilization. At our U.S. track components plant in Huntington, West Virginia,
we installed automation equipment on our rail joint bar processing line.
Joint bar blanks are now loaded automatically onto a furnace conveyor and
after heating are moved automatically through a two-stage hot punching
operation. Additional cost reduction efforts are underway for 1997.
<TABLE>
<S><C>
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 o Railroads worldwide o Direct
Shipping Systems o Securement devices o Secure loads to railcars o Railroads & railcar lessors o Direct
BUSINESS SEGMENTS
(Dollars in thousands) 1996 1995 1994 1993 1992
NET SALES
Construction equipment $ 32,986 $ 36,947 $ 38,806 $ 29,922 $ 25,203
Materials handling 27,217 24,755 16,943 12,394 12,979
Railroad 37,135 35,370 40,725 34,008 30,456
Total $ 97,338 $ 97,072 $ 96,474 $ 76,324 $ 68,638
OPERATING PROFIT (LOSS)
Construction equipment $ 1,286 $ (1,015) $ 2,942 $ 1,256 $ 73
Materials handling 4,622 4,019 2,472 1,703 2,451
Railroad 2,242 1,458 3,033 3,051 2,118
Total 8,150 4,462 8,447 6,010 4,642
General corporate and litigation expenses (471) (448) (1,384) (860) 2,534
Interest expense (1,095) (1,680) (829) (750) (1,220)
Interest and other income 368 578 1,091 559 378
Income before income taxes $ 6,952 $ 2,912 $ 7,325 $ 4,959 $ 6,334
IDENTIFIABLE ASSETS AT DECEMBER 31
Construction equipment $ 22,410 $ 22,016 $ 26,251 $ 14,257 $ 13,274
Materials handling 13,355 12,108 7,101 4,198 5,289
Railroad 21,374 18,186 16,881 17,348 11,894
57,139 52,310 50,233 35,803 30,457
Corporate 8,811 5,508 7,289 6,675 7,588
Total $ 65,950 $ 57,818 $ 57,522 $ 42,478 $ 38,045
GEOGRAPHIC AREAS
(Dollars in thousands) 1996 1995 1994 1993 1992
NET SALES
United States $ 84,530 $ 84,762 $ 81,852 $ 65,372 $ 55,593
International(1) 12,808 12,310 14,622 10,952 13,045
Total $ 97,338 $ 97,072 $ 96,474 $ 76,324 $ 68,638
EXPORT SALES $ 8,943 $ 12,781 $ 13,121 $ 7,787 $ 8,592
OPERATING PROFIT (LOSS)
United States $ 7,146 $ 6,696 $ 7,801 $ 4,448 $ 2,808
International(1) 1,004 (2,234) 646 1,562 1,834
Total 8,150 4,462 8,447 6,010 4,642
General corporate and litigation
expenses (471) (448) (1,384) (860) 2,534
Interest expense (1,095) (1,680) (829) (750) (1,220)
Interest and other income 368 578 1,091 559 378
Income before income taxes $ 6,952 $ 2,912 $ 7,325 $ 4,959 $ 6,334
IDENTIFIABLE ASSETS AT DECEMBER 31
United States $ 53,497 $ 46,500 $ 44,962 $ 32,497 $ 31,892
International(1) 12,453 11,318 12,560 9,981 6,153
Total $ 65,950 $ 57,818 $ 57,522 $ 42,478 $ 38,045
(1) Sales in Canada were $6,287,000, $5,892,000, $6,570,000, $7,789,000 and $8,475,000 for 1996, 1995, 1994, 1993 and
1992, respectively. Sales in Canada were greater than 10% of total sales for 1993 and 1992. Operating profits
(loss) in Canada were $521,000, $(1,623,000), $361,000, $1,251,000 and $1,345,000 for the respective years. The
Canadian operating profits do not include Corporate allocations. Identifiable assets in Canada were $6,687,000,
$6,782,000, $7,885,000, $5,842,000 and $4,135,000 for 1996, 1995, 1994, 1993 and 1992, respectively.
</TABLE>
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 and Geographic Areas
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
1996 COMPARED WITH 1995
Net sales for the year ended December 31, 1996, were $97,338,000, an increase
of $266,000 from the corresponding period of 1995.
Construction Equipment sales of $32,986,000 were down 11% from the $36,947,000
sold in 1995 due entirely to the lack of Innovator product line sales. Early
in the year, new application guidelines and certain product enhancements were
undertaken and the method of marketing these products was reevaluated.
Progress in these areas started to produce results in late 1996. Materials
Handling net sales for 1996 were $27,217,000, a 10% increase over the same
period of 1995. Several new products contributed to the increase in sales of
this segment. Sales of the Railroad Products segment of $37,135,000 were 5%
above those of last year. The acquisition of Moore & Steele Corporation in
July, 1996, contributed approximately 70% of the overall increase and a
recovery in the Canadian railway industry resulted in additional improvement.
Export sales were down 30% to $8,943,000 as a result of less activity in
Canada and Mexico. <PAGE>
For the year ended December 31, 1996, the Company's net
income was $6,891,000 compared with net income of $2,898,000 for 1995. The
1995 results included the recognition of a loss on impaired assets of
$2,372,000. During 1996, selling, general and administrative expense and
interest expense were reduced.
The Construction Equipment segment reported an operating profit for 1996 of
$1,286,000 compared with a operating loss of $1,015,000 in 1995. The results
of 1995 included a loss on impaired assets of $2,372,000. During 1996, the
segment experienced significant costs related to the redesign of several
product lines. The operating profit of the Materials Handling segment
increased from $4,019,000 in 1995 to $4,622,000 in 1996. Higher sales volume
and greater efficiency resulted in this positive change. The Railroad
Products segment had operating profit of $2,242,000 for 1996 compared with
$1,458,000 in 1995. The foreign operations experienced significant
improvement in operating profit during 1996.
Other income decreased from $316,000 in 1995 to $92,000 in 1996. Other income
in 1995 included a gain of $250,000 on the sale of a portion of assets held
for sale.
The Company's cost of products sold, exclusive of depreciation and
amortization, was down from 71% of sales in 1995 to 70% in 1996 due to greater
operating efficiency. Selling, general and administrative expense of
$18,808,000 was 19% of sales in 1996 compared with 21% in 1995. The 1995
selling, general and administrative expense included a write-off of
unamortized goodwill of $1,216,000. Depreciation and amortization increased
$269,000 in 1996 compared with 1995. Amortization of intangibles was $292,000
in 1996 compared with $219,000 in 1995.
Interest expense of $1,095,000 was down 35% from the prior year of 1995 due to
a reduction in floor plan financing and a decrease in interest rates granted
by a bank under the Company's credit agreement.
At December 31, 1996, a net deferred tax asset of $2,066,000 was reflected on
the balance sheet after a reduction of $3,133,000 in the valuation allowance.
The decrease in the valuation allowance for 1996 resulted from the
utilization of tax loss carryforwards and certain tax credits, the reversing
of temporary differences and a reevaluation of future taxable income potential.
At December 31, 1995, the valuation allowance was decreased $977,000 for
deferred tax assets realized through reversing temporary differences.
Current assets of the Company at December 31, 1996, were up $5,649,000 from
the prior year. The increase in cash and cash equivalents of $1,502,000
resulted from operating activities. Accounts receivable were up due to
increased sales late in 1996 compared with 1995 while the current portion of
net deferred tax benefits increased by $2,586,000 as a result of a reduction
in the valuation allowance and a reclassification of tax attributes.
Intangible assets increased $1,887,000 for goodwill related to an acquisition
and earnouts and a fee for a license agreement entered into by the Materials
Handling segment. These were partially offset by normal amortization. Notes
receivable and other assets increased as a result of additional non-current
receivables.
The decrease in current liabilities from $17,076,000 to $16,119,000 during
1996 reflects lower trade accounts payable and other accrued expenses. Long-
term debt at December 31, 1996, was $10,768,000, an increase of $651,000 from
the prior year. These funds along with funds generated from operations were
used primarily for capital expenditures of $2,300,000 and an acquisition.
The Company's stockholders' equity increased $6,958,000 from December 31,
1995, to December 31, 1996, to a level of $34,986,000, primarily due to
earnings and the issuance of common stock upon the exercise of stock options.
Treasury stock, purchased at a cost of $241,000 under the Company's stock
repurchase program, was partially used for the Company's contribution to
the Savings and Investment Plan for Company employees. The Company resumed
quarterly cash dividends during the fourth quarter of 1996. Accordingly, the
stockholders' equity was reduced by $350,000 for the stock dividend.
Inflation, which was comparable to 1995, did not adversely affect the Company
in 1996 nor did the impact of foreign exchange adjustments.
Bookings in 1996 of $97,498,000 were up 2% from the $95,848,000 booked in
1995. The increase in bookings was due to increased bookings late in 1996 by
the Construction Equipment segment. The year-end order backlog of $20,885,000
was 3% below the backlog of December 31, 1995, due primarily to a decrease in
demand for recycling conveyor equipment in response to temporary, but
significant declines in the market price for recycled materials.
1995 COMPARED WITH 1994
Net sales for 1995 were $97,072,000, an increase of 1% from sales of
$96,474,000 in 1994. Construction Equipment sales of $36,947,000 were 5%
below those of the prior year due to weaker industry conditions in the market
for aggregate and green waste processing equipment. Materials Handling net
sales increased 46% to $24,755,000, reflecting the impact of an acquisition
and stronger market conditions for both our traditional belt conveyor products
and our automatic steering products for lift trucks. Railway Products sales
of $35,370,000 were 13% below those of last year. The lower sales were the
result of decreased demand for load securement systems for intermodal railcars
and declines in our Canadian and U.K. rail business. Both the Canadian and
British railroads were going through major restructuring programs. These were
partially offset by a successful year in our railroad track components
business. Export sales were down 3% to $12,781,000 as a result of decreased
construction activity in Mexico.
Net income for 1995 was $2,898,000 compared with net income of $6,825,000 for
1994. The net income for 1995 included a non-recurring charge of $2,372,000
associated with the 1994 acquisition of Innovator Manufacturing, Inc. During
the fourth quarter of 1995, management evaluated the progress of its Innovator
product line and a related research and development operation in Canada. The
overall market for grinding equipment was below our expectations and gaining
wide market acceptance for the Innovator designs was more difficult than
anticipated. Based on these facts, a decision was made to close the research
and development operation, curtail certain other activities and revalue
finished goods inventory acquired in the initial transaction. Accordingly,
unamortized goodwill of $1,216,000 was written off and the inventory was
written down by $1,156,000 to net realizable value. Excluding these charges,
net income in 1995 decreased by $1,555,000 due to lower gross margins and
higher interest expense.
The Construction Equipment segment reported an operating loss in 1995 of
$1,015,000 compared with operating profit of $2,942,000 in 1994. This
decrease was due to the above Innovator charges and to lower margins resulting
from the start up of manufacturing of the Innovator product line and a change
in product mix. The operating profit of the Materials Handling segment
increased from $2,472,000 in 1994 to $4,019,000 in 1995. The improved
performance resulted from higher volume. The Railroad Products segment had
operating profit of $1,458,000 in 1995 compared with $3,033,000 in 1994. The
decline in operating profit reflected the lower sales volume and decreased
margins resulting from pricing pressure.
Other income increased $551,000 in 1995. During 1995, a gain of $250,000 was
recorded on the sale of a portion of assets held for sale. Other expense in
1994 included a loss on disposal of fixed assets.
The cost of products sold, exclusive of depreciation and amortization, was 71%
of sales in 1995 and 68% of sales in 1994. This reflected the lower margins
of the Construction Equipment and Railway Product segments. Selling, general
and administrative expense decreased $1,061,000 in 1995 due to lower
professional fees and insurance expense. This was 21% of sales compared with
22% in 1994.
Interest expense of $1,680,000 in 1995 was $851,000 above the prior year due
to additional floor plan financing and to the increase in the Company's
borrowings. Borrowings were up as a result of two acquisitions made in 1994.
Interest rates granted by a bank under the Company's credit agreement decreased
during the year.
At December 31, 1994, a net deferred tax asset of $700,000 was reflected on
the balance sheet after recording a valuation reserve of $4,110,000. At
Decem-ber 31, 1995, the valuation reserve was decreased $977,000 for deferred
tax assets realized through reversing temporary differences. Based on
management's estimation of future taxable income considering budgeted
operating results and the uncertainty in the general economic outlook, no
additional change was made to the valuation reserve. Current assets at
December 31, 1995, were up $890,000 due partially to an increase in other
current assets. The change in other current assets resultedfrom a higher
income tax receivable related to foreign operations. The reduction in
assets held for sale reflected the sale of the remaining property in
Minneapolis, Minnesota. Goodwill was decreased by $929,000 which resulted
from the write-off of the Innovator goodwill and normal amortization partially
offset by the recording of $400,000 additional goodwill related to an earnout
provision for a business acquired in 1994.
Current liabilities decreased from $22,764,000 at December 31, 1994, to
$17,076,000 at December 31, 1995. The decrease reflected the payment of
$1,200,000 on a domestic term loan and $3,046,000 on a Canadian term loan.
Accounts payable decreased $1,422,000 due to reduced inventory purchases.
Long-term debt at December 31, 1995, was $10,117,000, an increase of
$2,494,000 over the prior year. Current term debt of $4,246,000 and long-term
debt of $2,400,000 was paid during 1995 using a long term revolving credit
facility. These payments were partially offset by operating cash flow.
Total stockholders' equity increased $3,069,000 from December 31, 1994, to
December 31, 1995, primarily due to earnings and to the issuance of stock upon
the exercise of stock options. Treasury stock, purchased at a cost of
$486,000 under the Company's stock repurchase program, was partially used for
the Company's contribution to the Savings and Investment Plan for Company
employees. The remaining treasury stock reduced stockholders' equity by
$106,000.
Inflation, which was comparable to 1994, did not adversely affect the Company
in 1995. Bookings in 1995 were $95,848,000, a decrease of 5% from those of
1994. Both the Construction Equipment and Railroad Products segments
experienced lower bookings in 1995 while the Materials Handling segment
had a significant increase in orders. The year-end order backlog of
$21,590,000 was 11% below the backlog at December 31, 1994.
LIQUIDITY
On February 12, 1993, the Company entered into a credit agreement with a bank
which was amended on April 26, 1994, and June 13, 1995. The amended agreement
provides up to $15,300,000 of credit available as either cash or letters of
credit. The provisions of the agreement include restrictive covenants
relating to 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 term loan was paid in full during 1995.
The Company does not have available lines of credit beyond its existing bank
agreement and is prohibited by the agreement 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. Property in Pittsburgh, Pennsylvania, has been
leased on a long-term lease with an option to buy and the option has been
exercised. The proceeds of these properties will 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 continues to
exert careful cash controls. However, management believes its existing
line of credit andanticipated 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 2.6,
2.1 and 1.6 to 1 at December 31, 1996, 1995 and 1994, respectively. At
December 31, 1996, the Company had available $4,350,000 of unused credit under
its loan agreement, plus cash and cash equivalents of $4,979,000 compared
with $5,274,000 of unused credit and $3,477,000 of cash and cash equivalents
at December 31, 1995.
CAPITAL RESOURCES
The Company does not have any material commitments for capital expenditures.
Management estimates that capital expenditures for 1997 will be $3,000,000.
ENVIRONMENTAL
During 1989, each of the Company's domestic manufacturing facilities,
including those former manufacturing facilities included in the balance sheet
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. We continue 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 1996. The Company is cooperating with the
Pennsylvania Department of Environmental Resources and is currently monitoring
groundwater quality at the site. Remedial actions may be required at some
time in the future. The Company believes that the continuation of a
monitoring program, without remediation, is the appropriate course of action. <PAGE>
CONSOLIDATED STATEMENTS OF INCOME
For the Years Ended December 31
<TABLE>
<S><C>
(Dollars in thousands except per share data) 1996 1995 1994
REVENUES
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 97,338 $ 97,072 $ 96,474
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 276 262 1,326
Other income (expense) . . . . . . . . . . . . . . . . . . . . . . . . . . 92 316 (235)
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97,706 97,650 97,565
COSTS AND EXPENSES
Cost of products sold (exclusive of depreciation
and amortization) . . . . . . . . . . . . . . . . . . . . . . . . . . . 68,409 68,539 65,681
Selling, general and administrative . . . . . . . . . . . . . . . . . . . 18,808 19,974 21,035
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . 2,442 2,173 2,012
Loss on impaired assets . . . . . . . . . . . . . . . . . . . . . . . . . - 2,372 -
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,095 1,680 829
Other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - - 683
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90,754 94,738 90,240
INCOME BEFORE INCOME TAXES . . . . . . . . . . . . . . . . . . . . . . . . . 6,952 2,912 7,325
INCOME TAX PROVISION . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 14 500
NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,891 $ 2,898 $ 6,825
EARNINGS PER COMMON SHARE
NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1.50 $ .63 $ 1.49
<FN>
The accompanying notes are an integral part of these financial statements.
CONSOLIDATED BALANCE SHEETS
December 31
(Dollars in thousands) 1996 1995
ASSETS
CURRENT ASSETS
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,979 $ 3,477
Accounts and notes receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,816 13,130
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,038 17,977
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 981 1,167
Deferred income tax benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,286 700
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42,100 36,451
PROPERTY, PLANT AND EQUIPMENT, AT COST
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 220 220
Buildings and improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,964 10,824
Machinery and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,010 20,884
34,194 31,928
Less accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (19,651) (17,757)
Total property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . 14,543 14,171
ASSETS HELD FOR SALE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,070 2,070
INTANGIBLE ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,922 3,035
NOTES RECEIVABLE AND OTHER ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,315 2,091
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 65,950 $ 57,818 <PAGE>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 46 $ 46
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,015 7,578
Other accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,058 9,452
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,119 17,076
LONG-TERM DEBT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,768 10,117
OTHER LONG-TERM LIABILITIES
Pensions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,868 1,923
Deferred income tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,365 125
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 844 549
Total other long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . 4,077 2,597
COMMITMENTS AND CONTINGENT LIABILITIES (NOTE 12)
STOCKHOLDERS' EQUITY
Common stock, $1 par value; authorized - 10,000,000
shares; issued - 4,373,596 and 4,333,176 shares . . . . . . . . . . . . . . . . . . 4,374 4,333
Additional capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46,841 46,649
Cumulative translation adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . (99) (359)
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (15,968) (22,489)
35,148 28,134
Treasury stock, 16,421 and 9,562 shares, at cost . . . . . . . . . . . . . . . . . . . (162) (106)
Total stockholders' equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34,986 28,028
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 65,950 $ 57,818
<f><n>
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) 1996 1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,891 $ 2,898 $ 6,825
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . 2,442 2,173 2,012
Loss on impaired assets . . . . . . . . . . . . . . . . . . . . . . . - 2,372 -
Gain on sales of property, plant and equipment
and assets held for sale . . . . . . . . . . . . . . . . . . . . . . (1) (334) (25)
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . (1,346) 48 (140)
Changes in other balance sheet accounts:
Decrease (increase) in receivables . . . . . . . . . . . . . . . . . (1,686) 94 (3,974)
Decrease (increase) in inventories . . . . . . . . . . . . . . . . . 638 (1,660) (1,573)
Decrease (increase) in other current assets . . . . . . . . . . . . . 186 (162) (124)
Decrease in accounts payable and accruals . . . . . . . . . . . . . (793) (1,101) (333)
Decrease (increase) in other assets net of other liabilities . . . . (282) 331 985
Net cash provided by operating activities . . . . . . . . . . . . . 6,049 4,659 3,653
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,930) (400) (3,908)
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,300) (3,059) (3,601)
Proceeds from disposal of property, plant and equipment
and assets held for sale . . . . . . . . . . . . . . . . . . . . . . . . 22 801 168
Net cash used by investing activities . . . . . . . . . . . . . . . . (5,208) (2,658) (7,341)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from revolving credit agreement . . . . . . . . . . . . . . . . . 700 4,832 3,550
Principal payments of term debt . . . . . . . . . . . . . . . . . . . . . - (6,645) (2,060)
Proceeds from (repayment of) other long-term debt . . . . . . . . . . . . . 252 100 (73)
Issuance of common stock . . . . . . . . . . . . . . . . . . . . . . . . . 233 181 401
Purchase of treasury stock . . . . . . . . . . . . . . . . . . . . . . . . (241) (486) -
Cash dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . (350) - -
Net cash provided (used) by financing activities . . . . . . . . . . . . 594 (2,018) 1,818
EFFECT OF EXCHANGE RATE CHANGE . . . . . . . . . . . . . . . . . . . . . . . 67 96 (11)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS . . . . . . . . . . . . 1,502 79 (1,881)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR . . . . . . . . . . . . . . . 3,477 3,398 5,279
CASH AND CASH EQUIVALENTS AT END OF YEAR . . . . . . . . . . . . . . . . . . $ 4,979 $ 3,477 $ 3,398
SUPPLEMENTAL DISCLOSURES:
Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,078 $ 1,623 $ 792
Income taxes paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 661 482 952
Non-cash transaction-10% stock dividend . . . . . . . . . . . . . . . . . . - - 5,708
<f><n>
The accompanying notes are an integral part of these financial statements.
</TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES
Portec, Inc. is a leading manufacturer of quality engineered products. The
Company's principal lines of business are construction equipment, materials
handling equipment and railroad products. The principal market for all
product lines is North America.
The preparation of financial statements in conformity with generally accepted
accounting principals requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Portec, Inc. and
all of its 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 three months or
less at the date of purchase are considered to be cash equivalents.
ACCOUNTS RECEIVABLE
As of December 31, 1996, approximately 21% 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 most of 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
86% 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. If the carrying value of an asset, including associated
intangibles, exceeds the sum of estimated undiscounted future cash flows, then
an impairment loss is recognized for the difference between estimated fair
value and carrying value.
INTANGIBLE ASSETS
Goodwill in the amount of $3,631,000 at December 31, 1996, and $2,283,000 at
December 31, 1995, is amortized on a straight-line basis over fifteen years
and is recorded net of accumulated amortization of $543,000 and $330,000 for
1996 and 1995, 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 expense on intangible assets was
$292,000 for 1996, $219,000 for 1995 and $203,000 for 1994.
RESEARCH EXPENDITURES
Expenditures for research and development are charged to expense as incurred
and amounted to approximately $784,000 for 1996, $900,000 for 1995 and
$510,000 for 1994.
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. Share and per share amounts have been restated to give retroactive
effect to a 10% stock dividend paid December 15, 1994, as if paid on January
1, 1994.
1996 1995 1994
AVERAGE SHARES OF COMMON STOCK AND EQUIVALENTS OUTSTANDING
Primary . . . . . . . . . . . . . . . . . . . 4,576,358 4,596,469 4,572,468
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents, accounts and notes
receivable, accounts payable and borrowings approximated their fair values at
December 31, 1996, and 1995, because of the short maturity of those
instruments or their insignificance.
NOTE 2. ACCOUNTS AND NOTES RECEIVABLE
The components of accounts and notes receivable at December 31, 1996, and
1995, were as follows:
(Dollars in thousands) 1996 1995
Trade receivables net of allowance for doubtful
accounts of $357 and $463, respectively . . . . . . . $14,724 $13,026
Current portion of notes receivable . . . . . . . . . . 92 104
Total . . . . . . . . . . . . . . . . . . . . . . . . $14,816 $13,130
Notes receivable and other assets include notes receivable totalling
$1,076,000 and $1,126,000 for 1996 and 1995, respectively, related to the sale
of property in Minneapolis, Minnesota. The notes require monthly payments of
principal and interest at rates ranging from 9% to 11% with maturities in the
years 2007 and 2010.
NOTE 3. INVENTORIES
The difference between LIFO value and approximate replacement cost of the LIFO
inventories was $7,927,000 and $7,685,000 at December 31, 1996, and 1995,
respectively.
The components of inventories at December 31, 1996, and 1995, were as follows:
(Dollars in thousands) 1996 1995
Raw material and supplies . . . . . . . . . . . . . . . $ 6,361 $ 5,923
Work-in-process . . . . . . . . . . . . . . . . . . . . 3,468 5,313
Finished goods . . . . . . . . . . . . . . . . . . . . . 8,209 6,741
Total . . . . . . . . . . . . . . . . . . . . . . . . $18,038 $17,977
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.
The provision for income taxes charged to operations was as follows:
(Dollars in thousands) 1996 1995 1994
Current expense (benefit):
Federal . . . . . . . . . . . . . . . . . $ 621 $ 80 $ 309
State and Foreign . . . . . . . . . . . . . 786 (114) 331
Total Current . . . . . . . . . . . . . 1,407 (34) 640
Deferred tax expense (benefit):
Federal . . . . . . . . . . . . . . . . . .(1,339) - (196)
State and Foreign . . . . . . . . . . . . . (7) 48 56
Total Deferred . . . . . . . . . . . . . .(1,346) 48 (140)
Total provision . . . . . . . . . . . . . . .$ 61 $ 14 $ 500
Domestic deferred tax liabilities (assets) at December 31, 1996, and 1995,
include the following:
(Dollars in thousands) 1996 1995
Depreciation . . . . . . . . . . . . . . . . . . . . . . .$ 1,760 $ 1,747
Plant closing costs . . . . . . . . . . . . . . . . . . . 983 955
Gross deferred tax liabilities . . . . . . . . . . . . . 2,743 2,702
Net operating loss carryforward . . . . . . . . . . . . . - (719)
Accrued liabilities . . . . . . . . . . . . . . . . . . . (946) (923)
Inventory . . . . . . . . . . . . . . . . . . . . . . . . (801) (1,195)
Employee benefits . . . . . . . . . . . . . . . . . . . . (794) (938)
Product liability and warranty . . . . . . . . . . . . . . (854) (1,070)
Tax credit carryforwards . . . . . . . . . . . . . . . . . (937) (1,163)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . (477) (527)
Gross deferred tax assets . . . . . . . . . . . . . . . (4,809) (6,535)
Net deferred tax assets before valuation allowance . . . . (2,066) (3,833)
Deferred tax assets valuation allowance . . . . . . . . . - 3,133
Net deferred tax assets . . . . . . . . . . . . . . . . .$(2,066) $ (700)
In determining the amount of any valuation allowance required to offset
deferred tax assets, the Company assesses the likelihood of realizing those
assets based on anticipated future taxable income and other factors. The
change in the valuation allowance of $3,133,000 related to the utilization of
$1,965,000 of net operating loss carryforward and $352,000 of investment tax
credits and to a reevaluation of the ability to realize deferred tax assets
based on future taxable income potential. Foreign tax losses carryforward of
$749,000 expiring in 2001-2002 are available to offset future taxable income
for foreign income tax purposes.
Pre-tax income (loss) was taxed under the following jurisdictions:
(Dollars in thousands) 1996 1995 1994
Domestic . . . . . . . . . . . . . . . . . . . $ 5,535 $ 4,909 $ 6,999
Foreign . . . . . . . . . . . . . . . . . . . 1,417 (1,997) 326
Total . . . . . . . . . . . . . . . . . . $ 6,952 $ 2,912 $ 7,325
The difference between the statutory federal income tax rate and the effective
income tax rate was as follows:
1996 1995 1994
Statutory federal income tax rate . . . . . . 34.0% 34.0% 34.0%
Difference resulting from:
Realization of deferred tax assets
not previously recognized . . . . . . . . . (45.0) (54.6) (30.9)
Foreign operations . . . . . . . . . . . . . 7.1 17.3 3.6
State income taxes, net . . . . . . . . . . 2.7 3.8 .1
Other . . . . . . . . . . . . . . . . . . . 2.1 - -
0.9% 0.5% 6.8%
NOTE 5. ACCOUNTS PAYABLE AND OTHER ACCRUED LIABILITIES
Accounts payable and other accrued liabilities at December 31, 1996, and 1995,
were as follows:
(Dollars in thousands) 1996 1995
Accounts payable . . . . . . . . . . . . . . . . . . . . . $ 7,015 $ 7,578
Accrual for estimated product liabilities . . . . . . . . 1,318 1,613
Accrued salaries and wages . . . . . . . . . . . . . . . . 1,012 884
Customer deposits . . . . . . . . . . . . . . . . . . . . 962 1,884
Other accrued liabilities . . . . . . . . . . . . . . . . 5,766 5,071
Total accounts payable and other accrued liabilities $16,073 $17,030
NOTE 6. DEBT
The components of debt at December 31, 1996, and 1995, were as follows:
(Dollars in thousands) 1996 1995
Revolving loan . . . . . . . . . . . . . . . . . . . . . . $10,700 $10,000
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 114 163
10,814 10,163
Less current maturities . . . . . . . . . . . . . . . . . 46 46
Total long-term debt . . . . . . . . . . . . . . . . . . $10,768 $10,117
On February 12, 1993, the Company entered into a three-year unsecured credit
agreement with a bank which was amended on April 26, 1994, and June 13,
1995. Under the amended agreement, the Company can borrow up to $15,300,000
in cash or under letters of credit on a revolving line of credit through
April, 1998. The interest rate currently applicable to the revolving line of
credit is the bank's prime interest rate or, at the Company's election, 1.125%
over the London Interbank Offered Rate (LIBOR). At December 31, 1996, the
average interest rate on LIBOR borrowings of $10,000,000 was 6.7%. The
interest rate can vary from prime to .25% over the bank's prime interest rate
or, at the Company's election, from 1.125% to 1.875% over LIBOR depending on
the Company's performance. 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 which was due June 30, 1995. The term loan was paid in
full during 1995.
NOTE 7. PENSION PLANS
The Company has one noncontributory defined benefit plan that covers
substantially all domestic 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. In addition, the Company has an unfunded supplemental pension
plan and plans at two foreign operations.
Net pension cost for the pension plans in 1996, 1995 and 1994 is summarized as
follows:
(Dollars in thousands) 1996 1995 1994
Service cost . . . . . . . . . . . . . . . $ 811 $ 560 $ 609
Interest cost . . . . . . . . . . . . . . 1,262 1,128 1,148
Actual return on assets . . . . . . . . . (2,585) (3,951) (515)
Net amortization and deferral . . . . . . 1,311 2,925 (614)
Net pension cost . . . . . . . . . . . . . $ 799 $ 662 $ 628
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, 1996, and 1995. As a result of the restructuring of
the Railway Maintenance Products Division (Note 18), 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 1995 and 1996 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%.
<TABLE>
<S><C>
(Dollars in thousands)
Accumulated Benefit
Current Plan Assets Obligations
Exceed Accumulated Exceed Current
Benefit Obligation Plan Assets
1996 1995 1996 1995
Actuarial present value of benefit obligation:
Vested benefit obligation . . . . . . . . . $ 16,205 $ 15,610 $ 540 $ 566
Non-vested benefit obligation . . . . . . . 245 190 - -
Accumulated benefit obligation . . . . . . . 16,450 15,800 540 566
Excess of projected benefit obligation
over accumulated benefit obligation . . . 2,174 2,050 - -
Projected benefit obligation . . . . . . . . 18,624 17,850 540 566
Plan assets at fair value . . . . . . . . . 19,282 17,300 - -
Projected benefit obligation
(in excess of) less than plan assets . . . 658 (550) (540) (566)
Unrecognized net loss . . . . . . . . . . . (2,764) (1,622) - -
Unrecognized prior service cost . . . . . . 28 30 - -
Unrecognized net asset . . . . . . . . . . . (112) (170) - -
Unfunded accrued pension cost . . . . . . . $ (2,190) $ (2,312) $ (540) $ (566)
</TABLE>
NOTE 8. 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, 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 $484,000,
$165,000 and $371,000 were made for the years ended December 31, 1996, 1995
and 1994, respectively, representing 80%, 30% and 80% of eligible employees'
contributions. The plan permits the Company's contribution to be made in
shares of the Company's common stock.
NOTE 9. 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.
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,
1996, and 1995:
(Dollars in thousands) 1996 1995
Accumulated post-retirement benefit obligation (APBO):
Retirees . . . . . . . . . . . . . . . . . . . . . $ 1,062 $ 1,554
Actives . . . . . . . . . . . . . . . . . . . . . 255 1,017
Total . . . . . . . . . . . . . . . . . . . . . 1,317 2,571
Plan assets at fair value . . . . . . . . . . . . . - -
APBO in excess of plan assets . . . . . . . . . . . (1,317) (2,571)
Unrecognized transition obligation . . . . . . . . . 602 1,258
Unrecognized prior service costs . . . . . . . . . . - 104
Unrecognized actuarial loss . . . . . . . . . . . . 494 983
Accrued post-retirement benefit costs . . . . . . . $ (221) $ (226)
Net periodic post-retirement benefit expense for 1996, 1995 and 1994 included
the following components:
(Dollars in thousands) 1996 1995 1994
Service cost . . . . . . . . . . . . . . . . $ 13 $ 89 $ 58
Interest cost . . . . . . . . . . . . . . . 101 178 123
Amortization of transition obligation over 20 years 40 78 100
Unrecognized prior service cost . . . . . . - - (43)
Gain/(loss) . . . . . . . . . . . . . . . . 29 42 -
Net periodic post-retirement benefit expense $ 183 $ 387 $ 238
For measurement purposes, the assumed trend rate for post-retirement medical
benefits during 1996 and 1995 was 11.0% and 11.8%, respectively, for employees
less than age-65 and 9.5% and 10.2%, 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, 1996, and 1995, by approximately $71,000 and $324,000,
respectively, and the aggregate of the service and interest cost components of
net periodic post-retirement benefit cost for 1996 by approximately $17,000
and for 1995 by approximately $44,000.
The discount rate used in determining the accumulated post-retirement benefit
obligation was 7.5% at December 31, 1996, and at December 31, 1995.
NOTE 10. STOCKHOLDERS' EQUITY
Changes in components of stockholders' equity for the years 1994 through 1996
follow:
<TABLE>
<S><C>
(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, 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
Net income - - - 2,898 - -
Purchase of Treasury Stock - - (486) - - -
Company's 1994 Investment
Plan contribution - - 380 - - -
Exercise of stock options 50 131 - - - 49,916
Current year translation
adjustment - - - - 96 -
Balance at
December 31, 1995 $ 4,333 $ 46,649 $ (106) $ (22,489) $ (359) 4,333,176
Net income - - - 6,891 - -
Cash dividends ($.08 per share) - - - (350) - -
Purchase of Treasury Stock - - (241) - - -
Company's 1995 Investment
Plan contribution - - 185 (20) - -
Exercise of stock options 41 192 - - - 40,420
Current year translation
adjustment - - - - 260 -
Balance at
December 31, 1996 $ 4,374 $ 46,841 $ (162) $ (15,968) $ (99) 4,373,596
</TABLE>
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.
In the fourth quarter of 1996, the Company resumed the payment of quarterly
cash dividends and the accumulated deficit was charged $350,000 for the first
quarterly dividend of 8 cents per share. Cash dividends had not been paid
since 1986.
During the first two months of 1997, the Company purchased 25,200 shares of
its common stock on the open market for contribution to the Company's Savings
and Investment Plan.
The Company has 1,000,000 authorized, but unissued, shares of no par preferred
stock.
NOTE 11. INCENTIVE PROGRAM
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. There were no options, SAR's, restricted
stock awards or performance units outstanding under the plan at December 31,
1996, or 1995. No additional awards could be made under this plan, and there
were no shares reserved for issuance under this plan at December 31, 1995.
The 1988 PORTEC, Inc. Employees' Stock Benefit Plan was adopted by
stockholders in 1988 and amended in 1994 and 1995. This plan provides 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. 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. Options and related SARs 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. The plan was amended in
1994 to increase by 440,000 the shares available for grant under the plan and
to allow an annual grant of 1,000 shares to non-employee directors. The plan
was amended again in 1995 to increase the annual grant to non-employee
directors to 2,000 shares, to grant a one-time option for 7,000 shares to non-
employee directors and to allow certain stock options and SARs to be exercised
within five years of termination of employment or service if such is by death,
disability or retirement or until the option expires, whichever first occurs.
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. All options become
exercisable commencing on a date no earlier than six months nor later than
three years from the date of grant. By prior agreement, all 137,700
outstanding SARs under this plan are exercisable only at the discretion of the
Company. There were 795,215 shares reserved for issuance under this plan at
December 31, 1996, after adjustment for 10% stock dividends in 1992, 1993 and
1994.
<TABLE>
<S><C>
1996 1995
Option Average Option Average
Shares Option Price Shares Option Price
STOCK OPTIONS:
Outstanding beginning of year 651,276 $ 6.92 598,291 $ 5.87
Granted . . . . . . . . . . . 81,500 9.93 104,000 11.50
Exercised . . . . . . . . . . (40,420) 3.26 (49,915) 3.64
Forfeited . . . . . . . . . . (2,100) 13.34 (1,100) 14.77
Outstanding end of year . . . 690,256 $ 7.21 651,276 $ 6.92
Exercisable end of year . . . 609,089 $ 7.02 601,275 $ 6.65
Available for grant . . . . . 104,959 - 186,459 -
</TABLE>
The Company applies APB Opinion 25 and related interpretations in accounting
for its plan. The exercise price of all options granted in 1996 and 1995 was
equal to the fair market value of the stock on the grant date. Accordingly,
no compensation cost has been recognized for its fixed stock option plan. Had
compensation cost for the Company's compensation plan been determined based on
the fair value at the grant dates for awards under the plan consistent with
the method of FASB Statement 123, the compensation cost for employees and non-
employee directors would have been $595,000 and $342,000 in 1996 and 1995,
respectively, and net income and earnings per share would have been reduced to
the pro forma amounts indicated below:
<TABLE>
<S><C>
(Dollars in thousands) 1996 1995
Net income
As reported . . . . . . . . . . . . . $ 6,891 $ 2,898
Pro forma . . . . . . . . . . . . . . 6,634 2,556
Earnings per share
As reported . . . . . . . . . . . . . $ 1.50 $ .63
Pro forma . . . . . . . . . . . . . . 1.45 .55
</TABLE>
The weighted-average grant-date fair value of options granted during the
years 1996 and 1995 was $4.02 and $4.91, respectively. The fair value of each
option granted was estimated on the date of grant using the Black-Scholes
option-pricing model with the following weighted-average assumptions used for
grants in 1996 and 1995, respectively: expected volatility 44% for both years;
expected lives of seven years for both years; dividend yield of 3.3% and 2.7%;
and risk-free interest rate of 6.7% and 6.6%. The pro forma net income and
earnings per share are not indicative of the effects on reported net income
for future years when all outstanding, nonvested awards will be included.
Options for 82,500 shares of stock granted in 1994 at $12.33 were repriced for
$10.09, the fair market value on December 17, 1996, the date they were
repriced. These options were recorded as though cancelled and reissued. No
other changes were made to the option terms.
The following table summarizes additional information about stock options
outstanding at December 31, 1996:
<TABLE>
<S><C>
Options Outstanding Options Exercisable
Range of Outstanding Remaining Weighted-Average Exercisable Weighted-Average
Exercise Prices at 12/31/96 Contractual Life Exercise Price at 12/31/96 Exercise Price
$ 2.90 - $ 4.50 325,683 2.9 years $ 3.12 325,683 $ 3.12
$ 8.40 - $14.80 364,573 8.6 years $ 10.86 283,407 $11.07
</TABLE>
NOTE 12. 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,
1996, which expire on or after December 31, 1997, are as follows:
(Dollars in thousands)
Year ending December 31,
1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $381
1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 274
1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 214
2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Net rent expense of $469,000, $538,000 and $618,000 was recorded in 1996, 1995
and 1994, respectively.
NOTE 13. FINANCIAL INFORMATION BY BUSINESS SEGMENTS AND GEOGRAPHIC AREAS
Pages 10 and 11 of this Annual Report to Stockholders contain certain
information by business segments and geographic areas for the years 1992
through 1996.
The following table summarizes additional financial information by business
segments for the years 1996, 1995 and 1994:
(Dollars in thousands) 1996 1995 1994
DEPRECIATION AND AMORTIZATION
Construction Equipment . . . . . . . . . . . $ 1,136 $ 1,118 $ 1,022
Materials Handling . . . . . . . . . . . . . 566 449 337
Railroad . . . . . . . . . . . . . . . . . . 700 586 601
Corporate . . . . . . . . . . . . . . . . . 40 20 52
Total . . . . . . . . . . . . . . . . . . $ 2,442 $ 2,173 $ 2,012
CAPITAL EXPENDITURES
Construction Equipment . . . . . . . . . . . $ 848 $ 608 $ 2,231
Materials Handling . . . . . . . . . . . . . 744 1,699 397
Railroad . . . . . . . . . . . . . . . . . . 670 745 938
Corporate . . . . . . . . . . . . . . . . . 38 7 35
Total . . . . . . . . . . . . . . . . . . $ 2,300 $ 3,059 $ 3,601
NOTE 14. UNAUDITED QUARTERLY FINANCIAL INFORMATION
The interim results of operations were impacted by the effect of reducing the
valuation allowance against deferred tax assets based on management's
judgement about the Company's ability to realize such assets in the future.
The results of operations for the three months ended December 31, 1995,
include an expense of $1,156,000 for inventory revaluation and a write-off of
$1,216,000 of goodwill. Both adjustments relate to assets purchased in the
acquisition of Innovator Manufacturing, Inc. in July of 1994.
(Dollars in thousands except per share data)
First Second Third Fourth
Quarter Quarter Quarter Quarter
1996
Net Sales . . . . . . . . . $ 27,284 $ 28,592 $ 21,006 $ 20,456
Gross Margin . . . . . . . . 7,668 8,282 5,888 5,949
Income before income taxes . 2,037 2,551 817 1,547
Income tax provision (benefit) 64 630 (191) (442)
Net Income . . . . . . . . . 1,973 1,921 1,008 1,989
Earnings per common share . $ .43 $ .42 $ .22 $ .43
(Dollars in thousands except per share data)
First Second Third Fourth
Quarter Quarter Quarter Quarter
1995
Net Sales . . . . . . . . $ 26,659 $ 28,929 $ 21,918 $ 19,566
Gross Margin . . . . . . . 7,810 8,230 6,470 3,605
Income before income taxes 2,007 2,281 982 (2,358)
Income tax provision (benefit) 88 24 28 (126)
Net Income . . . . . . . . 1,919 2,257 954 (2,232)
Earnings per common share $ .42 $ .49 $ .21 $ (.49)
NOTE 15. IMPAIRED ASSETS
During the fourth quarter of 1995, the Company decided to close a Canadian
research and development facility acquired as a part of Innovator Holdings due
to the overall market for grinders being below expectations and to difficulty
gaining market acceptance for the Innovator design. The Company also severed
employment agreements with two former principals of Innovator and cancelled
their related earnout agreements. Unamortized goodwill of $1,216,000 related
to this acquisition was determined to be permanently impaired due to the lack
of future cash flows and, accordingly, was charged to operations.
The realizable value of finished goods inventory initially acquired from
Innovator was below the recorded value of $1,939,000 due to the age of the
equipment, design changes required and logged demonstration hours. The
Company analyzed realizable value by individual unit and determined that a
write-down of $1,156,000 was required. Both the goodwill write-off and the
inventory write-down are recorded as Loss on Impaired Assets in the 1995
Consolidated Statement of Income and are charged against the Construction
Equipment segment.
NOTE 16. LITIGATION SETTLEMENT
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 $1,102,000 in interest income
in 1994. Other expense in 1994 reflects legal and other related expenses
associated with this case.
NOTE 17. ACQUISITIONS
In July 1996, the Company acquired certain assets of Moore & Steele
Corporation, a supplier of rail lubricator equipment. The business was
acquired for cash of approximately $2,100,000 plus possible earnouts to be
based on defined sales performance. Goodwill of $1,350,000 acquired in this
transaction will be amortized over fifteen years using the straight-line
method.
In April 1994, the Company acquired substantially all of the assets of Count
Recycling Systems, Inc. (renamed Countec), a supplier of materials recovery
facilities in the sorting and recycling of residential and commercial solid
waste. In July 1994, certain assets of Innovator Manufacturing, Inc. were
acquired 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, wood waste and demolition debris. These businesses were
acquired for cash of approximately $3,908,000 and earnouts to be based upon
the future profitability of the respective businesses.
All earnouts are payable annually over a period of three years. During 1996
and 1995, $237,000 and $400,000, respectively, were paid under earnout
agreements and goodwill was increased by these amounts. One earnout agreement
was cancelled in the fourth quarter of 1995.
All of the acquisitions were 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.
NOTE 18. ASSETS HELD FOR SALE
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 $828,000 and $868,000 is reflected in the balance sheet
as a part of Notes Receivables and Other Assets at December 31, 1996, and
1995, respectively.
REPORT OF INDEPENDENT ACCOUNTANTS
February 18, 1997
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, 1996, and 1995, and the results of
their operations and their cash flows for each of the three years in the
period ended December 31, 1996, 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.
CORPORATE INFORMATION
BOARD OF DIRECTORS
J. GRANT BEADLE, 64, 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. Prior 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 . * o
ALBERT FRIED, JR., 67, 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, LLC, 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. and the New York Futures Exchange,
Inc. He is a director of EMCOR Group, Inc., a worldwide leader in
mechanical/electrical construction and facilities management. He is also a
director of various civic and philanthropic organizations. o
FRANK T. MACINNIS, 50, has been a director since 1996. Mr. MacInnis is
Chairman and Chief Executive Officer of EMCOR Group, Inc. and has held that
position with that company and its predecessor company, JWP, Inc., since 1994.
Prior to this he was Chairman of Comstock Group, Inc. (New York based
construction group) and before that was Chairman and Chief Executive Officer
of H.C. Price Construction (builder of large diameter oil and gas pipelines).
Mr. MacInnis is a director of EMCOR Group, Inc. and MAPCO, Inc. * !
FREDERICK J. MANCHESKI, 70, has been a director since 1990. Prior to his
retirement in 1997, Mr. Mancheski was Chairman and Chief Executive Officer of
Echlin, Inc., a Branford, Connecticut, manufacturer of products that improve
motor vehicle safety and efficiency. He had held this position since 1969.
Mr. Mancheski is a director of Echlin, Inc. and RB&W Corporation. * !
JOHN F. MCKEON, 71, 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, Anderson
Industries and Dumore Corporation.* !
ARTHUR MCSORLEY, JR., 68, 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 !
L. L. WHITE, JR., 69, 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, 54, 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 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<PAGE>
NANCY A. KINDL
Vice President, Secretary, Treasurer and
Chief Financial Officer
KEVIN C. RORKE
Vice President
GENERAL MANAGERS
JOHN S. COOPER
General Manager
Railway Maintenance Products Division
900 Freeport Road
Pittsburgh, Pennsylvania 15238
(412) 782-6000
(412) 782-1037-Fax
JERRY L. DEEL
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
One 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 West 22nd Street, Suite 100
Oak Brook, Illinois 60521
(630) 573-4778
(630) 573-4659-Fax
GRAHAM TARBUCK
Managing Director
PORTEC (U.K.) Ltd.
Vauxhall Industrial Estate
Ruabon, Wrexham, Clwyd LL14 6UY
United Kingdom
44-1-978-820820
44-1-978-821439-Fax
STOCKHOLDERS' INFORMATION
STOCK TRANSFER AGENT AND REGISTRAR
(Communications concerning:
o stock transfer,
o dividend disbursement,
o change of address,
o loss of a stock certificate, or
o nonreceipt or loss of a dividend
check
should be directed to:)
Harris Trust and Savings Bank
Shareholders' Services Division - 11th Floor
311 W. Monroe St.
Chicago, Illinois 60606
(312) 461-6001
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
Chicago, Illinois
ANNUAL MEETING
The Annual Meeting will be held at 9:30 A.M. on
Wednesday, April 23, 1997, in the East Auditorium of the
American National Bank and Trust Company of Chicago,
1 North LaSalle Street, Chicago, Illinois.
COUNSEL
Schiff Hardin & Waite
Chicago, Illinois
STOCK LISTING
New York Stock Exchange
Chicago Stock Exchange
Trading Symbol: POR
EXECUTIVE OFFICES
PORTEC, Inc.
One Hundred Field Drive, Suite 120
Lake Forest, Illinois 60045
(847) 735-2800
(847) 735-2828-Fax
FORM 10-K
A copy of Form 10-K for 1996, as filed with the Securities and Exchange
Commission will be available to stockholders at no charge (except for
exhibits) after March 31, 1997, by writing to the:
Secretary, PORTEC, Inc., One Hundred Field Drive,
Suite 120, Lake Forest, Illinois 60045.
QUARTERLY STOCK & DIVIDEND INFORMATION
First Second Third Fourth
Common Stock Prices(1) Quarter Quarter Quarter Quarter
1996 Common Stock Prices
High . . . . . . . . . . . . . . $ 10.00 $ 11.13 $ 10.50 $ 10.88
Low . . . . . . . . . . . . . . 8.88 9.25 9.25 9.50
Cash dividends per share . . . . - - - .08
1995 Common Stock Prices
High . . . . . . . . . . . . . . $ 14.00 $ 13.75 $ 12.88 $ 11.88
Low . . . . . . . . . . . . . . 11.63 10.88 11.50 9.50
(1) The high and low prices are based on prices as reported on the Composite
Tape.
PORTEC, Inc.
One Hundred Field Drive
Suite 120
Lake Forest, Illinois 60045
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.
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Nos. 2-76476, 2-79004, and 33-32700) of PORTEC,
Inc. of our report dated February 18, 1997 appearing on page 33 of the
1996 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 Schedule, which appears on page
16 of this Form 10-K.
PRICE WATERHOUSE LLP
Chicago, Illinois
March 25, 1997
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statement
of Portec, Inc. on Form S-8 of our report, dated February 21, 1997, on the
financial statements of the Portec, Inc. Savings and Investment Plan for
the years ended December 31, 1996 and 1995, appearing in this Annual Report
on Form 10-K of Portec, Inc. for the year ended December 31, 1996.
McGladrey & Pullen, LLP
Schaumburg, Illinois
March 17, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Portec,
Inc. 1996 10-K and Annual Report and is qualified in its entirety by
reference to such 10-K and Annual Report.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 4979
<SECURITIES> 0
<RECEIVABLES> 15173
<ALLOWANCES> 357
<INVENTORY> 18038
<CURRENT-ASSETS> 42100
<PP&E> 34194
<DEPRECIATION> 19651
<TOTAL-ASSETS> 65950
<CURRENT-LIABILITIES> 16119
<BONDS> 0
0
0
<COMMON> 4374
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 65590
<SALES> 97338
<TOTAL-REVENUES> 97706
<CGS> 68409
<TOTAL-COSTS> 89659
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1095
<INCOME-PRETAX> 6952
<INCOME-TAX> 61
<INCOME-CONTINUING> 6891
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6891
<EPS-PRIMARY> 1.50
<EPS-DILUTED> 1.50
</TABLE>
Portec, Inc.
Savings and Investment Plan
Financial Report
December 31, 1996
C O N T E N T S
INDEPENDENT AUDITOR'S REPORT 1
FINANCIAL STATEMENTS
Statements of net assets available for benefits
(with fund information) 2 - 5
Statements of changes in net assets available for benefits
(with fund information) 6 - 9
Notes to financial statements 10 - 13
SUPPLEMENTAL SCHEDULES
I - Item 27(a) - Schedule of assets held for investment
purposes 14
VI - Item 27(d) - Schedule of reportable transactions 15
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors,
Board of Trustees and Administrative Committee
Portec, Inc. Savings and Investment Plan
Oak Brook, Illinois
We have audited the accompanying statements of net assets
available for benefits of Portec, Inc. Savings and Investment
Plan (the Plan) as of December 31, 1996 and 1995, and the
related statements of changes in net assets available for
benefits for the years then ended. These financial statements
are the responsibility of the Plan's management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards 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. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the net assets
available for benefits of the Portec, Inc. Savings and
Investment Plan as of December 31, 1996 and 1995, and the
changes in net assets available for benefits for the years then
ended in conformity with generally accepted accounting
principles.
Our audits were made for the purpose of forming an opinion on
the basic financial statements taken as a whole. The
supplemental schedules of assets held for investment purposes
and reportable transactions as of or for the year ended December
31, 1996, are presented for purposes of additional analysis and
are not a required part of the basic financial statements, but
are supplementary information required by the Department of
Labor's Rules and Regulations for Reporting and Disclosure under
the Employee Retirement Income Security Act of 1974. The Fund
Information in the statements of net assets available for
benefits and the statements of changes in net assets available
for benefits is presented for purposes of additional analysis
rather than to present the net assets available for benefits and
changes in net assets available for benefits for each fund. The
supplemental schedules and fund information have been subjected
to the auditing procedures applied in the audit of the basic
financial statements and, in our opinion, are fairly stated in
all material respects in relation to the basic financial
statements taken as a whole.
McGladrey & Pullen, LLP
Lincolnshire, Illinois
February 21, 1997
STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS
(WITH FUND INFORMATION)
December 31, 1996
<TABLE>
<S><C>
T-Rowe T-Rowe T-Rowe
Price Price Price
Associates Associates Associates
Portec New Prime Short-Term
Inc.
Common Horizons Reserve Bond
ASSETS Stock Fund Fund Fund Fund
Investments, at fair value:
Shares of registered investment companies $ - $ 2,133,598 $ 969,520 $ 715,489
Common stock 2,276,786 - - -
Participants notes receivable - - - -
2,276,786 2,133,598 969,520 715,489
Receivables:
Employer's contribution 483,944 - - -
Participants' contributions 3,889 8,861 3,337 3,207
Accrued interest - - - -
Due from other funds 1,823 831 677 374
489,656 9,692 4,014 3,581
TOTAL ASSETS 2,766,442 2,143,290 973,534 719,070
LIABILITIES
Due to other funds - - - -
NET ASSETS AVAILABLE
FOR BENEFITS $ 2,766,442 $ 2,143,290 $ 973,534 $ 719,070
<FN>
See Notes to Financial Statements.
T-Rowe T-Rowe T-Rowe
Price Price Price
Associates Associates Associates
Equity Small-Cap International Participant
Income Value Stock Notes
Fund Fund Fund Receivable Total
$ 4,746,100 $ 357,193 $ 357,349 $ - $ 9,279,249
- - - - 2,276,786
- - - 286,744 286,744
4,746,100 357,193 357,349 286,744 11,842,779
- - - - 483,944
15,800 5,017 4,737 - 44,848
- - - 940 940
1,817 195 490 - -
17,617 5,212 5,227 940 529,732
4,763,717 362,405 362,576 287,684 12,372,511
- - - 6,207 -
$ 4,763,717 $ 362,405 $ 362,576 $ 281,477 $ 12,372,511
STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS
(WITH FUND INFORMATION)
December 31, 1995
T-Rowe T-Rowe T-Rowe
Price Price Price
Associates Associates Associates
Portec New Prime Short-Term
Inc.
Common Horizons Reserve Bond
ASSETS Stock Fund Fund Fund Fund
Investments, at fair value:
Shares of registered investment company $ - $ 1,834,067 $ 1,101,305 $ 682,209
Common stock 2,090,747 - - -
Participants notes receivable - - - -
2,090,747 1,834,067 1,101,305 682,209
Receivables:
Employer's contribution 164,172 - - -
Participants' contributions 5,517 5,687 3,683 2,864
Accrued interest - - - -
Due from other funds 1,686 390 572 329
171,375 6,077 4,255 3,193
TOTAL ASSETS 2,262,122 1,840,144 1,105,560 685,402
LIABILITIES
Due to other funds - - - -
NET ASSETS AVAILABLE
FOR BENEFITS $ 2,262,122 $ 1,840,144 $ 1,105,560 $ 685,402
T-Rowe T-Rowe T-Rowe
Price Price Price
Associates Associates Associates
Equity Small-Cap International Participant
Income Value Stock Notes
Fund Fund Fund Receivable Total
$ 3,825,511 $ 204,410 $ 222,791 $ - $ 7,870,293
- - - - 2,090,747
- - - 215,383 215,383
3,825,511 204,410 222,791 215,383 10,176,423
- - - - 164,172
10,484 3,189 3,528 - 34,952
- - - 613 613
1,183 147 399 - -
11,667 3,336 3,927 613 199,737
3,837,178 207,746 226,718 215,996 10,376,160
- - - 4,706 -
$ 3,837,178 $ 207,746 $ 226,718 $ 211,290 $ 10,376,160
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
(WITH FUND INFORMATION)
Year Ended December 31, 1996
T-Rowe T-Rowe T-Rowe
Price Price Price
Associates Associates Associates
Portec, New Prime Short-Term
Inc.
Common Horizons Reserve Bond
Stock Fund Fund Fund Fund
Additions to net assets
attributed to:
Investment income:
Net appreciation (depreciation)
in fair value of
investments $ 66,778 $ 117,985 $ - $ (14,474)
Interest and dividends 17,724 194,421 54,119 41,605
84,502 312,406 54,119 27,131
Contributions:
Employer's match 483,859 - - -
Participants' 63,557 160,220 84,387 69,061
547,416 160,220 84,387 69,061
Total additions 631,918 472,626 138,506 96,192
Deductions from net assets
attributed to benefits paid
directly to participants 122,829 53,651 326,097 34,318
Net increase (decrease)
prior to interfund
transfers 509,089 418,975 (187,591) 61,874
Interfund transfers (4,769) (115,829) 55,565 (28,206)
Net increase (decrease) 504,320 303,146 (132,026) 33,668
Net assets available for benefits:
Beginning of year 2,262,122 1,840,144 1,105,560 685,402
End of year $ 2,766,442 $ 2,143,290 $ 973,534 $ 719,070
<FN>
See Notes to Financial Statements.
T-Rowe T-Rowe T-Rowe
Price Price Price
Associates Associates Associates
Equity Small-Cap International Participant
Income Value Stock Notes
Fund Fund Fund Receivable Total
$ 495,368 $ 42,554 $ 33,405 $ - $ 741,616
297,595 17,862 9,234 17,700 650,260
792,963 60,416 42,639 17,700 1,391,876
- - - - 483,859
283,411 83,082 74,637 - 818,355
283,411 83,082 74,637 - 1,302,214
1,076,374 143,498 117,276 17,700 2,694,090
142,275 6,041 6,362 6,166 697,739
934,099 137,457 110,914 11,534 1,996,351
(7,560) 17,202 24,944 58,653 -
926,539 154,659 135,858 70,187 1,996,351
3,837,178 207,746 226,718 211,290 10,376,160
$ 4,763,717 $ 362,405 $ 362,576 $ 281,477 $ 12,372,511
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
(WITH FUND INFORMATION)
Year Ended December 31, 1995
T-Rowe T-Rowe T-Rowe
Price Price Price
Associates Associates Associates
Portec, New Prime Short-Term
Inc.
Common Horizons Reserve Bond
Stock Fund Fund Fund Fund
Additions to net assets
attributed to:
Investment income:
Net appreciation (depreciation)
in fair
value of investments $ (745,421) $ 536,820 $ - $ 20,472
Interest and dividends - 191,707 58,591 43,621
(745,421) 728,527 58,591 64,093
Contributions:
Employer's match 173,255 - - -
Participants' 73,244 141,676 80,919 68,209
246,499 141,676 80,919 68,209
Total additions (498,922) 870,203 139,510 132,302
Deductions from net assets
attributed to benefits paid
directly to participants 392,826 361,869 176,908 41,077
Net increase (decrease)
prior to interfund
transfers (891,748) 508,334 (37,398) 91,225
Interfund transfers (53,250) (2,485) 29,210 (65,562)
Net increase
(decrease) (944,998) 505,849 (8,188) 25,663
Net assets available for benefits:
Beginning of year 3,207,120 1,334,295 1,113,748 659,739
End of year $ 2,262,122 $ 1,840,144 $ 1,105,560 $ 685,402
T-Rowe T-Rowe T-Rowe
Price Price Price
Associates Associates Associates
Equity Small-Cap International Participant
Income Value Stock Notes
Fund Fund Fund Receivable Total
$ 827,397 $ 24,815 $ 12,398 $ - $ 676,481
234,376 9,321 6,714 14,456 558,786
1,061,773 34,136 19,112 14,456 1,235,267
- - - - 173,255
246,217 71,665 74,564 - 756,494
246,217 71,665 74,564 - 929,749
1,307,990 105,801 93,676 14,456 2,165,016
884,506 2,331 5,873 9,040 1,874,430
423,484 103,470 87,803 5,416 290,586
15,416 25,587 39,711 11,373 -
438,900 129,057 127,514 16,789 290,586
3,398,278 78,689 99,204 194,501 10,085,574
$ 3,837,178 $ 207,746 $ 226,718 $ 211,290 $ 10,376,160
</TABLE>
Significant Accounting Policies
Investment valuation and income recognition: The Portec, Inc.
Savings and Investment Plan's (the Plan) investments are stated
at fair value. Investments in shares of registered investment
company are valued at quoted market prices which represent the
net asset value of shares held by the Plan at year-end.
Investments in the Portec, Inc. (the Employer) common stock are
valued at its quoted market price. Participant notes receivable
are valued at face value, which approximates fair value.
Purchases and sales of securities are recorded on trade-date
basis. Interest income is recorded on the accrual basis.
Dividends are recorded on the ex-dividend date.
Payment of benefits: Benefits are recorded when paid.
Accounting estimates: The preparation of financial statements
in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those
estimates.
Plan Description
The following description of the Plan provides only general
information. Participants should refer to the Plan agreement
for a more complete description of the Plan's provisions.
General: The Plan, as amended, is a defined contribution plan
covering all full-time salaried and hourly employees of the
Employer and its affiliates. Employees are eligible to
participate on the first day of the calendar month following the
attainment of age 21 years of age. The Plan is subject to the
provisions of the Employee Retirement Income Security Act of
1974 (ERISA) and has been amended to comply with the Tax Reform
Act of 1986 and subsequent revenue acts.
Contributions: Each year, participants may contribute from 1
percent up to 15 percent, in whole percentages, of annual
compensation, as defined in the plan. The Employer contributes
a percent of the first 6 percent of eligible compensation that a
participant contributes to the plan, as defined. The Employer
receives a federal tax deduction for amounts contributed to the
Plan subject to certain limitations. The Employer's matching
percentage ranges from 30 percent to 100 percent depending on
the ratio of the Employer's consolidated net income for the Plan
year to its consolidated net sales for the Plan year, as defined
in the Plan document. For a ratio up to 3.8 percent, the
Employer contribution is 30 percent. The contribution gradually
increases to 100 percent as the ratio increases to 8.6 percent.
For the plan years ended December 31, 1996 and 1995, the ratio
was 7.1 percent and 3.0 percent, respectively. The
corresponding match on the first 6 percent of the participant's
eligible compensation that a participant contributed for
December 31, 1996 and 1995, was 80 percent and 30 percent,
respectively, as defined. The Plan permits the Employer to
modify this formula provided it is amended prior to December 15
of the preceding Plan year. Additional amounts may be
contributed at the option of the Employer's Board of Directors.
Contributions are subject to certain limitations.
Note 2. Plan Description (Continued)
Participant accounts: Each participant's account is credited
with participant contributions, the Employer's matching
contribution, if any, and an allocation of investment earnings.
The allocation is based on the participant's account balance, as
defined. The benefit to which a participant is entitled is the
benefit that can be provided from the participant's account.
Vesting: Participants' and employer's contributions and
earnings thereon are immediately vested.
Payment of benefits: Generally, upon termination of service for
any reason, a participant may elect to receive a lump-sum amount
equal to the value of the participant's account. At the
attainment of age 59-, subject to certain limitations as
defined, the participant may make withdrawals from his account
of the amounts attributable to pretax contributions and Employer
contributions, increased by any gains and earnings and decreased
by any losses attributable thereto and distributions made
therefrom. The method of payment, whether in cash or stock, is
subject to certain conditions and elections as defined in the
Plan document. Distributions from the Plan are subject to
federal income tax rules and regulations.
Investment options: Upon enrollment in the Plan, a participant
may direct contributions in any of seven investment options. At
December 31, 1996 and 1995, there were 453 and 420 employees,
respectively, participating in the Plan. The funds are invested
in shares of a registered investment company except for the
Portec, Inc. Stock Fund which is invested in common stock of the
Company.
Portec, Inc. Common Stock Fund - Invests in common stock of
Portec, Inc. and temporarily in short-term money market
instruments. All of the Employer match is invested in this
fund. At December 31, 1996 and 1995, there were 400 and 371,
respectively, participants in this fund.
T-Rowe Price Associates New Horizons Fund - Invests in common
stock of small, rapidly growing companies in a broad range of
industries. At December 31, 1996 and 1995, there were 300 and
270, respectively, participants in this fund.
T-Rowe Price Associates Prime Reserve Fund - Invests in
high-quality domestic and foreign money market securities,
including U.S. Treasury bills and certificates of deposit that
have an average maturity of 90 or fewer days. At December 31,
1996 and 1995, there were 189 and 181, respectively,
participants in this fund.
T-Rowe Price Associates Short-Term Bond Fund - Invests primarily
in short-term U.S. Treasury notes and corporate bonds that have
an average maturity of three or fewer years. At December 31,
1996 and 1995, there were 173 and 179, respectively,
participants in this fund.
T-Rowe Price Associates Equity Income Fund - Invests in a
portfolio of common stocks of established companies that pay
above-average dividends and have prospects of future dividend
increases. At December 31, 1996 and 1995, there were 349 and
317, respectively, participants in this fund.
T-Rowe Price Associates Small-Cap Value Fund - Invests primarily
in common stocks of small companies which are believed to be
undervalued at the time of purchase and to have potential for
capital appreciation. At December 31, 1996 and 1995, there were
141 and 108, respectively, participants in this fund.
Note 2. Plan Description (Continued)
T-Rowe Price Associates International Stock Fund - Invests in
common stocks of large, established non-U.S. companies that are
broadly diversified in Europe, the Far East, Australia, Canada,
and other areas. At December 31, 1996 and 1995, there were 147
and 118, respectively, participants in this fund.
Participants may change their deferral elections once per month
and investment elections at any time.
Participant notes receivable: Participants may borrow from
their fund accounts a minimum of $200 up to a maximum equal to
the lesser of $50,000 or 50 percent of their account balance.
Loan transactions are treated as a transfer to (from) the
investment fund from (to) the Participant Notes Receivable Fund.
Loan terms range from 1-5 years or up to 10 years for the
purchase of a primary residence. The loans are collateralized
by the balance in the participant's account and bear interest at
a rate commensurate with local prevailing rates as determined by
the Plan administrator. Interest rates currently range from
6.25 percent to 9.25 percent. Principal and interest is paid
through payroll deductions.
Related Party Transactions
Certain Plan investments are shares of registered investment
companies managed by T-Rowe Price Associates. T-Rowe Price
Trust Company is the trustee, as defined by the Plan, and,
therefore, these transactions qualify as party-in-interest.
Furthermore, T-Rowe Price Retirement Plan Service, Inc. is
providing plan administration services to the Plan. Fees are
paid by the Employer. Certain other administrative expenses are
paid by the Employer on behalf of the Plan. The amount of these
expenses is not significant to the financial statements.
As of December 31, 1996 and 1995, the Plan held 230,561 and
217,220 shares, respectively, of Portec, Inc. common stock with
a cost of $1,706,562 and $1,550,964, respectively, and a fair
value of $2,276,786 and $2,090,747, respectively.
During the year ended December 31, 1996, 33,458 shares of
Portec, Inc. common stock were purchased at values ranging from
$8.875 to $11.125 for a total of $297,026. In 1996, 20,117
shares of Portec, Inc. common stock were sold at values ranging
from $8.875 to $11.125 for a total of $177,765.
During the year ended December 31, 1995, 39,848 shares of
Portec, Inc. common stock were purchased at values ranging from
$9.50 to $13.25 for a total of $494,631. In 1995, 44,692 shares
of Portec, Inc. common stock were sold at values ranging from
$9.50 to $13.25 for a total of $489,780.
Shares of the Company's common stock are either funded by the
Company's authorized but not issued and outstanding shares or
acquired through T. Rowe Price Financial Center, the Plan's
broker.
The fair values of the Portec, Inc. common stock are determined
by and all purchases and sales of the stock are transacted on
the New York Stock Exchange.
Plan Termination
Although it has not expressed any intent to do, the Employer has
the right under the Plan to discontinue its contributions at any
time and to terminate the Plan subject to the provisions of
ERISA.
Tax Status
The Internal Revenue Service has determined and informed the
Employer by a letter dated October 25, 1996, that the Plan and
related trust are designed in accordance with applicable
sections of the Internal Revenue Code (IRC). The Plan
administrator and the Plan's tax counsel believe that the Plan
is currently being operated in compliance with the applicable
requirements of the IRC.
<TABLE>
<S><C>
ITEM 27(a) - SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES
December 31, 1996 Schedule I
Number of Fair
(a) Identity of Issue/Description of Investment Shares Cost Value
* Portec, Inc. Common Stock 230,561 $ 1,706,562 $ 2,276,786
Shares held with registered investment company:
T-Rowe Price Associates:
* New Horizons Fund 98,006 1,620,008 2,133,598
* Prime Reserve Fund 969,520 969,520 969,520
* Short-Term Bond Fund 153,210 750,614 715,489
* Equity Income Fund 210,563 3,447,592 4,746,100
* Small-Cap Value Fund 18,261 302,771 357,193
* International Stock Fund 25,895 320,783 357,349
9,117,850 11,556,035
Participant Notes Receivable (interest rates range
from 6.25 percent to 9.25 percent) 286,744 286,744
$ 9,404,594 $ 11,842,779
* Identifies a party known to be a party-in-interest.
ITEM 27(d) - SCHEDULE OF REPORTABLE TRANSACTIONS
Year Ended December 31, 1996 Schedule VI
Purchases Sales
Total Total Total Total Total Total
Identity of Party Involved/ Number of Purchase Number of Sales Sales Sales
Description of Asset Purchases Cost Sales Cost Proceeds Gains
Series of Transactions
Shares of registered investment companies
T-Rowe Price Associates
New Horizon Fund 43 $ 369,529 50 $ 131,111 $ 187,983 $ 56,872
Prime Reserve Fund 47 240,019 33 371,804 371,804 -
Equity Income Fund 41 633,558 50 156,264 208,337 52,073
</TABLE>
Exhibit 99(b)
EXHIBIT 99(b)
IMPORTANT FACTORS AND ASSUMPTIONS
REGARDING FORWARD-LOOKING STATEMENTS
These cautionary statements are being made pursuant to the provisions of the
Private Securities Litigation Reform Act of 1995 and with the intention of
obtaining the benefits of the "safe harbor" provisions of the Act. Investors
are cautioned that any forward-looking statements made by Portec are not
guarantees of future performance and that actual results may differ materially
from those in the forward-looking statements as a result of various factors,
including: customers' integration of products currently being supplied by the
Company; the success of Portec or its competitors in obtaining the business of
the customer base; the ability to pass on increased costs to customers;
variations in currency-exchange rates in view of the Company's non-domestic
business; labor relations at Portec, its customers, and its suppliers, which
may affect the continuous supply of product; and the ability to improve
acquisitions' operations.
In making statements about Portec's fiscal-1997 operating results, management
has assumed relatively stable economic conditions in the United States and
worldwide, no unanticipated swings in the business cycles affecting customer
industries, and a reasonable legislative and regulatory climate in those
countries where Portec does business.
Readers are cautioned not to place undue reliance on Portec's forward-looking
statements, which speak only as of the date such statements are made.
