FOSTER L B CO 10-Q

Item 1. Financial Statements L.B. FOSTER COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except share data) June 30, 2023 December 31, 2022 (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 3,880 $ 2,882 Accounts receivable - net (Note 5) 74,249 82,455 Contract assets - net (Note 3) 34,011 33,613 Inventories - net (Note 6) 79,451 75,721 Other current assets 12,182 11,061 Total current assets 203,773 205,732 Property, plant, and equipment - net 76,948 85,344 Operating lease right-of-use assets - net 15,770 17,291 Other assets: Goodwill (Note 4) 31,404 30,733 Other intangibles - net (Note 4) 21,256 23,831 Deferred tax assets (Note 9) — 24 Other assets 2,417 2,355 TOTAL ASSETS $ 351,568 $ 365,310 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 43,933 $ 48,782 Deferred revenue 15,969 19,452 Accrued payroll and employee benefits 8,709 10,558 Current portion of accrued settlement (Note 13) 8,000 8,000 Current maturities of long-term debt (Note 7) 102 127 Other accrued liabilities 14,928 16,192 Total current liabilities 91,641 103,111 Long-term debt (Note 7) 89,403 91,752 Deferred tax liabilities (Note 9) 1,718 3,109 Long-term portion of accrued settlement (Note 13) 6,000 8,000 Long-term operating lease liabilities 12,669 14,163 Other long-term liabilities 7,545 7,577 Stockholders’ equity: Common stock, par value $ 0.01 , authorized 20,000,000 shares; shares issued at June 30, 2023 and December 31, 2022, 11,115,779 ; shares outstanding at June 30, 2023 and December 31, 2022, 10,816,902 and 10,776,827 , respectively 111 111 Paid-in capital 40,919 41,303 Retained earnings 124,548 123,169 Treasury stock - at cost, 298,877 and 338,952 common stock shares at June 30, 2023 and December 31, 2022, respectively ( 4,846 ) ( 6,240 ) Accumulated other comprehensive loss ( 18,536 ) ( 21,165 ) Total L.B. Foster Company stockholders’ equity 142,196 137,178 Noncontrolling interest 396 420 Total stockholders’ equity 142,592 137,598 TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 351,568 $ 365,310 The accompanying notes are an integral part of these Condensed Consolidated Financial Statements. 3 Table of Contents L.B. FOSTER COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (In thousands, except per share data) Three Months Ended June 30, Six Months Ended June 30, 2023 2022 2023 2022 Sales of goods $ 132,167 $ 116,584 $ 230,705 $ 201,005 Sales of services 15,867 14,931 32,817 29,304 Total net sales 148,034 131,515 263,522 230,309 Cost of goods sold 101,069 95,331 179,134 165,176 Cost of services sold 14,713 12,891 28,845 25,393 Total cost of sales 115,782 108,222 207,979 190,569 Gross profit 32,252 23,293 55,543 39,740 Selling and administrative expenses 24,528 19,394 45,951 36,692 Amortization expense 1,375 1,419 2,740 2,855 Operating profit 6,349 2,480 6,852 193 Interest expense - net 1,574 384 2,962 754 Other expense (income) - net 719 ( 701 ) 2,546 ( 1,264 ) Income before income taxes 4,056 2,797 1,344 703 Income tax expense 563 821 22 313 Net income 3,493 1,976 1,322 390 Net loss attributable to noncontrolling interest ( 38 ) ( 34 ) ( 57 ) ( 54 ) Net income attributable to L.B. Foster Company $ 3,531 $ 2,010 $ 1,379 $ 444 Basic earnings per common share $ 0.32 $ 0.18 $ 0.12 $ 0.04 Diluted earnings per common share $ 0.32 $ 0.18 $ 0.12 $ 0.04 The accompanying notes are an integral part of these Condensed Consolidated Financial Statements. 4 Table of Contents L.B. FOSTER COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited) (In thousands) Three Months Ended June 30, Six Months Ended June 30, 2023 2022 2023 2022 Net income $ 3,493 $ 1,976 $ 1,322 $ 390 Other comprehensive income (loss), net of tax: Foreign currency translation adjustment 1,252 ( 3,688 ) 2,503 ( 4,568 ) Unrealized gain on cash flow hedges, net of tax expense of $ 0 , $ 50 , $ 0 , and $ 238 , respectively 496 147 78 698 Cash flow hedges reclassified to earnings, net of tax expense of $ 0 , $ 0 , $ 0 , and $ 66 , respectively — — — 93 Reclassification of pension liability adjustments to earnings, net of tax expense of $ 2 , $ 16 , $ 4 , and $ 32 , respectively* 41 50 81 99 Total comprehensive income (loss) 5,282 ( 1,515 ) 3,984 ( 3,288 ) Less comprehensive (loss) income attributable to noncontrolling interest: Net loss attributable to noncontrolling interest ( 38 ) ( 34 ) ( 57 ) ( 54 ) Foreign currency translation adjustment 29 ( 61 ) 33 24 Amounts attributable to noncontrolling interest ( 9 ) ( 95 ) ( 24 ) ( 30 ) Comprehensive income (loss) attributable to L.B. Foster Company $ 5,291 $ ( 1,420 ) $ 4,008 $ ( 3,258 ) * Reclassifications out of “Accumulated other comprehensive loss” for pension obligations are charged to “Selling and administrative expenses” within the Condensed Consolidated Statements of Operations. The accompanying notes are an integral part of these Condensed Consolidated Financial Statements. 5 Table of Contents L.B. FOSTER COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands) Six Months Ended June 30, 2023 2022 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 1,322 $ 390 Adjustments to reconcile net income to cash used in operating activities: Deferred income taxes ( 1,710 ) ( 173 ) Depreciation 4,989 3,814 Amortization 2,740 2,855 Equity in income of nonconsolidated investments ( 16 ) ( 87 ) Gain on sales and disposals of property, plant, and equipment ( 366 ) ( 214 ) Stock-based compensation 1,829 1,183 Loss (gain) on asset divestitures 3,074 ( 491 ) Change in operating assets and liabilities: Accounts receivable 6,584 ( 17,327 ) Contract assets ( 3,033 ) 2,190 Inventories ( 13,068 ) ( 10,695 ) Other current assets ( 1,251 ) ( 3,573 ) Other noncurrent assets ( 865 ) 1,715 Accounts payable 465 9,347 Deferred revenue 627 5,301 Accrued payroll and employee benefits ( 1,885 ) ( 2,943 ) Accrued settlement ( 2,000 ) ( 2,000 ) Other current liabilities ( 941 ) ( 1,748 ) Other long-term liabilities 172 ( 926 ) Net cash used in operating activities ( 3,333 ) ( 13,382 ) CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from the sale of property, plant, and equipment 539 237 Capital expenditures on property, plant, and equipment ( 1,495 ) ( 3,048 ) Proceeds from business dispositions 7,706 1,195 Acquisitions, net of cash acquired 966 ( 5,712 ) Net cash provided by (used in) investing activities 7,716 ( 7,328 ) CASH FLOWS FROM FINANCING ACTIVITIES: Repayments of debt ( 95,251 ) ( 78,093 ) Proceeds from debt 92,331 96,970 Treasury stock acquisitions ( 977 ) ( 401 ) Investment of noncontrolling interest 334 — Net cash (used in) provided by financing activities ( 3,563 ) 18,476 Effect of exchange rate changes on cash and cash equivalents 178 ( 477 ) Net increase (decrease) in cash and cash equivalents 998 ( 2,711 ) Cash and cash equivalents at beginning of period 2,882 10,372 Cash and cash equivalents at end of period $ 3,880 $ 7,661 Supplemental disclosure of cash flow information: Interest paid $ 2,889 $ 662 Income taxes (received) paid $ ( 331 ) $ 389 The accompanying notes are an integral part of these Condensed Consolidated Financial Statements. 6 Table of Contents L.B. FOSTER COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited) (Dollars in thousands) Three Months Ended June 30, 2023 Common Stock Paid-in Capital Retained Earnings Treasury Stock Accumulated Other Comprehensive Loss Noncontrolling Interest Total Stockholders’ Equity Balance, March 31, 2023 $ 111 $ 40,951 $ 121,017 $ ( 5,174 ) $ ( 20,296 ) $ 405 $ 137,014 Net income (loss) — — 3,531 — — ( 38 ) 3,493 Other comprehensive income, net of tax: Pension liability adjustment — — — — 41 — 41 Foreign currency translation adjustment — — — — 1,223 29 1,252 Unrealized derivative gain on cash flow hedges — — — — 496 — 496 Purchase of 51,241 common shares for treasury — — — ( 662 ) — — ( 662 ) Issuance of 58,432 common shares, net of shares withheld for taxes — ( 977 ) — 990 — — 13 Stock-based compensation — 945 — — — — 945 Balance, June 30, 2023 $ 111 $ 40,919 $ 124,548 $ ( 4,846 ) $ ( 18,536 ) $ 396 $ 142,592 Three Months Ended June 30, 2022 Common Stock Paid-in Capital Retained Earnings Treasury Stock Accumulated Other Comprehensive Loss Noncontrolling Interest Total Stockholders’ Equity Balance, March 31, 2022 $ 111 $ 42,153 $ 167,167 $ ( 9,200 ) $ ( 19,117 ) $ 583 $ 181,697 Net income (loss) — — 2,010 — — ( 34 ) 1,976 Other comprehensive loss, net of tax: Pension liability adjustment — — — — 50 — 50 Foreign currency translation adjustment — — — — ( 3,627 ) ( 61 ) ( 3,688 ) Unrealized derivative gain on cash flow hedges — — — — 147 — 147 Issuance of 26,167 common shares, net of shares withheld for taxes — ( 877 ) — 809 — — ( 68 ) Stock-based compensation — 925 — — — — 925 Balance, June 30, 2022 $ 111 $ 42,201 $ 169,177 $ ( 8,391 ) $ ( 22,547 ) $ 488 $ 181,039 The accompanying notes are an integral part of these Condensed Consolidated Financial Statements. 7 Table of Contents L.B. FOSTER COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited) (Dollars in thousands) Six Months Ended June 30, 2023 Common Stock Paid-in Capital Retained Earnings Treasury Stock Accumulated Other Comprehensive Loss Noncontrolling Interest Total Stockholders’ Equity Balance, December 31, 2022 $ 111 $ 41,303 $ 123,169 $ ( 6,240 ) $ ( 21,165 ) $ 420 $ 137,598 Net income (loss) — — 1,379 — — ( 57 ) 1,322 Other comprehensive income, net of tax: Pension liability adjustment — — — — 81 — 81 Foreign currency translation adjustment — — — — 2,470 33 2,503 Unrealized derivative gain on cash flow hedges — — — — 78 — 78 Purchase of 51,241 common shares for treasury — — — ( 662 ) — — ( 662 ) Issuance of 91,316 common shares, net of shares withheld for taxes — ( 2,213 ) — 2,056 — — ( 157 ) Stock-based compensation — 1,829 — — — — 1,829 Balance, June 30, 2023 $ 111 $ 40,919 $ 124,548 $ ( 4,846 ) $ ( 18,536 ) $ 396 $ 142,592 Six Months Ended June 30, 2022 Common Stock Paid-in Capital Retained Earnings Treasury Stock Accumulated Other Comprehensive Loss Noncontrolling Interest Total Stockholders’ Equity Balance, December 31, 2021 $ 111 $ 43,272 $ 168,733 $ ( 10,179 ) $ ( 18,845 ) $ 518 $ 183,610 Net income (loss) — — 444 — — ( 54 ) 390 Other comprehensive (loss) income, net of tax: Pension liability adjustment — — — — 99 — 99 Foreign currency translation adjustment — — — — ( 4,592 ) 24 ( 4,568 ) Unrealized derivative gain on cash flow hedges — — — — 698 — 698 Cash flow hedges reclassified to earnings — — — — 93 — 93 Issuance of 60,607 common shares, net of shares withheld for taxes — ( 2,254 ) — 1,788 — — ( 466 ) Stock-based compensation — 1,183 — — — — 1,183 Balance, June 30, 2022 $ 111 $ 42,201 $ 169,177 $ ( 8,391 ) $ ( 22,547 ) $ 488 $ 181,039 The accompanying notes are an integral part of these Condensed Consolidated Financial Statements. 8 Table of Contents L.B. FOSTER COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Dollars in thousands, except share data) Note 1. Financial Statements Basis of Presentation The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. The year-end consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP. In the opinion of management, all estimates and adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and six months ended June 30, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023. This Quarterly Report on Form 10-Q should be read in conjunction with the consolidated financial statements and footnotes thereto included in L.B. Foster Company’s Annual Report on Form 10-K for the year ended December 31, 2022. In this Quarterly Report on Form 10-Q, references to “we,” “us,” “our,” and the “Company” refer collectively to L.B. Foster Company and its consolidated subsidiaries. Note 2. Business Segments The Company is a global technology solutions provider of engineered, manufactured products and services that builds and supports infrastructure. The Company’s innovative engineering and product development solutions address the safety, reliability, and performance needs of its customers’ most challenging requirements. The Company maintains locations in North America, South America, Europe, and Asia. The Company’s segments represent components of the Company (a) that engage in activities from which revenue is generated and expenses are incurred, (b) whose operating results are regularly reviewed by the Chief Operating Decision Maker, who uses such information to make decisions about resources to be allocated to the segments, and (c) for which discrete financial information is available. Operating segments are evaluated on their segment profit contribution to the Company’s consolidated results. Other income and expenses, interest, income taxes, and certain other items are managed on a consolidated basis. The Company’s segment accounting policies are described in Note 2 Business Segments of the Notes to the Company’s Consolidated Financial Statements contained in its Annual Report on Form 10-K for the year ended December 31, 2022. The operating results of the Company’s reportable segments were as follows for the periods presented: Three Months Ended June 30, 2023 Three Months Ended June 30, 2022 Net Sales Segment Operating Profit Net Sales Segment Operating Profit (Loss) Rail, Technologies, and Services $ 91,616 $ 6,627 $ 81,797 $ 3,998 Precast Concrete Products 33,865 1,296 23,611 ( 125 ) Steel Products and Measurement 22,553 1,456 26,107 762 Total $ 148,034 $ 9,379 $ 131,515 $ 4,635 Six Months Ended June 30, 2023 Six Months Ended June 30, 2022 Net Sales Segment Operating Profit Net Sales Segment Operating Profit (Loss) Rail, Technologies, and Services $ 156,000 $ 9,015 $ 145,507 $ 5,037 Precast Concrete Products 58,153 948 38,621 ( 916 ) Steel Products and Measurement 49,369 1,448 46,181 ( 1,386 ) Total $ 263,522 $ 11,411 $ 230,309 $ 2,735 Segment profit (loss) from operations, as shown above, includes allocated corporate operating expenses. Operating expenses related to corporate headquarter functions that directly support the segment activity are allocated based on segment headcount, revenue contribution, or activity of the business units within the segments, based on the corporate activity type provided to the segment. The expense allocation excludes certain corporate costs that are separately managed from the segments. 9 Table of Contents A reconciliation of reportable segment net profit to the Company’s consolidated total for the periods presented: Three Months Ended June 30, Six Months Ended June 30, 2023 2022 2023 2022 Operating profit for reportable segments $ 9,379 $ 4,635 $ 11,411 $ 2,735 Interest expense - net ( 1,574 ) ( 384 ) ( 2,962 ) ( 754 ) Other (expense) income - net ( 719 ) 701 ( 2,546 ) 1,264 Unallocated corporate expenses and other unallocated charges ( 3,030 ) ( 2,155 ) ( 4,559 ) ( 2,542 ) Income before income taxes $ 4,056 $ 2,797 $ 1,344 $ 703 The following table illustrates assets of the Company by reportable segment for the periods presented: June 30, 2023 December 31, 2022 Rail, Technologies, and Services $ 177,515 $ 172,111 Precast Concrete Products 104,892 108,598 Steel Products and Measurement 38,492 54,516 Unallocated corporate assets 30,669 30,085 Total $ 351,568 $ 365,310 On June 30, 2023, the Company sold substantially all the operating assets of the prestressed concrete railroad tie business operated by its wholly-owned subsidiary, CXT Incorporated (“Ties”), located in Spokane, WA, for $ 2,368 in proceeds, subject to final working capital adjustments, generating a $ 1,009 loss on the sale, which was recorded in “Other expense (income) - net”. The Ties business was reported in the Rail Products business unit within the Rail, Technologies, and Services segment. On March 30, 2023, the Company sold substantially all the operating assets of its Chemtec Energy Services LLC business (“Chemtec”) for $ 5,344 in proceeds, subject to final working capital adjustments, generating a $ 2,065 loss on the sale, which was recorded in “Other expense (income) - net.” The Chemtec business was reported in the Coatings and Measurement business unit within the Steel Products and Measurement segment. Note 3. Revenue The following table summarizes the Company’s net sales by major product and service category for the periods presented: Three Months Ended June 30, Six Months Ended June 30, 2023 2022 2023 2022 Rail Products and Global Friction Management $ 81,926 $ 70,416 $ 137,974 $ 122,067 Technology Services and Solutions 9,690 11,381 18,026 23,440 Rail, Technologies, and Services 91,616 81,797 156,000 145,507 Precast Concrete Buildings 19,325 15,811 30,211 25,781 Precast Infrastructure Products 14,540 7,800 27,942 12,840 Precast Concrete Products 33,865 23,611 58,153 38,621 Fabricated Steel Products 14,854 17,967 25,371 30,571 Coatings and Measurement 7,699 8,140 23,998 15,610 Steel Products and Measurement 22,553 26,107 49,369 46,181 Total net sales $ 148,034 $ 131,515 $ 263,522 $ 230,309 The majority of the Company’s revenue is from products transferred and services rendered to customers at a point in time. The Company recognizes revenue at the point in time at which the customer obtains control of the product or service, which is generally when the product title passes to the customer upon shipment or the service has been rendered to the customer. In limited cases, title does not transfer and revenue is not recognized until the customer has received the products at a designated physical location. 10 Table of Contents Net sales by the timing of the transfer of goods and services was as follows for the periods presented: Three Months Ended June 30, 2023 Rail, Technologies, and Services Precast Concrete Products Steel Products and Measurement Total Point in time $ 75,923 $ 14,540 $ 20,407 $ 110,870 Over time 15,693 19,325 2,146 37,164 Total net sales $ 91,616 $ 33,865 $ 22,553 $ 148,034 Three Months Ended June 30, 2022 Rail, Technologies, and Services Precast Concrete Products Steel Products and Measurement Total Point in time $ 65,872 $ 8,577 $ 20,964 $ 95,413 Over time 15,925 15,034 5,143 36,102 Total net sales $ 81,797 $ 23,611 $ 26,107 $ 131,515 Six Months Ended June 30, 2023 Rail, Technologies, and Services Precast Concrete Products Steel Products and Measurement Total Point in time $ 129,757 $ 27,942 $ 36,133 $ 193,832 Over time 26,243 30,211 13,236 69,690 Total net sales $ 156,000 $ 58,153 $ 49,369 $ 263,522 Six Months Ended June 30, 2022 Rail, Technologies, and Services Precast Concrete Products Steel Products and Measurement Total Point in time $ 115,038 $ 12,840 $ 36,026 $ 163,904 Over time 30,469 25,781 10,155 66,405 Total net sales $ 145,507 $ 38,621 $ 46,181 $ 230,309 The Company’s performance obligations under long-term agreements with its customers are generally satisfied over time. Revenue under long-term agreements is at times recognized using an input measure based upon the proportion of actual costs incurred to estimated total project costs or an input measure based upon actual labor costs as a percentage of estimated total labor costs, depending upon which measure the Company believes best depicts its performance to date under the terms of the contract. The Company’s revenue recognized over time under long-term agreements is also at times recognized using an output method, specifically units delivered, based upon certain customer acceptance and delivery requirements. The use of an input or an output measure to recognize revenue is determined based on what is most appropriate given the nature of the work performed and terms of the associated agreement. Revenue recognized over time was as follows for the periods presented: Three Months Ended June 30, Percentage of Total Net Sales Three Months Ended June 30, 2023 2022 2023 2022 Over time input method $ 15,724 $ 20,089 10.6 % 15.3 % Over time output method 21,440 16,013 14.5 12.2 Total over time sales $ 37,164 $ 36,102 25.1 % 27.5 % Six Months Ended June 30, Percentage of Total Net Sales Six Months Ended June 30, 2023 2022 2023 2022 Over time input method $ 31,935 $ 39,411 12.1 % 17.1 % Over time output method 37,755 26,994 14.3 11.7 Total over time sales $ 69,690 $ 66,405 26.4 % 28.8 % 11 Table of Contents The timing of revenue recognition, billings, and cash collections results in billed receivables, costs in excess of billings (included in “Contract assets”), and billings in excess of costs (contract liabilities), included in “Deferred revenue” within the Condensed Consolidated Balance Sheets. The following table sets forth the Company’s contract assets: Contract Assets Balance as of December 31, 2022 $ 33,613 Net additions to contract assets 4,797 Transfers from contract asset balance to accounts receivable ( 4,399 ) Balance as of June 30, 2023 $ 34,011 The following table sets forth the Company’s contract liabilities: Contract Liabilities Balance as of December 31, 2022 $ 6,781 Revenue recognized from contract liabilities ( 4,049 ) Increase in billings in excess of cost, excluding revenue recognized 3,525 Other adjustments, including business divestiture ( 1,938 ) Balance as of June 30, 2023 $ 4,319 The Company records provisions related to the allowance for credit losses associated with contract assets. Provisions are recorded based upon a specific review of individual contracts as necessary, and a standard provision over any remaining contract assets pooled together based on similar risk of credit loss. The development of these provisions is based on historical collection trends, accuracy of estimates within contract margin reporting, as well as the expectation that collection patterns and margin reporting will continue to adhere to patterns observed in recent years. These expectations are formed based on trends observed, as well as current and expected future conditions. As of June 30, 2023, the Company had approximately $ 290,076 of obligations under new contracts and remaining performance obligations, which is also referred to as backlog. Approximately 12.0 % of the June 30, 2023 backlog was related to projects that are anticipated to extend beyond June 30, 2024. Note 4. Goodwill and Other Intangible Assets The following table presents the changes in goodwill balance by reportable segment for the period presented: Rail, Technologies, and Services Precast Concrete Products Steel Products and Measurement Total Balance as of December 31, 2022 $ 19,948 $ 10,785 $ — $ 30,733 VanHooseCo acquisition — 242 — 242 Foreign currency translation impact 429 — — 429 Balance as of June 30, 2023 $ 20,377 $ 11,027 $ — $ 31,404 The Company performs goodwill impairment tests annually during the fourth quarter, and also performs interim goodwill impairment tests if it is determined that it is more likely than not that the fair value of a reporting unit is less than the carrying amount. Qualitative factors are assessed to determine whether it is more likely than not that the fair value of a reporting unit is less than the carrying amount, which included the impacts of current economic conditions, including but not limited to labor markets, supply chains, and other inflationary costs. However, these factors can be unpredictable and are subject to change. No interim goodwill impairment test was required as a result of the evaluation of qualitative factors as of June 30, 2023. However, future impairment charges could result if future projections diverge unfavorably from current expectations in the Rail Technologies and Precast Concrete Products reporting units. 12 Table of Contents As of June 30, 2023 and December 31, 2022, the components of the Company’s intangible assets were as follows: June 30, 2023 Weighted Average Amortization Period In Years Gross Carrying Value Accumulated Amortization Net Carrying Amount Patents 10 $ 338 $ ( 197 ) $ 141 Customer relationships 16 27,656 ( 15,828 ) 11,828 Trademarks and trade names 16 7,983 ( 4,299 ) 3,684 Technology 14 32,306 ( 26,978 ) 5,328 Favorable lease 6 327 ( 52 ) 275 $ 68,610 $ ( 47,354 ) $ 21,256 During the six months ended June 30, 2023, certain fully amortized intangible assets of $ 28 related to non-compete agreements were eliminated from gross intangible assets and accumulated amortization. December 31, 2022 Weighted Average Amortization Period In Years Gross Carrying Value Accumulated Amortization Net Carrying Amount Non-compete agreements 1 $ 27 $ ( 16 ) $ 11 Patents 10 330 ( 187 ) 143 Customer relationships 16 27,184 ( 14,129 ) 13,055 Trademarks and trade names 16 7,933 ( 3,989 ) 3,944 Technology 14 32,201 ( 25,827 ) 6,374 Favorable lease 6 327 ( 23 ) 304 $ 68,002 $ ( 44,171 ) $ 23,831 On June 21, 2022, the Company acquired the stock of Skratch Enterprises Ltd. (“Skratch”). On August 12, 2022, the Company acquired the operating assets of VanHooseCo Precast LLC (“VanHooseCo”). As of June 30, 2023, the purchase accounting for these transactions is final. Note 5. Accounts Receivable Changes in reserves for uncollectible accounts, which are recorded as part of “Selling and administrative expenses” in the Condensed Consolidated Statements of Operations, were recorded as an expense of $ 256 and $ 150 for the three months ended June 30, 2023 and 2022, respectively, and an expense of $ 411 and $ 211 for the six months ended June 30, 2023 and 2022, respectively. The Company establishes the allowance for credit losses based on historical collection patterns and other subjective conditions as necessary, including current and expected market conditions. Trade receivables are pooled based on age, which groups receivables of similar credit risk together. Management maintains stringent credit review practices and works to maintain positive customer relationships to further mitigate credit risk. The following table sets forth the Company’s allowance for credit losses: Allowance for Credit Losses Balance as of December 31, 2022 $ 813 Current period provision 411 Write-off against allowance ( 197 ) Balance as of June 30, 2023 $ 1,027 13 Table of Contents Note 6. Inventory Inventory is valued at average cost or net realizable value, whichever is lower. The Company’s components of inventory as of June 30, 2023 and December 31, 2022 are summarized in the following table: June 30, 2023 December 31, 2022 Finished goods $ 48,237 $ 41,431 Work-in-process 5,304 9,693 Raw materials 25,910 24,597 Inventories - net $ 79,451 $ 75,721 Note 7. Long-Term Debt and Related Matters Long-term debt consisted of the following: June 30, 2023 December 31, 2022 Revolving credit facility $ 89,280 $ 91,567 Finance leases and financing agreements 225 312 Total 89,505 91,879 Less current maturities ( 102 ) ( 127 ) Long-term portion $ 89,403 $ 91,752 On August 13, 2021, the Company, its domestic subsidiaries, and certain of its Canadian and United Kingdom subsidiaries (collectively, the “Borrowers”), entered into the Fourth Amended and Restated Credit Agreement (the “Credit Agreement”) with PNC Bank, N.A., Citizens Bank, N.A., Wells Fargo Bank, National Association, Bank of America, N.A., and BMO Harris Bank, National Association. The Credit Agreement, as amended, modifies the prior revolving credit facility, as amended, on terms more favorable to the Company and extends the maturity from April 30, 2024 to August 13, 2026. The Credit Agreement provides for a five-year , revolving credit facility that permits aggregate borrowings of the Borrowers up to $ 130,000 with a sublimit of the equivalent of $ 25,000 U.S. dollars that is available to the Canadian and United Kingdom borrowers in the aggregate. The Credit Agreement’s incremental loan feature permits the Company to increase the available commitments under the facility by up to an additional $ 50,000 subject to the Company’s receipt of increased commitments from existing or new lenders and the satisfaction of certain conditions. Borrowings under the Credit Agreement as amended, will bear interest at rates based upon either the base rate or SOFR rate plus applicable margins. The Credit Agreement includes two financial covenants: (a) Maximum Gross Leverage Ratio, defined as the Company’s consolidated Indebtedness (as defined in the Credit Agreement) divided by the Company’s consolidated EBITDA, which must not exceed (i) 3.25 to 1.00 for all testing periods other than during an Acquisition Period (as defined in the Credit Agreement), and (ii) 3.50 to 1.00 for all testing periods occurring during an Acquisition Period, and (b) Minimum Consolidated Fixed Charge Coverage Ratio, defined as the Company’s consolidated EBITDA divided by the Company’s Fixed Charges (as defined in the Credit Agreement), which must be more than 1.05 to 1.00. On August 12, 2022, the Company entered into a second amendment to its Credit Agreement (“Second Amendment”) to obtain approval for the acquisition of VanHooseCo Precast, LLC (“VanHooseCo”) 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 to 3.50 through June 30, 2023 to accommodate the transaction. As of June 30, 2023, the Company was in compliance with the covenants in the Credit Agreement, as amended, and had outstanding letters of credit of approximately $ 1,173 . 14 Table of Contents Note 8. Earnings Per Common Share (Share amounts in thousands) The following table sets forth the computation of basic and diluted earnings per common share for the periods indicated: Three Months Ended June 30, Six Months Ended June 30, 2023 2022 2023 2022 Numerator for basic and diluted earnings per common share: Net income $ 3,493 $ 1,976 $ 1,322 $ 390 Denominator: Weighted average shares outstanding 10,807 10,715 10,800 10,700 Denominator for basic earnings per common share 10,807 10,715 10,800 10,700 Effect of dilutive securities: Stock compensation plans 71 99 66 109 Dilutive potential common shares 71 99 66 109 Denominator for diluted earnings per common share - adjusted weighted average shares outstanding 10,878 10,814 10,866 10,809 Basic earnings per common share $ 0.32 $ 0.18 $ 0.12 $ 0.04 Diluted earnings per common share $ 0.32 $ 0.18 $ 0.12 $ 0.04 Note 9. Income Taxes For the three months ended June 30, 2023 and 2022, the Company recorded an income tax expense of $ 563 and $ 821 , respectively, on pre-tax income of $ 4,056 and $ 2,797 , respectively, for an effective income tax rate of 13.9 % and 29.4 %, respectively. For the six months ended June 30, 2023 and 2022, the Company recorded an income tax expense of $ 22 and $ 313 , respectively, on pre-tax income of $ 1,344 and $ 703 , respectively, for an effective income tax rate of 1.6 % and 44.5 %, respectively. The Company's effective income tax rate for the three and six months ended June 30, 2023 differed from the federal statutory rate of 21% primarily due to the realization of a portion of its U.S. deferred tax assets previously offset by a valuation allowance. The Company continues to maintain a full valuation allowance against its U.S. deferred tax assets, which is likely to result in significant variability of the effective tax rate in the current year. Changes in pre-tax income projections, combined with the seasonal nature of our businesses, could also impact the effective income tax rate each quarter. Note 10. Stock-Based Compensation The Company recorded stock-based compensation expense of $ 945 and $ 925 for the three months ended June 30, 2023 and 2022, respectively, and $ 1,829 and $ 1,183 for the six months ended June 30, 2023 and 2022, respectively, related to restricted stock awards and performance unit awards. As of June 30, 2023, unrecognized compensation expense for awards that the Company expects to vest approximated $ 7,026 . The Company will recognize this unrecognized compensation expense over the upcoming 2.7 years through March 2026. Shares issued as a result of vested stock-based compensation awards generally will be from previously issued shares that have been reacquired by the Company and held as treasury stock or authorized and previously unissued common stock. Restricted Stock, Performance Share Units, and Performance-Based Stock Awards Under the 2022 Equity and Incentive Compensation Plan, successor to the 2006 Omnibus Plan, the Company grants eligible employees restricted stock and performance share units. The forfeitable restricted stock awards granted generally time-vest ratably over a three-year period, unless indicated otherwise by the underlying restricted stock award agreement. Awards of restricted stock are subject to a minimum one-year vesting period, including those granted to non-employee directors. Performance share units are offered annually under separate three-year long-term incentive programs. Performance share units are subject to forfeiture and will be converted into common stock of the Company based upon the Company’s performance relative to performance measures and conversion multiples, as defined in the underlying program. The Company has, on occasion, issued performance share units with longer performance periods as incentivization and retention tools. If the Company’s estimate of the number of performance share units expected to vest changes in a subsequent accounting period, cumulative compensation expense could increase or decrease. The change will be recognized in the current period for the vested shares and would change future expense over the remaining vesting period. Since 2017, non-employee directors have been permitted to defer receipt of annual stock awards and equity elected to be received in lieu of quarterly cash compensation. If so elected, these deferred stock units will be issued as common stock six months after 15 Table of Contents separation from their service on the Board of Directors. Since 2018, no non-employee directors have elected the option to receive deferred stock units of the Company’s common stock in lieu of director cash compensation. In February 2023, the Compensation Committee approved the 2023-2025 Long Term Incentive Plan which includes grants of performance share units and restricted stock. The following table summarizes the restricted stock, deferred stock units, and performance-based stock and share unit activity for the six months ended June 30, 2023: Restricted Stock Deferred Stock Units Performance-Based Stock and Share Units Weighted Average Grant Date Fair Value Outstanding as of December 31, 2022 174,173 46,268 108,478 $ 17.77 Granted 181,914 — 367,558 11.78 Vested ( 88,367 ) ( 33,864 ) — 15.97 Adjustment for incentive awards expected to vest — — 20,104 15.36 Outstanding as of June 30, 2023 267,720 12,404 496,140 $ 14.44 Note 11. Fair Value Measurements The Company determines the fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value hierarchy includes three levels of inputs that may be used to measure fair value as described below: Level 1: Observable inputs that reflect unadjusted quoted market prices in active markets for identical assets or liabilities. Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 3: Unobservable inputs that are not corroborated by market data. The classification of a financial asset or liability within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement. Cash equivalents - Included in “Cash and cash equivalents” within the Condensed Consolidated Balance Sheets are investments in non-domestic term deposits. The carrying amounts approximate fair value because of the short maturity of the instruments. SOFR-based interest rate swaps - 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. The fair value of the interest rate swaps are based on market-observable forward interest rates and represents the estimated amount that the Company would pay to terminate the agreements. As such, the swap agreements are classified as Level 2 within the fair value hierarchy. As of June 30, 2023 and December 31, 2022, the interest rate swaps were recorded in “ Other current assets ” when the interest rate swaps’ fair market value are in an asset position, and "Other accrued liabilities" when in a liability position within our Condensed Consolidated Balance Sheets. Fair Value Measurements at Reporting Date Fair Value Measurements at Reporting Date June 30, 2023 Level 1 Level 2 Level 3 December 31, 2022 Level 1 Level 2 Level 3 Term deposits $ 17 $ 17 $ — $ — $ 17 $ 17 $ — $ — Interest rate swaps 2,008 — 2,008 — 1,930 — 1,930 — Total assets $ 2,025 $ 17 $ 2,008 $ — $ 1,947 $ 17 $ 1,930 $ — The $ 20,000 interest rate swap agreements that became effective August 2022 are accounted for as cash flow hedges and the objective of the hedges is to offset the expected interest variability on payments associated with the interest rate on our debt. The gains and losses related to the interest rate swaps are reclassified from “Accumulated other comprehensive loss” in our Condensed Consolidated Balance Sheets and included in “Interest expense - net” in our Condensed Consolidated Statements of Operations as the interest expense from our debt is recognized. For the three months ended June 30, 2023 and 2022, the Company recognized interest income of $ 295 and $ 19 , respectively, from interest rate swaps. For the six months ended June 30, 2023 and 2022, the Company recognized interest income and interest expense of $ 540 and $ 78 , respectively, from interest rate swaps. 16 Table of Contents Note 12. Retirement Plans Retirement Plans The Company has three retirement plans that cover its hourly and salaried employees in the United States: one defined benefit plan, which is frozen, and two defined contribution plans. Employees are eligible to participate in the appropriate plan based on employment classification. The Company’s contributions to the defined benefit and defined contribution plans are governed by the Employee Retirement Income Security Act of 1974, as amended (“ERISA”) and the Company’s policy and investment guidelines applicable to each respective plan. The Company’s policy is to contribute at least the minimum in accordance with the funding standards of ERISA. The Company maintains one defined contribution plan for its employees in Canada. In the United Kingdom, the Company maintains two defined contribution plans and a defined benefit plan, which is frozen. These plans are discussed in further detail below. United States Defined Benefit Plan Net periodic pension costs for the United States defined benefit pension plan for the three and six months ended June 30, 2023 and 2022 were as follows: Three Months Ended June 30, Six Months Ended June 30, 2023 2022 2023 2022 Interest cost $ 71 $ 49 $ 143 $ 97 Expected return on plan assets ( 64 ) ( 66 ) ( 128 ) ( 132 ) Recognized net actuarial loss 16 18 31 35 Net periodic pension cost $ 23 $ 1 $ 46 $ — The Company has made contributions to its United States defined benefit plan of $ 176 during the six months ended June 30, 2023 and expects to make total contributions of $ 400 during 2023. United Kingdom Defined Benefit Plan Net periodic pension costs for the United Kingdom defined benefit pension plan for the three and six months ended June 30, 2023 and 2022 were as follows: Three Months Ended June 30, Six Months Ended June 30, 2023 2022 2023 2022 Interest cost $ 56 $ 43 $ 112 $ 86 Expected return on plan assets ( 84 ) ( 76 ) ( 168 ) ( 152 ) Amortization of prior service costs and transition amount 6 6 12 12 Recognized net actuarial loss 3 40 6 80 Net periodic pension (income) cost $ ( 19 ) $ 13 $ ( 38 ) $ 26 United Kingdom regulations require trustees to adopt a prudent approach to funding required contributions to defined benefit pension plans. For the six months ended June 30, 2023, the Company contributed approximately $ 170 to the plan. The Company anticipates total contributions of approximately $ 340 to the United Kingdom pension plan during 2023. Defined Contribution Plans The Company sponsors five defined contribution plans for hourly and salaried employees across its domestic and international facilities. The following table summarizes the expense associated with the contributions made to these plans for the periods presented: Three Months Ended June 30, Six Months Ended June 30, 2023 2022 2023 2022 United States $ 793 $ 390 $ 1,407 $ 695 Canada 32 45 94 105 United Kingdom 315 379 576 379 $ 1,140 $ 814 $ 2,077 $ 1,179 17 Table of Contents Note 13. Commitments and Contingent Liabilities Product Liability Claims The Company is subject to product warranty claims that arise in the ordinary course of its business. For certain manufactured products, the Company maintains a product warranty accrual, which is adjusted on a monthly basis as a percentage of cost of sales. In addition, the product warranty accrual is adjusted periodically based on the identification or resolution of known individual product warranty claims. Union Pacific Railroad (“UPRR”) Concrete Tie Matter On March 13, 2019, the Company and its subsidiary, CXT Incorporated (“CXT”), entered into a Settlement Agreement (the “Settlement Agreement”) with UPRR to resolve the then-pending litigation in the matter of Union Pacific Railroad Company v. L.B. Foster Company and CXT Incorporated , Case No. CI 15-564, in the District Court for Douglas County, Nebraska. Under the Settlement Agreement, the Company and CXT will pay UPRR the aggregate amount of $ 50,000 without pre-judgment interest, which began with a $ 2,000 immediate payment, and with the remaining $ 48,000 paid in installments over a six-year period commencing on the effective date of the Settlement Agreement through December 2024 pursuant to a Promissory Note. Additionally, commencing in January 2019 and through December 2024, UPRR agreed to purchase and has been purchasing from the Company and its subsidiaries and affiliates, a cumulative total amount of $ 48,000 of products and services, targeting $ 8,000 of annual purchases per year beginning March 13, 2019, per letters of intent under the Settlement Agreement. During the third quarter of 2021, in connection with the Company’s divestiture of its Piling Products division, the targeted annual purchases per year have been reduced to $ 6,000 for 2021 through 2024. The Settlement Agreement also includes a mutual release of all claims and liability regarding or relating to all CXT pre-stressed concrete railroad ties with no admission of liability and dismissal of the litigation with prejudice. The expected payments under the UPRR Settlement Agreement for the remainder of the year ending December 31, 2023 and thereafter are as follows: Year Ending December 31, Remainder of 2023 $ 6,000 2024 8,000 Total $ 14,000 Environmental and Legal Proceedings The Company is subject to national, state, foreign, provincial, and/or local laws and regulations relating to the protection of the environment. The Company’s efforts to comply with environmental regulations may have an adverse effect on its future earnings. On June 5, 2017, a General Notice Letter was received from the United States Environmental Protection Agency (“EPA”) indicating that the Company may be a potentially responsible party (“PRP”) regarding the Portland Harbor Superfund Site cleanup along with numerous other companies. More than 140 other companies received such a notice. The Company and a predecessor owned and operated a facility near the harbor site for a period prior to 1982. The net present value and undiscounted costs of the selected remedy throughout the harbor site are estimated by the EPA to be approximately $ 1.1 billion and $ 1.7 billion, respectively, and the remedial work is expected to take as long as 13 years to complete. These costs may increase given that the remedy will not be initiated or completed for several years. The Company is reviewing the basis for its identification by the EPA and the nature of the historic operations of a Company predecessor near the site. Additionally, the Company executed a PRP agreement which provides for a private allocation process among almost 100 PRPs in a working group whose work is ongoing and involves a process that will ultimately conclude a proposed allocation of liability for cleanup of the site and various sub-areas. The Company does not have any individual risk sharing agreements in place with respect to the site, and was only associated with the site from 1976 to when it purchased the stock of a company whose assets it sold in 1982 and which was dissolved in 1994. On March 26, 2020, the EPA issued a Unilateral Administrative Order to two parties requiring them to perform remedial design work for that portion of the Harbor Superfund Site that includes the area closest to the facility; the Company was not a recipient of this Unilateral Administrative Order. The Company cannot predict the ultimate impact of these proceedings because of the large number of PRPs involved throughout the harbor site, the size and extent of the site, the degree of contamination of various wastes, varying environmental impacts throughout the harbor site, the scarcity of data related to the facility once operated by the Company and a predecessor, potential comparative liability between the allocation parties and regarding non-participants, and the speculative nature of the remediation costs. Based upon information currently available, management does not believe that the Company’s alleged PRP status regarding the Portland Harbor Superfund Site or other compliance with the present environmental protection laws will have a material adverse effect on the financial condition , results of operations, cash flows, competitive position, or capital expenditures of the Company. As more information develops and the allocation process is completed, and given the resolution of factors like those described above, an unfavorable resolution could have a material adverse effect. As of June 30, 2023 and December 31, 2022, the Company maintained environmental reserves approximating $ 2,447 and $ 2,472 , respectively. 18 Table of Contents The Company is also subject to other legal proceedings and claims that arise in the ordinary course of its business. Legal actions are subject to inherent uncertainties, and future events could change management’s assessment of the probability or estimated amount of potential losses from pending or threatened legal actions. Based on available information, it is the opinion of management that the ultimate resolution of pending or threatened legal actions, both individually and in the aggregate, will not result in losses having a material adverse effect on the Company’s financial position or liquidity as of June 30, 2023. If management believes that, based on available information, it is at least reasonably possible that a material loss (or additional material loss in excess of any accrual) will be incurred in connection with any legal actions, the Company discloses an estimate of the possible loss or range of loss, either individually or in the aggregate, as appropriate, if such an estimate can be made, or discloses that an estimate cannot be made. Based on the Company’s assessment as of June 30, 2023, no such disclosures were considered necessary. 19 Table of Contents