##### 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 September 30, 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(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




---



##### 



PORTEC RAIL PRODUCTS, INC.
 INDEX TO FORM 10-Q
 ItemNumber
    
    
    
    Page NumberPART I  FINANCIAL INFORMATION1.
    
    Financial Statements:Condensed Consolidated Balance Sheets September 30, 2010 (Unaudited) and December 31, 2009
    
    3Condensed Consolidated Statements of Income (Unaudited) Three and nine months ended September 30, 2010 and 2009
    
    4Condensed Consolidated Statements of Cash Flows (Unaudited) Nine months ended September 30, 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
    
    334T.
    
    Controls and Procedures
    
    33PART II  OTHER INFORMATION1.
    
    Legal Proceedings
    
    331A.
    
    Risk Factors
    
    362.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    363.
    
    Defaults Upon Senior Securities
    
    364.
    
    Removed & Reserved
    
    365.
    
    Exhibits
    
    36Signatures
    
    37EX-31.1EX-31.2EX-32
  2




---



##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 Portec Rail Products, Inc.
 
 Condensed Consolidated Balance Sheets
 September 30
    
    
    December 312010
    
    
    2009(Unaudited)
    
    
    (Audited)(In Thousands)AssetsCurrent assetsCash and cash equivalents
    
    $
    16,946
    
    
    $
    14,279Accounts receivable, net
    
    
    15,999
    
    
    
    10,667Inventories, net
    
    
    20,934
    
    
    
    21,538Prepaid expenses and other current assets
    
    
    1,965
    
    
    
    1,623Deferred income taxes
    
    
    85
    
    
    
    160Total current assets
    
    $
    55,929
    
    
    $
    48,267Property, plant and equipment, net of accumulated
depreciation of $15,177 and $13,938 at September 30, 2010 and
December 31, 2009, respectively.
    
    
    9,558
    
    
    
    10,260Intangible assets, net of accumulated amortization of $6,145
and $5,171 at September 30, 2010 and December 31, 2009,
respectively
    
    
    27,933
    
    
    
    28,507Goodwill
    
    
    14,486
    
    
    
    14,463Other assets
    
    
    591
    
    
    
    1,045Total assets
    
    $
    108,497
    
    
    $
    102,542Liabilities and Shareholders EquityCurrent liabilitiesCurrent maturities of long-term debt
    
    $
    7,707
    
    
    $
    8,086Accounts payable
    
    
    8,972
    
    
    
    4,940Accrued income taxes
    
    
    616
    
    
    
    618Customer deposits
    
    
    938
    
    
    
    873Accrued compensation
    
    
    2,378
    
    
    
    2,424Other accrued liabilities
    
    
    4,468
    
    
    
    2,216Total current liabilities
    
    
    25,079
    
    
    
    19,157Long-term debt, less current maturities
    
    
    970
    
    
    
    2,667Deferred income taxes
    
    
    10,415
    
    
    
    10,070Accrued pension costs
    
    
    3,549
    
    
    
    3,809Other long-term liabilities
    
    
    1,228
    
    
    
    1,091Total liabilities
    
    
    41,241
    
    
    
    36,794Commitments and Contingencies
    
    
    
    
    
    
    Shareholders equity:Common stock, $1 par value, 50,000,000 shares
authorized, 9,603,579 and 9,602,029 shares issued and
outstanding at
September 30, 2010 and December 31, 2009, respectively
    
    
    9,604
    
    
    
    9,602Additional paid-in capital
    
    
    25,638
    
    
    
    25,547Retained earnings
    
    
    33,969
    
    
    
    33,136Accumulated other comprehensive loss
    
    
    (1,955
    )
    
    
    (2,537
    )Total shareholders equity
    
    
    67,256
    
    
    
    65,748Total liabilities and shareholders equity
    
    $
    108,497
    
    
    $
    102,542
 See Notes to Condensed Consolidated Financial Statements
 3




---



##### Table of Contents



Portec Rail Products, Inc.
 
 Condensed Consolidated Statements of Income
 (Unaudited)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30
    
    
    September 302010
    
    
    2009
    
    
    2010
    
    
    2009(Dollars in Thousands, Except Per Share Data)Net sales
    
    $
    27,906
    
    
    $
    24,285
    
    
    $
    83,663
    
    
    $
    72,979Cost of sales
    
    
    18,985
    
    
    
    15,849
    
    
    
    55,915
    
    
    
    48,674Gross profit
    
    
    8,921
    
    
    
    8,436
    
    
    
    27,748
    
    
    
    24,305Selling, general and administrative
    
    
    6,581
    
    
    
    5,411
    
    
    
    21,565
    
    
    
    16,271Amortization expense
    
    
    313
    
    
    
    283
    
    
    
    929
    
    
    
    806Operating income
    
    
    2,027
    
    
    
    2,742
    
    
    
    5,254
    
    
    
    7,228Interest expense
    
    
    62
    
    
    
    64
    
    
    
    185
    
    
    
    217Other expense/(income), net
    
    
    143
    
    
    
    37
    
    
    
    414
    
    
    
    (83
    )Income before income taxes
    
    
    1,822
    
    
    
    2,641
    
    
    
    4,655
    
    
    
    7,094Provision for income taxes
    
    
    581
    
    
    
    618
    
    
    
    2,093
    
    
    
    1,732Net income
    
    $
    1,241
    
    
    $
    2,023
    
    
    $
    2,562
    
    
    $
    5,362Earnings per shareBasic and diluted
    
    $
    0.13
    
    
    $
    0.21
    
    
    $
    0.27
    
    
    $
    0.56Weighted average shares outstandingBasic
    
    
    9,603,444
    
    
    
    9,602,029
    
    
    
    9,602,763
    
    
    
    9,602,029Diluted
    
    
    9,617,065
    
    
    
    9,602,029
    
    
    
    9,613,632
    
    
    
    9,602,029Dividends per share
    
    $
    0.06
    
    
    $
    0.06
    
    
    $
    0.18
    
    
    $
    0.18
 See Notes to Condensed Consolidated Financial Statements
 4




---



##### Table of Contents



Portec Rail Products, Inc.
 
 Condensed Consolidated Statements of Cash Flows
 (Unaudited)
 Nine Months EndedSeptember 302010
    
    
    2009(In Thousands)Operating ActivitiesNet income
    
    $
    2,562
    
    
    $
    5,362Adjustments to reconcile net income to net cash
provided by operating activities:Depreciation expense
    
    
    1,305
    
    
    
    1,309Amortization expense
    
    
    929
    
    
    
    806Provision for doubtful accounts
    
    
    61
    
    
    
    78Deferred income taxes
    
    
    26
    
    
    
    597Pension expense
    
    
    210
    
    
    
    157Defined benefit pension plan contributions
    
    
    (441
    )
    
    
    (176
    )Loss on disposal of assets
    
    
    7
    
    
    
    2Stock-based compensation expense
    
    
    78
    
    
    
    78Changes in operating assets and liabilities:Accounts receivable
    
    
    (5,321
    )
    
    
    672Inventories
    
    
    651
    
    
    
    3,854Prepaid expenses and other current assets
    
    
    (350
    )
    
    
    (685
    )Accounts payable
    
    
    3,270
    
    
    
    (1,361
    )Income taxes payable
    
    
    285
    
    
    
    (450
    )Accrued expenses
    
    
    2,375
    
    
    
    (1,190
    )Net cash provided by operating activities
    
    
    5,647
    
    
    
    9,053Investing ActivitiesPurchases of property, plant and equipment
    
    
    (657
    )
    
    
    (718
    )Proceeds from sale of assets
    
    
    159
    
    
    
    Contingent consideration  business acquisition
    
    
    
    
    
    
    (96
    )Net cash used in investing activities
    
    
    (498
    )
    
    
    (814
    )Financing ActivitiesNet increase in working capital facilities
    
    
    792
    
    
    
    800Book overdrafts
    
    
    833
    
    
    
    (261
    )Principal payments on promissory notes
    
    
    
    
    
    
    (280
    )Proceeds from term loans
    
    
    
    
    
    
    300Principal payments on term loans
    
    
    (2,843
    )
    
    
    (2,522
    )Fees paid to obtain new financing
    
    
    (31
    )
    
    
    (17
    )Issuance of common stock
    
    
    15
    
    
    
    Cash dividends paid to shareholders
    
    
    (1,728
    )
    
    
    (1,728
    )Net cash used in financing activities
    
    
    (2,962
    )
    
    
    (3,708
    )Effect of exchange rate changes on cash and cash equivalents
    
    
    480
    
    
    
    884Increase in cash and cash equivalents
    
    
    2,667
    
    
    
    5,415Cash and cash equivalents at beginning of period
    
    
    14,279
    
    
    
    5,371Cash and cash equivalents at end of period
    
    $
    16,946
    
    
    $
    10,786Supplemental Disclosures of Cash Flow InformationCash paid during the period for:Interest
    
    $
    185
    
    
    $
    297Income taxes
    
    $
    1,255
    
    
    $
    1,666
 See Notes to Condensed Consolidated Financial Statements
 5




---



##### Table of Contents



Note 1: Organization
  Note 2: Basis of Presentation
  6




---



##### Table of Contents



Note 3: Inventories
   September 30
    
    
    December 312010
    
    
    2009(In Thousands)Raw materials
    
    $
    8,511
    
    
    $
    9,903Work in process
    
    
    197
    
    
    
    279Finished goods
    
    
    12,882
    
    
    
    11,93121,590
    
    
    
    22,113Less reserve for slow-moving and obsolete inventory
    
    
    656
    
    
    
    575Net inventory
    
    $
    20,934
    
    
    $
    21,538
 Note 4: Long-Term Debt
  September 30
    
    
    December 312010
    
    
    2009(In Thousands)PNC Financial Credit Facility: (a)Term loan  Kelsan acquisition
    
    $
    1,396
    
    
    $
    2,966Term loan  Vulcan asset acquisition
    
    
    650
    
    
    
    1,100Revolving credit facility  United States
    
    
    5,291
    
    
    
    4,500Revolving credit facility  Canada
    
    
    
    
    
    
    United Kingdom loans: (b)Term loan  Coronet Rail acquisition
    
    
    
    
    
    
    471Working capital facility
    
    
    
    
    
    
    Term loans  vehicles
    
    
    
    
    
    
    1Term Loan  Boone County Bank, Inc. (c)
    
    
    1,340
    
    
    
    1,7158,677
    
    
    
    10,753Less current maturities
    
    
    7,707
    
    
    
    8,086$
    970
    
    
    $
    2,667
 (a) PNC Financial Credit Facility
   7




---



##### Table of Contents



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




---



##### Table of Contents



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




---



##### Table of Contents



Note 5: Income Taxes
  Nine Months EndedSeptember 302010
    
    
    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
    
    
    
    116Reductions for tax positions of prior years
    
    
    (59
    )
    
    
    (65
    )Settlements
    
    
    (23
    )
    
    
    31Balance at September 30
    
    $
    491
    
    
    $
    439
   Note 6: Retirement Plans
  Three Months Ended
    
    
    Nine Months EndedSeptember 30
    
    
    September 302010
    
    
    2009
    
    
    2010
    
    
    2009(In Thousands)Interest cost
    
    $
    137
    
    
    $
    144
    
    
    $
    411
    
    
    $
    432Expected return on plan assets
    
    
    (162
    )
    
    
    (162
    )
    
    
    (485
    )
    
    
    (486
    )Amortization of unrecognized loss
    
    
    48
    
    
    
    26
    
    
    
    144
    
    
    
    76Pension expense
    
    $
    23
    
    
    $
    8
    
    
    $
    70
    
    
    $
    22
 10




---



##### Table of Contents



Portec Rail PlanThree Months Ended
    
    
    Nine Months EndedSeptember 30
    
    
    September 302010
    
    
    2009
    
    
    2010
    
    
    2009(In Thousands)Interest cost
    
    $
    65
    
    
    $
    67
    
    
    $
    195
    
    
    $
    193Expected return on plan assets
    
    
    (51
    )
    
    
    (49
    )
    
    
    (154
    )
    
    
    (143
    )Amortization of transition amount
    
    
    (11
    )
    
    
    (12
    )
    
    
    (34
    )
    
    
    (35
    )Amortization of unrecognized loss
    
    
    36
    
    
    
    31
    
    
    
    108
    
    
    
    91Pension expense
    
    $
    39
    
    
    $
    37
    
    
    $
    115
    
    
    $
    106
 Conveyors PlanThree Months Ended
    
    
    Nine Months EndedSeptember 30
    
    
    September 302010
    
    
    2009
    
    
    2010
    
    
    2009(In Thousands)Interest cost
    
    $
    13
    
    
    $
    13
    
    
    $
    40
    
    
    $
    39Expected return on plan assets
    
    
    (10
    )
    
    
    (8
    )
    
    
    (30
    )
    
    
    (25
    )Amortization of transition amount
    
    
    (2
    )
    
    
    (2
    )
    
    
    (7
    )
    
    
    (7
    )Amortization of unrecognized loss
    
    
    8
    
    
    
    8
    
    
    
    22
    
    
    
    22Pension expense
    
    $
    9
    
    
    $
    11
    
    
    $
    25
    
    
    $
    29
  Note 7: Comprehensive Income
  Three Months Ended
    
    
    Nine Months EndedSeptember 30
    
    
    September 302010
    
    
    2009
    
    
    2010
    
    
    2009(In Thousands)Net income
    
    $
    1,241
    
    
    $
    2,023
    
    
    $
    2,562
    
    
    $
    5,362Minimum pension liability adjustment, net of tax
    
    
    (64
    )
    
    
    36
    
    
    
    36
    
    
    
    (67
    )Foreign currency translation adjustments, net of tax
    
    
    1,246
    
    
    
    1,399
    
    
    
    546
    
    
    
    2,906Comprehensive income
    
    $
    2,423
    
    
    $
    3,458
    
    
    $
    3,144
    
    
    $
    8,201
 11




---



##### Table of Contents



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)Long-term debt obligations
    
    $
    3,385
    
    
    $
    2,415
    
    
    $
    575
    
    
    $
    395
    
    
    $
    Working capital facilities
    
    
    5,292
    
    
    
    5,292
    
    
    
    
    
    
    
    
    
    
    
    Operating leases (1)
    
    
    3,801
    
    
    
    350
    
    
    
    1,724
    
    
    
    927
    
    
    
    800Pension contributions (2)
    
    
    3,781
    
    
    
    134
    
    
    
    1,562
    
    
    
    982
    
    
    
    1,103Purchase obligations
    
    
    4,538
    
    
    
    4,538
    
    
    
    
    
    
    
    
    
    
    
    Future interest payments (3)
    
    
    82
    
    
    
    18
    
    
    
    58
    
    
    
    6
    
    
    
    Total contractual obligations (4)
    
    $
    20,879
    
    
    $
    12,747
    
    
    $
    3,919
    
    
    $
    2,310
    
    
    $
    1,903
 
 (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 September 30, 2010 will
be dependent upon the performance of plan assets.(3)
    
    Represents future interest payments on long-term debt obligations as of September 30, 2010.
Assumes that the interest rates on our long-term debt agreements at September 30, 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 in 2007.
During the nine months ended September 30, 2010 and 2009, we recognized $55,000 and $126,000,
respectively, of additional liability. See Note 5: Income Taxes, Page 10. The total amount of
$491,000 and $436,000 are included within other long-term liabilities on the September 30, 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. 12




---



##### Table of Contents



Contingencies
  Litigation
     13




---



##### Table of Contents



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
Company
 14




---



##### Table of Contents



Date Filed
    
    Court
    
    Plaintiff
    
    Defendants3/03/2010
    
    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,
 In Re Portec Rail Products, Inc.
Shareholders Litigation
   Note 10: Segment Information
  15




---



##### Table of Contents



Three Months Ended
    
    
    Nine Months EndedSeptember 30
    
    
    September 302010
    
    
    2009
    
    
    2010
    
    
    2009(In Thousands)External SalesRMP
    
    $
    12,678
    
    
    $
    11,556
    
    
    $
    36,444
    
    
    $
    35,394SSD
    
    
    1,820
    
    
    
    1,293
    
    
    
    6,574
    
    
    
    4,054Canada
    
    
    7,914
    
    
    
    6,511
    
    
    
    26,407
    
    
    
    20,824United Kingdom
    
    
    5,494
    
    
    
    4,925
    
    
    
    14,238
    
    
    
    12,707Total
    
    $
    27,906
    
    
    $
    24,285
    
    
    $
    83,663
    
    
    $
    72,979Intersegment SalesRMP
    
    $
    422
    
    
    $
    377
    
    
    $
    1,050
    
    
    $
    1,218SSD
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Canada
    
    
    2,324
    
    
    
    2,252
    
    
    
    6,163
    
    
    
    6,107United Kingdom
    
    
    26
    
    
    
    1
    
    
    
    79
    
    
    
    1Total
    
    $
    2,772
    
    
    $
    2,630
    
    
    $
    7,292
    
    
    $
    7,326Total SalesRMP
    
    $
    13,100
    
    
    $
    11,933
    
    
    $
    37,494
    
    
    $
    36,612SSD
    
    
    1,820
    
    
    
    1,293
    
    
    
    6,574
    
    
    
    4,054Canada
    
    
    10,238
    
    
    
    8,763
    
    
    
    32,570
    
    
    
    26,931United Kingdom
    
    
    5,520
    
    
    
    4,926
    
    
    
    14,317
    
    
    
    12,708Total
    
    $
    30,678
    
    
    $
    26,915
    
    
    $
    90,955
    
    
    $
    80,305Operating Income (Loss)RMP
    
    $
    1,650
    
    
    $
    1,571
    
    
    $
    5,006
    
    
    $
    4,884SSD
    
    
    119
    
    
    
    (6
    )
    
    
    840
    
    
    
    (24
    )Canada
    
    
    1,321
    
    
    
    1,522
    
    
    
    4,773
    
    
    
    4,510United Kingdom
    
    
    657
    
    
    
    517
    
    
    
    1,335
    
    
    
    508Corporate Shared Services
    
    
    (1,720
    )
    
    
    (862
    )
    
    
    (6,700
    )
    
    
    (2,650
    )Total
    
    
    2,027
    
    
    
    2,742
    
    
    
    5,254
    
    
    
    7,228Interest Expense
    
    
    62
    
    
    
    64
    
    
    
    185
    
    
    
    217Other Expense/(Income), net
    
    
    143
    
    
    
    37
    
    
    
    414
    
    
    
    (83
    )Income Before Income Taxes
    
    $
    1,822
    
    
    $
    2,641
    
    
    $
    4,655
    
    
    $
    7,094DepreciationRMP
    
    $
    156
    
    
    $
    157
    
    
    $
    472
    
    
    $
    498SSD
    
    
    40
    
    
    
    49
    
    
    
    127
    
    
    
    147Canada
    
    
    167
    
    
    
    170
    
    
    
    499
    
    
    
    469United Kingdom
    
    
    46
    
    
    
    53
    
    
    
    133
    
    
    
    148Corporate Shared Services
    
    
    26
    
    
    
    20
    
    
    
    74
    
    
    
    47Total
    
    $
    435
    
    
    $
    449
    
    
    $
    1,305
    
    
    $
    1,309
 16




---



##### Table of Contents



Three Months Ended
    
    
    Nine Months EndedSeptember 30
    
    
    September 302010
    
    
    2009
    
    
    2010
    
    
    2009(In Thousands)AmortizationRMP
    
    $
    17
    
    
    $
    8
    
    
    $
    47
    
    
    $
    26SSD
    
    
    51
    
    
    
    53
    
    
    
    159
    
    
    
    160Canada
    
    
    186
    
    
    
    170
    
    
    
    555
    
    
    
    475United Kingdom
    
    
    59
    
    
    
    52
    
    
    
    168
    
    
    
    145Corporate Shared Services
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    313
    
    
    $
    283
    
    
    $
    929
    
    
    $
    806Capital ExpendituresRMP
    
    $
    
    
    
    $
    
    
    
    $
    131
    
    
    $
    180SSD
    
    
    
    
    
    
    9
    
    
    
    16
    
    
    
    33Canada
    
    
    212
    
    
    
    136
    
    
    
    377
    
    
    
    371United Kingdom
    
    
    48
    
    
    
    5
    
    
    
    99
    
    
    
    26Corporate Shared Services
    
    
    30
    
    
    
    66
    
    
    
    34
    
    
    
    108Total
    
    $
    290
    
    
    $
    216
    
    
    $
    657
    
    
    $
    718
 September 30
    
    
    December 312010
    
    
    2009(In Thousands)Total
AssetsRMP
    
    $
    39,615
    
    
    $
    37,520SSD
    
    
    6,581
    
    
    
    7,029Canada
    
    
    47,016
    
    
    
    43,514United Kingdom
    
    
    15,088
    
    
    
    14,242Corporate Shared Services
    
    
    197
    
    
    
    237Total
    
    $
    108,497
    
    
    $
    102,542
 Note 11: Fair Value of Financial Instruments
 Fair Value Measurements and
Disclosure
 Level 1
 Level 2 
 Level 3 
 17




---



##### Table of Contents



Note 12: Recent Accounting Pronouncements
   The FASB Accounting Standards Codification
 Note 13: Stock Options
  18




---



##### Table of Contents



Compensation 
Stock Compensation
  Stock
    
    Exercise# of
    
    Fair
    
    Price on
    
    Price per
    
    
    
    
    
    
    
    ExpectedGrant
    
    Shares
    
    Value
    
    Grant
    
    Stock
    
    Annual
    
    Risk-free
    
    Expected
    
    TermDate
    
    Granted
    
    Price
    
    Date
    
    Option
    
    Dividend 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
   19




---



##### 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.
  Overview
  20




---



##### Table of Contents



Results of Operations
 Three Months Ended September 30, 2010 compared to Three Months Ended September 30, 2009
 Net Sales.
 Cost of Goods Sold.
 21




---



##### Table of Contents



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




---



##### Table of Contents



Nine Months Ended September 30, 2010 compared to Nine Months Ended September 30, 2009
 Net Sales.
 Cost of Goods Sold.
 Gross Profit.
 Selling, General and Administrative Expenses.
 Interest Expense.
 Other Expense.
 Provision for Income Taxes.
 23




---



##### Table of Contents



Net Income.
 24




---



##### Table of Contents



Business Segment Review
 Railway Maintenance Products Division  RMP .
 Three Months Ended
    
    
    Nine Months EndedSeptember 30
    
    
    September 302010
    
    
    2009
    
    
    2010
    
    
    2009(In Thousands)External sales
    
    $
    12,678
    
    
    $
    11,556
    
    
    $
    36,444
    
    
    $
    35,394Intersegment sales
    
    
    422
    
    
    
    377
    
    
    
    1,050
    
    
    
    1,218Operating income
    
    
    1,650
    
    
    
    1,571
    
    
    
    5,006
    
    
    
    4,884Sales by product line (1)Track component products
    
    $
    6,391
    
    
    $
    4,650
    
    
    $
    19,646
    
    
    $
    16,355Friction management products and services
    
    
    4,857
    
    
    
    5,343
    
    
    
    12,314
    
    
    
    14,091Wayside data collection and data management systems
    
    
    1,392
    
    
    
    1,367
    
    
    
    3,794
    
    
    
    3,933Other products and services
    
    
    460
    
    
    
    573
    
    
    
    1,740
    
    
    
    2,233Total product and service sales
    
    $
    13,100
    
    
    $
    11,933
    
    
    $
    37,494
    
    
    $
    36,612
 
 (1)
    
    Includes intersegment sales.   25




---



##### Table of Contents



Shipping Systems Division  SSD .
 Three Months Ended
    
    
    Nine Months EndedSeptember 30
    
    
    September 302010
    
    
    2009
    
    
    2010
    
    
    2009(In Thousands)External sales
    
    $
    1,820
    
    
    $
    1,293
    
    
    $
    6,574
    
    
    $
    4,054Intersegment sales
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Operating income/(loss)
    
    
    119
    
    
    
    (6
    )
    
    
    840
    
    
    
    (24
    )Sales by product lineAutomotive products
    
    $
    773
    
    
    $
    703
    
    
    $
    2,679
    
    
    $
    1,928Chain securement systems
    
    
    897
    
    
    
    469
    
    
    
    3,520
    
    
    
    1,669Strap securement systems
    
    
    27
    
    
    
    22
    
    
    
    84
    
    
    
    142Other load securement systems
    
    
    123
    
    
    
    99
    
    
    
    291
    
    
    
    315Total product and service sales
    
    $
    1,820
    
    
    $
    1,293
    
    
    $
    6,574
    
    
    $
    4,054
   26




---



##### Table of Contents



Portec Rail Nova Scotia Company  Canada . ® ®
 Three Months Ended
    
    
    Nine Months EndedSeptember 30
    
    
    September 302010
    
    
    2009
    
    
    2010
    
    
    2009(In Thousands, Except Translation Rate)External sales
    
    $
    7,914
    
    
    $
    6,511
    
    
    $
    26,407
    
    
    $
    20,824Intersegment sales
    
    
    2,324
    
    
    
    2,252
    
    
    
    6,163
    
    
    
    6,107Operating income
    
    
    1,321
    
    
    
    1,522
    
    
    
    4,773
    
    
    
    4,510Average translation rate of Canadian dollar to
United States dollar
    
    
    0.9554
    
    
    
    0.9088
    
    
    
    0.9585
    
    
    
    0.8649Sales by product line (1)Track component products
    
    $
    3,601
    
    
    $
    3,352
    
    
    $
    13,531
    
    
    $
    12,478Friction management products and services
    
    
    6,451
    
    
    
    5,152
    
    
    
    18,385
    
    
    
    13,366Other products and services
    
    
    186
    
    
    
    259
    
    
    
    654
    
    
    
    1,087Total product and service sales
    
    $
    10,238
    
    
    $
    8,763
    
    
    $
    32,570
    
    
    $
    26,931
 
 (1)
    
    Includes intersegment sales.   27




---



##### Table of Contents



Portec Rail Products (UK) Ltd.  United Kingdom .
 Three Months Ended
    
    
    Nine Months EndedSeptember 30
    
    
    September 302010
    
    
    2009
    
    
    2010
    
    
    2009(In Thousands, Except Translation Rate)External sales
    
    $
    5,494
    
    
    $
    4,925
    
    
    $
    14,238
    
    
    $
    12,707Intersegment sales
    
    
    26
    
    
    
    1
    
    
    
    79
    
    
    
    1Operating income
    
    
    657
    
    
    
    517
    
    
    
    1,335
    
    
    
    508Average translation rate of
British pound sterling to
United States dollar
    
    
    1.5419
    
    
    
    1.6355
    
    
    
    1.5315
    
    
    
    1.5504Sales by product line (1)Friction management products
and services
    
    $
    1,806
    
    
    $
    2,728
    
    
    $
    5,509
    
    
    $
    6,852Material handling products
    
    
    2,446
    
    
    
    1,001
    
    
    
    5,364
    
    
    
    3,132Track component products
    
    
    1,268
    
    
    
    1,197
    
    
    
    3,444
    
    
    
    2,724Total product and service sales
    
    $
    5,520
    
    
    $
    4,926
    
    
    $
    14,317
    
    
    $
    12,708
 
 (1)
    
    Includes intersegment sales.   28




---



##### Table of Contents



Liquidity and Capital Resources
   Cash Flow Analysis .
   Financial Condition
  29




---



##### Table of Contents



Discussion of Critical Accounting Policies
  Revenue Recognition.
   Allowances for Doubtful Accounts.
 30




---



##### Table of Contents



Inventories.
 Goodwill and Other Intangible Assets. Intangible, Goodwill and Other.
 Accounting for Impairment or Disposal of Long-Lived Assets.
  Warranty Reserves.
 Retirement Benefit Plans. Compensation  Retirement Benefits.
 31




---



##### Table of Contents



Income Taxes.
  Income Taxes
 32




---



##### 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
   33




---



##### Table of Contents



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 Company
 34




---



##### Table of Contents



Date Filed
    
    Court
    
    Plaintiff
    
    Defendants2/24/2010
    
    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
      35




---



##### 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. REMOVED & RESERVED
 Nothing to report under this item.
 
 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
 36




---



##### Table of Contents



SIGNATURES
  PORTEC RAIL PRODUCTS, INC.Date: November 8, 2010
    By:
    /s/ Richard J. JarosinskiRichard J. Jarosinski, President andChief Executive Officer and Principal
Executive Officer Date: November 8, 2010
    By:
    /s/ John N. PesarsickJohn N. Pesarsick, Chief FinancialOfficer and Principal Accounting Officer 37




---



##### 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
 38