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3: EX-10.2 Material Contract HTML 46K
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15: R3 Condensed Consolidated Balance Sheets HTML 35K
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Loss
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Loss (Parenthetical)
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Equity
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(Registrant’s telephone number, including area code)
Securities
registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
iCommon Stock, par value $0.01
iFSTR
iNASDAQ
Global Select Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. iYes ☒ No ☐
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). iYes ☒ No ☐
Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,”“accelerated filer,”“smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐
iAccelerated
filer ☒
Non-accelerated filer ☐
Smaller reporting company i☒
Emerging growth company i☐
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No i☒
As
of May 3, 2022, there were i10,889,632 shares of the registrant’s common stock, par value $0.01 per share, outstanding.
Unrealized
gain on cash flow hedges, net of tax expense of $i188 and $i0,
respectively
i551
i—
Cash
flow hedges reclassified to earnings, net of tax expense of $i66 and $i98,
respectively
i93
i136
Reclassification
of pension liability adjustments to earnings, net of tax expense of $i16 and $i24,
respectively*
i49
i91
Total
comprehensive loss
(i1,773)
(i590)
Less
comprehensive income (loss) attributable to noncontrolling interest:
Net loss attributable to noncontrolling interest
(i20)
(i12)
Foreign
currency translation adjustment
i85
(i30)
Amounts
attributable to noncontrolling interest
i65
(i42)
Comprehensive
loss attributable to L.B. Foster Company
$
(i1,838)
$
(i548)
*
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.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except share data)
Note
1. iFinancial Statements
i
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. In the opinion of management, all estimates and adjustments (consisting of normal recurring accruals, unless otherwise stated herein) considered necessary for a fair presentation of the financial position of L.B. Foster Company and subsidiaries as of March 31, 2022 and December 31, 2021 and its Condensed Consolidated Statements of Operations, Condensed Consolidated Statements
of Comprehensive Loss, Condensed Consolidated Statements of Cash Flows, and Condensed Consolidated Statements of Stockholders’ Equity for the three months ended March 31, 2022 and 2021 have been included. However, actual results could differ from those estimates and changes in those estimates are recorded when known. The results of operations for interim periods are not necessarily indicative of the results that may be expected for the year ending December 31, 2022. The Condensed Consolidated Balance Sheet as of December 31, 2021 was derived from audited financial statements. 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, 2021. 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.
i
Reclassifications
Certain accounts in the prior year consolidated financial statements have been reclassified for comparative
purposes principally to conform to the presentation of the current year period. Effective for the quarter and year ended December 31, 2021, the Company implemented operational changes in how its Chief Operating Decision Maker (“CODM”) manages its businesses, including resource allocation and operating decisions. As a result of these changes, the Company now has ithree
reporting segments, representing the individual businesses that are run separately under the new structure: Rail, Technologies, and Services; Precast Concrete Products; and Steel Products and Measurement. The Company has revised the information for all periods presented in this Quarterly Report on Form 10-Q to reflect these reclassifications.
/
i
Recently
Issued Accounting Standards
In March 2020 and as clarified in January 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. (“ASU”) 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting” (“ASU 2020-04”), which provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by the discontinuation of the London Interbank Offered Rate (“LIBOR”) or by another reference rate expected to be discontinued. The amendments are effective for all entities as of March 12, 2020 through December 31, 2022. The
Company is currently evaluating the impacts of the provisions of ASU 2020-04 on its financial condition, results of operations, and cash flows.
Note 2. iBusiness Segments
The Company is a global 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 CODM, 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, 2021.
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.
i
The
following table provides a reconciliation of segment net (loss) profit to the Company’s consolidated total for the periods presented:
Revenue from products or services provided to customers over time accounted for i30.7%
and i25.3% of revenue for the three months ended March 31, 2022 and 2021, respectively. The majority of revenue under these long-term agreements is recognized over time either 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. Revenue recognized over time using an input measure was $i19,322 and $i21,108
for the three months ended March 31, 2022 and 2021, respectively. A certain portion of the Company’s revenue recognized over time under these long-term agreements is recognized using an output method, specifically units delivered, based upon certain customer acceptance and delivery requirements. Revenue recognized over time using an output measure was $i10,981
and $i8,264 for the three months ended March 31, 2022 and 2021, respectively. As of March 31, 2022 and December 31, 2021, the Company had contract
assets of $i34,268 and $i36,179, respectively, that were recorded within the Condensed Consolidated Balance Sheets. As of March 31,
2022 and December 31, 2021, the Company had contract liabilities of $i3,682 and $i3,235,
respectively, that were recorded in “Deferred revenue” within the Condensed Consolidated Balance Sheets.
The majority of the Company’s revenue is from products transferred and services rendered to customers at a point in time. Point in time revenue accounted for i69.3% and i74.7%
of revenue for the three months ended March 31, 2022 and 2021. 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 physical location.
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.
Significant changes in contract assets during the three months ended March 31, 2022 included transfers of $i11,607
from the contract assets balance as of December 31, 2021 to accounts receivable. Significant changes in contract liabilities during the three months ended March 31, 2022 resulted from increases of $i1,957 due to billings in excess of costs,
excluding amounts recognized as revenue during the period. Contract liabilities were reduced due to revenue recognized during the three months ended March 31, 2022 and 2021 of $i1,441 and $i676,
respectively, which were included in contract liabilities at the beginning of each period.
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 are based
on historic collection trends, accuracy of estimates within contract margin reporting, as well as the expectation that collection patterns, margin reporting, and bad debt expense 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 March 31, 2022, the Company had approximately $i244,618
of obligations under new contracts and remaining performance obligations, which is also referred to as backlog. Approximately i10.8% of the March 31, 2022 backlog was related to projects that are anticipated to extend beyond March 31, 2023.
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 COVID-19. However, the future impacts of COVID-19 are unpredictable and are subject to change. No interim goodwill impairment test was required as a result of the evaluation of qualitative factors as of March 31, 2022.
i
The
components of the Company’s intangible assets were as follows for the periods presented:
The Company amortizes intangible assets over their useful lives, which range from i5 to i25 years, with a total weighted average amortization
period of approximately i16 years as of March 31, 2022. Amortization expense was $i1,436 and $i1,465
for the three months ended March 31, 2022 and 2021, respectively.
i
As of March 31, 2022, estimated amortization expense for the remainder of 2022 and thereafter was as follows:
Amortization Expense
Remainder
of 2022
$
i4,280
2023
i5,251
2024
i4,247
2025
i2,479
2026
i2,056
2027
and thereafter
i11,174
$
i29,487
/
Note
5. iAccounts Receivable
The Company extends credit based upon an evaluation of the customer’s financial condition and, while collateral is not required, the Company periodically receives surety bonds that guarantee payment. Credit terms are consistent with industry standards and practices. The amounts of trade accounts receivable
as of March 31, 2022 and December 31, 2021 have been reduced by an allowance for credit
losses of $i423 and $i547,
respectively. Changes in reserves for uncollectible accounts, which are recorded as part of “Selling and administrative expenses” within the Condensed Consolidated Statements of Operations, resulted in expense of $i61 and income of $i22
for the three months ended March 31, 2022 and 2021, respectively.
The Company established the allowance for credit losses by calculating the amount to reserve based on the age of a given trade receivable and considering historical collection patterns and bad debt expense experience, in addition to any other relevant subjective adjustments to individual receivables made by management. The Company also considers current and expected future market and other conditions. Trade receivables are pooled within the calculation based on a range of ages, which appropriately groups receivables of similar credit risk together.
The
established reserve thresholds to calculate the allowance for credit loss are based on and supported by historic collection patterns and bad debt expense incurred by the Company, as well as the expectation that collection patterns and bad debt expense will continue to adhere to patterns observed in recent years, which was formed based on trends observed as well as current and expected future conditions, including the impacts of the COVID-19 pandemic. Management maintains stringent credit review practices and works to maintain positive customer relationships to further mitigate credit risk.
i
The
following table sets forth the Company’s allowance for credit losses:
Machinery
and equipment, including equipment under finance leases
i112,315
i112,021
Construction
in progress
i1,707
i1,194
Gross
property, plant, and equipment
i162,729
i162,061
Less
accumulated depreciation and amortization, including accumulated amortization of finance leases
(i105,150)
(i103,839)
Property,
plant, and equipment - net
$
i57,579
$
i58,222
/
Depreciation
expense was $i1,938 and $i1,990 for the three months ended March 31, 2022 and 2021, respectively. The
Company reviews its property, plant, and equipment for recoverability whenever events or changes in circumstances indicate that carrying amounts may not be recoverable. The Company recognizes an impairment loss if it believes that the carrying amount of a long-lived asset is not recoverable and exceeds its fair value. There were iino/
impairments of property, plant, and equipment during the three months ended March 31, 2022 and 2021.
The
Company determines if an arrangement is a lease at its inception. Operating leases are included in “Operating lease right-of-use assets - net,”“Other accrued liabilities,” and “Long-term operating lease liabilities” within the Condensed Consolidated Balance Sheets. Finance leases are included within “Property, plant, and equipment - net,”“Current maturities of long-term debt,” and “Long-term debt” within the Condensed Consolidated Balance Sheets.
The Company has operating and finance leases for manufacturing facilities, corporate offices, sales offices, vehicles, and certain equipment. As of March 31, 2022, the Company’s leases
had remaining lease terms of i2 to i12 years, some of which include options to extend the leases for up to i12
years, and some of which include options to terminate the leases within i1 year.
The
components of lease expense within the Company’s Condensed Consolidated Statements of Operations were as follows for the three months ended March 31, 2022 and 2021:
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 modifies the prior revolving credit facility, as amended, on more favorable terms and extends the maturity date from April 30, 2024 to August 13, 2026.
The Credit Agreement provides for a ifive-year, revolving credit facility that permits aggregate borrowings of the Borrowers up to $i130,000 (a $i15,000
increase over the previous commitment) with a sublimit of the equivalent of $i25,000 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 $i50,000
subject to the Company’s receipt of increased commitments from existing or new lenders and the satisfaction of certain conditions.
The obligation of the Company and its domestic, Canadian, and United Kingdom subsidiaries (the “Guarantors”) under the Credit Agreement will be secured by the grant of a security interest by the Borrowers and Guarantors in substantially all of the assets owned by such entities. Additionally, the equity interests in each of the loan parties, other than the Company, and the equity interests held by each loan party
in their subsidiaries, will be pledged to the lenders as collateral for the lending obligations.
Borrowings under the Credit Agreement will bear interest at rates based upon either the base rate or LIBOR rate plus applicable margins. Applicable margins are dictated by the ratio of the Company’s total net indebtedness to the Company’s consolidated EBITDA for four trailing quarters, as defined in the Credit Agreement. The base rate is the highest of (a) the Overnight Bank Funding Rate plus i50
basis points, (b) the Prime Rate, or (c) the Daily LIBOR rate plus i100 basis points so long as the Daily LIBOR Rate is offered, ascertainable, and not unlawful (each as defined in the Credit Agreement). The base rate and LIBOR rate spreads range from i25
to i125 basis points and i125 to i225
basis points, respectively.
The Credit Agreement includes two financial covenants: (a) Maximum Gross Leverage Ratio, defined as the Company’s consolidated Indebtedness divided by the Company’s consolidated EBITDA, which must not exceed (i) i3.25
to 1.00 for all testing periods other than during an Acquisition Period, and (ii) i3.50 to 1.00 for all testing periods occurring during an Acquisition Period (as defined in the Credit Agreement), 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 i1.05 to 1.00.
The Credit Agreement permits the Company to pay dividends and make distributions and redemptions with respect to its stock provided no event of default or potential default (as defined in the Credit Agreement) has occurred prior to or after giving effect to the dividend, distribution, or redemption. Additionally, the Credit Agreement
permits the Company to complete acquisitions so long as (a) no event of default or potential default has occurred prior to or as a result of such acquisition; (b) the liquidity of the Borrowers is not less than $i15,000 prior to and after giving effect to such acquisition; and (c) the aggregate consideration for the acquisition does not exceed: (i) $i50,000
per acquisition, so long as the Gross Leverage Ratio (as defined in the Credit Agreement) is less than or equal to i2.75 after giving effect to such acquisition; or (ii) $i75,000
per acquisition, so long as the Gross Leverage Ratio is less than or equal to i1.75 after giving effect to such acquisition.
Other restrictions exist at all times including, but not limited to, limitations on the Company’s sale of assets and the incurrence by either the Borrowers or the non-borrower subsidiaries
of the Company of other indebtedness, guarantees, and liens.
As of March 31, 2022, the Company was in compliance with the covenants in the Credit Agreement, as amended. As of March 31, 2022, the Company had outstanding letters of credit of approximately $i636
and had net available borrowing capacity of $i93,868, subject to covenant restrictions. The maturity date of the facility is August 13, 2026.
Note 10. iEarnings
Per Common Share
(Share amounts in thousands)
i
The following table sets forth the computation of basic and diluted loss per common share for the periods indicated:
Numerator for basic and diluted loss per common share:
Net
loss
$
(i1,586)
$
(i1,270)
Denominator:
Weighted
average shares outstanding
i10,685
i10,583
Denominator
for basic loss per common share
i10,685
i10,583
Effect
of dilutive securities:
Dilutive potential common shares
i—
i—
Denominator
for diluted income (loss) per common share - adjusted weighted average shares outstanding
i10,685
i10,583
Basic
loss per common share
$
(i0.15)
$
(i0.12)
Diluted
loss per common share
$
(i0.15)
$
(i0.12)
/
There
were i122 and i140 anti-dilutive shares
for the three months ended March 31, 2022 and 2021, respectively.
Note 11. iIncome Taxes
For the three months ended March 31, 2022 and 2021, the
Company recorded an income tax benefit of $i508 on pretax losses of $i2,094
and an income tax benefit of $i321 on pre-tax losses of $i1,591,
respectively, for effective income tax rates of i24.3% and i20.2%, respectively. The
Company’s effective tax rate for the three months ended March 31, 2022 differs from the federal statutory rate of 21% primarily due to state income taxes, nondeductible expenses, and research tax credits.
Note 12. iStock-Based Compensation
iThe
Company applies the provisions of the FASB’s Accounting Standards Codification (“ASC”) Topic 718, “Compensation – Stock Compensation,” to account for the Company’s stock-based compensation. Stock-based compensation cost is measured at the grant date based on the calculated fair value of the award and is recognized over the employees’ requisite service periods.The Company recorded stock-based compensation expense related to restricted stock awards and performance share units of $ii258/
and $ii827/ for the three months ended March 31, 2022 and 2021,
respectively. As of March 31, 2022, unrecognized compensation expense for unvested awards approximated $i4,064. The Company expects to recognize this expense over the upcoming i3.9
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 Awards, Performance Share Units, and Performance-Based Stock Awards
Under 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 ithree-year period, unless indicated otherwise by the underlying restricted stock award agreement. Since May 2018, awards of restricted stock have been subject to a minimum ione-year
vesting period, including those granted to non-employee directors. Performance share units are offered annually under separate ithree-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. 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 May 1, 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 isix
months after separation from their service on the Board of Directors. Since May 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 2022, the Compensation Committee approved the 2022 Performance Share Unit Program and the Executive Annual Incentive Compensation Plan (consisting of cash and equity components).
i
The
following table summarizes the restricted stock awards, deferred stock units, and performance share units activity for the three months ended March 31, 2022:
The Company determines the fair value of assets and liabilities based on the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants. The fair values are based on assumptions that market participants would use when pricing an asset or liability, including assumptions
about risk and the risks inherent in valuation techniques and the inputs to valuations. The fair value hierarchy is based on whether the inputs to valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s own assumptions of what market participants would use. The fair value hierarchy includes three levels of inputs that may be used to measure fair value as described below:
Level 1: Quoted market prices in active markets for identical assets or liabilities.
Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data.
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.
LIBOR-based interest rate swaps - To reduce the impact of interest rate changes on outstanding variable-rate debt, the Company entered into a forward starting
LIBOR-based interest rate swaps with notional values totaling $i50,000 and $i20,000 effective February 2017 and March 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 March 31, 2022 and December 31, 2021, 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 Consolidated Balance Sheets.
Quoted
Prices in Active Markets for Identical Assets (Level 1)
Significant Other Observable Inputs (Level 2)
Significant Unobservable Inputs (Level 3)
Term deposits
$
i18
$
i18
$
i—
$
i—
$
i18
$
i18
$
i—
$
i—
Interest
rate swaps
i914
i—
i914
i—
i175
i—
i175
i—
Total
assets
$
i932
$
i18
$
i914
$
i—
$
i193
$
i18
$
i175
$
i—
Interest
rate swaps
$
i—
$
i—
$
i—
$
i—
$
i159
$
i—
$
i159
$
i—
Total
liabilities
$
i—
$
i—
$
i—
$
i—
$
i159
$
i—
$
i159
$
i—
/
The
$i20,000 interest rate swaps that become effective March 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.
The
Company accounted for the $i50,000 of interest rate swaps that became effective February 2017 as cash flow hedges, these interest rate swaps expired February 2022.
For the three months ended March 31, 2022 and 2021, the Company recognized interest expense of $i97
and $i235, respectively, from interest rate swaps.
In accordance with the provisions of ASC Topic 820, “Fair Value Measurement,”the Company measures certain nonfinancial assets and liabilities at fair value, which are recognized and disclosed on a nonrecurring basis.
Note 14. iRetirement
Plans
Retirement Plans
The Company has ithree retirement plans that cover its hourly and salaried employees in the United States: ione
defined benefit plan, which is frozen, and itwo 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 itwo defined contribution plans for its employees in Canada, as well as ione
post-retirement benefit plan. The Company also maintains itwo defined contribution plans and ione
defined benefit plan for its employees in the United Kingdom.
United States Defined Benefit Plan
i
Net periodic pension costs for the United States defined benefit pension plan for the three months ended March 31, 2022 and 2021 were as follows:
The
Company has made contributions to its United States defined benefit pension plan of $i115 during the three months ended March 31, 2022 and expects to make total contributions of $i460
during 2022.
Amortization
of prior service costs and transition amount
i6
i7
Recognized
net actuarial loss
i42
i83
Net
periodic pension cost
$
i12
$
i53
/
United
Kingdom regulations require trustees to adopt a prudent approach to funding required contributions to defined benefit pension plans. For the three months ended March 31, 2022, the Company contributed approximately $i82 to the plan. The Company anticipates total contributions of approximately $i315
to the United Kingdom pension plan during 2022.
Defined Contribution Plans
The Company sponsors isix defined contribution plans for hourly and salaried employees across its domestic and international facilities. iThe
following table summarizes the expense associated with the contributions made to these plans for the periods presented:
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.
i
The following table sets forth the Company’s product warranty accrual:
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 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 $i50,000
without pre-judgment interest, which began with a $i2,000 immediate payment, and with the remaining $i48,000
paid in installments over a isix-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 $i48,000
of products and services, targeting $i8,000 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 $i6,000
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.
i
The
expected payments under the UPRR Settlement Agreement for the remainder of the year ending December 31, 2022 and thereafter are as follows:
Year Ending December 31,
Remainder of 2022
$
i8,000
2023
i8,000
2024
i8,000
Total
$
i24,000
/
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 i140 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 $i1.1
billion and $i1.7 billion, respectively, and the remedial work is expected to take as long as i13 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 i100 PRPs in a working group whose work is ongoing. 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.
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 March 31, 2022.
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 March 31, 2022, no such disclosures were considered necessary.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
(Dollars in thousands, except share data)
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains “forward-looking” statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended. Many of the forward-looking statements are located in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (“MD&A”). Forward-looking statements provide management’s current expectations of future events based on certain assumptions and include any statement that does not directly relate to any historical or current fact.
Sentences containing words such as “believe,”“intend,”“plan,”“may,”“expect,”“should,”“could,”“anticipate,”“estimate,”“predict,”“project,” or their negatives, or other similar expressions of a future or forward-looking nature generally should be considered forward-looking statements. Forward-looking statements in this Quarterly Report on Form 10-Q are based on management’s current expectations and assumptions about future events that involve inherent risks and uncertainties and may concern, among other things, the Company’s expectations relating to our strategy, goals, projections, and plans regarding our financial position, liquidity, capital resources, and results of operations and decisions regarding our strategic growth initiatives, market position, and product development. While the
Company considers these expectations and assumptions to be reasonable, they are inherently subject to significant business, economic, competitive, regulatory, and other risks and uncertainties, most of which are difficult to predict and many of which are beyond the Company’s control. The Company cautions readers that various factors could cause the actual results of the Company to differ materially from those indicated by forward-looking statements. Accordingly, investors should not place undue reliance on forward-looking statements as a prediction of actual results. Among the factors that could cause the actual results to differ materially from those indicated in the forward-looking statements are risks and uncertainties
related to: the COVID-19 pandemic, and any future global health crises, and the related social, regulatory, and economic impacts and the response thereto by the Company, our employees, our customers, and national, state, or local governments; volatility in the prices of oil and natural gas and the related impact on the midstream energy markets, which could result in cost mitigation actions, including shutdowns or furlough periods; a continuation or worsening of the adverse economic conditions in the markets we serve, whether as a result of the current COVID-19 pandemic, including its impact on labor markets, supply chains, and other inflationary costs, travel and demand for oil and gas, the continued deterioration in the prices for oil and gas, governmental travel restrictions, project delays, and budget shortfalls, or otherwise; volatility in the global capital markets, including interest
rate fluctuations, which could adversely affect our ability to access the capital markets on terms that are favorable to us; restrictions on our ability to draw on our credit agreement, including as a result of any future inability to comply with restrictive covenants contained therein; a continuing decrease in freight or transit rail traffic, including as a result of the ongoing COVID-19 pandemic; environmental matters, including any costs associated with any remediation and monitoring of such matters; the risk of doing business in international markets, including compliance with anti-corruption and bribery laws, foreign currency fluctuations and inflation, and trade restrictions or embargoes; our ability to effectuate our strategy, including cost reduction initiatives, and our ability to effectively integrate acquired businesses or to divest businesses, such as the recent dispositions of the Piling and IOS Test and Inspection Services businesses and acquisition of
the LarKen Precast business and to realize anticipated benefits; costs of and impacts associated with shareholder activism; continued customer restrictions regarding the on-site presence of third party providers due to the COVID-19 pandemic; the timeliness and availability of materials from our major suppliers, including any continuation or worsening of the disruptions in the supply chain experienced as a result of the COVID-19 pandemic, as well as the impact on our access to supplies of customer preferences as to the origin of such supplies, such as customers’ concerns about conflict minerals; labor disputes; cyber-security risks such as data security breaches, malware, ransomware, “hacking,” and identity theft, which could disrupt our business and may result in misuse or misappropriation of confidential or proprietary information, and could result in the disruption or damage to our systems, increased costs and losses, or an adverse effect to our reputation;
the continuing effectiveness of our ongoing implementation of an enterprise resource planning system; changes in current accounting estimates and their ultimate outcomes; the adequacy of internal and external sources of funds to meet financing needs, including our ability to negotiate any additional necessary amendments to our credit agreement or the terms of any new credit agreement, and reforms regarding the use of LIBOR as a benchmark for establishing applicable interest rates; the Company’s ability to manage its working capital requirements and indebtedness; domestic and international taxes, including estimates that may impact taxes; domestic and foreign government regulations, including tariffs; economic conditions and regulatory changes caused by the United Kingdom’s exit from the European Union; geopolitical conditions, including the conflict in Ukraine; a lack of state or federal
funding for new infrastructure projects; an increase in manufacturing or material costs; the loss of future revenues from current customers; and risks inherent in litigation and the outcome of litigation and product warranty claims. Should one or more of these risks or uncertainties materialize, or should the assumptions underlying the forward-looking statements prove incorrect, actual outcomes could vary materially from those indicated. Significant risks and uncertainties that may affect the operations, performance, and results of the Company’s business and forward-looking statements include, but are not limited to, those set forth under Item 1A, “Risk Factors,” and elsewhere in our Annual Report on Form 10-K for the year ended December 31, 2021, or as updated and/or amended by our other current or periodic filings with the Securities
and Exchange Commission.
The forward-looking statements in this report are made as of the date of this report and we assume no obligation to update or revise any forward-looking statement, whether as a result of new information, future developments, or otherwise, except as required by the federal securities laws.
L.B. Foster Company is a global 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.
While the Company experienced a year over year decline in overall net sales, results for the quarter ended March 31, 2022 reflect an increase in overall sales when adjusted for the divestiture of the Piling Products division in September 2021. The Company continued to experience inflationary pressures which impacted results. The first
quarter has historically been its lowest quarter for sales due to the seasonality for the Company, however, orders and backlog levels for the quarter ended March 31, 2022, are indicative of seasonal increases looking to the second quarter, which has historically been stronger.
Net sales for the first quarter were $98,794, a $17,286, or 14.9%, decrease versus the prior year quarter. The now divested Piling Products division attributed $20,797 of the year over year sales decline. Net sales increased in the Precast Concrete Products segment by $2,332 and Steel Products and Measurement segment, as adjusted to exclude the Piling Products division, by $3,701, which was partially offset by a $2,522 decrease in Rail, Technologies, and Services segment sales.
Gross
profit for the three months ended March 31, 2022 was $16,447, a $2,383 decrease, or 12.7%, from the prior year, attributable to all three of the Company’s segments. However, the 16.6% consolidated gross profit margin increased by 40 basis points when compared to the prior year quarter, and the Company is generally seeing signs of stability in its margins within the Rail, Technologies, and Services segment, despite continued inflationary pressures experienced. Gross profit decreased in the Rail, Technologies, and Services segment by $277, driven by the $2,522 decrease in sales. Rail, Technologies, and Services gross profit margins increased 40 basis points due to increased sales in its higher margin Global Friction Management and Technology Services and
Solutions business units which were partially offset by the lower margin Rail Products business unit. The Precast Concrete Products segment gross profit decreased $44, or 1.8%, despite increased sales volumes. Precast Concrete Products segment gross profit margin was reduced by 330 basis points due to raw material and labor inflation and disruption, coupled with a shortage of engineering services to support production design certifications, and is the segment most significantly impacted by these market conditions. In the Steel Products and Measurement segment, gross profit declined from the prior year by $2,062. This decline was primarily attributable to the sale of the Piling Products division by $1,199 and also due to inflationary pressure, particularly in the Bridge Products division. Steel Products and Measurement gross profit margin was down 220 basis points compared to the prior year. The
Company continues to be proactive in executing actions to mitigate inflationary pressures experienced, particularly in the Precast Concrete Products and Steel Products and Measurement segments where margins have been most adversely impacted.
Selling and administrative expenses for the three months ended March 31, 2022 decreased by $728, or 4.0%, from the prior year, primarily driven by decreases in expenses associated with the sale of the Piling Products division. Selling and administrative expenses as a percent of net sales were 17.5% versus 15.5% in the prior year quarter, a 200 basis points increase, due primarily to lower sales volume and increased travel expenses in the first quarter of 2022 versus the first quarter of 2021. Other income - net for the three months ended March 31, 2022
was $563 while Other expense - net was $59 in the prior year quarter, primarily due to $514 in insurance proceeds received in the current year quarter.
The Company’s effective income tax rate for the three months ended March 31, 2022 was 24.3%, compared to 20.2% in the prior year quarter. The Company’s effective income tax rate for the quarter ended March 31, 2022 differed from the federal statutory rate of 21% primarily due to state income taxes, nondeductible expenses, and research tax credits.
Net loss for the three months ended March
31, 2022 attributable to L.B. Foster Company was $1,566, or $0.15 per diluted share, an increased loss of $308, or $0.03 per diluted share, from the prior year. The loss was primarily driven by lower volume and inflationary pressure, which was partially offset by reductions in selling and administrative expense and insurance proceeds received in the current year quarter.
The Company’s consolidated backlog(a) was $244,618 as of December 31, 2021, a decrease of $27,326, or 10.0%, from the prior year, with the divested Piling Products division contributing $32,004 to the year over year decline. The Rail, Technologies, and Services and Precast Concrete Product segments reported a $457 and $6,595 backlog increase
versus the prior year quarter, respectively, while the Steel Products and Measurement segment, adjusted for the Piling Products divestiture, reported a decrease of $2,374 versus the prior year quarter. Sequentially, consolidated backlog(a) increased $34,429, or 16.4% from December 31, 2021, with reported increases of $26,345, $3,733, and $4,351 in the Rail, Technologies, and Services, Precast Concrete Products, and Steel Products and Measurement segments, respectively. Order levels(a) for three months ended March 31, 2022, when adjusted for the Piling Products sale, increased by $20,364, or 17.7% from the prior year quarter. The Company anticipates that strong order and backlog levels are indicative
of a seasonal activity ramp up when considering its outlook for the second quarter of 2022, historically its strongest quarter.
The current inflationary cost environment is expected to continue to put pressure on margins across our businesses throughout 2022, although the Company has seen signs of stabilization in certain areas of business during the first quarter of 2021. Actions to mitigate these impacts as much as possible are ongoing, and are anticipated to take hold and have a larger impact as 2022 progresses. In addition,
the Company continues to take proactive steps to manage disruptions in raw materials, labor, supply chain, service partners, and other lingering COVID-19 related effects in an attempt to mitigate their adverse impact as much as possible. With the federal infrastructure support programs announced in 2020 and 2021, such as the U.S. Infrastructure Investment and Jobs Act passed in November 2021, the Company is maintaining its optimistic outlook regarding longer-term trends in the North American freight and transit markets given supply chain and transportation needs coupled with expected government-subsidized investment. The Company believes that many of its businesses will continue to directly benefit from infrastructure
investment activity. Additionally, with the proceeds from the Piling division divestiture, coupled with the additional flexibility and capacity resulting from the amendment and extension of our credit agreement in August 2021, the Company believes that it has significant capacity to pursue organic and acquisitive growth opportunities in 2022 and beyond.
(a) The Company defines new orders as a contractual agreement between the Company and a third-party in which the Company will, or has the ability to, satisfy the performance obligations of the promised products or services
under the terms of the agreement. The Company defines backlog as contractual commitments to customers for which the Company’s performance obligations have not been met, including with respect to new orders and contracts for which the Company has not begun any performance. Management utilizes new orders and backlog to evaluate the health of the industries in which the Company operates, the Company’s current and future results of operations and financial prospects,
and strategies for business development. The Company believes that new orders and backlog are useful to investors as supplemental metrics by which to measure the Company’s current performance and prospective results of operations and financial performance.
Results of the Quarter
Three
Months Ended March 31,
Percent Increase/ (Decrease)
Percent of Total Net Sales Three Months Ended March 31,
2022
2021
2022 vs. 2021
2022
2021
Net Sales:
Rail,
Technologies, and Services
$
63,710
$
66,232
(3.8
%)
64.5
%
57.1
%
Precast Concrete Products
15,010
12,678
18.4
15.2
10.9
Steel
Products and Measurement
20,074
37,170
(46.0)
20.3
32.0
Total net sales
$
98,794
$
116,080
(14.9
%)
100.0
%
100.0
%
Three
Months Ended March 31,
Percent Increase/ (Decrease)
Gross Profit Percentage Three Months Ended March 31,
2022
2021
2022 vs. 2021
2022
2021
Gross Profit:
Rail,
Technologies, and Services
$
12,528
$
12,805
(2.2
%)
19.7
%
19.3
%
Precast Concrete Products
2,445
2,489
(1.8)
16.3
19.6
Steel
Products and Measurement
1,474
3,536
(58.3)
7.3
9.5
Total gross profit
$
16,447
$
18,830
(12.7
%)
16.6
%
16.2
%
Three
Months Ended March 31,
Percent Increase/ (Decrease)
Percent of Total Net Sales Three Months Ended March 31,
2022
2021
2022 vs. 2021
2022
2021
Expenses:
Selling
and administrative expenses
$
17,298
$
18,026
(4.0
%)
17.5
%
15.5
%
Amortization expense
1,436
1,465
(2.0)
1.5
1.3
Operating
loss
(2,287)
(661)
246.0
(2.3)
(0.6)
Interest expense - net
370
871
(57.5)
0.4
0.8
Other
(income) expense - net
(563)
59
**
(0.6)
0.1
Loss before income taxes
(2,094)
(1,591)
31.6
(2.1)
(1.4)
Income
tax benefit
(508)
(321)
58.3
(0.5)
(0.3)
Net loss
$
(1,586)
$
(1,270)
24.9
%
(1.6
%)
(1.1
%)
Net
loss attributable to noncontrolling interest
(20)
(12)
**
(0.0)
(0.0)
Net loss attributable to L.B. Foster Company
$
(1,566)
$
(1,258)
24.5
%
(1.6
%)
(1.1
%)
**
Results of the calculation are not considered meaningful for presentation purposes.
The Rail, Technologies, and Services segment sales for the three months ended March 31, 2022 decreased by $2,522, or 3.8%, compared to the prior year quarter. The decrease in sales was driven by the Rail Products business unit, which declined by $3,938, or 9.0%, offsetting modest sales increases in both the Global Friction Management and Technology Services and Solutions business units. The decrease in the Rail Products business unit was driven by decreased volumes and the timing of shipments versus the prior year quarter. The sales increase in the Global Friction Management business unit is due to strength in domestic markets served as well as increased sales in the United Kingdom, while Technology Services sales drove the increase in the Technology Services and Solutions business unit.
The
Rail, Technologies, and Services segment gross profit decreased by $277, or 2.2%, from the prior year quarter. The decrease was driven by overall lower sales volumes. However, segment gross profit margins increased by 40 basis points as a result of stronger sales in the higher margin Global Friction Management and Technology Services and Solutions business units, versus the lower-margin Rail Products businesses. Operating profit was $1,039, a $1,186 decrease over the prior year quarter, due in part to lower overall gross profit levels and increases in selling and administrative expenses.
During the current quarter, the Rail, Technologies, and Services segment had an increase in new orders of 33.1% compared to the prior year period, driven by improvements in all business units. Backlog as of March 31, 2022 was nearly flat versus March 31,
2021 at $122,918, an increase of $457, or 0.4%. Backlog remains strong, and was above pre-pandemic levels as of March 31, 2022.
Precast Concrete Products
Three Months
Ended March 31,
Increase/(Decrease)
Percent Increase/(Decrease)
2022
2021
2022 vs. 2021
2022 vs. 2021
Net sales
$
15,010
$
12,678
$
2,332
18.4
%
Gross
profit
$
2,445
$
2,489
$
(44)
(1.8
%)
Gross profit percentage
16.3
%
19.6
%
(3.3
%)
(17.0
%)
Segment
operating loss
$
(791)
$
(112)
$
(679)
(606.3
%)
Segment operating loss percentage
(5.3)
%
(0.9
%)
(4.4
%)
(498.1
%)
First
Quarter 2022 Compared to First Quarter 2021
The Precast Concrete Products segment sales for the three months ended March 31, 2022 increased by $2,332, or 18.4%, compared to the prior year quarter, which is a continued reflection of the strong demand environment in the southern United States market served.
Precast Concrete Products gross profit decreased by $44, or 1.8%, from the prior year quarter. The decline was attributable to continued inflationary pressures experienced in the business unit, and, to a lesser extent, manufacturing inefficiencies due to supply chain disruption. Segment gross profit margin declined by 330 bps for the first quarter of 2022 when compared to the prior year quarter is principally attributable to continued higher raw material
and labor costs, coupled with production disruptions. Operating loss for the first quarter of 2022 increased by $679 when compared to the prior year quarter, due in part to margin degradation and increases in selling and administrative costs.
During the quarter, the Precast Concrete Products segment had a decrease in new orders of 37.8% compared to the prior year quarter; however, order levels remained consistent with those of recent quarters. Backlog as of March 31, 2022 was $72,369, an increase of $6,595, or 10.0%, from March 31, 2021, nearing double pre-pandemic levels.
The Steel Products and Measurement segment sales for the three months ended March 31, 2022 decreased by $17,096, or 46.0%, compared to the prior year quarter. The decrease in sales
for the first quarter of 2022 was attributable to the $20,797 decline in year over year sales from the Piling Products division, which was divested September 2021. The decline was partially offset by increases in Fabricated Steel Products, excluding the divested Piling Products division, of $2,008 and Coatings and Measurement of $1,693.
Steel Products and Measurement gross profit decreased by $2,062, or 58.3%, from the prior year quarter. The gross profit margin declined 220 basis points to 7.3%, as a result of higher raw material costs for bridge products and unfavorable manufacturing efficiencies in Coatings and Measurement business unit. The segment loss was $2,148, an increased loss of $1,220 from the prior year quarter. Selling and administrative expenses incurred by the segment decreased by $895 compared to the prior year quarter, primarily attributable to the Piling Products divestiture.
During
the quarter, the Steel Products and Measurement segment new orders decreased by $11,288, or 31.2% compared to the prior year quarter, driven by a $20,575 decline from the divested Piling Products division. This decrease was partially offset by improvements in both Fabricated Steel Products, excluding the divested Piling Products division, and Coatings and Measurement. Backlog as of March 31, 2022 was $49,331, a decrease of $34,378, or 41.1%, from March 31, 2021 driven primarily by Fabricated Steel Products, with the decrease in backlog primarily related to the divested Piling Products division representing $32,004 of the decrease. The decline was partially offset by an 57.6% increase in Coatings and Measurement backlog compared to March 31, 2021.
Other
Segment
Backlog
Total Company backlog is summarized by business segment in the following table for the periods indicated:
The backlog for
Steel Products and Measurement includes $32,004 related to the divested Piling Products division as of March 31, 2021 in the above table.
The Company’s backlog represents the sales price of received customer purchase orders and any contracts for which the performance obligations have not been met, and therefore are precluded from revenue recognition. Although the Company believes that the orders included in backlog are firm, customers may cancel or change their orders with limited advance notice; however, these instances have been rare. Backlog should not be considered a reliable
indicator of the Company’s ability to achieve any particular level of revenue or financial performance. While a considerable portion of the Company’s business is backlog-driven, certain product lines within the Company are not driven by backlog as the orders are fulfilled shortly after they are received.
Liquidity and Capital Resources
The Company’s principal sources of liquidity are its existing cash and cash equivalents, cash generated by operations, and the available capacity under the revolving credit facility,
which provides for a total commitment of up to $130,000. The Company’s primary needs for liquidity relate to working capital requirements for operations, capital expenditures, debt service obligations, and payments related to the Union Pacific Railroad Settlement. The Company’s total debt was $35,611 and $31,251 as of March 31, 2022 and December 31, 2021, respectively, and was primarily comprised of borrowings under its revolving credit facility.
Outstanding borrowings on revolving credit facility
(35,496)
Letters of credit outstanding
(636)
Net
availability under the revolving credit facility
93,868
Total available funding capacity
$
100,107
The Company’s cash flows are impacted from period to period by fluctuations in working capital. While the Company places an emphasis on working capital management in its operations, factors such
as its contract mix, commercial terms, customer payment patterns, and market conditions as well as seasonality may impact its working capital. The Company regularly assesses its receivables and contract assets for collectability, and provides allowances for credit losses where appropriate. The Company believes that its reserves for credit losses are appropriate as of March 31, 2022, but adverse changes in the economic environment and adverse financial conditions of its customers resulting from, among other things, the COVID-19 pandemic, may impact certain of its customers’
ability to access capital and pay the Company for its products and services, as well as impact demand for its products and services.
The changes in cash and cash equivalents for the three months ended March 31, 2022 and 2021 were as follows:
Net cash (used in) provided by continuing operating activities
$
(7,636)
$
7,614
Net cash used in continuing investing activities
(539)
(1,327)
Net
cash provided by (used in) continuing financing activities
4,012
(8,446)
Effect of exchange rate changes on cash and cash equivalents
30
(206)
Net cash used in discontinued operations
—
(184)
Net
decrease in cash and cash equivalents
$
(4,133)
$
(2,549)
Cash Flow from Operating Activities
During the three months ended March 31, 2022, cash flows used in operating activities were $7,636, compared to cash flows provided by continuing operating activities of $7,614 during the prior year to date period. For the three months ended March 31, 2022, the net loss and adjustments to net loss from continuing operating activities provided $1,408, compared to $2,310 in the
2021 period. Working capital and other assets and liabilities used $9,044 in the current period, compared to providing $5,304 in the prior year period.
Capital expenditures for the three months ended March 31, 2022 and
2021 were $1,764 and $1,327, respectively. The current period expenditures primarily relate to the implementation of the enterprise resource planning system at additional Company divisions and general plant and operational improvements throughout the Company. Expenditures for the three months ended March 31, 2021 primarily relate to the expansion of the Precast Concrete Products business line in Texas.
Cash Flow from Financing Activities
During the three months ended March 31, 2022 and 2021, the
Company had an increase in outstanding debt of $4,409 and decrease of $8,295, respectively. The increase in debt for the three months ended March 31, 2022 was the result of funding working capital and other assets and liabilities, while the decrease in 2021 was primarily attributable to the utilization of excess cash generated through operating activities. Treasury stock acquisitions of $397 and $547 for the three months ended March 31, 2022 and 2021, respectively, represent stock repurchases from employees to satisfy their income tax withholdings in connection with the vesting of stock awards.
As of March 31, 2022, the Company had $6,239 in cash and cash equivalents. The Company’s cash management priority continues to be short-term maturities and the preservation of its principal balances. As of March 31, 2022, approximately $5,931 of the Company’s cash and cash equivalents were held in non-domestic bank accounts. The Company principally maintains its cash and cash equivalents in accounts held by
major banks and financial institutions.
The Company’s principal uses of cash in recent years have been to fund its operations, including capital expenditures, and to service its indebtedness. The Company views its liquidity as being dependent on its results of operations, changes in working capital needs, and its borrowing capacity. As of March 31, 2022, its revolving credit facility had $93,868 of net availability, while the Company had $35,611 in total debt. The Company’s current ratio as of March 31,
2022 and December 31, 2021 was 2.08.
On August 13, 2021, the Company entered into the Credit Agreement, which increased the total commitments under the revolving credit facility to $130,000 from $115,000, extends the maturity from April 30, 2024 to August 13, 2026, and provides more favorable covenant terms. Borrowings under the Credit Agreement bear interest rates based upon either the base rate or LIBOR rate plus applicable margins. The Company believes that the combination of its cash and cash equivalents, cash generated
from operations, and the capacity under its revolving credit facility should provide the Company with sufficient liquidity to provide the flexibility to operate the business in a prudent manner and enable the Company to continue to service its outstanding debt. For a discussion of the terms and availability of the credit facilities, please refer to Note 9 of the Notes to Condensed Consolidated Financial Statements contained in this Quarterly Report on Form 10-Q.
To reduce the impact of interest rate changes on outstanding variable-rate debt, the Company entered into forward starting LIBOR-based interest rate swaps with notional values
totaling $50,000 and $20,000, effective February 1, 2017 and March 1, 2022, respectively, at which point they effectively converted a portion of the debt from variable to fixed-rate borrowings during the term of the swap contract. During 2020, the Company dedesignated its cash flow hedges and accounted for the $50,000 tranche of interest rate swaps on a mark-to-market basis with changes in fair value recorded in current period earnings. During February 2022, the $50,000 tranche of interest rate swaps expired. As of March 31, 2022 the swap asset was $914 and as of December 31, 2021 the swap asset and
liability were $175 and $159, respectively.
Critical Accounting Policies
The Condensed Consolidated Financial Statements have been prepared in conformity with accounting principles generally accepted in the United States. When more than one accounting principle, or method of its application, is generally accepted, management selects the principle or method that, in its opinion, is appropriate in the Company’s specific circumstances. Application of these accounting principles requires management to reach opinions regarding estimates about the future resolution of existing uncertainties. As a result, actual results could differ from these estimates. In preparing these financial statements, management has reached its opinions regarding the best estimates and judgments
of the amounts and disclosures included in the financial statements giving due regard to materiality. A summary of the Company’s critical accounting policies and estimates is included in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies and Estimates in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
This item is not applicable to a smaller reporting company.
Item 4.
Controls and Procedures
Evaluation of Disclosure Controls and Procedures
L.B. Foster Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of March 31, 2022. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the
Company’s disclosure controls and procedures were effective as of such date such that the information required to be disclosed by the Company in reports filed under the Exchange Act is (i) recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to management, including the chief executive officer, chief financial officer, or person performing such functions, as appropriate to allow timely decisions regarding disclosure.
Changes in Internal Control Over Financial Reporting
There were no changes to our “internal control over financial reporting” (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the three months
ended March 31, 2022, and that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Limitations on Effectiveness of Controls and Procedures
In designing and evaluating disclosure controls and procedures and internal control over financial reporting, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control
objectives. In addition, the design of disclosure controls and procedures and internal control over financial reporting must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.
See Note 15 of the Notes to Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q, which is incorporated herein by reference.
Item 1A. Risk Factors
This item is not applicable to a smaller reporting company.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The
Company’s purchases of equity securities for the three months ended March 31, 2022 were as follows:
Total number of shares purchased (1)
Average price paid per share
Total
number of shares purchased as part of publicly announced plans or programs
Approximate dollar value of shares that may yet be purchased under the plans or programs
XBRL Instance Document-the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
