# Foster L B Co: Form 10-Q for the period ended Sep 30, 2016

- Company: [Foster L B Co](/companies/fstr.md) (CIK 352825)
- Form: 10-Q
- Filed: 2016-11-08
- Accepted by EDGAR: Nov 8, 2016, 13:13 ET
- Period: 2016-09-30
- Accession: 0001193125-16-762744
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/352825/000119312516762744/d287028d10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/352825/000119312516762744/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2016-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2016-07-01 to 2016-09-30 | $114.6m | us-gaap:SalesRevenueNet |
| Revenue | 9 months, 2016-01-01 to 2016-09-30 | $376.9m | us-gaap:SalesRevenueNet |
| Cost of revenue | 3 months, 2016-07-01 to 2016-09-30 | $94.8m | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 9 months, 2016-01-01 to 2016-09-30 | $305.4m | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2016-07-01 to 2016-09-30 | $19.8m | us-gaap:GrossProfit |
| Gross profit | 9 months, 2016-01-01 to 2016-09-30 | $71.6m | us-gaap:GrossProfit |
| Selling, general and administrative | 3 months, 2016-07-01 to 2016-09-30 | $19.8m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 9 months, 2016-01-01 to 2016-09-30 | $65.9m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2016-07-01 to 2016-09-30 | −$7.7m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2016-01-01 to 2016-09-30 | −$132.6m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2016-07-01 to 2016-09-30 | $1.5m | us-gaap:InterestExpense |
| Interest expense | 9 months, 2016-01-01 to 2016-09-30 | $4.3m | us-gaap:InterestExpense |
| Income tax | 3 months, 2016-07-01 to 2016-09-30 | −$3.4m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2016-01-01 to 2016-09-30 | −$42.1m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2016-07-01 to 2016-09-30 | −$6.0m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2016-01-01 to 2016-09-30 | −$100.8m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2016-07-01 to 2016-09-30 | −$0.58 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2016-01-01 to 2016-09-30 | −$9.82 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2016-07-01 to 2016-09-30 | −$0.58 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2016-01-01 to 2016-09-30 | −$9.82 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2016-07-01 to 2016-09-30 | 10,296,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2016-01-01 to 2016-09-30 | 10,264,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Capital expenditure | 9 months, 2016-01-01 to 2016-09-30 | $6.5m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Dividends paid | 9 months, 2016-01-01 to 2016-09-30 | $1.2m | us-gaap:PaymentsOfDividendsCommonStock |
| Share repurchases | 9 months, 2016-01-01 to 2016-09-30 | $265.0k | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2016-09-30 | $3.7m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2016-09-30 | $173.5m | us-gaap:AssetsCurrent |
| Total assets | at 2016-09-30 | $411.3m | us-gaap:Assets |
| Current liabilities | at 2016-09-30 | $78.0m | us-gaap:LiabilitiesCurrent |
| Shareholders' equity | at 2016-09-30 | $176.8m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 48,337 characters.

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

### Forward-Looking Statements

*This Quarterly Report on Form 10-Q contains “forward-looking” statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended. Many of the forward-looking statements are located in “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Forward-looking statements provide current expectations of future events based on certain assumptions and include any statement that does not directly relate to any historical or current fact. Sentences containing words such as “believe,” “intend,” “plan,” “may,” “expect,” “should,” “could,” “anticipate,” “estimate,” “predict,” “project,” or their negatives, or other similar expressions generally should be considered forward-looking statements. Forward-looking statements in this Quarterly Report on Form 10-Q may concern, among other things, L.B. Foster Company’s (“the Company’s”) expectations relating to our strategy, goals, projections and plans regarding our financial position, liquidity, capital resources and results of operations, the outcome of litigation and product warranty claims, decisions regarding our strategic growth initiatives, market position, and product development, all of which are based on current estimates that involve inherent risks and uncertainties. The Company cautions readers that various factors could cause the actual results of the Company to differ materially from those indicated by forward-looking statements. Accordingly, investors should not place undue reliance on forward-looking statements as a prediction of actual results. Among the factors that could cause the actual results to differ materially from those indicated in the forward-looking statements are risks and uncertainties related to: an economic slowdown or a continuation of the current economic slowdown in the markets we serve, the risk of doing business in international markets, a decrease in freight or passenger rail traffic, continued and sustained declines in energy prices, a lack of state or federal funding for new infrastructure projects, an increase in manufacturing or material costs, our ability to effectuate our strategy including evaluating potential opportunities such as strategic acquisitions, joint ventures, and other initiatives, and our ability to effectively integrate new businesses and realize anticipated benefits, costs of and impacts associated with shareholder activism, the timeliness and availability of material from major suppliers, labor disputes, the impact of competition, the effective implementation of an enterprise resource planning system, variances in current accounting estimates and assumptions and their ultimate outcomes, the seasonality of the Company’s business, the adequacy of internal and external sources of funds to meet financing needs, the Company’s ability to curb its working capital requirements and manage indebtedness, domestic and international income taxes, foreign currency fluctuations, inflation, economic conditions and regulatory changes caused by the United Kingdom’s likely exit from the European Union, the ultimate number of concrete ties that will have to be replaced pursuant to product warranty claims, an overall resolution of the related contract claims, the costs associated with and the outcome of a lawsuit filed by Union Pacific Railroad (“UPRR”), the loss of future revenues from current customers, risks inherent in litigation, and domestic and foreign governmental regulations. Should one or more of these risks or uncertainties materialize, or should the assumptions underlying the forward-looking statements prove incorrect, actual outcomes could vary materially from those indicated. The risks and uncertainties that may affect the operations, performance, and results of the Company’s business and forward-looking statements include, but are not limited to, those set forth under Item 1A, “Risk Factors,” in our Annual Report on Form 10-K and our other periodic filings with the Securities and Exchange Commission.*

*The forward-looking statements in this report are made as of the date of this report and we assume no obligation to update or revise any forward-looking statement, whether as a result of new information, future developments, or otherwise, except as required by securities laws.*

### General Overview

L.B. Foster Company (“Company”) is a leading manufacturer, fabricator, and distributor of products and services for rail, construction, energy, and utility markets. The Company is comprised of three business segments: Rail Products and Services, Construction Products, and Tubular and Energy Services.

### Quarter-to-date Results

The segment gross profit measures presented within the MD&A tables constitute non-GAAP financial measures disclosed by management to provide investors and other users information to evaluate the performance of the Company’s segments on a more comparable basis to market trends and peers. In addition, these non-GAAP financial measures are key metrics utilized by segment managers to monitor selling prices and quantities as well as production and service costs to better evaluate key profitability drivers and trends that may develop due to industry and competitive conditions.

The following non-GAAP reconciliation of segment gross profit displays items that have been excluded from segment profit (loss) as disclosed in Note 2 to the unaudited Condensed Consolidated Financial Statements presented above:

| Three months ended September 30, 2016 | Rail Products and Services | Construction Products | Tubular and Energy Services | Total |
| --- | ---: | ---: | ---: | ---: |
| Non-GAAP Segment Gross Profit | $12,220 | $6,177 | $654 | $19,051 |
| Segment and Allocated Selling & Administrative | 8,926 | 4,783 | 4,290 | 17,999 |
| Amortization Expense | 958 | 38 | 767 | 1,763 |
| Asset Impairments | 4,383 | — | 2,563 | 6,946 |
| Reportable Segment Profit (Loss) | $(2,047) | $1,356 | $(6,966) | $(7,657) |
| Three months ended September 30, 2015 | Rail Products and Services | Construction Products | Tubular and Energy Services | Total |
| Non-GAAP Segment Gross Profit | $19,564 | $9,850 | $6,689 | $36,103 |
| Segment and Allocated Selling & Administrative | 11,510 | 5,356 | 3,996 | 20,862 |
| Amortization Expense | 1,070 | 38 | 2,229 | 3,337 |
| Asset Impairments | — | — | 80,337 | 80,337 |
| Reportable Segment Profit (Loss) | $6,984 | $4,456 | $(79,873) | $(68,433) |

| Net Sales: | Three Months Ended September 30, 2016 2015 | Percent of Total Net Sales Three Months Ended September 30, 2016 2015 | Percent Increase/ (Decrease) 2016 vs. 2015 |
| --- | ---: | ---: | ---: |
| Rail Products and Services | $56,891 $87,972 | 49.6% 50.0% | (35.3)% |
| Construction Products | 34,870 54,093 | 30.4 30.7 | (35.5) |
| Tubular and Energy Services | 22,883 33,994 | 20.0 19.3 | (32.7) |
| Total net sales | $114,644 $176,059 | 100.0% 100.0% | (34.9)% |
|  |  | Non-GAAP / Reported Gross Profit Percentage | Percent Increase/ (Decrease) |
|  | Three Months Ended | Three Months Ended |  |
|  | September 30, | September 30, |  |
|  | 2016 2015 | 2016 2015 | 2016 vs. 2015 |
| Gross Profit: |  |  |  |
| Non-GAAP Rail Products and Services | $12,220 $19,564 | 21.5% 22.2% | (37.5)% |
| Non-GAAP Construction Products | 6,177 9,850 | 17.7 18.2 | (37.3) |
| Non-GAAP Tubular and Energy Services | 654 6,689 | 2.9 19.7 | (90.2) |
| Non-GAAP Segment gross profit | 19,051 36,103 |  |  |
| LIFO income | 917 181 | 0.8 0.1 | \* \* |
| Other | (165) (246) | (0.1) (0.1) | (32.9) |
| Total gross profit | $19,803 $36,038 | 17.3% 20.5% | (45.0)% |
|  |  | Percent of Total Net | Percent Increase/ (Decrease) |
|  | Three Months Ended | Sales Three Months |  |
|  | September 30, | Ended September 30, |  |
|  | 2016 2015 | 2016 2015 | 2016 vs. 2015 |
| Expenses: |  |  |  |
| Selling and administrative expenses | $19,807 $21,605 | 17.3% 12.3% | (8.3)% |
| Amortization expense | 1,763 3,337 | 1.5 1.9 | (47.2) |
| Asset impairments | 6,946 80,337 | 6.1 45.6 | (91.4) |
| Interest expense | 1,520 1,265 | 1.3 0.7 | 20.2 |
| Interest income | (50) (66) | — — | (24.2) |
| Equity in loss of nonconsolidated investments | 263 299 | 0.2 0.2 | (12.0) |
| Other income | (1,085) (537) | (0.9) (0.3) | 102.0 |
| Total expenses | $29,164 $106,240 | 25.4% 60.3% | (72.5)% |
| Loss before income taxes | $(9,361) $(70,202) | (8.2)% (39.9)% | (86.7)% |
| Income tax benefit | (3,379) (12,780) | (2.9) (7.3) | (73.6) |
| Net loss | $(5,982) $(57,422) | (5.3)% (32.6)% | (89.6)% |

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

### Third Quarter 2016 Compared to Third Quarter 2015 – Company Analysis

Net sales of $114,644 for the period ended September 30, 2016 decreased by $61,415, or 34.9%, compared to the prior year quarter. The change was attributable to decreases of 35.5%, 35.3%, and 32.7% in Construction Products, Rail Products and Services, and Tubular and Energy Services segment sales, respectively.

Gross profit percentage for the quarter ended September 30, 2016 was 17.3% or 320 basis points lower than the prior year quarter. The decrease was primarily due to significantly lower margins within the Tubular and Energy Services segment. Partially offsetting the decline were favorable reductions in LIFO reserves as a result of decreasing prices along with inventory reductions.

Selling and administrative expenses decreased by $1,798, or 8.3%, from the prior year. The decrease was primarily driven by $830 in cost reduction initiatives related to personnel and travel costs, $700 related to incentive compensation, $320 related to prior year acquisition and integration costs and other strategic spending reductions of approximately $850. These reductions were partially offset by $640 of increased litigation-related costs for the UPRR matter and, to a lesser extent, increased costs related to the implementation of the Company’s enterprise resource planning system.

The Company recorded non-cash impairments of $6,946 ($5,946 net of tax) during the three-month period ended September 30, 2016. The impairment related to the finalization of the June 1, 2016 interim impairment assessment. The third quarter adjustments related to a $4,383 goodwill impairment and a $2,563 definite-lived asset impairment for the Rail Technologies and Chemtec reporting units, respectively. During the three-month period ended September 30, 2015, the Company recognized asset impairments of $80,337 ($63,887 net of taxes) to write down the carrying values to the implied fair values, of which $69,908 represented the full carrying value of goodwill related to the IOS acquisition and the remaining $10,429 related to the Chemtec reporting unit.

Amortization expense decreased by $1,574, or 47.2%, which was attributable to the current year intangible asset impairment, which reduced definite-lived intangible amortization costs.

The Company’s effective income tax rate in the 2016 third quarter was 36.1%, compared to 18.2% in the prior year quarter. The Company’s effective income tax rate for the quarter ended September 30, 2016 differed from the federal statutory rate of 35% primarily due to the discrete impact of asset impairments, offset by changes in the Company’s forecasted global mix of income. The Company’s asset impairments of $6,946 and $80,337 in the three months ended September 30, 2016 and 2015, respectively, were related to both tax deductible and nondeductible assets and resulted in income tax benefits of $1,000 and $16,450, respectively.

Net loss for the third quarter of 2016 was $5,982, or $0.58 per diluted share, compared to a net loss of $57,422, or $5.60 per diluted share, in the prior year quarter. The following table provides a reconciliation of the GAAP earnings per share value to the non-GAAP adjusted earnings1 per share value for the three-month periods ended September 30, 2016 and 2015:

| Adjusted Diluted (Loss) Earnings Per Share Reconciliation | Three Months Ended September 30, 2016 | 2015 |
| --- | ---: | ---: |
| Net loss, as reported | $(5,982) | $(57,422) |
| Asset impairments, net of tax benefits of $1,000 and $16,450 | 5,946 | 63,887 |
| Adjusted net (loss) income | (36) | 6,465 |
| Average number of common shares outstanding - Diluted, as reported | 10,296 | 10,256 |
| Average number of common shares outstanding - Diluted, as adjusted | 10,296 | 10,304 |
| Diluted loss per common share, as reported | $(0.58) | $(5.60) |
| Diluted (loss) earnings per common share, as adjusted | $(0.00) | $0.63 |

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

### Results of Operations – Segment Analysis

### Rail Products and Services

|  | Three Months Ended September 30, 2016 | 2015 | Decrease 2016 vs. 2015 | Percent Decrease 2016 vs. 2015 |
| --- | ---: | ---: | ---: | ---: |
| Net Sales | $56,891 | $87,972 | $(31,081) | (35.3)% |
| Non-GAAP Gross Profit | $12,220 | $19,564 | $(7,344) | (37.5)% |
| Non-GAAP Gross Profit Percentage | 21.5% | 22.2% | (0.7)% | (3.2)% |

#### Third Quarter 2016 Compared to Third Quarter 2015

Rail Products and Services segment sales decreased $31,081 or 35.3%, compared to the prior year period. The decline related to reductions across all of our rail divisions. The sales declines were primarily volume driven due to significantly less infrastructure and maintenance spending. The rail market continues to experience reductions in commodity carloadings and intermodal rail traffic among the Class 1 railroads. This negative trend is expected to continue throughout the remainder of the year.

The Rail Products and Services segment produced a loss of $2,047 compared to the prior year period profit of $6,984. The decrease was primarily attributable to a $4,383 goodwill impairment related to the Rail Technologies reporting unit along with reductions in gross profit due to depressed volumes. Non-GAAP gross profit declined by $7,344, or 37.5%, compared to the prior year period. The decline in profitability was primarily attributable to volume related deleveraging within track components and friction management products.

During the quarter, the Rail Products and Services segment had a reduction in new orders of 22.5% compared to the prior year period. Nearly half of the decline related to the rail distribution division and the remainder consisted of all other rail product lines experiencing reductions in orders relative to the prior year quarter. The Company anticipates continued challenges as rail customers react to significantly reduced rail traffic.

### Construction Products

|  | Three Months Ended September 30, 2016 | 2015 | Decrease 2016 vs. 2015 | Percent Decrease 2016 vs. 2015 |
| --- | ---: | ---: | ---: | ---: |
| Net Sales | $34,870 | $54,093 | $(19,223) | (35.5)% |
| Non-GAAP Gross Profit | $6,177 | $9,850 | $(3,673) | (37.3)% |
| Non-GAAP Gross Profit Percentage | 17.7% | 18.2% | (0.5)% | (2.7)% |

#### Third Quarter 2016 Compared to Third Quarter 2015

Construction Products segment sales decreased $19,223, or 35.5%, compared to the prior year period. The reduction relates to weaker sales within piling and bridge products, partially offset by increased sales of precast concrete products. The piling products division continues to experience increased competition, which has led to a deterioration in demand and related sales volumes. The fabricated bridge division anticipates stronger sales during the fourth quarter as projects awarded during the second quarter 2016 will become realized.

The Construction Products segment profit declined by $3,100 which was primarily attributable to the reduction in sales volumes which negatively impacted non-GAAP gross profit. Non-GAAP gross profit was weaker in all divisions and related to sales volume reductions in the current year period.

During the quarter, the Construction Products segment’s orders were consistent with the prior year period.

### Tubular and Energy Services

|  | Three Months Ended September 30, 2016 | 2015 | Decrease 2016 vs. 2015 | Percent Decrease 2016 vs. 2015 |
| --- | ---: | ---: | ---: | ---: |
| Net Sales | $22,883 | $33,994 | $(11,111) | (32.7)% |
| Non-GAAP Gross Profit | $654 | $6,689 | $(6,035) | (90.2)% |
| Non-GAAP Gross Profit Percentage | 2.9% | 19.7% | (16.8)% | (85.3)% |

#### Third Quarter 2016 Compared to Third Quarter 2015

Tubular and Energy Services segment sales decreased $11,111, or 32.7%, compared to the prior year period. The decrease related primarily to $8,382 from the threaded and coated divisions and $6,225 from test and inspection services partially offset by an increase of $3,585 related to precision measurement products.

Tubular and Energy Services segment loss was $6,966 compared to a loss of $79,873 in the prior year. The losses were largely attributable to impairments of $2,563 and $80,337 for the three-month periods ending September 30, 2016 and 2015, respectively. The non-GAAP gross profit declined by $6,035, or 90.2%, which was negatively impacted by our test and inspection and coated services offerings. The test and inspection services business continues to be negatively impacted by the weakness in the upstream oil and gas market, where demand levels remain low, leading to heightened competition and reductions in service prices. Similarly, coated pipe demand levels have declined significantly during the third quarter 2016 which led to a temporary idling of the Birmingham facility. The facility has restarted operations in early October 2016. Gross profit was also negatively impacted by precision measurement system sales which produced lower margins due to competitive pressures as a result of the depressed midstream oil and gas market. Profitability in the Tubular and Energy Services segment will be challenging for the remainder of the year.

The Tubular and Energy Services segment had a reduction in new orders of 52.2% compared to the prior year period. Orders for coated products, test and inspection services and precision measurement systems were down 64.8%, 55.1%, and 37.0% respectively, due to a reduction in midstream oil and gas new project lettings.

### Year-to-date Results

The segment gross profit measures presented within the MD&A tables constitute non-GAAP financial measures disclosed by management to provide investors and other users information to evaluate the performance of the Company’s segments on a more comparable basis to market trends and peers. In addition, these non-GAAP financial measures are key metrics utilized by segment managers to monitor selling prices and quantities as well as production and service costs to better evaluate key profitability drivers and trends that may develop due to industry and competitive conditions.

The following non-GAAP reconciliations of segment gross profit displays items that have been excluded from segment profit (loss) as disclosed in Note 2:

| Nine months ended September 30, 2016 | Rail Products and Services | Construction Products | Tubular and Energy Services | Total |
| --- | ---: | ---: | ---: | ---: |
| Non-GAAP Segment Gross Profit | $41,051 | $20,642 | $8,933 | $70,626 |
| Segment and Allocated Selling & Administrative | 31,854 | 14,781 | 12,891 | 59,526 |
| Amortization Expense | 2,946 | 113 | 4,759 | 7,818 |
| Asset Impairments | 32,725 | — | 103,159 | 135,884 |
| Reportable Segment Profit (Loss) | $(26,474) | $5,748 | $(111,876) | $(132,602) |
| Nine months ended September 30, 2015 | Rail Products and Services | Construction Products | Tubular and Energy Services | Total |
| Non-GAAP Segment Gross Profit | $57,418 | $26,707 | $19,617 | $103,742 |
| Segment and Allocated Selling & Administrative | 34,944 | 15,660 | 11,097 | 61,701 |
| Amortization Expense | 3,005 | 205 | 5,740 | 8,950 |
| Asset Impairments | — | — | 80,337 | 80,337 |
| Reportable Segment Profit (Loss) | $19,469 | $10,842 | $(77,557) | $(47,246) |

| Net Sales: | Nine Months Ended September 30, 2016 2015 | Percent of Total Net Sales Nine Months Ended September 30, 2016 2015 | Percent Increase/(Decrease) 2016 vs. 2015 |
| --- | ---: | ---: | ---: |
| Rail Products and Services | $188,686 $252,530 | 50.1% 52.0% | (25.3)% |
| Construction Products | 107,098 137,899 | 28.4 28.4 | (22.3) |
| Tubular and Energy Services | 81,164 94,956 | 21.5 19.6 | (14.5) |
| Total net sales | $376,948 $485,385 | 100.0% 100.0% | (22.3)% |
|  | Nine Months Ended September 30, | Non-GAAP / Reported Gross Profit Percentage Nine Months Ended September 30, | Percent Increase/(Decrease) |
|  | 2016 2015 | 2016 2015 | 2016 vs. 2015 |
| Gross Profit: |  |  |  |
| Non-GAAP Rail Products and Services | $41,051 $57,418 | 21.8% 22.7% | (28.5)% |
| Non-GAAP Construction Products | 20,642 26,707 | 19.3 19.4 | (22.7) |
| Non-GAAP Tubular and Energy Services | 8,933 19,617 | 11.0 20.7 | (54.5) |
| Non-GAAP Segment gross profit | 70,626 103,742 |  |  |
| LIFO income | 1,442 581 | 0.4 0.1 | 148.2 |
| Other | (492) (542) | (0.1) (0.1) | (9.2) |
| Total gross profit | $71,576 $103,781 | 19.0% 21.4% | (31.0)% |
|  | Nine Months Ended September 30, | Percent of Total Net Sales Nine Months Ended September 30, | Percent Increase/(Decrease) |
|  | 2016 2015 | 2016 2015 | 2016 vs. 2015 |
| Expenses: |  |  |  |
| Selling and administrative expenses | $65,941 $68,133 | 17.5% 14.0% | (3.2)% |
| Amortization expense | 7,818 8,950 | 2.1 1.8 | (12.6) |
| Asset impairments | 135,884 80,337 | 36.0 16.6 | 69.1 |
| Interest expense | 4,342 3,166 | 1.2 0.7 | 37.1 |
| Interest income | (157) (160) | — — | (1.9) |
| Equity in loss of nonconsolidated investments | 946 312 | 0.3 0.1 | \* \* |
| Other income | (263) (1,245) | (0.1) (0.3) | (78.9) |
| Total expenses | $214,511 $159,493 | 56.9% 32.9% | 34.5% |
| Loss before income taxes | $(142,935) $(55,712) | (37.9 ) % (11.5 ) % | 156.6% |
| Income tax benefit | (42,125) (7,939) | (11.2) (1.6) | \* \* |
| Net loss | $(100,810) $(47,773) | (26.7 ) % (9.9 ) % | 111.0% |

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

### First Nine Months of 2016 Compared to First Nine Months of 2015 – Company Analysis

Net sales of $376,948 for the nine months ended September 30, 2016 decreased by $108,437, or 22.3%, compared to the prior year period. The sales decrease was attributable to decreases of 25.3%, 22.3%, and 14.5% in Rail Products and Services, Construction Products and Tubular and Energy Services segment sales, respectively.

Gross profit percentage for the nine months ended September 30, 2016 was 19.0%, or 240 basis points lower than the prior year. The current year margin was significantly impacted by the prolonged weakness in the oil and gas market and, to a lesser extent, reduced activity within the rail market. Partially offsetting the decline were favorable reductions in LIFO reserves as a result of decreasing prices along with inventory reductions.

Selling and administrative expenses decreased by $2,192 over the prior year period. The reduction was primarily attributable to cost reduction initiatives related to personnel costs of $1,100, incentive compensation reductions of $1,700, prior year acquisition and integration costs of $1,000 and other strategic spending reductions of $1,660 which were partially offset by $2,400 in litigation-related costs for the UPRR matter and, to a lesser extent, costs related to the implementation of the Company’s enterprise resource planning system.

The Company recorded non-cash asset impairments of $135,884 ($96,846 net of tax) during the nine-month period ended September 30, 2016. During the 2015 period, the Company recognized asset impairments of $80,337 ($63,887 net of taxes) to write down the carrying values to the implied fair values, of which $69,908 represented the full carrying value of goodwill related to the IOS acquisition and the remaining $10,429 related to the Chemtec reporting unit.

During the second quarter of 2016, the Company identified various indicators that suggested that there was a more likely than not probability that the carrying values of certain assets and reporting units were less than their respective fair values. The impairment indicators included a rapid deterioration in actual performance against forecasts, downward revisions in projected financial results, declines in the Company’s market capitalization, and reductions in new order activity.

Asset groups that had indicators of impairment were analyzed to determine if the carrying values were recoverable. Based upon the recoverability assessment, the Company determined that certain intangible assets and property, plant, and equipment within the test and inspection services division and certain intangible assets within the Chemtec division were impaired. The impairment assessment was finalized during the period ended September 30, 2016 resulting in a $59,786 definite-lived intangible asset impairment and a $14,956 property, plant, and equipment impairment were recorded within the Tubular and Energy Services segment. The remaining asset groups tested for recoverability were substantially in excess of their respective carrying values.

The Company performed an interim goodwill impairment review as of June 1, 2016 as a result of the adverse effect on certain reporting units of reduced capital spending and cost reduction priorities that oil and gas developers and railroad customers have enacted as well as the indicators previously noted. The forecasts for the Chemtec, coated services, and Rail Technologies reporting units did not indicate a timely recovery to support the carrying values of the reporting units. Upon finalization of the interim impairment assessment during the period ended September 30, 2016, the Company recognized a goodwill impairment of $61,142, which represented the full impairment of goodwill related to the Chemtec and coated services reporting units and approximately 68% of the Rail Technologies goodwill value. The estimated fair values of the remaining reporting units were substantially in excess of the carrying value of those reporting units.

The Company’s effective income tax rate from continuing operations for the first nine months of 2016 was 29.5%, compared to 14.3% in the prior year period. The Company’s effective income tax rate for the nine months ended September 30, 2016 differed from the federal statutory rate of 35% primarily due to the discrete impact of asset impairments in the current year period. The Company’s asset impairments of $135,884 and $80,337 for the nine-month periods ended September 30, 2016 and 2015, respectively, were related to both tax deductible and nondeductible assets and resulted in income tax benefits of $39,038 and $16,450, respectively.

Net loss for the first nine months of 2016 was $100,810, or $9.82 per diluted share, which compares to a net loss for the 2015 period of $47,773, or $4.65 per diluted share. The following table provides a reconciliation of the GAAP earnings per share value to the non-GAAP adjusted earnings per share value for the nine-month periods ended September 30, 2016 and 2015:

| Adjusted Diluted (Loss) Earnings Per Share Reconciliation | Nine Months Ended September 30, 2016 | 2015 |
| --- | ---: | ---: |
| Net loss, as reported | $(100,810) | $(47,773) |
| Asset impairments, net of tax benefits of $39,038 and $16,450 | 96,846 | 63,887 |
| Adjusted net (loss) income | (3,964) | 16,114 |
| Average number of common shares outstanding - Diluted, as reported | 10,264 | 10,266 |
| Average number of common shares outstanding - Diluted, as adjusted | 10,264 | 10,347 |
| Diluted loss per common share, as reported | $(9.82) | $(4.65) |
| Diluted (loss) earnings per common share, as adjusted | $(0.39) | $1.56 |

### Results of Operations – Segment Analysis

### Rail Products and Services

|  | Nine Months Ended September 30, 2016 | 2015 | Decrease 2016 vs. 2015 | Percent Decrease 2016 vs. 2015 |
| --- | ---: | ---: | ---: | ---: |
| Net Sales | $188,686 | $252,530 | $(63,844) | (25.3)% |
| Non-GAAP Gross Profit | $41,051 | $57,418 | $(16,367) | (28.5)% |
| Non-GAAP Gross Profit Percentage | 21.8% | 22.7% | (0.9)% | (4.0)% |

#### First Nine Months of 2016 Compared to First Nine Months of 2015

Rail Products and Services segment sales decreased $63,844, or 25.3%, compared to the prior year period. For the first nine months of 2016, all rail divisions experienced reductions in sales over the prior year period. The sales decline was attributable to lower volumes due to continued weakness in the North American rail market in both commodity carloads as well as intermodal rail traffic. Additionally, due to the ongoing litigation with UPRR, our rail divisions experienced a decline in sales to UPRR of approximately $12,500.

The Rail Products and Services segment loss for the nine-months ended September 30, 2016 was $26,474 compared to segment profit of $19,469 for the nine months ended September 30, 2015. The reduction was primarily attributable to the $32,725 goodwill impairment related to the Rail Technologies reporting unit along with reductions in gross profit due to the reduction in sales volumes. The non-GAAP gross profit decreased by $16,367, or 28.5%, and the corresponding percentage decreased by 90 basis points principally attributable to declines in Rail Technologies and precast concrete tie margins, which was negatively impacted by reduced volumes and related deleveraging of the businesses.

During the nine-month period ended September 30, 2016, the Rail Products and Services segment had a reduction in new orders of 28.5% compared to the prior year. The rail distribution and precast concrete tie businesses represented 60.9% of the current year decline and all other rail divisions experienced declines relative to the prior year due to reductions in rail capital spending. The Company anticipates continuing challenges as rail customers react to significantly reduced rail traffic.

### Construction Products

|  | Nine Months Ended September 30, 2016 | 2015 | Decrease 2016 vs. 2015 | Percent Decrease 2016 vs. 2015 |
| --- | ---: | ---: | ---: | ---: |
| Net Sales | $107,098 | $137,899 | $(30,801) | (22.3)% |
| Non-GAAP Gross Profit | $20,642 | $26,707 | $(6,065) | (22.7)% |
| Non-GAAP Gross Profit Percentage | 19.3% | 19.4% | (0.1)% | (0.5)% |

#### First Nine Months of 2016 Compared to First Nine Months of 2015

Construction Products segment sales decreased $30,801, or 22.3%, compared to the prior year period. The piling division represented $24,672 of the reduction and fabricated bridge sales represented $8,036, which were both attributable to fewer large project opportunities in the market as compared to the prior year period as well as increased competition leading to fewer project wins. Partially offsetting these declines were increased precast concrete product sales.

The Construction Products segment profit of $5,748 declined by $5,094 compared to the prior year as a result of reduced gross profit attributable to lower sales volumes. The non-GAAP gross profit decreased by $6,065, or 22.7%, due to reductions in piling products gross profit as a result of the decline in volumes. The fabricated bridge and precast concrete products partially offset the reduction in piling products’ profit margins.

During the nine-month period ended September 30, 2016, the Construction Products segment had a 1.3% increase in new orders compared to the prior year period. The increase relates to significant project wins within the fabricated bridge business, which were largely offset by declines in the piling products business.

### Tubular and Energy Services

|  | Nine Months Ended September 30, 2016 | 2015 | Decrease 2016 vs. 2015 | Percent Decrease 2016 vs. 2015 |
| --- | ---: | ---: | ---: | ---: |
| Net Sales | $81,164 | $94,956 | $(13,792) | (14.5)% |
| Non-GAAP Gross Profit | $8,933 | $19,617 | $(10,684) | (54.5)% |
| Non-GAAP Gross Profit Percentage | 11.0% | 20.7% | (9.7)% | (46.9)% |

#### First Nine Months of 2016 Compared to First Nine Months of 2015

Tubular and Energy Services segment sales decreased $13,792, or 14.5%, compared to the prior year period. The decrease primarily relates to the test and inspection services division, which is being significantly impacted by the upstream oil and gas market and related reduction in active land rigs. Sales of coated services have declined by 25.5% due to reduced demand levels within the midstream oil and gas market.

For the nine-months ended September 30, 2016, the segment loss was $111,871 compared to segment loss of $77,557 during the prior year period. The losses in both periods were largely attributable to asset impairments of $103,159 and $80,337, respectively. The current year impairments related to the test and inspection services, precision measurement products, and coated services reporting units. Segment profit was also negatively impacted by reductions in gross profit due to continued declines in test and inspection services sales volumes. The non-GAAP gross profit declined by $10,684, or 54.5%, and the corresponding percentage declined by 970 basis points compared to the prior year period. Sales of precision measurement products have increased during the current year, however, due to the increased competition on fewer opportunities, the profitability has been reduced.

The Tubular and Energy Services segment’s new orders decreased by 36.8% compared to the prior year period. Coated services and test and inspection services experienced the most significant reductions at 67.5% and 49.3%, respectively. While the test and inspection services division continues to be impacted by the weakness in the oil and gas market, the recent coated decline relates to the delayed impact of the oil and gas market on mid-stream customers. Management anticipates that the Tubular and Energy Services segment will continue to face significant headwinds throughout the remainder of 2016.

### Other

#### Segment Backlog

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

|  | Backlog September 30, 2016 | December 31, 2015 | September 30, 2015 |
| --- | ---: | ---: | ---: |
| Rail Products and Services | $53,392 | $85,199 | $84,787 |
| Construction Products | 75,762 | 45,371 | 63,311 |
| Tubular and Energy Services | 14,650 | 34,137 | 26,242 |
| Total Backlog | $143,804 | $164,707 | $174,340 |

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

#### Warranty

At September 30, 2016, the Company maintained a total product warranty reserve of $9,034 for its estimate of all potential product warranty claims. Of this total, $7,460 reflects the current estimate of the Company’s exposure for potential product warranty claims related to concrete tie production. While the Company believes this is a reasonable estimate of its potential contingencies related to identified concrete tie warranty matters, the Company may incur future charges associated with new customer claims or further development of information for existing customer claims. Thus, there can be no assurance that future potential costs pertaining to warranty claims will not have a material impact on the Company’s results of operations and financial condition. See Note 14 of the Notes to Condensed Consolidated Financial Statements contained in this Quarterly Report on Form 10-Q for additional information.

### Liquidity and Capital Resources

Total debt was $135,625 and $168,754 at September 30, 2016 and December 31, 2015, respectively.

Our need for liquidity relates primarily to working capital requirements for operations, capital expenditures, joint venture capital obligations, debt service obligations, share repurchases, and dividends.

The change in cash and cash equivalents for year-to-date periods ended September 30 is as follows:

|  | September 30, 2016 | 2015 |
| --- | ---: | ---: |
| Net cash provided by operating activities | $11,876 | $13,688 |
| Net cash used by investing activities | (6,219) | (205,161) |
| Net cash (used) provided by financing activities | (35,470) | 175,744 |
| Effect of exchange rate changes on cash and cash equivalents | 152 | (3,085) |
| Net decrease in cash and cash equivalents | $(29,661) | $(18,814) |

#### Cash Flow from Operating Activities

During the nine-month period ended September 30, 2016, cash flows provided by operating activities were $11,876 compared to $13,688 during the prior year period. For the nine months ended September 30, 2016, income, adjustments to income from operating activities, and dividends from the LB Pipe joint venture provided $15,976 compared to $36,446 in the 2015 period. Working capital and other assets and liabilities used $4,100 in the current period compared to a use of $22,758 in the prior year period.

The Company’s calculation of days sales outstanding at September 30, 2016 was 53 days compared to 56 days at December 31, 2015. We believe our receivables portfolio is strong.

#### Cash Flow from Investing Activities

Capital expenditures for the nine months ended September 30, 2016 and 2015 were $6,507 and $11,618, respectively. The current year expenditures related primarily to the Birmingham, AL inside diameter coating line upgrade and application development of the Company’s new enterprise resource planning system. The Company also received proceeds of $923 related to the sale of assets and also loaned $635 to its LB Pipe JV. Expenditures for the nine months ended September 30, 2015 related primarily to upgrades to the outside diameter coating line of the Birmingham, AL coating facility as well as general plant and yard improvements across each segment. During the nine months ended September 30, 2015, the Company acquired Tew Holdings, LTD. (“Tew”) and IOS. The total purchase price of these acquisitions, net of cash acquired, was $193,871 as of September 30, 2015.

#### Cash Flow from Financing Activities

During the nine months ended September 30, 2016, the Company had a decrease in outstanding debt of approximately $33,130, primarily related to short-term loans from foreign subsidiaries to make payments against the revolving credit facility. The advances were repaid during the first week of October 2016. The Company also paid $712 in financing fees for the June 29, 2016 credit facility amendment. During the nine months ended September 30, 2015, the Company had an increase in outstanding debt of approximately $180,990, primarily related to drawings against the revolving credit facility to fund domestic acquisition activity. The Company withheld 14,498 shares for approximately $198 for the nine-month period ended September 30, 2016 compared to withholding 24,012 shares for approximately $1,099 in the prior year period. The shares were withheld from employees to pay their withholding taxes in connection with the vesting of restricted stock awards. Cash outflows related to dividends were $1,244 in each of the periods ended September 30, 2016 and 2015, respectively. Lastly, during the nine-month periods ending September 30, 2016 and 2015, the Company purchased 5,000 and 80,512 shares of common stock for $67 and $1,587, respectively, under our existing share repurchase authorization.

#### Financial Condition

On November 7, 2016, L. B. Foster Company (the “Company”), its domestic subsidiaries, and certain of its Canadian subsidiaries entered into the Second Amendment (the “Second Amendment”) to the Second Amended and Restated Credit Agreement dated March 13, 2015 and as amended by the First Amendment dated June 29, 2016 (the “Amended and Restated Credit Agreement”), with PNC Bank, N.A., Bank of America, N.A., Wells Fargo Bank, N.A., Citizens Bank of Pennsylvania, and Branch Banking and Trust Company. This Second Amendment modifies the Amended and Restated Credit Agreement which had a maximum revolving credit line of $275,000. The Second Amendment reduces the permitted revolving credit borrowings to $195,000 and provides for additional term loan borrowing of up to $30,000. The term loan will be subject to quarterly straight line amortization until fully paid off upon the final payment on January 1, 2020. Furthermore, certain matters, including excess cash flow, asset sales, and equity issuances, trigger mandatory prepayments to the Term Loan. Term loan borrowings will not be available to draw upon once they have been repaid. Capitalized terms used but not defined herein shall have the meanings ascribed to them in the Second Amendment or Amended and Restated Credit Agreement, as applicable.

The Second Amendment further provides for modifications to the financial covenants as defined in the Amended and Restated Credit Agreement. The Second Amendment calls for the elimination of the Maximum Leverage Ratio covenant through the quarter ended June 30, 2018. After that period, the Maximum Gross Leverage Ratio covenant will be reinstated to require a maximum ratio of 4.25 Consolidated Indebtedness to 1.00 Gross Leverage for the quarter ended September 30, 2018, and 3.75 to 1.00 for all periods thereafter until the maturity date of the credit facility. The Second Amendment also includes a Minimum Last Twelve Months EBITDA covenant (“Minimum EBITDA”). For the quarter ending December 31, 2016 through the quarter ending June 30, 2017, the Minimum EBITDA must be at least $18,500. For each quarter thereafter, through the quarter ended June 30, 2018, the Minimum EBITDA requirement will increase by various increments. At June 30, 2018, the Minimum EBITDA requirement will be $31,000. After the quarter ended June 30, 2018, the Minimum EBITDA covenant will be eliminated through the maturity of the credit agreement. The Second Amendment also includes a Minimum Fixed Charge Coverage Ratio covenant. The covenant represents the ratio of the Company’s fixed charges to the last twelve months of EBITDA, and is required to be a minimum of 1.00 to 1.00 through the quarter ended December 31, 2017 and 1.25 to 1.00 for each quarter thereafter through the maturity of the credit facility. The final financial covenant included in the Second Amendment is a Minimum Liquidity covenant which calls for a minimum of $25,000 in undrawn availability on the revolving credit loan at all times through the quarter ended June 30, 2018.

The Second Amendment includes several changes to certain non-financial covenants as defined in the Credit Agreement. Through the maturity date of the loan, the Company is now prohibited from making any future acquisitions. The limitation on permitted annual distributions of dividends or redemptions of the Company’s stock has been decreased from $4,000 to $1,700. The aggregate limitation on loans to and investments in non-loan parties was decreased from $10,000 to $5,000. Furthermore, the limitation on asset sales has been decreased from $25,000 annually with a carryover of up to $15,000 from the prior year to $25,000 in the aggregate through the maturity date of the credit facility.

The Second Amendment provides for the elimination of the three lowest tiers of the pricing grid that had previously been defined in the First Amendment. Upon execution of the Second Amendment through the quarter ended March 31, 2018, the Company will be locked into the highest tier of the pricing grid which provides for pricing of the prime rate plus 225 basis points on base rate loans and the applicable LIBOR rate plus 325 basis points on euro rate loans. For each quarter after March 31, 2018 and through the maturity date of the credit facility, the Company’s position on the pricing grid will be governed by a Minimum Net Leverage ratio which is the ratio of Consolidated Indebtedness less cash on hand in excess of $15,000 to EBITDA. If, after March 31, 2018 the Minimum Net Leverage ratio positions the Company on the lowest tier of the pricing grid, pricing will be the prime rate plus 150 basis points on base rate loans or the applicable LIBOR rate plus 250 basis points on euro rate loans.

At September 30, 2016, we had $3,651 in cash and cash equivalents and $141,728 of availability under the First Amendment to the Second Amended and Restated Credit Agreement while carrying $135,625 in total debt. Under the November 3, 2016 Second Amendment, we would have had $91,728 of borrowing availability. We believe this liquidity will provide the flexibility to operate the business in a prudent manner, continue to service our revolving debt facility, and weather a continued downturn in our markets.

Our cash balances are held in various locations throughout the world, with substantially all of those amounts held outside the U.S. Under current law, the foreign cash would be subject to U.S. federal income taxes less applicable foreign tax credits. We utilize planning and financing strategies to ensure that the Company’s cash is available as it is needed.

As of September 30, 2016, approximately $3,278 of our cash and cash equivalents was held in non-domestic bank accounts, and is not available to fund domestic operations unless repatriated. In addition, approximately $26,000 was subject to short-term intercompany advances into the U.S., which was used to fund our revolving credit facility at September 30, 2016. It is management’s intent to indefinitely reinvest such funds, including the short-term intercompany advances, outside of the United States.

At September 30, 2016, the Company was in compliance with the covenants in the Amended and Restated Credit Agreement as revised by the First Amendment.

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 will become effective in February 2017 at which point it will effectively convert a portion of the debt from variable to fixed-rate borrowings during the term of the swap contract. At September 30, 2016, the swap liability was $2,307 compared to $196 as of December 31, 2015.

### Critical Accounting Policies

The Condensed Consolidated Financial Statements have been prepared in conformity with accounting principles generally accepted in the United States. When more than one accounting principle, or method of its application, is generally accepted, management selects the principle or method that, in its opinion, is appropriate in the Company’s specific circumstances. Application of these accounting principles requires management to reach opinions regarding estimates about the future resolution of existing uncertainties. As a result, actual results could differ from these estimates. In preparing these financial statements, management has reached its opinions regarding the best estimates and judgments of the amounts and disclosures included in the financial statements giving due regard to materiality. There have been no material changes in the Company’s critical accounting policies or estimates since December 31, 2015. A summary of the Company’s critical accounting policies and estimates is included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015.

### Off-Balance Sheet Arrangements

The Company’s off-balance sheet arrangements include operating leases, purchase obligations, and standby letters of credit. A schedule of the Company’s required payments under financial instruments and other commitments as of December 31, 2015 is included in the “Liquidity and Capital Resources” section of the Company’s Annual Report on Form 10-K for the year ended December 31, 2015. There were no material changes to these off-balance sheet arrangements during the current quarter. These arrangements provide the Company with increased flexibility relative to the utilization and investment of cash resources.

## Market risk

As filed, 2,614 characters.

### Interest Rate Risk

The Company is exposed to risks that increases in interest rates may adversely affect funding costs associated with its variable-rate debt. To reduce the impact of interest rate changes on a portion of this variable-rate debt, the Company entered into forward starting interest rate swap agreements which effectively convert a portion of the debt from a variable to a fixed-rate borrowing during the term of the swap contracts. Refer to Note 10 within the “Notes to Consolidated Financial Statements” of this report for additional information regarding the swap agreements.

For the nine months ended September 30, 2016, a 1% change in the interest rate for variable rate debt as of September 30, 2016 would increase or decrease interest expense by approximately $1,250.

If we had paid interest for the nine months ended September 30, 2016 under the terms of the Second Amendment, the interest for that period would have been approximately $5,200. A 1% change in the interest that would have been payable under the terms of the Second Amendment would change the amount of interest expense that would have been payable under the Second Amendment by approximately $1,250.

The Company does not purchase or hold any derivative financial instruments for trading purposes. At contract inception, the Company designates its derivative instruments as hedges. The Company recognizes all derivative instruments on the balance sheet at fair value. Fluctuations in the fair values of derivative instruments designated as cash flow hedges are recorded in accumulated other comprehensive income and reclassified into earnings within other income as the underlying hedged items affect earnings. To the extent that a change in a derivative does not perfectly offset the change in value of the interest rate being hedged, the ineffective portion is recognized in earnings immediately.

As of September 30, 2016, the Company recorded a current liability of $2,307 related to its LIBOR-based interest rate swap agreements.

### Foreign Currency Exchange Rate Risk

The Company is subject to exposures to changes in foreign currency exchange rates. The Company manages its exposure to changes in foreign currency exchange rates on firm sale and purchase commitments by entering into foreign currency forward contracts. The Company’s risk management objective is to reduce its exposure to the effects of changes in exchange rates on these transactions over the duration of the transactions. The Company did not engage in foreign currency hedging transactions during the nine-month period ended September 30, 2016.

## Controls and procedures

As filed, 2,054 characters.

### Evaluation of Disclosure Controls and Procedures

L.B. Foster Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) under the Securities and Exchange Act of 1934, as amended) as of September 30, 2016. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective such that the information required to be disclosed by the Company in reports filed under the Exchange Act is (i) recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to management, including the chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding disclosure.

### Changes in Internal Control Over Financial Reporting

We are in the process of integrating the IOS Holdings, Inc. and Tew Plus, Ltd. businesses. We are analyzing, evaluating and, where necessary, implementing changes in controls and procedures relating to these businesses as the integration proceeds. Similarly, as of April 1, 2016, we have transitioned certain product lines into a new enterprise resource planning (“ERP”) system. As such, the integration of recent acquisitions and ERP transition have resulted in additions and changes to our internal control over financial reporting. Otherwise, there were no changes in our “internal control over financial reporting” (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the three months ended September 30, 2016, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

### PART II. OTHER INFORMATION

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

## Risk factors

As filed, 756 characters.

In addition to the risk factors and other information set forth in this report, you should carefully consider the factors discussed in Part I, Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2015, as filed with the SEC on March 1, 2016, as well as our quarterly reports filed thereafter, which could materially affect our business, financial condition, financial results, or future performance. The risks described in our Annual Report on Form 10-K and quarterly reports on Form 10-Q are not the only risks facing the Company. Additional risks and uncertainties not currently known or that we currently deem to be immaterial may also materially affect our business, financial condition, and/or results of operations.

Filed Nov 8, 2016.
Source: SEC EDGAR, the filing index for accession 0001193125-16-762744. Last ingested by Listed: Nov 4, 2026, 19:02 ET. No prices; not investment advice.