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L.B. Foster

Q4 2007 Earnings Call

January 31, 2008 1:00 pm ET

Executives

David J. Russo - Senior Vice President, Chief Financial Officer and Treasurer

Stan L. Hasselbusch - President and Chief Executive Officer

Analysts

Scott Blumenthal - Emerald Advisors

Rob Damron - 21st Century

Tom Sparrow – Sparrow Capital

Operator

Good day ladies and gentlemen, and welcome to the fourth quarter 2007 L.B. Foster earnings conference call. (Operator Instructions) I would now like to turn the presentation over to your host for today’s call, Mr. David Russo, Chief Financial Officer.

David J. Russo

Good afternoon, ladies and gentlemen, and thank you for joining us for L. B. Foster Company’s earnings conference call to review the company’s fourth quarter 2007 operating results. My name is David Russo and I am the Chief Financial Officer of L. B. Foster. Also on the call today is Mr. Stan Hasselbusch, L. B. Foster’s President and CEO, and Mr. Lee Foster, Chairman of the Board.

This morning Stan will provide an overview of the company’s fourth quarter performance, give an update on critical business issues, and discuss market conditions. Afterward I will review the earnings press release issued earlier this morning before we open up the session for questions.

Means to access this conference call via webcast, we disclosed in our earnings press release and were posted on the L. B. Foster Company website under the Investors Relations page. This webcast will be archived and available for seven days. Today’s call includes forward-looking statements and information within the meaning of the Private Securities Litigation Reform Act of 1995.

Such statements relate to future events, and expectations, and include known and unknown risks and uncertainties. Future actual results may differ greatly from these statements and expectations that are expressed today. All participants are encouraged to refer to L. B. Foster’s annual report on Form 10-K for the year-ended December 31, 2006 as well as to other documents filed with the Securities and Exchange Commission for additional information about L. B. Foster.

With that we will commence our discussion and I will turn it over to Stan Hasselbusch.

Stan L. Hasselbusch

Thank you, David, and thanks to all of you for attending our fourth quarter 2007 earnings call and webcast.

This morning we announced record earnings for both the fourth quarter and full-year for 2007. Sales in the quarter were $114 million, up 3% over the fourth quarter 2006. Net income for the quarter was $86.2 million or $7.79 per diluted share. Exclusive the gain related to the sale of the company’s investment in the DM&E railroad, earnings for the quarter were $0.81 a share, 200% ahead of the $0.27 per share earned in the fourth quarter of 2006.

David will discuss the financials in detail later, but first I’d like to talk about operational performance.

Let’s start with two-wheeler where we concluded a record year at our Birmingham coating facility. We coated over 31 million square feet of pipe last year. The square footage coated in 2007 was 35% more than the best previous at Birmingham. While we continue to see considerable current bidding activity and a robust energy/gas transmission market well into the future, we will be challenged to replicate our record breaking performance in 2007.

Just to note on this success that we have enjoyed at Birmingham, there are a number of reasons for the accomplishments that we have obtained in coated pipe recently, but none more significant than our valued relationship with Asepco. It’s a true partnership in every sense of the word, one built on trust, integrity, and teamwork, the foundation of success.

In threaded pipe, sales were also up substantially compared to 2006, 34% for the quarter and 40% for the year, as we begin to hit stride in two key strategic product objectives; micro-pile and export sales.

Rail numbers were also solid. Overall, revenues were up 15% in the quarter, with rail and CXT leading the way. Relay Rail sales were up 87% and CXT revenues were up 50%, due primarily to the contribution of the Tucson Concrete Tie facility.We expect the rail markets to remain robust as railroads continue to eliminate capacity constraints and drive operating improvements.

Because of diminished competitiveness of the highway transportation in the forms of high fuel costs, driver shortage, and highway congestions, we feel long-term fundamentals still favor railroad transportation. As a result, capital spending by the Class 1’s will remain strong, though probably not at the double-digit growth rates we’ve enjoyed over the past 5 years.

Railway Track and Structures magazine, based on a survey of maintenance of way and infrastructure capital spending by the Class 1 railroads, is expecting a year-over-year increase spending improvement of 6% in 2008. While we expect another good year overall in rail, we do have a couple of challenges to overcome that I alluded to in the earnings release this morning.

First, due primarily to an inventory excess of 400,000 ties created by construction and permit delays on the Union Pacific Sunset line, we are expecting quantities to be down by over 300,000 ties at Tucson and Grand Island combined. While this is disappointing, we have already been addressing mix design, cure times, and labor situations to help mitigate this problem. This also allows us to speed up marketing and production of a newly designed lightweight tie for industrial applications. We will have the ability to produce this tie at both our Grand Island and Tucson plants.

And second, while the divestiture of the DM&E investment has added great overall value to the company, we have essentially lost one of our best customers. Last year the DM&E accounted for over $14 million in new rail sales. The challenge to sales group is to replace this revenue with new business, since the success of the company, the Canadian Pacific Railroad, has a long history of buying directly from the producing mills.

On the construction side of our business, 2007 was also an excellent year and data we track supports our position that 2008 will be more of the same. Reconstruction service has forecasted non-residential spending will grow by 12% in 2008, on top of the 17% increase, which occurred in 2007. And is also forecast heavy civil construction spending will increase by 11% in 2008 which follows a 13% increase in 2007.

The largest segment of our construction group, Piling, had another outstanding year in 2007. Piling revenues year-over-year were up 24% in 2007. Individual segments did well additionally also. Bearing pile revenues were up 90% and pipe piling was up 57% for the year. And we continue to be pleased with our association with Gerdau Ameristeel, which at this point is equally as strong as the relationship was with its predecessor, Chaparral Steel.

Overall, as a company we are optimistic about 2008. Our fundamentals are solid, our markets are strong and our balance sheet is in excellent shape. We will see continued growth from businesses within our core competencies where there is organic development or pursuing synergistic accretive acquisition. We will compliment these efforts with an ongoing aggressive pursuit of a strategic execution and operational excellence.

I would like to publicly, both thank and congratulate the employees of L.B. Foster Company on another record-breaking performance. I would also like to assure the shareholders that the same hard-working dedicated employees will strive for continuous improvement in our performance this year. Thank you.

And now I would like to turn it to David for the financial review.

David J. Russo

Thank you, Stan. Before I began the discussion on operating results, I would like to discuss the impact that the sale of our investment in the DM&E, had on the fourth quarter and annual results.

As you are all aware, the DM&E sale closed in October. So the gain on the sale of our investment of approximately $122.9 million was reflected in our fourth quarter results. Due to the increased certainty of the timing of our dividend proceeds, we also reported $8.5 million of incremental dividend income that had previously been deferred in the third quarter of 2007. This amount was in addition to the recurring $247,000 of dividend income that we have recorded on a quarterly basis for some time now.

The estimated EPS for these transactions is as follows. In the third quarter the positive EPS impact of the incremental dividend was approximately $0.69 per diluted share. And in the fourth quarter, the EPS impact of the gain on the sale of our investment was approximately $6.98 per diluted share. In an effort to discuss the meaningful comparative results, my discussion will exclude the impact of these one-time items.

Okay. So with that said, I’ll begin. Sales for the fourth quarter of 2007 were $114 million compared to a $110.5 million in the prior year, a 3% increase which was leveraged into a 150% increase in pre-tax income, which represents a record income quarter for L. B. Foster. The sales increase was due to a 15% increase in real product sales and an 89% increase in tubular sales, offset in part by a 13% decline in construction product sales compared to last year’s fourth quarter.

Fourth quarter tubular sales increased due to growth in both coated and threaded product sales. The energy markets served by our coated division, has been robust for the past two years and we expect that strength to continue into 2008 and beyond, although we move into 2008, with a considerably lower backlog than last year. Our threaded division has reconfigured its use in facility, refurbished its critical call equipment and has entered the OCTG and micro-power markets and continues to take advantage of opportunities in the irrigation market.

The construction product sales decrease was due to decreases in piling, and concrete buildings partially offset by a slight increase in our fabricated products business. Fourth quarter rail sales increase was driven by CXT Concrete Ties, Allegheny Rail Products, and rail distribution primarily relay rail.

Concrete Tie sales were 50% ahead of last year’s fourth quarter as Grand Island volumes were strong and Tucson set a new volume record again. But as Stan has indicated, the volumes will be coming down at both of these facilities in 2008. We continue to make functional cycle time and other improvements in Tucson as well.

Total CXT Tie production for the fourth quarter, increased 45% compared to last year’s fourth quarter, while keeping in mind that Tucson just started production in the fourth quarter of last year. Excluding Tucson, Tie production increased 18% due primarily to a 21% increase at Grand Island.

In the fourth quarter, Grand Island produced approximately 50% more ties than the maximum capacity of the plant before its equipment retrofit in late 2005. Our Grand Island team turned in another outstanding performance this quarter, resulting in the highest production quarter ever while keeping efficiency high.

We did produce almost 1.1 million ties in 2007, a little more than the one million we projected on the first quarter call at the beginning of the year. Our Grand Island and Tucson facilities were fully utilized for the Union Pacific Railroad through the end of 2007.

But as Stan has mentioned that has changed effective in January and we have taken quick action to adjust for the recent decrease in volume for 2008. Unfortunately, it is with deep regret that one of those actions was to reduce the Grand Island and Tucson workforce in January of this year, to get both facilities down to one-shift operations for the most part. We’re also looking for other ways to reduce costs in these operations.

In Spokane, we continue to produce concrete ties for other class one railroads, transit authorities, contractors, and industrial customers. And we continue to experience reasonably active enquiry in bidding activity, but not quite as strong as last year. As a percentage of consolidated sales tubular accounted for 7% of sales, construction 43%, and rail is 50% of sales.

Fourth quarter results, put our annual sales at $509 million which is a 31% increase over 2006, and this as you probably remember was on top of the 20% year-over-year increased results going back to 2005.

Gross profit margins were 17.5% in the fourth quarter, an increase of 440 basis points over last year’s fourth quarter. The positive margin expansion this year compared to the prior year was due to an increase in gross profit at standard for manufacturing and other variances decreased unfavorable manufacturing variances, decreased warranty costs, and decreased LIFO costs partially offset by increased scrap and obsolescence expense.

The businesses that drove the margin improvement in the fourth quarter were Transit Products, Spokane Ties, New Rail, Tubular and Piling. The decreased unfavorable manufacturing variances were primarily achieved by Spokane Rail, Grand Island Ties, Tucson Ties, and Allegheny Rail Products. The great result in the fourth quarter put our annual gross profit margins at 15% for 2007, 180 basis points ahead of 2006.

SG&A expense increased 4% to $9.3 million in the fourth quarter of 2007, due primarily to personnel related costs including salaries and benefits. SG&A represented 8.18% of sales in the fourth quarter of 2007, as compared to 8.15% in the last year’s fourth quarter, a 30 basis point increase. For the year, SG&A was 7.4% of sales in ‘07 compared to 8.6% in 2006.

As a result of the foregoing, fourth quarter operating income was $10.9 million compared to $5.5 million in last year’s fourth quarter, a $5.4 million or 97% improvement. As a percentage of sales, operating income was 9.5% in this year’s quarter versus 5% last year.

Interest expense was $700,000 in the fourth quarter of 2007, $0.3 million less than the fourth quarter of 2006, and is also substantially improved over the first three quarters of this year on interest range from $0.9 million to $1.2 million in the first quarter of this year.

The reason for the improvement is the $41 million of cash flow generated from operations this year. To clarify, the $41 million excludes the DM&E proceeds and dividends. None of the DM&E proceeds have been used to pay down debt as of yet. Since March 31, we’ve paid down just under $35 million of debt with internally generated cash flows.

Fourth quarter pre-tax income from continuing operations was $11.3 million compared to $4.5 million in last year’s fourth quarter, a $6.8 million or 150% increase. Included in the fourth quarter pre-tax income for 2007, is approximately $1.2 million of interest income most of which is related to the DM&E proceeds. As a percentage of sales, fourth quarter 2007 pre-tax was 9.9% versus 4.1% in last year’s fourth quarter.

Fourth quarter of 2007 income tax provision was 35.8% compared to 34.1% in last year’s fourth quarter. Income from continuing operations increased 200% to $9 million or $0.81 per diluted share compared to $3 million or $0.27 per diluted share last year.

Turning to the balance sheet, debt at the end of the fourth quarter was $34.2 million compared to $58.1 million at the end of 2006. The $23.9 million decrease in debt during ‘07, was due to $41.4 million of cash generated from operations.

Capital expenditures were $1.4 million for the fourth quarter and $5.3 million for the year compared to $17 million in 2006, and $15 million in 2005. We currently expect capital expenditures to be less than $8 million in 2008. We also expect to generate positive cash flow from operating activities well in excess of that capital estimate and produce a meaningful cash flow.

Debt, as a percentage of capitalization was 14% at the end of ‘07 compared to 37% at the end of ‘06. Our leverage ratio is approximately 0.7:1, down from 2.3:1 at the end of ‘06. And our interest coverage strengthened to 12:1.

Cash at the end of ‘07 was $121.1 million and we had $114 million invested in tax free money market funds, all rated AAA.

With regard to working capital, accounts receivable and inventory, net of AP, increased by approximately $1.3 million in the fourth quarter of ‘07 and actually decreased by $1.3 million compared to the end of ‘06. Accounts receivables, decreased by $9.4 million during the quarter, which was 15%, primarily due to a 16% decrease in quarter-over-quarter sales while holding DSO steady.

DSO was 41 days at the end of the year compared to 40 days at the end of September of ‘07, and compared to 46 days at the end of last year. We believe our AR portfolio to be in excellent condition. Our bad debt expense has consistently been below 0.1% of sales.

Inventory increased $8.8 million during the fourth quarter of 2007, and this was due to increases in new rail and in piling.

In summary, we are pleased with the consistent improvement demonstrated by these fourth quarter results. We believe 2008 will be challenging, but also rich with opportunities. Those opportunities lay both internally, in the areas of process improvement, research and development, and customer focus, as well as externally with regard to market expansion and acquisitions.

And our employees have demonstrated that they can rise to any task and get the job done, and I would like to thank everyone for a very successful year in 2007 as their efforts and accomplishments are very much appreciated. That concludes my comments on the fourth quarter.

We will now open the session up to questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Scott Blumenthal - Emerald Advisors.

Scott Blumenthal - Emerald Advisors

Can you go through some of the CapEx opportunities you did mention, the $8 million and you talked about certain efficiencies that you’re going to be working on Grand Island in Tucson?

David J. Russo

Well, CapEx opportunities in 2008, there is nothing in that $8 million, Scott, there’s nothing huge. We are looking at specialized well trains to support a new rail mill in the Midwestern portion of the country and we are looking at some other projects to improve efficiency in some of our plans. And there are some IT projects on the table as well.

Stan L. Hasselbusch

As far as efficiencies at Grand Island and Tucson, as I mentioned, we are basically down the one shift at both plants. We have implemented a couple of efficiency programs, one is we’re looking at extending the cure time out to 12 to 13 hours, as opposed to less than 8 hours which we had before, which we don’t use as many additives.

We’ve also looked at the labor situation and as David alluded, I believe we have cutback between Tucson and Grand Island, a total of 56 people at this point that took place in January. So those are the measures that we’re taking in those two facilities.

Scott Blumenthal - Emerald Advisors

Since there is a bit of a buildup in the concrete rail tie inventory, are you carrying any of that? Does that show up in the inventory numbers?

David J. Russo

No, it doesn’t. Those ties are carried on the inventory by Union Pacific.

Scott Blumenthal - Emerald Advisors

And what are you hearing on the rail construction business, and can you give us an idea as to, when does the railroad get to be big enough to not go through distribution like Foster and go direct to the mills?

David J. Russo

Most of the Class 1’s, Scott, go direct to the mills. Our specialty is in the regional railroads, the short line railroads dealing with the contractors in the transit agencies, but everyone of the Class 1 railroads go directly to the mills for pricing and to service.

Scott Blumenthal - Emerald Advisors

Stan, I look at the American Road Transportation Builders Association numbers and if you looked at the last three months, the amount of contracts for new rail builds have consistently been up 100% year-over-year.

So I was wondering if you can kind of maybe, give us an idea as to what percentage of that might be some of the railroads that kind of fall into your wheelhouse, and what percentage of that might be the Class 1’s?

Stan L. Hasselbusch

Well, to begin with, that number 100% seems a little excessive. I believe that we track comps, we follow the Class 1’s, both their CapEx spending and their maintenance away spending. We’re in the transit business and we didn’t talk about that. But, the safety bill is kicking in full throttle and the transit work is also benefiting our highway work.

Some of the construction that we are seeing on the industrial side, because of some of the uncertainties with the economy, is starting to soften a little bit. I believe the last year our industrial work was more robust than what it is currently. We’re seeing kind of a slowdown in the ethanol business, which we are seeing in the Midwest. That slowed down a little bit, but overall, what we see on the industrial side of it, it is still somewhat, it is slow.

I really I haven’t seen the article or the periodical that you’re referring to, but the Class 1’s have had some really good builds out the last couple of years. We track that pretty closely. Their expectations next year, it varies from road to road, but they are still looking for a good year, 5-6% over what they spent in ‘06, ‘07.

Scott Blumenthal - Emerald Advisors

You did mention some softer outlook in the concrete tie business, tubular, and your rail distribution sales. What do you think you can do to make up for some of that through margin improvements, maybe new sales wins, customers? And, of course, eventually we’re going to have to ask the question about what you plan on doing with all of that money, in the acquisition front?

Stan L. Hasselbusch

Where would you want to start?

Scott Blumenthal - Emerald Advisors

How about maybe new sales wins, customers, the potential for that to make up for what happened with the DM&E and what’s happening in some of the softness in the other business?

David J. Russo

I think that we do have in the rail business. We are working very closely with the mills to work from the supply standpoint. And you know, across the board with the other regionals and shortline rail roads.

I did mention that we are looking at, and we have under design a new tie, which will specifically address the needs of the industrial usage. It’s a tie, which is about 175 pounds less than that traditional tie, but it will be used for the lighter weight applications.

We do have research that’s on going, where we are looking at new products particularly in the transit businesses. We are working very hard in the coding business and the threading business. In the threading business we benefited this last year with increased sales to the micro-pile business. And in export we have our new facility up in Pueblo and are looking for more additional work for the insulated bonded joints. So now we are looking at a number of new products.

Scott Blumenthal - Emerald Advisors

And how is the acquisition pipeline looking because, obviously you have a nice chunk of money, about $11 a share sitting out there, and it looks like that would be a pretty opportunity here.

David J. Russo

We have got three or four specific acquisitions that we are looking and we are not in a position to comment on that right now. But, as we have said all along we expect these acquisitions to be, as you referred to, in our wheelhouse. We are also were looking for synergies from them that we can continue to build on and in accretive companies that will benefit the income going forward.

Operator

Your next question comes from the line of Rob Damron - 21st Century.

Rob Damron - 21st Century

On this Union Pacific situation, I think you mentioned, Stan, there is an excess of 400,000 ties in their inventory and you’re expecting a reduction this year. I guess, how long do you expected to take in terms of this reduction, is it going to have a more of an impact in the first half of the year versus the second half, maybe just a little bit more color on that situation?

Stan L. Hasselbusch

Well, as I did say, let’s just take a look at the long term with this situation. We feel that this is an anomaly. We feel that they have a situation this year but every indication that we have had is that they are very bullish on the product going forward. We have had preliminary conversations with them on contracts beyond our current contract, so we hope this is an anomaly that won’t affect us.

We’re going to try to level load the plant, Rob, across the board for the year. So I don’t think there is going to be any direct impact on one quarter or one part of the year over the other. It is our intention right now.

Rob Damron - 21st Century

And then if I look at your margins certainly that is certainly, especially in Q4 but for the entire year for ‘07, I saw gross margins have a really nice improvement partially due to the better utilization of your facilities. I guess, as we look into ‘08 and what you have done with your two concrete tie facilities would you anticipate gross margins to decline slightly from the strong performances we saw in ‘07?

David J. Russo

We talked about a couple of items that are inherent in the fourth quarter margins that probably aren’t something better that are going to repeat. Certainly every quarter there is some warranty adjustments, actually negative ones in last year’s fourth quarter, and some positive adjustments in this year’s fourth quarter. So, probably a 75 to 80 basis points swing right there and a few other sort of one-timers that occurred that may amount to another 40, 50 basis points.

So, and then actually LIFO was lower this year as well and you never know where that’s going to go. But you are right; we ended the year at 15%. And we would have been safe for a couple of these areas where we see some volumes decreasing somewhat, would have been very comfortable continuing with that 15% or even pointing to some areas where we could continue to improve.

But right now, we’re going to have to see especially with Tucson and Grand Island what we can do to mitigate the impact. I mean, there is a large amount of investment and depreciation that certainly is non-cash to us now, but it certainly does impact P&L. And it will be difficult with those volumes to be able to especially in Grand Island, absorb that cost, the way they did in 2007.

But we are not here to whine, we have got other opportunities and there are the other initiatives we’ve had on the table. We’re going to get to them. Stan mentioned that other tie. We’re going to have a sales meeting next month and talk about that and we expect to have some success with that over the next couple of years. So, I would not be at all afraid to say we’re going to shoot for and hopefully achieve that 15% again this year.

Stan L. Hasselbusch

Let me just talk about what is happened. We’re disappointed, but as David said we’ve got some things that are going on, and we are going to pick up, and we’re going to go at them, and we are going to go at them full throttle. We are at hurdle that we are looking to overcome and it is not that high of a hurdle.

We’ve been challenged. And we’ve talked it for the last year and a half, about the struggles that we have had at Tucson. And we’ve had problems with mix design; we’ve had problems with permitting; we’ve had problems with construction; we’ve had problems with labor.

And at the sad part about it really is, right from an efficiency standpoint, we were right where we want to be. I mean Marc Riley and his group down there, have just done a great job overcoming some of the adversities that they’ve been faced with and that’s a disappointing part of it down there.

At Grand Island, Dave Sanders and his group up there has gotten every one of the efficiencies that we’ve asked them to come after. Whether it’s labor; whether it’s quality; whether it’ production; we’re really making a great tie there.

Those are some of the challenges but the hurdle that we have to overcome because we had such as struggle this last year and a half have done it. And that Tucson is going to have an impact, but what was disappointing to me is that we really had a chance to really pick up and grow that business this year. And we are not looking for to be down as much, but we were looking forward to be flat and the growth opportunity is just not there this year.

David J. Russo

Just the other thing, Rob, is that the ties for those two facilities are priced on a sliding scale. So the fewer ties that are sold actually the higher per tie price it is. So that will help a little bit as well.

Rob Damron - 21st Century

The severance cost for Q1, what do you anticipate that to be?

David J. Russo

It’s going to be pretty much nominal. We did our best to give focus little bit in notice but I don’t believe there is going to be anything substantial there that it will have a significant impact.

Rob Damron - 21st Century

What are the approximate rates that your cash is being invested in at this point?

David J. Russo

We are in, as I mentioned before, tax free annuities, money market annuities, and right now they are at just under 3%.

Operator

And your next question comes from the line of Scott Blumenthal of Emerald Advisors.

Scott Blumenthal - Emerald Advisors

What do you think that the tax rate is going to be for 2008?

Stan L. Hasselbusch

Yes, we are looking at right around 36%. Scott, we got pretty much used up all of our state NOLs. We’ve used up our capital loss carry-forward, so with the year we had this year all that stuff’s pretty much gone.

Scott Blumenthal - Emerald Advisors

And we do you expect SG&A for the year to be again in 7.5%, 8% of sales range?

Stan L. Hasselbusch

Yes, it should be in that range.

Operator

And your next question comes from the line of Tom Sparrow – Sparrow Capital.

Tom Sparrow – Sparrow Capital

Could you give us a little insight into the fabricated products divisions, backlogs and opportunities for business, those kinds of things?

Stan L. Hasselbusch

Yes, sure, we can talk about that. I think that we feel pretty upbeat of what we’re looking at that product, I mean, the Highway Bill is kicked in and we are starting to see more work. Our precise business at $10 million last year and we have got a nice backlog $11.2, I think at the end of the year.

And we have pretty good load on the plant. We are looking at right at about 9,000 hours per month throughout the year. Margins were up, so it is pretty good there. We don’t have as much backlog as we’d like to have at Bedford in the bridge building side of it, Tom. But we are tracking a couple of jobs that we would like to land in this quarter and if we can, we think that we are in pretty much good shape on them. They would give us a strong backlog well into 2009. But we’re pretty upbeat about that.

Tom Sparrow – Sparrow Capital

Stan, you mentioned a few moments ago, Tucson, and I just want to be sure I understood some of your comments. We have had manufacturing challenges there for some time, apart from the volume issue we face now. Have the manufacturing issues been resolved, so that if the volume is there, you can manufacture standard?

Stan L. Hasselbusch

We feel very good about Tucson and as we do with Grand Island.

Tom Sparrow – Sparrow Capital

[Inaudible] is a start up this year. Are we manufacturing standard there?

Stan L. Hasselbusch

Yes, we opened up there in the summer of ‘06. We had some start-up problems but we’ve had very good contributions from them. We are getting to build a nice backlog. I think that we got a very good accepted quality product there. We are picking up work from all of the class 1’s pretty much.

We’ve also done some work with in the bonded joint divisions of [inaudible]. So we are taking some work with some of the Eastern Roads up there, and that seems to be doing well also. So that come around the ARP overall, we are expecting some real good things from that moment on.

Tom Sparrow – Sparrow Capital

Could you give us a flavor of the conversations you had over the last few months with Gerdau, how is that the relationship developing?

Stan L. Hasselbusch

Very positive, I don’t know where you came in Tom, but I did make the comment that, we feel that our relationship with Gerdau Ameristeel is as strong it was with Chaparral and that was very good.

But a very good relationship with them, Don Foster has worked with them very closely, Gary Wheeler, the piling group. We had a meeting with them last week down at Petersburg and went through our strategic objectives for this year and through ‘09 and into ‘010, talked about some of the challenges that we have from some of the sections.

We’ve got a great complement of sections, but we are still looking for a couple areas that would really fill out our portfolio at sheet piling and we are just about there. We had a great year in piling overall last year, 24% over last year, and we expect things to proceed going forward just as well as what they were doing with Chaparral and that was a pretty high bar.

Tom Sparrow – Sparrow Capital

On the acquisitions front, is your current thinking that you would rather if possible make one big acquisition, or is your preference to feasible several smaller ones.

David J. Russo

Tom it’s really what matters more on what the company does and the fundamentals that it as opposed to size. I mean, we’ve still got a pretty wide range as far as the sales levels of the companies that we are looking at. So that’s less of an issue than a lot of other issues. But certainly you do one big one, there is more risk there and we are certainly cognizant of that.

Stan L. Hasselbusch

As David said, we are looking at all different sizes yet. You look at some of the smaller ones and there is as much work putting that together as there are the larger ones. But we look at how they are going to fit in with our company. We look at their people. I mean, as we have been able to really drive growth over the last three years, we are looking for good people that are going to add on to what we are doing internally ourselves.

Operator

At this time there are no further questions. I would now like to turn the call over to Stan Hasselbusch for closing remarks.

Stan L. Hasselbusch

Again, thanks to all of you for attending and I appreciate your support that you have given us over the years and onward towards ‘08. Thank you.

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Source: L.B. Foster Q4 2007 Earnings Call Transcript
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