NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except share data)
Note 1. Financial Statements
Basis of Presentation
The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. The year-end consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP. In the opinion of management, all estimates and adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023. This Quarterly Report on Form 10-Q should be read in conjunction with the consolidated financial statements and footnotes thereto included in L.B. Foster Company’s Annual Report on Form 10-K for the year ended December 31, 2022. In this Quarterly Report on Form 10-Q, references to “we,” “us,” “our,” and the “Company” refer collectively to L.B. Foster Company and its consolidated subsidiaries.
Note 2. Business Segments
The Company is a global technology solutions provider of engineered, manufactured products and services that builds and supports infrastructure. The Company’s innovative engineering and product development solutions address the safety, reliability, and performance needs of its customers’ most challenging requirements. The Company maintains locations in North America, South America, Europe, and Asia. The Company’s segments represent components of the Company (a) that engage in activities from which revenue is generated and expenses are incurred, (b) whose operating results are regularly reviewed by the Chief Operating Decision Maker, who uses such information to make decisions about resources to be allocated to the segments, and (c) for which discrete financial information is available. Operating segments are evaluated on their segment profit contribution to the Company’s consolidated results. Other income and expenses, interest, income taxes, and certain other items are managed on a consolidated basis. The Company’s segment accounting policies are described in Note 2 Business Segments of the Notes to the Company’s Consolidated Financial Statements contained in its Annual Report on Form 10-K for the year ended December 31, 2022.
The operating results of the Company's reportable segments were as follows for the periods presented:
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| | Three Months Ended March 31, 2023 | | Three Months Ended March 31, 2022 |
| | Net Sales | | Segment Operating Profit (Loss) | | Net Sales | | Segment Operating Profit (Loss) |
Rail, Technologies, and Services | | $ | 64,384 | | | $ | 2,388 | | | $ | 63,710 | | | $ | 1,039 | |
Precast Concrete Products | | 24,288 | | | (348) | | | 15,010 | | | (791) | |
Steel Products and Measurement | | 26,816 | | | (8) | | | 20,074 | | | (2,148) | |
Total | | $ | 115,488 | | | $ | 2,032 | | | $ | 98,794 | | | $ | (1,900) | |
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Segment profit (loss) from operations, as shown above, includes allocated corporate operating expenses. Operating expenses related to corporate headquarter functions that directly support the segment activity are allocated based on segment headcount, revenue contribution, or activity of the business units within the segments, based on the corporate activity type provided to the segment. The expense allocation excludes certain corporate costs that are separately managed from the segments.
A reconciliation of reportable segment net profit (loss) to the Company’s consolidated total for the periods presented:
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| | Three Months Ended March 31, | | |
| | 2023 | | 2022 | | | | |
Operating profit (loss) for reportable segments | | $ | 2,032 | | | $ | (1,900) | | | | | |
Interest expense - net | | (1,388) | | | (370) | | | | | |
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Other (expense) income - net | | (1,827) | | | 563 | | | | | |
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Unallocated corporate expenses and other unallocated charges | | (1,529) | | | (387) | | | | | |
Loss before income taxes | | $ | (2,712) | | | $ | (2,094) | | | | | |
The following table illustrates assets of the Company by reportable segment for the periods presented: | | | | | | | | | | | | | | |
| | March 31, 2023 | | December 31, 2022 |
Rail, Technologies, and Services | | $ | 163,001 | | | $ | 172,111 | |
Precast Concrete Products | | 104,581 | | | 108,598 | |
Steel Products and Measurement | | 38,236 | | | 54,516 | |
Unallocated corporate assets | | 30,560 | | | 30,085 | |
Total | | $ | 336,378 | | | $ | 365,310 | |
On March 30, 2023, the Company sold substantially all the operating assets of its Chemtec Energy Services LLC business (“Chemtec”) for $5,344 in proceeds, subject to final working capital adjustments, generating a $2,033 loss on sale, recorded in “Other expense (income) - net.” The Chemtec business was reported in the Coatings and Measurement business unit within the Steel Products and Measurement segment.
Note 3. Revenue
The following table summarizes the Company’s net sales by major product and service category for the periods presented:
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| | Three Months Ended March 31, | | |
| | 2023 | | 2022 | | | | |
Rail Products and Global Friction Management | | $ | 56,048 | | | $ | 51,651 | | | | | |
Technology Services and Solutions | | 8,336 | | | 12,059 | | | | | |
Rail, Technologies, and Services | | 64,384 | | | 63,710 | | | | | |
Precast Concrete Buildings | | 10,886 | | | 9,970 | | | | | |
Other Precast Concrete Products | | 13,402 | | | 5,040 | | | | | |
Precast Concrete Products | | 24,288 | | | 15,010 | | | | | |
Fabricated Steel Products | | 10,517 | | | 12,604 | | | | | |
Coatings and Measurement | | 16,299 | | | 7,470 | | | | | |
Steel Products and Measurement | | 26,816 | | | 20,074 | | | | | |
Total net sales | | $ | 115,488 | | | $ | 98,794 | | | | | |
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 the product title passes to the customer upon shipment or the service has been rendered to the customer. In limited cases, title does not transfer and revenue is not recognized until the customer has received the products at a designated physical location.
Net sales by the timing of the transfer of goods and services was as follows for the periods presented:
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| | Three Months Ended March 31, 2023 |
| | Rail, Technologies, and Services | | Precast Concrete Products | | Steel Products and Measurement | | Total |
Point in time | | $ | 53,834 | | | $ | 13,402 | | | $ | 15,726 | | | $ | 82,962 | |
Over time | | 10,550 | | | 10,886 | | | 11,090 | | | 32,526 | |
Total net sales | | $ | 64,384 | | | $ | 24,288 | | | $ | 26,816 | | | $ | 115,488 | |
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| | Three Months Ended March 31, 2022 |
| | Rail, Technologies, and Services | | Precast Concrete Products | | Steel Products and Measurement | | Total |
Point in time | | $ | 49,166 | | | $ | 4,263 | | | $ | 15,062 | | | $ | 68,491 | |
Over time | | 14,544 | | | 10,747 | | | 5,012 | | | 30,303 | |
Total net sales | | $ | 63,710 | | | $ | 15,010 | | | $ | 20,074 | | | $ | 98,794 | |
The Company’s performance obligations under long-term agreements with its customers are generally satisfied over time. Revenue under long-term agreements is generally recognized using an input measure based upon the proportion of actual costs incurred to estimated total project costs or an input measure based upon actual labor costs as a percentage of estimated total labor costs, depending
upon which measure the Company believes best depicts its 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.
Revenue recognized over time was as follows for the periods presented:
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| | Three Months Ended March 31, | | Percentage of Total Net Sales Three Months Ended March 31, |
| | 2023 | | 2022 | | 2023 | | 2022 |
Over time input method | | $ | 16,211 | | | $ | 19,322 | | | 14.0 | % | | 19.6 | % |
Over time output method | | 16,315 | | | 10,981 | | | 14.1 | | | 11.1 | |
Total over time sales | | $ | 32,526 | | | $ | 30,303 | | | 28.2 | % | | 30.7 | % |
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The timing of revenue recognition, billings, and cash collections results in billed receivables, costs in excess of billings (included in “Contract assets”), and billings in excess of costs (contract liabilities), included in “Deferred revenue” within the Condensed Consolidated Balance Sheets.
The following table sets forth the Company's contract assets:
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| | Contract Assets |
Balance as of December 31, 2022 | | $ | 33,613 | |
Net additions to contract assets | | 1,290 | |
Transfers from contract asset balance to accounts receivable | | (3,696) | |
Balance as of March 31, 2023 | | $ | 31,207 | |
The following table sets forth the Company's contract liabilities:
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| | Contract Liabilities |
Balance as of December 31, 2022 | | $ | 6,781 | |
Revenue recognized from contract liabilities | | (3,443) | |
Increase in billings in excess of cost, excluding revenue recognized | | 1,983 | |
Other adjustments, including business divestiture | | (2,078) | |
Balance as of March 31, 2023 | | $ | 3,243 | |
The Company records provisions related to the allowance for credit losses associated with contract assets. Provisions are recorded based upon a specific review of individual contracts as necessary, and a standard provision over any remaining contract assets pooled together based on similar risk of credit loss. The development of these provisions is based on historical collection trends, accuracy of estimates within contract margin reporting, as well as the expectation that collection patterns and margin reporting will continue to adhere to patterns observed in recent years. These expectations are formed based on trends observed, as well as current and expected future conditions.
As of March 31, 2023, the Company had approximately $259,881 of obligations under new contracts and remaining performance obligations, which is also referred to as backlog. Approximately 8.9% of the March 31, 2023 backlog was related to projects that are anticipated to extend beyond March 31, 2024.
Note 4. Goodwill and Other Intangible Assets
The following table presents the changes in goodwill balance by reportable segment for the period presented:
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| | Rail, Technologies, and Services | | Precast Concrete Products | | Steel Products and Measurement | | Total |
Balance as of December 31, 2022 | | $ | 19,948 | | | $ | 10,785 | | | $ | — | | | $ | 30,733 | |
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Foreign currency translation impact | | 130 | | | — | | | — | | | 130 | |
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Balance as of March 31, 2023 | | $ | 20,078 | | | $ | 10,785 | | | $ | — | | | $ | 30,863 | |
The Company performs goodwill impairment tests annually during the fourth quarter, and also performs interim goodwill impairment tests if it is determined that it is more likely than not that the fair value of a reporting unit is less than the carrying amount. Qualitative factors are assessed to determine whether it is more likely than not that the fair value of a reporting unit is less than the carrying amount, which included the impacts of current economic conditions, including but not limited to labor markets, supply chains, and
other inflationary costs. However, these factors can be unpredictable and are subject to change. No interim goodwill impairment test was required as a result of the evaluation of qualitative factors as of March 31, 2023. However, future impairment charges could result if future projections diverge unfavorably from current expectations in the Rail Technologies and Precast Concrete Products reporting units.
As of March 31, 2023 and December 31, 2022, the components of the Company’s intangible assets were as follows:
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| | March 31, 2023 |
| | Weighted Average Amortization Period In Years | | Gross Carrying Value | | Accumulated Amortization | | Net Carrying Amount |
Non-compete agreements | | 1 | | $ | 27 | | | $ | (23) | | | $ | 4 | |
Patents | | 10 | | 330 | | | (187) | | | 143 | |
Customer relationships | | 16 | | 27,413 | | | (14,965) | | | 12,448 | |
Trademarks and trade names | | 16 | | 7,957 | | | (4,142) | | | 3,815 | |
Technology | | 14 | | 32,253 | | | (26,405) | | | 5,848 | |
Favorable lease | | 6 | | 327 | | | (36) | | | 291 | |
| | | | $ | 68,307 | | | $ | (45,758) | | | $ | 22,549 | |
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| | December 31, 2022 |
| | Weighted Average Amortization Period In Years | | Gross Carrying Value | | Accumulated Amortization | | Net Carrying Amount |
Non-compete agreements | | 1 | | $ | 27 | | | $ | (16) | | | $ | 11 | |
Patents | | 10 | | 330 | | | (187) | | | 143 | |
Customer relationships | | 16 | | 27,184 | | | (14,129) | | | 13,055 | |
Trademarks and trade names | | 16 | | 7,933 | | | (3,989) | | | 3,944 | |
Technology | | 14 | | 32,201 | | | (25,827) | | | 6,374 | |
Favorable lease | | 6 | | 327 | | | (23) | | | 304 | |
| | | | $ | 68,002 | | | $ | (44,171) | | | $ | 23,831 | |
Note 5. Accounts Receivable
Changes in reserves for uncollectible accounts, which are recorded as part of “Selling and administrative expenses” in the Condensed Consolidated Statements of Operations, were recorded as an expense of $155 and $61 for the three months ended March 31, 2023 and 2022, respectively.
The Company establishes the allowance for credit losses based on historical collection patterns and other subjective conditions as necessary, including current and expected market conditions. Trade receivables are pooled based on age, which groups receivables of similar credit risk together. Management maintains stringent credit review practices and works to maintain positive customer relationships to further mitigate credit risk.
The following table sets forth the Company’s allowance for credit losses:
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| | Allowance for Credit Losses |
Balance as of December 31, 2022 | | $ | 813 | |
Current period provision | | 155 | |
Write-off against allowance | | (100) | |
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Balance as of March 31, 2023 | | $ | 868 | |
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Note 6. Inventory
Inventory is valued at average cost or net realizable value, whichever is lower. The Company’s components of inventory as of March 31, 2023 and December 31, 2022 are summarized in the following table:
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| | March 31, 2023 | | December 31, 2022 |
Finished goods | | $ | 47,754 | | | $ | 41,431 | |
Work-in-process | | 8,844 | | | 9,693 | |
Raw materials | | 27,996 | | | 24,597 | |
Inventories - net | | $ | 84,594 | | | $ | 75,721 | |
Note 7. Long-Term Debt and Related Matters
Long-term debt consisted of the following:
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| | March 31, 2023 | | December 31, 2022 |
Revolving credit facility | | $ | 79,825 | | | $ | 91,567 | |
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Finance leases and financing agreements | | 271 | | | 312 | |
Total | | 80,096 | | | 91,879 | |
Less current maturities | | (117) | | | (127) | |
Long-term portion | | $ | 79,979 | | | $ | 91,752 | |
On August 13, 2021, the Company, its domestic subsidiaries, and certain of its Canadian and United Kingdom subsidiaries (collectively, the “Borrowers”), entered into the Fourth Amended and Restated Credit Agreement (the “Credit Agreement”) with PNC Bank, N.A., Citizens Bank, N.A., Wells Fargo Bank, National Association, Bank of America, N.A., and BMO Harris Bank, National Association. The Credit Agreement, as amended, modifies the prior revolving credit facility, as amended, on terms more favorable to the Company and extends the maturity from April 30, 2024 to August 13, 2026. The Credit Agreement provides for a five-year, revolving credit facility that permits aggregate borrowings of the Borrowers 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 and United 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.
Borrowings under the Credit Agreement as amended, will bear interest at rates based upon either the base rate or SOFR rate plus applicable margins. The Credit Agreement includes two financial covenants: (a) Maximum Gross Leverage Ratio, defined as the Company’s consolidated Indebtedness (as defined in the Credit Agreement) divided by the Company’s consolidated EBITDA, which must not exceed (i) 3.25 to 1.00 for all testing periods other than during an Acquisition Period (as defined in the Credit Agreement), and (ii) 3.50 to 1.00 for all testing periods occurring during an Acquisition Period, and (b) Minimum Consolidated Fixed Charge Coverage Ratio, defined as the Company’s consolidated EBITDA divided by the Company’s Fixed Charges (as defined in the Credit Agreement), which must be more than 1.05 to 1.00.
On August 12, 2022, the Company entered into a second amendment to its Credit Agreement (“Second Amendment”) to obtain approval for the VanHooseCo acquisition (as defined below) and temporarily modify certain financial covenants to accommodate the transaction. The Second Amendment permitted the Company to acquire the operating assets of VanHooseCo and modified the Maximum Gross Leverage Ratio covenant to 3.75 through June 30, 2023 to accommodate the transaction.
As of March 31, 2023, the Company was in compliance with the covenants in the Credit Agreement, as amended, and had outstanding letters of credit of approximately $1,084.
Note 8. Earnings Per Common Share
(Share amounts in thousands)
The following table sets forth the computation of basic and diluted loss per common share for the periods indicated:
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| | | | Three Months Ended March 31, |
| | | | | | 2023 | | 2022 |
Numerator for basic and diluted loss per common share: | | | | | | | | |
Net loss | | | | | | $ | (2,171) | | | $ | (1,586) | |
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Denominator: | | | | | | | | |
Weighted average shares outstanding | | | | | | 10,792 | | | 10,685 | |
Denominator for basic loss per common share | | | | | | 10,792 | | | 10,685 | |
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Denominator for diluted loss per common share - adjusted weighted average shares outstanding | | | | | | 10,792 | | | 10,685 | |
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Basic loss per common share | | | | | | $ | (0.20) | | | $ | (0.15) | |
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Diluted loss per common share | | | | | | $ | (0.20) | | | $ | (0.15) | |
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There were 101 and 122 anti-dilutive shares for the three months ended March 31, 2023 and 2022, respectively, excluded from the calculation.
Note 9. Income Taxes
For the three months ended March 31, 2023 and 2022, the Company recorded an income tax benefit of $541 and $508, respectively, on pre-tax losses of $2,712 and $2,094, respectively, for an effective income tax rate of 19.9% and 24.3%, respectively. Due to the full valuation allowance on domestic deferred tax assets, the Company's tax provision for the three months ended March 31, 2023 does not reflect any tax benefit for domestic pre-tax losses, and is primarily comprised of taxes on our Canadian and United Kingdom operations. The Company continued to maintain a full valuation allowance against its U.S. deferred tax assets, which is likely to result in significant variability of the effective tax rate in the current year. Changes in pre-tax income projections, combined with the seasonal nature of our businesses, could also impact the effective income tax rate each quarter.
Note 10. Stock-Based Compensation
The Company recorded stock-based compensation expense of $884 and $258 for the three months ended March 31, 2023 and 2022, respectively, related to restricted stock awards and performance unit awards. As of March 31, 2023, unrecognized compensation expense for awards that the Company expects to vest approximated $7,388. The Company will recognize this unrecognized compensation expense over the upcoming 2.9 years through March 2026.
Shares issued as a result of vested stock-based compensation awards generally will be from previously issued shares that have been reacquired by the Company and held as treasury stock or authorized and previously unissued common stock.
Restricted Stock, Performance Share Units, and Performance-Based Stock Awards
Under the 2022 Equity and Incentive Compensation Plan, successor to the 2006 Omnibus Plan, the Company grants eligible employees restricted stock and performance share units. The forfeitable restricted stock awards granted generally time-vest ratably over a three-year period, unless indicated otherwise by the underlying restricted stock award agreement. Awards of restricted stock are subject to a minimum one-year vesting period, including those granted to non-employee directors. Performance share units are offered annually under separate three-year long-term incentive programs. Performance share units are subject to forfeiture and will be converted into common stock of the Company based upon the Company’s performance relative to performance measures and conversion multiples, as defined in the underlying program. The Company has, on occasion, issued performance share units with longer performance periods as incentivization and retention tools. If the Company’s estimate of the number of performance share units expected to vest changes in a subsequent accounting period, cumulative compensation expense could increase or decrease. The change will be recognized in the current period for the vested shares and would change future expense over the remaining vesting period.
Since 2017, non-employee directors have been permitted to defer receipt of annual stock awards and equity elected to be received in lieu of quarterly cash compensation. If so elected, these deferred stock units will be issued as common stock six months after separation from their service on the Board of Directors. Since 2018, no non-employee directors have elected the option to receive deferred stock units of the Company’s common stock in lieu of director cash compensation.
In February 2023, the Compensation Committee approved the 2023-2025 Long Term Incentive Plan which includes grants of performance share units and restricted stock. The following table summarizes the restricted stock, deferred stock units, and performance-based stock and share unit activity for the three months ended March 31, 2023:
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| | Restricted Stock | | Deferred Stock Units | | Performance-Based Stock and Share Units | | Weighted Average Grant Date Fair Value |
Outstanding as of December 31, 2022 | | 174,173 | | | 46,268 | | | 108,478 | | | $ | 17.77 | |
Granted | | 139,990 | | | — | | | 367,558 | | | 11.64 | |
Vested | | (57,329) | | | — | | | — | | | 16.54 | |
Adjustment for incentive awards expected to vest | | — | | | — | | | 20,104 | | | 15.36 | |
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Outstanding as of March 31, 2023 | | 256,834 | | | 46,268 | | | 496,140 | | | $ | 14.61 | |
Note 11. Fair Value Measurements
The Company determines the fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value hierarchy includes three levels of inputs that may be used to measure fair value as described below:
Level 1: Observable inputs that reflect unadjusted quoted market prices in active markets for identical assets or liabilities.
Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.
Level 3: Unobservable inputs that are not corroborated by market data.
The classification of a financial asset or liability within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.
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| | Fair Value Measurements at Reporting Date | | | Fair Value Measurements at Reporting Date |
| | March 31, 2023 | | Level 1 | | Level 2 | | Level 3 | | | December 31, 2022 | | Level 1 | | Level 2 | | Level 3 |
Term deposits | | $ | 17 | | | $ | 17 | | | $ | — | | | $ | — | | | | $ | 17 | | | $ | 17 | | | $ | — | | | $ | — | |
Interest rate swaps | | 1,511 | | | — | | | 1,511 | | | — | | | | 1,930 | | | — | | | 1,930 | | | — | |
Total assets | | $ | 1,528 | | | $ | 17 | | | $ | 1,511 | | | $ | — | | | | $ | 1,947 | | | $ | 17 | | | $ | 1,930 | | | $ | — | |
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For the three months ended March 31, 2023 and 2022, the Company recognized interest income of $245 and interest expense of $97, respectively, from interest rate swaps.
Note 12. Retirement Plans
Retirement Plans
The Company has three retirement plans that cover its hourly and salaried employees in the United States: one defined benefit plan, which is frozen, and two defined contribution plans. Employees are eligible to participate in the appropriate plan based on employment classification. The Company’s contributions to the defined benefit and defined contribution plans are governed by the Employee Retirement Income Security Act of 1974, as amended (“ERISA”) and the Company’s policy and investment guidelines applicable to each respective plan. The Company’s policy is to contribute at least the minimum in accordance with the funding standards of ERISA.
The Company maintains one defined contribution plan for its employees in Canada. In the United Kingdom, the Company maintains two defined contribution plans and a defined benefit plan, which is frozen. These plans are discussed in further detail below.
United States Defined Benefit Plan
Net periodic pension costs for the United States defined benefit pension plan for the three months ended March 31, 2023 and 2022 were as follows:
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| | | | Three Months Ended March 31, |
| | | | | | 2023 | | 2022 |
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Interest cost | | | | | | $ | 71 | | | $ | 49 | |
Expected return on plan assets | | | | | | (64) | | | (66) | |
Recognized net actuarial loss | | | | | | 16 | | | 18 | |
Net periodic pension cost | | | | | | $ | 23 | | | $ | 1 | |
The Company expects to make total contributions of $400 to its to its United States defined benefit pension plan during 2023.
United Kingdom Defined Benefit Plan
Net periodic pension costs for the United Kingdom defined benefit pension plan for the three months ended March 31, 2023 and 2022 were as follows:
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| | | | Three Months Ended March 31, |
| | | | | | 2023 | | 2022 |
Interest cost | | | | | | $ | 55 | | | $ | 45 | |
Expected return on plan assets | | | | | | (83) | | | (81) | |
Amortization of prior service costs and transition amount | | | | | | 6 | | | 6 | |
Recognized net actuarial loss | | | | | | 3 | | | 42 | |
Net periodic pension (income) cost | | | | | | $ | (19) | | | $ | 12 | |
United Kingdom regulations require trustees to adopt a prudent approach to funding required contributions to defined benefit pension plans. For the three months ended March 31, 2023, the Company contributed approximately $84 to the plan. The Company anticipates total contributions of approximately $340 to the United Kingdom pension plan during 2023.
Defined Contribution Plans
The Company sponsors five defined contribution plans for hourly and salaried employees across its domestic and international facilities. The following table summarizes the expense associated with the contributions made to these plans for the periods presented:
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| | Three Months Ended March 31, | | |
| | 2023 | | 2022 | | | | |
United States | | $ | 614 | | | $ | 305 | | | | | |
Canada | | 62 | | | 61 | | | | | |
United Kingdom | | 261 | | | 135 | | | | | |
| | $ | 937 | | | $ | 501 | | | | | |
Note 13. Commitments and Contingent Liabilities
Product Liability Claims
The Company is subject to product warranty claims that arise in the ordinary course of its business. For certain manufactured products, the Company maintains a product warranty accrual, which is adjusted on a monthly basis as a percentage of cost of sales. In addition, the product warranty accrual is adjusted periodically based on the identification or resolution of known individual product warranty claims.
Union Pacific Railroad (“UPRR”) Concrete Tie Matter
On March 13, 2019, the Company and its subsidiary, CXT Incorporated (“CXT”), entered into a Settlement Agreement (the “Settlement Agreement”) with UPRR to resolve the pending litigation in the matter of Union Pacific Railroad Company v. L.B. Foster Company and CXT Incorporated, Case No. CI 15-564, in the District Court for Douglas County, Nebraska.
Under the Settlement Agreement, the Company and CXT will pay UPRR the aggregate amount of $50,000 without pre-judgment interest, which began with a $2,000 immediate payment, and with the remaining $48,000 paid in installments over a six-year period
commencing on the effective date of the Settlement Agreement through December 2024 pursuant to a Promissory Note. Additionally, commencing in January 2019 and through December 2024, UPRR agreed to purchase and has been purchasing from the Company and its subsidiaries and affiliates, a cumulative total amount of $48,000 of products and services, targeting $8,000 of annual purchases per year beginning March 13, 2019 per letters of intent under the Settlement Agreement. During the third quarter of 2021, in connection with the Company’s divestiture of its Piling Products division, the targeted annual purchases per year have been reduced to $6,000 for 2021 through 2024. The Settlement Agreement also includes a mutual release of all claims and liability regarding or relating to all CXT pre-stressed concrete railroad ties with no admission of liability and dismissal of the litigation with prejudice.
The expected payments under the UPRR Settlement Agreement for the remainder of the year ending December 31, 2023 and thereafter are as follows:
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Year Ending December 31, | | |
Remainder of 2023 | | $ | 8,000 | |
2024 | | 8,000 | |
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Total | | $ | 16,000 | |
Environmental and Legal Proceedings
The Company is subject to national, state, foreign, provincial, and/or local laws and regulations relating to the protection of the environment. The Company’s efforts to comply with environmental regulations may have an adverse effect on its future earnings.
On June 5, 2017, a General Notice Letter was received from the United States Environmental Protection Agency (“EPA”) indicating that the Company may be a potentially responsible party (“PRP”) regarding the Portland Harbor Superfund Site cleanup along with numerous other companies. More than 140 other companies received such a notice. The Company and a predecessor owned and operated a facility near the harbor site for a period prior to 1982. The net present value and undiscounted costs of the selected remedy throughout the harbor site are estimated by the EPA to be approximately $1.1 billion and $1.7 billion, respectively, and the remedial work is expected to take as long as 13 years to complete. These costs may increase given that the remedy will not be initiated or completed for several years. The Company is reviewing the basis for its identification by the EPA and the nature of the historic operations of a Company predecessor near the site. Additionally, the Company executed a PRP agreement which provides for a private allocation process among almost 100 PRPs in a working group whose work is ongoing and involves a process that will ultimately conclude a proposed allocation of liability for cleanup of the site and various sub-areas. The Company does not have any individual risk sharing agreements in place with respect to the site, and was only associated with the site from 1976 to when it purchased the stock of a company whose assets it sold in 1982 and which was dissolved in 1994. On March 26, 2020, the EPA issued a Unilateral Administrative Order to two parties requiring them to perform remedial design work for that portion of the Harbor Superfund Site that includes the area closest to the facility; the Company was not a recipient of this Unilateral Administrative Order. The Company cannot predict the ultimate impact of these proceedings because of the large number of PRPs involved throughout the harbor site, the size and extent of the site, the degree of contamination of various wastes, varying environmental impacts throughout the harbor site, the scarcity of data related to the facility once operated by the Company and a predecessor, potential comparative liability between the allocation parties and regarding non-participants, and the speculative nature of the remediation costs. Based upon information currently available, management does not believe that the Company’s alleged PRP status regarding the Portland Harbor Superfund Site or other compliance with the present environmental protection laws will have a material adverse effect on the financial condition, results of operations, cash flows, competitive position, or capital expenditures of the Company. As more information develops and the allocation process is completed, and given the resolution of factors like those described above, an unfavorable resolution could have a material adverse effect. As of March 31, 2023 and December 31, 2022, the Company maintained environmental reserves approximating $2,448 and $2,472, respectively.
The Company is also subject to other legal proceedings and claims that arise in the ordinary course of its business. Legal actions are subject to inherent uncertainties, and future events could change management’s assessment of the probability or estimated amount of potential losses from pending or threatened legal actions. Based on available information, it is the opinion of management that the ultimate resolution of pending or threatened legal actions, both individually and in the aggregate, will not result in losses having a material adverse effect on the Company’s financial position or liquidity as of March 31, 2023.
If management believes that, based on available information, it is at least reasonably possible that a material loss (or additional material loss in excess of any accrual) will be incurred in connection with any legal actions, the Company discloses an estimate of the possible loss or range of loss, either individually or in the aggregate, as appropriate, if such an estimate can be made, or discloses that an estimate cannot be made. Based on the Company’s assessment as of March 31, 2023, no such disclosures were considered necessary.