# Foster L B Co: Form 10-Q for the period ended Mar 31, 2017

- Company: [Foster L B Co](/companies/fstr.md) (CIK 352825)
- Form: 10-Q
- Filed: 2017-05-03
- Accepted by EDGAR: May 3, 2017, 15:31 ET
- Period: 2017-03-31
- Accession: 0001193125-17-156101
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/352825/000119312517156101/d374588d10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/352825/000119312517156101/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2017-03-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Cost of revenue | 3 months, 2017-01-01 to 2017-03-31 | $97.5m | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2017-01-01 to 2017-03-31 | $21.3m | us-gaap:GrossProfit |
| Selling, general and administrative | 3 months, 2017-01-01 to 2017-03-31 | $19.2m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2017-01-01 to 2017-03-31 | $2.2m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2017-01-01 to 2017-03-31 | $2.1m | us-gaap:InterestExpense |
| Income tax | 3 months, 2017-01-01 to 2017-03-31 | $431.0k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2017-01-01 to 2017-03-31 | −$2.4m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2017-01-01 to 2017-03-31 | −$0.23 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2017-01-01 to 2017-03-31 | −$0.23 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2017-01-01 to 2017-03-31 | 10,319,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Capital expenditure | 3 months, 2017-01-01 to 2017-03-31 | $3.5m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Dividends paid | 3 months, 2017-01-01 to 2017-03-31 | $0 | us-gaap:PaymentsOfDividendsCommonStock |
| Share repurchases | 3 months, 2017-01-01 to 2017-03-31 | $97.0k | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2017-03-31 | $33.8m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2017-03-31 | $211.1m | us-gaap:AssetsCurrent |
| Total assets | at 2017-03-31 | $402.2m | us-gaap:Assets |
| Current liabilities | at 2017-03-31 | $97.3m | us-gaap:LiabilitiesCurrent |
| Shareholders' equity | at 2017-03-31 | $131.8m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 29,604 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 has based these forward-looking statements on current expectations and assumptions about future events. While the Company considers these expectations and assumptions to be reasonable, they are inherently subject to significant business, economic, competitive, regulatory, and other risks and uncertainties, most of which are difficult to predict and many of which are beyond the Company’s control. The Company cautions readers that various factors could cause the actual results of the Company to differ materially from those indicated by forward-looking statements. Accordingly, investors should not place undue reliance on forward-looking statements as a prediction of actual results. Among the factors that could cause the actual results to differ materially from those indicated in the forward-looking statements are risks and uncertainties related to: a continuation or worsening of the current economic slowdown in the markets we serve; the risk of doing business in international markets; our ability to effectuate our strategy, including cost reduction initiatives, and our ability to effectively integrate acquired businesses and realize anticipated benefits; costs of and impacts associated with shareholder activism; a decrease in freight or passenger rail traffic; the timeliness and availability of materials from our major suppliers, including the impact on our access to supplies of customer preferences as to the origin of such supplies, such as customer’s concerns about conflict minerals; labor disputes; the continuing effective implementation of an enterprise resource planning system; changes in current accounting estimates and their ultimate outcomes; the adequacy of internal and external sources of funds to meet financing needs, including our ability to negotiate any additional necessary amendments to our credit agreement; the Company’s ability to manage its working capital requirements and indebtedness; domestic and international taxes; foreign currency fluctuations; inflation; economic conditions and regulatory changes caused by the United Kingdom’s pending exit from the European Union; sustained declines in energy prices; a lack of state or federal funding for new infrastructure projects; increased domestic and foreign government regulation; an increase in manufacturing or material costs; the ultimate number of concrete ties that will have to be replaced pursuant to the previously disclosed product warranty claim of the Union Pacific Railroad (“UPRR”) and an overall resolution of the related contract claims as well as the possible costs associated with the outcome of the lawsuit filed by the UPRR; the loss of future revenues from current customers; and risks inherent in litigation. Should one or more of these risks or uncertainties materialize, or should the assumptions underlying the forward-looking statements prove incorrect, actual outcomes could vary materially from those indicated. 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,” and elsewhere 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 and distributor of products and services for the transportation and energy infrastructure. 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. The exclusion of significant cost allocations to the reportable segments:

- Allows users to understand the operational performance of our reportable segments;
- Provides greater comparability to other registrants with similar businesses and avoids possible non-comparability at the reportable segment pre-tax profit level resulting from our specific corporate cost allocations; and
- Facilitates a clearer, market-based perspective on the strength or weakness of our reportable segments in their markets to better aid in investment decisions.

In addition, these non-GAAP financial measures have historically been key metrics utilized by segment managers to monitor selling prices and quantities as well as production and service costs to better evaluate key profitability drivers and trends that may develop due to industry and competitive conditions.

| Three months ended March 31, 2017 | Rail Products and Services | Construction Products | Tubular and Energy Services | Total |
| --- | ---: | ---: | ---: | ---: |
| Reportable Segment Profit (Loss) | $1,489 | $1,219 | $(508) | $2,200 |
| Segment and Allocated Selling & Administrative | 8,771 | 4,777 | 3,924 | 17,472 |
| Amortization Expense | 935 | 38 | 786 | 1,759 |
| Non-GAAP Segment Gross Profit | $11,195 | $6,034 | $4,202 | $21,431 |
| Three months ended March 31, 2016 | Rail Products and Services | Construction Products | Tubular and Energy Services | Total |
| Reportable Segment Profit (Loss) | $741 | $448 | $(1,927) | $(738) |
| Segment and Allocated Selling & Administrative | 12,199 | 5,088 | 4,282 | 21,569 |
| Amortization Expense | 1,001 | 38 | 2,228 | 3,267 |
| Non-GAAP Segment Gross Profit | $13,941 | $5,574 | $4,583 | $24,098 |

24

| Net Sales: | Three Months Ended March 31, 2017 2016 | Percent of Total Net Sales Three Months Ended March 31, 2017 2016 | Percent Increase/ (Decrease) 2017 vs. 2016 |
| --- | ---: | ---: | ---: |
| Rail Products and Services | $56,480 $64,292 | 47.6% 50.9% | (12.2)% |
| Construction Products | 37,322 31,880 | 31.4 25.2 | 17.1 |
| Tubular and Energy Services | 24,900 30,138 | 21.0 23.9 | (17.4) |
| Total net sales | $118,702 $126,310 | 100.0% 100.0% | (6.0)% |
|  |  | Non-GAAP / Reported Gross Profit Percentage | Percent Increase/ (Decrease) |
|  | Three Months Ended | Three Months Ended |  |
|  | March 31, | March 31, |  |
|  | 2017 2016 | 2017 2016 | 2017 vs. 2016 |
| Gross Profit: |  |  |  |
| Non-GAAP Rail Products and Services | $11,195 $13,941 | 19.8% 21.7% | (19.7)% |
| Non-GAAP Construction Products | 6,034 5,574 | 16.2 17.5 | 8.3 |
| Non-GAAP Tubular and Energy Services | 4,202 4,583 | 16.9 15.2 | (8.3) |
| Non-GAAP Segment gross profit | 21,431 24,098 |  |  |
| LIFO income | 11 73 | — 0.1 | \* \* |
| Other | (190) (211) | (0.2) (0.2) | (10.0) |
| Total gross profit | $21,252 $23,960 | 17.9% 19.0% | (11.3)% |
|  |  | Percent of Total Net Sales | Percent Increase/ (Decrease) |
|  | Three Months Ended | Three Months Ended |  |
|  | March 31, | March 31, |  |
|  | 2017 2016 | 2017 2016 | 2017 vs. 2016 |
| Expenses: |  |  |  |
| Selling and administrative expenses | $19,227 $22,817 | 16.2% 18.1% | (15.7)% |
| Amortization expense | 1,759 3,266 | 1.5 2.6 | (46.1) |
| Interest expense | 2,108 1,170 | 1.8 0.9 | 80.2 |
| Interest income | (56) (55) | — — | 1.8 |
| Equity in loss of nonconsolidated investments | 200 196 | 0.2 0.2 | 2.0 |
| Other expense | 5 715 | — 0.6 | (99.3) |
| Total expenses | $23,243 $28,109 | 19.6% 22.3% | (17.3)% |
| Loss before income taxes | $(1,991) $(4,149) | (1.7)% (3.3)% | (52.0)% |
| Income tax expense (benefit) | 431 (1,317) | 0.4 (1.1) | (132.7) |
| Net loss | $(2,422) $(2,832) | (2.1)% (2.2)% | (14.5)% |

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

### First Quarter 2017 Compared to First Quarter 2016 – Company Analysis

Net sales of $118,702 for the period ended March 31, 2017 decreased by $7,608, or 6.0%, compared to the prior year quarter. The change was attributable to decreases of 17.4% and 12.2%, in Tubular and Energy Services and Rail Products and Services segment sales, respectively. These decreases were offset by an increase of 17.1% within the Construction Products segment.

Gross profit margin for the quarter ended March 31, 2017 was 17.9% or 110 basis points (“bps”) lower than the prior year quarter. The decrease was due to reductions of 190 bps and 130 bps, in Rail Products and Services and Construction Products, respectively. These reductions were offset by an increase of 170 bps within the Tubular and Energy Services segment.

Selling and administrative expenses decreased by $3,590 or 15.7% from the prior year. The decrease was primarily driven by personnel and discretionary spending reductions of $2,640, reduced litigation costs related to the UPRR matter of $473, and $477 of other strategic expense reductions.

Amortization decreased $1,507, or 46.1%, as a result of the June 1, 2016 interim intangible asset impairment test, which was finalized during the three months ended September 30, 2016, resulting in a $59,786 impairment of definite-lived intangible assets. Interest expense increased by $938, or 80.2%, as a result of the increase in interest rates on outstanding debt. Other expense decreased $710, or 99.3%, which primarily related to the impact of a weaker U.S. dollar relative to the Canadian dollar in the three months ended March 31, 2016.

The Company’s effective income tax rate from continuing operations for the three-month period ended March, 31, 2017 was (21.6%), compared to 31.7% in the prior year quarter. For the three months ended March 31, 2017, the Company recorded a tax provision of $431, compared to a tax benefit of $1,317 in the three months ended March 31, 2016. Due to the full valuation allowance on our domestic deferred tax assets, the Company’s tax provision for the three months ended March 31, 2017 does not reflect any tax benefit for domestic pretax losses, and is primarily comprised of taxes related to our Canadian and United Kingdom operations.

Net loss for the first quarter of 2017 was $2,422, or $0.23 per share, compared to a net loss of $2,832, or $0.28 per share, in the prior year quarter.

### Results of Operations – Segment Analysis

### Rail Products and Services

|  | Three Months Ended March 31, 2017 | 2016 | (Decrease)/Increase 2017 vs. 2016 | Percent (Decrease)/Increase 2017 vs. 2016 |
| --- | ---: | ---: | ---: | ---: |
| Net Sales | $56,480 | $64,292 | $(7,812) | (12.2)% |
| Segment Profit | $1,489 | $741 | $748 | 100.9% |
| Segment Profit Percentage | 2.6% | 1.2% | 1.4% | 116.7% |

#### First Quarter 2017 Compared to First Quarter 2016

Rail Products and Services segment sales decreased $7,812, or 12.2%, compared to the prior year period. All of our rail divisions, with the exception of Rail Technologies, experienced a decline in sales. The sales declines were primarily volume driven by the domestic freight rail markets. Our domestic rail distribution business, while shipping more tons compared to the prior year quarter, saw an unfavorable impact due to pricing. This was offset by increases in our international Rail Technologies divisions of $3,342 or 21.1%.

The Rail Products and Services segment profit increased by $748 to 2.6% of net sales. The increase was primarily attributable to a reduction in selling and administrative expenses of $2,198, or 23.1%, and in other expenses, including corporate allocations, of $1,296, or 35.2%. This was offset by a decline in non-GAAP gross profit of $2,746, or 19.7%, which was primarily related to volume reductions within domestic track component products and was heightened by pricing declines in the current year.

During the current quarter, the Rail Products and Services segment had an increase in new orders of 59.7% compared to the prior year period. The increase impacted each of the three business units within the segment and created a 22.3% increase in the ending backlog at March 31, 2017. The Company is encouraged by positive signs from order activity exiting the first quarter but anticipates an annual sales decline within our domestic rail distribution business.

### Construction Products

|  | Three Months Ended March 31, 2017 | 2016 | Increase 2017 vs. 2016 | Percent Increase 2017 vs. 2016 |
| --- | ---: | ---: | ---: | ---: |
| Net Sales | $37,322 | $31,880 | $5,442 | 17.1% |
| Segment Profit | $1,219 | $448 | $771 | 172.1% |
| Segment Profit Percentage | 3.3% | 1.4% | 1.9% | 135.7% |

#### First Quarter 2017 Compared to First Quarter 2016

Construction Products segment sales increased $5,442, or 17.1%, compared to the prior year period. The increase related to Piling and Fabricated Bridge businesses of $3,185 and $2,996, respectively. The increase in Piling was primarily due to increased success with both pipe piling and h-piling products. Fabricated Bridge saw favorable sales in the current quarter due to several projects, including the continuation of the Peace Bridge project. This was offset by a reduction in Precast Concrete of $739.

The Construction Products segment profit increased $771 to 3.3% of net sales. The increase related to the non-GAAP gross profit increase of $460, or 8.3%, which was attributable to increased operating efficiencies in Precast Concrete, which had a favorable impact on manufacturing variances.

During the quarter, the Construction Products segment had an increase in new orders of 12.1% compared to the prior year period. The increase related to the Piling and Precast Concrete businesses. The increase in Piling orders are due to our more competitive pricing as well as demand from significant civil projects. Precast Concrete orders were favorably impacted from expanded product offerings at our Waverly, WV location.

### Tubular and Energy Services

|  | Three Months Ended March 31, 2017 | 2016 | (Decrease)/Increase 2017 vs. 2016 | Percent (Decrease)/Increase 2017 vs. 2016 |
| --- | ---: | ---: | ---: | ---: |
| Net Sales | $24,900 | $30,138 | $(5,238) | (17.4)% |
| Segment Loss | $(508) | $(1,927) | $1,419 | 73.6% |
| Segment Loss Percentage | (2.0)% | (6.4)% | 4.4% | 68.8% |

#### First Quarter 2017 Compared to First Quarter 2016

Tubular and Energy Services segment sales decreased $5,238, or 17.4%, compared to the prior year period. The decrease related to $6,188 and $1,492 from Precision Measurement Systems and Protective Coatings, respectively, partially offset by an increase in Test and Inspection Services sales. The quarter was negatively impacted by weak conditions within the midstream oil and gas market segment but showed increased demand within the upstream oil and gas market.

Tubular and Energy Services segment loss decreased by $1,419, or 73.6%, compared to the prior year quarter. The quarter was favorably impacted by a reduction in amortization expense of $1,442 from the 2016 long-lived intangible asset impairment charge. Non-GAAP gross profit coupled with selling and administrative expense remained flat compared to the prior year quarter.

The Tubular and Energy Services segment had an increase in new orders of 31.1% compared to the prior year period. Orders for Protective Coatings and Test and Inspection Services increased 149.8% and 95.1%, respectively. While the upstream oil and gas market showed signs of recovery in the current period, consistent with historical cycles, we expect our midstream business to lag our upstream business.

### Other

#### Segment Backlog

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

|  | Backlog March 31, 2017 | December 31, 2016 | March 31, 2016 |
| --- | ---: | ---: | ---: |
| Rail Products and Services | $91,655 | $62,743 | $74,917 |
| Construction Products | 79,150 | 71,954 | 56,991 |
| Tubular and Energy Services | 24,497 | 12,759 | 22,101 |
| Total Backlog | $195,302 | $147,456 | $154,009 |

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

#### Warranty

As of March 31, 2017, the Company maintained a total product warranty reserve of $10,204 for its estimate of all potential product warranty claims. Of this total, $7,578 reflects the current estimate of the Company’s exposure for potential concrete tie warranty claims. While the Company believes this is a reasonable estimate of its potential exposure related to identified concrete tie warranty matters, the Company may incur future charges associated with new customer claims or further development of information of existing customer claims. Thus, there can be no assurance that future potential costs pertaining to warranty claims will not have a material impact on the Company’s results of operations and financial condition. See Note 13 Commitments and Contingent Liabilities of the Notes to Condensed Consolidated Financial Statements contained in this Quarterly Report on Form 10-Q for additional information.

### Liquidity and Capital Resources

Total debt was $155,265 and $159,565 as of March 31, 2017 and December 31, 2016, respectively, and was primarily comprised of borrowings on the revolving credit facility and the term loan.

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

The change in cash and cash equivalents for the periods ended March 31 are as follows:

|  | March 31, 2017 | 2016 |
| --- | ---: | ---: |
| Net cash provided (used) by operating activities | $10,748 | $(5,107) |
| Net cash used by investing activities | (3,315) | (3,603) |
| Net cash (used) provided by financing activities | (4,397) | 5,504 |
| Effect of exchange rate changes on cash and cash equivalents | 369 | 777 |
| Net increase (decrease) in cash and cash equivalents | $3,405 | $(2,429) |

#### Cash Flow from Operating Activities

During the current 2017 period, cash flows provided by operating activities of $10,748 compared to a use of $5,107 during the prior year period. For the three months ended March 31, 2017, income and adjustments to income from operating activities provided $3,010 compared to $4,033 in the 2016 period. Working capital and other assets and liabilities provided $7,738 in the current period compared to a use of $9,140 in the prior year period.

The Company’s calculation for days sales outstanding at March 31, 2017 was 48 days compared to 53 days at December 31, 2016, and we believe our receivables portfolio is strong.

#### Cash Flow from Investing Activities

Capital expenditures for the three months ended March 31, 2017 and 2016 were $3,453 and $3,125. The current year expenditures relate to trackside rail lubricator units installed as part of a new long-term service contract and, to a lesser extent, general plant and operational improvements. Expenditures for the three months ended March 31, 2016 related to the Birmingham, AL inside diameter coating line upgrade and application development of the Company’s new enterprise resource planning system. The Company also loaned $575 to its LB Pipe JV as of March 31, 2016.

#### Cash Flow from Financing Activities

During the three months ended March 31, 2017, the Company had a decrease in outstanding debt of $4,300, primarily related to payments against the revolving credit facility as well as a quarterly payment against the term loan. During the three months ended March 31, 2016, the Company had an increase in outstanding debt of $6,162, primarily related to drawings against the revolving credit facility to fund working capital requirements. Treasury stock acquisitions represent income tax withholdings from employees in connection with the vesting of restricted stock awards. Cash outflows related to dividends were $414 for the period ended March 31, 2016.

#### Financial Condition

As of March 31, 2017, we had $33,768 in cash and cash equivalents and a domestic credit facility with $44,208 of net availability while carrying $155,265 in total debt. We believe this liquidity will provide the flexibility to operate the business in a prudent manner, and continue to service our revolving credit facility and term loan.

Our cash management priority continues to be short-term maturities and the preservation of our principal balances. Approximately $29,315 of our cash and cash equivalents was held in non-domestic bank accounts, and, under current law, the foreign cash would be subject to U.S. federal income taxes less applicable foreign tax credits upon repatriation.

On November 7, 2016, the Company, its domestic subsidiaries, and certain of its Canadian subsidiaries entered into the Second Amendment (the “Second Amendment”) to the Second Amended and Restated Credit Agreement dated March 13, 2015 and as amended by the First Amendment dated June 29, 2016 (the “Amended and Restated Credit Agreement”), with PNC Bank, N.A., Bank of America, N.A., Wells Fargo Bank, N.A., Citizens Bank of Pennsylvania, and Branch Banking and Trust Company. This Second Amendment modified the Amended and Restated Credit Agreement, which had a maximum revolving credit line of $275,000.

The Second Amendment reduced the permitted revolving credit borrowings to $195,000 and provides for additional term loan borrowings of $30,000 (the “Term Loan”). The Term Loan is 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 (as defined by the Amendment) 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. During the first three months of 2017, the rolling 12-month EBITDA calculation, as defined by the Amended and Restated Credit Agreement, was $24,944. 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.

To reduce the impact of interest rate changes on outstanding variable-rate debt, the Company entered into forward starting LIBOR-based interest rate swaps with notional values totaling $50,000. The swaps became effective on February 28, 2017 at which point they effectively convert a portion of the debt from variable to fixed-rate borrowings during the term of the swap contract. At March 31, 2017, the swap liability was $205 compared to $334 as of December 31, 2016.

### 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, 2016. 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, 2016.

### Off-Balance Sheet Arrangements

The Company’s off-balance sheet arrangements include operating leases, purchase obligations, and standby letters of credit. A schedule of the Company’s required payments under financial instruments and other commitments as of December 31, 2016 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, 2016. 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, 2,375 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. See Note 9 Fair Value Measurements of the Notes to Condensed Consolidated Financial Statements contained in this Quarterly Report on Form 10-Q for additional information.

For the three months ended March 31, 2017, a 1% change in the interest rate for variable rate debt as of March 31, 2017 would increase or decrease interest expense by approximately $327.

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

As of March 31, 2017 and December 31, 2016 the Company recorded a current liability of $205 and $334, respectively, related to its LIBOR-based interest rate swap agreements.

### Foreign Currency Exchange Rate Risk

The Company is subject to exposures to changes in foreign currency exchange rates. The Company 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 three-month period ended March 31, 2017.

## Controls and procedures

As filed, 1,532 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 Accounting 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 Exchange Act of 1934, as amended) as of March 31, 2017. Based upon that evaluation, the Chief Executive Officer and Chief Accounting Officer concluded that the Company’s disclosure controls and procedures were effective such that the information required to be disclosed by the Company in reports filed under the Exchange Act is (i) recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to management, including the chief executive officer, chief financial officer, or person performing such functions, as appropriate to allow timely decisions regarding disclosure.

### Changes in Internal Control Over Financial Reporting

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 March 31, 2017, 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, 774 characters.

There have been no material changes in our risk factors from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2016. You should carefully consider the factors discussed in Part I, Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2016, as filed with the SEC on March 8, 2017, 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 May 3, 2017.
Source: SEC EDGAR, the filing index for accession 0001193125-17-156101. Last ingested by Listed: Nov 4, 2026, 19:02 ET. No prices; not investment advice.