L.B. FOSTER COMPANY
(Dollars in thousands, except share data)
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains "forward-looking" statements within
the meaning of Section 21E of the Securities Exchange Act of 1934, as amended,
and Section 27A of the Securities Act of 1933, as amended. Many of the
forward-looking statements are located in "Management's Discussion and Analysis
of Financial Condition and Results of Operations" ("MD&A"). Forward-looking
statements provide management's current expectations of future events based on
certain assumptions and include any statement that does not directly relate to
any historical or current fact. Sentences containing words such as "believe,"
"intend," "plan," "may," "expect," "should," "could," "anticipate," "estimate,"
"predict," "project," or their negatives, or other similar expressions of a
future or forward-looking nature generally should be considered forward-looking
statements. Forward-looking statements in this Quarterly Report on Form 10-Q are
based on management's current expectations and assumptions about future events
that involve inherent risks and uncertainties and may concern, among other
things, the Company's expectations relating to our strategy, goals, projections,
and plans regarding our financial position, liquidity, capital resources, and
results of operations and decisions regarding our strategic growth initiatives,
market position, and product development. While the Company considers these
expectations and assumptions to be reasonable, they are inherently subject to
significant business, economic, competitive, regulatory, and other risks and
uncertainties, most of which are difficult to predict and many of which are
beyond the Company's control. The Company cautions readers that various factors
could cause the actual results of the Company to differ materially from those
indicated by forward-looking statements. Accordingly, investors should not place
undue reliance on forward-looking statements as a prediction of actual results.
Among the factors that could cause the actual results to differ materially from
those indicated in the forward-looking statements are risks and uncertainties
related to: the COVID-19 pandemic, including the impact of any worsening of the
pandemic, or the emergence of new variants of the virus, on our financial
condition or results of operations, and any future global health crises, and the
related social, regulatory, and economic impacts and the response thereto by the
Company, our employees, our customers, and national, state, or local
governments; a continued deterioration in the prices of oil and natural gas and
the related impact on the upstream and midstream energy markets, which could
result in further cost mitigation actions, including additional shutdowns or
furlough periods; a continuation or worsening of the adverse economic conditions
in the markets we serve, whether as a result of the current COVID-19 pandemic,
including its impact on travel and demand for oil and gas, the continued
deterioration in the prices for oil and gas, governmental travel restrictions,
project delays, and budget shortfalls, or otherwise; volatility in the global
capital markets, including interest rate fluctuations, which could adversely
affect our ability to access the capital markets on terms that are favorable to
us; restrictions on our ability to draw on our credit agreement, including as a
result of any future inability to comply with restrictive covenants contained
therein; a continuing decrease in freight or transit rail traffic, including as
a result of the COVID-19 pandemic; environmental matters, including any costs
associated with any remediation and monitoring; the risk of doing business in
international markets, including compliance with anti-corruption and bribery
laws, foreign currency fluctuations and inflation, and trade restrictions or
embargoes; our ability to effectuate our strategy, including cost reduction
initiatives, and our ability to effectively integrate acquired businesses or to
divest businesses, such as the 2020 disposition of the IOS Test and Inspection
Services business and acquisition of LarKen Precast, LLC , and to realize
anticipated benefits; costs of and impacts associated with shareholder activism;
continued customer restrictions regarding the on-site presence of third party
providers due to the COVID-19 pandemic; the timeliness and availability of
materials from our major suppliers, including any continuation or worsening of
the disruptions in the supply chain experienced as a result of the COVID-19
pandemic, as well as the impact on our access to supplies of customer
preferences as to the origin of such supplies, such as customers' concerns about
conflict minerals; labor disputes; cyber-security risks such as data security
breaches, malware, ransomware, "hacking," and identity theft, including as
experienced in 2020, which could disrupt our business and may result in misuse
or misappropriation of confidential or proprietary information, and could result
in the significant disruption or damage to our systems, increased costs and
losses, or an adverse effect to our reputation; the effectiveness of our
continued implementation of an enterprise resource planning system; changes in
current accounting estimates and their ultimate outcomes; the adequacy of
internal and external sources of funds to meet financing needs, including our
ability to negotiate any additional necessary amendments to our credit agreement
or the terms of any new credit agreement, and reforms regarding the use of LIBOR
as a benchmark for establishing applicable interest rates; the Company's ability
to manage its working capital requirements and indebtedness; domestic and
international taxes, including estimates that may impact taxes; domestic and
foreign government regulations, including tariffs; economic conditions and
regulatory changes caused by the United Kingdom's exit from the European Union ;
a lack of state or federal funding for new infrastructure projects; an increase
in manufacturing or material costs; the loss of future revenues from current
customers; and risks inherent in litigation and the outcome of litigation and
product warranty claims. Should one or more of these risks or uncertainties
materialize, or should the assumptions underlying the forward-looking statements
prove incorrect, actual outcomes could vary materially from those indicated.
Significant risks and uncertainties that may affect the operations, performance,
and results of the Company's business and forward-looking statements include,
but are not limited to, those set forth under Item 1A, "Risk Factors," and
elsewhere in our Annual Report on Form 10-K for the year ended December 31,
2020 , or as updated and/or amended by our other current or periodic filings with
the Securities and Exchange Commission .
The forward-looking statements in this report are made as of the date of this report and we assume no obligation to update or revise any forward-looking statement, whether as a result of new information, future developments, or otherwise, except as required by the federal securities laws.
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General Overview and Business Update
L.B. Foster Company provides products and services for the rail industry and
solutions to support critical infrastructure projects. The Company's innovative
engineering and product development solutions address the safety, reliability,
and performance of its customers' challenging requirements. The Company
maintains locations in North America , South America , Europe , and Asia . The
Company is organized and operates in two business segments: Rail Technologies
and Services ("Rail") and Infrastructure Solutions. The Rail segment is
comprised of several manufacturing and distribution businesses that provide a
variety of products and services for freight and passenger railroads and
industrial companies throughout the world. The Infrastructure Solutions segment
is composed of precast concrete products, piling, fabricated bridge, protective
coating, threading, and precision measurement offerings across North America .
Results for the quarter ended June 30, 2021 reflected a $12,959 increase in
revenues from the prior year quarter, driven by the strength in the rail,
precast concrete products, and fabricated steel products markets reflecting the
continuing dissipation of the effects of the pandemic on the Company's results.
A portion of the revenue increase during the quarter resulted from projects
that, after customer delays, finally moved ahead during the second quarter.
Investment in transportation and general infrastructure projects is progressing
in the majority of the markets that the Company serves, while both the freight
and transit rail markets continue to invest in operational improvements. The
Company's transit rail markets have received funding from U.S. federal
legislation enacted over the past year to bridge budget shortfalls from lower
ridership volume.
Despite the significant increase in revenues, gross profit declined by $1,977
during the quarter driven by the continued deferral of projects in the midstream
pipeline markets for protective coatings and measurement systems. While the
Company did experience pockets of recovery in this business line during the
quarter, the Company's operating margins continue to be impacted by the overall
weakness in the midstream energy market. The Company is anticipating that
difficulties associated with this business line to continue through at least the
remainder of the year. In addition, the Company is continuing to monitor
elevated commodity prices, particularly with regard to steel and concrete raw
materials, as unanticipated delays in availability of commodities and supplies
could have an impact on production and project schedules resulting in
prolongation and increased costs. While the Company has taken steps to mitigate
the impact of these inflationary pressures on its margins, the elevated prices
associated with these products may erode margins associated with certain
business lines if prices remain at current levels over an extended period of
time.
Net sales for the second quarter of 2021 were $154,522 , a $12,959 increase, or
9.2%, compared to the prior year quarter. The sales increase was attributable to
the Company's Rail segment, which increased by 18.5% from the prior year
quarter. The $13,843 increase in the Rail segment was attributable to a
significant increase in new rail sales in the Rail Products business unit during
the quarter, coupled with an increase in revenues in the Company's European
operations as a result of increased service revenue following the easing of
pandemic related restrictions in that region. The $884 decline in the
Infrastructure Solutions segment was wholly attributable to the Coatings and
Measurement business unit, which continues to face a challenging environment in
the midstream energy market due to excess infrastructure pipeline capacity. The
decrease in Infrastructure Solutions was partially offset by revenue increases
in both its Precast Concrete Products and Fabricated Steel Products business
units. The increase in the Precast Concrete Products business unit was partially
attributable to the year-over-year increase from its Nampa, ID facility, which
was relocated from Spokane, WA in the first quarter of 2020 and had not yet
reached full operational efficiency in the prior year quarter.
Gross profit for the second quarter of 2021 was $26,161 , a $1,977 decrease, or
7.0%, from the prior year quarter. The consolidated gross profit margin of 16.9%
decreased by 300 basis points when compared to the prior year quarter, with the
decline attributable to both segments. In the Infrastructure Solutions segment,
gross profit declined from the prior year quarter by $3,616 , driven by the
decline in revenues in the Coatings and Measurement business line.
Infrastructure Solution gross profit margin was down 520 basis points compared
to last year's second quarter. Gross profit increased in the Rail segment by
$1,639 , driven by the $13,843 increase in revenues. The 120 basis point decline
in gross profit margin in the Rail segment was primarily attributable to higher
sales volumes in its distribution business during the quarter.
Selling and administrative expenses in the second quarter of 2021 increased by
$897 , or 4.8%, from the prior year quarter, primarily driven by increases in
professional services of $622 . Selling and administrative expenses as a percent
of net sales decreased to 12.8%, down 50 basis points from the prior year
quarter.
Net income from continuing operations for the second quarter of 2021 was $2,854 ,
or $0.27 per diluted share, a reduction of $4,116 , or $0.39 per diluted share,
from the prior year quarter. The prior year quarter was favorably impacted by
the receipt of a non-recurring disbursement from an unconsolidated partnership
of $1,428 , net of tax.
Backlog in the second quarter of 2021 increased by $28,026 compared to June 30,
2020 , driven by a 26.6% increase for the Infrastructure Solutions segment. The
backlog for the Precast Concrete Products and Fabricated Steel Products business
units increased by $31,005 in the aggregate from prior year as these business
units continue to benefit from infrastructure investment in the regions that the
Company serves. The Coatings and Measurement business line continues to be
affected by the ongoing deferral of
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infrastructure investment in the midstream pipeline markets, but has seen some
level of recovery in certain areas of this business line, with backlog
increasing by $626 compared to June 30, 2020 and increasing by $7,446 since
December 31, 2020 . However, activity still remains depressed as pipeline
projects continue to be deferred, and the outlook for this business line remains
weak for at least the remainder of 2021. The primary driver of the
year-over-year decline of $3,605 in backlog in the Rail segment was the
significant increase in revenue during the quarter ended June 30, 2021 . The Rail
segment new orders declined modestly compared to the prior year quarter with a
decrease of 4.0%, but project activity in both the Rail Products and Rail
Technologies is healthy, resulting in the Rail segment's backlog remaining above
pre-pandemic levels as of June 30, 2021 .
The Company's consolidated backlog stood at $253,231 as of June 30, 2021 , an
increase of $4,999 , or 2.0%, from December 31, 2020 , and an increase of $28,026 ,
or 12.4%, over the prior year period. The Company continues to see strong order
activity for infrastructure projects, with the second quarter of 2021 producing
the highest level of order activity for the Company since the fourth quarter of
2019. Pandemic restrictions in the United Kingdom are expected to continue to
ease, which we expect to provide for a favorable outlook for our rail operations
in Europe for the remainder of 2021, assuming no resumption of such restrictive
measures. The Coatings and Measurement business line, which primarily serves
midstream energy customers, is expected to remain weak, although the Company has
seen pockets of strength in order activity for portions of this business during
the second quarter, albeit at compressed margins versus historical levels. This
business unit continues to face significant headwinds; further cost mitigation
actions, including additional shutdowns or furlough periods, could be
implemented in certain divisions of the Coatings and Measurement business unit
if order rates do not improve in the coming months. The Company anticipates its
Precast Concrete Products and Fabricated Steel business lines to continue to
directly benefit from current infrastructure investment trends, as demonstrated
by the activity levels in these businesses through the second quarter of 2021,
with certain divisions in these business lines operating at near-capacity
levels. With its robust backlog and improving commercial and operating
environment, the Company remains optimistic about its prospects for
year-over-year revenue growth in the second half of 2021.
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Results of the Quarter
Percent Percent of Total Net Sales
Three Months Ended Increase/ Three Months Ended
June 30, (Decrease) June 30,
2021 2020 2021 vs. 2020 2021 2020
Net Sales :
Rail Technologies and Services $ 88,782 $ 74,939 18.5 % 57.5 % 52.9 %
Infrastructure Solutions 65,740 66,624 (1.3) 42.5 47.1
Total net sales $ 154,522 $ 141,563 9.2 % 100.0 % 100.0 %
Percent Gross Profit Percentage
Three Months Ended Increase/ Three Months Ended
June 30, (Decrease) June 30,
2021 2020 2021 vs. 2020 2021 2020
Gross Profit:
Rail Technologies and Services $ 16,660 $ 15,021 10.9 % 18.8 % 20.0 %
Infrastructure Solutions 9,501 13,117 (27.6) 14.5 19.7
Total gross profit $ 26,161 $ 28,138 (7.0) % 16.9 % 19.9 %
Percent Percent of Total Net Sales
Three Months Ended Increase/ Three Months Ended
June 30, (Decrease) June 30,
2021 2020 2021 vs. 2020 2021 2020
Expenses:
Selling and administrative expenses
4.8 % 12.8 % 13.3 % Amortization expense 1,470 1,413 4.0 1.0 1.0 Interest expense - net 861 1,089 (20.9) 0.6 0.8 Other expense (income) - net 70 (2,306) 103.0 0.0 (1.6) Income from continuing operations before income taxes$ 3,993 $ 9,072 (56.0) % 2.6 % 6.4 % Income tax expense 1,139 2,102 (45.8) 0.7 1.5 Income from continuing operations$ 2,854 $ 6,970 (59.1) % 1.8 % 4.9 % Net loss attributable to noncontrolling interest (22) - ** (0.0) - Income from continuing operations attributable to L.B. Foster Company$ 2,876 $ 6,970 (58.7) % 1.9 % 4.9 %
** Results of the calculation are not considered meaningful for presentation purposes.
Second Quarter 2021 Compared to Second Quarter 2020 - Company Analysis Net sales of$154,522 for the three months endedJune 30, 2021 increased by$12,959 , or 9.2%, compared to the prior year quarter. The sales growth was attributable to a$13,843 , or 18.5%, increase in the Rail Technologies and Services segment. The increase was partially offset by a sales reduction within the Infrastructure Solutions segment of$884 , or 1.3%. The increased sales reflect recovery as the negative effects caused by the COVID-19 pandemic began to subside, while the weakness in the midstream market continues to negatively impact the Infrastructure Solutions segment sales. Gross profit decreased by$1,977 compared to the prior year quarter to$26,161 for the three months endedJune 30, 2021 . The decline in gross profit was attributable to the Infrastructure Solutions segment, which decreased by 27.6%, driven primarily by the year-over-year decline in sales in the Coatings and Measurement business line. This was partially offset by the Rail Technologies and Services segment's gross profit, which increased by 10.9%. Gross profit margin for the three months endedJune 30, 2021 was 16.9%, or 300 basis points ("bps") lower than the prior year quarter, primarily due to Infrastructure Solutions. Selling and administrative expenses increased by$897 , or 4.8%, compared to the prior year quarter. The increase in expense was primarily driven by an increase of$622 in third-party professional services expenses. As a percent of sales, selling and administrative expenses decreased 50 bps compared to the prior year quarter. Other expenses (income) - net increased by$2,376 , or 103.0%, compared to the prior year quarter primarily from non-routine distribution from an unconsolidated partnership of$1,874 received in the prior year quarter. 26 -------------------------------------------------------------------------------- Table of Contents The Company's effective income tax rate for the three months endedJune 30, 2021 was 28.5%, compared to 23.2% in the prior year quarter. The Company's effective income tax rate for the quarter endedJune 30, 2021 differed from the federal statutory rate of 21% primarily due to state income taxes, nondeductible expenses, and research tax credits. Net income from continuing operations for the second quarter of 2021 was$2,854 , or$0.27 per diluted share, compared to$6,970 , or$0.66 per diluted share, in the prior year quarter. The decrease was driven by the decrease in gross profit and increases in selling and administrative expense and other expense. Results of Operations - Segment Analysis Rail Technologies and Services Three Months Ended Percent June 30, Increase/(Decrease) Increase/(Decrease) 2021 2020 2021 vs. 2020 2021 vs. 2020 Net sales$ 88,782 $ 74,939 $ 13,843 18.5 % Gross profit$ 16,660 $ 15,021 $ 1,639 10.9 % Gross profit percentage 18.8 % 20.0 % (1.2) % (6.4) % Segment profit$ 5,963 $ 5,816 $ 147 2.5 % Segment profit percentage 6.7 % 7.8 % (1.1) % (14.1) % Second Quarter 2021 Compared to Second Quarter 2020 The Rail Technologies and Services segment sales for the three months endedJune 30, 2021 increased by$13,843 , or 18.5%, compared to the prior year quarter. The increase in sales was driven by both the Rail Products and Rail Technologies business units, which increased by$8,068 , or 14.3%, and$5,778 , or 31.3%, respectively, from the prior year quarter. The increase in the Rail Products business line was driven by an increase in new rail sales as compared to the prior year period. The sales increase in the Rail Technologies business unit was primarily related to increases in our European operations attributable to increased service revenue following the easing of pandemic related restrictions in regions in which the Company operates. The Rail Technologies and Services segment gross profit increased by$1,639 , or 10.9%, from the prior year quarter. The increase was driven by increased sales volume across both business units. Segment gross profit margin decreased by 120 bps as a result of substantial revenue increases in our distribution business during the quarter, which has lower margins relative to the segment as a whole. Segment profit was$5,963 , a$147 increase over the prior year quarter. Selling and administrative expenses incurred by the segment increased by$599 compared to the prior year period, primarily attributable to increased employee benefit and travel costs, partially due to the easing of travel restrictions that were experienced in the second quarter of 2020. Other income declined$851 from the prior year quarter primarily from the reversal of an estimated disposal liability in the prior year quarter. During the current quarter, the Rail Technologies and Services segment had a decrease in new orders of 4.0% compared to the prior year period, driven entirely by the Rail Products business unit, partially offset by an increase in orders within Rail Technologies. Backlog as ofJune 30, 2021 was$102,580 , a decrease of$3,605 , or 3.4%, fromJune 30, 2020 , as a result of the increase in sales volume during the quarter compared to new order activity. Backlog remains strong, and was above pre-pandemic levels as ofJune 30, 2021 . Infrastructure Solutions Three Months Ended Percent June 30, Decrease Decrease 2021 2020 2021 vs. 2020 2021 vs. 2020 Net sales$ 65,740 $ 66,624 $ (884) (1.3) % Gross profit$ 9,501 $ 13,117 $ (3,616) (27.6) % Gross profit percentage 14.5 % 19.7 % (5.2) % (26.6) % Segment profit$ 2,347 $ 4,856 $ (2,509) (51.7) % Segment profit percentage 3.6 % 7.3 % (3.7) % (51.0) % Second Quarter 2021 Compared to Second Quarter 2020 The Infrastructure Solutions segment sales for the three months endedJune 30, 2021 decreased by$884 , or 1.3%, compared to the prior year quarter. The decline was wholly attributable to the Coatings and Measurement business unit, which experienced a sales reduction of$11,172 compared to the quarter endedJune 30, 2020 , driven by unfavorable conditions in the midstream energy market, which has resulted from the current excess capacity inU.S. pipeline infrastructure and general lack of pipeline infrastructure 27 -------------------------------------------------------------------------------- Table of Contents investment. Partially offsetting the overall segment sales decline, the Fabricated Steel Products andPrecast Concrete Products business units had increases in sales compared to the prior year quarter of$6,643 , or 26.0%, and$3,645 , or 22.2%, respectively. The increase in thePrecast Concrete Products business unit was partially attributable to the year-over-year increase from itsNampa, ID facility, which was relocated fromSpokane, WA in the first quarter of 2020 and had not yet reached full operational efficiency in the prior year quarter. Infrastructure Solutions gross profit decreased by$3,616 , or 27.6%, from the prior year quarter. The decline was primarily attributable to decreases in sales volume in the Coatings and Measurement business unit, which accounted for a significant portion of the overall segment gross profit decline, and was also the primary driver of segment gross profit margin decline of 520 bps for the second quarter of 2021 when compared to the prior year quarter. Other expense for the second quarter of 2021 was reduced by$747 when compared to the prior quarter, primarily due to the relocation and restructuring activities that occurred in the prior year. The segment profit of$2,347 was a reduction of$2,509 from the prior year quarter segment profit of$4,856 . During the quarter, the Infrastructure Solutions segment had an increase in new orders of 12.6% compared to the prior year quarter, driven by increases in both the Fabricated Steel Products and Coatings and Measurement business units, which were partially offset by order declines in thePrecast Concrete Products business unit. Backlog as ofJune 30, 2021 was$150,651 , an increase$31,631 , or 26.6%, fromJune 30, 2020 due to increases in backlog across all business units. 28 --------------------------------------------------------------------------------
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Six Month Results
Percent Percent of Total Net Sales
Six Months Ended Increase/ Six Months Ended
June 30, (Decrease) June 30,
2021 2020 2021 vs. 2020 2021 2020
Net Sales :
Rail Technologies and Services $ 155,014 $ 145,143 6.8 % 57.3 % 55.1 %
Infrastructure Solutions 115,588 118,327 (2.3) 42.7 44.9
Total net sales $ 270,602 $ 263,470 2.7 % 100.0 % 100.0 %
Percent Gross Profit Percentage
Six Months Ended Increase/ Six Months Ended
June 30, (Decrease) June 30,
2021 2020 2021 vs. 2020 2021 2020
Gross Profit:
Rail Technologies and Services $ 29,465 $ 27,513 7.1 % 19.0 % 19.0 %
Infrastructure Solutions 15,526 23,747 (34.6) 13.4 20.1
Total gross profit $ 44,991 $ 51,260 (12.2) % 16.6 % 19.5 %
Percent Percent of Total Net Sales
Six Months Ended Increase/ Six Months Ended
June 30, (Decrease) June 30,
2021 2020 2021 vs. 2020 2021 2020
Expenses:
Selling and administrative expenses 37,793 $ 39,207 (3.6) % 14.0 % 14.9 %
Amortization expense 2,935 2,843 3.2 1.1 1.1
Interest expense - net 1,732 1,901 (8.9) 0.6 0.7
Other expense (income) - net 129 (1,700) 107.6 0.0 (0.6)
Income from continuing operations
before income taxes $ 2,402 $ 9,009 (73.3) % 0.9 % 3.4 %
Income tax expense 818 2,044 (60.0) 0.3 0.8
Income from continuing operations $ 1,584 $ 6,965 (77.3) % 0.6 % 2.6 %
Net loss attributable to
noncontrolling interest (34) - ** (0.0) -
Income from continuing operations
attributable to L.B. Foster Company $ 1,618 $ 6,965 (76.8) % 0.6 % 2.6 %
** Results of the calculation are not considered meaningful for presentation purposes.
First Six Months 2021 Compared to First Six Months 2020 - Company Analysis Net sales of$270,602 for the six months endedJune 30, 2021 increased by$7,132 , or 2.7%, compared to the prior year period. The sales growth was attributable to an increase of$9,871 , or 6.8%, within the Rail Technologies and Services segment. The increase was partially offset by a sales reduction in the Infrastructure Solutions segment of$2,739 , or 2.3%. Gross profit decreased by$6,269 compared to the prior year period to$44,991 for the six months endedJune 30, 2021 . The decline in gross profit was attributable to the Infrastructure Solutions segment, which decreased by 34.6%, driven by the year-over-year decline in the Coatings and Measurement business unit. This was partially offset by the Rail Technologies and Services segment's gross profit, which increased by 7.1%. Gross profit margin for the six months endedJune 30, 2021 was 16.6%, or 290 bps lower than the prior year period, due to Infrastructure Solutions. Selling and administrative expenses decreased by$1,414 , or 3.6%, compared to the prior year period. The decrease in expense was primarily driven by reductions in personnel related expenses, including travel expenses, of$1,686 , due in part to cost containment measures across the Company. As a percent of sales, selling and administrative expenses decreased 90 bps compared to the prior year period. Other expenses increased by$1,829 compared to the prior year period primarily from non-routine distribution from an unconsolidated partnership of$1,874 received in the prior year period. 29 -------------------------------------------------------------------------------- Table of Contents The Company's effective income tax rate for the six months endedJune 30, 2021 was 34.1%, compared to 22.7% in the prior year period. The Company's effective income tax rate for the six months endedJune 30, 2021 differed from the federal statutory rate of 21% primarily due to state income taxes, nondeductible expenses, and research tax credits. Net income from continuing operations for the six months endedJune 30, 2021 was$1,584 , or$0.15 per diluted share, compared to$6,965 , or$0.66 per diluted share, in the prior year period. The year-over-year reduction was driven by the decreases in gross profit and an increase in other expense, which was partially offset by the decrease in selling and administrative expenses. Results of Operations - Segment Analysis Rail Technologies and Services Six Months Ended Percent June 30, Increase Increase 2021 2020 2021 vs. 2020 2021 vs. 2020 Net sales$ 155,014 $ 145,143 $ 9,871 6.8 % Gross profit$ 29,465 $ 27,513 $ 1,952 7.1 % Gross profit percentage 19.0 % 19.0 % - % 0.3 % Segment profit$ 8,495 $ 6,987 $ 1,508 21.6 % Segment profit percentage 5.5 % 4.8 % 0.7 % 13.8 % First Six Months 2021 Compared to First Six Months 2020 The Rail Technologies and Services segment sales for the six months endedJune 30, 2021 increased by$9,871 , or 6.8%, compared to the prior year period, driven by increases in the Rail Products and Rail Technologies business units of$3,977 , or 3.8%, and$5,895 or 14.5%, respectively. The sales increase was primarily driven by more favorable conditions experienced in the segment in the first half of 2021 versus the first half of 2020, particularly related to COVID-19 disruptions and related market conditions. The Rail Technologies and Services segment gross profit increased by$1,952 , or 7.1%, from the prior year period. The increase was primarily driven by increased sales volume within the Rail Technologies business unit, including increases related to activity on the London Crossrail project. Segment gross profit margin of 19.0% for the six months endedJune 30, 2021 was flat to the prior year period. Segment profit was$8,495 , a$1,508 increase over the prior year period. Selling and administrative expenses incurred by the segment decreased by$640 compared to the prior year period, primarily attributable to decreased personnel related costs, including travel expenses. Other income declined$1,020 from the prior year period primarily from the reversal of an estimated disposal liability in the prior year period. During the six months endedJune 30, 2021 , the Rail Technologies and Services segment had a decrease in new orders of 6.4% compared to the prior year period. The decrease was primarily related to lower order activity within the served North American transit market, including transit projects and concrete tie products, partially offset by order increases within the Rail Technologies business unit. Infrastructure Solutions Six Months Ended Percent June 30, Decrease Decrease 2021 2020 2021 vs. 2020 2021 vs. 2020 Net sales$ 115,588 $ 118,327 $ (2,739) (2.3) % Gross profit$ 15,526 $ 23,747 $ (8,221) (34.6) % Gross profit percentage 13.4 % 20.1 % (6.7) % (33.1) % Segment profit$ 1,681 $ 6,461 $ (4,780) (74.0) % Segment profit percentage 1.5 % 5.5 % (4.0) % (73.4) % First Six Months 2021 Compared to First Six Months 2020 The Infrastructure Solutions segment sales for the six months endedJune 30, 2021 decreased by$2,739 , or 2.3%, compared to the prior year period. The decline was wholly attributable to the Coatings and Measurement business unit, which experienced a sales reduction of$24,392 compared to the six months endedJune 30, 2020 , driven by unfavorable conditions in the midstream energy market, which have resulted from excess capacity inU.S. pipeline infrastructure and general lack of pipeline infrastructure investment. Partially offsetting the sales decline, both the Fabricated Steel Products andPrecast Concrete Products business units had increases in sales compared to the prior year period of$15,973 and$5,680 , respectively. The increase in thePrecast Concrete Products business 30 -------------------------------------------------------------------------------- Table of Contents unit was partially attributable to the year-over-year increase in itsNampa, ID facility, which was relocated fromSpokane, WA in the first quarter of 2020 and had not yet reached full operational efficiency in the prior year period. Infrastructure Solutions gross profit for the six months endedJune 30, 2020 decreased by$8,221 , or 34.6%, from the prior year period. The decrease was primarily attributable to decreases in sales volume in the Coatings and Measurement business unit, which accounted for the overall segment gross profit decline, and was also the primary driver of segment gross profit margin decline of 670 bps for the six months endedJune 30, 2020 when compared to the prior year period. Selling and administrative expenses for the segment declined by$2,053 from the prior year period, primarily from personnel related expenses, bad debt expense, and general administrative expenses. Other expense decreased by$1,423 from the prior year period due to relocation and restructuring costs incurred in the prior year period. The segment profit of$1,681 was a reduction of$4,780 from the prior year period segment profit of$6,461 . During the six months endedJune 30, 2021 , the Infrastructure Solutions segment had an increase in new orders of 16.5% compared to the prior year period, driven by increases in all three business units comprising the Infrastructure Solutions segment. Other Segment BacklogTotal Company backlog is summarized by business segment in the following table for the periods indicated: June 30, December 31, June 30, 2021 2020 2020 Rail Technologies and Services$ 102,580 $ 121,231 $ 106,185 Infrastructure Solutions 150,651 127,001 119,020 Total backlog$ 253,231 $ 248,232 $ 225,205 The Company's backlog represents the sales price of received customer purchase orders and any contracts for which the performance obligations have not been met, and therefore are precluded from revenue recognition. Although the Company believes that the orders included in backlog are firm, customers may cancel or change their orders with limited advance notice; however, these instances have been rare. Backlog should not be considered a reliable indicator of the Company's ability to achieve any particular level of revenue or financial performance. While a considerable portion of the Company's business is backlog-driven, certain product lines within the Company are not driven by backlog as the orders are fulfilled shortly after they are received. Liquidity and Capital Resources The Company's principal sources of liquidity are its existing cash and cash equivalents, cash generated by operations, and the available capacity under the revolving credit facility, which provides for a total commitment of up to$115,000 . The Company's primary needs for liquidity relate to working capital requirements for operations, capital expenditures, debt service obligations, and payments related to the Union Pacific Railroad Settlement. The Company's total debt was$37,245 and$45,024 as ofJune 30, 2021 andDecember 31, 2020 , respectively, and was primarily comprised of borrowings under its revolving credit facility.
The following table reflects available funding capacity, subject to covenant
restrictions, as of
June 30, 2021 Cash and cash equivalents$ 4,140 Credit agreement: Total availability under the credit agreement 115,000
Outstanding borrowings on revolving credit facility (37,025) Letters of credit outstanding
(497)
Net availability under the revolving credit facility 77,478
Total available funding capacity $
81,618
The Company's cash flows are impacted from period to period by fluctuations in working capital. While the Company places an emphasis on working capital management in its operations, factors such as its contract mix, commercial terms, customer payment patterns, and market conditions as well as seasonality may impact its working capital. The Company regularly assesses its receivables and contract assets for collectability, and provides allowances for credit losses where appropriate. The Company believes that its reserves for credit losses are appropriate as ofJune 30, 2021 , but adverse changes in the economic environment and adverse financial conditions of its customers resulting from, among other things, the COVID-19 pandemic, may impact certain of its customers' ability to access capital and pay the Company for its products and services, as well as impact demand for its products and services. The changes in cash and cash equivalents for the six months endedJune 30, 2021 and 2020 were as follows: 31
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Six Months Ended June 30,
2021 2020
Net cash provided by continuing operating activities $ 6,842 $ 8,122
Net cash used in continuing investing activities (2,248) (5,700)
Net cash used in continuing financing activities (7,918) (4,675)
Effect of exchange rate changes on cash and cash equivalents 153 (828)
Net cash used in discontinued operations (253) (3,710)
Net decrease in cash and cash equivalents $
(3,424)
Cash Flow from Operating Activities During the six months endedJune 30, 2021 , cash flows provided by continuing operating activities were$6,842 , compared to$8,122 during the prior year to date period. For the six months endedJune 30, 2021 , the net income from continuing operations and adjustments to net income from continuing operating activities provided$9,677 , compared to$16,670 in the 2020 period. Working capital and other assets and liabilities used$2,835 in the current period, compared to$8,548 in the prior year period. During the six months endedJune 30, 2021 and 2020, the Company made payments of$2,000 under the terms of the concrete tie settlement agreement withUnion Pacific Railroad .
The Company's calculation for days sales outstanding at
Cash Flow from Investing Activities Capital expenditures for the six months endedJune 30, 2021 and 2020 were$2,248 and$5,711 , respectively. The current period expenditures primarily relate to the expansion of thePrecast Concrete Products business line inTexas . Expenditures for the six months endedJune 30, 2020 related to the purchase of a continuous welded rail car and unloader within the Rail Technologies and Services segment, facility start-up expenditures within the Infrastructure Solutions segment, and general plant and operational improvements throughout the Company. Cash Flow from Financing Activities During the six months endedJune 30, 2021 and 2020, the Company had a reduction in outstanding debt of$7,767 and$2,597 , respectively, primarily attributable to the utilization of excess cash generated through operating activities.Treasury stock acquisitions of$547 and$1,660 for the six months endedJune 30, 2021 and 2020, respectively, represent stock repurchases from employees to satisfy their income tax withholdings in connection with the vesting of stock awards. Financial Condition As ofJune 30, 2021 , the Company had$4,140 in cash and cash equivalents. The Company's cash management priority continues to be short-term maturities and the preservation of its principal balances. As ofJune 30, 2021 , approximately$3,166 of the Company's cash and cash equivalents were held in non-domestic bank accounts. The Company principally maintains its cash and cash equivalents in accounts held by major banks and financial institutions. The Company's principal uses of cash in recent years have been to fund its operations, including capital expenditures, and to service its indebtedness. The Company views its liquidity as being dependent on its results of operations, changes in working capital, and its borrowing capacity. As ofJune 30, 2021 , its revolving credit facility had$77,478 of net availability, while the Company had$37,245 in total debt. The Company's current ratio as ofJune 30, 2021 was 1.88. OnJune 26, 2020 , the Company entered into the First Amendment that reduced the total commitments under the revolving credit facility to$120,000 from$140,000 . The First Amendment requires additional$5,000 annual reductions to the revolving credit facility capacity beginning onDecember 31, 2020 through the maturity of the facility. As a result, the revolving credit facility has$115,000 of total capacity as ofJune 30, 2021 . In addition, the First Amendment terminated the existing term loan by drawing on the revolving credit facility. Borrowings under the First Amendment bear interest rates based upon either the base rate or Euro-rate plus applicable margins, and are subject to an interest rate floor of 100 basis points. The Company believes that the combination of its cash and cash equivalents, cash generated from operations, and the capacity under its revolving credit facility should provide the Company with sufficient liquidity to provide the flexibility to operate the business in a prudent manner and enable the Company to continue to service its outstanding debt. For a discussion of the terms and availability of the credit facilities, please refer to Note 10 of the Notes to Condensed Consolidated Financial Statements contained in this Quarterly Report on Form 10-Q. 32 -------------------------------------------------------------------------------- Table of Contents To reduce the impact of interest rate changes on outstanding variable-rate debt, the Company entered into forward starting LIBOR-based interest rate swaps with notional values totaling$50,000 . The swaps became effective onFebruary 28, 2017 , 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 2020, the Company dedesignated its cash flow hedges and now accounts for all existing interest rate swaps on a mark-to-market basis with changes in fair value recorded in current period earnings. As ofJune 30, 2021 andDecember 31, 2020 , the swap liability was$635 and$1,097 , respectively. Critical Accounting Policies The Condensed Consolidated Financial Statements have been prepared in conformity with accounting principles generally accepted inthe United States . When more than one accounting principle, or method of its application, is generally accepted, management selects the principle or method that, in its opinion, is appropriate in the Company's specific circumstances. Application of these accounting principles requires management to reach opinions regarding estimates about the future resolution of existing uncertainties. As a result, actual results could differ from these estimates. In preparing these financial statements, management has reached its opinions regarding the best estimates and judgments of the amounts and disclosures included in the financial statements giving due regard to materiality. A summary of the Company's critical accounting policies and estimates is included in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies and Estimates in the Company's Annual Report on Form 10-K for the year endedDecember 31, 2020 . Item 3. Quantitative and Qualitative Disclosures about Market Risk This item is not applicable to a smaller reporting company. Item 4. Controls and Procedures Evaluation ofDisclosure Controls and Procedures L.B. Foster Company carried out an evaluation, under the supervision and with the participation of the Company's management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as ofJune 30, 2021 . Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective as of such date such that the information required to be disclosed by the Company in reports filed under the Exchange Act is (i) recorded, processed, summarized, and reported within the time periods specified in theSEC's rules and forms and (ii) accumulated and communicated to management, including the chief executive officer, chief financial officer, or person performing such functions, as appropriate to allow timely decisions regarding disclosure. Changes in Internal Control Over Financial Reporting There were no changes to our "internal control over financial reporting" (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the six months endedJune 30, 2021 , and that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Limitations on Effectiveness of Controls and Procedures In designing and evaluating disclosure controls and procedures and internal control over financial reporting, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures and internal control over financial reporting must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs. 33
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