# Foster L B Co: Form 10-Q for the period ended Jun 30, 2019

- Company: [Foster L B Co](/companies/fstr.md) (CIK 352825)
- Form: 10-Q
- Filed: 2019-07-31
- Accepted by EDGAR: Jul 31, 2019, 11:45 ET
- Period: 2019-06-30
- Accession: 0000352825-19-000037
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/352825/000035282519000037/fstr-20190630.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/352825/000035282519000037/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2019-06-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2019-04-01 to 2019-06-30 | $200.9m | us-gaap:RevenueFromContractWithCustomerIncludingAssessedTax |
| Revenue | 6 months, 2019-01-01 to 2019-06-30 | $351.4m | us-gaap:RevenueFromContractWithCustomerIncludingAssessedTax |
| Cost of revenue | 3 months, 2019-04-01 to 2019-06-30 | $163.8m | us-gaap:CostOfRevenue |
| Cost of revenue | 6 months, 2019-01-01 to 2019-06-30 | $285.1m | us-gaap:CostOfRevenue |
| Gross profit | 3 months, 2019-04-01 to 2019-06-30 | $37.1m | us-gaap:GrossProfit |
| Gross profit | 6 months, 2019-01-01 to 2019-06-30 | $66.3m | us-gaap:GrossProfit |
| Selling, general and administrative | 3 months, 2019-04-01 to 2019-06-30 | $22.9m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 6 months, 2019-01-01 to 2019-06-30 | $44.8m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2019-04-01 to 2019-06-30 | $16.4m | us-gaap:OperatingIncomeLoss |
| Operating income | 6 months, 2019-01-01 to 2019-06-30 | $25.4m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2019-04-01 to 2019-06-30 | $1.7m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 6 months, 2019-01-01 to 2019-06-30 | $2.3m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2019-04-01 to 2019-06-30 | $9.6m | us-gaap:NetIncomeLoss |
| Net income | 6 months, 2019-01-01 to 2019-06-30 | $13.3m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2019-04-01 to 2019-06-30 | $0.90 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 6 months, 2019-01-01 to 2019-06-30 | $1.25 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2019-04-01 to 2019-06-30 | $0.92 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 6 months, 2019-01-01 to 2019-06-30 | $1.27 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2019-04-01 to 2019-06-30 | 10,642,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 6 months, 2019-01-01 to 2019-06-30 | 10,598,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 6 months, 2019-01-01 to 2019-06-30 | −$9.4m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 6 months, 2019-01-01 to 2019-06-30 | $3.8m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Share repurchases | 6 months, 2019-01-01 to 2019-06-30 | $591.0k | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2019-06-30 | $12.0m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2019-06-30 | $252.1m | us-gaap:AssetsCurrent |
| Total assets | at 2019-06-30 | $416.8m | us-gaap:Assets |
| Current liabilities | at 2019-06-30 | $123.6m | us-gaap:LiabilitiesCurrent |
| Shareholders' equity | at 2019-06-30 | $136.2m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 33,628 characters.

### (Dollars in thousands, except share data)

### Forward-Looking Statements

*This Quarterly Report on Form 10-Q contains “forward-looking” statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended. Many of the forward-looking statements are located in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (“MD&A”). Forward-looking statements provide management's current expectations of future events based on certain assumptions and include any statement that does not directly relate to any historical or current fact. Sentences containing words such as “believe,” “intend,” “plan,” “may,” “expect,” “should,” “could,” “anticipate,” “estimate,” “predict,” “project,” or their negatives, or other similar expressions of a future or forward-looking nature generally should be considered forward-looking statements. Forward-looking statements in this Quarterly Report on Form 10-Q are based on current expectations and assumptions about future events that involve inherent risks and uncertainties and may concern, among other things, L.B. Foster Company’s (the “Company’s”) expectations relating to our strategy, goals, projections, and plans regarding our financial position, liquidity, capital resources, and results of operations; the outcome of litigation and product warranty claims; decisions regarding our strategic growth initiatives, market position, and product development. While the Company considers these expectations and assumptions to be reasonable, they are inherently subject to significant business, economic, competitive, regulatory, and other risks and uncertainties, most of which are difficult to predict and many of which are beyond the Company’s control. The Company cautions readers that various factors could cause the actual results of the Company to differ materially from those indicated by forward-looking statements. Accordingly, investors should not place undue reliance on forward-looking statements as a prediction of actual results. Among the factors that could cause the actual results to differ materially from those indicated in the forward-looking statements are risks and uncertainties related to: environmental matters, including any costs associated with any remediation and monitoring; a resumption of the economic slowdown we experienced in previous 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 or the terms of any new credit agreement, and reforms regarding the use of LIBOR as a benchmark for establishing applicable interest rates; the Company’s ability to manage its working capital requirements and indebtedness; domestic and international taxes, including estimates that may impact these amounts; foreign currency fluctuations; inflation; domestic and foreign government regulations, including tariffs; economic conditions and regulatory changes caused by the United Kingdom’s pending exit from the European Union, including the possibility of a “no-deal Brexit;” sustained declines in energy prices; a lack of state or federal funding for new infrastructure projects; an increase in manufacturing or material costs; the loss of future revenues from current customers; and risks inherent in litigation. Should one or more of these risks or uncertainties materialize, or should the assumptions underlying the forward-looking statements prove incorrect, actual outcomes could vary materially from those indicated. Significant risks and uncertainties that may affect the operations, performance, and results of the Company’s business and forward-looking statements include, but are not limited to, those set forth under Item 1A, “Risk Factors,” and elsewhere in our Annual Report on Form 10-K for the year ended December 31, 2018, or as updated and amended by Item 1A “Risk Factors,” in Part II of our Quarterly Reports on Form 10-Q filed 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 transportation and energy infrastructure with locations in North America and Europe. The Company is comprised of three operating segments: Rail Products and Services, Construction Products, and Tubular and Energy Services.

### Results of the Quarter

| Net Sales: | Three Months Ended June 30, 2019 2018 | Percent Increase/ (Decrease) 2019 vs. 2018 | Percent of Total Net Sales Three Months Ended June 30, 2019 2018 |
| --- | ---: | ---: | ---: |
| Rail Products and Services | $101,401 $91,884 | 10.4% | 50.5% 53.1% |
| Construction Products | 55,406 42,207 | 31.3 | 27.6 24.4 |
| Tubular and Energy Services | 44,126 38,799 | 13.7 | 21.9 22.5 |
| Total net sales | $200,933 $172,890 | 16.2% | 100.0% 100.0% |
|  | Three Months Ended June 30, | Percent Increase/ (Decrease) | Gross Profit Percentage Three Months Ended June 30, |
|  | 2019 2018 | 2019 vs. 2018 | 2019 2018 |
| Gross Profit: |  |  |  |
| Rail Products and Services | $18,930 $16,393 | 15.5% | 18.7% 17.8% |
| Construction Products | 7,895 7,042 | 12.1 | 14.2 16.7 |
| Tubular and Energy Services | 10,303 9,628 | 7.0 | 23.3 24.8 |
| Total gross profit | $37,128 $33,063 | 12.3% | 18.5% 19.1% |
|  | Three Months Ended June 30, | Percent Increase/ (Decrease) | Percent of Total Net Sales Three Months Ended June 30, |
|  | 2019 2018 | 2019 vs. 2018 | 2019 2018 |
| Expenses: |  |  |  |
| Selling and administrative expenses | $22,855 $23,368 | (2.2)% | 11.4% 13.5% |
| Amortization expense | 1,679 1,775 | (5.4) | 0.8 1.0 |
| Interest expense - net | 1,597 1,630 | (2.0) | 0.8 0.9 |
| Other (income) expense - net | (252) 128 | \*\* | (0.1) 0.1 |
| Total expenses | $25,879 $26,901 | (3.8)% | 12.9% 15.6% |
| Income before income taxes | $11,249 $6,162 | 82.6% | 5.6% 3.6% |
| Income tax expense | 1,685 728 | 131.5 | 0.8 0.4 |
| Net income | $9,564 $5,434 | 76.0% | 4.8% 3.1% |

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

### Second Quarter 2019 Compared to Second Quarter 2018 – Company Analysis

Net sales of $200,933 for the three months ended June 30, 2019 increased by $28,043, or 16.2%, compared to the prior year quarter. The change was attributable to increases within each of our three segments. Construction Products sales increased by 31.3%, Tubular and Energy Services sales increased by 13.7%, and Rail Products and Services sales increased by 10.4%.

Gross profit increased by $4,065 compared to the prior year quarter to $37,128 for the three months ended June 30, 2019. Gross profit margin for the three months ended June 30, 2019 was 18.5%, or 60 basis points (“bps”) lower than the prior year quarter. The decrease in gross profit margin was primarily due to reductions of 250 bps and 150 bps within Construction Products and Tubular and Energy Services, respectively. The decreases were partially offset by an increase in gross profit margin of 90 bps within Rail Products and Services.

Selling and administrative expenses decreased by $513, or 2.2%, compared to the prior year quarter. The reduction was primarily driven by decreases in legal expenses of $2,007 related to the Union Pacific Railroad concrete tie litigation, which was partially offset by an increase of an aggregate of $1,288 related to third-party services, bad debt, and insurance expenses. As a percent of sales, selling and administrative expenses declined 210 bps compared to the prior year period.

The Company’s effective income tax rate for the three months ended June 30, 2019 was 15.0%, compared to 11.8% in the prior year quarter. For the three months ended June 30, 2019, the Company recorded a tax provision of $1,685, compared to $728 in the three months ended June 30, 2018. The Company's effective tax rate for the three months ended June 30, 2019 differed from the federal statutory rate of 21% primarily due to the realization of a portion of its U.S. deferred tax assets previously offset by a valuation allowance.

Net income for the second quarter of 2019 was $9,564, or $0.90 per diluted share, compared to $5,434, or $0.52 per diluted share, in the prior year quarter.

### Results of Operations – Segment Analysis

### Rail Products and Services

|  | Three Months Ended June 30, 2019 | 2018 | Increase 2019 vs. 2018 | Percent Increase 2019 vs. 2018 |
| --- | ---: | ---: | ---: | ---: |
| Net sales | $101,401 | $91,884 | $9,517 | 10.4% |
| Gross profit | $18,930 | $16,393 | $2,537 | 15.5% |
| Gross profit percentage | 18.7% | 17.8% | 0.9% | 4.6% |
| Segment profit | $7,919 | $5,308 | $2,611 | 49.2% |
| Segment profit percentage | 7.8% | 5.8% | 2.0% | 35.2% |

#### Second Quarter 2019 Compared to Second Quarter 2018

The Rail Products and Services segment sales increased by $9,517, or 10.4%, compared to the prior year quarter. The sales growth was driven by volume in our Rail Products business resulting in an increase of $13,658 primarily from our new rail, insulated joint, and domestic transit products. The increase was partially offset by a reduction of $4,141 in our Rail Technologies business, primarily attributable to reduced activity levels from the London Crossrail project as it nears completion.

The Rail Products and Services gross profit increased by $2,537, or 15.5%, over the prior year quarter. The increase was driven by volume growth in our Rail Products business. Segment gross profit margin grew by 90 bps as a result of the increased product mix contribution from our higher margin manufactured and service based offerings. Segment profit was $7,919, a $2,611 increase over the prior year quarter. Selling and administrative expenses incurred by the segment were flat to the prior year quarter and as a percent of sales were reduced 110 bps as the segment continued its focus on cost containment while increasing sales volume.

During the current quarter, the Rail Products and Services segment had a decrease in new orders of 32.9% compared to the prior year period. The decrease was primarily related to activity within our new rail distribution products.

### Construction Products

|  | Three Months Ended June 30, 2019 | 2018 | Increase/(Decrease) 2019 vs. 2018 | Percent Increase/(Decrease) 2019 vs. 2018 |
| --- | ---: | ---: | ---: | ---: |
| Net sales | $55,406 | $42,207 | $13,199 | 31.3% |
| Gross profit | $7,895 | $7,042 | $853 | 12.1% |
| Gross profit percentage | 14.2% | 16.7% | (2.5)% | (14.6)% |
| Segment profit | $3,413 | $2,857 | $556 | 19.5% |
| Segment profit percentage | 6.2% | 6.8% | (0.6)% | (9.0)% |

#### Second Quarter 2019 Compared to Second Quarter 2018

The Construction Products segment sales increased by $13,199, or 31.3%, compared to the prior year quarter. The growth was attributable to volume increases in both Piling and Fabricated Bridge and Precast Concrete Products resulting in sales increases of $11,742 and $1,457, respectively. Piling continued product fulfillment during the current quarter attributable to a significant 2018 order, while Fabricated Bridge experienced increased volume within its steel decking and railing product lines. Our Precast Concrete Products business unit was favorably impacted by concrete building sales driven from municipalities while demand from federal and state agencies declined.

The Construction Products gross profit increased $853, or 12.1%, over the prior year quarter. The increase was primarily attributable to the sales volume growth within our Piling division and was partially offset by a reduction in Precast Concrete Products. Segment profit increased by $556 over the prior year quarter to 6.2% of net sales. Selling and administrative expenses incurred by the segment increased by $300 over the prior year quarter; however, the expenses were reduced by 180 bps as a percentage of segment sales compared to the prior year quarter.

During the quarter, the Construction Products segment had an increase in new orders of 13.0% compared to the prior year quarter, which was primarily related to the Piling and Precast Concrete Products divisions.

### Tubular and Energy Services

|  | Three Months Ended June 30, 2019 | 2018 | Increase/(Decrease) 2019 vs. 2018 | Percent Increase/(Decrease) 2019 vs. 2018 |
| --- | ---: | ---: | ---: | ---: |
| Net sales | $44,126 | $38,799 | $5,327 | 13.7% |
| Gross profit | $10,303 | $9,628 | $675 | 7.0% |
| Gross profit percentage | 23.3% | 24.8% | (1.5)% | (5.9)% |
| Segment profit | $5,019 | $4,545 | $474 | 10.4% |
| Segment profit percentage | 11.4% | 11.7% | (0.3)% | (2.9)% |

#### Second Quarter 2019 Compared to Second Quarter 2018

Tubular and Energy Services segment sales increased by $5,327, or 13.7%, compared to the prior year period. The increase was due to improvements primarily from Protective Coatings and Measurement Systems when compared to the prior year quarter. This was additionally supported by strong orders within the midstream market during the current quarter.

Tubular and Energy Services segment gross profit increased by $675, or 7.0%, which was supported by the sales growth in Protective Coatings and Measurement Systems. Segment gross profit margin decreased by 150 bps over the prior year quarter which was primarily driven by reduced volume within the Test, Inspection, and Threading Services business. Segment profit increased by $474, or 10.4%, over the prior year quarter. Selling and administrative expense increased by $754, which included a bad debt charge of $381 during the second quarter of 2019.

The Tubular and Energy Services segment had an increase of 31.5% in new orders compared to the prior year quarter. Orders for Protective Coatings and Measurement Systems increased by 68.4%, which was partially offset by a reduction in Test, Inspection, and Threading Services of 10.3%. The Company is encouraged with the continued growth of new orders within the segment, specifically related to the midstream market.

### Six Month Results

| Net Sales: | Six Months Ended June 30, 2019 2018 | Percent Increase/ (Decrease) 2019 vs. 2018 | Percent of Total Net Sales Six Months Ended June 30, 2019 2018 |
| --- | ---: | ---: | ---: |
| Rail Products and Services | $177,095 $154,054 | 15.0% | 50.4% 52.2% |
| Construction Products | 92,751 71,107 | 30.4 | 26.4 24.1 |
| Tubular and Energy Services | 81,556 70,183 | 16.2 | 23.2 23.7 |
| Total net sales | $351,402 $295,344 | 19.0% | 100.0% 100.0% |
|  | Six Months Ended June 30, | Percent Increase/ (Decrease) | Gross Profit Percentage Six Months Ended June 30, |
|  | 2019 2018 | 2019 vs. 2018 | 2019 2018 |
| Gross Profit: |  |  |  |
| Rail Products and Services | $33,167 $28,317 | 17.1% | 18.7% 18.4% |
| Construction Products | 13,467 11,074 | 21.6 | 14.5 15.6 |
| Tubular and Energy Services | 19,656 15,864 | 23.9 | 24.1 22.6 |
| Total gross profit | $66,290 $55,255 | 20.0% | 18.9% 18.7% |
|  | Six Months Ended June 30, | Percent Increase/ (Decrease) | Percent of Total Net Sales Six Months Ended June 30, |
|  | 2019 2018 | 2019 vs. 2018 | 2019 2018 |
| Expenses: |  |  |  |
| Selling and administrative expenses | $44,772 $43,826 | 2.2% | 12.7% 14.8% |
| Amortization expense | 3,391 3,560 | (4.7) | 1.0 1.2 |
| Interest expense | 2,952 3,517 | (16.1) | 0.8 1.2 |
| Other income - net | (402) (477) | 15.7 | (0.1) (0.2) |
| Total expenses | $50,713 $50,426 | 0.6% | 14.4% 17.1% |
| Income before income taxes | $15,577 $4,829 | 222.6% | 4.4% 1.6% |
| Income tax expense | 2,323 1,253 | 85.4 | 0.7 0.4 |
| Net income | $13,254 $3,576 | \*\* | 3.8% 1.2% |

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

### First Six Months 2019 Compared to First Six Months 2018 – Company Analysis

Net sales of $351,402 for the six months ended June 30, 2019 increased by $56,058, or 19.0%, compared to the prior year period. The change was attributable to increases within each of our three segments. Construction Products sales increased by 30.4%, Tubular and Energy Services sales increased by 16.2%, and Rail Products and Services sales increased by 15.0%.

Gross profit increased by $11,035 compared to the prior year period to $66,290 for the six months ended June 30, 2019. Gross profit margin for the six months ended June 30, 2019 was 18.9%, or 20 bps higher than the prior year period. The rise in gross profit margin was primarily due to increases of 150 bps and 30 bps within Tubular and Energy Services and Rail Products and Services, respectively. The increase was partially offset by a decrease in gross profit margin of 110 bps within the Construction Products segment.

Selling and administrative expenses increased by $946 or 2.2% from the prior year. The escalation was primarily driven by increases in personnel-related expenses of $1,544, third-party services of $1,099, and bad debt of $823. The increase was partially offset by a reduction in legal expenses related to the Union Pacific Railroad concrete tie litigation of $3,467. As a percent of sales, selling and administrative expenses declined by 210 bps compared to the prior year period.

Interest expense, net of interest income, decreased by $565, or 16.1%, as a result of the reduction in outstanding debt compared to the prior year period.

The Company’s effective income tax rate for the six months ended June 30, 2019 was 14.9%, compared to 25.9% in the prior year period. For the six months ended June 30, 2019, the Company recorded a tax provision of $2,323, compared to $1,253 in the six months ended June 30, 2018. The Company's effective tax rate for the six months ended June 30, 2019 differed from the federal statutory rate of 21% primarily due to the realization of a portion of its U.S. deferred tax assets previously offset by a valuation allowance.

Net income for the six months ended June 30, 2018 was $13,254, or $1.25 per diluted share, compared to $3,576, or $0.34 per diluted share, in the prior year period.

### Results of Operations – Segment Analysis

### Rail Products and Services

|  | Six Months Ended June 30, 2019 | 2018 | Increase 2019 vs. 2018 | Percent Increase 2019 vs. 2018 |
| --- | ---: | ---: | ---: | ---: |
| Net sales | $177,095 | $154,054 | $23,041 | 15.0% |
| Gross profit | $33,167 | $28,317 | $4,850 | 17.1% |
| Gross profit percentage | 18.7% | 18.4% | 0.3% | 1.9% |
| Segment profit | $11,398 | $7,356 | $4,042 | 54.9% |
| Segment profit percentage | 6.4% | 4.8% | 1.6% | 34.8% |

#### First Six Months 2019 Compared to First Six Months 2018

The Rail Products and Services segment sales increased by $23,041, or 15.0%, compared to the prior year period. The sales growth was driven by our Rail Products business unit which increased by $23,830. The Rail Products growth was primarily attributable to North American new rail distribution volume and, to a lesser extent, transit and insulated joint products. Partially offsetting the increase was a decline in sales within the European transit market as we approach the completion of the London Crossrail project.

The Rail Products and Services gross profit increased by $4,850, or 17.1%, over the prior year period. The increase was driven by volume growth in Rail Products. Segment gross profit margin increased by 30 bps as a result of the increased contribution from higher margin product mix within Rail Products. Segment profit was $11,398, a $4,042 increase compared to the prior year period. Selling and administrative expenses incurred by the segment as a percent of sales was reduced 150 bps compared to the prior year period as the segment continued its focus on cost containment while increasing sales volume.

During the current year, the Rail Products and Services segment had a decrease in new orders of 16.9% compared to the prior year period. Backlog was $94,026 as of June 30, 2019, a decrease of 25.9%, compared to $126,856 as of June 30, 2018. The decreases were primarily related to activity within our new rail distribution products.

### Construction Products

|  | Six Months Ended June 30, 2019 | 2018 | Increase/(Decrease) 2019 vs. 2018 | Percent Increase/(Decrease) 2019 vs. 2018 |
| --- | ---: | ---: | ---: | ---: |
| Net sales | $92,751 | $71,107 | $21,644 | 30.4% |
| Gross profit | $13,467 | $11,074 | $2,393 | 21.6% |
| Gross profit percentage | 14.5% | 15.6% | (1.1)% | (6.8)% |
| Segment profit | $4,247 | $2,875 | $1,372 | 47.7% |
| Segment profit percentage | 4.6% | 4.0% | 0.6% | 13.2% |

#### First Six Months 2019 Compared to First Six Months 2018

The Construction Products segment sales increased by $21,644, or 30.4%, compared to the prior year period. The increase was attributable to growth within each of the businesses with the segment. Piling sales volume increased considerably during the current year as a significant 2018 order is fulfilled, while Fabricated Bridge experienced increased sales volume within its steel decking and railing product lines which resulted in an increase of $16,613. Our Precast Concrete Products business unit was favorably impacted by concrete building sales driven from municipalities.

The Construction Products gross profit increased $2,393, or 21.6%, over the prior year period. The increase was primarily attributable to the sales volume growth in both business units within the segment. Segment profit increased by $1,372 over the prior year period to 4.6% of net sales. Selling and administrative expenses incurred by the segment increased $1,025 over the prior year quarter; however, the expenses as a percentage of segment sales were reduced by 160 bps compared to the prior year period.

During the first half of 2019, the Construction Products segment had an increase in new orders of 1.7% compared to the prior year period, which was primarily related to Precast Concrete Products. The increase in new orders helped to provide the segment a strong backlog of $89,239 as of June 30, 2019, an 8.3% increase over the prior year period.

### Tubular and Energy Services

|  | Six Months Ended June 30, 2019 | 2018 | Increase 2019 vs. 2018 | Percent Increase 2019 vs. 2018 |
| --- | ---: | ---: | ---: | ---: |
| Net Sales | $81,556 | $70,183 | $11,373 | 16.2% |
| Gross profit | $19,656 | $15,864 | $3,792 | 23.9% |
| Gross profit percentage | 24.1% | 22.6% | 1.5% | 6.6% |
| Segment profit | $9,707 | $6,430 | $3,277 | 51.0% |
| Segment profit percentage | 11.9% | 9.2% | 2.7% | 29.9% |

#### First Six Months 2019 Compared to First Six Months 2018

Tubular and Energy Services segment sales increased by $11,373, or 16.2%, compared to the prior year period. The increase was due to significant growth from Protective Coatings and Measurement Systems when compared to the prior year period. This was additionally supported by strong orders within the midstream market during the current year.

Tubular and Energy Services segment gross profit increased $3,792, or 23.9%, which was supported by the sales growth in Protective Coatings and Measurement Systems. Segment gross profit margin improved by 150 bps over the prior year period which was primarily driven by volume and favorable production rates in the 2019 period within Protective Coatings and Measurement Systems. Segment profit increased by $3,277, or 51.0%, over the prior year period. While selling and administrative expense increased by $1,179, management was pleased with the segment's cost containment efforts, which, as a percentage of sales, remained flat compared to the prior year period.

The Tubular and Energy Services segment had an increase of 23.6% in new orders compared to the prior year period. Orders for Protective Coatings and Measurement Systems increased by 49.5%, which was partially offset by a reduction in Test, Inspection, and Threading Services of 7.7%. The increased order activity resulted in a backlog as of June 30, 2019 of $26,059, an 18.5% increase when compared to the prior year.

### Other

#### Segment Backlog

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

|  | June 30, 2019 | December 31, 2018 | June 30, 2018 |
| --- | ---: | ---: | ---: |
| Rail Products and Services | $94,026 | $97,447 | $126,856 |
| Construction Products | 89,239 | 95,419 | 82,405 |
| Tubular and Energy Services | 26,059 | 27,552 | 21,991 |
| Total backlog | $209,324 | $220,418 | $231,252 |

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.

### Liquidity and Capital Resources

Total debt was $91,115 and $74,982 as of June 30, 2019 and December 31, 2018, respectively, and was primarily comprised of borrowings under our revolving credit facility. Our need for liquidity relates primarily to working capital requirements for operations, capital expenditures, and debt service obligations.

The change in cash and cash equivalents for the six months ended June 30, 2019 and 2018 is as follows:

|  | June 30, 2019 | 2018 |
| --- | ---: | ---: |
| Net cash (used in) provided by operating activities | $(9,429) | $7,902 |
| Net cash (used in) provided by investing activities | (3,772) | 270 |
| Net cash provided by (used in) financing activities | 14,706 | (31,240) |
| Effect of exchange rate changes on cash and cash equivalents | 214 | (1,339) |
| Net increase (decrease) in cash and cash equivalents | $1,719 | $(24,407) |

#### Cash Flow from Operating Activities

During the six months ended June 30, 2019, cash flows used in operating activities were $9,429 compared to operations providing $7,902 during the prior year period. For the six months ended June 30, 2019, income and adjustments to income from operating activities provided $23,790 compared to $13,924 in the 2018 period. Working capital and other assets and liabilities used $33,219 in the current period compared to $6,022 in the prior year period. During the six months ended June 30, 2019, the Company made payments totaling $4,000 under the terms of the concrete tie settlement agreement with Union Pacific Railroad.

The Company’s calculation for days sales outstanding at June 30, 2019 and December 31, 2018 was 50 days, and we believe our receivables portfolio is strong.

#### Cash Flow from Investing Activities

Capital expenditures for the six months ended June 30, 2019 and 2018 were $3,848 and $1,816, respectively. The current year expenditures relate to plant expansion and automation integration programs within our Tubular and Energy Services segment as well as general plant and operational improvements throughout the Company. Expenditures for the six months ended June 30, 2018 related to expenditures for general plant and operational improvements. During the six months ended June 30, 2019, the Company received $76 in proceeds from the sale of certain property, plant, and equipment as compared to $2,086 in the prior year period.

#### Cash Flow from Financing Activities

During the six months ended June 30, 2019, the Company had an increase in outstanding debt of $16,133, primarily related to the funding of working capital for operations. During the six months ended June 30, 2018, the Company had a decrease in outstanding debt of $30,930, primarily related to payments against the revolving credit facility which was facilitated by the repatriation of $24,693 in excess cash from our international locations. Treasury stock acquisitions represent income tax withholdings from employees in connection with the vesting of restricted stock awards.

#### Financial Condition

As of June 30, 2019, we had $12,001 in cash and cash equivalents and a domestic credit facility with $73,841 of net availability while we had $91,115 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.

Our cash management priority continues to be short-term maturities and the preservation of our principal balances. As of June 30, 2019, approximately $10,532 of our cash and cash equivalents was held in non-domestic bank accounts.

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 converted a portion of the debt from variable to fixed-rate borrowings during the term of the swap contract. As of June 30, 2019, the swap liability was $506 compared to an asset of $675 as of December 31, 2018.

On April 30, 2019, the Company, its domestic subsidiaries, and certain of its Canadian and European subsidiaries (collectively, the “Borrowers”), entered into the Third Amended and Restated Credit Agreement (“Amended Credit Agreement”) with PNC Bank, N.A., Bank of America, N.A., Wells Fargo Bank, N.A., Citizens Bank, N.A., and BMO Harris Bank, N.A. This Amended Credit Agreement modifies the prior revolving credit facility which had a maximum credit line of $195,000, and extends the maturity date from March 13, 2020 to April 30, 2024. The Amended Credit Agreement provides for a five-year, revolving credit facility that permits aggregate borrowings of the Borrowers up to $140,000 with a sublimit of the equivalent of $25,000 U.S. dollars that is available to the Canadian and United Kingdom borrowers in the aggregate. The Amended Credit Agreement’s incremental loan feature permits the Company to increase the available revolving borrowings under the facility by up to an additional $50,000 and provides for additional term loan borrowings of up to $25,000 subject to the Company’s receipt of increased commitments from existing or new lenders and the satisfaction of certain conditions.

For a discussion of the terms and availability of the Company's credit facilities, please refer to Note 9 of the Notes to Condensed Consolidated Financial Statements contained in the Quarterly Report on Form 10-Q.

### 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. We have updated our lease policies since December 31, 2018, in conjunction with our adoption of Accounting Standards Codification 842, “Leases” (“ASC 842”) as further described in Note 8 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, 2018.

### Off-Balance Sheet Arrangements

The Company’s off-balance sheet arrangements include 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, 2018 is included in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations -Liquidity and Capital Resources -Tabular Disclosure of Contractual Obligations in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018. On January 1, 2019, the Company adopted the provisions under ASC 842. As a result of the adoption, operating leases that were previously off-balance sheet arrangements are now recognized as right-of-use assets and liabilities within the Condensed Consolidated Balance Sheets. There were no other 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.

## Controls and procedures

As filed, 2,695 characters.

### 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 June 30, 2019. 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, 2019, the Company adopted the standards of Accounting Standards Codification 842, “Leases” (“ASC 842”). The adoption of ASC 842 required the Company to implement changes to our processes related to operating lease recognition and the control activities within them. This included the development of new policies and procedures, ongoing lease review and evaluation processes, and implementation of processes to obtain information responsive to the new disclosure requirements. There were no other changes to our “internal control over financial reporting” (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the six months ended June 30, 2019, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

### Limitations on Effectiveness of Controls and Procedures

In designing and evaluating 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.

### PART II. OTHER INFORMATION

### (Dollars in thousands, except share data)

Filed Jul 31, 2019.
Source: SEC EDGAR, the filing index for accession 0000352825-19-000037. Last ingested by Listed: Nov 4, 2026, 19:02 ET. No prices; not investment advice.