UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

(Mark One)

þ		Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

o		Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission File Number 0-10436

L. B. Foster Company

(Exact name of Registrant as specified in its charter)

Pennsylvania		25-1324733
(State of Incorporation)		(I. R. S. Employer Identification No.)
415 Holiday Drive, Pittsburgh, Pennsylvania		15220
(Address of principal executive offices)		(Zip Code)

(412) 928-3417

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ     No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).* Yes o     No o

*     The registrant has not yet been phased into the interactive data requirements.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o		Accelerated filer þ		Non-accelerated filer o		Smaller reporting company o
				(Do not check if a smaller reporting company)

Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o     No þ

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class		Outstanding at July 28, 2009
Common Stock, Par Value $.01		10,155,714 Shares

 

 

L.B. FOSTER COMPANY AND SUBSIDIARIES

INDEX

		Page
PART I. Financial Information
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets			3
Condensed Consolidated Statements of Operations			4
Condensed Consolidated Statements of Cash Flows			5
Notes to Condensed Consolidated Financial Statements			6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			17
Item 3. Quantitative and Qualitative Disclosures about Market Risk			30
Item 4. Controls and Procedures			30
PART II. Other Information
Item 1. Legal Proceedings			31
Item 1A. Risk Factors			31
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			31
Item 4. Submission of Matters to a Vote of Security Holders			31
Item 5. Other Information			32
Item 6. Exhibits			32
Signature			35
EX-31.1
EX-31.2
EX-32.0

PART I. FINANCIAL INFORMATION

ITEM 1.		FINANCIAL STATEMENTS

L. B. FOSTER COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)

		June 30,				December 31,
		2009				2008
		(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents		$	118,090			$	115,074
Accounts and notes receivable:
Trade			49,688				63,271
Other			343				1,042
			50,031				64,313
Inventories			94,293				102,916
Current deferred tax assets			2,911				2,931
Prepaid income taxes			1,520				—
Other current assets			1,641				1,221
Total Current Assets			268,486				286,455
Property, Plant & Equipment — At Cost			99,522				97,439
Less Accumulated Depreciation			(61,506	)			(57,450	)
			38,016				39,989
Other Assets:
Goodwill			350				350
Other intangibles — net			31				37
Investments			4,541				2,856
Deferred tax assets			2,035				2,026
Other assets			367				407
Total Other Assets			7,324				5,676
TOTAL ASSETS		$	313,826			$	332,120
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Current maturities of long-term debt		$	5,813			$	5,777
Accounts payable — trade			45,926				62,612
Accrued payroll and employee benefits			4,323				8,000
Other accrued liabilities			7,502				7,802
Total Current Liabilities			63,564				84,191
Long-Term Debt, Term Loan			11,905				13,333
Other Long-Term Debt			6,754				8,401
Deferred Tax Liabilities			2,426				2,046
Other Long-Term Liabilities			6,497				6,587
STOCKHOLDERS’ EQUITY:
Common stock			111				111
Paid-in capital			47,698				47,585
Retained earnings			202,731				197,060
Treasury stock — at cost			(27,836	)			(26,482	)
Accumulated other comprehensive loss			(24	)			(712	)
Total Stockholders’ Equity			222,680				217,562
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$	313,826			$	332,120

See Notes to Condensed Consolidated Financial Statements.

L. B. FOSTER COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Amounts)

		Three Months								Six Months
		Ended								Ended
		June 30,								June 30,
		2009				2008				2009				2008
		(Unaudited)								(Unaudited)
Net Sales		$	93,771			$	129,833			$	191,515			$	223,274
Cost of Goods Sold			80,939				107,948				165,001				185,768
Gross Profit			12,832				21,885				26,514				37,506
Selling and Administrative Expenses			8,612				9,959				17,639				19,325
Interest Expense			333				488				661				1,043
Gain on Sale of DM&E Investment			—				—				—				(2,022	)
Gain on Sale of Houston, TX Property			—				—				—				(1,486	)
Interest Income			(212	)			(586	)			(507	)			(1,401	)
Other (Income) Expense			(186	)			(135	)			(329	)			16
			8,547				9,726				17,464				15,475
Income Before Income Taxes			4,285				12,159				9,050				22,031
Income Tax Expense			1,633				4,502				3,379				8,068
Net Income		$	2,652			$	7,657			$	5,671			$	13,963
Basic Earnings Per Share		$	0.26			$	0.70			$	0.56			$	1.28
Diluted Earnings Per Share		$	0.26			$	0.69			$	0.55			$	1.26

See Notes to Condensed Consolidated Financial Statements.

L. B. FOSTER COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)

		Six Months
		Ended June 30,
		2009				2008
		(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income		$	5,671			$	13,963
Adjustments to reconcile net income to net cash provided (used) by operating activities:
Deferred income taxes			11				4
Depreciation and amortization			4,311				4,408
Gain on sale of DM&E investment			—				(2,022	)
Gain on sale of property, plant and equipment			(1	)			(1,476	)
Deferred gain amortization on sale-leaseback			(107	)			(72	)
Stock-based compensation			545				652
Unrealized loss on derivative mark-to-market			32				34
Excess tax benefit from share-based compensation			(56	)			(754	)
Change in operating assets and liabilities:
Accounts receivable			14,282				(20,255	)
Inventories			8,623				(3,002	)
Other current assets			(420	)			(378	)
Prepaid income tax			(1,464	)			—
Other noncurrent assets			15				15
Accounts payable — trade			(16,686	)			12,304
Accrued payroll and employee benefits			(3,677	)			(5,439	)
Other current liabilities			(300	)			(425	)
Other liabilities			17				(446	)
Net Cash Provided (Used) by Operating Activities			10,796				(2,889	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property, plant and equipment			1				6,500
Proceeds from sale of DM&E investment			—				2,022
Capital contributions to equity method investment			(650	)			—
Capital expenditures on property, plant and equipment			(2,306	)			(3,134	)
Net Cash (Used) Provided by Investing Activities			(2,955	)			5,388
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of long-term debt, term loan			(1,428	)			(1,666	)
Proceeds from exercise of stock options and stock awards			21				464
Tax benefit related to stock options exercised			56				754
Treasury stock acquisitions			(1,863	)			(13,831	)
Repayments of other long-term debt			(1,611	)			(1,669	)
Net Cash Used by Financing Activities			(4,825	)			(15,948	)
Net Increase (Decrease) in Cash and Cash Equivalents			3,016				(13,449	)
Cash and Cash Equivalents at Beginning of Period			115,074				121,097
Cash and Cash Equivalents at End of Period		$	118,090			$	107,648
Supplemental Disclosure of Cash Flow Information:
Interest Paid		$	593			$	996
Income Taxes Paid		$	7,253			$	9,096

See Notes to Condensed Consolidated Financial Statements.

L. B. FOSTER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. FINANCIAL STATEMENTS

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all estimates and adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. However, actual results could differ from those estimates. The results of operations for interim periods are not necessarily indicative of the results that may be expected for the year ended December 31, 2009. Amounts included in the balance sheet as of December 31, 2008 were derived from our audited balance sheet. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2008. We have evaluated all subsequent events through August 7, 2009, the date the financial statements were issued.

2. NEW ACCOUNTING PRINCIPLES

In December 2007, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 141(R), “Business Combinations,” (SFAS 141R) which replaces SFAS No. 141. SFAS 141R retains the purchase method of accounting for acquisitions, but requires a number of changes, including changes in the way assets and liabilities are recognized in the purchase accounting. It also changes the recognition of assets acquired and liabilities assumed arising from contingencies, requires the capitalization of in-process research and development at fair value, and requires the expensing of acquisition-related costs as incurred. SFAS 141R is effective for business combinations for which the acquisition date is on or after the beginning of the first fiscal year beginning after December 15, 2008. The Company adopted the provisions of this standard beginning January 1, 2009.

In February 2008, the FASB issued FASB Staff Position (FSP) FAS 157-2, “Effective Date of FASB Statement No. 157,” (FSP FAS 157-2). FSP FAS 157-2 delayed the effective date of SFAS 157 (refer to Note 3) for all non-recurring fair value measurements of nonfinancial assets and liabilities until fiscal years beginning after November 15, 2008. The Company adopted the provisions of this standard beginning January 1, 2009.

In May 2009, the FASB issued SFAS No. 165, “Subsequent Events,” (SFAS 165). SFAS 165 establishes the accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or available to be issued. It requires the disclosure of the date through which an entity has evaluated subsequent events and the basis for that date, that is, whether that date represents the date the financial statements were issued or were available to be issued. The Company adopted the provisions of this standard beginning June 30, 2009.

In June 2009, the FASB issued SFAS no. 167, “Amendments to FASB interpretation No. 46(R),” (SFAS 167). SFAS 167 amends FASB Interpretation 46(R) (FIN 46R) and changes the consolidation guidance applicable to a variable interest entity (VIE). It also amends the guidance governing the determination of whether an enterprise is the primary beneficiary of a VIE, and is, therefore, required to consolidate an entity, by requiring a qualitative analysis rather than a quantitative analysis. The qualitative analysis will include, among other things, consideration of who has the power to direct the activities of the entity that most significantly impact the entity’s economic performance and who has the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant to the VIE. This standard also requires continuous reassessments of whether an enterprise is the primary beneficiary of a VIE. Previously, FIN 46R required reconsideration of whether an enterprise was the primary beneficiary of a VIE only when specific events had occurred. Qualifying special-purpose entities, which were previously exempt from the application of this standard, will be subject to the provisions of this standard when it becomes effective. SFAS 167 also requires enhanced disclosures about an enterprise’s involvement with a VIE. SFAS 167 is effective as of the beginning of interim and annual reporting periods that begin after November 15, 2009.

3. FAIR VALUE MEASUREMENTS

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements,” (SFAS 157). SFAS 157 defines fair value, establishes a framework for measuring fair value in accordance with accounting principles generally accepted in the United States, and expands disclosures about fair value measurements. SFAS 157 does not require any new fair value measurements, but it does apply to existing accounting pronouncements that require or permit fair value measurements. The Company adopted SFAS 157 on January 1, 2008. The adoption of this standard did not impact our

financial position or results of operations, as the Company had previously determined the fair value of these instruments in a manner consistent with the requirements of SFAS 157.

SFAS 157 applies to all assets and liabilities that are being measured and reported on a fair value basis. This standard discusses valuation techniques, such as the market approach (comparable market prices), the income approach (present value of future income or cash flow) and the cost approach (cost to replace the service capacity of an asset or replacement cost). SFAS 157 enables readers of financial statements to assess the inputs used to develop those measurements by establishing a hierarchy, which prioritizes those inputs used, for ranking the quality and reliability of the information used to determine fair values. The standard requires that each asset and liability carried at fair value be classified into one of the following categories:

Level 1: Quoted market prices in active markets for identical assets or liabilities.

Level 2: Observable market based inputs or unobservable inputs that are corroborated by market data.

Level 3: Unobservable inputs that are not corroborated by market data.

The Company has an established process for determining fair value for its financial assets and liabilities, principally cash and cash equivalents, available-for-sale securities and foreign exchange contracts. Fair value is based on quoted market prices, where available. If quoted market prices are not available, fair value is based on assumptions that use as inputs market-based parameters. The following sections describe the valuation methodologies used by the Company to measure different financial instruments at fair value, including an indication of the level in the fair value hierarchy in which each instrument is generally classified. Where appropriate the description includes details of the key inputs to the valuations and any significant assumptions.

Cash and cash equivalents. Included within “Cash and cash equivalents” are principally investments in tax-free and taxable money market funds with municipal bond issuances as the underlying securities as well as government agency obligations and corporate bonds, all of which maintain AAA credit ratings. Also included within cash and cash equivalents are our investments in bank certificates of deposit. The Company uses quoted market prices to determine the fair value of these investments and they are classified in Level 1 of the fair value hierarchy. The carrying amounts approximate fair value because of the short maturity of the instruments.

Available-for-sale securities. The Company uses quoted market prices to determine the fair value of its available-for-sale securities. These instruments consist of exchange-traded equity securities, are included within “Investments” and are classified in Level 1 of the fair value hierarchy. Unrealized gains and temporary unrealized losses are included in accumulated other comprehensive income or loss, respectively.

Derivative contracts. The Company uses significant other observable inputs that are readily available in public markets or can be derived from information available in publicly quoted markets to determine the fair value of its derivative contracts. These instruments consist of foreign exchange contracts, are included within “Other accrued liabilities,” and are classified in Level 2 of the fair value hierarchy. Fluctuations in the fair values of derivative instruments are recorded in accumulated other comprehensive loss and reclassified into earnings as the underlying hedged items affect earnings. No such instruments were outstanding at June 30, 2009.

The following assets and liabilities were measured at fair value on a recurring basis subject to the disclosure requirements of SFAS 157 at June 30, 2009 and December 31, 2008:

						Fair Value Measurements at Reporting Date Using
						Quoted Prices in				Significant
						Active Markets				Other				Significant
						for Identical				Observable				Unobservable
		June 30,				Assets				Inputs				Inputs
(in thousands)		2009				(Level 1)				(Level 2)				(Level 3)
Assets
Money market funds		$	105,418			$	105,418			$	—			$	—
Bank certificates of deposit			10,250				10,250				—				—
Cash equivalents at fair value			115,668				115,668				—				—
Available-for-sale securities			3,891				3,891				—				—
Total Assets		$	119,559			$	119,559			$	—			$	—

						Fair Value Measurements at Reporting Date Using
						Quoted Prices in				Significant
						Active Markets				Other				Significant
						for Identical				Observable				Unobservable
		December 31,				Assets				Inputs				Inputs
(in thousands)		2008				(Level 1)				(Level 2)				(Level 3)
Assets
Money market funds		$	104,257			$	104,257			$	—			$	—
Bank certificates of deposit			10,158				10,158				—				—
Cash equivalents at fair value			114,415				114,415				—				—
Available-for-sale securities			2,856				2,856				—				—
Total Assets		$	117,271			$	117,271			$	—			$	—
Liabilities
Derivatives		$	(54	)		$	—			$	(54	)		$	—
Total other accrued liabilities			(54	)			—				(54	)			—
Total Liabilities		$	(54	)		$	—			$	(54	)		$	—

4. ACCOUNTS RECEIVABLE

Credit is extended based upon an evaluation of the customer’s financial condition and, generally, collateral is not required. Credit terms are consistent with industry standards and practices. Trade accounts receivable at June 30, 2009 and December 31, 2008 have been reduced by an allowance for doubtful accounts of ($1,369,000) and ($2,637,000), respectively. The decrease in the allowance for doubtful accounts was due to the write-off of previously reserved trade accounts receivable.

5. INVENTORIES

Inventories of the Company at June 30, 2009 and December 31, 2008 are summarized in the following table:

		June 30,				December 31,
(in thousands)		2009				2008
Finished goods		$	87,672			$	89,935
Work-in-process			7,470				13,275
Raw materials			23,336				25,198
Total inventories at current costs			118,478				128,408
Less:
LIFO reserve			(19,559	)			(21,316	)
Inventory valuation reserve			(4,626	)			(4,176	)
		$	94,293			$	102,916

Inventories of the Company are generally valued at the lower of last-in, first-out (LIFO) cost or market. Other inventories of the Company are valued at average cost or market, whichever is lower. An actual valuation of inventory under the LIFO method is made at the end of each year based on the inventory levels and costs at that time. Accordingly, interim LIFO calculations are based on management’s estimates of expected year-end levels and costs.

6. INVESTMENTS

Investments of the Company at June 30, 2009 and December 31, 2008 are summarized in the following table:

		June 30,				December 31,
(in thousands)		2009				2008
Available-for-sale marketable securities		$	3,891			$	2,856
Nonconsolidated equity method investments			650				—
		$	4,541			$	2,856

Available-for-sale marketable securities were recorded with a cost of approximately $1,714,000 and there are no gross unrealized losses. Gross unrealized gains related to the Company’s available-for-sale securities are included within accumulated other comprehensive loss in the Condensed Consolidated Balance Sheets and were approximately $2,177,000 and $1,142,000 at June 30, 2009 and December 31, 2008, respectively.

Effective May 26, 2009, the Company completed the formation of a joint venture. The Company has a 45% ownership interest in the new joint venture which will build a facility to manufacture, market and sell various products for the energy, utility and construction markets.

7. SALE-LEASEBACK

On March 3, 2008, the Company sold approximately 63 acres of real estate located in Houston, TX used primarily by the Company’s Tubular Products segment for approximately $6,500,000 and recorded a gain of $1,486,000.

Pursuant to this sale, the Company entered into a sale-leaseback transaction, as amended on April 30, 2008, with the purchaser of the Houston, TX real estate for approximately 20 acres of the real estate and certain other assets for a ten year term at a monthly rental rate of $1,000 per acre with annual 3% increases. The April 30, 2008 amendment added approximately 9 acres of real estate (Temporary Premises) on a month to month term basis. The January 6, 2009 amendment terminated the lease of approximately 4 acres of the Temporary Premises. The lease is a “net” lease with the Company being responsible for taxes, maintenance, insurance and utilities. The Company uses the leased property for its threaded product operations.

This lease is being accounted for as an operating lease with an interest rate of 5.25% for the transaction. The transaction qualifies as a sale-leaseback under applicable guidance, including SFAS No. 98, “Accounting for Leases,” and the

Company recorded as a deferred gain the present value of the minimum lease payments of the operating lease, $2,146,000. This deferred gain is being amortized over the life of the lease, 120 months.

8. RETIREMENT PLANS

Retirement Plans

The Company has four plans covering all hourly and salaried employees, specifically two defined benefit plans (one active and one frozen) and two defined contribution plans. Employees are eligible to participate in these specific plans based on their employment classification. The Company’s funding to the defined benefit and defined contribution plans is governed by the Employee Retirement Income Security Act of 1974 (ERISA), applicable plan policy and investment guidelines. The Company policy is to contribute at least the minimum funding required by ERISA.

Defined Benefit Plans

Net periodic pension costs for both plans for the three and six month periods ended June 30, 2009 and 2008 are as follows:

		Three Months Ended								Six Months Ended
		June 30,								June 30,
(in thousands)		2009				2008				2009				2008
Service cost		$	7			$	5			$	14			$	10
Interest cost			65				63				130				126
Expected return on plan assets			(57	)			(72	)			(114	)			(144	)
Prior service cost			1				2				2				4
Recognized net actuarial loss			35				12				70				25
Net periodic benefit cost		$	51			$	10			$	102			$	21

The Company expects to contribute $135,000 to its defined benefit plans in 2009. Contributions through June 30, 2009 were $90,000.

Defined Contribution Plans

The Company has a defined contribution plan that covers all non-union hourly and all salaried employees. This plan permits both pretax and after-tax employee contributions. Participants can contribute, subject to statutory limitations, between 1% and 75% of eligible pre-tax pay and between 1% and 100% of eligible after-tax pay.

The Company’s employer match is 100% of the first 1% of deferred eligible compensation and up to 50% of the next 6%, based on years of service, of deferred eligible compensation, for a total maximum potential match of 4%. The Company may also make discretionary contributions to the Plan.

The expense associated with this plan for the three months ended June 30 was $338,000 in 2009 and $580,000 in 2008 and for the six months ended June 30 was $753,000 in 2009 and $1,018,000 in 2008.

The Company also has a defined contribution plan for union hourly employees with contributions made by both the participants and the Company based on various formulas. The expense associated with this active plan for the three months ended June 30, 2009 and 2008 was $9,000 and for the six months ended June 30, 2009 and 2008 was $16,000 and $17,000, respectively.

9. BORROWINGS

The Company’s maximum credit line is $90,000,000 under a fourth amendment to the Amended and Restated Revolving Credit and Security Agreement (Agreement) with a syndicate of three banks led by PNC Bank, N.A. The revolving credit facility is secured by substantially all of the trade receivables and inventory owned by the Company. Revolving credit facility availability under the Agreement is limited by the amount of eligible accounts receivable and inventory, applied against certain advance rates, and are limited to 85% of eligible receivables and 60% of eligible inventory. Additionally, the fourth amendment established a $20,000,000 term loan that was immediately applied to pay down existing amounts outstanding on the revolving credit facility. The term loan is being amortized on a term of seven years with a balloon payment on the remaining outstanding principal due at the maturity of the Agreement, May 2011. If average availability

should fall below $10,000,000 over a 30-day period, the loans become immediately secured by a lien on the Company’s equipment that is not encumbered by other liens.

Revolving credit facility borrowings placed in LIBOR contracts are priced at prevailing LIBOR rates, plus 1.25%. Borrowings placed in other tranches are priced at the prevailing prime rate, minus 1.00%. The term loan base rate spread is fixed at prime minus 0.75% and the LIBOR spread is fixed at plus 1.50%.

The Company is permitted to use various additional debt instruments to finance capital expenditures, outside of borrowings under the Agreement, limited to an additional $10,000,000. Under the amended Agreement, the Company maintains dominion over its cash at all times, as long as excess availability stays over $5,000,000 and there is no uncured event of default.

In March 2009, the Company entered into a fifth amendment to the Agreement which became effective as of December 31, 2008 and changed certain financial covenants included in the Agreement by creating an exclusion standard in the Agreement. This standard, which is met by the Company when revolving credit facility borrowings do not exceed $20,000,000 and unused borrowing commitment is at least $50,000,000, allows for certain items, as defined in the amendment, to be excluded in determining the minimum level for the fixed charge coverage ratio. Additionally, the amendment redefines the Company’s calculation of earnings before interest and taxes by excluding any charges and credits related to the Company’s LIFO method of accounting for inventory.

The fifth amendment also includes a revised minimum net worth covenant and a revised maximum level for annual consolidated capital expenditures of $15,000,000. As of June 30, 2009, the Company was in compliance with all of the Agreement’s covenants.

Under the term loan, the Company had $14,524,000 outstanding at June 30, 2009 of which $11,905,000 was noncurrent. At December 31, 2008 the Company had $15,952,000 outstanding of which $13,333,000 was noncurrent.

At June 30, 2009, there were no outstanding borrowings under the revolving credit facility and the Company had approximately $76,334,000 in unused borrowing availability.

10. EARNINGS PER COMMON SHARE

The following table sets forth the computation of basic and diluted earnings per common share:

		Three Months Ended								Six Months Ended
		June 30,								June 30,
(in thousands, except earnings per share)		2009				2008				2009				2008
Numerator:
Numerator for basic and diluted earnings per common share - net income available to common stockholders:		$	2,652			$	7,657			$	5,671			$	13,963
Denominator:
Weighted average shares			10,148				10,900				10,176				10,939
Denominator for basic earnings per common share			10,148				10,900				10,176				10,939
Effect of dilutive securities:
Employee stock options			101				137				101				151
Other stock compensation plans			26				3				41				7
Dilutive potential common shares			127				140				142				158
Denominator for diluted earnings per common share — adjusted weighted average shares and assumed conversions			10,275				11,040				10,318				11,097
Basic earnings per common share:		$	0.26			$	0.70			$	0.56			$	1.28
Diluted earnings per common share:		$	0.26			$	0.69			$	0.55			$	1.26

11. STOCK-BASED COMPENSATION

The Company applies the provisions of SFAS No. 123(R), “Share-Based Payment” and related interpretations (SFAS No. 123R) to account for the Company’s share-based compensation. Share-based compensation cost is measured at the grant date based on the calculated fair value of the award and is recognized over the employees’ requisite service period. The Company recorded stock compensation expense of $422,000 and $623,000, respectively, for the three month periods ended June 30, 2009 and 2008 and $545,000 and $652,000 for the six month periods ended June 30, 2009 and 2008, respectively, related to stock option awards, restricted stock awards and performance unit awards as discussed below.

Stock Option Awards

The Company recorded stock compensation expense related to stock option awards of $25,000 and $55,000 for the six month periods ending June 30, 2009 and 2008, respectively. The related deferred tax benefits at June 30, 2009 and 2008 were $9,000 and $22,000, respectively.

There were no nonvested awards at June 30, 2009. At June 30, 2008, there was $74,000 of compensation expense related to nonvested awards which was expected to be recognized over a weighted-average period of 0.7 years.

There were no stock options granted during the first six months of 2009 or 2008.

At June 30, 2009 and 2008, common stock options outstanding under the plans had option prices ranging from $2.75 to $14.77, with a weighted average exercise price of $5.59 and $5.85 per share, respectively.

The weighted average remaining contractual life of the stock options outstanding at June 30, 2009 and 2008 are 3.1 years and 4.1 years, respectively.

Options exercised during the six month periods ended June 30, 2009 and 2008 totaled 5,500 and 99,380 shares, respectively. The weighted average exercise price per share of the options exercised during the six month periods ended June 30, 2009 and 2008 were $3.78 and $4.67, respectively. The total intrinsic value of options exercised during the three month period ended June 30, 2009 was $153,000. There were no options exercised during the three month period ended June 30, 2008. The total intrinsic value of options exercised during the six month periods ended June 30, 2009 and 2008 were $153,000 and $3,898,000, respectively.

A summary of the option activity as of June 30, 2009 is presented below.

										Weighted
						Weighted				Average
						Average				Remaining				Aggregate
						Exercise				Contractual				Intrinsic
		Shares				Price				Term				Value
Outstanding at January 1, 2009			194,700			$	5.54				3.6
Granted			—				—
Canceled			—				—
Exercised			(5,500	)			3.78
Outstanding at June 30, 2009			189,200			$	5.59				3.1			$	4,631,616
Exercisable at June 30, 2009			189,200			$	5.59				3.1			$	4,631,616

Shares issued as a result of stock option exercises generally are previously issued shares which have been reacquired by the Company and held as Treasury shares or authorized but previously unissued common stock.

Restricted Stock Awards

During the six month periods ended June 30, 2009 and 2008 there were 10,500 fully vested restricted stock awards granted to the outside directors of the Company. The weighted average fair value per share of these restricted stock awards was $29.89 and $32.61, respectively.

Compensation expense recorded by the Company related to restricted stock awards was approximately $314,000 and $342,000, respectively, for the three and six month periods ended June 30, 2009 and 2008.

A summary of the restricted stock awards activity as of June 30, 2009 is presented below.

										Weighted
						Weighted				Average
						Average				Remaining				Aggregate
		Restricted				Fair				Contractual				Fair
		Shares				Value				Term				Value
Outstanding at January 1, 2009			—			$	—				—			$	—
Granted			10,500				29.89								313,845
Vested			(10,500	)			29.89								(313,845	)
Canceled			—				—
Outstanding at June 30, 2009			—			$	—				—			$	—

Relative to the restricted stock awards granted to the non-outside directors and the performance unit awards, the Company recorded compensation expense of $100,000 and $120,000, respectively, for the three month periods ended June 30, 2009 and 2008. For the six month periods ended June 30, 2009 and 2008, the Company recorded compensation expense of $206,000 and $255,000, respectively, for these awards. Shares issued as a result of restricted stock awards generally are previously issued shares which have been reacquired by the Company and held as Treasury shares or authorized but previously unissued common stock.

For the six month periods ended June 30, 2009 and 2008, the Company granted approximately 18,000 and 12,000 shares, respectively, of restricted stock to individuals who are not outside directors:

										Aggregate
						Grant Date				Fair
Grant Date		Units				Fair Value				Value				Vesting Date
March 6, 2008			7,756			$	40.03			$	310,473			March 6, 2012
June 2, 2008			3,850				34.19				131,632			June 2, 2012
March 3, 2009			17,561				20.63				362,283			March 3, 2013

These forfeitable restricted stock awards time-vest after a four year holding period.

In addition to the 12,000 shares of restricted stock granted as of June 30, 2008 noted above, the Company granted, pursuant to the 2006 Omnibus Plan, as amended, approximately 11,000 fully-vested shares during 2008 in lieu of a portion of the cash payment earned under the 2005 – 2007 Three Year Incentive Plan. This non-cash transaction of $467,000 is reflected as an increase to “Paid-in capital” in the Consolidated Balance Sheet at December 31, 2008. These shares are not voluntarily transferable until May 1, 2010. The number of shares awarded under this plan was determined using an average share price of $43.91 over a ten day period in February 2008. When these shares were awarded on March 6, 2008, the grant date fair value per share was $40.03.

Performance Unit Awards

Under separate three year incentive plans pursuant to the 2006 Omnibus Plan, as amended, the Company granted the following performance units during the six month periods ended June 30:

												Aggregate
								Grant Date				Fair
Incentive Plan		Grant Date		Units				Fair Value				Value				Vesting Date
2008 — 2010		March 6, 2008			23,273			$	40.03			$	931,618			March 6, 2011
2009 — 2011		March 3, 2009			52,672				20.63				1,086,623			March 3, 2012

These awards can be earned based upon the Company’s performance relative to performance measures as defined in the plan. These awards are subject to forfeiture, cannot be transferred until four years after their grant date and will be converted into common stock of the Company based upon conversion multiples as defined in the underlying plan. The aggregate fair value in the above table is based upon reaching 100% of the performance targets as defined in the underlying plan. The number of shares awarded under the 2009 – 2011 Three Year Incentive Plan was determined using an average grant date fair value of $23.21 over a ten day period in February 2009. The number of shares awarded under the 2008 – 2010 Three Year Incentive Plan was determined using an average grant date fair value of $43.91 over a ten day period in February 2008.

12. COMMITMENTS AND CONTINGENT LIABILITIES

The Company is subject to 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.

In the second quarter of 2004, a gas company filed a complaint against the Company in Allegheny County, PA, alleging that in 1989 the Company had applied epoxy coating on 25,000 feet of pipe and that, as a result of inadequate surface preparation of the pipe, the coating had blistered and deteriorated. The Company does not believe that the gas company’s alleged problems are the Company’s responsibility. Although no assurances can be given, the Company believes that it has meritorious defenses to such claims and will vigorously defend against such a suit. The Company’s insurance carrier, although it reserved its right to deny coverage, has undertaken the defense of this claim.

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 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.

In December 2008, the Company received a Third-Party Complaint, filed in the US. District Court for the Western District of Oklahoma, alleging that the Company and others were responsible for certain contamination which migrated to adjacent properties in Payne County, Oklahoma. The Company is alleged to have owned the initially contaminated property pursuant to a 1978 quit claim deed. The Company sold, by quit claim deed, its interests, if any, in this property in 1979. The Company has referred this matter to its insurance carrier and, subject to reservations, the insurance carrier is defending this claim.

In late March of 2009, the Company discovered that some of the prestressed concrete railroad ties manufactured in 2004 and 2005 by its CXT Rail operation in Grand Island, NE had failed in track. The Company believes the cause is related to equipment fatigue on one production line at its Grand Island, NE facility before it was retrofitted with new equipment in the fall of 2005. The Company recorded a charge of $1,600,000 within cost of goods sold for the Company’s estimate of cracked concrete ties as of the quarter ended March 31, 2009.

During the second quarter of 2009, along with customer personnel, the Company inspected the ties in question to confirm the number of cracked concrete ties. Upon conclusion of this inspection, the Company recorded an additional charge of $1,124,000 within cost of goods sold during the quarter ended June 30, 2009 bringing the cumulative warranty charge related to this issue to $2,724,000.

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 illustrates the Company’s product warranty accrual:

(in thousands)
Balance at December 31, 2008		$	1,633
Additions to warranty liability			1,771
Warranty liability utilized			(409	)
Balance at March 31, 2009			2,995
Additions to warranty liability			1,409
Warranty liability utilized			(301	)
Balance at June 30, 2009		$	4,103

Included within the above table is the concrete tie warranty of approximately $3,461,000 as of June 30, 2009 and includes the previously discussed additional charges. While the Company believes this is a reasonable estimate of this potential warranty claim, this estimate could change due to new information and future events. There can be no assurance at this point that future costs pertaining to this issue will not have a material impact on our results of operations.

At June 30, 2009 the Company had outstanding letters of credit of approximately $2,859,000.

13. BUSINESS SEGMENTS

The Company is organized and evaluated by product group, which is the basis for identifying reportable segments. The Company is engaged in the manufacture, fabrication and distribution of rail, construction and tubular products.

The following table illustrates revenues and profits of the Company by segment:

		Three Months Ended,								Six Months Ended,
		June 30, 2009								June 30, 2009
		Net				Segment				Net				Segment
(in thousands)		Sales				Profit/(Loss)				Sales				Profit/(Loss)
Rail products		$	44,289			$	(1,131	)		$	98,655			$	(1,049	)
Construction products			44,473				3,088				80,560				5,329
Tubular products			5,009				44				12,300				1,404
Total		$	93,771			$	2,001			$	191,515			$	5,684

		Three Months Ended,								Six Months Ended,
		June 30, 2008								June 30, 2008
		Net				Segment				Net				Segment
(in thousands)		Sales				Profit				Sales				Profit
Rail products		$	60,843			$	5,322			$	107,034			$	7,878
Construction products			60,039				7,603				100,025				10,511
Tubular products			8,951				1,825				16,215				2,846
Total		$	129,833			$	14,750			$	223,274			$	21,235

Segment profits, as shown above, include internal cost of capital charges for assets used in the segment at a rate of, generally, 1% per month. There has been no change in the measurement of segment profit from December 31, 2008.

The following table provides a reconciliation of reportable segment net profit to the Company’s consolidated total:

		Three Months Ended								Six Months Ended
		June 30,								June 30,
(in thousands)		2009				2008				2009				2008
Income for reportable segments		$	2,001			$	14,750			$	5,684			$	21,235
Cost of capital for reportable segments			4,764				4,956				9,699				9,430
Interest expense			(333	)			(488	)			(661	)			(1,043	)
Gain on sale of DM&E investment			—				—				—				2,022
Gain on sale of Houston, TX property			—				—				—				1,486
Interest income			212				586				507				1,401
Other income (expense)			186				135				329				(16	)
LIFO credit (expense)			1,507				(2,470	)			1,757				(2,763	)
Corporate expense and other unallocated charges			(4,052	)			(5,310	)			(8,265	)			(9,721	)
Income before income taxes		$	4,285			$	12,159			$	9,050			$	22,031

14. COMPREHENSIVE INCOME

Comprehensive income represents net income plus certain stockholders’ equity changes not reflected in the Condensed Consolidated Statements of Operations. The components of comprehensive income, net of tax, were as follows:

		Three Months Ended								Six Months Ended
		June 30,								June 30,
(in thousands)		2009				2008				2009				2008
Net income		$	2,652			$	7,657			$	5,671			$	13,963
Market value adjustments for investments			866				—				654				—
Unrealized derivative gains (losses) on cash flow hedges			25				(4	)			34				72
Comprehensive income		$	3,543			$	7,653			$	6,359			$	14,035

15. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities – an amendment of SFAS No. 133,” (SFAS 161). SFAS 161 requires enhanced disclosures about an entity’s derivative and hedging activities, including (i) how and why an entity uses derivative instruments, (ii) how derivative instruments and related hedged items are accounted for under SFAS 133, and (iii) how derivative instruments and related hedged items affect an entity’s financial position, results of operations and cash flows. The Company adopted the required enhanced disclosures of SFAS 161 on January 1, 2009.

The Company does not purchase or hold any derivative financial instruments for trading purposes. The Company uses derivative financial instruments to manage interest rate exposure on variable-rate debt, primarily by using interest rate collars and variable interest rate swaps. The Company’s primary source of variable-rate debt comes from its revolving credit agreement.

At contract inception, the Company designates its derivative instruments as hedges. The Company recognizes all derivative instruments on the balance sheet at fair value. Fluctuations in the fair values of derivative instruments designated as cash flow hedges are recorded in accumulated other comprehensive income and reclassified into earnings within other income as the underlying hedged items affect earnings. To the extent that a change in interest rate derivative does not perfectly offset the change in value of the interest rate being hedged, the ineffective portion is recognized in earnings immediately.

The Company is not subject to significant exposures to changes in foreign currency exchange rates. The Company will, however, manage its exposure to changes in foreign currency exchange rates on firm sale and purchase commitments by entering into foreign currency forward contracts. The Company’s risk management objective is to reduce its exposure to the effects of changes in exchange rates on these transactions over the duration of the transactions.

During 2006, the Company entered into commitments to sell Canadian funds based on the anticipated receipt of Canadian funds from the sale of certain rail commencing in the second quarter of 2007 through the third quarter of 2008.

All of these contracts were settled as of December 31, 2008. During 2008, two of these Canadian dollar denominated commitments matured for a realized loss of approximately $129,000 which was reported as “Other (Income) Expense” within the Condensed Consolidated Statements of Operations.

In the fourth quarter of 2008, the Company entered into a commitment with a notional amount of approximately $630,000 to buy Euro funds based on the anticipated receipt of Euro funds from the purchase of certain rail in the first quarter of 2009. During the first quarter of 2009, the Company determined that the receipt of Euros would not coincide with the purchase commitment and the Company recorded a loss of approximately $7,000 to record this commitment at market which was reported as “Other (Income) Expense” within the Condensed Consolidated Statements of Operations. The fair value of this instrument was a liability of $54,000 and was recorded in “Other Accrued Liabilities” as of December 31, 2008.

In the first quarter of 2009, the Company entered into commitments with notional amounts totaling approximately $974,000 to buy Euro funds based on the anticipated receipt of Euro funds from the purchase of certain rail in the second quarter of 2009. During the second quarter of 2009, these commitments matured for a realized gain of approximately $105,000. All of these contracts were settled as of June 30, 2009. For more information concerning the fair value measurements of these instruments, refer to Note 3, “Fair Value Measurements.”

16. SUBSEQUENT EVENTS

We have evaluated all subsequent events through August 7, 2009, the date the financial statements were issued. Through that date the Company sold a portion of its investment in available-for-sale marketable securities. The Company sold shares with original cost of approximately $921,000 for a gain of approximately $1,194,000. These shares were recorded at fair market value of approximately $2,090,000 as of June 30, 2009. The Company utilized the specific identification method to determine the cost of the securities sold.

Item 2.		MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

General

L. B. Foster Company is a leading manufacturer, fabricator and distributor of products for rail, construction, utility and energy markets. The Company is comprised of three business segments: Rail products, Construction products and Tubular products.

Recent Developments

In late March of 2009, we discovered that some of the prestressed concrete railroad ties manufactured between 2004 and 2005 by our CXT Rail operation in Grand Island, NE had failed in track. We believe the cause is related to equipment fatigue on one production line at our Grand Island, NE facility before it was retrofitted with new equipment in the fall of 2005. We recorded a charge of $1.6 million within cost of goods sold for our estimate of cracked concrete ties as of the quarter ended March 31, 2009.

During the second quarter of 2009, along with Union Pacific Railroad (UPRR) personnel, we inspected the ties in question to confirm the number of cracked concrete ties. Upon conclusion of this inspection, we recorded an additional charge of $1.1 million within cost of goods sold during the quarter ended June 30, 2009 bringing our cumulative warranty charge related to this issue to $2.7 million.

While we believe this is a reasonable estimate of this potential warranty claim, this estimate could change due to new information and future events. There can be no assurance at this point that future costs pertaining to this issue will not have a material impact on our results of operations.

Also during the second quarter of 2009, the UPRR notified us that they would not accept certain prestressed concrete railroad ties produced at our Grand Island, NE facility due to questionable quality of certain raw materials. We believe this issue is isolated to below-specification raw material used in the production process received from one supplier. We brought these concrete ties back into inventory and wrote them down to our expected net realizable value.

The impact of these rejected prestressed concrete railroad ties was a net unfavorable charge to gross profit of approximately $2.6 million.

In May 2009, we completed the formation of a joint venture. We have a 45% ownership interest in the new joint venture and made initial capital contributions of $0.7 million in June 2009 and $0.2 million in July 2009 as part of our total initial capital contribution of $0.9 million. We are also required to make additional capital contributions of $1.4 million to the joint venture. This venture will build a facility to manufacture, market and sell various products for the energy, utility and construction markets. This investment will be accounted for under the equity method of accounting as we have the ability to exert significant influence, but not control, over operating and financial policies.

As of June 30, 2009, we reported investments in available-for-sale marketable securities with a fair value of approximately $3.9 million. In July 2009, we sold a portion of this investment for approximately $2.1 million in proceeds and recorded a corresponding gain of approximately $1.2 million.

Critical Accounting Policies

The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States. When more than one accounting principle, or method of its application, is generally accepted, management selects the principle or method that is appropriate in the Company’s specific circumstances. Application of these accounting principles requires management to make estimates about the future resolution of existing uncertainties. As a result, actual results could differ from these estimates. In preparing these financial statements, management has made its best estimates and judgments of the amounts and disclosures included in the financial statements giving due regard to materiality.

There have been no material changes in the Company’s critical accounting policies or estimates since December 31, 2008. However, due to the significance of activity in the first six months of 2009, we have made additional disclosure below regarding our basis of financial statement presentation and investments accounting policies.

For more information regarding the Company’s critical accounting policies, please see the Management’s Discussion & Analysis of Financial Condition and Results of Operations in Form 10-K for the year ended December 31, 2008.

Basis of financial statement presentation

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, ventures and partnerships in which a controlling interest is held. All significant inter-company transactions have been eliminated. The Company utilizes the equity method of accounting for companies where its ownership is less than or equal to 50% and significant influence exists.

Investments

Investments in marketable equity securities are classified as “available-for-sale” and are recorded at fair value with unrealized gains and temporary losses included in accumulated other comprehensive income or loss, respectively. The Company regularly reviews its available-for-sale investments to determine whether a decline in fair value below the cost basis is other than temporary. If the decline in fair value is judged to be other than temporary, the cost basis of the security is written down to fair value and the amount of the write-down is included in the Consolidated Statements of Operations.

Investments in companies in which the Company has the ability to exert significant influence, but not control, over operating and financial policies (generally 20% to 50% ownership) are accounted for using the equity method. Under the equity method, investments are initially recorded at cost and adjusted for dividends and undistributed earnings and losses. The equity method of accounting requires a company to recognize a loss in the value of an equity method investment that is other than a temporary decline.

New Accounting Pronouncements

In December 2007, the FASB issued SFAS No. 141(R), “Business Combinations,” (SFAS 141R) which replaces SFAS No. 141. SFAS 141R retains the purchase method of accounting for acquisitions, but requires a number of changes, including changes in the way assets and liabilities are recognized in the purchase accounting. It also changes the recognition of assets acquired and liabilities assumed arising from contingencies, requires the capitalization of in-process research and development at fair value, and requires the expensing of acquisition-related costs as incurred. SFAS 141R is effective for business combinations for which the acquisition date is on or after the beginning of the first fiscal year beginning after December 15, 2008. The Company adopted the provisions of this standard beginning January 1, 2009.

In February 2008, the FASB issued FASB Staff Position (FSP) FAS 157-2, “Effective Date of FASB Statement No. 157,” (FSP FAS 157-2). FSP FAS 157-2 delayed the effective date of SFAS 157 for all non-recurring fair value measurements of nonfinancial assets and liabilities until fiscal years beginning after November 15, 2008. The Company adopted the provisions of this standard beginning January 1, 2009.

In May 2009, the FASB issued SFAS No. 165, “Subsequent Events,” (SFAS 165). SFAS 165 establishes the accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or available to be issued. It requires the disclosure of the date through which an entity has evaluated subsequent events and the basis for that date, that is, whether that date represents the date the financial statements were issued or were available to be issued. The Company adopted the provisions of this standard beginning June 30, 2009. We have evaluated all subsequent events through August 7, 2009, the date the financial statements were issued.

In June 2009, the FASB issued SFAS no. 167, “Amendments to FASB interpretation No. 46(R),” (SFAS 167). SFAS 167 amends FASB Interpretation 46(R) (FIN 46R) and changes the consolidation guidance applicable to a variable interest entity (VIE). It also amends the guidance governing the determination of whether an enterprise is the primary beneficiary of a VIE, and is, therefore, required to consolidate an entity, by requiring a qualitative analysis rather than a quantitative analysis. The qualitative analysis will include, among other things, consideration of who has the power to direct the activities of the entity that most significantly impact the entity’s economic performance and who has the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant to the VIE. This standard also requires continuous reassessments of whether an enterprise is the primary beneficiary of a VIE. Previously, FIN 46R required reconsideration of whether an enterprise was the primary beneficiary of a VIE only when specific events had occurred. Qualifying special-purpose entities, which were previously exempt from the application of this standard, will be subject to the provisions of this standard when it becomes effective. SFAS 167 also requires enhanced disclosures about an enterprises’ involvement with a VIE. SFAS 167 is effective as of the beginning of interim and annual reporting periods that begin after November 15, 2009.

Quarterly Results of Operations

		Three Months Ended								Percent of Total Net Revenues								Percent
		June 30,								Three Months Ended June 30,								Increase/(Decrease)
		2009				2008				2009				2008				2009 vs. 2008
		Dollars in thousands
Net Sales:
Rail Products		$	44,289			$	60,843				47.2	%			46.9	%			(27.2	)%
Construction Products			44,473				60,039				47.4				46.2				(25.9	)
Tubular Products			5,009				8,951				5.3				6.9				(44.0	)
Total Net Sales		$	93,771			$	129,833				100.0	%			100.0	%			(27.8	)%

		Three Months Ended								Gross Profit Percentage								Percent
		June 30,								Period Ended June 30,								Increase/(Decrease)
		2009				2008				2009				2008				2009 vs. 2008
		Dollars in thousands
Gross Profit:
Rail Products		$	2,940			$	9,865				6.6	%			16.2	%			(70.2	)%
Construction Products			8,128				12,491				18.3				20.8				(34.9	)
Tubular Products			619				2,384				12.4				26.6				(74.0	)
LIFO Credit (Expense)			1,507				(2,470	)			1.6				(1.9	)			161.0
Other			(362	)			(385	)			(0.4	)			(0.3	)			(6.0	)
Total Gross Profit		$	12,832			$	21,885				13.7	%			16.9	%			(41.4	)%

		Three Months Ended								Percent of Total Net Revenues								Percent
		June 30,								Period Ended June 30,								Increase/(Decrease)
		2009				2008				2009				2008				2009 vs. 2008
		Dollars in thousands
Expenses:
Selling and Administrative Expenses		$	8,612			$	9,959				9.2	%			7.7	%			(13.5	)%
Interest Expense			333				488				0.4				0.4				(31.8	)
Gain on Sale of DM&E Investment			—				—				—				—					**
Gain on Sale of Houston, TX Property			—				—				—				—					**
Interest Income			(212	)			(586	)			(0.2	)			(0.5	)			(63.8	)
Other (Income) Expense			(186	)			(135	)			(0.2	)			(0.1	)			37.8
Total Expenses			8,547				9,726				9.1	%			7.5	%			(12.1	)%
Income Before Income Taxes			4,285				12,159				4.6	%			9.4	%			(64.8	)%
Income Tax Expense			1,633				4,502				1.7				3.5				(63.7	)
Net Income		$	2,652			$	7,657				2.8	%			5.9	%			(65.4	)%

Second Quarter 2009 Compared to Second Quarter 2008 – Company Analysis

Net income for the second quarter of 2009 was $0.26 per diluted share compared to net income per diluted share of $0.69 for the second quarter of 2008.

Our gross profit margin includes our current estimate of the impact of the LIFO method of accounting for inventory. Due principally to declining steel prices, we currently anticipate a positive adjustment resulting from our provision for LIFO and recorded our 2009 LIFO adjustment estimate as of June 30, 2009. The prior year period included an estimated negative impact caused by inflation. Gross profit was adversely affected by the $1.1 million warranty charge related to concrete ties that failed in track and adjustments of $2.6 million related to the return and subsequent write-down of concrete ties refused by the UPRR. These charges were previously discussed in more detail within the Recent Developments section and were both recorded within our Rail Products Segment.

The 2009 second quarter decrease in Selling and Administrative expenses primarily resulted from reduced incentive compensation expense, outside services fees and bad debt expense. Reduced average cash and cash equivalents balances and lower rates contributed to reduced interest income earned on our various short-term investments during the second quarter of 2009. Income taxes in the current quarter were recorded at approximately 38.1%, an increase from the prior year period of 37.0%, due to increased nondeductible expenses.

Results of Operations – Segment Analysis

Rail Products

		Three Months Ended												Percent
		June 30,								Increase/(Decrease)				Increase/(Decrease)
		2009				2008				2009 vs. 2008				2009 vs. 2008
		Dollars in thousands
Net Sales		$	44,289			$	60,843			$	(16,554	)			-27.2	%
Gross Profit		$	2,940			$	9,865			$	(6,925	)			-70.2	%
Gross Profit Percentage			6.6	%			16.2	%			-9.6	%			-59.1	%

Second Quarter 2009 Compared to Second Quarter 2008

While our Allegheny Rail Products (ARP) division experienced some growth in sales over the prior year period, this growth was negated by reductions in sales throughout the remainder of our Rail Products Segment. Our rail distribution business reported reduced sales which led the overall decline within the segment. These decreases were associated with volume related reductions within our new rail distribution business and low scrap steel prices and sharply reduced industrial market demand within our relay rail distribution business. Our concrete tie business reported reduced sales of approximately $2.8 million due to a large return from the UPRR.

There were two overriding causes of the decrease in our Rail Products gross profit in the 2009 second quarter. The first was a net unfavorable charge to gross profit of approximately $2.6 million in connection with the product return by the UPRR at our Grand Island, NE facility. The second cause was associated with the in track failures of our prestressed concrete railroad ties produced at our Grand Island, NE facility first identified in the first quarter of 2009. During the second quarter of 2009, we recognized an additional $1.1 million concrete tie warranty expense associated with the review completed by L.B. Foster Company and the UPRR over the impacted ties. In addition to these concrete tie related matters, our Spokane, WA facility experienced margin contraction from the lower sales of higher margin concrete turnout ties.

Construction Products

		Three Months Ended												Percent
		June 30,								Increase/(Decrease)				Increase/(Decrease)
		2009				2008				2009 vs. 2008				2009 vs. 2008
		Dollars in thousands
Net Sales		$	44,473			$	60,039			$	(15,566	)			-25.9	%
Gross Profit		$	8,128			$	12,491			$	(4,363	)			-34.9	%
Gross Profit Percentage			18.3	%			20.8	%			-2.5	%			-12.2	%

Second Quarter 2009 Compared to Second Quarter 2008

Reduced demand caused by the nationwide softening in heavy civil and public works construction markets led to significant reductions in sales volumes across all of our piling products, with the nominal exception of our lower margin H-beam piling. This reduction in piling sales, which caused the decrease in our Construction Products segment, was partially mitigated by an increase in our fabricated products division. This increase can be attributed to growth in bridge market activity compared to the prior year period.

All of the divisions within this segment experienced gross profit margin compression during the current quarter. The driver of this decline was our piling division which, in addition to the impact of volume declines, was selling higher priced inventory in a declining price environment.

Tubular Products

		Three Months Ended												Percent
		June 30,								Increase/(Decrease)				Increase/(Decrease)
		2009				2008				2009 vs. 2008				2009 vs. 2008
		Dollars in thousands
Net Sales		$	5,009			$	8,951			$	(3,942	)			-44.0	%
Gross Profit		$	619			$	2,384			$	(1,765	)			-74.0	%
Gross Profit Percentage			12.4	%			26.6	%			-14.3	%			-53.6	%

Second Quarter 2009 Compared to Second Quarter 2008

Continued softness in the energy markets served by our Tubular Products segment have caused downward pressures on demand and pricing which have reduced both our sales volumes as well as our profitability.

Additionally, reductions in pipe pricing and increased unfavorable manufacturing variances have had significant, adverse affects to the gross profit margins in our threaded products division.

Year-to-date Results of Operations

		Six Months Ended								Percent of Total Net Revenues								Percent
		June 30,								Period Ended June 30,								Increase/(Decrease)
		2009				2008				2009				2008				2009 vs. 2008
		Dollars in thousands
Net Sales:
Rail Products		$	98,655			$	107,034				51.5	%			47.9	%			(7.8	)%
Construction Products			80,560				100,025				42.1				44.8				(19.5	)
Tubular Products			12,300				16,215				6.4				7.3				(24.1	)
Total Net Sales		$	191,515			$	223,274				100.0	%			100.0	%			(14.2	)%

		Six Months Ended								Gross Profit Percentage								Percent
		June 30,								Period Ended June 30,								Increase/(Decrease)
		2009				2008				2009				2008				2009 vs. 2008
		Dollars in thousands
Gross Profit:
Rail Products		$	7,462			$	16,962				7.6	%			15.8	%			(56.0	)%
Construction Products			15,377				20,148				19.1				20.1				(23.7	)
Tubular Products			2,633				3,911				21.4				24.1				(32.7	)
LIFO Credit (Expense)			1,757				(2,763	)			0.9				(1.2	)			163.6
Other			(715	)			(752	)			(0.4	)			(0.3	)			(4.9	)
Total Gross Profit		$	26,514			$	37,506				13.8	%			16.8	%			(29.3	)%

		Six Months Ended								Percent of Total Net Revenues								Percent
		June 30,								Period Ended June 30,								Increase/(Decrease)
		2009				2008				2009				2008				2009 vs. 2008
		Dollars in thousands
Expenses:
Selling and Administrative Expenses		$	17,639			$	19,325				9.2	%			8.7	%			(8.7	)%
Interest Expense			661				1,043				0.3				0.5				(36.6	)
Gain on Sale of DM&E Investment			—				(2,022	)			—				(0.9	)				**
Gain on Sale of Houston, TX Property			—				(1,486	)			—				(0.7	)				**
Interest Income			(507	)			(1,401	)			(0.3	)			(0.6	)			(63.8	)
Other (Income) Expense			(329	)			16				(0.2	)			0.0					**
Total Expenses			17,464				15,475				9.1	%			6.9	%			12.9	%
Income Before Income Taxes			9,050				22,031				4.7	%			9.9	%			(58.9	)%
Income Tax Expense			3,379				8,068				1.8				3.6				(58.1	)
Net Income		$	5,671			$	13,963				3.0	%			6.3	%			(59.4	)%

First Six Months of 2009 Compared to First Six Months of 2008 – Company Analysis

Net income for the first six months of 2009 was $0.55 per diluted share which compares to net income for the first six months of 2008 of $1.26 per diluted share. Included in net income for the prior year period were pre-tax gains from the receipt of escrow proceeds related to the sale of our investment in the DM&E Railroad ($2.0 million) and the sale-leaseback of our Houston, TX facility ($1.5 million). Excluding these gains, net income for the prior year period was $1.06 per diluted share.

Our gross profit margin includes our current estimate of the impact of the LIFO method of accounting for inventory. Due principally to declining steel prices, we currently anticipate a positive adjustment, for the full year 2009, resulting from our provision for LIFO while the prior year period included an estimated negative impact caused by inflation. Gross profit was adversely affected by the $2.7 million concrete tie warranty charge and $2.6 million of adjustments related to returned concrete ties, previously discussed in more detail in Recent Developments, which all occurred within our Rail Products segment.

As we operate in the current recessionary economic environment, we continue to control our selling and administrative costs through various cost reduction measures. Reduced outside services fees, incentive compensation and travel and entertainment expenses are the leading drivers of these decreased expenses. Interest expense decreased from the prior year period due principally to reduced borrowings and, to a lesser extent, lower interest rates. Sharply reduced interest rates resulted in reduced interest income earned on our various short-term investments during the first six months of 2009. The settlement of our foreign exchange contracts for gains and lower miscellaneous expenses increased other income over the prior year period. Income taxes in the 2009 year to date period were recorded at approximately 37.3%, an increase from the prior year period of 36.6%.

Year-to-date Results of Operations – Segment Analysis

Rail Products

		Six Months Ended												Percent
		June 30,								Increase/(Decrease)				Increase/(Decrease)
		2009				2008				2009 vs. 2008				2009 vs. 2008
		Dollars in thousands
Net Sales		$	98,655			$	107,034			$	(8,379	)			-7.8	%
Gross Profit		$	7,462			$	16,962			$	(9,500	)			-56.0	%
Gross Profit Percentage			7.6	%			15.8	%			-8.3	%			-52.3	%

First Six Months of 2009 Compared to First Six Months of 2008

Customer requested delivery delays and overall lower demand have hampered our sales of concrete ties. Specifically, our Grand Island, NE and Tucson, AZ facilities have been affected by low UPRR concrete tie purchasing levels throughout 2009. Finally, our Grand Island, NE facility was negatively impacted by below-specification raw materials that led the UPRR to reject certain concrete ties which reduced sales by approximately $2.8 million.

Rail distribution sales were up slightly for the first six months of 2009 as compared to 2008 due to a significant increase in new rail sales principally, in the first quarter, largely offset by reductions in relay rail, caused by the previously mentioned significant decline in industrial sales. Additionally offsetting these sales declines was the previously discussed strong 2009 second quarter reported by our ARP division.

The two leading causes of our reduced gross profit within our Rail Products segment relate to our Grand Island, NE facility. The first is the cumulative impact during 2009 of approximately $2.7 million in warranty charges related to in track failures of our prestressed concrete railroad ties. The second is the $2.6 million gross profit charges associated with the rejection by the UPRR of concrete railroad ties which contained below-specification raw materials. The remainder of the divisions within our Rail Products segment, with the exception of ARP and our new rail distribution business, experienced margin contraction during 2009 associated, generally, with volume declines.

Additionally, product mix and competitive pricing pressures experienced in the beginning of 2009 have reduced our transit products margins. Low scrap steel prices have adversely impacted our relay rail distribution business as it deals with high cost inventory. Our Spokane, WA tie facility continues to be impacted by the lack of higher margin sales of concrete turnouts. Partially offsetting these decreases was improvement at ARP from product mix and sales of higher margin products, while our new rail distribution’s profit margin has remained flat.

Due to the recessionary economic environment that has negatively impacted freight railroad car loadings and our expectations that Class 1 railroad capital spending will continue to be depressed, we anticipate continued weakness in our Rail Products Segment sales and gross profit.

Construction Products

		Six Months Ended												Percent
		June 30,								Increase/(Decrease)				Increase/(Decrease)
		2009				2008				2009 vs. 2008				2009 vs. 2008
		Dollars in thousands
Net Sales		$	80,560			$	100,025			$	(19,465	)			-19.5	%
Gross Profit		$	15,377			$	20,148			$	(4,771	)			-23.7	%
Gross Profit Percentage			19.1	%			20.1	%			-1.1	%			-5.2	%

First Six Months of 2009 Compared to First Six Months of 2008

Improved performance from both our fabricated products and concrete buildings divisions was entirely offset by significant sales declines at our piling division. Reduced demand caused by the nationwide softening in our heavy civil and public works construction markets led to reductions in sales volumes and pricing across most of our piling product offerings. Strong bridge activity drove the sales increases within our fabricated products division while increased new orders and unit installations provided growth within our concrete buildings division.

In addition to the impact of volume declines within certain aspects of our piling division, selling higher priced inventory in a declining price environment also contributed to the reduction in our Construction Products gross profit margin. Volume related gross profit margin increases from our concrete buildings partially offset these decreases. Our fabricated products division has maintained consistent gross profit results.

The heavy civil and public works construction markets that we participate in remain soft nationwide and have led to a substantial reduction in bookings and backlog. However, we are beginning to see areas of opportunity generated from the recently signed American Recovery and Reinvestment Act stimulus bill and expect further increases in activity as funding increases. However, we do not expect this activity to compensate for the shortfalls created by the economic downturn.

Tubular Products

		Six Months Ended												Percent
		June 30,								Increase/(Decrease)				Increase/(Decrease)
		2009				2008				2009 vs. 2008				2009 vs. 2008
		Dollars in thousands
Net Sales		$	12,300			$	16,215			$	(3,915	)			-24.1	%
Gross Profit		$	2,633			$	3,911			$	(1,278	)			-32.7	%
Gross Profit Percentage			21.4	%			24.1	%			-2.7	%			-11.2	%