L B Foster Co (FSTR) 2012 Q2 法說會逐字稿

Welcome to the L.B. Foster second-quarter 2012 earnings conference call. My name is Monica and I will be your operator for today's call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session. Please note that this conference is being recorded. I'll now turn the call over to David Russo, Chief Financial Officer. Mr. Russo, you may begin.

Thank you, Monica. Good morning, ladies and gentlemen. Thank you for joining us for L.B. Foster Company's earnings conference call to review the Company's second-quarter 2012 operating results. My name is David Russo and I am the Chief Financial Officer of L.B. Foster. Hosting the call today is Mr. Robert Bauer, L.B. Foster's President and CEO.

This morning, Bob will provide an overview of the Company's second performance, give an update on critical business issues and discuss market conditions. Afterward, I will review the Company's second-quarter financial performance and then, we will open up the sessions for questions.

Means to access this conference call via webcast were disclosed in our earnings press release and were posted on the L.B. Foster Company website under the Investor Relations page. This webcast will be archived and available for several days. During today's call, our commentary and responses to your questions may contain forward-looking statements including items such as the Company's outlook for 2012 and beyond, our thoughts regarding the concrete tie product claim, cash flows, margins and capital expenditures. These statements involve a number of risks and uncertainties that could cause actual results to differ materially.

These forward-looking statements reflect our opinions only as of the date of this presentation and we undertake no obligation to revise or publicly release the results of any revisions to these statements in light of new information or future events. All participants are encouraged to refer to L.B. Foster's Annual Report on Form 10-K for the year ended December 31, 2011, as well as to other documents filed with the Securities and Exchange Commission for additional information about L.B. Foster and to learn more about the risk factors that may affect our results.

Additionally, while forward-looking statements will be made today L.B. Foster does not provide significant earnings guidance. With that, we will commence our discussion and I will turn it over to Bob Bauer.

Thank you, Dave, and good morning, everyone. Thank you for joining us today. Today's discussion may take some extra time as we explain details of our financial results which include a $19 million charge for replacement of concrete ties that are largely in Union Pacific installations. At the same time we will review the underlying performance of the business, which was pretty good. So while we have reported a loss for the quarter of $0.31 a share which was driven by this charge, the underlying business was operating at $0.87 a share and we will provide as much detail for you as possible to help you understand that.

We also had record order entry this quarter, $212 million, which brought the backlog up to $255 million. So all in all, it was a pretty good quarter.

What I want to do to begin with is talk about the Union Pacific claim and the warranty charge and get that out of the way first, and then we'll go into some of the underlying business performance. We have been attempting to understand the concerns surrounding field liability of our Grand Island concrete ties for some time now. The ties in question are those made in our Grand Island, Nebraska facility which we closed in early 2011.

I want to be clear that our current Spokane and Tucson facilities that also make concrete ties are not a part of this concern.

We made a lot of progress in the last quarter studying this with the benefit of one more thorough field inspection, more samples for the lab. We had deeper forensic analysis that took place which involved a partner research firm that we have had working with us to help understand this problem. Also, some manufacturing data that we have been able to dig through that has helped uncover conditions that can lead to premature tie failure. So it is now more clear to us that some of our Grand Island product is not living up to our expectations or our customers' expectations and we must correct the situation.

Union Pacific does have the majority of the ties in question. In many ways, I am pleased with the fact that we have identified the source of the problem and can quantify it and I think I can say we have our arms around it. On the other hand, a $19 million charge is a big charge and we are not pleased with the fact that we have to report a loss this quarter as a result of that. But let me go on to share some additional information with you about what we have recently learned.

Ties manufactured in our Grand Island, Nebraska factory between 2006 and 2007 make up the majority of those failing prematurely. The failure mode stems from process conditions under which a tie can lose its structural integrity in the field. There's a lot of chemistry behind that. Actual inspection of ties in track and the deeper forensic analysis I referred to a minute ago helped us uncover these findings in just this latest quarter. We have identified the source of the problem and therefore believe we can approximate the number of ties affected and what we need to do to correct this problem in the field. And finally, while we have not completed all the details of how to correct the field situation at each customer site, we believe we can estimate the expense required to put this issue behind us.

So, our current situation, and our estimate of the costs and our current proposals for corrective action is what has resulted in the $19 million charge. While we would like to bring closure to this matter today, we still have some details to sort out with customers, particularly Union Pacific, which could affect the final outcome. But the management team here is committed to looking out for the best interest of our shareholders and therefore resolving this matter in an addition and effective way and, of course, we are also looking out for the best interest of our customers as well.

And I do want to add before closing my remarks on this situation that our Board of Directors was deeply involved in this decision-making. They are deeply concerned about our shareholders as well as our customers and for the L.B. Foster business in general and I want to thank them for their support and guidance along the way in helping us move to this point.

What I would like to do now is turn my attention to business performance. I am sure there will be some additional questions that you will have for me and/or Dave regarding the charge and the warranty claim as we close, so we will address those then. But with regard to business performance, excluding this charge, our earnings per share would have been $0.87 and gross profit margins would have improved to 19.2%. So both of these are better than Q2 of last year, especially gross profit margins, and I think have certainly led us to conclude that it was a pretty good quarter in our underlying business. We have two businesses, the Rail and Tubular business, which are really having a great year which is helping offset weakness in the Construction segment. So, overall sales were $165 million, down 3.8% as we reported, driven by the fact that Construction was 32% lower than prior year but while our Rail business was up 14% and Tubular up 44%. Nearly all divisions of the Rail business were up by double-digit growth rates including our distribution business, for new rail, our Allegany rail products business, CXT ties. In a number of areas we really had a good quarter.

Spending among the railroads remained at attractive levels as I am sure many of you have seen out there. They continue to report solid results for their businesses. And our Tubular business continues to reflect the strength of the energy markets, oil and gas as well as the agricultural market, each of which are pretty strong.

So, we also had record bookings of $212 million in the quarter. This was a real milestone. It wouldn't be possible without some really big orders of course and you may have seen the news that we published on winning the Honolulu Rapid Transit Authority project. That was a $60 million order, the largest order in the history of the Company. We have got just about every rail product that we distribute or make on that particular project and we will look forward to working on that over the course of the coming few quarters and into 2013.

We also won some other really nice projects, one from Amtrak, a couple in our coated products business. So it was a really good quarter from a standpoint of big project wins.

So our backlog is now at $255 million. That is up 33% from last year, up $55 million from just the last quarter so it is a pretty good position for us to be in. I would say that the second half of the year we will certainly benefit from this. So we feel pretty good about that.

Keep in mind that our reported numbers have been adjusted for continuing operations to reflect the sale of our SSD business, which did take place here in the second quarter. We sold that business to Holland. It is a much better strategic fit with that company than it is with ours, which is really good for the business. It is good for the employees. That is the reason that we decided to divest it and Dave, in his comments, will cover the gain on the sale, which is also reported in our Q2 numbers.

Specifically about each of the segments, the rail business as I said, sales were up 14.1% benefiting from continued strength in capital projects as well as maintenance that is taking place in all of the rail markets that we serve. In this quarter the transit market has contributed significantly to our backlog, both in rail fasteners and concrete ties. Again we won just about every product that we make on the one Honolulu project. Activity with our core rail distribution business and insulated joint products was very good.

Our backlog and concrete ties for our two facilities remains very strong. In fact, that backlog goes out into the last quarter of this year. So, that business is also doing very well this year.

With regard to margins, the charge for concrete ties negatively impacted rail margins this quarter which is reflected in the 1.8% gross profit that you see for the quarter. However, the underlying performance of our product lines is good and when you exclude the charge it's considerably better than prior year, we do have some minor dilution from our distribution business in rail because it is doing very well this year. We are winning some nice projects there, but it is one of our lower margin products. So we could get some unfavorable mix from that. But we also get some nice leverage from the growth in that business this year.

Construction is the area that has remained soft, as we had expected, largely driven by our core piling business. The news that we continued to hear was project delays, but as we do look out into the next quarter, the Q3 forecast looks better. I think our year-over-year comparisons in the coming quarter will be much better than what we are reporting this quarter being down 32%. So I'm pretty certain we will see some improvement in that area as we look forward to the third quarter.

And despite the challenges in the market, we were able to keep our gross margins close to prior year levels. We will see some deleverage in this business as the pretax lines -- or at the pretax lines due to the significant volume decline, but I am happy that we have been able to keep our gross margin levels up while we have been seeing some significant volume reduction.

The Tubular product business again had another great quarter, sales up 44%. The demand in oil and gas markets winning projects in shale gas applications for coated products is extremely strong. We have been able to respond to the increase in demand with existing capacity. We have added additional shifts in our factory to handle the strength in the market and I believe the market will have some strength for the sustainable future. But as I mentioned last quarter, I am sure this growth rate will begin to moderate. Of course, this quarter is lower than last quarter, both in the high double digits, and I am sure this will begin to moderate here as you look at this over the long run.

The threaded products business, which mainly serves these agriculture industry turned in another good quarter as well. We are fully operational now in our Magnolia, Texas facility. And our joint venture which is also in Magnolia for coupling products continues to add value for both the agriculture and the oil country tubular goods markets. So as in the prior quarter, this sales increase brought in some nice margin leverage and with it GP came in at 29%. So again our tubular business is really having a good year.

So all in all, we generated $5.8 million of cash from continuing operations in the quarter. We netted approximately $8.6 million from the sale of our SSD business. So the underlying performance in this quarter, I can say that we are very happy with. We are happy with the fact that we are making some progress with the warranty claim that we have talked about now for a few quarters. So again I am sure there will be some questions on that as we move to the Q&A session.

I want to thank our employees for their efforts in delivering another great quarter for us and the numerous projects underway that are benefiting the Company.

So with that, I am going to go ahead and turn it back over to David Russo and he will take you through some of the more of the specifics on our financial results before we get to the Q&A session. So, David.

Thank you, Bob. I believe our second-quarter 2012 can be summed up by three primary items, the first certainly being the update and the movement on the product warranty claim. Second, being that save for that warranty charge that we did record, the Company really turned in a strong second-quarter performance which includes not only solid financial results but also the tremendous amount of new business that we booked in this quarter. And lastly as Bob had mentioned we sold our railway loads securement Shipping Systems Division during the second quarter of 2012.

The product claim, the status of the claim, we have been discussing this since our second-quarter 2011 release and the status changed this quarter as a result, as Bob mentioned, much of the testing that had been in process has been largely completed. Our material scientists that were working with us -- and we spent a lot of time this quarter on track -- enabled us to better understand what has been occurring and identify the primary problem with some of the Grand Island manufactured ties and then certainly being able to quantify the estimated extent of that problem.

These developments have led us to record a $19 million charge that Bob referred to in this quarter. While this is our best estimate of what we believe is a fair approach to settling certain pending claims, none of the claims are yet settled. So while we will endeavor to answer some of your questions during the Q&A session today, there may be some questions that we just won't be able to answer due to the pending nature of any potential resolutions. And since this charge is included in our operating results, it will be included in my discussion unless otherwise indicated.

I should note, however, that in our earnings press release this morning we did provide certain non-GAAP information that we believe would be helpful to the readers to just do an apples to apples comparison to last year's second quarter, primarily with regard to gross profit margins as well as income and some income in EPS numbers without the charges actually in both periods.

So, sales for the second quarter of 2012 were $164.9 million, a 3.8% decrease from the prior year. The sales decline was due to a 32% decline in construction product sales partially offset by 14% increase in rail product sales and a 44% increase in tubular product sales. The rail sales improvement was principally due to a 21% increase in rail distribution, 26% improvement in concrete ties sales and a 17% increase in our sales of insulated bonded joints.

The Tubular product sales increase was due to sales increases in both our coated as well as our threaded products division, and they were driven both by volume as well as pricing increases. The construction products sales decrease was principally due to a decline in sales of piling products and to a lesser extent sales reductions in our concrete buildings and Fabricated Products divisions in the second quarter.

As mentioned in our release, backlog stood at $255.3 million at the end of June, up $55.5 million from March of 2012 and 34.4% higher than June of last year. This year-over-year improvement was due principally to an 82% increase in Rail segment backlog and a 71% increase in Tubular segment backlog, partially offset by a 23% decline in the Construction segment backlog.

The trend on bookings was extremely positive as new orders received during the second quarter increased by 69.4% compared to last year. This increase was due to record bookings in our Rail product segment which increased by 120% over the prior year quarter while the Tubular bookings increased by 52%. Construction segment bookings declined by only 3% in the second quarter compared to last year. So the rate of decline has certainly improved, and this was evident in all of the Construction segment businesses.

Heavy civil construction, a key end-use market for our Construction products segment, has experienced erratic performance throughout this year. This widely dispersed sector was up overall by 6.8% at the end of the second quarter, mostly due to the power generation market. Spending in highways and bridges was up by 4.8%, but conservation and development where our piling products have significant exposure was off by over 18%.

While Congress passed a new transportation bill this quarter which became effective on July 1, it is widely viewed as a 27-month extension of the previously expired bill at close to the same spending levels and without earmarks. Therefore, we do not anticipate any significant positive or negative impact from this new legislation as we rate it a slight positive for our markets.

Regarding our Rail business, capital spending among Class 1 railroads was stronger than expected during the second quarter as it was well above 2011 second-quarter spending. We anticipate continued year-over-year spending increases although probably at a more subdued rate than Q2.

Our Tucson tie facility is operating at high capacity for the Union Pacific railroad. As we have mentioned in the past, the Tucson supply contract with the UP expires at the end of this year and we are working to extend that agreement in coming months. In Spokane, we are producing concrete ties for transit authorities, Class 1 railroads, contractors, as well as industrial customers. We continue to see robust inquiry in bidding activity and we are close to capacity at that facility as well. Our Spokane facility reported very strong sales and profitability in the second quarter of this year and we expect that strength to continue throughout the remainder of the year.

As a percentage of this quarter's consolidated sales, Tubular accounted for 8%, Construction was 30% and Rail was 62% of sales. Gross profit margins were 7.7% in the second quarter of 2012, a decrease of 720 basis points from last year's second quarter. The decrease in margin was due entirely to the $19 million warranty charge. As mentioned in our earnings release, excluding the concrete tie-related charges incurred in the second quarter of this year as well as 2011, our second-quarter 2012 margins would have been 19.2% compared to 17.5% last year, a 170 point basis increase. So really a pretty good performance and that non-GAAP reconciliation was in today's release.

We go to cost and expenses, selling and administrative expenses increased by $600,000 or 3.6% to $16.8 million in the second quarter of this year. The increase was due to the concrete ties testing expenses as well as increased salaries and benefits. Our S&A expense represented 10.2% of sales in the second quarter as compared to 9.5% of sales last year.

As a result of the $19 million warranty charge, the Company reversed approximately $1.2 million of incentive compensation expense in the second quarter of 2012. Excluding this charge, second-quarter S&A costs would have increased by $1.8 million or 10.8%.

Turning to the balance sheet, debt at the end of second quarter was just over $700,000 compared to $2.4 million at the end of the year, which represents a $1.7 million decrease. Cash generated by continuing operating activities in Q2 was $5.8 million compared to a usage of cash last year of $5.8 million, an $11.6 million positive swing. Capital expenditures were $2.3 million for the second quarter of 2012 compared to $3.8 million in the prior year. Our year-to-date capital expenditures totaled $4.8 million this year compared to $6.6 million in the prior year.

This year's capital expenditures were for items such as our new friction management facility in Vancouver, British Columbia; our new threaded pipe facility in Magnolia, Texas, that Bob referred to; new plant and yard improvements in several different facilities; computer network and telecom equipment, and certain mobile equipment around the organization. We anticipate that the Company's full-year capital outlays will range between $8 million and $9 million this year. As in prior years we anticipate that our 2012 generation of cash from operating activities will exceed capital expenditures, debt service payments, dividends, and any share repurchases. Cash at the end of June was $77.2 million which was invested principally in AAA rated money market funds and other short-term instruments where preservation of principal and quick access to funds has been the priority.

Working capital net of cash increased by over 1 million -- just over $1 million compared to December of 2011, but decreased by $9 million compared to March of 2012.

Accounts receivables increased by $31.1 million compared to March of 2012. However, our DSO decreased by four days to 41. The reason for the increase in AR was that 51% increase in sales when you compare the last two months of the first quarter of this year to the last two months of Q2. We believe that our AR portfolio remains in very good condition.

Inventory decreased by $9.5 million during the second quarter of 2012 while accounts payable and deferred revenue increased by $12.7 million.

Looking forward, we believe that we will continue to experience a continued competitive environment in the construction markets that we participate in as only slowly improving state and local budgets and a scarcity of large projects provide headwinds in an already weak market. However, the new passage of the new transportation bill does remove a long nagging issue.

On a more positive note, solid Class 1 railroad volumes and strong financial results, as well as record levels of capital spending, bode well for our Rail segment.

And finally, we expect our Tubular segment to continue the upward trend we have experienced over the last 12 months as we have become more efficient in our new threading facility and work closely with our joint venture partner and as new natural gas sources and demands continue to grow.

That concludes my comments on the second quarter. We will now open up the session to questions. Monica?

(Operator Instructions). Brent Thielman, D.A. Davidson & Co.

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

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

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

It is because we haven't settled these that's -- we are going to hold onto that one.

Okay, that's fine. Just checking on that. And then what is the estimated timeline with respect to Union Pacific accepting or not accepting your estimates?

Your claim --?

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

Perfect. Thank you. And then if you don't mind breaking down the mix in backlog. I know you give us some numbers, but if you could just --.

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

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

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

Perfect. Thank you. I'll get back in the queue.

Robert Kosowsky, Sidoti.

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

Well, I guess what could make it go higher is if for some reason we felt like the scope of the problem was a bit larger than what we have it currently defined. We think we have our arms around that. But that is one item that could cause it to go higher. If there is for some reason as we work on closing the discussion for how these problems will be taken care of in the field, there's a lot that need to take place with regard to replacement and those conversations have not concluded with Union Pacific. So if there is some difference there that we need to sort out, that may be the other area.

But that is -- I think that what we have attempted to do here is to define the problem as well, as best we can the order of magnitude of it. We believe we have gotten to the point where we think it is sufficiently defined and understood, that what we are doing in this quarter is a pretty good representation of where we'll be.

So, just my understanding is basically you need to go back to the UP and they need to agree that you have been able to quarantine this to 2006, 2007. They need to agree with that identification of the issue and how many were subject to being faulty from that class, I guess.

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

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

There's various terms and conditions pursuant to what Bob was saying that are not ironed out yet. One of those would be over what time period would we supply these replacement ties to the UP and out of which facility, quite honestly. So, although we believe and hope that that is Tucson, there's a number of different things that as we continue to the discussions with the UP could change certain things. But right now we would expect those ties to be replaced over a reasonable period of time as we agreed to with the UP.

As far as how it affects our financial, certainly today all we did was book a charge and put a large liability on our balance sheet. As we ship that product in future periods, those shipments of product that are pursuant to the warranty agreement would -- the cost of them would just be applied to that accrual as we move along. So you won't see the sales, the income and, obviously, it will have a negative impact on cash flow when we do that.

Okay. That's helpful and thank you very much.

Thank you.

(Operator Instructions). Brent Thielman, D.A. Davidson & Co.

Hello again, it's Taryn. I was just wondering if you could modify your Amtrak product -- contract that you were awarded?

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

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

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

Perfect. Thank you so much.

[Thomas Bigley], private investor.

Congratulations on, really, an excellent quarter. Bob, I do have a question on the UP claim. I was wondering if you could shed a little light on what changed in our manufacturing processes that give you comfort that after 2007 there shouldn't be any significant defect of ties.

Well, given the investigation that has taken place and our now understanding of what is going on in these ties since that 2007 timeframe, we know there are certain changes that took place in our manufacturing process that continued to improve the controls and continued to improve upon variables that would result in better quality. I can also say that the investigations that we have done in the field in actual track that Union Pacific has, has verified that we are not coming up with much at all in the way of defects and product that is made from 2008 and later.

We have not looked at everything in that regard. But we believe we have that enough sampling that it indicates that that product looks very good to us. And we can point to and -- I'll stay away from the specifics with regard to what did change in the manufacturing facility -- but we can point to changes that were made especially through 2008. It actually started in late 2007, but through 2008, that we know made improvements to the quality of product that we were shipping.

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

I can't necessarily say it in the words that you have just indicated, for reasons that there are some ties that were shipped in 2009, 2010, 2011, for example, which are still under warranty and will -- we will be obligated to handle that warranty until it expires. That is under a five-year warranty term that existed at that point in time. So until all of that is really flushed through our system, which I guess will take you out into 2015, 2016 timeframe, it is really not completely done. But I would go as far as to say that, at this point in time, I am not very worried about that product and our ability to manage the warranty for the products manufactured during that timeframe.

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

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

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

Yes, thank you very much, Tom.

(Operator Instructions). Robert Kosowsky, Sidoti.

Just a quick question. I could be remembering it incorrectly, but I remember you having a product quality issue in 2011 or so regarding Grand Island. I was wondering how you can -- if that is remembered correctly if you can tie how you had issues in 2005, 2006 but then it was fine in 2007, 2008, 2009, 2010 and then, product quality issues stepped up again later on. Is that the right timeline?

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

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

Yes.

Just one other question on any thoughts on pricing in the construction side and the piling side and specific and whether or not you are seeing import competition come over?

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

All right. Thank you very much and good luck with the back half of the year.

Yes. Thank you.

Thanks, Rob.

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

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

Thank you, ladies and gentlemen, for participating in the L.B. Foster second-quarter 2012 earnings conference call. This concludes today's conference. You may now disconnect.