Document
10-Qfalse2018-09-302018Q3FOSTER L B CO0000352825--12-31Accelerated 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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
x
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
for the quarterly period ended September 30, 2018 
Or
 
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
for the transition period from                      to                     
Commission File Number: 000-10436
L.B. Foster Company
(Exact name of Registrant as specified in its charter)
 
Pennsylvania
25-1324733
(State of Incorporation)
(I. R. S. Employer
Identification No.)

415 Holiday Drive, Pittsburgh, Pennsylvania
15220 
(Address of principal executive offices)
(Zip Code)
(412) 928-3400
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x   No  ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  x    No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer 
Accelerated filer   x
Non-accelerated filer 
Smaller reporting company 
Emerging growth company 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐
Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  x
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
 
Class Outstanding as of October 31, 2018 
Common Stock, Par Value $0.01 10,562,832 Shares 




L.B. FOSTER COMPANY AND SUBSIDIARIES
INDEX
 
Page

2

Table of Contents
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
L.B. FOSTER COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
September 30,
2018 
December 31,
2017 
(Unaudited) 
ASSETS 
Current assets: 
Cash and cash equivalents $9,586 $37,678 
Accounts receivable - net 85,615 76,582 
Inventories - net 107,200 97,543 
Prepaid income tax 725 188 
Other current assets 7,402 9,120 
Total current assets 210,528 221,111 
Property, plant, and equipment - net 87,894 96,096 
Other assets: 
Goodwill 19,449 19,785 
Other intangibles - net 51,801 57,440 
Investments 155 162 
Other assets 719 1,962 
TOTAL ASSETS $370,546 $396,556 
LIABILITIES AND STOCKHOLDERS' EQUITY 
Current liabilities: 
Accounts payable  $72,355 $52,404 
Deferred revenue 12,384 10,136 
Accrued payroll and employee benefits 11,052 11,888 
Accrued warranty 9,363 8,682 
Current maturities of long-term debt 630 656 
Other accrued liabilities 9,157 9,764 
Total current liabilities 114,941 93,530 
Long-term debt 75,840 129,310 
Deferred tax liabilities 7,864 9,744 
Other long-term liabilities 16,813 17,493 
Stockholders' equity: 
Common stock, par value $0.01, authorized 20,000,000 shares; shares issued at September 30, 2018 and December 31, 2017, 11,115,779; shares outstanding at September 30, 2018 and December 31, 2017, 10,366,007 and 10,340,576, respectively 111 111 
Paid-in capital 47,042 45,017 
Retained earnings 145,364 137,780 
Treasury stock - at cost, 749,772 and 775,203 common stock shares at September 30, 2018 and December 31, 2017, respectively (18,165)(18,662)
Accumulated other comprehensive loss (19,264)(17,767)
Total stockholders' equity 155,088 146,479 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $370,546 $396,556 

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
3

Table of Contents
L.B. FOSTER COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
Three Months Ended
September 30, 
Nine Months Ended
September 30, 
2018201720182017
(Unaudited) (Unaudited) 
Sales of goods $120,272 $103,058 $339,176 $318,414 
Sales of services 46,822 28,434 123,262 76,640 
Total net sales 167,094 131,492 462,438 395,054 
Cost of goods sold 100,746 82,460 281,892 256,152 
Cost of services sold 36,746 22,667 96,402 63,549 
Total cost of sales 137,492 105,127 378,294 319,701 
Gross profit 29,602 26,365 84,144 75,353 
Selling and administrative expenses 21,662 20,218 65,488 60,023 
Amortization expense 1,762 1,764 5,322 5,218 
Interest expense 1,367 2,026 4,979 6,315 
Interest income (71)(56)(166)(166)
Equity in loss (income) of nonconsolidated investments 4 (50)7 5 
Other expense (income) 153 (551)(327)(564)
Total expenses 24,877 23,351 75,303 70,831 
Income before income taxes 4,725 3,014 8,841 4,522 
Income tax (benefit) expense (246)(208)952 698 
Net income $4,971 $3,222 $7,889 $3,824 
Basic earnings per common share $0.48 $0.31 $0.76 $0.37 
Diluted earnings per common share $0.47 $0.31 $0.75 $0.37 

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
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L.B. FOSTER COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
Three Months Ended
September 30, 
Nine Months Ended
September 30, 
2018201720182017
(Unaudited) (Unaudited) 
Net income $4,971 $3,222 $7,889 $3,824 
Other comprehensive (loss) income, net of tax: 
Foreign currency translation adjustment (371)2,412 (3,132)5,528 
Unrealized gain (loss) on cash flow hedges, net of tax expense of $0 for all periods 207 82 1,243 (119)
Reclassification of pension liability adjustments to earnings, net of tax expense of $0 for all periods* 137 114 392 335 
Other comprehensive (loss) income (27)2,608 (1,497)5,744 
Comprehensive income $4,944 $5,830 $6,392 $9,568 
 
*
Reclassifications out of accumulated other comprehensive loss for pension obligations are charged to selling and administrative expenses. 
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
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L.B. FOSTER COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Nine Months Ended
September 30, 
20182017
(Unaudited) 
CASH FLOWS FROM OPERATING ACTIVITIES: 
Net income $7,889 $3,824 
Adjustments to reconcile net income to cash provided (used) by operating activities: 
Deferred income taxes (1,796)(648)
Depreciation 8,685 9,705 
Amortization 5,322 5,218 
Equity in loss of nonconsolidated investments 7 5 
Loss (gain) on sales and disposals of property, plant, and equipment 498 (347)
Stock-based compensation 2,838 1,228 
Change in operating assets and liabilities: 
Accounts receivable (10,634)(11,899)
Inventories (10,546)(19,336)
Other current assets (1,160)(786)
Prepaid income tax (3,025)12,569 
Other noncurrent assets 1,132 719 
Accounts payable 19,604 22,017 
Deferred revenue 2,278 3,339 
Accrued payroll and employee benefits (778)2,734 
Other current liabilities 2,287 (763)
Other long-term liabilities (176)(63)
Net cash provided by operating activities 22,425 27,516 
CASH FLOWS FROM INVESTING ACTIVITIES: 
Proceeds from the sale of property, plant, and equipment 2,267 1,388 
Capital expenditures on property, plant, and equipment (3,196)(5,335)
Proceeds from sale of equity method investment 3,875  
Repayment of revolving line of credit from equity method investment 1,235  
Net cash provided by (used in) investing activities 4,181 (3,947)
CASH FLOWS FROM FINANCING ACTIVITIES: 
Repayments of debt (153,089)(113,119)
Proceeds from debt 99,592 91,838 
Treasury stock acquisitions (316)(103)
Net cash used in financing activities (53,813)(21,384)
Effect of exchange rate changes on cash and cash equivalents (885)2,460 
Net (decrease) increase in cash and cash equivalents (28,092)4,645 
Cash and cash equivalents at beginning of period 37,678 30,363 
Cash and cash equivalents at end of period $9,586 $35,008 
Supplemental disclosure of cash flow information: 
Interest paid $4,468 $5,599 
Income taxes paid (received) $4,077 $(11,233)
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
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L.B. FOSTER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands, except share data)
1. FINANCIAL STATEMENTS
Basis of Presentation
The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all estimates and adjustments (consisting of normal recurring accruals, unless otherwise stated herein) considered necessary for a fair presentation of the financial position of L.B. Foster Company and subsidiaries as of September 30, 2018 and December 31, 2017, its condensed consolidated statements of operations for the three and nine months ended September 30, 2018 and 2017, and its statements of cash flows for the nine months ended September 30, 2018 and 2017, have been included. However, actual results could differ from those estimates. The results of operations for interim periods are not necessarily indicative of the results that may be expected for the year ending December 31, 2018. The Condensed Consolidated Balance Sheet as of December 31, 2017 was derived from audited financial statements. This Quarterly Report on Form 10-Q should be read in conjunction with the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017. In this Quarterly Report on Form 10-Q, references to “we,” “us,” “our,” and the “Company” refer collectively to L.B. Foster Company and its consolidated subsidiaries.

Recently Issued Accounting Standards
In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, “Leases (Topic 842)” (“ASU 2016-02”). The new accounting requirements include the accounting for, presentation of, and classification of leases. The guidance will result in most leases being capitalized as a right-of-use asset with a related balance sheet liability. The requirements of the new standard are effective for annual reporting periods beginning after December 15, 2018, and interim periods within those annual periods. The Company is in the process of analyzing the impact of ASU 2016-02 on our financial position. The Company has a significant number of operating leases, and, as a result, expects this guidance to have a material impact on its Condensed Consolidated Balance Sheet. The change will not affect the covenants of the Amended and Restated Credit Agreement dated March 13, 2015 and as amended by the Second Amendment dated November 7, 2016 as defined in Note 9. Long-Term Debt of the Notes to Condensed Consolidated Financial Statements contained in this Quarterly Report on Form 10-Q. The Company has gathered the agreements covered by ASU 2016-02 and will continue to evaluate the impact that ASU 2016-02 will have on its financial statements, related disclosures, and internal controls. Regular updates are provided to the Audit Committee regarding the progress and milestones of the adoption. The Company does not anticipate early adoption of ASU 2016-02.

In February 2018, the FASB issued ASU 2018-02, “Income Statement – Reporting Comprehensive Income” (“ASU 2018-02”), that will permit companies the option to reclassify stranded tax effects caused by the newly-enacted US Tax Cuts and Jobs Act (the “Tax Act”) from accumulated other comprehensive income to retained earnings. Consequently, the amendments eliminate the stranded tax effects resulting from the Tax Act and will improve the usefulness of information reported to financial statement users. However, because the amendments only relate to the reclassification of the income tax effects of the Tax Act, the underlying guidance that requires that the effect of a change in tax laws or rates be included in income from continuing operations is not affected. Adoption of the ASU will be optional and a company will need to disclose if it elects not to adopt the ASU. The ASU will be effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption will be permitted, including adoption in any interim period, for financial statements that have not yet been issued or made available for issuance. Entities will have the option to apply the amendments retrospectively or to record the reclassification as of the beginning of the period of adoption. The Company is evaluating the impact of ASU 2018-02 on its financial position and whether or not it will choose to adopt the ASU.

The SEC Disclosure Update and Simplification release (“DUSTR”) adopted certain amendments in August 2018. While most of the amendments eliminate outdated or duplicative disclosure requirements, the final rule amends the interim financial statement requirements to require a reconciliation of changes in stockholders’ equity in the notes to the financial statements or as a separate statement. This analysis should reconcile the beginning balance to the ending balance of each caption in stockholders’ equity for each period for which an income statement is required to be filed and comply with the remaining content requirements of Rule 3-04 of Regulation S-X. As a result, registrants will be required to provide the reconciliation for both the comparable quarterly and year-to-date periods in its Quarterly Report on Form 10-Q but only for the year-to-date periods in registration statements, beginning in the first quarter of 2019.
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Recently Adopted Accounting Standards
In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606)” (“ASU 2014-09”), which supersedes the revenue recognition requirements in Accounting Standards Codification (“ASC”) 605, “Revenue Recognition” (“ASC 605”). ASU 2014-09 is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. It also requires additional disclosure about the nature, amount, timing, and uncertainty of revenue, cash flows arising from customer contracts, including significant judgments and changes in judgments, and assets recognized from costs incurred to obtain or fulfill a contract. ASU 2014-09 is effective for fiscal years beginning after December 15, 2017, including interim periods within that reporting period. The Company adopted the provisions of ASU 2014-09 on January 1, 2018, using the modified retrospective approach. Revenue from the Company's product and service sales continue to be recognized when products are shipped or services are rendered. Revenue from the Company's product and service sales provided under long-term agreements is recognized as the Company transfers control of the product or renders service to its customers, which approximates the previously used percentage-of-completion method of accounting. The adoption of ASU 2014-09 had no material effect on the Company's financial position, results of operations, cash flows, or backlog, and no adjustment to January 1, 2018 opening retained earnings was needed. The Company has presented the disclosures required by ASC 606, “Revenue from Contracts with Customers” (“ASC 606”) in Note 3. Revenue of the Notes to Condensed Consolidated Financial Statements contained in this Quarterly Report on Form 10-Q.

In October 2016, the FASB issued ASU 2016-16, “Income Taxes – Intra-Entity Transfers of Assets Other Than Inventory (Topic 740),” (“ASU 2016-16”) which requires an entity to recognize the income tax consequences of an intra-entity transfer of an asset, other than inventory, when the transfer occurs. The ASU was effective on January 1, 2018 and was adopted by the Company on that date, using the modified retrospective approach. Under this approach, the Company recorded a reduction to its January 1, 2018 opening retained earnings of $305 as a result of prior intra-entity transactions.

In March 2018, the FASB issued ASU 2018-05, “Income Taxes (Topic 740): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118,” which allowed SEC registrants to record provisional amounts in earnings for the year ended December 31, 2017 due to the complexities involved in accounting for the enactment of the Tax Act enacted on December 22, 2017. The Company recognized estimated income tax effects of the Tax Act in its 2017 Consolidated Financial Statements in accordance with SEC Staff Accounting Bulletin No. 118 (“SAB No. 118”). Refer to Note 15. Income Taxes of the Notes to Condensed Consolidated Financial Statements contained in this Quarterly Report on Form 10-Q for further information regarding the provisional amounts recorded by the Company as of December 31, 2017 through September 30, 2018.

In March 2017, the FASB issued ASU 2017-07, “Compensation - Retirement Benefits (Topic 715)” (“ASU 2017-07”), which improves the presentation of net periodic pension cost and net periodic postretirement benefit cost. The guidance requires that the entity report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period, and report the other components of net periodic pension cost and net periodic postretirement benefit cost in the income statement separately from the service cost component and not within income from operations. Of the components of net periodic benefit cost, only the service cost component will be eligible for asset capitalization. The new standard is effective for annual periods beginning after December 15, 2017, including interim periods within those annual periods. The adoption of ASU 2017-07 had no impact to the Company.

Reclassifications and Disclosures
Certain amounts in previously issued financial statements have been reclassified to conform to the current period presentation. These reclassifications represent the change in allocated corporate expenses as disclosed in Note 2. Business Segments and the adoption of ASC 606 disclosed in Note 3. Revenue, Note 5. Accounts Receivable, and Note 6. Inventories of the Notes to Condensed Consolidated Financial Statements contained in this Quarterly Report on Form 10-Q.
2. BUSINESS SEGMENTS
The Company is a leading manufacturer and distributor of products and services for transportation and energy infrastructure with locations in North America and Europe. The Company is organized and operates in three different operating segments: the Rail Products and Services segment, the Construction Products segment, and the Tubular and Energy Services segment. The segments represent components of the Company (a) that engage in activities from which revenue is generated and expenses are incurred; (b) whose operating results are regularly reviewed by the Chief Operating Decision Maker (“CODM”), who makes decisions about resources to be allocated to the segments, and (c) for which discrete financial information is available. Operating segments are evaluated on their segment profit contribution to the Company's consolidated results. Other income and expenses, interest, income taxes, and certain other items are managed on a consolidated basis. The Company's segment accounting policies, unless otherwise noted, are the same as those described in the Note 2. Business Segments of the Notes to
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the Company's Consolidated Financial Statements contained in its Annual Report on Form 10-K for the year-ended December 31, 2017.

The following table illustrates the Company's revenues and profit from operations by segment for the periods indicated:
Three Months Ended
September 30, 2018 
Three Months Ended
September 30, 2017 
Net Sales Segment Profit Net Sales Segment Profit 
Rail Products and Services $84,517 $5,299 $62,095 $3,179 
Construction Products 41,534 1,603 39,118 3,846 
Tubular and Energy Services 41,043 4,274 30,279 2,093 
Total $167,094 $11,176 $131,492 $9,118 
Nine Months Ended
September 30, 2018 
Nine Months Ended
September 30, 2017 
Net Sales Segment Profit Net Sales Segment Profit 
Rail Products and Services $238,571 $12,655 $187,922 $7,581 
Construction Products 112,641 4,478 121,905 10,617 
Tubular and Energy Services 111,226 10,704 85,227 1,287 
Total $462,438 $27,837 $395,054 $19,485 

Segment profit from operations, as shown above, includes allocated corporate operating expenses. Prior to January 1, 2018, the allocation of corporate operating expenses reflected a cost of capital for the assets used in each segment at a rate of generally 1% per month. In 2018, operating expenses related to corporate headquarter functions that directly support the segment activity are allocated based on segment headcount, revenue contribution, or activity of the business units within the segments, based on the corporate activity type provided to the segment. The expense allocation excludes certain corporate costs that are separately managed from the segments. The prior year periods have been updated to reflect the change in allocating corporate operating expenses.

Management believes the current allocation of corporate operating expenses provides a more accurate presentation of how the segments utilize corporate support activities as compared to the cost of capital method previously used. This provides the CODM more meaningful segment profitability reporting to support operating decisions and the allocation of resources.

The following table provides a reconciliation of segment net profit from operations to the Company’s consolidated total:
Three Months Ended
September 30, 
Nine Months Ended
September 30, 
2018201720182017
Profit for reportable segments $11,176 $9,118 $27,837 $19,485 
Interest expense (1,367)(2,026)(4,979)(6,315)
Interest income 71 56 166 166 
Other (expense) income (153)551 327 564 
LIFO expense (1,701)(1,552)(2,414)(1,733)
Equity in (loss) income of nonconsolidated investments (4)50 (7)(5)
Unallocated corporate expenses and other unallocated charges (3,297)(3,183)(12,089)(7,640)
Income before income taxes $4,725 $3,014 $8,841 $4,522 

The following table illustrates assets of the Company by segment:
September 30,
2018 
December 31,
2017 
Rail Products and Services $171,183 $192,038 
Construction Products 92,996 83,154 
Tubular and Energy Services 90,984 100,706 
Unallocated corporate assets 15,383 20,658 
Total $370,546 $396,556 

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3. REVENUE
On January 1, 2018, the Company adopted ASU 2014-09, and all the related amendments using the modified retrospective approach, which did not result in any changes to the previously reported financial information. The updates related to ASU 2014-09 were applied only to contracts that were not complete as of January 1, 2018.

The Company’s revenues are comprised of product and service sales, including products and services provided under long-term agreements with its customers. All revenue is recognized when the Company satisfies its performance obligations under the contract, either implicit or explicit, by transferring the promised product or rendering a service to its customer either when or as its customer obtains control of the product or the service is rendered. A performance obligation is a promise in a contract to transfer a distinct product or render a service to a customer. A contract’s transaction price is allocated to each distinct performance obligation. The majority of the Company’s contracts have a single performance obligation, as the promise to transfer products or render services is not separately identifiable from other promises in the contract and, therefore, not distinct. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring products or providing services. Revenue is recorded net of returns, allowances, customer discounts, and incentives. Sales, value added, and other taxes collected from customers and remitted to governmental authorities are accounted for on a net (excluded from revenues) basis. Shipping and handling costs are included in cost of goods sold.

The Company’s performance obligations under long-term agreements with its customers are generally satisfied as over time. Over time revenue is primarily comprised of transit infrastructure projects within Rail Products and Rail Technologies, long-term bridge projects within Piling and Fabricated Bridge, precast concrete buildings within Precast Concrete Products, and custom precision metering systems within Protective Coatings and Measurement Solutions. Revenue from products or services provided to customers over time accounted for 26.8% and 24.0% of revenue for the three months ended September 30, 2018 and 2017, respectively, and 25.2% and 23.3% of revenue for the nine months ended September 30, 2018 and 2017, respectively. Revenue under these long-term agreements is generally recognized over time either using an input measure based upon the proportion of actual costs incurred to estimated total project costs or an input measure based upon actual labor costs as a percentage of estimated total labor costs, depending upon which measure the Company believes best depicts the Company’s performance to date under the terms of the contract. Revenue recognized over time using an input measure was $33,225 and $20,447 for the three months ended September 30, 2018 and 2017, respectively, and $87,369 and $61,892 for the nine months ended September 30, 2018 and 2017, respectively. A certain portion of the Company’s revenue recognized over time under these long-term agreements is recognized using an output method, specifically units delivered, based upon certain customer acceptance and delivery requirements. Revenue recognized over time using an output measure was $11,510 and $11,096 for the three months ended September 30, 2018 and 2017, respectively, and $29,064 and $30,108 for the nine months ended September 30, 2018 and 2017, respectively. As of September 30, 2018 and December 31, 2017, the Company had contract assets of $27,796 and $25,320, respectively, that were recorded in inventory within the Condensed Consolidated Balance Sheets. As of September 30, 2018 and December 31, 2017, the Company had contract liabilities of $2,423 and $1,420, respectively, that were recorded in deferred revenue within the Condensed Consolidated Balance Sheets.

Accounting for these long-term agreements involves the use of various techniques to estimate total revenues and costs. The Company estimates profit on these long-term agreements as the difference between total estimated revenues and expected costs to complete a contract and recognizes that profit over the life of the contract. Contract estimates are based on various assumptions to project the outcome of future events that may span several years. These assumptions include, among other things, labor productivity, cost and availability of materials, and timing of funding by customers. The nature of these long-term agreements may give rise to several types of variable consideration, such as claims, awards, and incentive fees. Historically, these amounts of variable consideration have not been considered significant. Contract estimates may include additional revenue for submitted contract modifications if there exists an enforceable right to the modification, the amount can be reasonably estimated, and its realization is probable. These estimates are based on historical collection experience, anticipated performance, and the Company’s best judgment at that time. These amounts are generally included in the contract’s transaction price and are allocated over the remaining performance obligations. Changes in judgments related to the estimates above
could impact the timing and amount of revenue recognized and, accordingly, the timing and amount of associated income. In the event that a contract loss becomes known, the entire amount of the estimated loss is recognized in the Condensed Consolidated Statements of Operations.

The majority of the Company’s revenue is from products transferred and services rendered to customers at a point in time, which is inherent in all major product and service categories. Point in time revenue accounted for 73.2% and 76.0% of revenue for the three months ended September 30, 2018 and 2017, respectively, and 74.8% and 76.7% of revenue for the nine months ended September 30, 2018 and 2017, respectively. The Company recognizes revenue at the point in time in which the customer
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obtains control of the product or service, which is generally when product title passes to the customer upon shipment or the service has been rendered to the customer. In limited cases, title does not transfer and revenue is not recognized until the customer has received the products at a designated physical location.

The following table summarizes the Company's net sales by major product and service category:
Three Months Ended
September 30, 
Nine Months Ended
September 30, 
2018201720182017
Rail Products $49,234 $36,297 $139,600 $115,061 
Rail Technologies 35,283 25,798 98,971 72,861 
Rail Products and Services 84,517 62,095 238,571 187,922 
Piling and Fabricated Bridge 26,798 24,186 71,505 83,016 
Precast Concrete Products 14,736 14,932 41,136 38,889 
Construction Products 41,534 39,118 112,641 121,905 
Test, Inspection, and Threading 15,296 13,729 44,517 37,661 
Protective Coatings and Measurement Solutions 25,747 16,550 66,709 47,566 
Tubular and Energy Services 41,043 30,279 111,226 85,227 
Total net sales $167,094 $131,492 $462,438 $395,054 

Net sales by the timing of the transfer of goods and services is as follows:
Three Months Ended September 30, 2018 Rail Products and
Services 
Construction
Products 
Tubular and Energy
Services 
Total 
Point in time $61,426 $27,459 $33,474 $122,359 
Over time 23,091 14,075 7,569 44,735 
Total net sales $84,517 $41,534 $41,043 $167,094 
Three Months Ended September 30, 2017 Rail Products and
Services 
Construction
Products 
Tubular and Energy
Services 
Total 
Point in time $51,043 $22,768 $26,138 $99,949 
Over time 11,052 16,350 4,141 31,543 
Total net sales $62,095 $39,118 $30,279 $131,492 

Nine Months Ended September 30, 2018 Rail Products and
Services 
Construction
Products 
Tubular and Energy
Services 
Total 
Point in time $176,592 $74,581 $94,832 $346,005 
Over time 61,979 38,060 16,394 116,433 
Total net sales $238,571 $112,641 $111,226 $462,438 
Nine Months Ended September 30, 2017 Rail Products and
Services 
Construction
Products 
Tubular and Energy
Services 
Total 
Point in time $153,707 $76,158 $73,189 $303,054 
Over time 34,215 45,747 12,038 92,000 
Total net sales $187,922 $121,905 $85,227 $395,054 

The timing of revenue recognition, billings, and cash collections results in billed receivables, costs in excess of billings (contract assets, included in inventory), and billings in excess of costs (contract liabilities, included in deferred revenue) on the Condensed Consolidated Balance Sheets.

Significant changes in contract assets during the nine months ended September 30, 2018 include transfers to receivables from contract assets recognized at the beginning of the period of $14,528. Significant changes in contract liabilities during the nine months ended September 30, 2018 included $1,146 of revenue recognized that was included in the contract liability at the
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beginning of the period, and increases of $1,754 due to billings in excess of costs, excluding amounts recognized as revenue during the period.

As of September 30, 2018, the Company had approximately $251,617 of remaining performance obligations, which is also referred to as backlog. Approximately 10.0% of the September 30, 2018 backlog is related to projects that are anticipated to extend beyond September 30, 2019.
4. GOODWILL AND OTHER INTANGIBLE ASSETS
The following table presents the goodwill balance by reportable segment:
Rail Products and
Services 
Construction
Products 
Tubular and Energy
Services 
Total 
Balance as of December 31, 2017 $14,638 $5,147 $ $19,785 
Foreign currency translation impact (336)  (336)
Balance as of September 30, 2018 $14,302 $5,147 $ $19,449 

The Company performs goodwill impairment tests annually during the fourth quarter, and also performs interim goodwill impairment tests if it is determined that it is more likely than not that the fair value of a reporting unit is less than the carrying amount. Qualitative factors are assessed to determine whether it is more likely than not that the fair value of a reporting unit is less than the carrying amount. No interim goodwill impairment test was required in connection with the evaluation of qualitative factors as of September 30, 2018. The Company continues to monitor the recoverability of the long-lived assets associated with certain reporting units of the Company and their long-term financial projections. Sustained declines in the markets we serve may result in future long-lived asset impairment.

The following table represents the gross balances of other intangible asset by reportable segment:
September 30,
2018 
December 31,
2017 
Rail Products and Services* $57,151 $57,654 
Construction Products 1,348 1,348 
Tubular and Energy Services 29,179 29,179 
$87,678 $88,181 
* Gross balances include the impact of foreign currency translation adjustments.

The components of the Company’s intangible assets were as follows:
September 30, 2018
Weighted Average
Amortization
Period In Years 
Gross
Carrying
Value 
Accumulated
Amortization 
Net
Carrying
Amount 
Non-compete agreements 5$4,215 $(3,757)$458 
Patents 10379 (172)207 
Customer relationships 1837,333 (10,869)26,464 
Trademarks and trade names 1410,057 (4,710)5,347 
Technology 1435,694 (16,369)19,325 
$87,678 $(35,877)$51,801 
December 31, 2017
Weighted Average
Amortization
Period In Years 
Gross
Carrying
Value 
Accumulated
Amortization 
Net
Carrying
Amount 
Non-compete agreements 5$4,238 $(3,100)$1,138 
Patents 10389 (164)225 
Customer relationships 1737,679 (9,171)28,508 
Trademarks and trade names 1410,085 (4,091)5,994 
Technology 1435,790 (14,215)21,575 
$88,181 $(30,741)$57,440 

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Intangible assets are amortized over their useful lives, which range from 4 to 25 years, with a total weighted average amortization period of approximately 15 years as of September 30, 2018. Amortization expense was $1,762 and $1,764 for the three months ended September 30, 2018 and 2017, respectively, and $5,322 and $5,218 for the nine months ended September 30, 2018 and 2017, respectively.

As of September 30, 2018, estimated amortization expense for the remainder of 2018 and thereafter was as follows:
Amortization Expense 
Remainder of 2018$1,667 
20196,262 
20205,942 
20215,923 
20225,881 
2023 and thereafter26,126 
$51,801 

5. ACCOUNTS RECEIVABLE
Credit is extended based upon an evaluation of the customer’s financial condition and, while collateral is not required, the Company periodically receives surety bonds that guarantee payment. Credit terms are consistent with industry standards and practices. The amounts of trade accounts receivable as of September 30, 2018 and December 31, 2017 have been reduced by an allowance for doubtful accounts of $1,297 and $2,151, respectively. Changes in reserves for uncollectable accounts are recorded as part of selling and administrative expenses in the Condensed Consolidated Statements of Operations, and were income of $268 and expense of $208 for the three months ended September 30, 2018 and 2017, respectively, and income of $987 and expense of $737 for the nine months ended September 30, 2018 and 2017, respectively.
6. INVENTORIES
Inventories as of September 30, 2018 and December 31, 2017 are summarized in the following table:
September 30,
2018 
December 31,
2017 
Finished goods $55,988 $55,846 
Contract assets 27,796 25,320 
Work-in-process 8,364 4,059 
Raw materials 22,653 17,505 
Total inventories at current costs 114,801 102,730 
Less LIFO reserve (7,601)(5,187)
$107,200 $97,543 

Inventory is generally valued at the lower of last-in, first-out (“LIFO”) cost or market. Other inventories of the Company are valued at average cost or net realizable value, whichever is lower. An actual valuation of inventory under the LIFO method is made at the end of each year based on the inventory levels and costs at that time. Interim LIFO calculations are based on management’s estimates of expected year-end levels and costs. Prior to the adoption of ASU 2014-09, contract assets were classified within work-in-process inventory.

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7. PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment as of September 30, 2018 and December 31, 2017 consisted of the following:
September 30,
2018 
December 31,
2017 
Land $12,535 $14,869 
Improvements to land and leaseholds 17,482 17,415 
Buildings 34,860 34,929 
Machinery and equipment, including equipment under capitalized leases 120,671 120,806 
Construction in progress 2,724 1,057 
188,272 189,076 
Less accumulated depreciation and amortization, including accumulated amortization of capitalized leases (100,378)(92,980)
$87,894 $96,096 

Depreciation expense for the three months ended September 30, 2018 and 2017 was $2,803 and $3,178, respectively, and $8,685 and $9,705 for the nine months ended September 30, 2018 and 2017, respectively.

We review our property, plant, and equipment for recoverability whenever events or changes in circumstances indicate that carrying amounts may not be recoverable. We recognize an impairment loss if the carrying amount of a long-lived asset is not recoverable and exceeds its fair value. There were no impairments of property, plant, and equipment during the nine months ended September 30, 2018 and 2017.

During the nine months ended September 30, 2018, the Company sold 54.5 acres of land in exchange for cash proceeds of $2,047, resulting in a loss of $269.

8. INVESTMENTS
During the quarter ended September 30, 2017, pursuant to the limited liability company agreement, the Company determined to sell its 45% ownership interest in L B Pipe and Coupling Products, LLC (“L B Pipe JV”) to the other 45% equity holder. The Company concluded that it had met the criteria under applicable guidance for a long-lived asset to be held for sale, and, accordingly, reclassified its L B Pipe JV investment of $4,288 as a current asset held for sale within other current assets. The asset was subsequently remeasured to its fair market value of $3,875. The difference between the fair market value and the Company's carrying amount of $413 was recorded as an other-than-temporary impairment during 2017.

On August 1, 2018, the Company executed the sale of its 45% ownership interest in L B Pipe JV. Under the terms of the agreement, the Company received payment of $3,875 for its 45% ownership interest and $1,235, plus $159 in accrued interest, as repayment of the outstanding revolving line of credit.

As of September 30, 2018 and December 31, 2017, the Company had a nonconsolidated equity method investment of $155 and $162, respectively.

The Company recorded equity in the income of L B Pipe JV of $0 and $434 for the three months ended September 30, 2018 and 2017, respectively, and $0 and $386, respectively, for the nine months ended September 30, 2018 and 2017.

During 2016, the Company and the other 45% member each executed a revolving line of credit with L B Pipe JV with an available limit of $1,350. The Company and the other 45% member each loaned $1,235 to L B Pipe JV in an effort to maintain compliance with L B Pipe JV’s debt covenants with an unaffiliated bank. The Company received its outstanding loan balance, including accrued interest, at the August 1, 2018 sale date.

The Company’s exposure to loss results from its capital contributions and loans, net of the Company’s share of L B Pipe JV’s income or loss, and its net investment in the direct financing lease covering the facility used by L B Pipe JV for its operations.

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The carrying amounts with the Company’s maximum exposure to loss as of September 30, 2018 and December 31, 2017, respectively, were as follows:
September 30,
2018 
December 31,
2017 
L B Pipe JV investment $ $3,875 
Revolving line of credit  1,235 
Net investment in direct financing lease 602 735 
$602 $5,845 

The Company is leasing five acres of land and two facilities to L B Pipe JV. Subsequent to the Company's sale of its 45% ownership interest in L B Pipe JV, the Company and L B Pipe JV agreed upon a lease extension through June 30, 2020, with no further renewal period. The current monthly lease payments approximate $17, with a balloon payment of approximately $488, which is required to be paid on or before April 1, 2019. This lease qualifies as a direct financing lease under the applicable guidance in ASC 840-30, “Leases.”

The following is a schedule as of September 30, 2018 of the direct financing minimum lease payments for the remainder of 2018 and the year 2019:
Minimum Lease Payments 
Remainder of 2018$35 
2019567 
$602 

9. LONG-TERM DEBT
North America
Long-term debt consisted of the following:
September 30,
2018 
December 31,
2017 
Revolving credit facility $75,401 $128,470 
Capital leases and financing agreements 1,069 1,496 
Total 76,470 129,966 
Less current maturities (630)(656)
Long-term portion $75,840 $129,310 

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 provided for additional term loan borrowing of $30,000 (the “Term Loan”). During 2017, the Company paid off the balance of the Term Loan. Capitalized terms used but not defined herein shall have the meanings ascribed to them in the Second Amendment or Amended and Restated Credit Agreement filed as Exhibit 10.3 to the Company's Annual Report on Form 10-K for the year ended December 31, 2017, as applicable.

The Second Amendment further provided 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 ended December 31, 2016 through the quarter ended June 30, 2017, the Minimum EBITDA had to be at least $18,500. For each quarter thereafter, through the quarter ended June 30, 2018, the Minimum EBITDA requirement increased by various increments. On June 30, 2018, the Minimum EBITDA requirement was $31,000. After the quarter ended June 30, 2018, the Minimum EBITDA covenant was eliminated through the remainder of the Amended and Restated Credit Agreement. The Second Amendment also includes a Minimum Fixed Charge
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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 was a Minimum Liquidity covenant which called 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 Amended and Restated Credit Agreement. Through the maturity date of the loan, the Company is prohibited from making any future acquisitions. The limitation on permitted annual distributions of dividends or redemptions of the Company’s stock was 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.

As of September 30, 2018, L.B. Foster was in compliance with the Second Amendment’s covenants.

The Second Amendment provided 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 was locked into the highest tier of the pricing grid, which provided 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 is 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.

As of September 30, 2018, L.B. Foster had outstanding letters of credit of approximately $425 and had net available borrowing capacity of $119,174. The maturity date of the facility is March 13, 2020.

United Kingdom
A subsidiary of the Company has a credit facility with NatWest Bank for its United Kingdom operations, which includes an overdraft availability of £1,500 pounds sterling (approximately $1,955 as of September 30, 2018). This credit facility supports the subsidiary’s working capital requirements and is collateralized by substantially all of the assets of its United Kingdom operations. The variable interest rate on this facility is the financial institution’s base rate plus 2.50%. Outstanding performance bonds reduce availability under this credit facility. The subsidiary of the Company had no outstanding borrowings under this credit facility as of September 30, 2018. There was approximately $319 in outstanding guarantees (as defined in the underlying agreement) as of September 30, 2018. This credit facility was renewed during the third quarter of 2018 with all underlying terms and conditions remaining unchanged as a result of the renewal. It is the Company’s intention to renew this credit facility with NatWest Bank during the annual review within the third quarter of 2019.

The United Kingdom credit facility contains certain financial covenants that require the subsidiary to maintain senior interest and cash flow coverage ratios. The subsidiary was in compliance with these financial covenants as of September 30, 2018. The subsidiary had available borrowing capacity of $1,636 as of September 30, 2018.
10. FAIR VALUE MEASUREMENTS
The Company determines the fair value of assets and liabilities based on the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants. The fair values are based on assumptions that market participants would use when pricing an asset or liability, including assumptions about risk and the risks inherent in valuation techniques and the inputs to valuations. The fair value hierarchy is based on whether the inputs to valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s own assumptions of what market participants would use. The fair value hierarchy includes three levels of inputs that may be used to measure fair value as described below:

Level 1: Quoted market prices in active markets for identical assets or liabilities.
Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data.
Level 3: Unobservable inputs that are not corroborated by market data.

The classification of a financial asset or liability within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.
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