Commitments and Contingent Liabilities

9 Months Ended

Sep. 30, 2011

COMMITMENTS AND CONTINGENT LIABILITIES

COMMITMENTS AND CONTINGENT LIABILITIES

17. 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 was not named as a liable party by the New York State Department of Environmental Conservation ("NYSDEC").

In October 2011, Niagara Mohawk and Portec Rail negotiated a confidential settlement and release under which Portec Rail paid Niagara Mohawk $250,000.  The Company had previously recorded this amount.

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.  This litigation was settled in September 2011 and the Company paid $30,000 to the City.

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, a wholly-owned subsidiary of the 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 Foster Thomas Company 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 tender 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 lawsuits that were consolidated in the Court of Common Pleas of Allegheny County, PA ("Court") 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 had not yet determined the amount.  In August 2011, the Court determined that the plaintiffs were entitled to approximately $1,050,000 which was previously accrued and paid by the Company in September 2011.

As of September 30, 2011 and December 31, 2010, the Company maintained environmental and litigation reserves approximating $2,606,000 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 September 30, 2011:

	In thousands
Balance at December 31,2010	$	4,413
Additions to warranty liability		2,431
Warranty liability utilized		(1,290	)
Balance at September 30, 2011	$	5,554

Included within the above table are concrete tie warranty reserves of approximately $3,265,000 and $1,966,000, respectively, as of September 30, 2011 and December 31, 2010.  For the three and nine month periods ended September 30, 2011, the Company recorded approximately $775,000 and $1,299,000, respectively, in additional concrete tie warranty claims within cost of goods sold.  These concrete tie warranty charges primarily related to transit and industrial ties manufactured by the Company's Grand Island, NE facility.  During the three and nine month periods ended September 30, 2010, there were $115,000 and $156,000, respectively, of 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 in the second quarter, 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.

On July 12, 2011 the Union Pacific Railroad (UPRR) notified the Company and CXT Incorporated, a subsidiary of the Company (CXT), of a warranty claim under CXT's 2005 supply contract relating to the sale of prestressed concrete railroad ties for the UPRR.  The UPRR has asserted that a significant percentage of concrete ties manufactured in 2006 through 2010 at CXT's Grand Island, NE facility fail to meet contract specifications, have workmanship defects and are cracking and failing prematurely.  Approximately 1,600,000 ties were sold from Grand Island to the UPRR during the period the UPRR has claimed nonconformance.  The 2005 contract calls for each concrete tie which fails to conform to the specifications or has a material defect in workmanship to be replaced with 1.5 new concrete ties, provided, that UPRR within five years of a concrete tie's production, notifies CXT of such failure to conform or such defect in workmanship. The UPRR's notice does not specify how many ties manufactured during this period are defective nor which specifications it claims were not met or the nature of the alleged workmanship defects.  CXT believes it uses sound workmanship processes in the manufacture of concrete ties and has not agreed with the assertions in the UPRR's warranty claim notice.  The UPRR has also notified CXT that ties have failed a certain test that is specified in the 2005 contract.

Since late July 2011, the Company and CXT have been working with material scientists and prestressed concrete experts, who have been testing a representative sample of Grand Island concrete ties.  While this testing is not complete, the Company has not identified any appreciable defects in workmanship nor has the Company identified any material deviation from our contractual specifications for the concrete ties in question.  The Company expects that the testing required to address the product claim will be completed sometime during the first quarter of 2012.

Based on the non-specific nature the UPRR's assertion and the Company's current inability to verify the claims, the Company is unable to determine a range of reasonably possible outcomes regarding this potential exposure matter.  As a result, no accruals were made as a result of this claim as the impact, if any, cannot be reasonably estimated at this time.

No assurances can be given regarding the ultimate outcome of this matter.  The ultimate resolution of this matter could have a material, adverse impact on the Company's financial statements, results of operations, liquidity and capital resources.