##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 2010
 OR
 o
    
    TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
 For the transition period from  to
 Commission File Number: 000-50543
 PORTEC RAIL PRODUCTS, INC.
  West Virginia
    
    55-0755271(State or Other Jurisdiction of Incorporation or Organization)
    
    (I.R.S. Employer Identification No.)900 Old Freeport Road, Pittsburgh, Pennsylvania
    
    15238-8250(Address of Principal Executive Offices)
    
    (Zip Code)
 (412) 782-6000  (Registrants Telephone Number)
 (Former Name, Former Address and Former Fiscal Year, if changed since last report)
 þ o
 o o
  Large Accelerated Filer o
    
    Accelerated Filer o
    
    Non-Accelerated Filer o
    
    Smaller Reporting Company þ(Do
not check if a smaller reporting Company)
 o þ




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##### 



PORTEC RAIL PRODUCTS, INC.
 INDEX TO FORM 10-Q
 ItemNumber
    
    
    
    Page NumberPART I  FINANCIAL INFORMATION1.
    
    Financial Statements:Condensed Consolidated Balance Sheets
March 31, 2010 (Unaudited) and December 31, 2009
    
    3Condensed Consolidated Statements of Income (Unaudited)
Three months ended March 31, 2010 and 2009
    
    4Condensed Consolidated Statements of Cash Flows (Unaudited)
Three months ended March 31, 2010 and 2009
    
    5Notes to Condensed Consolidated Financial Statements (Unaudited)
    
    62.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    203.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    294.
    
    Controls and Procedures
    
    29PART II  OTHER INFORMATION1.
    
    Legal Proceedings
    
    301A.
    
    Risk Factors
    
    312.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    313.
    
    Defaults Upon Senior Securities
    
    324.
    
    Other Information
    
    325.
    
    Exhibits
    
    32Signatures
    
    33EX-31.1EX-31.2EX-32
  2




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 Portec
Rail Products, Inc.
 
 Condensed Consolidated Balance Sheets
 March 31
    
    
    December 312010
    
    
    2009(Unaudited)
    
    
    (Audited)(In Thousands)AssetsCurrent assetsCash and cash equivalents
    
    $
    12,021
    
    
    $
    14,279Accounts receivable, net
    
    
    15,843
    
    
    
    10,667Inventories, net
    
    
    23,564
    
    
    
    21,538Prepaid expenses and other current assets
    
    
    2,534
    
    
    
    1,623Deferred income taxes
    
    
    68
    
    
    
    160Total current assets
    
    $
    54,030
    
    
    $
    48,267Property, plant and equipment, net of
accumulated depreciation of $14,404 and
$13,938 at March 31, 2010 and December 31,
2009, respectively
    
    
    10,132
    
    
    
    10,260Intangible assets, net of accumulated
amortization of $5,555 and $5,171 at March
31, 2010 and December 31, 2009, respectively
    
    
    28,444
    
    
    
    28,507Goodwill
    
    
    14,454
    
    
    
    14,463Other assets
    
    
    1,126
    
    
    
    1,045Total assets
    
    $
    108,186
    
    
    $
    102,542Liabilities and Shareholders EquityCurrent liabilitiesCurrent maturities of long-term debt
    
    $
    9,849
    
    
    $
    8,086Accounts payable
    
    
    8,972
    
    
    
    4,940Accrued income taxes
    
    
    629
    
    
    
    618Customer deposits
    
    
    663
    
    
    
    873Accrued compensation
    
    
    1,117
    
    
    
    2,424Other accrued liabilities
    
    
    3,048
    
    
    
    2,216Total current liabilities
    
    
    24,278
    
    
    
    19,157Long-term debt, less current maturities
    
    
    1,889
    
    
    
    2,667Deferred income taxes
    
    
    10,651
    
    
    
    10,070Accrued pension costs
    
    
    3,775
    
    
    
    3,809Other long-term liabilities
    
    
    1,212
    
    
    
    1,091Total liabilities
    
    
    41,805
    
    
    
    36,794Commitments and Contingencies
    
    
    
    
    
    
    Shareholders equity:Common stock, $1 par value, 50,000,000
shares authorized, 9,602,029 shares
issued and outstanding at March 31, 2010
and December 31, 2009
    
    
    9,602
    
    
    
    9,602Additional paid-in capital
    
    
    25,573
    
    
    
    25,547Retained earnings
    
    
    33,017
    
    
    
    33,136Accumulated other comprehensive loss
    
    
    (1,811
    )
    
    
    (2,537
    )Total shareholders equity
    
    
    66,381
    
    
    
    65,748Total liabilities and shareholders equity
    
    $
    108,186
    
    
    $
    102,542
 See Notes to Condensed Consolidated Financial Statements
 3




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##### Table of Contents



Portec
Rail Products, Inc.
 
 Condensed Consolidated Statements of Income
(Unaudited)
 Three Months EndedMarch 312010
    
    
    2009(Dollars in Thousands,Except Per Share Data)Net sales
    
    $
    23,327
    
    
    $
    22,164Cost of sales
    
    
    14,828
    
    
    
    14,891Gross profit
    
    
    8,499
    
    
    
    7,273Selling, general and administrative
    
    
    6,909
    
    
    
    5,380Amortization expense
    
    
    310
    
    
    
    253Operating income
    
    
    1,280
    
    
    
    1,640Interest expense
    
    
    64
    
    
    
    74Other expense, net
    
    
    473
    
    
    
    15Income before income taxes
    
    
    743
    
    
    
    1,551Provision for income taxes
    
    
    286
    
    
    
    415Net income
    
    $
    457
    
    
    $
    1,136Earnings per
shareBasic and diluted
    
    $
    0.05
    
    
    $
    0.12Weighted average shares outstandingBasic
    
    
    9,602,029
    
    
    
    9,602,029Diluted
    
    
    9,609,267
    
    
    
    9,602,029Dividends per share
    
    $
    0.06
    
    
    $
    0.06
 See Notes to Condensed Consolidated Financial Statements
 4




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##### Table of Contents



Portec
Rail Products, Inc.
 
 Condensed Consolidated Statements of Cash Flows
(Unaudited)
 Three Months EndedMarch 312010
    
    
    2009(In Thousands)Operating ActivitiesNet income
    
    $
    457
    
    
    $
    1,136Adjustments to reconcile net income to net cash
provided by operating activities:Depreciation expense
    
    
    437
    
    
    
    435Amortization expense
    
    
    310
    
    
    
    253Provision for doubtful accounts
    
    
    15
    
    
    
    14Deferred income taxes
    
    
    177
    
    
    
    63Pension expense
    
    
    71
    
    
    
    49Pension contributions
    
    
    (40
    )
    
    
    (39
    )Loss on sale of fixed assets
    
    
    8
    
    
    
    1Stock based compensation expense
    
    
    26
    
    
    
    26Changes in operating assets and liabilities:Accounts receivable
    
    
    (5,221
    )
    
    
    281Inventories
    
    
    (1,901
    )
    
    
    (1,606
    )Prepaid expenses and other current assets
    
    
    (661
    )
    
    
    (1,397
    )Accounts payable
    
    
    3,978
    
    
    
    265Income taxes payable
    
    
    (344
    )
    
    
    (267
    )Accrued expenses
    
    
    (559
    )
    
    
    (2,080
    )Net cash used in operating activities
    
    
    (3,247
    )
    
    
    (2,866
    )Investing ActivitiesPurchase of property, plant and equipment
    
    
    (157
    )
    
    
    (234
    )Proceeds from sale of assets
    
    
    2
    
    
    
    Contingent consideration  business acquisition
    
    
    
    
    
    
    (35
    )Net cash used in investing activities
    
    
    (155
    )
    
    
    (269
    )Financing ActivitiesNet increase in working capital facilities
    
    
    2,000
    
    
    
    3,970Book overdrafts
    
    
    205
    
    
    
    (327
    )Principal payments on promissory notes
    
    
    
    
    
    
    (280
    )Proceeds from term loans
    
    
    
    
    
    
    300Principal payments on term loans
    
    
    (990
    )
    
    
    (688
    )Cash dividends paid to shareholders
    
    
    (576
    )
    
    
    (576
    )Net cash provided by financing activities
    
    
    639
    
    
    
    2,399Effect of exchange rate changes on cash and cash equivalents
    
    
    505
    
    
    
    (300
    )Decrease in cash and cash equivalents
    
    
    (2,258
    )
    
    
    (1,036
    )Cash and cash equivalents at beginning of period
    
    
    14,279
    
    
    
    5,371Cash and cash equivalents at end of period
    
    $
    12,021
    
    
    $
    4,335Supplemental Disclosures of Cash Flow InformationCash paid during the period for:Interest
    
    $
    62
    
    
    $
    87Income taxes
    
    $
    480
    
    
    $
    1,062
 See Notes to Condensed Consolidated Financial Statements
 5




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##### Table of Contents



Portec
Rail Products, Inc.
 
 Notes to Condensed Consolidated Financial Statements
(Unaudited)
 Note 1: Organization
  Note 2: Basis of Presentation
  6




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##### Table of Contents



Portec Rail Products, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
 Note 3: Inventories
   March 31
    
    December 312010
    
    2009(In Thousands)Raw materials
    
    $
    8,192
    
    
    $
    9,903Work in process
    
    
    488
    
    
    
    279Finished goods
    
    
    15,367
    
    
    
    11,93124,047
    
    
    
    22,113Less reserve for slow-moving and obsolete inventory
    
    
    483
    
    
    
    575Net inventory
    
    $
    23,564
    
    
    $
    21,538
 Note 4: Long-Term Debt
  March 31
    
    December 312010
    
    2009(In Thousands)PNC Financial Credit Facility: (a)Term loan  Kelsan acquisition
    
    $
    2,442
    
    
    $
    2,966Term loan  Vulcan asset acquisition
    
    
    950
    
    
    
    1,100Revolving credit facility  United States
    
    
    6,500
    
    
    
    4,500Revolving credit facility  Canada
    
    
    
    
    
    
    United Kingdom loans: (b)Term loan  Coronet Rail acquisition
    
    
    236
    
    
    
    471Working capital facility
    
    
    
    
    
    
    Term loans  vehicles
    
    
    
    
    
    
    1Term Loan  Boone County Bank, Inc. (c)
    
    
    1,610
    
    
    
    1,71511,738
    
    
    
    10,753Less current maturities
    
    
    9,849
    
    
    
    8,086$
    1,889
    
    
    $
    2,667
  7




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##### Table of Contents



Portec Rail Products, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
   Term Loan  Kelsan Acquisition:
  Term Loan  Vulcan Asset Acquisition:
  Revolving Credit Facility  United States:
  Revolving Credit Facility  Canada:
  (b) United Kingdom Loans
 Term Loan  Coronet Rail Acquisition:
  8




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##### Table of Contents



Portec Rail Products, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
  Working Capital Facility:
   (c) Term Loan  Boone County Bank, Inc.
   Note 5: Income Taxes
  9




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##### Table of Contents



Portec Rail Products, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
 Three Months EndedMarch 312010
    
    2009(In Thousands)Balance at January 1
    
    $
    436
    
    
    $
    313Additions based on tax positions related to the current year
    
    
    50
    
    
    
    44Additions for tax positions of prior years
    
    
    87
    
    
    
    83Reductions for tax positions of prior years
    
    
    (59
    )
    
    
    (65
    )Settlements
    
    
    
    
    
    
    Balance at March 31
    
    $
    514
    
    
    $
    375
  Note 6: Retirement Plans
  Three Months EndedMarch 312010
    
    2009(In Thousands)Interest cost
    
    $
    137
    
    
    $
    144Expected return on plan assets
    
    
    (162
    )
    
    
    (162
    )Amortization of unrecognized loss
    
    
    48
    
    
    
    25Pension expense
    
    $
    23
    
    
    $
    7
  10




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##### Table of Contents



Portec Rail Products, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
  Portec Rail
    
    Conveyors
    
    Portec Rail
    
    ConveyorsPlan
    
    Plan
    
    Plan
    
    Plan2010
    
    2010
    
    2009
    
    2009(In Thousands)
    
    (In Thousands)Interest cost
    
    $
    66
    
    
    
    13
    
    
    $
    60
    
    
    
    12Expected return on plan assets
    
    
    (52
    )
    
    
    (10
    )
    
    
    (44
    )
    
    
    (8
    )Amortization of transition amount
    
    
    (12
    )
    
    
    (2
    )
    
    
    (11
    )
    
    
    (2
    )Amortization of unrecognized loss
    
    
    37
    
    
    
    8
    
    
    
    28
    
    
    
    7Pension expense
    
    $
    39
    
    
    $
    9
    
    
    $
    33
    
    
    $
    9
  Note 7: Comprehensive Income
  Three Months EndedMarch 312010
    
    2009(In Thousands)Net income
    
    $
    457
    
    
    $
    1,136Minimum pension liability adjustment, net of tax
    
    
    78
    
    
    
    59Foreign currency translation adjustments, net of tax
    
    
    647
    
    
    
    (742
    )Comprehensive income
    
    $
    1,182
    
    
    $
    453
 Note 8: Earnings Per Share
 Earnings
per Share.
 11




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##### Table of Contents



Portec Rail Products, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
  Note 9: Commitments and Contingencies
 Contractual Obligations
  Less
    
    
    
    
    
    
    
    
    
    
    Morethan 1
    
    
    1  3
    
    
    3  5
    
    
    than 5Contractual Obligations
    
    Total
    
    
    year
    
    
    years
    
    
    years
    
    
    years(In Thousands)Long-term debt obligations
    
    $
    5,238
    
    
    $
    3,349
    
    
    $
    1,434
    
    
    $
    455
    
    
    $
    Working capital facilities
    
    
    6,500
    
    
    
    6,500
    
    
    
    
    
    
    
    
    
    
    
    Operating leases (1)
    
    
    4,479
    
    
    
    1,114
    
    
    
    1,663
    
    
    
    900
    
    
    
    802Pension contributions (2)
    
    
    3,992
    
    
    
    543
    
    
    
    1,518
    
    
    
    938
    
    
    
    993Purchase obligations
    
    
    3,731
    
    
    
    3,731
    
    
    
    
    
    
    
    
    
    
    
    Future interest payments (3)
    
    
    138
    
    
    
    69
    
    
    
    61
    
    
    
    8
    
    
    
    Total contractual obligations (4)
    
    $
    24,078
    
    
    $
    15,306
    
    
    $
    4,676
    
    
    $
    2,301
    
    
    $
    1,795
 
 (1)
    
    The majority of our future operating lease obligations are for property leases at our operating
locations. There are no unusual terms or conditions within these leases.(2)
    
    Pension plan contributions that may be required more than one year from March 31, 2010 will be
dependent upon the performance of plan assets.(3)
    
    Represents future interest payments on long-term debt obligations as of March 31, 2010.
Assumes that the interest rates on our long-term debt agreements at March 31, 2010 (See Note 4:
Long-Term Debt, Page 7) will continue for the life of the agreements.(4)
    
    As a result of adopting FASB ASC Topic 740, Income Taxesas it relates to uncertain tax
positions, we recorded an initial liability of $313,000 related to uncertain tax positions for
2007. During the first quarter 2010 and 2009, we recognized $78,000 and $62,000, respectively, of
additional liability. See Note 5: Income Taxes, Page 9. The total amount of $514,000 and $375,000
are included within other long-term liabilities on the March 31, 2010 and December 31, 2009
consolidated balance sheets. However, because of the high degree of uncertainty regarding the
timing of future cash outflows associated with uncertain tax positions, we cannot reasonably
estimate the periods of related future payments, and as such, we have excluded the uncertain tax
liability from the contractual obligations table. Contingencies
  12




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##### Table of Contents



Portec Rail Products, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
 Litigation
      13




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##### Table of Contents



Portec Rail Products, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
 Date Filed
    
    Court
    
    Plaintiff
    
    Defendants2/19/2010
    
    Circuit Court of Kanawha County, West Virginia
    
    Barbara Petkus, individually and on behalf of all others similarly situated.
    
    Portec Rail Products, Inc., Richard J. Jarosinski, Marshall T. Reynolds, John S. Cooper, Louis J. Akers, Philip E. Cline, Daniel P. Harrington, A. Michael Perry, Douglas V. Reynolds, Neal W. Scaggs, Philip Todd Shell, Kirby J. Taylor, and Thomas W. Wright2/24/2010
    
    Court of Common Pleas, Allegheny County,
Pennsylvania
    
    Everett Harper, on behalf of himself and others similarly situated.
    
    Marshall T. Reynolds, John S. Cooper, Louis J. Akers, Philip E. Cline, Daniel P. Harrington, A. Michael Perry, Douglas V. Reynolds, Neal W. Scaggs, Philip Todd Shell, Kirby J. Taylor, Thomas W. Wright, Portec Rail Products, Inc., L.B. Foster Company, and
Foster Thomas Company2/24/2010
    
    Court of Common Pleas, Allegheny County,
Pennsylvania
    
    Richard S. Gesoff
    
    Marshall T. Reynolds, John S. Cooper, Louis J. Akers, Philip E. Cline, Daniel P. Harrington, A. Michael Perry, Douglas V. Reynolds, Neal W. Scaggs, Philip Todd Shell, Kirby J. Taylor, Thomas W. Wright, Portec Rail Products, Inc., L.B. Foster Company, and
Foster Thomas Company3/02/2010
    
    Court of Common Pleas, Allegheny County,
Pennsylvania
    
    Scott Phillips, individually and on behalf of all others similarly situated.
    
    L.B. Foster Company, Marshall T. Reynolds, John S. Cooper, Louis J. Akers, Philip E. Cline, Daniel P. Harrington, A. Michael Perry, Douglas V. Reynolds, Neal W. Scaggs, Philip Todd Shell, Kirby J. Taylor, Thomas W. Wright, Portec Rail Products, Inc., and
Foster Thomas Company3/03/2010
    
    Circuit Court of Cabell County, West Virginia
    
    John Furman, individually and on behalf of all others similarly situated.
    
    Marshall T. Reynolds, John S. Cooper, Louis J. Akers, Philip E. Cline, Daniel P. Harrington, A. Michael Perry, Douglas V. Reynolds, Neal W. Scaggs, Philip Todd Shell, Kirby J. Taylor, Thomas W. Wright, Portec Rail Products, Inc., L.B. Foster Company, and
Foster Thomas Company
  14




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##### Table of Contents



Portec Rail Products, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
 In re Portec Rail Products, Inc. Shareholders Litigation,
   Note 10: Segment Information
  Three Months EndedMarch 312010
    
    2009(In Thousands)External SalesRMP
    
    $
    10,608
    
    
    $
    10,657SSD
    
    
    1,910
    
    
    
    1,263Canada
    
    
    6,798
    
    
    
    5,837United Kingdom
    
    
    4,011
    
    
    
    4,407Total
    
    $
    23,327
    
    
    $
    22,164Intersegment SalesRMP
    
    $
    393
    
    
    $
    516SSD
    
    
    
    
    
    
    Canada
    
    
    2,170
    
    
    
    1,548United Kingdom
    
    
    9
    
    
    
    Total
    
    $
    2,572
    
    
    $
    2,064
 15




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##### Table of Contents



Portec Rail Products, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
 Three Months EndedMarch 312010
    
    
    2009(In Thousands)Total SalesRMP
    
    $
    11,001
    
    
    $
    11,173SSD
    
    
    1,910
    
    
    
    1,263Canada
    
    
    8,968
    
    
    
    7,385United Kingdom
    
    
    4,020
    
    
    
    4,407Total
    
    $
    25,899
    
    
    $
    24,228Operating Income (Loss)RMP
    
    $
    1,306
    
    
    $
    1,243SSD
    
    
    241
    
    
    
    (168
    )Canada
    
    
    1,430
    
    
    
    1,307United Kingdom
    
    
    263
    
    
    
    219Corporate shared services
    
    
    (1,960
    )
    
    
    (961
    )Total
    
    
    1,280
    
    
    
    1,640Interest Expense
    
    
    64
    
    
    
    74Other Expense, net
    
    
    473
    
    
    
    15Income Before Income Taxes
    
    $
    743
    
    
    $
    1,551Depreciation ExpenseRMP
    
    $
    159
    
    
    $
    180SSD
    
    
    44
    
    
    
    48Canada
    
    
    166
    
    
    
    148United Kingdom
    
    
    45
    
    
    
    46Corporate shared services
    
    
    23
    
    
    
    13Total
    
    $
    437
    
    
    $
    435Amortization ExpenseRMP
    
    $
    14
    
    
    $
    9SSD
    
    
    58
    
    
    
    53Canada
    
    
    182
    
    
    
    146United Kingdom
    
    
    56
    
    
    
    45Total
    
    $
    310
    
    
    $
    253Capital ExpendituresRMP
    
    $
    62
    
    
    $
    39SSD
    
    
    16
    
    
    
    23Canada
    
    
    67
    
    
    
    149United Kingdom
    
    
    12
    
    
    
    18Corporate shared services
    
    
    
    
    
    
    5Total
    
    $
    157
    
    
    $
    234
 16




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##### Table of Contents



Portec Rail Products, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
 March 31
    
    
    December 312010
    
    
    2009|
    
    |Total AssetsRMP
    
    $
    39,716
    
    
    $
    37,520SSD
    
    
    7,117
    
    
    
    7,029Canada
    
    
    46,626
    
    
    
    43,514United Kingdom
    
    
    14,523
    
    
    
    14,242Corporate shared services
    
    
    204
    
    
    
    237Total
    
    $
    108,186
    
    
    $
    102,542
 Note 11: Fair Value of Financial Instruments
 Fair Value Measurements and
Disclosure
 Level 1
 Level 2 
 Level 3 
   Note 12: Recent Accounting Pronouncements
 The FASB Accounting Standards Codification
 17




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##### Table of Contents



Portec Rail Products, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
  Subsequent Events,
 Note 13: Stock Options
   Compensation 
Stock Compensation
  Stock
    
    Exercise# of
    
    Fair
    
    Price on
    
    Price per
    
    Annual
    
    
    
    
    
    
    
    
    
    ExpectedGrant
    
    Shares
    
    Value
    
    Grant
    
    Stock
    
    Dividend
    
    Risk-free
    
    Expected
    
    TermDate
    
    Granted
    
    Price
    
    Date
    
    Option
    
    Yield
    
    Rate
    
    Volatility
    
    (in years)7/02/08
    
    
    1,750
    
    
    $
    4.56
    
    
    $
    12.01
    
    
    $
    12.01
    
    
    
    2.00
    %
    
    
    4.25
    %
    
    
    36.36
    %
    
    
    7.51/30/08
    
    
    72,750
    
    
    $
    3.67
    
    
    $
    9.68
    
    
    $
    9.68
    
    
    
    2.48
    %
    
    
    4.00
    %
    
    
    38.87
    %
    
    
    7.51/16/07
    
    
    79,250
    
    
    $
    3.61
    
    
    $
    9.65
    
    
    $
    9.65
    
    
    
    2.50
    %
    
    
    4.73
    %
    
    
    39.40
    %
    
    
    6.5
 Note 14: Merger with L.B. Foster Company
  18




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##### Table of Contents



Portec Rail Products, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
  Note 15: Subsequent Events
  19




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##### Table of Contents



ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
  Cautionary Statement Relevant to Forward-looking Statements
   
    
    customer demand;
    
    competitive dynamics in the North American and worldwide railroad and railway supply
industries;
    
    capital expenditures by the railway industry in North America and worldwide;
    
    economic conditions, including changes in inflation rates or interest rates;
    
    product development and the success of new products;
    
    our ability to successfully pursue, consummate and integrate attractive acquisition
opportunities;
    
    changes in laws and regulations;
    
    the development and retention of sales representation and distribution agreements
with third parties;
    
    limited international protection of our intellectual property;
    
    the loss of key personnel;
    
    fluctuations in the cost and availability of raw materials and supplies, and any
significant disruption of supplies;
    
    foreign economic conditions, including currency rate fluctuations;
    
    political unrest in foreign markets and economic uncertainty due to terrorism or
war;
    
    exposure to pension liabilities;
    
    seasonal fluctuations in our sales;
    
    technological innovations by our competitors; and
    
    the importation of lower cost competitive products into our markets.
  20




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##### Table of Contents



Overview
      Results of Operations
 Three Months Ended March 31, 2010 compared to Three Months Ended March 31, 2009
 Net Sales.
 21




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##### Table of Contents



Cost of Goods Sold.
 Gross Profit.
 Selling, General and Administrative Expenses.
 Interest Expense.
 Other Expense.
 Provision for Income Taxes.
 Net Income.
 22




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##### Table of Contents



Business Segment Review
 Railway Maintenance Products Division  RMP .
 Three Months EndedMarch 312010
    
    
    2009(In Thousands)External sales
    
    $
    10,608
    
    
    $
    10,657Intersegment sales
    
    
    393
    
    
    
    516Operating income
    
    
    1,306
    
    
    
    1,243Sales by product line(1)Track component product
    
    $
    5,819
    
    
    $
    5,783Friction management products and services
    
    
    3,427
    
    
    
    3,424Wayside data collection and data management systems
    
    
    1,121
    
    
    
    1,433Other products and services
    
    
    634
    
    
    
    533Total product and service sales
    
    $
    11,001
    
    
    $
    11,173
 
 (1)
    
    Includes intersegment sales.  Shipping Systems Division  SSD .
 23




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##### Table of Contents



Three Months EndedMarch 312010
    
    
    2009(In Thousands)External sales
    
    $
    1,910
    
    
    $
    1,263Intersegment sales
    
    
    
    
    
    
    Operating income/(loss)
    
    
    241
    
    
    
    (168
    )Sales by product lineChain securement systems
    
    $
    1,183
    
    
    $
    527Automotive products
    
    
    639
    
    
    
    626Strap securement systems
    
    
    28
    
    
    
    53All other load securement systems
    
    
    60
    
    
    
    57Total product and service sales
    
    $
    1,910
    
    
    $
    1,263
  Portec Rail Nova Scotia Company  Canada . ® ®
 Three Months EndedMarch 312010
    
    
    2009(In Thousands,Except Translation Rate)External sales
    
    $
    6,798
    
    
    $
    5,837Intersegment sales
    
    
    2,170
    
    
    
    1,548Operating income
    
    
    1,430
    
    
    
    1,307Average translation rate of Canadian dollar to U.S. dollar.
    
    
    0.9567
    
    
    
    0.7982Sales by product line(1)Track component products
    
    $
    3,260
    
    
    $
    3,285Friction management products and services
    
    
    5,518
    
    
    
    3,885Other products and services
    
    
    190
    
    
    
    215Total product and service sales
    
    $
    8,968
    
    
    $
    7,385
 
 (1)
    
    Includes intersegment sales.  24




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##### Table of Contents



Portec
Rail Products (UK) Ltd.  United Kingdom .
 Three Months EndedMarch 312010
    
    
    2009(In Thousands, Except Translation Rate)External sales
    
    $
    4,011
    
    
    $
    4,407Intersegment sales
    
    
    9
    
    
    
    Operating income
    
    
    263
    
    
    
    219Average translation rate of British pound sterling to U.S. dollar
    
    
    1.5468
    
    
    
    1.4385Sales by product line(1)Material handling products
    
    $
    1,254
    
    
    $
    1,511Friction management products and services
    
    
    1,736
    
    
    
    2,240Track component products
    
    
    1,030
    
    
    
    656Total product and service sales
    
    $
    4,020
    
    
    $
    4,407
 
 (1)
    
    Includes intersegment sales  Liquidity and Capital Resources
  Cash Flow Analysis .
 25




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##### Table of Contents



Financial Condition
    Discussion of Critical Accounting Policies
  26




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##### Table of Contents



Revenue Recognition.
   Allowances for Doubtful Accounts.
  Inventories.
 Goodwill and Other Intangible Assets. Intangibles, Goodwill and Other
 27




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##### Table of Contents



Accounting for Impairment or Disposal of Long-Lived Assets.
  Warranty Reserves.
 Retirement Benefit Plans. Compensation  Retirement Benefits.
   Income Taxes.
 28




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##### Table of Contents



Income Taxes
 
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
   
 ITEM 4. CONTROLS AND PROCEDURES
  29




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##### Table of Contents



PART
II  OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
      Date Filed
    
    Court
    
    Plaintiff
    
    Defendants2/19/2010
    
    Circuit Court of
Kanawha County,
West Virginia
    
    Barbara Petkus,
individually and on
behalf of all
others similarly
situated.
    
    Portec Rail
Products, Inc.,
Richard J.
Jarosinski,
Marshall T.
Reynolds, John S.
Cooper, Louis J.
Akers, Philip E.
Cline, Daniel P.
Harrington, A.
Michael Perry,
Douglas V.
Reynolds, Neal W.
Scaggs, Philip Todd
Shell, Kirby J.
Taylor, and Thomas
W. Wright2/24/2010
    
    Court of Common
Pleas, Allegheny
County,
    
    Everett Harper, on
behalf of himself
and others
    
    Marshall T.
Reynolds, John S.
Cooper, Louis J.
Akers, Philip E.
Cline, Daniel P.
Harrington, A.
 30




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##### Table of Contents



Date Filed
    
    Court
    
    Plaintiff
    
    DefendantsPennsylvania
    
    similarly situated.
    
    Michael Perry,
Douglas V.
Reynolds, Neal W.
Scaggs, Philip Todd
Shell, Kirby J.
Taylor, Thomas W.
Wright, Portec Rail
Products, Inc.,
L.B. Foster
Company, and Foster
Thomas Company2/24/2010
    
    Court of Common
Pleas, Allegheny
County,
Pennsylvania
    
    Richard S. Gesoff
    
    Marshall T.
Reynolds, John S.
Cooper, Louis J.
Akers, Philip E.
Cline, Daniel P.
Harrington, A.
Michael Perry,
Douglas V.
Reynolds, Neal W.
Scaggs, Philip Todd
Shell, Kirby J.
Taylor, Thomas W.
Wright, Portec Rail
Products, Inc.,
L.B. Foster
Company, and Foster
Thomas Company3/02/2010
    
    Court of Common
Pleas, Allegheny
County,
Pennsylvania
    
    Scott Phillips,
individually and on
behalf of all
others similarly
situated.
    
    L.B. Foster
Company, Marshall
T. Reynolds, John
S. Cooper, Louis J.
Akers, Philip E.
Cline, Daniel P.
Harrington, A.
Michael Perry,
Douglas V.
Reynolds, Neal W.
Scaggs, Philip Todd
Shell, Kirby J.
Taylor, Thomas W.
Wright, Portec Rail
Products, Inc., and
Foster Thomas
Company3/03/2010
    
    Circuit Court of
Cabell County, West
Virginia
    
    John Furman,
individually and on
behalf of all
others similarly
situated.
    
    Marshall T.
Reynolds, John S.
Cooper, Louis J.
Akers, Philip E.
Cline, Daniel P.
Harrington, A.
Michael Perry,
Douglas V.
Reynolds, Neal W.
Scaggs, Philip Todd
Shell, Kirby J.
Taylor, Thomas W.
Wright, Portec Rail
Products, Inc.,
L.B. Foster
Company, and Foster
Thomas Company
  In re Portec Rail Products, Inc. Shareholders Litigation
  
 ITEM 1A. RISK FACTORS
  
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  31




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##### Table of Contents



ITEM 3. DEFAULTS UPON SENIOR SECURITIES
  
 ITEM 4. OTHER INFORMATION
  
 ITEM 5. EXHIBITS
  31.1
    
    Certification of Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 200231.2
    
    Certification of Chief Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 200232
    
    Certification of Chief Executive Officer and Chief
Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
 32




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##### Table of Contents



SIGNATURES
  PORTEC RAIL PRODUCTS, INC.Date: May 7, 2010
    By:
    /s/ Richard J. JarosinskiRichard J. Jarosinski,President and Chief Executive Officer and
Principal Executive OfficerDate: May 7, 2010
    By:
    /s/ John N. PesarsickJohn N. Pesarsick,Chief Financial Officer and
Principal Accounting Officer 33




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##### Table of Contents



EXHIBIT INDEX
 31.1
    
    Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 200231.2
    
    Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of
200232
    
    Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906
of the Sarbanes-Oxley Act of 2002
 34