Commitments and Contingent Liabilities

6 Months Ended

Jun. 30, 2011

COMMITMENTS AND CONTINGENT LIABILITIES

COMMITMENTS AND CONTINGENT LIABILITIES

16. COMMITMENTS AND CONTINGENT LIABILITIES

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, and the Company's efforts to comply with environmental regulations may have an adverse effect on its future earnings.  In the opinion of management, compliance with the present environmental protection laws will not have a material adverse effect on the financial condition, results of operations, cash flows, competitive position, or capital expenditures of the Company.

The Company is subject to legal proceedings and claims that arise in the ordinary course of its business.  In the opinion of management, the amount of ultimate liability with respect to these actions will not materially affect the financial condition or liquidity of the Company.  The resolution, in any reporting period, of one or more of these matters could have a material effect on the Company's results of operations for that period.

Niagara Mohawk Litigation: In July 1999, Portec, Inc., the predecessor of Portec Rail Products, Inc. (collectively "Portec Rail"), was named as a defendant in Niagara Mohawk Power Corporation v. Chevron, et al. venued in the United States District Court, Northern District of New York.  The plaintiff, Niagara Mohawk Power Corporation ("Niagara Mohawk") initially sought contribution from nine named defendants for costs it has incurred, and is expected to incur, in connection with the environmental investigation and remediation of property located in Troy, New York under the Comprehensive Environmental Response, Compensation and Liability Act, also known as "CERCLA" or "Superfund ("CERCLA"), and other causes of action.  Portec Rail has not been named as a liable party by the NYSDEC.  The basis of the action stems from Niagara Mohawk's agreement with the New York State Department of Environmental Conservation ("NYDEC"), pursuant to an Order on Consent, to environmentally remediate certain properties including, in part, the property identified as the Troy Water Street Site.  The defendants consist of companies that at the time were industrial in nature, or owners of companies industrial in nature, and who owned or operated their businesses on portions of the Troy Water Street site or on properties contiguous, or otherwise in close proximity, to the Troy Water Street Site, and a local county government and its sewer district.  Niagara Mohawk alleges that the defendants either owned or operated on portions of, or released hazardous materials directly to, the Troy Water Street site or released hazardous materials that migrated onto the Troy Water Street Site, and therefore the defendants should be responsible for a portion of the costs of remediation.

Portec Rail believes that Niagara Mohawk's case against Portec Rail, Inc. is without merit.  Because Niagara Mohawk is seeking unspecified monetary contribution from the defendants, it is unable to determine the extent to which Portec Rail would have to make a contribution, or whether such contribution would have a material adverse effect on its financial condition or results of operations.  However, total clean up costs at the Troy Water Street site are expected to be substantial.  If liability for a portion of the cleanup costs is attributed to Portec Rail, such liability could have a material adverse affect on the Company's results of operations.

As of July 2011, Niagara Mohawk and Portec Rail are in the process of negotiating a tentative confidential settlement, conditioned, in part, on Portec Rail's satisfactory review of certain additional Niagara Mohawk disclosures.  If the case is not settled, however, ongoing litigation may be protracted, and Portec Rail may incur additional ongoing legal expenses, which are not estimable at this time and may be material to the Company's results of operations.  Should Portec Rail ultimately be held liable, damages may be assessed by the Court in accordance with CERCLA.

City of Clearfield Litigation: In November 2005, the City of Clearfield, Utah, filed suit in the Second District Court, Davis County, Utah, against the Utah Department of Transportation, a general contractor, four design engineers and/or consultants, a bonding company and the Company. The City alleged that the design and engineering of an overpass in 2000 had been faulty and that the Company had provided the mechanical stabilized earth wall system for the project.  The City alleged that the embankment to the overpass began, in 2001, to fail and slide away from the stabilized earth wall system, resulting in damage in excess of $3,000,000.  The City has agreed to settle its claims against several of the defendants and this settlement has been challenged by other defendants.  The Company believes that it has meritorious defenses to these claims, that the Company's products complied with all applicable specifications and that other factors accounted for any alleged failure.  The Company has referred this matter to its insurance carrier, which, although it reserved its right to deny coverage, has undertaken the defense of this claim.

Portec Rail Shareholder Litigation: On February 19, 2010, and through March 3, 2010, a total of five lawsuits initiated by purported shareholders of Portec Rail were filed against several defendants including the Company and certain members of Portec Rails' Board of Directors.  These lawsuits are directly related to the Agreement and Plan of Merger with L.B. Foster Company and Foster Thomas Company, which was signed on February 16, 2010.

The lawsuits alleged, among other things, that Portec Rail's directors breached their fiduciary duties and L.B. Foster and Purchaser aided and abetted such alleged breaches of fiduciary duties.  Based on these allegations, the lawsuits sought, among other relief, injunctive relief enjoining the defendants from consummating the Offer and the Merger.  They also sought recovery of the costs of the action, including reasonable legal fees.

On November 19, 2010, Plaintiffs in the consolidated Pennsylvania lawsuit filed a motion for an award of payment of attorneys' fees and costs, relating to an injunction entered in March 2010.  The Company and Foster filed objections to that motion and it was argued before the Court on January 31, 2011.  On March 31, 2011, the Court ruled that plaintiffs were entitled to payment of attorneys' fees and costs but has not yet determined the amount.

In the two lawsuits pending in West Virginia, Motions to Dismiss the lawsuits were filed in April 2010 on behalf of the Company and the Director Defendants.  In both West Virginia cases, Plaintiffs filed Motions for Preliminary Injunctions.  On April 5, 2011, the Circuit Court of Kanawha County, West Virginia issued a stipulation of dismissal which included that each of the parties in both cases would be responsible for their own attorneys' fees and costs.

As of June 30, 2011 and December 31, 2010, the Company maintained environmental and litigation reserves approximating $2,796,000 and $2,799,000, respectively.

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 liability accrual which is adjusted on a monthly basis as a percentage of cost of sales.  This product liability accrual is periodically adjusted based on the identification or resolution of known individual product liability claims.  The following table sets forth the Company's product warranty accrual at June 30, 2011:

	In thousands
Balance at December 31,2010	$	4,413
Additions to warranty liability		1,184
Warranty liability utilized		(868	)
Balance at June 30, 2011	$	4,729

Included within the above table are concrete tie warranty reserves of approximately $2,490,000 and $1,966,000, respectively, as of June 30, 2011 and December 31, 2010.  For the three and six month periods ended June 30, 2011, the Company recorded approximately $646,000 in additional concrete tie warranty claims within cost of goods sold.  This concrete tie warranty charge related to ties supplied to a Midwestern transit agency and were manufactured by the Company's Grand Island, NE facility.  During the three and six month periods ended June 30, 2010, there were no additional concrete tie warranty claims recorded.

While the Company believes this is a reasonable estimate of these potential warranty claims, these estimates could change due to new information and future events.  There can be no assurance at this point that future potential costs pertaining to these claims or other potential future claims will not have a material impact on the Company's results of operations.  The warranty accrual is included within "Other accrued liabilities" on the Company's Condensed Consolidated Balance Sheet.

Separate from these warranty issues, the Company recorded, within cost of goods sold, approximately $2,976,000 for a charge related to its exit from the Grand Island, NE tie manufacturing facility.  This charge is to fulfill a customer contractual obligation that could not be sourced from Grand Island, NE.