NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

TO BE HELD MAY 21, 2010

 

To the Shareholders:

 

L.B. Foster Company will hold its annual shareholders’ meeting at the Company’s principal executive offices at 415 Holiday Drive, Pittsburgh, Pennsylvania on Friday, May 21, 2010, at 11:00 AM, local time, for the purposes of:

 

 

Shareholders are cordially invited to attend the meeting. Only holders of record of common stock at the close of business on March 19, 2010, will be entitled to vote at the meeting or at any adjournment thereof.

 

As we did last year, we are using U.S. Securities and Exchange Commission rules that allow companies to furnish proxy materials to their shareholders primarily over the Internet. This process expedites shareholder receipt of proxy materials and lowers the cost of our annual meeting. On or about April 9, 2010, we mailed to our shareholders a notice containing instructions on how to access our 2010 Proxy Statement and 2009 Annual Report and how to vote. The notice also included instructions on how to receive a paper copy of the annual meeting materials.

 

Stan L. Hasselbusch

President and Chief Executive Officer

 

Pittsburgh, Pennsylvania

April 9, 2010

Table of Contents

 

L.B. FOSTER COMPANY

 

 

 

PROXY STATEMENT

 

 

 

This proxy statement is furnished in connection with the solicitation of proxies by the Board of Directors of L.B. Foster Company (the “Company”) for use at the May 21, 2010, annual meeting of shareholders and at any adjournment thereof. This proxy statement, the enclosed form of proxy and our 2009 Annual Report to Shareholders were made available to shareholders on the internet at www.proxyvote.com or mailed on or about April 9, 2010.

 

The presence, in person or by proxy, of the record holders of a majority of the Company’s outstanding common stock is necessary to constitute a quorum. At the close of business on March 19, 2010, the record date for entitlement to vote at the meeting (“Record Date”), there were 10,183,964 shares of common stock outstanding. A quorum will require the presence, in person or by proxy, of the record holders of at least 5,091,983 shares. Where a shareholder’s proxy or ballot indicates that no vote is to be cast on a particular matter (including broker non-votes) the shares of such shareholder are nevertheless counted as being present at the meeting for the purposes of a quorum.

 

Only holders of record of the common stock at the close of business on the Record Date are entitled to notice of and to vote at the meeting or at any adjournment thereof. Such shareholders will have one vote for each share held on that date. The common stock does not have cumulative voting rights in the election of directors.

 

Directors shall be elected by a plurality of the votes cast by the holders of the shares voting in person or represented by proxy at the meeting. Accordingly, abstentions and broker non-votes will have no effect on the election.

 

The Audit Committee of the Board of Directors has appointed Ernst & Young LLP as the Company’s independent registered public accountants for 2010. The Company will consider the affirmative vote of a majority of the shares of common stock present, in person or by proxy, as a ratification of this appointment. As a result, abstentions have the same effect as a vote against the ratification, but broker non-votes will have no effect.

 

If the enclosed form of proxy is properly executed and returned, it will be voted as directed. If no directions are given, the proxy will be voted FOR the election of the seven nominees named herein and FOR the ratification of the appointment of Ernst & Young LLP as the Company’s independent registered public accountants for 2010. The proxy grants discretionary authority to vote on other matters to Lee B. Foster II, Chairman of the Board, and Stan L. Hasselbusch, President and Chief Executive Officer.

 

If your shares are held in “street name” (i.e. held for your account by a broker or other nominee), you should receive instructions from the holder of record on voting your shares.

 

If voting instructions representing shares in the Company’s 401(k) plans are received, but no indication is provided as to how those shares are to be voted, those shares are nonetheless counted as being present at the meeting and will count toward achievement of a quorum.

 

The cost of soliciting proxies will be borne by the Company. Officers or employees of the Company may solicit proxies by mail, telephone, email or facsimile. The Company does not expect to pay any compensation for the solicitation of proxies, but under arrangements made with brokers, custodians, nominees and fiduciaries to send proxy material to the beneficial owners of shares held by them, the Company may reimburse their expenses.

 

If you are a shareholder of record, you may vote your shares of common stock by telephone or through the Internet. You may also vote your shares by mail. Please see the proxy/voting instruction card for specific instructions on how to cast your vote by any of these methods.

 

If you are a beneficial owner of our common stock, and not the shareholder of record (for example your common stock is registered in “street name” with a brokerage firm), you must follow the procedures required by the holder of record, which is usually a brokerage firm or bank, to revoke or change a proxy. You should contact the shareholder of record directly for more information on these procedures.

 

Votes submitted via the Internet or by telephone must be received by 11:59 PM EDT, on May 20, 2010. Submitting your vote via the Internet or by telephone will not affect your right to vote in person should you decide to attend the annual meeting. You may change your vote or revoke your proxy as described above or by submitting a valid, subsequent vote by telephone or through the Internet, by submitting another properly signed proxy which bears a later date, or attending the annual meeting and voting in person.

 

A board of seven directors is to be elected to serve until the next annual meeting of shareholders and until their successors are elected and qualified. Information concerning the nominees is set forth below with brief descriptions of each nominee’s qualifications to serve on the Board of Directors:

 

 

The Board of Directors nominated the foregoing nominees after the Nomination and Governance Committee had recommended their nominations. The nominees have expressed their willingness to serve as directors, if elected. However, should any of the nominees be unavailable for election, the proxies (except for proxies that withhold authority to vote for directors) will be voted for such substitute nominee or

nominees as may be chosen by the Board of Directors, or the number of directors may be reduced by appropriate action of the Board.

 

The Board of Directors recommends that you vote “FOR” each of the foregoing nominees.

 

Ernst & Young LLP has served as the Company’s independent registered public accountants or as independent auditors since 1990 and has been appointed by the Audit Committee of the Board of Directors as the Company’s independent registered public accountants for the fiscal year ending December 31, 2010. Although action by the shareholders in this matter is not required, the Board of Directors is seeking shareholder ratification of this appointment in light of the important role played by the independent registered public accountants. If the shareholders fail to ratify the selection, the Audit Committee will investigate the reasons for shareholder rejection and consider whether or not to retain Ernst & Young LLP. Even if the appointment is ratified, the Audit Committee, in its discretion, may direct the appointment of a different firm at any time during the year if the Committee determines that such a change would be in the best interests of the Company and its shareholders.

 

The Board of Directors recommends that you vote “FOR” ratification

of Ernst & Young LLP’s appointment.

 

The following table shows the number of shares of common stock beneficially owned on the Record Date by:

 

 

Information concerning the owners of more than 5% of the Company’s outstanding common stock is based upon their reports furnished to the Company and may not be current.

 

 

 

 

The following table sets forth directors’ compensation for 2009, except for Mr. Hasselbusch whose 2009 compensation is set forth in the Summary Compensation Table at page 24. During 2009, no stock options were granted and no non-equity incentive compensation was awarded to the named directors. However, as of December 31, 2009, Mr. Foster held 50,000 stock options, Ms. Owen held 10,000 stock options and Mr. Rackoff held 25,000 stock options.

 

 

Ernst & Young LLP’s (“E&Y”) aggregate fees (including out-of-pocket expenses) billed for 2009 and 2008 for each of the following categories of services are set forth below:

 

 

 

The Audit Committee reviews summaries of services provided by E&Y and the related fees and concluded that E&Y’s provision of audit-related services during 2008 and 2009 was compatible with maintaining E&Y’s independence. All E&Y services are pre-approved by the Audit Committee.

 

 

Pursuant to NASDAQ rules, Mr. Foster, Chairman of the Board, does not yet qualify as an “independent” director since he was a Company employee until May 31, 2009. The Board believes, however, that, to the extent there should be a conflict, Mr. Foster’s economic interests are more closely aligned with those of the Company’s shareholders than with those of management. Although the Board does not necessarily object to combining the roles of Chairman of the Board and Chief Executive Officer, the Board has chosen not to combine those positions because Mr. Foster’s depth of experience and his detachment from management make Mr. Foster the best qualified individual to serve as Chairman of the Board. Since the Chairman and Chief Executive roles are not combined, there is no need for a “lead outside director” position.

 

The Board of Directors is actively involved in overseeing risk management. Operational and strategic presentations by management to the Board include consideration of the challenges and risks to the Company’s business, which are discussed by the Board and management. The Board also reviews and discusses management reports which specifically address risk topics. The Chief Executive Officer, assisted by senior management, is the “risk officer” responsible for managing and mitigating the Company’s risks.

 

In addition, each of our Board’s Committees considers risks when relevant to areas within its jurisdiction. For example, the Audit Committee periodically requests that management address critical accounting issues and then considers what impact these issues may have on the Company’s financial position and risk profile. The Audit Committee also assesses the adequacy of internal controls. The Compensation Committee structures executive compensation programs with a view toward providing incentives without encouraging excessive risks. On an annual basis, the Nomination and Governance Committee oversees risk by reviewing the structure and function of the Board’s Committees.

 

The Board of Directors consists of seven directors. During 2009, the Board held six meetings, one of which was telephonic. The Board has determined that all of the directors, except Messrs. Foster and Hasselbusch, qualify as “independent” as defined by applicable NASDAQ rules. In making this determination, the Board has concluded that none of these directors has a relationship which, in the opinion of the Board, would interfere with the exercise of independent judgment in carrying out a director’s responsibilities.

 

During 2009, each director attended at least 75% of the total number of meetings of the Board and all committees on which he or she served.

 

The directors regularly have attended shareholders’ meetings without a formal policy on attendance, and the Company does not believe that a formal policy is required. All of the directors, other than Mr. Hasselbusch (who could not attend due to a death in his family), attended the 2009 annual meeting of shareholders.

 

Although not part of any formal policy, our goal is to maintain a diverse Board, with directors possessing complementary skills and experiences who, together, can address the variety of issues that affect our Company.

 

Shareholders and other parties interested in communicating directly with the Chairman of the Board or with the non-managerial directors as a group may do so by writing to L.B. Foster Company, 415 Holiday Drive, Pittsburgh, PA 15220, Attn: Chairman of the Board or Attn: Outside Directors. The Secretary of the Company shall review all such correspondence and shall regularly forward to the Board a summary of all such correspondence and copies of all correspondence that, in the opinion of the Secretary, deal with the functions of the Board or committees thereof or that he otherwise determines requires the Board’s attention. Directors may at any time review a log of all correspondence received by the Company that is addressed to members of the Board and request copies of any such correspondence. Concerns relating to accounting, internal controls or auditing are directed to the Company’s internal audit department and handled in accordance with procedures established by the Audit Committee for such matters.

 

The Board has three standing committees: the Audit Committee, the Compensation Committee and the Nomination and Governance Committee. Each member of these committees is independent as defined by applicable NASD rules. Each of the committees has a written charter approved by the Board.

 

The Audit Committee is composed of Ms. Owen (Chairman), Mr. McIlroy, and Ms. Rowland. The Board has designated Ms. Owen as the Audit Committee’s “financial expert” under applicable rules of the Securities and Exchange Commission (“SEC”).

 

The Audit Committee, which held seven meetings (two of which were telephonic) during 2009, is responsible for overseeing, with management, the work and findings of the independent registered public accounting firm, as well as the effectiveness of the Company’s internal auditing department, the adequacy of our internal controls and the accounting principles employed in financial reporting. The Audit Committee also is responsible for the appointment and compensation of our independent registered public accounting firm. The Committee’s charter is posted on the Company’s website, www.lbfoster.com.

 

The Audit Committee also is responsible for reviewing and, if appropriate, approving transactions with related persons. Under the Company’s written policy, no employee, officer or director may participate in any transaction (subject to various exceptions including exceptions for stock ownership in a publicly traded company that may do business with us and participation in a transaction with us solely as an employee, director or shareholder of the Company) with the Company without the Audit Committee’s approval. The Company’s written policy on related person transactions may be found in its Legal & Ethical Conduct Policy at the Company’s website, www.lbfoster.com.

 

The Compensation Committee is composed of Messrs. Rackoff (Chairman), McKane and McIlroy.

 

This Committee, which met on four occasions (one of which was a telephonic meeting) in 2009, is responsible for reviewing and recommending for approval significant employee benefit programs, officer compensation, reviewing certain organizational changes and granting equity awards.

 

The Compensation Committee makes decisions regarding executive compensation and these decisions are then generally ratified by the Board of Directors. The Committee itself, however, grants equity awards to employees under the Omnibus Plan, as amended (see pages 19-20). The Committee’s charter is available at the Company’s website, www.lbfoster.com. The Committee does not delegate its authority to any third-party.

 

The Compensation Committee currently uses a “Comparator Group”, identified in the Compensation Discussion and Analysis at page 13, and survey data as a tool to establish competitive compensation for the Company’s executive officers.

 

The Committee has retained Towers Watson to provide consulting services on the Company’s executive compensation practices and appropriate levels of and structures for executive compensation.

 

The Compensation Committee gives significant weight to the Chief Executive Officer’s recommendations regarding other executive officers’ compensation; such other executive officers are not present when their compensation is being determined. With respect to the Chief Executive Officer’s compensation, the Compensation Committee may solicit the Chairman of the Board’s views, but does not defer to the Chairman’s views. The Chief Executive Officer is not present when his compensation is being determined.

 

The Nomination and Governance Committee is composed of Messrs. McKane (Chairman) and Rackoff and Ms. Owen.

 

This Committee, which met on four occasions in 2009, is responsible for overseeing corporate governance, proposing director nominees to the full Board, recommending which directors should serve on various Board committees and recommending who should serve as Chairman of the Board and Chairman of each of the Board’s committees. This Committee also recommends to the full Board appropriate compensation for non-employee directors.

 

The Nomination and Governance Committee endeavors to maintain a diverse Board of Directors consisting of individuals who are financially literate and whose experiences and backgrounds will enable the Board of Directors to provide meaningful counsel to and oversight of management. The Nomination and Governance Committee seeks to recommend, to the full Board, nominees who will create and maintain a Board of Directors that satisfies applicable legal and regulatory requirements. In support of these goals, the Committee oversees a program for the Directors’ continuing education, which includes seminars focused on strategic and governance issues. The Committee, with the Chairman of the Board, oversees an annual evaluation of the Board’s performance. The Committee’s Charter is available on the Company’s website, www.lbfoster.com.

 

In selecting nominees for election to the Board of Directors, the Nomination and Governance Committee will consider submissions from shareholders. A shareholder wishing to recommend a nominee

may notify our Secretary or any member of the Nomination and Governance Committee in writing and provide whatever supporting material the shareholder considers appropriate. Submissions should be sent to our principal executive offices, 415 Holiday Drive, Pittsburgh, PA 15220, Attn: Secretary.

 

The Nomination and Governance Committee determines appropriate levels of compensation for our outside directors by reviewing surveys and data from other publically traded companies and conferring with other directors to obtain information on competitive compensation practices and uses this information as a tool to determine appropriate levels of director compensation. The Committee then exercises its subjective judgment and makes recommendations to the Board for ratification by the full Board. The Committee does not delegate its responsibilities to any third-party.

 

The Company adopted a written code of conduct and ethics that applies to all the Company’s directors, officers and employees, including its chief executive officer, chief financial officer and chief accounting officer. We have posted a current copy of the code, titled “Legal and Ethical Conduct Policy”, on our website, www.lbfoster.com.

 

All members of the Compensation Committee are independent directors, and none of them is a present or past employee or officer of the Company or any of its subsidiaries. No member of the Compensation Committee has had any relationship with the Company requiring disclosure under Item 404 of the SEC’s Regulation S-K. The Company’s executive officers have not served on the board or compensation committee (or other committee serving an equivalent function) of any other entity, whose executive officers have served on the Company’s Board or Compensation Committee.

 

The Company’s outside directors are expected to own Company common stock valued at least three times their respective annual cash compensation for services as a director within five years of first being elected to the Board.

 

The Compensation Discussion and Analysis is divided into three parts. The first part, 2009 Compensation Actions, describes the Compensation Committee’s process for making compensation decisions for 2009. The second, entitled Overview of Compensation Framework, reviews in greater detail considerations in determining executive pay, as well as the key elements of executive compensation at the Company. The third discusses the Company’s Other Compensation Practices for the NEOs.

 

We believe that our compensation programs are balanced, reasonable and help us retain the best talent available. In the design of our programs we use judgment and discretion and do not use highly

leveraged incentives that drive risky short-term behavior. Our long-term incentive program, combined with our senior executive share ownership requirements, reward long-term stock performance. This section focuses on how compensation for our NEOs (Stan L. Hasselbusch, David J. Russo, Donald L. Foster, Samuel K. Fisher and John F. Kasel) was determined. There is no family relationship between Donald L. Foster and our Chairman, Lee B. Foster II.

 

The Compensation Committee (the “Committee”) believes that the compensation of the NEOs and executive officers achieves the right balance of incentives to reward and retain our best executives and maximize their performance over the long-term.

 

We recognize that the performance by an executive or group of executives does not always translate immediately into appreciation in our Company’s stock price. The Committee intends to continue to reward management performance based on its belief that over time strong operating performance will be reflected through stock price appreciation. That said, we believe that it is appropriate for certain components of compensation to decline during periods of economic stress and reduced earnings. It is in this context that we set 2009 incentive compensation.

 

Due to the harsh economic environment and because we aligned compensation with our financial performance, our 2009 annual incentive payments for the NEOs declined by approximately 50% from 2008.

 

At the beginning of each year, Mr. Hasselbusch develops the objectives that he believes need to be achieved for the Company to be successful, which he then reviews with the Committee for the corollary purpose of establishing how his performance will be assessed. These objectives are derived largely from the Company’s annual financial and strategic planning sessions, during which in-depth reviews of the Company’s growth opportunities are analyzed and goals are established for the upcoming year. Mr. Hasselbusch discusses preliminary considerations as to his own compensation with the Committee. Mr. Hasselbusch does not participate in the final determination of his own compensation.

 

The Committee normally adjusts the salary of the Chief Executive Officer (“CEO”) based upon its assessment of the CEO’s performance, while taking into account the health of the Company’s various markets. The Committee may also solicit recommendations and insights regarding Mr. Hasselbusch’s performance from Lee B. Foster II.

 

Due to the economic climate, Mr. Hasselbusch requested that the Committee temporarily reduce his salary by 10% effective January 1, 2009. The Committee, while recognizing Mr. Hasselbusch’s continued excellent performance, granted Mr. Hasselbusch’s request. Effective January 1, 2010, Mr. Hasselbusch’s salary was restored to its prior level.

 

Mr. Hasselbusch’s 2009 Annual Incentive Plan payment was calculated as described in the 2009 Annual Incentive Plan at pages 15-18. As a result, Mr. Hasselbusch earned an annual incentive payout of $218,194 which represented 77% of his target award opportunity and is included in the Summary Compensation Table at page 24.

 

Similarly, Mr. Hasselbusch’s long-term incentive award was targeted, consistent with prior practices, at $500,000, as calculated in accordance with the Omnibus Long-term Incentive Plan, as amended (“Omnibus Plan”), described at page 19.

 

Each of the other NEOs is a leader of an individual business or function of the Company. As part of the executive management team, they report directly to Mr. Hasselbusch, who develops the objectives that each individual is expected to achieve, and against which their performance is assessed. These objectives are reviewed with the Committee at the beginning of each year and are derived largely from the Company’s annual financial and strategic planning sessions in which the other NEOs participate. Mr. Hasselbusch leads the assessment of each NEO’s individual performance against the objectives, the Company’s overall performance and the performance of the NEO’s business or function. Mr. Hasselbusch makes compensation recommendation to the Committee for each NEO, with the advice of our Vice President, Human Resources. The NEOs do not play a role in determining their compensation.

 

Using proxy data from the Comparator Group, compensation surveys and, at times, the input of Towers Watson, the Committee determines competitive compensation levels for Messrs. Russo, Foster, Fisher and Kasel. As with Mr. Hasselbusch, these NEOs’ compensation consists of three major components: base compensation, an annual incentive plan and a long-term incentive plan.

 

Given the difficult market conditions, Messrs. Russo, Foster, Fisher and Kasel did not receive merit increases to their base salaries during 2009.

 

As with Mr. Hasselbusch, the annual incentive awards for Messrs. Russo, Foster, Fisher and Kasel were determined in accordance with the Annual Incentive Plan as described at pages 15-18 and their long-term incentive awards were granted under the Omnibus Plan, as described at pages 19-20. Each of Messrs. Russo, Foster, Fisher and Kasel’s long-term awards were targeted to have a value of $120,000, as described at page 19.

 

The Company attempts to retain and attract talented and qualified executives through the use of compensation programs that are balanced and competitive. The Committee pursues this goal through its recommendations for executive officer compensation, which are then reviewed and ultimately approved by the Board of Directors. The Committee’s compensation philosophy is to reward initiative and positive results while being mindful of the current business climate. Unless otherwise indicated, all Committee actions or determinations have been approved by the Board.

 

The Committee aligns executive officer compensation with the Company’s performance to drive short-term achievement and create long-term shareholder value. Measures have been constructed to drive consistent behavior and balance short and long-term interests. Annual measures are a mix of factors to avoid over-emphasizing any single measure. A significant portion of executive officers’ potential compensation is variable and earned under incentive plans that are based on the Company’s performance and the value delivered to the Company’s shareholders.

 

In designing incentive plans, the Committee attempts to mitigate risk through the avoidance of unintended compensation results. Special attention is devoted to avoiding incentives to engage in excessively risky business behavior. When making decisions on its recommendations for executive compensation, the Committee takes into account the executive’s entire compensation package. While the Committee has not established any policy on allocating an executive’s total compensation package between current year and long-term compensation or between cash and equity, the Committee attempts to

structure its executives’ compensation into a competitive package that aligns total compensation with corporate performance. Both the 2009 Annual Plan and the Omnibus Plan were designed to provide opportunities for increased executive compensation for greater performance.

 

The Committee considers the performance criteria that should be included under annual and long-term incentive plans to mitigate the risk that executives will achieve short-term performance while not focusing on the creation of shareholder value. To avoid placing too much focus on achieving short-term results, the annual incentive is not a disproportionate share of executive compensation.

 

The Committee’s objective is to pay executives fairly and competitively. Executive pay is measured against a Comparator Group, as well as market data, to confirm that compensation is within the range of competitive practices.

 

Each year, to assist in its compensation decisions, and to determine medians for overall compensation and each pay component, the Committee reviews market data drawn from the following surveys: (i) market compensation surveys from Towers Watson, Mercer, Watson Wyatt; (ii) the Comp Analyst by Salary.com survey provided by the Company’s internal human resources department; and (iii) the compensation practices of the “Comparator Group” described below.

 

Due to the Company’s product mix and distinct manufacturing and distribution businesses, the Committee does not believe the Company has true “peers” among publicly traded organizations. Accordingly, commencing in 2008 the Committee, upon Towers Watson’s recommendation, used certain publically traded companies that were, in some respect, comparable to the Company (the “Comparator Group”). These companies were selected based on the following criteria: (i) revenues ranging from $250M to $1.2B; (ii) industrial companies, many with a distribution segment; and (iii) assets of less than $1.0B and annual asset turnover (revenue/total assets) of greater than 1.0.

 

In 2009, the Committee approved the following Comparator Group: A.M. Castle & Co., Circor International, Inc., Empire Resources, Inc., NN, Inc., Olympic Steel, Inc., Koppers Holdings, Inc., Wabtec Corp., Greenbrier Companies, Inc., American Railcar Industries, Inc., Lawson Products, Inc., Haynes International Inc., Skyline Corp., Northwest Pipe Company, Insteel Industries, Houston Wire & Cable Co., RBC Bearings, Inc., DXP Enterprises, Inc., Synalloy Corp., and Portec Rail Products, Inc.

 

Compared to the Comparator Group, the mix of compensation provided to each NEO appears to be competitive and appropriately balanced between long and short-term incentives. The Committee does not require that compensation be set within any range of percentiles.

 

Since 2007, the Committee has consulted with Towers Watson on a variety of executive compensation matters, such as market trends and regulatory updates. The Company does not use Towers Watson to advise on other matters.

 

The NEOs do not have employment or severance agreements, except in the event of a change-in-control of the Company. Executives serve at the will of the Board.

 

The Company’s executive compensation program is intended to create long-term value by retaining and rewarding outstanding leaders and motivating them to perform at the highest level. Incentives are aligned to reward financial and operating performance. After considering the pay practices of other organizations (as derived from the Comparator Group proxy disclosures and compensation surveys), the Committee exercises its judgment in making decisions on executive compensation components, including the amount and the allocation of compensation. The Committee annually reviews and, if appropriate, adjusts the compensation components annually based on market and business conditions.

 

The Committee believes that a significant portion of an executive’s compensation should be delivered through performance-based incentive compensation components. The Committee uses annual financial performance metrics and goals as the basis for motivating and rewarding executives. In addition, the Committee believes that an increase in the Company’s stock price is the best means of rewarding shareholders and executives over the long-term.

 

If the Company’s performance exceeds goals and expectations, the incentive plans pay above the targeted level. If the Company’s performance falls below goals or expectations, the incentive plans pay below the targeted level, or pay nothing if thresholds are not met. Both annual and long-term plans include payout limits to prevent excessive payments should goals prove too conservative.

 

Potential compensation is allocated between each compensation element as follows:

 

 

 

 

Executive officers’ compensation includes base salary, annual incentive awards, and long-term incentive awards.

 

Base salaries are established after considering compensation data from the Comparator Group and other similarly sized organizations, with specific reference to the 50th percentile derived from this data. The NEOs usually are reviewed annually for merit based increase. The Company believes that a single review date

promotes more accurate assessments of its executives’ relative performances and provides a more direct link to the impact that individual performance has on the Company’s overall performance in a given year.

 

In 2009, however, in response to the difficult economic climate, at Mr. Hasselbusch’s request, Mr. Hasselbusch’s salary was reduced for 2009. The other NEOs did not receive merit increases.

 

The Committee annually establishes performance criteria under the Executive Annual Incentive Plan. For 2009, the Committee introduced Free Cash Flow as a performance measure and goal (2009 Goals) because generating and preserving cash was considered to be especially important in a difficult economic environment.

 

In addition, the Committee created more rigorous standards for achieving above target payments related to Pre-Tax Income, while lowering the threshold for minimum awards. The Committee lowered target ROIC in recognition of the difficult economic conditions anticipated for 2009. With it becoming increasingly difficult to attain levels of Pre-Tax Income and/or ROIC target(s), it was anticipated to be unlikely, although possible, for a NEO to receive a maximum award.

 

Under the 2009 Goals, annual incentive payments for 2009 were based upon the extent to which Corporate and/or individual operating units approached or surpassed applicable thresholds for “Pre-Tax Income”⁵, “Free Cash Flow”⁶, and “ROIC”⁷. The Committee believes these measures appropriately reflected the Company’s profitability and held management accountable for the efficient use of Company assets.

 

 

 5 “Pre-Tax Income” means the pre-tax income for the Company or, as applicable, for an Operating Unit for the Fiscal Year, determined in accordance with generally accepted accounting principles, including 100% of the applicable LIFO charge or credit but excluding: (i) the “Milestone Payments” or other amounts, if any, paid to the former shareholders (and their respective successors and assigns) of the DM&E arising from or in connection with the 2007 merger of the DM&E; (ii) all gains or losses arising from sales of capital assets when the sale or purchase price for an individual asset exceeds $50,000; (iii) all expenses, costs, profits, losses or gains attributable to (a) the sale; other than sales of inventory in the ordinary course of business, of more than 25% of the assets of an “Operating Unit” or 50% of the assets of a component in the Fiscal Year, or (b) the acquisition of a business in 2009 for a gross purchase price of more than $1M; (iv) with respect to Operating Units only, the costs of the Plan; and (v) interest, investment gains or losses arising from cash or marketable securities of $105M. Notwithstanding the foregoing, in the event more than 25% of the assets of an Operating Unit or 50% of the assets of a component are sold, excluding sales of inventory in the ordinary course of business, during the Fiscal Year, such Operating Unit’s or component’s, as applicable, target Pre-Tax Income shall be eliminated from all calculations (if a stipulated amount of a component’s assets are sold, the Operating Unit’s target Pre-Tax Incentive Income and corporate target Pre-Tax Income shall be reduced to the extent of the component’s target Pre-Tax Income), together with the component’s or Operating Unit’s, as applicable, profits, losses or Pre-tax Income for the Fiscal Year.

 6 “Free Cash Flow” means the sum of net cash provided by (or used in) operating activities, and proceeds from capital asset sales, reduced by capital expenditures on property plant and equipment as adjusted for unusual gains or losses or other transactions outside of the ordinary course of business.

 7 “ROIC” means, with respect to the Fiscal Year: (A) after tax earnings from continuing operations before interest income and interest expense and amortization charges (tax affected using the effective corporate tax rate) and excluding: (i) all “Milestone Payments” or other amounts, if any, paid to the former shareholders (and their respective successors and assigns) of the DM&E arising from or in connection with the 2007 merger of the DM&E; (ii) all gains or losses arising from sales of capital assets when the gross sale or purchase price for an individual asset exceeds $50,000; and (iii) all expenses, costs, profits, losses, gains, attributable to (a) the sale, excluding sales of inventory in the ordinary course of business, of more than 25% of the assets of an “Operating Unit” or, more than 50% of the assets of a Component, or (b) the acquisition of a business for a gross purchase price exceeding $1M, divided by (B) an average of month end total assets less the sum of cash, marketable securities and non-interest bearing current liabilities, determined in accordance with generally accepted accounting principles.

For the 2009 incentive program each NEO was assigned the following target opportunity as a percent of base salary:

 

 

 

A participant’s base salary was multiplied by this target percentage to obtain a “Target Award”. The table below illustrates the performance measures used for 2009 and the allocation of the assigned Target Award for each NEO:

 

 

Financial Performance payments were adjusted upward or downward based on the actual attainment of targeted Pre-Tax Income, Free Cash Flow and ROIC as set forth below:

 

Target Pre-Tax Income Multiplier

 

 

Corporate Target Pre-Tax Income was $21.8M and 107.3% was achieved. Mr. Foster’s applicable Operating Unit’s Target was $10.5M and 126.4% was achieved. Mr. Fisher’s applicable Operating Unit’s Target was $9.6M and 120.8% was achieved.

 

Target ROIC Multiplier

 

 

Corporate Target ROIC was 14% and an ROIC of 13.2% was achieved.

Target Free Cash Flow Multiplier

 

 

Corporate Target Free Cash Flow was $24.9M and 78.8% was achieved. Mr. Foster’s applicable Operating Unit’s Target was $21.8M and the amount achieved was below the threshold required for any payment. Mr. Fisher’s applicable Operating Unit’s Target was $0.7M and the amount achieved was below the threshold required for any payment.

 

Individual performance payments were based on criteria established by the CEO, but with the payments being paid only after the Committee had approved the criteria and the resulting payments. Mr. Russo’s criteria included acquisition efforts, the “Lean Enterprise” initiative, improving customer relations, managing accounts receivable and improving information technologies; Mr. Russo achieved 97% of these goals. Mr. Foster’s criteria included cash flow objectives, implementing a customer management software system, and leading a continuous improvement event; Mr. Foster achieved 50% of these goals. Mr. Fisher’s criteria included cash flow objectives, and leading a continuous improvement event; Mr. Fisher achieved 50% of his goals. Mr. Kasel’s criteria included various continued improvement initiatives, focused on safety, quality and manufacturing excellence; Mr. Kasel achieved 91% of his goals.

 

The Committee approved the 2010 Performance Measures and Goals under which annual incentive payments for 2010 will be based upon the extent to which consolidated and/or individual operating units approach or surpass, applicable thresholds for “Pre-Tax Income”, “Inventory Turnover”, and, for Corporate only, “ROIC”. For 2010 the Committee replaced Free Cash Flow with Inventory Turnover, believing that Inventory Turnover will more specifically measure key goals for 2010.

 

Additionally, the Committee reduced the award for achieving target Pre-Tax Income, recognizing that it was appropriate to lower the award for achieving reduced financial targets in these difficult economic times. Finally, the Committee excluded from the calculation of Pre-Tax Income certain expenses related to possible acquisitions because the Committee neither wished to penalize executives for exploring acquisition opportunities nor to include acquisition results in the calculation of 2010 results.

 

The Committee believes that the Annual Plan and the Omnibus Plan together create competitive short-term rewards while providing appropriate and consistent long-term incentives.

 

The Omnibus Incentive Plan, as amended, provides for the issuance of up to 500,000 shares of the Company’s common stock, which may include newly-issued or treasury shares, through the issuance of stock options or the award of shares of common stock. The Omnibus Plan also provides for the award of performance grants.

 

In 2009, the Committee approved annual grants of equity to each NEO. This program consists of two components: time vested restricted stock and performance share units. The program provides NEOs with an incentive to remain with the Company, provides a means for executives to build ownership in the Company and aligns the value of awards with the Company’s long-term financial performance.

 

The time vested restricted stock grant recognizes the cyclicality of the Company’s markets and promotes executive retention. Restricted stock also aligns NEO compensation and Company performance by making some of the incentive opportunity dependent upon appreciation of shareholder value. The restricted stock awards vest after four years.

 

The performance share units were designed to align compensation and Company performance by making the NEO’s long-term incentive compensation over each three year performance period based upon the Company’s return on invested capital (“ROIC”⁸). A new three year performance period begins at the start of each year, creating overlapping three year performance periods.

 

After consulting survey data furnished by Towers Watson, the Committee decided to issue equity in the form of time vested common stock and performance share units, for the three year performance period 2009-2011, inclusive, valued at target as follows:

 

 

These targets are the same as those used for 2008-2010 awards. The Committee believes that grant amounts for such long-term awards, so long as the Company remains competitive in its long-term incentive practices, rarely should be changed, consistent with the long-term objectives in the program.

 

The Committee plans to review performance goals and targets annually for each successive three year performance period. In 2010, the Committee decided to use the same ROIC target values for the performance period 2010-2012 as were used for the performance period 2009-2011.

 

Approximately 25% of the long-term incentive awards were distributed through the issuance of unvested common stock (“Restricted Shares”), which will vest on March 4, 2013. A value of $23.21/share

 

 

 8 For purposes of the three year performance period 2010-2012, ROIC for each year means: (a) after tax earnings from continuing operations before interest income and interest expense and amortization charges (tax affected using the effective corporate tax rate) and excluding all “Milestone Payments” or other amounts, if any, paid to the former shareholders (and their respective successors and assigns) of the DM&E arising from or in connection with the 2007 merger of the DM&E, divided by (b) an average of month end total assets less the sum of cash, marketable securities and non-interest bearing current liabilities, determined in accordance with generally accepted accounting principles.

(the average closing price of the Company’s common stock on trading days between February 18 and February 29, 2009) was used to determine the amount of unvested common stock issued.

 

The remaining 75% of an NEO’s long-term incentive award was “Performance Share Units”, valued in the same manner as the restricted stock. The Performance Share Units for the performance period from 2009-2011 will be converted into Company common stock based upon the Company’s average ROIC over the three year performance period.

 

The NEOs were awarded the following Restricted Shares and Performance Share Units:

 

 

The number of Performance Share Units to be earned at the end of the performance period and awarded to a participant in common stock shall be determined by multiplying the participant’s Performance Share Units by the “Percent of Performance Share Units” earned that corresponds to the Company’s “Average ROIC” for the three year performance period:

 

 

The Company’s 401(k) and Profit Sharing Plan, a defined contribution retirement plan, qualifying under Section 401(k) of the Code and covering all salaried employees, includes an automatic enrollment provision, two year vesting, and immediate eligibility and Company match. In 2009, the Company matched 100% of the first 1% of the employee’s compensation, then matched 50% of the employee’s next 6% of contribution. For 2009, the Company also made a discretionary contribution of $750,000 to the 401(k) Plan which will be shared by all participants based primarily on their respective compensation and, to a lesser extent, years of service, subject to Code limitations. The Company’s contributions for 2009 to the 401(k) Plan for the NEOs are included in the Summary Compensation Table (see page 24).

 

The Company also maintains a Supplemental Executive Retirement Plan under which executive officers may accrue benefits unavailable under the 401(k) Plan because of Code limitations. These benefits are also included in the Summary Compensation Table.

The Company maintains these retirement plans in order to provide a competitive opportunity for its employees to obtain a secure retirement.

 

On December 9, 2008, the Board of Directors, upon the prior recommendation of the Committee, adopted our Key Employee Separation Plan which may provide certain severance payments upon a “Change-in-Control” of the Company. The Committee believes that providing severance in a “Change-in-Control” situation is beneficial to shareholders so that executives may remain indifferent when evaluating a transaction that may be beneficial to shareholders yet could negatively impact the continued employment of the executive. The Company has selected its officers as participants in the Plan. The current participants include the NEOs and the Company’s other officers. In the event a participant’s employment terminates due to a “Change-in-Control” of the Company, each participant is to receive the participant’s base salary plus the average of the participant’s annual cash bonuses paid or due and payable over the prior three calendar years multiplied by a “Benefit Factor”.

 

The participants’ Benefit Factors are:

 

 

Each participant also will be paid all amounts otherwise owed to the participant and $15,000 for outplacement services. Medical, dental and vision insurance will be maintained for specified durations. A participant will not be entitled to these payments and benefits under the Plan unless both (i) a “Change-in-Control” has occurred; and (ii) the participant’s employment has been terminated (involuntarily or for “good reason”, but not for “cause”). Certain equity also may become vested upon the occurrence of a “Change-in-Control” in accordance with the provisions of the respective equity plans.

 

Any payment to a participant that would constitute an “excess parachute payment” within the meaning of Section 280G of the Internal Revenue Code will cause the payment to be reduced to an amount, expressed in present value, which maximizes the aggregate present value of the payment, without causing any payment to be subject to the limitation of deduction under Section 280G. See the table at page 28 for estimates on the benefits the NEOs would have received if a participant was terminated on December 31, 2009, in connection with a “Change-in-Control”.

 

The Company has adopted equity ownership requirements or guidelines. Within the later of five years after being elected to the office or 2013, the CEO is expected to own stock valued at least 5 times his salary. Senior Vice Presidents are expected to own stock valued at least 2.5 times their respective salaries, and Vice Presidents and the Controller are expected to own stock valued at least 1.5 times their respective salaries. Shares that count toward the equity ownership requirements include all vested or unvested restricted shares and, until the expiration of the three year performance period, unearned performance share units at target. Unexercised stock options are not included for ownership purposes. The Committee believes that such ownership requirements will discourage executives from taking any excessive long-term risks.

 

The Committee has considered the impact of the applicable tax laws with respect to compensation paid under the Company’s plans, arrangements and agreements. In certain instances, applicable tax laws impose potential penalties on such compensation and/or result in a loss of deduction to the Company for such compensation.

 

Section 409A.  Participation in, and compensation paid under, the Company’s plans, arrangements and agreements may, in certain instances, result in the deferral of compensation that is subject to the requirements of Section 409A of the Code. Generally, to the extent that the Company’s plans, arrangements and agreements fail to meet certain requirements under Section 409A of the Code, compensation earned there under may be subject to immediate taxation and tax penalties. It is the intent of the Company that its plans, arrangements and agreements will be structured and administered in a manner that complies with the requirements of Section 409A of the Code.

 

Section 162(m).  With certain exceptions, Section 162(m) of the Code limits the Company’s deduction for compensation in excess of $1M paid to certain covered employees. Compensation paid to covered employees is not subject to the deduction limitation if it is considered “qualified performance-based compensation” within the meaning of Section 162(m) of the Code. While the Committee considers the tax impact of any compensation arrangement, the Committee evaluates such impact in light of our overall compensation objectives. The Committee reserves the right to approve non-deductible compensation if it believes it is in the best interests of the Company’s shareholders. Additionally, if any provision of a plan or award that is intended to be performance-based, within the meaning of Section 162(m) of the Code, is later found to not satisfy the conditions of Section 162(m), the Company’s ability to deduct such compensation may be limited.

 

The Company has adopted policies regarding the adjustment or recovery of awards or payments in the event that the Company is required to prepare an accounting restatement due to material non-compliance with any financial reporting requirement or if the performance measures upon which they are based are restated or otherwise adjusted with respect to the Executive Annual Incentive Plan commencing in 2010, as well as all performance share units awarded under the Omnibus Plan.

 

At various times in the past, the Company has adopted certain employee benefit plans in which NEOs have been permitted to participate. The Company also provides certain executive officers with life, long-term disability and health insurance programs. The incremental cost to the Company of the NEOs’ benefits provided under these programs is included in the Summary Compensation Table (see page 24). Benefits under these plans are not directly or indirectly tied to Company performance.

 

The Company also provides limited perquisites to the NEOs which may include cash car allowances or use of a leased car and membership in athletic or social clubs. The Company believes that these perquisites tend to promote the Company’s image, to provide outlets for interaction between the Company’s executives and the Company’s vendors/suppliers and other business associates and/or to encourage healthy activities. The Company’s incremental costs for these perquisites are included in the Summary Compensation Table.

 

The Company does not make available post-retirement health coverage for the NEOs.

 

The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis with management and based on this review and discussion, it has recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this proxy statement and incorporated by reference into the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2009.

 

William H. Rackoff, Chairman

G. Thomas McKane

Peter McIlroy II

 

The following table sets forth information regarding compensation of the Company’s NEOs for the years 2007, 2008 and 2009:

 

 

 

 

The following table sets forth vesting information regarding outstanding stock options, options that were unexercisable as of December 31, 2009 and unvested stock awards awarded to the NEOs as of December 31, 2009:

 

 

 

 

The following table provides information on 2009 Non-Equity and Equity Incentive Plan Awards:

 

 

 

 

The following table discloses the contribution earnings and balances under each of the Company’s defined contribution or other plan that provides for the deferred compensation that is not tax qualified:

 

 

 

As discussed at page 21, the Company has established the Key Employee Separation Plan in order to retain and motivate its executives to focus on the Company’s successful operation; regardless of any real or perceived threat from a “Change-in-Control”. The following table shows the benefits that the NEOs would have each received if on December 31, 2009, the payment of such benefits had been triggered by a “Change-in-Control”:

 

 

 

The Audit Committee of the Board of Directors is composed of independent directors and oversees the Company’s financial reporting process on behalf of the Board of Directors. The Audit Committee is responsible for the appointment, compensation and retention of the Corporation’s independent registered public accountants. In fulfilling its oversight responsibilities, the Audit Committee reviewed with management the audited financial statements of the Company for the year ended December 31, 2009. The Audit Committee’s charter is available on the Company’s website (www.lbfoster.com). The Audit Committee held seven (two of which were telephonic) meetings during fiscal year 2009.

 

Management is responsible for the Company’s internal controls and for the financial reporting process. With respect to 2009, management advised the Audit Committee that all annual and quarterly financial statements reviewed by the Audit Committee had been prepared in accordance with generally accepted accounting principles.

 

The Audit Committee met and held discussions with Ernst & Young LLP, who are responsible for performing an independent audit of the Company’s financial statements in accordance with generally accepted auditing standards and for issuing a report thereon, regarding the audited financial statements, including a discussion of the quality, not just the acceptability, of the Company’s accounting principles and Ernst & Young’s judgment regarding these matters. The Audit Committee has discussed with the independent registered public accountants the matters required to be discussed under auditing standards generally accepted in the United States, including those matters set forth in Statement on Auditing Standards Nos. 61 and 90 (Communications with Audit Committee). The Audit Committee has received the written disclosures and the letter from Ernst & Young LLP required by applicable requirements of the Public Company Accounting Oversight Board regarding the independent registered public accountant’s communications with the Audit Committee concerning independence, and has discussed with Ernst & Young LLP the independent registered public accountant’s independence. The Audit Committee concluded that Ernst & Young LLP’s independence had not been impaired.

 

The Audit Committee discussed with the Company’s internal auditors and independent registered public accountants the overall scope and plans for their respective audits. The Audit Committee meets with the independent registered public accountants, with and without management present, to discuss the results of their examinations, their evaluations of the Company’s internal controls, and the overall quality of the Company’s financial reporting. The Audit Committee discussed the results of Ernst & Young LLP’s quarterly review procedures with the Company’s Chief Executive Officer, Chief Financial Officer and Controller and with Ernst & Young LLP prior to the Company’s release of quarterly financial information.

 

In reliance on the reviews and discussions referred to above, the Audit Committee recommended to the Board of Directors that the audited financial statements be included in the Annual Report on Form 10-K for the year ended December 31, 2009, for filing with the Securities and Exchange Commission.

 

AUDIT COMMITTEE

 

Diane B. Owen, Chairman
Peter McIlroy II
Suzanne B. Rowland

 

Management is not aware, at this time, of any other matters to be presented at the meeting. If, however, any other matters should come before the meeting or any adjournment thereof, the proxies will be voted at the discretion of the proxy holders.

 

Representatives of Ernst & Young LLP are expected to be in attendance at the meeting to respond to appropriate questions from shareholders and will have an opportunity to make a statement if they so desire.

 

Shareholders’ proposals intended to be presented at the Company’s 2011 annual meeting must be received by the Company no later than December 31, 2010, to be considered for inclusion in the Company’s proxy statement and form of proxy for that meeting. Pursuant to the Company’s By-Laws, a nomination of a person for election as a director and any other proposal made by a shareholder shall not be considered at a shareholders’ meeting unless written notice of the nomination or proposal has been received by the Company’s Secretary by the later of (i) the date which is 90 days in advance of the meeting date, or (ii) the seventh calendar day following the first public announcement of the date of the meeting.

 

Pittsburgh, Pennsylvania

April 9, 2010