L.B. Foster pany(FSTR) - 2023 Q4 - Annual Report

PART I Business Overview L.B. Foster Company provides global infrastructure technology solutions, restructuring into Rail, Technologies, and Services and Infrastructure Solutions segments in 2023 - L.B. Foster Company is a global technology solutions provider of engineered, manufactured products and services that builds and supports infrastructure, with operations in North America, South America, Europe, and Asia[12] - The company restructured its reporting segments in Q4 2023 from three to two: (1) Rail, Technologies, and Services (Rail) and (2) Infrastructure Solutions. Historical data has been restated to conform to this new presentation[13][14] Net Sales by Reporting Segment (2023 vs. 2022) | Segment | 2023 (%) | 2022 (%) | | :----------------------------- | :------- | :------- | | Rail, Technologies, and Services | 57 | 60 | | Infrastructure Solutions | 43 | 40 | | Total | 100 | 100 | - International sales decreased from 24% of total sales in 2022 to 15% in 2023[31] - The company had 1,065 employees as of December 31, 2023, with 820 in the US, 43 in Canada, 196 in Europe, and 6 elsewhere. 11 hourly production workers are represented by unions[47][48] Summary Description of Businesses Business Segments Rail, Technologies, and Services The Rail segment provides manufacturing, distribution, and services for freight and passenger railroads and industrial companies globally, including track components, friction management, and technology solutions - The Rail segment provides manufacturing, distribution, and services for freight and passenger railroads and industrial companies globally, including track components, friction management, and technology solutions[16] - Key business units within Rail include Rail Products (Rail Distribution, Allegheny Rail Products, Transit Products), Global Friction Management, and Technology Services and Solutions[16][17] - The Concrete Ties business, previously part of Rail Products, was sold in June 2023[17][20] - The Technology Services and Solutions unit acquired Skratch Enterprises Ltd. in June 2022, expanding its intelligent digital signage solutions[22] Infrastructure Solutions The Infrastructure segment designs, manufactures, and deploys advanced technologies for the built environment, including precast concrete products, bridge products, and pipe protective coatings and threading - The Infrastructure segment designs, manufactures, and deploys advanced technologies for the built environment, including precast concrete products, bridge products, and pipe protective coatings and threading[23] - The Precast Concrete Products unit acquired VanHooseCo Precast, LLC in August 2022, expanding into commercial and residential infrastructure markets, and Cougar Mountain Precast, LLC in November 2023[24][137] - The Steel Products unit discontinued its bridge grid deck product line in Q3 2023 due to weak market conditions and customer adoption of newer technologies[26][136] - The Chemtec business (Precision Measurement Products and Systems) was sold in March 2023[30][134] International Operations Marketing and Competition Raw Materials and Supplies Backlog Patents and Trademarks Environmental Disclosures Human Capital Management Code of Ethics Available Information Executive Officers of the Registrant Risk Factors The company faces diverse risks from managing acquisitions, economic downturns, cost pressures, cybersecurity threats, competitive markets, and international operations - Risks include the inability to successfully manage acquisitions, divestitures, and strategic transactions, which could harm financial results and prospects[65][66][67] - Prolonged negative economic conditions, volatile energy prices, and unfavorable changes in global markets could adversely affect the business, including impacts on suppliers, customers, and government spending[68][69] - Profitability is vulnerable to cost pressures, such as rising inflation, labor costs, and supply chain constraints, which adversely impacted the company in 2023 and 2022[70] - Cybersecurity risks, including data breaches and cyber-attacks, could disrupt business, lead to liability, and harm reputation, despite increased investments in cybersecurity safeguards[72] - The company's indebtedness could materially and adversely affect its business, financial condition, and results of operations by requiring a substantial portion of cash flows for debt service and limiting financial flexibility[87][88] - International operations expose the company to risks such as changing economic and political conditions, currency fluctuations, and foreign laws related to tariffs, trade restrictions, and taxation[101][102] Business and Operational Risks Competitive Risks Financial Risks Legal, Tax, and Regulatory Risks International Risks Unresolved Staff Comments The company reported no unresolved staff comments from the SEC - There are no unresolved staff comments[106] Cybersecurity The company maintains a risk-based cybersecurity program with Board oversight, incident response teams, and insurance, having experienced no material cyber-attack impacts to date - The company's cybersecurity program is risk-based, incorporating industry best practices, third-party consultants, auditors, and insurers, with some business portions certified under Cyber Essentials and goals to comply with ISO 27001 company-wide[107] - Key program elements include cyber education, access management, data encryption, endpoint/network monitoring, sensitive data transmission detection, managed detection and response services, vulnerability management, and a dedicated internal cybersecurity team with an incident response plan[108] - The Board of Directors has overall oversight of cybersecurity risks, with the Audit Committee receiving regular reports from senior management. A Cyber Incident Response Team (CIRT) and Cyber Security Materiality Assessment Committee (CMAC) are responsible for ongoing risk management and incident assessment[110][111][112][113] - To date, cyber-attacks have not materially affected the company, which maintains insurance coverage for cybersecurity incidents[109] Properties The company's corporate headquarters is in Pittsburgh, PA, operating numerous owned and leased facilities across North America and Europe, all in good condition - The company's corporate headquarters is in Pittsburgh, PA[115] Material Principal Properties by Business Segment | Location | Function | Business Segment | Lease Expiration | | :------------------- | :------------------------------------------- | :----------------- | :--------------- | | Bedford, PA | Bridge component fabricating plant | Infrastructure | Owned | | Birmingham, AL | Protective coatings facility | Infrastructure | 2027 | | Burnaby, BC, Canada | Friction management products plant | Rail | 2024 | | Columbia City, IN | Rail processing facility and yard storage | Rail | Owned | | Dublin, OH | Rail safety device manufacturing facility | Rail | 2026 | | Hillsboro, TX | Precast concrete facility | Infrastructure | Owned | | Lebanon, TN | Precast concrete facility | Infrastructure | 2028 | | London, United Kingdom | Technology services facility | Rail | 2024 | | Loudon, TN | Precast concrete facility | Infrastructure | Owned | | Magnolia, TX | Threading facility | Infrastructure | Owned | | Nampa, ID | Precast concrete facility | Infrastructure | 2029 | | Niles, OH | Rail fabrication, friction management products, and yard storage | Rail | Owned | | Nottingham, United Kingdom | Technology solutions manufacturing | Rail | Owned | | Pueblo, CO | Rail joint manufacturing facility | Rail | Owned | | Sheffield, United Kingdom | Track component and friction management products facility | Rail | 2030 | | Telford, United Kingdom | Technology solutions manufacturing | Rail | 2033 | | Waverly, WV | Precast concrete facility | Infrastructure | Owned | | Willis, TX | Protective coatings facility | Infrastructure | Owned | - The company's facilities are in good condition and suitable for its current and planned business operations[116] Legal Proceedings Information regarding the company's legal proceedings and other commitments and contingencies is incorporated by reference from Note 18 to the Consolidated Financial Statements - Information on legal proceedings and other commitments and contingencies is detailed in Note 18 to the Consolidated Financial Statements[117] Mine Safety Disclosures This item is not applicable to the company - This item is not applicable to the Company[118] PART II Market for Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities As of February 29, 2024, L.B. Foster had 315 common shareholders, with stock traded on NASDAQ (FSTR); no dividends were declared in 2023-2022, but a $15 million share repurchase program was authorized - As of February 29, 2024, the Company had 315 common shareholders of record, and its common stock is traded on the NASDAQ Global Select Market under the symbol FSTR[121] - No quarterly dividends were declared in 2023 and 2022, but there is potential for ordinary or special dividends in future years, subject to credit facility covenants[122] Issuer Purchases of Equity Securities (Q4 2023) | Period | Total Shares Purchased (1) | Average Price Paid per Share | Shares Purchased as Part of Publicly Announced Plans or Programs (2) | Approximate Dollar Value of Shares That May Yet Be Purchased Under Plans or Programs | | :----------------------------------- | :------------------------- | :--------------------------- | :----------------------------------------------------------------- | :--------------------------------------------------------------------------------- | | October 1, 2023 - October 31, 2023 | — | $ — | — | $ 14,122 | | November 1, 2023 - November 30, 2023 | — | — | 33,331 | 13,459 | | December 1, 2023 - December 31, 2023 | — | — | 37,534 | 12,690 | | Total | — | $ — | 70,865 | $ 12,690 | - On March 3, 2023, the Board authorized the repurchase of up to $15,000 (thousand) of common shares through February 2026. In 2023, 134,208 shares were repurchased for $2,310 (thousand)[124][130][163] Stock Market Information Dividends Issuer Purchases of Equity Securities Reserved This item is omitted pursuant to amendments to Item 301 of Regulation S-K - Item 6 is omitted pursuant to amendments to Item 301 of Regulation S-K effective February 10, 2021[125] Management's Discussion and Analysis of Financial Condition and Results of Operations L.B. Foster Company achieved significant financial improvements in 2023, with net sales up 9.3% to $543.7 million, adjusted EBITDA up 31.4% to $31.8 million, and net debt reduced by $36.3 million Key Financial Highlights (2023 vs. 2022) | Metric | 2023 ($ thousands) | 2022 ($ thousands) | Change ($ thousands) | Change (%) | | :---------------------- | :----------------- | :----------------- | :------------------- | :--------- | | Net Sales | 543,744 | 497,497 | 46,247 | 9.3 | | Gross Profit | 112,810 | 89,611 | 23,199 | 25.9 | | Gross Profit Margin | 20.7% | 18.0% | 270 bps | 15.0 | | Operating Profit (Loss) | 10,138 | (7,206) | 17,344 | 240.7 | | Net Income (Loss) | 1,299 | (45,677) | 46,976 | 102.9 | | Diluted EPS | $0.13 | $(4.25) | $4.38 | 103.1 | | Adjusted EBITDA | 31,775 | 24,179 | 7,596 | 31.4 | | Net Debt | 52,713 | 88,997 | (36,284) | (40.8) | - Net sales increased by 9.3% due to 11.7% organic sales growth and 4.0% from acquisitions (Skratch, VanHooseCo), partially offset by a 6.4% reduction from divestitures (Track Components, Chemtec, Ties)[130][139] - Net cash flow from operations in 2023 was $37,376 (thousand), a significant improvement from a use of $10,576 (thousand) in 2022[130][159][160] - The company reduced its net debt by $36,284 (thousand) to $52,713 (thousand) in 2023, primarily using divestiture proceeds and operating cash flows[130][131][143][163] - Selling and administrative expenses increased by 17.8% to $97,358 (thousand) in 2023, primarily due to portfolio changes, higher personnel expenses, UK restructuring costs, and a bad debt provision[138][142] - The effective income tax rate for 2023 was (37.6)%, compared to (407.7)% in 2022, primarily due to the realization of domestic tax benefits and an increase in valuation allowance against deferred tax assets in the UK and other foreign jurisdictions[145][318] Our Business 2023 Developments Acquisitions, Divestitures and Product Line Exit The company strategically acquired Skratch, VanHooseCo, and Cougar Mountain Precast, while divesting Chemtec, Ties, and Track Components, and discontinuing the bridge grid deck product line in 2023 - Acquired Skratch Enterprises Ltd. (June 2022) for $7,402 (thousand) and VanHooseCo Precast, LLC (August 2022) for $52,146 (thousand), contributing $4,624 (thousand) and $33,742 (thousand) in net sales respectively for 2023[132] - Divested Track Components division (August 2022) for $7,795 (thousand), resulting in a $467 (thousand) loss on sale[133] - Sold Chemtec business (March 2023) for $5,344 (thousand), generating a $2,065 (thousand) loss on sale[134] - Sold Ties business (June 2023) for $2,362 (thousand), resulting in a $1,009 (thousand) loss on sale[135] - Discontinued Bridge Products grid deck product line (August 2023) due to weak market conditions, incurring $1,403 (thousand) in exit costs and a $3,051 (thousand) reduction in gross profit[136] - Acquired Cougar Mountain Precast, LLC (November 2023) for $1,644 (thousand)[137] Full Year Results Comparison Liquidity and Capital Resources As of December 31, 2023, the company had $74.7 million in available funding capacity, with net cash from operations significantly increasing to $37.4 million and total debt reduced to $55.3 million - As of December 31, 2023, the company had $2,560 (thousand) in cash and cash equivalents and $72,133 (thousand) available under its revolving credit facility, totaling $74,693 (thousand) in available funding capacity[156][157] - Net cash provided by operating activities was $37,376 (thousand) in 2023, a significant increase from a use of $10,576 (thousand) in 2022[159][160] - Net cash provided by investing activities was $2,066 (thousand) in 2023, compared to a use of $56,418 (thousand) in 2022, driven by lower capital expenditures and proceeds from divestitures[159][162] - Net cash used in financing activities was $39,296 (thousand) in 2023, primarily due to debt reduction and share repurchases, contrasting with $60,240 (thousand) provided in 2022 for acquisitions[159][163] - Total debt, including finance leases, decreased from $91,879 (thousand) in 2022 to $55,273 (thousand) in 2023[156][304] - The Credit Agreement, amended in August 2022, extends maturity to August 2026 and includes financial covenants (Maximum Gross Leverage Ratio, Minimum Consolidated Fixed Charge Coverage Ratio) with which the company was in compliance as of December 31, 2023[168][308][309][311] Backlog Total backlog decreased by $58.5 million compared to the prior year, primarily due to divested businesses, discontinued product lines, and timing of large orders Backlog by Business Segment (2023 vs. 2022) | Segment | December 31, 2023 ($ thousands) | December 31, 2022 ($ thousands) | | :----------------------------- | :------------------------------ | :------------------------------ | | Rail, Technologies, and Services | 84,418 | 105,241 | | Infrastructure Solutions | 129,362 | 167,010 | | Total Backlog | 213,780 | 272,251 | - Total backlog decreased by $58,471 (thousand) compared to the prior year, with $31,270 (thousand) attributed to divested businesses and discontinued product lines, and the remaining decline due to timing of large orders in Rail Distribution[172] Critical Accounting Estimates Critical accounting estimates involve income taxes, revenue recognition for long-term contracts, goodwill impairment, and intangible/long-lived asset impairment, all requiring significant management judgment - Critical accounting estimates include income taxes (deferred tax assets, valuation allowances, uncertain tax positions), revenue recognition (long-term contract estimates, variable consideration), goodwill impairment, and intangible/long-lived asset impairment[174][176][180][181][185] - Management's judgments and assumptions in these areas can significantly impact reported financial results[174][176][182][185] Non-GAAP Financial Measures The company uses non-GAAP financial measures like organic sales growth, EBITDA, adjusted EBITDA, and net debt to provide supplemental insight into business trends and performance - The company uses non-GAAP financial measures such as organic sales growth, EBITDA, adjusted EBITDA, and net debt to provide supplemental insight into business trends and performance, as these are used by management for operational and strategic decisions[187][188][189][190] - Adjustments to EBITDA in 2023 included loss on divestitures, bridge grid deck exit impact, and bad debt provision. In 2022, adjustments included acquisition/divestiture costs, inventory step-up amortization, insurance proceeds, Crossrail settlement, and impairment charges[189] Quantitative and Qualitative Disclosures About Market Risk This item is not applicable to L.B. Foster Company as it is a smaller reporting company - This item is not applicable to a smaller reporting company[192] Financial Statements and Supplementary Data This section presents the audited consolidated financial statements for L.B. Foster Company, including balance sheets, statements of operations, comprehensive income (loss), cash flows, and stockholders' equity for 2023 and 2022, with an unqualified opinion from Ernst & Young LLP - Ernst & Young LLP provided an unqualified opinion on the consolidated financial statements for the periods ended December 31, 2023 and 2022, and on the effectiveness of internal control over financial reporting as of December 31, 2023[195][196][395][396] - Critical audit matters included revenue recognition for long-term contracts due to significant management judgment in cost and revenue estimates, and the valuation of goodwill for the Rail Technologies and Precast Concrete Products Reporting Units, which is sensitive to significant assumptions[199][200][203][204] Consolidated Balance Sheet Summary (2023 vs. 2022) | Item | December 31, 2023 ($ thousands) | December 31, 2022 ($ thousands) | | :---------------------------- | :------------------------------ | :------------------------------ | | Total Current Assets | 167,990 | 205,732 | | Total Assets | 313,206 | 365,310 | | Total Current Liabilities | 95,306 | 103,111 | | Long-Term Debt | 55,171 | 91,752 | | Total Stockholders' Equity | 142,835 | 137,598 | Consolidated Statements of Operations Summary (2023 vs. 2022) | Item | Year Ended December 31, 2023 ($ thousands) | Year Ended December 31, 2022 ($ thousands) | | :---------------------------- | :----------------------------------------- | :----------------------------------------- | | Total Net Sales | 543,744 | 497,497 | | Gross Profit | 112,810 | 89,611 | | Operating Income (Loss) | 10,138 | (7,206) | | Net Income (Loss) | 1,299 | (45,677) | | Diluted Earnings (Loss) per Share | $0.13 | $(4.25) | Consolidated Statements of Cash Flows Summary (2023 vs. 2022) | Item | Year Ended December 31, 2023 ($ thousands) | Year Ended December 31, 2022 ($ thousands) | | :-------------------------------------- | :----------------------------------------- | :----------------------------------------- | | Net cash provided by (used in) operating activities | 37,376 | (10,576) | | Net cash provided by (used in) investing activities | 2,066 | (56,418) | | Net cash (used in) provided by financing activities | (39,296) | 60,240 | | Net decrease in cash and cash equivalents | (322) | (7,490) | Report of Independent Registered Public Accounting Firm Consolidated Balance Sheets Consolidated Statements of Operations Consolidated Statements of Comprehensive Income (Loss) Consolidated Statements of Cash Flows Consolidated Statements of Stockholders' Equity Notes to Consolidated Financial Statements Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reported no changes in or disagreements with accountants on accounting and financial disclosure - There were no changes in and disagreements with accountants on accounting and financial disclosure[387] Controls and Procedures L.B. Foster Company's management, including the CEO and CFO, concluded that the company's disclosure controls and procedures and internal control over financial reporting were effective as of December 31, 2023 - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of December 31, 2023[388] - Management assessed and concluded that the company maintained effective internal control over financial reporting as of December 31, 2023, based on the COSO framework, including the integration of VanHooseCo and Skratch acquisitions[389][390] - Ernst & Young LLP issued an unqualified attestation report on the company's internal control over financial reporting[392][395] Evaluation of Disclosure Controls and Procedures Managements' Report on Internal Control Over Financial Reporting Report of Independent Registered Public Accounting Firm Other Information The company reported no other information required by this item - No other information is reported under this item[403] Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable to the company - This item is not applicable (N/A)[404] PART III Directors, Executive Officers, and Corporate Governance Information on directors, executive officers, corporate governance, Section 16(a) compliance, Code of Ethics, and the audit committee is incorporated by reference from the 2024 Proxy Statement - Information on directors, executive officers, corporate governance, Section 16(a) compliance, Code of Ethics, and the audit committee is incorporated by reference from the 2024 Proxy Statement and Part I of this Form 10-K[405][406][407] Executive Compensation Information concerning executive compensation, including director compensation, summary compensation tables, plan-based awards, outstanding equity awards, and related committee reports, is incorporated by reference from the company's 2024 Proxy Statement - Information regarding executive compensation is incorporated by reference from the 2024 Proxy Statement, covering director compensation, summary compensation, plan-based awards, outstanding equity, and compensation committee reports[407] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information on security ownership and equity compensation plans is incorporated by reference from the Proxy Statement, detailing restricted stock and performance unit awards to employees and directors - Information on beneficial ownership is incorporated by reference from the Proxy Statement[411] - The company grants restricted stock and performance unit awards to key employees and directors under the Omnibus Plan and Equity and Incentive Plan, with vesting periods and performance conditions[408][409] - In 2023 and 2022, the company withheld 24,886 and 27,636 shares, respectively, for tax withholding obligations related to restricted stock, valued at $315 (thousand) and $410 (thousand)[410] - As of December 31, 2023, approximately 12,000 deferred share units were allotted to non-employee directors under the Deferred Compensation Plan[408] Equity Compensation Plans Certain Relationships and Related Transactions, and Director Independence Information regarding transactions with related persons and director independence is incorporated by reference from the company's 2024 Proxy Statement - Information on related party transactions and director independence is incorporated by reference from the Proxy Statement[411] Principal Accounting Fees and Services Information regarding principal accountant fees and services is incorporated by reference from the company's 2024 Proxy Statement - Information on principal accountant fees and services is incorporated by reference from the Proxy Statement[412] PART IV Exhibits and Financial Statement Schedules This section lists the financial statements, supplementary data, and exhibits filed as part of the Annual Report on Form 10-K, including audited consolidated financial statements and Schedule II - This item includes the Reports of Independent Registered Public Accounting Firm, consolidated financial statements (Balance Sheets, Statements of Operations, Comprehensive Income (Loss), Cash Flows, Stockholders' Equity), and Notes to Consolidated Financial Statements[414][415] - Schedule II – Valuation and Qualifying Accounts is provided for the years ended December 31, 2023 and 2022, detailing changes in allowance for credit losses and valuation allowance for deferred tax assets[415][417][418][419] - An Index to Exhibits is included, listing various agreements, plans, and certifications incorporated by reference or filed herewith[416][421] Form 10-K Summary The company has elected not to include a summary of information required by the Annual Report on Form 10-K under this item - The company has elected not to include a summary of information required by the Annual Report on Form 10-K[420]