~~Table of Contents~~

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

(Mark One)



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

for the quarterly period ended ~~September~~June 30, ~~2017~~2018

Or



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

for the transition period from to

Commission File Number: 000-10436

L.B. Foster Company

(Exact name of Registrant as specified in its charter)



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




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

(412) 928-3400

(Registrant’s telephone number, including area code)

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 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 whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer

☐

Accelerated filer

☒

Non-accelerated filer

☐

~~Accelerated filer~~

☒

~~Non-accelerated filer~~

~~☐ (Do~~(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 checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class

Outstanding as of ~~October 31, 2017~~July 30, 2018

Common Stock, Par Value $0.01

~~10,340,576~~10,563,100 Shares

L.B. FOSTER COMPANY AND SUBSIDIARIES

INDEX

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Part I. FINANCIAL INFORMATION

Item 1. Financial Statements

L.B. FOSTER COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)


						June 30, 2018						December 31, 2017
						(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents						$	13,271					$	37,678
Accounts receivable - net						96,310						76,582
Inventories - net						101,343						97,543
Prepaid income tax						347						188

Other current assets						12,090						9,120
Total current assets						223,361						221,111
Property, plant, and equipment - net						89,467						96,096
Other assets:
Goodwill						19,566						19,785
Other intangibles - net						53,675						57,440
Investments						159						162

Other assets						1,416						1,962
TOTAL ASSETS						$	387,644					$	396,556
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable						$	73,667					$	52,404
Deferred revenue						12,221						10,136
Accrued payroll and employee benefits						10,007						11,888
Accrued warranty						8,705						8,682
Current maturities of long-term debt						631						656
Other accrued liabilities						9,208						9,764
Total current liabilities						114,439						93,530
Long-term debt						98,406						129,310
Deferred tax liabilities						8,231						9,744
Other long-term liabilities						17,352						17,493
Stockholders' equity:
Common stock, par value $0.01, authorized 20,000,000 shares; shares issued at June 30, 2018 and December 31, 2017, 11,115,779; shares outstanding at June 30, 2018 and December 31, 2017, 10,365,345 and 10,340,576, respectively						111						111
Paid-in capital						46,129						45,017
Retained earnings						140,393						137,780
Treasury stock - at cost, 750,434 and 775,203 common stock shares at June 30, 2018 and December 31, 2017, respectively						(18,180)						(18,662)
Accumulated other comprehensive loss						(19,237)						(17,767)
Total stockholders' equity						149,216						146,479
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY						$	387,644					$	396,556

September 30,
2017 December 31,
2016
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 35,008
$ 30,363
Accounts receivable - net 79,324
66,632
Inventories - net 104,035
83,243
Prepaid income tax 1,048
14,166
Other current assets 9,986
5,200
Total current assets 229,401
199,604
Property, plant, and equipment - net 98,536
103,973
Other assets:
Goodwill 19,699
18,932
Other intangibles - net 59,135
63,519
Investments 151
4,031
Other assets 2,242
2,964
Total assets $ 409,164
$ 393,023
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 59,825
$ 37,744
Deferred revenue 11,038
7,597
Accrued payroll and employee benefits 10,353
7,497
Accrued warranty 9,614
10,154
Current maturities of long-term debt 9,887
10,386
Other accrued liabilities 8,452
8,953
Total current liabilities 109,169
82,331
Long-term debt 128,398
149,179
Deferred tax liabilities 11,044
11,371
Other long-term liabilities 16,734
16,891
Stockholders' equity:
Common stock, par value $0.01, authorized 20,000,000 shares; shares issued at September 30, 2017 and December 31, 2016, 11,115,779; shares outstanding at September 30, 2017 and December 31, 2016, 10,340,576 and 10,312,625, respectively 111
111
Paid-in capital 44,423
44,098
Retained earnings 137,492
133,667
Treasury stock - at cost, common stock, shares at September 30, 2017 and December 31, 2016, 775,203 and 803,154, respectively (18,662 ) (19,336 )
Accumulated other comprehensive loss (19,545 ) (25,289 )
Total stockholders' equity 143,819
133,251
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 409,164
$ 393,023

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

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L.B. FOSTER COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)


																						Three Months Ended June 30,												Six Months Ended June 30,
		Three Months Ended September 30,								Nine Months Ended September 30,												2018						2017						2018						2017
		2017				2016				2017				2016
		(Unaudited)								(Unaudited)												(Unaudited)												(Unaudited)
Sales of goods		$	103,058			$	100,293			$	318,414			$	326,278		Sales of goods					$	127,093					$	117,727					$	218,904					$	215,356
Sales of services		28,434				14,351				76,640				50,670			Sales of services					45,797						27,133						76,440						48,206
Total net sales		131,492				114,644				395,054				376,948			Total net sales					172,890						144,860						295,344						263,562
Cost of goods sold		82,460				81,674				256,152				260,705			Cost of goods sold					105,846						94,291						181,146						173,692
Cost of services sold		22,667				13,167				63,549				44,667			Cost of services sold					34,530						22,833						59,656						40,882
Total cost of sales		105,127				94,841				319,701				305,372			Total cost of sales					140,376						117,124						240,802						214,574
Gross profit		26,365				19,803				75,353				71,576			Gross profit					32,514						27,736						54,542						48,988
Selling and administrative expenses		20,218				19,807				60,023				65,941			Selling and administrative expenses					23,368						20,578						43,826						39,805
Amortization expense		1,764				1,763				5,218				7,818			Amortization expense					1,775						1,695						3,560						3,454
Asset impairments		—				6,946				—				135,884

Interest expense		2,026				1,520				6,315				4,342			Interest expense					1,654						2,181						3,612						4,289
Interest income		(56		)		(50		)		(166		)		(157		)	Interest income					(24)						(54)						(95)						(110)
Equity in (income) loss of nonconsolidated investments		(50		)		263				5				946			Equity in (income) loss of nonconsolidated investments					—						(145)						3						55
Other income		(551		)		(1,085		)		(564		)		(263		)
Other expense (income)																	Other expense (income)					128						(18)						(480)						(13)
Total expenses																	Total expenses					26,901						24,237						50,426						47,480
Income before income taxes																	Income before income taxes					5,613						3,499						4,116						1,508
Income tax expense																	Income tax expense					673						475						1,198						906
Net income																	Net income					$	4,940					$	3,024					$	2,918					$	602
Basic earnings per common share																	Basic earnings per common share					$	0.48					$	0.29					$	0.28					$	0.06
Diluted earnings per common share																	Diluted earnings per common share					$	0.47					$	0.29					$	0.28					$	0.06
		23,351				29,164				70,831				214,511
Income (loss) before income taxes		3,014				(9,361		)		4,522				(142,935		)
Income tax (benefit) expense		(208		)		(3,379		)		698				(42,125		)
Net income (loss)		$	3,222			$	(5,982	)		$	3,824			$	(100,810	)
Basic earnings (loss) per common share		$	0.31			$	(0.58	)		$	0.37			$	(9.82	)
Diluted earnings (loss) per common share		$	0.31			$	(0.58	)		$	0.37			$	(9.82	)
Dividends paid per common share		$	—			$	0.04			$	—			$	0.12

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

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L.B. FOSTER COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME ~~(LOSS)~~

(In thousands)

Three Months Ended
September 30, Nine Months Ended
September 30,
2017 2016 2017 2016
(Unaudited) (Unaudited)
Net income (loss) $ 3,222
$ (5,982 ) $ 3,824
$ (100,810 )
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustment 2,412
(1,431 ) 5,528
(3,438 )
Unrealized gain (loss) on cash flow hedges, net of tax expense (benefit) of $0, $88 and $0, ($815) 82
137
(119 ) (1,286 )
Reclassification of pension liability adjustments to earnings, net of tax expense of $0, $38 and $0, $115* 114
73
335
223
Other comprehensive income (loss) 2,608
(1,221 ) 5,744
(4,501 )
Comprehensive income (loss) $ 5,830
$ (7,203 ) $ 9,568
$ (105,311 )


						Three Months Ended June 30,												Six Months Ended June 30,
						2018						2017						2018						2017

						(Unaudited)												(Unaudited)
Net income						$	4,940					$	3,024					$	2,918					$	602
Other comprehensive (loss) income, net of tax:
Foreign currency translation adjustment						(2,785)						2,228						(2,761)						3,116
Unrealized gain (loss) on cash flow hedges, net of tax expense of $0 for all periods						298						(202)						1,036						(201)
Reclassification of pension liability adjustments to earnings, net of tax expense of $0 for all periods*						141						112						255						221
Other comprehensive (loss) income						(2,346)						2,138						(1,470)						3,136
Comprehensive income						$	2,594					$	5,162					$	1,448					$	3,738



*			Reclassifications out of accumulated other comprehensive loss for pension obligations are charged to selling and administrative ~~expense.~~expenses.

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

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L.B. FOSTER COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)


						Six Months Ended June 30,
						2018						2017

						(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income						$	2,918					$	602
Adjustments to reconcile net income to cash provided (used) by operating activities:
Deferred income taxes						(1,450)						(432)
Depreciation						5,882						6,527
Amortization						3,560						3,454

Equity in loss of nonconsolidated investments						3						55
Loss on sales and disposals of property, plant, and equipment						394						122
Stock-based compensation						1,904						725

Change in operating assets and liabilities
Accounts receivable						(20,060)						(9,951)
Inventories						(4,538)						(487)
Other current assets						(2,228)						(1,439)
Prepaid income tax						(1,823)						12,867
Other noncurrent assets						460						474

Accounts payable						21,574						19,534
Deferred revenue						2,110						(1,839)
Accrued payroll and employee benefits						(1,831)						878
Other current liabilities						1,145						(1,167)
Other long-term liabilities						(118)						(2)
Net cash provided by operating activities						7,902						29,921
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale of property, plant, and equipment						2,086						143
Capital expenditures on property, plant, and equipment						(1,816)						(4,597)


Net cash provided by (used in) investing activities						270						(4,454)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of debt						(99,925)						(82,553)
Proceeds from debt						68,995						60,972



Treasury stock acquisitions						(310)						(97)


Net cash used by financing activities						(31,240)						(21,678)
Effect of exchange rate changes on cash and cash equivalents						(1,339)						1,305
Net (decrease) increase in cash and cash equivalents						(24,407)						5,094
Cash and cash equivalents at beginning of period						37,678						30,363
Cash and cash equivalents at end of period						$	13,271					$	35,457
Supplemental disclosure of cash flow information:
Interest paid						$	3,347					$	3,896
Income taxes paid (received)						$	3,304					$	(11,480)

Nine Months Ended
September 30,
2017 2016
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 3,824
$ (100,810 )
Adjustments to reconcile net loss to cash provided (used) by operating activities:
Deferred income taxes (648 ) (39,690 )
Depreciation 9,705
10,620
Amortization 5,218
7,818
Asset impairments —
135,884
Equity loss of nonconsolidated investments 5
946
(Gain) loss on sales and disposals of property, plant, and equipment (347 ) 209
Share-based compensation 1,228
875
Income tax deficiency from share-based compensation —
124
Change in operating assets and liabilities
Accounts receivable (11,899 ) 13,491
Inventories (19,336 ) 3,188
Other current assets (786 ) (379 )
Prepaid income tax 12,569
(6,436 )
Other noncurrent assets 719
117
Accounts payable 22,017
(13,256 )
Deferred revenue 3,339
866
Accrued payroll and employee benefits 2,734
(2,294 )
Other current liabilities (763 ) 956
Other liabilities (63 ) (353 )
Net cash provided by operating activities 27,516
11,876
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale of property, plant, and equipment 1,388
923
Capital expenditures on property, plant, and equipment (5,335 ) (6,507 )
Loans and capital contributions to equity method investment —
(635 )
Net cash used by investing activities (3,947 ) (6,219 )

~~L.B. FOSTER COMPANY AND SUBSIDIARIES~~

~~CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)~~

~~(In thousands)~~

Nine Months Ended
September 30,
2017 2016
(Unaudited)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of debt (113,119 ) (134,200 )
Proceeds from debt 91,838
101,075
Financing fees —
(712 )
Treasury stock acquisitions (103 ) (265 )
Cash dividends on common stock paid to shareholders —
(1,244 )
Income tax deficiency from share-based compensation —
(124 )
Net cash used by financing activities (21,384 ) (35,470 )
Effect of exchange rate changes on cash and cash equivalents 2,460
152
Net increase (decrease) in cash and cash equivalents 4,645
(29,661 )
Cash and cash equivalents at beginning of period 30,363
33,312
Cash and cash equivalents at end of period $ 35,008
$ 3,651
Supplemental disclosure of cash flow information:
Interest paid $ 5,599
$ 3,485
Income taxes (received) paid $ (11,233 ) $ 3,991

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

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L.B. FOSTER COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Dollars in thousands, except share data)

1. FINANCIAL STATEMENTS

Basis of Presentation

The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by ~~U.S. generally accepted accounting principles~~GAAP for complete financial statements. In the opinion of management, all estimates and adjustments (consisting of normal recurring ~~accruals)~~accruals, unless otherwise stated herein) considered necessary for a fair presentation of the financial position of L.B. Foster Company and subsidiaries as of June 30, 2018 and December 31, 2017, its condensed consolidated statements of operations for the three and six months ended June 30, 2018 and 2017, and its statements of cash flows for the six months ended June 30, 2018 and 2017, have been included. However, actual results could differ from those estimates. The results of operations for interim periods are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2017.~~2018. The ~~year-end~~ Condensed Consolidated Balance Sheet as of December 31, ~~2016~~2017 was derived from audited financial statements. This Quarterly Report on Form 10-Q should be read in conjunction with the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2017. In this Quarterly Report on Form 10-Q, references to “we,” “us,” “our,” and the “Company” refer collectively to L.B. Foster Company and its consolidated subsidiaries.

Assets Held for Sale

The Company classifies assets as held for sale when management approves and commits to a formal plan of sale with the expectation the sale will be completed within one year. The net assets of the ~~business~~assets held for sale are then recorded at the lower of their current carrying value or the fair market value, less costs to sell. See Note 78. Investments of the Notes to Condensed Consolidated Financial Statements contained in this Quarterly Report on Form 10-Q for additional information.

Recently Issued Accounting Standards

In ~~May 2014,~~February 2016, the Financial Accounting Standards Board (“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 balance sheet liability. The requirements of the new standard are effective for annual reporting periods beginning after December 15, 2018, and interim periods within those annual periods. The Company is in the process of analyzing the impact of ASU 2016-02 on our financial position. The Company has a significant number of operating leases, and, as a result, expects this guidance to have a material impact on its Condensed Consolidated Balance Sheet. The change will not affect the covenants of the Second Amendment to the Amended and Restated Credit Agreement dated March 13, 2015. The Company has gathered the agreements covered by ASU 2016-02 and will continue to evaluate the impact that ASU 2016-02 will have on its financial statements, related disclosures, and internal controls. Regular updates are provided to the Audit Committee regarding the progress and milestones of the adoption. The Company does not anticipate early adoption of ASU 2016-02.

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 (the “Tax Act”) from accumulated other comprehensive income to retained earnings. Consequently, the amendments eliminate the stranded tax effects resulting from the Tax 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 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 a company 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 reclassification as of the beginning of the period of adoption. The Company is evaluating the impact of ASU 2018-02 on its financial position and whether or not it will choose to adopt the ASU.

Recently Adopted Accounting Standards ~~Update (“ASU”)~~

In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606)” (“ASU 2014-09”), which supersedes the revenue recognition requirements in Accounting Standards Codification 605, “Revenue Recognition” (“ASC 605”). 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 expects to be entitled in exchange for those goods or services.

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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. The Company ~~continues~~adopted the provisions of ASU 2014-09 on January 1, 2018, using the modified retrospective approach. Revenue from the Company's product and service sales continue to be recognized when products are shipped or services are rendered. Revenue from the Company's product and service sales provided under long-term agreements is recognized as the Company transfers control of the product or service to its ~~project~~customers, which approximates the previously used percentage-of-completion method of accounting. The adoption ~~plan by performing a detailed evaluation~~ of ~~contracts and sales orders with customers and assessing the impact that this standard will have~~ASU 2014-09 had no material effect on the ~~Company’s~~Company's financial position, results of operations, cash flows, ~~financial position,~~or backlog, and ~~backlog. We have also been assessing the impact~~no adjustment to internal controls over financial reporting and disclosure requirements. We regularly brief our Audit Committee on our overall project plan as well as our progress towards adoption. The Company will adopt this standard as of January 1, 2018 ~~and anticipates using the modified retrospective approach at adoption as it relates to ASU 2014-09.~~

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 standard are effective for annual reporting periods beginning after December 15, 2018, and interim periods within those annual periods. The Company is in the process of analyzing the impact of ASU 2016-02 on our financial position.opening retained earnings was needed. The Company has ~~a significant number~~presented the disclosures required by ASC 606, “Revenue from Contracts with Customers” (“ASC 606”) in Note 3. Revenue of ~~operating leases, and, as a result, expects this guidance~~the Notes to ~~have a material impact on its~~ Condensed Consolidated ~~Balance Sheet. The Company does not anticipate early adoption as it relates to ASU 2016-02.~~Financial Statements contained in this Quarterly Report on Form 10-Q.

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~~requires 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 iswas effective on January 1, 2018 ~~with early adoption permitted.~~and was adopted by the Company on that date, using the modified retrospective approach. Under this approach, the Company recorded a reduction to its January 1, 2018 opening retained earnings of $305 as a result of prior intra-entity transactions.

In March 2018, the FASB issued ASU 2018-05, “Income Taxes (Topic 740): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118,” which allowed SEC registrants to record provisional amounts in earnings for the year ended December 31, 2017 due to the complexities involved in accounting for the enactment of the Tax Act enacted on December 22, 2017. The Company ~~continues~~recognized estimated income tax effects of the Tax Act in its 2017 Consolidated Financial Statements in accordance with SEC Staff Accounting Bulletin No. 118 (“SAB No. 118”). Refer to ~~evaluate~~Note 15. Income Taxes of the ~~impact~~Notes to Condensed Consolidated Financial Statements contained in this ~~standard will have~~Quarterly Report on Form 10-Q for further information regarding the ~~Company’s financial statements but believes there will not be a material~~provisional amounts recorded by the Company as of December 31, 2017 and the absence of any change ~~once adopted. The Company will not elect early adoption of ASU 2016-16.~~to those estimates through June 30, 2018.

In March 2017, the FASB issued ASU 2017-07, “Compensation – Retirement Benefits (Topic 715),” (“ASU 2017-07”), which ~~improves~~will improve 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~~not within 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,~~2017, including interim periods within those annual periods. The ~~Company is evaluating its implementation approach and assessing the impact~~adoption of ASU 2017-07 had no impact to the Company.

Reclassifications and Disclosures

Certain amounts in previously issued financial statements have been reclassified to conform to the current period presentation. These reclassifications represent the change in allocated corporate expenses as disclosed in Note 2. Business Segments and the adoption of ASC 606 disclosed in Note 3. Revenue, Note 5. Accounts Receivable, and Note 6. Inventories of the Notes to Condensed Consolidated Financial Statements contained in this Quarterly Report on ~~the presentation of operations.~~Form 10-Q.

2. BUSINESS SEGMENTS

The Company is a leading manufacturer and distributor of products and services for transportation and energy infrastructure with locations in North America and Europe. The Company is organized and ~~evaluated by product group, which is~~operates in three different operating segments: the ~~basis for identifying reportable segments. Each~~Rail Products and Services segment, ~~represents a revenue-producing component~~the Construction Products segment, and the Tubular and Energy Services segment. The 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 makes decisions about resources to be allocated to the segments, and (c) for which ~~separate~~discrete 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~~available. Operating segments are evaluated on their segment ~~is evaluated based upon its segment~~ profit (loss) contribution to the ~~Company’s~~Company's consolidated results. Other income and expenses, interest, income taxes, and certain other items are managed on a consolidated basis. The Company's segment accounting policies, unless otherwise noted, are the same as those described in the Note 2. Business Segments of the Notes to the Company's Consolidated Financial Statements contained in its Annual Report on Form 10-K for the year-ended December 31, 2017.

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The following table illustrates the Company's revenues and ~~profits (losses)~~profit (loss) from operations ~~of the Company~~ by segment for the periods indicated:


						Three Months Ended June 30, 2018												Six Months Ended June 30, 2018
						Net Sales						Segment Profit						Net Sales						Segment Profit
Rail Products and Services						$	91,884					$	5,308					$	154,054					$	7,356
Construction Products						42,207						2,857						71,107						2,875
Tubular and Energy Services						38,799						4,545						70,183						6,430
Total						$	172,890					$	12,710					$	295,344					$	16,661

						Three Months Ended June 30, 2017												Six Months Ended June 30, 2017
						Net Sales						Segment Profit (Loss)						Net Sales						Segment Profit (Loss)
Rail Products and Services						$	69,347					$	3,579					$	125,827					$	4,402
Construction Products						45,465						5,105						82,787						6,771
Tubular and Energy Services						30,048						(126)						54,948						(806)
Total						$	144,860					$	8,558					$	263,562					$	10,367

Three Months Ended
September 30, 2017 Nine Months Ended
September 30, 2017
Net Sales Segment Profit Net Sales Segment Profit
Rail Products and Services $ 62,095
$ 3,472
$ 187,922
$ 8,938
Construction Products 39,118
3,387
121,905
9,156
Tubular and Energy Services 30,279
2,298
85,227
1,774
Total $ 131,492
$ 9,157
$ 395,054
$ 19,868

Three Months Ended
September 30, 2016 Nine Months Ended
September 30, 2016
Net Sales Segment Profit (Loss) Net Sales Segment Profit (Loss)
Rail Products and Services $ 56,891
$ (2,047 ) $ 188,686
$ (26,474 )
Construction Products 34,870
1,356
107,098
5,748
Tubular and Energy Services 22,883
(6,966 ) 81,164
(111,876 )
Total $ 114,644
$ (7,657 ) $ 376,948
$ (132,602 )

Segment profit (loss) from operations, as shown above, ~~include internal~~includes allocated corporate operating expenses. Prior to January 1, 2018, the allocation of corporate operating expenses reflected a cost of capital ~~charges~~ for the assets used in ~~the~~each segment at a rate of generally 1% per month. ~~There has~~In 2018, operating expenses related to corporate headquarter functions that directly support the segment activity are allocated based on segment headcount, revenue contribution, or activity of the business units within the segments, based on the corporate activity type provided to the segment. The expense allocation excludes certain corporate costs that are separately managed from the segments. The prior year periods have been noupdated to reflect the change in allocating corporate operating expenses.

Management believes the ~~measurement~~current allocation of ~~segment profit (loss) from operations since December 31, 2016. The internal~~corporate operating expenses provides a more accurate presentation of how the segments utilize corporate support activities as compared to the cost of capital ~~charges are eliminated during~~method previously used. This provides the ~~consolidation process.~~CODM more meaningful segment profitability reporting to support operating decisions and the allocation of resources.

The following table provides a reconciliation of ~~reportable~~ segment net profit ~~(loss)~~ from operations to the Company’s consolidated total:

Three Months Ended
September 30, Nine Months Ended
September 30,
2017 2016 2017 2016
Profit (loss) for reportable segments $ 9,157
$ (7,657 ) $ 19,868
$ (132,602 )
Interest expense (2,026 ) (1,520 ) (6,315 ) (4,342 )
Interest income 56
50
166
157
Other income 551
1,085
564
263
LIFO (expense) income (1,552 ) 917
(1,733 ) 1,442
Equity in income (loss) of nonconsolidated investments 50
(263 ) (5 ) (946 )
Corporate expense, cost of capital elimination, and other unallocated charges (3,222 ) (1,973 ) (8,023 ) (6,907 )
Income (loss) before income taxes $ 3,014
$ (9,361 ) $ 4,522
$ (142,935 )


						Three Months Ended June 30,												Six Months Ended June 30,
						2018						2017						2018						2017
Profit for reportable segments						$	12,710					$	8,558					$	16,661					$	10,367
Interest expense						(1,654)						(2,181)						(3,612)						(4,289)
Interest income						24						54						95						110
Other (expense) income						(128)						18						480						13
LIFO expense						(549)						(192)						(713)						(181)
Equity in income (loss) of nonconsolidated investments						—						145						(3)						(55)
Unallocated corporate expenses and other unallocated charges						(4,790)						(2,903)						(8,792)						(4,457)
Income before income taxes						$	5,613					$	3,499					$	4,116					$	1,508

The following table illustrates assets of the Company by segment:


						June 30, 2018						December 31, 2017
Rail Products and Services						$	183,072					$	192,038
Construction Products						85,477						83,154
Tubular and Energy Services						96,186						100,706
Unallocated corporate assets						22,909						20,658
Total						$	387,644					$	396,556

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September 30,
2017 December 31,
2016
Rail Products and Services $ 198,761
$ 174,049
Construction Products 88,542
81,074
Tubular and Energy Services 100,046
100,006
Unallocated corporate assets 21,815
37,894
Total $ 409,164
$ 393,023
3. REVENUE

On January 1, 2018, the Company adopted ASU 2014-09, and all the related amendments using the modified retrospective approach, which did not result in any changes to the previously reported financial information. The updates related to ASU 2014-09 were applied only to contracts that were not complete as of January 1, 2018.

3.

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 service to its customer either when or as its customer obtains control of the product or service. A performance obligation is a promise in a contract to transfer a distinct product or 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 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 as over time. Revenue from products or services transferred to customers over time accounted for 23.4% and 22.7% of revenue for the three months ended June 30, 2018 and 2017, respectively, and 24.3% and 22.9% of revenue for the six months ended June 30, 2018 and 2017, respectively. 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. Revenue recognized over time using an input measure was $29,583 and $19,835 for the three months ended June 30, 2018 and 2017, respectively, and was $54,144 and $41,445 for the six months ended June 30, 2018 and 2017, respectively. A certain portion of the Company’s revenue recognized over time under these long-term agreements is recognized using an output method, specifically units delivered, based upon certain customer acceptance and delivery requirements. Revenue recognized over time using an output measure was $10,893 and $13,049 for the three months ended June 30, 2018 and 2017, respectively, and was $17,554 and $19,012 for the six months ended June 30, 2018 and 2017, respectively. As of June 30, 2018 and December 31, 2017, the Company had contract assets of $29,247 and $25,320, respectively, that were recorded in inventory within the Condensed Consolidated Balance Sheets. At June 30, 2018 and December 31, 2017, the Company had contract liabilities of $3,035 and $1,420, respectively, that were recorded in deferred revenue within the Condensed Consolidated Balance Sheets.

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. 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. Changes in judgments related to the estimates above could impact the timing and amount of revenue recognized and, accordingly, the timing and amount of associated income. In the event a contract loss becomes known, the entire amount of the estimated loss is recognized in the Condensed Consolidated Statements of Operations.

The majority of the Company’s revenue is from products and services transferred to customers at a point in time, which accounted for approximately 76.6% and 77.3% of revenue for the three months ended June 30, 2018 and 2017, respectively. Revenue from products and services transferred to customers at a point in time accounted for approximately 75.7% and 77.1% of revenue for the six months ended June 30, 2018 and 2017, 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 and revenue is not recognized until the customer has received the products at its physical location.

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The following table summarizes the Company's net sales by major product category:


						Three Months Ended June 30,												Six Months Ended June 30,
						2018						2017						2018						2017
Rail Products						$	54,332					$	44,399					$	90,366					$	78,764
Rail Technologies						37,552						24,948						63,688						47,063
Rail Products and Services						91,884						69,347						154,054						125,827
Piling and Fabricated Bridge						25,846						29,607						44,707						58,830
Precast Concrete Products						16,361						15,858						26,400						23,957
Construction Products						42,207						45,465						71,107						82,787
Test, Inspection, and Threading						15,008						13,050						29,221						23,932
Protective Coatings and Measurement Solutions						23,791						16,998						40,962						31,016
Tubular and Energy Services						38,799						30,048						70,183						54,948
Total net sales						$	172,890					$	144,860					$	295,344					$	263,562

Net sales by the timing of the transfer of goods and services is as follows:


Three Months Ended June 30, 2018						Rail Products and Services						Construction Products						Tubular and Energy Services						Total
Point in time						$	69,295					$	28,196					$	34,923					$	132,414
Over time						22,589						14,011						3,876						40,476
Total net sales						$	91,884					$	42,207					$	38,799					$	172,890

Three Months Ended June 30, 2017						Rail Products and Services						Construction Products						Tubular and Energy Services						Total
Point in time						$	57,098					$	28,766					$	26,112					$	111,976
Over time						12,249						16,699						3,936						32,884
Total net sales						$	69,347					$	45,465					$	30,048					$	144,860

Six Months Ended June 30, 2018						Rail Products and Services						Construction Products						Tubular and Energy Services						Total
Point in time						$	115,166					$	47,122					$	61,358					$	223,646
Over time						38,888						23,985						8,825						71,698
Total net sales						$	154,054					$	71,107					$	70,183					$	295,344

Six Months Ended June 30, 2017						Rail Products and Services						Construction Products						Tubular and Energy Services						Total
Point in time						$	102,664					$	53,390					$	47,051					$	203,105
Over time						23,163						29,397						7,897						60,457
Total net sales						$	125,827					$	82,787					$	54,948					$	263,562

The timing of revenue recognition, billings, and cash collections results in billed receivables, costs in excess of billings (contract assets, included in inventory), and billings in excess of costs (contract liabilities, included in deferred revenue) on the Condensed Consolidated Balance Sheets.

Significant changes in contract assets during the six months ended June 30, 2018 include transfers to receivables from contract assets recognized at the beginning of the period of $10,872. Significant changes in contract liabilities during the six months ended June 30, 2018 include $740 of revenue recognized that was included in the contract liability at the beginning of the period, and increases of $2,488 due to billings in excess of costs, excluding amounts recognized as revenue during the period.

As of June 30, 2018, the Company has approximately $231,252 of remaining performance obligations, which is also referred to as backlog. Approximately 11.7% of the June 30, 2018 backlog is related to projects that are anticipated to extend beyond June 30, 2019.

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4. GOODWILL AND OTHER INTANGIBLE ASSETS

The following table presents the goodwill balance by reportable segment:


						Rail Products and Services						Construction Products						Tubular and Energy Services						Total
Balance at December 31, 2017						$	14,638					$	5,147					$	—					$	19,785
Foreign currency translation impact						(219)						—						—						(219)
Balance at June 30, 2018						$	14,419					$	5,147					$	—					$	19,566

Rail Products and
Services Construction
Products Tubular and Energy
Services Total
Balance at December 31, 2016 $ 13,785
$ 5,147
$ —
$ 18,932
Foreign currency translation impact 767
—
—
767
Balance at September 30, 2017 $ 14,552
$ 5,147
$ —
$ 19,699

The Company performs goodwill impairment tests annually during the fourth quarter, and also performs interim goodwill impairment tests if it is determined that it is more likely than not that the fair value of a reporting unit is less than the carrying amount. Qualitative factors are assessed to determine whether it is more likely than not that the fair value of a reporting unit is less than the carrying amount. No interim goodwill impairment test was required in connection with ~~these evaluations~~the evaluation of qualitative factors for the ~~nine~~six months ended ~~September~~June 30, ~~2017.~~2018. The Company continues to monitor the recoverability of the long-lived assets associated with certain reporting units of the Company and ~~the~~their long-term financial ~~projections of the businesses.~~projections. Sustained declines in the markets we serve may result in future long-lived asset impairment.

The following table represents the gross balances of other intangible ~~assets balance~~asset by reportable segment:


						June 30, 2018						December 31, 2017
Rail Products and Services*						$	57,321					$	57,654
Construction Products						1,348						1,348
Tubular and Energy Services						29,179						29,179
						$	87,848					$	88,181

September 30,
2017 December 31,
2016
Rail Products and Services $ 57,538
$ 56,476
Construction Products 1,348
1,348
Tubular and Energy Services 29,179
29,179
$ 88,065
$ 87,003

* Gross balances include the impact of foreign currency translation adjustments.

The components of the Company’s intangible assets ~~are~~were as follows:


						June 30, 2018
						Weighted Average Amortization Period In Years						Gross Carrying Value						Accumulated Amortization						Net Carrying Amount
Non-compete agreements						5						$	4,224					$	(3,539)					$	685
Patents						10						372						(164)						208
Customer relationships						17						37,458						(10,312)						27,146
Trademarks and trade names						14						10,067						(4,504)						5,563
Technology						14						35,727						(15,654)						20,073
												$	87,848					$	(34,173)					$	53,675

						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

September 30, 2017
Weighted Average
Amortization
Period In Years Gross
Carrying
Value Accumulated
Amortization Net
Carrying
Amount
Non-compete agreements 5 $ 4,233
$ (2,872 ) $ 1,361
Patents 10 392
(160 ) 232
Customer relationships 17 37,597
(8,542 ) 29,055
Trademarks and trade names 14 10,078
(3,879 ) 6,199
Technology 14 35,765
(13,477 ) 22,288
$ 88,065
$ (28,930 ) $ 59,135

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, which range from 4 to 25 years, with a total weighted average amortization period of approximately 15 years at ~~September~~June 30, ~~2017.~~2018. Amortization expense for the three months ended ~~September~~June 30, 2018 and 2017 was $1,775 and ~~2016 was $1,764 and $1,763,~~$1,695, respectively. Amortization expense for the ~~nine~~six months ended ~~September~~June 30, 2018 and 2017 was $3,560 and ~~2016 was $5,218 and $7,818,~~$3,454, respectively.

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Estimated amortization expense for the remainder of ~~2017~~2018 and thereafter is as follows:


			Amortization Expense
2018			$	3,448
2019			6,280
2020			5,959
2021			5,939
2022			5,888
2023 and thereafter			26,161
			$	53,675

Amortization Expense
2017 $ 1,782
2018 7,024
2019 6,302
2020 5,980
2021 5,960
2022 and thereafter 32,087
$ 59,135

4. 5. ACCOUNTS RECEIVABLE

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. The amounts of trade accounts receivable at ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016~~2017 have been reduced by an allowance for doubtful accounts of ~~$2,138~~$1,570 and ~~$1,417,~~$2,151, respectively. Reserves for uncollectable accounts are recorded as part of selling and administrative expenses in the Condensed Consolidated Statements of Operations, and were income of $473 and expense of $54 for the three months ended June 30, 2018 and 2017, respectively. Reserves for uncollectable accounts were income of $719 and expense of $529 for the six months ended June 30, 2018 and 2017, respectively.

5. 6. INVENTORIES

Inventories at ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016~~2017 are summarized in the following table:


						June 30, 2018						December 31, 2017
Finished goods						$	48,580					$	55,846
Contract assets						29,247						25,320
Work-in-process						9,852						4,059
Raw materials						19,564						17,505
Total inventories at current costs						107,243						102,730
Less: LIFO reserve						(5,900)						(5,187)
						$	101,343					$	97,543

September 30,
2017 December 31,
2016
Finished goods $ 58,588
$ 46,673
Work-in-process 30,507
21,716
Raw materials 19,851
18,032
Total inventories at current costs 108,946
86,421
Less: LIFO reserve (4,911 ) (3,178 )
$ 104,035
$ 83,243

Inventory is generally valued at the lower of last-in, first-out (“LIFO”) cost or market. Other inventories of the Company are valued at average cost or net realizable value, whichever is lower. An actual valuation of inventory under the LIFO method is made at the end of each year based on the inventory levels and costs at that time. Interim LIFO calculations are based on management’s estimates of expected year-end levels and costs. Prior to the adoption of ASU 2014-09, contract assets were classified within work-in-process inventory.

6. 7. PROPERTY, PLANT, AND EQUIPMENT

Property, plant, and equipment at ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016 consist~~2017 consisted of the following:


						June 30, 2018						December 31, 2017
Land						$	12,539					$	14,869
Improvements to land and leaseholds						17,482						17,415
Buildings						34,752						34,929
Machinery and equipment, including equipment under capitalized leases						120,776						120,806
Construction in progress						2,031						1,057
						187,580						189,076
Less: accumulated depreciation and amortization, including accumulated amortization of capitalized leases						(98,113)						(92,980)
						$	89,467					$	96,096

September 30,
2017 December 31,
2016
Land $ 14,866
$ 14,826
Improvements to land and leaseholds 17,404
17,408
Buildings 34,503
33,910
Machinery and equipment, including equipment under capitalized leases 120,414
118,060
Construction in progress 1,431
1,291
188,618
185,495
Less accumulated depreciation and amortization, including accumulated amortization of capitalized leases 90,082
81,522
$ 98,536
$ 103,973

We review our property, plant, and equipment for recoverability whenever events or changes in circumstances indicate that carrying amounts may not be recoverable. We recognize an impairment loss if the carrying amount of a long-lived asset is not

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recoverable and exceeds its fair value. There were no asset impairments of property, plant, and equipment during the ~~nine~~six months ended ~~September~~June 30, ~~2017.~~2018.

During the three months ended June 30, 2018, the Company sold 54.5 acres of land in exchange for cash proceeds of $2,047, resulting in a loss of $269. Depreciation expense for the ~~three-month periods~~three months ended ~~September~~June 30, 2018 and 2017 was $2,938 and ~~2016~~$3,245, respectively. Depreciation expense for the six months ended June 30, 2018 and 2017 was ~~$3,178~~$5,882 and ~~$3,295, respectively. For the nine-month periods ended September 30, 2017 and 2016, depreciation expense was $9,705 and $10,620,~~$6,527, respectively.

7. 8. INVESTMENTS

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 coupling products 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 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 quarter ended September 30, 2017, pursuant to the limited liability company agreement, the Company determined to sell its 45% ownership interest to the other 45% equity holder. The Company concluded that it ~~has~~had met the criteria under applicable guidance for a long-lived asset to be held for sale, and, ~~has,~~ accordingly, reclassified its L B Pipe JV investment of $4,288 as a current asset held for sale within other current assets. The asset was subsequently remeasured to its fair market value of $3,875. The difference between the fair market value and the Company's carrying amount of $413 was recorded as an other-than-temporary impairment ~~for the three and nine months ended September 30,~~during 2017.

At ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016,~~2017, the Company had a nonconsolidated equity method investment of $0$159 and ~~$3,902, respectively, in L B Pipe JV and other equity investments totaling $151 and $129,~~$162, respectively.

The Company recorded equity in the income of L B Pipe JV of ~~$434~~$0 and ~~loss of $276~~$150 for the three months ended ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, respectively. For the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, the Company recorded equity in the ~~income~~loss of L B Pipe JV of ~~$386~~$0 and ~~loss of $1,001,~~$48, respectively.

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. The Company is to receive its outstanding loan balance, including accrued interest, at the 45% equity ~~interest~~holder sale date.

The Company’s exposure to loss results from its capital contributions and loans, net of the Company’s share of L B Pipe JV’s income or loss, and its net investment in the direct financing lease covering the facility used by L B Pipe JV for its operations, which is described below.

The carrying amounts with the Company’s maximum exposure to loss at ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016,~~2017, respectively, are as follows:


						June 30, 2018						December 31, 2017
L B Pipe JV investment						$	3,875					$	3,875
Revolving line of credit						1,235						1,235
Net investment in direct financing lease						644						735
						$	5,754					$	5,845

September 30,
2017 December 31,
2016
L B Pipe JV equity method investment $ 3,875
$ 3,902
Revolving line of credit 1,235
1,235
Net investment in direct financing lease 770
871
$ 5,880
$ 6,008

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 approximate $17, with a balloon payment of approximately $488, which is required to be paid either at the termination of the lease, allocated over the renewal period, or during the initial term of the lease. This lease qualifies as a direct financing lease under the applicable guidance in ASC 840-30, “Leases.”

The following is a schedule of the direct financing minimum lease payments for the remainder of ~~2017~~2018 and the ~~years 2018 and thereafter:~~year 2019:


			Minimum Lease Payments
2018			$	77
2019			567

			$	644

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Minimum Lease Payments
2017 $ 35
2018 150
2019 585
$ 770

8. 9. LONG-TERM DEBT

~~United States~~North America

Long-term debt ~~consists~~consisted of the following:


						June 30, 2018						December 31, 2017
Revolving credit facility						$	97,867					$	128,470

Capital leases and financing agreements						1,170						1,496
Total						99,037						129,966
Less current maturities						631						656
Long-term portion						$	98,406					$	129,310

September 30,
2017 December 31,
2016
Revolving credit facility $ 123,494
$ 127,073
Term loan 13,131
30,000
Capital leases and financing agreements 1,660
2,492
Total 138,285
159,565
Less current maturities 9,887
10,386
Long-term portion $ 128,398
$ 149,179

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 provided

for additional term loan borrowing of $30,000 (the “Term Loan”). ~~The Term Loan is subject to quarterly straight line amortization until fully~~During 2017, the Company paid off ~~upon~~ the ~~final payment on January 1, 2020. Furthermore, certain matters, including excess cash flow, asset sales, and equity issuances, trigger mandatory prepayments to~~balance of the Term Loan. ~~Term Loan borrowings are not available to draw upon once they have been repaid.~~ Capitalized terms used but not defined herein shall have the meanings ascribed to them in the Second Amendment or Amended and Restated Credit Agreement filed as Exhibit 10.3 to the Company's Annual Report on Form 10-K for the year ended December 31, 2017, as applicable.

The Second Amendment further provided 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~~ended 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 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~~ended June 30, 2018, the Minimum EBITDA requirement ~~will increase~~increased by various increments. ~~The incremental Minimum EBITDA requirement for the period ended September 30, 2017 was at least $23,000.~~ At June 30, 2018, the Minimum EBITDA requirement ~~will be~~was $31,000. After the quarter ~~ending~~ended June 30, 2018, the Minimum EBITDA covenant ~~will be~~was eliminated through the ~~maturity~~remainder of the Amended and Restated 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 iswas a Minimum Liquidity covenant which ~~calls~~called for a minimum of $25,000 in undrawn availability on the revolving credit loan at all times through the quarter ~~ending~~ended June 30, 2018.

The Second Amendment includes several changes to certain non-financial covenants as defined in the Amended and Restated Credit Agreement. Through the maturity date of the loan, the Company is ~~now~~ prohibited from making any future acquisitions. The limitation on permitted annual distributions of dividends or redemptions of the Company’s stock was 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.

At ~~September~~June 30, ~~2017,~~2018, L.B. Foster was in compliance with the Second Amendment’s covenants.

The Second Amendment provided 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~~ended March 31, 2018, the Company ~~will be~~was locked into the highest tier of the pricing grid, which ~~provides~~provided 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~~is 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.

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At ~~September~~June 30, ~~2017,~~2018, L.B. Foster had outstanding letters of credit of approximately $425 and had net available borrowing capacity of ~~$46,081.~~$71,708. The maturity date of the facility is March 13, 2020.

United Kingdom

A subsidiary of the Company has a credit facility with NatWest Bank for its United Kingdom operations, which includes an overdraft availability of £1,500 pounds sterling (approximately ~~$2,010~~$1,981 at ~~September~~June 30, ~~2017)~~2018). This credit facility supports the subsidiary’s working capital requirements and is collateralized by substantially all of the assets of its United Kingdom 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. The subsidiary of the Company had no outstanding borrowings under this credit facility at ~~September~~June 30, ~~2017.~~2018. There was approximately ~~$999~~$404 in outstanding guarantees (as defined in the underlying agreement) at ~~September~~June 30, ~~2017.~~2018. This credit facility was renewed ~~and amended~~ during the fourth quarter of ~~2016~~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 within the ~~forth~~fourth quarter of ~~2017.~~2018.

The United Kingdom credit facility contains 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 ~~September~~June 30, ~~2017.~~2018. The subsidiary had available borrowing capacity of ~~$1,011~~$1,577 at ~~September~~June 30, ~~2017.~~2018.

9. 10. 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.

Cash 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-based interest rate swaps - To reduce the impact of interest rate changes on outstanding variable-rate debt, the Company entered into forward starting LIBOR-based interest rate swaps with notional values totaling $50,000. 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 are classified as Level 2 within the fair value hierarchy. At ~~September~~June 30, ~~2017,~~2018, the interest rate swaps were recorded within other ~~accrued liabilities.~~current assets.


		Fair Value Measurements at Reporting Date and Using																Fair Value Measurements at Reporting Date and Using																				Fair Value Measurements at Reporting Date and Using																								Fair Value Measurements at Reporting Date and Using
		September 30, 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)								June 30, 2018						Quoted Prices in Active Markets for Identical Assets (Level 1)						Significant Other Observable Inputs (Level 2)						Significant Unobservable Inputs (Level 3)						December 31, 2017						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					$	16					$	16					$	—					$	—					$	17					$	17					$	—					$	—
Interest rate swaps																																	Interest rate swaps					1,263						—						1,263						—						222						—						222						—
Total assets		$	17			$	17			$	—			$	—			$	16			$	16			$	—			$	—		Total assets					$	1,279					$	16					$	1,263					$	—					$	239					$	17					$	222					$	—
Interest rate swaps		$	323			$	—			$	323			$	—			$	334			$	—			$	334			$	—
Total liabilities		$	323			$	—			$	323			$	—			$	334			$	—			$	334			$	—

The interest rate swaps are accounted for as fair value hedges and substantially offset the changes in fair value of the hedged portion of the underlying debt that are attributable to the changes in market risk. Therefore, the gains and losses related to changes in the fair value of the interest rate swaps are included in interest income or expense in our Condensed Consolidated

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Statements of Operations. For the three months ended ~~September~~June 30, 2018 and 2017, interest ~~expense~~income from interest rate swaps was ~~$98. For the nine months ended September 30, 2017, interest~~$1 and expense of $114, respectively. Interest expense from the interest rate swaps was ~~$302.~~$34 and $204 for the six months ended June 30, 2018 and 2017, respectively.

In accordance with the provisions of ASC 820, "Fair Value Measurement," the Company measures certain nonfinancial assets and liabilities at fair value, which are recognized or disclosed on a nonrecurring basis. ~~During the quarter ended September 30, 2017, a $413 other-than-temporary impairment charge was recorded against~~The fair market value of L B Pipe JV is classified as assets held for sale utilizing a Level 2 fair value measurement. ~~The impairment was a result of the Company's carrying value being greater than the agreed-upon sales price, or fair market value.~~ See Note 78. Investments of the Notes to Condensed Consolidated Financial Statements contained in this Quarterly Report on Form 10-Q for additional information.

~~10.~~ 11. EARNINGS PER COMMON SHARE

(Share amounts in thousands)

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


						Three Months Ended June 30,												Six Months Ended June 30,
						2018						2017						2018						2017
Numerator for basic and diluted earnings per common share:
Net income						$	4,940					$	3,024					$	2,918					$	602
Denominator:
Weighted average shares outstanding						10,365						10,335						10,358						10,327
Denominator for basic earnings per common share						10,365						10,335						10,358						10,327
Effect of dilutive securities:
Stock compensation plans						119						148						119						200
Dilutive potential common shares						119						148						119						200
Denominator for diluted earnings per common share - adjusted weighted average shares outstanding						10,484						10,483						10,477						10,527
Basic earnings per common share						$	0.48					$	0.29					$	0.28					$	0.06
Diluted earnings per common share						$	0.47					$	0.29					$	0.28					$	0.06

Three Months Ended
September 30, Nine Months Ended
September 30,
2017 2016 2017 2016
Numerator for basic and diluted earnings (loss) per common share:
Net income (loss) $ 3,222
$ (5,982 ) $ 3,824
$ (100,810 )
Denominator:
Weighted average shares outstanding 10,341
10,296
10,332
10,264
Denominator for basic earnings per common share 10,341
10,296
10,332
10,264
Effect of dilutive securities:
Stock compensation plans 138
—
103
—
Dilutive potential common shares 138
—
103
—
Denominator for diluted earnings per common share - adjusted weighted average shares outstanding and assumed conversions 10,479
10,296
10,435
10,264
Basic earnings (loss) per common share $ 0.31
$ (0.58 ) $ 0.37
$ (9.82 )
Diluted earnings (loss) per common share $ 0.31
$ (0.58 ) $ 0.37
$ (9.82 )
Dividends paid per common share $ —
$ 0.04
$ —
$ 0.12

~~There were approximately 34 and 80 anti-dilutive shares during the three- and nine-month periods ended September 30, 2016, respectively, excluded from the above calculation.~~

~~11.~~ 12. STOCK-BASED COMPENSATION

The Company applies the provisions of ~~FASB~~ ASC 718, “Compensation – Stock Compensation,” to account for the Company’s stock-based compensation. Stock-based compensation cost is measured at the grant date based on the calculated fair value of the award and is recognized over the employees’ requisite service period. The Company recorded stock compensation expense ~~of $503 and $320 for the three-month periods ended September 30, 2017 and 2016, respectively,~~ related to fully-vested stock awards, restricted stock awards, and performance unit ~~awards. Stock compensation expense~~awards of ~~$1,228~~$822 and ~~$875 was recorded~~$558 for the ~~nine-month~~three-month periods ended ~~September~~June 30, 2018 and 2017, respectively, and ~~2016,~~$1,904 and $725 for the six-month periods ended June 30, 2018 and 2017, respectively. At ~~September~~June 30, ~~2017,~~2018, unrecognized compensation expense for awards that the Company expects to vest approximated ~~$4,140.~~$5,561. The Company will recognize this expense over the upcoming ~~3.5~~3.8 years through ~~March 2021.~~April 2022.

Shares issued as a result of vested stock-based compensation awards generally will be from previously issued shares that have been reacquired by the Company and held as treasury stock or authorized and previously unissued common stock.

During the nine months ended September 30, 2017, the Company recognized a tax deficiency of $127 related to stock-based compensation, which was fully offset by a valuation allowance, and $124 for the nine months ended September 30, 2016. Applying the prospective approach in accordance with ASU 2016-09, the change in excess income tax deficiency has been included in cash flows from operating activities for the nine months ended September 30, 2017 in the Condensed Consolidated Statements of Cash Flows.

Restricted Stock Awards and Performance Unit Awards

Under the 2006 Omnibus Plan, the Company grants eligible employees restricted stock and performance unit awards. The forfeitable restricted stock awards granted prior to March 2015 generally time-vest after a ~~four-year~~four-year period, and those granted subsequent to March 2015 generally time-vest ratably over a ~~three-year~~three-year period, unless indicated otherwise by the underlying restricted stock agreement. Since May 2018, awards of restricted stock are subject to a minimum one-year vesting period, including those granted to non-employee directors. Prior to May 2018, awards to non-employee directors were made in fully-vested shares. Performance unit awards are offered annually under separate ~~three-year~~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. 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 be recognized in the current period for the vested shares and would change future expense over the remaining vesting period.

~~During the quarter ended June 30,~~

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Since May 1, 2017, the Nomination and Governance Committee and Board of Directors jointly approved the Deferred Compensation Plan for Non-Employee Directors under the 2006 Omnibus Incentive Plan, which permits Non-Employee Directors of the Companynon-employee directors have been permitted to defer receipt of ~~earned~~annual stock awards and equity elected to be received in lieu of quarterly cash ~~and/or~~compensation. If so elected, these deferred stock ~~compensation for~~units will be issued as common stock six months after the separation from their service on the ~~Board.~~ Board of Directors.

During the quarter ended March 31, ~~2017,~~2018, the Compensation Committee approved the ~~2017~~2018 Performance Share Unit Program and the Executive Annual Incentive Compensation Plan (consisting of cash and equity components). The Compensation Committee also certified the actual performance achievement of participants in the ~~2014~~2015 Performance Share Unit Program. Actual performance resulted in no payout relative to the ~~2014~~2015 Performance Share Unit Program target performance metrics.

The following table summarizes the restricted stock award, deferred stock ~~award,~~units, and performance unit award activity for the ~~period~~six months ended ~~September~~June 30, ~~2017:~~2018:


						Restricted Stock						Deferred Stock Units						Performance Stock Units						Weighted Average Grant Date Fair Value
Outstanding at December 31, 2017						186,806						26,860						181,341						$	16.53
Granted						62,320						14,914						65,421						27.05
Vested						(35,946)						—						—						28.27
Adjustment for incentive awards expected to vest						—						—						(5,051)						14.86
Cancelled and forfeited						(14,425)						—						(11,880)						15.60
Outstanding at June 30, 2018						198,755						41,774						229,831						$	18.68

Restricted
Stock Deferred
Stock Performance
Stock Units Weighted Average
Grant Date Fair Value
Outstanding at December 31, 2016 79,272
—
63,690
$ 21.66
Granted 170,196
24,927
120,583
14.24
Vested (22,808 ) —
—
28.88
Adjustment for incentive awards expected to vest —
—
53,385
18.33
Cancelled (44,854 ) —
(49,062 ) 15.40
Outstanding at September 30, 2017 181,806
24,927
188,596
$ 16.48

~~12.~~ 13. RETIREMENT PLANS

Retirement Plans

The Company has ~~seven~~three retirement plans that cover its hourly and salaried employees in the United States: ~~three~~one defined benefit ~~plans, all of~~plan, which ~~are~~is frozen, and ~~four~~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 (“ERISA”) and the Company’s policy and investment guidelines applicable to each respective plan. The Company’s policy is to contribute at least the minimum in accordance with the funding standards of ERISA.

The ~~Company’s subsidiary, L.B. Foster Rail Technologies, Inc. (“Rail Technologies”),~~Company maintains two defined contribution plans for its employees in Canada, as well as a post-retirement benefit plan. ~~In the United Kingdom, Rail Technologies~~The Company also maintains two defined contribution plans and a defined benefit ~~plan.~~plan for its employees in the United Kingdom.

United States Defined Benefit ~~Plans~~Plan

Net periodic pension costs for the United States defined benefit pension ~~plans~~plan for the three- and ~~nine-month~~six-month periods ended ~~September~~June 30, ~~2017~~2018 and ~~2016~~2017 are as follows:


						Three Months Ended June 30,												Six Months Ended June 30,
						2018						2017						2018						2017

Interest cost						$	155					$	171					$	311					$	342
Expected return on plan assets						(213)						(178)						(427)						(355)
Recognized net actuarial loss						24						33						48						65
Net periodic pension (income) cost						$	(34)					$	26					$	(68)					$	52

Three Months Ended
September 30, Nine Months Ended
September 30,
2017 2016 2017 2016
Service cost $ —
$ 9
$ —
$ 27
Interest cost 171
186
513
559
Expected return on plan assets (178 ) (179 ) (533 ) (538 )
Recognized net actuarial loss 33
69
98
207
Net periodic pension cost $ 26
$ 85
$ 78
$ 255

The Company does not expect to contribute to its United States defined benefit ~~plans~~plan in ~~2017.~~2018.

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United Kingdom Defined Benefit ~~Plans~~Plan

Net periodic pension costs for the United Kingdom defined benefit pension plan for the three- and ~~nine-month~~six-month periods ended ~~September~~June 30, ~~2017~~2018 and ~~2016~~2017 are as follows:


						Three Months Ended June 30,												Six Months Ended June 30,
						2018						2017						2018						2017
Interest cost						$	52					$	55					$	104					$	110
Expected return on plan assets						(71)						(66)						(142)						(132)
Amortization of prior service costs and transition amount						5						4						10						8
Recognized net actuarial loss						49						71						98						142
Net periodic pension cost						$	35					$	64					$	70					$	128

Three Months Ended
September 30, Nine Months Ended
September 30,
2017 2016 2017 2016
Interest cost $ 56
$ 73
$ 168
$ 223
Expected return on plan assets (67 ) (82 ) (201 ) (250 )
Amortization of prior service costs and transition amount 4
5
12
15
Recognized net actuarial loss 72
38
216
116
Net periodic pension cost $ 65
$ 34
$ 195
$ 104

United Kingdom regulations require trustees to adopt a prudent approach to funding required contributions to defined benefit pension plans. Employer contributions of approximately ~~$251~~$247 are anticipated to the United Kingdom Rail Technologies pension plan during ~~2017.~~2018. For the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, the Company contributed approximately ~~$188~~$128 to the plan.

Defined Contribution Plans

The Company sponsors ~~eight~~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.~~plans:


						Three Months Ended June 30,												Six Months Ended June 30,
						2018						2017						2018						2017
United States						$	770					$	410					$	1,314					$	861
Canada						34						54						68						113
United Kingdom						98						98						214						213
						$	902					$	562					$	1,596					$	1,187

Three Months Ended
September 30, Nine Months Ended
September 30,
2017 2016 2017 2016
United States $ 415
$ 152
$ 1,276
$ 1,289
Canada 53
46
167
164
United Kingdom 93
64
306
281
$ 561
$ 262
$ 1,749
$ 1,734

~~13.~~ 14. COMMITMENTS AND CONTINGENT LIABILITIES

Product Liability Claims

The Company is subject to product warranty claims that arise in the ordinary course of its business. For certain manufactured products, the Company maintains a product warranty accrual which is adjusted on a monthly basis as a percentage of cost of sales. ~~The~~In addition, the product warranty accrual is 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 at December 31, 2017			$	8,682
Additions to warranty liability			518
Warranty liability utilized			(495)
Balance at June 30, 2018			$	8,705

Warranty Liability
Balance at December 31, 2016 $ 10,154
Additions to warranty liability 3,203
Warranty liability utilized (3,743 )
Balance at September 30, 2017 $ 9,614

Included within the above table are concrete tie warranty reserves of approximately ~~$7,607~~$7,668 and ~~$7,574~~$7,595 at ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016,~~2017, respectively.

Union Pacific Railroad (UPRR) Concrete Tie Matter

On July 12, 2011, UPRR notified (the “UPRR Notice”) the Company and its subsidiary, CXT Incorporated (“CXT”), 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 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~~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

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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, the 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 the 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 five 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

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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 Trial in the District Court for Douglas County, NE (“Complaint”) 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 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 replacements and that the ties in question complied with the specifications provided by UPRR.

On June 16 and 17, 2015, UPRR issued a 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.

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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 first nine months ended September 30,~~Throughout 2017, the parties continued to conduct discovery, with various disputes that required and will likely require court resolution. ~~The~~

2018

By Fourth Amended Scheduling Order dated March 21, 2018, certain interim pretrial deadlines for the close of discovery and various submittals were changed but the October 1, 2018 trial date set forth in UPRR's Second Amended Notice of Trial under the prior Third Amended Scheduling Order remained in place. During the first six months ended June 30, 2018, the Company continued fact discovery and prepared and exchanged expert reports. During the second quarter, the Company engaged and intends to continue to engage in both trial preparation efforts and also discussions ~~in an effort~~and efforts with UPRR 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.

As a result of the ~~preliminary~~pretrial status of the litigation and the unresolved nature of the parties' fact and legal disputes 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.

Environmental and Legal Proceedings

The Company is subject to national, state, foreign, provincial, and/or local laws and regulations relating to the protection of the environment. The Company’s efforts to comply with environmental regulations may have an adverse effect on its future earnings. On June 5, 2017, a General Notice Letter was received from the United States Environmental Protection Agency ~~("EPA"~~(“EPA”) indicating that the Company may be a potentially responsible party regarding the Portland Harbor Superfund Site cleanup along with numerous other companies. By letter dated March 16, 2018, the EPA informed the Company of the proposed schedule for consent decree negotiations to implement the Portland Harbor Superfund Site Record of Decision, with negotiations scheduled to commence by the end of 2019. The Company is reviewing the basis for its identification by the EPA and the nature of the historic operations of an L.B. Foster predecessor on the site. Management does not believe that compliance with the present environmental protection laws will have a material adverse effect on the financial condition, results of operations, cash flows, competitive position, or capital expenditures of the Company.

At ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016,~~2017, the Company maintained environmental reserves approximating ~~$6,255~~$6,144 and ~~$6,270,~~$6,144, respectively. The following table sets forth the Company’s environmental obligation:


			Environmental liability
Balance at December 31, 2017			$	6,144
Additions to environmental obligations			51
Environmental obligations utilized			(51)
Balance at June 30, 2018			$	6,144

Environmental liability
Balance at December 31, 2016 $ 6,270
Additions to environmental obligations 7
Environmental obligations utilized (22 )
Balance at September 30, 2017 $ 6,255

The Company is also subject to other legal proceedings and claims that arise in the ordinary course of its business. Legal actions are subject to inherent uncertainties, and future events could change management's assessment of the probability or estimated amount of potential losses from pending or threatened legal actions. Based on available information, it is the opinion of management that the ultimate resolution of pending or threatened legal actions, both individually and in the aggregate, will not result in losses having a material adverse effect on the Company's financial position or liquidity at ~~September~~June 30, ~~2017.~~2018.

If management believes that, based on available information, it is at least reasonably possible that a material loss (or additional material loss in excess of any accrual) will be incurred in connection with any legal actions, the Company discloses an estimate of the possible loss or range of loss, either individually or in the aggregate, as appropriate, if such an estimate can be made, or discloses that an estimate cannot be made. Based on the Company's assessment at ~~September~~June 30, ~~2017,~~2018, no such disclosures were considered necessary.

~~14.~~ 15. INCOME TAXES

For the three months ended ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, the Company recorded an income tax ~~benefit~~expense of ~~$208~~$673 and $475 on ~~pretax~~pre-tax income of ~~$3,014~~$5,613 and ~~$3,379 on pretax losses of $9,361, respectively,~~$3,499 for an effective income tax rate of ~~(6.9)%~~12.0% and ~~36.1%~~13.6%, respectively. For the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, the Company recorded an income tax ~~provision~~expense of ~~$698~~$1,198 and $906 on ~~pretax~~pre-tax income of ~~$4,522~~$4,116 and ~~an income tax benefit~~$1,508

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Table of ~~$42,125 on pretax losses of $142,935, respectively,~~ Contents

for an effective income tax rate of ~~15.4%~~29.1% and ~~29.5%~~60.1%, respectively. ~~The Company’s~~Due to the full valuation allowance on domestic deferred tax assets, the Company's tax provision for the ~~nine~~three and six months ended ~~September~~June 30, ~~2017~~2018 does not reflect any tax benefit for domestic pre-tax losses, and is primarily comprised of taxes on our Canadian and United Kingdom operations. However, as a result of the U.S. consolidated group's current year income, the Company's estimated annual effective tax rate was adjusted during the third quarter to include the realization of a portion of its U.S. deferred tax assets previously offset by a valuation allowance. The Company continued to maintain a full valuation allowance against its U.S. deferred tax assets, which is likely to result in significant variability of the effective tax rate in the current year. Changes in ~~pretax~~pre-tax income projections and the mix of income across jurisdictions could also impact the effective income tax ~~rate.~~rate each quarter.

~~15.~~ ~~SUBSEQUENT EVENTS~~

~~Management evaluated all~~The Tax Act was enacted on December 22, 2017. The Tax Act reduced the U.S. federal corporate tax rate from 35% to 21%, required companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred, and created new taxes on certain foreign sourced earnings. Due to the complexities involved in accounting for the enactment of the ~~activity~~Tax Act, SEC Staff Accounting Bulletin No. 118 (“SAB No. 118”) allowed the Company to record provisional amounts in earnings for the year ended December 31, 2017. The Company has not completed its accounting for the tax effects of the enactment of the Tax Act; however, as described below, the Company made reasonable estimates of the effects of the Tax Act on existing deferred tax balances and the one-time transition tax. In 2017, the Company recognized a $1,508 provisional tax benefit related to the remeasurement of certain deferred tax assets and liabilities, as well as a $3,298 provisional tax expense related to the one-time transition tax on mandatory deemed repatriation of foreign earnings, and related items.

During the six-month period ended June 30, 2018, there were no changes made to the provisional amounts recognized in 2017. The Company will continue to analyze the effects of the Tax Act on its Consolidated Financial Statements. Additional impacts from the enactment of the Tax Act will be recorded as they are identified during the measurement period provided for in SAB No. 118, which extends up to one year from the enactment date. The final impact of the Tax Act may differ from the provisional amounts that have been recognized, possibly materially, due to, among other things, changes in the Company’s interpretation of the Tax Act, legislative or administrative actions to clarify the intent of the statutory language provided that differ from the Company’s current interpretation, any changes in accounting standards for income taxes or related interpretations in response to the Tax Act, or any updates or changes to estimates utilized to calculate the impacts.

The Company also continues to evaluate the impact of the global intangible low-taxed income (“GILTI”) provisions of the Tax Act, which are complex and subject to continuing regulatory interpretation. The Company has not yet completed its assessment to make an accounting policy election to either recognize deferred taxes for basis differences expected to reverse as GILTI or to record GILTI as period costs if and when incurred. Adjustments related to the amount of GILTI tax recorded in its consolidated financial statements may be required based on the outcome of this election.

16. SUBSEQUENT EVENTS

The Company has evaluated subsequent events through the date these financial statements were issued and concluded that no subsequent events have occurred that would require recognition in the Condensed Consolidated Financial Statements or disclosure in the Notes to Condensed Consolidated Financial Statements.

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

(Dollars in thousands, except share data)

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains “forward-looking” statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended. Many of the forward-looking statements are located in “Management’s Discussion and Analysis of Financial Condition and Results of ~~Operations.”~~Operations” (“MD&A”). 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 Quarterly Report on Form 10-Q may concern, among other things, L.B. Foster Company’s (the ~~“Company”~~“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 litigation 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. 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: environmental matters, including any costs associated with any remediation and monitoring; a resumption of the economic slowdown we ~~have~~ experienced in ~~the~~ previous ~~two~~ years in the markets we serve; the risk of doing business in international markets; our ability to effectuate our strategy, including cost reduction initiatives, and our ability to effectively integrate acquired businesses and realize anticipated benefits; costs of and impacts associated with shareholder activism; a decrease in freight or passenger rail traffic; the timeliness and availability of materials from our major suppliers as well as the impact on our access to supplies of customer preferences as to the origin of such supplies, such as customers' concerns about conflict minerals; labor disputes; the continuing effective 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; the Company’s ability to manage its working capital requirements and indebtedness; domestic and international taxes, including estimates that may impact these ~~amounts;~~amounts, including as a result of any interpretations, regulatory actions, and amendments to the Tax Cuts and Jobs Act (the “Tax Act”); foreign currency fluctuations; inflation; 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 declines in energy prices; 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. Should one or more of these risks or uncertainties materialize, or should the assumptions underlying the forward-looking statements prove incorrect, actual outcomes could vary materially from those indicated. Significant risks and uncertainties that may affect the operations, performance, and results of the Company’s business and forward-looking statements include, but are not limited to, those set forth under Item 1A, “Risk Factors,” and elsewhere in our Annual Report on Form 10-K for the year ending December 31, 2017 and our other 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.

General Overview

L.B. Foster Company (the “Company”) is a leading manufacturer and distributor of products and services for ~~the~~ transportation and energy infrastructure with locations in North America and Europe. The Company is comprised of three ~~business~~operating segments: Rail Products and Services, Construction Products, and Tubular and Energy Services.

~~Quarter-to-Date Results~~

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The segment ~~gross profit~~profitability measures presented within ~~Management's Discussion and Analysis of Financial Condition and Results of Operations ("~~the MD~~&A")~~&A tables ~~constitute~~include non-GAAP ~~financial measures disclosed by~~segment gross profit because management ~~to provide~~believes that information provides investors and other users useful information to evaluate the performance of the Company’s segments on a more comparable basis to market trends and peers. ~~The~~Management believes that the exclusion of 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.

Results of the Quarter


Three months ended June 30, 2018						Rail Products and Services						Construction Products						Tubular and Energy Services						Total
Segment profit						$	5,308					$	2,857					$	4,545					$	12,710
Segment and allocated selling and administrative						10,202						4,185						4,331						18,718
Amortization expense						952						37						786						1,775

Non-GAAP segment gross profit						$	16,462					$	7,079					$	9,662					$	33,203


Three months ended June 30, 2017						Rail Products and Services						Construction Products						Tubular and Energy Services						Total
Segment profit (loss)						$	3,579					$	5,105					$	(126)					$	8,558
Segment and allocated selling and administrative						9,577						3,883						4,560						18,020
Amortization expense						872						37						786						1,695

Non-GAAP segment gross profit						$	14,028					$	9,025					$	5,220					$	28,273

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Three months ended September 30, 2017 Rail Products and
Services Construction
Products Tubular and Energy
Services Total
Reportable Segment Profit $ 3,472
$ 3,387
$ 2,298
$ 9,157
Segment and Allocated Selling & Administrative 9,405
4,620
3,337
17,362
Amortization Expense 940
38
786
1,764
Asset Impairments —
—
—
—
Non-GAAP Segment Gross Profit $ 13,817
$ 8,045
$ 6,421
$ 28,283

Three months ended September 30, 2016 Rail Products and
Services Construction
Products Tubular and Energy
Services Total
Reportable Segment (Loss) Profit $ (2,047 ) $ 1,356
$ (6,966 ) $ (7,657 )
Segment and Allocated Selling & Administrative 8,926
4,783
4,290
17,999
Amortization Expense 958
38
767
1,763
Asset Impairments 4,383
—
2,563
6,946
Non-GAAP Segment Gross Profit $ 12,220
$ 6,177
$ 654
$ 19,051


																		Percent of Total Net Sales												Percent Increase/ (Decrease)
						Three Months Ended												Three Months Ended
						June 30,												June 30,
						2018						2017						2018						2017						2018 vs. 2017
Net Sales:
Rail Products and Services						$	91,884					$	69,347					53.1		%				47.9		%				32.5		%
Construction Products						42,207						45,465						24.4						31.4						(7.2)
Tubular and Energy Services						38,799						30,048						22.5						20.7						29.1
Total net sales						$	172,890					$	144,860					100.0		%				100.0		%				19.3		%

																		Non-GAAP / Reported Gross Profit Percentage												Percent Increase/ (Decrease)
						Three Months Ended												Three Months Ended
						June 30,												June 30,
						2018						2017						2018						2017						2018 vs. 2017
Gross Profit:
Non-GAAP Rail Products and Services						$	16,462					$	14,028					17.9		%				20.2		%				17.4		%
Non-GAAP Construction Products						7,079						9,025						16.8						19.9						(21.6)
Non-GAAP Tubular and Energy Services						9,662						5,220						24.9						17.4						85.1
Non-GAAP Segment gross profit						33,203						28,273
LIFO expense						(549)						(192)						(0.3)						(0.1)						185.9
Other						(140)						(345)						(0.1)						(0.2)						59.4
Total gross profit						$	32,514					$	27,736					18.8		%				19.1		%				17.2		%
																														Percent Increase/ (Decrease)
																		Percent of Total Net Sales
						Three Months Ended												Three Months Ended
						June 30,												June 30,
						2018						2017						2018						2017						2018 vs. 2017
Expenses:
Selling and administrative expenses						$	23,368					$	20,578					13.5		%				14.2		%				13.6		%
Amortization expense						1,775						1,695						1.0						1.2						4.7

Interest expense						1,654						2,181						1.0						1.5						(24.2)
Interest income						(24)						(54)						—						—						55.6
Equity in income of nonconsolidated investments						—						(145)						—						(0.1)						100.0
Other expense (income)						128						(18)						0.1						—						**
Total expenses						$	26,901					$	24,237					15.6		%				16.7		%				11.0		%
Income before income taxes						$	5,613					$	3,499					3.2		%				2.4		%				60.4		%
Income tax expense						673						475						0.4						0.3						41.7
Net income						$	4,940					$	3,024					2.9		%				2.1		%				63.4		%

Percent of Total Net Sales
Three Months Ended Three Months Ended Percent
Increase/
(Decrease)
September 30, September 30,

2017 2016 2017 2016 2017 vs. 2016
Net Sales:
Rail Products and Services $ 62,095
$ 56,891
47.2 % 49.6 % 9.1 %
Construction Products 39,118
34,870
29.7
30.4
12.2
Tubular and Energy Services 30,279
22,883
23.1
20.0
32.3
Total net sales $ 131,492
$ 114,644
100.0 % 100.0 % 14.7 %

Non-GAAP / Reported
Gross Profit Percentage Percent
Increase/
(Decrease)
Three Months Ended Three Months Ended
September 30, September 30,

2017 2016 2017 2016 2017 vs. 2016
Gross Profit:
Non-GAAP Rail Products and Services $ 13,817
$ 12,220
22.3 % 21.5 % 13.1 %
Non-GAAP Construction Products 8,045
6,177
20.6
17.7
30.2
Non-GAAP Tubular and Energy Services 6,421
654
21.2
2.9
**
Non-GAAP Segment gross profit 28,283
19,051

LIFO (expense) income (1,552 ) 917
(1.2 ) 0.8
**
Other (366 ) (165 ) (0.3 ) (0.1 ) 121.8
Total gross profit $ 26,365
$ 19,803
20.1 % 17.3 % 33.1 %
Percent
Increase/
(Decrease)
Percent of Total Net Sales
Three Months Ended Three Months Ended
September 30, September 30,
2017 2016 2017 2016 2017 vs. 2016
Expenses:
Selling and administrative expenses $ 20,218
$ 19,807
15.4 % 17.3 % 2.1 %
Amortization expense 1,764
1,763
1.3
1.5
0.1
Asset impairments —
6,946
—
6.1
(100.0 )
Interest expense 2,026
1,520
1.5
1.3
33.3
Interest income (56 ) (50 ) —
—
12.0
Equity in (income) loss of nonconsolidated investments (50 ) 263
—
0.2
(119.0 )
Other income (551 ) (1,085 ) (0.4 ) (0.9 ) 49.2
Total expenses $ 23,351
$ 29,164
17.8 % 25.4 % (19.9 )%
Income (loss) before income taxes $ 3,014
$ (9,361 ) 2.3 % (8.2 )% 132.2 %
Income tax benefit (208 ) (3,379 ) (0.2 ) (2.9 ) 93.8
Net income (loss) $ 3,222
$ (5,982 ) 2.5 % (5.2 )% 153.9 %



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

~~Third~~

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Second Quarter 2018 Compared to Second Quarter 2017 ~~Compared to Third Quarter 2016~~ – Company Analysis

Net sales of ~~$131,492~~$172,890 for the ~~period~~quarter ended ~~September~~June 30, ~~2017~~2018 increased by ~~$16,848,~~$28,030, or ~~14.7%~~19.3%, compared to the prior year quarter. The change was attributable to increases of ~~32.3%, 12.2%,~~32.5% and ~~9.1%~~29.1%, in Rail Products and Services and Tubular and Energy Services, respectively. This was partially offset by a 7.2% reduction in Construction Products sales.

Gross profit increased $4,778 compared to the prior year quarter to $32,514 for the quarter ended June 30, 2018. Gross profit margin for the quarter ended June 30, 2018 was 18.8%, or 30 basis points (“bps”) lower than the prior year quarter. The reduction in gross profit margin was primarily due to declines in non-GAAP segment gross profit margin of 310 bps and 230 bps within Construction Products and Rail Products and Services, respectively.

~~Gross~~ The decreases were partially offset by an increase in non-GAAP segment gross profit margin ~~for the quarter ended September 30, 2017 was 20.1% or 280 basis points (“bps”) higher than the prior year quarter. Each~~ of ~~the three segments contributed to the increase with gains of 1,830~~750 bps ~~290 bps, and 80 bps, in~~within Tubular and Energy ~~Services, Construction Products, and Rail Products and Services, respectively.~~Services.

Selling and administrative expenses increased by ~~$411~~$2,790 or ~~2.1%~~13.6% from the prior year. The ~~increase~~rise was primarily driven by ~~personnel related spending~~increases in personnel-related expenses of ~~$821, which was partially offset by reduced~~$1,981 and litigation costs related to the ~~Union Pacific Railroad ("UPRR")~~UPRR matter of ~~$468.~~$1,622. These increases were partially offset by a reduction in bad debt expense of $527. As a percent of sales, selling and administrative expenses declined 70 bps compared to the prior year period.

~~During the quarter ended September 30, 2016, the Company recorded total non-cash asset impairments of $6,946 from goodwill and definite-lived intangible assets.~~

Interest expense, net of interest income, ~~increased~~decreased by ~~$500,~~$497, or ~~34.0%~~23.4%, as a result of the ~~increase~~reduction in outstanding debt as well as an interest ~~rates on outstanding debt.~~rate at the lowest tier within the interest rate spread under our credit facility agreement. Other ~~income decreased $534, or 49.2%,~~expense increased $146, which primarily relates to ~~losses~~the $269 loss on ~~foreign exchange as~~ the ~~Canadian Dollar has strengthened compared to~~sale of land during the ~~United States Dollar versus the prior year period.~~current quarter.

The Company’s effective income tax rate for the three-month period ended ~~September~~June 30, ~~2017~~2018 was ~~(6.9)%~~12.0%, compared to ~~36.1%~~13.6% in the prior year quarter. For the three months ended ~~September~~June 30, ~~2017,~~2018, the Company recorded a tax ~~benefit~~expense of ~~$208,~~$673, compared to ~~$3,379~~$475 in the three months ended ~~September~~June 30, ~~2016.~~2017. The Company's ~~income~~ tax ~~benefit~~provision for the three months ended ~~September~~June 30, ~~2017 was~~2018 is primarily comprised of taxes related to ~~changes in~~ our ~~estimated annual effective tax rate. The Company continued to maintain a full valuation allowance against its U.S. deferred tax assets.~~Canadian and United Kingdom operations.

Net income for the ~~third~~second quarter of ~~2017~~2018 was ~~$3,222,~~$4,940, or ~~$0.31~~$0.47 per diluted share, compared to a net ~~loss~~income of ~~$5,982,~~$3,024, or ~~$0.58~~$0.29 per diluted share, in the prior year quarter. ~~The following table provides a reconciliation of the GAAP earnings per share value to the non-GAAP adjusted earnings~~¹ ~~per share value for the three-month periods ended September 30, 2017 and 2016:~~

Three Months Ended
September 30,
2017 2016
(Unaudited)
Adjusted Diluted Earnings (Loss) Per Share Reconciliation
Net income (loss), as reported $ 3,222
$ (5,982 )
Asset impairments, net of tax benefits of $1,000 —
5,946
Adjusted net income (loss) $ 3,222
$ (36 )
Average number of common shares outstanding - Diluted 10,479
10,296
Diluted earnings (loss) per common share, as reported $ 0.31
$ (0.58 )
Diluted earnings (loss) per common share, as adjusted $ 0.31
$ (0.00 )

¹ All results in this Quarterly Report that exclude asset impairment charges are non-GAAP measures used for management reporting purposes. Management believes that these measures provide useful information to investors because they will assist investors in evaluating earnings performance on a comparable year-over-year basis.

Results of Operations – Segment Analysis

Rail Products and Services


						Three Months Ended June 30,												Increase						Percent Increase
						2018						2017						2018 vs. 2017						2018 vs. 2017
Net sales						$	91,884					$	69,347					$	22,537					32.5		%
Segment profit						$	5,308					$	3,579					$	1,729					48.3		%
Segment profit percentage						5.8		%				5.2		%				0.6		%				11.9		%

Three Months Ended
September 30, Increase Percent
Increase
2017 2016 2017 vs. 2016 2017 vs. 2016
Net Sales $ 62,095
$ 56,891
$ 5,204
9.1 %
Segment Profit (Loss) $ 3,472
$ (2,047 ) $ 5,519
269.6 %
Segment Profit (Loss) Percentage 5.6 % (3.6 )% 9.2 % 255.6 %

~~Third~~Second Quarter 2018 Compared to Second Quarter 2017 ~~Compared to Third Quarter 2016~~

The Rail Products and Services segment sales increased by ~~$5,204,~~$22,537, or ~~9.1%~~32.5%, compared to the prior year period. The sales increase was ~~primarily~~ driven ~~domestically~~ by ~~a $3,037 increase in~~both our ~~distribution business, which experienced increased demand as overall tonnage sold increased compared to the prior period,~~Rail Technologies and ~~Allegheny~~ Rail Products ~~which increased by $2,017, following a 76% demand~~businesses of $12,604 and $9,933, respectively. The segment continued to capitalize on opportunities with transit agencies who are expanding to serve further geographic areas and increase ~~from~~passenger traffic both domestically and in Europe. The growth was also attributable to North American Class 1 ~~railroads.~~freight rail spending as activity continued to remain strong through the quarter.

The Rail Products and Services segment profit increased by ~~$5,519~~$1,729 to ~~5.6%~~5.8% of net sales. The increase was primarily attributable to ~~2016 impairment charges of $4,383 related to Rail Technologies goodwill. Non-GAAP~~non-GAAP gross profit which increased ~~$1,597,~~by $2,434, or ~~13.1%~~17.4%, as a result of increased ~~domestic distribution volumes.~~volume in both our North American and European markets. Selling and administrative expenses as a percent of sales were reduced 270 bps compared to the prior year quarter.

During the current quarter, the Rail Products and Services segment had an increase in new orders of ~~44.5%~~110.3% compared to the prior year ~~period, while~~period. Additionally, backlog was ~~$85,764~~$126,856 at ~~September~~June 30, ~~2017,~~2018, an increase of ~~60.6%~~61.7%, compared to ~~$53,392~~$78,460 at ~~September~~June 30, ~~2016.~~2017. The Company iscontinues to be encouraged by ~~continuing~~ positive trends ~~signaling a recovering~~from increasing carloads in the North American freight rail market ~~in North America~~ and strength in ~~the~~ transit system projects expanding globally.

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Table of Contents

Construction Products


						Three Months Ended June 30,												Decrease						Percent Decrease
						2018						2017						2018 vs. 2017						2018 vs. 2017
Net sales						$	42,207					$	45,465					$	(3,258)					(7.2)		%
Segment profit						$	2,857					$	5,105					$	(2,248)					(44.0)		%
Segment profit percentage						6.8		%				11.2		%				(4.5)		%				(39.7)		%

Three Months Ended
September 30, Increase Percent
Increase
2017 2016 2017 vs. 2016 2017 vs. 2016
Net Sales $ 39,118
$ 34,870
$ 4,248
12.2 %
Segment Profit $ 3,387
$ 1,356
$ 2,031
149.8 %
Segment Profit Percentage 8.7 % 3.9 % 4.8 % 123.1 %

~~Third~~Second Quarter 2018 Compared to Second Quarter 2017 ~~Compared to Third Quarter 2016~~

The Construction Products segment sales ~~increased~~decreased by ~~$4,248,~~$3,258, or ~~12.2%~~7.2%, compared to the prior year period. ~~Fabricated Bridge and~~Piling sales declined year over year as the Company continued to experience declining new orders within this market. Partially offsetting the reduction was an increase in Precast Concrete Products, ~~businesses increased by $4,411 and $1,185, respectively. Fabricated Bridge generated favorable sales in the current quarter due~~which continued to ~~bridge form projects as well as the continuation of the Peace Bridge project. Precast Concrete Products was~~be favorably impacted by ~~increased~~increasing precast building sales to ~~state~~federal and city agencies. ~~These increases were partially offset by a reduction in Piling sales of $1,348, primarily related to lower sheet piling volumes.~~

The Construction Products segment profit ~~increased~~decreased by ~~$2,031~~$2,248, or 44.0%. The decrease was related to ~~8.7% of net sales. The increase was primarily volume related, improved manufacturing efficiencies,~~our Piling and ~~to a lesser extent, reduced selling and administrative expenses of $163, or 3.4%.~~Fabricated Bridge business unit. Non-GAAP gross profit ~~increased~~decreased by ~~$1,868,~~$1,946, or ~~30.2%~~21.6%, which was primarily related to aggressive market conditions impacting pricing on first quarter 2018 order activity that was fulfilled during the second quarter of 2018 within Piling. The Fabricated Bridge decline was impacted by a ~~result of volume increases and manufacturing efficiencies reducing costs.~~project mix that did not include a mega project, such as the Peace Bridge project in the 2017 period. Partially offsetting the decrease was a $609, or 18.9%, increase in Precast Concrete Products non-GAAP gross profit.

During the quarter, the Construction Products segment had a decrease in new orders of ~~11.1%~~5.4% compared to the prior year period. ~~The decrease related~~While sales and profit reductions were experienced during the quarter, the Company continues to ~~a 47.8% reduction Piling orders due to lower sheet piling demand. This was partially offset~~be encouraged by increased new orders of 228.9% and 10.7% for our Fabricated Bridge and Precast Concrete Products businesses, respectively. Ending backlog in the Construction segment decreased by 1.1% to $74,910 from the prior year period.its strong backlog.

Tubular and Energy Services


						Three Months Ended June 30,												Increase						Percent Increase
						2018						2017						2018 vs. 2017						2018 vs. 2017
Net sales						$	38,799					$	30,048					$	8,751					29.1		%
Segment profit (loss)						$	4,545					$	(126)					$	4,671					3,707.1		%
Segment profit (loss) percentage						11.7		%				(0.4)		%				12.1		%				2,893.6		%

Three Months Ended
September 30, Increase Percent
Increase
2017 2016 2017 vs. 2016 2017 vs. 2016
Net Sales $ 30,279
$ 22,883
$ 7,396
32.3 %
Segment Profit (Loss) $ 2,298
$ (6,966 ) $ 9,264
133.0 %
Segment Profit (Loss) Percentage 7.6 % (30.4 )% 38.0 % 125.0 %

~~Third~~Second Quarter 2018 Compared to Second Quarter 2017 ~~Compared to Third Quarter 2016~~

Tubular and Energy Services segment sales increased by ~~$7,396,~~$8,751, or ~~32.3%~~29.1%, compared to the prior year period. The increase ~~related~~was due to ~~strong bookings~~improvements from ~~Protective Coatings and Test and Inspection Services businesses, partially offset by a decrease in Precision Measurement Systems sales. The quarter showed continued improvement~~each of the business units within the ~~upstream oil and gas market. Sales in~~segment, as compared to the ~~Precision Measurement Systems business are below~~ prior year ~~although order input~~period. This was ~~very~~supported by strong inorders within both the ~~quarter as backlog is now 99.7% above prior year levels.~~upstream and midstream businesses.

Tubular and Energy Services segment profit increased by ~~$9,264, or 133.0%,~~$4,671 compared to the prior year quarter. The quarter was favorably impacted by ~~non-GAAP~~a $229, or 5.0%, reduction in selling and administrative expenses, which was partially offset by a $269 loss on the sale of land during the quarter. Non-GAAP gross profit increased by $4,442, or 85.1%, which was supported by growth in both our upstream and midstream offerings.

The Tubular and Energy Services segment had an increase of ~~$5,767 over~~less than 1.0% in new orders compared to the prior year period. Orders for Test, Inspection, and Threading increased by 17.0% and Protective Coatings and Measurement Systems decreased by 10.9%. The Company remains encouraged as the upstream and midstream oil and gas markets continue to recover.

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Table of Contents

Six Month Results


Six months ended June 30, 2018						Rail Products and Services						Construction Products						Tubular and Energy Services						Total
Segment profit						$	7,356					$	2,875					$	6,430					$	16,661
Segment and allocated selling and administrative						19,106						8,162						7,885						35,153
Amortization expense						1,913						75						1,572						3,560

Non-GAAP segment gross profit						$	28,375					$	11,112					$	15,887					$	55,374


Six months ended June 30, 2017						Rail Products and Services						Construction Products						Tubular and Energy Services						Total
Segment profit (loss)						$	4,402					$	6,771					$	(806)					$	10,367
Segment and allocated selling and administrative						19,014						8,213						8,656						35,883
Amortization expense						1,807						75						1,572						3,454

Non-GAAP segment gross profit						$	25,223					$	15,059					$	9,422					$	49,704

29

Table of Contents


																		Percent of Total Net Sales												Percent Increase/ (Decrease)
						Six Months Ended												Six Months Ended
						June 30,												June 30,
						2018						2017						2018						2017						2018 vs. 2017
Net Sales:
Rail Products and Services						$	154,054					$	125,827					52.2		%				47.7		%				22.4		%
Construction Products						71,107						82,787						24.1						31.4						(14.1)
Tubular and Energy Services						70,183						54,948						23.7						20.9						27.7
Total net sales						$	295,344					$	263,562					100.0		%				100.0		%				12.1		%

																		Non-GAAP / Reported Gross Profit Percentage												Percent Increase/ (Decrease)
						Six Months Ended												Six Months Ended
						June 30,												June 30,
						2018						2017						2018						2017						2018 vs. 2017
Gross Profit:
Non-GAAP Rail Products and Services						$	28,375					$	25,223					18.4		%				20.0		%				12.5		%
Non-GAAP Construction Products						11,112						15,059						15.6						18.2						(26.2)
Non-GAAP Tubular and Energy Services						15,887						9,422						22.6						17.1						68.6
Non-GAAP Segment gross profit						55,374						49,704
LIFO expense						(713)						(181)						(0.2)						(0.1)						**
Other						(119)						(535)						—						(0.2)						77.8
Total gross profit						$	54,542					$	48,988					18.5		%				18.6		%				11.3		%
																														Percent Increase/ (Decrease)
																		Percent of Total Net Sales
						Six Months Ended												Six Months Ended
						June 30,												June 30,
						2018						2017						2018						2017						2018 vs. 2017
Expenses:
Selling and administrative expenses						$	43,826					$	39,805					14.8		%				15.1		%				10.1		%
Amortization expense						3,560						3,454						1.2						1.3						3.1

Interest expense						3,612						4,289						1.2						1.6						(15.8)
Interest income						(95)						(110)						—						—						13.6
Equity in loss of nonconsolidated investments						3						55						—						—						(94.5)
Other income						(480)						(13)						(0.2)						—						**
Total expenses						$	50,426					$	47,480					17.1		%				18.0		%				6.2		%
Income before income taxes						$	4,116					$	1,508					1.4		%				0.6		%				172.9		%
Income tax expense						1,198						906						0.4						0.3						32.2
Net income						$	2,918					$	602					1.0		%				0.2		%				**


**			Results of calculations are not considered meaningful for presentation purposes.

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Table of Contents

First Six Months 2018 Compared to First Six Months 2017 – Company Analysis

Net sales of $295,344 for the period ended June 30, 2018 increased by $31,782, or 12.1%, compared to the prior year period. The change was attributable to increases of 27.7% and 22.4%, in Tubular and Energy Services and Rail Products and Services, respectively. This was partially offset by a 14.1% reduction in Construction Products.

Gross profit increased $5,554 compared to the prior year quarter to $54,542 for the six months ended June 30, 2018. Gross profit margin for the six months ended June 30, 2018 was 18.5%, or 10 bps, lower than the prior year period. The decline in gross profit margin was due to a decrease in non-GAAP segment gross profit margin of of 260 bps and 160 bps within Construction Products and Rail Products and Services, respectively. This was partially offset by an increase in non-GAAP segment gross profit margin of 550 bps within Tubular and Energy Services.

Selling and administrative expenses increased by $4,021 or 10.1% from the prior year. The increase was primarily driven by changes in personnel-related expenses of $2,881 and litigation costs related to the UPRR matter of $2,790. The increase was partially offset by a reduction in bad debt expense of $1,248. As a percent of sales, selling and administrative expenses declined 30 bps compared to the prior year period.

Interest expense, net of interest income, decreased by $662, or 15.8%, as a result of the reduction in outstanding debt. Other income increased $467 which primarily relates to gains on foreign exchange as the United States Dollar has strengthened compared to the Canadian Dollar during the current period versus the prior year period.

The Company’s effective income tax rate for the six months ended June 30, 2018 was 29.1%, compared to 60.1% in the prior year period. For the six months ended June 30, 2018, the Company recorded a tax expense of $1,198, compared to $906 in the six months ended June 30, 2017. Due to the full valuation allowance on domestic deferred tax assets, the Company's tax provision for the six months ended June 30, 2018 does not reflect any tax benefit for domestic pre-tax losses, and is primarily comprised of taxes related to our Canadian and United Kingdom operations.

Net income for the six months ended June 30, 2018 was $2,918, or $0.28 per diluted share, compared to net income of $602, or $0.06 per diluted share, in the prior year period.

Results of Operations – Segment Analysis

Rail Products and Services


						Six Months Ended June 30,												Increase						Percent Increase
						2018						2017						2018 vs. 2017						2018 vs. 2017
Net sales						$	154,054					$	125,827					$	28,227					22.4		%
Segment profit						$	7,356					$	4,402					$	2,954					67.1		%
Segment profit percentage						4.8		%				3.5		%				1.3		%				36.5		%

First Six Months 2018 Compared to First Six Months 2017

Rail Products and Services segment sales increased by $28,227, or 22.4%, compared to the prior year period. The sales increase was primarily driven by a $14,620 increase in our North American operations, as transit rail infrastructure and Class 1 freight rail activity remained strong. The growth was also attributable to our European business, increasing $13,607, which continued to capitalize on opportunities with ~~increases~~transit agencies who are expanding to serve further geographic areas and increase passenger traffic.

The Rail Products and Services segment profit increased by $2,954 to 4.8% of net sales. Non-GAAP gross profit increased by $3,152, or 12.5%, as a result of increased volume in both our North American and European markets. Cost containment favorably impacted segment profit as selling and administrative expenses as a percent of sales were reduced 270 bps compared to the prior year period.

During the six months ended June 30, 2018, the Rail Products and Services segment had an increase in new orders of 49.2% compared to the prior year period. Backlog was $126,856 at June 30, 2018, an increase of 61.7%, compared to $78,460 at June 30, 2017. The Company is encouraged by continuing positive trends from increasing carloads in the North American freight rail market and strength in transit system projects expanding globally.

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Table of Contents

Construction Products


						Six Months Ended June 30,												Decrease						Percent Decrease
						2018						2017						2018 vs. 2017						2018 vs. 2017
Net sales						$	71,107					$	82,787					$	(11,680)					(14.1)		%
Segment profit						$	2,875					$	6,771					$	(3,896)					(57.5)		%
Segment profit percentage						4.0		%				8.2		%				(4.1)		%				(50.6)		%

First Six Months 2018 Compared to First Six Months 2017

Construction Products segment sales decreased by $11,680, or 14.1%, compared to the prior year period. Piling sales declined year over year due to lower new order activity through the first half of 2018. Fabricated Bridge sales declined due to reduced activity on the Peace Bridge project compared to the prior year period. Partially offsetting the reductions was an increase in Precast Concrete Products, which continued to be favorably impacted by increasing building sales to federal and city agencies.

The Construction Products segment profit decreased by $3,896, or 57.5%. The decrease was primarily within the Piling and Fabricated Bridge business unit, which was partially offset by decreased selling and administrative expenses. Non-GAAP gross profit decreased by $3,947, or 26.2%, which was primarily a result of aggressive market conditions impacting pricing on first quarter 2018 order activity that was fulfilled during the first six months of 2018 within Piling. Fabricated Bridge was impacted by project mix in the current year compared to the Peace Bridge mega project in 2017. Partially offsetting the reduction was a $970, or 21.5%, increase in Precast Concrete Products non-GAAP gross profit.

During the six months ended June 30, 2018, the Construction Products segment had a decrease in new orders of 1.0% compared to the prior year period. Ending backlog in the Construction segment increased by 9.1% to $82,405 from the prior year period. While sales and profit reductions were experienced during the period, the Company is encouraged by the strong backlog going into the second half of 2018.

Tubular and Energy Services


						Six Months Ended June 30,												Increase						Percent Increase
						2018						2017						2018 vs. 2017						2018 vs. 2017
Net Sales						$	70,183					$	54,948					$	15,235					27.7		%
Segment profit (loss)						$	6,430					$	(806)					$	7,236					897.8		%
Segment profit (loss) percentage						9.2		%				(1.5)		%				10.6		%				724.6		%

First Six Months 2018 Compared to First Six Months 2017

Tubular and Energy Services segment sales increased by $15,235, or 27.7%, compared to the prior year period. The increase was due to improvements from each ~~division~~of the business units within the segment, as compared to the prior year period. This was supported by strong orders continuing within the upstream businesses.

Tubular and Energy Services segment profit increased by $7,236 compared to the prior year. The period was favorably impacted by a $771, or 8.9%, reduction in selling and administrative expenses. Non-GAAP gross profit increased by $6,465, or 68.6%, which was supported by growth in all business units within the segment. The ~~prior year~~growth was ~~negatively affected by impairment charges~~a result of ~~$2,563 for the three months ended September 30, 2016.~~increases in both volume and margin.

The Tubular and Energy Services segment had an increase in new orders of ~~97.1%~~4.9% for the six months ended June 30, 2018 compared to the prior year period. Backlog remained flat as compared to the prior year period. Orders for ~~Precision~~Test, Inspection, and Threading increased by 16.2% while Protective Coatings and Measurement Systems ~~Test~~decreased by 2.9%. The Company remains encouraged as the upstream and ~~Inspection Services, and Protective Coatings increased 147.1%, 129.6%, and 89.2%, respectively. The upstream~~midstream oil and gas ~~market continues to show signs of recovery. We~~markets continue to ~~be encouraged by increased order activity in the midstream market as well.~~recover.

On July 31, 2017, the lease at our Birmingham, Alabama facility expired. During the third quarter ended September 30, 2017, 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.

~~Year-to-Date Results~~

The segment gross profit measures presented within the MD&A tables constitute non-GAAP financial measures disclosed by 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. The exclusion of 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.

Nine months ended September 30, 2017 Rail Products and
Services Construction
Products Tubular and Energy
Services Total
Reportable Segment Profit $ 8,938
$ 9,156
$ 1,774
$ 19,868
Segment and Allocated Selling & Administrative 27,355
13,835
11,711
52,901
Amortization Expense 2,747
113
2,358
5,218
Asset Impairments —
—
—
—
Non-GAAP Segment Gross Profit $ 39,040
$ 23,104
$ 15,843
$ 77,987

Nine months ended September 30, 2016 Rail Products and
Services Construction
Products Tubular and Energy
Services Total
Reportable Segment (Loss) Profit $ (26,474 ) $ 5,748
$ (111,876 ) $ (132,602 )
Segment and Allocated Selling & Administrative 31,854
14,781
12,891
59,526
Amortization Expense 2,946
113
4,759
7,818
Asset Impairments 32,725
—
103,159
135,884
Non-GAAP Segment Gross Profit $ 41,051
$ 20,642
$ 8,933
$ 70,626

32

Percent of Total Net Sales
Nine Months Ended Nine Months Ended Percent
Increase/
(Decrease)
September 30, September 30,

2017 2016 2017 2016 2017 vs. 2016
Net Sales:
Rail Products and Services $ 187,922
$ 188,686
47.6 % 50.1 % (0.4 )%
Construction Products 121,905
107,098
30.9
28.4
13.8
Tubular and Energy Services 85,227
81,164
21.5
21.5
5.0
Total net sales $ 395,054
$ 376,948
100.0 % 100.0 % 4.8 %

Non-GAAP / Reported
Gross Profit Percentage Percent
Increase/
(Decrease)
Nine Months Ended Nine Months Ended
September 30, September 30,

2017 2016 2017 2016 2017 vs. 2016
Gross Profit:
Non-GAAP Rail Products and Services $ 39,040
$ 41,051
20.8 % 21.8 % (4.9 )%
Non-GAAP Construction Products 23,104
20,642
19.0
19.3
11.9
Non-GAAP Tubular and Energy Services 15,843
8,933
18.6
11.0
77.4
Non-GAAP Segment gross profit 77,987
70,626

LIFO (expense) income (1,733 ) 1,442
(0.4 ) 0.4
(220.2 )
Other (901 ) (492 ) (0.2 ) (0.1 ) 83.1
Total gross profit $ 75,353
$ 71,576
19.1 % 19.0 % 5.3 %
Percent
Increase/
(Decrease)
Percent of Total Net Sales
Nine Months Ended Nine Months Ended
September 30, September 30,
2017 2016 2017 2016 2017 vs. 2016
Expenses:
Selling and administrative expenses $ 60,023
$ 65,941
15.2 % 17.5 % (9.0 )%
Amortization expense 5,218
7,818
1.3
2.1
(33.3 )
Asset impairments —
135,884
—
36.0
(100.0 )
Interest expense 6,315
4,342
1.6
1.2
45.4
Interest income (166 ) (157 ) —
—
5.7
Equity in loss of nonconsolidated investments 5
946
—
0.3
(99.5 )
Other income (564 ) (263 ) (0.1 ) (0.1 ) 114.4
Total expenses $ 70,831
$ 214,511
17.9 % 56.9 % (67.0 )%
Income (loss) before income taxes $ 4,522
$ (142,935 ) 1.1 % (37.9 )% 103.2 %
Income tax expense (benefit) 698
(42,125 ) 0.2
(11.2 ) 101.7
Net income (loss) $ 3,824
$ (100,810 ) 1.0 % (26.7 )% 103.8 %

~~First Nine Months~~Table of ~~2017 Compared to First Nine Months of 2016 – Company Analysis~~Contents

Net sales of $395,054 for the period ended September 30, 2017 increased by $18,106, or 4.8%, compared to the prior year period. The change was attributable to increases of 13.8% and 5.0% in the Construction Products and Tubular and Energy Services segments, respectively. This increase was partially offset by a decrease of 0.4% in the Rail Products and Services segment.

Gross profit margin for the nine months ended September 30, 2017 was 19.1% or 10 bps higher than the prior year period. The increase was due to a 760 bps improvement within the Tubular and Energy Services segment. The increase was partially offset by reductions of 100 bps and 30 bps, in Rail Products and Services and Construction Products, respectively.

Selling and administrative expenses decreased by $5,918 or 9.0% from the prior year. All three segments experienced decreases which were primarily driven by personnel and discretionary spending reductions of $4,021 and reduced litigation costs related to the UPRR matter of $1,419.

Amortization decreased $2,600, or 33.3%, as a result of the June 1, 2016 interim intangible asset impairment test, which was finalized during the three months ended September 30, 2016, resulting in a $59,786 impairment of definite-lived intangible assets. During the nine months ended September 30, 2016, the Company recorded total non-cash asset impairments of $135,884 from goodwill, definite-lived intangible assets, and property, plant, and equipment.

Interest expense, net of interest income, increased by $1,964, or 46.9%, as a result of the increase in interest rates on outstanding debt. Other income increased by $301, or 114.4%, which primarily related to the gain on the sale of certain assets, which was partially offset by the impact of a weaker United States Dollar relative to the Canadian Dollar in the nine months ended September 30, 2017.

The Company’s effective income tax rate for the nine months ended September 30, 2017 was 15.4%, compared to 29.5% in the prior year period. For the first nine months ended September 30, 2017, the Company recorded a tax provision of $698, compared to a tax benefit of $42,125 in the nine months ended September 30, 2016. The Company’s tax provision for the nine months ended September 30, 2017 was primarily comprised of taxes on our Canadian and United Kingdom operations. The Company continued to maintain a full valuation allowance against its U.S. deferred tax assets.

Net income for the first nine months of 2017 was $3,824, or $0.37 per diluted share, compared to a net loss of $100,810, or $9.82 per diluted share, in the prior year period. The following table provides a reconciliation of the GAAP earnings per share value to the non-GAAP adjusted earnings¹ ~~per share value for the nine-month periods ended September 30, 2017 and 2016:~~

Nine Months Ended
September 30,
2017 2016
(Unaudited)
Adjusted Diluted Earnings (Loss) Per Share Reconciliation
Net income (loss), as reported $ 3,824
$ (100,810 )
Asset impairments, net of tax benefits of $39,038 —
96,846
Adjusted net income (loss) $ 3,824
$ (3,964 )
Average number of common shares outstanding - Diluted 10,435
10,264
Diluted earnings (loss) per common share, as reported $ 0.37
$ (9.82 )
Diluted earnings (loss) per common share, as adjusted $ 0.37
$ (0.39 )

¹ All results in this Quarterly Report that exclude asset impairment charges are non-GAAP measures used for management reporting purposes. Management believes that these measures provide useful information to investors because they will assist investors in evaluating earnings performance on a comparable year-over-year basis.

~~Results of Operations – Segment Analysis~~

~~Rail Products and Services~~

Nine Months Ended
September 30, (Decrease)/Increase Percent
(Decrease)/Increase
2017 2016 2017 vs. 2016 2017 vs. 2016
Net Sales $ 187,922
$ 188,686
$ (764 ) (0.4 )%
Segment Profit (Loss) $ 8,938
$ (26,474 ) $ 35,412
133.8 %
Segment Profit (Loss) Percentage 4.8 % (14.0 )% 18.8 % 134.3 %

~~First Nine Months of 2017 Compared to First Nine Months of 2016~~

Rail Products and Services segment sales decreased $764, or 0.4%, compared to the prior year period. The reduction in sales is primarily related to a decrease in our domestic businesses of $5,956, or 4.3%. The sales declines were primarily volume driven by the domestic freight rail and transit markets. Our domestic rail distribution business was unfavorably impacted by both volume and pricing compared to the prior year period. The sales decrease was partially offset by sales increases in our foreign divisions of $5,192, or 10.6%, as we saw favorable results in both our Canadian and European markets.

The Rail Products and Services segment profit increased by $35,412 to 4.8% of net sales. The increase was primarily attributable to a reduction in selling, administrative, and allocated expenses of $4,430, or 13.9%, and the 2016 impairment charges of $32,725 related to Rail Technologies goodwill. This was partially offset by a decline in non-GAAP gross profit of $2,011, or 4.9%, which was primarily related to volume reductions and product mix within domestic transit products, as well as service related cost increases in our domestic Rail Technologies business.

During the current year, the Rail Products and Services segment had an increase in new orders of 28.9% compared to the prior year period. The increase impacted each of the three business units within the segment and grew the backlog balance to $85,764 at September 30, 2017, a 60.6% increase over the prior year. The Company is also encouraged by positive signs from order activity and resulting backlog during the first nine months of 2017.

~~Construction Products~~

Nine Months Ended
September 30, Increase Percent
Increase
2017 2016 2017 vs. 2016 2017 vs. 2016
Net Sales $ 121,905
$ 107,098
$ 14,807
13.8 %
Segment Profit $ 9,156
$ 5,748
$ 3,408
59.3 %
Segment Profit Percentage 7.5 % 5.4 % 2.1 % 38.9 %

~~First Nine Months of 2017 Compared to First Nine Months of 2016~~

Construction Products segment sales increased by $14,807, or 13.8%, compared to the prior year period. The increase related to Fabricated Bridge and Piling businesses of $9,428 and $7,112, respectively. Fabricated Bridge continued to have favorable sales in the current year due to several projects, including the continuation of the Peace Bridge project. The increase in Piling was primarily due to demand within the sheet piling product line. These increases were offset by a reduction in Precast Concrete Products sales of $1,733.

The Construction Products segment profit increased by $3,408 to 7.5% of net sales. The increase related to reductions in selling, administrative, and allocated expenses of $947, or 6.4%. Non-GAAP gross profit increased $2,462, or 11.9%, which was primarily due to the increased volumes from the Fabricated Bridge and Piling businesses within the period.

During the period, the Construction Products segment had a decrease in new orders of 8.7% compared to the prior year period. Prior year Fabricated Bridge orders included the $15,000 Peace Bridge project. Piling saw a 6.3% reduction in new orders compared to the prior year from recent declines in sheet piling demand. The Precast Concrete Products business saw an increase in new orders of 10.7% primarily from building orders from state agencies. The Construction Products segment had backlog at September 30, 2017 of $74,910, a 1.1% decrease over the prior year.

~~Tubular and Energy Services~~

Nine Months Ended
September 30, Increase Percent
Increase
2017 2016 2017 vs. 2016 2017 vs. 2016
Net Sales $ 85,227
$ 81,164
$ 4,063
5.0 %
Segment Profit (Loss) $ 1,774
$ (111,876 ) $ 113,650
101.6 %
Segment Profit (Loss) Percentage 2.1 % (137.8 )% 139.9 % 101.5 %

~~First Nine Months of 2017 Compared to First Nine Months of 2016~~

Tubular and Energy Services segment sales increased $4,063, or 5.0%, compared to the prior year period. The increase related to growth from Test and Inspection Services and Protective Coating businesses, partially offset by a decrease in Precision Measurement Systems. The period showed increased new well count and demand within the upstream oil and gas market, but was negatively impacted by a lag in the recovery of Precision Measurement Systems for midstream applications.

Tubular and Energy Services segment profit increases by $113,650, or 101.6%, compared to the prior year period. The period was favorably impacted by a reduction in amortization expense of $2,401 from the 2016 definite-lived intangible asset impairment. The prior period was also negatively affected by impairment charges of $103,159 for the nine months ended September 30, 2016. Segment profit was also favorably impacted by a non-GAAP gross profit increase of $6,910, or 77.4%.

The Tubular and Energy Services segment had an increase in new orders of 47.6% compared to the prior year period. Orders for Protective Coatings and Test and Inspection Services businesses increased by 151.2% and 107.5%, respectively. The upstream oil and gas market continued its recovery. We are also encouraged by positive trends in midstream order activity as we ended the nine-month period.

On July 31, 2017, the lease at our Birmingham, Alabama facility expired. During the third quarter ended September 30, 2017, 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.

Other

Segment Backlog

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


						Backlog
						June 30, 2018						December 31, 2017						June 30, 2017
Rail Products and Services						$	126,856					$	68,850					$	78,460
Construction Products						82,405						71,318						75,540
Tubular and Energy Services						21,991						26,737						22,023
Total Backlog						$	231,252					$	166,905					$	176,023

Backlog
September 30,
2017 December 31,
2016 September 30,
2016
Rail Products and Services $ 85,764
$ 62,743
$ 53,392
Construction Products 74,910
71,954
75,762
Tubular and Energy Services 28,931
12,759
14,650
Total Backlog $ 189,605
$ 147,456
$ 143,804

While a considerable portion of our business is backlog-driven, certain product lines within the Rail Products and Services and Tubular and Energy Services segments are not driven by backlog and therefore have insignificant levels throughout the year.

Warranty

As of ~~September~~June 30, ~~2017,~~2018, the Company maintained a total product warranty reserve of ~~$9,614~~$8,705 for its estimate of all potential product warranty claims. Of this total, ~~$7,607~~$7,668 reflects the current estimate of the Company’s exposure for potential concrete tie warranty claims. While the Company believes this is a reasonable estimate of its potential exposure related to identified concrete tie warranty matters, the Company may incur future charges associated with new customer claims or further development of information of existing customer claims. Thus, there can be no assurance that future potential costs pertaining to warranty claims will not have a material impact on the Company’s results of operations and financial condition. See Note 1314. Commitments and Contingent Liabilities of the Notes to Condensed Consolidated Financial Statements contained in this Quarterly Report on Form 10-Q for additional information.

Liquidity and Capital Resources

Total debt was ~~$138,285~~$99,037 and ~~$159,565~~$129,966 as of ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016,~~2017, respectively, and was primarily comprised of borrowings onunder our revolving credit ~~facility and term loan.~~facility.

Our need for liquidity relates primarily to working capital requirements for operations, capital expenditures, joint venture capital obligations, and debt service ~~obligations, and share repurchases as authorized by the Board of Directors and as permitted under the Second Amended and Restated Credit Agreement dated March 13, 2015.~~obligations.

The change in cash and cash equivalents for the periods ended ~~September~~June 30 are as follows:


						June 30,
						2018						2017
Net cash provided by operating activities						$	7,902					$	29,921
Net cash provided by (used in) investing activities						270						(4,454)
Net cash used by financing activities						(31,240)						(21,678)
Effect of exchange rate changes on cash and cash equivalents						(1,339)						1,305
Net (decrease) increase in cash and cash equivalents						$	(24,407)					$	5,094

September 30,
2017 2016
Net cash provided by operating activities $ 27,516
$ 11,876
Net cash used by investing activities (3,947 ) (6,219 )
Net cash used by financing activities (21,384 ) (35,470 )
Effect of exchange rate changes on cash and cash equivalents 2,460
152
Net increase (decrease) in cash and cash equivalents $ 4,645
$ (29,661 )

Cash Flow from Operating Activities

During the current ~~2017 nine-month~~2018 six-month period, cash flows provided by operating activities were ~~$27,516~~$7,902 compared to ~~$11,876~~$29,921 during the prior year period. For the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, income and adjustments to income from operating activities provided ~~$18,985~~$13,211 compared to ~~$15,976~~$11,053 in the ~~2016~~2017 period. Working capital and other assets and liabilities ~~provided $8,531~~used $5,309 in the current period compared to ~~a use of $4,100~~providing $18,868 in the prior year period. The decline in cash flows provided by operating activities is primarily a result of the increase in accounts receivable of $10,109 from the increased sales level and inventory of $4,051 due to our stronger anticipated revenue outlook for the second half of 2018. During the ~~nine~~six months ended ~~September~~June 30, 2017, the Company received ~~$9,946 and $1,827~~$11,773 from ~~our~~its 2016 and 2015 ~~federal income~~ tax ~~refunds, respectively.~~refunds.

The Company’s calculation for days sales outstanding at ~~September~~June 30, ~~2017~~2018 was 5046 days compared to 5350 days at December 31, 2017, and we believe our receivables portfolio is strong.

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Cash Flow from Investing Activities

Capital expenditures for the ~~nine~~six months ended ~~September~~June 30, 2018 and 2017 were $1,816 and ~~2016 were $5,335 and $6,507,~~$4,597, respectively. The current year expenditures relate to ~~trackside rail lubricator units installed as part of a new multi-year service contract and~~ general plant and operational improvements. Expenditures for the ~~nine~~six months ended ~~September~~June 30, ~~2016~~2017 related to expenditures for rail assets installed as part of a new long-term service contract and, to a lesser extent, general plant and operational improvements. During the ~~Birmingham, AL inside diameter coating line upgrade and application development of the Company’s new enterprise resource planning system. During nine~~six months ended ~~September~~June 30, ~~2017,~~2018, the Company received ~~$1,388~~$2,086 in proceeds from the sale of certain property, plant, and equipment as compared to ~~$923~~$143 in the prior year period. ~~The Company also loaned $635 to our joint venture, L B Pipe & Coupling Products, LLC (“L B Pipe JV”), as of September 30, 2016.~~

Cash Flow from Financing Activities

During the ~~nine~~six months ended ~~September~~June 30, 2018, the Company had a decrease in outstanding debt of $30,930, primarily related to payments against the revolving credit facility. This reduction of debt was facilitated by the repatriation of $24,693 in excess cash from our international locations. During the six months ended June 30, 2017, the Company had a decrease in outstanding debt of $21,281, primarily related to payments against the revolving credit facility as well as the application of the $9,946 federal income tax refund and quarterly principle payments against the term loan. During the nine months ended September 30, 2016, the Company had a decrease in outstanding debt of $33,125,$21,581, primarily related to payments against the revolving credit facility. Treasury stock acquisitions represent income tax withholdings from employees in connection with the vesting of restricted stock awards. ~~Cash outflows related to dividends were $1,244 for the nine-month periods ended September 30, 2016.~~

Financial Condition

As of ~~September~~June 30, ~~2017,~~2018, we had ~~$35,008~~$13,271 in cash and cash equivalents and a domestic credit facility with ~~$46,081~~$71,708 of net availability while we had ~~$138,285~~$99,037 in total debt. We believe this liquidity will provide the flexibility to operate the business in a prudent manner and enable us to continue to service our revolving credit ~~facility and term loan.~~facility.

Our cash management priority continues to be short-term maturities and the preservation of our principal balances. Approximately ~~$33,976~~$12,408 of our cash and cash equivalents was held in non-domestic bank ~~accounts, and, under current law, the foreign cash would be subject to U.S. federal income taxes less applicable foreign tax credits upon repatriation.~~accounts.

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 provided for additional term loan borrowings of $30,000 (the “Term Loan”). ~~The Term Loan is subject to quarterly straight line amortization until fully~~During 2017, the Company paid off ~~upon~~ the ~~final payment on January 1, 2020. Furthermore, certain matters, including excess cash flow, asset sales, and equity issuances, trigger mandatory prepayments to~~balance of the Term Loan. ~~Term Loan borrowings are not available to draw upon once they have been repaid.~~ 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 provided 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~~ended 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 must be at least $18,500. For each quarter thereafter, through the quarter ~~ending~~ended June 30, 2018, the Minimum EBITDA requirement will increase by various increments. ~~The incremental Minimum EBITDA requirement for the period ending September 30, 2017 must be at least $23,000.~~ During the ~~third~~second quarter ended ~~September~~June 30, ~~2017,~~2018, the rolling 12-month EBITDA calculation, as defined by the Amended and Restated Credit Agreement, was ~~$32,063.~~$41,515. At June 30, 2018, the Minimum EBITDA requirement will be $31,000. After the quarter ~~ending~~ended June 30, 2018, the Minimum EBITDA covenant ~~will be~~was eliminated through the ~~maturity~~remainder of the Amended and Restated 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 ~~ending~~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~~ended June 30, 2018.

The Second Amendment includes several changes to certain non-financial covenants, as defined in the Amended and Restated Credit Agreement. Through the maturity date of the loan, the Company is now prohibited from making any future acquisitions. The limitation on permitted annual distributions of dividends or redemptions of the Company’s stock was 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.

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The Second Amendment provided 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~~ended 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.

To reduce the impact of interest rate changes on outstanding variable-rate debt, the Company entered into forward starting LIBOR-based interest rate swaps with notional values totaling $50,000. The swaps became effective on February 28, 2017 at which point they effectively convert a portion of the debt from variable to fixed-rate borrowings during the term of the swap contract. At ~~September~~June 30, ~~2017,~~2018, the swap ~~liability~~asset was ~~$323~~$1,263 compared to ~~$334~~$222 as of December 31, ~~2016.~~2017.

~~Cost in Excess of Net Assets Acquired~~

At September 30, 2017, L.B. Foster had $19,699 of goodwill on its consolidated balance sheet. Of the total, $14,552 related to the Rail Products and Services segment and $5,147 related to the Construction Products segment. Goodwill is reviewed annually in the fourth quarter of each year for impairment or more frequently if impairment indicators arise. 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, we do not believe that it is more-likely-than-not that the fair values of these reporting units have decreased below their carrying values at September 30, 2017. Consequently, management concluded that none of the Company’s reporting units experienced any triggering event that would have required a step one interim goodwill impairment analysis at September 30, 2017. However, the previously recorded partial impairment included assumptions for certain market recoveries throughout the years ending December 31, 2017 and 2018, if these recoveries do not fully develop, the Rail Products and Services segment may require an incremental goodwill impairment.

Critical Accounting Policies

The Condensed Consolidated Financial Statements have been prepared in conformity with accounting principles generally accepted in the United States. When more than one accounting principle, or method of its application, is generally accepted, management selects the principle or method that, in its opinion, is appropriate in the Company’s specific circumstances. Application of these accounting principles requires management to reach opinions regarding estimates about the future resolution of existing uncertainties. As a result, actual results could differ from these estimates. In preparing these financial statements, management has reached its opinions regarding the best estimates and judgments of the amounts and disclosures included in the financial statements giving due regard to materiality. ~~There~~We have ~~been no material changes in the Company’s critical accounting~~updated our revenue recognition policies ~~or estimates~~ since December 31, ~~2016.~~2017, in conjunction with our adoption of Accounting Standards Codification 606, “Revenue from Contracts with Customers” (“ASC 606”) as further described in Note 3. Revenue of the Notes to Condensed Consolidated Financial Statements contained in this Quarterly Report on Form 10-Q. A summary of the Company’s critical accounting policies and estimates is included in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies and Estimates in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2017.

Off-Balance Sheet Arrangements

The Company’s off-balance sheet arrangements include operating leases, purchase obligations, and standby letters of credit. A schedule of the Company’s required payments under financial instruments and other commitments as of December 31, ~~2016~~2017 is included in ~~the “Liquidity~~Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital ~~Resources” section~~Resources - Tabular Disclosure of Contractual Obligations in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2017. There were no material changes to these off-balance sheet arrangements during the current quarter. These arrangements provide the Company with increased flexibility relative to the utilization and investment of cash resources.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Interest Rate Risk

The Company is exposed to risks that increases in interest rates 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 variable to a fixed-rate borrowing during the term of the swap contracts. See Note 910. Fair Value Measurements of the Notes to Condensed Consolidated Financial Statements contained in this Quarterly Report on Form 10-Q for additional information.

For the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, a 1% change in the interest rate for variable rate debt as of ~~September~~June 30, ~~2017~~2018 would increase or decrease interest expense by approximately ~~$1,069.~~$618.

The Company does not purchase or hold any derivative financial instruments for trading purposes. It does enter into interest rate hedges to reduce the risk in the variability of interest rate fluctuations. 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 the value of the interest rate being hedged, the ineffective portion is recognized in earnings immediately.

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As of ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016,~~2017, the Company recorded a current ~~liability~~asset of ~~$323~~$1,263 and ~~$334,~~$222, respectively, related to its LIBOR-based interest rate swap agreements.

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 ~~nine-month~~six-month periods ended ~~September~~June 30, ~~2017~~2018 and ~~2016.~~2017.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

L.B. Foster Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of ~~September~~June 30, ~~2017.~~2018. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective such that the information required to be disclosed by the Company in reports filed under the Exchange Act is (i) recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to management, including the chief executive officer, chief financial officer, or person performing such functions, as appropriate to allow timely decisions regarding disclosure.

Changes in Internal Control Over Financial Reporting

On January 1, 2018, the Company adopted the standards of Accounting Standards Codification 606, “Revenue from Contracts with Customers” (“ASC 606”). The adoption of ASC 606 had an immaterial effect on our financial statements, but required the Company to implement changes to our processes related to revenue recognition and the control activities within them. This included the development of new policies and procedures based on the five-step model provided in ASC 606, ongoing contract review processes, and implementation of processes to obtain information to the new disclosure requirements. There were no other changes into our “internal control over financial reporting” (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. The Company is currently evaluating the impact that Accounting Standards Update 2014-09, "Revenue from Contracts with Customers (Topic 606)" will have on our internal control over financial reporting at the January 1, 2018 adoption date.

Limitations on Effectiveness of Controls and Procedures

In designing and evaluating the disclosure controls and procedures and internal control over financial reporting, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures and internal control over financial reporting must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.

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Table of Contents

PART II. OTHER INFORMATION

(Dollars in thousands, except share data)

Item 1. Legal Proceedings

See Note 1314. Commitments and Contingent Liabilities of the Notes to Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q, which is incorporated herein by reference.

Item 1A. Risk Factors

~~There~~Other than discussed below, there have been no material changes in our risk factors from those disclosed in our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2017. You should carefully consider the factors discussed in Part I, Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, ~~2016,~~2017, as filed with the SEC on ~~March 8, 2017,~~February 28, 2018, which could materially affect our business, financial condition, financial results, or future performance. The risks described in our Annual Report on Form 10-K and quarterly reports on Form 10-Q are not the only risks facing the Company. Additional risks and uncertainties not currently known or that we currently deem to be immaterial may also materially affect our business, financial condition, and/or results of operations. Our earnings and sales could be affected by changes to international trade agreements in North America and elsewhere, including potential increases of import tariffs. Changes in government policies in these areas might cause an increase or decrease in our sales, operating margin, and net earnings.

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. The steps we take to deter and mitigate these risks 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. 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 adopting 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 and the United Kingdom which are, in some respects, more stringent than U.S. standards, could be significant. Any compromise or breach of our security 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.

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

The Company’s ~~purchases of~~did not purchase equity securities for the three months ended ~~September~~June 30, ~~2017 were as follows:~~2018.

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
July 1, 2017 - July 31, 2017 —
$ —
—
$ 29,933
August 1, 2017 - August 31, 2017 324
18.40
—
29,933
September 1, 2017 - September 30, 2017 —
—
—
29,933
Total 324
$ 18.40
—
$ 29,933


~~(1)~~	~~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.~~

~~(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. 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 September 30, 2017, there were no share repurchases as part of the authorized program.

Item 4. Mine Safety Disclosures

This item is not applicable to the Company.

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Item 6. Exhibits

See Exhibit Index below.

Exhibit Index


Exhibit Number						Description

~~Exhibit Number~~				~~Description~~

*10.1				~~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 Company is incorporated herein by reference to Exhibit 10.1 to the Current Report on Form 8-K/A filed on November 8, 2016, File No. 0-10436.

~~10.2~~		~~Deferred Compensation Plan for Non-Employee Directors under the~~ 2006 Omnibus Incentive ~~Plan.~~Plan, effective as of May 24, 2018.

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

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

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

*101.INS						XBRL Instance ~~Document.~~Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

*101.SCH						XBRL Taxonomy Extension Schema Document.

*101.CAL						XBRL Taxonomy Extension Calculation Linkbase Document.

*101.DEF						XBRL Taxonomy Extension Definition Linkbase Document.

*101.LAB						XBRL Taxonomy Extension Label Linkbase Document.

*101.PRE						XBRL Taxonomy Extension Presentation Linkbase Document.



*			Exhibits marked with an asterisk are filed herewith.

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

L.B. FOSTER COMPANY

(Registrant)

Date:

~~November 8, 2017~~July 31, 2018

By: /s/ James P. Maloney

James P. Maloney

Senior Vice President,

Chief Financial Officer, and Treasurer

(Duly Authorized Officer of Registrant)

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