L.B. FOSTER COMPANY (Dollars in thousands, except share data unless otherwise noted)
Executive Level Overview
2021 Developments and 2022 Outlook
During 2021, the Company:
•Produced net sales of
•Generated net income from continuing operations of
•Divested the Piling Products division from the Steel Products and Measurement
segment, resulting in cash proceeds of
•Reported adjusted EBITDA(a) (earnings before interest, taxes, depreciation,
amortization, and certain income) of
•Reduced the outstanding balance on its credit facility by
•Amended its credit agreement, resulting in an increase in the maximum capacity
of its revolver from
•Continued operations during the COVID-19 pandemic while working to minimize business interruptions and address safety concerns by monitoring through health, travel, and quarantine recommendations issued by theU.S. Centers for Disease Control and various national, state, provincial, and local departments of health where our facilities are located; and •AppointedJohn F. Kasel President and Chief Executive Officer,William M. Thalman Senior Vice President and Chief Financial Officer,William F. Treacy Senior Vice President and Chief Growth Officer, and realigned the Company's operating segments under four senior business leaders in connection with a refreshed enterprise strategy designed to leverage its growth and returns business platforms. (a) The following tables display reconciliations of non-GAAP financial measures for the years endedDecember 31, 2021 and 2020. EBITDA is a financial metric utilized by management to evaluate the Company's performance on a comparable basis. The Company believes that EBITDA is useful to investors as a supplemental way to evaluate the ongoing operations of the Company's business as EBITDA enhances investors' ability to compare historical periods as it adjusts for the impact of financing methods, tax law and strategy changes, and depreciation and amortization. In addition, EBITDA is a financial measurement that management and the Company's Board of Directors use in their financial and operational decision-making and in the determination of certain compensation programs. Adjusted EBITDA includes certain adjustments to EBITDA. In 2021, the Company made adjustments to exclude the gain on the sale of the Piling Products division. In 2020, the Company made adjustments to exclude the impact of relocation and restructuring costs and the proceeds from an unconsolidated partnership.. The Company views net debt, which is total debt less cash and cash equivalents, as an important metric of the operational and financial health of the organization and useful to investors as an indicator of our ability to incur additional debt and to service our existing debt. Non-GAAP financial measures are not a substitute for GAAP financial results and should only be considered in conjunction with the Company's financial information that is presented in accordance with GAAP. Quantitative reconciliations of EBITDA and debt to the non-GAAP financial measures are presented below. Year Ended December
31,
2021 2020
Adjusted EBITDA Reconciliation Net income from continuing operations$ 3,471 $ 25,823 Interest expense - net 2,956 3,761 Income tax expense (benefit) 1,119 (11,841) Depreciation 8,051 7,850 Amortization 5,836 5,729 Total EBITDA from continuing operations 21,433
31,322
Gain on divestiture of Piling Products (2,741)
-
Relocation and restructuring costs -
2,545
Proceeds from unconsolidated partnership -
(1,874)
Adjusted EBITDA from continuing operations$ 18,692 $ 31,993 December 31, December 31, 2021 2020 Net Debt Reconciliation Total debt$ 31,251 $ 45,024 Less: cash and cash equivalents (10,372) (7,564) Net debt$ 20,879 $ 37,460 18
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OnSeptember 24, 2021 , the Company completed the sale of its Piling Products division for$23,902 in total expected proceeds,$1,195 of which is expected to be collected in 2022. The Company retained all pre-closing receivables and liabilities associated with the division. The sale included substantially all inventory held by the Company associated with the division, as well as the related fixed assets. The Piling Products division was included in the Fabricated Steel Products business unit within the Steel Products and Measurement segment. The Piling Products division revenues were$60,819 and$59,139 for the years endedDecember 31, 2021 and 2020, respectively. Net sales for 2021 were$513,620 , a$16,209 increase, or 3.3%, compared to the prior year. The sales increase was attributable to the Company's Rail and Precast segments, which increased by 8.4% and 12.1%, respectively, over the prior year. The$23,302 increase in Rail was attributable to increases in Rail Products, Global Friction Management, and Technology Services and Solutions. The$7,676 increase in the Precast segment was attributable to increases in precast building revenue in itsBoise, ID facility. Partially offsetting these increases, was a$14,769 decline in Steel Products and Measurement sales, which continues to face a challenging environment in the midstream energy market due to excess infrastructure pipeline capacity. Gross profit for 2021 was$86,302 , an$8,704 decrease, or 9.2%, from the prior year. The 16.8% consolidated gross profit margin decreased by 230 basis points when compared to the prior year. All three segments experienced declining gross profit margin versus last year. Gross profit increased in the Rail segment by$1,986 , driven by the$23,302 increase in revenues. However, Rail gross profit margins declined 90 basis points due primarily attributable to raw material, labor, and production cost inflation, coupled with labor and supply chain disruptions impacting manufacturing and fulfillment of orders. This impact was most pronounced in the Rail Products business unit. Slightly lower margins in Global Friction Management were offset by slightly higher margins in TechnologyServices and Solutions . The Precast segment gross profit increased$1,096 , or 9.6%, driven by the increased sales volume. Precast segment gross profit margin was reduced by 40 basis points due to raw material and labor inflation and disruption, coupled with a shortage of engineering services to support production design certifications. In the Steel Products and Measurement segment, gross profit declined from the prior year by$11,786 , primarily driven by the decrease in revenues in the Coatings and Measurement business unit, which resulted from lower pipeline and measurement demand in the midstream energy market. Steel Products and Measurement gross profit margin was down 640 basis points compared to the prior year. Selling and administrative expenses in 2021 increased by$2,351 , or 3.2%, from the prior year, primarily driven by increases in personnel related costs, including stock-based compensation expense, as well as costs associated with the Company's strategic initiatives. Selling and administrative expenses as a percent of net sales were flat compared to the prior year at 14.8%. Net income from continuing operations for 2021 was$3,471 , or$0.33 per diluted share, a reduction of$22,352 , or$2.09 per diluted share, from the prior year. The current year was favorably impacted by a gain of$2,046 , net of tax, on the sale of the Piling Products division. The prior year was favorably impacted by a non-recurring income tax benefit of$15,840 resulting from the sale of the IOS Test and Inspection Services business inSeptember 2020 . The Company's consolidated backlog(b) was$210,189 as ofDecember 31, 2021 , a decrease of$38,043 , or 15.3%, from the prior year. The divestiture of the Piling Products business unit during 2021 resulted in a$32,042 decline in backlog versus last year. This backlog decline was partially offset by a$22,846 increase in the Precast segment, which continues to benefit from infrastructure investment and government-funded programs to rebuild national parks. The current inflationary cost environment, including labor rates, is expected to continue to put pressure on margins across our businesses. Actions to mitigate these impacts as much as possible are ongoing. In addition, the Company continues to take proactive steps to manage disruptions in raw materials, labor, supply chain, service partner, and other lingering COVID-19 related effects in an attempt to mitigate their adverse impact as much as possible. The Coatings and Measurement business unit continues to be affected by the ongoing depressed level of infrastructure investment in the midstream pipeline markets despite rising energy prices. Certain areas of this business have experienced some modest improvement. However, demand levels remain depressed compared to historical levels as pipeline projects continue to be deferred, and the outlook for this business unit remains weak for the foreseeable future. The Company will continue to adjust the cost structure of this business as appropriate to mitigate these negative market conditions as much as possible. While the Rail segment's backlog declined year-over-year by$24,658 driven by the Rail Products business unit, freight rail activity and global transit ridership levels have improved, albeit well below pre-pandemic levels. With the federal infrastructure support programs announced in 2020 and 2021, the Company is maintaining its optimistic outlook regarding longer-term trends in the North American freight and transit markets given supply chain and transportation needs coupled with government-subsidized investment expected. While the challenging operating environment is expected to improve in 2022, it could persist throughout 2022 and possibly longer. Despite these potential short-term challenges, the Company expects that many of its businesses will continue to directly benefit from infrastructure investment activity, including funding benefits fromU.S. Infrastructure Investment and Jobs Act passed inNovember 2021 . Additionally, with the proceeds from the Piling business divestiture coupled with the additional flexibility and capacity resulting from the amendment and extension of our credit agreement inAugust 2021 , the Company believes that it has significant capacity to pursue organic and acquisitive growth opportunities in 2022 and beyond. (b) The Company defines new orders as a contractual agreement between the Company and a third-party in which the Company will, or has the ability to, satisfy the performance obligations of the promised products or services under the terms of the agreement. The Company defines backlog as contractual commitments to customers for which the Company's performance obligations have not been met, including with respect to new orders and contracts for which the Company has not begun any performance. Management utilizes new orders and backlog to evaluate the health of the industries in which the Company operates, the Company's current and future results of operations and financial prospects, and strategies for business development. The Company believes that new orders and backlog are useful to investors as supplemental metrics by which to measure the Company's current performance and prospective results of operations and financial performance. The 19
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Company defines its book-to-bill ratio as new orders divided by revenue. Management uses the book-to-bill key performance indicator as a monitoring metric for the levels of backlog a business unit is building (greater than 1.0) or consuming (less than 1.0), which may provide management and investors an indication of current market activity.
Year-to-date Results Comparison
Results of Operations
Percent of Total Net
Percent Sales
Year Ended December 31, Increase/(Decrease) Year Ended December 31,
2021 2020 2021 vs. 2020 2021 2020
Net Sales :
Rail, Technologies, and
Services $ 299,749 $ 276,447 8.4 % 58.4 % 55.6 %
Precast Concrete Products 70,990 63,314 12.1 13.8 12.7
Steel Products and Measurement 142,881 157,650 (9.4) 27.8 31.7
Total net sales $ 513,620 $ 497,411 3.3 % 100.0 % 100.0 %
Percent Gross Profit Percentage
Year Ended December 31, Increase/(Decrease) Year Ended December 31,
2021 2020 2021 vs. 2020 2021 2020
Gross Profit:
Rail, Technologies, and
Services $ 57,249 $ 55,263 3.6 % 19.1 % 20.0 %
Precast Concrete Products 12,491 11,395 9.6 17.6 18.0
Steel Products and Measurement 16,562 28,348 (41.6) 11.6 18.0
Total gross profit $ 86,302 $ 95,006 (9.2) % 16.8 % 19.1 %
Percent of Total Net
Percent Sales
Year Ended December 31, Increase/(Decrease) Year Ended December 31,
2021 2020 2021 vs. 2020 2021 2020
Expenses:
Selling and administrative expenses$ 75,995 $ 73,644 3.2 % 14.8 % 14.8 % Amortization expense 5,836 5,729 1.9 1.1 1.2 Operating profit 4,471 15,633 (71.4) 0.9 3.1 Interest expense - net 2,956 3,761 (21.4) 0.6 0.8 Other income - net (3,075) (2,110) (45.7) (0.6) (0.4) Income from continuing operations before income taxes$ 4,590 $ 13,982 (67.2) % 0.9 % 2.8 % Income tax expense (benefit) 1,119 (11,841) 109.5 0.2 (2.4) Income from continuing operations$ 3,471 $ 25,823 (86.6) % 0.7 % 5.2 %
Fiscal 2021 Compared to Fiscal 2020 - Company Analysis
Net sales of$513,620 for the year endedDecember 31, 2021 increased by$16,209 , or 3.3%, compared to the prior year. Both the Rail and Precast segments contributed to the increase, with increases over the prior year of 8.4% and 12.1%, respectively. The sales increase was partially offset by a decline in the Steel Products and Measurement segment of 9.4%, which was primarily attributable to the circumstances around the COVID-19 pandemic, resulting in reduced demand most severely impacting the Coatings and Measurement business unit, which principally serves the midstream energy market, within the Steel Products and Measurement segment. Gross profit decreased by$8,704 from the prior year to$86,302 for 2021. This decrease was attributable to the Steel Products and Measurement segment, which decreased by$11,786 from the prior year. Along with the decrease in gross profit, gross profit margin for 2021 was 16.8%, or 230 basis points lower than the prior year. The decrease in the current year margin was experienced in each of the three segments, which was primarily impacted by decreased sales volume within the Coatings and Measurement business unit, as well as raw material and labor inflation coupled with supply chain and manufacturing disruptions which impacted production and order fulfillment. Selling and administrative expenses increased by$2,351 , or 3.2%, over the prior year. The increase was primarily attributable to increases in personnel related expenses of$1,424 from the prior year, including an$809 increase in stock-based compensation 20
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expense, and an increase in third-party supplies and services of$1,135 compared to the prior year, largely related to the Company's strategic assessment. As a result of the increased sales levels in 2021, selling and administrative expenses remained flat at 14.8% as a percentage of net sales as compared to the prior year. For the year endedDecember 31, 2021 , the Company recorded pretax income of$2,741 from the gain on sale of the Piling Products division. In the prior year, the Company recorded$673 in expense related to relocation and closure activities and income of$1,874 from an unconsolidated partnership distribution, all of which were recorded in "Other income - net." Interest expense, net of interest income, for the year endedDecember 31, 2021 was reduced by$805 as a result of the$13,773 reduction in outstanding debt and favorable terms under theAugust 2021 credit agreement. The Company's effective income tax rate for 2021 was 24.4%, compared to (84.7)% in the prior year period. The Company's income tax expense from continuing operations for 2021 included an income tax benefit of$2,130 , net of valuation allowance, related to the disposition of the Test and Inspection Services business in addition to the income tax benefit of$15,840 , net of valuation allowance, that was recorded in 2020. During 2021, the Company increased its valuation allowance provided against state deferred tax assets by$1,807 , net of federal benefit, primarily related to forecasted expiration of state operating loss carryforwards. The positive evidence considered in evaluatingU.S. deferred tax assets included cumulative financial income over the three-year period endedDecember 31, 2021 , as well as the composition and reversal patterns of existing taxable and deductible temporary differences between financial reporting and tax. Based on our evaluation, the Company believed it was appropriate to rely on forecasted future taxable income to support itsU.S. deferred tax assets. The amount of deferred tax assets considered to be realizable, however, could be adjusted in the future if negative evidence outweighs additional subjective evidence such as our projections for growth.
Net income from continuing operations for the year ended
Results of Operations - Segment Analysis
Rail, Technologies, and Services
Year Ended Percent
December 31, Increase/(Decrease) Increase/(Decrease)
2021 2020 2021 vs. 2020 2021 vs. 2020
Net Sales $ 299,749 $ 276,447 $ 23,302 8.4 %
Gross Profit $ 57,249 $ 55,263 $ 1,986 3.6 %
Gross Profit Percentage 19.1 % 20.0 % (0.9) % (4.5) %
Segment Operating Profit $ 14,165 $ 13,185 $ 980 7.4 %
Segment Operating Profit
Percentage 4.7 % 4.8 % (0.1) % (0.9) %
Rail, Technologies, and Services segment sales increased by $23,302 , or 8.4%,
compared to the prior year. The sales increase was driven primarily by our Rail
Products business unit, with year-over-year growth of $12,256 , or 6.6%. The
Global Friction Management and Technology Services and Solutions business units
realized sales increases of $4,255 , or 9.4%, and $6,791 , or 15.2%, respectively.
The sales volume increase was primarily driven by rises in demand due to more
favorable market conditions in 2021 versus 2020, as the pandemic's impact on
freight, transit, and rail infrastructure project activity began to modestly
improve.
Segment gross profit increased by $1,986 , or 3.6%, which was driven by sales
volume and improving demand in Global Friction Management and Technology
Services and Solutions . Partially offsetting the increase were lower margins
realized in Rail Products due to higher manufacturing input costs and supply
chain disruptions. The Rail segment gross profit margin decreased by 90 basis
points from the prior year due to the lower gross profit margins realized in
Rail Products. The Rail segment profit for 2021 was $14,165 , a segment profit
margin of 4.7%, compared to $13,185 , and a margin of 4.8% for 2020.
During 2021, the new orders within the Rail, Technologies, and Services segment
decreased by 5.6% compared to the prior year. The decline in new orders was
attributable to the Rail Products business unit, which was primarily related to
declines in order activity for transit projects and concrete ties. Segment
backlog decreased by 20.3% compared to the prior year, ending 2021 at $96,573 .
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Table of ContentsPrecast Concrete Products Year Ended Percent December 31, Increase/(Decrease) Increase/(Decrease) 2021 2020 2021 vs. 2020 2021 vs. 2020 Net Sales$ 70,990 $ 63,314 $ 7,676 12.1 % Gross Profit$ 12,491 $ 11,395 $ 1,096 9.6 % Gross Profit Percentage 17.6 % 18.0 % (0.4) % (2.2) % Segment Operating Profit$ 1,545 $ 566 $ 979 173.0 % Segment Operating Profit Percentage 2.2 % 0.9 % 1.3 % 143.5 % The Precast Concrete Product segment sales increased by$7,676 , or 12.1%, compared to the prior year, which was attributable to increased precast building sales in itsBoise, ID facility, which experienced down time and a protracted operational startup in the prior year as a result of the facility relocation. ThePrecast Concrete Products segment gross profit increased by$1,096 , or 9.6%, compared to the prior year. The gross profit increase was primarily due to increased sales volume within the segment. The gross profit margin declined 40 basis points to 17.6%, which resulted from inflationary raw material costs and, to a lesser extent, manufacturing inefficiencies. The segment profit of$1,545 increased by$979 compared to the prior year to 2.2% of net sales. The prior year was impacted by the manufacturing facility relocation toBoise, ID , which resulted in down time and then a protracted startup of operations.
For 2021, the
Steel Products and Measurement
OnSeptember 24, 2021 , the Company completed the sale of its Piling Products division for$23,902 in total expected proceeds. The Company retained all pre-closing receivables and liabilities associated with the division. The sale included substantially all inventory held by the Company associated with the division, as well as the related fixed assets. The Piling Products division was included in the Fabricated Steel Products business unit within the Steel Products and Measurement reporting segment. The Piling Products division revenues were$60,819 and$59,139 for the years endedDecember 31, 2021 and 2020, respectively. OnSeptember 4, 2020 , the Company sold its Test and Inspection Service business to an unrelated third party buyer. Proceeds from the sale were$4,000 and resulted in a loss of$10,034 net of tax. The Coatings and Measurement business unit will continue to be focused on core competencies around corrosion protection and measurement systems in midstream pipeline applications. We have reflected the results of operations of the Test and Inspection Services business as discontinued operations in our Consolidated Financial Statements and recast the segment results for all periods presented. Year Ended Percent December 31, Decrease Decrease 2021 2020 2021 vs. 2020 2021 vs. 2020 Net Sales$ 142,881 $ 157,650 $ (14,769) (9.4) % Gross Profit$ 16,562 $ 28,348 $ (11,786) (41.6) % Gross Profit Percentage 11.6 % 18.0 % (6.4) % (35.5) %
Segment Operating (Loss) Profit
$ (10,347) (130.2) % Segment Operating (Loss) Profit Percentage (1.7) % 5.0 % (6.7) % (133.4) % Sales for the Steel Products and Measurement segment in 2021 decreased by$14,769 , or 9.4%, compared to the prior year, which was attributable to the Coatings and Measurement business unit. Coatings and Measurement experienced a sales decrease of$31,210 , or 52.9%, primarily due to the pandemic-related deteriorated oil and gas market conditions in the markets we serve in addition to already weakened demand for crude oil. Partially offsetting the decline was a sales increase of$16,435 in the Fabricated Steel Products business unit, which was primarily driven by the segmentsFabricated Bridge division, and to a lesser extent, the Water Well Threading division. The Steel Products and Measurement segment 2021 gross profit decreased by$11,786 , or 41.6%, compared to the prior year. The gross profit decrease was primarily due to depressed sales volume within the segment, principally within the Coatings and Measurement business unit, inflationary costs on raw materials and labor, and supply chain disruptions. The aforementioned items also contributed to a 640 basis point reduction in gross profit margin for the segment. The segment loss of$2,402 decreased by$10,347 compared to the prior year to (1.7)% of net sales. Included in the 2021 segment loss is a gain of$2,741 resulting from the sale of the Piling Products division. 22
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For 2021, the Steel Products and Measurement segment had a 15.3% decrease in new orders compared to the prior year period. This decrease was primarily attributable to the Fabricated Steel Products business unit, and to a lesser extent, the Piling divestiture. The segment's backlog as ofDecember 31, 2021 was$44,980 , a 44.6% decrease compared to the prior year end. Backlog as ofDecember 31, 2020 included$32,042 related to the divested Piling Products division.
Liquidity and Capital Resources
Our principal sources of liquidity are our existing cash and cash equivalents, cash generated by operations, and the available capacity under our revolving credit facility, which provides for a total commitment of up to$130,000 , of which$98,356 was available for borrowing as ofDecember 31, 2021 . Our primary needs for liquidity relate to working capital requirements for operations, capital expenditures, debt service obligations, payments related to the Union Pacific Railroad Settlement, tax obligations, outstanding purchase obligations, and acquisitions. Our total debt was$31,251 and$45,024 as ofDecember 31, 2021 andDecember 31, 2020 , respectively, and was primarily comprised of borrowings under our revolving credit facility. The following table reflects available funding capacity as ofDecember 31, 2021 :December 31, 2021 Cash and cash equivalents$ 10,372 Credit agreement: Total availability under the credit agreement$ 130,000
Outstanding borrowings on revolving credit facility (31,100) Letters of credit outstanding
(544)
Net availability under the revolving credit facility 98,356
Total available funding capacity $
108,728
Our cash flows are impacted from period to period by fluctuations in working
capital, as well as our overall profitability. While we place an emphasis on
working capital management in our operations, factors such as our contract mix,
commercial terms, days sales outstanding ("DSO"), and market conditions as well
as seasonality may impact our working capital. We regularly assess our
receivables and contract assets for collectability, and provide allowances for
credit losses where appropriate. We believe that our reserves for credit losses
are appropriate as of December 31, 2021 , but adverse changes in the economic
environment, including further deterioration of demand for crude oil and natural
gas in the energy markets, and adverse financial conditions of our customers
resulting from, among other things, the COVID-19 pandemic, may impact certain of
our customers' ability to access capital and compensate us for our products and
services, as well as impact demand for our products and services.
The change in cash and cash equivalents for the years ended December 31, 2021
and 2020 were as follows:
Year Ended December 31,
2021 2020Net cash (used in) provided by continuing operating activities $
(810)$ 20,549 Net cash provided by (used in) continuing investing activities 17,822 (10,319) Net cash used in continuing financing activities (13,904) (15,277) Effect of exchange rate changes on cash and cash equivalents (47) (195) Net cash used in discontinued operations (253) (1,372) Net increase (decrease) in cash and cash equivalents $
2,808
Cash Flows from Operating Activities
During the year endedDecember 31, 2021 , net cash used in continuing operating activities was$810 , compared to net cash provided by continuing operating activities of$20,549 during the prior year. For the year endedDecember 31, 2021 , income and adjustments to reconcile income from continuing operating activities provided$16,745 , compared to$36,521 in 2020. Working capital and other assets and liabilities, used$17,555 in the current period compared to$15,972 during 2020, including payments of$8,000 in 2021 and 2020 related to the Union Pacific Railroad Concrete Tie Settlement.
The Company's calculation of DSO was 45 days as of
Cash Flows from Investing Activities
For the year endedDecember 31, 2021 , the Company had capital expenditures of$4,620 , a$4,559 decrease from 2020. The current year expenditures were primarily related to plant expansions within ourPrecast Concrete Products segment, the continuing implementation of the Company's ERP system, and general plant and operational improvements throughout the Company. The capital expenditures during 2020 primarily related to plant expansions and a plant relocation within ourPrecast Concrete Products segment, the purchase of a continuous welded rail car and unloader within our Rail, Technologies, and Services segment, and general plant and operational improvements throughout the Company. In 2021, the Company received cash proceeds of$22,707 from the sale of its 23
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Piling Products division within the Steel Products and Measurement segment. Cash used for investing activities for the year endedDecember 31, 2021 and 2020 included cash paid of$229 and$1,156 , respectively, for the asset acquisition of the LarKen Precast business inBoise, ID to expand our precast concrete offerings in that region.
Cash Flows from Financing Activities
The Company reduced its outstanding debt by$13,735 during the year endedDecember 31, 2021 , primarily from the net proceeds from the sale of the Piling Products division. During the year endedDecember 31, 2020 , the Company reduced outstanding debt by$13,114 , primarily utilizing proceeds from operational cash flows and the sale of non-core assets. During the years endedDecember 31, 2021 and 2020, the Company paid financing fees of$406 and$498 , respectively, related to its amended credit facility agreements. For the years endedDecember 31, 2021 and 2020, the Company repurchased 45,288 and 95,285 shares of its stock, respectively, for$732 and$1,665 , respectively, all of which were withheld from employees to pay their withholding taxes in connection with the vesting of stock awards. Financial Condition The Company used$810 from cash flows from operations during 2021, which was primarily utilized to fund working capital needs. As ofDecember 31, 2021 , we had$10,372 in cash and cash equivalents and$98,356 of availability under our revolving credit facility. Our principal uses of cash in recent years have been to fund our operations, including capital expenditures, and to service our indebtedness. We view our short and long-term liquidity as being dependent on our results of operations, changes in working capital and our borrowing capacity. As ofDecember 31, 2021 , our current ratio, which we define as current assets divided by current liabilities, was 2.08. Non-domestic cash balances of$6,168 are held in various locations throughout the world. Management determined that should the cash balances of our Canadian andU.K. subsidiaries exceed our projected working capital needs, excess funds will be repatriated. OnAugust 13, 2021 , the Company entered into the Fourth Amended and Restated Credit Agreement (the "Credit Agreement"). The Credit Agreement modifies the prior revolving credit facility, as amended, on more favorable terms and extends the maturity date fromApril 30, 2024 toAugust 13, 2026 . The Credit Agreement provides for a five-year, revolving credit facility that permits aggregate borrowings of the Borrowers (as defined in the Credit Agreement) up to$130,000 (a$15,000 increase over the previous commitment) with a sublimit of the equivalent of$25,000 U.S. dollars that is available to the Canadian andUnited Kingdom borrowers in the aggregate. The Credit Agreement's incremental loan feature permits the Company to increase the available commitments under the facility by up to an additional$50,000 subject to the Company's receipt of increased commitments from existing or new lenders and the satisfaction of certain conditions. As ofDecember 31, 2021 , the Company was in compliance with the covenants in the Credit Agreement. For a discussion of the terms and availability of the Company's credit facilities, please see Part II, Item 8, Financial Statements and Supplementary Data, Note 10 of the Notes to Consolidated Financial Statements contained in this Annual Report on Form 10-K. To reduce the impact of interest rate changes on outstanding variable-rate debt, the Company entered into forward starting LIBOR-based, or equivalent, interest rate swaps with notional values totaling$50,000 and$20,000 effectiveFebruary 2017 andMarch 2022 , respectively, at which point they effectively converted a portion of the debt from variable to fixed-rate borrowings during the term of the swap contract. During the year endedDecember 31, 2020 , the Company dedesignated the cash flow hedges and now accounts for the$50,000 interest rate swaps on a mark-to-market basis with changes in fair value recorded in current period earnings. As ofDecember 31, 2021 the swap asset was$175 and as ofDecember 31, 2021 andDecember 31, 2020 , the swap liability was$159 and$1,097 , respectively. The Company continues to monitor the impact of the dissolution of LIBOR and its effect on our LIBOR-based interest rate swaps. OnSeptember 24, 2021 , the Company completed the sale of its Piling Products division for$23,902 in total expected proceeds. The Company retained all pre-closing receivables and liabilities associated with the division. The sale included substantially all inventory held by the Company associated with the division, as well as the related fixed assets. The Piling Products division was included in the Fabricated Steel Products business unit within the Steel Products and Measurement reporting segment. For the year endedDecember 31, 2021 , the Company received proceeds of$22,707 . Additional proceeds of$1,195 are expected to be collected in 2022. OnSeptember 4, 2020 , the Company sold its Test and Inspection Services business for gross proceeds of$4,000 . As a result of this divestiture, the Company has reclassified the results of this business into discontinued operations. Due to the sale of this business, the Company recognized approximately$18,978 in tax benefits, including tax benefits recognized in discontinued operations, for the year endedDecember 31, 2020 . For additional information regarding the Test and Inspection Services sale, please refer to Note 3 of the Notes to Consolidated Financial Statements contained in this Annual Report on Form 10-K. We believe that the combination of our cash and cash equivalents, cash generated from operations and the capacity under our revolving credit facility will provide us with sufficient liquidity to provide the flexibility to operate the business in a prudent manner, enable us to continue to service our outstanding debt and to selectively pursue accretive bolt-on acquisitions to augment our core service offerings. 24
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Backlog
Although backlog is not necessarily indicative of future operating results, the following table provides the backlog by business segment:
December 31, 2021 2020
Rail, Technologies, and Services
68,636 45,790
Steel Products and Measurement 44,980 81,211
Total backlog $ 210,189 $ 248,232
While a considerable portion of our business is backlog driven, certain
businesses, including the Rail Technologies business unit, are not driven by
backlog and therefore have insignificant levels of backlog throughout the year.
Backlog as of December 31, 2020 includes $32,042 in open orders from the Piling
division that was divested September 24, 2021 .
Critical Accounting Policies and Estimates
The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in theU.S. The preparation of the consolidated financial statements requires management to make estimates and judgments that affect the reported amount of assets, liabilities, revenues, and expenses, and the related disclosure of contingent assets and liabilities. The following critical accounting policies, which are reviewed by the Company's Audit Committee of the Board of Directors, relate to the Company's more significant estimates and judgments used in the preparation of its consolidated financial statements. Actual results could differ from those estimates. For a summary of the Company's significant accounting policies, see Part II, Item 8, Financial Statements and Supplementary Data, Note 1 to the Consolidated Financial Statements, which is incorporated by reference into this Item 7. Income Taxes - The recognition of deferred tax assets requires management to make judgments regarding the future realization of these assets. As prescribed by theFinancial Accounting Standards Board's ("FASB") Accounting Standards Codification ("ASC") 740, "Income Taxes," valuation allowances must be provided for those deferred tax assets for which it is more likely than not (a likelihood of more than 50%) that some portion or all of the deferred tax assets will not be realized. This guidance requires management to evaluate positive and negative evidence regarding the recoverability of deferred tax assets. The determination of whether the positive evidence outweighs the negative evidence and quantification of the valuation allowance requires management to make estimates and judgments of future financial results. The Company evaluates all tax positions taken on its federal, state, and foreign tax filings to determine if the position is more likely than not to be sustained upon examination. For positions that meet the more likely than not to be sustained criteria, the largest amount of benefit to be realized upon ultimate settlement is determined on a cumulative probability basis. A previously recognized tax position is derecognized when it is subsequently determined that a tax position no longer meets the more likely than not threshold to be sustained. The evaluation of the sustainability of a tax position and the expected tax benefit is based on judgment, historical experience, and other assumptions. Actual results could differ from those estimates upon subsequent resolution of identified matters. The Company's income tax rate is significantly affected by the tax rate on global operations. In addition to local country tax laws and regulations, this rate depends on the extent earnings are indefinitely reinvested outside of theU.S. Indefinite reinvestment is determined by management's judgment about and intentions concerning the future operations of the Company. There has been no material changes in the underlying assumptions and estimates used in these calculations in the relevant period. Refer to Part II, Item 8, Financial Statements and Supplementary Data, Note 14 which is incorporated by reference into this Item 7, for additional information regarding the Company's deferred tax assets. The Company's ability to realize these tax benefits may affect the Company's reported income tax expense and net income. Revenue Recognition - We account for revenue in accordance with the ASC 606, "Revenue from Contracts with Customers," whereby the unit of account is a performance obligation. The majority of the Company's revenue is from products transferred and services rendered to customers at a point in time. The Company recognizes revenue at the point in time at which the customer obtains control of the product or service, which is generally when product title passes to the customer upon shipment or the service has been rendered to the customer. In limited cases, title does not transfer, and revenue is not recognized until the customer has received the products at its physical location. The Company also derives revenue from products and services provided under long-term agreements with its customers. The transaction price of a long-term agreement is allocated to each distinct performance obligation. The majority of the Company's long-term contracts have a single performance obligation as the promise to transfer products or services is not separately identifiable from other promises in the contract and, therefore, not distinct. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring products or providing services. The Company's performance obligations under long-term agreements with its customers are generally satisfied as over time. Revenue under these long-term agreements is generally recognized over time either using an input measure based upon the proportion 25
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of actual costs incurred to estimated total project costs or an input measure based upon actual labor costs as a percentage of estimated total labor costs, depending upon which measure the Company believes best depicts the Company's performance to date under the terms of the contract. A certain portion of the Company's revenue recognized over time under these long-term agreements is recognized using an output method, specifically units delivered, based upon certain customer acceptance and delivery requirements. Contract assets from over time contracts are recorded within the Consolidated Balance Sheets and contract liabilities from over time contracts are recorded in "Deferred revenue" within the Consolidated Balance Sheets. Accounting for these long-term agreements involves the use of various techniques to estimate total revenues and costs. The Company estimates profit on these long-term agreements as the difference between total estimated revenues and expected costs to complete a contract and recognizes that profit over the life of the contract. Contract estimates are based on various assumptions to project the outcome of future events that may span several years. These assumptions include, among other things, labor productivity, cost and availability of materials, and timing of funding by customers. The nature of these long-term agreements may give rise to several types of variable considerations, such as claims, awards, and incentive fees. Historically, these amounts of variable consideration have not been considered significant. Contract estimates may include additional revenue for submitted contract modifications if there exists an enforceable right to the modification, the amount can be reasonably estimated, and its realization is probable. These estimates are based on historical collection experience, anticipated performance, and the Company's best judgment at that time. These amounts are generally included in the contract's transaction price and are allocated over the remaining performance obligations. As significant changes in the above estimates could impact the timing and amount of revenue and profitability of our long-term contracts, we review and update contract-related estimates regularly. In the event a contract loss becomes known, the entire amount of the estimated loss is recognized in the Consolidated Statements of Operations. There has been no material changes in the underlying assumptions and estimates used in these calculations in the relevant period. See Part II, Item 8, Financial Statements and Supplementary Data, Note 4 to the Consolidated Financial Statements, which is incorporated by reference into this Item 7.Goodwill -Goodwill is the cost of an acquisition less the fair value of the identifiable net assets of the acquired business.Goodwill is required to be tested for impairment at least annually. The Company performs its annual impairment test in the fourth quarter, or whenever events or changes in circumstances indicate that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. The Company may first consider qualitative factors to assess whether there are indicators that it is more likely than not that the fair value of a reporting unit may not exceed its carrying amount. The quantitative goodwill impairment analysis involves comparing the fair value of a reporting unit to its carrying value, including goodwill. If the carrying amount of the reporting unit exceeds its fair value, an impairment loss equal to the excess amount up to the goodwill balance is recorded as an impairment to goodwill of the reporting unit. The Company uses a combination of a discounted cash flow method and a market approach to determine the fair values of the reporting units. A number of significant assumptions and estimates are involved in the estimation of the fair value of reporting units, including the identification of macroeconomic conditions, industry and market considerations, cost factors, and overall financial performance. The estimated fair value of a reporting unit is sensitive to changes in assumptions, including forecasted future operating cash flows, weighted-average cost of capital, terminal growth rates, and industry multiples. The Company considers historical experience and available information at the time the fair values of its reporting units are estimated. The Company believes the estimates and assumptions used in estimating the fair value of its reporting units are reasonable and appropriate; however, different assumptions and estimates could materially impact the estimated fair value of its reporting units and the resulting determinations about goodwill impairment. This could materially impact the Company's Consolidated Statements of Operations and Consolidated Balance Sheets. There has been no material changes in the underlying assumptions and estimates used in these calculations in the relevant period. Future estimates may differ materially from current estimates and assumptions. Additional information concerning the impairments is set forth in Part II, Item 8, Financial Statements and Supplementary Data, Note 5 to the Consolidated Financial Statements included herein, which is incorporated by reference into this Item 7. Intangible Assets and Long-Lived Assets - The Company tests intangible assets and long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of an asset or asset group may not be recoverable. Recoverability of assets is determined by comparing the estimated undiscounted future cash flows of the asset or asset group to their carrying amount. If the carrying value of the assets exceeds their estimated undiscounted future cash flows, an impairment loss would be determined as the difference between the fair value of the assets and its carrying value. Typically, the fair value of the assets would be determined using a discounted cash flow model which would be sensitive to judgments of what constitutes an asset group and certain assumptions such as estimated future financial performance, discount rates, and other assumptions that marketplace participants would use in their estimates of fair value. There has been no material changes in the underlying assumptions and estimates used in these calculations in the relevant period. The accounting estimate related to asset impairments is highly susceptible to change from period to period because it requires management to make assumptions about the existence of impairment indicators and cash flows over future years. These assumptions impact the amount of an impairment, which would have an impact on the Consolidated Statements of Operations. 26
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Additional information concerning the impairments is set forth in Part II, Item 8, Financial Statements and Supplementary Data, Note 5 to the Consolidated Financial Statements included herein, which is incorporated by reference into this Item 7.
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