PITTSBURGH, Sept. 09, 2020 (GLOBE NEWSWIRE) -- L.B. Foster Company (NASDAQ: FSTR), a leading manufacturer and distributor of products and provider of services for transportation and energy infrastructure, announced today that it completed the sale of the issued and outstanding membership interests of its upstream oil and gas IOS Test and Inspection Services business to an unrelated third party buyer. The Company received $4.0 million in cash from the buyer and anticipates a cash tax refund of approximately $9.0 million to be received in 2021 resulting from the sale. L.B. Foster Company believes that the disposition should generate significant additional tax benefits and result in reduction of tax liabilities in future periods. The Company is currently working with its tax advisors to quantify those estimated tax benefits.
The Test and Inspection Services business produced revenues of approximately $11.1 million, gross profit (loss) of approximately $(2.6) million, and adjusted EBITDA1 of $(2.7) million for the six-month period ended June 30, 2020. For the year ended December 31, 2019, the Test and Inspection Services business generated revenues of $38.6 million, gross profit of $0.4 million, and adjusted EBITDA1 of $(1.8) million. Beginning with the quarter ending September 30, 2020, L.B. Foster Company will present the Test and Inspection Services business as discontinued operations within its financial statements.
The sale represents a strategic shift away from providing services to the upstream oil and gas market. This divestiture also changes the risk profile of the Company by (a) eliminating dependence on the upstream energy market and the liability associated with serving upstream applications; (b) reducing exposure to a volatile industry that can turn-off demand quickly under poor conditions; and (c) avoiding frequent cycles from a global oil market that has market share wars using price. On a prospective basis, the Company’s tubular and energy businesses will continue to be focused on core competencies around corrosion protection and measurement systems in midstream pipeline applications, where the market has been much less volatile and tends to have longer term investments and associated backlog compared to upstream activities.
Bob Bauer, President and Chief Executive Officer, commented on the divestiture; “Our decision to divest this business comes after several restructuring actions over the past few years and our forecast projecting unacceptable results from serving customers in the upstream energy market. The recent collapse in oil demand associated with reduced travel from the COVID-19 pandemic has led to a severe drop in demand for the Test and Inspection Services business. This comes only four short years after the last commodity cycle from which this business never fully recovered. The once promising “shale boom” has become a difficult area for suppliers to make a profit and this market has deteriorated further since the COVID-19 pandemic, as cost pressures intensify for the exploration and production companies that remain. The volatility in this market also creates many difficulties for this business, and there were likely going to be ongoing capital requirements as drillers change plans based on changing well economics.”
Mr. Bauer further stated, “We have not realized the expected return on capital hurdle rate previously applied to this business. Our current view is that the risk of further losses does not align with the strategic value of the business. We believe it is in our best interest to have management apply their energy toward more profitable markets, and limit energy applications to serving midstream and downstream customers with historically longer-term, less volatile conditions.”
About L.B. Foster Company
L.B. Foster Company is a leading manufacturer and distributor of products and provider of services for transportation and energy infrastructure with locations in North America and Europe. For more information, please visit www.lbfoster.com.
