What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-11-08 compared with 2022-08-09 · 192 added, 174 removed, 215 unchanged (63% of the section changed)

13 unchanged sentences

volatility in the prices of oil and natural gas and the related impact on the midstream energy markets, which could result in cost mitigation actions, including shutdowns or furlough periods;

a continuation or worsening of the adverse economic conditions in the markets we serve, including possible recession in the markets we serve, whether as a result of the current COVID-19 pandemic, including its impact on labor markets, supply chains, and other inflationary costs, travel and demand for oil and gas, the continued deterioration in the prices for oil and gas, governmental travel restrictions, project delays, and budget shortfalls, or otherwise;

a continuation or worsening of the adverse economic conditions in the markets we serve, including recession, whether as a result of the current COVID-19 pandemic or otherwise, including its impact on labor markets, supply chains, and other inflationary costs, travel and demand for oil and gas, the continued volatility in the prices for oil and gas, governmental travel restrictions, project delays, and budget shortfalls, or otherwise;

volatility in the global capital markets, including interest rate fluctuations, which could adversely affect our ability to access the capital markets on terms that are favorable to us;

restrictions on our ability to draw on our credit agreement, including as a result of any future inability to comply with restrictive covenants contained therein;

a continuing decrease in freight or transit rail traffic, including as a result of the ongoing COVID-19 pandemic;

a continuing decrease in freight or transit rail traffic, including as a result of the ongoing COVID-19 pandemic, strikes, or labor stoppages;

environmental matters, including any costs associated with any remediation and monitoring of such matters;

the risk of doing business in international markets, including compliance with anti-corruption and bribery laws, foreign currency fluctuations and inflation, and trade restrictions or embargoes;

our ability to effectuate our strategy, including cost reduction initiatives, and our ability to effectively integrate acquired businesses or to divest businesses, such as the recent disposition of the Piling business and Track Components business, and acquisitions of the Skratch Enterprises Ltd.

and Intelligent Video Ltd.

businesses and to realize anticipated benefits;

costs of and impacts associated with shareholder activism;

22 unchanged sentences

The Company maintains locations in North America, South America, Europe, and Asia.

On August 12, 2022, the Company acquired the operating assets of VanHooseCo Precast LLC (“VanHooseCo”), a privately-held business headquartered in Loudon, Tennessee specializing in precast concrete walls, water management products, and traditional precast products for the industrial, commercial and residential infrastructure markets for $52,203 net of cash acquired, at closing, subject to the finalization of net working capital adjustments.

VanHooseCo has been included in the Company’s Precast Concrete Products segment.

On June 21, 2022, the Company acquired the stock of Skratch Enterprises Ltd.

(“Skratch”) for $7,402.

(“Skratch”) for $7,402, which is inclusive of deferred payments withheld by the Company of $1,228, to be paid over the next five years or utilized to satisfy post-closing working capital adjustments or indemnity claims under the purchase agreement.

Skratch is an industry leader in digital system integration with expertise in advanced digital display technologies and capabilities currently serving retail markets in the U.K.

The Company has collaborated with Skratch on projects in the past and believes joining the two companies will unlock the broader market potential for our respective solutions in the visual communications space.

Skratch is reported within the Technology Services and Solutions business unit in the Rail, Technologies, and Services segment.

Sequentially, sales increased 33.1% versus the 2022 first quarter, which is consistent with historic seasonal trends.

Orders and backlog levels for the quarter ended June 30, 2022 also remained strong, a reflection of a robust demand environment in markets served.

Net sales for the second quarter of 2022 were $131,515, a $23,007, or 14.9%, decrease versus the prior year quarter.

The now divested Piling Products division contributed $22,091 of the year over year sales decline.

Net sales increased in the Precast Concrete Products segment by $3,538 and Steel Products and Measurement segment, as adjusted to exclude the Piling Products division of , by $2,531, which was partially offset by a $6,985 decrease in Rail, Technologies, and Services segment sales.

Gross profit for the three months ended June 30, 2022 was $23,293, a $2,868 decrease, or 11.0%, from the prior year quarter.

The decline in gross profit was driven primarily by the Piling Products divestiture, coupled with lower volume and higher input costs, partially offset by favorable mix.

Consolidated gross profit margin increased by 80 basis points to 17.7% when compared to the prior year quarter, and the Company is generally seeing progress on margin improvement through its recent pricing initiatives and favorable mix.

Gross profit decreased in the Rail, Technologies, and Services segment by $999, driven by the $6,985 decrease in sales.

Rail, Technologies, and Services gross profit margins increased 30 basis points due to increased sales in its higher margin Global Friction Management and Technology Services and Solutions business units which were partially offset by the lower margin Rail Products business unit.

The Precast Concrete Products segment gross profit decreased $572, or 14.6%, despite increased sales volumes.

The decline in gross profit margin in Precast Concrete Products, which was down 530 basis points compared to the prior year quarter, is principally attributable to continued higher raw material and labor costs, coupled with unfavorable building sales mix compared to last year’s quarter.

The Steel Products and Measurement segment gross profit declined from the prior year by $1,297.

This decline was primarily attributable to the sale of the Piling Products division of $2,056 and also due to inflationary pressure, particularly in the Bridge Products division.

However, Steel Products and Measurement gross profit margin was up 420 basis points compared to the prior year, a reflection of a more favorable mix after the sale of the lower margin Piling Products business.

The Company continues to focus on margin improvement measures to counteract inflationary pressures experienced.

Selling and administrative expenses for the three months ended June 30, 2022 decreased by $373, or 1.9%, from the prior year, primarily driven by decreases in expenses associated with the sale of the Piling Products division, partially offset by an increase related to strategic transformation plan and acquisition related expenses.

Selling and administrative expenses as a percent of net sales were 14.7% versus 12.8% in the prior year quarter, a 190 basis points increase, due primarily to the decline in sales associated with the Piling Products divestiture.

Other income - net for the three months ended June 30, 2022 was $701 while Other expense - net was $70 in the prior year quarter.

Insurance proceeds received in the current year quarter and a favorable $489 purchase price adjustment from the sale of Piling Products were the drivers of the increase.

The Company’s effective income tax rate for the three months ended June 30, 2022 was 29.4%, compared to 28.5% in the prior year quarter.

The Company’s effective income tax rate for the quarter ended June 30, 2022 differed from the federal statutory rate of 21% primarily due to state income taxes, nondeductible expenses, and research tax credits.

Net income for the three months ended June 30, 2022 attributable to L.B.

On August 1, 2022, the Company divested the assets of its rail spikes and anchors track components business (“Track Components”) located in St-Jean-sur-Richelieu, Quebec, Canada.

Cash proceeds from the transaction were $7,795, subject to indemnification obligations and working capital adjustments and a loss on sale of $447 was recorded in “Other expense (income) - net.” The Track Components business was reported in the Rail Products business unit within the Rail, Technologies, and Services segment.

On September 24, 2021, the Company executed the sale of its Piling Products (“Piling”) division for $23,902 in total proceeds.

The sale included substantially all inventory held by the Company associated with the division.

The Piling Products division is included in the Fabricated Steel business unit within the legacy Infrastructure Solutions segment.

Net sales for the third quarter of 2022 were $130,015, essentially unchanged versus the prior year quarter.

However, net sales increased 8.7% organically and 5.5% from acquisitions, which was offset by a 14.3% decrease from divestitures.

Sales activity includes a 4.6% increase in the Rail, Technologies, and Services segment, a 60.6% increase in the Precast Concrete Product segment, and a 37.6% decrease in the Steel Products and Measurement segment.

Gross profit for the three months ended September 30, 2022 was $23,096, an $821 increase, or 3.7%, from the prior year quarter.

The increase in reported gross profit was driven primarily by the Precast Concrete Product segment, which increased by $2,929, or 107.8%, due in part to the VanHooseCo acquisition as well as improved margins in the legacy Precast Concrete Products business.

Partially offsetting the increase was a decline in gross profit in the Steel Products and Measurement segment of $1,556 due to the Piling divestiture, as well as a more modest decline of $552 in Rail, Technologies, and Services.

Gross profit in the quarter included a $3,956 million adverse impact associated with the settlement of certain long-term commercial contracts related to the multi-year Crossrail project in the Company’s Technology Services and Solutions business in the United Kingdom.

This settlement also reduced net sales for the Rail, Technologies, and Services segment by $3,956.

Consolidated gross profit margin increased by 70 basis points to 17.8% when compared to the prior year quarter, with the increase attributable to the Precast Concrete Product segment, which was up 450 bps compared to the prior year period due to the VanHooseCo acquisition as well as improved margins in the legacy Precast Concrete Products business, and the Steel Products and Measurement segment which had a margin increase of 230 bps over the prior year quarter due to the sale of the lower margin Piling business.

The Rail, Technologies, and Services segment margin decreased by 150 bps during the current quarter due to the impact of the Crossrail settlement as well as higher sales in the lower margin Rail Products line of business.

Selling and administrative expenses for the three months ended September 30, 2022 increased by $2,562, or 12.8%, from the prior year, primarily driven by a $1,443 increase in expenses associated with the Company's ongoing strategic transformation activities, including costs associated with the Company’s acquisition and divestiture activity, and an increase in salary and incentive costs.

Selling and administrative expenses as a percent of net sales were 17.4% versus 15.4% in the prior year quarter, a 200 basis point increase.

Other expense - net for the three months ended September 30, 2022 was $168 while other income - net was $2,880 in the prior year quarter, the change was due almost entirely to the loss of $447 on the sale of Track Components in the current year quarter compared to the gain on the sale of the Piling business of $2,741 in the prior year quarter.

The Company’s effective income tax rate for the three months ended September 30, 2022 was 7.7%, compared to 23.2% in the prior year quarter.

The Company’s provision for income taxes for the quarter ended September 30, 2022 included a discrete income tax expense of $330 for a change in our permanent reinvestment assertion with respect to the undistributed earnings in Canada, as a result

of the divestiture of our Track Components business located in St-Jean-sur-Richelieu, Quebec, Canada.

The Company’s effective income tax rate for the quarter ended September 30, 2022 differed from the federal statutory rate of 21% primarily due to state income taxes, nondeductible expenses, research tax credits and withholding taxes on excess cash available for repatriation from foreign affiliates.

Net loss for the three months ended September 30, 2022 attributable to L.B.

Foster Company was $2,077, or $0.20 per diluted share, a decrease of $4,419, or $0.42 per diluted share, from the prior year quarter.

The decrease was primarily driven by lower overall sales volumes primarily associated with the sale of the Piling Products business and continued inflationary pressure.

The Company’s consolidated backlog (a) was $250,845 as of June 30, 2022, a decrease of $2,386, or 0.9%, from the prior year, with increases across the Company offset by the divested Piling Products division, which contributed $33,682 to the year over year decline.

The Rail, Technologies, and Services and Precast Concrete Product segments reported a $29,437 and $9,094 backlog increase versus the prior year quarter, respectively, while the Steel Products and Measurement segment, adjusted for the Piling Products divestiture, reported a decrease of $7,235 versus the prior year quarter.

Sequentially, consolidated backlog (a) increased $6,227, or 2.5% from

March 31, 2022.

Order levels (a) for three months ended June 30, 2022, when adjusted for the Piling Products sale, increased by $27,971, or 24.7%, from the prior year quarter.

While the current inflationary cost environment is expected to continue to put pressure on margins across our businesses throughout 2022, the sequential 110 basis point margin improvement versus the prior quarter is an indication of positive progress toward mitigating such pressures.

Actions to continue to mitigate inflationary impacts as much as possible are ongoing.

In addition, the Company continues to take proactive steps to manage disruptions in raw materials, labor, supply chain, service partners, and other lingering COVID-19 related effects, and experienced an ease in these impacts during the quarter ended June 30, 2022.

With the federal infrastructure support programs announced in 2020 and 2021, such as the U.S.

Infrastructure Investment and Jobs Act passed in November 2021, the Company is maintaining its optimistic outlook regarding longer-term trends in the North American freight and transit markets given supply chain and transportation needs coupled with expected government-subsidized investment.

The Company believes that many of its businesses will continue to directly benefit from infrastructure investment activity.

Additionally, with the proceeds from the Piling division divestiture, coupled with the additional flexibility and capacity resulting from the amendment and extension of our credit agreement in August 2021, the Company believes that it has significant capacity to pursue organic and acquisitive growth opportunities in 2022 and beyond.

The Company continues to prioritize its portfolio transformation, as evidenced from the acquisitions of Skratch Enterprises Ltd.

and Intelligent Video, Ltd.

on June 21, 2022, and July 6, 2022, respectively, and the divested the assets of its rail spikes and anchors track components business on August 1, 2022.

The decrease was primarily driven a $3,956 expense associated with the settlement of certain long-term commercial contracts related to the Crossrail project and by non-routine costs of $1,443 associated with the Company's acquisition and divestiture activity, as part of its overall portfolio transformation strategy.

The prior year net income also benefited from the gain on the sale of the Piling business, which was $2,741.

The Company’s consolidated backlog (a) was $272,777 as of September 30, 2022, an increase of $41,051, or 17.7%, from the prior year.

The Precast Concrete Product and Steel Products and Measurement segments reported a $17,048 and $24,954 backlog increase versus the prior year quarter, respectively, while the Rail, Technologies, and Services segment reported a decrease of $951 versus the prior year quarter.

New order levels (a) for three months ended September 30, 2022 decreased by $1,592, or 1.1%, from the prior year quarter.

New orders increased 5.0% organically and 5.6% from acquisitions, offset by a 11.7% decrease from divestitures.

While the present inflationary environment in labor and raw materials continues to pressure margins across the business, the Company has realized some benefit from cost and pricing mitigation actions taken, as evidenced in the Company's third quarter results.

These mitigation efforts, along with the Company's portfolio transformation activities, drove the 70 basis point increase in margins from the prior year period, despite the $3,956 million unfavorable impact on gross profit levels due to the Crossrail adjustment.

The Company continues to prioritize growth and margin improvement as well as its strategic transformation into a technology-focused, high growth infrastructure solutions provider, as evidenced from the acquisition of VanHooseCo and the divestiture of the Company’s Track Components business that were completed during the quarter.

The additional flexibility and capacity resulting from the amendments to the Company’s credit agreement completed in 2021 and 2022 also provides the resources needed to fund operations and execute on any additional organic or acquisitive growth opportunities through the balance of 2022 and beyond.

As recessionary market conditions persist and are in some ways expanding, these conditions may impact demand for the Company’s offerings.

However, the Company expects that many of its businesses will continue to directly benefit from infrastructure investment activity, including funding benefits from U.S.

Infrastructure Investment and Jobs Act passed in November 2021.

The Company is maintaining its optimistic outlook regarding longer-term trends in the North American freight and transit markets given supply chain and transportation needs coupled with expected government-subsidized investment.

(a) The Company defines new orders as a contractual agreement between the Company and a third-party in which the Company will, or has the ability to, satisfy the performance obligations of the promised products or services under the terms of the agreement.

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Three Months Ended

June 30, Percent

September 30, Percent

(Decrease) Percent of Total Net Sales

Three Months Ended

September 30,

2022 2021 2022 vs.

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Three Months Ended

June 30, Percent

September 30, Percent

(Decrease) Gross Profit Percentage

Three Months Ended

September 30,

2022 2021 2022 vs.

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Three Months Ended

June 30, Percent

September 30, Percent

(Decrease) Percent of Total Net Sales

Three Months Ended

September 30,

2022 2021 2022 vs.

2 unchanged sentences

Amortization expense 1,599 1,462 9.4 1.2 1.1

Operating profit 2,480 4,924 (49.6) 1.9 3.2

Operating (loss) profit (1,120) 758 (247.8) (0.9) 0.6

Interest expense - net 993 722 37.5 0.8 0.6

Other (income) expense - net (701) 70 ** (0.5) —

Income before income taxes 2,797 3,993 (30.0) 2.1 2.6

Income tax expense 821 1,139 (27.9) 0.6 0.7

Net income $ 1,976 $ 2,854 (30.8 %) 1.5 % 1.8 %

Other expense (income) - net 168 (2,880) 105.8 0.1 (2.2)

(Loss) income before income taxes (2,281) 2,916 (178.2) (1.8) 2.2

Income tax (benefit) expense (176) 676 (126.0) (0.1) 0.5

Net (loss) income $ (2,105) $ 2,240 (194.0 %) (1.6 %) 1.7 %

Net loss attributable to noncontrolling interest (28) (30) 6.7 (0.0) (0.0)

Net income attributable to L.B.

Net (loss) income attributable to L.B.

Foster Company $ (2,077) $ 2,270 (191.5 %) (1.6 %) 1.7 %

** Results of the calculation are not considered meaningful for presentation purposes.

Results of Operations - Segment Analysis

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Three Months Ended

June 30, (Decrease)/Increase Percent

(Decrease)/Increase

September 30, Increase/(Decrease) Percent

Increase/(Decrease)

2022 2021 2022 vs.

5 unchanged sentences

Segment operating profit percentage 0.7 % 4.2 % (3.5 %) (83.3 %)

Second Quarter 2022 Compared to Second Quarter 2021

The Rail, Technologies, and Services segment sales for the three months ended June 30, 2022 decreased by $6,985, or 7.9%, compared to the prior year quarter.

The decrease in the Rail Products business unit was driven by the timing of customer shipments versus the prior year quarter.

The Rail Products business unit declined by $8,419, or 13.0%, offsetting a sales increase in the Global

Friction Management business unit of $2,082, or 17.1%.

The Technology Services and Solutions business unit had a more modest sales decrease of $648, or 5.4%, compared to the prior year quarter.

The decrease in the Rail Products business unit was driven by timing of customer order fulfillment versus the prior year quarter.

The sales increase in the Global Friction Management business unit is due to strength in North American markets served.

Third Quarter 2022 Compared to Third Quarter 2021

On August 1, 2022, the Company divested the assets of its Track Components business.

Cash proceeds from the transaction were $7,795, subject to indemnification obligations and working capital adjustments.

The Rail, Technologies, and Services segment sales for the three months ended September 30, 2022 increased by $3,408, or 4.6%, compared to the prior year quarter.

The Rail Products business unit increased by $7,140, or 14.8%, and the Global Friction Management business unit increased by $1,428, or 11.7%, offsetting a sales decrease in the Technology Services and Solutions business unit of $5,160, or 38.7%, compared to the prior year quarter.

The increase in the Rail Products business unit was driven by timing of customer order fulfillment versus the prior year quarter, which was partially offset by the impact of the Track Components divestiture.

The sales decrease in the Technology Services and Solutions business unit was driven by an unfavorable settlement adjustment of $3,956 for certain long-term commercial contracts related to the multi-year Crossrail project along with foreign currency-related headwinds.

The Rail, Technologies, and Services segment gross profit decreased by $552, or 4.0%, from the prior year quarter.

The decrease was driven by overall lower sales volumes.

Segment gross profit margins increased by 30 basis points as a result of stronger sales in the higher margin Global Friction Management and Technology Services and Solutions business units.

Operating profit was $3,998, a $1,659 decrease over the prior year quarter, due primarily to lower overall gross profit levels and higher selling and administrative expenses.

During the current quarter, the Rail, Technologies, and Services segment had an increase in new orders of 31.1% compared to the prior year period, driven almost entirely by the Rail Products business unit.

Backlog as of June 30, 2022 was $132,017, an increase of $29,437, or 28.7%, versus June 30, 2021, continued to show strength.

On June 21, 2022, the Company entered into an agreement to purchase the stock of Skratch Enterprises Ltd.

(“Skratch”) for $7,402.

The decrease was driven by the $3,956 Crossrail settlement impact on Technology Services and Solutions gross profit, which was offset by increases in Rail Products and Global Friction Management commensurate with higher sales levels.

Segment gross profit margins decreased by 150 basis points as a result of stronger sales in the lower margin Rail Products business unit, as well as the Crossrail settlement impact.

Operating profit was $539, a $2,552 decrease over the prior year quarter, due primarily to lower overall gross profit levels and higher selling and administrative expenses stemming from increased salary, incentive, travel, and advertising costs.

During the current quarter, the Rail, Technologies, and Services segment had a decrease in new orders of $27,447, or 32.7%, compared to the prior year period.

The decrease is due primarily to differences in customer order timing in the Rail Distribution business, as well as an impact of $3,079 due to the Track Components divestiture.

Backlog as of September 30, 2022 was $108,864, a decrease of $951, or 0.9%, versus the prior quarter, $1,792 of which is related to the divested Track Components division.

Precast Concrete Products

Three Months Ended

June 30, Increase/(Decrease) Percent

Increase/(Decrease)

September 30, Increase Percent

2022 2021 2022 vs.

3 unchanged sentences

Gross profit percentage 19.6 % 15.1 % 4.5 % 29.4 %

Segment operating (loss) profit $ (125) $ 1,148 $ (1,273) (110.9 %)

Segment operating (loss) profit percentage (0.5) % 5.7 % (6.2 %) (108.4 %)

Second Quarter 2022 Compared to Second Quarter 2021

The Precast Concrete Products segment sales for the three months ended June 30, 2022 increased by $3,538, or 17.6%, compared to the prior year quarter, which is a continued reflection of the strong demand environment both in the southern and northeastern United States markets served.

Precast Concrete Products gross profit decreased by $572, or 14.6%, from the prior year quarter.

The decline is principally attributable to continued high raw material and labor costs, coupled with an unfavorable building sales mix compared to last year’s quarter.

Segment gross profit margin declined by 530 bps for the second quarter of 2022.

Operating loss for the second quarter of 2022 declined by $1,273 when compared to the operating profit in the prior year quarter, due to reduction in gross profit margin and increases in selling and administrative costs.

During the quarter, the Precast Concrete Products segment had an increase in new orders of 39.4% compared to the prior year quarter;

another reflection of the strong demand environment.

Backlog as of June 30, 2022 was $71,507, an increase of $9,094, or 14.6%, from June 30, 2021, remaining at historically high levels.

Segment operating profit $ 1,245 $ 144 $ 1,101 **

Segment operating profit percentage 4.3 % 0.8 % 3.5 % **

** Results of the calculation are not considered meaningful for presentation purposes.

Third Quarter 2022 Compared to Third Quarter 2021

On August 12, 2022, the Company acquired the operating assets of VanHooseCo for $52,540.

VanHooseCo reported sales of $6,353, gross profit of $1,309 and operating profit of $397, which are included in the Precast Concrete Products results for the three months ended September 30, 2022.

The Precast Concrete Products segment sales for the three months ended September 30, 2022 increased by $10,884, or 60.6%, compared to the prior year quarter, which is the result of the VanHooseCo acquisition and a continued reflection of the strong demand environment in the southern United States markets served.

Precast Concrete Products gross profit increased by $2,929, or 107.8%, from the prior year quarter.

The increase is partially attributable to the VanHooseCo acquisition as well as higher overall sales volumes and stronger margins from the legacy precast business.

During the quarter, VanHooseCo gross profit was subject to an expense of $851 from a purchase accounting adjustment related to the acquired inventory, partially diluting the uplift on gross profit from the acquisition.

Segment gross profit margin increased by 450 bps for the third quarter of 2022.

Operating profit for the third quarter of 2022 increased by $1,101 when compared to the operating profit in the prior year quarter, due to higher gross profit levels, which were partially offset by selling and administrative costs associated with the VanHooseCo transaction.

During the quarter, the Precast Concrete Products segment had an increase in new orders of 31.3% compared to the prior year quarter due to the VanHooseCo acquisition.

Backlog as of September 30, 2022 was $86,612, an increase of $17,048, or 24.5%, from September 30, 2021, remaining at historically high levels, due in part to a $14,366 increase from VanHooseCo.

Steel Products and Measurement

Three Months Ended

June 30, (Decrease)/Increase Percent

September 30, (Decrease)/Increase Percent

(Decrease)/Increase

4 unchanged sentences

Gross profit percentage 17.1 % 14.8 % 2.3 % 15.9 %

Segment operating profit $ 762 $ 814 $ (52) (6.4) %

Segment operating profit percentage 2.9 % 1.8 % 1.1 % 61.7 %

Second Quarter 2022 Compared to Second Quarter 2021

The Steel Products and Measurement segment sales for the three months ended June 30, 2022 decreased by $19,560, or 42.8%, compared to the prior year quarter.

The decrease in sales for the second quarter of 2022 was attributable to the $22,091 decline in year over year sales from the Piling Products division, which was divested September 2021.

The decline was partially offset by an increase

in Fabricated Steel Products, excluding the divested Piling Products division, of $1,705 and an increase of $784 in the Coatings and Measurement business unit.

Segment operating profit (loss) $ 303 $ (27) $ 330 **

Segment operating profit (loss) percentage 1.3 % (0.1) % 1.4 % **

** Results of the calculation are not considered meaningful for presentation purposes.

Third Quarter 2022 Compared to Third Quarter 2021

The Steel Products and Measurement segment sales for the three months ended September 30, 2022 decreased by $14,330, or 37.6%, compared to the prior year quarter.

The decrease in sales for the third quarter of 2022 was attributable to the $16,313 decline in year over year sales from the Piling Products division, which was divested in September of 2021.

The decline was partially offset by an increase in Fabricated Steel Products, excluding the divested Piling Products division, of $1,102 and an increase of $881 in the Coatings and Measurement business unit.

Steel Products and Measurement gross profit decreased by $1,556, or 27.6%, from the prior year quarter, due to lower sales volume associated with the sale of the Piling Products business.

The gross profit margin increased 420 basis points to 16.4%, as a result of a more favorable mix in 2022 due to the sale of the low margin of the divested Piling Products business.

The segment operating profit was $762, a $52 decline from the prior year quarter.

Selling and administrative expenses incurred by the segment decreased by $1,296 compared to the prior year quarter, primarily attributable to the Piling Products divestiture.

During the quarter, the Steel Products and Measurement segment new orders decreased by $25,661, or 50.1% compared to the prior year quarter, driven by a $25,089 decline from the divested Piling Products division.

The Coatings and Measurement business unit experienced a decline in orders of $2,376, while Fabricated Steel Products, excluding the divested Piling Products division, experienced a slight increase.

Backlog as of June 30, 2022 was $47,321, a decrease of $40,917, or 46.4%, from June 30, 2021 driven entirely by the Fabricated Steel Products business unit, $33,682 of which is related to the divested Piling Products division.

Six Month Results

Six Months Ended

June 30, Percent

The gross profit margin increased 230 basis points to 17.1%, as a result of a more favorable mix in 2022 due to the sale of the lower margin Piling Products business.

The segment operating profit was $303, a $330 increase from the prior year quarter.

Selling and administrative expenses incurred by the segment decreased by $1,936 compared to the prior year quarter, primarily attributable to expenses associated with the Piling Products divestiture in 2021.

During the quarter, the Steel Products and Measurement segment new orders increased by $18,542, or 58.8% compared to the prior year quarter, due to a $32,763 increase in Coatings and Measurement, driven primarily by a large order in the Company’s line pipe coating facility in Birmingham, AL, to support a carbon capture and sequestration pipeline project.

This increase was offset by a $13,237 decrease in orders due to the sale of the Piling division in the prior year period.

Backlog as of September 30, 2022 was $77,301, an increase of $24,954, or 47.7%, from September 30, 2021, driven by the order increase in Coatings and Measurement business unit, which was partially offset by a decrease in Fabricated Steel Products business unit, including reductions due to the Piling divestiture.

Nine Month Results

Nine Months Ended

September 30, Percent

(Decrease) Percent of Total Net Sales

Six Months Ended

Nine Months Ended

September 30,

2022 2021 2022 vs.

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Total net sales $ 360,324 $ 400,655 (10.1) % 100.0 % 100.0 %

Six Months Ended

June 30, Percent

Nine Months Ended

September 30, Percent

(Decrease) Gross Profit Percentage

Six Months Ended

Nine Months Ended

September 30,

2022 2021 2022 vs.

5 unchanged sentences

Total gross profit $ 62,837 $ 67,267 (6.6) % 17.4 % 16.8 %

Six Months Ended

June 30, Percent

Nine Months Ended

September 30, Percent

(Decrease) Percent of Total Net Sales

Six Months Ended

Nine Months Ended

September 30,

2022 2021 2022 vs.

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Amortization expense 4,454 4,397 1.3 1.2 1.1

Operating profit 193 4,263 (95.5) 0.1 2.8

Operating profit (loss) (927) 5,021 (118.5) (0.3) 1.3

Interest expense - net 1,747 2,454 (28.8) 0.5 0.6

1 unchanged sentence

Income tax expense 137 1,494 (90.8) 0.0 0.4

Net income $ 390 $ 1,584 (75.4) % 0.2 % 0.6 %

Net (loss) income $ (1,715) $ 3,824 (144.8) % (0.5) % 1.0 %

Net loss attributable to noncontrolling interest (82) (64) 28.1 (0.0) (0.0)

Net income attributable to L.B.

Net (loss) income attributable to L.B.

Foster Company $ (1,633) $ 3,888 (142.0) % (0.5) % 1.0 %

1 unchanged sentence

Rail, Technologies, and Services

Six Months Ended

June 30, (Decrease)/Increase Percent

Nine Months Ended

September 30, (Decrease)/Increase Percent

(Decrease)/Increase

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Segment operating profit percentage 2.5 % 4.8 % (2.3 %) (47.8 %)

First Six Months 2022 Compared to First Six Months 2021

The Rail, Technologies, and Services segment sales for the six months ended June 30, 2022 decreased by $9,507, or 6.1%, compared to the prior year period.

The decrease in sales was driven entirely by the Rail Products business unit, which declined by $12,357, or 11.4%, offsetting sales increases in both the Global Friction Management and Technology Services and Solutions business units of $2,359 and $491, respectively.

The decrease in the Rail Products business unit was driven by the timing of customer shipments versus

the prior year period.

The sales increase in the Global Friction Management business unit is due to strength primarily in domestic markets served.

First Nine Months 2022 Compared to First Nine Months 2021

On June 21, 2022, the Company entered into an agreement to purchase the stock of Skratch Enterprises Ltd.

(“Skratch”) for $7,402.

Skratch reported $856 in sales and $430 in gross profit within the Rail, Technologies, and Services nine months ended September 30, 2022 results.

On August 1, 2022, the Company divested the assets of its Track Components business.

Cash proceeds from the transaction were $7,795, subject to indemnification obligations and working capital adjustments.

The Rail, Technologies, and Services segment sales for the nine months ended September 30, 2022 decreased by $6,099, or 2.7%, compared to the prior year period.

The decrease in sales was driven by the Rail Products business unit, which declined by $5,225, or 3.3%, and the Technology Services and Solutions business unit, which declined by $4,666 or 12.9%, offsetting sales increases in the Global Friction Management business unit of $3,792.

The decrease in the Rail Products business unit was driven by the Track Components divestiture, accounting for $2,439 of the decline, as well as differences in customer order fulfillment timing between the periods.

The decrease in the Technology Services and Solutions business unit is primarily attributable to the $3,956 adjustment from the customer settlement related to the Crossrail project, along with foreign currently-related headwinds.

The sales increase in the Global Friction Management business unit is due to strength primarily in North American markets served.

The Rail, Technologies, and Services segment gross profit decreased by $1,829, or 4.2%, from the prior year quarter.

The decrease was driven by overall lower sales volumes, offset in part by improved business mix.

Segment gross profit margins increased by 40 basis points as a result of stronger sales in the higher margin Global Friction Management and Technology Services and Solutions business units, versus the lower-margin Rail Products businesses.

Operating profit was $5,037, a $2,842 decrease over the prior year period, due in part to lower overall gross profit levels and increases in selling and administrative expenses.

During the current quarter, the Rail, Technologies, and Services segment had an increase in new orders of 32.1% compared to the prior year period, driven by improvements in all business units.

Rail Products gross profit decreased by $750, commensurate with the sales volume decline, while Global Friction Management gross profit increased by $1,224, commensurate with the sales volume increase.

Technology Services and Solutions gross profit decreased by $2,784, with the adverse impact of the Crossrail adjustment accounting for $3,956 of the decline, offsetting modest increases across the balance of the business unit.

Segment gross profit margins decreased by 30 basis points, driven by the Crossrail adjustment impact on segment margins.

Operating profit was $5,576, a $5,394 decrease over the prior year period, due in part to the decrease in gross profit and a $1,386 increase in selling and administrative expense.

During the current quarter, the Rail, Technologies, and Services segment had an increase in new orders of 7.8% compared to the prior year period, driven by improvements in all business units, despite the $4,434 decline in new orders due to the Track Components divestiture.

Precast Concrete Products

Six Months Ended

June 30, Increase/(Decrease) Percent

Nine Months Ended

September 30, Increase/(Decrease) Percent

Increase/(Decrease)

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Gross profit percentage 17.0 % 18.0 % (1.0) % (5.8) %

Segment operating (loss) profit $ (916) $ 1,031 $ (1,947) (188.8) %

Segment operating profit $ 329 $ 1,175 $ (846) (72.0) %

Segment operating profit percentage 0.5 % 2.3 % (1.8) % (79.0) %

First Six Months 2022 Compared to First Six Months 2021

The Precast Concrete Products segment sales for the six months ended June 30, 2022 increased by $5,870, or 17.9%, compared to the prior year period, which is a continued reflection of the strong demand environment in the southern United States market served.

Precast Concrete Products gross profit decreased by $617, or 9.6%, from the prior year quarter, due to continued inflationary pressure on raw material and labor costs, unfavorable building sales mix and, to a lesser extent, manufacturing inefficiencies due to supply chain disruption.

Segment gross profit margin declined by 460 bps for the six months ended June 30, 2022 versus the prior year period.

Operating loss for the six months ended June 30, 2022 of $916 reflects a $1,947 decline from the prior year period, due to margin degradation and increases in selling and administrative costs.

During the quarter, the Precast Concrete Products segment had a decrease in new orders of 10.9% compared to the prior year period.

First Nine Months 2022 Compared to First Nine Months 2021

The Precast Concrete Products segment sales for the nine months ended September 30, 2022 increased by $16,754, or 33.0%, compared to the prior year period, which is primarily a result of the VanHooseCo acquisition and a continued reflection of the strong demand environment both in the southern and northeastern United States markets served.

Precast Concrete Products gross profit increased by $2,312, or 25.3%, from the prior year quarter, which is attributable to overall higher sales volumes, due in part to the VanHooseCo acquisition.

However, VanHooseCo gross profit was subject to an expense of $851 from a temporary purchase accounting adjustment related to the acquired inventory, partially diluting the uplift on gross profit from the acquisition.

Segment gross profit margin declined by 100 bps for the nine months ended September 30, 2022 versus the prior year period due to continued inflationary pressures and unfavorable building sales mix and, to a lesser extent, manufacturing inefficiencies due to supply chain disruption.

Operating profit for the nine months ended September 30, 2022 of $329 reflects a $846 decline from the prior year period, due to increased salary, incentive, and travel costs.

During the quarter, the Precast Concrete Products segment had an increase in new orders of 3.1% compared to the prior year period, and an increase in backlog of 24.5% as of September 30, 2022 versus the prior year.

New orders and backlog continue to remain strong given the robust demand environment in markets served.

Steel Products and Measurement

Six Months Ended

June 30, (Decrease)/Increase Percent

Nine Months Ended

September 30, (Decrease)/Increase Percent

(Decrease)/Increase

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Segment operating loss $ (1,083) $ (140) $ (943) **

Segment operating profit percentage (3.0) % (0.1) % (2.9) % **

Segment operating loss percentage (1.5) % (0.1) % (1.4) % **

** Results of the calculation are not considered meaningful for presentation purposes.

First Six Months 2022 Compared to First Six Months 2021

The Steel Products and Measurement segment sales for the six months ended June 30, 2022 decreased by $36,656, or 44.3%, compared to the prior year period, due entirely to the impact of the divested Piling Products business, which drove a sales decline of $42,889 versus the prior year period.

The decline in sales was partially offset by sales increases in the balance of the business units including the Fabricated Steel Products business sales, excluding Piling, which increased $3,749, and Coatings and Measurement where sales increased $2,477 versus the prior year period.

Steel Products and Measurement gross profit decreased by $3,357, or 36.8%, from the prior year period, due to lower sales volumes and increased raw material costs in the Fabricated Bridge business.

However, the gross profit margin for the segment increased 150 basis points to 12.5%, a result of a more favorable mix in 2022 given the divestiture of the low margin Piling Products business.

segment loss was $1,386, an increased loss of $1,273 from the prior year period.

Selling and administrative expenses incurred by the segment decreased by $2,192 compared to the prior year period, primarily attributable to the Piling Products divestiture.

During the quarter, the Steel Products and Measurement segment new orders decreased by $36,949, or 42.3% compared to the prior year period, driven by a $45,664 decline from the divested Piling Products division.

This decrease was partially offset by improvements in both Fabricated Steel Products, excluding the divested Piling Products division, and Coatings and Measurement.

First Nine Months 2022 Compared to First Nine Months 2021

The Steel Products and Measurement segment sales for the nine months ended September 30, 2022 decreased by $50,986, or 42.1%, compared to the prior year period, due entirely to the impact of the divested Piling Products business, which drove a sales decline of $59,208 versus the prior year period.

The decline in sales was partially offset by sales increases in the balance of the business, in both Fabricated Steel Products, excluding Piling, and Coatings and Measurement.

Steel Products and Measurement gross profit decreased by $4,913, or 33.3%, from the prior year period, due to lower sales volumes associated with the Piling Products business and inflationary pressures.

However, the gross profit margin for the segment increased 190 basis points to 14.1%, a result of a more favorable mix in 2022 given the divestiture of the lower margin Piling Products business.

The segment loss was $1,083, an increased loss of $943 from the prior year period.

The increase in segment loss was due to lower gross profit levels, partially offset by a $4,128 decline in selling and administrative expenses.

The decline in selling and administrative expenses in 2022 is due to a reduction of expenses associated with the sale of the Piling business.

During the first nine months of 2022, the Steel Products and Measurement segment new orders decreased by $18,407, or 15.5% compared to the prior year period, driven by a $58,898 decline from the divested Piling Products division.

This decrease was partially offset by an increase in both Fabricated Steel Products, excluding the divested Piling Products division, of $7,367, and an increase of $33,124 in Coatings and Measurement.

Coatings and Measurement orders were favorably impacted by a large order in the Company’s line pipe coating facility in Birmingham, AL, to support a carbon capture and sequestration pipeline project.

Segment Backlog

Total Company backlog is summarized by business segment in the following table for the periods indicated:

September 30,

2022 December 31,

2021 June 30,

2021 September 30,

Rail, Technologies, and Services $ 108,864 $ 96,573 $ 109,815

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Total backlog $ 272,777 $ 210,189 $ 231,726

The backlog for Steel Products and Measurement includes $33,682 related to the divested Piling Products division as of June 30, 2021 in the above table.

Backlog levels as of September 30, 2021 in the above table includes $1,792 in the Rail, Technologies, and Services segment related to the divested Track Components division, and $1,961 in the Steel Products and Measurement segment related to the divested Piling Products division.

Backlog levels as of December 31, 2021 in the above table includes $1,531 in the Rail, Technologies, and Services segment related to the divested Track Components division.

The Company’s backlog represents the sales price of received customer purchase orders and any contracts for which the performance obligations have not been met, and therefore are precluded from revenue recognition.

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The Company’s principal sources of liquidity are its existing cash and cash equivalents, cash generated by operations, and the available capacity under the revolving credit facility, which provides for a total commitment of up to $130,000.

The Company’s primary needs for liquidity relate to working capital requirements for operations, capital expenditures, debt service obligations, and payments related to the Union Pacific Railroad Settlement.

The Company’s total debt was $49,286 and $31,251 as of June 30, 2022 and December 31, 2021, respectively, and was primarily comprised of borrowings under its revolving credit facility.

The following table reflects available funding capacity, subject to covenant restrictions, as of June 30, 2022:

June 30, 2022

The Company’s primary needs for liquidity relate to working capital requirements for operations, capital expenditures, debt service obligations, payments related to the Union Pacific Railroad Settlement, and periodic acquisitions.

The Company’s total debt was $98,919 and

$31,251 as of September 30, 2022 and December 31, 2021, respectively, and was primarily comprised of borrowings under its revolving credit facility.

The following table reflects available funding capacity, subject to covenant restrictions, as of September 30, 2022:

September 30, 2022

Cash and cash equivalents $ 4,943

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The Company regularly assesses its receivables and contract assets for collectability, and provides allowances for credit losses where appropriate.

The Company believes that its reserves for credit losses are appropriate as of June 30, 2022, but adverse changes in the economic environment and adverse financial conditions of its customers resulting from, among other things, the COVID-19 pandemic, may impact certain of its customers’ ability to access capital and pay the Company for its products and services, as well as impact demand for its products and services.

The changes in cash and cash equivalents for the six months ended June 30, 2022 and 2021 were as follows:

Six Months Ended June 30,

Net cash (used in) provided by continuing operating activities $ (13,382) $ 6,842

Net cash used in continuing investing activities (7,328) (2,248)

The Company believes that its reserves for credit losses are appropriate as of September 30, 2022, but adverse changes in the economic environment and adverse financial conditions of its customers resulting from, among other things, the COVID-19 pandemic, may impact certain of its customers’ ability to access capital and pay the Company for its products and services, as well as impact demand for its products and services.

The changes in cash and cash equivalents for the nine months ended September 30, 2022 and 2021 were as follows:

Nine Months Ended September 30,

Net cash used in continuing operating activities $ (18,836) $ (6,810)

Net cash (used in) provided by continuing investing activities (54,061) 18,910

Net cash provided by (used in) continuing financing activities 68,568 (13,030)

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Cash Flow from Operating Activities

During the six months ended June 30, 2022, cash flows used in operating activities were $13,382, compared to cash flows provided by continuing operating activities of $6,842 during the prior year to date period.

For the six months ended June 30, 2022, the net income and adjustments to net income from continuing operating activities provided $7,277, compared to $9,677 in the 2021 period.

During the nine months ended September 30, 2022, cash flows used in operating activities were $18,836, compared to cash flows used in continuing operating activities of $6,810 during the prior year to date period.

For the nine months ended September 30, 2022, the net income and adjustments to net income from continuing operating activities provided $9,134, compared to $13,880 in the 2021 period.

Working capital and other assets and liabilities used $27,970 in the current period, compared to using $20,690 in the prior year period.

The Company’s calculation for days sales outstanding at June 30, 2022 and December 31, 2021 was 46 and 46 days, respectively, and the Company believes it has a high quality receivables portfolio.

The Company received $5,638 during the nine months ended September 30, 2022 associated with its federal income tax refund.

The Company’s calculation for days sales outstanding at September 30, 2022 and December 31, 2021 was 47 and 46 days, respectively, and the Company believes it has a high quality receivables portfolio.

Cash Flow from Investing Activities

Capital expenditures for the six months ended June 30, 2022 and 2021 were $3,048 and $2,248, respectively.

Capital expenditures for the nine months ended September 30, 2022 and 2021 were $4,559 and $3,568, respectively.

The current period expenditures primarily relate to the implementation of the enterprise resource planning system at additional Company divisions and general plant and operational improvements throughout the Company.

Expenditures for the six months ended June 30, 2021 primarily relate to the expansion of the Precast Concrete Products business line in Texas.

On June 21, 2022, the Company entered into an agreement to purchase the stock of Skratch for $7,402, which included a cash outflow of $5,712 during the six months ended June 30, 2022.

During the six months ended June 30, 2022, the Company received final proceeds from the 2021 Piling Products divestiture of $1,195.

Expenditures for the nine months ended September 30, 2021 primarily relate to the expansion of the Precast Concrete Products business line in Texas.

On June 21, 2022, the Company entered into an agreement to purchase the stock of Skratch for $7,402, and on August 12, 2022, the Company entered into an agreement to purchase the operating assets of VanHooseCo for $52,203, which drove a cash outflow of $58,561 during the nine months ended September 30, 2022.

During the nine months ended September 30, 2022, the Company received cash proceeds from the 2022 Track Components divestiture and final proceeds from the 2021 Piling Products divestiture totaling $8,800.

During the nine months ended September 30, 2021, the Company received cash proceeds from the Piling divestiture of $22,707.

Cash Flow from Financing Activities

During the six months ended June 30, 2022 and 2021, the Company had an increase in outstanding debt of $18,877 and a decrease of $7,767, respectively.

The increase in debt for the six months ended June 30, 2022 was due in part to the acquisition of Skratch on June 21, 2022, which contributed $6,518 to the increase, as well as the funding working of capital and other assets and liabilities.

During the nine months ended September 30, 2022 and 2021, the Company had an increase in outstanding debt of $69,155 and a decrease of $12,519, respectively.

The increase in debt for the nine months ended September 30, 2022 was due largely to the acquisition of VanHooseCo on August 12, 2022, as well as the acquisition of Skratch on June 21, 2022, and the funding working of capital and other assets and liabilities.

The decrease in net debt for the 2021 period was primarily attributable to the utilization of excess cash generated through operating activities.

Treasury stock acquisitions of $401 and $547 for the six months ended June 30, 2022 and 2021, respectively, represent stock repurchases from employees to satisfy their income tax withholdings in connection with the vesting of stock awards.

Treasury stock acquisitions of $405 and $549 for the nine months ended September 30, 2022 and 2021, respectively, represent stock repurchases from employees to satisfy their income tax withholdings in connection with the vesting of stock awards.

Financial Condition

As of June 30, 2022, the Company had $7,661 in cash and cash equivalents.

As of September 30, 2022, the Company had $4,943 in cash and cash equivalents.

The Company’s cash management priority continues to be short-term maturities and the preservation of its principal balances.

As of June 30, 2022, approximately $6,872 of the Company’s cash and cash equivalents were held in non-domestic bank accounts.

As of September 30, 2022, approximately $3,976 of the Company’s cash and cash equivalents were held in non-domestic bank accounts.

The Company principally maintains its cash and cash equivalents in accounts held by major banks and financial institutions.

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The Company views its liquidity as being dependent on its results of operations, changes in working capital needs, and its borrowing capacity.

As of June 30, 2022, its revolving credit facility had $81,489 of net availability, while the Company had $49,286 in total debt.

The Company’s current ratio as of June 30, 2022 and December 31, 2021 was 2.10 and 2.08, respectively.

As of September 30, 2022, its revolving credit facility had $30,673 of net availability, while the Company had $98,919 in total debt.

On August 13, 2021, the Company entered into the Credit Agreement, which increased the total commitments under the revolving credit facility to $130,000 from $115,000, extends the maturity from April 30, 2024 to August 13, 2026, and provides more favorable covenant terms.

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The Company believes that the combination of its cash and cash equivalents, cash generated from operations, and the capacity under its revolving credit facility should provide the Company with sufficient liquidity to provide the flexibility to operate the business in a prudent manner and enable the Company to continue to service its outstanding debt.

On August 12, 2022, the Company amended its Credit Agreement to obtain approval for the VanHooseCo acquisition and temporarily modify certain financial covenants to accommodate the transaction.

The Second Amendment permitted the Company to acquire the operating assets of VanHooseCo and modified the maximum gross leverage ratio covenant through June 30, 2023 to accommodate the transaction.

The Second Amendment also added an additional tier to the pricing grid and provided for the conversion from LIBOR-based to SOFR-based borrowings.

For a discussion of the terms and availability of the credit facilities, please refer to Note 10 of the Notes to Condensed Consolidated Financial Statements contained in this Quarterly Report on Form 10-Q.

To reduce the impact of interest rate changes on outstanding variable-rate debt, the Company entered into forward starting LIBOR-based interest rate swaps with notional values totaling $50,000 and $20,000, effective February 1, 2017 and March 1, 2022, respectively, at which point they effectively converted a portion of the debt from variable to fixed-rate borrowings during the term of the swap contract.

During 2020, the Company dedesignated its cash flow hedges and accounted for the $50,000 tranche of interest rate swaps on a mark-to-market basis with changes in fair value recorded in current period earnings.

To reduce the impact of interest rate changes on outstanding variable-rate debt, the Company amended and entered into forward starting SOFR-based interest rate swaps with notional values totaling $20,000 and $20,000, effective August 12, 2022 and August 31, 2022, respectively, at which point they effectively converted a portion of the debt from variable to fixed-rate borrowings during the term of the swap contract.

During 2020, the Company designated its cash flow hedges and accounted for the $50,000 tranche of interest rate swaps on a mark-to-market basis with changes in fair value recorded in current period earnings.

During February 2022, the $50,000 tranche of interest rate swaps expired.

As of June 30, 2022 the swap asset was $1,111 and as of December 31, 2021 the swap asset and liability were $175 and $159, respectively.

As of September 30, 2022 the swap asset was $1,960 and as of December 31, 2021 the swap asset and liability were $175 and $159, respectively.

Critical Accounting Policies

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis