##### 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, 2007
 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 þ o
 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, 2007 (Unaudited) and December 31, 2006
    
    3Condensed Consolidated Statements of Income (Unaudited)
Three and nine months ended September 30, 2007 and 2006
    
    4Condensed Consolidated Statements of Cash Flows (Unaudited)
Nine months ended September 30, 2007 and 2006
    
    5Notes to Condensed Consolidated Financial Statements (Unaudited)
    
    62.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    223.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    324.
    
    Controls and Procedures
    
    33PART II  OTHER INFORMATION1.
    
    Legal Proceedings
    
    331A.
    
    Risk Factors
    
    332.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    343.
    
    Defaults Upon Senior Securities
    
    344.
    
    Submission of Matters to a Vote of Security Holders
    
    345.
    
    Other Information
    
    346.
    
    Exhibits
    
    35Signatures
    
    36EX-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 312007
    
    2006(Unaudited)
    
    (Audited)(In Thousands)AssetsCurrent assetsCash and cash equivalents
    
    $
    4,045
    
    
    $
    1,822Accounts receivable, net
    
    
    21,956
    
    
    
    16,862Inventories, net
    
    
    22,806
    
    
    
    23,255Prepaid expenses and other current assets
    
    
    1,551
    
    
    
    647Long-lived assets held for sale
    
    
    
    
    
    
    2,525Deferred income taxes
    
    
    364
    
    
    
    682Total current assets
    
    $
    50,722
    
    
    $
    45,793Property, plant and equipment, net of
accumulated depreciation of $13,588 and
$10,687 at September 30, 2007 and December
31, 2006, respectively
    
    
    11,294
    
    
    
    10,403Intangible assets, net of accumulated
amortization of $2,838 and $1,618 at
September 30, 2007 and December 31, 2006,
respectively
    
    
    31,894
    
    
    
    30,744Goodwill
    
    
    15,188
    
    
    
    14,176Other assets
    
    
    792
    
    
    
    566Total assets
    
    $
    109,890
    
    
    $
    101,682Liabilities and Shareholders EquityCurrent liabilitiesCurrent maturities of long-term debt
    
    $
    9,213
    
    
    $
    5,655Accounts payable
    
    
    8,358
    
    
    
    7,701Accrued income taxes
    
    
    800
    
    
    
    995Customer deposits
    
    
    1,015
    
    
    
    2,046Accrued compensation
    
    
    2,141
    
    
    
    1,826Other accrued liabilities
    
    
    3,717
    
    
    
    2,212Deferred purchase price  current portion
    
    
    460
    
    
    
    587Total current liabilities
    
    
    25,704
    
    
    
    21,022Long-term debt, less current maturities
    
    
    10,475
    
    
    
    13,737Accrued pension costs
    
    
    3,955
    
    
    
    3,336Deferred income taxes
    
    
    11,065
    
    
    
    9,517Deferred purchase price, less current maturity
    
    
    
    
    
    
    294Other long-term liabilities
    
    
    377
    
    
    
    680Total liabilities
    
    
    51,576
    
    
    
    48,586Commitments and Contingencies
    
    
    
    
    
    
    Shareholders equity:Common stock, $1 par value, 50,000,000
shares authorized, 9,601,779 shares
issued and outstanding at September 30,
2007 and December 31, 2006, respectively
    
    
    9,602
    
    
    
    9,602Additional paid-in capital
    
    
    25,328
    
    
    
    25,290Retained earnings
    
    
    22,589
    
    
    
    19,647Accumulated other comprehensive gain/(loss)
    
    
    795
    
    
    
    (1,443
    )Total shareholders equity
    
    
    58,314
    
    
    
    53,096Total liabilities and shareholders equity
    
    $
    109,890
    
    
    $
    101,682
 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 302007
    
    2006
    
    2007
    
    2006(Dollars in Thousands, Except Per Share Data)Net sales
    
    $
    27,998
    
    
    $
    24,282
    
    
    $
    84,572
    
    
    $
    76,369Cost of sales
    
    
    18,803
    
    
    
    16,639
    
    
    
    58,228
    
    
    
    53,403Gross profit
    
    
    9,195
    
    
    
    7,643
    
    
    
    26,344
    
    
    
    22,966Selling, general and administrative
    
    
    5,563
    
    
    
    5,524
    
    
    
    16,875
    
    
    
    16,226Amortization expense
    
    
    315
    
    
    
    218
    
    
    
    924
    
    
    
    636Operating income
    
    
    3,317
    
    
    
    1,901
    
    
    
    8,545
    
    
    
    6,104Interest expense
    
    
    323
    
    
    
    287
    
    
    
    947
    
    
    
    792Other expense, net
    
    
    191
    
    
    
    102
    
    
    
    289
    
    
    
    173Income before income taxes
    
    
    2,803
    
    
    
    1,512
    
    
    
    7,309
    
    
    
    5,139Provision for income taxes
    
    
    913
    
    
    
    311
    
    
    
    2,327
    
    
    
    1,383Net income
    
    $
    1,890
    
    
    $
    1,201
    
    
    $
    4,982
    
    
    $
    3,756Earnings per shareBasic and diluted
    
    $
    0.20
    
    
    $
    0.13
    
    
    $
    0.52
    
    
    $
    0.39Weighted average shares outstandingBasic and diluted
    
    
    9,601,779
    
    
    
    9,601,779
    
    
    
    9,601,779
    
    
    
    9,601,779Dividends 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 302007
    
    2006(In Thousands)Operating ActivitiesNet income
    
    $
    4,982
    
    
    $
    3,756Adjustments to reconcile net income to net cash
provided by operating activities:Depreciation expense
    
    
    1,763
    
    
    
    1,512Amortization expense
    
    
    924
    
    
    
    636Provision for doubtful accounts
    
    
    79
    
    
    
    36Deferred income taxes
    
    
    (217
    )
    
    
    (328
    )Pension expense
    
    
    53
    
    
    
    21Loss on sale of fixed assets
    
    
    133
    
    
    
    89Stock based compensation expense
    
    
    38
    
    
    
    Impairment of long-lived assets
    
    
    50
    
    
    
    100Changes in operating assets and liabilities:Accounts receivable
    
    
    (5,106
    )
    
    
    (2,916
    )Inventories
    
    
    1,481
    
    
    
    (563
    )Prepaid expenses and other current assets
    
    
    (889
    )
    
    
    (718
    )Accounts payable
    
    
    1,294
    
    
    
    1,806Income taxes payable
    
    
    (219
    )
    
    
    (101
    )Accrued expenses
    
    
    (94
    )
    
    
    (921
    )Net cash provided by operating activities
    
    
    4,272
    
    
    
    2,409Investing ActivitiesPurchase of property, plant and equipment
    
    
    (1,484
    )
    
    
    (1,528
    )Proceeds from sale of assets
    
    
    2,436
    
    
    
    1Business acquisition, net of cash acquired
    
    
    
    
    
    
    (4,826
    )Contingent consideration  business acquisition
    
    
    (116
    )
    
    
    Net cash provided by (used in) investing activities
    
    
    836
    
    
    
    (6,353
    )Financing ActivitiesNet increase in working capital facilities
    
    
    3,237
    
    
    
    18Principal payments on promissory notes
    
    
    (280
    )
    
    
    (280
    )Proceeds from term loans
    
    
    54
    
    
    
    4,178Principal payments on term loans
    
    
    (4,326
    )
    
    
    (1,993
    )Principal payments on capital leases
    
    
    (62
    )
    
    
    (49
    )Fees paid to obtain new financing
    
    
    
    
    
    
    (74
    )Cash dividends paid to shareholders
    
    
    (1,728
    )
    
    
    (1,728
    )Net cash (used in) provided by financing activities
    
    
    (3,105
    )
    
    
    72Effect of exchange rate changes on cash and cash equivalents
    
    
    220
    
    
    
    103Increase (decrease) in cash and cash equivalents
    
    
    2,223
    
    
    
    (3,769
    )Cash and cash equivalents at beginning of period
    
    
    1,822
    
    
    
    5,367Cash and cash equivalents at end of period
    
    $
    4,045
    
    
    $
    1,598Supplemental Disclosures of Cash Flow InformationCash paid during the period for:Interest
    
    $
    953
    
    
    $
    808Income taxes
    
    $
    2,860
    
    
    $
    2,197
 See Notes to Condensed Consolidated Financial Statements
 5




---



##### Table of Contents



Portec Rail Products, Inc.
 
 Notes to Condensed Consolidated Financial Statements
 (Unaudited)
 Note 1: Organization
  Note 2: Basis of Presentation
  Note 3: Acquisition of Vulcan Chain Corporation Assets
  6




---



##### Table of Contents



Portec Rail Products, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
  Business Combinations.
 The following summarizes the estimated fair values at the acquisition date:
 October 102006(In Thousands)Property, plant and equipment, net
    
    $
    196Intangible Assets
    
    
    3,453Goodwill
    
    
    830Total assets acquired
    
    $
    4,479
 Note 4: Acquisition of Coronet Rail, Ltd.
  7




---



##### Table of Contents



Portec Rail Products, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
  ,
 The following summarizes the estimated fair values as of the acquisition effective date:
 April 82006(In Thousands)Cash and cash equivalents
    
    $
    12Accounts receivable, net
    
    
    1,801Inventories, net
    
    
    1,663Property, plant and equipment, net
    
    
    362Intangible Assets
    
    
    3,499Goodwill
    
    
    1,915Total assets acquired
    
    
    9,252Accounts payable
    
    $
    1,157Working capital facility
    
    
    612Accrued income taxes
    
    
    376Accrued compensation
    
    
    2Other accrued liabilities
    
    
    180Deferred income taxes (current and long-term)
    
    
    1,073Capital leases (current and long-term)
    
    
    90Total liabilities
    
    
    3,490Net assets acquired
    
    $
    5,762
 PRO FORMA FINANCIAL INFORMATION  CORONET RAIL, LTD. ACQUISITION
  8




---



##### Table of Contents



Portec Rail Products, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
  Three Months Ended
    
    Nine Months EndedSeptember 30
    
    September 302007
    
    2006
    
    2007
    
    2006(Dollars in Thousands, Except Per Share Data)Pro forma net sales
    
    $
    27,998
    
    
    $
    24,282
    
    
    $
    84,572
    
    
    $
    78,412Pro forma net income
    
    $
    1,890
    
    
    $
    1,201
    
    
    $
    4,982
    
    
    $
    3,996Pro forma net income per basic and diluted share
    
    $
    0.20
    
    
    $
    0.13
    
    
    $
    0.52
    
    
    $
    0.42Shares used for basic and diluted computation
    
    
    9,601,779
    
    
    
    9,601,779
    
    
    
    9,601,779
    
    
    
    9,601,779
 Note 5: Inventories
   September 30
    
    December 312007
    
    2006(In Thousands)Raw materials
    
    $
    12,262
    
    
    $
    11,109Work in process
    
    
    516
    
    
    
    700Finished goods
    
    
    10,463
    
    
    
    11,75123,241
    
    
    
    23,560Less reserve for slow-moving and obsolete inventory
    
    
    435
    
    
    
    305Net inventory
    
    $
    22,806
    
    
    $
    23,255
 9




---



##### Table of Contents



Portec Rail Products, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
 Note 6: Long-Term Debt
  September 30
    
    December 312007
    
    2006(In Thousands)National City Bank Credit Facility: (a)Term loan  Kelsan acquisition
    
    $
    9,062
    
    
    $
    9,350Term loan  Vulcan asset acquisition
    
    
    2,500
    
    
    
    2,950Revolving credit facility  United States
    
    
    4,650
    
    
    
    850Revolving credit facility  Canada
    
    
    
    
    
    
    1,029United Kingdom loans: (b)Term loans  Coronet Rail acquisition
    
    
    2,314
    
    
    
    4,307Working capital facility  invoice discounting
    
    
    552
    
    
    
    Working capital facility  overdraft
    
    
    
    
    
    
    Term loans  vehicles
    
    
    44
    
    
    
    Promissory notes  Salient Systems acquisition (c)
    
    
    560
    
    
    
    840Revolving credit facility  Boone County Bank, Inc. (d)
    
    
    
    
    
    
    Capitalized lease obligations
    
    
    6
    
    
    
    6619,688
    
    
    
    19,392Less current maturities
    
    
    9,213
    
    
    
    5,655$
    10,475
    
    
    $
    13,737
 (a) National City Bank Credit Facility
   Term Loan  Kelsan Acquisition:
  10




---



##### Table of Contents



Portec Rail Products, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
  Term Loan  Vulcan Asset Acquisition:
  Revolving Credit Facility  United States:
  Revolving Credit Facility  Canada:
  (b) United Kingdom Loans
 Term Loans  Coronet Rail Acquisition:
  11




---



##### Table of Contents



Portec Rail Products, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
 Working Capital Facility  Invoice Discounting:
  Working Capital Facility  Overdraft:
  (c) Salient Systems Promissory Notes
 Wall Street Journal
 (d) Revolving Credit Facility  Boone County Bank, Inc.
  12




---



##### Table of Contents



Portec Rail Products, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
 Note 7: Retirement Plans
  Three Months Ended
    
    Nine Months EndedSeptember 30
    
    September 302007
    
    2006
    
    2007
    
    2006(InThousands)Interest cost
    
    $
    133
    
    
    $
    133
    
    
    $
    401
    
    
    $
    398Expected return on plan assets
    
    
    (157
    )
    
    
    (161
    )
    
    
    (471
    )
    
    
    (485
    )Amortization of unrecognized loss
    
    
    33
    
    
    
    26
    
    
    
    97
    
    
    
    80Pension expense/(benefit)
    
    $
    9
    
    
    $
    (2
    )
    
    $
    27
    
    
    $
    (7
    )
   Portec Rail PlanThree Months Ended
    
    Nine Months EndedSeptember 30
    
    September 302007
    
    2006
    
    2007
    
    2006(In Thousands)Interest cost
    
    $
    81
    
    
    $
    73
    
    
    $
    240
    
    
    $
    213Expected return on plan assets
    
    
    (89
    )
    
    
    (80
    )
    
    
    (263
    )
    
    
    (232
    )Amortization of transition amount
    
    
    (15
    )
    
    
    (14
    )
    
    
    (45
    )
    
    
    (40
    )Amortization of unrecognized loss
    
    
    34
    
    
    
    32
    
    
    
    100
    
    
    
    91Pension expense
    
    $
    11
    
    
    $
    11
    
    
    $
    32
    
    
    $
    32
 Conveyors PlanThree Months Ended
    
    Nine Months EndedSeptember 30
    
    September 302007
    
    2006
    
    2007
    
    2006(In Thousands)Interest cost
    
    $
    19
    
    
    $
    17
    
    
    $
    55
    
    
    $
    48Expected return on plan assets
    
    
    (19
    )
    
    
    (16
    )
    
    
    (55
    )
    
    
    (48
    )Amortization of transition amount
    
    
    (3
    )
    
    
    (3
    )
    
    
    (9
    )
    
    
    (8
    )Amortization of unrecognized loss
    
    
    1
    
    
    
    1
    
    
    
    3
    
    
    
    4Pension (benefit)
    
    $
    (2
    )
    
    $
    (1
    )
    
    $
    (6
    )
    
    $
    (4
    )
  13




---



##### Table of Contents



Portec Rail Products, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
  Note 8: Comprehensive Income
  Three Months Ended
    
    Nine Months EndedSeptember 30
    
    September 302007
    
    2006
    
    2007
    
    2006(In Thousands)Net income
    
    $
    1,890
    
    
    $
    1,201
    
    
    $
    4,982
    
    
    $
    3,756Minimum pension
liability
adjustment, net of
tax
    
    
    (41
    )
    
    
    (17
    )
    
    
    (95
    )
    
    
    (110
    )Foreign currency
translation
adjustments, net of
tax
    
    
    1,127
    
    
    
    7
    
    
    
    2,334
    
    
    
    673Comprehensive income
    
    $
    2,976
    
    
    $
    1,191
    
    
    $
    7,221
    
    
    $
    4,319
 Note 9: Earnings Per Share
   14




---



##### Table of Contents



Portec Rail Products, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
 Note 10: Commitments and Contingencies
 Contractual Obligations
  Less
    
    
    
    
    
    
    
    
    
    
    Morethan 1
    
    
    1  3
    
    
    3  5
    
    
    than 5Contractual Obligations
    
    Total
    
    
    year
    
    
    years
    
    
    years
    
    
    years(In Thousands)Term loans
    
    $
    14,480
    
    
    $
    974
    
    
    $
    8,055
    
    
    $
    5,451
    
    
    $
    Working capital facilities
    
    
    5,202
    
    
    
    5,202
    
    
    
    
    
    
    
    
    
    
    
    Operating leases (1)
    
    
    5,020
    
    
    
    339
    
    
    
    1,879
    
    
    
    1,159
    
    
    
    1,643Purchase obligations
    
    
    3,423
    
    
    
    3,423
    
    
    
    
    
    
    
    
    
    
    
    Future interest payments (2)
    
    
    1,812
    
    
    
    228
    
    
    
    1,317
    
    
    
    267
    
    
    
    Pension contributions (3)
    
    
    682
    
    
    
    
    
    
    
    682
    
    
    
    
    
    
    
    Deferred purchase price (4)
    
    
    460
    
    
    
    153
    
    
    
    307
    
    
    
    
    
    
    
    Capital leases
    
    
    6
    
    
    
    6
    
    
    
    
    
    
    
    
    
    
    
    Total contractual obligations (5)
    
    $
    31,085
    
    
    $
    10,325
    
    
    $
    12,240
    
    
    $
    6,877
    
    
    $
    1,643
 
 (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)
    
    Represents future interest payments on long-term debt obligations as of September 30, 2007.
Assumes that the interest rates on our long-term debt agreements at September 30, 2007 (See Note 6
of the consolidated financial statements of Form 10-Q) will continue for the life of the
agreements.(3)
    
    Pension plan contributions that may be required more than one year from September 30, 2007 will
be dependent upon the performance on plan assets(4)
    
    Represents the deferred purchase price obligation related to the purchase of Coronet Rail in
April 2006.(5)
    
    During the first quarter 2007, we recognized a liability of $313,000 for uncertain tax
positions in accordance with Financial Accounting Standards Board (FASB) Interpretation No. 48,
Accounting for Uncertainty in Income Taxes  an Interpretation of FASB Statement No. 109 (FIN 48).
See Note 14, Change in Accounting Principle. This amount is included within other long-term
liabilities on the September 30, 2007 consolidated balance sheet. However, because of the high
degree of uncertainty regarding the timing of future cash outflows associated with this FIN 48
liability, we cannot reasonably estimate the periods of related future payments, and as such, we
have excluded the FIN 48 liability from the contractual obligations table. Contingencies
  Accounting for Contingencies, specifically Accrual for Loss Contingencies and
Obligations Related to Product Warranties and Product Defects
 15




---



##### Table of Contents



Portec Rail Products, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
  Litigation
  Note 11: Segment Information
  Three Months Ended
    
    
    Nine Months EndedSeptember 30
    
    
    September 302007
    
    
    2006
    
    
    2007
    
    
    2006(In Thousands)External SalesRMP
    
    $
    13,234
    
    
    $
    11,577
    
    
    $
    38,430
    
    
    $
    35,726SSD
    
    
    2,012
    
    
    
    754
    
    
    
    6,227
    
    
    
    2,607Canada
    
    
    4,579
    
    
    
    4,050
    
    
    
    18,265
    
    
    
    17,038United Kingdom
    
    
    8,173
    
    
    
    7,901
    
    
    
    21,650
    
    
    
    20,998Total
    
    $
    27,998
    
    
    $
    24,282
    
    
    $
    84,572
    
    
    $
    76,369
 16




---



##### Table of Contents



Portec Rail Products, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30
    
    
    September 302007
    
    
    2006
    
    
    2007
    
    
    2006(In Thousands)Intersegment SalesRMP
    
    $
    544
    
    
    $
    504
    
    
    $
    1,662
    
    
    $
    1,696SSD
    
    
    
    
    
    
    1
    
    
    
    (3
    )
    
    
    12Canada
    
    
    1,632
    
    
    
    1,333
    
    
    
    5,418
    
    
    
    4,997United Kingdom
    
    
    
    
    
    
    3
    
    
    
    146
    
    
    
    15Total
    
    $
    2,176
    
    
    $
    1,841
    
    
    $
    7,223
    
    
    $
    6,720Total SalesRMP
    
    $
    13,778
    
    
    $
    12,081
    
    
    $
    40,092
    
    
    $
    37,422SSD
    
    
    2,012
    
    
    
    755
    
    
    
    6,224
    
    
    
    2,619Canada
    
    
    6,211
    
    
    
    5,383
    
    
    
    23,683
    
    
    
    22,035United Kingdom
    
    
    8,173
    
    
    
    7,904
    
    
    
    21,796
    
    
    
    21,013Total
    
    $
    30,174
    
    
    $
    26,123
    
    
    $
    91,795
    
    
    $
    83,089Operating Income (Loss)RMP
    
    $
    2,162
    
    
    $
    1,671
    
    
    $
    5,148
    
    
    $
    4,688SSD
    
    
    323
    
    
    
    43
    
    
    
    961
    
    
    
    183Canada
    
    
    325
    
    
    
    87
    
    
    
    2,450
    
    
    
    1,245United Kingdom
    
    
    1,259
    
    
    
    799
    
    
    
    2,608
    
    
    
    2,230Corporate Shared Services
    
    
    (752
    )
    
    
    (699
    )
    
    
    (2,622
    )
    
    
    (2,242
    )Total
    
    
    3,317
    
    
    
    1,901
    
    
    
    8,545
    
    
    
    6,104Interest Expense
    
    
    323
    
    
    
    287
    
    
    
    947
    
    
    
    792Other Expense, net
    
    
    191
    
    
    
    102
    
    
    
    289
    
    
    
    173Income Before Income Taxes
    
    $
    2,803
    
    
    $
    1,512
    
    
    $
    7,309
    
    
    $
    5,139DepreciationRMP
    
    $
    215
    
    
    $
    198
    
    
    $
    619
    
    
    $
    585SSD
    
    
    43
    
    
    
    6
    
    
    
    110
    
    
    
    16Canada
    
    
    180
    
    
    
    165
    
    
    
    547
    
    
    
    437United Kingdom
    
    
    177
    
    
    
    150
    
    
    
    405
    
    
    
    410Corporate Shared Services
    
    
    29
    
    
    
    22
    
    
    
    82
    
    
    
    64Total
    
    $
    644
    
    
    $
    541
    
    
    $
    1,763
    
    
    $
    1,512AmortizationRMP
    
    $
    2
    
    
    $
    
    
    
    $
    4
    
    
    $
    SSD
    
    
    54
    
    
    
    
    
    
    
    161
    
    
    
    Canada
    
    
    195
    
    
    
    177
    
    
    
    555
    
    
    
    525United Kingdom
    
    
    64
    
    
    
    41
    
    
    
    204
    
    
    
    111Total
    
    $
    315
    
    
    $
    218
    
    
    $
    924
    
    
    $
    636
 17




---



##### Table of Contents



Portec Rail Products, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30
    
    
    September 302007
    
    
    2006
    
    
    2007
    
    
    2006(In Thousands)Capital ExpendituresRMP
    
    $
    211
    
    
    $
    40
    
    
    $
    504
    
    
    $
    311SSD
    
    
    32
    
    
    
    
    
    
    
    497
    
    
    
    37Canada
    
    
    136
    
    
    
    148
    
    
    
    270
    
    
    
    1,016United Kingdom
    
    
    13
    
    
    
    39
    
    
    
    148
    
    
    
    98Corporate Shared Services
    
    
    17
    
    
    
    12
    
    
    
    65
    
    
    
    66Total
    
    $
    409
    
    
    $
    239
    
    
    $
    1,484
    
    
    $
    1,528
 September 30
    
    
    December 312007
    
    
    2006(In Thousands)
    
    
    (In Thousands)Total AssetsRMP
    
    $
    37,949
    
    
    $
    40,903SSD
    
    
    8,032
    
    
    
    7,571Canada
    
    
    40,686
    
    
    
    30,022United Kingdom
    
    
    23,010
    
    
    
    22,478Corporate Shared Services
    
    
    213
    
    
    
    708Total
    
    $
    109,890
    
    
    $
    101,682
 Note 12: Restructuring Costs
 United Kingdom
  ,
Accounting for Costs Associated with Exit or Disposal Activities
 18




---



##### Table of Contents



Portec Rail Products, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
   Employee
    
    
    Lease
    
    
    OtherTermination
    
    
    Termination
    
    
    AssociatedTotal
    
    
    Benefits
    
    
    Costs
    
    
    Costs(In Thousands)Beginning balance, January 1, 2006
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Costs incurred
    
    
    206
    
    
    
    182
    
    
    
    
    
    
    
    24Cash payments
    
    
    (155
    )
    
    
    (131
    )
    
    
    
    
    
    
    (24
    )Adjustments
    
    
    (11
    )
    
    
    (11
    )
    
    
    
    
    
    
    Ending balance, December 31, 2006
    
    $
    40
    
    
    $
    40
    
    
    $
    
    
    
    $
    Costs incurred
    
    
    14
    
    
    
    14
    
    
    
    
    
    
    
    Cash payments
    
    
    (54
    )
    
    
    (54
    )
    
    
    
    
    
    
    Adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Ending balance, September 30, 2007
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
 Kelsan
  19




---



##### Table of Contents



Portec Rail Products, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
  Employee
    
    
    Lease
    
    
    OtherTermination
    
    
    Termination
    
    
    AssociatedTotal
    
    
    Benefits
    
    
    Costs
    
    
    Costs(In Thousands)Beginning balance, January 1, 2006
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Costs incurred
    
    
    105
    
    
    
    105
    
    
    
    
    
    
    
    Cash payments
    
    
    (54
    )
    
    
    (54
    )
    
    
    
    
    
    
    Adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Ending balance, December 31, 2006
    
    $
    51
    
    
    $
    51
    
    
    $
    
    
    
    $
    Costs incurred
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Cash payments
    
    
    (51
    )
    
    
    (51
    )
    
    
    
    
    
    
    Adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Ending balance, September 30, 2007
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
 Note 13: Impairment of Long-Lived Assets
  Note 14: Change in Accounting Principle
  Note 15: Recent Accounting Pronouncements
  20




---



##### Table of Contents



Portec Rail Products, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
   Note 16: Stock Options
   Exercise PriceStock Price on
    
    per Stock
    
    Annual
    
    
    
    
    
    Expected
    
    Expected TermGrant Date
    
    Option
    
    Dividend Yield
    
    Risk-free Rate
    
    Volatility
    
    (in years)$9.65
    
    $
    9.65
    
    
    
    2.50
    %
    
    
    4.73
    %
    
    
    39.40
    %
    
    
    6.5
 21




---



##### 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.
  22




---



##### Table of Contents



Overview
      Results of Operations
 Three Months Ended September 30, 2007 compared to Three Months Ended September 30, 2006
 Net Sales.
 Gross Profit.
 23




---



##### Table of Contents



Selling, General and Administrative Expenses.
 Amortization Expense.
 Interest Expense.
 Other Expense.
 Provision for Income Taxes.
 Net Income.
 Nine Months Ended September 30, 2007 compared to Nine Months Ended September 30, 2006
 Net Sales.
 Gross Profit.
 24




---



##### Table of Contents



Selling, General and Administrative Expenses.
 Amortization Expense.
 Interest Expense.
 Other Expense.
 Provision for Income Taxes.
 Net Income.
 Business Segment Review
 Railway Maintenance Products Division  RMP .
 25




---



##### Table of Contents



Three Months Ended
    
    
    Nine Months EndedSeptember 30
    
    
    September 302007
    
    
    2006
    
    
    2007
    
    
    2006(In Thousands)External sales
    
    $
    13,234
    
    
    $
    11,577
    
    
    $
    38,430
    
    
    $
    35,726Intersegment sales
    
    
    544
    
    
    
    504
    
    
    
    1,662
    
    
    
    1,696Operating income
    
    
    2,162
    
    
    
    1,671
    
    
    
    5,148
    
    
    
    4,688Sales by product line(1)Track component products
    
    $
    6,724
    
    
    $
    5,999
    
    
    $
    21,782
    
    
    $
    19,381Friction management products and services
    
    
    4,235
    
    
    
    4,150
    
    
    
    12,166
    
    
    
    13,298Wayside data collection and data management systems
    
    
    2,238
    
    
    
    1,441
    
    
    
    4,773
    
    
    
    3,601Other products and services
    
    
    581
    
    
    
    491
    
    
    
    1,371
    
    
    
    1,142Total product and service sales
    
    $
    13,778
    
    
    $
    12,081
    
    
    $
    40,092
    
    
    $
    37,422
 
 (1)
    
    Includes intersegment sales.   Shipping Systems Division  SSD .
 26




---



##### Table of Contents



Three Months Ended
    
    
    Nine Months EndedSeptember 30
    
    
    September 302007
    
    
    2006
    
    
    2007
    
    
    2006(In Thousands)External sales (1)
    
    $
    2,012
    
    
    $
    754
    
    
    $
    6,227
    
    
    $
    2,607Intersegment sales
    
    
    
    
    
    
    1
    
    
    
    (3
    )
    
    
    12Operating income (1)
    
    
    323
    
    
    
    43
    
    
    
    961
    
    
    
    183Sales by product line(2)Chain securement systems (3), (4)
    
    $
    406
    
    
    $
    250
    
    
    $
    1,662
    
    
    $
    1,433Automotive products (3), (5)
    
    
    1,171
    
    
    
    129
    
    
    
    3,286
    
    
    
    299Strap securement systems
    
    
    231
    
    
    
    342
    
    
    
    676
    
    
    
    721All other load securement systems
    
    
    204
    
    
    
    34
    
    
    
    600
    
    
    
    166Total product and service sales
    
    $
    2,012
    
    
    $
    755
    
    
    $
    6,224
    
    
    $
    2,619
 
 (1)
    
    Includes Vulcan-acquired product sales of $910,000 and $2.6 million, and operating income of
$185,000 and $534,000 for the three and nine months ended September 30, 2007. The three and
nine months ended September 30, 2006 do not include historical sales and operating income for
Vulcan.(2)
    
    Includes intersegment sales.(3)
    
    Includes Vulcan-acquired product sales of $81,000, $671,000, and $158,000 within chain
securement systems, automotive products, and all other securement systems, respectively, for
the three months ended September 30, 2007. Includes Vulcan-acquired product sales of
$406,000, $1.8 million, and $476,000 within chain securement systems, automotive products, and
all other securement systems, respectively, for the nine months ended September 30, 2007.(4)
    
    Includes heavy duty load securement systems, previously shown separately.(5)
    
    Includes auto rack load securement systems, previously shown separately.   Portec Rail Nova Scotia Company  Canada . ® ®
 27




---



##### Table of Contents



Three Months Ended
    
    
    Nine Months EndedSeptember 30
    
    
    September 302007
    
    
    2006
    
    
    2007
    
    
    2006(In Thousands)External sales
    
    $
    4,579
    
    
    $
    4,050
    
    
    $
    18,265
    
    
    $
    17,038Intersegment sales
    
    
    1,632
    
    
    
    1,333
    
    
    
    5,418
    
    
    
    4,997Operating income
    
    
    325
    
    
    
    87
    
    
    
    2,450
    
    
    
    1,245Average translation rate of Canadian dollar
to United States dollar
    
    
    0.9578
    
    
    
    0.8947
    
    
    
    0.9153
    
    
    
    0.8882Sales by product line(1)Rail anchors and spikes
    
    $
    2,934
    
    
    $
    2,317
    
    
    $
    12,542
    
    
    $
    12,311Friction management products and services
    
    
    2,950
    
    
    
    2,773
    
    
    
    10,089
    
    
    
    8,972Other products and services
    
    
    327
    
    
    
    293
    
    
    
    1,052
    
    
    
    752Total product and service sales
    
    $
    6,211
    
    
    $
    5,383
    
    
    $
    23,683
    
    
    $
    22,035
 
 (1)
    
    Includes intersegment sales.   Portec Rail Products (UK) Ltd.  United Kingdom" .
 Three Months Ended
    
    
    Nine Months EndedSeptember 30
    
    
    September 302007
    
    
    2006
    
    
    2007
    
    
    2006(In Thousands)External sales
    
    $
    8,173
    
    
    $
    7,901
    
    
    $
    21,650
    
    
    $
    20,998Intersegment sales
    
    
    
    
    
    
    3
    
    
    
    146
    
    
    
    15Operating income
    
    
    1,259
    
    
    
    799
    
    
    
    2,608
    
    
    
    2,230Average translation rate of British pound
sterling to United States dollar
    
    
    2.0262
    
    
    
    1.8735
    
    
    
    1.9979
    
    
    
    1.8290Sales by product line(1)Material handling products
    
    $
    3,166
    
    
    $
    3,393
    
    
    $
    9,479
    
    
    $
    10,321Friction management products and services
    
    
    3,730
    
    
    
    3,166
    
    
    
    8,016
    
    
    
    7,800Track component products
    
    
    1,277
    
    
    
    1,345
    
    
    
    4,301
    
    
    
    2,892Total product and service sales
    
    $
    8,173
    
    
    $
    7,904
    
    
    $
    21,796
    
    
    $
    21,013
 
 (1)
    
    Includes intersegment sales. 28




---



##### Table of Contents



Liquidity and Capital Resources
  Cash Flow Analysis .
   29




---



##### Table of Contents



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




---



##### Table of Contents



Inventories.
 Goodwill and Other Intangible Assets.
    Retirement Benefit Plans.
 31




---



##### Table of Contents



Income Taxes.
  
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
   32




---



##### Table of Contents



ITEM 4. CONTROLS AND PROCEDURES
  
 PART II  OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  
 ITEM 1A. RISK FACTORS
   33




---



##### Table of Contents



Accounting for Contingencies, specifically Accrual for Loss Contingencies and
Obligations Related to Product Warranties and Product Defects.
  
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 ITEM 5. OTHER INFORMATION
  34




---



##### Table of Contents



ITEM 6. EXHIBITS
 (a)
    
    Exhibits filed as part of this Form 10-Q:
 31.1
    
    Certification of Chief Executive Officer pursuant to Section 302 of theSarbanes-Oxley Act of 200231.2
    
    Certification of Chief Financial Officer pursuant to Section 302 of theSarbanes-Oxley Act of 200232
    
    Certification of Chief Executive Officer and ChiefFinancial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 35




---



##### Table of Contents



SIGNATURES
  PORTEC RAIL PRODUCTS, INC.Date: November 7, 2007
    
    By:
    
    /s/ Richard J. JarosinskiRichard J. Jarosinski, President andChief Executive OfficerDate: November 7, 2007
    
    By:
    
    /s/ John N. PesarsickJohn N. Pesarsick, Chief Financial Officer
 36




---



##### 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
 37