UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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| (Mark One) | |
| ☒ | Annual Report Pursuant to Section 13 or 15 (d)15(d) of the Securities Exchange Act of 1934 |
For the fiscal year ended December 31, 20172022 |
Or
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| ☐ | 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 0-10436
L.B. FOSTER COMPANY
(Exact name of registrant as specified in its charter)
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| 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) |
Registrant’s telephone number, including area code:
(412) 928-3400
Securities registered pursuant to Section 12(b) of the Act:
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| 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 |
Preferred Stock Purchase Rights | | NASDAQ Global Select Market |
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ☐ Yes ☒ No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. ☐ Yes ☒ No
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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). ☒ Yes ☐ No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this form 10-K. ☒
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”,filer,” “smaller reporting company”,company,” and “emerging"emerging growth company”company" in Rule 12b-2 of the Exchange Act. (Check one):
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| Large accelerated filer | | ☐ | | Accelerated filer | | ☒ |
| Non-accelerated filer | | ☐ (Do not check if a smaller reporting company) | | 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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No
The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter was $174,226,746.$133,127,563.
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Class | | Outstanding at February 21, 2018 |
Common Stock, Par Value $0.01 | | 10,346,213 shares |
As of February 28, 2023, there were 10,958,727 shares of the registrant’s common stock, par value $0.01 per share, outstanding.Documents Incorporated by Reference:
Portions of the Definitive Proxy Statement prepared for the 20172023 Annual Meeting of Shareholders (“2023 Proxy Statement”) are incorporated by reference in Items 10, 11, 12, 13 and 14 of Part III of this Form 10-K. The 20182023 Proxy Statement will be filed with the U.S. Securities and Exchange Commission within 120 days after the end of the fiscal year to which this reportForm 10-K relates.
TABLE OF CONTENTS
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| PART I |
| Item 1. | | |
| Item 1A. | | |
| Item 1B. | | |
| Item 2. | | |
| Item 3. | | |
| Item 4. | | |
| PART II |
| Item 5. | | |
| Item 6. | | |
| Item 7. | | |
| Item 7A. | | |
| Item 8. | | |
| Item 9. | | |
| Item 9A. | | |
| Item 9B. | | |
PART IIIItem 9C. | | |
| PART III |
| Item 10. | | |
| Item 11. | | |
| Item 12. | | |
| Item 13. | | |
| Item 14. | | |
| PART IV |
| Item 15. | | |
| Item 16. | | |
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Forward-Looking Statements
This Annual Report on Form 10-K contains “forward- looking”“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.” Forward-looking statements provide 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 Annual Report on Form 10-K are based on management’s current expectations and assumptions about future events that involve inherent risks and uncertainties and may concern, among other things, L.B. Foster Company’s (the “Company’s”) expectations relating to our strategy, goals, projections, and plans regarding our financial position, liquidity, capital resources, and results of operations; the outcome of litigationoperations and product warranty claims; decisions regarding our strategic growth initiatives, market position, and product development; all of which are based on current estimates that involve inherent risks and uncertainties. The Company has based these forward-looking statements on current expectations and assumptions about future events.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 COVID-19 pandemic or otherwise, including its impact on labor markets and supply chains, macroeconomic factors, including the impact of inflation and pricing pressures, 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; a resumptionmonitoring of the economic slowdown we have experienced in previous years in the markets we serve;such matters; the risk of doing business in international markets;markets, including compliance with anti-corruption and bribery laws, foreign currency fluctuations, 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 Track Components, Piling, and IOS Test and Inspection 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; a decrease in freight or passenger rail traffic;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'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 effectiveeffectiveness 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;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 these amounts, including as a result of any interpretations, regulatory actions, and amendments to the Tax Cuts and Jobs Act; foreign currency fluctuations; inflation;taxes; domestic and foreign government regulations;regulations, including tariffs; economic conditions and regulatory changes caused by the United Kingdom’s pending exit from the European Union; sustained declinesgeopolitical conditions, including the conflict in energy prices;Ukraine; a lack of state or federal funding for new infrastructure projects; an increase in manufacturing or material costs; the ultimate number of concrete ties that will have to be replaced pursuant to the previously disclosed product warranty claim of the Union Pacific Railroad (“UPRR”) and an overall resolution of the related contract claims as well as the possible costs associated with the outcome of the lawsuit filed by the UPRR; the loss of future revenues from current customers; and risks inherent in litigation.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 ourthis Annual Report on Form 10-K and 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.
PART I
(Dollars in thousands, except share data unless otherwise noted)
ITEM 1. BUSINESS
Summary Description of Businesses
FormedFounded in 1902, L.B. Foster Company is a Pennsylvania corporation with its principal office in Pittsburgh, PA. L.B. Foster Company is a leading manufacturer and distributorglobal technology solutions provider of engineered, manufactured products and services forthat builds and supports infrastructure. The Company’s innovative engineering and product development solutions address the transportationsafety, reliability, and energy infrastructure withperformance needs of its customers’ most challenging requirements. The Company maintains locations in North America, South America, Europe, and Europe.Asia. As used herein, “Foster,“L.B. Foster,” the “Company,” “we,” “us,” and “our” or similar references refer collectively to L.B. Foster Company and its divisions and subsidiaries, unless the context otherwise requires.indicates otherwise.
The following table shows for the last three fiscal years, the net sales generated byfor each business segment as a percentage of total net sales:sales for the years ended December 31, 2022 and 2021:
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| | | Percentage of Net Sales |
| | | 2017 | | 2016 | | 2015 |
| Rail Products and Services | | 48 | % | | 49 | % | | 53 | % |
| Construction Products | | 30 |
| | 30 |
| | 28 |
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| Tubular and Energy Services | | 22 |
| | 21 |
| | 19 |
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| | | 100 | % | | 100 | % | | 100 | % |
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| | Percentage of Net Sales |
| | 2022 | | 2021 | | |
| Rail, Technologies, and Services | | 60 | % | | 58 | % | | |
| Precast Concrete Products | | 21 | | | 14 | | | |
| Steel Products and Measurement | | 19 | | | 28 | | | |
| | 100 | % | | 100 | % | | |
Financial information concerning these segments is set forth in Part II, Item 8, Financial Statements and Supplementary Data, Note 2 Business Segments, to the Consolidated Financial Statements contained in this Annual Report on Form 10-K, which is incorporated by reference into this Item 1.
Rail, ProductsTechnologies, and Services
The Company’s Rail, ProductsTechnologies, and Services (“Rail”) segment is comprised of several manufacturing, distribution, and distributionservice businesses that provide a variety of products, solutions, and services for freight and passenger railroads and other industrial companies throughout the world. The Rail segment has sales offices throughout the Americas andNorth America, South America, Europe, and frequently bidsAsia, and works on rail projects where it offers products manufactured by the Company, or sourced from numerous supply chain partners,partners. The Rail segment also offers contract project management and aftermarket services. The Rail reporting segment is comprised of the following business units: Rail Products, Rail Technologies,Global Friction Management, and CXT Concrete Ties.Technology Services and Solutions business units.
Rail Products
The Rail Products business unit is comprised of the Company’s Rail Distribution, Allegheny Rail Products, Transit Products, and TransitConcrete Tie divisions. Following are summaries of those divisions:
Rail Distribution - This division sells new rail mainly to passenger and shortlineshort line freight railroads, industrial companies, and rail contractors for the replacement of existing lines or expansion of new lines. Rail accessories sold by the Rail Distribution division include track spikes, bolts, angle bars, tie plates, and other products required to install or maintain rail lines. These products are manufactured by the Company or purchased from other manufacturers and distributed accordingly. Rail Distribution also sells trackwork products to Class II and III railroads, industrial, and export markets.
The Company’s Allegheny Rail Products (“ARP”) division - ARP engineers and fabricatesmanufactures insulated rail joints and related accessories for freight and passenger railroads and industrial customers. Insulated joints are manufactured domestically at the Company’s facilities in Pueblo, CO and Niles, OH.
The Company’s Transit Products - This division supplies power rail,designed, engineered, and outsourced-manufactured direct fixation fasteners, coverboards, and special accessories primarily for passenger railroad systems. Transit Products also manufactures power rail, also known as third rail, at its facility in Niles, OH. These products are fabricated at Company facilities or by subcontractors and are usually sold to contractors or by sealed bid to passenger railroads.
Concrete Ties - This division manufactures engineered concrete railroad ties for freight and passenger railroads or to rail contractors.and industrial accounts at its facility in Spokane, WA.
Rail TechnologiesTrack Components - The Track Components division manufactured track spikes and anchors at a facility in St-Jean-sur-Richelieu, Quebec. The Company completed the sale of the assets of this division in August of 2022.
Global Friction Management
The Company’s Rail TechnologiesGlobal Friction Management business unit engineers, manufactures, and fabricates friction management products and application systems railroad condition monitoring systems and equipment, wheel impact load detection,for its rail anchors and spikes, wayside data collection and management systems, epoxy and nylon-encapsulated insulated rail joints, and track fasteners, andcustomers. It also provides aftermarket services.services managing its friction management solutions for customers. The Company’s friction management products control the frictionoptimize performance at the rail/rail to wheel interface, helpingwhich helps our customers reduce fuel consumption, improve operating efficiencies, extend the life of operating assets such as rail and wheels, reduce track stresses, and lower the related maintenance and operating costs.costs of its rail customers. Friction management products include mobile and wayside systems that apply lubricants and liquid or solid friction modifiers. These products and systems are designed, engineered, manufactured, fabricated, serviced, and fabricated by certain wholly-owned subsidiaries locatedmarketed in the United States (“U.S.”), Canada, the United Kingdom (“U.K.”), and Germany.
Technology Services and Solutions
The Company’s Technology Services and Solutions business unit engineers and manufactures railroad condition monitoring systems and equipment, wheel impact load detection systems, wayside data collection and management systems, and rockfall, flood, earthworks, and bridge strike monitoring. These offerings create a smart interface between conventional rail products and intelligent digital technologies to monitor safety, increase network velocity, and enable the digital railway. In addition, the business unit provides controls, display, and telecommunication contract management solutions for the transit, control room, and customer information and display sectors to enhance safety, operational efficiency, and customer experience. These products, systems, and services are designed, engineered, serviced, and marketed in the U.S., U.K., and Germany. In June of 2022, the Company acquired the stock of Skratch Enterprises Ltd. (“Skratch”), located in Telford, United Kingdom. Skratch offers a single-point supply solution model for clients, and enables large scale deployments of its intelligent digital signage solutions. Skratch’s service offerings include design, prototyping and proof of concept, hardware and software, logistics and warehousing, installation, maintenance, content management, and managed monitoring.
CXTPrecast Concrete TiesProducts
The Precast Concrete Products (“Precast”) segment manufactures precast concrete products for the North American civil infrastructure market. Under its CXT® brand, Precast manufactures restrooms, concession stands, and other protective storage buildings available in multiple designs, textures, and colors for national, state, and municipal parks. The Company is a leading, high-end supplier of precast buildings in terms of volume, product options, and capabilities. Precast also manufactures various other precast concrete products such as sounds walls, bridge beams, box culverts, septic tanks, and other custom pre-stressed and precast concrete products at its Boise, ID, Hillsboro, TX, and Waverly, WV manufacturing facilities.
In August of 2022, the Company acquired the operating assets of VanHooseCo Precast, LLC (“VanHooseCo”), a privately-held business headquartered in Loudon, Tennessee specializing in precast concrete walls, water management products, and forms for the commercial and residential infrastructure markets. VanHooseCo has an existing manufacturing site in Loudon, near Knoxville, and a new facility recently commissioned in Lebanon, TN near Nashville. The Company also entered into license agreements for VanHooseCo’s ENVIROCAST® pre-insulated concrete walls and ENVIROKEEPER® water retention and management product lines. The acquisition expands L.B. Foster’s subsidiary, CXT Incorporated,addressable market to include commercial and residential developers, as well as state and local agencies in Tennessee and surrounding states, and provides a platform for further investment and organic growth in the expanding precast concrete infrastructure market.
Steel Products and Measurement
The Company’s Steel Products and Measurement segment provides custom engineered solutions and services that help to build and maintain critical civil and energy infrastructure throughout the Americas. Steel Products and Measurement designs, manufactures, engineered concrete railroad tiesand supplies a variety of steel bridge products to contractors performing installation and repair work to North American transportation infrastructure network. It also provides solutions in corrosion protection, measurement, and control systems for freightthe safe transportation and passenger railroadsaccurate measurement of gas and industrial companies at its facilityliquids in Spokane, WA.pipelines as well as threaded pipe for water well applications. The Steel Products and Measurement reporting segment is comprised of the Fabricated Steel Products and Coatings and Measurement business units.
ConstructionFabricated Steel Products
The ConstructionFabricated Steel Products business unit provides fabricated bridge products segment is composed of the followingto infrastructure end markets and provides threading services for agricultural, municipal and industrial water well applications. The Fabricated Steel Products business units: Piling Products, Fabricated Bridge Products, and Precast Concrete Products.
Piling Products
Sheet piling products are interlocking structural steel sections that are generally used to provide lateral support at construction sites. Bearing piling products are steel H-beam sections which are driven into the ground for support of structures such as bridge piers and high-rise buildings. Piling is often used in water and land applications including cellular cofferdams and OPEN CELL® structures in inland river systems and ports.
Piling products are sourced from various manufacturers and either sold or rented to project owners and contractors. The piling division, via a sales force deployed throughout the United States,unit markets and sells piling domestically and internationally. This division offers its customers various types and dimensions of structural beam piling, sheet piling, and pipe piling. The Company is the primary distributor of domestic steel sheet piling for its primary supplier.products primarily in North America.
Fabricated Bridge Products
- The fabricated productsBridge Products facility in Bedford, PA manufactures a number of fabricated steel and aluminum products primarily for the highway, bridge, and transit industries, including concrete reinforcedconcrete-reinforced steel grid deck,decking, open steel grid deck, aluminum bridge railing, and stay-in-place steel bridge forms.
Precast ConcreteWater Well Threading - The Company’s Magnolia, TX facility cuts, threads, and paints pipe primarily for water well applications for the agriculture industry and municipal water authorities and, to a lesser extent, threading services for the Oil Country Tubular Goods markets.
Piling Products - On September 24, 2021, the Company completed the sale of its Piling Products division. The Company retained all pre-closing receivables and liabilities associated with the division. The sale included substantially all inventory and fixed assets associated with the division.
Coatings and Measurement
The Precast Concrete ProductsCoatings and Measurement business unit primarily manufactures concrete buildings for national, state,provides protective coating services and municipal parks. This unit manufactures restrooms, concession stands, and other protective storage buildings available in multiple designs, textures, and colors.precision measurement products to infrastructure end markets. The Companyfollowing is a leading high-end supplier in termssummary of volume,those product options, and capabilities. The unit also manufactures various other precast products such as burial vaults, bridge beams, box culverts, septic tanks, and other custom pre-stressed and precast concrete products. The products are manufactured in Spokane, WA, Hillsboro, TX, and Waverly, WV.service offerings:
Tubular and Energy Services
The Tubular and Energy Services segment has four primary business units: Protective Coatings Threaded Products, Precision Measurement Systems, and Test and Inspection Services. The segment provides products and services predominantly to the mid and upstream oil and gas markets.
Protective Coatings
- There are two pipeline servicecoating services locations that make up theour Protective Coatings business unit. Thedivision. Our Birmingham, AL facility coats the outside diameter and to a lesser extent, the inside diameter of pipe primarily for oil &and gas transmission pipelines. This location partners with its primary customer, a pipe manufacturer, to market fusion bonded epoxy coatings, abrasion resistant coatings, and internal linings for a wide variety of pipe diameters for use in pipeline projects throughout North America.
The second location, issituated in Willis, TX. The Willis facilityTX, applies specialty outside and inside diameter coatings for a wide variety of pipe diameters for oil &and gas transmission, mining, and waste water pipelines. This location also provideswaste-water pipelines, as well as custom coatings for specialty pipe fittings and connections.
Threaded Products
The Company’s Magnolia, TX facility cuts, threads, and paints pipe primarily for water well applications for the agriculture industry, municipal water authorities, and Oil Country Tubular Goods (“OCTG”) markets.
Precision Measurement Products and Systems
- The Company manufactures and provides a turnkey solutionsolutions for metering and injection systems primarily for the oil, and, to a lesser extent, gas industry. The Willis, TX location operates a fabrication plant that builds metering systems for custody transfer applications, including crude oil and other petroleum-based products. These systems are used at well sites, pipelines, refineries, chemical plants, and loading/unloading facilities. The Willis, TX location also manufactures and installs additive and dye injection systems. These systems are used to inject performance additives and/or dyes into petroleum products.
Test and Inspection Services
The Company provides inspection and tubular integrity management services for the upstream oil and gas industry. Services include non-destructive testing, inspection, and other asset integrity services such as repair and threading for OCTG and drill tools. Inspection and testing of these products, which include replaceable and re-usable products such as casing,
production tubing, drill pipe, directional motors, drill collars, and related equipment, is a critical preventative measure to ensure personnel and well-site safety, enhance efficiency, and avoid costly equipment failures and well-site shutdowns. The Company offers these services in every major oil and gas producing region throughout the United States.
L B Pipe Joint Venture
The Company is a member of a joint venture, L B Pipe & Coupling Products, LLC (“L B Pipe JV”), in which it maintains a 45% ownership interest. L B Pipe JV manufactures, markets, and sells various machined components and precision couplings products for the energy, water well, and construction markets and is scheduled to terminate on June 30, 2019. The Company has classified its ownership interest as an asset held for sale during the current period. More information concerning L B Pipe JV is set forth in Part II, Item 8, Financial Statements and Supplementary Data, Note 8 Investments, to the Consolidated Financial Statements included herein, which is incorporated by reference into this Item 1.
Marketing and Competition
L.B. Foster Company generally markets its Rail Productsproducts and Servicesservices directly in all major industrial areas of the United States,U.S., Canada, and Europe. The ConstructionPrecast and Steel Products and TubularMeasurement products and Energy Servicesservices are primarily marketed domestically. The Company employs a sales force of approximately 7179 people that is supplemented with a network of agents across Europe, South America, and Asia to reach current customers and cultivate potential customers in these areas. For the years ended 2017, 2016,December 31, 2022 and 2015,2021, approximately 19%, 19%, and 16%, respectively,24% of the Company’s total sales were outside the United States.U.S.
The major markets for the Company’s products are highly competitive. Product availability, quality, service, and price are principal factors of competition within each of these markets. No other company provides the same product mix to the various markets the Company serves. However, there are one or more companies that compete with the Company in each product line. Therefore, the Company faces significant competition from different groups of companies.
During 2017, 2016, and 2015, no single customer accounted for more than 10% of the Company’s consolidated net sales.
Raw Materials and Supplies
MostThe Company purchases a variety of the Company’s productsraw materials from its supplier base including steel, aggregate, epoxy, electronics, and components, from both domestic and foreign suppliers. Products are also purchased in the form of finished or semi-finished products. The Company purchasesproducts which the majority of its suppliesit is supplied from domestic and foreign steel producers. Generally, the Company has a number of vendor options. However, the Company has an arrangement with a steel mill to distribute steel sheet piling in North America. Should sheet piling from its present supplier not be available for any reason, the Company risks not being able to provide such product to its customers.
The Company’s purchases from foreign suppliers are subject to foreign currency exchange rate changes as well asand the usual risks associated with changes in international conditions, and to United Statesas well as U.S. and international laws that could impose import restrictions on selected classes of products and for anti-dumping duties if products are sold in the United StatesU.S. at prices that are below specified prices.
Backlog
The dollar amountCompany’s backlog represents the sales price of customer purchase orders or contracts in 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, unfilled customercustomers may cancel or change their orders at December 31, 2017 and 2016 by business segment is as follows:
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| | | December 31, |
| | | 2017 | | 2016 |
| Rail Products and Services | | $ | 68,850 |
| | $ | 62,743 |
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| Construction Products | | 71,318 |
| | 71,954 |
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| Tubular and Energy Services | | 26,737 |
| | 12,759 |
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| Total | | $ | 166,905 |
| | $ | 147,456 |
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Approximately 5%with limited advance notice; however, these instances are rare. Backlog should not be considered a reliable indicator of the December 31, 2017 backlog is relatedCompany’s ability to projects that will extend beyond 2018.
Research and Development
Expenditures for research and development approximated $2,241, $3,511, and $3,937 in 2017, 2016, and 2015, respectively. These expenditures were predominately associated with expanding product lines and capabilities within the Company’s Rail Technologies business.achieve any particular level of revenue or financial performance.
Patents and Trademarks
The Company owns a number of domestic and international patents and trademarks, primarily related to products in its Rail Technologies products. OurGlobal Friction Management and Technology Services and Solutions business units, as well as its Precast Concrete Products business unit. The Company’s business segments are not dependent upon any individual patentpatents or related group of patents, ornor any individual licenses or distribution rights. We believeThe Company believes that, in the aggregate, the rights under ourits patents, trademarks, and licenses are generally important to ourits operations, but we do not considerconsiders neither any individual patent, or trademark, ornor any licensing or distribution rights related to a specific process or product, to be of material importance in relation to ourits total business.
Environmental Disclosures
Information regarding environmental matters is included in Part II, Item 8, Financial Statements and Supplementary Data, Note 19 Commitments and Contingent Liabilities,18 to the Consolidated Financial Statements included herein,in this Annual Report on Form 10-K, which is incorporated by reference into this Item 1.
EmployeesHuman Capital Management
People are the heart of L.B. Foster’s success. The Company strives to create and Employee Relationspromote a culture that makes L.B. Foster a great place to work. The Company seeks to attract and retain employees that embody and demonstrate its values, which are
summarized in our SPIRIT model, focusing on Safety, People, Integrity, Respect, Innovation, and Teamwork. The Company uses these six principles to guide its employees every day. The expectation of all employees, at every level of the organization, is to execute our business strategy in a manner that adheres to these core values and demonstrates commitment to the L.B. Foster SPIRIT.
Diversity and Inclusion
The Company is dedicated to the principle of equal employment opportunity and the provision of a workplace free from discrimination and harassment in accordance with all applicable federal, state, and local laws and regulations. This statement and accompanying practices, which pertain to all persons involved in Company operations, prohibit unlawful discrimination by any employee and apply to all terms, conditions, and privileges of employment. Additionally, the Company will also make reasonable accommodations for individuals with known disabilities who are otherwise qualified to perform a job. The Company aims to employ and advance in employment qualified women, minorities, individuals with disabilities, covered veterans, and other classes at all levels of employment. The Company has implemented initiatives to advance diversity and inclusion, including changes to recruitment, onboarding, and employee training, and has facilitated the Spark initiative, which is an employee resource group targeting all employees interested in furthering the mission of empowerment and professional growth of women in the workplace.
Environmental, Social, and Governance Matters
As part of its ongoing commitment to good corporate stewardship, in 2022 the Company hired an employee in a newly created full-time role to focus on and enhance its sustainability and environmental, social, and governance (“ESG”) initiatives. The position is intended to facilitate collaboration with the Board of Directors, senior leadership, investors, employees, customers, and societal and civic organizations to integrate ESG policies, frameworks, goals, and metrics into the Company’s business risk and opportunity strategies. The new role leads cross-functional efforts to coordinate, execute, improve, and communicate the Company’s ESG efforts. Additionally, the Company has created an employee-led Social Responsibility Committee to promote and execute the Company's values surrounding social responsibility internally.
Health and Safety
L.B. Foster aims to promote a culture of environmental, health, safety, and sustainability (“EHSS”) excellence that strives to protect the environment as well as the safety and health of our employees, business, customers, and communities where we operate. The Company strives to meet or exceed the requirements of all applicable environmental, health, and safety (“EHS”) regulations as the Company raises its standards of excellence. Consistent with its core values of safety, teamwork, and innovation, the Company aims to create more advanced solutions around sustainability. The Company emphasizes continual improvement in its EHSS performance, particularly as it applies to preventing pollution and reducing the environmental impact of its operations while maximizing opportunities for environmental and social benefits. The Company continually strives to develop best practices in EHS management based on international standards such as ISO 14001:2015 and ISO 45001:2018. The Company has 10 locations/businesses throughout North America and Europe that Environmental Management Systems has independently assessed and are compliant with the requirements of ISO 14001:2015 and ISO 45001:2018.
Additionally, the Company has facilitated the formation of an internal, employee-led Wellness Committee to promote initiatives and values Company-wide that focus on all aspects of health and wellness.
Leadership and Talent Management
The Company’s executive leadership team sets the Company’s strategic direction and is dedicated to sustainable profitable growth through its commitment to providing quality products and services to its customers and treating our customers, suppliers, and employees as partners. L.B. Foster cultivates and empowers talent through performance management, career planning/development, and succession planning, creating an environment for people to be successful in achieving our strategic plan through the following areas:
Talent Acquisition and Onboarding
The Company is committed to finding and hiring the best-qualified candidate (from within or outside of the organization) for a job opening, in a timely and cost-effective manner. The recruitment process includes analyzing the requirements of a job, meeting with hiring management to determine the appropriate qualifications and experience for the position, attracting qualified candidates to that job, providing opportunities to advance diversity in the workforce, screening and selecting applicants, hiring, and ultimately integrating the new employee to the organization.
Development Planning
The Company actively promotes proactive planning and implementation of action steps towards our employees’ career goals. Developmental experiences can consist of training, developing, mentoring, and coaching.
Succession Planning
A process for identifying and developing employees with the potential to fill key business leadership positions within the Company are key to future success. Succession planning increases the availability of experienced and capable employees that are prepared to assume these critical roles as they become available.
Performance Management
We strongly encourage an ongoing process of communication between a supervisor and an employee throughout the year, in support of accomplishing the strategic objectives of the organization.
Workforce
As of December 31, 2017,2022, the Company had approximately 1,4751,131 employees, 1,282867 located within the AmericasU.S., 43 within Canada, 215 in Europe, and 193 located in Europe.6 within other locations. There were 819527 hourly production workers and 656604 salaried employees. Of the hourly production workers, approximately 146 are44 were represented by unions.
Two collective bargaining agreements covering approximately 24 and 20 employees are scheduled to expire in March 2025, and September 2025, respectively. The Company divested its Track Components division on August 1, 2022, which included the collective bargaining agreement with employees of that business division. The Company has not suffered any major work stoppages during the past five yearsin recent history and considers its relations with its employees to be satisfactory.
Two collective bargaining agreements covering approximately 41 and 77 employees were successfully renegotiated during 2017 and are now scheduled to expire in March 2020 and September 2021, respectively.
Substantially allAll of the Company’s hourly paidand salaried employees are covered by one of the Company’s noncontributory,its defined benefit plans or defined contribution plans. Substantially all of the Company’s salaried employees are covered by defined contribution plans.
Financial Information about Liquidity and Capital Resources
Information concerning the Company’s liquidity and capital resources and the Company’s working capital requirements can be found in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, included herein, which is incorporated by reference into this Item 1.
Financial Information about Geographic Areas
Financial information about geographic areas is set forth in Part II, Item 8, Financial Statements and Supplementary Data, Note 2 Business Segments, to the Consolidated Financial Statements included herein, which is incorporated by reference into this Item 1.
Financial Information about Segments
Financial information about segments is set forth in Part II, Item 8, Financial Statements and Supplementary Data, Note 2 Business Segments, to the Consolidated Financial Statements included herein, which is incorporated by reference into this Item 1.
Code of Ethics
L.B. Foster Company has a legal and ethical conduct policy applicable to all directors and employees, including its Chief Executive Officer, Chief Financial Officer, and Controller.Principal Accounting Officer. This policy is posted on the Company’s website, www.lbfoster.com. The Company intends to satisfy the disclosure requirement regarding certain amendments to, or waivers from, provisions of its policy by posting such information on the Company’s website. In addition, ourthe Company’s ethics hotline can also be used by employees and others for the anonymous communication of concerns about financial controls, human resource concerns, and other reporting matters.
Available Information
The Company makes certain filings with the Securities and Exchange Commission (“SEC”), including its Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and all amendments and exhibits to those reports, available free of charge through its website, www.lbfoster.com, as soon as reasonably practicable after they are filed with the SEC. The SEC maintains an internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. These filings, including the Company’s filings, are also available at the SEC’s Public Reference Roominternet site at 100 F Street N.E. Washington, D.C. 20549 or by calling 1-800-SEC-0330. These filings are also available on the internet at www.sec.gov. The Company’s press releases and recent investor presentations are also available on its website.
Executive Officers of the Registrant
Information concerning the executive officers of the Company is set forth below.
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| | | | | | | | | | | | | |
| Name | | Age | | Position |
Robert P. BauerBrian H. Friedman | | 5944 | | Vice President - Steel Products and Chief Executive OfficerMeasurement |
| Patrick J. Guinee | | 4853 | | Senior Vice President, General Counsel, and Secretary |
John F. KaselPeter D. V. Jones | | 5256 | | Senior Vice President - RailTechnology Services and ConstructionSolutions |
| John F. Kasel | | 57 | | President and Chief Executive Officer |
| Brian H. Kelly | | 5863 | | Senior Vice President - Human Resources and Administration |
| Gregory W. Lippard | | 4954 | | Senior Vice President - Rail Sales and Products and Services |
James P. MaloneyRobert A. Ness | | 5059 | | Vice President - Precast Concrete Products |
| Sean M. Reilly | | 50 | | Corporate Controller and Principal Accounting Officer |
| William M. Thalman | | 56 | | Senior Vice President and Chief Financial Officer and Treasurer |
Christopher T. Scanlon | | 42 | | Controller and Chief Accounting Officer |
| William F. Treacy | | 5863 | | Senior Vice President - Tubular and Energy ServicesChief Growth Officer |
Mr. BauerFriedman was elected Vice President - Steel Products and Chief Executive Officer uponMeasurement in October 2021, having previously served as Vice President - Coatings and Measurement since joining the Company in 2012.May of 2019. Prior to joining the Company, beginningMr. Friedman was employed by ABB Ltd from 2012 to 2019 in 2011, Mr. Bauer previouslyvarious roles including Director Global Product Management and Manufacturing Unit Manager. Previously, he served as President of the Refrigeration Division of the Climate Technologies business of Emerson Electricin various research and development and operations role for Hunter Fan Company a diversified global manufacturing and technology company. From 2002 until 2011, Mr. Bauer served as President of Emerson Network Power’s Liebert Division.from 2001 to 2012.
Mr. Guinee serves as Senior Vice President, General Counsel, and Secretary and was elected Vice President, General Counsel, and Secretary in 2014. Prior to joining the Company, Mr. Guinee served as Vice President - Securities &and Corporate and Assistant Secretary at Education Management Corporation from 2013 to early 2014, and was employed by H. J. Heinz Company from 1997 to 2013, last serving as Vice President - Corporate Governance &and Securities and Assistant Secretary.
Mr. Jones has worked at L.B. Foster since 2010. Mr. Jones was elected Vice President - Technology Services and Solutions in October 2021, having previously served as Vice President - Global Technology and Managing Director of L.B. Foster Rail Technologies (UK) Ltd having held the latter position from 2010 to 2021. Prior to L.B. Foster, Mr. Jones held the position of Managing Director of Portec Rail Products (UK) Ltd from 2006 to 2010.
Mr. Kasel was elected President and Chief Executive Officer in July 2021, having previously served as Senior Vice President and Chief Operating Officer since December 2019, Senior Vice President - Rail and Construction in Septemberfrom 2017 having previously served asto 2019, Senior Vice President - Rail Products and Services sincefrom 2012 to 2017, Senior Vice President - Operations and Manufacturing sincefrom 2005 to 2012, and Vice President - Operations and Manufacturing since 2003.from 2003 to 2005. Mr. Kasel served as Vice President of Operations for Mammoth, Inc., a Nortek company from 2000 to 2003.
Mr. Kelly serves as Senior Vice President - Human Resources and Administration and was elected Vice President - Human Resources and Administration in 2012, having previously served as Vice President, Human Resources since 2006. Prior to joining the Company, Mr. Kelly headed Human Resources for 84 Lumber Company from 2004. Previously, he served as a Director of Human Resources for American Greetings Corp. from 1994 to 2004.
Mr. Lippard was electedserves as Senior Vice President - Rail, Sales and Productswas previously Vice President - Rail Technologies and Services in Septemberfrom 2020 to 2021, Vice President - Rail from January 2020 to November 2020 and Vice President - Rail Products from 2017 having previouslyto 2019. From 2000 to 2017, he served as Vice President - Rail Product Sales since 2000.Sales. Prior to re-joining the Company in 2000, Mr. Lippard served as Vice President - International Trading for Tube City, Inc. from 1998. Mr. Lippard served in various other capacities with the Company sinceafter his initial employment in 1991.
Mr. MaloneyNess was elected Senior Vice President Chief Financial- Precast Concrete Products in January 2021, having previously served as Director, Operations of CXT Precast since June 2020. Previously, Mr. Ness served as the Rail Business Controller beginning from 2012 to 2020 and Division Controller role he had held since his initial employment with the Company in 2006.
Mr. Reilly was appointed Controller and Principal Accounting Officer and Treasurerof the Company in September 2017.January 2022. Prior to joining the Company, Mr. MaloneyReilly most recently served as Vice President of Finance - Metal Cutting Division, at Kennametal, Inc. since April 2019. Prior to that role, Mr. Reilly served in roles of increasing responsibility at Kennametal, Inc., including as Director of Finance - Infrastructure division, from 2016 to 2019; Director of Finance - Integrated Supply Chain and Logistics from 2015 to 2016; Director of Finance - Asia from 2013 to 2015 in Singapore and Earthworks Controller from 2007 to 2012.
Mr. Thalman was appointed Senior Vice President and Chief Financial Officer of First Insight, Inc. from 2014 to 2017. Mr. Maloney served as Vice President - Global Financial Planning and Supply Chain Finance for H. J. Heinzthe Company from 2012 to 2014. He served as Director of Finance from 2009 to 2012 and Controller from 2005 to 2009 for Heinz North American operating unit.
Mr. Scanlon was elected Controller and Chief Accounting Officer in 2012.February 2021. Prior to joining the Company, Mr. ScanlonThalman was employed by Kennametal, Inc. from February 2004 through February 2021, most recently serving as Vice President - Advanced Material Solutions since 2016 and Vice President - Transformation Office since 2019. Prior to these roles, he served as the Online Higher Education Divisionin roles of increasing responsibility, including: Vice President - Finance Infrastructure, Director of Finance - M&A and Planning, Director of Finance – Kennametal Europe, Director of Finance - MSSG Americas, Assistant Corporate Controller, and Director of Education Management Corporation from 2009 to 2012. Mr. Scanlon served as Manager of Central Accounting Services for Bayer Corporation from 2007 until 2009.Financial Reporting.
Mr. Treacy was electedappointed Senior Vice President and Chief Growth Officer in October 2021, and was previously Senior Vice President - Infrastructure Solutions in 2021, Vice President - Infrastructure Solutions from November 2020 to February 2021, Vice President - Tubular and Energy Services in Septemberfrom 2017 havingto 2020. Mr. Treacy previously served as Director of Technology and General Manager, Transit Products within the Rail Products and Services segment since 2013. Prior to joining the Company, Mr. Treacy served as Interim President of Tuthill Vacuum and Blower Systems from 2012 to 2013. Mr. Treacy previously served as General Manager, Crane Vending Solutions for Crane Co. from 2009 to 2011 and was employed by Parker Hannifin from 2000 to 2009, last serving as Vice President of Operations Development.
Officers are elected annually at the organizational meeting of the Board of Directors following the annual meeting of stockholders.
ITEM 1A. RISK FACTORS
Risks and Uncertainties
We operateThe Company operates in a changing environment that involves numerous known and unknown risks and uncertainties that could have a material and adverse effect on ourits business, financial condition, and results of operations. The following risksrisk factors highlight some ofwhat it believes to be the more significantmaterial factors that have affected usthe Company and could affect usit in the future. WeThe Company has grouped the risk factors into five categories for ease of reading, and without any reflection on the importance of, or likelihood of, any particular category. The Company may also be affected by unknown risks or risks that weit currently believebelieves are immaterial. If any one or more such events actually occur, our business, financial condition, and results of operations could be materially and adversely affected. YouOne should carefully consider the following risk factors and other information contained in this Annual Report on Form 10-K and any other risks discussed in our other periodic filings with the SEC before deciding to invest in our common stock.
Business and Operational Risks
Our inability to successfully manage joint ventures,acquisitions, divestitures, and other significant transactions could harm our financial results, business, and prospects.
As part of our business strategy, we mayacquire or divest businesses or assets, enter into strategic alliances and joint ventures, andor make investments to realize anticipated benefits, which are actions that involve a number of inherent risks and uncertainties. Material acquisitions, dispositions, and other strategic transactions involve numerous risks, including, but not limited to:
•we may not be able to identify suitable acquisition candidates, or we may not be able to dispose of assets, at prices we consider attractive;
•we may not be able to compete successfully for identified acquisition candidates, complete future acquisitions or accurately estimate the financial effect of acquisitions on our business;
•future acquisitions may require us to spend significant cash and incur additional debt, resulting in additional leverage;
•we may have difficulty retaining an acquired company’s key employees or clients;
•we may not be able to realize the operating efficiencies, synergies, costs savings, or other benefits expected;
•we may have difficulty integrating acquired businesses, resulting in unforeseen difficulties, such as incompatible accounting, information management or other control systems, or the need to significantly update and improve the acquired business’s systems and internal controls;
•we may assume potential liabilities for actions of the target before the acquisition, including as a result of a failure to comply with applicable laws;
•we may be subject to material indemnification obligations related to any assets that we dispose;
•acquisitions or dispositions may disrupt our business or divert our management from other responsibilities; and
•as a result of an acquisition, we may need to record write-downs from future impairments of intangible assets, which could reduce our future reported earnings.
If these factors limit our ability to integrate the operations of our acquisitions or to execute other strategic transactions successfully or on a timely basis, we may not meet our expectations for future results of operations. In addition, our growth and operating strategies for businesses we acquire may be different from the strategies that such target businesses currently are pursuing. If our strategies are not the proper strategies for a company we acquire or with which we partner, it could have a material adverse effect on our business, financial condition, and results of operations. Further, there can be no assurance that we will be able to maintain or enhance the profitability of any acquired business or consolidate the operations of any acquired business to achieve cost savings.
In addition, there may be liabilities that we fail, or are unable, to discover in the course of performing due diligence investigations on each company or business that we have already acquired or disposed of or may acquire or dispose of in the future. Such liabilities could include those arising from employee benefits contribution obligations of a prior owner or non-compliance with, or liability pursuant to, applicable federal, state, or local environmental requirements by us or by prior owners for which we, as a successor or predecessor owner, may be responsible. In addition, there may be additional costs relating to acquisitions and dispositions including, but not limited to, possible purchase price adjustments. There can be no assurance that rights to indemnification by sellers of assets to us, even if obtained, will be enforceable, collectible or sufficient in amount, scope or duration to fully offset the possible liabilities associated with the business or property acquired. Any such liabilities, individually or in the aggregate, could have a material adverse effect on our business. We can give no assurances that the opportunities will be consummated or that financing will be available. We may not be able to achieve the synergies and other benefits we expect from strategic transactions as successfully or as rapidly as projected, if at all.
Our future performance and market value could cause additional write-downs of long-lived and intangible assets in future periods.
We are required under U.S. generally accepted accounting principles to review intangible assets for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable. Goodwill is required to be tested for impairment at least annually. Factors that may be considered to be a change in circumstances indicating that the carrying value of our intangible assets may not be recoverable include, but are not limited to, a decline in stock price and resulting market capitalization, a significant decrease in the market value of an asset, or a significant decrease in operating or cash flow projections. No impairments of goodwill or long-lived assets were recorded in 2017.
During the third quarter of 2015, we performed an interim goodwill test and concluded that the carrying amounts of the Test and Inspection Services and Precision Measurement Systems business units’ goodwill exceeded the implied fair values of that goodwill. We recognized an aggregate non-cash goodwill impairment charge of $80,337 to write down the carrying values to the implied fair values, of which $69,908 represented the full carrying value of the goodwill related to the Test and Inspection Services business unit and the remaining $10,429 related to the Precision Measurement Systems business unit.
During the second and third quarters of 2016, we performed an interim goodwill test and concluded that the carrying amounts of the Rail Technologies, Protective Coatings, and Precision Measurement Systems business units’ goodwill exceeded the implied fair values of the respective goodwill. We recognized an aggregate non-cash goodwill impairment charges of $61,142 to write down the carrying values to the implied fair values, of which $16,560 represented the full carrying value of goodwill related to the 2013 Ball Winch acquisition and $11,873 represented the remaining carrying value related to the Precision Measurement Systems business unit. We also performed interim long-lived asset recoverability tests during the second and third quarters of 2016 and concluded that the long-lived assets related to the Test and Inspection Services and Precision Measurement Systems business units had carrying values in excess of the asset groups’ fair value. We recognized non-cash definite-lived intangible asset impairment charges of $59,786 to write down the carrying values to the implied fair values, of which $42,982 related to Test and Inspection Services and $16,804 related to Precision Measurement Systems. Finally, in 2016, we recognized $14,956 non-cash tangible long-lived impairment charges related to the carrying value of certain long-lived tangible assets exceeding their fair value, all of which related to Test and Inspection Services.
No assurances can be given that we will not be required to record future significant charges related to tangible or intangible asset impairments.
Our indebtedness could materially adversely affect our business, financial condition, and results of operations and prevent us from fulfilling our obligations.
Our indebtedness could materially adversely affect our business, financial condition, and results of operations. For example, it could:
•require us to dedicate a substantial portion of our cash flows to payments of our indebtedness, which would reduce the availability of our cash flow to fund working capital, capital expenditures, expansion efforts, and other general corporate purposes;
•limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate;
•place us at a competitive disadvantage compared to our competitors that have less debt; and
•limit, among other things, our ability to borrow additional funds for working capital, capital expenditures, or general corporate purposes.
Our inability to comply with covenants in place or our inability to make the required principal and interest payments may cause an event of default, which could have a substantial adverse impact to our business, financial condition, and results of operations. There is no assurance that refinancings or asset dispositions could be effected on a timely basis or on satisfactory terms, if at all, particularly if credit marketProlonged negative economic conditions, deteriorate. Furthermore, there can be no assurance that refinancings or asset dispositions would be permitted by the terms of our credit agreements or debt instruments. Our existing credit agreements contain, and any future debt agreements we may enter into may contain, certain financial tests and other covenants that limit our ability to incur indebtedness, acquire other businesses, and may impose various other restrictions. Our ability to comply with financial tests may be adversely affected by changes in economic or business conditions beyond our control, and these covenants may limit our ability to take advantage of potential business opportunities as they arise. We cannot be certain that we will be able to comply with the financial tests and other covenants, or, if we fail to do so, that we will be able to obtain waivers or amended terms from our lenders. An uncured default with respect to one or more of the covenants could result in the amounts outstanding being declared immediately due and payable, which may also trigger an obligation to redeem our outstanding debt securities and repay all other outstanding indebtedness. Any such acceleration of our indebtedness would have a material adverse effect on our business, financial condition, and results of operations.
Prolonged lowvolatile energy prices, and other unfavorable changes in U.S., global, or regional economic and market conditions could adversely affect our business.
We could be adversely impacted by prolonged negative changes in economic conditions affecting either our suppliers or customers, as well as the capital markets. Negative changes in government spending may result in delayed or permanent deferrals of existing or potential projects. No assurances can be given that we will be able to successfully mitigate various prolonged uncertainties, including materials cost variability, delayed or reduced customer orders and payments, and access to available capital resources outside of operations.
In addition, volatile market conditions and lowdepressed energy prices could continue for an extended period, which would negatively affect our business prospects.prospects and reduce profitability. Historically, oil and natural gas prices have been volatile and are subject to fluctuations in response to changes in supply and demand, market uncertainty, a trend toward renewable or alternative energy resources, and a variety of additional factors that are beyond our control. Sustained declines or significant and frequent fluctuations in the price of oil and natural gas may have a material and adverse effect on our operations and financial condition.
Our ability to maintain or improve our profitability could be adversely impacted by cost pressures.
Our profitability is dependent upon the efficient use of our resources. Rising inflation, labor costs, labor disruptions, and other increases in costs due to tariffs or other reasons in the geographic areas in which we operate could have a significant adverse impact on our profitability and results of operations.
Management projections, estimates, During 2022 and judgments may not be indicative of our future performance.
Our management is required to use certain estimates2021, the Company experienced increased costs in preparing our financial statements, including accounting estimates to determine reserves related to litigation, deferred tax assets,labor and the fair market value of certain assets and liabilities. Certain asset and liability valuations are subject to management’s judgment and actual results are influenced by factors outside our control.
We are required to maintainmaterials as a valuation allowance for deferred tax assets and record a charge to income and equity if we determine, based on available evidence at the time the determination is made, that it is more likely than not that some portion or allresult of the deferred tax assetsinflationary environment, competitive labor market, and supply chain constraints, which adversely impacted the Company’s profitability. We expect that these adverse impacts will not be realized. This evaluation process involves significant management judgment about assumptions that are subject to change from period to period. The use of different estimates can result in changes in the amounts of deferred tax items recognized, which can result in equity and earnings volatility because such changes are reported in current period earnings. See Part II, Item 8, Financial Statements and Supplementary Data, Note 14 Income Taxes, to the Consolidated Financial Statements included herein, for additional discussion of our deferred taxes.
Our business operates in highly competitive markets and a failure to react to changing market conditions could adversely impact our business.
We face strong competition in each of the markets in which we participate. A slow response to competitor pricing actions and new competitor entries into our product lines could negatively impact our overall pricing. Efforts to improve pricing could negatively impact our sales volume in all product categories. We may be required to invest more heavily to maintain and expand our product offerings. There can be no assurance that new product offerings will be widely accepted in the markets we serve. Significant negative developments in any of these areas could adversely affect our financial results and condition.
Ifcontinue but we are unable to protect our intellectual property and prevent its improper use by third parties, our ability to compete may be harmed.
We own a number of patents and trademarks underpredict the intellectual property lawsextent, nature, or duration of the United States, Canada, Europe,impacts on our results of operations and other countries where product sales are possible. However, we have not perfected patent and trademark protectionfinancial condition at this time.
Our success is in part dependent on the accuracy and proper utilization of our management information and communications systems.
We are currently working through an enterprise resource programplanning (“ERP”) system transition. Certain divisions of our Company migrated into the new ERP system during 2016, while certain otheradditional divisions may be transitionedhave since migrated, including during 20182022. We also began the implementation of a global financial planning and subsequent years.consolidation system during 2021 that became operational in 2022. The system implementation isimplementations are intended to enable us to better meet the information requirements of our users, increase our integration efficiencies, and identify additional synergies in the future. The implementation of our ERP system is complex because of the wide range of processes and systems to be integrated across our business. Project delays, business interruptions, or loss of expected benefits could have a material adverse effect on our business, financial condition, or results of operations. Any disruptions, delays, or deficiencies in the design, operation, or implementation of our various systems, or in the performance of our systems, particularly any disruptions, delays, or deficiencies that impact our operations, could adversely affect our ability to effectively run and manage our business, including our ability to receive, process, ship, and bill for orders in a timely manner or our ability to properly manage our inventory or accurately present our inventory availability or pricing. Project delays, business interruptions, or loss of expected benefits could have a material and adverse effect on our business, financial condition, or results of operations.
We are subject to cybersecurity risks and may incur increasing costs in an effort to minimize those risks.
Our business employs systems and websites that allow for the storage and transmission of proprietary or confidential information regarding our customers, employees, job applicants, and other parties, including financial information, intellectual property, and personal identification information. Security breaches and other disruptions could compromise our information, expose us to liability, and harm our reputation and business. TheIn October 2020, we experienced a cyber-attack on our information technology systems. While the cyber-attack caused temporary disruption and interference with our operations, it did not result in a material adverse effect on our business operations. Despite the steps we take to deter and mitigate thesecybersecurity risks, we may not be successful. We may not have the resources or technical sophistication to anticipate or prevent current or rapidly evolving types of cyber-attacks.cyber-attacks including data and security breaches, malware, ransomware, hacking, and identity theft. Data and security breaches can also occur as a result of non-technical issues, including an intentional or inadvertent breach by our employees or by persons with whom we have commercial relationships. Federal, state, and foreign government bodies and agencies have adopted or are considering the adoption of laws and regulations regarding the collection, use, and disclosure of personal information obtained from customers and individuals. The costs of compliance with, and other burdens imposed by, such data privacy laws and regulations, including those of the European Union (“E.U.”) and the U.K. which are, in some respects, more stringent than U.S. standards, could be significant. Any compromise or breach of our security, including from the cyber-attack that we experienced or any future attack, could result in a violation of applicable privacy and other laws, legal and financial exposure, negative impacts on our customers’ willingness to transact business with us, and a loss of confidence in our security measures, which could have an adverse effect on our results of operations and our reputation.
We are dependent upon key customers.
We could be adversely affected by changes in the business or financial condition of a customer or customers. A prolonged decrease in capital spending by our railroad customers could negatively impact our sales and profitability. As a result of the ongoing litigation and termination of the amended 2005 concrete tie supply agreement with Union Pacific Railroad (“UPRR”), our CXT Concrete Tie sales to, and new orders from, UPRR have ceased which adversely affected our results beginning in 2015.
No assurances can be given that a significant downturn in the business or financial condition of a current customer, or customers, or potential litigation with a current customer, would not also impact our results of operations and/or financial condition.
An adverse outcome in any pending or future litigation or pending or future warranty claims against the Company or its subsidiaries or our determination that a customer has a substantial product warranty claim could negatively impact our financial results and/or our financial condition.
We are party to various legal proceedings. In addition, from time to time our customers assert claims against us relating to the warranties which apply to products we sell. There is the potential that a result materially adverse to us or our subsidiaries in pending or future legal proceedings or pending or future product warranty claims could materially exceed any accruals we have established and adversely affect our financial results and/or financial condition. In addition, we could suffer a significant loss of business from a customer who is dissatisfied with the resolution of a warranty claim. For example, UPRR terminated our amended 2005 concrete tie supply agreement over allegedly defective ties and reduced new orders for other products which negatively affected our results beginning in 2015.
In January 2015, UPRR filed a lawsuit against the Company asserting that we were in material breach of our amended 2005 concrete tie supply agreement with UPRR due to claimed failures to provide warranty ties to replace alleged defective concrete ties. UPRR seeks various types of relief including incidental, consequential, and other damages in amounts to be determined at trial under various legal theories. See Part II, Item 8, Financial Statements and Supplementary Data, Note 19 Commitments and Contingent Liabilities, to the Consolidated Financial Statements included herein, for additional information regarding UPRR’s lawsuit.
We continue to work with UPRR in an attempt to reach a resolution on this matter. However, such discussions may not be successful, and the results of litigation and any settlement or judgment amounts resulting from this matter may not be within the range of our estimated accrual. Consequently, while we believe the claims in the UPRR lawsuit are without merit, and we intend to vigorously defend ourselves and have asserted a counterclaim for damages in the UPRR lawsuit, an adverse outcome could result in a substantial judgment against us that could have a material adverse effect on our financial condition, results of operations, liquidity, and capital resources. No assurances can be given that prior to any settlement or judgment, we will not recognize additional material charges because our warranty reserve accrual for UPRR is based upon our current estimate of the number of defective concrete ties that need to be replaced and facts could emerge which would cause us to materially increase this estimate.
A portion of our sales are derived from our international operations, which expose us to certain risks inherent in doing business on an international level.
Doing business outside the United States subjects the Company to various risks, including changing economic and political conditions, work stoppages, exchange controls, currency fluctuations, armed conflicts, and unexpected changes in United States and foreign laws relating to tariffs, trade restrictions, transportation regulations, foreign investments, and taxation. Increasing sales to foreign countries exposes the Company to increased risk of loss from foreign currency fluctuations and exchange controls as well as longer accounts receivable payment cycles. We have little control over most of these risks and may be unable to anticipate changes in international economic and political conditions and, therefore, unable to alter our business practices in time to avoid the adverse effect of any of these possible changes.
Changes in exchange rates for foreign currencies may reduce international demand for our products or increase our labor or supply costs in non-U.S. markets. Fluctuations in the relative values of the United States dollar, Canadian dollar, British pound, and Euro may result in volatile earnings to reflect exchange rate translation in our Canadian and European sales and operations. If the United States dollar strengthens in value as compared to the value of the Canadian dollar, British pound, or Euro, our reported earnings in dollars from sales in those currencies will be unfavorable. Conversely, a favorable result will be reported if the United States dollar weakens in value as compared to the value of the Canadian dollar, British pound, or Euro.
Economic conditions and regulatory changes caused by the United Kingdom’s pending exit from the European Union could adversely affect our business.
In June 2016, the United Kingdom (“U.K.”) held a referendum in which voters approved an exit from the European Union (“E.U.”), commonly referred to as “Brexit”. The U.K. government has initiated a process to withdraw from the E.U. and has begun negotiating the terms of its separation. Since the announcement of Brexit, there has been volatility in currency exchange rate fluctuations between the U.S. dollar relative to the U.K. pound. The announcement of Brexit and pending withdrawal of the U.K. from the E.U. may also create market volatility and could continue to contribute to instability in global financial and foreign exchange markets, political institutions, and regulatory agencies. The majority of our U.K. operations are heavily concentrated within the U.K. borders; however, this could adversely affect the future growth of our U.K. operations into other European locations. Our U.K. operations represented approximately 10% of our total revenue for the twelve-month periods ended December 31, 2017, 2016, and 2015.
Material modification to NAFTA and certain other international trade agreements could affect our business, financial condition, and results of operations.
The current Presidential administration has made comments suggesting it is not supportive of certain international trade agreements, including the North American Free Trade Agreement (“NAFTA”). At this time, it remains unclear what the current administration and Congress would or would not do with respect to these international trade agreements. While the Company is a net exporter out of the United States, potential material modifications to NAFTA, or certain other international trade agreements, may adversely impact our business, financial condition, and results of operations.
Violations of foreign governmental regulations, including the U.S. Foreign Corrupt Practices Act and similar worldwide anti-corruption laws, could result in fines, penalties, and criminal sanctions against the Company, its officers, or both and could adversely affect our business.
Our foreign operations are subject to governmental regulations in the countries in which we operate as well as U.S. laws. These include regulations relating to currency conversion, repatriation of earnings, taxation of our earnings and the earnings of our personnel, and the increasing requirement in some countries to make greater use of local employees and suppliers, including, in some jurisdictions, mandates that provide for greater local participation in the ownership and control of certain local business assets.
The U.S. Foreign Corrupt Practices Act and similar other worldwide anti-corruption laws, such as the U.K. Bribery Act, prohibit improper payments for the purpose of obtaining or retaining business. Although we have established an internal control structure, corporate policies, compliance, and training processes to reduce the risk of violation, we cannot ensure that these procedures protect us from violations of such policies by our employees or agents. Failure to comply with applicable laws or regulations could subject us to fines, penalties, and suspension or debarment from contracting. Events of non-compliance could harm our reputation, reduce our revenues and profits, and subject us to criminal and civil enforcement actions. Violations of such laws or allegations of violation could disrupt our business and result in material adverse results to our operating results or future profitability.
Certain divisions of our business depend on a small number of suppliers. The loss of any such supplier could have a material and adverse effect on our business, financial condition, and result of operations.
In our Rail Products businesses,business unit, we rely on a limited number of suppliers for key products that we sell to our customers. In addition, our Piling business is predominantly dependent upon one supplier for sheet piling while ourOur Protective Coatings businessdivision is predominately dependent on two suppliers of epoxy coating. A significant downturn in the business of one or more of these suppliers, a disruption in their manufacturing operations, an unwillingness to continue to sell to us, or a disruption in the availability of existingrail or coating products and new piling and rail productsservices may adversely impact our financial results.
Fluctuations in the price, quality, and availability of the primary raw materials used in our business could have a material and adverse effect on our operations and profitability.
MostMany of our businesses utilize steel as a significant product component. The steel industry is cyclical and prices and availability are subject to these cycles, as well as to international market forces. We also use significant amounts of cement and aggregate in our CXT Concrete Tiesprecast products and Precast Concrete Products businesses.ties offerings. Our technology based solutions and services are dependent on electronic components and the ability to source these items. During 2022, the Company experienced increased raw material costs due to supply chain constraints and the inflationary environment. No assurances can be given that our financial results would not be adversely affected if prices or availability of these materials were to change in a significantly unfavorable manner.
Labor disputes may have a material and adverse effect on our operations and profitability.
FourTwo of our manufacturing facilities are staffed by employees represented by labor unions. Approximately 14644 employees employed at these facilities are currently working under threetwo separate collective bargaining agreements. Disputes with regard to the terms of these agreements or our potential inability to renegotiate acceptable contracts with these unions could result in, among other things, strikes, work stoppages, slowdowns, or lockouts, which could cause a disruption of our operations and have a material and adverse effect on our results of operations, financial condition, and liquidity.
Actions of activist shareholders could be disruptive and potentially costly and the possibility that activist shareholders may seek changes that conflict with our strategic direction could cause uncertainty about the strategic direction of our business.
In February 2016, the Company entered into an agreement with an activist investor, Legion Partners Asset Management, LLC and various of its affiliates (collectively, “Legion Partners”) that had filed a Schedule 13D with the SEC with respect to the Company. Pursuant to that agreement, the Company agreed to appoint a representative of Legion Partners to the Company’s Board of Directors and Legion Partners agreed to various standstill provisions and to vote for the Company’s director nominees at the Company’s 2016 and 2017 Annual Meetings of Shareholders. This agreement expired by its terms on February 13, 2018.
Although our agreement with Legion Partners expired by its terms in February 2017, activistActivist investors may attempt to effect changes in the Company’s strategic direction and how the Company is governed, or to acquire control over the Company. Some investors seek to increase short-term shareholder value by advocating corporate actions, such as financial restructuring, increased borrowing, special dividends, stock repurchases, or even sales of assets or the entire company.
While the Company welcomes varying opinions from all shareholders, activist campaigns that contest or conflict with our strategic direction could have an adverse effect on the Company’s results of operations and financial condition, as responding to proxy contests and other actions by activist shareholders can disrupt our operations, be costly and time-consuming, and divert the attention of the Company’s board and senior management from the pursuit of business strategies. In addition, perceived uncertainties as to our future direction as a result of changes to the composition of our Board may lead to the perception of a change in the direction of the business, instability or lack of continuity, which may be exploited by our competitors, may cause concern to our current or potential customers, may result in the loss of potential business opportunities and may make it more difficult to attract and retain qualified personnel and business partners. These types of actions could cause significant fluctuations in our stock price based on temporary or speculative market perceptions or other factors that do not necessarily reflect the underlying fundamentals and prospects of our business.
Our success is highly dependent on the continued service and availability of qualified personnel.
Much of our future success depends on the continued availability and service of key personnel, including our Chief Executive Officer, the executive team, and other highly skilled employees. As a result of the pandemic, the Company is experiencing a tight labor market which has constricted the labor pool and driven up labor costs as we compete for talent. Changes in demographics, training requirements, and the availability of qualified personnel could negatively affect our ability to compete and lead to a reduction in our profitability.
A pandemic could continue to adversely affect our business.
The COVID-19 pandemic is adversely affecting, and any future pandemics could adversely affect, our operations and supply chains and we have experienced and expect to continue to experience unpredictable reductions in demand for certain of our products and services. If we do not successfully manage our supply chain or identify new sources of supplies, we may be unable to satisfy customer orders, which could harm our reputation and customer relationships and materially adversely affect our business, financial condition, and operating results. Though we have implemented and enhanced safety measures and protocols in accordance with local government orders, a pandemic-related outbreak at any one of our facilities could result in production delays or otherwise interrupt our operations. While the COVID-19 pandemic has adversely affected each of the markets we serve, the impact on the midstream energy markets has been particularly adverse, and has contributed to volatility in the prices of oil and natural gas, weakened demand, and reduced customer spending. In the rail, transit, friction management, and fabricated steel products businesses, governmental stay-at-home orders and government and business work-from-home orders and arrangements in the U.S. and globally, particularly in the U.K., have resulted in reduced traffic and demand for our products and services, and many public works projects have been deferred or delayed as a result of governmental pandemic mitigation efforts, adversely impacting our businesses. U.S. and non-domestic governmental and private pandemic mitigation measures such as stay-at-home orders have slowed travel and movement of goods throughout the world, contributing to a reduction in demand for our products and services. Such measures have also contributed to a tight labor market which in turn adversely impacts our supply chain. We expect that these adverse impacts will continue but we are unable to predict the extent, nature, or duration of the impacts on our results of operations and financial condition at this time.
We may not foresee or be able to control certain events that could adversely affect our business.
Unexpected events, including fires or explosions at our facilities, natural disasters, such as hurricanes, flooding, and winter storms causing power failures or travel restrictions with respect to our operations, armed conflicts, terrorism, health epidemics or pandemics, such as COVID-19, and related restrictions on travel, economic or political uncertainties or instability, civil unrest, strikes, unplanned outages, equipment failures, failure to meet product specifications, or a disruptiondisruptions in certain areas of our operations, may cause our operating costs to increase or otherwise negatively impact our financial performance.
Competitive Risks
Our business operates in highly competitive markets and a failure to react to changing market conditions could adversely impact our business.
We face strong competition in each of the markets in which we operate. A slow response to competitor pricing actions and new competitor entries into our product lines could negatively impact our overall pricing. Efforts to improve pricing could negatively impact our sales volume in all product categories. We may be required to invest more heavily to maintain and expand our product offerings. There can be no assurance that new product offerings will be widely accepted in the markets we serve. Significant negative developments in any of these areas could adversely affect our financial results and condition.
If we are unable to protect our intellectual property and prevent its improper use by third parties, our ability to compete may be harmed.
We possess and in some cases license intellectual property including proprietary rail product and precast concrete formulations and systems and component designs, and we own a number of patents and trademarks under the intellectual property laws of the U.S., Canada, Europe, and other countries in which product sales are possible. While we have not perfected patent and trademark protection of our proprietary intellectual property for all products in all countries, we periodically assess our portfolio to determine the need for pursuing further protection. The decision not to obtain patent and trademark protection in additional countries may result in other companies copying and marketing products that are based upon our proprietary intellectual property. This, and failure to continue such licenses, could impede growth into new markets where we do not have such protections and result in a greater supply of similar
products in such markets, which in turn could result in a loss of pricing power and reduced revenue. In some cases, we may decide that the best way to protect our intellectual property is to retain proprietary information as trade secrets and confidential information rather than to apply for patents, which would involve disclosure of proprietary information to the public. Any misappropriation or reverse engineering of our trade secrets could result in competitive harm and may result in costly and time-consuming litigation. If any of these events should occur, it could materially adversely affect our results of operations and financial condition.
We are dependent upon key customers.
We could be adversely affected by changes in the business or financial condition of a customer or customers. A prolonged decrease in capital spending by our rail customers or decline in sales orders from other customers could negatively impact our sales and profitability. No assurances can be given that a significant downturn in the business or financial condition of a current customer, or customers, or potential litigation with a current customer, would not also impact our future results of operations and/or financial condition.
Financial Risks
Our future performance and market value could cause write-downs of long-lived and intangible assets in future periods.
We are required under U.S. generally accepted accounting principles to review intangible and long-lived assets for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable. In addition, goodwill is required to be tested for impairment at least annually. Factors that may cause the carrying value of our intangible and long-lived assets to not be recoverable include, but are not limited to, a decline in stock price and resulting market capitalization, a significant decrease in the market value of an asset, or a significant decrease in operating or cash flow projections. In 2022, the Company recorded goodwill impairment related to its Fabricated Bridge reporting unit. No impairments of goodwill or intangible assets were recorded in 2021. Impairment charges were recorded on long-lived assets related to the Company's precision measurement products and systems business during 2022 and the since divested IOS Test and Inspection Services business during 2020.
No assurances can be given that we will not be required to record future significant charges related to tangible or intangible asset impairments.
Our indebtedness could materially and adversely affect our business, financial condition, and results of operations and prevent us from fulfilling our obligations.
Our indebtedness could materially and adversely affect our business, financial condition, and results of operations. For example, it could:
•require us to dedicate a substantial portion of our cash flows to service our indebtedness, which would reduce the availability of our cash flows to fund working capital, capital expenditures, expansion efforts, or other general corporate purposes;
•limit our flexibility in planning for, or reacting to, changes in our business and the industries in which we operate;
•place us at a competitive disadvantage compared to our competitors that have less debt; and
•limit, among other things, our ability to borrow additional funds for working capital, capital expenditures, acquisitions, or other general corporate purposes.
Our inability to comply with covenants in place or our inability to make the required principal and interest payments may cause an event of default, which could have a substantial adverse impact to our business, financial condition, and results of operations. There is no assurance that refinancing or asset dispositions could be effected on a timely basis or on satisfactory terms, if at all, particularly if credit market conditions deteriorate. Furthermore, there can be no assurance that refinancing or asset dispositions would be permitted by the terms of our credit agreements or debt instruments. Our existing credit agreements contain, and any future debt agreements we may enter into may contain, certain financial tests and other covenants that limit our ability to incur indebtedness, acquire other businesses, and any such future debt agreements may impose various other restrictions. Our ability to comply with financial tests may be adversely affected by changes in economic or business conditions beyond our control, and these covenants may limit our ability to take advantage of potential business opportunities as they arise. We cannot be certain that we will be able to comply with the financial tests and other covenants, or, if we fail to do so, that we will be able to obtain waivers or amended terms from our lenders. An uncured default with respect to one or more of the covenants could result in the amounts outstanding being declared immediately due and payable, which may also trigger an obligation to redeem our outstanding debt securities and repay all other outstanding indebtedness. Any such acceleration of our indebtedness would have a material and adverse effect on our business, financial condition, and results of operations.
The phase-out of LIBOR and transition to SOFR as a benchmark interest rate will have uncertain and possibly adverse side effects.
In advance of the cessation of the London Interbank Offered Rate (“LIBOR”) on June 30, 2023, 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 also provided for the conversion from LIBOR-based to be based on the Secured Overnight Financing Rate (“SOFR”). Due to the broad use of LIBOR as a reference rate, the impact of this transition to SOFR could adversely affect our financing costs, including spread pricing on our senior secured facilities and any other variable rate debt obligations, as well as our operations and cash flows. There is no guarantee that the transition from LIBOR to SOFR will not
result in financial market disruptions, significant increases in benchmark rates, or borrowing costs to borrowers, any of which could affect our interest expense and earnings and may have an adverse effect on our business, results of operations, financial condition, and stock price. Whether or not SOFR attains market acceptance as a LIBOR replacement tool remains uncertain.
Legal, Tax, and Regulatory Risks
An adverse outcome in any pending or future litigation or pending or future warranty claims against the Company or its subsidiaries or our determination that a customer has a substantial product warranty claim could negatively impact our financial results and/or our financial condition.
We are party to various legal proceedings. In addition, from time to time our customers assert claims against us relating to the warranties which apply to products we have sold. There is the potential that an outcome adverse to us or our subsidiaries in pending or future legal proceedings or pending or future product warranty claims could materially exceed any accruals we have established and adversely affect our financial results and/or financial condition. In addition, we could suffer a significant loss of business from a customer who is dissatisfied with the resolution of a warranty claim.
Violations of the U.S. Foreign Corrupt Practices Act and similar worldwide anti-corruption laws and other foreign governmental regulations, could result in fines, penalties, and criminal sanctions against the Company, its officers, or both and could have a material and adverse effect on our business.
The U.S. Foreign Corrupt Practices Act and other similar worldwide anti-corruption laws, such as the U.K. Bribery Act, prohibit improper payments for the purpose of obtaining or retaining business. Although we have established an internal control structure, corporate policies, compliance, and training processes to reduce the risk of violation, we cannot ensure that these procedures protect us from violations of such policies by our employees or agents. Failure to comply with applicable laws or regulations could subject us to fines, penalties, and suspension or debarment from contracting. Events of non-compliance could harm our reputation, reduce our revenues and profits, and subject us to criminal and civil enforcement actions. Violations of such laws or allegations of violation could disrupt our business and result in material adverse results to our operating results or future profitability.
Our foreign operations are subject to governmental regulations in the countries in which we operate, as well as U.S. laws. These regulations include those related to currency conversion, repatriation of earnings, taxation of our earnings and the earnings of our personnel, and the increasing requirement in some countries to make greater use of local employees and suppliers, including, in some jurisdictions, mandates that provide for greater local participation in the ownership and control of certain local business assets.
Our ability to use our net operating loss carryforwards and certain other tax attributes may be limited.
We have certain tax attributes, including U.S. federal, state and foreign operating loss carryforwards, and federal research and development credits, which may be available to offset future taxable income in certain jurisdictions. Realization of these net operating loss and research and development credit carryforwards depends on future income, and there is a risk that certain of our existing carryforwards could expire unused and be unavailable to offset future income tax liabilities, which could adversely affect our operating results and financial condition.
In addition, under Sections 382 and 383 of the Internal Revenue Code, if a corporation undergoes an “ownership change,” generally defined as a greater than 50% change (by value) in ownership by “5 percent shareholders” over a rolling three-year period, the corporation’s ability to use its pre-change net operating loss carryovers and other pre-change tax attributes, such as research and development credits, to offset its post-change income or taxes may be limited. Similar rules apply under U.S. state tax laws. We have, and may in the future, experience ownership changes as a result of shifts in our stock ownership. As a result, if we earn net taxable income, our ability to use our pre-change U.S. net operating loss carryforwards to offset U.S. federal taxable income may be subject to limitations, which could potentially result in increased future tax liability to us.
Changes in our tax rates or exposure to additional income tax liability could impact our profitability and management projections, estimates, and judgments, particularly with respect to reserves for litigation, deferred tax assets, and the fair market value of certain assets and liabilities, may be inaccurate and not be indicative of our future performance.
Our management team is required to use certain estimates in preparing our financial statements, including accounting estimates to determine reserves related to litigation, deferred tax assets, and the fair market value of certain assets and liabilities. Certain asset and liability valuations are subject to management’s judgment and actual results are influenced by factors outside our control.
We are required to maintain a valuation allowance for deferred tax assets and record a charge to income if we determine, based on evidence available at the time the determination is made, that it is more likely than not some portion or all of the deferred tax assets will not be realized. This evaluation process involves significant management judgment about assumptions that are subject to change from period to period. The use of different estimates can result in changes in the amount of deferred taxes recognized, which can result in earnings volatility because such changes are reported in current period earnings. See Part II, Item 8, Financial Statements and Supplementary Data, Note 14 to the Consolidated Financial Statements, contained in this Annual Report on Form 10-K, for additional discussion of our deferred taxes.
Shifting federal, state, local, and foreign regulatory policies impose risks to our operations.
We are subject to regulation by federal, state, local, and foreign regulatory agencies. Weagencies and are therefore subject to a variety of legal proceedings and compliance risks, including those described in Item 3 - Legal Proceedings and in Part II, Item 8, Financial
Statements and Supplementary Data, Note 18 to the Consolidated Financial Statements, contained in this Annual Report on Form 10-K. Like other companies engaged in environmentally sensitive businesses, we are required to comply with numerous laws and regulations, including environmental matters relating to, among other things, the treatment, disposal, and storage of wastes, investigation and remediation of contaminated soil and groundwater, the discharge of effluent into waterways, and the emissions of substances into the air. We are required to obtain numerousvarious authorizations, permits, approvals, and certificates from governmental agencies. The Company could be subject to liability with respect to remediation of past contamination in the operation of some of its current and former facilities and remediation of contamination by former owners or operators of the Company’s current or former facilities. Compliance with emerging regulatory initiatives, delays, discontinuations, or reversals of existing regulatory policies in the markets in which we operate, including costs associated with any required environmental remediation and monitoring, could have an adverse effect on our business, results of operations, cash flows, and financial condition.
The Tax Cuts and Jobs Act (the “Act”) was enacted on December 22, 2017. The Act reduces the U.S. federal corporate tax rate from 35% to 21%, requires companies to pay a one-time transition tax on previously deferred earnings of certain foreign subsidiaries, and creates new taxes on certain foreign sourced earnings. Our 2017 financial results include a provisional tax expense of $3,298 related to the one-time transition tax, partially offset by a provisional$1,508 tax benefit related to the remeasurement of certain deferred tax assets and liabilities. We will continue to refine our provisional tax amounts during 2018, as we gain a more thorough understanding of the tax law, as further guidance is issued, and as we evaluate our income tax accounting policies with regard to certain provisions of the Act.
A substantial portion of our operations areis heavily dependent on governmental funding of infrastructure projects. Many of these projects have “Buy America” or “Buy American” provisions. Significant changes in the level of government funding of these projects could have a favorable or unfavorable impact on our operating results. Additionally, government actions concerning “Buy America” provisions, taxation, tariffs, the environment, or other matters could impact our operating results.
Government actions in the U.S. or other countries where we have a higher concentration of business may change tax policy, trade policy, or enact other legislation that could create an unfavorable environment for the Company, making it more difficult to compete or adversely impact our operating results.
The United States-Mexico-Canada Trade Agreement (“USMCA”) and certain other international trade agreements could affect our business, financial condition, and results of operations.
On July 1, 2020, the USMCA became effective, replacing the North American Free Trade Agreement. It is uncertain how the USMCA will impact foreign trade and our international operations. However, given the amount of North American trade that moves by truck and rail, it could have a significant impact on supply and demand for the raw materials that we use in manufacturing processes and for finished goods in the markets we serve, and could adversely impact the amount, movement, and patterns of products that we ship. Potential material modifications to USMCA, or certain other international trade agreements, including with respect to the modification of trade agreements with or among the E.U. and the U.K., may have a material adverse effect on our business, financial condition, and results of operations.
Legislative or regulatory initiatives related to climate change could have a material adverse effect on our business.
Greenhouse gases may have an adverse effect on global temperatures, weather patterns, and the frequency and severity of extreme weather and natural disasters. Such events could have a negative effect on our business. Concern over climate change may result in new or additional legislative and regulatory requirements to reduce or mitigate the effects of climate change on the environment, which could result in future tax, transportation cost, and utility increases. Moreover, natural disasters and extreme weather conditions may impact the productivity of our facilities, the operation of our supply chain, or consumer buying patterns. Any of these risks could have a material adverse effect on our business.
International Risks
A portion of our sales are derived from our international operations, which expose us to certain risks inherent in doing business on an international level.
Doing business outside the U.S. subjects the Company to various risks, including changing economic and political conditions, work stoppages, exchange controls, currency fluctuations, armed conflicts, and unexpected changes in U.S. and foreign laws relating to tariffs, trade restrictions, transportation regulations, foreign investments, and taxation. Increasing sales to foreign countries, including Brazil, Canada, China, India, Mexico, the U.K., and countries within the E.U., expose the Company to increased risk of loss from foreign currency fluctuations and exchange controls as well as longer accounts receivable payment cycles. We have little control over most of these risks and may be unable to anticipate changes in international economic and political conditions and, therefore, be unable to alter our business practices in time to avoid the adverse effect of any of these possible changes.
Changes in exchange rates for foreign currencies may reduce international demand for our products or increase our labor or supply costs in non-U.S. markets. Fluctuations in the relative values of the U.S. dollar, Canadian dollar, British pound, and Euro may result in volatile earnings that reflect exchange rate translation in our Canadian and European sales and operations. If the U.S. dollar strengthens in value as compared to the value of the Canadian dollar, British pound, or Euro, our reported earnings in dollars from sales in those currencies will be unfavorable. Conversely, a favorable result will be reported if the U.S. dollar weakens in value as compared to the value of the Canadian dollar, British pound, or Euro.
Economic conditions and regulatory changes caused by the United Kingdom’s exit from the European Union could adversely affect our business.
Pursuant to a June 2016 referendum, the U.K. left the E.U. on January 31, 2020, commonly referred to as “Brexit.” The U.K. government and the E.U. operated under a transitional arrangement that expired on December 31, 2020. The EU-UK Trade and Cooperation Agreement was agreed in principle and became provisionally operative on January 1, 2021, and formally in force on May 1, 2021, and terms of this new relationship between the U.K. and the E.U. remains subject to uncertainties. There has been volatility in
currency exchange rate fluctuations between the U.S. dollar relative to the British pound, which could continue. The withdrawal of the U.K. from the E.U. has also created market volatility and could continue to contribute to instability in global financial and foreign exchange markets, political institutions, and regulatory agencies as negotiations of trade deals between the U.K. and the E.U., and also between the U.K. and other countries, possibly including the U.S., occur during the near future. Brexit is an unprecedented event, and, accordingly, it is unclear what long-term economic, financial, trade, and legal effects will result.
The majority of our U.K. operations are heavily concentrated within the U.K. borders; however, this could adversely affect the future growth of our U.K. operations into other European locations. Our U.K. operations represented approximately 9% and 11% of our total revenue for the years ended December 31, 2022 and 2021, respectively. During the years ended December 31, 2022 and 2021 less than 1% of our consolidated net revenue was from the U.K. operation’s sales exported to E.U. members.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
The location and general description of the principal properties whichthat are owned or leased by L.B. Fosterthe Company, together with the segment of the Company’s business using such properties, are set forth in the following table:
| | | Location | | Function | | Acres | | Business Segment | | Lease
Expiration | Location | | Function | | Acres | | Business Segment | | Lease Expiration |
| Bedford, PA | | Bridge component fabricating plant | | 16 | | Construction | | Owned | Bedford, PA | | Bridge component fabricating plant | | 16 | | Steel Products and Measurement | | Owned |
| Birmingham, AL | | Protective coatings facility | | 32 | | Tubular and Energy | | 2022 | Birmingham, AL | | Protective coatings facility | | 32 | | Steel Products and Measurement | | 2027 |
| Burnaby, British Columbia, Canada | | Friction management products plant | | N/A | | Rail | | 2021 | |
| Channelview, TX | | Threading, test, and inspection facility | | 73 | | Tubular and Energy | | Owned | |
| Burnaby, BC, Canada | | Burnaby, BC, Canada | | Friction management products plant | | N/A | | Rail, Technologies, and Services | | 2024 |
| Columbia City, IN | | Rail processing facility and yard storage | | 22 | | Rail | | Owned | Columbia City, IN | | Rail processing facility and yard storage | | 22 | | Rail, Technologies, and Services | | Owned |
| Hillsboro, TX | | Precast concrete facility | | 9 | | Construction | | Owned | Hillsboro, TX | | Precast concrete facility | | 9 | | Precast Concrete Products | | Owned |
| Kimball, NE | | Threading, test, and inspection facility | | 145 | | Tubular and Energy | | Owned | |
| Leming, TX | | Threading, test, and inspection facility | | 63 | | Tubular and Energy | | Owned | |
| Lebanon, TN | | Lebanon, TN | | Precast concrete facility | | 10 | | Precast Concrete Products | | 2028 |
| Loudon, TN | | Loudon, TN | | Precast concrete facility | | 51 | | Precast Concrete Products | | Owned |
| Magnolia, TX | | Threading facility and joint venture manufacturing facility | | 35 | | Tubular and Energy | | Owned | Magnolia, TX | | Threading facility | | 34 | | Steel Products and Measurement | | Owned |
| Morgantown, WV | | Test and inspection facility | | N/A | | Tubular and Energy | | 2018 | |
| Nampa, ID | | Nampa, ID | | Precast concrete facility | | 12 | | Precast Concrete Products | | 2029 |
| Niles, OH | | Rail fabrication, friction management products, and yard storage | | 35 | | Rail | | Owned | Niles, OH | | Rail fabrication, friction management products, and yard storage | | 35 | | Rail, Technologies, and Services | | Owned |
| Petersburg, VA | | Piling storage facility | | 35 | | Construction | | Owned | |
| Nottingham, United Kingdom | | Nottingham, United Kingdom | | Technology solutions manufacturing | | 4 | | Rail, Technologies, and Services | | Owned |
| Pueblo, CO | | Rail joint manufacturing facility | | 9 | | Rail | | Owned | Pueblo, CO | | Rail joint manufacturing facility | | 9 | | Rail, Technologies, and Services | | Owned |
| Saint-Jean-sur-Richelieu, Quebec, Canada | | Rail anchors and track spikes manufacturing plant | | 17 | | Rail | | Owned | |
| Sheffield, United Kingdom | | Track component and friction management products facility | | N/A | | Rail | | 2019 | Sheffield, United Kingdom | | Track component and friction management products facility | | N/A | | Rail, Technologies, and Services | | 2030 |
| Spokane, WA | | CXT concrete tie plant | | 13 | | Rail | | 2018 | |
| Spokane, WA | | Precast concrete facility | | 5 | | Construction | | 2018 | Spokane, WA | | Concrete tie plant | | 13 | | Rail, Technologies, and Services | | 2025 |
| Waverly, WV | | Precast concrete facility | | 85 | | Construction | | Owned | Waverly, WV | | Precast concrete facility | | 85 | | Precast Concrete Products | | Owned |
| Willis, TX | | Protective coatings facility | | 16 | | Tubular and Energy | | Owned | Willis, TX | | Protective coatings facility | | 16 | | Steel Products and Measurement | | Owned |
| Willis, TX | | Measurement services facility | | 68 | | Tubular and Energy | | Owned | Willis, TX | | Measurement services facility | | 13 | | Steel Products and Measurement | | Owned |
Included in the table above are certain facilities leased by the Company for which there is no acreage included in the lease. For these properties a “N/A” has been included in the “Acres” column.
Including the properties listed above, the Company has a total of 17 sales offices, including its headquarters in Pittsburgh, PA, and 3219 warehouses, plants, and yard facilities located throughout the United States,U.S., Canada, Europe, China, and Europe.Brazil. The Company’s facilities are in good condition and suitable for the Company’s business as currently conducted and as currently planned to be conducted.
ITEM 3. LEGAL PROCEEDINGS
Information regarding the Company’s legal proceedings and other commitments and contingencies is set forth in Part II, Item 8, Financial Statements and Supplementary Data, Note 19 Commitments and Contingent Liabilities,18 to the Consolidated Financial Statements, included herein,contained in this Annual Report on Form 10-K, which is incorporated by reference into this Item 3.
ITEM 4. MINE SAFETY DISCLOSURES
This item is not applicable to the Company.
PART II
ITEM 5. MARKET FOR REGISTRANT'SREGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES
Stock Market Information
(Dollars in thousands, except share data unless otherwise noted)
Stock Market Information
The Company had 309305 common shareholders of record on February 21, 2018. Common28, 2023. The number of record holders does not include stockholders who are beneficial owners but whose shares are held in “street name” by brokers and other nominees or persons, partnerships, associates, corporations, or other entities identified in security position listings maintained by depositories. The Company's common stock prices are quoted daily throughis traded on the NASDAQ Global Select Market quotation service (Symbol: FSTR). The following table sets forthunder the range of high and low sales prices per share of our common stock for the periods indicated:
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| | | 2017 | | 2016 |
| Quarter | | High | | Low | | Dividends | | High | | Low | | Dividends |
| First | | $ | 15.86 |
| | $ | 11.80 |
| | $ | — |
| | $ | 18.53 |
| | $ | 8.80 |
| | $ | 0.04 |
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| Second | | 21.95 |
| | 12.15 |
| | — |
| | 20.77 |
| | 10.12 |
| | 0.04 |
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| Third | | 23.25 |
| | 17.00 |
| | — |
| | 12.50 |
| | 9.25 |
| | 0.04 |
|
| Fourth | | 27.45 |
| | 21.15 |
| | — |
| | 15.65 |
| | 9.25 |
| | — |
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Dividends
During 2022 and 2021 the fourth quarter 2016, the Board of Directors decided to suspend the Company’sCompany did not declare any quarterly dividend.dividends.
The Company’s November 7, 2016August 13, 2021 credit facility, as amended, permits it to pay dividends and distributions and to make redemptions with respect to its stock providing no event of default or potential default (as defined in the facility agreement)credit facility) has occurred prior to or after giving effect to the dividend, distribution, or redemption. Dividends, distributions, and redemptions are capped at $1,700 per year when funds are drawn on the facility.
Performance Graph
(In whole dollars)
In 2017, the Company changed its peer group to align it with the Company’s comparator group as used by the Company’s compensation committee to evaluate the Company’s compensation practices. The Company’s 2017 peer group (“2017 Peer Group”) consists of Alamo Group, Inc., American Railcar Industries, Inc., Ampco-Pittsburgh Corporation, CIRCOR International, Inc., Columbus McKinnon Corporation, Gibraltar Industries, Inc., Hawkins, Inc., Haynes International, Inc., Houston Wire & Cable Company, Insteel Industries Inc., Lindsay Corporation, Lydall Inc., Manitex International, Inc., NN Inc., Orion Marine Group, Inc., Quanex Building Products Corporation, Raven Industries Inc., Sterling Construction Co. Inc., and The Gorman-Rupp Company.
Prior to 2017, the Company's peer group (“2016 Peer Group”) consisted of Alamo Group, Inc., AM Castle & Co., American Railcar Industries, Inc., CIRCOR International, Inc., Columbus McKinnon Corporation, Gibraltar Industries, Inc., Houston Wire & Cable Company, Insteel Industries Inc., Lindsay Corporation, Lydall Inc., MYR Group, Inc., NN Inc., Northwest Pipe Co., Olympic Steel Inc., Orion Marine Group, Inc., Quanex Building Products Corporation, Raven Industries Inc., and Sterling Construction Co. Inc.
The following tables compare total shareholder returns for the Company over the last five years to the NASDAQ Composite Index and the peer groups assuming a $100 investment made on December 31, 2012. Each of the four measures of cumulative total return assumes reinvestment of dividends. The stock performance shown on the graph below is not necessarily indicative of future price performance.
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* | $100 invested on 12/31/2012 in stock or index, including reinvestment of dividends. Fiscal year ended December 31. |
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| | | | | | | | | | | | | | | | | | |
| | 12/12 | 12/13 | 12/14 | 12/15 | 12/16 | 12/17 |
| L.B. Foster Company | $ | 100.00 |
| $ | 109.16 |
| $ | 112.41 |
| $ | 31.86 |
| $ | 32.00 |
| $ | 63.89 |
|
| NASDAQ Composite | 100.00 |
| 141.63 |
| 162.09 |
| 173.33 |
| 187.19 |
| 242.29 |
|
| 2017 Peer Group | 100.00 |
| 138.84 |
| 128.55 |
| 109.99 |
| 150.91 |
| 157.39 |
|
| 2016 Peer Group | 100.00 |
| 142.21 |
| 129.37 |
| 110.18 |
| 157.34 |
| 168.61 |
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Securities Authorized for Issuance Under Equity Compensation Plans
The following table sets forth information at December 31, 2017 with respect to compensation plans under which equity securities of the Company are authorized for issuance.
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| Plan Category | | Number of securities to be issued upon exercise of outstanding options, warrants, and rights (a) | | Weighted-average exercise price of outstanding options, warrants, and rights (b) | | Number of securities remaining available for future issuance under equity compensation plans (excluding securities to be issued upon exercise of outstanding options, warrants, or rights) (c) | |
| Equity compensation plans approved by shareholders | | 429,058 |
| (1) | $ | — |
| (2) | 210,332 |
| (3) |
| Equity compensation plans not approved by shareholders | | — |
| | — |
| | — |
| |
| Total | | 429,058 |
| (1) | — |
| (2) | 210,332 |
| (3) |
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(1) | The number of performance share units included in this table reflects an assumed payout at maximum performance achievement. The performance share units were granted under the 2006 Omnibus Incentive Plan and were unvested and unearned at December 31, 2017. |
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(2) | At December 31, 2017, there were no outstanding awards with an exercise price per share. This column does not reflect outstanding performance share units. |
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(3) | Does not include the 429,058 performance share units included in column (a). |
Under the 2006 Omnibus Incentive Plan, as amended and restated in May 2018 (“Omnibus Plan”), and continuing under the 2022 Equity and Incentive Compensation Plan (“Equity and Incentive Plan”) approved by shareholders on June 2, 2022, since May 24, 2006,2018, at each annual meeting of shareholders, where non-employee directors have been automatically awarded shareswere elected or reelected, as part of their compensation, the Company’s common stock as determined bynon-employee members of the Board of Directors at each(“Board”) have received annual shareholder meeting at whichawards of forfeitable restricted shares subject to a one-year vesting requirement from the date of the grant. Prior to that date, such non-employee director is elected or re-elected.directors received fully-vested shares. During 2017,2022, pursuant to the 2006 OmnibusEquity and Incentive Compensation Plan, the Company issued approximately 28,000 fully-vested46,000 shares of the Company’s common stock for the annual non-employee director equity award.award, which shares vest on the one-year anniversary of the date of grant. Commencing in 2020 and ending in December 2021, in addition to the annual restricted stock award, those non-employee directors serving on the Board Strategy Committee were awarded restricted shares on an annual basis subject to a one-year vesting requirement from the date of grant until that committee was disbanded in 2021. During 2017, the Company issued approximately 11,000 shares to certain2022, there were no non-employee directors who elected the option to receive fully-vested shares of the Company’s common stock in lieu of director cash compensation. Through December 31, 2017,2022, there were 223,920approximately 321,000 fully vested shares issued under the 2006 Omnibus Incentive Plan to all non-employee directors.directors who were serving at the time of grant or on the date of vesting of the underlying award. During the quarter ended June 30, 2017, the Nomination and Governance Committee and Board of Directors jointly approved the Deferred Compensation Plan for Non-Employee Directors under the 2006 Omnibus Plan, as amended and restated effective December 1, 2022 pursuant to the 2022 Equity and Incentive Compensation Plan, which permits non-employee directors of the Company to defer receipt of earned cash and/or stock compensation for service on the Board. During 2017,As of December 31, 2022, approximately 27,00046,000 deferred share units were allotted to the accounts of non-employee directors pursuant to the Deferred Compensation Plan for Non-Employee Directors.
The Company grants eligible employees restricted stock and performance unit awards under the 2006Omnibus Plan and Equity and Incentive Omnibus Plan.Plans. The forfeitable restricted stock awards granted prior to March 2015 generally time-vest after a four-year period, and those granted after March 2015 generally time-vest ratably over a three-year period, unless indicated otherwise in the underlying restricted stock award agreement. Performance unit awards are offered annually under separate three-year long-term incentive programs. Performance 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.
With respect to awards made prior to December 31, 2016, the Company will withhold or employees Commencing in 2022, performance units may tender shares ofbe earned annually and converted into performance restricted stock when issued to pay for withholding taxes. units which settle in common stock at the end of the three year program.
Since 2017, the Company will withholdhas withheld shares of restricted stock for satisfaction of tax withholding obligations. During 2017, 2016,2022 and 2015,2021, the Company withheld 7,277, 20,186,27,636 and 25,34045,288 shares, respectively, for this purpose. The values of the shares withheld were $103, $275,$410 and $1,114$732 in 2017, 2016,2022 and 2015,2021, respectively. Awards made since January 1, 2018 provide that the Company will withhold shares of restricted stock to satisfy tax withholding obligations.
Issuer Purchases of Equity Securities
The Company’s purchases of equity securities for the three-month periodthree months ended December 31, 20172022 were as follows:
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| | 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 |
| October 1, 2022 - October 31, 2022 | | — | | | $ | — | | | — | | | $ | — | |
| November 1, 2022 - November 30, 2022 | | — | | | — | | | — | | | — | |
| December 1, 2022 - December 31, 2022 | | 600 | | | 9.35 | | | — | | | — | |
| Total | | 600 | | | $ | 9.35 | | | — | | | $ | — | |
1.Reflects shares withheld by the Company to pay taxes upon vesting of restricted stock.
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| | | 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 |
| October 1, 2017 - October 31, 2017 | | — |
| | $ | — |
| | — |
| | $ | 29,933 |
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| November 1, 2017 - November 30, 2017 | | — |
| | — |
| | — |
| | 29,933 |
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| December 1, 2017 - December 31, 2017 | | — |
| | — |
| | — |
| | 29,933 |
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| Total | | — |
| | $ | — |
| | — |
| | $ | 29,933 |
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(1) | Reflects shares withheld by the Company to pay taxes upon vesting of restricted stock. These shares do not impact the remaining authorization to repurchase shares under approved plans or programs. No such shares were withheld during the three-month period ended December 31, 2017. |
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(2) | On December 9, 2015, the Board of Directors authorized the repurchase of up to $30,000 of the Company’s common shares until December 31, 2017. This authorization became effective January 1, 2016. The $30,000 repurchase authorization is restricted under the terms of the Second Amendment to the Second Amended and Restated Credit Agreement dated March 13, 2015, and as amended by the Second Amendment dated November 7, 2016 (“Second Amendment”). Dividends, distributions, and redemptions under the Second Amendment are capped at a maximum annual amount of $1,700 throughout the life of the repurchase authorization. For the three-month period ended December 31, 2017, there were no share repurchases as part of the authorized program. At December 31, 2017, approximately $29,933 remained of our $30,000 share repurchase program that was announced December 9, 2015. This repurchase program expired December 31, 2017. |
ITEM 6. SELECTED FINANCIAL DATA[RESERVED]
(Dollars in thousands, except per share data)
The following selected financial data has been derived from our audited financial statements. The financial data presented below should be read in conjunction with the information contained in “Management’s Discussion and AnalysisOmitted pursuant to amendments to Item 301 of Financial Condition and Results of Operations” and the Consolidated Financial Statements of the Company and the Notes thereto included elsewhere in this Annual Report on Form 10-K.Regulation S-K effective February 10, 2021.
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| | | Year Ended December 31, |
| Income Statement Data | | 2017 (a) | | 2016 (b) | | 2015 (c) | | 2014 (d) | | 2013 (e) |
| Net sales | | $ | 536,377 |
| | $ | 483,514 |
| | $ | 624,523 |
| | $ | 607,192 |
| | $ | 597,963 |
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Operating profit (loss) (f) | | $ | 15,739 |
| | $ | (5,195 | ) | | $ | 28,760 |
| | $ | 37,082 |
| | $ | 41,571 |
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| Net income (loss) | | $ | 4,113 |
| | $ | (141,660 | ) | | $ | (44,445 | ) | | $ | 25,656 |
| | $ | 29,290 |
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| Basic earnings (loss) per common share | | $ | 0.40 |
| | $ | (13.79 | ) | | $ | (4.33 | ) | | $ | 2.51 |
| | $ | 2.88 |
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| Diluted earnings (loss) per common share | | $ | 0.39 |
| | $ | (13.79 | ) | | $ | (4.33 | ) | | $ | 2.48 |
| | $ | 2.85 |
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| Dividends paid per common share | | $ | — |
| | $ | 0.12 |
| | $ | 0.16 |
| | $ | 0.13 |
| | $ | 0.12 |
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(a) | 2017 includes provisional tax amounts related to the enactment of the U.S. Tax Cuts and Jobs Act, including additional tax expense of $3,298 related to the one-time transition tax and a $1,508 tax benefit related to the remeasurement of certain deferred tax assets and liabilities. More information about the tax reform can be found in Part II, Item 8, Financial Statements and Supplementary Data, Note 14 Income Tax, to the Consolidated Financial Statements included herein. |
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(b) | 2016 includes long-lived tangible and intangible, including goodwill, asset impairments of $135,884. More information about the impairments can be found in Part II, Item 8, Financial Statements and Supplementary Data, Note 4 Goodwill and Other Intangible Assets, and Note 7 Property, Plant, and Equipment, to the Consolidated Financial Statements included herein. |
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(c) | 2015 includes the results of the acquisitions of TEW Plus, Ltd. (“Tew Plus”) (November 23), IOS Holdings, Inc (“IOS”) (March 13), and TEW Holdings, Ltd. (“Tew”) (January 13). The results also include an $80,337 impairment of goodwill related to the IOS and Chemtec reporting units. More information about the impairment can be found in Part II, Item 8, Financial Statements and Supplementary Data, Note 4 Goodwill and Other Intangible Assets, to the Consolidated Financial Statements included herein. |
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(d) | 2014 includes CXT Concrete Tie UPRR warranty charges of $9,374 within the Rail Products and Services segment. The 2014 results also include the acquisitions of Carr Concrete (July 7), FWO (October 29), and Chemtec (December 30). |
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(e) | 2013 includes the acquisition of Ball Winch, (November 7). |
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(f) | Operating profit (loss) represents the gross profit less selling and administrative expenses and amortization expense. |
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| | | December 31, |
| Balance Sheet Data | | 2017 | | 2016 | | 2015 | | 2014 | | 2013 |
| Total assets | | $ | 396,556 |
| | $ | 393,023 |
| | $ | 566,660 |
| | $ | 491,717 |
| | $ | 413,193 |
|
| Working capital | | 127,581 |
| | 117,273 |
| | 122,828 |
| | 135,488 |
| | 171,603 |
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| Long-term debt | | 129,310 |
| | 149,179 |
| | 167,419 |
| | 25,752 |
| | 25 |
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| Stockholders' equity | | 146,479 |
| | 133,251 |
| | 282,832 |
| | 335,888 |
| | 316,397 |
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ITEM 7. MANAGEMENT'SMANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars in thousands, except share data unless otherwise noted)
Executive Level Overview
20172022 Developments and 2018 Outlook
During 2017, we:2022, the Company:
Increased•Produced net sales of $497,497, a decrease of $16,123, or 3.1%, over 2021, reflective of organic growth of 5.6% and growth due to acquisitions of 4.0%, which was offset by $52,863, or 10.9%,a 12.8% reduction due to $536,377;divestitures;
Generated net income•Reported gross profit margin of $4,113, or $0.39 per diluted share;18.0% for the year, a 120-basis point improvement over prior year;
Incurred provisional tax expense•Continued its business transformation with the acquisitions of $1,790 relatedSkratch Enterprises Ltd. and VanHooseCo Precast LLC, for consideration of $7,402 and $52,146, respectively, which contributed to the enactment of$68,118 increase in its net debt;
•Divested the U.S. Tax Cuts and Jobs Act;
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• | Generated EBITDA (earnings before interest, taxes, depreciation, and amortization) of $35,953; (a)
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Effectively managed working capital levels,Track Components business, resulting in $39,372cash proceeds of $7,795;
•Incurred a net cash provided by operating activities;loss of $45,677 due to a $37,895 deferred tax asset valuation allowance, pre-tax asset impairment charges of $8,016, and an unfavorable impact from the settlement of long-term commercial contracts for $3,956;
Reduced borrowings by $29,600, including the payoff•Reported adjusted EBITDA(a) (earnings before interest, taxes, depreciation, amortization, and certain adjustments), of our term loan;
Decreased selling and administrative expenses by $5,455, primarily from our successful 2016 workforce and operations restructuring;
Successfully completed a $1,800 building expansion at our Waverly, WV precast concrete facility allowing us$24,179; an increase of 29.4% compared to broaden our product capabilities;
Installed and maintained 285 trackside rail lubricator units as part of a Class 1 long-term service agreement; and
Increased new orders by 14.5% resulting in a backlog of $166,905, which is a 13.2% increase over the prior year end.year;
•Amended its Credit Agreement to obtain approval for the VanHooseCo acquisition and temporarily modify certain financial covenants to accommodate the transaction.
(a) The following table displays a reconciliationtables display reconciliations of this non-GAAP financial measuremeasures for the three-year periodsyears ended December 31, 2017, 2016,2022 and 2015. Adjusted2021. EBITDA adjusts EBITDA for the 2016 and 2015 asset impairments. EBITDA and Adjusted EBITDA areis a financial metricsmetric utilized by management to evaluate the Company’s performance on a comparable basis. ManagementThe Company believes that disclosure of these non-GAAP financial measuresEBITDA is useful to investors as an additionala supplemental way to evaluate the ongoing operations of the Company’s performance.
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| | | Twelve Months Ended
December 31, |
| | | 2017 | | 2016 | | 2015 |
| Adjusted EBITDA Reconciliation | | | | | | |
| Net income (loss) | | $ | 4,113 |
| | $ | (141,660 | ) | | $ | (44,445 | ) |
| Interest expense, net | | 8,070 |
| | 6,323 |
| | 4,172 |
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| Income tax expense (benefit) | | 3,929 |
| | (5,509 | ) | | (6,132 | ) |
| Depreciation | | 12,849 |
| | 13,917 |
| | 14,429 |
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| Amortization | | 6,992 |
| | 9,575 |
| | 12,245 |
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| Total EBITDA | | 35,953 |
| | (117,354 | ) | | (19,731 | ) |
| Asset impairments | | — |
| | 135,884 |
| | 80,337 |
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| Adjusted EBITDA | | $ | 35,953 |
| | $ | 18,530 |
| | $ | 60,606 |
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Throughout 2017,business as many investors utilize EBITDA to enhance their ability to compare historical periods as it adjusts for the impact of financing methods, tax law and strategy changes, and depreciation and amortization. In addition, EBITDA is a financial measurement that management and the Company’s Board of Directors use in their financial and operational decision-making and in the determination of certain compensation programs. Adjusted EBITDA includes certain adjustments to EBITDA. In 2022, the Company saw strengthening results comparedmade adjustments to our prior year, as manyexclude acquisition and divestiture related costs, VanHooseCo acquisition-related inventory step-up amortization and contingent consideration expense, the gain from insurance proceeds, the Crossrail project settlement amount, impairment charges, and the loss (gain) on the sale of the markets we serve continued their recovery,Track Components and Piling Products businesses, respectively. In 2021, the Company made adjustments to exclude the gain associated with the sale of the Piling Products business. The Company views net debt, which ultimately ledis total debt less cash and cash equivalents, as an important metric of the operational and financial health of the organization and useful to severalinvestors as an indicator of our businesses outperforming against projections. During 2017ability to incur additional debt and to service our existing debt. Non-GAAP financial measures are not a substitute for GAAP financial results and should only be considered in conjunction with the Company’s financial information that is presented in accordance with GAAP. Quantitative reconciliations of EBITDA, adjusted EBITDA, and debt to the non-GAAP financial measures are presented below.
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| | Year Ended December 31, |
| | 2022 | | 2021 | | |
| Adjusted EBITDA Reconciliation | | | | | | |
| Net (loss) income, as reported | | $ | (45,677) | | | $ | 3,471 | | | |
| Interest expense - net | | 3,340 | | | 2,956 | | | |
| Income tax expense | | 36,681 | | | 1,119 | | | |
| Depreciation expense | | 8,635 | | | 8,051 | | | |
| Amortization expense | | 6,144 | | | 5,836 | | | |
| Total EBITDA from continuing operations | | $ | 9,123 | | | $ | 21,433 | | | |
| Acquisition and divestiture costs | | 2,235 | | | — | | | |
| Commercial contract settlement | | 3,956 | | | — | | | |
| Insurance proceeds | | (790) | | | — | | | |
| Loss on divestiture of Track Components | | 467 | | | — | | | |
| Gain on divestiture of Piling Products | | (489) | | | (2,741) | | | |
| VanHooseCo inventory adjustment to fair value amortization | | 1,135 | | | — | | | |
| VanHooseCo contingent consideration | | 526 | | | — | | | |
| Impairment expense | | 8,016 | | | — | | | |
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| Adjusted EBITDA | | $ | 24,179 | | | $ | 18,692 | | | |
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| | December 31, |
| | 2022 | | | | 2021 |
| Net Debt Reconciliation | | | | | | |
| Total debt | | $ | 91,879 | | | | | $ | 31,251 | |
| Less: cash and cash equivalents | | (2,882) | | | | | (10,372) | |
| Net debt | | $ | 88,997 | | | | | $ | 20,879 | |
Acquisitions and Divestitures
On June 21, 2022 and August 12, 2022, the Company acquired the stock of Skratch for $7,402, and acquired the operating assets of VanHooseCo for $52,146, net of cash acquired at closing, respectively. Skratch has been included in the Company’s Technology Services and Solutions business unit within the Rail, ProductsTechnologies, and Services segment was encouraged as the North American freight rail market began increasing spending related to the Company’s product and service offerings. As Class I rail carriers reported steady, and in some instances, lower capital spending compared to the prior year, we believe this spendingVanHooseCo has been directed towardincluded within the needPrecast Concrete Products segment. Skratch and VanHooseCo’s net sales were $2,975 and $17,788, respectively, for maintenancethe year ended December 31, 2022.
On August 1, 2022, the Company divested the assets of its Track Components division for $7,795, subject to indemnification obligations and other track infrastructure programs compared to rolling stockworking capital adjustments. The Track Components division was included in the Rail Products business unit within the Rail, Technologies, and locomotives, which drove ourServices segment. The Track Components division's net sales growth.were $9,244 and $14,139 for the year ended December 31, 2022 and 2021, respectively.
On September 24, 2021, the Company completed the sale of its Piling Products division for $23,902 in total proceeds. The first half of 2017 had strengthening commodity markets which translated into increased commodity carloads for rail carriers compared toCompany retained all pre-closing receivables and liabilities associated with the prior year period. Rail carloads were up throughout 2017 primarily driven by intermodal activity. However, carloads do remain suppressed compared to historical levels due todivision. The sale included substantially all inventory associated with the continuing energy industry shift away from coal to natural gasdivision, as well as declining rail shipments of crude oil and most other metals, ores, and agriculture products. Our Rail Distribution business has been particularly impacted as thisthe related fixed assets. The Piling Products division serves Class II railroads and the North American industrial rail market, which have experienced reduced project activity and pricing declines to remain competitive. Freight rail in North America also experienced moderate increases in coal carloads, however, coal shipments are not expected to return to peak levelswas included in the near future. Spending in 2018 by the freight rail operators in North America is anticipated to increase from 2017 levels as the market is expected to experience continued growth, particularly within intermodal, as the trucking market tightens and operators look to further efficiencies within their infrastructures.
Freight rail operators are prioritizing spending against safety improvement, operating efficiency, and other cost reduction activities. The Company continues to target products and solutions to help improve safety and operating efficiency as well as introduce services that contribute to extending the useful life of certain rail equipment and lowering maintenance costs for operators. Freight rail operators are expected to benefit from the need for intermodal networks to efficiently ship goods.
Funding for transit rail projects in North America continued to improve through 2017. While our revenues from this market are always affected by swings in large projects from one year to the next, we continue to believe the transit market will grow over the long run, which was indicative by significant increases in new orders positioning us with a very strong backlog as we enter 2018. During 2017, we capitalized on opportunities with transit agencies who continue to expand to serve further geographic areas and passenger traffic. Management believes that the global transit market represents an attractive opportunity for future growth. Our recent investments in the U.K. continue to provide growth as passenger networks are extended, especially in the most congested areas. Substantial job wins continued throughout 2017 as investments in London and inter-city networksFabricated Steel Products business unit within the U.K. remain solid.
While certain key steel price indices have shown recent increases, pricing in the markets we serve has continued to lag. Management enacted multiple strategies in an effort to maximize profit margins throughout the prolonged downturn in the North American freight rail market. As we exit this downturn, we believe our current cost structure in place reflected positive returns in 2017Steel Products and positions us to meet our increased 2018 projections. Should business activity be weaker than projected, we are better positioned to handle these changes.
As we exited 2016, the Tubular and Energy Services segment began to see recovery from the struggling energy market it serves. Throughout 2017, we experienced increases in both our upstream and midstream order activity. We saw rig counts increase duringMeasurement segment. The Piling Products division net sales were $60,819 for the year driving our growth in our upstream services. As a result, upstream sales have increased sequentially each quarter during the year, ending the year at almost double the prior year sales total. Although overall rig counts began to moderate towards the endended December 31, 2021.
It is our continued belief that there are widespread needs across the U.S. for pipeline infrastructure in the long term, and new demand will be driven by already developed wells, future export potential, and transition from coal to natural gas plants. With 2018 projections showing U.S. rig counts continuing to grow, production increases to over ten million barrels per day, and futures trading at prices not seen since 2015, the Company anticipates the Tubular and Energy Services segment’s solid performance to continue as we move into 2018.
Within our Construction Products segment, heavy civil construction projects as well as bridge spending experienced marginal decreases in 2017 as compared to the prior year levels. This decline was particularly felt in the second half of 2017. We entered 2018 with an improved backlog across all businesses within the segment, with the exception of Fabricated Bridge Products. Although our bridge division has not booked a mega project during 2017, it is not indicative of any weakness in our capabilities to secure grid decking business. Neither the dynamics of this market nor the number of structurally deficient, obsolete bridges have changed in a meaningful way.
While Piling sales increased compared to the prior year, primarily from our commoditized piling products, the overall profit was reduced. This was due to managements strategic initiative to aggressively pursue targeted opportunities at a reduced margin level, impacting the short-term results but is anticipated to develop favorable long-term market share in a highly competitive segment. We are encouraged by our strong backlog as we enter 2018 with several new winnable projects in front of us along with the current administration’s emphasis on infrastructure, a healthier overall economy, and a rising price environment.
The Precast Concrete Products business continued to show moderate growth during 2017. Along with the successful investment made at our West Virginia facility to improve capacity and efficiency, we have added revenue from reaching new markets and customers throughout the northeast U.S. as well as increased product offerings. We anticipate this market to grow at a slower pace, but we enter 2018 with increased backlog and improved order entry.
Management intends to stay focused on prudent working capital management and operating cash flow to continue to pay down our outstanding debt. With the prior year restructuring activities being fully realized during 2017, we believe that the Company’s expenses and operating leverage now provide the agility to succeed in the cyclical markets in which we participate. Our long-term objective is to continue the modernization of the entire Company with the ongoing integration of our ERP system from which we can grow and leverage best in class business processes.
UPRR Product Warranty Claim
On January 23, 2015, UPRR filed a Complaint and Demand for Jury Trial in the District Court for Douglas County, NE against the Company and its subsidiary, CXT, asserting, among other matters, that the Company breached its express warranty, breached an implied covenant of good faith and fair dealing, and anticipatorily repudiated its warranty obligations, and that UPRR’s exclusive and limited remedy provisions in the supply agreement have failed of their essential purpose which entitles UPRR to recover all incidental and consequential damages. The Complaint seeks to cancel all duties of UPRR under the contract, to adjudge the Company as having no remaining rights under the contracts, and to recover damages in an amount to be determined at trial for the value of unfulfilled warranty replacement ties and ties likely to become warranty eligible, for costs of cover for replacement ties, and for various incidental and consequential damages. The amended 2005 supply agreement provides that UPRR’s exclusive remedy is to receive a replacement tie that meets the contract specifications for each tie that failed to meet the contract specifications or otherwise contained a material defect provided that the Company receives written notice of such failure or defect within 15 years after that tie was produced. The amended 2005 supply agreement provides that the Company’s warranty does not apply to ties that (a) have been repaired or altered without the Company’s written consent in such a way as to affect the stability or reliability thereof, (b) have been subject to misuse, negligence, or accident, or (c) have been improperly maintained or used contrary to the specifications for which such ties were produced. The amended 2005 supply agreement also continues to provide that the Company’s warranty is in lieu of all other express or implied warranties and that neither party shall be subject to or liable for any incidental or consequential damages to the other party. The dispute is largely based on (1) claims submitted that the Company believes are for ties claimed for warranty replacement that are inaccurately rated under concrete tie rating guidelines and procedures agreed to in 2012 and incorporated by amendment to the 2005 supply agreement and are not the responsibility of the Company and claims that do not meet the criteria of a warranty replacement and (2) UPRR’s assertion, which the Company vigorously disputes, that UPRR in future years will be entitled to warranty replacement ties for virtually all of the Grand Island ties. Many thousands of Grand Island ties have been performing in track for over ten years. In addition, a significant amount of Grand Island ties were rated by both parties in the excellent category of the rating system.
By Third Amended Scheduling Order dated September 26, 2017, a June 29, 2018 deadline for completion of discovery has been established with trial to proceed at some future date on or after October 1, 2018. The parties continued to conduct discovery, with various disputes that required and will likely require court resolution. The Company intends to continue to engage in discussions in an effort to resolve the UPRR matter. However, we cannot predict that such discussions will be successful, or that the results of the litigation with UPRR, or any settlement or judgment amounts, will reasonably approximate our estimated accruals for loss contingencies. Future potential costs pertaining to UPRR’s claims and the outcome of the UPRR litigation could result in a material adverse effect on our results of operations, financial condition, and cash flows.
Year-to-date Results Comparison
The segment gross profit measures presented within Management's Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) constitute non-GAAP financial measures disclosed by | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, | | Percent
Increase/(Decrease) | | Percent of Total Net Sales
Year Ended December 31, |
| | 2022 | | 2021 | | | | 2022 vs. 2021 | | | | 2022 | | 2021 | | |
| Net sales | | $ | 497,497 | | | $ | 513,620 | | | | | (3.1) | % | | | | 100.0 | % | | 100.0 | % | | |
| Gross profit | | 89,611 | | | 86,302 | | | | | 3.8 | | | | | 18.0 | | | 16.8 | | | |
| Expenses: | | | | | | | | | | | | | | | | |
| Selling and administrative expenses | | 82,657 | | | 75,995 | | | | | 8.8 | | | | | 16.6 | | | 14.8 | | | |
| Amortization expense | | 6,144 | | | 5,836 | | | | | 5.3 | | | | | 1.2 | | | 1.1 | | | |
| Goodwill and long-lived assets impairment charges (Note 5) | | 8,016 | | | — | | | | | 100.0 | | | | | 1.6 | | | — | | | |
| Operating (loss) profit | | (7,206) | | | 4,471 | | | | | ** | | | | (1.4) | | | 0.9 | | | |
| | | | | | | | | | | | | | | | |
| Interest expense - net | | 3,340 | | | 2,956 | | | | | 13.0 | | | | | 0.7 | | | 0.6 | | | |
| Other income - net | | (1,550) | | | (3,075) | | | | | 49.6 | | | | | (0.3) | | | (0.6) | | | |
| (Loss) income from continuing operations before income taxes | | (8,996) | | | 4,590 | | | | | ** | | | | (1.8) | | | 0.9 | | | |
| Income tax expense | | 36,681 | | | 1,119 | | | | | ** | | | | 7.4 | | | 0.2 | | | |
| (Loss) income from continuing operations | | $ | (45,677) | | | $ | 3,471 | | | | | ** | | | | (9.2) | % | | 0.7 | % | | |
| Diluted (loss) earnings per common share | | $ | (4.25) | | | $ | 0.34 | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
** Data excluded as management to provide investors and other users information to evaluate the performance of the Company’s segments on a more comparable basis to market trends and peers. These non-GAAP financial measures exclude significant cost allocations to the reportable segments:
•Allows users to understand the operational performance of our reportable segments;
•Provides greater comparability to other registrants with similar businesses and avoids possible non-comparability at the reportable segment pre-tax profit level resulting from our specific corporate cost allocations; and
•Facilitates a clearer, market-based perspective on the strength or weakness of our reportable segments in their markets to better aid in investment decisions.
In addition, these non-GAAP financial measures have historically been key metrics utilized by segment managers to monitor selling prices and quantities as well as production and service costs to better evaluate key profitability drivers and trends that may develop due to industry and competitive conditions. The following table reconciles the non-GAAP financial measures to the profitability of the segments reporting in accordance with GAAP:
|
| | | | | | | | | | | | | | | | |
| Twelve months ended December 31, 2017 | | Rail Products and
Services | | Construction
Products | | Tubular and Energy
Services | | Total |
| Reportable Segment Profit | | $ | 12,216 |
| | $ | 11,620 |
| | $ | 3,849 |
| | $ | 27,685 |
|
| Segment and Allocated Selling & Administrative | | 36,975 |
| | 18,796 |
| | 16,036 |
| | 71,807 |
|
| Amortization Expense | | 3,698 |
| | 151 |
| | 3,143 |
| | 6,992 |
|
| Asset Impairments | | — |
| | — |
| | — |
| | — |
|
| Non-GAAP Segment Gross Profit | | $ | 52,889 |
| | $ | 30,567 |
| | $ | 23,028 |
| | $ | 106,484 |
|
| | | | | | | | | |
| Twelve months ended December 31, 2016 | | Rail Products and
Services | | Construction
Products | | Tubular and Energy
Services | | Total |
| Reportable Segment (Loss) Profit | | $ | (26,228 | ) | | $ | 8,189 |
| | $ | (116,126 | ) | | $ | (134,165 | ) |
| Segment and Allocated Selling & Administrative | | 40,696 |
| | 18,739 |
| | 17,978 |
| | 77,413 |
|
| Amortization Expense | | 3,881 |
| | 151 |
| | 5,543 |
| | 9,575 |
|
| Asset Impairments | | 32,725 |
| | — |
| | 103,159 |
| | 135,884 |
|
| Non-GAAP Segment Gross Profit | | $ | 51,074 |
| | $ | 27,079 |
| | $ | 10,554 |
| | $ | 88,707 |
|
| | | | | | | | | |
| Twelve months ended December 31, 2015 | | Rail Products and
Services | | Construction
Products | | Tubular and Energy
Services | | Total |
| Reportable Segment Profit (Loss) | | $ | 27,037 |
| | $ | 12,958 |
| | $ | (81,344 | ) | | $ | (41,349 | ) |
| Segment and Allocated Selling & Administrative | | 44,204 |
| | 20,969 |
| | 15,520 |
| | 80,693 |
|
| Amortization Expense | | 4,035 |
| | 242 |
| | 7,968 |
| | 12,245 |
|
| Asset Impairments | | — |
| | — |
| | 80,337 |
| | 80,337 |
|
| Non-GAAP Segment Gross Profit | | $ | 75,276 |
| | $ | 34,169 |
| | $ | 22,481 |
| | $ | 131,926 |
|
Results of Operations
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Twelve Months Ended
December 31, | | Percent of Total Net Sales
Twelve Months Ended December 31, | | Percent
Increase/(Decrease) |
| | | 2017 | | 2016 | | 2015 | | 2017 | | 2016 | | 2015 | | 2017 vs. 2016 | | 2016 vs. 2015 |
| Net Sales: | | | | | | | | | | | | | | | | |
| Rail Products and Services | | $ | 256,127 |
| | $ | 239,127 |
| | $ | 328,982 |
| | 47.8 | % | | 49.5 | % | | 52.7 | % | | 7.1 | % | | (27.3 | )% |
| Construction Products | | 161,801 |
| | 145,602 |
| | 176,394 |
| | 30.2 |
| | 30.1 |
| | 28.2 |
| | 11.1 |
| | (17.5 | ) |
| Tubular and Energy Services | | 118,449 |
| | 98,785 |
| | 119,147 |
| | 22.0 |
| | 20.4 |
| | 19.1 |
| | 19.9 |
| | (17.1 | ) |
| Total net sales | | $ | 536,377 |
| | $ | 483,514 |
| | $ | 624,523 |
| | 100.0 | % | | 100.0 | % | | 100.0 | % | | 10.9 | % | | (22.6 | )% |
| | | | | | | | | | | | | | | | | |
| | | Twelve Months Ended
December 31, | | Non-GAAP / Reported
Gross Profit Percentage
Twelve Months Ended December 31, | | Percent
Increase/(Decrease) |
| | | 2017 | | 2016 | | 2015 | | 2017 | | 2016 | | 2015 | | 2017 vs. 2016 | | 2016 vs. 2015 |
| Gross Profit: | | | | | | | | | | | | | | | | |
| Non-GAAP Rail Products and Services | | $ | 52,889 |
| | $ | 51,074 |
| | $ | 75,276 |
| | 20.6 | % | | 21.4 | % | | 22.9 | % | | 3.6 | % | | (32.2 | )% |
| Non-GAAP Construction Products | | 30,567 |
| | 27,079 |
| | 34,169 |
| | 18.9 |
| | 18.6 |
| | 19.4 |
| | 12.9 |
| | (20.7 | ) |
| Non-GAAP Tubular and Energy Services | | 23,028 |
| | 10,554 |
| | 22,481 |
| | 19.4 |
| | 10.7 |
| | 18.9 |
| | 118.2 |
| | (53.1 | ) |
| Non-GAAP Segment gross profit | | 106,484 |
| | 88,707 |
| | 131,926 |
| | | | | | | | | | |
| LIFO (expense) income | | (2,009 | ) | | 2,643 |
| | 2,468 |
| | (0.4 | ) | | 0.5 |
| | 0.4 |
| | (176.0 | ) | | 7.1 |
|
| Other | | (1,223 | ) | | (994 | ) | | (741 | ) | | (0.2 | ) | | (0.2 | ) | | (0.1 | ) | | (23.0 | ) | | (34.1 | ) |
| Total gross profit | | $ | 103,252 |
| | $ | 90,356 |
| | $ | 133,653 |
| | 19.2 | % | | 18.7 | % | | 21.4 | % | | 14.3 | % | | (32.4 | )% |
| | | | | | | | | | | | | | | | | |
| | | Twelve Months Ended
December 31, | | Percent of Total Net Sales
Twelve Months Ended December 31, | | Percent
Increase/(Decrease) |
| | | 2017 | | 2016 | | 2015 | | 2017 | | 2016 | | 2015 | | 2017 vs. 2016 | | 2016 vs. 2015 |
| Expenses: | | | | | | | | | | | | | | | | |
| Selling and administrative expenses | | $ | 80,521 |
| | $ | 85,976 |
| | $ | 92,648 |
| | 15.0 | % | | 17.8 | % | | 14.8 | % | | (6.3 | )% | | (7.2 | )% |
| Amortization expense | | 6,992 |
| | 9,575 |
| | 12,245 |
| | 1.3 |
| | 2.0 |
| | 2.0 |
| | (27.0 | ) | | (21.8 | ) |
| Asset impairments | | — |
| | 135,884 |
| | 80,337 |
| | — |
| | 28.1 |
| | 12.9 |
| | (100.0 | ) | | 69.1 |
|
| Interest expense | | 8,377 |
| | 6,551 |
| | 4,378 |
| | 1.6 |
| | 1.4 |
| | 0.7 |
| | 27.9 |
| | 49.6 |
|
| Interest income | | (307 | ) | | (228 | ) | | (206 | ) | | (0.1 | ) | | — |
| | — |
| | (34.6 | ) | | (10.7 | ) |
| Equity (income) loss of nonconsolidated investments | | (6 | ) | | 1,290 |
| | 413 |
| | — |
| | 0.3 |
| | 0.1 |
| | (100.5 | ) | | 212.3 |
|
| Other income | | (367 | ) | | (1,523 | ) | | (5,585 | ) | | (0.1 | ) | | (0.3 | ) | | (0.9 | ) | | 75.9 |
| | 72.7 |
|
| Total expenses | | $ | 95,210 |
| | $ | 237,525 |
| | $ | 184,230 |
| | 17.8 | % | | 49.1 | % | | 29.5 | % | | (59.9 | )% | | 28.9 | % |
| Income (loss) before income taxes | | $ | 8,042 |
| | $ | (147,169 | ) | | $ | (50,577 | ) | | 1.5 | % | | (30.4 | )% | | (8.1 | )% | | 105.5 | % | | (191.0 | )% |
| Income tax expense (benefit) | | 3,929 |
| | (5,509 | ) | | (6,132 | ) | | 0.7 |
| | (1.1 | ) | | (1.0 | ) | | 171.3 |
| | 10.2 |
|
| Net income (loss) | | $ | 4,113 |
| | $ | (141,660 | ) | | $ | (44,445 | ) | | 0.8 | % | | (29.3 | )% | | (7.1 | )% | | 102.9 | % | | (218.7 | )% |
believes it is not meaningful.
Fiscal 20172022 Compared to Fiscal 20162021 — Company Analysis
Net sales of $536,377$497,497 for the year ended December 31, 2017 increased2022 decreased by $52,863,$16,123, or 10.9%3.1%, compared to the prior year period. Eachyear. The change in sales is due in part to the divestitures of the Track Components and Piling Products businesses. Declines from divestitures were partially offset by organic growth in all three segments reported overall year over year increasesand the acquisitions of 19.9%, 11.1%,Skratch and 7.1% for TubularVanHooseCo in 2022. Divestitures drove a 12.8% decline in sales, while organic growth and Energyacquisitions drove a 5.6% and 4.0% increase in sales, respectively. Included in the organic sales growth of 5.6% is a $3,956 reduction in sales related to the multi-year Crossrail project in the Company’s Technology Services Construction Products, and Rail ProductsSolutions group in the United Kingdom (“Crossrail Settlement”). This settlement reduced both sales and Services, respectively.gross profit in 2022.
Gross profit increased by $3,309, or 3.8%, and gross profit margin for 2017 was 19.2%, or 50expanded by 120 basis points (“bps”) higherto 18.0% despite the impact of the $3,956 Crossrail Settlement. The improvement in gross profit is due to the portfolio changes that are a part of the Company’s strategic transformation. In 2021, the Company sold the Piling Products business and in 2022 it sold the Track Components business, both of which have a lower gross profit margin than the prior year. The current year marginSkratch and VanHooseCo businesses that were acquired in 2022. Gross profit was significantlyalso negatively impacted in 2022 by a $1,135 purchase accounting adjustment related to the recovery inVanHooseCo acquired inventory. In the oil and gas market but partially offset by pricing pressure within the rail market. Included in the 2017Company’s legacy business, gross profit was $2,009 related to LIFO expense compared to $2,643 of incomenegatively impacted by raw material and labor inflation which was mitigated by pricing actions in the prior year.latter part of 2022.
Selling and administrative expenses decreasedincreased by $5,455,$6,662, or 6.3%8.8%, over the prior year period.year. The decreaseincrease was primarily attributable to strategic transformation costs of $2,235 in 2022, an increase in personnel related costs of $2,676, including a $435 increase in stock-based compensation expense, and an increase in third-party supplies and services of $1,231 compared to the prior year restructuring activityyear. Selling and administrative expenses as a percentage of $2,827 and,net sales increased to a lesser extent, the reduction of legal costs related16.6% from 14.8% due to the UPRR matterincreased spending. The net impact of $1,250the acquisitions and reduced insurance reservesdivestitures was not significant to the change in selling and administrative expenses year over year; however, the 2022 expense included $526 of $1,075.retention costs associated with the VanHooseCo acquisition.
The Company’s annual goodwill test included a quantitative analysis to determine whether it was more likely than not that the fair value of each reporting unit is less than its carrying value. During 2022, the Company recorded a non-cash impairment charge of $3,011 associated with the Fabricated Bridge reporting unit goodwill, which resides in the Steel Products and Measurement segment, as a result of its annual goodwill test. No other reporting units were impaired as a result of goodwill testing procedures.
The Company didalso recorded an impairment charge of $4,883 for intangible assets as a result of procedures performed. Such procedures determined that the carrying value of the long-lived asset group related to its Precision Measurement Products and Systems business would not record asset impairmentsbe recoverable. The now fully impaired assets were part of the Steel Products and Measurement segment. For further discussion on the impairment charges, refer to Note 5 of the Notes to the Consolidated Financial Statements.
Interest expense increased by $384, or 13.0%, due to higher outstanding debt throughout the year. The outstanding debt balance increased to $91,879 as of December 31, 2022, compared to $31,251 as of December 31, 2021. The increase in debt was primarily to
fund the acquisition of VanHooseCo, which had a purchase price of $52,146, net of cash acquired and the Skratch acquisition, which had a purchase price of $7,402.
Other income for the year ended December 31, 2017. Non-cash asset impairments2022 included pre-tax income of $135,884 were recorded during$489 from the year ended December 31, 2016. During the second quarter of 2016, the Company identified various indicators that suggested that there was a more likely than not probability that the carrying values of certain assets and reporting units were less than their respective fair values in the prior year. The impairment indicators included a rapid deterioration in actual performance against forecasts, downward revisions in projected financial results, declines in the Company’s market capitalization, and reductions in new order activity.
Asset groups that had indicators of impairment were analyzed to determine if the carrying values were recoverable. Based upon the recoverability assessment, the Company determined that certain intangible assets and property, plant, and equipment within the Test and Inspection Services business unit and certain intangible assets within the Chemtec business unit were impaired. The impairment assessment was finalized during the three-month period ended September 30, 2016 resulting in a $59,786 definite-lived intangible asset impairment and a $14,956 property, plant, and equipment impairment that were recorded within the Tubular and Energy Services segment. The remaining asset groups tested for recoverability were substantially in excess of their respective carrying values.
The Company performed an interim goodwill impairment review as of June 1, 2016 as a result2021 sale of the adverse effect on certain reporting units of reduced capital spendingPiling Products division, $790 in insurance proceeds, and cost reduction priorities that oil and gas developers and railroad customers have enacted as well as the indicators previously noted. The forecasts for the Chemtec, Protective Coatings, and Rail Technologies business units did not indicate a timely recovery$325 received to support the carrying values of the business units. Upon finalization of the interim impairment assessment during the three-month period ended September 30, 2016, the Company recognized a goodwill impairment of $61,142, which represented the full impairment of goodwill related to the Chemtec and Protective Coatings business units and approximately 68% of the Rail Technologies goodwill value. The estimated fair values of the remaining reporting units were substantially in excess of the carrying value of those reporting units.
Amortizationrecover costs associated with environmental cleanup activities. Other expense for the year ended December 31, 2017 was reduced by $2,583 as2022 included a direct result$467 loss related to the sale of the Track Components business. In the prior year, definite-lived intangible asset impairments.
Otherthe Company recorded pre-tax income was reduced by $1,156 compared toof $2,741 from the prior yeargain on sale of the Piling Products division, all of which was primarily due to foreign exchange losses of $804.recorded in “Other income-net.”
The Company’s effective income tax rate for 20172022 was 48.9%(407.7)%, compared to 3.7%24.4% in the prior year period. The Company’s 2017 effectivecurrent year income tax rate was significantly affected by the recently enacted U.S. tax legislation, including a provisional taxprovision included $37,895 expense of $3,298 related to the one-time transition tax on earnings of foreign subsidiaries, partially offset by a $1,508 provisional tax benefit related to the remeasurement of deferred tax assets and liabilities at the 21% federal corporate tax rate. In addition, the Company realized domestic tax benefits previously offset by aincrease in its valuation allowance.
The Company's effective income tax rate in the prior year period included a valuation allowance of $29,719 against deferred tax assets, as well as deferred U.S. income taxes and foreign withholding taxes of $7,932 relatedassets. For further discussion on the valuation allowance, refer to accumulated foreign earnings not permanently reinvested outsideNote 14 of the United States.
Net income for the year ended December 31, 2017 was $4,113, or $0.39 per diluted share, comparedNotes to the net loss for the 2016 period of $141,660, or $13.79 per diluted share.Consolidated Financial Statements.
Fiscal 2016 Compared to Fiscal 2015 – Company Analysis
Net sales of $483,514 for the year ended December 31, 2016 decreased by $141,009 or 22.6% compared to the prior year period. All segments reported overall year over year declines of 27.3%, 17.5% and 17.1% for Rail Products and Services, Construction Products and Tubular and Energy Services, respectively.
Gross profit margin for 2016 was 18.7%, or 271 basis points lower than the prior year. The current year margin was significantly impacted by the prolonged weakness in the oil and gas market and reduced activity in the rail market. Included in the 2016 gross profit was $2,643 related to the LIFO income compared to $2,468 in the prior year.
Selling and administrative expenses decreased by $6,672, or 7.2%, over the prior year period. The decrease was primarily attributable to cost reduction initiatives related to personnel and travel costs of $2,982, incentive compensation reductions of $3,777, prior year acquisition and integration costs of $1,212 and other strategic spending reductions of $4,024,
which were partially offset by increased litigation related costs for the UPRR matter of $2,671, the fourth quarter employment claim settlement expense of $900, and other miscellaneous items including ERP costs totaling $1,799.
The Company recorded non-cash asset impairments of $135,884 during the year ended December 31, 2016. During the second quarter of 2016, the Company identified various indicators that suggested that there was a more likely than not probability that the carrying values of certain assets and reporting units were less than their respective fair values. The impairment indicators included a rapid deterioration in actual performance against forecasts, downward revisions in projected financial results, declines in the Company’s market capitalization, and reductions in new order activity.
Asset groups that had indicators of impairment were analyzed to determine if the carrying values were recoverable. Based upon the recoverability assessment, the Company determined that certain intangible assets and property, plant, and equipment within the Test and Inspection Services division and certain intangible assets within the Chemtec division were impaired. The impairment assessment was finalized during the three-month period ended September 30, 2016 resulting in a $59,786 definite-lived intangible asset impairment and a $14,956 property, plant, and equipment impairment that were recorded within the Tubular and Energy Services segment. The remaining asset groups tested for recoverability were substantially in excess of their respective carrying values.
The Company performed an interim goodwill impairment review as of June 1, 2016 asAs a result of the adverse effect on certain reporting units of reduced capital spendingpre-tax $8,016 impairment charges, the $3,956 pre-tax Crossrail Settlement, and cost reduction priorities that oil and gas developers and railroad customers have enacted as well as the indicators previously noted. The forecasts for the Chemtec, Protective Coatings, and Rail Technologies reporting units did not indicate a timely recovery to support the carrying values of the reporting units. Upon finalization of the interim impairment assessment during the three-month period ended September 30, 2016, the Company recognized a goodwill impairment of $61,142, which represented the full impairment of goodwill related to the Chemtec and Protective Coatings reporting units and approximately 68% of the Rail Technologies goodwill value. The estimated fair values of the remaining reporting units were substantially in excess of the carrying value of those reporting units.
Other income during the prior year was favorably impacted by the sale of assets at our Tucson, AZ facility resulting in a gain of $2,279, realized and unrealized foreign exchange gains totaling $1,616, and other less significant income items.
The Company’s effective income tax rate for 2016 was 3.7%, compared to 12.1% in the prior year period. The Company accrued deferred U.S. income taxes and foreign withholding taxes of $7,932 in the current year, related to accumulated foreign earnings that management no longer intends to permanently reinvest outside of the United States. The Company also recorded a valuation allowance, of $29,719 against deferred tax assets in the current year.
Netnet loss for the year ended December 31, 20162022 was $141,660,$45,677, or $13.79$4.25 per diluted share, compared to the net lossincome for the 2015 period2021 year of $44,445,$3,471, or $4.33$0.34 per diluted share.
Results of Operations — Segment Analysis
Rail, ProductsTechnologies, and Services
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Twelve Months Ended
December 31, | | Increase | | Decrease | | Percent
Increase | | Percent
Decrease |
| | | 2017 | | 2016 | | 2015 | | 2017 vs. 2016 | | 2016 vs. 2015 | | 2017 vs. 2016 | | 2016 vs. 2015 |
| Net Sales | | $ | 256,127 |
| | $ | 239,127 |
| | $ | 328,982 |
| | $ | 17,000 |
| | $ | (89,855 | ) | | 7.1 | % | | (27.3 | )% |
| Segment Profit (Loss) | | $ | 12,216 |
| | $ | (26,228 | ) | | $ | 27,037 |
| | $ | 38,444 |
| | $ | (53,265 | ) | | 146.6 | % | | (197.0 | )% |
| Segment Profit (Loss) Percentage | | 4.8 | % | | (11.0 | )% | | 8.2 | % | | 15.7 | % | | (19.2 | )% | | 143.5 | % | | (233.5 | )% |
Fiscal 2017 Compared to Fiscal 2016 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended
December 31, | | Increase/(Decrease) | | | | Percent
Increase/(Decrease) | | |
| | 2022 | | 2021 | | | | 2022 vs. 2021 | | | | 2022 vs. 2021 | | |
| Net Sales | | $ | 300,592 | | | $ | 299,749 | | | | | $ | 843 | | | | | 0.3 | % | | |
| Gross Profit | | $ | 59,499 | | | $ | 57,249 | | | | | $ | 2,250 | | | | | 3.9 | % | | |
| Gross Profit Percentage | | 19.8 | % | | 19.1 | % | | | | 0.7 | % | | | | 3.6 | % | | |
| Segment Operating Profit | | $ | 11,454 | | | $ | 14,165 | | | | | $ | (2,711) | | | | | (19.1) | % | | |
| Segment Operating Profit Percentage | | 3.8 | % | | 4.7 | % | | | | (0.9) | % | | | | (19.4) | % | | |
Rail, ProductsTechnologies, and Services segment sales increased $17,000,by $843, or 7.1%0.3%, compared to the prior year period. For 2017, our Rail Technologies business accounted for 4.1%year. The acquisition of Skratch resulted in $2,975, or 1.0%, of the segment increase. Thisincrease in sales and the divestiture of the Track Components business unit servesresulted in a reduction in sales of $4,895, or 1.6%. Organic sales represented $2,763, or 0.9%, of the global market with locationstotal increase in North Americasales year over year and Europe, with each of our regions experiencing sales growth inwere driven by the current year. Our Rail Products and CXT Concrete TiesGlobal Friction Management business units, accounted for 1.6%which had increases in sales of $4,041 and 1.4%, respectively, of the segment increase.$3,642, respectively. The Companysales volume increase was encouragedprimarily driven by the impact ofCompany’s Rail Distribution business and increased demand for Friction Management in North American carload traffic during 2017, particularly intermodal traffic levels,markets served. The Technology Services and Solutions business unit decreased by $6,633, or 12.9%, driven by the $3,956 Crossrail Settlement as well as capitalizing on opportunities withan unfavorable foreign currency impact.
Segment gross profit increased by $2,250, or 3.9%, compared to the expansionprior year. The improvement in gross profit dollars and margins is primarily due to the portfolio changes that were a part of our strategic transformation. The Track Components business, which was sold in 2022, had lower gross profit margins than the global transit market.
Skratch business that was acquired in 2022. Gross profit was also impacted in 2022 by the $3,956 Crossrail Settlement. The Rail, ProductsTechnologies, and Services segment profit for 2017 was $12,216, and a segmentgross profit margin of 4.8%increased by 70 basis points from the prior year due to the portfolio changes made and higher gross profit margins realized in Rail Products.
Segment operating profit declined by $2,711, or 19.1%, compared to segment loss of $26,228,the prior year. The decline was driven by the $3,956 Crossrail Settlement and a margin of (11.0)% for 2016. The increase was primarily attributable toincreased employment, travel and entertainment, and advertising costs from the 2016 goodwill impairment of $32,725 related toprior year. Additionally, the Rail Technologies business unit. Additionally, profit was favorably impacted by a $3,221 reductionSkratch acquisition contributed $619 more in selling and administrative expenses in 2017, resulting from2022 than the successful 2016 restructuring and a 2017 gain on patent sale of $500. Non-GAAP gross profit increased by $1,815, or 3.6%, although the segment gross profit margin decreased by 80 bps principally attributable to declines in Rail Technologies and, to a lesser extent, Rail Products margins.
Track Components business that was sold.
During 2017,2022, new orders within the Rail, ProductsTechnologies, and Services segment increased new orders by 17.0%11.5% compared to the prior year. Each of the three business units within the segment had increasesThe increase in new orders comparedwas attributable to 2016. The growth in new orders strengthenedthe Rail Products and Global Friction Management business units. Segment backlog increased by 9.7%9.0% compared to the prior year, ending 20172022 at $68,850.$105,241.
Fiscal 2016 Compared to Fiscal 2015
RailPrecast Concrete Products and Services
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended
December 31, | | Increase/(Decrease) | | | | Percent
Increase/(Decrease) | | |
| | 2022 | | 2021 | | | | 2022 vs. 2021 | | | | 2022 vs. 2021 | | |
| Net Sales | | $ | 104,212 | | | $ | 70,990 | | | | | $ | 33,222 | | | | | 46.8 | % | | |
| Gross Profit | | $ | 18,334 | | | $ | 12,491 | | | | | $ | 5,843 | | | | | 46.8 | % | | |
| Gross Profit Percentage | | 17.6 | % | | 17.6 | % | | | | — | % | | | | — | % | | |
| Segment Operating Profit | | $ | 1,692 | | | $ | 1,545 | | | | | $ | 147 | | | | | 9.5 | % | | |
| Segment Operating Profit Percentage | | 1.6 | % | | 2.2 | % | | | | (0.6) | % | | | | (25.4) | % | | |
The Precast Concrete Product segment sales decreased $89,855,increased by $33,222, or 27.3%46.8%, compared to the prior year period. For 2016, our Rail Distribution business accounted for approximately 47.9% of the decrease. This division serves Class II freight, rail and transit railroads and the North American industrial rail market, which experienced price and project declines. All rail divisions experienced reductions in sales over the prior year period attributable to continued weakness in the North American freight rail market in both commodity carloads as well as intermodal rail traffic. Additionally, due to the ongoing litigation with UPRR, our rail divisions experienced a decline in sales to UPRR of approximately $12,600.
The Rail Products and Services segment loss for 2016 was $26,244, and a margin of (11.0%) compared to segment profit of $27,037, and a margin of 8.2% for 2015. The reduction was primarily attributable to the $32,725 goodwill impairment related to the Rail Technologies reporting unit along with reductions in gross profit due to the lower sales volumes. The non-GAAP gross profit decreased by $24,202, or 32.2%, and the corresponding margin decreased by 150 basis points principally attributable to declines in Rail Technologies and CXT Concrete Tie margins, which were negatively impacted by reduced volumes and the related deleveraging of the businesses. Our Transit Products business also was negatively impacted by a $1,224 pretax warranty charge related to a transit products project.
During 2016, the Rail Products and Services segment had a reduction in new orders of 23.9% compared to the prior year. The Rail Distribution and CXT Concrete Tie businesses represented 31.4%acquisition of VanHooseCo contributed $17,788, or 25.1%, of the currentincrease in sales year decline and all other rail divisions experienced double digit declines relative toover year. Sales in the priorlegacy business increased $15,434, or 21.7% year over year, due to reductionsa strong demand environment both in rail capital spending.the southern and northeastern United States markets.
Construction Products
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Twelve Months Ended
December 31, | | Increase | | Decrease | | Percent
Increase | | Percent
Decrease |
| | | 2017 | | 2016 | | 2015 | | 2017 vs. 2016 | | 2016 vs. 2015 | | 2017 vs. 2016 | | 2016 vs. 2015 |
| Net Sales | | $ | 161,801 |
| | $ | 145,602 |
| | $ | 176,394 |
| | $ | 16,199 |
| | $ | (30,792 | ) | | 11.1 | % | | (17.5 | )% |
| Segment Profit | | $ | 11,620 |
| | $ | 8,189 |
| | $ | 12,958 |
| | $ | 3,431 |
| | $ | (4,769 | ) | | 41.9 | % | | (36.8 | )% |
| Segment Profit Percentage | | 7.2 | % | | 5.6 | % | | 7.3 | % | | 1.6 | % | | (1.7 | )% | | 27.7 | % | | (23.4 | )% |
Fiscal 2017 Compared to Fiscal 2016
ConstructionThe Precast Concrete Products segment salesgross profit increased $16,199,by $5,843, or 11.1%46.8%, compared to the prior year period, with increases in each of the three business units.year. The Fabricated Bridge sales increase was primarily driven by several large projects throughout the year, including the continuation of the Peace Bridge project. Piling sales were favorably impacted by strong demand within the sheet and pipe piling product lines. Lastly, Precast Concrete Products experienced increases in their buildings sales, which were primarily driven by orders from state agencies.
The Construction Products segment profit of $11,620 increased by $3,431 compared to the prior year to 7.2% of net sales. While selling and administrative expenses remained consistent with the prior year, the segment's non-GAAP gross profit increased by $3,488, or 12.9%. The non-GAAP gross profit increase was primarily due to increased sales volume butwithin the segment. The gross profit margin remained flat at 17.6%, driven by higher margins associated with the VanHooseCo business, offset by inflationary pressures, including raw material costs, and manufacturing inefficiencies in our legacy Precast business. Although the VanHooseCo margins were accretive to the Precast Concrete Products segment, the gross profit included a $1,135 purchase accounting adjustment related to acquired inventory that negatively impacted margins.
The segment profit of $1,692, increased by $147, compared to the prior year, and was also favorably impacted1.6% of net sales. Operating profit was driven by improved manufacturing efficiencies.increased selling and administrative expenses associated with higher personnel costs of $2,647, and an increase in third-party supplies and services of $853, and an increase of $526 in retention costs associated with VanHooseCo from the prior year. The increases to selling and administrative expenses were partially driven by the acquired VanHooseCo business.
For 2017,2022, the ConstructionPrecast Concrete Products segment had an 8.0%a 16.9% increase in new orders and the backlog also increased by 17.3% compared to the prior year. The increase in orders and backlog is attributed to the VanHooseCo acquisition.
Steel Products and Measurement
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended
December 31, | | (Decrease)/Increase | | | | Percent
(Decrease)/Increase | | |
| | 2022 | | 2021 | | | | 2022 vs. 2021 | | | | 2022 vs. 2021 | | |
| Net Sales | | $ | 92,693 | | | $ | 142,881 | | | | | $ | (50,188) | | | | | (35.1) | % | | |
| Gross Profit | | $ | 11,778 | | | $ | 16,562 | | | | | $ | (4,784) | | | | | (28.9) | % | | |
| Gross Profit Percentage | | 12.7 | % | | 11.6 | % | | | | 1.1 | % | | | | 9.6 | % | | |
| Segment Operating Loss | | $ | (10,824) | | | $ | (2,402) | | | | | $ | (8,422) | | | | | (350.6) | % | | |
| Segment Operating Loss Percentage | | (11.7) | % | | (1.7) | % | | | | (10.0) | % | | | | (594.6) | % | | |
Sales for the Steel Products and Measurement segment in 2022 decreased by $50,188, or 35.1%, compared to the prior year. The decline is attributable to the divested Piling Products business, which drove a sales decrease of $60,819. The decline in sales was partially offset by a $10,631, or 17.5%, increase in the balance of the segment. The Coatings and Measurement business experienced a sales increase of $10,496, or 37.7%, primarily due to increased activity in both traditional markets served and adjacent market applications.
The Steel Products and Measurement segment 2022 gross profit decreased by $4,784, or 28.9%, compared to the prior year due to the sale of the Piling Products business. Gross profit margin increased 110 basis points due to the sale of the less profitable Piling Products business.
The segment operating loss of $10,824, up $8,422 over last year, was driven by a goodwill impairment charge of $3,011 in the Fabricated Bridge business unit and the $5,005 impairment charge for intangible assets related to its Precision Measurement Products and Systems business based in Willis, TX.
For 2022, the Steel Products and Measurement segment had a $4,427, or 3.3%, decrease in new orders compared to the prior year period. The decrease primarily relatesperiod driven by a $59,288 decline in orders due to the Fabricated Bridge business unit assale of the prior year included the $15,000 Peace Bridge order. This was partially offset by an increase within our Precast ConcretePiling Products business, unit.offset in part, by strong increases in orders in all of the other businesses. The segment'ssegment’s backlog atas of December 31, 20172022 was $71,318,$86,509, a 0.9% decrease as compared to the prior year.
Fiscal 2016 Compared to Fiscal 2015
Construction Products segment sales decreased $30,792, or 17.5%,92.3% increase compared to the prior year period. The Pilingend driven by all business unit represented $24,319 ofunits but primarily the reductionCoatings and Fabricated Bridge sales represented $8,943, which were both attributable to fewer large project opportunities in the market as compared to the prior year period as well as increased competition leading to fewer project wins. Throughout the year, lower scrap input prices and very low factory utilization rates kept steel prices very competitive. As a result, the Company did not participate in some of the typical projects we serve with pipe pile and H-pile, resulting in lower sales volumes and pricing. Partially offsetting these declines were increased Precast Concrete Product sales.
The Construction Products segment profit of $8,189 declined by $4,769 compared to the prior year as a result of reduced gross profit attributable to lower sales volumes. The non-GAAP gross profit decreased by $7,090, or 20.7%, due to reductions in Piling products and Fabricated Bridge gross profit as a result of the decline in volumes.
For 2016, the Construction Products segment had a 10.1% increase in new orders compared to the prior year period. The increase relates to significant project wins within the Fabricated Bridge business, and to a lesser extent, Precast Concrete Products.
Tubular and Energy Services
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Twelve Months Ended
December 31, | | Increase | | Decrease | | Percent
Increase | | Percent
Decrease |
| | | 2017 | | 2016 | | 2015 | | 2017 vs. 2016 | | 2016 vs. 2015 | | 2017 vs. 2016 | | 2016 vs. 2015 |
| Net Sales | | $ | 118,449 |
| | $ | 98,785 |
| | $ | 119,147 |
| | $ | 19,664 |
| | $ | (20,362 | ) | | 19.9 | % | | (17.1 | )% |
| Segment Profit (Loss) | | $ | 3,849 |
| | $ | (116,126 | ) | | $ | (81,344 | ) | | $ | 119,975 |
| | $ | (34,782 | ) | | 103.3 | % | | (42.8 | )% |
| Segment Profit (Loss) Percentage | | 3.2 | % | | (117.6 | )% | | (68.3 | )% | | 120.8 | % | | (49.3 | )% | | 102.8 | % | | (72.2 | )% |
Fiscal 2017 Compared to Fiscal 2016
Tubular and Energy Services segment sales increased $19,664, or 19.9%, compared to the prior year period. The increase was primarily related to our Test and Inspection Services and Protective Coatings business units. These increases were partially offset by a reduction within our Precision Measurement Systems business unit.
Tubular and Energy Services segment profit increased 103.3% to $3,849 in 2017 compared to a loss
The Tubular and Energy Services segment had an increase in new orders of 53.4% compared to the prior year period. New orders increased during 2017 as both the upstream and midstream energy markets showed recovery during the year and most significantly impacted our Test and Inspection Services and Protective Coatings business units. The increase in new orders lead to a 109.6% increase in backlog, with a December 31, 2017 balance of $26,737.
During 2017, the lease at our Birmingham, Alabama facility expired. The Company negotiated a lease renewal for this facility. The renewal is for a term of five years and is scheduled to expire July 31, 2022.
Fiscal 2016 Compared to Fiscal 2015
Tubular and Energy Services segment sales decreased $20,362, or 17.1%, compared to the prior year period. The decrease related primarily to $15,141 from Test and Inspection Services and $10,488 from Protective Coatings partially offset by an increase of $6,782 related to Precision Measurement Systems.
Tubular and Energy Services segment loss increased 42.8% to $116,126 in 2016 compared to a loss of $81,344 in 2015. The margin for this segment also decreased 492 basis points to (117.5%) compared to (68.3%) in the prior year period. The losses were largely attributable to impairments of $103,176 and $80,337 for 2016 and 2015, respectively. The non-GAAP gross profit declined by $11,927, or 53.1%, which was negatively impacted by our Test and Inspection Services and Protective Coatings businesses. Despite improved volumes during the 2016 fourth quarter, our Test and Inspection Services business was negatively impacted by the weakness in the upstream oil and gas market, where demand levels remained low, leading to heightened competition and reductions in service prices. Similarly, Protective Coatings sales declined significantly beginning in the third quarter 2016, which led to a temporary idling of the Birmingham facility. The facility has restarted operations in early October 2016. Non-GAAP gross profit was also negatively impacted by Precision Measurement Systems sales which produced lower margins due to competitive pressures as a result of the depressed midstream oil and gas market.
The Tubular and Energy Services segment had a reduction in new orders of 36.7% compared to the prior year period. Orders were down due to a reduction in midstream oil and gas new project lettings, with our Protective Coatings division reporting a 56.7% decline.
Liquidity and Capital Resources
Total debt atThe Company’s principal sources of liquidity are its existing cash and cash equivalents, cash generated by operations, and the available capacity under its revolving credit facility, which provides for a total commitment of up to $130,000, of which $37,814 was available for borrowing as of December 31, 20172022, 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, tax obligations, outstanding purchase obligations, and 2016acquisitions. The Company’s total debt, including finance leases, was $129,966$91,879 and $159,565,$31,251 as of December 31, 2022 and December 31, 2021, respectively, and was primarily comprised of borrowings on theunder its revolving credit facilityfacility.
The following table reflects available funding capacity as of December 31, 2022:
| | | | | | | | | | | | | | |
| | December 31, 2022 |
| Cash and cash equivalents | | | | $ | 2,882 | |
| Credit agreement: | | | | |
| Total availability under the credit agreement | | $ | 130,000 | | | |
| Outstanding borrowings on revolving credit facility | | (91,567) | | | |
| Letters of credit outstanding | | (619) | | | |
| Net availability under the revolving credit facility | | | | 37,814 | |
| Total available funding capacity | | | | $ | 40,696 | |
The Company’s cash flows are impacted from period to period by fluctuations in 2016, the term loan.
Our need for liquidity relates primarily to working capital, requirementsas 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 operating activities, debt service payments,collectability and realization, and provides allowances for credit losses where appropriate. The Company believes that its reserves for credit losses are appropriate as of December 31, 2022, but adverse changes in the economic environment and adverse financial conditions of its customers resulting from, among other things, pandemics including COVID-19, may impact certain of its customers’ ability to access capital expenditures, and JV capital obligations.compensate the Company for its products and services, as well as impact demand for its products and services.
The change in cash and cash equivalents for the three-year periodsyears ended December 31, are2022 and 2021 were as follows:
|
| | | | | | | | | | | | |
| | | 2017 | | 2016 | | 2015 |
| Net cash provided by operating activities | | $ | 39,372 |
| | $ | 18,405 |
| | $ | 56,172 |
|
| Net cash used by investing activities | | (4,687 | ) | | (7,930 | ) | | (205,575 | ) |
| Net cash (used) provided by financing activities | | (29,703 | ) | | (12,519 | ) | | 134,289 |
|
| Effect of exchange rate changes on cash and cash equivalents | | 2,333 |
| | (905 | ) | | (3,598 | ) |
| Net increase (decrease) in cash and cash equivalents | | $ | 7,315 |
| | $ | (2,949 | ) | | $ | (18,712 | ) |
| | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2022 | | 2021 | | |
| Net cash used in continuing operating activities | | $ | (10,576) | | | $ | (810) | | | |
| Net cash (used in) provided by continuing investing activities | | (56,418) | | | 17,822 | | | |
| Net cash provided by (used in) continuing financing activities | | 60,240 | | | (13,904) | | | |
| Effect of exchange rate changes on cash and cash equivalents | | (736) | | | (47) | | | |
| Net cash used in discontinued operations | | — | | | (253) | | | |
| Net (decrease) increase in cash and cash equivalents | | $ | (7,490) | | | $ | 2,808 | | | |
Cash Flows from Operating Activities
During the year ended December 31, 2017,2022, net cash provided byused in operating activities was $39,372$10,576, compared to $18,405$810 from continuing operations during the prior year period.year. For the twelve monthsyear ended December 31, 2017, income2022, net loss and adjustments to incomereconcile net loss from operating activities provided $23,679$15,246, compared to $24,261$16,745 in 2016.2021. Working capital and other assets and liabilities provided $15,693used $25,822 in the current period compared to a use$17,555 during 2021, including payments of $5,856 during 2016. During$8,000 in 2022 and 2021 related to the twelve months ended December 31, 2017, the Company received $9,946 and $1,827 from our 2016 and 2015 federal income tax refunds, respectively.Union Pacific Railroad Concrete Tie Settlement.
The Company’s calculation of DSO was 48 days sales outstanding atas of December 31, 2017 was 50 days2022 compared to 5345 days atas of December 31, 2016. We believe our receivables portfolio is strong.
During the 2016 period, net cash provided by operating activities provided $18,405, a decrease of $37,767, compared to the 2015 period. For the year ended December 31, 2016, income and adjustments to income from operating activities provided $24,261 compared to $46,971 in 2015. Working capital and other assets and liabilities used $5,856 in 2016 compared to providing $9,201 in 2015. The reduction in cash flows from operations was largely impacted by working capital movement.2021.
Cash Flows from Investing Activities
For the year ended December 31, 2017,2022, the Company had capital expenditures of $6,149,$7,633, a $1,515 reduction$3,013 increase from 2016.2021. The current year expenditures were primarily related to plant expansions within our Precast segment, including those related to the purchasesecond VanHooseCo operating location, implementations of 285 trackside rail lubricator units as partthe Company’s ERP system, and general plant and operational improvements throughout the Company. The capital expenditures during 2021 relate to plant expansions within our Precast segment, including expenditures related to the relocation of a multiple year service contract with a Class I railroadthe Precast Boise facility in 2020, the implementations of the Company’s ERP system, and to a lesser extent,general plant and operational improvements throughout the building expansion at our Waverly, WV Precast Concrete Products facility. TheCompany. In 2022, the Company received cash proceeds of $1,462 from the sale of assets. These proceeds were$8,800 primarily from the sale of our Protective Coatings field service division.
Capital expendituresits Track Components business. Cash used for investing activities for the year ended December 31, 2016 were $7,664, a decrease2022 included cash paid of $7,249, compared to 2015$57,852 for the acquisitions of $14,913. The 2016 expenditures related primarily to the Birmingham, AL inside diameter coating line upgradeVanHooseCo and application development of the Company’s new enterprise resource planning system. Also,Skratch in 2022. In 2021 the Company received proceeds of $969 related to the sale of assets and loaned $1,235 to its LB Pipe JV. Expenditures for the year ended December 31, 2015 related primarily to upgrades to the outside diameter coating line of the Birmingham, AL coating facility as well as general plant and yard improvements across each segment.
During 2015, the Company acquired Tew Plus, Ltd. (“Tew Plus”), Tew Holdings, Ltd. (“Tew”) and IOS. The total purchase price of these acquisitions, net of cash acquired, was $196,001 as of December 31, 2015. Investing activities during 2015 included capital expenditures of $14,913. The 2015 expenditures related primarily to the Birmingham, AL protective coatings facility upgrades, application development of a new enterprise resource planning system, and general plant and yard improvements across each segment. Other investing activities related to cash proceeds of $5,339$22,707 from the sale of assets. The salethe Piling Products business.
Cash Flows from Financing Activities
The Company reducedincreased its outstanding debt by $29,600$60,832 during the year ended December 31, 2017, including2022, primarily from the payoffborrowings used to fund the acquisitions of the term loan.Skratch and VanHooseCo. During the year ended December 31, 2016,2021, the Company reduced outstanding debt by approximately $9,184,$13,735, primarily from operational cash flows. Thethe net proceeds from the sale of the Piling Products division. During the years ended December 31, 2022 and 2021, the Company also paid $1,417 in financing fees in 2016of $182 and $406, respectively, related to our 2016 credit agreement amendments. Duringits Credit Agreement (as defined below). For the 2015 period,years ended December 31, 2022 and 2021, the Company had an increase in outstanding debtrepurchased 27,636 and 45,288 shares of approximately $142,326, primarily related to drawings against the revolving credit facility to fund domestic acquisition activity.
The Company withholds sharesits stock, respectively, for $410 and $732, respectively, all of which were withheld from employees to pay their withholding taxes in connection with the vesting of restricted stock awards. For the twelve months ended December 31, 2017, the Company withheld 7,277 shares having a value of approximately $103 to satisfy tax obligations. The Company withheld 20,186 shares having a value of approximately $275 for the twelve-month period ended December 31, 2016 compared to withholding 25,340 shares having a value of
approximately $1,114 in the 2015 period. Cash outflows related to dividends were $1,244 and $1,656 for the periods ended December 31, 2016 and 2015, respectively.
Lastly, for the years ended December 31, 2016 and 2015, the Company purchased 5,000 and 80,512 shares of common stock for $67 and $1,587, respectively, under our existing share repurchase authorization. There were no share repurchases during the twelve months ended December 31, 2016.
Financial Condition
On November 7, 2016, the Company, its domestic subsidiaries, and certain of its Canadian subsidiaries entered into the Second Amendment (the “Second Amendment”) to the Second Amended and Restated Credit Agreement dated March 13, 2015 and as amended by the First Amendment dated June 29, 2016 (the “Amended and Restated Credit Agreement”), with PNC Bank, N.A., Bank of America, N.A., Wells Fargo Bank, N.A., Citizens Bank of Pennsylvania, and Branch Banking and Trust Company. This Second Amendment modified the Amended and Restated Credit Agreement which had a maximum revolving credit line of $275,000. The Second Amendment reduced the permitted revolving credit borrowings to $195,000 and provides for additional term loan borrowing of $30,000 (“Term Loan”). The Term Loan was subject to quarterly straight line amortization until fully paid off upon the final payment on January 1, 2020. Furthermore, certain matters, including excess cash flow, asset sales, and equity issuances, triggered mandatory prepayments to the Term Loan. Term Loan borrowings were not available to draw upon following repayment. During 2017, the Company paid off the balance of the Term Loan. Capitalized terms used but not defined herein shall have the meanings ascribed to them in the Second Amendment or Amended and Restated Credit Agreement, as applicable.
The Second Amendment further provides for modifications to the financial covenants as defined in the Amended and Restated Credit Agreement. The Second Amendment calls for the elimination of the Maximum Leverage Ratio covenant through the quarter ending June 30, 2018. After that period, the Maximum Gross Leverage Ratio covenant will be reinstated to require a maximum ratio of 4.25 Consolidated Indebtedness to 1.00 Gross Leverage for the quarter ending September 30, 2018, and 3.75 to 1.00 for all periods thereafter until the maturity date of the credit facility. The Second Amendment also includes a Minimum Last Twelve Months EBITDA (as defined by the Amendment) covenant (“Minimum EBITDA”). For the quarter ended December 31, 2016 through the quarter ended June 30, 2017, the Minimum EBITDA had to be at least $18,500. For each quarter thereafter, through the quarter ending June 30, 2018, the Minimum EBITDA requirement increases by various increments. The incremental Minimum EBITDA requirement for the twelve month period ended December 31, 2017 had to be at least $25,000. For the twelve months ended December 31, 2017, the EBITDA calculation as defined by the Amended and Restated Credit Agreement was $37,341. At June 30, 2018, the Minimum EBITDA requirement will be $31,000. After the quarter ending June 30, 2018, the Minimum EBITDA covenant will be eliminated through the maturity of the credit agreement. The Second Amendment also includes a Minimum Fixed Charge Coverage Ratio covenant. The covenant represents the ratio of the Company’s fixed charges to the last twelve months of EBITDA, and is required to be a minimum of 1.00 to 1.00 through the quarter ended December 31, 2017 and 1.25 to 1.00 for each quarter thereafter through the maturity of the credit facility. The final financial covenant included in the Second Amendment is a Minimum Liquidity covenant which calls for a minimum of $25,000 in undrawn availability on the revolving credit loan at all times through the quarter ending June 30, 2018.
The Second Amendment includes several changes to certain non-financial covenants as defined in the Credit Agreement. Through the maturity date of the agreement, the Company has been prohibited from making any future acquisitions. The limitation on permitted annual distributions of dividends or redemptions of the Company’s stock has been decreased from $4,000 to $1,700. The aggregate limitation on loans to and investments in non-loan parties was decreased from $10,000 to $5,000. Furthermore, the limitation on asset sales has been decreased from $25,000 annually with a carryover of up to $15,000 from the prior year to $25,000 in the aggregate through the maturity date of the credit facility.
The Second Amendment provides for the elimination of the three lowest tiers of the pricing grid that had previously been defined in the First Amendment. Upon execution of the Second Amendment through the quarter ending March 31, 2018, the Company will be locked into the highest tier of the pricing grid which provides for pricing of the prime rate plus 225 basis points on base rate loans and the applicable LIBOR rate plus 325 basis points on euro rate loans. For each quarter after March 31, 2018 and through the maturity date of the credit facility, the Company’s position on the pricing grid will be governed by a Minimum Net Leverage ratio which is the ratio of Consolidated Indebtedness less cash on hand in excess of $15,000 to EBITDA. If, after March 31, 2018 the Minimum Net Leverage ratio positions the Company on the lowest tier of the pricing grid, pricing will be the prime rate plus 150 basis points on base rate loans or the applicable LIBOR rate plus 250 basis points on euro rate loans.
The Company generated $39,372used $10,576 from cash flows from operations during 2017 that2022, which was primarily utilized to fund working capital expenditures and make payments against our term loan and revolving credit facility. Atneeds. As of December 31, 2017, we2022, the Company had $37,678$2,882 in cash and cash equivalents and $41,105$37,814 of availability under the Second Amendmentits revolving credit facility, subject to the Second Amendedcovenant restrictions.
Principal uses of cash in recent years have been to fund operations, including capital expenditures, and Restated Credit Agreement while carrying $129,966service indebtedness. The Company views its short and long-term liquidity as being dependent on its results of operations, changes in total debt. We believe this liquidity will provide adequate flexibility to operate the business in a prudent manner, continue to service our revolving debt facility,working capital, and be better leveraged to weather any future downturn in our markets.
borrowing capacity.
Non-domestic cash balances of $35,807$2,012 are held in various locations throughout the world. Management determinedShould management determine that the cash balances of ourits foreign subsidiaries exceed its projected working capital needs, excess funds may be repatriated and subject to additional income taxes.
On August 13, 2021, the Company entered into the Fourth Amended and Restated Credit Agreement (as amended, modified and supplemented, the “Credit Agreement”). The Credit Agreement modifies the prior revolving credit facility, as amended, to provide more favorable terms to the Company and extends the maturity date 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 (as defined in the Credit Agreement) 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 subsidiaries exceeded our projected capital needsborrowers in the aggregate. The Credit Agreement’s incremental loan feature permits the Company to increase the available commitments under the facility by $30,200,up to an additional $50,000 subject to the Company’s receipt of increased commitments from existing or new lenders and does not intendthe satisfaction of certain conditions. On August 12, 2022, the Company amended its Credit Agreement to permanently reinvest such amounts outsideobtain approval for the VanHooseCo acquisition and temporarily modify certain financial covenants to accommodate the transaction. The Second Amendment permitted the Company to acquire the operating assets of VanHooseCo and modified the maximum gross leverage ratio covenant through June 30, 2023 to accommodate the transaction. The Second Amendment also added an additional tier to the pricing grid and provided for the conversion from LIBOR-based to SOFR-based borrowings. For a discussion of the United States. Accordingly, the Company has accrued the U.S. income taxterms and foreign withholding taxes associated with the repatriationavailability of the excess cash.
Atcredit facilities, please refer to Note 10 of the Notes to Consolidated Financial Statements contained in this Annual Report on Form 10-K. As of December 31, 2017,2022, the Company was in compliance with the covenants in the Second Amendment.Credit Agreement.
To reduce the impact of interest rate changes on outstanding variable-rate debt, the Company amended and entered into forward starting LIBOR-basedSOFR-based interest rate swaps with notional values totaling $50,000. The swaps became$20,000 and $20,000 effective on February 28, 2017August 12, 2022 and August 31, 2022, respectively, at which point they effectively convertconverted a portion of the debt from variable to fixed-rate borrowings during the term of the swap contract. AtThe Company also accounted for $50,000 of interest rate swaps that became effective February 2017 as cash flow hedges. During the year ended December 31, 2017,2020, the Company dedesignated the cash flow hedges and now accounts 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 December 31, 2022 and December 31, 2021 the swap asset was $222 compared to a$1,930 and $175, respectively. The swap liability was $159 as of $334 at December 31, 2016.2021.
Tabular DisclosureOn August 1, 2022, the Company divested the assets of Contractual Obligationsits rail spikes and anchors Track Components business located in St-Jean-sur-Richelieu, Quebec, Canada. Cash proceeds from the transaction were $7,795, subject to indemnification obligations and working capital adjustments, resulting in a pre-tax loss of $467. The Track Components business was reported in the Rail Products business unit within the Rail, Technologies, and Services segment. On September 24, 2021, the Company executed the sale of its Piling Products division for $23,902 in total proceeds, resulting in a pre-tax gain of $489. The Piling Products division was included in the Fabricated Steel business unit within the Steel Products and Measurement segment.
A summaryThe Company believes that the combination of its cash and cash equivalents, cash generated from operations, and the capacity under its revolving credit facility will provide sufficient liquidity to provide the flexibility to operate the business in a prudent manner, continue to service outstanding debt, and to selectively pursue accretive acquisitions to further the Company’s required payments under financial instruments and other commitments at December 31, 2017 are presented in the following table:strategic initiatives.
|
| | | | | | | | | | | | | | | | | | | | |
| | | Total | | Less than
1 year | | 1-3
years | | 4-5
years | | More than
5 years |
| Contractual Cash Obligations | | | | | | | | | | |
| Revolving credit facility (1) | | $ | 128,470 |
| | $ | — |
| | $ | 128,470 |
| | $ | — |
| | $ | — |
|
| Interest | | 12,461 |
| | 5,912 |
| | 6,549 |
| | — |
| | — |
|
| Other debt | | 1,496 |
| | 656 |
| | 840 |
| | — |
| | — |
|
| Pension plan contributions | | 253 |
| | 253 |
| | — |
| | — |
| | — |
|
| Operating leases | | 17,811 |
| | 4,483 |
| | 5,616 |
| | 2,946 |
| | 4,766 |
|
| U.S. transition tax (2) | | 2,617 |
| | 209 |
| | 419 |
| | 419 |
| | 1,570 |
|
| Purchase obligations not reflected in the financial statements | | 31,320 |
| | 31,320 |
| | — |
| | — |
| | — |
|
| Total contractual cash obligations | | $ | 194,428 |
| | $ | 42,833 |
| | $ | 141,894 |
| | $ | 3,365 |
| | $ | 6,336 |
|
| Other Financial Commitments | | | | | | | | | | |
| Standby letters of credit | | $ | 425 |
| | $ | 425 |
| | $ | — |
| | $ | — |
| | $ | — |
|
| |
(1) | Repayments of outstanding loan balances are disclosed in Note 10 Long-Term Debt and Related Matters, to Consolidated Financial Statements included in Part II, Item 8, Financial Statements and Supplementary Data of this report. |
| |
(2) | Further detail on the U.S. Tax Cuts and Jobs Act transition tax is disclosed in Note 14 Income Taxes, to Consolidated Financial Statements included in Part II, Item 8, Financial Statements and Supplementary Data of this report. |
Other long-term liabilities include items such as deferred income taxes which are not contractual obligations by nature. The Company cannot estimate the settlement years for these items and has excluded them from the above table.
Off-Balance Sheet Arrangements
The Company’s off-balance sheet arrangements include the operating leases, purchase obligations, and standby letters of credit disclosed within the contractual obligations table above in the “Liquidity and Capital Resources” section. These arrangements provide the Company with increased flexibility relative to the utilization and investment of cash resources.
Backlog
Although backlog is not necessarily indicative of future operating results, the following table provides the backlog by business segment:
|
| | | | | | | | | | | | |
| | | Backlog |
| | | December 31, 2017 | | December 31, 2016 | | December 31, 2015 |
| Rail Products and Services | | $ | 68,850 |
| | $ | 62,743 |
| | $ | 85,199 |
|
| Construction Products | | 71,318 |
| | 71,954 |
| | 45,371 |
|
| Tubular and Energy Services | | 26,737 |
| | 12,759 |
| | 34,137 |
|
| Total Backlog | | $ | 166,905 |
| | $ | 147,456 |
| | $ | 164,707 |
|
| | | | | | | | | | | | | | | | |
| | December 31, |
| | 2022 | | 2021 | | |
| Rail, Technologies, and Services | | $ | 105,241 | | | $ | 96,573 | | | |
| Precast Concrete Products | | 80,501 | | | 68,636 | | | |
| Steel Products and Measurement | | 86,509 | | | 44,980 | | | |
| Total backlog | | $ | 272,251 | | | $ | 210,189 | | | |
While a considerable portion of ourthe Company’s business is backlog driven, certain businesses, including the Test and Inspection Services and the Rail TechnologiesGlobal Friction Management business units,unit, are not driven by backlog and therefore have insignificant levels of backlog throughout the year.
Critical Accounting Policies and Estimates
The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States. When more than one accounting principle, orU.S. The preparation of the method of its application, is generally accepted, management selects the principle or method that is appropriate in the Company’s specific circumstance. Application of these accounting principlesconsolidated financial statements requires management to make estimates and judgments that affect the reported amount of assets, liabilities, revenues, and expenses, and the related disclosure of contingent assets and liabilities. The following critical accounting policies, which are reviewed by the Company’s Audit Committee of the Board of Directors, relate to the Company’s more significant judgmentsestimates and estimatesjudgments used in the preparation of its consolidated financial statements. There can be no assurance that actualActual results will notcould differ from those estimates.
For a summary of ourthe Company’s significant accounting policies, including those discussed below, see Part II, Item 8, Financial Statements and Supplementary Data, Note 1 Summary of Significant Accounting Polices to the Consolidated Financial Statements.
Revenue Recognition - The Company’s revenues are comprised of product and service sales as well as products and services provided under long-term contracts. For product and service sales, the Company recognizes revenue when the following criteria have been satisfied: persuasive evidence of a sales arrangement exists; product delivery and transfer of title to the customer has occurred or services have been rendered; the price is fixed or determinable; and collectability is reasonably assured. Generally, product title passes to the customer upon shipment. In limited cases, title does not transfer and revenue is not recognized until the customer has received the products at its physical location. Revenue is recorded net of returns, allowances, customer discounts, and incentives. Sales taxes collected from customers and remitted to governmental authorities are accounted for on a net (excluded from revenues) basis. Shipping and handling costs are included in cost of goods sold.
Revenues for products under long-term contracts are recognized using the percentage-of-completion method. Sales and gross profit are recognized as work is performed based upon the proportion of actual costs incurred to estimated total project costs. Sales and gross profit are adjusted prospectively for revisions in estimated total project costs and contract values. For certain products, the percentage-of-completion is based upon actual labor costs as a percentage of estimated total labor costs. At the time a loss contract becomes known, the entire amount of the estimated loss is recognized in the Consolidated Statement of Operations.
Business Combinations, Goodwill, and Intangible Assets - We account for acquired businesses using the acquisition method of accounting, which requires that the assets acquired and liabilities assumed be recorded at the date of acquisition at their respective estimated fair values. The cost to acquire a business is allocated to the underlying net assets of the acquired business based on estimates of their respective fair values. The purchase price allocation process requires management to make significant estimates and assumptions, especially at the acquisition date with respect to intangible assets. Although we believe the assumptions and estimates we have made are reasonable, they are based in part on historical experience and information obtained from the management of the acquired companies and are inherently uncertain. Examples of critical estimates in valuing certain of the intangible assets we have acquired or may acquire in the future include but are not limited to: future expected cash flows from customer relationships, the acquired company’s trade name and trademarks as well as assumptions about the period of time the acquired trade name and trademarks will continue to be used in the combined company’s product portfolio, future expected cash flows from developed technology, and discount rates. Unanticipated events and circumstances may occur which may affect the accuracy or validity of such assumptions, estimates, or actual results.
Intangible assets are amortized over the expected life of the asset. Any excess of the purchase price over the estimated fair values of the net assets acquired is recorded as goodwill. The judgments made in determining the estimated fair values assigned to each class of assets acquired and liabilities assumed, as well as asset lives, can materially impact our results of operations. Fair values and useful lives are determined based on, among other factors, the expected future period of benefit of the asset, the various characteristics of the asset, and projected cash flows. Because this process involves management making estimates with respect to future revenues and market conditions and because these estimates also form the basis for the determination of whether or not an impairment charge should be recorded, these estimates are considered to be critical accounting estimates.
Goodwill is required to be tested for impairment at least annually. The Company performs its annual impairment test as of October 1st or more frequently when indicators of impairment are present. The goodwill impairment test involves comparing the fair value of a reporting unit to its carrying value, including goodwill. If the carrying amount of the reporting unit exceeds its fair value, an impairment loss equal to the excess is recorded as a component of operations. The Company uses a combination of a discounted cash flow model (“DCF model”) and a market approach to determine the current fair values of the reporting units. A number of significant assumptions and estimates are involved in the application of the DCF model to forecast operating cash flows, including markets and market share, sales volume and pricing, costs to produce, and working capital changes. In times of adverse economic conditions in the global economy, the Company’s long-term cash flow projections are subject to a greater degree of uncertainty than usual. If we had established different reporting units or utilized different valuation methodologies or assumptions, the impairment test results could differ, and we could be required to record impairment charges.
The Company considers historical experience and available information at the time the fair values of its reporting units are estimated. However, actual amounts realized may differ from those used to evaluate the impairment of goodwill. If actual results are not consistent with our assumptions and judgments used in estimating future cash flows and asset fair values, the Company may be exposed to impairment losses that could be material to our results of operations.
There were no goodwill impairments recorded during the year ended December 31, 2017. The Company recorded goodwill impairment charges of $61,142 and $80,337 during 2016 and 2015, respectively, related to reporting units within the Tubular and Energy Services and Rail Products and Services segment.
At December 31, 2017, the Company had $19,785 of goodwill on its Consolidated Balance Sheet. Of the total, $14,638 related to the Rail Products and Services segment and $5,147 related to the Construction Products segment. The Company recorded a $32,725 partial goodwill impairment related to the Rail Products and Services segment during the year ended December 31, 2016. Based on considerations of current year financial results, including consideration of macroeconomic conditions, such as performance of the Company's stock price, the segment's fair value was estimated to be in excess of its carrying value at December 31, 2017. However, the previously recorded partial impairment included assumptions for certain market recoveries throughout the years ended December 31, 2018 and beyond. If these recoveries do not fully develop, the Rail Products and Services segment may require an incremental goodwill impairment. Additional information concerning the impairments is set forth in Part II, Item 8, Financial Statements and Supplementary Data, Note 4 Goodwill and Other Intangible Assets, to the Consolidated Financial Statements, included herein, which is incorporated by reference into this Item 7.
Intangible Assets, Long-Lived Assets, and Investments - The Company is required to test for asset impairment whenever events or changes in circumstances indicate that the carrying value of an asset might not be recoverable. Once a triggering event has occurred, the impairment test employed is based on whether the intent is to hold the asset for continued use or to hold the asset for sale. The applicable guidance for assets held for use requires that, if the sum of the future expected cash flows associated with an asset, undiscounted and without interest charges, is less than the carrying value, an asset impairment must be recognized in the financial statements. The amount of the impairment is the difference between the fair value of the asset and the carrying value of the asset. For assets held for sale, to the extent the carrying value is greater than the asset’s fair value less costs to sell, an impairment loss is recognized for the difference. The accounting estimate related to asset impairments is highly susceptible to change from period to period because it requires management to make assumptions about the existence of impairment indicators and cash flows over future years. These assumptions impact the amount of an impairment, which would have an impact on the Consolidated Statements of Operations.
The fair value of the Company’s equity investments is dependent on the performance of the investee companies as well as volatility inherent in the external markets for these investments. In assessing potential impairment of these investments, we consider these factors as well as the forecasted financial performance of the investees. If these forecasts are not met and indicate an other-than-temporary decline in value, impairment charges may be required.
During 2017, the Company recorded an other-than-temporary impairment of $413 to its investment in L B Pipe and Coupling Products, LLC joint venture as the asset is held for sale at fair value. No other material impairments of intangible assets, long-lived assets, or investments were recored during the period ended December 31, 2017. The Company recorded definite-lived intangible asset impairments of $59,786 and property, plant and equipment impairment of $14,956 for the year ended December 31, 2016. The impairments related to the Tubular and Energy Services segment. There were no material impairments of intangible assets, long-lived assets, or investments for the years ended December 31, 2015.
Product Warranty - The Company maintains a current warranty for the repair or replacement of defective products. For certain manufactured products, an accrual is made on a monthly basis as a percentage of cost of sales. For long-term construction projects, a product warranty accrual is established when the claim is known and quantifiable. The product warranty accrual is periodically adjusted based on the identification or resolution of known individual product warranty claims. The underlying assumptions used to calculate the product warranty accrual can change from period to period and are dependent upon estimates of the amount and cost of future product repairs or replacements.
At December 31, 2017 and 2016, the product warranty reserve was $8,682 and $10,154, respectively. During the years ended December 31, 2017, 2016, and 2015, the Company recorded product warranty expense of $3,564, $2,524, and $1,794, respectively. For additional information regarding the Company’s product warranty, refer to Part II, Item 8, Financial Statements and Supplementary Data, Note 19 to the Consolidated Financial Statements, Commitments and Contingent Liabilities, included herein.
Contingencies and Litigation - The preparation of consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the consolidated financial statements, and also affect the amounts of revenues and expenses reported for each period.
In the ordinary course of business, various legal and regulatory claims and proceedings are pending or threatened against the Company. When a probable, estimable exposure exists, the Company accrues an estimate of the probable costs for the resolution of these matters. These estimates are based upon an analysis of potential results, assuming a combination of litigation
and settlement strategies. During 2016, we recorded $900 in legal expense related to the anticipated settlement of an employment dispute. This settlement was finalized during 2017 for $797, resulting in an adjustment of $103. There were no such charges for the years ended December 31, 2015. Future results of operations could be materially affected by changes in our assumptions or the outcome of these proceedings.
The Company’s operations are subject to national, state, foreign, and/or local laws and regulations that impose limitations and prohibitions on the discharge and emission of, and establish standards for the use, disposal, and management of, regulated materials and waste. These regulations impose liability for the costs of investigation, remediation, and damages resulting from present and past spills, disposals, or other releases of hazardous substances or materials. Liabilities are recorded when remediation efforts are probable and the costs can be reasonably estimated. Estimates are not reduced by potential claims for recovery. Claims for recovery are recognized as agreements are reached with third parties or as amounts are received. Established reserves are periodically reviewed and adjusted to reflect current remediation progress, prospective estimates of required activity, and other factors that may be relevant, including changes in technology or regulations.
Refer to Part II, Item 8, Financial Statements and Supplementary Data, Note 19 Commitments and Contingent Liabilities, to the Consolidated Financial Statements for additional information regarding the Company’s commitments and contingent liabilities.
Income Taxes - The recognition of deferred tax assets requires management to make judgments regarding the future realization of these assets. As prescribed by the Financial Accounting Standard’s BoardStandards Board’s (“FASB”) Accounting Standards Codification (“ASC”) 740, “Income Taxes,” valuation allowances must be provided for those deferred tax assets for which it is more likely than not (a likelihood of more than 50%) that some portion or all of the deferred tax assets will not be realized. This guidance requires management to evaluate positive and negative evidence regarding the recoverability of deferred tax assets. The determination of whether the positive evidence outweighs the negative evidence and quantification of the valuation allowance requires management to make estimates and judgments of future financial results.
The Company evaluates all tax positions taken on its federal, state, and foreign tax filings to determine if the position is more likely than not to be sustained upon examination. For positions that meet the more likely than not to be sustained criteria, the largest amount of benefit to be realized upon ultimate settlement is determined on a cumulative probability basis. A previously recognized tax position is derecognized when it is subsequently determined that a tax position no longer meets the more likely than not threshold to be sustained. The evaluation of the sustainability of a tax position and the expected tax benefit is based on judgment, historical experience, and various other assumptions. Actual results could differ from those estimates upon subsequent resolution of identified matters.
The Company’s income tax rate is significantly affected by the tax rate on global operations. In addition to local country tax laws and regulations, this rate depends on the extent earnings are indefinitely reinvested outside of the United States.U.S. Indefinite reinvestment is determined by management’s judgment about and intentions concerning the future operations of the Company. At December 31, 2017, management does not intend to repatriate accumulated foreign earnings of $2,318. Should we decide to repatriate these accumulated foreign earnings, the Company would have to accrue additional income and withholding taxesThere has been no material changes in the periodunderlying assumptions and estimates used in which it is determined thatthese calculations in the earnings will no longer be indefinitely invested outside the United States.relevant period.
Refer to Part II, Item 8, Financial Statements and Supplementary Data, Note 14 Income Taxes, included hereinwhich is incorporated by reference into this Item 7, for additional information regarding the Company’s deferred tax assets. The Company’s ability to realize these tax benefits may affect the Company’s reported income tax expense and net income.
New Revenue Recognition - We account for revenue in accordance with the ASC 606, “Revenue from Contracts with Customers,” whereby the unit of account is a performance obligation. 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 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 its physical location.
The Company also derives revenue from products and services provided under long-term agreements with its customers. The transaction price of a long-term agreement is allocated to each distinct performance obligation. The majority of the Company’s long-term contracts have a single performance obligation as the promise to transfer products or services is not separately identifiable from other promises in the contract and, therefore, not distinct. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring products or providing services.
The Company’s performance obligations under long-term agreements with its customers are generally satisfied as over time. Revenue under these long-term agreements is generally 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 the Company’s 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. Contract assets from over time contracts are recorded within the Consolidated Balance Sheets and contract liabilities from over time contracts are recorded in “Deferred revenue” within the Consolidated Balance Sheets.
Accounting Pronouncements -for these long-term agreements involves the use of various techniques to estimate total revenues and costs. The Company estimates profit on these long-term agreements as the difference between total estimated revenues and expected costs to complete a contract and recognizes that profit over the life of the contract. Contract estimates are based on various assumptions to project the outcome of future events that may span several years. These assumptions include, among other things, labor productivity, cost and availability of materials, and timing of funding by customers. The nature of these long-term agreements may give rise to several types of variable considerations, such as claims, awards, and incentive fees. Historically, these amounts of variable consideration have not been considered significant. Contract estimates may include additional revenue for submitted contract modifications if there exists an enforceable right to the modification, the amount can be reasonably estimated, and its realization is probable. These estimates are based on historical collection experience, anticipated performance, and the Company’s best judgment at that time. These amounts are generally included in the contract’s transaction price and are allocated over the remaining performance obligations. As significant changes in the above estimates could impact the timing and amount of revenue and profitability of our long-term contracts, we review and update contract-related estimates regularly. In the event a contract loss becomes known, the entire amount of the estimated loss is recognized in the Consolidated Statements of Operations. There has been no material changes in the underlying assumptions and estimates used in these calculations in the relevant period.
See Part II, Item 8, Financial Statements and Supplementary Data, Note 1 Summary4 to the Consolidated Financial Statements, which is incorporated by reference into this Item 7.
Goodwill - Goodwill is the cost of Significant Accounting Policies,an acquisition less the fair value of the identifiable net assets of the acquired business. Goodwill is required to be tested for impairment at least annually. The Company performs its annual impairment test in the fourth quarter, or whenever events or changes in circumstances indicate that it is more likely than not that the fair value of a reporting unit is less than its carrying amount.
The Company may first consider qualitative factors to assess whether there are indicators that it is more likely than not that the fair value of a reporting unit may not exceed its carrying amount. The quantitative goodwill impairment analysis involves comparing the fair value of a reporting unit to its carrying value, including goodwill. If the carrying amount of the reporting unit exceeds its fair value, an impairment loss equal to the excess amount up to the goodwill balance is recorded as an impairment to goodwill of the reporting unit. The Company uses a combination of a discounted cash flow method and a market approach to determine the fair values of the reporting units.
A number of significant assumptions and estimates are involved in the estimation of the fair value of reporting units, including the identification of macroeconomic conditions, industry and market considerations, cost factors, and overall financial performance. The estimated fair value of a reporting unit is sensitive to changes in assumptions, including forecasted future operating cash flows, weighted-average cost of capital, terminal growth rates, and industry multiples.
The Company considers historical experience and available information at the time the fair values of its reporting units are estimated. The Company believes the estimates and assumptions used in estimating the fair value of its reporting units are reasonable and appropriate; however, different assumptions and estimates could materially impact the estimated fair value of its reporting units and the resulting determinations about goodwill impairment. This could materially impact the Company’s Consolidated Statements of Operations and Consolidated Balance Sheets. There has been no material changes in the underlying assumptions and estimates used in these calculations in the relevant period. Future estimates may differ materially from current estimates and assumptions.
Additional information concerning the impairments is set forth in Part II, Item 8, Financial Statements and Supplementary Data, Note 5 to the Consolidated Financial Statements included herein, which is incorporated by reference into this Item 7.
Intangible Assets and Long-Lived Assets - The Company tests intangible assets and long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of an asset or asset group may not be recoverable. Recoverability of assets is determined by comparing the estimated undiscounted future cash flows of the asset or asset group to their carrying amount. If the carrying value of the assets exceeds their estimated undiscounted future cash flows, an impairment loss would be determined as the difference between the fair value of the assets and its carrying value. Typically, the fair value of the assets would be determined using a discounted cash flow model which would be sensitive to judgments of what constitutes an asset group and certain assumptions such as estimated future financial performance, discount rates, and other assumptions that marketplace participants would use in their estimates of fair value. There has been no material changes in the underlying assumptions and estimates used in these calculations in the relevant period. The accounting estimate related to asset impairments is highly susceptible to change from period to period because it requires management to make assumptions about the existence of impairment indicators and cash flows over future years. These assumptions impact the amount of an impairment, which would have an impact on the Consolidated Statements of Operations.
Additional information regarding new accounting pronouncements.concerning the impairments is set forth in Part II, Item 8, Financial Statements and Supplementary Data, Note 5 to the Consolidated Financial Statements included herein, which is incorporated by reference into this Item 7.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
(Dollars in thousands)
Interest Rate Risk
In the ordinary course of business, the CompanyThis item is exposed to interest rate risks that may adversely affect funding costs associated with its variable-rate debt. To reduce the impact of interest rate changes on a portion of this variable-rate debt, the Company entered into forward starting interest rate swap agreements, which effectively convert a portion of the debt from a variablenot applicable to a fixed-rate borrowing during the termsmaller reporting company.
For the year ended December 31, 2017, a 1% change in the interest rate for variable rate debt as of December 31, 2017 would increase or decrease interest expense by approximately $1,425.
The Company does not purchase or hold any derivative financial instruments for trading purposes. At contract inception, the Company designates its derivative instruments as hedges. The Company recognizes all derivative instruments on the balance sheet at fair value. Fluctuations in the fair values of derivative instruments designated as cash flow hedges are recorded in accumulated other comprehensive income and reclassified into earnings within other income as the underlying hedged items affect earnings. To the extent that a change in a derivative does not perfectly offset the change in value of the interest rate being hedged, the ineffective portion is recognized in earnings immediately.
The Company has entered into three forward starting LIBOR-based interest rate swap agreements with notional values totaling $50,000. At December 31, 2017, the interest rate swap asset was $222 compared to a liability of $334 at December 31, 2016.
Foreign Currency Exchange Rate Risk
The Company is subject to exposures to changes in foreign currency exchange rates. The Company may manage its exposure to changes in foreign currency exchange rates on firm sale and purchase commitments by entering into foreign currency forward contracts. The Company’s risk management objective is to reduce its exposure to the effects of changes in exchange rates on these transactions over the duration of the transactions. The Company did not engage in foreign currency hedging transactions during the three-year period ended December 31, 2017.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of L.B. Foster Company and Subsidiaries
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of L.B. Foster Company and Subsidiariessubsidiaries (the Company) as of December 31, 20172022 and 2016,2021, the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity and cash flows for each of the threetwo years in the period ended December 31, 2017,2022, and the related notes and financial statement schedule listed in the Index at Item 15 (a) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 20172022 and 2016,2021, and the results of its operations and its cash flows for each of the threetwo years in the period ended December 31, 2017,2022, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2017,2022, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 28, 2018March 10, 2023 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
| | | | | | | | |
| | Revenue recognition – contract estimates |
| Description of the Matter | | As explained in Notes 1 and 4 to the consolidated financial statements, revenue is recognized when the Company satisfies its performance obligations under a contract. The Company’s performance obligations under long-term agreements with its customers are generally satisfied over time. Revenue under these long-term agreements is generally 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 the Company’s performance to date under the terms of the contract. For the year ended December 31, 2022, the Company recorded $67.1 million of over time input method revenue within net sales on its consolidated statement of operations. Accounting for these long-term agreements involves the use of various techniques to estimate total revenues and costs. Contract estimates are based on various assumptions to project the outcome of future events that may span several years. These assumptions include, among other things, labor costs, sub-contractor costs, material costs, and total collections from the customer. Significant changes in the above estimates could impact the timing and amount of revenue and profitability of the Company’s long-term contracts.
Auditing these estimates requires auditor judgment because of the significant management judgment necessary to develop the estimated assumptions at completion due to the size and identified risks for each contract.
|
| | |
| How We Addressed the Matter in Our Audit | | We obtained an understanding, evaluated the design, and tested the operating effectiveness of relevant internal controls over the Company’s process relating to the determination of estimates for long-term projects. For example, we evaluated the design and tested the operating effectiveness of controls over management’s review of the current status of long-term projects, accumulation of costs incurred, costs remaining to complete and total contract value.
To test the total estimates for long term contracts, our audit procedures included, among others, obtaining an understanding of the contract, evaluating the consistency of estimated costs with the initial budget, and understanding margin changes throughout the life of the contract. We also performed a retrospective review of management’s estimates for a sample of completed contracts by comparing initial estimates with the actual historical data to assess management’s ability to estimate.
|
| | |
| | Valuation of goodwill for the Rail Technologies and Precast Concrete Products Reporting Units |
| Description of the Matter | | At December 31, 2022, the Company had $30.7 million of goodwill on its consolidated balance sheet. As more fully described in Notes 1 and 5 to the consolidated financial statements, during 2022, weakened economic conditions, unfavorable changes in foreign exchange rates, and recent increases in the cost of certain materials, labor, and other inflation-related pressures unfavorably impacted the financial results. Because of these challenging market conditions, the Company was required to perform a quantitative test of goodwill for these reporting units. Significant assumptions used in the Company’s fair value estimate included revenue growth, EBITDA contribution, and market participant assumptions.
Auditing the goodwill test was complex, as it included estimating the fair value of the reporting units. In particular, the fair value estimates are sensitive to the significant assumptions named above, which are affected by expected future market or economic conditions.
|
| | |
| How We Addressed the Matter in Our Audit | | We obtained an understanding, evaluated the design, and tested the operating effectiveness of internal controls over the Company’s goodwill impairment review process, including controls over management’s review of the valuation model and the significant assumptions underlying the fair value determination, as described above.
To test the fair value of the reporting unit, our audit procedures included, among others, involving our valuation specialists to assist in assessing the valuation methodologies utilized by the Company and its valuation expert and testing the significant assumptions and underlying data used by the Company. We compared the significant assumptions used by management to historical performance and other relevant factors. We performed sensitivity analyses of significant assumptions to evaluate the changes in fair values that would result from changes in the assumptions. We reviewed the reconciliation of the fair value of the reporting units to the market capitalization of the Company and assessed the resulting control premium.
|
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 1990
Pittsburgh, Pennsylvania
February 28, 2018March 10, 2023
L.B. FOSTER COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
(In thousands, except share data) | | | | | | | | | | | | | | |
| | December 31, |
| | 2022 | | 2021 |
| ASSETS |
| Current assets: | | | | |
| Cash and cash equivalents | | $ | 2,882 | | | $ | 10,372 | |
| Accounts receivable - net (Note 6) | | 82,455 | | | 55,911 | |
| Contract assets (Note 4) | | 33,613 | | | 36,179 | |
| Inventories - net (Note 7) | | 75,721 | | | 62,871 | |
| | | | |
| Other current assets | | 11,061 | | | 14,146 | |
| | | | |
| Total current assets | | 205,732 | | | 179,479 | |
| Property, plant, and equipment - net (Note 8) | | 85,344 | | | 58,222 | |
| Operating lease right-of-use assets - net (Note 9) | | 17,291 | | | 15,131 | |
| Other assets: | | | | |
| Goodwill (Note 5) | | 30,733 | | | 20,152 | |
| Other intangibles - net (Note 5) | | 23,831 | | | 31,023 | |
| | | | |
| Deferred tax assets (Note 14) | | 24 | | | 37,242 | |
| Other assets | | 2,355 | | | 1,346 | |
| | | | |
| TOTAL ASSETS | | $ | 365,310 | | | $ | 342,595 | |
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
| Current liabilities: | | | | |
| Accounts payable | | $ | 48,782 | | | $ | 41,411 | |
| Deferred revenue (Note 4) | | 19,452 | | | 13,411 | |
| Accrued payroll and employee benefits | | 10,558 | | | 9,517 | |
| | | | |
| Current portion of accrued settlement (Note 18) | | 8,000 | | | 8,000 | |
| Current maturities of long-term debt (Note 10) | | 127 | | | 98 | |
| Other accrued liabilities | | 16,192 | | | 13,757 | |
| | | | |
| Total current liabilities | | 103,111 | | | 86,194 | |
| Long-term debt (Note 10) | | 91,752 | | | 31,153 | |
| Deferred tax liabilities (Note 14) | | 3,109 | | | 3,753 | |
| Long-term portion of accrued settlement (Note 18) | | 8,000 | | | 16,000 | |
| Long-term operating lease liabilities (Note 9) | | 14,163 | | | 12,279 | |
| Other long-term liabilities | | 7,577 | | | 9,606 | |
| | | | |
| Stockholders’ equity: | | | | |
| Common stock, par value $0.01, authorized 20,000,000 shares; shares issued at December 31, 2022 and December 31, 2021, 11,115,779; shares outstanding at December 31, 2022 and December 31, 2021, 10,776,827 and 10,670,343, respectively (Note 11) | | 111 | | | 111 | |
| Paid-in capital | | 41,303 | | | 43,272 | |
| Retained earnings | | 123,169 | | | 168,733 | |
| Treasury stock - at cost, common stock, shares at December 31, 2022 and December 31, 2021, 338,952 and 445,436, respectively (Note 11) | | (6,240) | | | (10,179) | |
| Accumulated other comprehensive loss (Note 12) | | (21,165) | | | (18,845) | |
| Total L.B. Foster Company stockholders’ equity | | 137,178 | | | 183,092 | |
| Noncontrolling interest | | 420 | | | 518 | |
| Total stockholders’ equity | | 137,598 | | | 183,610 | |
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | | $ | 365,310 | | | $ | 342,595 | |
|
| | | | | | | | |
| | | 2017 | | 2016 |
| ASSETS |
| Current assets: | | | | |
| Cash and cash equivalents | | $ | 37,678 |
| | $ | 30,363 |
|
| Accounts receivable - net | | 76,582 |
| | 66,632 |
|
| Inventories - net | | 97,543 |
| | 83,243 |
|
| Prepaid income tax | | 188 |
| | 14,166 |
|
| Other current assets | | 9,120 |
| | 5,200 |
|
| Total current assets | | 221,111 |
| | 199,604 |
|
| Property, plant, and equipment - net | | 96,096 |
| | 103,973 |
|
| Other assets: | | | | |
| Goodwill | | 19,785 |
| | 18,932 |
|
| Other intangibles - net | | 57,440 |
| | 63,519 |
|
| Investments | | 162 |
| | 4,031 |
|
| Other assets | | 1,962 |
| | 2,964 |
|
| Total assets | | $ | 396,556 |
| | $ | 393,023 |
|
| LIABILITIES AND STOCKHOLDERS' EQUITY |
| Current liabilities: | | | | |
| Accounts payable | | $ | 52,404 |
| | $ | 37,744 |
|
| Deferred revenue | | 10,136 |
| | 7,597 |
|
| Accrued payroll and employee benefits | | 11,888 |
| | 7,497 |
|
| Accrued warranty | | 8,682 |
| | 10,154 |
|
| Current maturities of long-term debt | | 656 |
| | 10,386 |
|
| Other accrued liabilities | | 9,764 |
| | 8,953 |
|
| Total current liabilities | | 93,530 |
| | 82,331 |
|
| Long-term debt | | 129,310 |
| | 149,179 |
|
| Deferred tax liabilities | | 9,744 |
| | 11,371 |
|
| Other long-term liabilities | | 17,493 |
| | 16,891 |
|
| Stockholders' equity: | | | | |
| Common stock, par value $0.01, authorized 20,000,000 shares; shares issued at December 31, 2017 and December 31, 2016, 11,115,779; shares outstanding at December 31, 2017 and December 31, 2016, 10,340,576 and 10,312,625, respectively | | 111 |
| | 111 |
|
| Paid-in capital | | 45,017 |
| | 44,098 |
|
| Retained earnings | | 137,780 |
| | 133,667 |
|
| Treasury stock — at cost, common stock, shares at December 31, 2017 and December 31, 2016, 775,203 and 803,154, respectively | | (18,662 | ) | | (19,336 | ) |
| Accumulated other comprehensive loss | | (17,767 | ) | | (25,289 | ) |
| Total stockholders' equity | | 146,479 |
| | 133,251 |
|
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | | $ | 396,556 |
| | $ | 393,023 |
|
The accompanying notes are an integral part of these Consolidated Financial Statements.
L.B. FOSTER COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THE THREE YEARS ENDED DECEMBER 31,
(In thousands, except share data)
| | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2022 | | 2021 | | |
| Sales of goods | | $ | 436,821 | | | $ | 450,241 | | | |
| Sales of services | | 60,676 | | | 63,379 | | | |
| Total net sales (Note 4) | | 497,497 | | | 513,620 | | | |
| Cost of goods sold | | 355,106 | | | 374,366 | | | |
| Cost of services sold | | 52,780 | | | 52,952 | | | |
| Total cost of sales | | 407,886 | | | 427,318 | | | |
| Gross profit | | 89,611 | | | 86,302 | | | |
| Selling and administrative expenses | | 82,657 | | | 75,995 | | | |
| Amortization expense (Note 5) | | 6,144 | | | 5,836 | | | |
| Goodwill and long-lived assets impairment charges (Note 5) | | 8,016 | | | — | | | |
| Operating (loss) income | | (7,206) | | | 4,471 | | | |
| | | | | | |
| Interest expense - net | | 3,340 | | | 2,956 | | | |
| Other income - net (Note 19) | | (1,550) | | | (3,075) | | | |
| (Loss) income before income taxes | | (8,996) | | | 4,590 | | | |
| Income tax expense (Note 14) | | 36,681 | | | 1,119 | | | |
| Net (loss) income | | (45,677) | | | 3,471 | | | |
| Net loss attributable to noncontrolling interest | | (113) | | | (83) | | | |
| Net (loss) income attributable to L.B. Foster Company | | (45,564) | | | 3,554 | | | |
| Discontinued operations: | | | | | | |
| Income from discontinued operations before income taxes | | — | | | 72 | | | |
| Income tax expense (Note 14) | | — | | | — | | | |
| Income from discontinued operations | | — | | | 72 | | | |
| Net (loss) income attributable to L.B. Foster Company | | $ | (45,564) | | | $ | 3,626 | | | |
| Basic (loss) earnings per common share: | | | | | | |
| From continuing operations | | $ | (4.25) | | | $ | 0.33 | | | |
| From discontinued operations | | — | | | 0.01 | | | |
| Basic (loss) earnings per common share (Note 13) | | $ | (4.25) | | | $ | 0.34 | | | |
| Diluted (loss) earnings per common share: | | | | | | |
| From continuing operations | | $ | (4.25) | | | $ | 0.33 | | | |
| From discontinued operations | | — | | | 0.01 | | | |
| Diluted (loss) earnings per common share (Note 13) | | $ | (4.25) | | | $ | 0.34 | | | |
| | | | | | |
|
| | | | | | | | | | | | |
| | | 2017 | | 2016 | | 2015 |
| Sales of goods | | $ | 431,818 |
| | $ | 415,375 |
| | $ | 537,214 |
|
| Sales of services | | 104,559 |
| | 68,139 |
| | 87,309 |
|
| Total net sales | | 536,377 |
| | 483,514 |
| | 624,523 |
|
| Cost of goods sold | | 346,985 |
| | 331,437 |
| | 420,169 |
|
| Cost of services sold | | 86,140 |
| | 61,721 |
| | 70,701 |
|
| Total cost of sales | | 433,125 |
| | 393,158 |
| | 490,870 |
|
| Gross profit | | 103,252 |
| | 90,356 |
| | 133,653 |
|
| Selling and administrative expenses | | 80,521 |
| | 85,976 |
| | 92,648 |
|
| Amortization expense | | 6,992 |
| | 9,575 |
| | 12,245 |
|
| Asset impairments | | — |
| | 135,884 |
| | 80,337 |
|
| Interest expense | | 8,377 |
| | 6,551 |
| | 4,378 |
|
| Interest income | | (307 | ) | | (228 | ) | | (206 | ) |
| Equity (income) loss of nonconsolidated investments | | (6 | ) | | 1,290 |
| | 413 |
|
| Other income | | (367 | ) | | (1,523 | ) | | (5,585 | ) |
| | | 95,210 |
| | 237,525 |
| | 184,230 |
|
| Income (loss) before income taxes | | 8,042 |
| | (147,169 | ) | | (50,577 | ) |
| Income tax expense (benefit) | | 3,929 |
| | (5,509 | ) | | (6,132 | ) |
| Net income (loss) | | $ | 4,113 |
| | $ | (141,660 | ) | | $ | (44,445 | ) |
| Basic earnings (loss) per common share | | $ | 0.40 |
| | $ | (13.79 | ) | | $ | (4.33 | ) |
| Diluted earnings (loss) per common share | | $ | 0.39 |
| | $ | (13.79 | ) | | $ | (4.33 | ) |
| Dividends paid per common share | | $ | — |
| | $ | 0.12 |
| | $ | 0.16 |
|
The accompanying notes are an integral part of these Consolidated Financial Statements.
L.B. FOSTER COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME (LOSS)
THE THREE YEARS ENDED DECEMBER 31,
(In thousands)
| | | | | | | | | | | | | | | | | | | | |
| | | | | | Year Ended December 31, |
| | | | | | 2022 | | 2021 | | |
| Net (loss) income from continuing operations | | | | | | $ | (45,677) | | | $ | 3,471 | | | |
| Other comprehensive (loss) income, net of tax: | | | | | | | | | | |
| Foreign currency translation adjustment | | | | | | (5,639) | | | (920) | | | |
| Unrealized gain on cash flow hedges, net of tax expense of $0 and $44, respectively | | | | | | 1,755 | | | 131 | | | |
| Cash flow hedges reclassified to earnings, net of tax expense of $0 and $235, respectively | | | | | | 159 | | | 703 | | | |
| Pension and post-retirement benefit plans benefit, net of tax benefit of $357 and $422, respectively | | | | | | 1,352 | | | 1,436 | | | |
| Reclassification of pension liability adjustments to earnings, net of tax expense of $6 and benefit of $19, respectively* | | | | | | 53 | | | 55 | | | |
| | | | | | | | | | |
| Total comprehensive (loss) income from continuing operations | | | | | | (47,997) | | | 4,876 | | | |
| Less comprehensive loss attributable to noncontrolling interest: | | | | | | | | | | |
| Net loss attributable to noncontrolling interest | | | | | | (113) | | | (83) | | | |
| Foreign currency translation adjustment | | | | | | 15 | | | (18) | | | |
| Amounts attributable to noncontrolling interest | | | | | | (98) | | | (101) | | | |
| Comprehensive (loss) income from continuing operations attributable to L.B. Foster Company | | | | | | $ | (47,899) | | | $ | 4,977 | | | |
|
| | | | | | | | | | | | |
| | | 2017 | | 2016 | | 2015 |
| Net income (loss) | | $ | 4,113 |
| | $ | (141,660 | ) | | $ | (44,445 | ) |
| Other comprehensive income (loss), net of tax: | | | | | | |
| Foreign currency translation adjustment | | 6,024 |
| | (5,896 | ) | | (6,947 | ) |
| Unrealized gain (loss) on cash flow hedges, net of tax (benefit) of $0, ($54), and ($76) | | 426 |
| | (83 | ) | | (121 | ) |
| Pension and post-retirement benefit plans benefit (expense), net of tax expense (benefit): $159, ($491), and $208 | | 920 |
| | (1,671 | ) | | 631 |
|
| Reclassification of pension liability adjustments to earnings, net of tax expense of $5, $135, and $160* | | 152 |
| | 301 |
| | 389 |
|
| Other comprehensive income (loss) | | 7,522 |
| | (7,349 | ) | | (6,048 | ) |
| Comprehensive income (loss) | | $ | 11,635 |
| | $ | (149,009 | ) | | $ | (50,493 | ) |
|
| |
* | Reclassifications out of accumulated other comprehensive income for pension obligations are reflected in selling and administrative expense. |
The accompanying notes are an integral part of these Consolidated Financial Statements.
L.B. FOSTER COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THE THREE YEARS ENDED DECEMBER 31,
(In thousands) | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2022 | | 2021 | | |
| CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | | |
| (Loss) income from continuing operations | | $ | (45,677) | | | $ | 3,471 | | | |
| Adjustments to reconcile net (loss) income to cash (used in) provided by continuing operating activities: | | | | | | |
| Deferred income taxes | | 35,785 | | | 139 | | | |
| Depreciation | | 8,635 | | | 8,051 | | | |
| Amortization | | 6,144 | | | 5,836 | | | |
| Asset impairments | | 8,016 | | | — | | | |
| Equity income in nonconsolidated investment | | (74) | | | (7) | | | |
| (Gain) loss on sales and disposals of property, plant, and equipment | | (177) | | | 51 | | | |
| | | | | | |
| Stock-based compensation | | 2,380 | | | 1,945 | | | |
| Loss (gain) on asset divestiture | | 214 | | | (2,741) | | | |
| Change in operating assets and liabilities: | | | | | | |
| Accounts receivable | | (25,061) | | | 2,294 | | | |
| Contract assets | | (540) | | | 1,325 | | | |
| Inventories | | (11,798) | | | (3,973) | | | |
| Other current assets | | 3,555 | | | 367 | | | |
| | | | | | |
| Other noncurrent assets | | (2,136) | | | 158 | | | |
| | | | | | |
| Accounts payable | | 10,066 | | | (13,641) | | | |
| Deferred revenue | | 4,649 | | | 6,285 | | | |
| Accrued payroll and employee benefits | | 1,225 | | | 344 | | | |
| Accrued settlement | | (8,000) | | | (8,000) | | | |
| Other current liabilities | | 876 | | | (2,407) | | | |
| Other liabilities | | 1,342 | | | (307) | | | |
| Net cash used in continuing operating activities | | (10,576) | | | (810) | | | |
| Net cash used in discontinued operating activities | | — | | | (253) | | | |
| CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | | |
| Proceeds from the sale of property, plant, and equipment | | 267 | | | 30 | | | |
| Capital expenditures on property, plant, and equipment | | (7,633) | | | (4,620) | | | |
| Acquisitions, net of cash acquired | | (57,852) | | | (229) | | | |
| Proceeds from asset divestiture | | 8,800 | | | 22,707 | | | |
| Capital contributions to nonconsolidated investment | | — | | | (66) | | | |
| Net cash (used in) provided by continuing investing activities | | (56,418) | | | 17,822 | | | |
| | | | | | |
| CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | | |
| Repayments of debt | | (188,437) | | | (183,372) | | | |
| Proceeds from debt | | 249,269 | | | 169,637 | | | |
| | | | | | |
| | | | | | |
| Debt issuance costs | | (182) | | | (406) | | | |
| Treasury stock acquisitions | | (410) | | | (732) | | | |
| | | | | | |
| Investment of noncontrolling interest | | — | | | 969 | | | |
| Net cash provided by (used in) continuing financing activities | | 60,240 | | | (13,904) | | | |
| | | | | | |
| Effect of exchange rate changes on cash and cash equivalents | | (736) | | | (47) | | | |
| Net (decrease) increase in cash and cash equivalents | | (7,490) | | | 2,808 | | | |
| Cash and cash equivalents at beginning of period | | 10,372 | | | 7,564 | | | |
| Cash and cash equivalents at end of period | | $ | 2,882 | | | $ | 10,372 | | | |
| Supplemental disclosure of cash flow information: | | | | | | |
| Interest paid | | $ | 2,701 | | | $ | 2,615 | | | |
| Income taxes (received) paid | | $ | (5,007) | | | $ | 1,491 | | | |
|
| | | | | | | | | | | | |
| | | 2017 | | 2016 | | 2015 |
| CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | | |
| Net income (loss) | | $ | 4,113 |
| | $ | (141,660 | ) | | $ | (44,445 | ) |
| Adjustments to reconcile net income (loss) to cash provided (used) by operating activities: | | | | | | |
| Deferred income taxes | | (1,983 | ) | | 3,375 |
| | (14,582 | ) |
| Depreciation | | 12,849 |
| | 13,917 |
| | 14,429 |
|
| Amortization | | 6,992 |
| | 9,575 |
| | 12,245 |
|
| Asset impairments | | — |
| | 135,884 |
| | 80,337 |
|
| Equity (income) loss and remeasurement (gain) | | (6 | ) | | 1,290 |
| | (167 | ) |
| Loss (gain) on sales and disposals of property, plant, and equipment | | 18 |
| | 202 |
| | (2,064 | ) |
| Stock-based compensation | | 1,696 |
| | 1,346 |
| | 1,471 |
|
| Income tax deficiency (benefit) from stock-based compensation | | — |
| | 332 |
| | (253 | ) |
| Change in operating assets and liabilities: | | | | | | |
| Accounts receivable | | (9,217 | ) | | 11,959 |
| | 31,223 |
|
| Inventories | | (12,648 | ) | | 10,479 |
| | 4,331 |
|
| Other current assets | | 350 |
| | 1,380 |
| | 3,248 |
|
| Prepaid income tax | | 13,978 |
| | (13,035 | ) | | 1,134 |
|
| Other noncurrent assets | | 959 |
| | 59 |
| | (909 | ) |
| Dividends from L B Pipe & Coupling Products, LLC | | — |
| | — |
| | 90 |
|
| Accounts payable | | 14,600 |
| | (16,005 | ) | | (17,204 | ) |
| Deferred revenue | | 2,440 |
| | 984 |
| | (2,279 | ) |
| Accrued payroll and employee benefits | | 4,260 |
| | (2,676 | ) | | (5,136 | ) |
| Other current liabilities | | (588 | ) | | 1,432 |
| | (4,189 | ) |
| Other liabilities | | 1,559 |
| | (433 | ) | | (1,108 | ) |
| Net cash provided by operating activities | | 39,372 |
| | 18,405 |
| | 56,172 |
|
| CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | | |
| Proceeds from the sale of property, plant, and equipment | | 1,462 |
| | 969 |
| | 5,339 |
|
| Capital expenditures on property, plant, and equipment | | (6,149 | ) | | (7,664 | ) | | (14,913 | ) |
| Acquisitions, net of cash acquired | | — |
| | — |
| | (196,001 | ) |
| Loans and capital contributions to equity method investment | | — |
| | (1,235 | ) | | — |
|
| Net cash used by investing activities | | (4,687 | ) | | (7,930 | ) | | (205,575 | ) |
| CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | | |
| Repayments of debt | | (182,718 | ) | | (155,427 | ) | | (161,068 | ) |
| Proceeds from debt | | 153,118 |
| | 146,243 |
| | 301,063 |
|
| Proceeds from exercise of stock options and stock awards | | — |
| | — |
| | 68 |
|
| Financing fees | | — |
| | (1,417 | ) | | (1,670 | ) |
| Treasury stock acquisitions | | (103 | ) | | (342 | ) | | (2,701 | ) |
| Cash dividends on common stock paid to shareholders | | — |
| | (1,244 | ) | | (1,656 | ) |
| Income tax (deficiency) benefit from stock-based compensation | | — |
| | (332 | ) | | 253 |
|
| Net cash (used) provided by financing activities | | (29,703 | ) | | (12,519 | ) | | 134,289 |
|
| Effect of exchange rate changes on cash and cash equivalents | | 2,333 |
| | (905 | ) | | (3,598 | ) |
| Net increase (decrease) in cash and cash equivalents | | 7,315 |
| | (2,949 | ) | | (18,712 | ) |
| Cash and cash equivalents at beginning of period | | 30,363 |
| | 33,312 |
| | 52,024 |
|
| Cash and cash equivalents at end of period | | $ | 37,678 |
| | $ | 30,363 |
| | $ | 33,312 |
|
| Supplemental disclosure of cash flow information: | | | | | | |
| Interest paid | | $ | 7,589 |
| | $ | 4,855 |
| | $ | 3,674 |
|
| Income taxes (received) paid | | $ | (11,189 | ) | | $ | 3,942 |
| | $ | 7,835 |
|
| Capital expenditures funded through financing agreements | | $ | — |
| | $ | — |
| | $ | 288 |
|
The accompanying notes are an integral part of these Consolidated Financial Statements.
L.B. FOSTER COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
FOR THE THREE YEARS ENDED DECEMBER 31, 2017
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Common
Stock | | Paid-in
Capital | | Retained
Earnings | | Treasury
Stock | | Accumulated
Other
Comprehensive
(Loss) Income | | Total |
| | | (In thousands, except share data) |
| Balance, January 1, 2015 | | $ | 111 |
| | $ | 48,115 |
| | $ | 322,672 |
| | $ | (23,118 | ) | | $ | (11,892 | ) | | $ | 335,888 |
|
| Net loss | | — |
| | — |
| | (44,445 | ) | | — |
| | — |
| | (44,445 | ) |
| Other comprehensive loss, net of tax: | |
| |
| |
| |
| |
| |
|
| Pension liability adjustment | | — |
| | — |
| | — |
| | — |
| | 1,020 |
| | 1,020 |
|
| Foreign currency translation adjustment | | — |
| | — |
| | — |
| | — |
| | (6,947 | ) | | (6,947 | ) |
| Unrealized derivative loss on cash flow hedges | | — |
| | — |
| | — |
| | — |
| | (121 | ) | | (121 | ) |
| Purchase of 80,512 common shares for treasury | | — |
| | — |
| | — |
| | (1,587 | ) | | — |
| | (1,587 | ) |
| Issuance of 59,113 common shares, net of shares withheld for taxes | | — |
| | (3,158 | ) | | — |
| | 2,114 |
| | — |
| | (1,044 | ) |
| Stock-based compensation and related excess tax benefit | | — |
| | 1,724 |
| | — |
| | — |
| | — |
| | 1,724 |
|
| Cash dividends on common stock paid to shareholders | | — |
| | — |
| | (1,656 | ) | | — |
| | — |
| | (1,656 | ) |
| Balance, December 31, 2015 | | 111 |
| | 46,681 |
| | 276,571 |
| | (22,591 | ) | | (17,940 | ) | | 282,832 |
|
| Net loss | | — |
| | — |
| | (141,660 | ) | | — |
| | — |
| | (141,660 | ) |
| Other comprehensive loss, net of tax: | |
| |
| |
| |
| |
| |
|
| Pension liability adjustment | | — |
| | — |
| | — |
| | — |
| | (1,370 | ) | | (1,370 | ) |
| Foreign currency translation adjustment | | — |
| | — |
| | — |
| | — |
| | (5,896 | ) | | (5,896 | ) |
| Unrealized derivative loss on cash flow hedges | | — |
| | — |
| | — |
| | — |
| | (83 | ) | | (83 | ) |
| Purchase of 5,000 common shares for treasury | | — |
| | — |
| | — |
| | (67 | ) | | — |
| | (67 | ) |
| Issuance of 96,619 common shares, net of shares withheld for taxes | | — |
| | (3,597 | ) | | — |
| | 3,322 |
| | — |
| | (275 | ) |
| Stock-based compensation and related excess tax benefit | | — |
| | 1,014 |
| | — |
| | — |
| | — |
| | 1,014 |
|
| Cash dividends on common stock paid to shareholders | | — |
| |
| | (1,244 | ) | | — |
| | — |
| | (1,244 | ) |
| Balance, December 31, 2016 | | 111 |
| | 44,098 |
| | 133,667 |
| | (19,336 | ) | | (25,289 | ) | | 133,251 |
|
| Net income | | — |
| | — |
| | 4,113 |
| | — |
| | — |
| | 4,113 |
|
| Other comprehensive income, net of tax: | |
| |
| |
| |
| |
| |
|
| Pension liability adjustment | | — |
| | — |
| | — |
| | — |
| | 1,072 |
| | 1,072 |
|
| Foreign currency translation adjustment | | — |
| | — |
| | — |
| | — |
| | 6,024 |
| | 6,024 |
|
| Unrealized derivative gain on cash flow hedges | | — |
| | — |
| | — |
| | — |
| | 426 |
| | 426 |
|
| Issuance of 27,951 common shares, net of shares withheld for taxes | | — |
| | (777 | ) | | — |
| | 674 |
| | — |
| | (103 | ) |
| Stock-based compensation | | — |
| | 1,696 |
| | — |
| | — |
| | — |
| | 1,696 |
|
| Balance, December 31, 2017 | | $ | 111 |
| | $ | 45,017 |
| | $ | 137,780 |
| | $ | (18,662 | ) | | $ | (17,767 | ) | | $ | 146,479 |
|
The accompanying notes are an integral part of these Consolidated Financial Statements.
L.B. FOSTER COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands, except share data) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Common
Stock | | Paid-in
Capital | | Retained
Earnings | | Treasury
Stock | | Accumulated
Other Comprehensive
Loss | | Noncontrolling
Interest | | Total |
| | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| Balance, December 31, 2020 | | $ | 111 | | | $ | 44,583 | | | $ | 165,107 | | | $ | (12,703) | | | $ | (20,268) | | | $ | — | | | $ | 176,830 | |
| | | | | | | | | | | | | | |
| Net income (loss) | | — | | | — | | | 3,626 | | | — | | | — | | | (83) | | | 3,543 | |
| Other comprehensive income, net of tax: | | | | | | | | | | | | | | |
| Pension liability adjustment | | — | | | — | | | — | | | — | | | 1,491 | | | — | | | 1,491 | |
| Foreign currency translation adjustment | | — | | | — | | | — | | | — | | | (902) | | | (18) | | | (920) | |
| Unrealized derivative loss on cash flow hedges | | — | | | — | | | — | | | — | | | 131 | | | — | | | 131 | |
| Cash flow hedges reclassified to earnings | | — | | | — | | | — | | | — | | | 703 | | | — | | | 703 | |
| | | | | | | | | | | | | | |
| Issuance of 107,053 common shares, net of shares withheld for taxes | | — | | | (3,256) | | | — | | | 2,524 | | | — | | | — | | | (732) | |
| Stock-based compensation | | — | | | 1,945 | | | — | | | — | | | — | | | — | | | 1,945 | |
| Investment of noncontrolling interest | | — | | | | | — | | | — | | | — | | | 619 | | | 619 | |
| Balance, December 31, 2021 | | 111 | | | 43,272 | | | 168,733 | | | (10,179) | | | (18,845) | | | 518 | | | 183,610 | |
| Net loss | | — | | | — | | | (45,564) | | | — | | | — | | | (113) | | | (45,677) | |
| Other comprehensive loss, net of tax: | | | | | | | | | | | | | | |
| Pension liability adjustment | | — | | | — | | | — | | | — | | | 1,405 | | | — | | | 1,405 | |
| Foreign currency translation adjustment | | — | | | — | | | — | | | — | | | (5,639) | | | 15 | | | (5,624) | |
| Unrealized derivative gain on cash flow hedges | | — | | | — | | | — | | | — | | | 1,755 | | | — | | | 1,755 | |
| Cash flow hedges reclassified to earnings | | — | | | — | | | — | | | — | | | 159 | | | — | | | 159 | |
| | | | | | | | | | | | | | |
| Issuance of 106,484 common shares, net of shares withheld for taxes | | — | | | (4,349) | | | — | | | 3,939 | | | — | | | — | | | (410) | |
| Stock-based compensation | | — | | | 2,380 | | | — | | | — | | | — | | | — | | | 2,380 | |
| | | | | | | | | | | | | | |
| Balance, December 31, 2022 | | $ | 111 | | | $ | 41,303 | | | $ | 123,169 | | | $ | (6,240) | | | $ | (21,165) | | | $ | 420 | | | $ | 137,598 | |
The accompanying notes are an integral part of these Consolidated Financial Statements.
L.B. FOSTER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share data unless otherwise noted)
Note 1.
Summary of Significant Accounting Policies
BasisOrganization, operations, and basis of financial statement presentationconsolidation
The consolidated financial statements include the accounts of theL.B. Foster Company and its wholly-owned subsidiaries, joint ventures, and partnerships in which a controlling interest is held. Inter-company transactions and accounts have been eliminated. The Company utilizes the equity method of accounting for companies where its ownership is less than or equal to 50% and significant influence exists.
L.B. Foster Company (together with its subsidiaries, 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 is organized and operates in three reporting segments: Rail, Technologies, and Services (“Rail”), Precast Concrete Products (“Precast”), and Steel Products and Measurement. The Rail segment is comprised of several manufacturing and distribution businesses that provide a variety of products and services for freight and passenger railroads and industrial companies throughout the world. The Precast segment is composed of five precast concrete manufacturing facilities across the United States (“U.S.”) providing engineered precast concrete solutions. The Steel Products and Measurement segment is composed of fabricated bridge, protective coating, threading, and precision measurement offerings across North America.
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 five years or utilized to satisfy post-closing working capital adjustments or indemnity claims under the purchase agreement. Skratch has been included in the Company’s Technology Services and Solutions business unit within the Rail segment.
On August 1, 2022 the Company divested the assets of its Track Components business for $7,795 in cash proceeds, subject to indemnification obligations and working capital adjustments. The Track Components business was reported in the Rail Products business unit within the Rail segment.
On August 12, 2022, the Company acquired the operating assets of VanHooseCo Precast LLC (“VanHooseCo”) for $52,146, net of cash acquired at closing, subject to the finalization of net working capital adjustments. An amount equal to $2,500 of the purchase price was deposited into an escrow account to cover breaches of representations and warranties. VanHooseCo has been included in the Company’s Precast segment.
On September 24, 2021, the Company completed the sale of its Piling Products business for $23,902 in total proceeds. The Company retained all pre-closing receivables and liabilities associated with the division. The sale included substantially all inventory associated with the division, as well as the related fixed assets. The Piling Products business was included in the Fabricated Steel Products business unit within the Steel Products and Measurement segment.
Use of estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) requires management to make estimates, judgements, and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates and changes in these estimates are recorded when known.
Significant accounting policies
Cash and cash equivalents
The Company considers cash and other instruments with maturities of three months or less when purchased to be cash and cash equivalents. The Company invests available funds in a manner to maximize returns, preserve investment principal and maintain liquidity, while seeking the highest yield available.
Cash and cash equivalents held in non-domestic accounts were $35,807$2,012 and $29,400 at$6,168 as of December 31, 20172022 and 2016,2021, respectively. Included in non-domestic cash equivalents
Accounts Receivable
Trade receivables are investments in bank term deposits of approximately $17 and $16carried at December 31, 2017 and 2016, respectively. The carrying amounts approximated fair value becausetheir estimated collectible amounts. Trade credit is generally extended on a short-term basis; thus trade receivables do not bear interest. Credit is extended based upon an evaluation of the short maturity ofcustomer’s financial condition and, while collateral is not required, the instruments.Company periodically receives surety bonds that guarantee payment. Credit terms are consistent with industry standards and practices.
InventoriesInventory
Certain inventories areInventory is valued at the lower of the last-in, first-out (“LIFO”) cost or market. Approximately 50% in 2017 and 47% in 2016 of the Company’s inventory is valued at average cost or net realizable value, whichever is lower.value. Slow-moving inventory is reviewed and adjusted regularly, based upon product knowledge, physical inventory observation, inventory turnover, and the age of the inventory. Inventory contains product costs, including materials, inbound freight, direct labor, overhead costs relating to the manufacturing and distribution
of products, and absorption costs representing the excess of manufacturing or production costs over the amounts charged to the cost of sales or services.
Property, plant, and equipment
Depreciation and amortization are provided on a straight-line basis over the estimated useful lives of 58 to 40 years for buildings and 2 to 1050 years for machinery and equipment. Leasehold improvements are amortized over 57 to 1319 years, which represent the lives of the respective leases or the lives of the improvements, whichever is shorter. Depreciation expense is recorded within “Cost of sales”goods sold,” “Cost of services sold,” and “Selling and administrative expenses"expenses” on the Consolidated Statements of Operations based upon the particular asset’s use. The Company reviews a long-lived asset for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. The Company impaired $14,956recognizes an impairment loss if the carrying amount of property, plant,a long-lived asset is not recoverable and equipment related to the Test and Inspection Services business unit within the Tubular and Energy Services segment during the year ended December 31, 2016.exceeds its fair value. There were no material property, plant, and equipment impairments recorded for the years ended December 31, 20172022 and 2015.2021.
Maintenance, repairs, and minor renewals are charged to operations as incurred. Major renewals and betterments that substantially extend the useful life of the property are capitalized at cost. Upon the sale or other disposition of assets, the costs and related accumulated depreciation and amortization are removed from the accounts and the resulting gain or loss, if any, is reflected in other“Other income or loss.- net” in the Consolidated Statements of Operations.
Allowance for doubtful accountscredit losses
The Company established the allowance for doubtful accounts is recordedcredit losses by calculating the amount to reflectreserve based on the ultimate realizationage of the Company’s accountsa given trade receivable and includes assessmentconsidering historical collection patterns, bad debt expense experience, current and expected market conditions, and any other relevant subjective adjustments as needed. Trade receivables are pooled within the calculation based on a range of ages, grouping receivables of similar credit risk together.
Reserve thresholds to calculate the probabilityallowance for credit loss are based on historic collection patterns, bad debt expense incurred, and expected future trends of collectioncollections. Management maintains high-quality credit review practices and the credit-worthiness of certain customers.positive customer relationships that mitigate credit risks. The Company’s reserves are regularly reviewed and revised as necessary. Reserves for uncollectible accounts are recorded as part of "Selling“Selling and administrative expenses" onexpenses” in the Consolidated Statements of Operations. The Company reviews its accounts receivable aging and calculates an allowance through application of historic reserve factors to overdue receivables. This calculation is supplemented by specific account reviews performed by the Company’s credit department. As necessary, the application of the Company’s allowance rates to specific customers is reviewed and adjusted to more accurately reflect the credit risk inherent within that customer relationship.
Assets held for sale
The Company classifieshas also established policies regarding allowance for credit losses associated with contract assets, which includes standalone reserve assessments for its long term, complex contracts as heldneeded as well as detailed regular review and updates to contract margins, progress, and value. A standard reserve threshold is applied contract assets related to short term, less complex contracts. Management also regularly reviews collection patterns and future expected collections and makes necessary revisions to allowance for sale when management approves and commitscredit losses related to a formal plan of sale with the expectation the sale will be completed within one year. The net assets of the business held for sale are then recorded at the lower of their current carrying value or the fair market value, less costs to sell.
Investments
Investments in companies in which the Company has the ability to exert significant influence, but not control, over operating and financial policies (generally 20% to 50% ownership) are accounted for using the equity method. Under the equity method, investments are initially recorded at cost and adjusted for dividends and undistributed earnings and losses. The equity method of accounting requires a company to recognize a loss in the value of an equity method investment that is other than a temporary decline.contract assets.
Goodwill and other intangible assets
Goodwill is the cost of an acquisition less the fair value of the identifiable net assets of the acquired business. Goodwill is tested annually for impairment or more often if there are indicators of impairment.impairment within a reporting unit. A reporting unit is an operating segment or a component of an operating segment for which discrete financial information is available and reviewed by management on a regular basis. There was no change to the reporting units as a result of the 2021 change in reporting segments. The goodwill impairment test involves comparing the fair value of a reporting unit to its carrying value, including goodwill. If the carrying amount of the reporting unit exceeds its fair value, an impairment loss equal to the excess amount up to the goodwill balance is recorded as a component of operations. The Company performs its annual impairment tests in the fourth quarter.
The Company’s fourth quarter 2022 annual test included the assessment of a quantitative analysis to determine whether it was more likely than not that the fair value of each reporting unit is less than its carrying value. The quantitative assessment considers 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 Company’s quantitative analysis considered and evaluated each of October 1st.
No goodwillthe three traditional approaches to value: the income approach, the market approach, and the asset approach. The Company primarily relied on the discounted cash flow method within the income approach to value the reporting units. Any impairment was recognized during 2017. During 2016charges are based on both historic and 2015,future expected business results that no longer support the carrying value of the reporting unit. The Company also monitors the recoverability of the long-lived assets associated with certain reporting units of the Company identified certain triggering events that indicated an interim impairment test was required. As a resultand the long-term financial projections of the Company’s assessment, the Company recorded goodwill impairment of $61,142 and $80,337 during 2016 and 2015, respectively. The 2016 charges relatedbusinesses to the full impairment of the Chemtec Energy Services (or “Precision Measurement Systems”) and Protective Coatings business units goodwill within the Tubular and Energy Services segment resulting from the Chemtec Energy Services acquisition in 2014 and the 2013 acquisition of Ball Winch, LLC and a partial impairment of the Rail Technologies business unit goodwill within the Rail Products and Services segments, respectively. The 2015 impairment charge related to the goodwill resulting from the acquisition of IOS (or “Test and Inspection Services”) and Chemtec Energy Services within the Tubular and Energy Services segment. The measurement of goodwill impairment is a Level 3 fair value measurement, since the primary assumptions, including estimates of future revenue growth, gross margin, and EBITDA margin, are not market observable and require management to make judgments regarding future outcomes. Additional information concerning the impairments is set forth in Note 4 Goodwill and Other Intangible Assets.assess for asset impairment.
The Company has no indefinite-lived intangible assets. The Company reviews a long-lived intangible asset for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. All intangible assets are amortized over their estimated useful lives ranging from 4 to 25 years, with a total weighted average amortization period of approximately 15 years, at December 31, 2017. There were no definite-lived intangible asset impairments during the years ended December 31, 2017 and 2015. During the year ended December 31, 2016, the Company recorded a definite-lived intangible asset impairment of $59,786 related to the Chemtec Energy Services and Test and Inspection Services business units within the Tubular and Energy Services segment. See Note 4 Goodwill and Other Intangible Assets for additional information regarding the Company’s intangible assets.lives.
Environmental remediation and compliance
Environmental remediation costs are accrued when thea liability is probable and costs are estimable. Environmental compliance costs, which principally include the disposal of waste generated by routine operations, are expensed as incurred. Capitalized environmental costs, when appropriate, are depreciated over their useful life. Reserves are not reduced by potential claims for recovery and are not discounted. Claims for recovery are recognized as agreements are reached with third parties or as amounts are received. Reserves are periodically reviewed throughout the year and adjusted to reflect current remediation progress, prospective estimates of required activity, and other factors that may be relevant, including changes in technology or regulations. See Note 19 Commitments and Contingent Liabilities, for additional information regarding the Company’s outstanding environmental and litigation reserves.
Basic earnings per share is calculated by dividing net income by the weighted averageRevenue recognition
The Company’s revenues are comprised of product and service sales, as well asincluding products and services provided under long-term contracts. For product and service sales,agreements with its customers. All revenue is recognized when the Company recognizes revenuesatisfies its performance obligations under the respective contract, either implicit or explicit, by transferring the promised product or rendering a service to its customer either when the following criteria have been satisfied: persuasive evidence of a sales arrangement exists; product delivery and transfer of title to theor as its customer has occurred or services have been rendered; the price is fixed or determinable; and collectability is reasonably assured. Generally, product title passes to the customer upon shipment. In limited cases, title does not transfer and revenue is not recognized until the customer has received the products at its physical location. Revenue is recorded net of returns, allowances, customer discounts, and incentives. Sales taxes collected from customers and remitted to governmental authorities are accounted for on a net (excluded from revenues) basis. Shipping and handling costs are included in cost of goods sold.
Revenues for products and services under long-term contracts are recognized using the percentage-of-completion method. Sales and gross profit are recognized as work is performed based upon the proportion of actual costs incurred to estimated total project costs. Sales and gross profit are adjusted prospectively for revisions in estimated total project costs and contract values. For certain products and services, the percentage of completion is based upon actual labor costs as a percentage of estimated total labor costs. At the time a loss contract becomes known, the entire amountobtains control of the estimated lossproduct or the service is recognized in the Consolidated Statements of Operations. Costs in excess of billings are classified as work-in-process inventory. Projects with billings in excess of costs are recorded within deferred revenue.
Deferred revenue
rendered. Deferred revenue consists of customer billings or payments received for which the revenue recognition criteria have not yet been met as well as billingscontract liabilities (billings in excess of costscosts) on percentage of completion projects. Advancedover time contracts. Advance payments from customers typically relate to contracts with respect tofor which the Company has significantly fulfilled its obligations, but due to the Company’s continuing involvement with the project, revenue is precluded from being recognized until title, ownership, and risk of loss have passed tothe performance obligation is met for the customer.
Fair value of financial instruments
The Company’s financial instruments consist of cash equivalents, accounts receivable, accounts payable, interest rate swap agreements, and debt. The carrying amounts of the Company’s financial instruments at December 31, 2017 and 2016 approximate fair value. See Note 18 Fair Value Measurements, for additional information.
Stock-based compensation
The Company applies the provisions of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 718, “Compensation - Stock Compensation,” to account for the Company’s stock-based compensation. Under the guidance, stock-based compensation cost is measured at the grant date based on the calculated fair value of the award. The expense is recognized over the employees’ requisite service period, generally the vesting period of the award. See Note 15 Stock-based Compensation, for additional information.
Product warranty
The Company maintains a current warranty liability for the repair or replacement of defective products. For certain manufactured products, an accrual is made on a monthly basis as a percentage of cost of sales based upon historical experience. For long-lived construction products, a warranty is established when the claim is known and quantifiable. The product warranty accrual is periodically adjusted based on the identification or resolution of known individual product warranty claims or due to changes in the Company’s historical warranty experience. AtAs of December 31, 20172022 and 2016,2021, the product warranty reserve was $8,682$870 and $10,154,$1,042, respectively. See Note 19 Commitments and Contingencies for additional information regarding the product warranty.
Income taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of assets and liabilities and their respective tax bases. Deferred taxes are measured using enacted tax laws and rates expected to be in effect when such differences are recovered or settled. The effect of a change in tax rates on deferred taxes is recognized in income in the period that includes the enactment date of the change. The Company has also elected to record income taxes associated with global intangible low-taxed income (“GILTI”) as period costs if and when incurred.
The Company makes judgments regarding the recognition of deferred tax assets and the future realization of these assets. As prescribed by FASBthe FASB’s ASC 740, “Income Taxes” and applicable guidance, valuation allowances must be provided for those deferred tax assets for which it is more likely than not (a likelihood of more than 50%) that some portion or all of the deferred tax assets will not be realized. The guidance requires the Company to evaluate positive and negative evidence regarding the recoverability of deferred tax assets. The determination of whether the positive evidence outweighs the negative evidence and quantification of the valuation allowance requires the Company to make estimates and judgments of future financial results. The Company has concluded that for purposes of quantifying valuation allowances, it would be appropriate to consider the reversal of taxable temporary differences related to indefinite-lived intangible assets when assessing the realizability of deferred tax assets that upon reversal, would give rise to operating losses that do not expire.
The Company evaluates all tax positions taken on its federal, state, and foreign tax filings to determine if the position is more likely than not to be sustained upon examination. For positions that meet the more likely than not to be sustained criteria, the largest amount of benefit to be realized upon ultimate settlement is determined on a cumulative probability basis. A previously recognized tax position is derecognized when it is subsequently determined that a tax position no longer meets the more likely than not threshold to be sustained. The evaluation of the sustainability of a tax position and the expected tax benefit is based on judgment, historical experience, and various other assumptions. Actual results could differ from those estimates upon subsequent resolution of identified matters. The Company accrues interest and penalties related to unrecognized tax benefits in its provision for income taxes.
Foreign currency translation
The assets and liabilities of ourthe Company’s foreign subsidiaries are measured using the local currency as the functional currency and are translated into U.S. dollars at exchange rates as of the balance sheet date. Income statement amounts are translated at the
weighted-average rates of exchange during the year. The translation adjustment is accumulated as a separate component of accumulated“Accumulated other comprehensive income (loss).loss” within the Consolidated Balance Sheets. Foreign currency transaction gains and losses are included in determining net income. Included in net“Other income or loss forexpense.” For the years ended December 31, 20172022 and 2016 were2021, foreign currency transaction lossesloss of approximately $804$434 and $12,$452, respectively, and a gainwere included in “Other income - net” in the Consolidated Statements of $1,616 for the year ended December 31, 2015.Operations.
Research and development
The Company expenses research and development costs as costs are incurred. For the years ended December 31, 2017, 2016,2022 and 2015,2021, research and development expenses were $2,241, $3,511,$2,219 and $3,937,$2,233, respectively, and were principally related to the Company’s friction management and railroad monitoring system products within the Rail Products and Services segment.
Use of estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
Recently issued accounting guidance
In May 2014,March 2020, the FASB issued Accounting Standards Update (“ASU”) 2014-09, “Revenue from Contracts with Customers2020-04, “Reference Rate Reform (Topic 606)”848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting” (“ASU 2014-09”2020-04”), which supersedesprovides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships, and other transactions affected by the revenue recognition requirements in Accounting Standards Codification 605, “Revenue Recognition”discontinuation of the London Interbank Offered Rate (“ASC 605”LIBOR”). ASU 2014-09 is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expectsby another reference rate expected to be entitled in exchange for those goods or services. It also requires additional disclosure about the nature, amount, timing, and uncertainty of revenue, cash flows arising from customer contracts, including significant judgments and changes in judgments, and assets recognized from costs incurred to obtain or fulfill a contract. ASU 2014-09 is effective for fiscal years beginning after December 15, 2017, including interim periods within that reporting period.discontinued. The Company will adopt the provisions of ASU 2014-09 on January 1, 2018, using the modified retrospective approach. Revenue from the Company's product and service sales will continue to be recognized when products are shipped or services are rendered (i.e., point in time). Revenue from the Company's product and services provided under long-term agreements will continue to be recognized as the Company transfers control of the product or provides the service to its customers (i.e., over time), which approximates the previously used percentage-of-completion or completed contract methods of accounting. The adoption of ASU 2014-09 is not expected to have a material impact to the Company's financial position or results of operations; however, the Company will present the disclosures required by this new standard beginning with our 2018 interim financial reporting.
In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842)” (“ASU 2016-02”). The new accounting requirements include the accounting for, presentation of, and classification of leases. The guidance will result in most leases being capitalized as a right of use asset with a related liability on our balance sheets. The requirements of the new standardamendments are effective for annual reporting periods beginning after December 15, 2018, and interim periods within those annual periods. The Company is in the processall
In October 2016, the FASB issued ASU 2016-16, “Income Taxes – Intra-Entity Transfers of Assets Other Than Inventory (Topic 740),” (“ASU 2016-16”) which will require an entity to recognize the income tax consequences of an intra-entity transfer of an asset, other than inventory, when the transfer occurs. The ASU is effective on January 1, 2018. The Company continues to evaluate the impact this standard will have on the Company’s financial statements but believes there will not be a material change once adopted. The Company has not elected the early adoption of ASU 2016-16.
In March 2017, the FASB issued ASU 2017-07, “Compensation – Retirement Benefits (Topic 715)” (“ASU 2017-07”), which improves the presentation of net periodic pension cost and net periodic postretirement benefit cost. The guidance requires that the entity report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period, and report the other components of net periodic pension cost and net periodic postretirement benefit cost in the income statement separately from the service cost component and outside a subtotal of income from operations. Of the components of net periodic benefit cost, only the service cost component will be eligible for asset capitalization. The new standard will be effective for annual periods beginning after December 15, 2018, including interim periods within those annual periods. The Company is evaluating its implementation approach and assessing the impact of ASU 2017-07 on the presentation of operations.
In February 2018, the FASB issued ASU 2018-02, “Income Statement – Reporting Comprehensive Income,” (“ASU 2018-02”) that will permit companies the option to reclassify stranded tax effects caused by the newly-enacted US Tax Cuts and Jobs Act from accumulated other comprehensive income to retained earnings. Consequently, the amendments eliminate the stranded tax effects resulting from the Tax Cuts and Jobs Act and will improve the usefulness of information reported to
financial statement users. However, because the amendments only relate to the reclassification of the income tax effects of the Tax Cuts and Jobs Act, the underlying guidance that requires that the effect of a change in tax laws or rates be included in income from continuing operations is not affected. Adoption of the ASU will be optional and companies will need to disclose if it elects not to adopt the ASU. The ASU will be effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption will be permitted, including adoption in any interim period, for financial statements that have not yet been issued or made available for issuance. Entities will have the option to apply the amendments retrospectively or to record the reclassificationentities as of the beginning of the period of adoption.
Recently adopted accounting guidance
In July 2015, the FASB issued ASU 2015-11, “Inventory (Topic 330)” (“ASU 2015-11”).March 12, 2020 through December 31, 2022. The pronouncement was issued to simplify the measurement of inventory and changes the measurement from lower of cost or market to lower of cost or net realizable value. The standard defines net realizable value as the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. This standard requires prospective application and is effective for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. The adoption of this guidance by the Company did not have aidentify any material impact from the provision of ASU 2020-04 on its Consolidated Financial Statements.financial condition, results of operations, and cash flows.
In March 2016, the FASB issued ASU No. 2016-09, “Compensation—Stock Compensation (Topic 718)” (“ASU 2016-09”), which simplifies the accounting for stock-based compensation. Among other things, ASU 2016-09 provides for (i) the simplification of accounting presentation of excess tax benefits and tax deficiencies, (ii) an accounting policy election regarding forfeitures to use an estimate or account for when incurred, and (iii) simplification of cash flow presentation for excess tax benefits. The standard is effective for the annual reporting periods beginning after December 15, 2016, and the transition method required by ASU 2016-09 varies by amendment. The provisions of ASU 2016-09 related to the recognition of excess tax benefits in the income statement and classification in the statement of cash flows were adopted prospectively and prior periods were not retrospectively adjusted. ASU 2016-09 permits companies to make an accounting policy election to recognize forfeitures of stock-based awards as they occur or make an estimate by applying a forfeiture rate each quarter. The Company previously estimated forfeitures and will continue to apply this accounting policy.
In January 2017, the FASB issued ASU 2017-04, “Intangibles – Goodwill and Other (Topic 350),” (“ASU 2017-04”) which simplifies the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. Under the new guidance, an entity will recognize an impairment charge for the amount by which the carrying value exceeds the fair value. This standard is effective for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The adoption of this guidance by the Company did not to have a material impact on its Consolidated Financial Statements or interim goodwill testing.
Note 2.
Business Segments
The Company is a leading manufacturer and distributorglobal solutions provider of engineered, manufactured products and services for transportationthat builds and energy infrastructure withsupports infrastructure. The Company’s innovative engineering and product development solutions address the safety, reliability, and performance needs of its customers’ challenging requirements. The Company maintains locations in North America, South America, Europe, and Europe.Asia where it markets its products and services primarily through an internal sales force. The Company is organizedhas three reporting segments: the Rail, Technologies, and evaluated by product group, which isServices segment, the basis for identifying reportable segments. EachPrecast Concrete Products segment, represents a revenue-producing componentand the Steel Products and Measurement segment. 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 (“CODM”), who uses such information to make decisions about resources to be allocated to the segments, and (c) for which separatediscrete financial information is produced internally that is subject to evaluation by the Company’s chief operating decision maker in deciding how to allocate resources. Each segment isavailable.
Operating segments are evaluated based upon itson their segment profit contribution to the Company’s consolidated results.
The Company markets itsconsiders the aggregation of operating segments into reporting segments based on nature of offerings, nature of production services, the type or class of customer for products directly in all major industrial areas of the United States, Canada, and Europe, primarily through an internal sales force.services, methods used to distribute products and services, and economic and regulatory environment conditions.
The Company’s Rail, Technologies, and Services reporting segment is the aggregation of the Rail Products and Global Friction Management and the Technology Services and Solutions operating segments, which was evaluated based on the factors outlined above. The Rail, Technologies, and Services reporting segment engineers, manufactures, and assembles friction management products and railway wayside data collection, application systems, railroad condition monitoring systems and equipment, wheel impact load detection systems, management systems, and provides services for these products. The Rail, Technologies, and Services segment also provides a full line of new and used rail, trackwork, and accessories to railroads, mines, and other customers in the rail industry. The Rail Products and Services segment alsoindustry as well as designs and produces insulated rail joints, power rail, track fasteners, concrete railroad ties, coverboards, and special accessories for mass transit and other rail systems. In addition, the Rail, ProductsTechnologies, and Services segment engineers, manufactures,provides controls, display, and assembles frictiontelecommunication contract management solutions for the transit, control room, and customer information and display sectors to enhance safety, operational efficiency, and customer experience. On June 21, 2022, the Company acquired the stock of Skratch, located in Telford, United Kingdom, which offers a single-point supply solution model for clients, and enabling large scale deployments of its intelligent digital signage solutions. Skratch’s service offerings include design, prototyping and proof of concept, hardware and software, logistics and warehousing, installation, maintenance, content management, and managed monitoring. Skratch has been included in the Company’s Technology Services and Solutions business unit within the Rail, Technologies, and Services segment. Additionally, on August 1, 2022, the Company divested its Track Components business located in St-Jean-sur-Richelieu, Quebec, Canada, which resulted in a pre-tax loss of $467. Results of the Track Components business are included in the Company’s Rail Products business unit within the Rail, Technologies, and Services segment.
The Company’s Precast Concrete Products segment produces precast concrete buildings and a variety of specialty precast concrete products for use in several infrastructure end markets, including transportation and general infrastructure. Precast concrete buildings are primarily used as restrooms, concession stands, and protective storage buildings in national, state, and municipal parks, while other precast products include sound walls, bridge beams, box culverts, septic tanks, and other custom pre-stressed products. On August 12, 2022, the Company acquired the operating assets of VanHooseCo, a privately-held business headquartered in Loudon, Tennessee, specializing in precast concrete walls, water management products, and railway wayside data collectiontraditional precast products for the industrial, commercial, and management systems.residential infrastructure markets and has been included in the Precast Concrete Products segment.
The Company’s ConstructionSteel Products segment sells and rents steel sheet piling, H-bearing pile, and other piling products for foundation and earth retention requirements. The Construction ProductsMeasurement segment also sells bridge decking, bridge railing, structural steel fabrications, expansion joints, bridge forms and other products for highway construction and repair. This segment also produces threaded pipe products for industrial water well and irrigation markets as well as the oil and gas markets. Lastly, the Construction Products segment produces precast concrete buildings and a variety of specialty precast concrete products.
The Company’s Tubular and Energy Servicesthis segment provides pipe coatings for naturaloil and gas pipelines and utilities, upstream test and inspection services, and precision measurement systems for the oil and gas market,market. On September 24, 2021, the Company completed the sale of its Piling Products business. The Company retained all pre-closing receivables and produces threaded pipe products forliabilities associated with the oilbusiness. The sale included substantially all inventory and gas markets as well as industrial water well and irrigation markets.
The following table illustrates net sales, profit (loss),fixed assets depreciation/amortization, and expenditures for long-lived assetsheld by the Company associated with the division. Results of the Company by segment forPiling Products business were included in the years ended or at December 31, 2017, 2016,Company’s Steel Products and 2015. Measurement segment.
Segment profit is the earnings from operations beforeincludes allocated corporate operating expenses. Operating expenses related to corporate headquarter functions were allocated to each segment 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. Other income and expenses, interest, income taxes, and includes internal costcertain other items are managed on a consolidated basis. Management believes the allocation of capital charges for net assets used incorporate operating expenses provides an accurate presentation of how the segments utilize corporate support activities. This provides the CODM meaningful segment at a rateprofitability information to support operating decisions and the allocation of generally 1% per month excluding recently acquired businesses. The internal cost of capital charges are eliminated during the consolidation process. resources.
The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies except thatfound in Note 1.
The operating results and assets of the Company accountsCompany’s reportable segments were as follows as of and for inventory on a First-In, First-Out (“FIFO”) basis at the segment level compared to a Last-In, First-Out (“LIFO”) basis atyear ended December 31, 2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2022 |
| | Net Sales | | Segment Operating Profit (Loss) | | Segment Assets | | Depreciation/Amortization | | Expenditures for Long-Lived Assets |
| Rail, Technologies, and Services | | $ | 300,592 | | | $ | 11,454 | | | $ | 172,111 | | | $ | 5,620 | | | $ | 1,218 | |
| Precast Concrete Products | | 104,212 | | | 1,692 | | | 108,598 | | | 3,162 | | | 2,833 | |
| Steel Products and Measurement | | 92,693 | | | (10,824) | | | 54,516 | | | 4,502 | | | 267 | |
| Total | | $ | 497,497 | | | $ | 2,322 | | | $ | 335,225 | | | $ | 13,284 | | | $ | 4,318 | |
The operating results and assets of the consolidated level.Company’s reportable segments were as follows as of and for the year ended December 31, 2021:
|
| | | | | | | | | | | | | | | | | | | | |
| | | 2017 |
| | | Net Sales | | Segment Profit | | Segment Assets | | Depreciation/Amortization | | Expenditures for Long-Lived Assets |
| Rail Products and Services | | $ | 256,127 |
| | $ | 12,216 |
| | $ | 192,038 |
| | $ | 7,004 |
| | $ | 2,915 |
|
| Construction Products | | 161,801 |
| | 11,620 |
| | 83,154 |
| | 1,955 |
| | 1,390 |
|
| Tubular and Energy Services | | 118,449 |
| | 3,849 |
| | 100,706 |
| | 9,410 |
| | 1,282 |
|
| Total | | $ | 536,377 |
| | $ | 27,685 |
| | $ | 375,898 |
| | $ | 18,369 |
| | $ | 5,587 |
|
| | | | | | | | | | | |
| | | 2016 |
| | | Net Sales | | Segment (Loss) Profit* | | Segment Assets* | | Depreciation/Amortization | | Expenditures for Long-Lived Assets |
| Rail Products and Services | | $ | 239,127 |
| | $ | (26,228 | ) | | $ | 174,049 |
| | $ | 7,276 |
| | $ | 856 |
|
| Construction Products | | 145,602 |
| | 8,189 |
| | 81,074 |
| | 2,256 |
| | 687 |
|
| Tubular and Energy Services | | 98,785 |
| | (116,126 | ) | | 100,006 |
| | 12,644 |
| | 3,810 |
|
| Total | | $ | 483,514 |
| | $ | (134,165 | ) | | $ | 355,129 |
| | $ | 22,176 |
| | $ | 5,353 |
|
| | | | | | | | | | | |
| | | 2015 |
| | | Net Sales | | Segment Profit (Loss)** | | Segment Assets** | | Depreciation/Amortization | | Expenditures for Long-Lived Assets |
| Rail Products and Services | | $ | 328,982 |
| | $ | 27,037 |
| | $ | 241,222 |
| | $ | 8,098 |
| | $ | 4,273 |
|
| Construction Products | | 176,394 |
| | 12,958 |
| | 86,335 |
| | 2,720 |
| | 1,260 |
|
| Tubular and Energy Services | | 119,147 |
| | (81,344 | ) | | 216,715 |
| | 14,857 |
| | 4,303 |
|
| Total | | $ | 624,523 |
| | $ | (41,349 | ) | | $ | 544,272 |
| | $ | 25,675 |
| | $ | 9,836 |
|
|
| |
* | Segment loss includes impairment of goodwill, definite-lived intangible assets, and property, plant, and equipment as further described in Note 4 Goodwill and Other Intangible Assets and Note 7 Property, Plant, and Equipment. |
|
| |
** | Segment loss includes impairment of goodwill as further described in Note 4 Goodwill and Other Intangible Assets. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2021 |
| | Net Sales | | Segment Operating Profit (Loss) | | Segment Assets | | Depreciation/Amortization | | Expenditures for Long-Lived Assets |
| Rail, Technologies, and Services | | $ | 299,749 | | | $ | 14,165 | | | $ | 171,608 | | | $ | 6,089 | | | $ | 1,081 | |
| Precast Concrete Products | | 70,990 | | | 1,545 | | | 48,740 | | | 1,716 | | | 2,441 | |
| Steel Products and Measurement | | 142,881 | | | (2,402) | | | 58,377 | | | 4,738 | | | 78 | |
| Total | | $ | 513,620 | | | $ | 13,308 | | | $ | 278,725 | | | $ | 12,543 | | | $ | 3,600 | |
During 2017, 2016,2022 and 2015,2021, no single customer accounted for more than 10% of the Company’s consolidated net sales. Sales between segments are immaterial.
were immaterial and eliminated in consolidation.
Reconciliations of reportable segment net sales, profits, (losses), assets, depreciation/amortization, and expenditures for long-lived assets to the Company’s consolidated totals are as follows as of and for the years ended and as of December 31:
| | | | | | | | | | | | | | | | |
| | 2022 | | 2021 | | |
| Income from operations: | | | | | | |
| Total segment operating profit | | $ | 2,322 | | | $ | 13,308 | | | |
| Interest expense - net | | (3,340) | | | (2,956) | | | |
| Other income - net | | 1,550 | | | 3,075 | | | |
| | | | | | |
| Corporate expense and other unallocated charges | | (9,528) | | | (8,837) | | | |
| (Loss) income from continuing operations before income taxes | | $ | (8,996) | | | $ | 4,590 | | | |
| Assets: | | | | | | |
| Total segment assets | | $ | 335,225 | | | $ | 278,725 | | | |
| Unallocated corporate assets | | 30,085 | | | 63,870 | | | |
| | | | | | |
| Assets | | $ | 365,310 | | | $ | 342,595 | | | |
| Depreciation/Amortization: | | | | | | |
| Total segment depreciation/amortization | | $ | 13,284 | | | $ | 12,543 | | | |
| Corporate depreciation/amortization | | 1,495 | | | 1,344 | | | |
| Depreciation/amortization | | $ | 14,779 | | | $ | 13,887 | | | |
| Expenditures for Long-Lived Assets: | | | | | | |
| Total segment expenditures for long-lived assets | | $ | 4,318 | | | $ | 3,600 | | | |
| | | | | | |
| Corporate expenditures for long-lived assets | | 3,315 | | | 1,020 | | | |
| Expenditures for long-lived assets | | $ | 7,633 | | | $ | 4,620 | | | |
|
| | | | | | | | | | | | |
| | | 2017 | | 2016 | | 2015 |
| Income (loss) from Operations: | | | | | | |
| Profit (loss) for reportable segments | | $ | 27,685 |
| | $ | (134,165 | ) | | $ | (41,349 | ) |
| Interest expense | | (8,377 | ) | | (6,551 | ) | | (4,378 | ) |
| Interest income | | 307 |
| | 228 |
| | 206 |
|
| Other income | | 367 |
| | 1,523 |
| | 5,585 |
|
| LIFO (expense) income | | (2,009 | ) | | 2,643 |
| | 2,468 |
|
| Equity in income (loss) of nonconsolidated investments | | 6 |
| | (1,290 | ) | | (413 | ) |
| Corporate expense, cost of capital elimination, and other unallocated charges | | (9,937 | ) | | (9,557 | ) | | (12,696 | ) |
| Income (loss) before income taxes | | $ | 8,042 |
| | $ | (147,169 | ) | | $ | (50,577 | ) |
| Assets: | | | | | | |
| Total for reportable segments | | $ | 375,898 |
| | $ | 355,129 |
| | $ | 544,272 |
|
| Unallocated corporate assets | | 25,845 |
| | 41,072 |
| | 28,209 |
|
| LIFO | | (5,187 | ) | | (3,178 | ) | | (5,821 | ) |
| Total Assets | | $ | 396,556 |
| | $ | 393,023 |
| | $ | 566,660 |
|
| Depreciation/Amortization: | | | | | | |
| Total for reportable segments | | $ | 18,369 |
| | $ | 22,176 |
| | $ | 25,675 |
|
| Other | | 1,472 |
| | 1,316 |
| | 999 |
|
| Total | | $ | 19,841 |
| | $ | 23,492 |
| | $ | 26,674 |
|
| Expenditures for Long-Lived Assets: | | | | | | |
| Total for reportable segments | | $ | 5,587 |
| | $ | 5,353 |
| | $ | 9,836 |
|
| Expenditures funded through financing agreements | | — |
| | — |
| | 288 |
|
| Other expenditures | | 562 |
| | 2,311 |
| | 5,077 |
|
| Total | | $ | 6,149 |
| | $ | 7,664 |
| | $ | 15,201 |
|
The following table summarizes the Company’s sales by major geographic region in which the Company hashad operations for the years ended December 31:
| | | | | 2017 | | 2016 | | 2015 | | 2022 | | 2021 | |
| United States | | $ | 431,868 |
| | $ | 390,930 |
| | $ | 522,404 |
| United States | | $ | 378,339 | | | $ | 391,218 | | |
| Canada | | 38,859 |
| | 30,644 |
| | 40,545 |
| Canada | | 38,489 | | | 36,477 | | |
| United Kingdom | | 37,237 |
| | 37,188 |
| | 26,817 |
| United Kingdom | | 46,590 | | | 57,600 | | |
| Other | | 28,413 |
| | 24,752 |
| | 34,757 |
| Other | | 34,079 | | | 28,325 | | |
| | | $ | 536,377 |
| | $ | 483,514 |
| | $ | 624,523 |
| |
| Total net sales | | Total net sales | | $ | 497,497 | | | $ | 513,620 | | |
The following table summarizes the Company’s long-lived assets by geographic region atas of December 31:
| | | | | 2017 | | 2016 | | 2015 | | 2022 | | 2021 | |
| United States | | $ | 89,439 |
| | $ | 96,650 |
| | $ | 118,053 |
| United States | | $ | 82,846 | | | $ | 53,527 | | |
| Canada | | 4,788 |
| | 5,445 |
| | 6,186 |
| Canada | | 110 | | | 2,597 | | |
| United Kingdom | | 1,850 |
| | 1,842 |
| | 2,449 |
| United Kingdom | | 1,533 | | | 1,668 | | |
| Other | | 19 |
| | 36 |
| | 57 |
| Other | | 855 | | | 430 | | |
| | | $ | 96,096 |
| | $ | 103,973 |
| | $ | 126,745 |
| |
| Total property, plant, and equipment - net | | Total property, plant, and equipment - net | | $ | 85,344 | | | $ | 58,222 | | |
The following table summarizes the Company’s sales by major product line:and service line for the years ended December 31:
| | | | | | | | | | | | | | | | | | | | |
| | | | December 31, |
| | | | | | 2022 | | 2021 | | |
| Rail Products and Global Friction Management | | | | | | $ | 255,713 | | | $ | 248,237 | | | |
| Technology Services and Solutions | | | | | | 44,879 | | | 51,512 | | | |
| Rail, Technologies, and Services | | | | | | 300,592 | | | 299,749 | | | |
| Precast Concrete Buildings | | | | | | 61,143 | | | 55,993 | | | |
| Other Precast Concrete Products | | | | | | 43,069 | | | 14,997 | | | |
| Precast Concrete Products | | | | | | 104,212 | | | 70,990 | | | |
| Coatings and Measurement | | | | | | 38,329 | | | 27,833 | | | |
| Fabricated Steel Products | | | | | | 54,364 | | | 115,048 | | | |
| Steel Products and Measurement | | | | | | 92,693 | | | 142,881 | | | |
| Total net sales | | | | | | $ | 497,497 | | | $ | 513,620 | | | |
|
| | | | | | | | | | | | |
| | | 2017 | | 2016 | | 2015 |
| Rail Technologies | | $ | 100,257 |
| | $ | 90,469 |
| | $ | 98,237 |
|
| Rail Distribution | | 90,696 |
| | 83,236 |
| | 126,277 |
|
| Piling | | 73,158 |
| | 70,535 |
| | 94,853 |
|
| Precast Concrete Products | | 55,877 |
| | 54,514 |
| | 52,044 |
|
| Test and Inspection Services | | 39,198 |
| | 20,765 |
| | 35,906 |
|
| Protective Coatings | | 38,096 |
| | 23,043 |
| | 33,532 |
|
| Fabricated Bridge | | 32,766 |
| | 20,553 |
| | 29,496 |
|
| Precision Measurement Systems | | 29,670 |
| | 42,830 |
| | 36,048 |
|
| Other products | | 76,659 |
| | 77,569 |
| | 118,130 |
|
| | | $ | 536,377 |
| | $ | 483,514 |
| | $ | 624,523 |
|
Note 3. Acquisitions and Divestitures
Acquisitions
TEW Plus, LtdSkratch Enterprises Ltd.
On November 23, 2015,June 21, 2022, the Company acquired the 75% balancestock of Skratch for $7,402, which is inclusive of deferred payments withheld by the remaining sharesCompany of TEW Plus, Ltd (“Tew Plus”)$1,228, to be paid over the next five years or utilized to satisfy post-closing working capital adjustments or indemnity claims under the purchase agreement. Located in Telford, United Kingdom, Skratch offers a single-point supply solution model for $2,130, netclients, and enables large scale deployments of cash acquired. Headquartered in Nottingham, UK, Tew Plus provides telecommunications and security systems to the railway and commercial markets. Theirits intelligent digital signage solutions. Skratch’s service offerings include fulldesign, prototyping and proof of concept, hardware and software, logistics and warehousing, installation, services including: design, projectmaintenance, content management, survey, and commissioning along with future maintenance. The results of Tew Plus’ operations aremanaged monitoring. Skratch has been included in the Company’s Technology Services and Solutions business unit within the Rail, ProductsTechnologies, and Services segment from the date of acquisition.segment.
Inspection Oilfield ServicesVanHooseCo Precast LLC
On March 13, 2015,August 12, 2022, the Company acquired IOS Holdings, Inc. (“IOS” or ”Testthe operating assets of VanHooseCo, a privately-held business headquartered in Loudon, Tennessee specializing in precast concrete walls, water management products, and Inspection Services”)traditional precast products for $167,404,the industrial, commercial, and residential infrastructure markets. The Company acquired VanHooseCo for $52,146, net of cash acquired and aat closing, subject to the finalization of net working capital receivable adjustment of $2,363. The purchase agreement included an earn-out provision for the selleradjustments. An amount equal to generate an additional $60,000 of proceeds upon achieving certain levels of EBITDA during the three-year period that ended on December 31, 2017. The Company did not accrue an estimated earn-out obligation based upon a probability weighted valuation model of the projected EBITDA results, which indicated that the minimum target would not be achieved. Approximately $7,600$2,500 of the purchase price relatedwas deposited in an escrow account in order to amounts held in escrowcover breaches of representations and warranties. The acquisition agreement includes two employment agreements whereby principals have the ability to satisfy potential indemnity claims made underearn up to an additional $1,000 dependent upon the purchase agreement. Headquartered in Houston, TX, IOS is a leading independent providersuccessful completion of tubular management services with operations in every significant oil and gas producing regionthe principals’ employment agreements. VanHooseCo has been included in the continental United States. The acquisition is included within our Tubular and Energy Services segment from the date of acquisition. See Note 4 Goodwill and Other Intangible Assets, with respect to an impairment of the goodwill related to this acquisition.
TEW Holdings, Ltd
On January 13, 2015, the Company acquired TEW Holdings, Ltd (“Tew”) for $26,467, net of cash acquired, working capital, and net debt adjustments totaling $4,200. The purchase price included approximately $600 which was held in escrow to satisfy potential indemnity claims made under the purchase agreement. Headquartered in Nottingham, UK, Tew provides application engineering solutions primarily to the rail market and other major industries. The results of Tew’s operations are included within the RailCompany’s Precast Concrete Products and Services segment from the date of acquisition.segment.
Acquisition Summary
Each transaction was accounted for under the acquisition method of accounting under U.S. generally accepted accounting principles,GAAP which requires an acquiring entity to recognize, with limited exceptions, all of the assets acquired and liabilities assumed in a transaction at fair value as of the
acquisition date. Goodwill primarily represents the value paid for each acquisition’s enhancement to the Company’s product and service offerings and capabilities, as well as a premium payment related to the ability to control the acquired assets.
No acquisition-related costs were incurred duringassets, as well as the years ended December 31, 2017 and 2016. The Company incurred $760 of acquisition-related costs that are included in the results of operations within selling and administrativeassembled workforce provided. Acquisition costs for the year ended December 31, 2015.2022 were $2,043 and were recognized as part of the Company’s selling and administrative expenses.
VanHooseCo contributed net sales of $17,788 and operating profit of $1,555 to the Company’s consolidated results for the period from August 12, 2022 through December 31, 2022.
The table below summarizes the Company’s results as though the VanHooseCo acquisition had been completed on January 1, 2022. Certain of VanHooseCo’s historical amounts were reclassified to conform to the Company’s financial presentation of operations, which included recording inventory and property, plant, and equipment at fair market value, to establish intangible assets, to remove deferred compensation expense, and to include interest expense for the additional borrowings. The following unaudited pro forma information is provided for informational purposes only and does not represent what consolidated income statement presentsresults of operations would have been had the Company’s results as if the acquisitions of IOS and Tew hadVanHooseCo acquisition occurred on January 1, 2015. The 2015 pro forma2021 nor are they necessarily indicative of future consolidated results include the impact of the current year impairment of goodwill as further described in Note 4:operations.
| | | | | | | | | | | | | | | | | | |
| | | | Year Ended
December 31, |
| | | | | | 2022 | | 2021 |
| | | | | | | | |
| | | | | | Unaudited |
| Net sales | | | | | | $ | 522,997 | | | $ | 540,359 | |
| Net (loss) income attributable to L.B. Foster Company | | | | | | (44,564) | | | 2,223 | |
| Diluted (loss) earnings per share | | | | | | | | |
| As reported | | | | | | $ | (4.25) | | | $ | 0.33 | |
| Pro forma | | | | | | $ | (4.16) | | | $ | 0.21 | |
|
| | | | |
| | | Twelve months ended December 31, |
| | | 2015 |
| Net sales | | $ | 640,596 |
|
| Gross profit | | 138,123 |
|
| Net loss | | (44,399 | ) |
| Diluted loss per share | | |
| As Reported | | $ | (4.33 | ) |
| Pro forma | | $ | (4.32 | ) |
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the datesdate of the acquisition:VanHooseCo and Skratch acquisitions:
| | | | | | | | | | | | | | |
| Allocation of purchase price | | VanHooseCo | | Skratch |
| Current assets, net of cash acquired on the acquisition date | | $ | 11,138 | | | $ | 1,129 | |
| Property, plant, and equipment | | 30,410 | | | 174 | |
| Goodwill | | 8,221 | | | 5,549 | |
| Other intangibles | | 5,442 | | | 1,750 | |
| Liabilities assumed | | (3,065) | | | (1,200) | |
| Total | | $ | 52,146 | | | $ | 7,402 | |
|
| | | | | | | | | | | | |
| Allocation of Purchase Price | | November 23,
2015 - Tew Plus | | March 13,
2015 - IOS | | January 13,
2015 - Tew |
| Current assets | | $ | 4,420 |
| | $ | 19,877 |
| | $ | 12,125 |
|
| Other assets | | — |
| | 708 |
| | — |
|
| Property, plant, and equipment | | 47 |
| | 51,453 |
| * | 2,398 |
|
| Goodwill | | 822 |
| | 69,908 |
| * | 8,772 |
|
| Other intangibles | | 1,074 |
| | 50,354 |
| * | 14,048 |
|
| Liabilities assumed | | (3,597 | ) | | (23,596 | ) | | (6,465 | ) |
| Total | | $ | 2,766 |
| | $ | 168,704 |
| | $ | 30,878 |
|
|
| |
* | See Note 4 Goodwill and Other Intangible Assets, and Note 7 Property, Plant, and Equipment, with respect to an impairment of property, plant, and equipment, intangible assets, and goodwill related to this acquisition. |
The following table summarizes the estimates of the fair values and amortizable lives of the VanHooseCo and Skratch identifiable intangible assets acquired:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | VanHooseCo | | Skratch |
| Identifiable intangible assets | | Weighted Average
Amortization
Period In Years | | Net
Carrying
Amount | | Weighted Average
Amortization
Period In Years | | Net
Carrying
Amount |
| Non-compete agreements | | 0 | | $ | — | | | 1 | | $ | 27 | |
| Customer relationships | | 5 | | 3,578 | | | 3 | | 1,349 | |
| Trademarks and trade names | | 10 | | 1,537 | | | 10 | | 374 | |
| Favorable lease | | 6 | | 327 | | | 0 | | — | |
| Total | | | | $ | 5,442 | | | | | $ | 1,750 | |
The Company made an allocation of the purchase price for the VanHooseCo and Skratch acquisitions as of the acquisition date based on its understanding of the fair value of the acquired assets and assumed liabilities. These fair value measurements are classified as Level 3 in the fair value hierarchy. See Note 16 for a description of the fair value hierarchy.
Due to the timing of the acquisitions, values shown in the table above are preliminary. If new information is obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the measurement recognized for assets or liabilities assumed, the Company will retrospectively adjust the amounts recognized as of the acquisition date.
|
| | | | | | | | | | | | |
| Intangible Asset | | November 23,
2015 - Tew Plus | | March 13,
2015 - IOS | | January 13,
2015 - Tew |
| Trade name | | $ | — |
| | $ | 2,641 |
| | $ | 870 |
|
| Customer relationships | | 817 |
| | 41,171 |
| | 10,035 |
|
| Technology | | 203 |
| | 4,364 |
| | 2,480 |
|
| Non-competition agreements | | 54 |
| | 2,178 |
| | 663 |
|
| Total identified intangible assets | | $ | 1,074 |
| | $ | 50,354 |
| ** | $ | 14,048 |
|
On August 1, 2022, the Company divested its Track Components business located in St-Jean-sur-Richelieu, Quebec, Canada. Cash proceeds from the transaction were $7,795, subject to indemnification obligations and working capital adjustments, resulting in a pre-tax loss of $467. The Track Components business was reported in the Rail Products business unit within the Rail, Technologies, and Services segment. |
| |
** | See Note 4 Goodwill and Other Intangible Assets, with respect to an impairment of intangible assets related to this acquisition. |
On September 24, 2021, the Company executed the sale of its Piling Products division for $23,902 in total proceeds resulting in a pre-tax gain of $3,230. The Piling Products division was included in the Fabricated Steel Products business unit within the Steel Products and Measurement segment.
Note 4. Revenue
The Company’s revenues are comprised of product and service sales, including products and services provided under long-term agreements with its customers. All revenue is recognized when the Company satisfies its performance obligations under the contract, either implicit or explicit, by transferring the promised product or rendering a service to its customer either when or as its customer obtains control of the product or as the service is rendered. A performance obligation is a promise in a contract to transfer a distinct product or render a specific service to a customer. A contract’s transaction price is allocated to each distinct performance obligation. The majority of the Company’s contracts have a single performance obligation, as the promise to transfer products or render services is not separately identifiable from other promises in the contract and, therefore, not distinct. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring products or providing services. Revenue is recorded net of returns, allowances, customer discounts, and incentives. Sales, value added, and other taxes collected from customers and remitted to governmental authorities are accounted for on a net (excluded from revenues) basis. Shipping and handling costs are included in cost of goods sold.
The Company’s performance obligations under long-term agreements with its customers are generally satisfied over time. Over time revenue is primarily comprised of transit infrastructure projects within the Rail segment, precast concrete buildings within the Precast Concrete Products segment, and long-term bridge projects within the Fabricated Steel Products division and custom precision metering systems within the Coatings and Measurement division in the Steel Products and Measurement segment. Revenue under these long-term agreements is generally 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 the Company’s 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. The Company records contract liabilities in “Deferred revenue” within the Consolidated Balance Sheets.
Deferred revenue of $19,452 and $13,411 as of December 31, 2022 and 2021, respectively, consisted of customer billings or payments received for which the revenue recognition criteria had not yet been met as well as contract liabilities (billings in excess of costs) on over time revenue projects.
For the years ended December 31, 2022 and 2021, revenue recognized over time was as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, | | Percentage of Total Net Sales
Year Ended December 31, |
| | 2022 | | 2021 | | 2022 | | 2021 |
| Over time input method | | $ | 67,116 | | | $ | 100,787 | | | 13.5 | % | | 19.6 | % |
| Over time output method | | 68,794 | | | 52,844 | | | 13.8 | | | 10.3 | |
| Total over time sales | | $ | 135,910 | | | $ | 153,631 | | | 27.3 | % | | 29.9 | % |
| | | | | | | | |
Accounting for these long-term agreements involves the use of various techniques to estimate total revenues and costs. The Company estimates profit on these long-term agreements as the difference between total estimated revenues and expected costs to complete a contract and recognizes that profit over the life of the contract. Contract estimates are based on various assumptions to project the outcome of future events that may span several years. These assumptions include, among other things, labor productivity, cost and availability of materials, and timing of funding by customers. The nature of these long-term agreements may give rise to several types of variable consideration, such as claims, awards, and incentive fees. Contract estimates may include additional revenue for submitted contract modifications if there exists an enforceable right to the modification, the amount can be reasonably estimated, and its realization is probable. These estimates are based on historical collection experience, anticipated performance, and the Company’s best judgment at that time. These amounts are generally included in the contract’s transaction price and are allocated over the remaining performance obligations. Changes in judgments related to the estimates above, customer disputes, or changes in contract terms could impact the timing and amount of revenue recognized and, accordingly, the timing and amount of associated income. In the event that a contract loss becomes known, the entire amount of the estimated loss is recognized in the Consolidated Statements of Operations.
The majority of the Company’s revenue is from products transferred and services rendered to customers at a point in time, which is inherent in all major product and service categories. Point in time revenue accounted for 72.7% and 70.1% of revenue for the years ended December 31, 2022 and 2021, respectively. The Company recognizes revenue at the point in time in which the customer
obtains control of the product or service, which is generally when product title passes to the customer upon shipment or the service has been rendered to the customer. In limited cases, title does not transfer upon shipment and revenue is not recognized until the customer has received the products at a designated physical location.
For the years ended December 31, 2022 and 2021, net sales by the timing of the transfer of goods and services were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2022 | | Rail, Technologies, and Services | | Precast Concrete Products | | Steel Products and Measurement | | Total |
| Point in time | | $ | 241,759 | | | $ | 43,069 | | | $ | 76,759 | | | $ | 361,587 | |
| Over time | | 58,833 | | | 61,143 | | | 15,934 | | | 135,910 | |
| Total net sales | | $ | 300,592 | | | $ | 104,212 | | | $ | 92,693 | | | $ | 497,497 | |
| | | | | | | | |
| Year Ended December 31, 2021 | | Rail, Technologies, and Services | | Precast Concrete Products | | Steel Products and Measurement | | Total |
| Point in time | | $ | 232,880 | | | $ | 21,351 | | | $ | 105,758 | | | $ | 359,989 | |
| Over time | | 66,869 | | | 49,639 | | | 37,123 | | | 153,631 | |
| Total net sales | | $ | 299,749 | | | $ | 70,990 | | | $ | 142,881 | | | $ | 513,620 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
See Note 2 for additional information for the Company’s net sales by major product and service category.
The timing of revenue recognition, billings, and cash collections results in billed receivables, costs in excess of billings (contract assets), and billings in excess of costs (contract liabilities), included in deferred revenue on the Consolidated Balance Sheets. As of December 31, 2022 and 2021, the Company's contract asset balances were $33,613 and $36,179, respectively, with significant changes during the year due to transfers of contract assets to receivables of $15,018 and $24,501, respectively.
As of December 31, 2022 and 2021, contract liabilities, recorded within deferred revenue, were $6,781 and $3,245, respectively. Advanced payments from customers typically relate to contracts with respect to which the Company has significantly fulfilled its obligations, but due to the Company’s continuing involvement with the project, revenue is not recognized until title, ownership, and risk of loss have passed to the customer. Significant changes in contract liabilities during the year ended December 31, 2022 and 2021 included increases of $2,910 and $3,245, respectively, due to billings in excess of costs, excluding amounts recognized as revenue during the period. During the years ended December 31, 2022 and 2021, contract liabilities were reduced due to revenue recognized of $2,665 and $917, respectively, from contract liability balances.
As of December 31, 2022, the Company had approximately $272,251 of remaining performance obligations, which is also referred to as backlog. Approximately 8.3% of the backlog as of December 31, 2022 was related to projects that are anticipated to extend beyond December 31, 2023.
Note 5. Goodwill and Other Intangible Assets
TheAs of December 31, 2022 and 2021, the following table represents the goodwill balance by reportable segment:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Rail, Technologies, and Services | | Precast Concrete Products | | Steel Products and Measurement | | Total |
| Balance as of December 31, 2020: | | $ | 14,743 | | | $ | 2,586 | | | $ | 3,011 | | | $ | 20,340 | |
| Acquisitions | | — | | | (22) | | | — | | | (22) | |
| Foreign currency translation impact | | (166) | | | — | | | — | | | (166) | |
| | | | | | | | |
| | | | | | | | |
| Balance as of December 31, 2021: | | 14,577 | | | 2,564 | | | 3,011 | | | 20,152 | |
| Acquisitions | | 5,549 | | | 8,221 | | | — | | | 13,770 | |
| Foreign currency translation impact | | (178) | | | — | | | — | | | (178) | |
| | | | | | | | |
| Impairment charges | | — | | | — | | | (3,011) | | | (3,011) | |
| Balance as of December 31, 2022: | | $ | 19,948 | | | $ | 10,785 | | | $ | — | | | $ | 30,733 | |
|
| | | | | | | | | | | | | | | | |
| | | Rail Products
and Services | | Construction
Products | | Tubular and
Energy Services | | Total |
| Balance at December 31, 2015: | | $ | 48,188 |
| | $ | 5,147 |
| | $ | 28,417 |
| | $ | 81,752 |
|
| Foreign currency translation impact | | (1,524 | ) | | — |
| | — |
| | (1,524 | ) |
| Disposition | | (154 | ) | | — |
| | — |
| | (154 | ) |
| Impairment charges | | (32,725 | ) | | — |
| | (28,417 | ) | | (61,142 | ) |
| Balance at December 31, 2016: | | 13,785 |
| | 5,147 |
| | — |
| | 18,932 |
|
| Foreign currency translation impact | | 853 |
| | — |
| | — |
| | 853 |
|
| Balance at December 31, 2017: | | $ | 14,638 |
| | $ | 5,147 |
| | $ | — |
| | $ | 19,785 |
|
The Company performsIn conjunction with our annual goodwill impairment tests annuallytest performed 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. No goodwill impairment was recorded in connection with these evaluations for the twelve months ended December 31, 2017. The Company continues to monitor the recoverability of the long-lived assets associated with certain reporting units of2022, the Company and the long-term financial projections of the businesses. Sustained declines in the markets we serve may result in future long-lived asset impairment.
During the year ended December 31, 2016, various reporting units underperformed against their projections and revised their forecasts downward. The revised forecasts, which were primarily attributabledetermined it was necessary to weakness in the rail and energy markets, indicated longer recovery horizons than we previously projected. In connection with the revisions to the longer term projections andperform a substantial decline in market capitalization, the Company concluded that these qualitative factors indicated that there was a more likely than not risk that the carrying value of goodwill exceeded its fair value.
As a result of the Company’s qualitative review, with the assistance of an independent valuation firm, the Company performed a quantitative interim test for impairment of goodwill as of June 1, 2016. The valuation included the use of both the incomedue to weakened economic conditions, unfavorable changes in foreign exchange rates, and market approaches. Greater weighting was applied to the income approach since the Company believes it is the most reliable indication of value as it captures forecasted revenues and earnings for the reporting unitsrecent increases in the projection period thatcost of certain materials, labor, and other inflation-related pressures unfavorably impacted the market approach may not directly incorporate. In addition, a lack of comparable market transactions has limited the availability of information necessary for the market approach.
The results of the test indicated that the Rail Technologies (within the Rail Products and Services segment), Chemtec (or “Precision Measurement Systems”), and Protective Coatings (Chemtec and Protective Coatings are within the Tubular and Energy Services segment) business units’ respective fair values were less than their carrying values. All other reporting units that maintain goodwill substantially exceeded their carrying value and were not at risk of impairment. As a result of the continued weakness in the commodity cycles impacting the energy and rail markets, the near term projections of the Rail Technologies, Chemtec, and Protective Coatings business units had deteriorated and the expected future growth of these business units was determined to be insufficient to support the carrying values.financial results.
The Company determined the implied fair values of the Rail Technologies, Chemtec, and Protective Coatings businessits reporting units by using levelLevel 3 unobservable inputs, which incorporated assumptions that we believe would be a reasonable market participant’s view in a hypothetical purchase, to develop the discounted cash flows of the respective reporting units. Significant levelLevel 3 inputs included estimates of future revenue growth, gross margin, and earnings before interest, taxes, depreciation, and amortization (“EBITDA”). The resulting fair values of each reporting unit were allocated to the assets and liabilities of the respective reporting unit as if each reporting unit had been acquired in a business combination asresults of the test date andindicated that the
Fabricated Bridge Products reporting unit’s respective fair value was the purchase price paidless than its carrying value. All other reporting units that maintain goodwill adequately exceeded their carrying value and were not subject to acquire each reporting unit. The results of the step 2 analysis indicated that the carrying amounts of the goodwill of Rail Technologies, Chemtec, and Protective Coatings exceeded the implied fair values of that goodwill. Accordingly, the Company recognized a non-cash goodwill impairment of $61,142, which represented the full impairment of goodwill within the Chemtec and Protective Coatings business units and approximately 68% of Rail Technologies goodwill. No additional impairments were triggered as a result of the Company’s 2016 annual impairment test.
At December 31, 2017, approximately $14,638 of the Company’s goodwill balance is allocated toimpairment. However, headroom in the Rail Technologies business unit withinand Precast Concrete Products reporting units indicate that should results or future projections diverge from current expectations, the Rail Products and Services reportable segment.reporting units could be subject to future impairment.
In 2015, the Company compared the implied fair values of the IOS (or “Test and Inspection Services”) and Chemtec goodwill amounts to the carrying amounts of that goodwill. The fair values of the IOS and Chemtec business units were allocated to all of the assets and liabilities of the respective reporting unit as if IOS and Chemtec had been acquired in business combinations as of the test date and the fair value was the purchase price paid to acquire each reporting unit. As a result of this
valuation, it was determined that the carrying amounts of IOS’s and Chemtec’s goodwill exceeded the implied fair values of that goodwill. The Company recognized a non-cash goodwill impairment charge of $80,337 to write down the carrying values to the implied fair values, of which $69,908 represented the full carrying value of goodwill related to the IOS acquisition and the remaining $10,429 related to the Chemtec reporting unit. No additional impairments were triggered as a result of the Company’s 2015 annual impairment test.
At December 31, 2017, the Company had an aggregate goodwill impairment of $141,479, which was related to the 2016 and 2015 write downs.
The following table represents the gross definite-lived intangible assets balance by reportable segment at December 31:
|
| | | | | | | | |
| | | 2017 | | 2016 |
| Rail Products and Services | | $ | 57,654 |
| | $ | 56,476 |
|
| Construction Products | | 1,348 |
| | 1,348 |
|
| Tubular and Energy Services | | 29,179 |
| | 29,179 |
|
| | | $ | 88,181 |
| | $ | 87,003 |
|
During the year ended December 31, 2017, based on the Company's review of impairment indicators, there was no test performed on the recoverability of our definite-lived intangible assets. There were no definite-lived intangible asset impairments recorded during the years ended December 31, 2017 or 2015.
During the year ended December 31, 2016, the results of our testing indicated that the long-lived assets related to the IOS and Chemtec business units, within the Tubular and Energy Services segment, had carrying values in excess of the asset groups’ fair value. Based upon level 3 unobservable inputs, the Company incorporated assumptions that it believes would be a reasonable market participant’s view in a hypothetical purchase, to develop the discounted cash flows. Significant level 3 inputs included estimates of future revenue growth, gross margin and EBITDA. As a result of the analysis,procedures performed as outlined above, the Company recordedimpaired 100% of goodwill held in the Fabricated Bridge reporting unit in the fourth quarter of 2022, resulting in a $42,982 non-cash pre-tax impairment charge of definite-lived intangible assets related to$3,011.
As of December 31, 2022 and 2021, the IOS business unit and a $16,804 non-cash impairment of definite-lived intangible assets related to the Chemtec business unit.
The components of the Company’s intangible assets arewere as follows at:follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 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 | |
| | | | | | | | |
| | | December 31, 2021 |
| | | Weighted Average
Amortization
Period In Years | | Gross
Carrying
Value | | Accumulated
Amortization | | Net
Carrying
Amount |
| | | | | | | | |
| Patents | | 10 | | $ | 385 | | | $ | (218) | | | $ | 167 | |
| Customer relationships | | 18 | | 36,163 | | | (18,222) | | | 17,941 | |
| Trademarks and trade names | | 16 | | 7,801 | | | (4,702) | | | 3,099 | |
| Technology | | 13 | | 35,772 | | | (25,956) | | | 9,816 | |
| | | | $ | 80,121 | | | $ | (49,098) | | | $ | 31,023 | |
|
| | | | | | | | | | | | | | |
| | | December 31, 2017 |
| | | Weighted Average
Amortization
Period In Years | | Gross
Carrying
Value | | Accumulated
Amortization | | Net
Carrying
Amount |
| Non-compete agreements | | 5 | | $ | 4,238 |
| | $ | (3,100 | ) | | $ | 1,138 |
|
| Patents | | 10 | | 389 |
| | (164 | ) | | 225 |
|
| Customer relationships | | 17 | | 37,679 |
| | (9,171 | ) | | 28,508 |
|
| Trademarks and trade names | | 14 | | 10,085 |
| | (4,091 | ) | | 5,994 |
|
| Technology | | 14 | | 35,790 |
| | (14,215 | ) | | 21,575 |
|
| | | | | $ | 88,181 |
| | $ | (30,741 | ) | | $ | 57,440 |
|
| | | | | | | | | |
| | | December 31, 2016 |
| | | Weighted Average
Amortization
Period In Years | | Gross
Carrying
Value | | Accumulated
Amortization | | Net
Carrying
Amount |
| Non-compete agreements | | 5 | | $ | 4,219 |
| | $ | (2,217 | ) | | $ | 2,002 |
|
| Patents | | 10 | | 373 |
| | (143 | ) | | 230 |
|
| Customer relationships | | 18 | | 36,843 |
| | (6,582 | ) | | 30,261 |
|
| Trademarks and trade names | | 14 | | 10,018 |
| | (3,238 | ) | | 6,780 |
|
| Technology | | 14 | | 35,550 |
| | (11,304 | ) | | 24,246 |
|
| | | | | $ | 87,003 |
| | $ | (23,484 | ) | | $ | 63,519 |
|
Intangible assets are amortized over their useful lives ranging from 41 to 25 years, with a total weighted average amortization period of approximately 15 years. Amortization expense for the years ended December 31, 2017, 2016,2022 and 2015 was $6,992, $9,575,2021 were $6,144 and $12,245,$5,836, respectively.
During the year ended December 31, 2022, the Company’s gross carrying value of customer relationships and technology intangible assets were reduced by $5,448 and $471, respectively, and the net carrying amount of customer relationships and technology intangible assets were reduced by $2,869 and $7, respectively, as a result of the August 1, 2022 disposition of the Track Components business.
Estimated annual amortization expense for the years 2018ending December 31, 2023 and thereafter is as follows:
|
| | | | |
| | | Amortization
Expense |
| 2018 | | $ | 7,036 |
|
| 2019 | | 6,314 |
|
| 2020 | | 5,991 |
|
| 2021 | | 5,971 |
|
| 2022 | | 5,904 |
|
| 2023 and thereafter | | 26,224 |
|
| | | $ | 57,440 |
|
Note 5.
Accounts Receivable
Accounts receivable at December 31, 2017 and 2016 are summarized as follows:
|
| | | | | | | | |
| | | 2017 | | 2016 |
| Trade | | $ | 74,514 |
| | $ | 64,707 |
|
| Allowance for doubtful accounts | | (2,151 | ) | | (1,417 | ) |
| | | 72,363 |
| | 63,290 |
|
| Other | | 4,219 |
| | 3,342 |
|
| | | $ | 76,582 |
| | $ | 66,632 |
|
The Company’s customers are principally in the transportation and energy infrastructure sectors. At December 31, 2017 and 2016, trade receivables, net of allowance for doubtful accounts, from customers were as follows:
|
| | | | | | | | |
| | | 2017 | | 2016 |
| Rail Products and Services | | $ | 31,225 |
| | $ | 29,552 |
|
| Construction Products | | 20,070 |
| | 20,531 |
|
| Tubular and Energy Services | | 21,068 |
| | 13,207 |
|
| | | $ | 72,363 |
| | $ | 63,290 |
|
Credit is extended 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.
Note 6.
Inventory
Inventories at December 31, 2017 and 2016 are summarized in the following table:
|
| | | | | | | | |
| | | 2017 | | 2016 |
| Finished goods | | $ | 55,846 |
| | $ | 46,673 |
|
| Work-in-process | | 29,379 |
| | 21,716 |
|
| Raw materials | | 17,505 |
| | 18,032 |
|
| Total inventories at current costs | | 102,730 |
| | 86,421 |
|
| Less: LIFO reserve | | (5,187 | ) | | (3,178 | ) |
| | | $ | 97,543 |
| | $ | 83,243 |
|
At December 31, 2017 and 2016, approximately 50% and 53% of the Company’s inventory was valued at the lower of LIFO cost or market. At December 31, 2017 and 2016, the LIFO carrying value of inventories for book purposes exceeded the LIFO value for tax purposes by approximately $10,694 and $8,925, respectively. At December 31, 2017, liquidation of certain LIFO inventory layers carried at costs that were lower than the costs of current purchases resulted in a decrease in cost of goods sold of $16 and at December 31, 2016 and 2015 liquidation of certain LIFO inventory layers carried at costs that were higher than the costs of their current purchases resulted in an increase in cost of goods sold of $1,304 and $115, respectively.
Note 7.
Property, Plant, and Equipment
Property, plant, and equipment at December 31, 2017 and 2016 consist of the following:
|
| | | | | | | | |
| | | 2017 | | 2016 |
| Land | | $ | 14,869 |
| | $ | 14,826 |
|
| Improvements to land and leaseholds | | 17,415 |
| | 17,408 |
|
| Buildings | | 34,929 |
| | 33,910 |
|
| Machinery and equipment, including equipment under capitalized leases | | 120,806 |
| | 118,060 |
|
| Construction in progress | | 1,057 |
| | 1,291 |
|
| | | 189,076 |
| | 185,495 |
|
| Less: accumulated depreciation and amortization, including accumulated amortization of capitalized leases | | 92,980 |
| | 81,522 |
|
| | | $ | 96,096 |
| | $ | 103,973 |
|
There were no impairments of property, plant, and equipment recorded during the years ended December 31, 2017 or 2015. | | | | | | | | |
| Year Ending December 31, | | |
| 2023 | | $ | 5,268 | |
| 2024 | | 4,273 | |
| 2025 | | 2,878 | |
| 2026 | | 2,268 | |
| 2027 | | 1,953 | |
| 2028 and thereafter | | 7,191 | |
| | $ | 23,831 | |
During the year ended December 31, 2016, the Company2022, management performed a recoverability teststest on a reporting units whenunit for which there was an indication that it was more likely thanthat not that the carrying value of the long-lived asset group would not be recoverable. The results of our testing indicatedthis test concluded that the long-lived assets related toassociated with the IOSCompany’s Precision Measurement Products and Systems business withinbased in Willis, TX, which resides in the TubularSteel Products and Energy ServicesMeasurement segment, had carrying values in excess of the asset groups’their fair value. Based upon level 3 unobservable inputs,on third party valuation and appraisal reports, the Company incorporated assumptions that it believes would bedeveloped a reasonable market participant’s view in a hypothetical purchase, to developfair value of the discounted cash flows. Significant level 3 inputs included estimates of future revenue growth, gross margin, and EBITDA.long-lived assets for this reporting unit. As a result of the analysis and valuation exercises performed, in the fourth quarter of 2022, the Company recorded a $14,956$4,883 in non-cash, pre-tax impairment charges associated with the reporting unit’s intangible assets, equal to 100% of property,their carrying value. Impairment was inclusive of $3,828, $394, and $661 related to customer relationships, trade name, and developed technology, respectively.
Note 6. Accounts Receivable
Accounts receivable as of December 31, 2022 and 2021 are summarized as follows:
| | | | | | | | | | | | | | |
| | December 31, |
| | 2022 | | 2021 |
| Accounts receivable | | $ | 83,268 | | | $ | 56,458 | |
| Allowance for credit losses | | (813) | | | (547) | |
| Accounts receivable - net | | $ | 82,455 | | | $ | 55,911 | |
Changes in reserves for uncollectible accounts are recorded as part of “Selling and administrative expenses” in the Consolidated Statements of Operations, and were an expense of $382 and income of $87 for the years ended December 31, 2022 and 2021, respectively.
The following table sets forth the Company’s allowance for credit losses:
| | | | | | | | |
| | Allowance for Credit Losses |
| December 31, 2021 | | $ | 547 | |
| Current period provision | | 382 | |
| Write-off against allowance | | (116) | |
| | |
| December 31, 2022 | | $ | 813 | |
Note 7. Inventory
Inventory is valued at average cost or net realizable value, whichever is lower. The Company’s components of inventory as of December 31, 2022 and 2021 are summarized in the following table:
| | | | | | | | | | | | | | |
| | December 31, |
| | 2022 | | 2021 |
| Finished goods | | $ | 41,431 | | | $ | 23,822 | |
| | | | |
| Work-in-process | | 9,693 | | | 10,738 | |
| Raw materials | | 24,597 | | | 28,311 | |
| Inventories - net | | $ | 75,721 | | | $ | 62,871 | |
Note 8. Property, Plant, and Equipment
Property, plant, and equipment related toas of December 31, 2022 and 2021 consisted of the IOS business.following:
| | | | | | | | | | | | | | |
| | December 31, |
| | 2022 | | 2021 |
| Land | | $ | 5,284 | | | $ | 6,224 | |
| Improvements to land and leaseholds | | 19,956 | | | 15,416 | |
| Buildings | | 34,814 | | | 27,206 | |
| Machinery and equipment, including equipment under finance leases | | 123,806 | | | 112,021 | |
| Construction in progress | | 5,552 | | | 1,194 | |
| Gross property, plant, and equipment | | 189,412 | | | 162,061 | |
| Less: accumulated depreciation and amortization, including accumulated amortization of finance leases | | (104,068) | | | (103,839) | |
| Property, plant, and equipment - net | | $ | 85,344 | | | $ | 58,222 | |
Depreciation expense, including amortization of assets under capitalfinance leases, for the years ended December 31, 2017, 2016,2022 and 20152021 amounted to $12,849, $13,917,$8,635 and $14,429,$8,051, respectively.
Note 8.
Investments
The Company is a member of a joint venture, L B PipeThere were no material property, plant, and Coupling Products, LLC (“L B Pipe JV”), in which it maintains a 45% ownership interest. L B Pipe JV manufactures, markets, and sells various machined components and precision coupling productsequipment impairments recorded for the energy, water well, and construction markets and is scheduled to terminate on June 30, 2019.
Under applicable guidance for variable interest entities in FASB ASC 810, “Consolidation,” the Company previously determined that L B Pipe JV was a variable interest entity. The Company concluded that it was not the primary beneficiary of the variable interest entity, as the Company did not have a controlling financial interest and did not have the power to direct the activities that most significantly impact the economic performance of L B Pipe JV.
During the year ended December 31, 2017, pursuant to the limited liability company agreement, the Company determined to sell its 45% ownership to the other 45% equity holder2022 and no longer classified the L B Pipe JV as a variable interest entity. 2021.
Note 9. Leases
The Company concluded that it has met the criteria under applicable guidance fordetermines if an arrangement is a long-lived asset to be held for sale,lease at its inception. Operating leases are included in “Operating lease right-of-use assets,” “Other current liabilities,” and has, accordingly, reclassified L B Pipe JV investment of $3,875 as a current asset held for sale“Long-term operating lease liabilities” within "Other current assets" on the Consolidated Balance Sheet. During 2017,Sheets. Finance leases are included in “Property, plant, and equipment - net,” “Current maturities of long-term debt,” and “Long-term debt” in the asset was remeasuredConsolidated Balance Sheets.
Right-of-use assets represent the Company’s right to its fair market value. The difference between the fair market value, $3,875, and the Company's carrying amount, $4,288, resulted in a $413 other-than-temporary impairmentuse an underlying asset for the twelve months ended December 31, 2017.lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease right-of-use assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. As most of the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at the commencement date in determining the present value of the lease payments. The Company performed recoverability tests over its nonconsolidated equity method investmentsuses the implicit rate when readily determinable. The operating lease right-of-use asset also includes indirect costs incurred and concludedlease payments made prior to the commencement date, less any lease incentives received. The Company’s lease terms may include options to extend or terminate the lease and will be recognized when it is reasonably certain that the fair values exceededCompany will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the carrying values and no impairment was recorded by the Company during the years ended December 31, 2016 or 2015.
During the years ended December 31, 2017 and 2016, each of the L B Pipe JV members received proportional distributions from L B Pipe JV. During 2016, the Company and the other 45% member each executed a revolving line of credit with L B Pipe JV with an available limit of $1,350. The Company and the other 45% member each loaned $1,235 to L B Pipe JV in an effort to maintain compliance with L B Pipe JV’s debt covenants with an unaffiliated bank. Pursuant to the sale agreement, the Company is to receive its outstanding loan balance, including applicable interest, upon its sale of L B Pipe JV.lease term.
The Company recorded equity inhas lease agreements with lease and non-lease components that it accounts for as a single lease component. Also, for certain equipment leases, the incomeCompany applies a portfolio approach to effectively account for the operating lease right-of-use assets and liabilities.
The Company has operating and finance leases for manufacturing facilities, corporate offices, sales offices, vehicles, and certain equipment. As of L B Pipe JVDecember 31, 2022, its leases had remaining lease terms of approximately $3862 to 12 years, some of which include options to extend the leases for up to 12 years, and lossessome of $1,345which include options to terminate the leases within 1 year.
The balance sheet components of the leases were as follows as of December 31, 2022 and $4102021:
| | | | | | | | | | | | | | |
| | December 31, 2022 | | December 31, 2021 |
| Operating leases | | | | |
| Operating lease right-of-use assets | | $ | 17,291 | | | $ | 15,131 | |
| Other current liabilities | | $ | 3,128 | | | $ | 2,852 | |
| Long-term operating lease liabilities | | 14,163 | | | 12,279 | |
| Total operating lease liabilities | | $ | 17,291 | | | $ | 15,131 | |
| Finance leases | | | | |
| Property, plant, and equipment | | $ | 1,442 | | | $ | 1,162 | |
| Accumulated amortization | | (1,130) | | | (1,011) | |
| Property, plant, and equipment - net | | $ | 312 | | | $ | 151 | |
| Current maturities of long-term debt | | $ | 127 | | | $ | 98 | |
| Long-term debt | | 185 | | | 53 | |
| Total finance lease liabilities | | $ | 312 | | | $ | 151 | |
The components of lease expense within the Consolidated Statements of Operations were as follows for the years ended December 31, 2017, 2016,2022 and 2015, respectively.2021:
At December 31, 2017 and 2016, the Company had a nonconsolidated equity method investment of $3,875, recorded as an asset held for sale in “Other current assets,” and $3,902, recorded in “Investments,” respectively, in L B Pipe JV and other investments totaling $162 and $129 at December 31, 2017 and 2016, respectively. | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2022 | | 2021 | | |
| Finance lease cost: | | | | | | |
| Amortization of finance leases | | $ | 177 | | | $ | 203 | | | |
| Interest on lease liabilities | | 34 | | | 82 | | | |
| Operating lease cost | | 2,891 | | 2,784 | | | |
| Sublease income | | (200) | | | (200) | | | |
| Total lease cost | | $ | 2,902 | | | $ | 2,869 | | | |
The Company is leasing five acres of land and two facilities to L B Pipe JV through June 30, 2019, with a 5.5-year renewal period. The current monthly lease payments, including interest, approximate $17, with a balloon payment of approximately $488, which is required to be paid at the terminationcash flow components of the lease, allocated over the renewal period, or during the initial term of the lease. This lease qualifiesleases were as a direct financing lease under the applicable guidance in FASB ASC 840-30, “Leases.”
The following is a schedule of the direct financing minimum lease paymentsfollows for the years 2017ended December 31, 2022 and thereafter:2021:
| | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2022 | | 2021 | | |
| Cash paid for amounts included in the measurement of lease liabilities: | | | | | | |
| Operating cash flows from operating leases | | $ | (3,440) | | | $ | (3,342) | | | |
| | | | | | |
| Financing cash flows from finance leases | | (164) | | | (221) | | | |
| Right-of-use assets obtained in exchange for new lease liabilities: | | | | | | |
| Operating leases | | $ | 5,257 | | | $ | 1,847 | | | |
| | | | | | |
|
| | | | |
| | | Minimum Lease Payments |
| 2018 | | $ | 150 |
|
| 2019 | | 585 |
|
| | | $ | 735 |
|
The Company’s exposureweighted-average remaining lease term (in years) and discount rate related to loss results from its capital contributions, netthe operating leases were as follows for the periods presented:
| | | | | | | | | | | | | | |
| | December 31, |
| | 2022 | | 2021 |
| Operating lease weighted-average remaining lease term | | 7 | | 6 |
| Operating lease weighted-average discount rate | | 5.2 | % | | 5.2 | % |
| Finance lease weighted-average remaining lease term | | 2 | | 1 |
| Finance lease weighted-average discount rate | | 3.7 | % | | 4.1 | % |
As of the Company’s share of L B Pipe JV’s income or loss, its revolving line of credit, and its net investment in the direct financing lease covering the facility used by L B Pipe JV for its operations. The carrying amounts with the maximum exposure to loss of the Company at December 31, 20172022, estimated annual maturities of lease liabilities for the year ending December 31, 2023 and 2016, respectively, arethereafter were as follows:
| | | | | | | | | | | | | | |
| Year Ending December 31, | | Operating Leases | | Finance Leases |
| 2023 | | $ | 4,002 | | | $ | 160 | |
| 2024 | | 3,620 | | | 112 | |
| 2025 | | 3,043 | | | 76 | |
| 2026 | | 2,811 | | | 6 | |
| 2027 | | 2,007 | | | — | |
| 2028 and thereafter | | 4,988 | | | — | |
| | 20,471 | | | 354 | |
| Interest | | (3,180) | | | (42) | |
| Total | | $ | 17,291 | | | $ | 312 | |
|
| | | | | | | | |
| | | 2017 | | 2016 |
| LB Pipe JV equity method investment | | $ | 3,875 |
| | $ | 3,902 |
|
| Revolving line of credit | | 1,235 |
| | 1,235 |
|
| Net investment in direct financing lease | | 735 |
| | 871 |
|
| | | $ | 5,845 |
| | $ | 6,008 |
|
Note 9.
Deferred Revenue
Deferred revenue of $10,136 and $7,597 at December 31, 2017 and 2016, respectively, consists of customer billings or payments received for which the revenue recognition criteria have not yet been met as well as billings in excess of costs on percentage of completion projects. Advanced payments from customers typically relate to contracts with respect to which the Company has significantly fulfilled its obligations, but due to the Company’s continuing involvement with the project, revenue is precluded from being recognized until title, ownership, and risk of loss have passed to the customer.
Note 10.
Long-Term Debt and Related Matters
Long-term debt atas of December 31, 20172022 and 2016 consists2021 consisted of the following:
|
| | | | | | | | |
| | | 2017 | | 2016 |
| Revolving credit facility with an interest rate of 4.78% at December 31, 2017 and 4.22% at December 31, 2016 | | $ | 128,470 |
| | $ | 127,073 |
|
| Term loan payable in quarterly installments through January 1, 2020 with an interest rate of 3.92% at December 31, 2016 | | — |
| | 30,000 |
|
| Financing agreement payable in installments through July 1, 2017 with an interest rate of 3.00% at December 31, 2016 | | — |
| | 534 |
|
| Lease obligations payable in installments through 2020 with a weighted average interest rate of 3.21% at December 31, 2017 and 3.10% at December 31, 2016 | | 1,496 |
| | 1,958 |
|
| Total | | 129,966 |
| | 159,565 |
|
| Less current maturities | | 656 |
| | 10,386 |
|
| Long-term portion | | $ | 129,310 |
| | $ | 149,179 |
|
| | | | | | | | | | | | | | |
| | December 31, |
| | 2022 | | 2021 |
| Revolving credit facility with an interest rate of 6.93% as of December 31, 2022 and 1.61% as of December 31, 2021 | | $ | 91,567 | | | $ | 31,100 | |
| | | | |
| | | | |
| Lease obligations payable in installments through 2024 with a weighted average interest rate of 4.80% as of December 31, 2022 and 4.14% as of December 31, 2021 | | 312 | | | 151 | |
| Total debt | | 91,879 | | | 31,251 | |
| Less: current maturities | | (127) | | | (98) | |
| Long-term portion | | $ | 91,752 | | | $ | 31,153 | |
The expected maturities of long-term debt for December 31, 2023 and thereafter are as follows:
|
| | | | |
| | | December 31, 2017 |
| 2018 | | $ | 656 |
|
| 2019 | | 576 |
|
| 2020 | | 128,734 |
|
| 2021 | | — |
|
| 2022 | | — |
|
| 2023 and thereafter | | — |
|
| Total | | $ | 129,966 |
|
| | | | | | | | |
| Year Ending December 31, | | |
| 2023 | | $ | 127 | |
| 2024 | | 101 | |
| 2025 | | 75 | |
| 2026 | | 91,576 | |
| 2027 | | — | |
| 2028 and thereafter | | — | |
| Total | | $ | 91,879 | |
Borrowings
United States
On November 7, 2016,August 13, 2021, the Company, its domestic subsidiaries, and certain of its Canadian and United Kingdom subsidiaries (collectively, the “Borrowers”), entered into the Second AmendmentFourth 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 date 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.
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.
Prior to the Credit Agreement's amendment on August 12, 2022, borrowings under the Credit Agreement were subject to interest at rates based upon either the base rate or LIBOR rate plus applicable margins. Applicable margins were 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 was the highest of (a) the Overnight Bank Funding Rate plus 50 basis points, (b) the Prime Rate, or (c) the Daily LIBOR rate plus 100 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 ranged from 25 to 125 basis points and 125 to 225 basis points, respectively.
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, and (ii) 3.50 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 1.05 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 $15,000 prior to and after giving effect to such acquisition; and (c) the aggregate consideration for the acquisition does not exceed: (i) $50,000 per acquisition, so long as the Gross Leverage Ratio (as defined in the Credit Agreement) is less than or equal to 2.75 after giving effect to such acquisition; or (ii) $75,000 per acquisition, so long as the Gross Leverage Ratio is less than or equal to 1.75 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.
On August 12, 2022, the Company entered into a second amendment to its Credit Agreement (the “Second Amendment”) to obtain approval for the Second AmendedVanhooseCo acquisition and Restated Credit Agreement dated March 13, 2015 and as amended bytemporarily modify certain financial covenants to accommodate the First Amendment dated June 29, 2016 (the “Amended and Restated Credit Agreement”), with PNC Bank, N.A., Bank of America, N.A., Wells Fargo Bank, N.A., Citizens Bank of Pennsylvania, and Branch Banking and Trust Company. This Second Amendment modifies the Amended and Restated Credit Agreement which had a maximum revolving credit line of $275,000.transaction. The Second Amendment reduces the permitted revolving credit borrowings to $195,000 and provides for additional term loan borrowing of $30,000 (“Term Loan”). The Term Loan was subject to quarterly straight line amortization until the scheduled maturity of January 1, 2020. Furthermore, certain matters, including excess cash flow, asset sales, and equity issuances, triggered mandatory prepayments to the Term Loan. Term Loan borrowings were not available to draw upon following repayment. During 2017, the Company paid offto acquire the balanceoperating assets of the Term Loan. Capitalized terms used but not defined herein shall have the meanings ascribed to them in the Second Amendment or AmendedVanHooseCo and Restated Credit Agreement, as applicable.
The Second Amendment further provides for modifications to the financial covenants as defined in the Amended and Restated Credit Agreement. The Second Amendment calls for the elimination of the Maximum Leverage Ratio covenant through the quarter ending June 30, 2018. After that period,modified the Maximum Gross Leverage Ratio covenant will be reinstatedthrough June 30, 2023 to require a maximum ratio of 4.25 Consolidated Indebtedness to 1.00 Gross Leverage foraccommodate the quarter ending September 30, 2018, and 3.75 to 1.00 for all periods thereafter until the maturity date of the credit facility of March 13, 2020.transaction. The Second Amendment also includes a Minimum Last Twelve Months EBITDA covenant (“Minimum EBITDA”). Foradded an additional tier to the quarter ended December 31, 2016 through the quarter ended June 30, 2017, the Minimum EBITDA had to be at least $18,500. For each quarter thereafter, through the quarter ending June 30, 2018, the Minimum EBITDA requirement will increase by various increments. The incremental Minimum EBITDA requirementpricing grid and provided for the period ended December 31, 2017 wasconversion from LIBOR-based to SOFR-based borrowings. Borrowings under the Credit Agreement as amended, will bear interest at least $25,000. At June 30, 2018,rates based upon either the Minimum EBITDA requirement will be $31,000. After the quarter ending June 30, 2018, the Minimum EBITDA covenant will be eliminated through the maturity of the credit agreement. The Second Amendment also includes a Minimum Fixed Charge Coverage Ratio covenant. The covenant representsbase rate or SOFR rate plus applicable margins. Applicable margins are dictated by the ratio of the Company’s fixed chargestotal net indebtedness to the last twelve months ofCompany’s consolidated EBITDA and is required to be a minimum of 1.00 to 1.00 through the quarter ended December 31, 2017 and 1.25 to 1.00 for each quarter thereafter through the maturity of the credit facility. The final financial covenant included in the Second Amendment is a Minimum Liquidity covenant which calls for a minimum of $25,000 in undrawn availability on the revolving credit loan at all times through the quarter ending June 30, 2018.
The Second Amendment includes several changes to certain non-financial covenantsfour trailing quarters, as defined in the Credit Agreement. ThroughThe base rate is the maturity datehighest of (a) the agreement,Overnight Bank Funding Rate plus 50 basis points, (b) the Company has been prohibited from making any future acquisitions. The limitation on permitted annual distributions of dividendsPrime Rate, or redemptions of(c) the Company’s stock was decreased from $4,000 to $1,700. The aggregate limitation on loans toDaily Simple SOFR rate plus 100 basis points so long as the Daily Simple SOFR rate is offered, ascertainable, and investments in non-loan parties was decreased from $10,000 to $5,000. Furthermore, the limitation on asset sales was decreased from $25,000 annually with a carryover of up to $15,000 from the prior year to $25,000not unlawful (each as defined in the aggregate through the maturity dateCredit Agreement). The base rate and LIBOR rate spreads range from 25 to 150 basis points and 125 to 250 basis points, respectively.
As of the credit facility. At December 31, 2017,2022, the Company was in compliance with the covenants in the Second Amendment.
The Second Amendment provides for the eliminationCredit Agreement, as amended. As of the three lowest tiers of the pricing grid that had previously been defined in the First Amendment. Upon execution of the Second Amendment through the quarter ending March 31, 2018, the Company will be locked into the highest tier of the pricing grid which provides for pricing of the prime rate plus 225 basis points on base rate loans and the applicable LIBOR rate plus 325 basis points on euro rate loans. For each quarter after March 31, 2018 and through the maturity date of the credit facility, the Company’s position on the pricing grid will be governed by a Minimum Net Leverage ratio which is the ratio of Consolidated Indebtedness less cash on hand in excess of $15,000 to EBITDA. If, after March 31, 2018 the Minimum Net Leverage ratio positions the Company on the lowest tier of the pricing
grid, pricing will be the prime rate plus 150 basis points on base rate loans or the applicable LIBOR rate plus 250 basis points on euro rate loans.
At December 31, 20172022 and 2016,2021, the Company had outstanding letters of credit of approximately $425$619 and $544, respectively, and had net available borrowing capacity of $41,105$37,814 and $67,502, respectively.$98,356, respectively, subject to covenant restrictions. The maturity date of the facility is MarchAugust 13, 2020.2026.
United Kingdom
A subsidiary of the Company has a credit facility with NatWest Bank for its United Kingdom operations that includes an overdraft availability of £1,500 pounds sterling (approximately $2,027 at December 31, 2017). This credit facility supports the United Kingdom’s working capital requirements and is collateralized by substantially all of the assets of the subsidiary's operations. The interest rate on this facility is the financial institution’s base rate plus 2.50%. Outstanding performance bonds reduce availability under this credit facility. There were no outstanding borrowings under this credit facility at December 31, 2017, however, there were $533 in outstanding guarantees (as defined in the underlying agreement) at December 31, 2017. This credit facility was renewed and amended during the fourth quarter of 2017 with all underlying terms and conditions remaining unchanged as a result of the renewal. It is the Company’s intention to renew this credit facility with NatWest Bank during the annual review in 2018.
The United Kingdom loan agreements contain certain financial covenants that require the subsidiary to maintain senior interest and cash flow coverage ratios. The subsidiary was in compliance with these financial covenants at December 31, 2017 and 2016. The subsidiary had available borrowing capacity of $1,494 and $1,650 at December 31, 2017 and 2016, respectively.
Note 11.
Stockholders’ Equity
The Company had authorized shares of 20,000,000 in common stock with 11,115,779 shares issued atas of December 31, 20172022 and 2016.2021. The common stock has a par value of $0.01 per share and the Company paid dividends of $0.04 per share for each of the first three quarters of 2016 and suspendeddid not make any dividend payments during the fourth quarter of 2016, which continued throughout 2017.
At December 31, 2017 and 2016, the Company had authorized shares of 5,000,000 in preferred stock. No preferred stock has been issued. No par value has been assigned to the preferred stock.
On December 4, 2013, the Company’s Board of Directors authorized the purchase of up to $15,000 in shares of its common stock through a share repurchase program at prevailing market prices or privately negotiated transactions. The Company repurchased 80,512 shares, for an aggregate price of $1,587, during 2015 under the repurchase program. On December 9, 2015, the Board of Directors authorized the repurchase of up to $30,000 of the Company’s common shares until December 31, 2017. This authorization became effective January 1, 2016 and replaced the prior authorization. The Second Amendment limits the amount of common shares that the Company can repurchase. The Company repurchased 5,000 shares, for an aggregate price of $67, during 2016 under the repurchase program. There were no repurchases under the program for the yearyears ended December 31, 2017. Approximately $29,933 remained2022 and 2021.
As of our $30,000 share repurchase program that was announced December 9, 2015 and expired on December 31, 2017.
At December 31, 20172022 and 2016,2021, the Company withheld 7,27727,636 and 20,18645,288 shares for approximately $103$410 and $275,$732, respectively, from employees to pay their withholding taxes in connection with the exercise and/or vesting of stock options and restricted stock awards.
Cash There were no shares repurchased or dividends of $0, $1,244,declared during the years ended December 31, 2022 and $1,656 were declared and paid in 2017, 2016, and 2015, respectively.2021.
|
| | | | | | |
| | | Common Stock |
| | | Treasury | | Outstanding |
| Share Activity | | (Number of Shares) |
| Balance at end of 2014 | | 873,374 |
| | 10,242,405 |
|
| Issued for stock-based compensation plans | | (59,113 | ) | | 59,113 |
|
| Repurchased common stock | | 80,512 |
| | (80,512 | ) |
| Balance at end of 2015 | | 894,773 |
| | 10,221,006 |
|
| Issued for stock-based compensation plans | | (96,619 | ) | | 96,619 |
|
| Repurchased common stock | | 5,000 |
| | (5,000 | ) |
| Balance at end of 2016 | | 803,154 |
| | 10,312,625 |
|
| Issued for stock-based compensation plans | | (27,951 | ) | | 27,951 |
|
| Balance at end of 2017 | | 775,203 |
| | 10,340,576 |
|
| | | | | | | | | | | | | | |
| | | Common Stock |
| | Treasury | | Outstanding |
| | | | |
| | (Number of Shares) |
| | | | |
| | | | |
| | | | |
| Balance at end of 2020 | | 552,489 | | | 10,563,290 | |
| Issued for stock-based compensation plans | | (107,053) | | | 107,053 | |
| | | | |
| Balance at end of 2021 | | 445,436 | | | 10,670,343 | |
| Issued for stock-based compensation plans | | (106,484) | | | 106,484 | |
| | | | |
| Balance at end of 2022 | | 338,952 | | | 10,776,827 | |
Note 12.
Accumulated Other Comprehensive Loss
The components of accumulated other comprehensive loss, net of tax, for the years ended December 31, 20172022 and 2016, are2021, were as follows:
| | | | | | | | December 31, |
| | | 2017 | | 2016 | | 2022 | | 2021 |
| Pension and post-retirement benefit plan adjustments | | $ | (3,367 | ) | | $ | (4,439 | ) | Pension and post-retirement benefit plan adjustments | | $ | (1,112) | | | $ | (2,517) | |
| Unrealized gain (loss) on interest rate swap contracts | | 222 |
| | (204 | ) | |
| Unrealized income on interest rate swap contracts | | Unrealized income on interest rate swap contracts | | 1,982 | | | 68 | |
| Foreign currency translation adjustments | | (14,622 | ) | | (20,646 | ) | Foreign currency translation adjustments | | (22,035) | | | (16,396) | |
| | | $ | (17,767 | ) | | $ | (25,289 | ) | |
| Accumulated other comprehensive loss | | Accumulated other comprehensive loss | | $ | (21,165) | | | $ | (18,845) | |
Foreign currency translation adjustments are generally not adjusted for income taxes as they relate to indefinite investments in non U.S.non-U.S. subsidiaries. See Note 14 Income Taxes for further information.
Note 13.
Earnings Per Common Share
(Share amounts in thousands)
The following table sets forth the computation of basic and diluted (loss) earnings per common share for the three years ended December 31:31, 2022 and 2021:
| | | | | | | | | | Year Ended December 31, |
| | | 2017 | | 2016 | | 2015 | | 2022 | | 2021 | |
| Numerator for basic and diluted earnings (loss) per common share: | | | | | | | |
| Net income (loss) | | $ | 4,113 |
| | $ | (141,660 | ) | | $ | (44,445 | ) | |
| Numerator for basic and diluted (loss) earnings per common share: | | Numerator for basic and diluted (loss) earnings per common share: | | | | | |
| Net (loss) income from continuing operations attributable to L.B. Foster Company | | Net (loss) income from continuing operations attributable to L.B. Foster Company | | $ | (45,564) | | | $ | 3,554 | | |
| Income from discontinued operations | | Income from discontinued operations | | — | | | 72 | | |
| Net (loss) income attributable to L.B. Foster Company | | Net (loss) income attributable to L.B. Foster Company | | $ | (45,564) | | | $ | 3,626 | | |
| Denominator: | | | | | | | Denominator: | | | | | |
| Weighted average shares outstanding | | 10,334 |
| | 10,273 |
| | 10,254 |
| Weighted average shares outstanding | | 10,720 | | | 10,623 | | |
| Denominator for basic earnings per common share | | 10,334 |
| | 10,273 |
| | 10,254 |
| Denominator for basic earnings per common share | | 10,720 | | | 10,623 | | |
| Effect of dilutive securities: | | | | | | | Effect of dilutive securities: | | |
| Stock compensation plans | | 149 |
| | — |
| | — |
| Stock compensation plans | | — | | | 129 | | |
| Dilutive potential common shares | | 149 |
| | — |
| | — |
| Dilutive potential common shares | | — | | | 129 | | |
| Denominator for diluted earnings per common share - adjusted weighted average shares outstanding and assumed conversions | | 10,483 |
| | 10,273 |
| | 10,254 |
| Denominator for diluted earnings per common share - adjusted weighted average shares outstanding and assumed conversions | | 10,720 | | | 10,752 | | |
| Basic earnings (loss) per common share | | $ | 0.40 |
| | $ | (13.79 | ) | | $ | (4.33 | ) | |
| Diluted earnings (loss) per common share | | $ | 0.39 |
| | $ | (13.79 | ) | | $ | (4.33 | ) | |
| Dividends paid per common share | | $ | — |
| | $ | 0.12 |
| | $ | 0.16 |
| |
| Basic (loss) earnings from continuing operations per common share | | Basic (loss) earnings from continuing operations per common share | | $ | (4.25) | | | $ | 0.33 | | |
| Basic earnings from discontinued operations per common share | | Basic earnings from discontinued operations per common share | | — | | | 0.01 | | |
| Basic (loss) earnings per common share | | Basic (loss) earnings per common share | | $ | (4.25) | | | $ | 0.34 | | |
| Diluted (loss) earnings from continuing operations per common share | | Diluted (loss) earnings from continuing operations per common share | | $ | (4.25) | | | $ | 0.33 | | |
| Diluted earnings from discontinued operations per common share | | Diluted earnings from discontinued operations per common share | | — | | | 0.01 | | |
| Diluted (loss) earnings per common share | | Diluted (loss) earnings per common share | | $ | (4.25) | | | $ | 0.34 | | |
|
There were 143 and 13075 anti-dilutive shares in 2016 and 2015, respectively, that were excluded fromfor the above calculation.year ended December 31, 2022.
Note 14.
Income Taxes
Income (loss)(Loss) income from continuing operations before income taxes, as shown in the accompanying consolidated statementsConsolidated Statements of operations,Operations, includes the following components:components for the years ended December 31, 2022 and 2021:
| | | | | | | | | | Year Ended December 31, |
| | | 2017 | | 2016 | | 2015 | | 2022 | | 2021 | |
| Domestic | | $ | 2,072 |
| | $ | (151,027 | ) | | $ | (55,061 | ) | Domestic | | $ | (5,074) | | | $ | 2,772 | | |
| Foreign | | 5,970 |
| | 3,858 |
| | 4,484 |
| Foreign | | (3,922) | | | 1,818 | | |
| Income (loss) from operations, before income taxes | | $ | 8,042 |
| | $ | (147,169 | ) | | $ | (50,577 | ) | |
| (Loss) income from continuing operations, before income taxes | | (Loss) income from continuing operations, before income taxes | | $ | (8,996) | | | $ | 4,590 | | |
Significant components of the provision for income taxes arefor the years ended December 31, 2022 and 2021 were as follows:
| | | | | | | | | | Year Ended December 31, |
| | | 2017 | | 2016 | | 2015 | | 2022 | | 2021 | |
| Current: | | | | | | | Current: | | | | | |
| Federal | | $ | 2,630 |
| | $ | (9,980 | ) | | $ | 5,571 |
| Federal | | $ | — | | | $ | — | | |
| State | | 822 |
| | (487 | ) | | 1,540 |
| State | | 127 | | | (237) | | |
| Foreign | | 2,460 |
| | 1,583 |
| | 1,339 |
| Foreign | | 769 | | | 1,217 | | |
| Total current | | 5,912 |
| | (8,884 | ) | | 8,450 |
| Total current | | 896 | | | 980 | | |
| Deferred: | | | | | | | Deferred: | | | | | |
| Federal | | (1,559 | ) | | 2,555 |
| | (12,016 | ) | Federal | | 28,287 | | | (675) | | |
| State | | 17 |
| | 706 |
| | (2,014 | ) | State | | 9,001 | | | 1,450 | | |
| Foreign | | (441 | ) | | 114 |
| | (552 | ) | Foreign | | (1,503) | | | (636) | | |
| Total deferred | | (1,983 | ) | | 3,375 |
| | (14,582 | ) | Total deferred | | 35,785 | | | 139 | | |
| Total income tax expense (benefit) | | $ | 3,929 |
| | $ | (5,509 | ) | | $ | (6,132 | ) | |
| Total income tax expense | | Total income tax expense | | $ | 36,681 | | | $ | 1,119 | | |
The reconciliation of income tax computed at statutory rates to income tax expense (benefit)for the years ended December 31, 2022 and 2021 is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2022 | | 2021 | | |
| | Amount | | Percent | | Amount | | Percent | | | | |
| Statutory rate | | $ | (1,889) | | | 21.0 | % | | $ | 964 | | | 21.0 | % | | | | |
| Foreign tax rate differential | | (306) | | | 3.4 | | | 20 | | | 0.4 | | | | | |
| State income taxes, net of federal benefit | | 327 | | | (3.6) | | | 132 | | | 2.9 | | | | | |
| | | | | | | | | | | | |
| Non-deductible expenses | | 200 | | | (2.2) | | | 153 | | | 3.3 | | | | | |
| Tax benefits related to disposition of the Test and Inspection Services business | | — | | | — | | | (2,130) | | | (46.4) | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| Income tax credits | | (261) | | | 2.9 | | | (227) | | | (4.9) | | | | | |
| Change in income tax rates | | 176 | | | (2.0) | | | 379 | | | 8.3 | | | | | |
| Tax on unremitted foreign earnings | | 439 | | | (4.9) | | | (68) | | | (1.5) | | | | | |
| Change in valuation allowance | | 37,895 | | | (421.2) | | | 1,807 | | | 39.4 | | | | | |
| Other | | 100 | | | (1.1) | | | 89 | | | 1.9 | | | | | |
| Total income tax expense / Effective rate | | $ | 36,681 | | | (407.7) | % | | $ | 1,119 | | | 24.4 | % | | | | |
|
| | | | | | | | | | | | | | | | | | | | | |
| | | 2017 | | 2016 | | 2015 |
| | | Amount | | Percent | | Amount | | Percent | | Amount | | Percent |
| Statutory rate | | $ | 2,815 |
| | 35.0 | % | | $ | (51,509 | ) | | 35.0 | % | | $ | (17,702 | ) | | 35.0 | % |
| Foreign tax rate differential | | (717 | ) | | (8.9 | ) | | (485 | ) | | 0.3 |
| | (419 | ) | | 0.8 |
|
| State income taxes, net of federal benefit | | 368 |
| | 4.6 |
| | (2,893 | ) | | 2.0 |
| | (159 | ) | | 0.3 |
|
| Non-deductible goodwill impairment | | — |
| | — |
| | 11,448 |
| | (7.8 | ) | | 12,737 |
| | (25.2 | ) |
| Non-deductible expenses | | 323 |
| | 4.0 |
| | 262 |
| | (0.2 | ) | | 452 |
| | (0.9 | ) |
| Domestic production activities deduction | | (405 | ) | | (5.0 | ) | | 700 |
| | (0.5 | ) | | (507 | ) | | 1.0 |
|
| U.S. Tax Cuts and Jobs Act: remeasurement of deferred taxes | | 10,260 |
| | 127.6 |
| | — |
| | — |
| | — |
| | — |
|
| U.S. Tax Cuts and Jobs Act: deferred foreign earnings | | 4,009 |
| | 49.9 |
| | — |
| | — |
| | — |
| | — |
|
| Tax on unremitted foreign earnings | | (6,712 | ) | | (83.5 | ) | | 7,932 |
| | (5.4 | ) | | — |
| | — |
|
| Change in valuation allowance | | (6,023 | ) | | (74.9 | ) | | 29,719 |
| | (20.2 | ) | | — |
| | — |
|
| Other | | 11 |
| | 0.1 |
| | (683 | ) | | 0.5 |
| | (534 | ) | | 1.1 |
|
| Total income tax expense (benefit) / Effective rate | | $ | 3,929 |
| | 48.9 | % | | $ | (5,509 | ) | | 3.7 | % | | $ | (6,132 | ) | | 12.1 | % |
Significant components of the Company’s deferred tax assets and liabilities atas of December 31, 20172022 and 2016 are2021 were as follows:
|
| | | | | | | | |
| | | 2017 | | 2016 |
| Deferred tax assets: | | | | |
| Goodwill and other intangibles | | $ | 19,324 |
| | $ | 32,699 |
|
| Pension and post-retirement liability | | 1,532 |
| | 2,186 |
|
| Warranty reserve | | 2,060 |
| | 3,633 |
|
| Deferred compensation | | 2,385 |
| | 1,227 |
|
| Contingent liabilities | | 1,669 |
| | 2,336 |
|
| Net operating loss / tax credit carryforwards | | 1,816 |
| | 1,384 |
|
| Other | | 1,442 |
| | 2,190 |
|
| Total deferred tax assets | | 30,228 |
| | 45,655 |
|
| Less: valuation allowance | | (23,696 | ) | | (29,719 | ) |
| Net deferred tax assets | | 6,532 |
| | 15,936 |
|
| Deferred tax liabilities: | | | | |
| Goodwill and other intangibles | | (5,721 | ) | | (6,087 | ) |
| Depreciation | | (7,079 | ) | | (10,586 | ) |
| Unremitted earnings of foreign subsidiaries | | (1,220 | ) | | (7,932 | ) |
| Inventories | | (1,743 | ) | | (1,506 | ) |
| Other | | (513 | ) | | (1,196 | ) |
| Total deferred tax liabilities | | (16,276 | ) | | (27,307 | ) |
| Net deferred tax liabilities | | $ | (9,744 | ) | | $ | (11,371 | ) |
The Tax Cuts and Jobs Act (the “Act”) was enacted on December 22, 2017. The Act reduces the U.S. federal corporate tax rate from 35% to 21%, requires companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred and creates new taxes on certain foreign sourced earnings. At December 31, 2017, we have not completed our accounting for the tax effects of enactment of the Act; however, in certain cases, as described below, we have made a reasonable estimate of the effects on our existing deferred tax balances and the one-time transition tax. The provisional tax benefit related to the remeasurement of certain deferred tax assets and liabilities was $1,508, and was included as a component of income tax expense from continuing operations. The provisional tax expense related to the one-time transition tax on mandatory deemed repatriation of foreign earnings, and related items, was $3,298 based on cumulative foreign earnings of $65,113 and was also included as a component of income tax expense from continuing operations. In all cases, we will continue to make and refine our calculations as additional analysis is completed. Our estimates may be adjusted in future periods throughout 2018 as we gain a more thorough understanding of the tax law, as further guidance is issued, and as we evaluate our income tax accounting policies with regard to certain provisions of the Act.
A provisional estimate could not be made for the global intangible low-taxed income ("GILTI") provisions of the Act, as the Company has not yet completed its assessment or elected an accounting policy to either recognize deferred taxes for basis differences expected to reverse as GILTI or to record GILTI as period costs if and when incurred. Additional information is necessary to prepare a more detailed analysis of the Company's deferred tax assets and liabilities and historical foreign earnings, as well as potential correlative adjustments.
Each quarter, management reviews operations and liquidity needs in each jurisdiction to assess the Company’s intent to reinvest foreign earnings outside of the United States. At December 31, 2017, management determined that cash balances of its Canadian and United Kingdom subsidiaries exceeded projected capital needs by $30,200. Management does not intend for such amounts to be permanently reinvested outside of the United States and has therefore accrued foreign withholding taxes of $1,220 at December 31, 2017.
At December 31, 2017, the Company has not recorded deferred U.S. income taxes or foreign withholding taxes on remaining undistributed foreign earnings of $2,318. It is management's intent and practice to indefinitely reinvest such earnings outside of the United States. Determination of the amount of any unrecognized deferred income tax liability associated with these undistributed earnings is not practicable because of the complexities of the hypothetical calculation. | | | | | | | | | | | | | | |
| | December 31, |
| | 2022 | | 2021 |
| Deferred tax assets: | | | | |
| Goodwill and other intangibles | | $ | 8,099 | | | $ | 7,047 | |
| Accrued settlement | | 3,915 | | | 6,000 | |
| Deferred compensation | | 2,396 | | | 2,165 | |
| Contingent liabilities | | 613 | | | 644 | |
| Net operating loss / tax credit carryforwards | | 30,812 | | | 28,932 | |
| Pension and post-retirement liability | | 297 | | | 1,218 | |
| Inventories | | 1,790 | | | 500 | |
| Warranty reserve | | 202 | | | 248 | |
| Accounts receivable | | 181 | | | 129 | |
| Interest deduction carryforward | | 775 | | | 161 | |
| Capitalized research expenditures | | 1,292 | | | — | |
| Other | | 644 | | | 767 | |
| Total deferred tax assets | | 51,016 | | | 47,811 | |
| Less: valuation allowance | | (40,601) | | | (3,290) | |
| Net deferred tax assets | | 10,415 | | | 44,521 | |
| Deferred tax liabilities: | | | | |
| Goodwill and other intangibles | | (2,803) | | | (3,814) | |
| Depreciation | | (9,434) | | | (6,919) | |
| Unrealized income on interest rate swap contracts | | (472) | | | — | |
| Unremitted earnings of foreign subsidiaries | | (625) | | | (220) | |
| Other | | (166) | | | (79) | |
| Total deferred tax liabilities | | (13,500) | | | (11,032) | |
| Net deferred tax (liabilities) assets | | $ | (3,085) | | | $ | 33,489 | |
A valuation allowance is required to be established or maintained when, based on currently available information and other factors, it is more likely than not that all or a portion of a deferred tax asset will not be realized. The Company has
considered all available evidence, both positive and negative, in assessing the need for a valuation allowance in each jurisdiction.
The negative evidence considered in evaluating U.S. deferred tax assets includedCompany has reported cumulative financial losses over the three-year period ended December 31, 2017 and the inability to consistently achieve forecasted results. Positive evidence considered included the composition and reversal patterns of existing taxable and deductible temporary differences between financial reporting and tax, as well as the composition of financial losses. Cumulative financial losses over the three-year period ended December 31, 2017 werein recent years, which is a significant piece of objective negative evidence andthat typically limitlimits a Company’s ability to consider othermore subjective forms of evidence. BasedAlthough many of our deferred tax assets have indefinite carryforward periods, we determined it was not appropriate to place significant weight on forecasted income in future periods given the subjective nature of such forecasts and our evaluation, acumulative losses in recent years. A valuation allowance of $23,696$40,601 was recorded at December 31, 20172022 to recognize only the amount of deferred tax assets more likely than not to be realized. The amount of deferred tax assets considered realizable, however, could be adjusted if objective negative evidence in the form of cumulative financial losses is no longer present, and additional weight is given to subjective evidence such as our projections for growth.
AtAs of December 31, 20172022, the Company had a federal Net Operating Loss (“NOL”) carryforward of $96,034, which is limited to 80% of taxable income annually, but may be carried forward indefinitely. The Company also has federal research tax credit carryforwards in the amount of $1,531 that will expire at various times from 2036 through 2042. Based on information available as of December 31, 2022, the Company believes it is more likely than not that the tax benefits from the federal loss carryforwards and 2016,research tax credit carryforwards will not be realized. In recognition of this risk, we have provided a full valuation allowance against deferred tax assets related to federal NOL and research tax credit carryforwards at December 31, 2022.
As of December 31, 2022 and 2021, the tax benefit of net operating lossNOL carryforwards available for state income tax purposes was $1,708$9,574 and $1,378,$9,643, respectively. TheMany state net operating lossNOL carryforwards will expire in various years through 2037. We believe2042, while some may be carried forward indefinitely. Based on information available as of December 31, 2022, the Company believes it is more likely than not that the tax benefit from state operating loss carryforwards will not be realized. In recognition of this risk, we havethe Company has provided a full valuation allowance of $1,708 against deferred tax assets related to state operating loss carryforwards atas of December 31, 2017.2022.
AtAs of December 31, 2017,2022, the Company has net operating lossNOL carryforwards in certain foreign jurisdictions of $1,363,$5,068, which may be carried forward indefinitely. The foreign jurisdictions have incurred cumulative financial losses over the three-year period ended December 31, 20172022 and have projected future taxable losses. We believeBased on information available as of December 31, 2022, the Company
believes it is more likely than not that the tax benefit from these loss carryforwards will not be realized. In recognition of this risk, we haveit has provided a valuation allowance of $481,$948, collectively, against deferred tax assets in foreign jurisdictions atas of December 31, 2017.2022.
The determination to record or not record a valuation allowance involves managementmanagements’ judgment, based on the consideration of positive and negative evidence available at the time of the assessment. Management will continue to assess the realization of its deferred tax assets based upon future evidence, and may record adjustments to valuation allowances against deferred tax assets in future periods, as appropriate, that could materially impact net income.
Each quarter, management reviews operations and liquidity needs in each jurisdiction to assess the Company’s intent to reinvest foreign earnings outside of the United States. As of December 31, 2022, management determined that a portion of the Company’s outside basis differences in its foreign subsidiaries would not be indefinitely reinvested outside of the United States. The Company has accrued foreign withholding taxes of $625 related to $12,500 of outside basis differences in its foreign subsidiaries that are not indefinitely reinvested as of December 31, 2022. It is management’s intent and practice to indefinitely reinvest all other undistributed earnings outside of the United States. Determination of the amount of any unrecognized deferred income tax liability associated with these undistributed earnings is not practicable because of the complexities of the hypothetical calculation.
The following table provides a reconciliation of unrecognized tax benefits atas of December 31, 20172022 and 2016:2021:
| | | | | | | | December 31, |
| | | 2017 | | 2016 | | 2022 | | 2021 |
| Unrecognized tax benefits at beginning of period: | | $ | 619 |
| | $ | 582 |
| Unrecognized tax benefits at beginning of period: | | $ | 365 | | | $ | 409 | |
| Increases based on tax positions for prior periods | | — |
| | 37 |
| |
| | Decreases based on tax positions for prior periods | | (20 | ) | | — |
| Decreases based on tax positions for prior periods | | (11) | | | (44) | |
| | Balance at end of period | | $ | 599 |
| | $ | 619 |
| Balance at end of period | | $ | 354 | | | $ | 365 | |
The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate is $599 atwas $354 as of December 31, 2017.2022. The Company accrues interest and penalties related to unrecognized tax benefits in its provision for income taxes. AtAs of December 31, 20172022 and 2016,2021, the Company had accrued interest and penalties related to unrecognized tax benefits of $500$356 and $464,$333, respectively. AtAs of December 31, 2017,2022, the Company doesdid not expect any material increases or decreases to its unrecognized tax benefits within the next 12 months. Ultimate realization of this decreasethese tax benefits is dependent upon the occurrence of certain events, including the completion of audits by tax authorities and expiration of statutes of limitations.
The Company files income tax returns in the United StatesU.S. and in various state, local, and foreign jurisdictions. The Company is subject to federal income tax examinations for the 20142019 period and thereafter. With respect to the state, local, and foreign filings, certain entities of the Company are subject to income tax examinations for the 20132018 period and thereafter.
Note 15.
Stock-based Compensation
The Company applies the provisions of FASB ASC 718, “Compensation - StockStock-based 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 period. Stock forfeitures and cancellations are recognized as they occur. The Company recorded stock-based compensation expense of $1,696, $1,346,$2,380 and $1,471$1,945 for the years ended December 31, 2017, 2016,2022 and 2015,2021, respectively, related to fully-vested stock awards, restricted stock awards, and performance unit awards. AtAs of December 31, 2017,2022, unrecognized compensation expense for awards that the Company expects to vest approximated $3,687.$2,599. The Company will recognize this unrecognized compensation expense over the upcoming 3.3 year period through March 2021.approximately 4.2 years.
Shares issued as a result of vested stock-based compensation generally will be from previously issued shares that have been reacquired by the Company and held as Treasurytreasury stock or authorized but previously unissued common stock.
The Company realized reductions in excess tax benefitsAs of $0 and $332 for the years ended December 31, 2017 and 2016, respectively, and excess tax benefits for the tax deduction from stock-based compensation of $253 for the year ended December 31, 2015. This excess tax benefit or deficiency is included in "Cash flows from financing activities" in the Consolidated Statements of Cash Flows for the years ended December 31, 2016 and 2015. Applying the prospective approach in accordance with FASB ASU 2016-09, a charge of $127 was recorded in "Income tax expense" in the Consolidated Statements of Operations, and is now included in "Cash flows from operating activities" for the twelve months ended December 31, 2017 in the Consolidated Statements of Cash Flows.
At December 31, 2017,2022, the Company had stock awards issued pursuant to the 2006 Omnibus Plan and the Equity and Incentive Plan, as amended and restated in May 2016 (“Omnibus Plan”).Plan. The Omnibus Plan allowsallowed for the issuance of 1,270,0002,058,000 shares of common stock through the granting of stock options or stock awards (including performance units convertible into stock) to key employees and directors at no less than 100% of fair market value on the date of the grant. The Equity and Incentive Plan allows for the issuance of 854,077 shares of common stock, which includes 765,000 shares that were authorized under the Equity and Incentive Compensation Plan and 89,077 shares remaining available for the Omnibus Incentive Plan, through the granting of stock options or stock awards (including performance units and restricted stock units convertible into stock) to key employees and directors at no less than 100% of fair market value on the date of the grant. The total number of shares of common stock available for issuance, including shares that were forfeited, cancelled, expired, settled for cash, or unearned under the Omnibus Plan, provideswere available for awards under the Equity and Incentive Plan as of its approval date. The Omnibus Plan and Equity and Incentive Plan provide for the granting of “nonqualified options” with a duration of not more than ten years from the date of grant. The Omnibus Plan and Equity and Incentive Plan also providesprovide that, unless otherwise set forth in the option agreement, stock options are exercisable in installments of up to 25% annually beginning one year from the date of grant. No stock options have been granted under the Omnibus Plan or Equity and Incentive Plan and, as such, there was no stock-based compensation expense related to stock options recorded in 2017, 2016, or 2015.2022 and 2021.
Stock Option Awards
No stock options were outstanding during the years ended December 31, 2017Non-Employee Director Fully-Vested and 2016. Certain information for the year ended December 31, 2015 relative to employee stock options is summarized as follows:
|
| | | |
| | 2015 |
Number of shares under the plans: | | |
Outstanding and exercisable at beginning of year | | 7,500 |
|
Granted | | — |
|
Canceled | | — |
|
Exercised | | (7,500 | ) |
Outstanding and exercisable at end of year | | — |
|
The weighted average exercise price per share of the stock options exercised in 2015 was $9.08. The total intrinsic value of stock options exercised during the years ended December 31, 2015 was $253.
Fully-VestedRestricted Stock Awards
Non-employeeSince May 2018, non-employee directors are automaticallyhave been awarded fully vested shares of the Company’s common stock on each date the non-employee directors arewere elected at the annual shareholders’ meeting to serve as directors. directors, subject to a one-year vesting requirement.
During the quarter ended June 30, 2017, the Nomination and Governance Committee and Board of Directors jointly approved the Deferred Compensation Plan for Non-Employee Directors under the 2006 Omnibus Plan and, by amendment, under the Equity and Incentive Compensation Plan, which permits non-employee directors of the Company to defer receipt of earned cash and/or stock compensation for service on the Board.
TheDuring 2022 and 2021, the non-employee directors were granted a total of 39,280, 59,598,45,840 and 14,00035,255 restricted shares, respectively, which fully-vested shares for the years endedas of December 31, 2017, 2016,2022 and 2015,2021, respectively. Compensation expense recorded by the Company related to fully-vested stocksuch awards to non-employee directors was approximately $704, $698,$697 and $534$650 for the years ended December 31, 2017, 2016,2022 and 2015,2021, respectively. During 2017, 26,8602022, 5,730 deferred share units were allotted to the accounts of the non-employee directors pursuant to the Deferred Compensation Plan for Non-Employee Directors.
The weighted average fair value of all the fully-vestedrestricted stock grants awarded was $17.92, $11.72,$13.09 and $38.15$17.87 per share for 2017, 2016,the years ended December 31, 2022 and 2015,2021, respectively.
Restricted Stock Awards and Performance Unit Awards
Under the 2006 Omnibus Plan, the Company grants eligiblecertain employees restricted stock and performance unit awards. The forfeitable restricted stock awards granted prior to March 2015 generally time-vest after a four-year period, and those granted subsequent to March 2015 generally time-vest ratably over a three-year period, unless indicated otherwise by the underlying restricted stock award agreement. Performance unit awards are offered annually under separate three-year long-term incentive programs.programs, unless indicated otherwise by the underlying performance unit award agreement. Performance 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 stock awards expected to vest changes in a subsequent accounting period, cumulative compensation expense could increase or decrease. The change will beis recognized in the current period for the vested sharesperformance unit awards and would change future expense over the remaining vestingservice period.
The following table summarizes the restricted stock award, deferred stock units, and performance unit award activity for the three-year periodsyears ended December 31, 2017, 2016,2022 and 2015:2021:
| | | | | | | | | | | | Restricted
Stock | | Deferred
Stock
Units | | Performance
Stock
Units | | Weighted Average
Aggregate Grant Date
Fair Value |
| | | Restricted
Stock | | Deferred
Stock | | Performance
Stock
Units | | Weighted Average
Aggregate Grant Date
Fair Value | |
| Outstanding at January 1, 2015 | | 108,237 |
| | — |
| | 71,990 |
| | $ | 36.25 |
| |
| | Outstanding as of January 1, 2021 | | Outstanding as of January 1, 2021 | | 171,934 | | | 66,136 | | | 150,022 | | | $ | 18.05 | |
| Granted | | 29,656 |
| | — |
| | 41,114 |
| | 44.93 |
| Granted | | 111,337 | | | 8,814 | | | 147,367 | | | 16.83 | |
| Vested | | (39,076 | ) | | — |
| | (23,877 | ) | | 32.35 |
| Vested | | (144,400) | | | — | | | (7,940) | | | 14.11 | |
| Adjustment for incentive awards expected to vest | | — |
| | — |
| | (53,228 | ) | | 43.26 |
| |
| Adjustment for incentive awards | | Adjustment for incentive awards | | — | | | — | | | (125,767) | | | 17.75 | |
| Canceled and forfeited | | (5,000 | ) | | — |
| | — |
| | 44.84 |
| Canceled and forfeited | | (3,167) | | | — | | | (47,111) | | | 16.46 | |
| Outstanding at December 31, 2015 | | 93,817 |
| | — |
| | 35,999 |
| | $ | 39.66 |
| |
| Outstanding as of December 31, 2021 | | Outstanding as of December 31, 2021 | | 135,704 | | | 74,950 | | | 116,571 | | | 19.75 | |
| Granted | | 48,283 |
| | — |
| | 129,844 |
| | 12.50 |
| Granted | | 125,582 | | | 5,730 | | | 110,600 | | | 14.88 | |
| Vested | | (56,807 | ) | | — |
| | — |
| | 28.45 |
| Vested | | (86,613) | | | (34,412) | | | (13,095) | | | 17.98 | |
| Adjustment for incentive awards not expected to vest | | — |
| | — |
| | (93,103 | ) | | 24.79 |
| |
| Adjustment for incentive awards | | Adjustment for incentive awards | | — | | | — | | | (105,598) | | | 16.67 | |
| Canceled and forfeited | | (6,021 | ) | | — |
| | (9,050 | ) | | 18.82 |
| Canceled and forfeited | | (500) | | | — | | | — | | | 18.57 | |
| Outstanding at December 31, 2016 | | 79,272 |
| | — |
| | 63,690 |
| | $ | 21.66 |
| |
| Granted | | 175,196 |
| | 26,860 |
| | 120,583 |
| | 14.46 |
| |
| Vested | | (22,808 | ) | | — |
| | — |
| | 28.88 |
| |
| Adjustment for incentive awards not expected to vest | | — |
| | — |
| | 46,130 |
| | 19.00 |
| |
| Canceled and forfeited | | (44,854 | ) | | — |
| | (49,062 | ) | | 15.40 |
| |
| Outstanding at December 31, 2017 | | 186,806 |
| | 26,860 |
| | 181,341 |
| | $ | 16.53 |
| |
| Outstanding as of December 31, 2022 | | Outstanding as of December 31, 2022 | | 174,173 | | | 46,268 | | | 108,478 | | | $ | 17.77 | |
Performance units are subject to forfeiture and will beare 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 plan. TheCommencing in 2022, Performance Stock Units may be earned annually during each year of the three year program and converted into restricted stock units which settle in common stock at the end of each three year period. Performance Stock Units are adjusted to the Company’s expected performance target attainment, while the weighted average aggregate grant date fair value in the above table is based upon achieving 100% of the performance targets as defined in the underlying plan.
In June 2022, under the Equity and Incentive Plan, the Company approved the Strategy Transformation Plan performance-based incentive stock award to incentivize key personnel for the strategic transformation of the Company. Under the four-year program, participants shall be eligible for a performance stock unit award of Company common stock with 50% of the shares earned based on the achievement of EBITDA Margin and 50% of the shares earned based on the Company’s stock price.
In February 2021, under the Omnibus Plan, the Company established a performance-based incentive stock award retention program to incentivize and retain key personnel during the COVID-19 pandemic by driving stock price. Under this five-year program, participants have the opportunity to earn up to 3,333 shares of Company common stock. The first 50% of the shares (1,666 shares) are earned based on achievement of a consecutive thirty (30) day average NASDAQ closing price of $25.00. The second 50% of the shares (1,666 shares) are earned based on achievement of a consecutive thirty (30) day average NASDAQ closing price of $30.00. The value of any shares awarded will be determined using a Monte Carlo methodology at the time of payout. No shares earned are paid prior to March 1, 2024, and the program and opportunity to earn the shares expires on February 28, 2026.
Excluding the fully-vestedrestricted stock awards granted to non-employee directors, the Company recorded stock-based compensation expense of $1,499, $648,$1,683 and $937,$1,295, respectively, for the periods ended December 31, 2017, 2016,2022 and 20152021 related to restricted stock and performance unit awards. The following table presents the number of shares available for future grants:
|
| | | | | | | | | |
| | | 2017 | | 2016 | | 2015 |
| Number of shares available for future grant: | | | | | | |
| Beginning of year | | 675,447 |
| | 407,307 |
| | 469,840 |
|
| End of year | | 639,390 |
| | 675,447 |
| | 407,307 |
|
Note 16.
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. On December 31, 2017, the Company consolidated its three United States defined benefit plans into one United States defined benefit plan and consolidated its prior four United States defined contribution plans into two United States 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 (“ERISA”) and the Company’s policy and investment guidelines of the applicable plan. The Company’s policy is to contribute at least the minimum in accordance with the funding standards of ERISA.
Rail Technologies maintains two defined contribution plans for its employees in Canada, as well as a post-retirement benefit plan. In the United Kingdom, Rail Technologies maintains two defined contribution plans and a defined benefit plan, which is frozen. These plans are discussed in further detail below.
United States Defined Benefit Plan
The following tables present a reconciliation of the changes in the benefit obligation, the fair market value of the assets, and the funded status of the plan, as of December 31, 2017 and 2016:
|
| | | | | | | | |
| | | 2017 | | 2016 |
| Changes in benefit obligation: | | | | |
| Benefit obligation at beginning of year | | $ | 18,241 |
| | $ | 17,759 |
|
| Service cost | | — |
| | 36 |
|
| Interest cost | | 684 |
| | 746 |
|
| Actuarial loss | | 775 |
| | 534 |
|
| Benefits paid | | (917 | ) | | (834 | ) |
| Benefit obligation at end of year | | $ | 18,783 |
| | $ | 18,241 |
|
| Change to plan assets: | | | | |
| Fair value of assets at beginning of year | | $ | 14,180 |
| | $ | 14,235 |
|
| Actual gain on plan assets | | 1,629 |
| | 779 |
|
| Benefits paid | | (917 | ) | | (834 | ) |
| Fair value of assets at end of year | | 14,892 |
| | 14,180 |
|
| Funded status at end of year | | $ | (3,891 | ) | | $ | (4,061 | ) |
| Amounts recognized in the consolidated balance sheet consist of: | | | | |
| Other long-term liabilities | | $ | (3,891 | ) | | $ | (4,061 | ) |
| Amounts recognized in accumulated other comprehensive income consist of: | | | | |
| Net loss | | $ | 3,913 |
| | $ | 4,186 |
|
The actuarial loss included in accumulated other comprehensive loss that will be recognized in net periodic pension cost during 2018 is $96, before taxes.
Net periodic pension costs for the three years ended December 31, 2017 are as follows:
|
| | | | | | | | | | | | |
| | | 2017 | | 2016 | | 2015 |
| Components of net periodic benefit cost: | | |
| Service cost | | $ | — |
| | $ | 36 |
| | $ | 38 |
|
| Interest cost | | 684 |
| | 746 |
| | 742 |
|
| Expected return on plan assets | | (710 | ) | | (717 | ) | | (816 | ) |
| Amortization of prior service cost | | — |
| | — |
| | 3 |
|
| Recognized net actuarial loss | | 130 |
| | 276 |
| | 275 |
|
| Net periodic pension cost | | $ | 104 |
| | $ | 341 |
| | $ | 242 |
|
The weighted average assumptions in the following table represent the rates used to develop the actuarial present value of the projected benefit obligation for the year listed and also the net periodic benefit cost for the following year.
|
| | | | | | | | | |
| | | 2017 | | 2016 | | 2015 |
| Discount rate | | 3.9 | % | | 4.3 | % | | 4.3 | % |
| Expected rate of return on plan assets | | 5.9 | % | | 5.2 | % | | 5.2 | % |
The expected long-term rate of return is based on numerous factors including the target asset allocation for plan assets, historical rate of return, long-term inflation assumptions, and current and projected market conditions. The increase in the expected rate of return on plan assets reflects the expected increased corporate shareholder returns resulting from the Tax Cuts and Jobs Act of 2017.
Amounts applicable to the Company’s pension plan with accumulated benefit obligations in excess of plan assets are as follows at December 31:
|
| | | | | | | | |
| | | 2017 | | 2016 |
| Projected benefit obligation | | $ | 18,783 |
| | $ | 18,241 |
|
| Accumulated benefit obligation | | 18,783 |
| | 18,241 |
|
| Fair value of plan assets | | 14,892 |
| | 14,180 |
|
Plan assets consist primarily of various fixed income and equity investments. The Company’s primary investment objective is to provide long-term growth of capital while accepting a moderate level of risk. The investments are limited to cash and cash equivalents, bonds, preferred stocks, and common stocks. The investment target ranges and actual allocation of pension plan assets by major category at December 31, 2017 and 2016 are as follows:
|
| | | | | | | | |
| | | Target | | 2017 | | 2016 |
| Asset Category | | | | | | |
| Cash and cash equivalents | | 0 - 10% | | 2 | % | | 5 | % |
| Total fixed income funds | | 25 - 50 | | 32 |
| | 33 |
|
| Total mutual funds and equities | | 50 - 70 | | 66 |
| | 62 |
|
| Total | | | | 100 | % | | 100 | % |
In accordance with the fair value disclosure requirements of FASB ASC 820, “Fair Value Measurements and Disclosures,” the following assets were measured at fair value on a recurring basis at December 31, 2017 and 2016. Additional information regarding FASB ASC 820 and the fair value hierarchy can be found in Note 18 Fair Value Measurements.
|
| | | | | | | | |
| | | 2017 | | 2016 |
| Asset Category | | | | |
| Cash and cash equivalents | | $ | 284 |
| | $ | 660 |
|
| Fixed income funds | | | | |
| Corporate bonds | | 4,755 |
| | 4,767 |
|
| Total fixed income funds | | 4,755 |
| | 4,767 |
|
| Equity funds and equities | | | | |
| Mutual funds | | 712 |
| | 8,753 |
|
| Exchange-Traded Funds (“ETF”) | | 9,141 |
| | — |
|
| Total mutual funds and equities | | 9,853 |
| | 8,753 |
|
| Total | | $ | 14,892 |
| | $ | 14,180 |
|
Cash equivalents. The Company uses quoted market prices to determine the fair value of these investments in interest-bearing cash accounts and they are classified in Level 1 of the fair value hierarchy. The carrying amounts approximate fair value because of the short maturity of the instruments.
Fixed income funds. Investments within the fixed income funds category consist of fixed income corporate debt. The Company uses quoted market prices to determine the fair values of these fixed income funds. These instruments consist of exchange-traded government and corporate bonds and are classified in Level 1 of the fair value hierarchy.
Equity funds and equities. The valuation of investments in registered investment companies is based on the underlying investments in securities. Securities traded on security exchanges are valued at the latest quoted sales price. Securities traded in the over-the-counter market and listed securities for which no sale was reported on that date are valued at the average of the last reported bid and ask quotations. These investments are classified in Level 1 of the fair value hierarchy.
The Company currently does not anticipate contributions to its United States defined benefit plan in 2018.
The following benefit payments are expected to be paid:
|
| | | | |
| | | Pension |
| | | Benefits |
| 2018 | | $ | 927 |
|
| 2019 | | 996 |
|
| 2020 | | 1,003 |
|
| 2021 | | 1,058 |
|
| 2022 | | 1,071 |
|
| Years 2023-2027 | | 5,608 |
|
United Kingdom Defined Benefit Plan
The Portec Rail Products (UK) Limited Pension Plan covers certain current employees, former employees, and retirees. The plan has been frozen to new entrants since April 1, 1997 and also covers the former employees of a merged plan after January 2002. Benefits under the plan were based on years of service and eligible compensation during defined periods of service. Our funding policy for the plan is to make minimum annual contributions required by applicable regulations.
The funded status of the United Kingdom defined benefit plan at December 31, 2017 and 2016 is as follows:
|
| | | | | | | | |
| | | 2017 | | 2016 |
| Changes in benefit obligation: | | | | |
| Benefit obligation at beginning of year | | $ | 8,104 |
| | $ | 7,862 |
|
| Interest cost | | 236 |
| | 259 |
|
| Actuarial (gain) loss | | (451 | ) | | 1,532 |
|
| Benefits paid | | (322 | ) | | (273 | ) |
| Foreign currency exchange rate changes | | 768 |
| | (1,276 | ) |
| Benefit obligation at end of year | | $ | 8,335 |
| | $ | 8,104 |
|
| Change to plan assets: | | | | |
| Fair value of assets at beginning of year | | $ | 5,826 |
| | $ | 6,661 |
|
| Actual gain on plan assets | | 573 |
| | 265 |
|
| Employer contribution | | 276 |
| | 253 |
|
| Benefits paid | | (322 | ) | | (273 | ) |
| Foreign currency exchange rate changes | | 551 |
| | (1,080 | ) |
| Fair value of assets at end of year | | 6,904 |
| | 5,826 |
|
| Funded status at end of year | | $ | (1,431 | ) | | $ | (2,278 | ) |
| Amounts recognized in the consolidated balance sheet consist of: | | | | |
| Other long-term liabilities | | $ | (1,431 | ) | | $ | (2,278 | ) |
| Amounts recognized in accumulated other comprehensive income consist of: | | | | |
| Net loss | | $ | 1,161 |
| | $ | 2,015 |
|
| Prior service cost | | 39 |
| | 53 |
|
| | | $ | 1,200 |
| | $ | 2,068 |
|
Net periodic pension costs for the three years ended December 31 are as follows:
|
| | | | | | | | | | | | |
| | | 2017 | | 2016 | | 2015 |
| Components of net periodic benefit cost: | | |
| Interest cost | | $ | 236 |
| | $ | 259 |
| | $ | 295 |
|
| Expected return on plan assets | | (280 | ) | | (290 | ) | | (324 | ) |
| Amortization of prior service cost | | 19 |
| | 17 |
| | 27 |
|
| Recognized net actuarial loss | | 192 |
| | 275 |
| | 225 |
|
| Net periodic pension cost | | $ | 167 |
| | $ | 261 |
| | $ | 223 |
|
The weighted average assumptions in the following table represent the rates used to develop the actuarial present value of the projected benefit obligation for the year listed and also the net periodic benefit cost for the following year.
|
| | | | | | | | | |
| | | 2017 | | 2016 | | 2015 |
| Discount rate | | 2.5 | % | | 2.7 | % | | 4.0 | % |
| Expected rate of return on plan assets | | 4.1 | % | | 4.4 | % | | 5.2 | % |
Amounts applicable to the Company’s pension plans with accumulated benefit obligations in excess of plan assets are as follows at December 31:
|
| | | | | | | | |
| | | 2017 | | 2016 |
| Projected benefit obligation | | $ | 8,335 |
| | $ | 8,104 |
|
| Accumulated benefit obligation | | 8,335 |
| | 8,104 |
|
| Fair value of plan assets | | 6,904 |
| | 5,826 |
|
The Company has estimated the long-term rate of return on plan assets based primarily on historical returns on plan assets, adjusted for changes in target portfolio allocations, and recent changes in long-term interest rates based on publicly available information.
Plan assets are invested by the trustees in accordance with a written statement of investment principles. This statement permits investment in equities, corporate bonds, United Kingdom government securities, commercial property, and cash, based on certain target allocation percentages. Asset allocation is primarily based on a strategy to provide steady growth without undue fluctuations. The target asset allocation percentages for 2017 are as follows:
|
| | |
| | Portec Rail |
| | Plan |
Equity securities | | Up to 100% |
Commercial property | | Not to exceed 50% |
U.K. Government securities | | Not to exceed 50% |
Cash | | Up to 100% |
Plan assets held within the United Kingdom defined benefit plan consist of cash and marketable securities that have been classified as Level 1 of the fair value hierarchy. All other plan assets have been classified as Level 2 of the fair value hierarchy.
The plan assets by category for the two years ended December 31, 2017 and 2016 are as follows:
|
| | | | | | | | |
| | | 2017 | | 2016 |
| Asset Category | | |
| Cash and cash equivalents | | $ | 695 |
| | $ | 707 |
|
| Equity securities | | 2,707 |
| | 2,617 |
|
| Bonds | | 2,276 |
| | 1,347 |
|
| Other | | 1,226 |
| | 1,155 |
|
| Total | | $ | 6,904 |
| | $ | 5,826 |
|
United Kingdom regulations require trustees to adopt a prudent approach to funding required contributions to defined benefit pension plans. The Company anticipates making contributions of $253 to the United Kingdom defined benefit plan during 2018.
The following estimated future benefits payments are expected to be paid under the United Kingdom defined benefit plan:
|
| | | | |
| | | Pension |
| | | Benefits |
| 2018 | | $ | 259 |
|
| 2019 | | 275 |
|
| 2020 | | 291 |
|
| 2021 | | 299 |
|
| 2022 | | 317 |
|
| Years 2023-2027 | | 2,040 |
|
Other Post-Retirement Benefit Plan
Rail Technologies’ operation near Montreal, Quebec, Canada, maintains a post-retirement benefit plan, which provides retiree life insurance, health care benefits, and, for a closed group of employees, dental care. Retiring employees with a minimum of 10 years of service are eligible for the plan benefits. The plan is not funded. Cost of benefits earned by employees is charged to expense as services are rendered. The expense related to this plan was not material for 2017 or 2016. Rail Technologies’ accrued benefit obligation was $1,104 and $909 as of December 31, 2017 and 2016, respectively. This obligation is recognized within other long-term liabilities. Benefit payments anticipated for 2018 are not material.
The weighted average assumptions in the following table represent the rates used to develop the actuarial present value of the projected benefit obligation for the year listed and also the net periodic benefit cost for the following year.
|
| | | | | | |
| | | 2017 | | 2016 |
| Discount rate | | 3.6 | % | | 4.0 | % |
| Weighted average health care trend rate | | 5.1 | % | | 5.1 | % |
The weighted average health care rate trends downward to an ultimate rate of 4.4% in 2035.
Defined Contribution Plans
The Company sponsors six defined contribution plans for hourly and salaried employees across our domestic and international facilities. The following table summarizes the expense associated with the contributions made to these plans.
|
| | | | | | | | | | | | |
| | | Twelve Months Ended December 31, |
| | | 2017 | | 2016 | | 2015 |
| United States | | $ | 2,641 |
| | $ | 1,813 |
| | $ | 2,434 |
|
| Canada | | 223 |
| | 225 |
| | 226 |
|
| United Kingdom | | 450 |
| | 376 |
| | 494 |
|
| | | $ | 3,314 |
| | $ | 2,414 |
| | $ | 3,154 |
|
Note 17.
Rental and Lease Information
The Company has capital and operating leases for certain plant facilities, office facilities, and equipment. Rental expense for the years ended December 31, 2017, 2016, and 2015 amounted to $5,278, $4,864, and $4,611, respectively. Generally, land and building leases include escalation clauses.
The following is a schedule, by year, of the future minimum payments under capital and operating leases, together with the present value of the net minimum payments at December 31, 2017:
|
| | | | | | | | |
| | | Capital | | Operating |
| Year ending December 31, | | Leases | | Leases |
| 2018 | | $ | 711 |
| | $ | 4,483 |
|
| 2019 | | 598 |
| | 3,149 |
|
| 2020 | | 265 |
| | 2,467 |
|
| 2021 | | — |
| | 1,769 |
|
| 2022 | | — |
| | 1,177 |
|
| 2023 and thereafter | | — |
| | 4,766 |
|
| Total minimum lease payments | | 1,574 |
| | $ | 17,811 |
|
| Less: amount representing interest | | 78 |
| | |
| Total present value of minimum payments with interest rates ranging from 2.95% to 4.25% | | $ | 1,496 |
| | |
Assets recorded under capital leases are as follows for the years ended December 31, 2017 and 2016:
|
| | | | | | | | |
| | | 2017 | | 2016 |
| Machinery and equipment at cost | | $ | 3,164 |
| | $ | 3,152 |
|
| Less: accumulated amortization | | 1,066 |
| | 829 |
|
| Net capital lease assets | | $ | 2,098 |
| | $ | 2,323 |
|
Note 18.
Fair Value Measurements
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.
The Company has an established process for determining fair value for its financial assets and liabilities, principally cash and cash equivalents and interest rate swaps. Fair value is based on quoted market prices, where available. If quoted market prices are not available, fair value is based on assumptions that use as inputs market-based parameters. The following section describes the valuation methodologies used by the Company to measure different financial instruments at fair value, including an indication of the level in the fair value hierarchy in which each instrument is generally classified. Where appropriate, the description includes details of the key inputs to the valuations and any significant assumptions.
Cash equivalents.equivalents - Included within “Cash and cash equivalents” are investments in non-domestic term deposits. The carrying amounts approximate fair value because of the short maturity of the instruments.
LIBOR-BasedSOFR-based interest rate swaps. - To reduce the impact of interest rate changes on outstanding variable-rate debt, the Company amended and entered into forward starting LIBOR-basedforward-starting SOFR-based interest rate swaps, with notional values totaling $50,000. The swaps became$20,000 and $20,000 effective in February 2017 at which point they effectively converted a portion of the debt from variable to fixed-rate borrowings during the term of the swap contract.August 12, 2022 and August 31, 2022, respectively. The fair value of the interest rate swaps is 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 have beenare classified as Level 2 within the fair value hierarchy.
As of December 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.
The following assets and liabilities of the Company were measured at fair value on a recurring basis subject to the disclosure requirements of FASB ASC 820, “Fair Value Measurement,” atMeasurement” (“ASC 820”) as of December 31, 20172022 and December 31, 2016:2021:
| | | | | Fair Value Measurements at Reporting Date
Using | | | Fair Value Measurements at Reporting Date
Using | | Fair Value Measurements as of December 31, 2022 | | | Fair Value Measurements as of December 31, 2021 |
| | | December 31, 2017 | | Quoted
Prices in
Active
Markets
for
Identical
Assets
(Level 1) | | Significant
Other
Observable
Inputs
(Level 2) | | Significant
Unobservable
Inputs
(Level 3) | | | December 31, 2016 | | Quoted
Prices in
Active
Markets
for
Identical
Assets
(Level 1) | | Significant
Other
Observable
Inputs
(Level 2) | | Significant
Unobservable
Inputs
(Level 3) | | December 31, 2022 | | Quoted Prices in Active Markets for Identical Assets
(Level 1) | | Significant Other Observable Inputs
(Level 2) | | Significant Unobservable Inputs
(Level 3) | | | December 31, 2021 | | Quoted Prices in Active Markets for Identical Assets
(Level 1) | | Significant Other Observable Inputs
(Level 2) | | Significant Unobservable Inputs
(Level 3) |
| Term deposits | | $ | 17 |
| | $ | 17 |
| | $ | — |
| | $ | — |
| | | $ | 16 |
| | $ | 16 |
| | $ | — |
| | $ | — |
| Term deposits | | $ | 17 | | | $ | 17 | | | $ | — | | | $ | — | | | | $ | 18 | | | $ | 18 | | | $ | — | | | $ | — | |
| Interest rate swaps | | 222 |
| | — |
| | 222 |
| | — |
| | | — |
| | — |
| | — |
| | — |
| Interest rate swaps | | 1,930 | | | — | | | 1,930 | | | — | | | | 175 | | | — | | | 175 | | | — | |
| Total assets | | $ | 239 |
| | $ | 17 |
| | $ | 222 |
| | $ | — |
| | | $ | 16 |
| | $ | 16 |
| | $ | — |
| | $ | — |
| Total assets | | $ | 1,947 | | | $ | 17 | | | $ | 1,930 | | | $ | — | | | | $ | 193 | | | $ | 18 | | | $ | 175 | | | $ | — | |
| Interest rate swaps | | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | | $ | 334 |
| | $ | — |
| | $ | 334 |
| | $ | — |
| Interest rate swaps | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | | $ | 159 | | | $ | — | | | $ | 159 | | | $ | — | |
| Total liabilities | | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | | $ | 334 |
| | $ | — |
| | $ | 334 |
| | $ | — |
| Total liabilities | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | | $ | 159 | | | $ | — | | | $ | 159 | | | $ | — | |
The $20,000 interest rate swaps that became effective August 2022 are accounted for as fair valuecash flow hedges and substantiallythe objective of the hedges is to offset the changes in fair value ofexpected interest variability on payments associated with the hedged portion of the underlying debt that are attributable to the changes in market risk. Therefore, theinterest 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 $50,000 of interest rate swaps that became effective February 2017 as cash flow hedges. In the third quarter of 2020, the Company dedesignated the cash flow hedges and accounted for the $50,000 interest rate swaps on a mark-to-market basis with changes in fair value recorded in current period earnings. In connection with this dedesignation, the Company froze the balances recorded in “Accumulated other comprehensive loss” at June 30, 2020 and reclassified balances to earnings as the
underlying physical transactions occurred, unless it was no longer probable that the physical transaction would occur at which time the related gains deferred in Other Comprehensive Income would be immediately recorded in earnings. The gains and losses related to the interest rate swaps were reclassified from “Accumulated other comprehensive loss” in the Consolidated Balance Sheets and included in “Interest expense - net” in the Consolidated Statements of Operations as the interest expense from the Company’s debt was recognized. These interest rate swaps expired February 2022.
For the year ended December 31, 2022 and 2021, the Company recognized interest expense of $71 and $958, respectively, from interest rate swaps.
As a result of the dedesignation of the interest rate swaps, the Company recognized interest income of $157 and $940 from the change in fair value of the interest rate swaps are included in interest income or“Interest expense - net” in ourthe Consolidated Statements of Operations. ForOperations for the twelve months ended December 31, 2017, interest expense from interest rate swaps was $378.2022 and 2021, respectively.
In accordance with the provisions of FASB ASC 820, the Company measures certain nonfinancial assets and liabilities at fair value, thatwhich are recognized orand disclosed on a nonrecurring basis. During
The gross carrying value of the year ended December 31, 2017, a $413 other-than-temporary impairment charge was recorded with respect to L B Pipe JV assets held for sale utilizing a Level 2Company’s revolving credit facility approximates fair value measurement. The impairment was a result offor the Company's carrying value being greater thanperiods presented. Additional information regarding the agreed-upon sales price, or fair market value. Seerevolving credit facility can be found in Note 8 Investments contained herein for additional information.10.
Information regarding the fair value disclosures associated with the assets of the Company’s defined benefit plans can be found in Note 16 Retirement Plans.17.
Note 19.17. Retirement Plans
The Company has three retirement plans that cover its hourly and salaried employees in the U.S.: 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 of the applicable plan. The Company’s policy is to contribute at least the required minimum in accordance with the funding standards of ERISA.
The Company maintains one defined contribution plans for its employees in Canada. In the United Kingdom, the Company maintains two defined contribution plans and a defined benefit plan, which is frozen. These plans are discussed in further detail below.
United States Defined Benefit Plan
The following tables present a reconciliation of the changes in the benefit obligation, the fair market value of the assets, and the funded status of the plan, as of December 31, 2022 and 2021:
| | | | | | | | | | | | | | |
| | December 31, |
| | 2022 | | 2021 |
| Changes in benefit obligation: | | | | |
| Benefit obligation at beginning of year | | $ | 7,875 | | | $ | 8,448 | |
| | | | |
| Interest cost | | 194 | | | 172 | |
| Actuarial gain | | (1,544) | | | (319) | |
| Benefits paid | | (424) | | | (426) | |
| | | | |
| Benefit obligation at end of year | | $ | 6,101 | | | $ | 7,875 | |
| Change to plan assets: | | | | |
| Fair value of assets at beginning of year | | $ | 4,767 | | | $ | 4,459 | |
| Actual (loss) gain on plan assets | | (1,007) | | | 434 | |
| Employer contribution | | 456 | | | 300 | |
| Benefits paid | | (424) | | | (426) | |
| | | | |
| Fair value of assets at end of year | | 3,792 | | | 4,767 | |
| Funded status at end of year | | $ | (2,309) | | | $ | (3,108) | |
| Amounts recognized in the consolidated balance sheets consist of: | | | | |
| Other long-term liabilities | | $ | (2,309) | | | $ | (3,108) | |
| Amounts recognized in accumulated other comprehensive loss consist of: | | | | |
| Net loss | | $ | 1,737 | | | $ | 2,082 | |
| | | | |
The actuarial loss included in accumulated other comprehensive loss that will be recognized in net periodic pension cost during 2023 is $92, before taxes.
Net periodic pension costs for the years ended December 31, 2022 and 2021 were as follows:
| | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2022 | | 2021 | | |
| Components of net periodic benefit cost: | | | | | | |
| | | | | | |
| Interest cost | | $ | 194 | | | $ | 172 | | | |
| Expected return on plan assets | | (264) | | | (247) | | | |
| | | | | | |
| Recognized net actuarial loss | | 71 | | | 99 | | | |
| Net periodic pension cost | | $ | 1 | | | $ | 24 | | | |
| | | | | | |
| | | | | | |
The weighted average assumptions in the following table represent the rates used to develop the actuarial present value of the projected benefit obligation for the year listed and also the net periodic benefit cost for the following year.
| | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2022 | | 2021 | | |
| Discount rate | | 2.6 | % | | 2.1 | % | | |
| Expected rate of return on plan assets | | 5.6 | % | | 5.2 | % | | |
The expected long-term rate of return is based on numerous factors, including the target asset allocation for plan assets, historical rate of return, long-term inflation assumptions, and current and projected market conditions.
Amounts applicable to the Company’s pension plan with accumulated benefit obligations in excess of plan assets were as follows as of December 31, 2022 and 2021:
| | | | | | | | | | | | | | |
| | December 31, |
| | 2022 | | 2021 |
| Projected benefit obligation | | $ | 6,101 | | | $ | 7,875 | |
| Accumulated benefit obligation | | 6,101 | | | 7,875 | |
| Fair value of plan assets | | 3,792 | | | 4,767 | |
Plan assets consist primarily of various fixed income and equity investments. The Company’s primary investment objective is to provide long-term growth of capital while accepting a moderate level of risk. The investments are limited to cash and cash equivalents, bonds, preferred stocks, and common stocks. The investment target ranges and actual allocation of pension plan assets by major category as of December 31, 2022 and 2021 were as follows:
| | | | | | | | | | | | | | | | | | | | |
| | | | December 31, |
| | Target | | 2022 | | 2021 |
| Asset Category | | | | | | |
| Cash and cash equivalents | | 0 - 20% | | 6 | % | | 4 | % |
| Total fixed income funds | | 25 - 50% | | 7 | | | 14 | |
| Total mutual funds and equities | | 35 - 70% | | 87 | | | 82 | |
| Total | | | | 100 | % | | 100 | % |
In accordance with the fair value disclosure requirements of ASC 820, the following assets were measured at fair value on a recurring basis as of December 31, 2022 and 2021. Additional information regarding ASC 820 and the fair value hierarchy can be found in Note 16.
| | | | | | | | | | | | | | |
| | December 31, |
| | 2022 | | 2021 |
| Asset Category | | | | |
| Cash and cash equivalents | | $ | 222 | | | $ | 171 | |
| Fixed income funds | | | | |
| Corporate bonds | | 795 | | | 667 | |
| Total fixed income funds | | 795 | | | 667 | |
| Equity funds and equities | | | | |
| Mutual funds | | 247 | | | 802 | |
| Exchange-traded funds | | 2,528 | | | 3,127 | |
| Total mutual funds and equities | | 2,775 | | | 3,929 | |
| Total | | $ | 3,792 | | | $ | 4,767 | |
Cash equivalents: The Company uses quoted market prices to determine the fair value of these investments in interest-bearing cash accounts and they are classified as Level 1 of the fair value hierarchy. The carrying amounts approximate fair value because of the short maturity of the instruments.
Fixed income funds: Investments within the fixed income funds category consist of fixed income corporate debt. The Company uses quoted market prices to determine the fair values of these fixed income funds. These instruments consist of exchange-traded government and corporate bonds and are classified as Level 1 of the fair value hierarchy.
Equity funds and equities: The valuation of investments in registered investment companies is based on the underlying investments in securities. Securities traded on security exchanges are valued at the latest quoted sales price. Securities traded in the over-the-counter market and listed securities for which no sale was reported on that date are valued at the average of the last reported bid and ask quotations. These investments are classified as Level 1 of the fair value hierarchy.
The Company currently anticipates contributions of $400 to its U.S. defined benefit plan in 2023.
The following benefit payments are expected to be paid during the years indicated:
| | | | | | | | |
| | |
| Year Ending December 31, | | |
| 2023 | | $ | 499 | |
| 2024 | | 496 | |
| 2025 | | 490 | |
| 2026 | | 485 | |
| 2027 | | 474 | |
| Years 2028-2032 | | 2,190 | |
United Kingdom Defined Benefit Plan
The Company’s U.K. defined benefit plan covers certain current employees, former employees, and retirees. The plan has been frozen to new entrants since April 1, 1997 and also covers the former employees of a merged plan after January 2002. Benefits under the plan were based on years of service and eligible compensation during defined periods of service. The Company’s funding policy for the plan is to make minimum annual contributions required by applicable regulations.
The funded status of the United Kingdom defined benefit plan as of December 31, 2022 and 2021 was as follows:
| | | | | | | | | | | | | | |
| | December 31, |
| | 2022 | | 2021 |
| Changes in benefit obligation: | | | | |
| Benefit obligation at beginning of year | | $ | 9,135 | | | $ | 10,265 | |
| Interest cost | | 135 | | | 109 | |
| Actuarial gain | | (2,221) | | | (825) | |
| Benefits paid | | (1,424) | | | (302) | |
| Foreign currency exchange rate changes | | (954) | | | (112) | |
| Benefit obligation at end of year | | $ | 4,671 | | | $ | 9,135 | |
| Change to plan assets: | | | | |
| Fair value of assets at beginning of year | | $ | 8,409 | | | $ | 7,975 | |
| Actual (loss) gain on plan assets | | (742) | | | 522 | |
| Employer contribution | | 319 | | | 336 | |
| Benefits paid | | (1,363) | | | (338) | |
| Foreign currency exchange rate changes | | (878) | | | (86) | |
| Fair value of assets at end of year | | 5,745 | | | 8,409 | |
| Funded status at end of year | | $ | 1,074 | | | $ | (726) | |
| Amounts recognized in the consolidated balance sheets consist of: | | | | |
| Other assets (long-term liabilities) | | $ | 1,074 | | | $ | (726) | |
| Amounts recognized in accumulated other comprehensive loss consist of: | | | | |
| Net (gain) loss | | $ | (1,425) | | | $ | 837 | |
| Prior service cost | | 90 | | | 127 | |
| Total | | $ | (1,335) | | | $ | 964 | |
Net periodic pension costs for the years ended December 31, 2022 and 2021 were as follows:
| | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2022 | | 2021 | | |
| Components of net periodic benefit (gain) cost: | | | | | | |
| Interest cost | | $ | 135 | | | $ | 109 | | | |
| Expected return on plan assets | | (264) | | | (254) | | | |
| | | | | | |
| Amortization of prior service cost | | 23 | | | 26 | | | |
| Recognized net actuarial loss | | 13 | | | 165 | | | |
| Net periodic pension (gain) cost | | $ | (93) | | | $ | 46 | | | |
The weighted average assumptions in the following table represent the rates used to develop the actuarial present value of the projected benefit obligation for the year listed and also the net periodic benefit cost for the following year.
| | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2022 | | 2021 | | |
| Discount rate | | 4.8 | % | | 1.8 | % | | |
| Expected rate of return on plan assets | | 5.7 | % | | 3.8 | % | | |
Amounts applicable to the Company’s pension plans with accumulated benefit obligations in excess of plan assets were as follows as of December 31, 2022 and 2021:
| | | | | | | | | | | | | | |
| | December 31, |
| | 2022 | | 2021 |
| Projected benefit obligation | | $ | 4,671 | | | $ | 9,135 | |
| Accumulated benefit obligation | | 4,671 | | | 9,135 | |
| Fair value of plan assets | | 5,745 | | | 8,409 | |
The Company has estimated the long-term rate of return on plan assets based primarily on historical returns on plan assets, adjusted for changes in target portfolio allocations, and recent changes in long-term interest rates based on publicly available information.
Plan assets are invested by the trustees in accordance with a written statement of investment principles. This statement permits investment in equities, corporate bonds, United Kingdom government securities, commercial property, and cash, based on certain target allocation percentages. Asset allocation is primarily based on a strategy to provide steady growth without undue fluctuations. The target asset allocation percentages for 2022 were as follows:
| | | | | | | | |
| | |
| | |
| Equity securities | | Up to 100% |
| Commercial property | | Not to exceed 50% |
| U.K. Government securities | | Not to exceed 50% |
| Cash | | Up to 100% |
Plan assets held within the United Kingdom defined benefit plan consist of cash and equity securities that have been classified as Level 1 of the fair value hierarchy. All other plan assets have been classified as Level 2 of the fair value hierarchy.
The plan assets by category for the years ended December 31, 2022 and 2021 were as follows:
| | | | | | | | | | | | | | |
| | December 31, |
| | 2022 | | 2021 |
| Asset Category | | | | |
| Cash and cash equivalents | | $ | 540 | | | $ | 339 | |
| Equity securities | | 2,530 | | | 3,822 | |
| Bonds | | 2,296 | | | 3,491 | |
| Other | | 379 | | | 757 | |
| Total | | $ | 5,745 | | | $ | 8,409 | |
United Kingdom regulations require trustees to adopt a prudent approach to funding required contributions to defined benefit pension plans. The Company anticipates making contributions of $337 to the United Kingdom defined benefit plan during 2023.
The following estimated future benefits payments are expected to be paid under the United Kingdom defined benefit plan:
| | | | | | | | |
| Year Ending December 31, | | |
| 2023 | | $ | 288 | |
| 2024 | | 302 | |
| 2025 | | 312 | |
| 2026 | | 318 | |
| 2027 | | 324 | |
| Years 2028-2032 | | 1,415 | |
Other Post-Retirement Benefit Plan
On August 1, 2022, the Company divested its Track Components business, located in St-Jean-sur-Richelieu, Quebec, Canada, which included the post retirement benefit plan, which provided retiree life insurance, health care benefits, and, for a closed group of employees, dental care. The expense related to this plan was not material for 2022 or 2021. The accrued benefit obligation was $856 as of December 31, 2021 and is recognized within “Other long-term liabilities” on the Consolidated Balance Sheets.
The weighted average assumptions in the following table represent the rates used to develop the actuarial present value of the projected benefit obligation for the year listed and also the net periodic benefit cost for the following year.
| | | | | | | | | | |
| | | | |
| | | | December 31,
2021 |
| Discount rate | | | | 3.1 | % |
| Weighted average health care trend rate | | | | 4.7 | % |
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.
| | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2022 | | 2021 | | |
| United States | | $ | 1,650 | | | $ | 1,484 | | | |
| Canada | | 131 | | | 145 | | | |
| United Kingdom | | 817 | | | 510 | | | |
| | $ | 2,598 | | | $ | 2,139 | | | |
Note 18. Commitments and Contingent Liabilities
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, thatwhich is adjusted on a monthly basis as a percentage of cost of sales. ThisIn addition, the product warranty accrual is adjusted periodically adjusted based on the identification or resolution of known individual product warranty claims.
The following table sets forth the Company’s product warranty accrual:
| | | | | | | | |
| | Warranty Liability |
| Balance as of December 31, 2021 | | $ | 1,042 | |
| Additions to warranty liability | | 211 | |
| Warranty liability utilized | | (383) | |
| | |
| Balance as of December 31, 2022 | | $ | 870 | |
|
| | | |
| | Warranty Liability |
| Balance at December 31, 2016 | $ | 10,154 |
|
| Additions to warranty liability | 3,564 |
|
| Warranty liability utilized | (5,036 | ) |
| Balance at December 31, 2017 | $ | 8,682 |
|
Included within the above table are concrete tie warranty reserves of approximately $7,595 and $7,574, respectively, at December 31, 2017 and 2016. For the periods ended December 31, 2017, 2016, and 2015, the Company recorded approximately $21, $204, and $972, respectively, in pre-tax concrete tie warranty charges within “Cost of goods sold” in the Company’s Rail Products and Services segment primarily related to concrete ties manufactured at the Company’s former Grand Island, NE facility. For the year ended December 31, 2017, the Company recorded $839 in pre-tax warranty charges within “Cost of services sold” in our Tubular and Energy Services segment related to a Protective Coatings claim. During the year ended December 31, 2016, the Company recorded approximately $1,224 in pre-tax warranty charges within “Cost of goods sold” in the Company’s Rail Products and Services segment related to Transit Products project.
UPRR Warranty Claims
On July 12, 2011, UPRR notified (the “UPRR Notice”)March 13, 2019, the Company and its subsidiary, CXT Incorporated (“CXT”("CXT"), entered into a Settlement Agreement (the “Settlement Agreement”) with Union Pacific Railroad Company ("UPRR") to resolve the pending litigation in the matter of a warranty claim under CXT’s 2005 supply contract relating to the sale of pre-stressed concrete railroad ties to UPRR. UPRR asserted that a significant percentage of concrete ties manufactured in 2006 through 2011 at CXT’s Grand Island, NE facility failed to meet contract specifications, had workmanship defects and were cracking and failing prematurely. Of the 3.0 million ties manufactured between 1998 and 2011 from the Grand Island, NE facility, approximately 1.6 million ties were sold during the period UPRR had claimed nonconformance. The 2005 contract called for each concrete tie which failed to conform to the specifications or had a material defect in workmanship to be replaced with 1.5 new concrete ties, provided, that, within five years of the sale of a concrete tie, UPRR notified CXT of such failure to conform or such defect in workmanship. The UPRR Notice did not specify how many ties manufactured during this period were defective nor the exact nature of the alleged workmanship defect.
Following the UPRR Notice, theUnion Pacific Railroad Company worked with material scientists and pre-stressed concrete experts to test a representative sample of Grand Island, NE concrete ties and assess warranty claims for certain concrete ties made in its Grand Island, NE facility between 1998 and 2011. The Company discontinued manufacturing operations in Grand Island, NE in early 2011.
2012
During 2012, the Company completed sufficient testing and analysis to further understand this matter. Based upon testing results and expert analysis, the Company believed it discovered conditions, which largely related to the 2006 to 2007 manufacturing period, that can shorten the life of the concrete ties produced during this period. During the fourth quarter of 2012 and first quarter of 2013, the Company reached agreement with UPRR on several matters including a tie rating process for thev. L.B. Foster Company and UPRR to work together to identify, prioritize, and replace defective ties that meet the criteria for replacement. This process applies to the ties the Company shipped to UPRR from its Grand Island, NE facility from 1998 to 2011. During most of this period, the Company’s warranty policy for UPRR carried a 5-year warranty with a 1.5:1 replacement ratio for any defective ties. In order to accommodate UPRR and other customer concerns, the Company also reverted to a previously used warranty policy providing a 15-year warranty with a 1:1 replacement ratio. This change provided an additional 10 years of warranty protection. In the amended 2005 supply agreement, the Company and UPRR also extended the supply of Tucson ties by 5 years and agreed on a cash payment of $12,000 to UPRR as compensation for concrete ties already replaced by UPRR during the investigation period.
During 2012, as a result of the testing that the Company conducted on concrete ties manufactured at its former Grand Island, NE facility and the developments related to UPRR and other customer matters, the Company recorded pre-tax warranty charges of $22,000 in “Cost of Goods Sold” within its Rail Products and Services segment based on the Company’s estimate of the number of defective concrete ties that will ultimately require replacement during the applicable warranty periods.
2013
Throughout 2013, at UPRR’s request and under the terms of the amended 2005 supply agreement, the Company provided warranty replacement concrete ties for use across certain UPRR subdivisions. The Company attempted to reconcile the quantity of warranty claims for ties replaced and obtain supporting detail for the ties removed. The Company believes that UPRR did not replace concrete ties in accordance with the amended agreement and has not furnished adequate documentation throughout the replacement process in these subdivisions to support its full warranty claim. Based on the information received by the Company to date, the Company believes that a significant number of ties which UPRR replaced in these subdivisions did not meet the criteria to be covered as warranty replacement ties under the amended 2005 supply agreement. The disagreement related to the 2013 warranty replacement activity includes approximately 170,000 ties where the Company provided detailed documentation supporting our position with reason codes that detail why these ties are not eligible for a warranty claim.
In late November 2013, the Company received notice from UPRR asserting a material breach of the amended 2005 supply agreement. UPRR’s notice asserted that the failure to honor its claims for warranty ties in these subdivisions was a material breach. Following receipt of this notice, the Company provided information to UPRR to refute UPRR’s claim of breach and included the reconciliation of warranty claims supported by substantial findings from the Company’s track observation team, all within the 90-day cure period. The Company also proposed further discussions to reach agreement on reconciliation for 2013 replacement activities and future replacement activities and a recommended process that will ensure future replacement activities are done with appropriate documentation and per the terms of the amended 2005 supply agreement.
2014
During the first quarter of 2014, the Company further responded within the 90-day cure period to UPRR’s claim and presented a reconciliation for the subdivisions at issue. This proposed reconciliation was based on empirical data and visual observation from Company employees that were present during the replacement process for a substantial majority of the concrete ties replaced. The Company spent considerable time documenting facts related to concrete tie condition and track condition to assess whether the ties replaced met the criteria to be eligible for replacement under the terms of the amended 2005 supply agreement.
During 2014, the Company increased its accrual by an additional $8,766 based on revised estimates of ties to be replaced based upon scientific testing and other analysis, adjusted for ties already provided to UPRR. The Company continued to work with UPRR to identify, replace, and reconcile defective ties related to the warranty claim in accordance with the amended 2005 supply agreement. The Company and UPRR met during the third quarter of 2014 to evaluate each other’s position in an effort to work towards agreement on the unreconciled 2013 and 2014 replacement activity as well as the standards and practices to be implemented for future replacement activity and warranty tie replacement.
In November and December of 2014, the Company received additional notices from UPRR asserting that ties manufactured in 2000 were defective and again asserting material breaches of the amended 2005 supply agreement relating to warranty tie replacements as well as certain new ties provided to UPRR being out of specification.
At December 31, 2014, the Company and UPRR had not been able to reconcile the disagreement related to the 2013 and 2014 warranty replacement activity. The disagreement relating to the 2014 warranty replacement activity includes approximately 90,100 ties that the Company believes are not warranty-eligible.
2015
On January 23, 2015, UPRR filed a Complaint and Demand for Jury TrialCXT Incorporated, Case No. CI 15-564, in the District Court for Douglas County, NE againstNebraska.
Under the Settlement Agreement, the Company and CXT will pay UPRR the aggregate amount of $50,000 without pre-judgment interest, which began with a $2,000 immediate payment, and with the remaining $48,000 paid in installments over a six-year period commencing on the effective date of the Settlement Agreement through December 2024 pursuant to a Promissory Note. Additionally, commencing in January 2019 and through December 2024, UPRR agreed to purchase and has been purchasing from the Company and its subsidiary, CXT, asserting, among other matters, that the Company breached its express warranty, breached an implied covenantsubsidiaries and affiliates, a cumulative total amount of good faith$48,000 of products and fair dealing, and anticipatorily repudiated its warranty obligations, and that UPRR’s exclusive and limited remedy provisions in the supply agreement have failedservices, targeting $8,000 of their essential purpose which entitles UPRR to recover all incidental and consequential damages. The Complaint seeks to cancel all dutiesannual purchases per year beginning March 13, 2019 per letters of UPRRintent under the contract, to adjudgeSettlement Agreement. During the Company as having no remaining rights under the contracts, and to recover damagesthird quarter of 2021, in an amount to be determined at trial for the value of unfulfilled warranty replacement ties and ties likely to become warranty eligible, for costs of cover for replacement ties, and for various incidental and consequential damages. The amended 2005 supply agreement provides that UPRR’s exclusive remedy is to receive a replacement tie that meets the contract specifications for each tie that failed to meet the contract specifications or otherwise contained a material defect provided that the Company receives written notice of such failure or defect within 15 years after that tie was produced. The amended 2005 supply agreement provides thatconnection with the Company’s warranty does not apply to ties that (a)divestiture of its Piling Products division, the targeted annual purchases per year have been repaired or altered without the Company’s written consent in suchreduced to
$6,000 for 2021 through 2024. The Settlement Agreement also includes a way as to affect the stability or reliability thereof, (b) have been subject to misuse, negligence, or accident, or (c) have been improperly maintained or used contrary to the specifications for which such ties were produced. The amended 2005 supply agreement also continues to provide that the Company’s warranty is in lieumutual release of all other expressclaims and liability regarding or implied warranties and that neither party shall be subject to or liable for any incidental or consequential damages to the other party. The dispute is largely based on (1) claims submitted that the Company believes are for ties claimed for warranty replacement that are inaccurately under concrete tie rating guidelines and procedures agreed to in 2012 and incorporated by amendment to the 2005 supply agreement rated and are not the responsibility of the Company and claims that do not meet the criteria of a warranty replacement and (2) UPRR’s assertion, which the Company vigorously disputes, that UPRR in future years will be entitled to warranty replacement ties for virtually all of the Grand Island ties. Many thousands of Grand Island ties have been performing in track for over ten years. In addition, a significant amount of Grand Island ties were rated by both parties in the excellent category of the rating system.
In June 2015, UPRR delivered an additional notice alleging deficiencies in certain ties produced in the Company’s Tucson and Spokane locations and other claimed material breaches which the Company contends are unfounded. The Company again responded to UPRR that it was not in material breach of the amended 2005 supply agreement relating to warranty tie replacementsall CXT pre-stressed concrete railroad ties with no admission of liability and that the ties in question complied with the specifications provided by UPRR.
On June 16 and 17, 2015, UPRR issued formal notice of the termination of the concrete tie supply agreement as well as the termination of the lease agreement at the Tucson, AZ production facility and rejection and revocation of its prior acceptance of certain ties manufactured at the Company’s Spokane, WA production facility. Since that time, UPRR has discontinued submitting purchase orders to the Company for shipment of warranty replacement ties.
On May 29, 2015, the Company and CXT filed an Answer, Affirmative Defenses and Counterclaims in response to the Complaint, denying liability to UPRR. As a result of UPRR’s subsequent June 16-17, 2015 actions and certain related conduct, the Company on October 5, 2015 amended the pending Answer, Affirmative Defenses and Counterclaims to add, among other things, assertions that UPRR’s conduct in question was wrongful and unjustified and constituted additional grounds for the affirmative defenses to UPRR’s claims and also for the Company’s counterclaims.
2016
By Scheduling Order dated June 29, 2016, an August 31, 2017 deadline for the completion of fact discovery was established with trial to proceed at some future date after October 30, 2017, and UPRR filed an amended notice of trial to commence on October 30, 2017.
2017
By Third Amended Scheduling Order dated September 26, 2017, a June 29, 2018 deadline for completion of discovery has been established with trial to proceed at some future date on or after October 1, 2018. During the twelve months ended December 31, 2017, the parties continued to conduct discovery, with various disputes that required and will likely require court resolution. The Company intends to continue to engage in discussions in an effort to resolve the UPRR matter. However, we cannot predict that such discussions will be successful, or that the resultsdismissal of the litigation with prejudice.
The expected payments under the UPRR or any settlement or judgment amounts, will reasonably approximate our estimated accrualsSettlement Agreement for loss contingencies. Future potential costs pertaining to UPRR’s claimsthe year ending December 31, 2023 and the outcomethereafter were as follows:
| | | | | | | | |
| Year Ending December 31, | | |
| 2023 | | $ | 8,000 | |
| 2024 | | 8,000 | |
| | |
| | |
| | |
| | |
| Total | | $ | 16,000 | |
The Company reclassified $6,600 of the previously accrued warranty reserve related to the UPRR litigation could result in a material adverse effect on our resultsmatter into its aggregate accrued settlement liability of operations, financial condition, and cash flows.As a result$50,000 as of the preliminary status of the litigation and the uncertainty of any potential judgment, an estimate of any additional loss, or a range of additional loss, associated with this litigation cannot be made based upon currently available information.
Other Legal Matters
In June and September 2017,December 31, 2018. Therefore, the Company recorded a cumulative pre-tax warranty charge within “Cost of services sold”recognized $43,400 in its Tubular and Energy Services segment of $839 from a claim alleging a pipe expansion issue caused by our Protective Coatings services. The claim was settled duringexpense for the year ended December 31, 2017.
In December 2016,2018 for the Companyremaining amount per the Settlement Agreement, which was recorded a pre-tax warranty charge within “Cost of goods sold”in “Concrete Tie Settlement expense” within its Rail Products and Services segmentConsolidated Statements of approximately $1,224 with respect to allegedly defective products provided in connection with a transit project.
In September 2015, the Company was notifiedOperations. As of a collective action complaint by current and former Test and Inspection Services employees to recover unpaid overtime wages and other damages under the Fair Labor Standards Act. The parties commenced court-ordered mediation on October 17, 2016. In December 2016, the Company reached an agreement in principle to settle the claim for $900 and no admission of liability, subject to negotiation of a settlement agreement and approval by the court, which is expected to occur in the first half of 2017. For the year ended December 31, 2016, the Company2022 and 2021, $8,000 and $8,000 was recorded within “Selling“Current portion of accrued settlement,” respectively, and administrative expenses” in$8,000 and $16,000 was recorded within “Long-term portion of accrued settlement,” respectively, within the Company’s Tubular and Energy Services segment a pre-tax charge of approximately $900 related to the anticipated settlement of this claim. For the year ended December 31, 2017, the final settlement of $797 was approved. The approval resulted in a pre-tax income adjustment of $103 within “Selling and administrative expenses” reported in the Company’s Tubular and Energy Services segment.Consolidated Balance Sheets.
Other Legal Matters
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'smanagement’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'sCompany’s financial position or liquidity atas of December 31, 2017.2022.
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'sCompany’s assessment atas of December 31, 2017,2022, no such disclosures were considered necessary.
Environmental Matters
The Company is subject to national, state, foreign, provincial, and/or local laws and regulations relating to the protection of the environment. The Company is monitoring its potential environmental exposure related to current and former facilities. 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 an L.B. Fostera Company predecessor onnear the site. InAdditionally, the opinionCompany 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 not 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 factors like those described above, an unfavorable resolution could have a material adverse effect.
As of December 31, 2022 and December 31, 2021, the Company maintained environmental reserves approximating $2,472 and $2,519, respectively. The following table sets forth the Company’s undiscounted environmental obligation:
| | | | | | | | |
| | Environmental Liability |
| Balance as of December 31, 2021 | | $ | 2,519 | |
| Additions to environmental obligations | | 40 | |
| Environmental obligations utilized | | (87) | |
| Balance as of December 31, 2022 | | $ | 2,472 | |
|
| | | |
| | Environmental liability |
| Balance at December 31, 2016 | $ | 6,270 |
|
| Additions to environmental obligations | 143 |
|
| Environmental obligations utilized | (269 | ) |
| Balance at December 31, 2017 | $ | 6,144 |
|
Note 20.
19. Other Income
The following table summarizes the Company’s other income for the three years ended December 31, 2017, 2016,2022 and 2015.2021.
| | | | | | | | | | | | | | | | |
| | 2022 | | 2021 | | |
| Gain on Piling Products division asset sale (a) | | $ | (489) | | | $ | (2,741) | | | |
| Insurance proceeds (b) | | (790) | | | — | | | |
| Loss on the sale of Track Components (c) | | 467 | | | — | | | |
| Costs recovered from environmental cleanup activities (d) | | (325) | | | — | | | |
| | | | | | |
| | | | | | |
| Foreign currency losses | | 434 | | | 452 | | | |
| Other | | (847) | | | (786) | | | |
| Other income - net | | $ | (1,550) | | | $ | (3,075) | | | |
|
| | | | | | | | | | | | |
| | | 2017 | | 2016 | | 2015 |
| Gain on Protective Coatings Field Service asset sale (a) | | $ | (487 | ) | | $ | — |
| | $ | — |
|
| Gain on Rail Segment patent sale (b) | | (500 | ) | | — |
| | — |
|
| Gain on Tucson, AZ asset sale (c) | | — |
| | — |
| | (2,279 | ) |
| Foreign currency losses (gains) | | 804 |
| | 12 |
| | (1,616 | ) |
| Remeasurement gain on equity method investment (d) | | — |
| | — |
| | (580 | ) |
| Legal settlement gain (e) | | — |
| | — |
| | (460 | ) |
| Other | | (184 | ) | | (1,535 | ) | | (650 | ) |
| | | $ | (367 | ) | | $ | (1,523 | ) | | $ | (5,585 | ) |
| |
a) | On August 7, 2017, the Company sold the assets of its Protective Coatings Field Services business for $1,200, resulting in a pre-tax gain on sale of $487 within our Tubular and Energy Services segment. |
| |
b) | On August 8, 2017, the Company sold its rights in European transit rail patents. The gain on sale of $500 was recorded within the Rail Products and Services segment. |
| |
c) | On December 23, 2015, the Company sold certain assets related to the former Tucson, AZ precast concrete tie facility for $2,750 resulting in a pre-tax gain on sale of $2,279. |
| |
d) | On November 23, 2015, the Company acquired the remaining 75% of shares of Tew Plus resulting in a gain of $580, which is recorded within other income as of December 31, 2015. The gain is included in equity loss (income) and remeasurement gain within the Consolidated Statements of Cash Flows. |
| |
e) | During the fourth quarter of 2015 the Company received $460 from the Steel Antitrust Settlement Fund related to a claim regarding steel purchased by the Company between 2005 and 2007. |
b.In 2022, the Company received $790 in insurance proceeds.
c.On August 1, 2022, the Company divested the assets of its rail spikes and anchors track components business located in St-Jean-sur-Richelieu, Quebec, Canada, resulting in a pre-tax loss of $467 in 2022.
d.In 2022, the Company received $325 to recover costs associated with environmental cleanup activities in a formerly leased property in Magnolia, TX.
Note 21.20. Subsequent Events
Quarterly Financial Information (Unaudited)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.
Quarterly financial information for the years ended December 31, 2017 and 2016 is presented below:
|
| | | | | | | | | | | | | | | | |
| | | 2017 |
| | | First
Quarter | | Second
Quarter | | Third
Quarter | | Fourth
Quarter (1) |
| Net sales | | $ | 118,702 |
| | $ | 144,860 |
| | $ | 131,492 |
| | $ | 141,323 |
|
| Gross profit | | $ | 21,252 |
| | $ | 27,736 |
| | $ | 26,365 |
| | $ | 27,899 |
|
| Net (loss) income | | $ | (2,422 | ) | | $ | 3,024 |
| | $ | 3,222 |
| | $ | 289 |
|
| Basic (loss) earnings per common share | | $ | (0.23 | ) | | $ | 0.29 |
| | $ | 0.31 |
| | $ | 0.03 |
|
| Diluted (loss) earnings per common share | | $ | (0.23 | ) | | $ | 0.29 |
| | $ | 0.31 |
| | $ | 0.03 |
|
| Dividends paid per common share | | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
Differences between the sum of quarterly results and the annual amounts in the Consolidated Statements of Operations are due to rounding.
| |
(1) | - Fourth quarter 2017 includes provisional tax amounts related to the enactment of the U.S. Tax Cuts and Jobs Act, including additional tax expense of $3,298 related to the one-time transition tax and a $1,508 tax benefit related to the remeasurement of certain deferred tax assets and liabilities. |
|
| | | | | | | | | | | | | | | | |
| | | 2016 |
| | | First
Quarter | | Second
Quarter (1) | | Third
Quarter (2) | | Fourth
Quarter (3) |
| Net sales | | $ | 126,310 |
| | $ | 135,994 |
| | $ | 114,644 |
| | $ | 106,566 |
|
| Gross profit | | $ | 23,960 |
| | $ | 27,813 |
| | $ | 19,803 |
| | $ | 18,779 |
|
| Net loss | | $ | (2,832 | ) | | $ | (91,996 | ) | | $ | (5,982 | ) | | $ | (40,851 | ) |
| Basic loss per common share | | $ | (0.28 | ) | | $ | (8.96 | ) | | $ | (0.58 | ) | | $ | (3.97 | ) |
| Diluted loss per common share | | $ | (0.28 | ) | | $ | (8.96 | ) | | $ | (0.58 | ) | | $ | (3.97 | ) |
| Dividends paid per common share | | $ | 0.04 |
| | $ | 0.04 |
| | $ | 0.04 |
| | $ | — |
|
| |
(1) | - Second quarter 2016 includes $128,938 impairment of assets related to the Chemtec, Protective Coatings, IOS, and Rail Technologies product groups. |
| |
(2) | - Third quarter 2016 includes $6,946 related to the finalization of the impairment analysis of the Chemtec and Rail Technologies product groups. |
| |
(3) | - Fourth quarter 2016 includes deferred U.S. income taxes and foreign withholding taxes of $7,932 on unremitted foreign earnings and a valuation allowance of $29,719 against deferred tax assets. |
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. 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 Rule 13a–15(e) under the Securities Exchange Act of 1934, as amended (“the Exchange Act”)) as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective at the end of the period covered by this report.
Managements’ Report on Internal Control Over Financial Reporting
The management of L.B. Foster Company is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a–15(f)13a-15(f). L.B. Foster Company’s internal control system is designed to provide reasonable assurance to the Company’s management and Board of Directors regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States. All internal control systems, no matter how well designed, have inherent limitations. Accordingly, even effective controls can provide only reasonable assurance with respect to financial statement preparation and presentation. There were no significant changes in internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred
during the fourth quarter of 20172022 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
L.B. Foster Company’s management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2017.2022. In making this assessment, management used criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control - Integrated Framework (2013 Framework). Based on this assessment, management concluded that the Company maintained effective internal control over financial reporting as of December 31, 2022.
The SEC’s general guidance permits the exclusion of an assessment of the effectiveness of a registrant’s internal control over financial reporting for an acquired business during the first year following such acquisition, if among other circumstances and factors, there is not adequate time between the acquisition date and the date of the assessment. As previously discussed in Part II, Item 8, Financial Statements and Supplementary Data, Note 3 to the Consolidated Financial Statements, the Company completed the acquisition of Skratch Enterprises Ltd. (“Skratch”) on June 21, 2022 and VanHooseCo Precast LLC (“VanHooseCo”) on August 12, 2022. These acquired businesses constituted approximately 17.9% of the Company’s consolidated assets as of December 31, 2022 and 4.2% of the Company’s consolidated net sales for the year ended December 31, 2022. Management’s assessment and conclusion on the effectiveness of the Company’s disclosure controls and procedures and internal control over financial reporting at December 31, 2017.2022 excluded an assessment of the internal control over financial reporting of the assets and businesses acquired in the Skratch and VanHooseCo acquisitions.
Ernst & Young LLP, the independent registered public accounting firm that also audited the Company’s consolidated financial statements, has issued an attestation report on the Company’s internal control over financial reporting. Ernst & Young’s attestation report on the Company’s internal control over financial reporting appears in Part II, Item 8 of this Annual Report on Form 10-K and is incorporated herein by reference.
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of L.B. Foster Company and Subsidiaries
Opinion on Internal Control overOver Financial Reporting
We have audited L.B. Foster Company and Subsidiaries’subsidiaries’ internal control over financial reporting as of December 31, 2017,2022 based on criteria established in Internal Control - Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, L.B. Foster Company and Subsidiariessubsidiaries (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017,2022, based on the COSO criteria.
As indicated in the accompanying Managements’ Report on Internal Control Over Financial Reporting, management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of VanHooseCo Precast LLC and Skratch Enterprises Ltd., which are included in the 2022 consolidated financial statements of the Company and constituted 17.9% of total assets as of December 31, 2022 and 4.2% of total net sales for the year then ended. Our audit of internal control over financial reporting of the Company also did not include an evaluation of the internal control over financial reporting of VanHooseCo Precast LLC and Skratch Enterprises Ltd.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 20172022 and 2016,2021, the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity and cash flows for each of the threetwo years in the period ended December 31, 2017,2022, and the related notes and the financial statement schedule listed in the indexIndex at Item 15(a) and our report dated February 28, 2018March 10, 2023 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Managements’ Report on Internal Control overOver Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control overOver Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
Pittsburgh, Pennsylvania
February 28, 2018March 10, 2023
ITEM 9B. OTHER INFORMATION
None.
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
N/A
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
The information required by this Item regarding the directors of the Company is incorporated herein by reference to the information included in the Company’s proxy statementdefinitive Proxy Statement for the 2018 annual meeting2023 Annual Meeting of stockholdersStockholders (the “Proxy Statement”) under the caption “Election of Directors.”
The information required by this Item regarding the executive officers of the Company is set forth in Part I of this Annual Report on Form 10-K under the caption “Executive Officers of the Registrant” and is incorporated herein by reference.
The information required by this Item regarding compliance with Section 16(a) of the Exchange Act is incorporated herein by reference to the information included in the Proxy Statement under the caption “Section 16(a) Beneficial Reporting Compliance.Compliance,” if applicable.
The information required by this Item regarding our Code of Ethics is set forth in Part I of this Annual Report on Form 10-K under the caption “Code of Ethics” and is incorporated herein by reference.
The information required by this Item regarding our audit committee and the audit committee financial expert(s) is incorporated herein by reference to the information included in the Proxy Statement under the caption “Corporate Governance —- Board Committees —- Audit Committee.”
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item regarding executive compensation is incorporated herein by reference to the information included in the Proxy Statement under the captions “Director Compensation—2017,Compensation - 2022,” “Executive Compensation,” “Summary Compensation Table (2017, 2016,(2022, 2021, and 2015)2020),” “Grants of Plan-Based Awards in 2017,2022,” “Outstanding Equity Awards At 20172022 Fiscal Year-End,” “2017“2022 Options Exercises and Stock Vested Table,” “2017“2022 Nonqualified Deferred Compensation,” “Change-In-Control,” “Compensation Committee Interlocks and Insider Participation,” and “Compensation Committee Report.”
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information required by this Item regarding the Company’s equity compensation plans is set forth in Part II, Item 5 of this Annual Report on Form 10-K under the caption “Securities Authorized for Issuance Under Equity Compensation Plans” and is incorporated herein by reference.
The information required by this Item regarding the beneficial ownership of the Company is incorporated herein by reference to the information included in the Proxy Statement under the caption “Stock Ownership.”
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by this Item regarding transactions with related persons is incorporated herein by reference to the information included in the Proxy Statement under the caption “Corporate Governance —- Transactions with Related Parties.”
The information required by this Item regarding director independence is incorporated herein by reference to information included in the Proxy Statement under the caption “Corporate Governance —- The Board, Board Meetings, Independence, and Tenure.”
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this Item regarding principal accountant fees and services is incorporated herein by reference to information included in the Proxy Statement under the caption “Independent Registered Public Accountants’Accounting Firm Fees.”
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
The following documents are filed as a part of this Report:
(a)(1). Financial Statements
The following Reports of Independent Registered Public Accounting Firm (PCAOB ID: 42), consolidated financial statements, and accompanying notes are included in Item 8 of this Report:
Reports of Independent Registered Public Accounting Firm.
Consolidated Balance Sheets as of December 31, 20172022 and 2016.2021.
Consolidated Statements of Operations for the Years Ended December 31, 2017, 2016,2022 and 2015.2021.
Consolidated Statements of Comprehensive (Loss) Income for the Years Ended December 31, 2017, 2016,2022 and 2015.2021.
Consolidated Statements of Cash Flows for the Years Ended December 31, 2017, 2016,2022 and 2015.2021.
Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2017, 2016,2022 and 2015.2021.
Notes to Consolidated Financial Statements.
(a)(2). Financial Statement Schedule
Schedules for the Years Ended December 31, 2017, 2016,2022 and 2015:2021:
II – Valuation and Qualifying Accounts.
The remaining schedules are omitted because of the absence of conditions upon which they are required.
(a)(3). Exhibits
The Index to Exhibits immediately following Part IV, Item 16, Form 10-K Summary, filed as part of this Annual Report on Form 10-K.10-K and is incorporated by reference herein.
L. B.L.B. FOSTER COMPANY AND SUBSIDIARIES
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 2017, 2016,2022 AND 20152021
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Balance at Beginning of Year | | Additions Charged to Costs and Expenses | | Other adjustments (1) | | | | Balance at End of Year |
| Allowance for credit losses | | | | | | | | | | |
| For the year ended December 31, | | | | | | | | | | |
| 2022 | | $ | 547 | | | $ | 382 | | | $ | 116 | | | | | $ | 813 | |
| 2021 | | $ | 944 | | | $ | (87) | | | $ | 310 | | | | | $ | 547 | |
| | | | | | | | | | |
1.Notes and accounts receivable written off as uncollectible or allowance reversed.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Balance at Beginning of Year | | Additions Charged to Costs and Expenses | | Other adjustments (1) | | | | Balance at End of Year |
| Valuation allowance for deferred tax assets | | | | | | | | | | |
| For the year ended December 31, | | | | | | | | | | |
| 2022 | | $ | 3,290 | | | $ | 37,895 | | | $ | 584 | | | | | $ | 40,601 | |
| 2021 | | $ | 1,483 | | | $ | 1,807 | | | $ | — | | | | | $ | 3,290 | |
| | | | | | | | | | |
| | | | | | | | | | |
1.Consists primarily of adjustments related to unrealized income on interest rate swap contracts.
|
| | | | | | | | | | | | | | | | |
| | | Balance at Beginning of Year | | Additions Charged to Costs and Expenses | | Deductions (1) | | Balance at End of Year |
| 2017 | | | | | | | | |
| Deducted from assets to which they apply: | | | | | | | | |
| Allowance for doubtful accounts | | $ | 1,417 |
| | $ | 1,517 |
| | $ | 783 |
| | $ | 2,151 |
|
| Valuation allowance for deferred tax assets | | $ | 29,719 |
| | $ | — |
| | $ | 6,023 |
| | $ | 23,696 |
|
| 2016 | | | | | | | | |
| Deducted from assets to which they apply: | | | | | | | | |
| Allowance for doubtful accounts | | $ | 1,485 |
| | $ | 982 |
| | $ | 1,050 |
| | $ | 1,417 |
|
| Valuation allowance for deferred tax assets | | $ | — |
| | $ | 29,719 |
| | $ | — |
| | $ | 29,719 |
|
| 2015 | | | | | | | | |
| Deducted from assets to which they apply: | | | | | | | | |
| Allowance for doubtful accounts | | $ | 1,036 |
| | $ | 1,113 |
| | $ | 664 |
| | $ | 1,485 |
|
| |
(1) | Notes and accounts receivable written off as uncollectible. |
ITEM 16. FORM 10-K SUMMARY
We may voluntarily include a summary of information required by the Annual Report on Form 10-K under this Item 16. We have elected not to include such summary information.
INDEX TO EXHIBITS
All exhibits are incorporated herein by reference:
| | | | | | | | |
| Exhibit Number | | Description |
| | |
Exhibit Number2.1 | | Description |
| | |
2.1 | | Asset Purchase Agreement and Plan of Merger dated March 13, 2015 among IOS Holdings, Inc.,between L.B. Foster Company L.B. Foster Raven Mergerand J.D. Fields & Company, and IOS Holding Company LLC, solely in its capacity as the representative of IOS’s shareholdersInc. dated September 24, 2021, is incorporated herein by reference to Exhibit 2.1 to the CurrentQuarterly Report onof Form 8-K/A,10-Q for the quarter ended September 30, 2021, File No.no. 0-10436, filed on March 16, 2015.November 3, 2021. |
3.12.2 | | |
| 3.1 | | |
| 3.2 | | |
10.1*4.1 | | |
| 10.1 | | Second Amendment dated January 29, 2021 to the Third Amended and Restated Credit Agreement dated March 13, 2015,April 30, 2019 between Registrant and PNC Bank, N.A., Bank of America, N.A., Wells Fargo Bank, N.A.,National Association, Citizens Bank, N.A., and BMO Harris Bank, National Association is incorporated herein by reference to Exhibit 10.3 to the Current Report on Form 8-K, File No. 0-10436, filed on February 4, 2021. |
| 10.2 | | Fourth Amended and Restated Credit Agreement dated August 13, 2021, between Registrant and PNC Bank, Citizens Bank, N.A., Wells Fargo Bank, National Association, Bank of Pennsylvania,America, N.A., and Branch Banking and Trust CompanyBMO Harris Bank, National Association is incorporated herein by reference to Exhibit 10.1 to the Current Report on Form 8-K/A,8-K, File No. 0-10436, filed on MarchAugust 16, 2015.2021. |
10.210.3 | | FirstSecond Amendment dated June 29, 2016August 12, 2022 to the Fourth Amended and Restated Credit Agreement dated MarchAugust 13, 2015,2021, between Registrant and PNC Bank, Citizens Bank, N.A., Wells Fargo Bank, National Association, Bank of America, N.A., Wells Fargoand BMO Harris Bank, N.A., Citizens Bank of Pennsylvania, and Branch Banking and Trust Company including forms of Security Agreement and Pledge Agreement is incorporated by herein by reference to Exhibit 10.1 to the Current Report on form 8-K, File No. 0-10436, filed on July 1, 2016. |
10.3 | | Second Amendment dated November 7, 2016 to the Second Amended and Restated Credit Agreement dated March 13, 2015, and as amended by the First Amendment dated June 29, 2016, among Registrant and PNC Bank, N.A., Bank of America, N.A., Wells Fargo Bank, N.A., Citizens Bank of Pennsylvania, and Branch Banking and Trust CompanyNational Association is incorporated herein by reference to Exhibit 10.110.2 to the Current Report on Form 8-K/A, File No. 0-10436, filed on November 8, 2016.August 18, 2022. |
| 10.4 ** | | |
| 10.5 ** | | |
| 10.6 ** | | |
10.7 ** | | |
10.8 ** | | |
10.910.7 ** | | |
10.10 ** | | |
10.11 ** | | |
10.1210.8 ** | | |
| 10.9 ** | | |
| 10.11 ** | | |
| 10.12 ** | | |
| 10.13 ** | | |
| 10.14 ** | | |
10.15 ** | | |
|
| | | | | | | |
10.1610.15 ** | | |
10.17 ** | | |
10.18 ** | | |
10.1910.16 ** | | |
| 10.17 ** | | |
| 10.18 ** | | |
| 10.19 ** | | |
| 10.20 ** | | |
| 10.21 ** | | |
| 10.22 ** | | |
10.2110.22 ** | | |
10.22 ** | | |
10.23 ** | | |
10.24 ** | | |
10.25 | | Agreement dated February 12, 2016, among L. B. Foster Company, Legion Partners, L.P. I, Legion Partners, L.P. II, Legion Partners Special Opportunities, L.P. II, Legion Partners Holdings, LLC, Legion Partners Asset Management, LLC, Legion Partners Holdings, LLC, Bradley S. Vizi, Christopher S. Kiper, and Raymond White, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, File No. 0-10436, filed on February 17, 2016. |
10.26 | | Confidentiality Agreement dated February 12, 2016, among L.B. Foster Company, Legion Partners, L.P. I, Legion Partners, L.P. II, Legion Partners Special Opportunities, L.P. II, Legion Partners Holdings, LLC, Legion Partners Asset Management, LLC, Legion Partners Holdings, LLC, Bradley S. Vizi, Christopher S. Kiper, Raymond White, David A. Katz, and Justin Albert incorporated by reference to Exhibit 10.2 to the Company’s CurrentQuarterly Report onof Form 8-K,10-Q for the quarter ended March 31, 2022, File No.no. 0-10436, filed on February 17, 2016.May 10, 2022. |
*2110.23 ** | | |
| 10.24 ** | | |
| 10.25 ** | | |
| 10.26 ** | | |
| *10.27 | | |
| *21 | | |
| *23 | | |
| *31.1 | | |
| *31.2 | | |
| *32.0 | | |
| *101.INS | | XBRL Instance 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 are filed herewith. |
| ** | | Exhibit represents a management contract or compensatory plan, contract or arrangement required to be filed as Exhibits to this Annual Report on Form 10-K. |
| | Schedules and exhibits omitted pursuant to Item 601(a)(5) of Regulation S-K. The registrant will furnish a copy of any omitted schedule or exhibit as a supplement to the SEC or its staff upon request. |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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: | February 28, 2018March 10, 2023 | By: | /s/ Robert P. BauerJohn F. Kasel |
| | | (Robert P. Bauer,John F. Kasel, |
| | | President and Chief Executive Officer) |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
|
| | | | | | | | | | |
| | | | | | |
| Name | NamePosition | | Position | | Date |
| | | |
| By: | /s/ Raymond T. Betler | /s/ Lee B. Foster II | | Chairman of the Board and Director | | February 28, 2018March 10, 2023 |
| (Raymond T. Betler) | (Lee B. Foster II) | | | | |
| | | |
| By: | /s/ John F. Kasel | /s/ Robert P. Bauer | | President, Chief Executive Officer, | | February 28, 2018March 10, 2023 |
| (John F. Kasel) | (Robert P. Bauer) | | and Director | | |
| | | |
| By: | | /s/ Dirk Jungé | Director | Director | | February 28, 2018March 10, 2023 |
| | (Dirk Jungé) | | | | |
| | | |
| By: | /s/ John E. Kunz | Director | March 10, 2023 |
| (John E. Kunz) | | |
| | | |
| By: | /s/ Janet Lee | Director | March 10, 2023 |
| (Janet Lee) | | |
| | | |
| By: | /s/ Diane B. Owen | Director | Director | | February 28, 2018March 10, 2023 |
| | (Diane B. Owen) | | | | |
| | | |
| By: | /s/ Bruce E. Thompson | /s/ Robert S. PurgasonDirector | | Director | | February 28, 2018March 10, 2023 |
| (Bruce E. Thompson) | (Robert S. Purgason) | | | | |
| | | |
| By: | | /s/ William H. RackoffM. Thalman | | Director | | February 28, 2018 |
| | (William H. Rackoff) | | | | |
| | | |
By: | | /s/ Suzanne B. Rowland | | Director | | February 28, 2018 |
| | (Suzanne B. Rowland) | | | | |
| | | |
By: | | /s/ Bradley S. Vizi | | Director | | February 28, 2018 |
| | (Bradley S. Vizi) | | | | |
| | | |
By: | | /s/ James P. Maloney | | Senior Vice President | | February 28, 2018March 10, 2023 |
| (William M. Thalman) | (James P. Maloney) | | and Chief Financial Officer and Treasurer | | |
| | | |
| By: | /s/ Sean M. Reilly | /s/ Christopher T. ScanlonCorporate Controller | March 10, 2023 |
| Controller (Sean M. Reilly) | and ChiefPrincipal Accounting Officer | | February 28, 2018 |
| | (Christopher T. Scanlon) | | | | |
