# Foster L B Co: Form 10-K for the period ended Dec 31, 2019 - Company: [Foster L B Co](/companies/fstr.md) (CIK 352825) - Form: 10-K - Filed: 2020-02-27 - Accepted by EDGAR: Feb 27, 2020, 11:55 ET - Period: 2019-12-31 - Accession: 0000352825-20-000008 - Inline XBRL: yes - Main document: https://www.sec.gov/Archives/edgar/data/352825/000035282520000008/fstr-20191231.htm - All documents and exhibits: https://www.sec.gov/Archives/edgar/data/352825/000035282520000008/ ## Figures reported in this filing Standardized XBRL line items for the period ended 2019-12-31. | Line item | Period | Value | XBRL concept | | --- | --- | ---: | --- | | Revenue | 3 months, 2019-10-01 to 2019-12-31 | $149.4m | us-gaap:RevenueFromContractWithCustomerIncludingAssessedTax | | Revenue | 12 months, 2019-01-01 to 2019-12-31 | $655.1m | us-gaap:RevenueFromContractWithCustomerIncludingAssessedTax | | Cost of revenue | 12 months, 2019-01-01 to 2019-12-31 | $533.7m | us-gaap:CostOfRevenue | | Gross profit | 3 months, 2019-10-01 to 2019-12-31 | $27.4m | us-gaap:GrossProfit | | Gross profit | 12 months, 2019-01-01 to 2019-12-31 | $121.4m | us-gaap:GrossProfit | | Research and development | 12 months, 2019-01-01 to 2019-12-31 | $2.6m | us-gaap:ResearchAndDevelopmentExpense | | Selling, general and administrative | 12 months, 2019-01-01 to 2019-12-31 | $88.0m | us-gaap:SellingGeneralAndAdministrativeExpense | | Operating income | 12 months, 2019-01-01 to 2019-12-31 | $36.5m | us-gaap:OperatingIncomeLoss | | Interest expense | 12 months, 2019-01-01 to 2019-12-31 | $4.9m | us-gaap:InterestExpense | | Income tax | 12 months, 2019-01-01 to 2019-12-31 | −$25.2m | us-gaap:IncomeTaxExpenseBenefit | | Net income | 3 months, 2019-10-01 to 2019-12-31 | $26.3m | us-gaap:NetIncomeLoss | | Net income | 12 months, 2019-01-01 to 2019-12-31 | $42.6m | us-gaap:NetIncomeLoss | | Diluted EPS | 3 months, 2019-10-01 to 2019-12-31 | $2.46 | us-gaap:EarningsPerShareDiluted | | Diluted EPS | 12 months, 2019-01-01 to 2019-12-31 | $4.00 | us-gaap:EarningsPerShareDiluted | | Basic EPS | 3 months, 2019-10-01 to 2019-12-31 | $2.52 | us-gaap:EarningsPerShareBasic | | Basic EPS | 12 months, 2019-01-01 to 2019-12-31 | $4.09 | us-gaap:EarningsPerShareBasic | | Diluted shares (weighted) | 12 months, 2019-01-01 to 2019-12-31 | 10,644,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding | | Operating cash flow | 12 months, 2019-01-01 to 2019-12-31 | $29.3m | us-gaap:NetCashProvidedByUsedInOperatingActivities | | Capital expenditure | 12 months, 2019-01-01 to 2019-12-31 | $8.8m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment | | Share repurchases | 12 months, 2019-01-01 to 2019-12-31 | $621.0k | us-gaap:PaymentsForRepurchaseOfCommonStock | | Cash and equivalents | at 2019-12-31 | $14.2m | us-gaap:CashAndCashEquivalentsAtCarryingValue | | Current assets | at 2019-12-31 | $216.7m | us-gaap:AssetsCurrent | | Total assets | at 2019-12-31 | $405.2m | us-gaap:Assets | | Current liabilities | at 2019-12-31 | $116.7m | us-gaap:LiabilitiesCurrent | | Shareholders' equity | at 2019-12-31 | $169.9m | us-gaap:StockholdersEquity | ## Business As filed, 22,440 characters. ### Summary Description of Businesses Formed in 1902, L.B. Foster Company is a Pennsylvania corporation with its principal office in Pittsburgh, PA. L.B. Foster Company is a leading manufacturer and distributor of products and provider of services for transportation and energy infrastructure with locations in North America and Europe. As used herein, “L.B. Foster,” the “Company,” “we,” “us,” and “our” or similar references refer collectively to L.B. Foster Company and its subsidiaries, unless the context indicates otherwise. The following table shows the net sales generated by each business segment as a percentage of total net sales for the years ended December 31, 2019 and 2018: | | Percentage of Net Sales 2019 | 2018 | | --- | ---: | ---: | | Rail Products and Services | 49% | 51% | | Construction Products | 28 | 25 | | Tubular and Energy Services | 23 | 24 | | | 100% | 100% | Financial information concerning these segments is set forth in Part II, Item 8, Financial Statements and Supplementary Data, Note 2 to the Consolidated Financial Statements contained in this Annual Report on Form 10-K, which is incorporated by reference into this Item 1. ### Rail Products and Services The Company’s Rail Products and Services (“Rail”) segment is comprised of several manufacturing, distribution, and service businesses that provide a variety of products and services for freight and passenger railroads and industrial companies throughout the world. The Rail segment has sales offices throughout North America and Europe, and works on rail projects where it offers products manufactured by the Company, or sourced from numerous supply chain partners, and also offers aftermarket services. The Rail segment is comprised of the following business units: Rail Products and Rail Technologies. #### Rail Products The Rail Products business is comprised of the Company’s Rail Distribution, Allegheny Rail Products, Transit Products, and Concrete Tie divisions. Rail Distribution sells new rail mainly to passenger and short line freight railroads, industrial companies, and rail contractors for the replacement of existing lines or expansion of new lines. Rail accessories sold by the Rail Distribution division include track spikes, bolts, angle bars, and other products required to install or maintain rail lines. These products are manufactured by the Company or purchased from other manufacturers and distributed accordingly. Rail Distribution also sells trackwork products to Class II and III railroads, industrial, and export markets. The Company’s Allegheny Rail Products (“ARP”) division engineers and fabricates insulated rail joints and related accessories for freight and passenger railroads and industrial customers. Insulated joints are manufactured domestically at the Company’s facilities in Pueblo, CO and Niles, OH. The Company’s Transit Products division supplies power rail, direct fixation fasteners, coverboards, and special accessories primarily for passenger railroad systems. These products are fabricated at Company facilities or by subcontractors and are usually sold by sealed bid to passenger railroads or to rail contractors. The Concrete Tie division manufactures engineered concrete railroad ties for freight and passenger railroads and industrial companies at its facility in Spokane, WA. #### Rail Technologies The Company’s Rail Technologies business unit engineers, manufactures, and fabricates friction management products and application systems, railroad condition monitoring systems and equipment, wheel impact load detection, fire protection systems, rail anchors and spikes, wayside data collection and management systems, epoxy and nylon-encapsulated insulated rail joints, track fasteners, and also provides aftermarket services. The Company’s friction management products control the friction at the rail/wheel interface, which help our customers to reduce fuel consumption, improve operating efficiencies, extend the life of operating assets such as rail and wheels, reduce track stresses, and lower the related maintenance and operating costs. Friction management products include mobile and wayside systems that apply lubricants and liquid or solid friction modifiers. In addition, the business unit provides controls, display, and telecommunication solutions for the transit, control room, and customer information and display sectors. These products and systems are designed, engineered, manufactured, fabricated, serviced, and marketed by certain wholly-owned subsidiaries located in the United States, Canada, the United Kingdom (“U.K.”), and Germany. ### Construction Products The Construction Products (“Construction”) segment is composed of the following business units: Piling and Fabricated Bridge Products and Precast Concrete Products. #### Piling and Fabricated Bridge Products The Piling and Fabricated Bridge Products business unit sells or rents piling products and manufactures fabricated steel and aluminum bridge products. Sheet piling products are interlocking structural steel sections that are generally used to provide lateral support at construction sites. Bearing piling products are steel H-beam sections which are driven into the ground for support of structures such as bridge piers and high-rise buildings. Piling is often used in water and land applications, including cellular cofferdams and OPEN CELL® structures in inland river systems and ports. Piling products are sourced from various manufacturers and either sold or rented to project owners and contractors. The Piling division, via a sales force deployed throughout the United States, markets and sells piling products both domestically and internationally. This division offers its customers various types and dimensions of structural beam piling, sheet piling, and pipe piling. The Company is the primary distributor of domestic steel sheet piling for its primary supplier. The Fabricated Bridge Products facility in Bedford, PA manufactures a number of fabricated steel and aluminum products primarily for the highway, bridge, and transit industries, including concrete reinforced steel grid deck, open steel grid deck, aluminum bridge railing, and stay-in-place steel bridge forms. #### Precast Concrete Products The Precast Concrete Products business unit primarily manufactures concrete buildings for national, state, and municipal parks. This unit manufactures restrooms, concession stands, and other protective storage buildings available in multiple designs, textures, and colors. The Company is a leading high-end supplier in terms of volume, product options, and capabilities. The unit also manufactures various other precast products, such as burial vaults, bridge beams, box culverts, septic tanks, and other custom pre-stressed and precast concrete products. The products are manufactured in Spokane, WA, Hillsboro, TX, and Waverly, WV. The Company ceased precast building operations in Spokane, WA, and commenced precast product operations in Boise, ID, in the first quarter of 2020. This move is part of an initiative focusing on regional growth opportunities and logistical savings associated with fabricating products in a more centralized location closer to the Company’s existing and prospective customer base. ### Tubular and Energy Services The Tubular and Energy Services (“Tubular and Energy”) segment has two business units: Protective Coatings and Measurement Systems business and Test, Inspection, and Threading Services business. The segment provides products and services predominantly to the mid and upstream oil and gas markets. #### Protective Coatings and Measurement Systems The Protective Coatings and Measurement Systems business unit consists of operations at two primary locations. The Birmingham, AL facility coats the outside and inside diameter of pipe primarily for oil and gas transmission pipelines. This location partners with its primary customer, a pipe manufacturer, to market fusion bonded epoxy coatings, abrasion resistant coatings, and internal linings for a wide variety of pipe diameters for use in pipeline projects throughout North America. The second location is in Willis, TX and consists of two operating facilities. One facility applies specialty outside and inside diameter coatings for a wide variety of pipe diameters for oil and gas transmission, mining, and waste water pipelines, as well as provides custom coatings for specialty pipe fittings and connections. The second facility manufactures and provides turnkey solutions for metering and injection systems for the oil, and, to a lesser extent, gas industry. This location operates a fabrication plant that builds metering systems for custody transfer applications, including crude oil and other petroleum-based products. These systems are used at well sites, pipelines, refineries, chemical plants, and loading/unloading facilities. The location also manufactures and installs additive and dye injection systems. These systems are used to inject performance additives and/or dyes into petroleum products. #### Test, Inspection, and Threading Services The Test, Inspection, and Threading Services business unit provides inspection and tubular integrity management services for the upstream oil and gas industry. Services include non-destructive testing, inspection, and other asset integrity services such as repair and threading for Oil Country Tubular Goods (“OCTG”) and drill tools. Inspection and testing of these products, which include replaceable and re-usable products such as casing, production tubing, drill pipe, directional motors, drill collars, and their related equipment, is a critical preventative measure to reinforce personnel and well-site safety, enhance efficiency, and avoid costly equipment failures and well-site shutdowns. The business offers these services in every major oil and gas producing region throughout the United States. The business also provides asset integrity services such as repair and threading for tubular and drill tools. Our facilities cut, thread, and paint pipe primarily for water well applications in the agriculture industry, municipal water authorities, and OCTG markets. ### Marketing and Competition L.B. Foster Company generally markets its Rail Products and Services directly in all major industrial areas of the United States, Canada, and Europe. The Construction Products and Tubular and Energy Services are primarily marketed domestically. The Company employs a sales force of approximately 80 people that is supplemented with a network of agents across Europe, South America, and Asia to reach current customers and cultivate potential customers in these areas. For the years ended 2019 and 2018, approximately 19% and 23%, respectively, of the Company’s total sales were outside the United States. The major markets for the Company’s products are highly competitive. Product availability, quality, service, and price are principal factors of competition within each of these markets. No other company provides the same product mix to the various markets the Company serves. However, there are one or more companies that compete with the Company in each product line. Therefore, the Company faces significant competition from different groups of companies. During 2019 and 2018, no single customer accounted for more than 10% of the Company’s consolidated net sales. ### Raw Materials and Supplies Most of the Company’s products are purchased in the form of finished or semi-finished products. The Company purchases the majority of its supplies from domestic and foreign steel producers. Generally, the Company has a number of vendor options. However, the Company has an arrangement with a steel mill to distribute steel piling in North America. Should piling from its present supplier not be available for any reason, the Company risks not being able to provide such product to its customers. The Company’s purchases from foreign suppliers are subject to foreign currency exchange rate changes as well as the usual risks associated with changes in international conditions as well as United States and international laws that could impose import restrictions on selected classes of products and for anti-dumping duties if products are sold in the United States at prices that are below specified prices. ### Backlog The Company’s backlog represents the sales price of received customer purchase orders or contracts in which the performance obligations have not been met, and therefore are precluded from revenue recognition. Although the Company believes that the orders included in backlog are firm, customers may cancel or change their orders with limited advance notice; however, these instances are rare. Backlog should not be considered a reliable indicator of the Company’s ability to achieve any particular level of revenue or financial performance. The backlog as of December 31, 2019 and 2018 by business segment was as follows: | | December 31, 2019 | 2018 | | --- | ---: | ---: | | Rail Products and Services | $103,694 | $97,447 | | Construction Products | 92,280 | 95,419 | | Tubular and Energy Services | 34,093 | 27,552 | | Total | $230,067 | $220,418 | Approximately 8.3% of the December 31, 2019 backlog was related to projects that will extend beyond 2020. ### Research and Development Expenditures for research and development approximated $2,614 and $2,646 in 2019 and 2018, respectively. These expenditures were predominately associated with expanding product lines and capabilities within the Company’s Rail Technologies business unit. ### Patents and Trademarks The Company owns a number of domestic and international patents and trademarks, primarily related to its Rail Technologies products. The Company’s business segments are not dependent upon any individual patents or related group of patents, nor any individual licenses or distribution rights. The Company believes that, in the aggregate, the rights under its patents, trademarks, and licenses are generally important to its operations, but it does not consider any individual patent or trademark, nor any licensing or distribution rights related to a specific process or product, to be of material importance in relation to its total business. ### Environmental Disclosures Information regarding environmental matters is included in Part II, Item 8, Financial Statements and Supplementary Data, Note 18 to the Consolidated Financial Statements included herein, which is incorporated by reference into this Item 1. ### Employees and Employee Relations As of December 31, 2019, the Company had approximately 1,330 employees, 1,161 located within the Americas and 169 located in Europe. There were 681 hourly production workers and 649 salaried employees. Of the hourly production workers, approximately 111 were represented by unions. The Company has not suffered any major work stoppages during the past five years and considers its relations with its employees to be satisfactory. Three collective bargaining agreements covering approximately 33, 23, and 55 employees are scheduled to expire in March 2020, August 2021, and September 2021, respectively. As a result of the Company’s relocation of the concrete products operations from Spokane, WA to Boise, ID, a separation agreement has been executed with the collective bargaining unit representing the employees affected by this relocation. This agreement had no impact on the employees under the same collective bargaining agreement at the concrete tie operations in Spokane, WA. Substantially all of the Company’s hourly paid employees are covered by one of the Company’s noncontributory, defined benefit plans or defined contribution plans. Substantially all of the Company’s salaried employees are covered by defined contribution plans. ### Financial Information about Liquidity and Capital Resources Information concerning the Company’s liquidity and capital resources and the Company’s working capital requirements can be found in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, contained in this Annual Report on Form 10-K, which is incorporated by reference into this Item 1. ### Financial Information about Geographic Areas Financial information about geographic areas is set forth in Part II, Item 8, Financial Statements and Supplementary Data, Note 2 to the Consolidated Financial Statements, contained in this Annual Report on Form 10-K, which is incorporated by reference into this Item 1. ### Financial Information about Segments Financial information about segments is set forth in Part II, Item 8, Financial Statements and Supplementary Data, Note 2 to the Consolidated Financial Statements, contained in this Annual Report on Form 10-K, which is incorporated by reference into this Item 1. ### Code of Ethics L.B. Foster Company has a legal and ethical conduct policy applicable to all directors and employees, including its Chief Executive Officer, Chief Financial Officer, and Principal Accounting Officer. This policy is posted on the Company’s website, *www.lbfoster.com*. The Company intends to satisfy the disclosure requirement regarding certain amendments to, or waivers from, provisions of its policy by posting such information on the Company’s website. In addition, the Company’s ethics hotline can also be used by employees and others for the anonymous communication of concerns about financial controls, human resource concerns, and other reporting matters. ### Available Information The Company makes certain filings with the Securities and Exchange Commission (“SEC”), including its Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and all amendments and exhibits to those reports, available free of charge through its website, *www.lbfoster.com*, as soon as reasonably practicable after they are filed with the SEC. The SEC maintains an internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. These filings, including the Company's filings, are available at the SEC’s internet site at *www.sec.gov*. The Company’s press releases and recent investor presentations are also available on its website. ### Executive Officers of the Registrant Information concerning the executive officers of the Company is set forth below: | Name | Age | Position | | --- | ---: | --- | | Robert P. Bauer | 61 | President and Chief Executive Officer | | Patrick J. Guinee | 50 | Senior Vice President, General Counsel, and Secretary | | John F. Kasel | 54 | Senior Vice President and Chief Operating Officer | | Brian H. Kelly | 60 | Senior Vice President - Human Resources and Administration | | Gregory W. Lippard | 51 | Vice President - Rail | | James P. Maloney | 52 | Senior Vice President and Chief Financial Officer | | William F. Treacy | 60 | Vice President - Tubular and Energy Services | Mr. Bauer was elected President and Chief Executive Officer upon joining the Company in 2012. Prior to joining the Company, beginning in 2011, Mr. Bauer served as President of the Refrigeration Division of the Climate Technologies business of Emerson Electric Company, a diversified global manufacturing and technology company. From 2002 until 2011, Mr. Bauer served as President of Emerson Network Power’s Liebert Division. Mr. Guinee serves as Senior Vice President, General Counsel, and Secretary and was elected Vice President, General Counsel, and Secretary in 2014. Prior to joining the Company, Mr. Guinee served as Vice President - Securities and Corporate and Assistant Secretary at Education Management Corporation from 2013 to early 2014, and was employed by H. J. Heinz Company from 1997 to 2013, last serving as Vice President - Corporate Governance and Securities and Assistant Secretary. Mr. Kasel was elected Senior Vice President and Chief Operating Officer in December 2019, having previously served as Senior Vice President - Rail and Construction since 2017, Senior Vice President - Rail Products and Services from 2012 to 2017, Senior Vice President - Operations and Manufacturing from 2005 to 2012, and Vice President - Operations and Manufacturing from 2003 to 2005. Mr. Kasel served as Vice President of Operations for Mammoth, Inc., a Nortek company from 2000 to 2003. Mr. Kelly serves as Senior Vice President - Human Resources and Administration and was elected Vice President - Human Resources and Administration in 2012, having previously served as Vice President, Human Resources since 2006. Prior to joining the Company, Mr. Kelly headed Human Resources for 84 Lumber Company from 2004. Previously, he served as a Director of Human Resources for American Greetings Corp. from 1994 to 2004. Mr. Lippard has served as Vice President - Rail, and was previously Vice President - Rail Products from September 2017 to December 2019. From 2000 to 2017, he served as Vice President - Rail Product Sales. Prior to re-joining the Company in 2000, Mr. Lippard served as Vice President - International Trading for Tube City, Inc. from 1998. Mr. Lippard served in various other capacities with the Company after his initial employment in 1991. Mr. Maloney was elected Senior Vice President and Chief Financial Officer in September 2017. Prior to joining the Company, Mr. Maloney served as Chief Financial Officer of First Insight, Inc. from 2014 to 2017. Mr. Maloney was employed by H. J. Heinz Company from 2005 to 2014, last serving as Vice President - Global Financial Planning and Supply Chain Finance. Mr. Maloney was employed by Ernst & Young LLP from 1993 to 2005, last serving as Senior Manager, Assurance Practice. Mr. Treacy was elected Vice President - Tubular and Energy Services in September 2017, having previously served as Director of Technology and General Manager, Transit Products within the Rail Products and Services segment since 2013. Prior to joining the Company, Mr. Treacy served as Interim President of Tuthill Vacuum and Blower Systems from 2012 to 2013. Mr. Treacy previously served as General Manager, Crane Vending Solutions for Crane Co. from 2009 to 2011 and was employed by Parker Hannifin from 2000 to 2009, last serving as Vice President of Operations Development. Officers are elected annually at the organizational meeting of the Board of Directors following the annual meeting of stockholders. ## Risk factors As filed, 29,388 characters. ### Risks and Uncertainties We operate in a changing environment that involves numerous known and unknown risks and uncertainties that could have a material and adverse effect on our business, financial condition, and results of operations. The following risks highlight some of the more significant factors that have affected us and could affect us in the future. We may also be affected by unknown risks or risks that we currently believe are immaterial. If any one or more such events actually occur, our business, financial condition, and results of operations could be materially and adversely affected. One should carefully consider the following factors and other information contained in this Annual Report on Form 10-K and any other risks discussed in our other periodic filings with the SEC before deciding to invest in our common stock. ***Our inability to successfully manage divestitures and other significant transactions could harm our financial results, business, and prospects.*** As part of our business strategy, we may divest businesses or assets, enter into strategic alliances and joint ventures, or make investments to realize anticipated benefits, actions which involve a number of inherent risks and uncertainties. We can give no assurances that the opportunities will be consummated or that financing will be available. We may not be able to achieve the synergies and other benefits we expect from strategic transactions as successfully or as rapidly as projected, if at all. ***Our future performance and market value could cause write-downs of long-lived and intangible assets in future periods.*** We are required under U.S. generally accepted accounting principles to review intangible assets for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable. In addition, goodwill is required to be tested for impairment at least annually. Factors that may be considered to be a change in circumstances indicating that the carrying value of our intangible assets may not be recoverable include, but are not limited to, a decline in stock price and resulting market capitalization, a significant decrease in the market value of an asset, or a significant decrease in operating or cash flow projections. No impairments of goodwill or long-lived assets were recorded in 2019 or 2018. No assurances can be given that we will not be required to record future significant charges related to tangible or intangible asset impairments. ***Our indebtedness could materially and adversely affect our business, financial condition, and results of operations and prevent us from fulfilling our obligations.*** Our indebtedness could materially and adversely affect our business, financial condition, and results of operations. For example, it could: - require us to dedicate a substantial portion of our cash flows to payments of our indebtedness, which would reduce the availability of our cash flows to fund working capital, capital expenditures, expansion efforts, or other general corporate purposes; - limit our flexibility in planning for, or reacting to, changes in our business and the industries in which we operate; - place us at a competitive disadvantage compared to our competitors that have less debt; and - limit, among other things, our ability to borrow additional funds for working capital, capital expenditures, or other general corporate purposes. Our inability to comply with covenants in place or our inability to make the required principal and interest payments may cause an event of default, which could have a substantial adverse impact to our business, financial condition, and results of operations. There is no assurance that refinancings or asset dispositions could be effected on a timely basis or on satisfactory terms, if at all, particularly if credit market conditions deteriorate. Furthermore, there can be no assurance that refinancings or asset dispositions would be permitted by the terms of our credit agreements or debt instruments. Our existing credit agreements contain, and any future debt agreements we may enter into may contain, certain financial tests and other covenants that limit our ability to incur indebtedness, acquire other businesses, and may impose various other restrictions. Our ability to comply with financial tests may be adversely affected by changes in economic or business conditions beyond our control, and these covenants may limit our ability to take advantage of potential business opportunities as they arise. We cannot be certain that we will be able to comply with the financial tests and other covenants, or, if we fail to do so, that we will be able to obtain waivers or amended terms from our lenders. An uncured default with respect to one or more of the covenants could result in the amounts outstanding being declared immediately due and payable, which may also trigger an obligation to redeem our outstanding debt securities and repay all other outstanding indebtedness. Any such acceleration of our indebtedness would have a material and adverse effect on our business, financial condition, and results of operations. Certain portions of our variable rate debt, including our revolving credit facility, currently uses LIBOR as a benchmark for establishing the interest rate. The SEC staff has stated that “\[i\]t is expected that a number of private-sector banks currently reporting information used to set LIBOR will stop doing so after 2021 when their current reporting commitment ends, which could either cause LIBOR to stop publication immediately or cause LIBOR’s regulator to determine that its quality has degraded to the degree that it is no longer representative of its underlying market.” The consequences of this and other developments with respect to LIBOR cannot be entirely predicted but may result in an increase in the interest cost of our variable rate debt. ***Prolonged depressed energy prices and other unfavorable changes in U.S., global, or regional economic and market conditions could adversely affect our business.*** We could be adversely impacted by prolonged negative changes in economic conditions affecting either our suppliers or customers, as well as the capital markets. Negative changes in government spending may result in delayed or permanent deferrals of existing or potential projects. No assurances can be given that we will be able to successfully mitigate various prolonged uncertainties, including materials cost variability, delayed or reduced customer orders and payments, and access to available capital resources outside of operations. In addition, volatile market conditions and depressed energy prices could continue for an extended period, which would negatively affect our business prospects and reduce profitability. Historically, oil and natural gas prices have been volatile and are subject to fluctuations in response to changes in supply and demand, market uncertainty, and a variety of additional factors that are beyond our control. Sustained declines or significant and frequent fluctuations in the price of oil and natural gas may have a material and adverse effect on our operations and financial condition. ***Our ability to maintain or improve our profitability could be adversely impacted by cost pressures.*** Our profitability is dependent upon the efficient use of our resources. Rising inflation, labor costs, labor disruptions, and other increases in costs due to tariffs or other reasons in the geographic areas in which we operate could have a significant adverse impact on our profitability and results of operations. ***Management projections, estimates, and judgments may not be indicative of our future performance.*** Our management team is required to use certain estimates in preparing our financial statements, including accounting estimates to determine reserves related to litigation, deferred tax assets, and the fair market value of certain assets and liabilities. Certain asset and liability valuations are subject to management’s judgment and actual results are influenced by factors outside our control. We are required to maintain a valuation allowance for deferred tax assets and record a charge to income if we determine, based on evidence available at the time the determination is made, that it is more likely than not some portion or all of the deferred tax assets will not be realized. This evaluation process involves significant management judgment about assumptions that are subject to change from period to period. The use of different estimates can result in changes in the amount of deferred taxes recognized, which can result in earnings volatility because such changes are reported in current period earnings. See Part II, Item 8, Financial Statements and Supplementary Data, Note 14 to the Consolidated Financial Statements, contained in this Annual Report on Form 10-K, for additional discussion of our deferred taxes. ***Our business operates in highly competitive markets and a failure to react to changing market conditions could adversely impact our business.*** We face strong competition in each of the markets in which we operate. A slow response to competitor pricing actions and new competitor entries into our product lines could negatively impact our overall pricing. Efforts to improve pricing could negatively impact our sales volume in all product categories. We may be required to invest more heavily to maintain and expand our product offerings. There can be no assurance that new product offerings will be widely accepted in the markets we serve. Significant negative developments in any of these areas could adversely affect our financial results and condition. ***If we are unable to protect our intellectual property and prevent its improper use by third parties, our ability to compete may be harmed.*** We own a number of patents and trademarks under the intellectual property laws of the United States, Canada, Europe, and other countries in which product sales are possible. However, we have not perfected patent and trademark protection of our proprietary intellectual property for all products in all countries. The decision not to obtain patent and trademark protection in additional countries may result in other companies copying and marketing products that are based upon our proprietary intellectual property. This could impede growth into new markets where we do not have such protections and result in a greater supply of similar products in such markets, which in turn could result in a loss of pricing power and reduced revenue. ***Our success is in part dependent on the accuracy and proper utilization of our management information and communications systems.*** We are currently working through an enterprise resource program (“ERP”) system transition. Certain divisions of our Company migrated into the new ERP system during 2016, additional divisions migrated during 2019, and certain other divisions may be transitioned during 2020 and subsequent years. The system implementation is intended to enable us to better meet the information requirements of our users, increase our integration efficiencies, and identify additional synergies in the future. The implementation of our ERP system is complex because of the wide range of processes and systems to be integrated across our business. Any disruptions, delays, or deficiencies in the design, operation, or implementation of our various systems, or in the performance of our systems, particularly any disruptions, delays, or deficiencies that impact our operations, could adversely affect our ability to effectively run and manage our business, including our ability to receive, process, ship, and bill for orders in a timely manner or our ability to properly manage our inventory or accurately present our inventory availability or pricing. Project delays, business interruptions, or loss of expected benefits could have a material and adverse effect on our business, financial condition, or results of operations. ***We are subject to cybersecurity risks and may incur increasing costs in an effort to minimize those risks.*** Our business employs systems and websites that allow for the storage and transmission of proprietary or confidential information regarding our customers, employees, job applicants, and other parties, including financial information, intellectual property, and personal identification information. Security breaches and other disruptions could compromise our information, expose us to liability, and harm our reputation and business. 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 the adoption of laws and regulations regarding the collection, use, and disclosure of personal information obtained from customers and individuals. The costs of compliance with, and other burdens imposed by, such data privacy laws and regulations, including those of the European Union (“E.U.”) and the U.K. which are, in some respects, more stringent than U.S. standards, could be significant. Any compromise or breach of our security could result in a violation of applicable privacy and other laws, legal and financial exposure, negative impacts on our customers’ willingness to transact business with us, and a loss of confidence in our security measures, which could have an adverse effect on our results of operations and our reputation. ### We are dependent upon key customers. We could be adversely affected by changes in the business or financial condition of a customer or customers. A prolonged decrease in capital spending by our rail customers or decline in sales orders from other customers could negatively impact our sales and profitability. No assurances can be given that a significant downturn in the business or financial condition of a current customer, or customers, or potential litigation with a current customer, would not also impact our future results of operations and/or financial condition. ***An adverse outcome in any pending or future litigation or pending or future warranty claims against the Company or its subsidiaries or our determination that a customer has a substantial product warranty claim could negatively impact our financial results and/or our financial condition.*** We are party to various legal proceedings. In addition, from time to time our customers assert claims against us relating to the warranties which apply to products we have sold. There is the potential that an outcome adverse to us or our subsidiaries in pending or future legal proceedings or pending or future product warranty claims could materially exceed any accruals we have established and adversely affect our financial results and/or financial condition. In addition, we could suffer a significant loss of business from a customer who is dissatisfied with the resolution of a warranty claim. ***A portion of our sales are derived from our international operations, which expose us to certain risks inherent in doing business on an international level.*** Doing business outside the United States subjects the Company to various risks, including changing economic and political conditions, work stoppages, exchange controls, currency fluctuations, armed conflicts, and unexpected changes in U.S. and foreign laws relating to tariffs, trade restrictions, transportation regulations, foreign investments, and taxation. Increasing sales to foreign countries, including Canada, China, India, Mexico, the U.K., and countries within the E.U., exposes the Company to increased risk of loss from foreign currency fluctuations and exchange controls as well as longer accounts receivable payment cycles. We have little control over most of these risks and may be unable to anticipate changes in international economic and political conditions and, therefore, unable to alter our business practices in time to avoid the adverse effect of any of these possible changes. Changes in exchange rates for foreign currencies may reduce international demand for our products or increase our labor or supply costs in non-U.S. markets. Fluctuations in the relative values of the U.S. dollar, Canadian dollar, British pound, and Euro may result in volatile earnings to reflect exchange rate translation in our Canadian and European sales and operations. If the U.S. dollar strengthens in value as compared to the value of the Canadian dollar, British pound, or Euro, our reported earnings in dollars from sales in those currencies will be unfavorable. Conversely, a favorable result will be reported if the U.S. dollar weakens in value as compared to the value of the Canadian dollar, British pound, or Euro. ***Economic conditions and regulatory changes caused by the United Kingdom’s exit from the European Union could adversely affect our business.*** Pursuant to a June 2016 referendum, the U.K. left the E.U. on January 31, 2020, commonly referred to as “Brexit.” The U.K. government and the E.U. are operating under a transitional arrangement that expires on December 31, 2020, and the parties are working on the terms of a future relationship, including a potential trade agreement. The nature and terms of the future relationship between the U.K. and the E.U. remain subject to negotiation and uncertain. Additionally, Brexit could lead to legal uncertainties related to applicable laws and regulations that apply to our operations and as the U.K. determines which E.U. laws and regulations to adopt, replace, or disregard. There has been volatility in currency exchange rate fluctuations between the U.S. dollar relative to the British pound, which could continue. The withdrawal of the U.K. from the E.U. has also created market volatility and could continue to contribute to instability in global financial and foreign exchange markets, political institutions, and regulatory agencies as negotiations of trade deals between the U.K. and the E.U., and also between the U.K. and other countries, possibly including the U.S., occur during the transition period. Brexit is an unprecedented event, and, accordingly, it is unclear what long-term economic, financial, trade, and legal effects will result. The majority of our U.K. operations are heavily concentrated within the U.K. borders; however, this could adversely affect the future growth of our U.K. operations into other European locations. Our U.K. operations represented approximately 9% and 11% of our total revenue for the years ended December 31, 2019 and 2018, respectively. During the years ended December 31, 2019 and 2018, less than 1% of our consolidated net revenue was from the U.K. operation’s sales exported to E.U. members other than the U.K. ***Material modification to the North American Free Trade Agreement (“NAFTA”) and certain other international trade agreements could affect our business, financial condition, and results of operations.*** The current Presidential administration has made comments suggesting it is not supportive of certain international trade agreements, including NAFTA. On November 30, 2018, the United States-Mexico-Canada Agreement (“USMCA”) was signed by the parties, and has been ratified by each country except Canada. At this time, it remains unclear what the current administration and Congress would or would not do with respect to these international trade agreements. Potential material modifications to NAFTA, or certain other international trade agreements, including USMCA, may have a material adverse effect on our business, financial condition, and results of operations. ***Violations of foreign governmental regulations, including the U.S. Foreign Corrupt Practices Act and similar worldwide anti-corruption laws, could result in fines, penalties, and criminal sanctions against the Company, its officers, or both and could have a material and adverse effect on our business.*** Our foreign operations are subject to governmental regulations in the countries in which we operate, as well as U.S. laws. These regulations include those related to currency conversion, repatriation of earnings, taxation of our earnings and the earnings of our personnel, and the increasing requirement in some countries to make greater use of local employees and suppliers, including, in some jurisdictions, mandates that provide for greater local participation in the ownership and control of certain local business assets. The U.S. Foreign Corrupt Practices Act and other similar worldwide anti-corruption laws, such as the U.K. Bribery Act, prohibit improper payments for the purpose of obtaining or retaining business. Although we have established an internal control structure, corporate policies, compliance, and training processes to reduce the risk of violation, we cannot ensure that these procedures protect us from violations of such policies by our employees or agents. Failure to comply with applicable laws or regulations could subject us to fines, penalties, and suspension or debarment from contracting. Events of non-compliance could harm our reputation, reduce our revenues and profits, and subject us to criminal and civil enforcement actions. Violations of such laws or allegations of violation could disrupt our business and result in material adverse results to our operating results or future profitability. ***Certain divisions of our business depend on a small number of suppliers. The loss of any such supplier could have a material and adverse effect on our business, financial condition, and result of operations.*** In our Rail Products business unit, we rely on a limited number of suppliers for key products that we sell to our customers. In addition, our Piling division is predominantly dependent upon one supplier for sheet piling while our Protective Coatings division is predominately dependent on two suppliers of epoxy coating. A significant downturn in the business of one or more of these suppliers, a disruption in their manufacturing operations, an unwillingness to continue to sell to us, or a disruption in the availability of existing and new piling and rail products may adversely impact our financial results. ***Fluctuations in the price, quality, and availability of the primary raw materials used in our business could have a material and adverse effect on our operations and profitability.*** Many of our businesses utilize steel as a significant product component. The steel industry is cyclical and prices and availability are subject to these cycles, as well as to international market forces. We also use significant amounts of cement and aggregate in our Concrete Ties and Precast Concrete Products businesses. No assurances can be given that our financial results would not be adversely affected if prices or availability of these materials were to change in a significantly unfavorable manner. ***Labor disputes may have a material and adverse effect on our operations and profitability.*** Four of our manufacturing facilities are staffed by employees represented by labor unions. Approximately 111 employees employed at these facilities are currently working under three separate collective bargaining agreements. Disputes with regard to the terms of these agreements or our potential inability to renegotiate acceptable contracts with these unions could result in, among other things, strikes, work stoppages, slowdowns, or lockouts, which could cause a disruption of our operations and have a material and adverse effect on our results of operations, financial condition, and liquidity. ***Actions of activist shareholders could be disruptive and potentially costly and the possibility that activist shareholders may seek changes that conflict with our strategic direction could cause uncertainty about the strategic direction of our business.*** In February 2016, the Company entered into an agreement with an activist investor, Legion Partners Asset Management, LLC and various of its affiliates (collectively, “Legion Partners”) that had filed a Schedule 13D with the SEC with respect to the Company. This agreement expired by its terms on February 13, 2018, and Legion Partners remains a greater than 5% owner of Company stock. Activist investors may attempt to effect changes in the Company’s strategic direction and how the Company is governed, or to acquire control over the Company. Some investors seek to increase short-term shareholder value by advocating corporate actions, such as financial restructuring, increased borrowing, special dividends, stock repurchases, or even sales of assets or the entire company. While the Company welcomes varying opinions from all shareholders, activist campaigns that contest or conflict with our strategic direction could have an adverse effect on the Company’s results of operations and financial condition, as responding to proxy contests and other actions by activist shareholders can disrupt our operations, be costly and time-consuming, and divert the attention of the Company’s board and senior management from the pursuit of business strategies. In addition, perceived uncertainties as to our future direction as a result of changes to the composition of our Board may lead to the perception of a change in the direction of the business, instability or lack of continuity, which may be exploited by our competitors, may cause concern to our current or potential customers, may result in the loss of potential business opportunities and may make it more difficult to attract and retain qualified personnel and business partners. These types of actions could cause significant fluctuations in our stock price based on temporary or speculative market perceptions or other factors that do not necessarily reflect the underlying fundamentals and prospects of our business. ***Our success is highly dependent on the continued service and availability of qualified personnel.*** Much of our future success depends on the continued availability and service of key personnel, including our Chief Executive Officer, the executive team, and other highly skilled employees. Changes in demographics, training requirements, and the availability of qualified personnel could negatively affect our ability to compete and lead to a reduction in our profitability. ***We may not foresee or be able to control certain events that could adversely affect our business.*** Unexpected events, including fires or explosions at our facilities, natural disasters, armed conflicts, terrorism, health epidemics or pandemics, economic or political uncertainties or instability, civil unrest, strikes, unplanned outages, equipment failures, failure to meet product specifications, or disruptions in certain areas of our operations, may cause our operating costs to increase or otherwise negatively impact our financial performance. ***Shifting federal, state, local, and foreign regulatory policies impose risks to our operations.*** We are subject to regulation by federal, state, local, and foreign regulatory agencies and are therefore subject to a variety of legal proceedings and compliance risks, including those described in Item 3 - Legal Proceedings and in Part II, Item 8, Financial Statements and Supplementary Data, Note 18 to the Consolidated Financial Statements, contained in this Annual Report on Form 10-K. Like other companies engaged in environmentally sensitive businesses, we are required to comply with numerous laws and regulations, including environmental matters relating to, among other things, the treatment, disposal, and storage of wastes, investigation and remediation of contaminated soil and groundwater, the discharge of effluent into waterways, and the emissions of substances into the air. We are required to obtain various authorizations, permits, approvals, and certificates from governmental agencies. The Company could be subject to liability with respect to remediation of past contamination in the operation of some of its current and former facilities and remediation of contamination by former owners or operators of the Company’s current or former facilities. Compliance with emerging regulatory initiatives, delays, discontinuations, or reversals of existing regulatory policies in the markets in which we operate, including costs associated with any required environmental remediation and monitoring, could have an adverse effect on our business, results of operations, cash flows, and financial condition. A substantial portion of our operations is heavily dependent on governmental funding of infrastructure projects. Many of these projects have “Buy America” or “Buy American” provisions. Significant changes in the level of government funding of these projects could have a favorable or unfavorable impact on our operating results. Additionally, government actions concerning “Buy America” provisions, taxation, tariffs, the environment, or other matters could impact our operating results. ## Properties As filed, 2,500 characters. The location and general description of the principal properties that are owned or leased by L.B. Foster Company, together with the segment of the Company’s business using such properties, are set forth in the following table: | Location | Function | Acres | Business Segment | Lease Expiration | | --- | --- | ---: | --- | --- | | Bedford, PA | Bridge component fabricating plant | 16 | Construction | Owned | | Birmingham, AL | Protective coatings facility | 32 | Tubular and Energy | 2022 | | Burnaby, BC, Canada | Friction management products plant | N/A | Rail | 2021 | | Channelview, TX | Threading, test, and inspection facility | 73 | Tubular and Energy | Owned | | Columbia City, IN | Rail processing facility and yard storage | 22 | Rail | Owned | | Hillsboro, TX | Precast concrete facility | 9 | Construction | Owned | | Kimball, NE | Threading, test, and inspection facility | 145 | Tubular and Energy | Owned | | Leming, TX | Threading, test, and inspection facility | 63 | Tubular and Energy | Owned | | Magnolia, TX | Threading facility | 34 | Tubular and Energy | Owned | | Niles, OH | Rail fabrication, friction management products, and yard storage | 35 | Rail | Owned | | Petersburg, VA | Piling storage facility | 35 | Construction | Owned | | Pueblo, CO | Rail joint manufacturing facility | 9 | Rail | Owned | | Saint-Jean-sur-Richelieu, QC, Canada | Rail anchors and track spikes manufacturing plant | 17 | Rail | Owned | | Sheffield, United Kingdom | Track component and friction management products facility | N/A | Rail | 2030 | | Spokane, WA | Concrete tie plant | 13 | Rail | 2020 | | Spokane, WA | Precast concrete facility | 5 | Construction | 2020 | | Waverly, WV | Precast concrete facility | 85 | Construction | Owned | | Willis, TX | Protective coatings facility | 16 | Tubular and Energy | Owned | | Willis, TX | Measurement services facility | 13 | Tubular and Energy | Owned | Included in the table above are certain facilities leased by the Company for which there is no acreage included in the lease. For these properties a “N/A” has been included in the “Acres” column. Including the properties listed above, the Company has a total of 22 sales offices, including its headquarters in Pittsburgh, PA, and 32 warehouses, plants, and yard facilities located throughout the United States, Canada, and Europe. The Company’s facilities are in good condition and suitable for the Company’s business as currently conducted and as currently planned to be conducted. ## Legal proceedings As filed, 320 characters. Information regarding the Company’s legal proceedings and other commitments and contingencies is set forth in Part II, Item 8, Financial Statements and Supplementary Data, Note 18 to the Consolidated Financial Statements, contained in this Annual Report on Form 10-K, which is incorporated by reference into this Item 3. ## Management's discussion and analysis As filed, 51,187 characters. (Dollars in thousands, except share data unless otherwise noted) ### Executive Level Overview ### 2019 Developments and 2020 Outlook During 2019: - Net sales increased by $28,088, or 4.5%, to $655,057; - New orders(a) decreased by 2.5%; however, backlog(a) of $230,067 was a 4.4% increase over the prior year end; - The Company generated net income of $42,568, or $4.00 per diluted share; - We reversed a valuation allowance of $29,648 on our U.S. deferred tax assets; - The Company reported adjusted EBITDA (earnings before interest, taxes, depreciation, amortization, and certain expenses) of $45,642; (b) - We effectively managed working capital levels, resulting in $29,297 of net cash provided by operating activities; - We reduced borrowings by $16,789, or 22.4%, to 58,193, resulting in net debt $44,015; (b) - The Company successfully implemented cost containment programs resulting in a 60 basis point decline year over year in selling and administrative expense as a percent of sales; - Our credit agreement was amended from a maximum capacity of $195,000 to $165,000, including a term loan of $25,000; - We announced and commenced the relocation of the CXT Concrete Buildings facility in Spokane, WA to Boise, ID, which was complete in the first quarter of 2020; and - The Company concluded U.S. pension settlements which resulted in a $2,210 non-cash expense. *(a) The Company defines new orders as a contractual agreement between the Company and a third-party in which the Company will, or has the ability to, satisfy the performance obligations of the promised products or services under the terms of the agreement. The Company defines backlog as contractual commitments to customers for which the Company’s performance obligations have not been met, including with respect to new orders and contracts for which the Company has not begun any performance. Management utilizes new orders and backlog to evaluate the health of the industries in which the Company operates, the Company’s current and future results of operations and financial prospects, and strategies for business development. The Company believes that new orders and backlog are useful to investors as supplemental metrics by which to measure the Company’s current performance and prospective results of operations and financial performance.* *(b) The following tables display reconciliations of non-GAAP financial measures for the years ended December 31, 2019 and 2018. EBITDA is a financial metric utilized by management to evaluate the Company’s performance on a comparable basis. The Company believes that EBITDA is useful to investors as a supplemental way to evaluate the ongoing operations of the Company’s business as EBITDA enhances investors’ ability to compare historical periods as it adjusts for the impact of financing methods, tax law and strategy changes, and depreciation and amortization. In addition, EBITDA is a financial measurement that management and the Company’s Board of Directors use in their financial and operational decision-making and in the determination of certain compensation programs. Adjusted EBITDA includes certain adjustments to EBITDA. In 2019, the Company made adjustments to exclude the impact of the U.S. defined benefit plan settlements, costs associated with relocation and closure activities, including nonoperational start-up costs related to the Boise, ID facility. In 2018, the Company made adjustments to exclude the impact of the Union Pacific Railroad Concrete Tie Settlement. The Company views net debt, which is total debt less cash and cash equivalents, as an important metric of the operational and financial health of the organization and useful to investors as an indicator of our ability to incur additional debt and to service our existing debt. Non-GAAP financial measures are not a substitute for GAAP financial results and should only be considered in conjunction with the Company’s financial information that is presented in accordance with GAAP. Quantitative reconciliations of EBITDA and debt to the non-GAAP financial measures are presented below.* | Adjusted EBITDA Reconciliation | Year Ended December 31, 2019 | 2018 | | --- | ---: | ---: | | Net income (loss) | $42,568 | $(31,168) | | Interest expense, net | 4,920 | 6,154 | | Income tax (benefit) expense | (25,171) | 4,457 | | Depreciation | 11,054 | 11,495 | | Amortization | 6,577 | 7,098 | | Total EBITDA | 39,948 | (1,964) | | Relocation and closure costs | 3,484 | — | | U.S. pension settlement expense | 2,210 | — | | Concrete Tie Settlement expense | — | 43,400 | | Adjusted EBITDA | $45,642 | $41,436 | 15 | Net Debt Reconciliation | December 31, 2019 | 2018 | | --- | ---: | ---: | | Total debt | $58,193 | $74,982 | | Less: cash and cash equivalents | (14,178) | (10,282) | | Net debt | $44,015 | $64,700 | The Company entered 2019 with a solid starting backlog that was coupled with sustained, but uneven at times, order activity throughout the year, which led to each of our three segments exceeding their prior year sales totals. This facilitated our year over year increase in operating results while still being able to maintain a strong backlog as we enter 2020. While sales and gross profit increased over the prior year, the Company’s gross profit margins were unfavorably impacted by weakness in our energy market test and inspection services, operational execution in piling distribution, as well as product mix dilution by increased contributions from our lower margin distribution product lines. We were able to continue our containment of selling and administrative expenses, which were reduced on a percent of sales basis. Our operating teams were able to successfully manage working capital levels while sales increased over the prior year. The operating cash generated allowed us to continue to reduce our outstanding debt as well as improve our leverage ratio throughout the year. This in turn provided us the flexibility in our capital deployment strategies to enhance and expand our operations as we look forward. In 2019, our Rail Products and Services segment reported increased sales in our North American markets when compared to the prior year. The North American transit market primarily supported our sales growth, as demand for expansion projects aimed at congested cities remained strong during the year, despite timing delays. This trend was reinforced during the fourth quarter with two significant transit projects being secured. With rail transit spending significantly up over the prior year, we continued to see transit operators investing in infrastructure with the expansion and modernization of existing operations across both North America and Europe. The North American transit networks were favorably impacted by funding for capacity expansion as ridership levels on a macro basis increased. Conversely, our sales in Europe decreased in 2019, as service work related to the London Crossrail transit system project has been reduced as we began to near the completion of the project. We have expanded our service team in the U.K. to meet the requirements of these major projects for the London Underground rail and other significant modernization projects. Much of this work is directed to on-track services for the integration of driver automation, passenger information systems, access control, and security system interface. Our friction management products and services also contributed to the year over year sales growth. The Company continues to target and advance products and solutions to help improve safety and operating efficiency as well as introduce services that contribute to extending the useful life of certain rail equipment and lowering maintenance costs for operators. As friction management becomes increasingly important to freight railroads as operators see the demonstrated savings and reduced wear and tear, our initiatives around growth and service contracts for friction management are continuing to move forward. Our on-track services in the United States continued to expand during 2019, providing installation, maintenance, monitoring, and inspection of our on-track products. During the second half of 2019, the United States freight rail market showed signs of weakness, with carriers reporting declining commodity carload volume. This was driven by an overall manufacturing economic slowdown, unfavorable conditions in agriculture, continuing decline in coal, and reduced intermodal shipments. While the segment was not significantly impacted by this slowdown during 2019, we will continue to monitor this market in 2020. With steel prices relatively stable during the year, our pricing exposures were minimized compared to what we would expect to see in more volatile market conditions. The segment continued to focus on maintaining a tight cost structure and maximizing profitability, which was evidenced by the increased gross profit margins. We believe our current structure in our Rail Products and Services segment resulted in positive results in 2019 and has positioned us for continued growth in 2020, supported by a strong ending backlog and plans to expand our served markets. Year over year improvement in the Tubular and Energy Services segment was driven by the midstream markets we serve that include our Protective Coatings and Measurement Systems offerings for pipelines. We benefited from the market investments being targeted at increasing pipeline capacity needed for continued oil and gas production growth in the United States shale territories. These projects require many miles of pipe and multiple metering systems along the way. Our upstream energy market weakened during 2019, with sales declining in Test, Inspection, and Threading Services from the prior year. Our services in this particular market felt the most significant headwinds as a result of cutbacks in new rig deployments, tariffs and quotas that impacted our volume from foreign pipe sources, and other supply chain pressures resulting from customer cost cutting actions that reduced sales of our provided services. With energy well economics driving decisions, we believe that it is critical to be focused on the most profitable locations. We continued to analyze our efficiency and operating footprint and take action to address this need by expanding our service offerings in the Permian region as well as redeploying operations to Wyoming to react to the shift in demand in that region. Additionally, we ceased operating activities during 2019 at three separate locations in the Gulf coast and lower midcontinent regions in response to this shifting demand. Management continues to prioritize efforts to improve profitability of our upstream services while maintaining the success we have seen in our midstream offerings. Our Construction Products segment reported favorable results during 2019, which included increased sales, gross profit, and segment profit, excluding relocation and closure costs, compared to the prior year. Sales were supported by each of the businesses within the segment, as Piling capitalized on the Port Everglades project, Fabricated Bridge was able to secure a significant number of small and midsize jobs that provided higher margin returns, and Precast Concrete Products saw increased demand at each of its regions. During 2019, our Piling division sales exceeded prior year levels as we entered the year with a very strong backlog that included the Port Everglades project. The profitability of the division was challenged as cost overages from project scope adjustments, product rework, and supply chain inefficiencies were absorbed by the Company and reduced the profit margins considerably. Management has enacted programs, including establishing additional yards, to alleviate supply chain disruptions by creating more efficient ways for our products to reach the end customer in the anticipated manner. Our Fabricated Bridge division was able to secure a high volume of small to midsize projects during the year which led to increased sales and profitability when compared to the prior year. While these types of projects are generally highly competitive and produce lower margins, the division was able to surpass the prior year in both gross profit and gross profit margin. Management continues to believe that neither the dynamics of our served market nor the number of structurally deficient, obsolete bridges have changed in a meaningful way. We have identified a number of large projects being planned for both the near and long term that support the need for the infrastructure restoration. The Precast Concrete Products business unit increased its 2019 sales when compared to the prior year, primarily through precast building sales to various county and municipal agencies. The business was able to capitalize on the recent expansion of one of its facilities, through which the business was able to grow its market reach as well as increase its product offerings. The business was also able to capitalize on programs focused on creating and maintaining operating efficiencies that were implemented due to unfavorable production costs and an unexpected interruption in the prior year. This resulted in a significant improvement in gross profit margin for the business. During the fourth quarter, the Company announced and commenced the plan to close the Precast Concrete Products facility in Spokane, WA and relocate this operation to Boise, ID, which was complete during the first quarter of 2020. This relocation is part of an initiative focusing on regional growth opportunities and logistical savings associated with a more centralized location closer to the Company’s existing and prospective customer base. Our management team has done an exceptional job focusing on cost control as we continued to grow for the third consecutive year. Management intends to stay focused on prudent working capital management and operating cash flow. We believe that the Company’s expenses and operating leverage now provide the agility needed to succeed in the cyclical markets in which we participate. Our long-term objective is to continue the modernization of the entire Company with the ongoing integration of our enterprise resource program system from which we can grow and leverage best in class business processes. ### Year-to-date Results Comparison ### Results of Operations | Net Sales: | Year Ended December 31, 2019 2018 | Percent Increase/(Decrease) 2019 vs. 2018 | Percent of Total Net Sales Year Ended December 31, 2019 2018 | | --- | ---: | ---: | ---: | | Rail Products and Services | $321,808 $319,524 | 0.7% | 49.1% 51.0% | | Construction Products | 182,486 158,653 | 15.0 | 27.9 25.3 | | Tubular and Energy Services | 150,763 148,792 | 1.3 | 23.0 23.7 | | Total net sales | $655,057 $626,969 | 4.5% | 100.0% 100.0% | | | **Year Ended December 31,** | **Percent Increase/(Decrease)** | **Gross Profit Percentage Year Ended December 31,** | | | **2019** **2018** | **2019 vs. 2018** | **2019** **2018** | | Gross Profit: | | | | | Rail Products and Services | $63,667 $62,307 | 2.2% | 19.8% 19.5% | | Construction Products | 25,501 22,899 | 11.4 | 14.0 14.4 | | Tubular and Energy Services | 32,204 31,953 | 0.8 | 21.4 21.5 | | Total gross profit | $121,372 $117,159 | 3.6% | 18.5% 18.7% | | | **Year Ended December 31,** | **Percent Increase/(Decrease)** | **Percent of Total Net Sales Year Ended December 31,** | | | **2019** **2018** | **2019 vs. 2018** | **2019** **2018** | | Expenses: | | | | | Selling and administrative expenses | $87,986 $87,679 | 0.4% | 13.4% 14.0% | | Amortization expense | 6,577 7,098 | (7.3) | 1.0 1.1 | | Concrete Tie Settlement expense | — 43,400 | (100.0) | — 6.9 | | Interest expense - net | 4,920 6,154 | (20.1) | 0.8 1.0 | | Other expense (income) - net | 4,492 (461) | \*\* | 0.7 (0.1) | | Total expenses | $103,975 $143,870 | (27.7)% | 15.9% 22.9% | | Income (loss) before income taxes | $17,397 $(26,711) | 165.1% | 2.7% (4.3)% | | Income tax (benefit) expense | (25,171) 4,457 | \*\* | (3.8) 0.7 | | Net income (loss) | $42,568 $(31,168) | 236.6% | 6.5% (5.0)% | *\*\* Results of calculation are not considered meaningful for presentation purposes.* ### Fiscal 2019 Compared to Fiscal 2018 — Company Analysis Net sales of $655,057 for the year ended December 31, 2019 increased by $28,088, or 4.5%, compared to the prior year. Each of our three reporting segments contributed to the increase, with Construction Products increasing by 15.0%, Tubular and Energy Services increasing by 1.3%, and Rail Products and Services increasing by 0.7% over the prior year. Gross profit increased by $4,213 over the prior year to $121,372 for 2019. This increase was attributable to each of our segments, with Construction Products increasing by $2,602, Rail Products and Services increasing by $1,360, and Tubular and Energy Services increasing by $251. While gross profit increased, gross profit margin for 2019 was 18.5%, or 20 basis points (“bps”) lower than the prior year. The current year margin was primarily impacted by excess operational execution costs incurred, decreased volume in our upstream energy services, and the dilutive effect of our increased volume contributions from our lower margin distribution businesses. Selling and administrative expenses increased by $307, or 0.4%, over the prior year. The increase was primarily attributable to increases in bad debt allowance expenses of $1,395 over the prior year, costs related to the continuing implementation of our ERP system of $1,197, third-party services, including insurance services, of $976, and personnel-related costs of $906 compared to the prior year. These increases were partially offset by a reduction of legal fees related to the Union Pacific Railroad (“UPRR”) Concrete Tie Settlement of $4,485 when compared to the prior year. As a result of our continuing cost containment programs, selling and administrative expenses were reduced by 60 bps as a percentage of net sales as compared to the prior year. For the year ended December 31, 2019, the Company recorded an expense of $3,484 related to relocation and closure activities and an expense of $2,210 related to U.S. pension settlements within “Other expense (income) - net.” Interest expense, net of interest income, for the year ended December 31, 2019 was reduced by $1,234 as a result of the $16,789 reduction in outstanding debt as well as the more favorable interest rate terms within our April 30, 2019 amended credit agreement. The Company’s effective income tax rate for 2019 was (144.7)%, compared to (16.7)% in the prior year period. During 2019, the Company reversed $29,648 of its valuation allowance previously recorded against U.S. deferred tax assets. The positive evidence considered in evaluating U.S. deferred tax assets included cumulative financial income over the three-year period ended December 31, 2019, as well as the composition and reversal patterns of existing taxable and deductible temporary differences between financial reporting and tax. Based on our evaluation, the Company believed it was appropriate to rely on forecasted future taxable income to support its U.S. deferred tax assets. The amount of deferred tax assets considered to be realizable, however, could be adjusted if negative evidence outweighs additional subjective evidence such as our projections for growth. In 2018, the Company’s effective tax rate was significantly affected by an increase to our domestic valuation allowance against deferred tax assets resulting from the effects of the Concrete Tie Settlement. Net income for the year ended December 31, 2019 was $42,568, or $4.00 per diluted share, compared to net loss for the 2018 period of $31,168, or $3.01 loss per diluted share. ### Results of Operations — Segment Analysis ### Rail Products and Services | | Year Ended December 31, 2019 | 2018 | Increase 2019 vs. 2018 | Percent Increase 2019 vs. 2018 | | --- | ---: | ---: | ---: | ---: | | Net Sales | $321,808 | $319,524 | $2,284 | 0.7% | | Gross Profit | $63,667 | $62,307 | $1,360 | 2.2% | | Gross Profit Percentage | 19.8% | 19.5% | 0.3% | 1.5% | | Segment Profit | $19,641 | $19,468 | $173 | 0.9% | | Segment Profit Percentage | 6.1% | 6.1% | 0.0% | 0.2% | Our Rail Products and Services segment sales increased by $2,284, or 0.7%, compared to the prior year. The increase was attributable to our Rail Products business unit, which grew by $5,874 and was partially offset by a decline of $3,590 in our Rail Technologies business unit. The Rail Products increase was primarily attributable to growth the domestic transit market. We saw demand in this area as investments are being made in expansion projects to address commuter demand in congested cities. Also contributing to the growth in Rail Products were increased sales volume of new rail and insulated joint product offerings. The reduction in Rail Technologies sales was primarily attributable to the reduced activity level of the London Crossrail project, as it nears its completion. Segment gross profit increased by $1,360, or 2.2%, which was driven by an increase in our Rail Products business unit and was partially offset by a reduction in Rail Technologies gross profit. Segment gross profit margin increased by 30 bps principally attributable to our insulated rail joint and related track accessory offerings within Rail Products and, to a lesser extent, our domestic Rail Technologies friction management operations. Additionally, gross profit in 2018 was unfavorably impacted by a charge of $611 within our Rail Technologies business unit related to a commercial decision to support a customer concern for an automation project. The Rail Products and Services segment profit for 2019 was $19,641, a segment profit margin of 6.1%, compared to $19,468, and a margin of 6.1% for 2018. Segment profit for 2019 included an increase in realized foreign exchange expense of $685 when compared to the prior year. The 2018 segment profit included an expense of $169 related to diligence activities from a business opportunity to expand our technological offerings that did not materialize. During 2019, the new orders within the Rail Products and Services segment decreased by 5.2% when compared to the prior year. Each of the business units within the segment had decreases in new orders compared to 2018. Despite the decline in new orders, backlog increased by 6.4% compared to the prior year, ending 2019 at $103,694. The increase in backlog was driven by significant fourth quarter 2019 order activity from domestic transit authorities within our Rail Products business unit. ### Construction Products | | Year Ended December 31, 2019 | 2018 | Increase/(Decrease) 2019 vs. 2018 | Percent Increase/(Decrease) 2019 vs. 2018 | | --- | ---: | ---: | ---: | ---: | | Net Sales | $182,486 | $158,653 | $23,833 | 15.0% | | Gross Profit | $25,501 | $22,899 | $2,602 | 11.4% | | Gross Profit Percentage | 14.0% | 14.4% | (0.5)% | (3.2)% | | Segment Profit | $5,726 | $6,798 | $(1,072) | (15.8)% | | Segment Profit Percentage | 3.1% | 4.3% | (1.1)% | (26.8)% | Our Construction Products segment sales increased $23,833, or 15.0%, compared to the prior year, which was attributable to each of our business units within the segment. Precast Concrete Products experienced a sales increase of 21.3%, primarily within building sales, driven by orders from county and municipal agencies. The Fabricated Bridge sales increase was primarily driven by our ability to secure small and midsize orders while a significantly large project did not materialize. Our favorable Piling sales results included the Port Everglades project, with the order being secured in 2018 and fulfilled during 2019. The Construction Products segment gross profit increased by $2,602, or 11.4%, compared to the prior year. The gross profit increase was primarily due to sales volume within our Precast Concrete Products and Fabricated Bridge offerings. The gross profit and gross profit margin were unfavorably impacted by increased project costs from scope adjustments, product rework, and supply chain inefficiencies incurred within our Piling distribution lines. The segment profit of $5,726 decreased by $1,072 compared to the prior year to 3.1% of net sales. Included within segment profit for 2019 are relocation and closure costs of $1,768 related to our closure of the Spokane, WA concrete building facility and subsequent relocation of operations to Boise, ID, which was completed during the first quarter of 2020. This relocation is part of an initiative focusing on regional growth opportunities and logistical saving associated with a more centralized location closer to the Company’s existing and prospective customer base. For 2019, the Construction Products segment had a 3.1% decrease in new orders compared to the prior year period. This decrease was attributable to Piling as a project comparable to the 2018 Port Everglades order was not secured during the 2019 period. The segment’s backlog as of December 31, 2019 was $92,280, a 3.3% decrease compared to the prior year end. ### Tubular and Energy Services | | Year Ended December 31, 2019 | 2018 | Increase/(Decrease) 2019 vs. 2018 | Percent Increase/(Decrease) 2019 vs. 2018 | | --- | ---: | ---: | ---: | ---: | | Net Sales | $150,763 | $148,792 | $1,971 | 1.3% | | Gross Profit | $32,204 | $31,953 | $251 | 0.8% | | Gross Profit Percentage | 21.4% | 21.5% | (0.1)% | (0.5)% | | Segment Profit | $11,147 | $12,647 | $(1,500) | (11.9)% | | Segment Profit Percentage | 7.4% | 8.5% | (1.1)% | (13.0)% | Our Tubular and Energy Services segment sales increased by $1,971, or 1.3%, compared to the prior year. The increase was supported by our Protective Coatings and Measurement Systems business unit. The increase in demand for midstream infrastructure led to a 12.1% increase in Protective Coatings and Measurement Systems sales. The increase was partially offset by a reduction of sales of 14.7% in our Test, Inspection, and Threading Services business unit as weakness in the upstream energy market led to a decline in demand for our provided services. Tubular and Energy Services gross profit increased by $251, which was favorably impacted by both sales volume and improved margins within Protective Coatings and Measurement Systems business. The increase was partially offset by a reduction in our Test, Inspection, and Threading Services gross profit, which was caused by the decreased sales volume. The segment profit decreased to $11,147, or 7.4% of net sales, in 2019 compared to $12,647, or 8.5% of net sales, in 2018. Included in 2019 segment profit are closure costs of $1,716 related to three separate site closings during the year and an increase in bad debt expense of $610. In 2018, segment profit was negatively impacted by the sale of a 54.5 acre greenfield plot of land which resulted in a $269 loss, a $786 loss on the sale or disposal of multiple fixed assets, and expenses of $586 related to a site closure as management positions the segment away from non-core assets. The Tubular and Energy Services segment had an increase in new orders of 4.6% compared to the prior year period. The increase in new orders during 2019 was due to the demand created by midstream energy markets continuing to invest in their infrastructure, which favorably impacted our Protective Coating and Measurement Systems business unit operating results. The increase in new orders, specifically during the fourth quarter, led to a 23.7% increase in backlog, with a December 31, 2019 balance of $34,093. ### Liquidity and Capital Resources Total debt as of December 31, 2019 and 2018 was $58,193 and $74,982, respectively, and was primarily comprised of borrowings on the revolving credit facility and our term loan. Our need for liquidity relates primarily to working capital requirements for operating activities, debt service payments, and capital expenditures. The change in cash and cash equivalents for the years ended December 31, 2019 and 2018 were as follows: | | Year Ended December 31, 2019 | 2018 | | --- | ---: | ---: | | Net cash provided by operating activities | $29,297 | $25,964 | | Net cash (used in) provided by investing activities | (7,680) | 2,248 | | Net cash used in financing activities | (18,246) | (55,300) | | Effect of exchange rate changes on cash and cash equivalents | 525 | (308) | | Net increase (decrease) in cash and cash equivalents | $3,896 | $(27,396) | ### Cash Flows from Operating Activities During the year ended December 31, 2019, net cash provided by operating activities was $29,297 compared to $25,964 during the prior year period. For the year ended December 31, 2019, income and adjustments to income from operating activities provided $37,229 compared to $34,367 in 2018. Working capital and other assets and liabilities used $7,932 in the current period compared to $8,403 during 2018. During the year ended December 31, 2019, the Company made payments of $10,000 related to the UPRR Concrete Tie Settlement. The Company’s calculation of days sales outstanding was 49 days as of December 31, 2019 compared to 50 days as of December 31, 2018. We believe our receivables portfolio is strong. ### Cash Flows from Investing Activities For the year ended December 31, 2019, the Company had capital expenditures of $8,831, a $3,580 increase from 2018. The current year expenditures were primarily related to plant expansion and automation integration programs within our Tubular and Energy Services segment, the purchase of a continuous welded rail car and unloader within our Rail Products and Services segment, and general plant and operational improvements. The capital expenditures during 2018 related to general plant and operational improvements. The Company received proceeds of $1,151 from the sale of assets during the year ended December 31, 2019 compared to $2,389 in 2018. The current year proceeds were primarily attributable to the sale of land and improvements in Castle Rock, CO. The 2018 proceeds were primarily from the sale of a greenfield site in Willis, TX in the Tubular and Energy Services segment. On August 1, 2018, the Company executed the sale of its 45% ownership in L B Pipe and Couplings Products, LLC (“L B Pipe JV”), which provided $3,875 and $1,235 from the sale of its ownership interest and repayment of revolving line of credit from L B Pipe JV, respectively. ### Cash Flows from Financing Activities The Company reduced its outstanding debt by $16,789 during the year ended December 31, 2019 primarily from operational cash flows and proceeds from the sale of non-core assets. During the year ended December 31, 2018, the Company reduced outstanding debt by $54,984, primarily from international excess cash repatriation, proceeds from the sale of non-core assets, and operational cash flows. The Company paid $836 in financing fees related to our 2019 amended credit facility agreement. ### Financial Condition The Company generated $29,297 from cash flows from operations during 2019 that was utilized to make payments against our revolving credit facility and fund capital expenditures. As of December 31, 2019, we had $14,178 in cash and cash equivalents and $105,640 of availability under the Third Amended and Restated Credit Agreement while carrying $58,193 in total debt. We believe this liquidity will provide adequate flexibility to operate the business in a prudent manner, continue to service our revolving credit facility, and be better leveraged to weather any future downturn in our markets. Non-domestic cash balances of $13,660 are held in various locations throughout the world. Management determined that should the cash balances of our Canadian and U.K. subsidiaries exceed our projected capital needs, excess funds will continue to be repatriated. There were no such repatriations of excess cash during 2019. 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. The Company’s and the domestic, Canadian, and United Kingdom guarantors’ (the “Guarantors”) obligations under the Amended Credit Agreement are secured by the grant of a security interest by the Borrowers and Guarantors in substantially all of the personal property owned by such entities. Additionally, the equity interests in each of the loan parties, other than the Company, and the equity interests held by each loan party in their domestic subsidiaries, have been pledged to the lenders as collateral for the lending obligations. Borrowings under the Amended Credit Agreement bear interest at rates based upon either the base rate or Euro-rate plus applicable margins. Applicable margins are dictated by the ratio of the Company’s total net indebtedness to the Company’s consolidated EBITDA for four trailing quarters, as defined in the Amended Credit Agreement. The base rate is the highest of (a) the Overnight Bank Funding Rate plus 50 basis points, (b) the Prime Rate, or (c) the Daily Euro-rate plus 100 basis points (each as defined in the Amended Credit Agreement). The base rate and Euro-rate spreads range from 25 to 125 basis points and 125 to 225 basis points, respectively. The Amended Credit Agreement includes three financial covenants: (a) Maximum Gross Leverage Ratio, defined as the Company’s consolidated Indebtedness divided by the Company’s consolidated EBITDA, which must not exceed (i) 3.25 to 1.00 for all testing periods other than during an Acquisition Period, as defined in the Amended Credit Agreement, and (ii) 3.50 to 1.00 for all testing periods occurring during an Acquisition Period; (b) Minimum Consolidated Fixed Charge Coverage Ratio, defined as the Company’s consolidated EBITDA divided by the Company’s Fixed Charges, as defined in the Amended Credit Agreement, which must be a minimum of 1.25 to 1.00; and (c) Minimum Working Capital to Revolving Facility Usage Ratio, defined as the sum of the inventory and accounts receivable of the Borrowers and certain other Guarantors divided by the Revolving Facility Usage, as defined in the Amended Credit Agreement, which must be a minimum of 1.40 to 1.00. As of December 31, 2019, the Company was in compliance with the covenants in the Amended Credit Agreement. 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 December 31, 2019, the swap liability was $480, and as of December 31, 2018, the swap asset was $675. The Company continues to monitor the impact of the dissolution of LIBOR and its effect on our LIBOR-based interest rate swaps. For a discussion of the terms and availability of the Company’s credit facilities, please see Part II, Item 8, Financial Statements and Supplementary Data, Note 10 of the Notes to Consolidated Financial Statements contained in this Annual Report on Form 10-K. ### Tabular Disclosure of Contractual Obligations A summary of the Company’s required payments under financial instruments and other commitments as of December 31, 2019 are presented in the following table: | Contractual Cash Obligations | Total | Less than 1 year | 1-3 years | 4-5 years | More than 5 years | | --- | ---: | ---: | ---: | ---: | ---: | | Revolving credit facility (1) | $33,868 | $— | $— | $33,868 | $— | | Term loan (1) | 23,750 | 2,500 | 5,000 | 16,250 | — | | Interest | 5,250 | 2,700 | 2,100 | 450 | — | | Other debt | 575 | 405 | 149 | 21 | — | | Pension plan contributions | 918 | 918 | — | — | — | | Operating leases (2) | 14,800 | 3,351 | 4,236 | 3,180 | 4,033 | | U.S. transition tax | 2,205 | 210 | 420 | 919 | 656 | | Concrete Tie Settlement (3) | 40,000 | 8,000 | 16,000 | 16,000 | — | | Purchase obligations not reflected in the financial statements | 72,138 | 72,138 | — | — | — | | Total contractual cash obligations | $193,504 | $90,222 | $27,905 | $70,688 | $4,689 | | **Other Financial Commitments** | | | | | | | Standby letters of credit | $492 | $492 | $— | $— | $— | 1\. Repayments of outstanding loan balances are disclosed in Note 10 to Consolidated Financial Statements included in Part II, Item 8, Financial Statements and Supplementary Data of this report. 2\. Additional information on operating leases is disclosed in Note 8 to Consolidated Financial Statements included in Part II, Item 8, Financial Statements and Supplementary Data of this report. 3\. Further detail on the UPRR Concrete Tie Settlement is disclosed in Note 18 to Consolidated Financial Statements included in Part II, Item 8, Financial Statements and Supplementary Data of this report. Other long-term liabilities include items such as deferred income taxes which are not contractual obligations by nature. The Company cannot estimate the settlement years for these items and has excluded them from the above table. Management believes its internal and external sources of funds are adequate to meet anticipated needs, including those disclosed above, for the foreseeable future. ### Off-Balance Sheet Arrangements The Company’s off-balance sheet arrangements include the purchase obligations and standby letters of credit disclosed within the contractual obligations table above in the “Liquidity and Capital Resources” section. These arrangements provide the Company with increased flexibility relative to the utilization and investment of cash resources. ### Backlog Although backlog is not necessarily indicative of future operating results, the following table provides the backlog by business segment: | | December 31, 2019 | 2018 | | --- | ---: | ---: | | Rail Products and Services | $103,694 | $97,447 | | Construction Products | 92,280 | 95,419 | | Tubular and Energy Services | 34,093 | 27,552 | | Total backlog | $230,067 | $220,418 | While a considerable portion of our business is backlog driven, certain businesses, including the Test, Inspection, and Threading Services and the Rail Technologies business units, are not driven by backlog and therefore have insignificant levels of backlog throughout the year. ### Critical Accounting Policies and Estimates The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States. The preparation of the consolidated financial statements requires management to make estimates and judgments that affect the reported amount of assets, liabilities, revenues, and expenses, and the related disclosure of contingent assets and liabilities. The following critical accounting policies, which are reviewed by the Company’s Audit Committee of the Board of Directors, relate to the Company’s more significant estimates and judgments used in the preparation of its consolidated financial statements. Actual results could differ from those estimates. For a summary of the Company’s significant accounting policies, see Part II, Item 8, Financial Statements and Supplementary Data, Note 1 to the Consolidated Financial Statements, which is incorporated by reference into this Item 7. **Income Taxes -** The recognition of deferred tax assets requires management to make judgments regarding the future realization of these assets. As prescribed by ASC 740, “Income Taxes,” valuation allowances must be provided for those deferred tax assets for which it is more likely than not (a likelihood of more than 50%) that some portion or all of the deferred tax assets will not be realized. This guidance requires management to evaluate positive and negative evidence regarding the recoverability of deferred tax assets. The determination of whether the positive evidence outweighs the negative evidence and quantification of the valuation allowance requires management to make estimates and judgments of future financial results. The Company evaluates all tax positions taken on its federal, state, and foreign tax filings to determine if the position is more likely than not to be sustained upon examination. For positions that meet the more likely than not to be sustained criteria, the largest amount of benefit to be realized upon ultimate settlement is determined on a cumulative probability basis. A previously recognized tax position is derecognized when it is subsequently determined that a tax position no longer meets the more likely than not threshold to be sustained. The evaluation of the sustainability of a tax position and the expected tax benefit is based on judgment, historical experience, and other assumptions. Actual results could differ from those estimates upon subsequent resolution of identified matters. The Company’s income tax rate is significantly affected by the tax rate on global operations. In addition to local country tax laws and regulations, this rate depends on the extent earnings are indefinitely reinvested outside the United States. Indefinite reinvestment is determined by management’s judgment about and intentions concerning the future operations of the Company. Refer to Part II, Item 8, Financial Statements and Supplementary Data, Note 14 which is incorporated by reference into this Item 7, for additional information regarding the Company’s deferred tax assets. The Company’s ability to realize these tax benefits may affect the Company’s reported income tax expense and net income. **Revenue Recognition -** We account for revenue in accordance with the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) 606, “Revenue from Contracts with Customers,” whereby the unit of account is a performance obligation. The majority of the Company’s revenue is from products transferred and services rendered to customers at a point in time. The Company recognizes revenue at the point in time at which the customer obtains control of the product or service, which is generally when product title passes to the customer upon shipment or the service has been rendered to the customer. In limited cases, title does not transfer, and revenue is not recognized until the customer has received the products at its physical location. The Company also derives revenue from products and services provided under long-term agreements with its customers. The transaction price of a long-term agreement is allocated to each distinct performance obligation. The majority of the Company’s long-term contracts have a single performance obligation as the promise to transfer products or services is not separately identifiable from other promises in the contract and, therefore, not distinct. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring products or providing services. The Company’s performance obligations under long-term agreements with its customers are generally satisfied as over time. Revenue under these long-term agreements is generally recognized over time either using an input measure based upon the proportion of actual costs incurred to estimated total project costs or an input measure based upon actual labor costs as a percentage of estimated total labor costs, depending upon which measure the Company believes best depicts the Company’s performance to date under the terms of the contract. A certain portion of the Company’s revenue recognized over time under these long-term agreements is recognized using an output method, specifically units delivered, based upon certain customer acceptance and delivery requirements. Contract assets from over time contracts are recorded in “Inventories - net” within the Consolidated Balance Sheets and contract liabilities from over time contracts are recorded in “Deferred revenue” within the 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 considerations, such as claims, awards, and incentive fees. Historically, these amounts of variable consideration have not been considered significant. Contract estimates may include additional revenue for submitted contract modifications if there exists an enforceable right to the modification, the amount can be reasonably estimated, and its realization is probable. These estimates are based on historical collection experience, anticipated performance, and the Company’s best judgment at that time. These amounts are generally included in the contract’s transaction price and are allocated over the remaining performance obligations. As significant changes in the above estimates could impact the timing and amount of revenue and profitability of our long-term contracts, we review and update contract-related estimates regularly. In the event a contract loss becomes known, the entire amount of the estimated loss is recognized in the Consolidated Statements of Operations. See Part II, Item 8, Financial Statements and Supplementary Data, Note 3 to the Consolidated Financial Statements, which is incorporated by reference into this Item 7. **Goodwill -** Goodwill is the cost of an acquisition less the fair value of the identifiable net assets of the acquired business. Goodwill is required to be tested for impairment at least annually. The Company performs its annual impairment test in the fourth quarter, or whenever events or changes in circumstances indicate that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. The Company may first consider qualitative factors to assess whether there are indicators that it is more likely than not that the fair value of a reporting unit may not exceed its carrying amount. The quantitative goodwill impairment analysis involves comparing the fair value of a reporting unit to its carrying value, including goodwill. If the carrying amount of the reporting unit exceeds its fair value, an impairment loss equal to the excess amount up to the goodwill balance is recorded as an impairment to goodwill of the reporting unit. The Company uses a combination of a discounted cash flow method and a market approach to determine the fair values of the reporting units. A number of significant assumptions and estimates are involved in the estimation of the fair value of reporting units, including the identification of macroeconomic conditions, industry and market considerations, cost factors, and overall financial performance. The estimated fair value of a reporting unit is sensitive to changes in assumptions, including forecasted future operating cash flows, weighted-average cost of capital, terminal growth rates, and industry multiples. The Company considers historical experience and available information at the time the fair values of its reporting units are estimated. The Company believes the estimates and assumptions used in estimating the fair value of its reporting units are reasonable and appropriate; however, different assumptions and estimates could materially impact the estimated fair value of its reporting units and the resulting determinations about goodwill impairment. This could materially impact the Company’s Consolidated Statements of Operations and Consolidated Balance Sheets. Future estimates may differ materially from current estimates and assumptions. Additional information concerning the impairments is set forth in Part II, Item 8, Financial Statements and Supplementary Data, Note 4 to the Consolidated Financial Statements included herein, which is incorporated by reference into this Item 7. **Intangible Assets and Long-Lived Assets -** The Company tests intangible assets and long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of an asset or asset group may not be recoverable. Recoverability of assets is determined by comparing the estimated undiscounted future cash flows of the asset or asset group to their carrying amount. If the carrying value of the assets exceeds their estimated undiscounted future cash flows, an impairment loss would be determined as the difference between the fair value of the assets and its carrying value. Typically, the fair value of the assets would be determined using a discounted cash flow model which would be sensitive to judgments of what constitutes an asset group and certain assumptions such as estimated future financial performance, discount rates, and other assumptions that marketplace participants would use in their estimates of fair value. The accounting estimate related to asset impairments is highly susceptible to change from period to period because it requires management to make assumptions about the existence of impairment indicators and cash flows over future years. These assumptions impact the amount of an impairment, which would have an impact on the Consolidated Statements of Operations. Additional information concerning the impairments is set forth in Part II, Item 8, Financial Statements and Supplementary Data, Note 4 to the Consolidated Financial Statements included herein, which is incorporated by reference into this Item 7. **New Accounting Pronouncements -** See Part II, Item 8, Financial Statements and Supplementary Data, Note 1 to the Consolidated Financial Statements, included herein for information regarding new accounting pronouncements. ## Controls and procedures As filed, 7,071 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 Rule 13a–15(e) under the Securities Exchange Act of 1934, as amended (“the Exchange Act”)) as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective at the end of the period covered by this report. ### Managements’ Report on Internal Control Over Financial Reporting The management of L.B. Foster Company is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). L.B. Foster Company’s internal control system is designed to provide reasonable assurance to the Company’s management and Board of Directors regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States. All internal control systems, no matter how well designed, have inherent limitations. Accordingly, even effective controls can provide only reasonable assurance with respect to financial statement preparation and presentation. There were no significant changes in internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during the fourth quarter of 2019 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. L.B. Foster Company’s management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2019. In making this assessment, management used criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in *Internal Control - Integrated Framework (2013 Framework)*. Based on this assessment, management concluded that the Company maintained effective internal control over financial reporting as of December 31, 2019. Ernst & Young LLP, the independent registered public accounting firm that also audited the Company’s consolidated financial statements, has issued an attestation report on the Company’s internal control over financial reporting. Ernst & Young’s attestation report on the Company’s internal control over financial reporting appears in Part II, Item 8 of this Annual Report on Form 10-K and is incorporated herein by reference. ### Report of Independent Registered Public Accounting Firm To the Stockholders and the Board of Directors of L.B. Foster Company and Subsidiaries ### Opinion on Internal Control over Financial Reporting We have audited L.B. Foster Company and Subsidiaries’ internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, L.B. Foster Company and Subsidiaries (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on the COSO criteria. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2019 and 2018, the related consolidated statements of operations, comprehensive (loss) income, stockholders’ equity and cash flows for each of the two years in the period ended December 31, 2019, and the related notes and the financial statement schedule listed in the index at Item 15(a) and our report dated February 27, 2020 expressed an unqualified opinion thereon. ### Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Managements’ Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. ### Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ Ernst & Young LLP Pittsburgh, Pennsylvania February 27, 2020 Filed Feb 27, 2020. Source: SEC EDGAR, the filing index for accession 0000352825-20-000008. Last ingested by Listed: Nov 4, 2026, 19:02 ET. No prices; not investment advice.