L.B. Foster 10Q 2023 Q1 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

(Mark One)


☒			Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

for the quarterly period ended March 31, 2023


☐			Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

for the transition period from to

Commission File Number: 000-10436

L.B. Foster Company

(Exact name of registrant as specified in its charter)


Pennsylvania						25-1324733
(State of Incorporation)						(I. R. S. Employer Identification No.)


415 Holiday Drive, Suite 100, Pittsburgh, Pennsylvania						15220
(Address of principal executive offices)						(Zip Code)

(412) 928-3400

(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

Common Stock, par value $0.01

FSTR

NASDAQ 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. Yes ☒ 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). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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 ☐

Accelerated filer ☒

Non-accelerated filer ☐

Smaller reporting company ☒

Emerging growth company ☐

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 ☒

As of May 2, 2023, there were 11,085,149 shares of the registrant’s common stock, par value $0.01 per share, outstanding.

L.B. FOSTER COMPANY AND SUBSIDIARIES

INDEX


			Page
PART I. Financial Information

Item 1. Financial Statements:

Condensed Consolidated Balance Sheets			3

Condensed Consolidated Statements of Operations			4

Condensed Consolidated Statements of Comprehensive Loss			5

Condensed Consolidated Statements of Cash Flows			6

Condensed Consolidated Statements of Stockholders’ Equity			7

Notes to Condensed Consolidated Financial Statements			8

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			17

Item 3. Quantitative and Qualitative Disclosures about Market Risk			23

Item 4. Controls and Procedures			23

PART II. Other Information			23

Item 1. Legal Proceedings			24

Item 1A. Risk Factors			24

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			24

Item 3. Defaults Upon Senior Securities			24

Item 4. Mine Safety Disclosures			24

Item 5. Other Information			24

Item 6. Exhibits			25

Signature			26

Table of Contents

Part I. FINANCIAL INFORMATION

Item 1. Financial Statements

L.B. FOSTER COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)


	March 31, 2023		December 31, 2022
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	2,639	$	2,882
Accounts receivable - net (Note 5)	54,904		82,455
Contract assets - net (Note 3)	31,207		33,613
Inventories - net (Note 6)	84,594		75,721


Other current assets	11,844		11,061

Total current assets	185,188		205,732
Property, plant, and equipment - net	78,960		85,344
Operating lease right-of-use assets - net	16,513		17,291
Other assets:
Goodwill (Note 4)	30,863		30,733
Other intangibles - net (Note 4)	22,549		23,831

Deferred tax assets (Note 9)	—		24
Other assets	2,305		2,355

TOTAL ASSETS	$	336,378	$	365,310
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	48,553	$	48,782
Deferred revenue	14,556		19,452
Accrued payroll and employee benefits	4,176		10,558

Current portion of accrued settlement (Note 13)	8,000		8,000
Current maturities of long-term debt (Note 7)	117		127
Other accrued liabilities	13,100		16,192

Total current liabilities	88,502		103,111
Long-term debt (Note 7)	79,979		91,752
Deferred tax liabilities (Note 9)	1,753		3,109
Long-term portion of accrued settlement (Note 13)	8,000		8,000
Long-term operating lease liabilities	13,416		14,163
Other long-term liabilities	7,714		7,577

Stockholders’ equity:
Common stock, par value $0.01, authorized 20,000,000 shares; shares issued at March 31, 2023 and December 31, 2022, 11,115,779; shares outstanding at March 31, 2023 and December 31, 2022, 10,809,711 and 10,776,827, respectively	111		111
Paid-in capital	40,951		41,303
Retained earnings	121,017		123,169
Treasury stock - at cost, 306,068 and 338,952 common stock shares at March 31, 2023 and December 31, 2022, respectively	(5,174)		(6,240)
Accumulated other comprehensive loss	(20,296)		(21,165)
Total L.B. Foster Company stockholders’ equity	136,609		137,178
Noncontrolling interest	405		420
Total stockholders’ equity	137,014		137,598
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	336,378	$	365,310

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

Table of Contents

L.B. FOSTER COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(In thousands, except per share data)


	Three Months Ended March 31,
		2023		2022


Sales of goods		$	98,538	$	84,421
Sales of services		16,950		14,373
Total net sales		115,488		98,794
Cost of goods sold		78,065		69,845
Cost of services sold		14,132		12,502
Total cost of sales		92,197		82,347
Gross profit		23,291		16,447
Selling and administrative expenses		21,423		17,298
Amortization expense		1,365		1,436
Operating profit (loss)		503		(2,287)

Interest expense - net		1,388		370


Other expense (income) - net		1,827		(563)

Loss before income taxes		(2,712)		(2,094)
Income tax benefit		(541)		(508)
Net loss		(2,171)		(1,586)
Net loss attributable to noncontrolling interest		(19)		(20)





Net loss attributable to L.B. Foster Company		$	(2,152)	$	(1,566)



Basic loss per common share		$	(0.20)	$	(0.15)



Diluted loss per common share		$	(0.20)	$	(0.15)

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

Table of Contents

L.B. FOSTER COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(Unaudited)

(In thousands)


	Three Months Ended March 31,
		2023		2022


Net loss		$	(2,171)	$	(1,586)
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustment		1,247		(880)
Unrealized (loss) gain on cash flow hedges, net of tax benefit of $0 and $188, respectively		(418)		551
Cash flow hedges reclassified to earnings, net of tax expense of $0 and $66, respectively		—		93
Reclassification of pension liability adjustments to earnings, net of tax expense of $2 and $16, respectively*		40		49
Total comprehensive loss		(1,302)		(1,773)
Less comprehensive (loss) income attributable to noncontrolling interest:
Net loss attributable to noncontrolling interest		(19)		(20)
Foreign currency translation adjustment		4		85
Amounts attributable to noncontrolling interest		(15)		65
Comprehensive loss attributable to L.B. Foster Company		$	(1,287)	$	(1,838)


*			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.

Table of Contents

L.B. FOSTER COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)


	Three Months Ended March 31,
	2023		2022


CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(2,171)	$	(1,586)
Adjustments to reconcile net loss to cash provided by (used in) operating activities:
Deferred income taxes	(1,233)		(574)
Depreciation	2,505		1,938
Amortization	1,365		1,436

Equity in income of nonconsolidated investments	(17)		(87)
(Gain) loss on sales and disposals of property, plant, and equipment	(14)		23
Stock-based compensation	884		258
Loss on asset divestitures	2,033		—

Change in operating assets and liabilities:
Accounts receivable	26,239		(4,556)
Contract assets	(860)		1,116
Inventories	(15,564)		(4,781)
Other current assets	(791)		(4,648)

Other noncurrent assets	(1,439)		818

Accounts payable	4,921		4,680
Deferred revenue	(707)		5,907
Accrued payroll and employee benefits	(6,386)		(4,181)

Other current liabilities	(2,981)		(2,377)
Other long-term liabilities	1,148		(1,022)
Net cash provided by (used in) operating activities	6,932		(7,636)

CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale of property, plant, and equipment	16		30
Capital expenditures on property, plant, and equipment	(699)		(1,764)
Proceeds from business dispositions	5,344		1,195

Net cash provided by (used in) investing activities	4,661		(539)

CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of debt	(55,133)		(30,892)
Proceeds from debt	43,086		35,301



Treasury stock acquisitions	(309)		(397)

Investment of noncontrolling interest	334		—
Net cash (used in) provided by financing activities	(12,022)		4,012

Effect of exchange rate changes on cash and cash equivalents	186		30
Net decrease in cash and cash equivalents	(243)		(4,133)
Cash and cash equivalents at beginning of period	2,882		10,372
Cash and cash equivalents at end of period	$	2,639	$	6,239
Supplemental disclosure of cash flow information:
Interest paid	$	1,425	$	369
Income taxes received	$	(1,564)	$	(44)

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

Table of Contents

L.B. FOSTER COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

(Dollars in thousands)


	Three Months Ended March 31, 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 loss	—		—		(2,152)		—		—		(19)		(2,171)
Other comprehensive income, net of tax:
Pension liability adjustment	—		—		—		—		40		—		40
Foreign currency translation adjustment	—		—		—		—		1,247		4		1,251
Unrealized derivative loss on cash flow hedges	—		—		—		—		(418)		—		(418)


Issuance of 32,884 common shares, net of shares withheld for taxes	—		(1,236)		—		1,066		—		—		(170)
Stock-based compensation	—		884		—		—		—		—		884


Balance, March 31, 2023	$	111	$	40,951	$	121,017	$	(5,174)	$	(20,296)	$	405	$	137,014


	Three Months Ended March 31, 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 loss	—		—		(1,566)		—		—		(20)		(1,586)
Other comprehensive loss, net of tax:
Pension liability adjustment	—		—		—		—		49		—		49
Foreign currency translation adjustment	—		—		—		—		(965)		85		(880)
Unrealized derivative gain on cash flow hedges	—		—		—		—		551		—		551
Cash flow hedges reclassified to earnings	—		—		—		—		93		—		93

Issuance of 34,440 common shares, net of shares withheld for taxes	—		(1,377)		—		979		—		—		(398)
Stock-based compensation	—		258		—		—		—		—		258


Balance, March 31, 2022	$	111	$	42,153	$	167,167	$	(9,200)	$	(19,117)	$	583	$	181,697

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

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 months ended March 31, 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 March 31, 2023				Three Months Ended March 31, 2022
	Net Sales		Segment Operating Profit (Loss)		Net Sales		Segment Operating Profit (Loss)
Rail, Technologies, and Services	$	64,384	$	2,388	$	63,710	$	1,039
Precast Concrete Products	24,288		(348)		15,010		(791)
Steel Products and Measurement	26,816		(8)		20,074		(2,148)
Total	$	115,488	$	2,032	$	98,794	$	(1,900)

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.

A reconciliation of reportable segment net profit (loss) to the Company’s consolidated total for the periods presented:


	Three Months Ended March 31,
	2023		2022
Operating profit (loss) for reportable segments	$	2,032	$	(1,900)
Interest expense - net	(1,388)		(370)

Other (expense) income - net	(1,827)		563


Unallocated corporate expenses and other unallocated charges	(1,529)		(387)
Loss before income taxes	$	(2,712)	$	(2,094)

Table of Contents

The following table illustrates assets of the Company by reportable segment for the periods presented:


	March 31, 2023		December 31, 2022
Rail, Technologies, and Services	$	163,001	$	172,111
Precast Concrete Products	104,581		108,598
Steel Products and Measurement	38,236		54,516
Unallocated corporate assets	30,560		30,085
Total	$	336,378	$	365,310

On March 30, 2023, the Company sold substantially all the operating assets of its Chemtec Energy Services LLC business (“Chemtec”) for $5,344 in proceeds, subject to final working capital adjustments, generating a $2,033 loss on sale, recorded in “Other expense (income) - net.” The Chemtec business was reported in the Coatings and Measurement business unit within the Steel Products and Measurement segment.

Note 3. Revenue

The following table summarizes the Company’s net sales by major product and service category for the periods presented:


	Three Months Ended March 31,
	2023		2022
Rail Products and Global Friction Management	$	56,048	$	51,651
Technology Services and Solutions	8,336		12,059
Rail, Technologies, and Services	64,384		63,710
Precast Concrete Buildings	10,886		9,970
Other Precast Concrete Products	13,402		5,040
Precast Concrete Products	24,288		15,010
Fabricated Steel Products	10,517		12,604
Coatings and Measurement	16,299		7,470
Steel Products and Measurement	26,816		20,074
Total net sales	$	115,488	$	98,794

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 March 31, 2023
	Rail, Technologies, and Services		Precast Concrete Products		Steel Products and Measurement		Total
Point in time	$	53,834	$	13,402	$	15,726	$	82,962
Over time	10,550		10,886		11,090		32,526
Total net sales	$	64,384	$	24,288	$	26,816	$	115,488

	Three Months Ended March 31, 2022
	Rail, Technologies, and Services		Precast Concrete Products		Steel Products and Measurement		Total
Point in time	$	49,166	$	4,263	$	15,062	$	68,491
Over time	14,544		10,747		5,012		30,303
Total net sales	$	63,710	$	15,010	$	20,074	$	98,794

The Company’s performance obligations under long-term agreements with its customers are generally satisfied over time. Revenue under long-term agreements is generally 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

Table of Contents

upon which measure the Company believes best depicts its performance to date under the terms of the contract. 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 was as follows for the periods presented:


	Three Months Ended March 31,				Percentage of Total Net Sales Three Months Ended March 31,
	2023		2022		2023		2022
Over time input method	$	16,211	$	19,322	14.0	%	19.6	%
Over time output method	16,315		10,981		14.1		11.1
Total over time sales	$	32,526	$	30,303	28.2	%	30.7	%

The timing of revenue recognition, billings, and cash collections results in billed receivables, costs in excess of billings (included in “Contract assets”), and billings in excess of costs (contract liabilities), included in “Deferred revenue” within the Condensed Consolidated Balance Sheets.

The following table sets forth the Company's contract assets:


	Contract Assets
Balance as of December 31, 2022	$	33,613
Net additions to contract assets	1,290
Transfers from contract asset balance to accounts receivable	(3,696)
Balance as of March 31, 2023	$	31,207

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	(3,443)
Increase in billings in excess of cost, excluding revenue recognized	1,983
Other adjustments, including business divestiture	(2,078)
Balance as of March 31, 2023	$	3,243

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 March 31, 2023, the Company had approximately $259,881 of obligations under new contracts and remaining performance obligations, which is also referred to as backlog. Approximately 8.9% of the March 31, 2023 backlog was related to projects that are anticipated to extend beyond March 31, 2024.

Note 4. Goodwill and Other Intangible Assets

The following table presents the changes in goodwill balance by reportable segment for the period presented:


	Rail, Technologies, and Services		Precast Concrete Products		Steel Products and Measurement		Total
Balance as of December 31, 2022	$	19,948	$	10,785	$	—	$	30,733


Foreign currency translation impact	130		—		—		130


Balance as of March 31, 2023	$	20,078	$	10,785	$	—	$	30,863

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

Table of Contents

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 March 31, 2023. However, future impairment charges could result if future projections diverge unfavorably from current expectations in the Rail Technologies and Precast Concrete Products reporting units.

As of March 31, 2023 and December 31, 2022, the components of the Company’s intangible assets were as follows:


	March 31, 2023
	Weighted Average Amortization Period In Years	Gross Carrying Value		Accumulated Amortization		Net Carrying Amount
Non-compete agreements	1	$	27	$	(23)	$	4
Patents	10	330		(187)		143
Customer relationships	16	27,413		(14,965)		12,448
Trademarks and trade names	16	7,957		(4,142)		3,815
Technology	14	32,253		(26,405)		5,848
Favorable lease	6	327		(36)		291
		$	68,307	$	(45,758)	$	22,549


	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

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 $155 and $61 for the three months ended March 31, 2023 and 2022, respectively.

The Company establishes the allowance for credit losses based on historical collection patterns and other subjective conditions as necessary, including current and expected market conditions. Trade receivables are pooled based on age, which groups receivables of similar credit risk together. Management maintains stringent credit review practices and works to maintain positive customer relationships to further mitigate credit risk.

The following table sets forth the Company’s allowance for credit losses:


	Allowance for Credit Losses
Balance as of December 31, 2022	$	813
Current period provision	155
Write-off against allowance	(100)

Balance as of March 31, 2023	$	868

Table of Contents

Note 6. Inventory

Inventory is valued at average cost or net realizable value, whichever is lower. The Company’s components of inventory as of March 31, 2023 and December 31, 2022 are summarized in the following table:


	March 31, 2023		December 31, 2022
Finished goods	$	47,754	$	41,431
Work-in-process	8,844		9,693
Raw materials	27,996		24,597
Inventories - net	$	84,594	$	75,721

Note 7. Long-Term Debt and Related Matters

Long-term debt consisted of the following:


	March 31, 2023		December 31, 2022
Revolving credit facility	$	79,825	$	91,567

Finance leases and financing agreements	271		312
Total	80,096		91,879
Less current maturities	(117)		(127)
Long-term portion	$	79,979	$	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 (a $15,000 increase over the previous commitment) 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 VanHooseCo acquisition (as defined below) and temporarily modify certain financial covenants to accommodate the transaction. The Second Amendment permitted the Company to acquire the operating assets of VanHooseCo and modified the Maximum Gross Leverage Ratio covenant to 3.75 through June 30, 2023 to accommodate the transaction.

As of March 31, 2023, the Company was in compliance with the covenants in the Credit Agreement, as amended, and had outstanding letters of credit of approximately $1,084.

Table of Contents

Note 8. Earnings Per Common Share

(Share amounts in thousands)

The following table sets forth the computation of basic and diluted loss per common share for the periods indicated:


	Three Months Ended March 31,
		2023		2022
Numerator for basic and diluted loss per common share:
Net loss		$	(2,171)	$	(1,586)


Denominator:
Weighted average shares outstanding		10,792		10,685
Denominator for basic loss per common share		10,792		10,685



Denominator for diluted loss per common share - adjusted weighted average shares outstanding		10,792		10,685


Basic loss per common share		$	(0.20)	$	(0.15)


Diluted loss per common share		$	(0.20)	$	(0.15)

There were 101 and 122 anti-dilutive shares for the three months ended March 31, 2023 and 2022, respectively, excluded from the calculation.

Note 9. Income Taxes

For the three months ended March 31, 2023 and 2022, the Company recorded an income tax benefit of $541 and $508, respectively, on pre-tax losses of $2,712 and $2,094, respectively, for an effective income tax rate of 19.9% and 24.3%, respectively. Due to the full valuation allowance on domestic deferred tax assets, the Company's tax provision for the three months ended March 31, 2023 does not reflect any tax benefit for domestic pre-tax losses, and is primarily comprised of taxes on our Canadian and United Kingdom operations. The Company continued to maintain a full valuation allowance against its U.S. deferred tax assets, which is likely to result in significant variability of the effective tax rate in the current year. Changes in pre-tax income projections, combined with the seasonal nature of our businesses, could also impact the effective income tax rate each quarter.

Note 10. Stock-Based Compensation

The Company recorded stock-based compensation expense of $884 and $258 for the three months ended March 31, 2023 and 2022, respectively, related to restricted stock awards and performance unit awards. As of March 31, 2023, unrecognized compensation expense for awards that the Company expects to vest approximated $7,388. The Company will recognize this unrecognized compensation expense over the upcoming 2.9 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, Performance Share Units, and Performance-Based Stock Awards

Under the 2022 Equity and Incentive Compensation Plan, successor to the 2006 Omnibus Plan, the Company grants eligible employees restricted stock and performance share units. The forfeitable restricted stock awards granted generally time-vest ratably over a three-year period, unless indicated otherwise by the underlying restricted stock award agreement. Awards of restricted stock are subject to a minimum one-year vesting period, including those granted to non-employee directors. Performance share units are offered annually under separate three-year long-term incentive programs. Performance share units are subject to forfeiture and will be converted into common stock of the Company based upon the Company’s performance relative to performance measures and conversion multiples, as defined in the underlying program. The Company has, on occasion, issued performance share units with longer performance periods as incentivization and retention tools. If the Company’s estimate of the number of performance share units expected to vest changes in a subsequent accounting period, cumulative compensation expense could increase or decrease. The change will be recognized in the current period for the vested shares and would change future expense over the remaining vesting period.

Since 2017, non-employee directors have been permitted to defer receipt of annual stock awards and equity elected to be received in lieu of quarterly cash compensation. If so elected, these deferred stock units will be issued as common stock six months after 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.

Table of Contents

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 three months ended March 31, 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	139,990	—	367,558	11.64
Vested	(57,329)	—	—	16.54
Adjustment for incentive awards expected to vest	—	—	20,104	15.36

Outstanding as of March 31, 2023	256,834	46,268	496,140	$	14.61

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.


	Fair Value Measurements at Reporting Date								Fair Value Measurements at Reporting Date
	March 31, 2023		Level 1		Level 2		Level 3		December 31, 2022		Level 1		Level 2		Level 3
Term deposits	$	17	$	17	$	—	$	—	$	17	$	17	$	—	$	—
Interest rate swaps	1,511		—		1,511		—		1,930		—		1,930		—
Total assets	$	1,528	$	17	$	1,511	$	—	$	1,947	$	17	$	1,930	$	—

For the three months ended March 31, 2023 and 2022, the Company recognized interest income of $245 and interest expense of $97, 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.

Table of Contents

United States Defined Benefit Plan

Net periodic pension costs for the United States defined benefit pension plan for the three months ended March 31, 2023 and 2022 were as follows:


	Three Months Ended March 31,
		2023		2022

Interest cost		$	71	$	49
Expected return on plan assets		(64)		(66)
Recognized net actuarial loss		16		18
Net periodic pension cost		$	23	$	1

The Company expects to make total contributions of $400 to its to its United States defined benefit pension plan during 2023.

United Kingdom Defined Benefit Plan

Net periodic pension costs for the United Kingdom defined benefit pension plan for the three months ended March 31, 2023 and 2022 were as follows:


	Three Months Ended March 31,
		2023		2022
Interest cost		$	55	$	45
Expected return on plan assets		(83)		(81)
Amortization of prior service costs and transition amount		6		6
Recognized net actuarial loss		3		42
Net periodic pension (income) cost		$	(19)	$	12

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, 2023, the Company contributed approximately $84 to the plan. The Company anticipates total contributions of approximately $340 to the United Kingdom pension plan during 2023.

Defined Contribution Plans

The Company sponsors five defined contribution plans for hourly and salaried employees across its domestic and international facilities. The following table summarizes the expense associated with the contributions made to these plans for the periods presented:


	Three Months Ended March 31,
	2023		2022
United States	$	614	$	305
Canada	62		61
United Kingdom	261		135
	$	937	$	501

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 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

Table of Contents

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	$	8,000
2024	8,000




Total	$	16,000

Environmental and Legal Proceedings

The Company is subject to national, state, foreign, provincial, and/or local laws and regulations relating to the protection of the environment. The Company’s efforts to comply with environmental regulations may have an adverse effect on its future earnings.

On June 5, 2017, a General Notice Letter was received from the United States Environmental Protection Agency (“EPA”) indicating that the Company may be a potentially responsible party (“PRP”) regarding the Portland Harbor Superfund Site cleanup along with numerous other companies. More than 140 other companies received such a notice. The Company and a predecessor owned and operated a facility near the harbor site for a period prior to 1982. The net present value and undiscounted costs of the selected remedy throughout the harbor site are estimated by the EPA to be approximately $1.1 billion and $1.7 billion, respectively, and the remedial work is expected to take as long as 13 years to complete. These costs may increase given that the remedy will not be initiated or completed for several years. The Company is reviewing the basis for its identification by the EPA and the nature of the historic operations of a Company predecessor near the site. Additionally, the Company executed a PRP agreement which provides for a private allocation process among almost 100 PRPs in a working group whose work is ongoing and involves a process that will ultimately conclude a proposed allocation of liability for cleanup of the site and various sub-areas. The Company does not have any individual risk sharing agreements in place with respect to the site, and was only associated with the site from 1976 to when it purchased the stock of a company whose assets it sold in 1982 and which was dissolved in 1994. On March 26, 2020, the EPA issued a Unilateral Administrative Order to two parties requiring them to perform remedial design work for that portion of the Harbor Superfund Site that includes the area closest to the facility; the Company was not a recipient of this Unilateral Administrative Order. The Company cannot predict the ultimate impact of these proceedings because of the large number of PRPs involved throughout the harbor site, the size and extent of the site, the degree of contamination of various wastes, varying environmental impacts throughout the harbor site, the scarcity of data related to the facility once operated by the Company and a predecessor, potential comparative liability between the allocation parties and regarding non-participants, and the speculative nature of the remediation costs. Based upon information currently available, management does not believe that the Company’s alleged PRP status regarding the Portland Harbor Superfund Site or other compliance with the present environmental protection laws will have a material adverse effect on the financial condition, results of operations, cash flows, competitive position, or capital expenditures of the Company. As more information develops and the allocation process is completed, and given the resolution of factors like those described above, an unfavorable resolution could have a material adverse effect. As of March 31, 2023 and December 31, 2022, the Company maintained environmental reserves approximating $2,448 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 March 31, 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 March 31, 2023, no such disclosures were considered necessary.

Table of Contents

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, including recession, whether as a result of the current COVID-19 pandemic or otherwise, including its impact on labor markets, supply chains, and other inflationary costs, travel and demand for oil and gas, the continued volatility in the prices for oil and gas, governmental travel restrictions, project delays, and budget shortfalls, or otherwise; volatility in the global capital markets, including interest rate fluctuations, which could adversely affect our ability to access the capital markets on terms that are favorable to us; restrictions on our ability to draw on our credit agreement, including as a result of any future inability to comply with restrictive covenants contained therein; a continuing decrease in freight or transit rail traffic, including as a result of the ongoing COVID-19 pandemic, strikes, or labor stoppages; environmental matters, including any costs associated with any remediation and monitoring of such matters; the risk of doing business in international markets, including compliance with anti-corruption and bribery laws, foreign currency fluctuations and inflation, and trade restrictions or embargoes; our ability to effectuate our strategy, including cost reduction initiatives, and our ability to effectively integrate acquired businesses or to divest businesses, such as the recent dispositions of the Piling, Track Components, and Chemtec businesses, and acquisitions of the Skratch Enterprises Ltd., Intelligent Video Ltd., and VanHooseCo Precast LLC businesses 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 SOFR 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, 2022, 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.

Table of Contents

General Overview and Business Update

Results of the Quarter


	Three Months Ended March 31,				Percent Change		Percent of Total Net Sales Three Months Ended March 31,
	2023		2022		2023 vs. 2022		2023		2022
Net sales	$	115,488	$	98,794	16.9	%	100.0	%	100.0	%
Gross profit	23,291		16,447		41.6		20.2		16.6
Expenses:
Selling and administrative expenses	21,423		17,298		23.8		18.5		17.5
Amortization expense	1,365		1,436		(4.9)		1.2		1.5
Operating profit (loss)	503		(2,287)		122.0		0.4		(2.3)

Interest expense - net	1,388		370		**		1.2		0.4


Other expense (income) - net	1,827		(563)		**		1.6		(0.6)

Loss before income taxes	(2,712)		(2,094)		(29.5)		(2.3)		(2.1)
Income tax benefit	(541)		(508)		(6.5)		(0.5)		(0.5)
Net loss	(2,171)		(1,586)		(36.9)		(1.9)		(1.6)
Net loss attributable to noncontrolling interest	(19)		(20)		5.0		(0.0)		(0.0)
Net loss attributable to L.B. Foster Company	$	(2,152)	$	(1,566)	(37.4	%)	(1.9	%)	(1.6	%)
Diluted loss per common share	$	(0.20)	$	(0.15)

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

L.B. Foster 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 is organized and operates in three reporting segments: Rail, Technologies, and Services, Precast Concrete Products, and Steel Products and Measurement.

Acquisition and Divestiture Summary

On August 12, 2022, the Company acquired the operating assets of VanHooseCo Precast, LLC (“VanHooseCo”), a business specializing in precast concrete walls, water management products, and forms for the commercial and residential infrastructure markets for $52,146 net of cash acquired. VanHooseCo has been included in the Company’s Precast Concrete Products segment.

On June 21, 2022, the Company acquired the stock of Skratch Enterprises Ltd. (“Skratch”) for $7,402, which is inclusive of deferred payments withheld by the Company of $1,228, to be paid over the next four years or utilized to satisfy post-closing working capital adjustments or indemnity claims under the purchase agreement. Skratch is an industry leader in digital system integration with expertise in advanced digital display technologies and capabilities currently serving retail markets in the U.K. Skratch is reported within the Technology Services and Solutions business unit in the Rail, Technologies, and Services segment.

On August 1, 2022, the Company divested the assets of its Track Components business. Cash proceeds from the transaction were $7,795, subject to indemnification obligations and working capital adjustments and a loss on sale of $467 was recorded in “Other expense (income) - net.” The Track Components business was reported in the Rail Products business unit within the Rail, Technologies, and Services segment.

On March 30, 2023, the Company sold substantially all the operating assets of its Chemtec Energy Services LLC (“Chemtec”) business for $5,344 in proceeds, subject to final working capital adjustments, generating a $2,033 loss on sale, 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.

Results Summary

Net sales of $115,488 for the three months ended March 31, 2023 increased by $16,694, or 16.9%, over the prior year quarter. The change in sales is due in part to the acquisitions of Skratch and VanHooseCo offset by the divestiture of the Track Components business. Organic growth and acquisitions drove a 11.5% and 9.3% increase in sales over the prior year quarter, respectively, with an offsetting 3.9% decline from divestitures.

Table of Contents

Gross profit for the three months ended March 31, 2023 was $23,291, an increase of $6,844 over the prior year quarter, or 41.6%, and gross profit margins expanded by 360 basis points to 20.2%. The improvement in gross profit is due to the portfolio changes that are a part of the Company’s strategic transformation plan along with improved product mix and pricing.

Selling and administrative expenses for the three months ended March 31, 2023 increased by $4,125, or 23.8%, from the prior year quarter, due in part to the acquisition of VanHooseCo and Skratch, as well as higher personnel expenses. Selling and administrative expenses as a percent of net sales were 18.5% versus 17.5% in the prior year quarter, a 100 basis point increase. The recent acquisitions have a higher margin portfolio and higher selling and administrative costs.

Other expense - net for the three months ended March 31, 2023 was $1,827 while other income - net was $563 in the prior year quarter. Other expense - net for the three months ended March 31, 2023 was due to the $2,033 loss on the sale of Chemtec during the quarter.

The Company’s effective income tax rate for the three months ended March 31, 2023 was 19.9%, compared to 24.3% in the prior year quarter. Due to the full valuation allowance on domestic deferred tax assets, the Company’s tax provision for the three months ended March 31, 2023 does not reflect any tax benefit for domestic pre-tax losses, and is primarily comprised of taxes related to our Canadian and United Kingdom operations.

Net loss for the three months ended March 31, 2023 attributable to the Company was $2,152, or $0.20 per diluted share, unfavorable by $586, or $0.05 per diluted share, from the prior year quarter. The loss was primarily driven by the $2,033 loss on the sale of Chemtec during the three months ended March 31, 2023, which offset stronger comparable operating profit stemming from margin expansion.

The Company continues to execute its strategic transformation into a technology-focused, high growth infrastructure solutions provider, as evidenced by the number of recent portfolio actions taken, including the sale of Chemtec, which minimizes the Company's exposure to the energy market and allows for additional capacity to focus on its core growth platforms in Rail Technologies and Precast Concrete, and an increased focus on organic growth initiatives and debt reduction going into 2023. Proceeds from the Chemtec sale have contributed to the pay down of debt during the quarter and increased capacity under the credit agreement to further support its strategic initiatives.

Results of Operations - Segment Analysis

First Quarter 2023 Compared to First Quarter 2022

Rail, Technologies, and Services


	Three Months Ended March 31,						Change			Percent Change
	2023			2022			2023 vs. 2022			2023 vs. 2022
Net sales	$	64,384		$	63,710		$	674		1.1	%
Gross profit	$	14,284		$	12,528		$	1,756		14.0	%
Gross profit percentage	22.2		%	19.7		%	2.5		%	12.8	%
Segment operating profit	$	2,388		$	1,039		$	1,349		129.8	%
Segment operating profit percentage	3.7		%	1.6		%	2.1		%	131.3	%

The Rail, Technologies, and Services segment sales for the three months ended March 31, 2023 increased by $674, or 1.1%, compared to the prior year quarter. Net sales increased by 5.8% organically and by 1.3% from the acquisition of Skratch, offset by a 6.1% decrease from the divestiture of Track Components. The Global Friction Management business unit increase in sales was offset by sales decreases in the Technology Services and Solutions business unit. The Friction Management sales increase was driven by strength in domestic markets served. The sales decrease in the Technology Services and Solutions business unit was driven by the completion of the multi-year Crossrail project in late 2022.

The Rail, Technologies, and Services segment gross profit increased by $1,756, or 14.0% over the prior year quarter, and gross profit margins expanded 250 basis points to 22.2%. Gross profit increases in Rail Products and Global Friction Management were commensurate with higher sales levels, while weaker sale in Technology Services and Solutions drove a partially offsetting gross profit decline. The improvement in gross profit is due to the portfolio changes that are a part of the Company’s strategic transformation along with increased sales in the higher margin Global Friction Management business along with improved pricing. Operating profit was $2,388, a $1,349 increase over the prior year quarter, due primarily to higher gross profit levels.

Table of Contents

During the current quarter, the Rail, Technologies, and Services segment had a decrease in new orders of $17,664, or 19.3%, compared to the prior year period. The decrease is due primarily to differences in customer order timing in the Rail Distribution business, as well as an unfavorable impact of $4,805 due to the Track Components divestiture. Backlog as of March 31, 2023 was $113,593, a decrease of $9,325, or 7.6%, versus the prior year quarter, $2,531 of which is related to the divested Track Components division.

Precast Concrete Products


	Three Months Ended March 31,						Change			Percent Change
	2023			2022			2023 vs. 2022			2023 vs. 2022
Net sales	$	24,288		$	15,010		$	9,278		61.8	%
Gross profit	$	5,521		$	2,445		$	3,076		125.8	%
Gross profit percentage	22.7		%	16.3		%	6.4		%	39.5	%
Segment operating loss	$	(348)		$	(791)		$	443		56.0	%
Segment operating loss percentage	(1.4)		%	(5.3		%)	3.9		%	73.6	%

The Precast Concrete Products segment sales for the three months ended March 31, 2023 increased by $9,278, or 61.8%, compared to the prior year quarter. The VanHooseCo acquisition contributed $8,299, or 55.3%, of the increase in sales over the prior year quarter. Organic sales increased by $979, or 6.5%, which is a continued reflection of the strong demand environment in the southern and northeastern United States markets.

The Precast Concrete Products segment's gross profit for the three months ended March 31, 2023 increased by $3,076, and gross profit margins expanded by 640 basis points to 22.7%. The improvement in gross profit is due to the VanHooseCo acquisition as well as overall sales volumes and stronger margins from the legacy precast business, including the impact of improved pricing. Operating loss for the first quarter of 2023 was $348, a $443 improvement over the prior year quarter, due to higher gross profit levels, which was partially offset by an increase in selling and administrative expenses from the VanHooseCo acquisition, as well as increased personnel expenses.

During the quarter, the Precast Concrete Products segment had an increase in new orders and backlog of 89.2% and 21.2%, respectively, compared to the prior year quarter. The increase in new orders and backlog is due to the VanHooseCo acquisition and strong demand in the legacy business.

Steel Products and Measurement


	Three Months Ended March 31,						Change			Percent Change
	2023			2022			2023 vs. 2022			2023 vs. 2022
Net sales	$	26,816		$	20,074		$	6,742		33.6	%
Gross profit	$	3,486		$	1,474		$	2,012		136.5	%
Gross profit percentage	13.0		%	7.3		%	5.7		%	77.0	%
Segment operating loss	$	(8)		$	(2,148)		$	2,140		99.6	%
Segment operating loss percentage	0.0		%	(10.7)		%	10.7		%	100.0	%

The Steel Products and Measurement segment sales for the three months ended March 31, 2023 increased by $6,742, or 33.6%, compared to the prior year quarter. The increase in sales for the first quarter of 2023 was attributable to the $8,819 increase in Coatings and Measurement sales over the prior year quarter, due to increased activity in both traditional and adjacent market applications. This increase was partially offset by a decrease in Fabricated Steel Products business unit sales of $2,087.

Steel Products and Measurement gross profit for the three months ended March 31, 2023 increased by $2,012, and gross profit margins increased 570 basis points to 13.0%. The increase in gross profit is primarily due to stronger margins in the Protective Coatings division attributable to higher volumes. The segment operating loss was reduced $2,140 from the prior year quarter, due to higher gross profit levels.

During the quarter, the Steel Products and Measurement segment had an increase in new orders and backlog of $4,697, or 18.9%, and $9,220, or 18.7%, respectively, compared to the prior year quarter. The increase is a result of improved order levels in the Fabricated Steel Products business unit and the Protective Coatings division due to strong demand in both traditional and adjacent market applications. The backlog increase was partially offset by a $5,657 decrease due to the Chemtec divestiture.

Table of Contents

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, of which $49,091 was available for borrowing as of March 31, 2023, subject to covenant restrictions. The Company’s primary needs for liquidity relate to working capital requirements for operations, capital expenditures, debt service obligations, payments related to the Union Pacific Railroad Settlement, and acquisitions. The Company’s total debt, including finance leases, was $80,096 and $91,879 as of March 31, 2023 and December 31, 2022, respectively, and was primarily comprised of borrowings under its revolving credit facility.

The following table reflects available funding capacity, subject to covenant restrictions, as of March 31, 2023:


	March 31, 2023
Cash and cash equivalents		$	2,639
Credit agreement:
Total availability under the credit agreement	130,000
Outstanding borrowings on revolving credit facility	(79,825)
Letters of credit outstanding	(1,084)
Net availability under the revolving credit facility		49,091
Total available funding capacity		$	51,730

The Company’s cash flows are impacted from period to period by fluctuations in working capital, as well as its overall profitability. While the Company places an emphasis on working capital management in its operations, factors such as its contract mix, commercial terms, days sales outstanding (“DSO”), and market conditions as well as seasonality may impact its working capital. The Company regularly assesses its receivables and contract assets for collectability and realization, and provides allowances for credit losses where appropriate. The Company believes that its reserves for credit losses are appropriate as of March 31, 2023, but adverse changes in the economic environment and adverse financial conditions of its customers 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, 2023 and 2022 were as follows:


	Three Months Ended March 31,
	2023		2022
Net cash provided by (used in) operating activities	$	6,932	$	(7,636)
Net cash provided by (used in) investing activities	4,661		(539)
Net cash (used in) provided by financing activities	(12,022)		4,012
Effect of exchange rate changes on cash and cash equivalents	186		30

Net decrease in cash and cash equivalents	$	(243)	$	(4,133)

Cash Flow from Operating Activities

During the three months ended March 31, 2023, net cash provided by operating activities was $6,932, compared to cash used in operating activities of $7,636 during the prior year period. For the three months ended March 31, 2023, net loss and adjustments to reconcile net loss from operating activities provided $3,352, compared to $1,408 in the prior year period. Working capital and other assets and liabilities provided $3,580 in the current period, compared to using $9,044 in the prior year period. The Company received $2,967 during the three months ended March 31, 2023 associated with its federal income tax refund claims, which have now been collected in full.

Cash Flow from Investing Activities

Capital expenditures for the three months ended March 31, 2023 and 2022 were $699 and $1,764, respectively. The current period expenditures primarily relate to general plant and operational improvements throughout the Company, including corporate system and facility improvements. Expenditures for the three months ended March 31, 2022 primarily related to the implementation of the enterprise resource planning system at additional Company divisions and general plant and operational improvements throughout the Company. On March 30, 2023, the Company divested the assets of its Chemtec business, generating a cash inflow of $5,344 during the three months ended March 31, 2023.

Cash Flow from Financing Activities

Table of Contents

During the three months ended March 31, 2023 and 2022, the Company had a decrease in outstanding debt of $12,047 and an increase of $4,409, respectively. The decrease in debt for the three months ended March 31, 2023 was due to both stronger operating cash flows as well as proceeds received from the Chemtec divestiture during the quarter. The increase in debt for the 2022 period was the result of funding working capital and other assets and liabilities. Treasury stock acquisitions of $309 and $397 for the three months ended March 31, 2023 and 2022, respectively, represent stock repurchases from employees to satisfy their income tax withholdings in connection with the vesting of stock awards.

During the first quarter of 2023, the Company’s Board of Directors authorized the repurchase of up to $15,000 of the Company’s common stock in open market transactions through February 2026. Repurchases are limited to up to $5,000 in any trailing 12-month period, with unused amounts carrying forward to future periods through the end of the authorization. Any repurchases will be subject to the Company’s liquidity, including availability of borrowings and covenant compliance under its revolving credit facility, and other capital needs of the business. No shares were repurchased in the first quarter of 2023 as part of the stock repurchase program.

Repurchases of shares of the Company’s common stock may be made from time to time in the open market or in such other manner as determined by the Company. The timing of the repurchases and the actual amount repurchased will depend on a variety of factors, including the market price of the Company’s shares, general market and economic conditions, and other factors. The stock repurchase program does not obligate the Company to acquire any particular amount of common stock and may be suspended or discontinued at any time.

Financial Condition

As of March 31, 2023, the Company had $2,639 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, 2023, approximately $2,136 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 have been to fund its operations, including capital expenditures, acquisitions, 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, 2023, the Company's revolving credit facility had $49,091 of net availability, while the Company had $80,096 in total debt.

On August 13, 2021, the Company entered into the Credit Agreement, which increased the total commitments under the revolving credit facility to $130,000 from $115,000, extended the maturity date from April 30, 2024 to August 13, 2026, and provided more favorable covenant terms. Borrowings under the Credit Agreement bear interest rates based upon either the base rate or SOFR 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. On August 12, 2022, the Company amended its Credit Agreement to obtain approval for the VanHooseCo acquisition and temporarily modify certain financial covenants to accommodate the transaction. The Second Amendment permitted the Company to acquire the operating assets of VanHooseCo and modified the maximum Gross Leverage Ratio covenant to 3.75 through June 30, 2023 to accommodate the transaction. The Second Amendment also added an additional tier to the pricing grid and provided for the conversion from LIBOR-based to SOFR-based borrowings. For a discussion of the terms and availability of the credit facilities, please refer to Note 7 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 amended and entered into SOFR-based interest rate swaps with notional values totaling $20,000 and $20,000, effective August 12, 2022 and August 31, 2022, respectively, at which point the agreements effectively converted a portion of the debt from variable to fixed-rate borrowings during the term of the swap contract.

Table of Contents

Segment Backlog

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


	Backlog
	March 31, 2023		December 31, 2022		March 31, 2022
Rail, Technologies, and Services	$	113,593	$	105,241	$	122,918
Precast Concrete Products	87,737		80,501		72,369
Steel Products and Measurement	58,551		86,509		49,331
Total backlog	$	259,881	$	272,251	$	244,618

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.

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.

Critical Accounting Estimates

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, 2022.

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, 2023. 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, 2023, 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.

Table of Contents

PART II. OTHER INFORMATION

(Dollars in thousands, except share data)

Item 1. Legal Proceedings

See Note 13 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, 2023 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 (2)	Approximate dollar value of shares that may yet be purchased under the plans or programs
January 1, 2023 - January 31, 2023	1,126	$	10.49	—	$	15,000
February 1, 2023 - February 28, 2023	18,632	12.80		—	15,000
March 1, 2023 - March 31, 2023	4,687	12.52		—	15,000
Total	24,445	$	12.64	—	$	15,000

1.Reflects shares withheld by the Company to pay taxes upon vesting of restricted stock.

2.On March 3, 2023, the Board of Directors authorized the repurchase of up to $15,000 of the Company’s common shares until February 2026.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

This item is not applicable to the Company.

Item 5. Other Information

None.

Table of Contents

Item 6. Exhibits

See Exhibit Index below.

Exhibit Index


Exhibit Number						Description
*10.1						2023 Executive Annual Incentive Plan.

*10.2						Form of Restricted Stock Award Agreement (2023).

*10.3						Form of Performance Share Unit Award Agreement and Long Term Incentive Performance Share Unit Program (2023-2025).

*31.1						Certification of Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002.

*31.2						Certification of Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002.

*32.0						Certification of Chief Executive Officer and Chief Financial Officer under Section 906 of the Sarbanes-Oxley Act of 2002.

*101.INS						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.

*101.SCH						XBRL Taxonomy Extension Schema Document.

*101.CAL						XBRL Taxonomy Extension Calculation Linkbase Document.

*101.DEF						XBRL Taxonomy Extension Definition Linkbase Document.

*101.LAB						XBRL Taxonomy Extension Label Linkbase Document.

*101.PRE						XBRL Taxonomy Extension Presentation Linkbase Document.

*104						Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)


*			Exhibits marked with an asterisk are filed herewith.

Table of Contents

SIGNATURE

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.



		L.B. FOSTER COMPANY
		(Registrant)

Date:	May 10, 2023	By: /s/ William M. Thalman
		William M. Thalman
		Senior Vice President
		and Chief Financial Officer
		(Duly Authorized Officer of Registrant)

Positive
Negative
Uncertain
Constraining
Legalese
Litigous
Readability	H.S. freshman Avg

L.B. Foster (FSTR) 10-Q2023 Q1 Quarterly report

Content analysis