ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars in thousands, except share data unless otherwise noted)
Our Business
L.B. Foster Company is a global technology solutions provider of products and services for the rail and infrastructure markets. The Company’s innovative engineering and product development solutions address the safety, reliability, and performance needs of its customers' most challenging requirements. The Company is organized and operates in two reporting segments: Rail, Technologies, and Services (“Rail”) and Infrastructure Solutions (“Infrastructure”).
Our financial statements presented herein are prepared using accounting principles generally accepted in the United States of America (“US GAAP”). Throughout Management’s Discussion and Analysis of Financial Condition and Results of Operations (the “MD&A”), we refer to measures used by management to evaluate performance. We also refer to a number of financial measures that are not defined under US GAAP, including Consolidated EBITDA (as defined in the Credit Agreement), funding capacity, new orders, net, and backlog. The explanation at the end of the MD&A provides the definition of these non-GAAP financial measures. A reconciliation of funding capacity to its most directly comparable respective US GAAP financial measure is presented in the “Liquidity and Capital Resources” section below.
Product Line Exits
On August 30, 2023, the Company announced the discontinuation of its Bridge Products grid deck product line (“Bridge Exit”) which was reported in the Steel Products business unit within the Infrastructure segment. The Bedford, PA based operations supporting the product line completed all customer obligations as of December 31, 2025. For the years ended December 31, 2025 and 2024, the product line had $1,637 and $3,700 in sales, respectively. The decision to exit the bridge grid deck product line was a result of a weak bridge grid deck market condition and outlook due to customer adoption of newer technologies replacing the grid deck solution.
During the year ended December 31, 2025, the Company announced the discontinuation of its Automation and Materials Handling product line (the “AMH Exit”) which was reported in the Technology Services and Solutions business unit within the Rail segment. The decision to exit this product line was due to the Company's initiatives to scale back businesses in the United Kingdom. The Company completed all remaining customer obligations in 2025. This product line had net sales of $1,843 and $5,230 for the years ended December 31, 2025 and 2024, respectively. The Company has incurred a total of $1,351 in exit costs associated with the AMH Exit, which included $615 in inventory write-offs, $40 in fixed asset write-offs, $507 in personnel expenses, and $189 in other exit costs. Exit costs of $1,085 were recorded in “Cost of goods sold” and $266 were recorded in “Selling and administrative expenses” within our Rail segment. The Company does not expect to incur additional material exit costs associated with the AMH Exit.
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Full Year Results Comparison
Results of Operations
Year Ended December 31,
Change
Net sales
Gross profit
Gross profit margin
bps
Expenses:
Selling and administrative expenses
Selling and administrative expenses as a percent of sales
bps
(Gain) on sale of former joint venture facility
Amortization expense
Operating income
Operating income margin
bps
Interest expense - net
Other (income) expense - net
Income before income taxes
Income tax expense (benefit)
Net income
Net loss attributable to noncontrolling interest
Net income attributable to L.B. Foster Company
Diluted earnings per common share
Fiscal 2025 Compared to Fiscal 2024 — Company Analysis
Net sales for the year ended December 31, 2025 increased $9,244, or 1.7%, over the prior year. Infrastructure net sales improved $30,387, or 14.9%, over the prior year due to volume increases in both business units. Rail net sales declined $21,143, or 6.5% from the prior year due to softer demand for Rail Products in early 2025, as well as right-sizing activities and overall commercial weakness in the UK Rail business.
Gross profit for the year ended December 31, 2025 declined $4,310, or 3.7%, from the prior year, and gross profit margins declined 110 basis points to 21.1%. The decline in gross profit was driven by Rail which declined $10,139 primarily due to lower sales volumes and weakness in the UK Rail business coupled with lower volumes for Rail Products. Rail gross profit was also impacted in 2025 by $1,085 of AMH Exit costs and $953 of costs associated with restructuring actions taken in the fourth quarter related to the UK businesses. Infrastructure gross profit improved $5,829 due to improved volumes in both business units and favorable business mix in Steel Products, partially offset by increased manufacturing costs in the Precast Concrete business including $2,246 in start up costs associated with our new precast facility in Florida. The prior year gross profit included a $815 gain realized on a facility sale.
Selling and administrative expenses for the year ended December 31, 2025 decreased $7,842, or 8.1%, from the prior year. The decrease was primarily attributed to declines of $3,037 in personnel costs, $988 in travel and entertainment costs, $1,053 in insurance costs, $1,834 in professional services costs, and $1,173 in legal costs. These declines were offset in part by an increase of $243 in restructuring charges. Selling and administrative expenses as a percentage of net sales declined 180 basis points to 16.4% in 2025.
The $3,477 gain on sale of the former joint venture facility for the year ended December 31, 2024 was attributed to the Company's facility and land in Magnolia, Texas.
Amortization expense for the year ended December 31, 2025 decreased $1,317, or 28.5%, from the prior year due to acquired intangible assets becoming fully amortized during the year.
Other (income) expense - net was favorable by $1,496 compared to the prior year. Other expense - net for the year ended December 31, 2024 was primarily attributable to $1,722 of pension termination costs associated with the termination of the frozen L.B. Foster Company Merged Retirement Plan in the US.
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The Company’s effective income tax rate for 2025 was 57.4%, compared to (196.6)% in the prior year period. The Company's 2025 effective income tax rate differed from the federal statutory rate of 21% primarily due to the impact of pre-tax losses in the United Kingdom, for which no income tax benefit was recognized due to a valuation allowance. The Company's 2024 effective income tax rate differed from the federal statutory rate of 21% primarily due to the change in valuation allowance previously recorded against certain U.S. federal and state deferred tax assets. For further discussion on the valuation allowance, refer to Note 13 of the Notes to the Consolidated Financial Statements.
Net income attributable to the Company for the year ended December 31, 2025 was unfavorable by $35,401 from the prior year period. The change in net income attributable to the Company was due primarily to a $31,937 favorable tax valuation allowance adjustment in 2024 and a higher effective tax rate in 2025 largely driven by the impact of pre-tax losses in the United Kingdom, for which no income tax benefit was recognized due to a valuation allowance, partially offset by improved operating income for the year ended December 31, 2025.
Results of Operations — Segment Analysis
Rail, Technologies, and Services
Year Ended
December 31,
Change
Percent
Change
Net sales
Gross profit
Gross profit margin
bps
Segment operating income
Segment operating income margin
bps
Rail net sales for the year ended December 31, 2025 decreased $21,143, or 6.5%, from the prior year. The decrease was primarily due to softer demand in the first half of the year for the Rail Products business unit which decreased $19,441, or 9.4%, from the prior year. Technology Services and Solutions net sales decreased $14,231, or 26.8%, due to right-sizing activities and overall commercial weakness in the UK Rail business. Global Friction Management net sales improved $12,529, or 19.0%, over the prior year due to improved demand in markets served.
Rail gross profit for the year ended December 31, 2025 decreased $10,139, or 14.0%, from the prior year and gross margins declined 180 basis points to 20.4%. The Rail Products business unit gross profit declined $2,561 due to lower volumes. The Technology Services and Solutions business unit gross profit declined $13,497 due to lower sales volumes, higher costs, unfavorable mix, and $1,085 of costs associated with the AMH Exit and $953 of costs associated with fourth quarter restructuring actions taken in the UK businesses. Partially offsetting these declines was an improvement in Global Friction Management gross profit of $5,919 over the prior year due to higher volumes and favorable mix.
Rail operating income for the year ended December 31, 2025 decreased $6,320, or 28.8%, from the prior year. The decrease was driven by the decline in gross profit, partially offset by decreases in selling and administrative expenses of $2,600 due to lower personnel costs and amortization expense of $1,219.
For the year ended December 31, 2025, Rail had new orders, net of $338,039, an increase of $29,645 over the prior year. The increase was due to a 45.5% improvement in the Technology Services and Solutions business unit due to a large, multi-year order received in the UK business, a 16.8% improvement in the Global Friction Management business unit, and a 0.7% improvement in the Rail Product business unit. Backlog as of December 31, 2025 was $96,980, an increase of $34,531, or 55.3%, over the prior year. The increase was due to a 114.0% improvement in the Technology Services and Solutions business unit, a 68.8% improvement in the Global Friction Management business unit, and a 29.5% improvement in the Rail Products business unit.
Infrastructure Solutions
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Year Ended
December 31,
Change
Percent
Change
Net sales
Gross profit
Gross profit margin
bps
Segment operating income
Segment operating income margin
bps
Infrastructure net sales for the year ended December 31, 2025 increased $30,387, or 14.9%, over the prior year. The increase in net sales was attributable to the Precast Concrete Products business unit which increased $27,080, or 19.9%, over the prior year. The Steel Products business unit net sales also increased $3,307, or 4.9%, over the prior year due to improved demand in markets served.
Infrastructure gross profit for the year ended December 31, 2025 increased $5,829, or 12.8%, over the prior year. Gross profit increased $2,025 in the Precast Concrete business unit due to higher volumes offset in part by higher manufacturing costs, including $2,246 of costs associated with the start up of our Florida precast facility in line with the Company's strategic growth plan. Steel Products gross profit improved $3,804 over the prior year due to higher volumes and favorable business mix. Gross margins of 21.9% decreased 50 basis points from the prior year due to unfavorable sales mix and higher manufacturing costs in the Precast Concrete business unit. Gross profit for the year ended December 31, 2024 includes the $815 gain realized on a facility sale.
Infrastructure operating income for the year ended December 31, 2025 increased $6,412, or 68.4%, over the prior year which was primarily due to improvements in gross profit.
For the year ended December 31, 2025, Infrastructure had new orders, net of $202,880, an increase of $4,736 from the prior year. The increase was due to the Precast Concrete Products business unit which increased 12.9% over the prior year. Partially offsetting this increase was a decrease in the Steel Products business unit of 22.8% from the prior year period due to order cancellations. Backlog as of December 31, 2025 was $92,358, a decrease of $31,102, or 25.2%, from the prior year due to order cancellations in the Steel Products business unit coupled with a decrease in the Precast Concrete Products business unit of 6.7%.
Corporate
Year Ended
December 31,
Change
Percent
Change
(Gain) on sale of former joint venture facility
Public company costs
Corporate executive management costs
Corporate management stock-based compensation
Other
Unallocated corporate expense - net
**Results of this calculation not meaningful.
Unallocated corporate expenses - net for the year ended December 31, 2025 was $9,494 compared to the year ended December 31, 2024 which was $10,774. The decrease was primarily due to a decline in corporate executive management costs of $3,596 due to a decrease in legal fees, professional service expenditures, travel and insurance costs. The decline was offset in part by the $3,477 gain on the sale of the former joint venture facility in Magnolia, Texas in the year ended December 31, 2024.
Restructuring
During the year ended December 31, 2025, the Company announced a restructuring program aligned with its strategy to reduce costs within the UK-based Technology Services and Solutions businesses within the Rail segment. The restructuring action has been completed as of December 31, 2025. The Company has incurred a total of $2,184 in restructuring and other costs associated with this program, which includes $695 in inventory write-offs, $95 in fixed asset write-offs, $524 in personnel expenses, $717 in lease termination costs, and $153 in other costs. Costs of $780 were recorded in “Cost of services sold,” $173 were recorded in “Cost of
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goods sold,” and $1,231 were recorded in “Selling and administrative expenses” within our Rail segment. The Company does not expect to incur additional material costs associated with this program.
In August 2024, the Company announced an enterprise restructuring program aligned with its strategy to reduce costs and enable investment in its growth platforms. The restructuring action has been completed as of December 31, 2024. For the year ended December 31, 2024, the Company incurred $1,456 of restructuring expense, related primarily to severance costs. Of the total restructuring costs, $245 was recorded in “Cost of goods sold” and $1,211 was reported in “Selling and administrative expense.” By business segment, the Company incurred $1,134 of restructuring costs in Rail, $113 in Infrastructure, and $209 in Corporate.
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 its revolving credit facility, which provides for a total commitment of up to $150,000, of which $106,930 was available for borrowing as of December 31, 2025, subject to covenant restrictions. The Company’s primary needs for liquidity relate to working capital requirements for operations, capital expenditures, debt service obligations, tax obligations, outstanding purchase obligations, acquisitions, restructuring payments, and to support share repurchase programs. The Company’s total debt, including finance leases, was $42,756 and $46,940 as of December 31, 2025 and December 31, 2024, respectively, and was primarily comprised of borrowings under its revolving credit facility.
The following table reflects available funding capacity as of December 31, 2025:
December 31, 2025
Cash and cash equivalents
Credit agreement:
Total availability under the credit agreement
Outstanding borrowings on revolving credit facility
Letters of credit outstanding
Net availability under the revolving credit facility
Total available funding capacity
As of December 31, 2025, the Company was in compliance with all covenants of the Credit Agreement and has $111,278 available funding capacity, subject to covenant restrictions.
The Company’s operating cash flows are impacted from period to period by fluctuations in working capital, as well as its overall profitability. While the Company places an emphasis on working capital management in its operations, factors such as business mix, commercial terms, and market conditions as well as seasonality may impact working capital. The Company regularly assesses its receivables and contract assets for collectability and realization, and provides allowances for credit losses where appropriate. The Company believes that its reserves for credit losses are appropriate as of December 31, 2025, but adverse changes in the economic environment and adverse financial conditions of its customers may impact certain of its customers’ ability to access capital and compensate the Company for its products and services, as well as impact demand for its products and services.
The change in cash and cash equivalents for the years ended December 31, 2025 and 2024 was as follows:
Year Ended December 31,
Net cash provided by operating activities
Net cash used in investing activities
Net cash used in financing activities
Effect of exchange rate changes on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents
Cash Flows from Operating Activities
During the year ended December 31, 2025, net cash provided by operating activities was $35,619, compared to $22,632 during the prior year. During 2025, cash flow provided by operating activities consisted of net income and non-cash items amounting to $34,678 and changes in certain assets and liabilities netting to a cash inflow of $941. In 2024, cash flow provided by operating activities
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consisted of net income and non-cash items amounting to $27,195 and changes in certain assets and liabilities netting to a cash outflow of $4,563.
Cash Flows from Investing Activities
During the year ended December 31, 2025, the Company had capital expenditures of $10,424, a $633 increase over 2024. Capital expenditures in both periods primarily relate to general plant and operational improvements throughout the Company, as well as organic growth initiatives, including investments in our new Precast Concrete facility in Lake County, Florida. In 2024, the Company sold the facility and land of its former joint venture in Magnolia, Texas and fixed assets associated with the Bridge Exit generating cash inflow of $3,895.
Cash Flows from Financing Activities
During the year ended December 31, 2025, the Company had a decrease in outstanding debt of $5,540 compared to a $7,994 decrease during the year ended December 31, 2024. Additionally, debt issuance costs of $706 were incurred during the year ended December 31, 2025 related to the June 27, 2025 Fifth Amended and Restated Credit Agreement. During the year ended December 31, 2025, the Company also made a $782 deferred payment related to the June 2022 acquisition of Skratch Enterprise Ltd. This payment was deferred at the date of the acquisition in accordance with the purchase agreement and was made during the second quarter of 2025.
The Board of Directors previously authorized the repurchase of up to $15,000 of the Company's common shares until February 2025, pursuant to the terms of the previously disclosed stock repurchase program adopted March 3, 2023, as amended August 5, 2024. During the first quarter of 2025, the Company repurchased 113,169 shares for $3,123 under this program through February 2025. Since the program's inception and continuing through February 2025, the Company repurchased a total of 547,679 shares of its stock for $12,241 under the program.
On March 3, 2025, the Company's Board of Directors approved a new authorization to repurchase up to $40,000 of the Company's common stock in open market transactions and/or 10b5-1 trading plans through February 29, 2028. As of December 31, 2025, the Company repurchased 469,220 shares of its stock for $11,313 under this program.
Under both programs, the Company repurchased a total of 582,389 shares for $14,436 during the year ended December 31, 2025. From February 2023 through December 31, 2025, the Company repurchased a total of 1,016,899 shares of its stock for $23,554 under both programs.
Repurchases of shares of the Company’s common stock may be made from time to time in the open market or in such other manner as determined by the Company. The timing of the repurchases and the actual amount repurchased will depend on a variety of factors, including the market price of the Company’s shares, general market and economic conditions, and other factors. The stock repurchase program does not obligate the Company to acquire any particular amount of common stock and may be suspended or discontinued at any time.
Financial Condition
As of December 31, 2025, the Company had $4,348 in cash and cash equivalents and $106,930 of availability under its revolving credit facility, subject to covenant restrictions. As of December 31, 2025, approximately $4,029 of the Company’s cash and cash equivalents were held in non-domestic bank accounts.
The Company’s principal uses of cash in recent years have been to fund its operations, including capital expenditures, repurchase of shares, acquisitions, funding the now complete UPRR Settlement Agreement, and service indebtedness as discussed further under Part II, Item 8, Financial Statements and Supplementary Data, Note 16 to the Condensed Consolidated Financial Statements. The Company views its short and long-term liquidity as being dependent on its results of operations, changes in working capital needs, and its borrowing capacity.
On June 27, 2025, the Company, its domestic subsidiaries, and certain of its Canadian and United Kingdom subsidiaries (collectively, the “Borrowers”), entered into the Fifth Amended and Restated Credit Agreement (the “Credit Agreement”) with PNC Bank, N.A., Bank of America, N.A., Citizens Bank, N.A., and Wells Fargo Bank N.A. as Co-Syndication Agents, and Dollar Bank, Federal Savings Bank as a participant. The Credit Agreement, as amended, modifies the prior amended revolving credit facility, which had a maximum credit line of $130,000 and extends the maturity date from August 13, 2026 to June 27, 2030. The Credit Agreement provides for a five-year, revolving credit facility that permits aggregate borrowings of the Borrowers up to $150,000 with sublimits for (a) the issuance of letters of credit in dollars and in alternative currencies in an amount not to exceed the dollar equivalent of $30,000, and (b) borrowings of swing loans in dollars in an amount not to exceed $20,000; and with an incremental loan feature not to exceed $60,000. For a discussion of the terms and availability of the credit facilities, refer to Part II, Item 8, Financial Statements and
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Supplementary Data, Note 9 to the Consolidated Financial Statements contained in this Annual Report on Form 10-K, which is incorporated by reference into this Item 7.
To reduce the impact of interest rate changes on outstanding variable-rate debt, the Company entered into SOFR-based interest rate swaps with notional values totaling $20,000 and $20,000, effective August 12, 2022 and August 31, 2022, respectively, at which point the agreements effectively converted a portion of the debt from variable to fixed-rate borrowings during the term of the swap contract. The August 12, 2022 interest rate swap expired on March 1, 2025. The August 31, 2022 interest rate swap expires on August 13, 2026.
The Company believes that the combination of its cash and cash equivalents, cash generated from operations, and the capacity under its revolving credit facility will provide sufficient liquidity to provide the flexibility to operate the business in a prudent manner, continue to service outstanding debt, repurchase shares and to selectively pursue accretive acquisitions to further the Company’s strategic initiatives.
Backlog
Although backlog is not necessarily indicative of future operating results, the following table provides the backlog by business segment:
December 31,
Rail, Technologies, and Services
Infrastructure Solutions
Consolidated Total
While a considerable portion of the Company’s business is backlog driven, certain businesses, including the Global Friction Management business unit, are not driven by backlog and therefore have insignificant levels of backlog throughout the year. Backlog increased $3,429 due to increases in the Rail segment.
Critical Accounting Estimates
The accompanying Consolidated Financial Statements have been prepared in conformity with US GAAP. 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 estimates, which are reviewed by the Company’s Audit Committee of the Board of Directors, are those management believes are the most critical to understand and evaluate our financial condition and results and require subjective or complex judgments. 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 the Financial 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 the US. Indefinite reinvestment is determined by management’s judgment about and intentions concerning the future operations of the Company. There have been no material changes in the underlying assumptions and estimates used in these calculations in the relevant period.
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Refer to Part II, Item 8, Financial Statements and Supplementary Data, Note 13 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 - Refer to Part II, Item 8, Financial Statements and Supplementary Data, Note 1 and Note 3 which is incorporated by reference into this Item 7, for a complete discussion of our revenue recognition policies. The Company derives revenue from products and services provided under long-term agreements with its customers. The Company’s performance obligations under long-term agreements with its customers are generally satisfied over time. Revenue under these long-term agreements is generally recognized over time either using an input measure based upon the proportion of actual costs incurred to estimated total project costs or an input measure based upon actual labor costs as a percentage of estimated total labor costs, depending upon which measure the Company believes best depicts the Company’s performance to date under the terms of the contract. 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 project execution. The nature of these long-term agreements may give rise to several types of variable consideration, such as discounts and . Contract estimates may include additional revenue for submitted contract modifications, including at times change orders, 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 judgment at that time. These amounts are generally included in the contract’s transaction price and are allocated over the remaining performance obligations. As a result of management’s reviews of contract-related estimates, the Company makes adjustments to contract estimates that impact our revenue and profit totals. Changes in estimates are primarily attributed to updated considerations, including economic conditions and historic contract patterns resulting in anticipated revenue from existing contracts.
Goodwill - We evaluate goodwill for impairment annually during 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. When evaluating for impairment 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. If we do not perform a qualitative assessment, or if we determine that it is more like than not that the fair value of the reporting unit does not exceed its carrying value, we perform a quantitative assessment by 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 discounted cash flow method 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, overall financial performance, which may drive changes to future operating cash flows and market participant assumptions. 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 have 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 4 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 have 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
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assumptions impact the amount of an impairment, which could materially adversely impact the Consolidated Statements of Operations.
Additional information concerning the impairments is set forth in Part II, Item 8, Financial Statements and Supplementary Data, Note 4 to the Consolidated Financial Statements included herein, which is incorporated by reference into this Item 7.
Non-GAAP Financial Measures
In accordance with SEC rules, the Company provides descriptions of the non-GAAP financial measures included in this Annual Report and reconciliations to the most closely related GAAP financial measures. The Company believes that these measures provide useful perspective on underlying business trends and results and a supplemental measure of year-over-year results. The non-GAAP financial measures described below are used by management in making operating decisions, allocating financial resources and for business strategy purposes and may, therefore, also be useful to investors as they are a view of our business results through the eyes of management. These non-GAAP financial measures are not intended to be considered by the user in place of the related GAAP financial measure, but rather as supplemental information to our business results. These non-GAAP financial measures may not be the same as similar measures used by other companies due to possible differences in method and in the items or events being adjusted.
The Company views funding capacity, which is the net availability under the revolving credit agreement plus cash and cash equivalents, as an important metric as it demonstrates the borrowing capacity of the Company.
The Company defines new orders, net 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 net of order cancellations incurred during the period. 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. Backlog may not be indicative of future operating results as orders may be cancelled or modified by the customer. Management utilizes new orders, net 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, net 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.
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 funding capacity to the non-GAAP financial measures are presented in this Item 7.
