##### 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 June 30, 2009
 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(Do not check if a smaller reporting
company)
    
    Smaller reporting company
þ
 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
June 30, 2009 (Unaudited) and December 31, 2008
    
    
    3Condensed Consolidated Statements of Income (Unaudited)
Three and six months ended June 30, 2009 and 2008
    
    
    4Condensed Consolidated Statements of Cash Flows (Unaudited)
Six months ended June 30, 2009 and 2008
    
    
    5Notes to Condensed Consolidated Financial Statements (Unaudited)2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    183.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    314T.
    
    Controls and Procedures
    
    
    31PART II  OTHER INFORMATION1.
    
    Legal Proceedings
    
    
    311A.
    
    Risk Factors
    
    
    322.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    323.
    
    Defaults Upon Senior Securities
    
    
    324.
    
    Submission of Matters to a Vote of Security Holders
    
    
    325.
    
    Other Information
    
    
    336.
    
    Exhibits
    
    
    33Signatures
    
    
    34EX-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
 June 30
    
    December 312009
    
    2008(Unaudited)
    
    (Audited)(In Thousands)AssetsCurrent assetsCash and cash equivalents
    
    $
    7,199
    
    
    $
    5,371Accounts receivable, net
    
    
    15,307
    
    
    
    14,553Inventories, net
    
    
    23,292
    
    
    
    23,856Prepaid expenses and other current assets
    
    
    1,061
    
    
    
    489Deferred income taxes
    
    
    424
    
    
    
    369Total current assets
    
    $
    47,283
    
    
    $
    44,638Property, plant and equipment, net of
accumulated depreciation of $13,724 and
$12,445 at June 30, 2009 and December 31,
2008, respectively
    
    
    10,155
    
    
    
    10,203Intangible assets, net of accumulated
amortization of $4,280 and $3,557 at June 30,
2009 and December 31, 2008, respectively
    
    
    28,004
    
    
    
    27,732Goodwill
    
    
    13,990
    
    
    
    13,413Other assets
    
    
    859
    
    
    
    837Total assets
    
    $
    100,291
    
    
    $
    96,823Liabilities and Shareholders EquityCurrent liabilitiesCurrent maturities of long-term debt
    
    $
    9,256
    
    
    $
    6,500Accounts payable
    
    
    6,370
    
    
    
    7,155Accrued income taxes
    
    
    55
    
    
    
    513Customer deposits
    
    
    1,079
    
    
    
    1,935Accrued compensation
    
    
    1,501
    
    
    
    2,641Other accrued liabilities
    
    
    2,390
    
    
    
    2,088Total current liabilities
    
    
    20,651
    
    
    
    20,832Long-term debt, less current maturities
    
    
    4,657
    
    
    
    6,110Deferred income taxes
    
    
    8,569
    
    
    
    7,224Accrued pension costs
    
    
    3,696
    
    
    
    3,583Other long-term liabilities
    
    
    898
    
    
    
    898Total liabilities
    
    
    38,471
    
    
    
    38,647Commitments and Contingencies
    
    
    
    
    
    
    Shareholders equity:Common stock, $1 par value, 50,000,000
shares authorized, 9,602,029 shares
issued and outstanding at June 30, 2009
and December 31, 2008, respectively
    
    
    9,602
    
    
    
    9,602Additional paid-in capital
    
    
    25,495
    
    
    
    25,443Retained earnings
    
    
    30,823
    
    
    
    28,635Accumulated other comprehensive loss
    
    
    (4,100
    )
    
    
    (5,504
    )Total shareholders equity
    
    
    61,820
    
    
    
    58,176Total liabilities and shareholders equity
    
    $
    100,291
    
    
    $
    96,823
 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 Ended
    
    Six Months EndedJune 30
    
    June 302009
    
    2008
    
    2009
    
    2008(Dollars in Thousands, Except Per Share Data)Net sales
    
    $
    26,530
    
    
    $
    30,194
    
    
    $
    48,694
    
    
    $
    55,037Cost of sales
    
    
    17,934
    
    
    
    20,276
    
    
    
    32,825
    
    
    
    37,409Gross profit
    
    
    8,596
    
    
    
    9,918
    
    
    
    15,869
    
    
    
    17,628Selling, general and administrative
    
    
    5,480
    
    
    
    5,986
    
    
    
    10,860
    
    
    
    11,395Amortization expense
    
    
    270
    
    
    
    297
    
    
    
    523
    
    
    
    595Operating income
    
    
    2,846
    
    
    
    3,635
    
    
    
    4,486
    
    
    
    5,638Interest expense
    
    
    79
    
    
    
    210
    
    
    
    153
    
    
    
    436Other income, net
    
    
    (135
    )
    
    
    (43
    )
    
    
    (120
    )
    
    
    (121
    )Income before income taxes
    
    
    2,902
    
    
    
    3,468
    
    
    
    4,453
    
    
    
    5,323Provision for income taxes
    
    
    699
    
    
    
    1,065
    
    
    
    1,114
    
    
    
    1,576Net income
    
    $
    2,203
    
    
    $
    2,403
    
    
    $
    3,339
    
    
    $
    3,747Earnings per shareBasic and diluted
    
    $
    0.23
    
    
    $
    0.25
    
    
    $
    0.35
    
    
    $
    0.39Weighted average shares outstandingBasic
    
    
    9,602,029
    
    
    
    9,601,872
    
    
    
    9,602,029
    
    
    
    9,601,826Diluted
    
    
    9,602,029
    
    
    
    9,602,309
    
    
    
    9,602,029
    
    
    
    9,601,826Dividends per share
    
    $
    0.06
    
    
    $
    0.06
    
    
    $
    0.12
    
    
    $
    0.12
 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)
 Six Months EndedJune 302009
    
    2008(In Thousands)Operating ActivitiesNet income
    
    $
    3,339
    
    
    $
    3,747Adjustments to reconcile net income to net cash
provided by operating activities:Depreciation expense
    
    
    860
    
    
    
    875Amortization expense
    
    
    523
    
    
    
    595Provision for doubtful accounts
    
    
    71
    
    
    
    104Deferred income taxes
    
    
    182
    
    
    
    195Pension expense (income)
    
    
    103
    
    
    
    (20
    )Defined benefit pension plan contributions
    
    
    (102
    )
    
    
    (472
    )Loss on disposal of assets
    
    
    1
    
    
    
    21Stock-based compensation expense
    
    
    52
    
    
    
    47Changes in operating assets and liabilities:Accounts receivable
    
    
    (264
    )
    
    
    (1,931
    )Inventories
    
    
    1,610
    
    
    
    (1,880
    )Prepaid expenses and other current assets
    
    
    (603
    )
    
    
    (456
    )Accounts payable
    
    
    (1,175
    )
    
    
    2,581Income taxes payable
    
    
    (488
    )
    
    
    (120
    )Accrued expenses
    
    
    (1,779
    )
    
    
    (1,525
    )Net cash provided by operating activities
    
    
    2,330
    
    
    
    1,761Investing ActivitiesPurchases of property, plant and equipment
    
    
    (502
    )
    
    
    (2,046
    )Proceeds from sale of assets
    
    
    
    
    
    
    12Contingent consideration  business acquisition
    
    
    (60
    )
    
    
    (97
    )Net cash used in investing activities
    
    
    (562
    )
    
    
    (2,131
    )Financing ActivitiesNet increase in working capital facilities
    
    
    2,761
    
    
    
    3,224Book overdrafts
    
    
    (205
    )
    
    
    (42
    )Principal payments on promissory notes
    
    
    (280
    )
    
    
    (280
    )Proceeds from term loans
    
    
    300
    
    
    
    Principal payments on term loans
    
    
    (1,602
    )
    
    
    (1,859
    )Fees paid to obtain new financing
    
    
    
    
    
    
    (21
    )Issuance of common stock
    
    
    
    
    
    
    2Cash dividends paid to shareholders
    
    
    (1,152
    )
    
    
    (1,152
    )Net cash used in financing activities
    
    
    (178
    )
    
    
    (128
    )Effect of exchange rate changes on cash and cash equivalents
    
    
    238
    
    
    
    (51
    )Increase (decrease) in cash and cash equivalents
    
    
    1,828
    
    
    
    (549
    )Cash and cash equivalents at beginning of period
    
    
    5,371
    
    
    
    4,273Cash and cash equivalents at end of period
    
    $
    7,199
    
    
    $
    3,724Supplemental Disclosures of Cash Flow InformationCash paid during the period for:Interest
    
    $
    170
    
    
    $
    459Income taxes
    
    $
    1,414
    
    
    $
    1,083
 See Notes to Condensed Consolidated Financial Statements
 5




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Note 1: Organization
  Note 2: Basis of Presentation
  6




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##### Table of Contents



Note 3: Inventories
   June 30
    
    December 312009
    
    2008(In Thousands)Raw materials
    
    $
    9,316
    
    
    $
    10,617Work in process
    
    
    412
    
    
    
    411Finished goods
    
    
    14,676
    
    
    
    13,72724,404
    
    
    
    24,755Less reserve for slow-moving and obsolete inventory
    
    
    1,112
    
    
    
    899Net inventory
    
    $
    23,292
    
    
    $
    23,856
 Note 4: Long-Term Debt
  June 30
    
    December 312009
    
    2008(In Thousands)National City Bank Credit Facility: (a)Term loan  Kelsan acquisition
    
    $
    4,012
    
    
    $
    4,884Term loan  Vulcan asset acquisition
    
    
    1,400
    
    
    
    1,700Revolving credit facility  United States
    
    
    5,550
    
    
    
    2,800Revolving credit facility  Canada
    
    
    
    
    
    
    United Kingdom loans: (b)Term loan  Coronet Rail acquisition
    
    
    1,004
    
    
    
    1,131Working capital facility
    
    
    12
    
    
    
    Term loans  vehicles
    
    
    10
    
    
    
    15Promissory notes  Salient Systems acquisition (c)
    
    
    
    
    
    
    280Credit facility  Boone County Bank, Inc. (d)
    
    
    1,925
    
    
    
    1,80013,913
    
    
    
    12,610Less current maturities
    
    
    9,256
    
    
    
    6,500$
    4,657
    
    
    $
    6,110
 
 (a) National City Bank Credit Facility
   7




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##### Table of Contents



Term Loan  Kelsan Acquisition:
  Term Loan  Vulcan Asset Acquisition:
  Revolving Credit Facility  United States:
  Revolving Credit Facility  Canada:
  8




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##### Table of Contents



(b) United Kingdom Loans
 Term Loan  Coronet Rail Acquisition:
  Working Capital Facility:
   (c) Salient Systems Promissory Notes
  d) Credit Facility  Boone County Bank, Inc.
   9




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##### Table of Contents



Note 5: Income Taxes
  Six Months EndedJune 302009
    
    2008(In Thousands)Balance at January 1
    
    $
    313
    
    
    $
    313Additions based on tax positions related to the current year
    
    
    44
    
    
    
    76Additions for tax positions of prior years
    
    
    83
    
    
    
    Reductions for tax positions of prior years
    
    
    (65
    )
    
    
    (50
    )Settlements
    
    
    31
    
    
    
    Balance at June 30
    
    $
    406
    
    
    $
    339
  Note 6: Retirement Plans
  Three Months Ended
    
    Six Months EndedJune 30
    
    June 302009
    
    2008
    
    2009
    
    2008(In Thousands)Interest cost
    
    $
    144
    
    
    $
    138
    
    
    $
    288
    
    
    $
    276Expected return on plan assets
    
    
    (162
    )
    
    
    (165
    )
    
    
    (324
    )
    
    
    (330
    )Amortization of unrecognized loss
    
    
    25
    
    
    
    17
    
    
    
    50
    
    
    
    35Pension (benefit) cost
    
    $
    7
    
    
    $
    (10
    )
    
    $
    14
    
    
    $
    (19
    )
  10




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##### Table of Contents



Portec Rail PlanThree Months Ended
    
    Six Months EndedJune 30
    
    June 302009
    
    2008
    
    2009
    
    2008(In Thousands)Service cost
    
    $
    
    
    
    $
    10
    
    
    $
    
    
    
    $
    21Interest cost
    
    
    67
    
    
    
    84
    
    
    
    127
    
    
    
    168Expected return on plan assets
    
    
    (50
    )
    
    
    (98
    )
    
    
    (94
    )
    
    
    (196
    )Amortization of transition amount
    
    
    (12
    )
    
    
    (15
    )
    
    
    (23
    )
    
    
    (30
    )Amortization of unrecognized loss
    
    
    32
    
    
    
    21
    
    
    
    60
    
    
    
    42Pension cost
    
    $
    37
    
    
    $
    2
    
    
    $
    70
    
    
    $
    5
 Conveyors PlanThree Months Ended
    
    Six Months EndedJune 30
    
    June 302009
    
    2008
    
    2009
    
    2008(In Thousands)Service cost
    
    $
    
    
    
    $
    1
    
    
    $
    
    
    
    $
    2Interest cost
    
    
    13
    
    
    
    19
    
    
    
    25
    
    
    
    38Expected return on plan assets
    
    
    (9
    )
    
    
    (20
    )
    
    
    (17
    )
    
    
    (40
    )Amortization of transition amount
    
    
    (2
    )
    
    
    (3
    )
    
    
    (4
    )
    
    
    (6
    )Amortization of unrecognized loss
    
    
    8
    
    
    
    
    
    
    
    15
    
    
    
    Pension (benefit)/cost
    
    $
    10
    
    
    $
    (3
    )
    
    $
    19
    
    
    $
    (6
    )
  Note 7: Comprehensive Income
  Three Months Ended
    
    
    Six Months EndedJune 30
    
    
    June 302009
    
    
    2008
    
    
    2009
    
    
    2008(In Thousands)Net income
    
    $
    2,203
    
    
    $
    2,403
    
    
    $
    3,339
    
    
    $
    3,747Minimum pension liability adjustment, net of tax
    
    
    (162
    )
    
    
    (4
    )
    
    
    (103
    )
    
    
    Foreign currency translation adjustments, net of tax
    
    
    2,249
    
    
    
    103
    
    
    
    1,507
    
    
    
    (389
    )Comprehensive income
    
    $
    4,290
    
    
    $
    2,502
    
    
    $
    4,743
    
    
    $
    3,358
 11




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Note 8: Earnings Per Share
 Earnings per Share
   Note 9: Commitments and Contingencies
 Contractual Obligations
  Less
    
    
    
    
    
    
    
    
    
    
    Morethan 1
    
    
    1-3
    
    
    3-5
    
    
    than 5Contractual
Obligations
    
    Total
    
    
    year
    
    
    years
    
    
    years
    
    
    years(In Thousands)Term loans
    
    $
    8,351
    
    
    $
    3,694
    
    
    $
    3,782
    
    
    $
    840
    
    
    $
    35Purchase obligations
    
    
    3,368
    
    
    
    2,223
    
    
    
    1,145
    
    
    
    
    
    
    
    Working capital facilities
    
    
    5,562
    
    
    
    5,562
    
    
    
    
    
    
    
    
    
    
    
    Operating leases
    
    
    4,420
    
    
    
    664
    
    
    
    1,981
    
    
    
    853
    
    
    
    922Future interest payments (1)
    
    
    267
    
    
    
    86
    
    
    
    152
    
    
    
    29
    
    
    
    Pension plan contributions (2)
    
    
    3,654
    
    
    
    160
    
    
    
    1,701
    
    
    
    1,373
    
    
    
    420Total contractual obligations (3)
    
    $
    25,622
    
    
    $
    12,389
    
    
    $
    8,761
    
    
    $
    3,095
    
    
    $
    1,377
 
 (1)
    
    Represents future interest payments on long-term debt obligations as of June 30, 2009. Assumes
that the interest rates on our debt obligations at June 30, 2009 (See Note 4, Long-Term Debt, Page
7) will continue for the life of the agreements.(2)
    
    Pension plan contributions that may be required more than one year from June 30, 2009 will be
dependent upon the performance of plan assets.(3)
    
    As a result of adopting Financial Accounting Standards Board (FASB) Interpretation No. 48,
Accounting for Uncertainty in Income Taxes  an Interpretation of FASB Statement No. 109(FIN 48)
(FASB ASC 740-10-55) during 2007 we recorded an initial liability of $313,000 related to uncertain
tax positions.. During the six months ended June 30, 2009 and 2008, we recognized $93,000 and
$26,000 of additional liability, respectively. See Note 5, Income Taxes, Page 10. A total of
$406,000 and $313,000 are included within other long-term liabilities on the June 30, 2009 and the
December 31, 2008 consolidated balance sheets. However, because of the high degree of uncertainty
regarding the timing of future cash outflows associated with this FIN 48 (FASB ASC 740-10-55)
liability, we cannot reasonably estimate the periods of related future payments, and as such, we
have excluded the FIN 48 (FASB ASC 740-10-55) liability from the contractual obligations table. 12




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##### Table of Contents



Litigation
  Note 10: Segment Information
  Three Months Ended
    
    
    Six Months EndedJune 30
    
    
    June 302009
    
    
    2008
    
    
    2009
    
    
    2008(In Thousands)External SalesRMP
    
    $
    13,181
    
    
    $
    12,534
    
    
    $
    23,838
    
    
    $
    22,577SSD
    
    
    1,498
    
    
    
    3,577
    
    
    
    2,761
    
    
    
    5,942Canada
    
    
    8,476
    
    
    
    7,540
    
    
    
    14,313
    
    
    
    13,955United Kingdom
    
    
    3,375
    
    
    
    6,543
    
    
    
    7,782
    
    
    
    12,563Total
    
    $
    26,530
    
    
    $
    30,194
    
    
    $
    48,694
    
    
    $
    55,037
 13




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##### Table of Contents



Three Months Ended
    
    Six Months EndedJune 30
    
    June 302009
    
    2008
    
    2009
    
    2008(In Thousands)Intersegment SalesRMP
    
    $
    325
    
    
    $
    865
    
    
    $
    841
    
    
    $
    1,397SSD
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Canada
    
    
    2,307
    
    
    
    2,024
    
    
    
    3,855
    
    
    
    3,483United Kingdom
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    2,632
    
    
    $
    2,889
    
    
    $
    4,696
    
    
    $
    4,880Total SalesRMP
    
    $
    13,506
    
    
    $
    13,399
    
    
    $
    24,679
    
    
    $
    23,974SSD
    
    
    1,498
    
    
    
    3,577
    
    
    
    2,761
    
    
    
    5,942Canada
    
    
    10,783
    
    
    
    9,564
    
    
    
    18,168
    
    
    
    17,438United Kingdom
    
    
    3,375
    
    
    
    6,543
    
    
    
    7,782
    
    
    
    12,563Total
    
    $
    29,162
    
    
    $
    33,083
    
    
    $
    53,390
    
    
    $
    59,917Operating Income (Loss)RMP
    
    $
    2,070
    
    
    $
    1,863
    
    
    $
    3,313
    
    
    $
    3,106SSD
    
    
    150
    
    
    
    853
    
    
    
    (18
    )
    
    
    1,371Canada
    
    
    1,681
    
    
    
    1,183
    
    
    
    2,988
    
    
    
    1,679United Kingdom
    
    
    (228
    )
    
    
    615
    
    
    
    (9
    )
    
    
    1,187Corporate Shared Services
    
    
    (827
    )
    
    
    (879
    )
    
    
    (1,788
    )
    
    
    (1,705
    )Total
    
    
    2,846
    
    
    
    3,635
    
    
    
    4,486
    
    
    
    5,638Interest Expense
    
    
    79
    
    
    
    210
    
    
    
    153
    
    
    
    436Other Income, net
    
    
    (135
    )
    
    
    (43
    )
    
    
    (120
    )
    
    
    (121
    )Income Before Income Taxes
    
    $
    2,902
    
    
    $
    3,468
    
    
    $
    4,453
    
    
    $
    5,323DepreciationRMP
    
    $
    161
    
    
    $
    134
    
    
    $
    341
    
    
    $
    254SSD
    
    
    50
    
    
    
    50
    
    
    
    98
    
    
    
    99Canada
    
    
    151
    
    
    
    201
    
    
    
    299
    
    
    
    398United Kingdom
    
    
    49
    
    
    
    83
    
    
    
    95
    
    
    
    90Corporate Shared Services
    
    
    14
    
    
    
    17
    
    
    
    27
    
    
    
    34Total
    
    $
    425
    
    
    $
    485
    
    
    $
    860
    
    
    $
    875AmortizationRMP
    
    $
    9
    
    
    $
    4
    
    
    $
    18
    
    
    $
    6SSD
    
    
    54
    
    
    
    54
    
    
    
    107
    
    
    
    108Canada
    
    
    159
    
    
    
    177
    
    
    
    305
    
    
    
    357United Kingdom
    
    
    48
    
    
    
    62
    
    
    
    93
    
    
    
    124Corporate Shared Services
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    270
    
    
    $
    297
    
    
    $
    523
    
    
    $
    595Capital ExpendituresRMP
    
    $
    141
    
    
    $
    963
    
    
    $
    180
    
    
    $
    1,734SSD
    
    
    1
    
    
    
    38
    
    
    
    24
    
    
    
    46Canada
    
    
    86
    
    
    
    34
    
    
    
    235
    
    
    
    93United Kingdom
    
    
    3
    
    
    
    95
    
    
    
    21
    
    
    
    153Corporate Shared Services
    
    
    37
    
    
    
    12
    
    
    
    42
    
    
    
    20Total
    
    $
    268
    
    
    $
    1,142
    
    
    $
    502
    
    
    $
    2,046
 14




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##### Table of Contents



June 30
    
    December 312009
    
    2008(In Thousands)
    
    (In Thousands)Total AssetsRMP
    
    $
    41,357
    
    
    $
    40,870SSD
    
    
    7,720
    
    
    
    7,882Canada
    
    
    37,365
    
    
    
    32,990United Kingdom
    
    
    13,686
    
    
    
    14,938Corporate Shared Services
    
    
    163
    
    
    
    143Total
    
    $
    100,291
    
    
    $
    96,823
 Note 11: Fair Value of Financial Instruments
 Fair
Value Measurements
 Level 1
 Level 2
 Level 3
   Note 12: Recent Accounting Pronouncements
 The FASB Accounting Standards Codification
 15




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##### Table of Contents



Business Combinations  a revision of SFAS 141
 Disclosures about Derivative Instruments and Hedging Activities  an amendment of FASB Statement
No. 133
 Note 13: Stock Options
    16




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##### Table of Contents



Stock Price
    
    Exercise
    
    AnnualFair Value
    
    on Grant
    
    Price per
    
    Dividend
    
    Risk-free
    
    Expected
    
    Expected TermGrant Date
    
    Price
    
    Date
    
    Stock Option
    
    Yield
    
    Rate
    
    Volatility
    
    (in years)7/02/08
    
    $
    4.56
    
    
    $
    12.01
    
    
    $
    12.01
    
    
    
    2.00
    %
    
    
    4.25
    %
    
    
    36.36
    %
    
    
    7.51/30/08
    
    $
    3.67
    
    
    $
    9.68
    
    
    $
    9.68
    
    
    
    2.48
    %
    
    
    4.00
    %
    
    
    38.87
    %
    
    
    7.51/16/07
    
    $
    3.61
    
    
    $
    9.65
    
    
    $
    9.65
    
    
    
    2.50
    %
    
    
    4.73
    %
    
    
    39.40
    %
    
    
    6.5
 17




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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.
  18




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##### Table of Contents



Overview
     Results of Operations
 Three Months Ended June 30, 2009 compared to Three Months Ended June 30, 2008
 Net Sales.
 Gross Profit.
 19




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##### Table of Contents



Selling, General and Administrative Expenses.
 Interest Expense.
 Other Income.
 Provision for Income Taxes.
 Net Income.
 Six Months Ended June 30, 2009 compared to Six Months Ended June 30, 2008
 Net Sales.
 20




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##### Table of Contents



Gross Profit.
 Selling, General and Administrative Expenses.
 Interest Expense.
 Provision for Income Taxes.
 Net Income.
 21




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##### Table of Contents



Business Segment Review
 Railway Maintenance Products Division  RMP .
 Three Months Ended
    
    
    Six Months EndedJune 30
    
    
    June 302009
    
    
    2008
    
    
    2009
    
    
    2008(In Thousands)External sales
    
    $
    13,181
    
    
    $
    12,534
    
    
    $
    23,838
    
    
    $
    22,577Intersegment sales
    
    
    325
    
    
    
    865
    
    
    
    841
    
    
    
    1,397Operating income
    
    
    2,070
    
    
    
    1,863
    
    
    
    3,313
    
    
    
    3,106Sales by product line(1)Track component products
    
    $
    5,924
    
    
    $
    7,085
    
    
    $
    11,706
    
    
    $
    12,678Friction management products and services
    
    
    5,324
    
    
    
    4,328
    
    
    
    8,749
    
    
    
    6,991Wayside data collection and data management systems
    
    
    1,131
    
    
    
    1,324
    
    
    
    2,564
    
    
    
    2,725Other products and services
    
    
    1,127
    
    
    
    662
    
    
    
    1,660
    
    
    
    1,580Total product and service sales
    
    $
    13,506
    
    
    $
    13,399
    
    
    $
    24,679
    
    
    $
    23,974
 
 (1)
    
    Includes intersegment sales.   22




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##### Table of Contents



Shipping Systems Division  SSD .
 Three Months Ended
    
    
    Six Months EndedJune 30
    
    
    June 302009
    
    
    2008
    
    
    2009
    
    
    2008(In Thousands)External sales
    
    $
    1,498
    
    
    $
    3,577
    
    
    $
    2,761
    
    
    $
    5,942Intersegment sales
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Operating income/(loss)
    
    
    150
    
    
    
    853
    
    
    
    (18
    )
    
    
    1,371Sales by product lineAutomotive products
    
    $
    599
    
    
    $
    2,611
    
    
    $
    1,225
    
    
    $
    3,799Chain securement systems
    
    
    674
    
    
    
    730
    
    
    
    1,201
    
    
    
    1,555Strap securement systems
    
    
    67
    
    
    
    66
    
    
    
    120
    
    
    
    148Other load securement systems
    
    
    158
    
    
    
    170
    
    
    
    215
    
    
    
    440Total product and service sales
    
    $
    1,498
    
    
    $
    3,577
    
    
    $
    2,761
    
    
    $
    5,942
   23




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##### Table of Contents



Portec Rail Nova Scotia Company  Canada . ® ®
 Three Months Ended
    
    
    Six Months EndedJune 30
    
    
    June 302009
    
    
    2008
    
    
    2009
    
    
    2008(In Thousands, Except Translation Rate )External sales
    
    $
    8,476
    
    
    $
    7,540
    
    
    $
    14,313
    
    
    $
    13,955Intersegment sales
    
    
    2,307
    
    
    
    2,024
    
    
    
    3,855
    
    
    
    3,483Operating income
    
    
    1,681
    
    
    
    1,183
    
    
    
    2,988
    
    
    
    1,679Average translation rate of Canadian
dollar to United States dollar
    
    
    0.8518
    
    
    
    0.9885
    
    
    
    0.8348
    
    
    
    0.9957Sales by product line(1)Track component products (2)
    
    $
    5,862
    
    
    $
    4,553
    
    
    $
    9,549
    
    
    $
    9,398Friction management products and services
    
    
    4,657
    
    
    
    4,667
    
    
    
    7,955
    
    
    
    7,283Other products and services
    
    
    264
    
    
    
    344
    
    
    
    664
    
    
    
    757Total product and service sales
    
    $
    10,783
    
    
    $
    9,564
    
    
    $
    18,168
    
    
    $
    17,438
 
 (1)
    
    Includes intersegment sales.(2)
    
    Formerly referred to as Rail anchors and spikes   24




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##### Table of Contents



Portec Rail Products (UK) Ltd.  United Kingdom .
 Three Months Ended
    
    
    Six Months EndedJune 30
    
    
    June 302009
    
    
    2008
    
    
    2009
    
    
    2008(In Thousands, Except Translation Rate)External sales
    
    $
    3,375
    
    
    $
    6,543
    
    
    $
    7,782
    
    
    $
    12,563Intersegment sales
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Operating income/(loss)
    
    
    (228
    )
    
    
    615
    
    
    
    (9
    )
    
    
    1,187Average translation rate of British
pound sterling to United States dollar
    
    
    1.5440
    
    
    
    1.9865
    
    
    
    1.5095
    
    
    
    1.9877Sales by product lineFriction management products and services
    
    $
    1,884
    
    
    $
    2,621
    
    
    $
    4,125
    
    
    $
    5,261Material handling products
    
    
    619
    
    
    
    2,344
    
    
    
    2,130
    
    
    
    4,344Track component products
    
    
    872
    
    
    
    1,578
    
    
    
    1,527
    
    
    
    2,958Total product and service sales
    
    $
    3,375
    
    
    $
    6,543
    
    
    $
    7,782
    
    
    $
    12,563
   25




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##### Table of Contents



Liquidity and Capital Resources
  Cash Flow Analysis .
   Financial Condition
    26




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##### Table of Contents



Discussion of Critical Accounting Policies
  Revenue Recognition.
   Allowances for Doubtful Accounts.
  Inventories.
 27




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##### Table of Contents



Goodwill and Other Intangible Assets. Goodwill and Other Intangible Assets
 Accounting for Impairment or Disposal of Long-Lived Assets.
    28




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##### Table of Contents



Warranty Reserves.
 Retirement Benefit Plans. Employers Accounting for Pensions Employers Accounting for Defined Benefit Plans and Other Postretirement Plans .
   29




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##### Table of Contents



Income Taxes.
  Accounting for Uncertainty in
Income Taxes  an Interpretation of FASB Statement No. 109
 30




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##### Table of Contents



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
   
 ITEM 4T. CONTROLS AND PROCEDURES
  
 PART II  OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  31




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##### Table of Contents



ITEM 1A. RISK FACTORS
  
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES
 Nothing to report under this item.
 
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  1.
    
    With respect to the election of eleven (11) directors whose terms expire in 2009:
 For
    
    Withheld
    
    Broker Non-VoteMarshall T. Reynolds
    
    
    6,529,697
    
    
    
    2,610,667
    
    
    
    456,915John S. Cooper
    
    
    8,755,669
    
    
    
    384,695
    
    
    
    456,915Louis J. Akers
    
    
    9,041,018
    
    
    
    99,346
    
    
    
    456,915Philip E. Cline
    
    
    7,950,402
    
    
    
    1,189,962
    
    
    
    456,915Daniel P. Harrington
    
    
    7,771,687
    
    
    
    1,368,677
    
    
    
    456,915A. Michael Perry
    
    
    9,033,488
    
    
    
    106,876
    
    
    
    456,915Douglas V. Reynolds
    
    
    7,965,260
    
    
    
    1,175,104
    
    
    
    456,915Neal W. Scaggs
    
    
    7,812,809
    
    
    
    1,327,555
    
    
    
    456,915Phillip Todd Shell
    
    
    8,197,823
    
    
    
    942,541
    
    
    
    456,915Kirby J. Taylor
    
    
    8,780,797
    
    
    
    359,567
    
    
    
    456,915Thomas W. Wright
    
    
    9,045,418
    
    
    
    94,946
    
    
    
    456,915
 
 2.
    
    With respect to the ratification of the appointment of Arnett & Foster, PLLC as the
Companys independent auditors for the year ending December 31, 2009: For
    
    Against
    
    Abstained
    
    Broker Non-VoteArnett & Foster, PLLC
    
    
    9,108,227
    
    
    
    19,999
    
    
    
    12,138
    
    
    
    456,915
 32




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##### Table of Contents



ITEM 5. OTHER INFORMATION
  
 ITEM 6. 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
 33




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##### Table of Contents



SIGNATURES
  PORTEC RAIL PRODUCTS, INC.Date: August 5, 2009
    By:
    /s/ Richard J. JarosinskiRichard J. Jarosinski, President and ChiefExecutive Officer and Principal
Executive OfficerDate: August 5, 2009
    By:
    /s/ John N. PesarsickJohn N. Pesarsick, Chief Financial Officer andPrincipal Accounting Officer 34




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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
 35