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

- Company: [Foster L B Co](/companies/fstr.md) (CIK 352825)
- Form: 10-Q
- Filed: 2019-10-30
- Accepted by EDGAR: Oct 30, 2019, 11:45 ET
- Period: 2019-09-30
- Accession: 0000352825-19-000046
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/352825/000035282519000046/fstr-20190930.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/352825/000035282519000046/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2019-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2019-07-01 to 2019-09-30 | $154.3m | us-gaap:RevenueFromContractWithCustomerIncludingAssessedTax |
| Revenue | 9 months, 2019-01-01 to 2019-09-30 | $505.7m | us-gaap:RevenueFromContractWithCustomerIncludingAssessedTax |
| Cost of revenue | 3 months, 2019-07-01 to 2019-09-30 | $126.6m | us-gaap:CostOfRevenue |
| Cost of revenue | 9 months, 2019-01-01 to 2019-09-30 | $411.7m | us-gaap:CostOfRevenue |
| Gross profit | 3 months, 2019-07-01 to 2019-09-30 | $27.7m | us-gaap:GrossProfit |
| Gross profit | 9 months, 2019-01-01 to 2019-09-30 | $94.0m | us-gaap:GrossProfit |
| Selling, general and administrative | 3 months, 2019-07-01 to 2019-09-30 | $22.3m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 9 months, 2019-01-01 to 2019-09-30 | $67.0m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2019-07-01 to 2019-09-30 | $7.5m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2019-01-01 to 2019-09-30 | $32.8m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2019-07-01 to 2019-09-30 | $51.0k | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2019-01-01 to 2019-09-30 | $2.4m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2019-07-01 to 2019-09-30 | $3.1m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2019-01-01 to 2019-09-30 | $16.3m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2019-07-01 to 2019-09-30 | $0.29 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2019-01-01 to 2019-09-30 | $1.53 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2019-07-01 to 2019-09-30 | $0.29 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2019-01-01 to 2019-09-30 | $1.57 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2019-07-01 to 2019-09-30 | 10,674,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2019-01-01 to 2019-09-30 | 10,631,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2019-01-01 to 2019-09-30 | $13.3m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2019-01-01 to 2019-09-30 | $5.0m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Share repurchases | 9 months, 2019-01-01 to 2019-09-30 | $600.0k | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2019-09-30 | $15.4m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2019-09-30 | $235.5m | us-gaap:AssetsCurrent |
| Total assets | at 2019-09-30 | $396.3m | us-gaap:Assets |
| Current liabilities | at 2019-09-30 | $120.7m | us-gaap:LiabilitiesCurrent |
| Shareholders' equity | at 2019-09-30 | $138.7m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 35,152 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 management's current expectations and assumptions about future events that involve inherent risks and uncertainties and may concern, among other things, L.B. Foster Company’s (the “Company’s”) expectations relating to our strategy, goals, projections, and plans regarding our financial position, liquidity, capital resources, and results of operations; 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: a resumption of the economic slowdown we experienced in previous years in the markets we serve; a decrease in freight or passenger rail traffic; environmental matters, including any costs associated with any remediation and monitoring; 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; 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; cyber-security risks such as data security breaches, malware, “hacking,” and identity theft, a failure of which could disrupt our business and may result in misuse or misappropriation of confidential or proprietary information, and could result in the disruption or damage to our systems, increased costs and losses or an adverse effect to our reputation; the continuing 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 and the outcome of litigation and product warranty claims. Should one or more of these risks or uncertainties materialize, or should the assumptions underlying the forward-looking statements prove incorrect, actual outcomes could vary materially from those indicated. Significant risks and uncertainties that may affect the operations, performance, and results of the Company’s business and forward-looking statements include, but are not limited to, those set forth under Item 1A, “Risk Factors,” and elsewhere in our Annual Report on Form 10-K for the year ended December 31, 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 September 30, 2019 2018 | Percent Increase/ (Decrease) 2019 vs. 2018 | Percent of Total Net Sales Three Months Ended September 30, 2019 2018 |
| --- | ---: | ---: | ---: |
| Rail Products and Services | $67,741 $84,517 | (19.8)% | 43.9% 50.6% |
| Construction Products | 47,175 41,534 | 13.6 | 30.6 24.9 |
| Tubular and Energy Services | 39,360 41,043 | (4.1) | 25.5 24.5 |
| Total net sales | $154,276 $167,094 | (7.7)% | 100.0% 100.0% |
|  | Three Months Ended September 30, | Percent Increase/ (Decrease) | Gross Profit Percentage Three Months Ended September 30, |
|  | 2019 2018 | 2019 vs. 2018 | 2019 2018 |
| Gross Profit: |  |  |  |
| Rail Products and Services | $14,480 $16,416 | (11.8)% | 21.4% 19.4% |
| Construction Products | 6,097 5,770 | 5.7 | 12.9 13.9 |
| Tubular and Energy Services | 7,115 9,117 | (22.0) | 18.1 22.2 |
| Total gross profit | $27,692 $31,303 | (11.5)% | 17.9% 18.7% |
|  | Three Months Ended September 30, | Percent Increase/ (Decrease) | Percent of Total Net Sales Three Months Ended September 30, |
|  | 2019 2018 | 2019 vs. 2018 | 2019 2018 |
| Expenses: |  |  |  |
| Selling and administrative expenses | $22,264 $21,662 | 2.8% | 14.4% 13.0% |
| Amortization expense | 1,655 1,762 | (6.1) | 1.1 1.1 |
| Interest expense - net | 1,079 1,296 | (16.7) | 0.7 0.8 |
| Other (income) expense - net | (421) 157 | \*\* | (0.3) 0.1 |
| Total expenses | $24,577 $24,877 | (1.2)% | 15.9% 14.9% |
| Income before income taxes | $3,115 $6,426 | (51.5)% | 2.0% 3.8% |
| Income tax expense | 51 18 | 183.3 | 0.0 0.0 |
| Net income | $3,064 $6,408 | (52.2)% | 2.0% 3.8% |

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

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

Net sales of $154,276 for the three months ended September 30, 2019 decreased by $12,818, or 7.7%, compared to the prior year quarter. The decline was attributable to reductions within our Rail Products and Services segment of 19.8% and our Tubular and Energy Services segment of 4.1%. These declines were partially offset by Construction Products sales increasing by 13.6%.

Gross profit decreased by $3,611 compared to the prior year quarter to $27,692 for the three months ended September 30, 2019. Gross profit margin for the three months ended September 30, 2019 was 17.9%, or 80 basis points (“bps”), lower than the prior year quarter. The decrease in gross profit margin was primarily due to reductions of 410 bps and 100 bps within Tubular and Energy Services and Construction Products, respectively. The decreases were partially offset by an increase in gross profit margin of 200 bps within Rail Products and Services.

Selling and administrative expenses increased by $602, or 2.8%, compared to the prior year quarter. The rise in expense was primarily driven by increases in third-party services and personnel-related expenses of $771, rental expense of $180, and bad debt expense of $171 when compared to the prior year quarter. The increase was partially offset by decreases in legal expenses of $597 related to the Union Pacific Railroad concrete tie litigation. As a percent of sales, selling and administrative expenses increased 140 bps compared to the prior year quarter.

The Company’s effective income tax rate for the three months ended September 30, 2019 was 1.6%, compared to 0.3% in the prior year quarter. For the three months ended September 30, 2019, the Company recorded a tax provision of $51, compared to $18 in the three months ended September 30, 2018. The Company's effective tax rate for the three months ended September 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 third quarter of 2019 was $3,064, or $0.29 per diluted share, compared to $6,408, or $0.61 per diluted share, in the prior year quarter.

### Results of Operations – Segment Analysis

### Rail Products and Services

|  | Three Months Ended September 30, 2019 | 2018 | Increase/(Decrease) 2019 vs. 2018 | Percent Increase/(Decrease) 2019 vs. 2018 |
| --- | ---: | ---: | ---: | ---: |
| Net sales | $67,741 | $84,517 | $(16,776) | (19.8)% |
| Gross profit | $14,480 | $16,416 | $(1,936) | (11.8)% |
| Gross profit percentage | 21.4% | 19.4% | 2.0% | 10.1% |
| Segment profit | $3,417 | $5,299 | $(1,882) | (35.5)% |
| Segment profit percentage | 5.0% | 6.3% | (1.3)% | (19.5)% |

#### Third Quarter 2019 Compared to Third Quarter 2018

The Rail Products and Services segment sales decreased by $16,776, or 19.8%, compared to the prior year quarter. The sales decline was driven by volume in our Rail Products business resulting in a decrease of $10,010, primarily from our new rail and concrete tie products due to the timing of transit projects. Partially offsetting the decline within Rail Products were sales increases in our insulated joint offerings. Also contributing to the segment sales decline was a reduction of $6,766 in our Rail Technologies business, primarily attributable to reduced service activity levels from the London Crossrail project as it nears completion.

The Rail Products and Services gross profit decreased by $1,936, or 11.8%, from the prior year quarter. The decrease was primarily driven by the volume decline in our Rail Products business, which had lower new rail shipments, and our Rail Technologies business, which had a reduction in services provided for the London Crossrail project. Segment gross profit margin grew by 200 bps as a result of the increased product mix contribution from our higher margin manufactured and service-based offerings. Segment profit was $3,417, a $1,882 decline over the prior year quarter. Selling, general, and administrative expenses incurred by the segment were flat to the prior year quarter.

During the current quarter, the Rail Products and Services segment had a decrease in new orders of 3.0% compared to the prior year period. The decrease was primarily related to activity within our global transit projects and concrete tie products.

### Construction Products

|  | Three Months Ended September 30, 2019 | 2018 | Increase/(Decrease) 2019 vs. 2018 | Percent Increase/(Decrease) 2019 vs. 2018 |
| --- | ---: | ---: | ---: | ---: |
| Net sales | $47,175 | $41,534 | $5,641 | 13.6% |
| Gross profit | $6,097 | $5,770 | $327 | 5.7% |
| Gross profit percentage | 12.9% | 13.9% | (1.0)% | (7.0)% |
| Segment profit | $1,848 | $1,603 | $245 | 15.3% |
| Segment profit percentage | 3.9% | 3.9% | —% | 1.5% |

#### Third Quarter 2019 Compared to Third Quarter 2018

The Construction Products segment sales increased by $5,641, or 13.6%, compared to the prior year quarter. The growth was attributable to volume increases in both Precast Concrete Products and Piling and Fabricated Bridge, resulting in sales increases of $3,736 and $1,905, respectively. Our Precast Concrete Products business unit was favorably impacted by concrete building sales and installations as well as increased demand in septic tank and reinforced earth panel offerings. Piling continued product fulfillment during the current quarter, attributable to the Port Everglades project, while Fabricated Bridge experienced increased volume within its steel decking and railing product lines.

The Construction Products gross profit increased by $327, or 5.7%, over the prior year quarter. The increase was primarily attributable to the sales volume growth and manufacturing efficiencies within our Precast Concrete Products division and volume and favorable product mix within Fabricated Bridge. The increase was partially offset by a reduction in Piling gross profit. Segment profit increased by $245 over the prior year quarter to 3.9% of net sales. Selling and administrative expenses incurred by the segment were flat over the prior year quarter; however, the expenses were reduced by 110 bps as a percentage of segment sales compared to the prior year quarter.

During the quarter, the Construction Products segment had a decrease in new orders of 38.7% compared to the prior year quarter, which was primarily related to the Port Everglades project that was booked in the prior year quarter within Piling and, to a lesser extent, Precast Concrete Products division.

### Tubular and Energy Services

|  | Three Months Ended September 30, 2019 | 2018 | Decrease 2019 vs. 2018 | Percent Decrease 2019 vs. 2018 |
| --- | ---: | ---: | ---: | ---: |
| Net sales | $39,360 | $41,043 | $(1,683) | (4.1)% |
| Gross profit | $7,115 | $9,117 | $(2,002) | (22.0)% |
| Gross profit percentage | 18.1% | 22.2% | (4.1)% | (18.6)% |
| Segment profit | $2,230 | $4,274 | $(2,044) | (47.8)% |
| Segment profit percentage | 5.7% | 10.4% | (4.7)% | (45.6)% |

#### Third Quarter 2019 Compared to Third Quarter 2018

Tubular and Energy Services segment sales decreased by $1,683, or 4.1%, compared to the prior year period. The decrease was primarily due to weakened conditions in the served upstream market that reduced drilling activity in the U.S. and negatively impacted demand for our testing and inspection services. The decline was partially offset by increases within our midstream products and services.

Tubular and Energy Services segment gross profit decreased by $2,002, or 22.0%, which was primarily attributable to the reduced volumes within our Test, Inspection, and Threading Services business unit. Segment gross profit margin decreased by 410 bps over the prior year quarter, which was primarily driven by reduced volume within the Test, Inspection, and Threading Services business. Segment profit decreased by $2,044, or 47.8%, over the prior year quarter.

The Tubular and Energy Services segment had a decrease of 24.0% in new orders compared to the prior year quarter. Our Protective Coatings and Measurement Systems business unit new orders were negatively impacted during the current quarter due to delays in anticipated projects. The Test, Inspection, and Threading Services business decline was driven by reduced demand from unfavorable conditions in the upstream market we serve.

### Nine Month Results

| Net Sales: | Nine Months Ended September 30, 2019 2018 | Percent Increase/ (Decrease) 2019 vs. 2018 | Percent of Total Net Sales Nine Months Ended September 30, 2019 2018 |
| --- | ---: | ---: | ---: |
| Rail Products and Services | $244,836 $238,571 | 2.6% | 48.4% 51.6% |
| Construction Products | 139,926 112,641 | 24.2 | 27.7 24.4 |
| Tubular and Energy Services | 120,916 111,226 | 8.7 | 23.9 24.0 |
| Total net sales | $505,678 $462,438 | 9.4% | 100.0% 100.0% |
|  | Nine Months Ended September 30, | Percent Increase/ (Decrease) | Gross Profit Percentage Nine Months Ended September 30, |
|  | 2019 2018 | 2019 vs. 2018 | 2019 2018 |
| Gross Profit: |  |  |  |
| Rail Products and Services | $47,647 $44,733 | 6.5% | 19.5% 18.8% |
| Construction Products | 19,564 16,844 | 16.1 | 14.0 15.0 |
| Tubular and Energy Services | 26,771 24,981 | 7.2 | 22.1 22.5 |
| Total gross profit | $93,982 $86,558 | 8.6% | 18.6% 18.7% |
|  | Nine Months Ended September 30, | Percent Increase/ (Decrease) | Percent of Total Net Sales Nine Months Ended September 30, |
|  | 2019 2018 | 2019 vs. 2018 | 2019 2018 |
| Expenses: |  |  |  |
| Selling and administrative expenses | $67,036 $65,488 | 2.4% | 13.3% 14.2% |
| Amortization expense | 5,046 5,322 | (5.2) | 1.0 1.2 |
| Interest expense - net | 4,031 4,813 | (16.2) | 0.8 1.0 |
| Other income - net | (823) (320) | 157.2 | (0.2) (0.1) |
| Total expenses | $75,290 $75,303 | (0.0)% | 14.9% 16.3% |
| Income before income taxes | $18,692 $11,255 | 66.1% | 3.7% 2.4% |
| Income tax expense | 2,374 1,271 | 86.8 | 0.5 0.3 |
| Net income | $16,318 $9,984 | 63.4% | 3.2% 2.2% |

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

Net sales of $505,678 for the nine months ended September 30, 2019 increased by $43,240, or 9.4%, compared to the prior year period. The change was attributable to increases within each of our three segments. Construction Products sales increased by 24.2%, Tubular and Energy Services sales increased by 8.7%, and Rail Products and Services sales increased by 2.6%.

Gross profit increased by $7,424 compared to the prior year period to $93,982 for the nine months ended September 30, 2019. Gross profit margin for the nine months ended September 30, 2019 was 18.6%, or 10 bps lower than the prior year period. The decline in gross profit margin was primarily due to decreases of 100 bps and 40 bps within Construction Products and Tubular and Energy Services, respectively. The decrease was partially offset by an increase in gross profit margin of 70 bps within the Construction Products segment.

Selling and administrative expenses increased by $1,548 or 2.4% from the prior year. The escalation was primarily driven by increases in third-party services of $2,060, personnel-related expenses of $1,933, and bad debt of $994 when compared to the prior year period. The increase was partially offset by a reduction in legal expenses related to the Union Pacific Railroad concrete tie litigation of $4,165. As a percent of sales, selling and administrative expenses declined by 90 bps compared to the prior year period.

Interest expense, net of interest income, decreased by $782, or 16.2%, as a result of the reduction in outstanding debt compared to the prior year period.

The Company’s effective income tax rate for the nine months ended September 30, 2019 was 12.7%, compared to 11.3% in the prior year period. For the nine months ended September 30, 2019, the Company recorded a tax provision of $2,374, compared to $1,271 in the nine months ended September 30, 2018. The Company's effective tax rate for the nine months ended September 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 nine months ended September 30, 2018 was $16,318, or $1.53 per diluted share, compared to $9,984, or $0.95 per diluted share, in the prior year period.

### Results of Operations – Segment Analysis

### Rail Products and Services

|  | Nine Months Ended September 30, 2019 | 2018 | Increase 2019 vs. 2018 | Percent Increase 2019 vs. 2018 |
| --- | ---: | ---: | ---: | ---: |
| Net sales | $244,836 | $238,571 | $6,265 | 2.6% |
| Gross profit | $47,647 | $44,733 | $2,914 | 6.5% |
| Gross profit percentage | 19.5% | 18.8% | 0.7% | 3.8% |
| Segment profit | $14,815 | $12,655 | $2,160 | 17.1% |
| Segment profit percentage | 6.1% | 5.3% | 0.8% | 14.1% |

#### First Nine Months 2019 Compared to First Nine Months 2018

The Rail Products and Services segment sales increased by $6,265, or 2.6%, compared to the prior year period. The sales growth was driven by our Rail Products business unit which increased by $13,820. The Rail Products growth was primarily attributable to domestic transit projects and, to a lesser extent, new rail 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 $2,914, or 6.5%, over the prior year period. The increase was driven by volume growth in Rail Products. Segment gross profit margin increased by 70 bps as a result of the increased contribution from higher margin product mix within Rail Products. Segment profit was $14,815, a $2,160 increase compared to the prior year period. Selling and administrative expenses incurred by the segment increased by $685 over the prior year period.

During the current year, the Rail Products and Services segment had a decrease in new orders of 13.6% compared to the prior year period. Backlog was $88,051 as of September 30, 2019, a decrease of 19.1%, compared to $108,840 as of September 30, 2018. The decreases were primarily related to activity within our new rail distribution products, concrete ties, and activity levels on the London Crossrail project.

### Construction Products

|  | Nine Months Ended September 30, 2019 | 2018 | Increase/(Decrease) 2019 vs. 2018 | Percent Increase/(Decrease) 2019 vs. 2018 |
| --- | ---: | ---: | ---: | ---: |
| Net sales | $139,926 | $112,641 | $27,285 | 24.2% |
| Gross profit | $19,564 | $16,844 | $2,720 | 16.1% |
| Gross profit percentage | 14.0% | 15.0% | (1.0)% | (6.5)% |
| Segment profit | $6,095 | $4,478 | $1,617 | 36.1% |
| Segment profit percentage | 4.4% | 4.0% | 0.4% | 9.6% |

#### First Nine Months 2019 Compared to First Nine Months 2018

The Construction Products segment sales increased by $27,285, or 24.2%, compared to the prior year period. The increase was attributable to growth within each of the businesses within the segment. Piling sales volume increased considerably during the current year as the Port Everglades order was fulfilled, while Fabricated Bridge experienced increased sales volume within its steel decking and railing product lines which resulted in an increase of $18,518. Our Precast Concrete Products business unit was favorably impacted by concrete building sales, most significantly in our southern U.S. region.

The Construction Products gross profit increased by $2,720, or 16.1%, 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 $1,617 over the prior year period to 4.4% of net sales. Selling and administrative expenses incurred by the segment increased by $1,113 over the prior year period; however, the expenses as a percentage of segment sales were reduced by 130 bps compared to the prior year period.

During the first nine months of 2019, the Construction Products segment had a decrease in new orders of 17.4% compared to the prior year period, which was primarily related to the Port Everglades project recorded in the 2018 period. The decline in new orders was partially offset by a 7.5% increase in orders in Precast Concrete Products. The decrease in new orders resulted in segment backlog of $86,626 as of September 30, 2019, a 26.4% decrease from the prior year period.

### Tubular and Energy Services

|  | Nine Months Ended September 30, 2019 | 2018 | Increase/(Decrease) 2019 vs. 2018 | Percent Increase/(Decrease) 2019 vs. 2018 |
| --- | ---: | ---: | ---: | ---: |
| Net Sales | $120,916 | $111,226 | $9,690 | 8.7% |
| Gross profit | $26,771 | $24,981 | $1,790 | 7.2% |
| Gross profit percentage | 22.1% | 22.5% | (0.4)% | (1.4)% |
| Segment profit | $11,937 | $10,704 | $1,233 | 11.5% |
| Segment profit percentage | 9.9% | 9.6% | 0.3% | 2.6% |

#### First Nine Months 2019 Compared to First Nine Months 2018

Tubular and Energy Services segment sales increased by $9,690, or 8.7%, 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 $1,790, or 7.2%, which was supported by the sales growth in Protective Coatings and Measurement Systems. Segment gross profit margin declined by 40 bps over the prior year period, which was primarily driven by volume in the 2019 period within the Test, Inspection, and Threading Services business. Segment profit increased by $1,233, or 11.5%, over the prior year period. Selling and administrative expense increased by $1,425 during the first nine months of 2019 when compared to the prior year period, which was driven by increased personnel-related and bad debt expenses.

The Tubular and Energy Services segment had an increase of 4.5% in new orders compared to the prior year period. Orders for Protective Coatings and Measurement Systems increased by 16.5%, which was partially offset by a reduction in Test, Inspection, and Threading Services of 12.3%. The segment had a backlog as of September 30, 2019 of $19,406, a 22.8% decrease 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:

|  | September 30, 2019 | December 31, 2018 | September 30, 2018 |
| --- | ---: | ---: | ---: |
| Rail Products and Services | $88,051 | $97,447 | $108,840 |
| Construction Products | 86,626 | 95,419 | 117,654 |
| Tubular and Energy Services | 19,406 | 27,552 | 25,123 |
| Total backlog | $194,083 | $220,418 | $251,617 |

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 $72,999 and $74,982 as of September 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 nine months ended September 30, 2019 and 2018 is as follows:

|  | September 30, 2019 | 2018 |
| --- | ---: | ---: |
| Net cash provided by operating activities | $13,283 | $22,425 |
| Net cash (used in) provided by investing activities | (4,784) | 4,181 |
| Net cash used in financing activities | (3,419) | (53,813) |
| Effect of exchange rate changes on cash and cash equivalents | 12 | (885) |
| Net increase (decrease) in cash and cash equivalents | $5,092 | $(28,092) |

#### Cash Flow from Operating Activities

During the nine months ended September 30, 2019, cash flows provided by operating activities were $13,283, compared to operations providing $22,425 during the prior year period. For the nine months ended September 30, 2019, income and adjustments to income from operating activities provided $31,995, compared to $25,857 in the 2018 period. Working capital and other assets and liabilities used $18,712 in the current period, compared to $3,432 in the prior year period. During the nine months ended September 30, 2019, the Company made payments totaling $6,000 under the terms of the concrete tie settlement agreement with Union Pacific Railroad.

The Company’s calculation for days sales outstanding at September 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 nine months ended September 30, 2019 and 2018 were $5,037 and $3,196, 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 nine months ended September 30, 2018 related to expenditures for general plant and operational improvements. During the nine months ended September 30, 2019, the Company received $253 in proceeds from the sale of certain property, plant, and equipment, as compared to $2,267 in the prior year period. The Company received $3,875 and $1,235 in proceeds from the sale of an equity investment and repayment of a line of a credit, respectively, during the nine months ended September 30, 2018.

#### Cash Flow from Financing Activities

During the nine months ended September 30, 2019, the Company had a decrease in outstanding debt of $1,983, primarily related to the reduction of working capital for operations. During the nine months ended September 30, 2018, the Company had a decrease in outstanding debt of $53,497, primarily related to payments against the revolving credit facility, which was facilitated by the repatriation of $31,517 in excess cash from our international locations. The Company paid $836 in debt issuance costs in connection with the April 30, 2019 credit facility amendment during the nine months ended September 30, 2019. Treasury stock acquisitions represent income tax withholdings from employees in connection with the vesting of restricted stock awards.

#### Financial Condition

As of September 30, 2019, we had $15,374 in cash and cash equivalents and a domestic credit facility with $91,160 of net availability, while we had $72,999 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 September 30, 2019, approximately $11,290 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 September 30, 2019, the swap liability was $657 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 this 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 Topic 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, 2,708 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 September 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 Topic 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 nine months ended September 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 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 Oct 30, 2019.
Source: SEC EDGAR, the filing index for accession 0000352825-19-000046. Last ingested by Listed: Nov 4, 2026, 19:02 ET. No prices; not investment advice.