Welcome to the L.B. Foster Second Quarter 2012 Earnings Conference Call. My name is Monica and I will be your operator for today’s call. [Operator Instructions] Later, we will conduct a question-and-answer session. Please note that this conference is being recorded. I’ll now turn the call over to David Russo, Chief Financial Officer. Mr. Russo, you may begin.

Thank you, Monica. Good morning, ladies and gentlemen. Thank you for joining us for L.B. Foster Company’s earnings conference call to review the company’s second quarter 2012 operating results. My name is David Russo and I am the Chief Financial Officer of L.B. Foster. Hosting the call today is Mr. Robert Bauer, L.B. Foster’s President and CEO. This morning, Bob will provide an overview of the company’s second quarter performance, give an update on critical business issues and discuss market conditions. Afterward, I will review the company’s second quarter financial performance and then, we will open up the session for questions. Means to access this conference call via webcast were disclosed in our earnings press release and were posted on the L.B. Foster Company website under the Investor Relations page. This webcast will be archived and available for 7 days. During today’s call, our commentary and responses to your questions may contain forward-looking statements, including items such as the company’s outlook for 2012 and beyond, our thoughts regarding the concrete tie product claim, cash flows, margins and capital expenditures. These statements involve a number of risks and uncertainties that could cause actual results to differ materially. These forward-looking statements reflect our opinions only as of the date of this presentation and we undertake no obligation to revise or publicly release the results of any revisions to these statements in light of new information or future events. All participants are encouraged to refer to L.B. Foster’s annual report on Form 10-K for the year ended December 31, 2011, as well as to other documents filed with the Securities and Exchange Commission for additional information about L.B. Foster and to learn more about the risk factors that may affect our results. Additionally, while forward-looking statements will be made today, L.B. Foster does not provide specific earnings guidance. With that, we will commence our discussion and I will turn it over to Bob Bauer.

Thank you, Dave, and good morning, everyone. Thank you for joining us today. Today’s discussion may take some extra time as we explain details of our financial results, which include a $19 million charge for replacement of concrete ties that are largely in Union Pacific installations. At the same time, we'll review the underlying performance of the business, which was pretty good. So while we have reported a loss for the quarter of $0.31 a share which was driven by this charge, the underlying business was operating at $0.87 a share and we will provide as much detail for you as possible to help you understand that. We also had record order entry this quarter, $212 million, which brought the backlog up to $255 million. So all in all, it was a pretty good quarter. What I want to do to begin with is talk about the Union Pacific claim and the warranty charge and get that out of the way first and then we’ll go into some of the underlying business performance. We’ve been attempting to understand the concerns surrounding field reliability of our Grand Island concrete ties for some time now. The ties in question are those made in our Grand Island, Nebraska facility, which we closed in early 2011. I want to be clear that our current Spokane and Tucson facilities that also make concrete ties are not a part of this concern. We made a lot of progress in the last quarter studying this with the benefit of one more thorough field inspection, more samples for the lab. We had deeper forensic analysis that took place, which involved a partner research firm that we have had working with us to help understand this problem, also some manufacturing data that we've been able to dig through that…

Thank you, Bob. I believe our second quarter 2012 can be summed up by 3 primary items: the first certainly being the update and the movement on the product warranty claim; second being that save for that warranty charge that we did record, the company really turned in a strong second quarter performance, which includes not only solid financial results but also the tremendous amount of new business that we booked in this quarter; and lastly, as Bob had mentioned, we sold our railway loads securement shipping systems division during the second quarter of 2012. The product claim, the status of the claim, we’ve been discussing this since our second quarter 2011 release and the status changed this quarter as a result, as Bob mentioned, much of the testing that had been in process has been largely completed. Our material scientists that were working with us and we spent a lot of time this quarter on track, enabled us to better understand what has been occurring and identify primary problem with some of the Grand Island manufacture ties and then certainly being able to quantify the estimated extent of that problem. These developments have led us to record a $19 million charge that Bob referred to in this quarter. While this is our best estimate of what we believe is a fair approach to settling certain pending claims, none of the claims are yet settled. So while we will endeavor to answer your questions during Q&A session today, there may be some questions that we just won’t be able to answer due to the pending nature of any potential resolutions. And since this charge is included in our operating results, it will be included in my discussion unless otherwise indicated. I should note, however, that in our earnings press release…

[Operator Instructions] Brent Thielman of D.A. Davidson & Co. is online with a question.

This is Taryn filling in for Brent. I was just calling -- I was just wondering if the $19 million charge includes the estimates of the other claims?

Yes, that charge gets us to a warranty accrual, Taryn, that we anticipate covers all claims related to Grand Island production. Of course the UP is the most significant portion of that.

Right. And could you give an approximation of how much the UP claim is compared to the others?

It’s because we haven’t settled these, Taryn, that's -- we're going to hold onto that one.

Okay, that’s fine, just checking on that. And then what is the estimated time line with respect to Union Pacific accepting or not accepting your estimates, your claim?

Taryn, this is Bob. I would tell you that we expect that to be resolved here in probably the coming 30 days. Some of my estimates have been wrong in the past with regard to how long it's taken us to resolve these. So I usually exceed them, but as you can tell with the action that we have taken, we are very, very close, which is probably the best way I can answer that. That we are really down to the final discussions of how to take care of the problem so it won’t be much longer.

Okay, perfect. And then if you don’t mind breaking down the mix in backlog. I know you gave us some numbers, but if you could just...

Sure. The year-end backlog pipe is -- or I should say, Tubular is a little over $13 million. Rail is really where the backlog increased substantially and that’s over $170 million. And then our Construction Products is just right around $65 million, a little over $65 million.

Perfect. And is the margin profile on your -- the Hawaiian job Honolulu project similar to what you have been seeing for margins in the Rail segment as a whole, excluding the charge?

Yes, it’s -- the participation in the Hawaiian project, Taryn, excluded Friction Management, which historically has been a higher margin product for the company. But the Hawaii project, it does-- is representative of the other products that the company has sold historically over a number of years. Certainly, there's a -- the mix is going to drive the overall margin of this product as the distributed rail is a large piece of this as well as the distributed trackwork product. So the margin will be overall a little less than what you see from L.B. Foster on a consolidated basis, but considering the products that are involved, we are very pleased with them.

Robert Kosowsky from Sidoti is next online with a question.

I was wondering wake on this, the estimate for the UP dispute, the $19 million. And I was basically just wondering, what could make it go higher and kind of how firm are you that this $19 million is the ceiling? Because I know you still have to talk to the customers and a little bit open-ended as far as from the commentary in the press release.

Well, I guess, what could make it go higher is if for some reason we felt like the scope of the problem was a bit larger than what we have it currently defined. We think we have our arms around that. But that one item that could cause it to go higher, if there is for some reason, as we work on closing the discussion for how these problems will be taken care of in the field, there’s a lot that need to take place with regard to replacement, and those conversations have not concluded with Union Pacific. So if there is some difference there that we need to sort out, that may be the other area. But that’s, I think that what we've attempted to do here is to define the problem as well -- as best we can, the order of magnitude of it. We believe we've gotten to the point where we think it is sufficiently defined and understood that what we're doing in this quarter is a pretty good representation of where we’ll be.

Okay. So just kind of my understanding is basically you need to go back to the UP and they need to agree that kind of you've been able to kind of quarantine this to ‘06, ‘07. They need to kind of agree with that kind of identification of the issue and kind of how many were, I guess, subject to being faulty from that class, I guess.

Yes. The problem is in product that is outside of ‘06, ‘07. But 2006 and 2007 are clearly the, by far in a way, the majority of the problem took place at that time, which is part of what's made it so difficult to figure out and understand. But yes, we have been in discussions with them about how to take care of this for months now. So we're not just having those conversations here recently. It is just a matter of finishing them off and making sure that we'd like to keep our customer as happy as possible when we conclude those conversations.

Okay. And as it is the $19 million cost, how is that going to be spread out over kind of what time horizon? And what can we expect to see in the Rail segment when you are shipping some of this product? You're physically shipping it, but you're not actually accruing the revenue. I know you took the charge right here, but kind of what can we expect from a P&L standpoint and kind of what's the overall duration for how this is going to play out if it is $19 million?

Bob, there's various terms and conditions pursuant to what Bob was saying that aren't ironed out yet. One of those would be over what time period would we supply these replacement ties to the UP and out of which facility, quite honestly. So although we believe and hope that that's Tucson, there’s a number of different things that as we continue do discussions with the UP could change certain things. But right now we would expect those ties to be replaced over a reasonable period of time as we agreed to with the UP. As far as how it affects our financial, certainly today all we did was book a charge and put a large liability on our balance sheet. As we ship that product in future periods, those shipments of product that are pursuant to the warranty agreement would -- the cost of them would just be applied to that accrual as we move along. So you won’t see the sales, the income and obviously, it will have a negative impact on cash flow when we do that.

[Operator Instructions] We have a follow-up question from Brent Thielman of D.A. Davidson & Co.

It's Taryn. I was just wondering if you could quantify your Amtrak product contract that you were awarded?

Yes, I think we can tell you that it was an order for a project that they had in the Northeast that was close to a $10 million order for us.

Perfect. And then I know you had mentioned that you see Tubular moderating over the long run, but I was wondering if you expect to maintain these higher margins, like high…

Well, I guess I'd say that I think that our margins will stay at those levels when our volume is at these levels. There isn’t any reason that our gross margin should decline in this business. Unless we saw ourselves, if you're trying to forecast out what might happen in a down cycle, if volume was much lower, we might have some difficulty holding on to them. But I don’t see any reason that they are going to decline at these levels.

Thomas Diglay [ph] , private investor, is online with a question.

Bob, I do have a question on the UP claim. I was wondering if you could shed a little light on what changed in our manufacturing processes that give you comfort that after 2007 there shouldn’t be any significant defective ties.

Tom [ph], given the investigation that has taken place and our now understanding of what's going on in these ties since that 2007 time frame, we know there are certain changes that took place in our manufacturing process that continued to improve the controls and continued to improve upon variables that would result in better quality. I can also say that the investigations that we have done in the field in actual track that Union Pacific has verified that we are not coming up with much at all in the way of defects and product that is made from 2008 and later. We have not looked at everything in that regard. But we believe we have a good enough sampling that it indicates that, that product looks very good to us. And we can point to and I’ll stay away from the specifics with regard to what did change in the manufacturing facility, but we can point to changes that were made especially through 2008. It actually started in late 2007, but through 2008, that we know made improvements to the quality of product that we were shipping.

And Bob, you are satisfied that the ultimate resolution of the settlement that you believe you may be able to achieve in the next 30 days or so, that will wrap this thing up for Grand Island for -- all the way through the shutdown of the facility.

Well, I can’t necessarily say it in the words that you have just indicated for reasons that there are some ties that were shipped in 2009, ‘10, ‘11, for example, which are still under warranty and will -- we will be obligated to handle that warranty until it expires. That's under a 5-year warranty term that existed at that point in time. So until all of that is really flushed through our system, which I guess that will take you out into 2015, 2016 time frame, it’s really not completely done. But I would go as far as to say that at this point in time, I'm not very worried about that product and our ability to manage the warranty for the products manufactured during that time frame.

Okay. And Bob, the ties at Tucson had they been tested similarly to the ones that you have been testing with the Grand Island?

We have. I can tell you that we have learned a lot through this process about the performance of concrete ties, the chemistry of concrete ties. The work that we have done with the R.J. Lee Group [ph] that we've hired to help us in that regard, I believe, has made us a better company and a manufacturer of that product. And of course at every step of the way, we kept asking ourselves, are we doing the right thing and are we taking the best steps with our existing product that we make today. And those, I am very confident when I tell you that I feel very good about the product that we ship out of Tucson and Spokane. The field performance has been excellent and the response by our customers, including Union Pacific, would verify that they believe that it is very good product.

Very good. And Bob, listen, once again, congratulations to you and the whole team for not only an excellent quarter, but for working through these very difficult discussions on these claims.

[Operator Instructions] We have a follow-up question in queue from Robert Kosowsky of Sidoti.

Okay. Just a quick question, I could be remembering it incorrectly. But I remember you having a product quality issue in like 2011 or so regarding Grand Island. And I was wondering how you kind of, if that is remembered correctly, if you can kind of tie how you had issues in like ‘05, ‘06, but then was fine in like ‘07, ‘08, ‘09, 2010 and then product quality issues stepped up again later on? Is that kind of the right time line?

[indiscernible] '11?

Yes, we -- there really was not a product quality issue in ‘11, Rob. We did have an issue with Grand Island in 2009 that related to wire that we received that was out of spec and we actually had a couple of problems in ‘09 that were identified, I think, in the second quarter of 2009 that did cause us some problems and we took care of those, I think, expeditiously. So there was -- not last year. We did take some charges related to ties last year but there were a couple of warranty accruals related to ties manufactured in various years, smaller amounts certainly, as well as costs to exit the Grand Island facility.

Okay, but all those product issues that were like later were basically either faulty material coming into you or kind of small in scope and not related to this?

Yes.

Okay. And then just one other question on just any thoughts on pricing in the Construction side and the piling side and specific, and whether or not you are seeing import competition come over?

I guess I would say that pricing in that piece of our business, it’s moving around a little bit right now. Scrap prices continue to move around. They declined here in the last quarter. Generally speaking in the market, it didn’t seem to have much of an impact on our business, in the distribution side, given our size. So at the moment, we're not forecasting anything in the way of a substantial change, upward or downward. So it’s kind of at this point in time we're really looking at our business as if that’s not going to have a serious impact here in the near future.

We have no further questions in queue. I will now turn the call over to Robert Bauer, CEO, for any closing remarks.

All right. Thank you, Monica. Thank you, everyone. I appreciate you listening today. And I'll -- if there’s any follow-up questions, feel free to get a hold of David or I. And we'll look forward to catching up with you next quarter, and I am sure closing one of these issues maybe for good at that time. So thank you, again, and goodbye.

Thank you, ladies and gentlemen, for participating in the L.B. Foster Second Quarter 2012 Earnings Conference Call. This concludes today’s conference. You may now disconnect.