Item 1. Financial Statements
Item 1. Financial Statements
L.B. FOSTER COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
September 30,
2023 December 31,
2022
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 2,969 $ 2,882
Accounts receivable - net (Note 5) 64,638 82,455
Contract assets - net (Note 3) 30,503 33,613
Inventories - net (Note 6) 82,020 75,721
Other current assets 9,712 11,061
Total current assets 189,842 205,732
Property, plant, and equipment - net 75,867 85,344
Operating lease right-of-use assets - net 15,440 17,291
Other assets:
Goodwill (Note 4) 30,856 30,733
Other intangibles - net (Note 4) 20,006 23,831
Deferred tax assets (Note 9) — 24
Other assets 2,580 2,355
TOTAL ASSETS $ 334,591 $ 365,310
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable $ 44,900 $ 48,782
Deferred revenue 16,003 19,452
Accrued payroll and employee benefits 12,358 10,558
Current portion of accrued settlement (Note 13) 8,000 8,000
Current maturities of long-term debt (Note 7) 97 127
Other accrued liabilities 14,679 16,192
Total current liabilities 96,037 103,111
Long-term debt (Note 7) 71,592 91,752
Deferred tax liabilities (Note 9) 1,131 3,109
Long-term portion of accrued settlement (Note 13) 4,000 8,000
Long-term operating lease liabilities 12,312 14,163
Other long-term liabilities 7,391 7,577
Stockholders’ equity:
Common stock, par value $ 0.01 , authorized 20,000,000 shares; shares issued at September 30, 2023 and December 31, 2022, 11,115,779 ; shares outstanding at September 30, 2023 and December 31, 2022, 10,804,800 and 10,776,827 , respectively
111 111
Paid-in capital 41,832 41,303
Retained earnings 125,063 123,169
Treasury stock - at cost, 310,979 and 338,952 common stock shares at September 30, 2023 and December 31, 2022, respectively
( 5,062 ) ( 6,240 )
Accumulated other comprehensive loss ( 20,123 ) ( 21,165 )
Total L.B. Foster Company stockholders’ equity 141,821 137,178
Noncontrolling interest 307 420
Total stockholders’ equity 142,128 137,598
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 334,591 $ 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
September 30, Nine Months Ended
September 30,
2023 2022 2023 2022
Sales of goods $ 131,065 $ 117,302 $ 361,770 $ 318,307
Sales of services 14,280 12,713 47,097 42,017
Total net sales 145,345 130,015 408,867 360,324
Cost of goods sold 103,061 93,737 282,195 258,913
Cost of services sold 14,060 13,181 42,905 38,574
Total cost of sales 117,121 106,918 325,100 297,487
Gross profit 28,224 23,097 83,767 62,837
Selling and administrative expenses 24,160 22,618 70,111 59,310
Amortization expense 1,379 1,599 4,119 4,454
Operating profit (loss) 2,685 ( 1,120 ) 9,537 ( 927 )
Interest expense - net 1,442 993 4,404 1,747
Other expense (income) - net 917 168 3,463 ( 1,096 )
Income (loss) before income taxes 326 ( 2,281 ) 1,670 ( 1,578 )
Income tax (benefit) expense ( 121 ) ( 176 ) ( 99 ) 137
Net income (loss) 447 ( 2,105 ) 1,769 ( 1,715 )
Net loss attributable to noncontrolling interest ( 68 ) ( 28 ) ( 125 ) ( 82 )
Net income (loss) attributable to L.B. Foster Company $ 515 $ ( 2,077 ) $ 1,894 $ ( 1,633 )
Basic earnings (loss) per common share $ 0.05 $ ( 0.20 ) $ 0.18 $ ( 0.16 )
Diluted earnings (loss) per common share $ 0.05 $ ( 0.20 ) $ 0.17 $ ( 0.16 )
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 (LOSS) INCOME
(Unaudited)
(In thousands)
Three Months Ended
September 30, Nine Months Ended
September 30,
2023 2022 2023 2022
Net income (loss) $ 447 $ ( 2,105 ) $ 1,769 $ ( 1,715 )
Other comprehensive (loss) income, net of tax:
Foreign currency translation adjustment ( 1,651 ) ( 4,341 ) 852 ( 8,933 )
Unrealized gain on cash flow hedges, net of tax expense of $ 0 , $ 217 , $ 0 , and $ 455 , respectively
1 632 79 1,330
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 $ 1 , $ 8 , $ 5 , and $ 40 , respectively*
42 50 123 149
Total comprehensive (loss) income ( 1,161 ) ( 5,764 ) 2,823 ( 9,076 )
Less comprehensive (loss) income attributable to noncontrolling interest:
Net loss attributable to noncontrolling interest ( 68 ) ( 28 ) ( 125 ) ( 82 )
Foreign currency translation adjustment ( 21 ) ( 21 ) 12 3
Amounts attributable to noncontrolling interest ( 89 ) ( 49 ) ( 113 ) ( 79 )
Comprehensive (loss) income attributable to L.B. Foster Company $ ( 1,072 ) $ ( 5,715 ) $ 2,936 $ ( 8,997 )
*
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)
Nine Months Ended
September 30,
2023 2022
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 1,769 $ ( 1,715 )
Adjustments to reconcile net income (loss) to cash used in operating activities:
Deferred income taxes ( 1,958 ) ( 962 )
Depreciation 7,449 6,083
Amortization 4,119 4,454
Equity in loss (income) of nonconsolidated investments 6 ( 38 )
Gain on sales and disposals of property, plant, and equipment ( 366 ) ( 214 )
Stock-based compensation 2,757 1,570
Loss (gain) on asset divestitures 3,074 ( 44 )
Change in operating assets and liabilities:
Accounts receivable 15,927 ( 23,760 )
Contract assets ( 261 ) ( 1,037 )
Inventories ( 16,047 ) ( 21,571 )
Other current assets 1,108 2,309
Other noncurrent assets ( 762 ) 2,468
Accounts payable 1,201 12,307
Deferred revenue 782 7,493
Accrued payroll and employee benefits 1,809 ( 417 )
Accrued settlement ( 4,000 ) ( 4,000 )
Other current liabilities ( 1,044 ) 54
Other long-term liabilities ( 253 ) ( 1,816 )
Net cash provided by (used in) operating activities 15,310 ( 18,836 )
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale of property, plant, and equipment 539 259
Capital expenditures on property, plant, and equipment ( 2,784 ) ( 4,559 )
Proceeds from business dispositions 7,706 8,800
Acquisitions, net of cash acquired 337 ( 58,561 )
Net cash provided by (used in) investing activities 5,798 ( 54,061 )
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of debt ( 150,115 ) ( 128,771 )
Proceeds from debt 129,853 197,926
Debt issuance costs — ( 182 )
Treasury stock acquisitions ( 1,193 ) ( 405 )
Investment of noncontrolling interest 334 —
Net cash (used in) provided by financing activities ( 21,121 ) 68,568
Effect of exchange rate changes on cash and cash equivalents 100 ( 1,100 )
Net increase (decrease) in cash and cash equivalents 87 ( 5,429 )
Cash and cash equivalents at beginning of period 2,882 10,372
Cash and cash equivalents at end of period $ 2,969 $ 4,943
Supplemental disclosure of cash flow information:
Interest paid $ 4,351 $ 1,337
Income taxes received $ ( 271 ) $ ( 5,151 )
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 September 30, 2023
Common
Stock Paid-in
Capital Retained
Earnings Treasury
Stock Accumulated Other
Comprehensive Loss Noncontrolling
Interest Total Stockholders’
Equity
Balance, June 30, 2023 $ 111 $ 40,919 $ 124,548 $ ( 4,846 ) $ ( 18,536 ) $ 396 $ 142,592
Net income (loss) — — 515 — — ( 68 ) 447
Other comprehensive income, net of tax:
Pension liability adjustment — — — — 42 — 42
Foreign currency translation adjustment — — — — ( 1,630 ) ( 21 ) ( 1,651 )
Unrealized derivative gain on cash flow hedges — — — — 1 — 1
Purchase of 12,102 common shares for treasury
— — — ( 216 ) — — ( 216 )
Issuance of 0 common shares, net of shares withheld for taxes
— ( 15 ) — — — — ( 15 )
Stock-based compensation — 928 — — — — 928
Balance, September 30, 2023 $ 111 $ 41,832 $ 125,063 $ ( 5,062 ) $ ( 20,123 ) $ 307 $ 142,128
Three Months Ended September 30, 2022
Common
Stock Paid-in
Capital Retained
Earnings Treasury
Stock Accumulated Other
Comprehensive Loss Noncontrolling
Interest Total Stockholders’
Equity
Balance, June 30, 2022 $ 111 $ 42,201 $ 169,177 $ ( 8,391 ) $ ( 22,547 ) $ 488 $ 181,039
Net income (loss) — — ( 2,077 ) — — ( 28 ) ( 2,105 )
Other comprehensive loss, net of tax:
Pension liability adjustment — — — — 50 — 50
Foreign currency translation adjustment — — — — ( 4,341 ) ( 21 ) ( 4,362 )
Unrealized derivative gain on cash flow hedges — — — — 632 — 632
Issuance of 605 common shares, net of shares withheld for taxes
— 20 — 40 — — 60
Stock-based compensation — 387 — — — — 387
Balance, September 30, 2022 $ 111 $ 42,608 $ 167,100 $ ( 8,351 ) $ ( 26,206 ) $ 439 $ 175,701
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)
Nine Months Ended September 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) — — 1,894 — — ( 125 ) 1,769
Other comprehensive income, net of tax:
Pension liability adjustment — — — — 123 — 123
Foreign currency translation adjustment — — — — 840 12 852
Unrealized derivative gain on cash flow hedges — — — — 79 — 79
Purchase of 63,343 common shares for treasury
— — — ( 878 ) — — ( 878 )
Issuance of 91,316 common shares, net of shares withheld for taxes
— ( 2,228 ) — 2,056 — — ( 172 )
Stock-based compensation — 2,757 — — — — 2,757
Balance, September 30, 2023 $ 111 $ 41,832 $ 125,063 $ ( 5,062 ) $ ( 20,123 ) $ 307 $ 142,128
8
Table of Contents
Nine Months Ended September 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) — — ( 1,633 ) — — ( 82 ) ( 1,715 )
Other comprehensive (loss) income, net of tax:
Pension liability adjustment — — — — 149 — 149
Foreign currency translation adjustment — — — — ( 8,933 ) 3 ( 8,930 )
Unrealized derivative gain on cash flow hedges — — — — 1,330 — 1,330
Cash flow hedges reclassified to earnings — — — — 93 — 93
Issuance of 61,212 common shares, net of shares withheld for taxes
— ( 2,234 ) — 1,828 — — ( 406 )
Stock-based compensation — 1,570 — — — — 1,570
Balance, September 30, 2022 $ 111 $ 42,608 $ 167,100 $ ( 8,351 ) $ ( 26,206 ) $ 439 $ 175,701
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
9
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 nine months ended September 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
September 30, 2023 Three Months Ended
September 30, 2022
Net Sales Segment Operating Profit (Loss) Net Sales Segment Operating Profit
Rail, Technologies, and Services $ 86,866 $ 3,865 $ 77,350 $ 539
Precast Concrete Products 38,642 3,389 28,856 1,245
Steel Products and Measurement 19,837 ( 1,521 ) 23,809 303
Total $ 145,345 $ 5,733 $ 130,015 $ 2,087
Nine Months Ended
September 30, 2023 Nine Months Ended
September 30, 2022
Net Sales Segment Operating Profit (Loss) Net Sales Segment Operating Profit (Loss)
Rail, Technologies, and Services $ 242,866 $ 12,880 $ 222,857 $ 5,576
Precast Concrete Products 96,795 4,337 67,477 329
Steel Products and Measurement 69,206 ( 73 ) 69,990 ( 1,083 )
Total $ 408,867 $ 17,144 $ 360,324 $ 4,822
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.
10
Table of Contents
The following table demonstrates a reconciliation of reportable segment net profit to the Company’s consolidated total for the periods presented:
Three Months Ended
September 30, Nine Months Ended
September 30,
2023 2022 2023 2022
Operating profit for reportable segments $ 5,733 $ 2,087 $ 17,144 $ 4,822
Interest expense - net ( 1,442 ) ( 993 ) ( 4,404 ) ( 1,747 )
Other (expense) income - net ( 917 ) ( 168 ) ( 3,463 ) 1,096
Unallocated corporate expenses and other unallocated charges ( 3,048 ) ( 3,207 ) ( 7,607 ) ( 5,749 )
Income (loss) before income taxes $ 326 $ ( 2,281 ) $ 1,670 $ ( 1,578 )
The following table illustrates assets of the Company by reportable segment for the periods presented:
September 30,
2023 December 31,
2022
Rail, Technologies, and Services $ 164,728 $ 172,111
Precast Concrete Products 106,243 108,598
Steel Products and Measurement 36,481 54,516
Unallocated corporate assets 27,139 30,085
Total $ 334,591 $ 365,310
On August 30, 2023, the Company announced the discontinuation of its Bridge Products grid deck product line. The Bedford, PA based operations supporting the product line are expected to cease in the fourth quarter of 2023. For the three months ended September 30, 2023 and 2022, the product line had $ 283 and $ 2,967 in sales, respectively, and for the nine months ended September 30, 2023 and 2022, the product line had $ 3,749 and $ 12,975 in sales, respectively. The Company incurred $ 1,069 of exit costs recorded in “Other expense (income) - net,” which includes $ 345 in inventory write-downs, $ 462 in personnel expenses, and $ 262 in other exit costs. The Company expects to incur an additional $ 520 of personnel expenses associated with the exit through 2024. During the three months ended September 30, 2023 the Company also recorded a $ 1,977 reduction in net sales and a $ 3,051 reduction in gross profit stemming from changes in expected value of certain commercial projects associated with the exit of the product line. The grid deck product line was reported in the Bridge Products business unit within the Steel Products and Measurement segment.
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 $ 2,362 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 Precision Measurement Products and Systems business, Chemtec Energy Services LLC (“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.
11
Table of Contents
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
September 30, Nine Months Ended
September 30,
2023 2022 2023 2022
Rail Products and Global Friction Management $ 76,262 $ 69,573 $ 214,236 $ 192,527
Technology Services and Solutions 10,604 7,777 28,630 30,330
Rail, Technologies, and Services 86,866 77,350 242,866 222,857
Precast Concrete Buildings 20,127 15,525 50,338 41,306
Precast Infrastructure Products 18,515 13,331 46,457 26,171
Precast Concrete Products 38,642 28,856 96,795 67,477
Fabricated Steel Products 14,218 15,300 39,589 45,871
Coatings and Measurement 5,619 8,509 29,617 24,119
Steel Products and Measurement 19,837 23,809 69,206 69,990
Total net sales $ 145,345 $ 130,015 $ 408,867 $ 360,324
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.
Net sales by the timing of the transfer of goods and services was as follows for the periods presented:
Three Months Ended September 30, 2023
Rail, Technologies, and Services Precast Concrete Products Steel Products and Measurement Total
Point in time $ 72,246 $ 18,516 $ 20,018 $ 110,780
Over time 14,620 20,126 ( 181 ) 34,565
Total net sales $ 86,866 $ 38,642 $ 19,837 $ 145,345
Three Months Ended September 30, 2022
Rail, Technologies, and Services Precast Concrete Products Steel Products and Measurement Total
Point in time $ 64,913 $ 13,331 $ 20,871 $ 99,115
Over time 12,437 15,525 2,938 30,900
Total net sales $ 77,350 $ 28,856 $ 23,809 $ 130,015
Nine Months Ended September 30, 2023
Rail, Technologies, and Services Precast Concrete Products Steel Products and Measurement Total
Point in time $ 202,003 $ 46,458 $ 56,151 $ 304,612
Over time 40,863 50,337 13,055 104,255
Total net sales $ 242,866 $ 96,795 $ 69,206 $ 408,867
Nine Months Ended September 30, 2022
Rail, Technologies, and Services Precast Concrete Products Steel Products and Measurement Total
Point in time $ 179,951 $ 26,171 $ 56,897 $ 263,019
Over time 42,906 41,306 13,093 97,305
Total net sales $ 222,857 $ 67,477 $ 69,990 $ 360,324
During the three and nine months ended September 30, 2023, the Company recorded a $ 1,977 reduction in net sales stemming from changes in expected value of certain commercial projects associated with the exit of the bridge grid deck product line.
12
Table of Contents
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
September 30, Percentage of Total Net Sales
Three Months Ended September 30,
2023 2022 2023 2022
Over time input method $ 12,642 $ 14,380 8.7 % 11.1 %
Over time output method 21,923 16,520 15.1 12.7
Total over time sales $ 34,565 $ 30,900 23.8 % 23.8 %
Nine Months Ended
September 30, Percentage of Total Net Sales
Nine Months Ended September 30,
2023 2022 2023 2022
Over time input method $ 44,577 $ 53,791 10.9 % 14.9 %
Over time output method 59,678 43,514 14.6 12.1
Total over time sales $ 104,255 $ 97,305 25.5 % 27.0 %
The timing of revenue recognition, billings, and cash collections results in billed receivables, costs in excess of billings (included in “Contract assets - net”), 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 3,718
Transfers from contract asset balance to accounts receivable ( 6,828 )
Balance as of September 30, 2023
$ 30,503
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 ( 4,421 )
Increase in billings in excess of cost, excluding revenue recognized 3,635
Other adjustments, including business divestiture ( 1,904 )
Balance as of September 30, 2023
$ 4,091
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 September 30, 2023, the Company had approximately $ 243,219 of obligations under new contracts and remaining performance obligations, which is also referred to as backlog. Approximately 10.9 % of the September 30, 2023 backlog was related to projects that are anticipated to extend beyond September 30, 2024.
13
Table of Contents
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 ( 119 ) — — ( 119 )
Balance as of September 30, 2023 $ 19,829 $ 11,027 $ — $ 30,856
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 September 30, 2023. However, future impairment charges could result if future projections diverge unfavorably from current expectations.
As of September 30, 2023 and December 31, 2022, the components of the Company’s intangible assets were as follows:
September 30, 2023
Weighted Average
Amortization
Period In Years Gross
Carrying
Value Accumulated
Amortization Net
Carrying
Amount
Patents 10 $ 330 $ ( 194 ) $ 136
Customer relationships 16 27,276 ( 16,200 ) 11,076
Trademarks and trade names 16 7,942 ( 4,424 ) 3,518
Technology 13 32,474 ( 27,461 ) 5,013
Favorable lease 6 327 ( 64 ) 263
$ 68,349 $ ( 48,343 ) $ 20,006
During the nine months ended September 30, 2023, certain fully amortized intangible assets of $ 27 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 September 30, 2023, the purchase accounting for these transactions is final. Purchase accounting adjustments recognized during the nine months ended September 30, 2023 were immaterial.
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 $ 763 and income of $ 40 for the three months ended September 30, 2023 and 2022, respectively, and an expense of $ 1,174 and $ 171 for the nine months ended September 30, 2023 and 2022, respectively.
14
Table of Contents
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 1,174
Write-off against allowance ( 244 )
Balance as of September 30, 2023 $ 1,743
Note 6. Inventory
Inventory is valued at average cost or net realizable value, whichever is lower. The Company’s components of inventory as of September 30, 2023 and December 31, 2022 are summarized in the following table:
September 30,
2023 December 31,
2022
Finished goods $ 46,740 $ 41,431
Work-in-process 8,673 9,693
Raw materials 26,607 24,597
Inventories - net $ 82,020 $ 75,721
Note 7. Long-Term Debt and Related Matters
Long-term debt consisted of the following:
September 30,
2023 December 31,
2022
Revolving credit facility $ 71,476 $ 91,567
Finance leases and financing agreements 213 312
Total 71,689 91,879
Less current maturities ( 97 ) ( 127 )
Long-term portion $ 71,592 $ 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 through June 30, 2023 to accommodate the transaction.
15
Table of Contents
As of September 30, 2023, the Company was in compliance with the covenants in the Credit Agreement, as amended, and had outstanding letters of credit of approximately $ 2,544 .
Note 8. Earnings Per Common Share
(Share amounts in thousands)
The following table sets forth the computation of basic and diluted earnings (loss) per common share for the periods indicated:
Three Months Ended
September 30, Nine Months Ended
September 30,
2023 2022 2023 2022
Numerator for basic and diluted earnings per common share:
Net income (loss) attributable to L.B. Foster Company $ 515 $ ( 2,077 ) $ 1,894 $ ( 1,633 )
Denominator:
Weighted average shares outstanding 10,813 10,731 10,804 10,710
Denominator for basic earnings (loss) per common share 10,813 10,731 10,804 10,710
Effect of dilutive securities:
Stock compensation plans 160 — 91 —
Dilutive potential common shares 160 — 91 —
Denominator for diluted earnings (loss) per common share - adjusted weighted average shares outstanding 10,973 10,731 10,895 10,710
Basic earnings (loss) per common share $ 0.05 $ ( 0.20 ) $ 0.18 $ ( 0.16 )
Diluted earnings (loss) per common share $ 0.05 $ ( 0.20 ) $ 0.17 $ ( 0.16 )
There were 109 and 108 anti-dilutive shares for the three and nine months ended September 30, 2022, respectively, excluded from the calculation.
Note 9. Income Taxes
For the three months ended September 30, 2023 and 2022, the Company recorded an income tax benefit of $ 121 and $ 176 , respectively, on pre-tax income of $ 326 and pre-tax losses of $ 2,281 , respectively, for an effective income tax rate of ( 37.1 %) and 7.7 %, respectively. For the nine months ended September 30, 2023 and 2022, the Company recorded an income tax benefit of $ 99 and income tax expense of $ 137 , respectively, on pre-tax income of $ 1,670 and pre-tax losses of $ 1,578 , respectively, for an effective income tax rate of ( 5.9 %) and ( 8.7 %), respectively. The Company's effective income tax rate for the three and nine months ended September 30, 2023 differed from the federal statutory rate of 21% primarily due to changes in the valuation allowance established against U.S. and United Kingdom deferred tax assets. 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 $ 928 and $ 387 for the three months ended September 30, 2023 and 2022, respectively, and $ 2,757 and $ 1,570 for the nine months ended September 30, 2023 and 2022, respectively, related to restricted stock awards and performance share units. As of September 30, 2023, unrecognized compensation expense for awards that the Company expects to vest approximated $ 6,059 . The Company will recognize this unrecognized compensation expense over the upcoming 2.4 years through March 1, 2026.
Shares issued as a result of vested stock-based compensation awards generally will be issued 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, as amended, 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
16
Table of Contents
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 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 nine months ended September 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
Cancelled and forfeited ( 2,750 ) — — 14.46
Outstanding as of September 30, 2023 264,970 12,404 496,140 $ 14.20
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 September 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
September 30,
2023 Level 1 Level 2 Level 3 December 31,
2022 Level 1 Level 2 Level 3
Term deposits $ — $ — $ — $ — $ 17 $ 17 $ — $ —
Interest rate swaps 2,009 — 2,009 — 1,930 — 1,930 —
Total assets $ 2,009 $ — $ 2,009 $ — $ 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
17
Table of Contents
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 September 30, 2023, the Company recognized interest income of $ 329 from interest rate swaps. For the nine months ended September 30, 2023 and 2022, the Company recognized interest income and interest expense of $ 869 and $ 78 , respectively, from interest rate swaps.
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 nine months ended September 30, 2023 and 2022 were as follows:
Three Months Ended
September 30, Nine Months Ended
September 30,
2023 2022 2023 2022
Interest cost $ 71 $ 49 $ 214 $ 146
Expected return on plan assets ( 64 ) ( 66 ) ( 192 ) ( 198 )
Recognized net actuarial loss 16 18 47 53
Net periodic pension cost $ 23 $ 1 $ 69 $ 1
The Company has made contributions to its United States defined benefit plan of $ 176 during the nine months ended September 30, 2023 and expects to make total contributions of approximately $ 400 during 2023.
United Kingdom Defined Benefit Plan
Net periodic pension costs for the United Kingdom defined benefit pension plan for the three and nine months ended September 30, 2023 and 2022 were as follows:
Three Months Ended
September 30, Nine Months Ended
September 30,
2023 2022 2023 2022
Interest cost $ 56 $ 42 $ 168 $ 126
Expected return on plan assets ( 84 ) ( 74 ) ( 252 ) ( 222 )
Amortization of prior service costs and transition amount 6 6 18 18
Recognized net actuarial loss 3 38 9 114
Net periodic pension (income) cost $ ( 19 ) $ 12 $ ( 57 ) $ 36
United Kingdom regulations require trustees to adopt a prudent approach to funding required contributions to defined benefit pension plans. For the nine months ended September 30, 2023, the Company contributed approximately $ 260 to the plan. The Company anticipates total contributions of approximately $ 347 to the United Kingdom pension plan during 2023.
18
Table of Contents
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
September 30, Nine Months Ended
September 30,
2023 2022 2023 2022
United States $ 728 $ 441 $ 2,135 $ 1,136
Canada 36 83 131 143
United Kingdom 294 588 881 588
$ 1,058 $ 1,112 $ 3,147 $ 1,867
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 $ 4,000
2024 8,000
Total $ 12,000
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
19
Table of Contents
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 September 30, 2023 and December 31, 2022, the Company maintained environmental reserves approximating $ 2,426 and $ 2,472 , respectively.
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 September 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 September 30, 2023, no such disclosures were considered necessary.
20
Table of Contents