##### 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, 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
 
 
  þ o
  o þ o
 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, 2007 (Unaudited) and December 31, 2006
    
    
    3Condensed Consolidated Statements of Income (Unaudited) Three and six months ended June 30, 2007 and 2006
    
    
    4Condensed Consolidated Statements of Cash Flows (Unaudited) Six months ended June 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




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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 312007
    
    2006(Unaudited)
    
    (Audited)(In Thousands)AssetsCurrent assetsCash and cash equivalents
    
    $
    1,961
    
    
    $
    1,822Accounts receivable, net
    
    
    19,110
    
    
    
    16,862Inventories, net
    
    
    23,335
    
    
    
    23,255Prepaid expenses and other current assets
    
    
    1,952
    
    
    
    647Long-lived assets held for sale
    
    
    
    
    
    
    2,525Deferred income taxes
    
    
    428
    
    
    
    682Total current assets
    
    $
    46,786
    
    
    $
    45,793Property, plant and equipment, net of
accumulated depreciation of $12,800 and
$10,687 at June 30, 2007 and December 31,
2006, respectively.
    
    
    11,062
    
    
    
    10,403Intangible assets, net of accumulated
amortization of $2,370 and $1,618 at June 30,
2007 and December 31, 2006, respectively
    
    
    31,315
    
    
    
    30,744Goodwill
    
    
    14,737
    
    
    
    14,176Other assets
    
    
    733
    
    
    
    566Total assets
    
    $
    104,633
    
    
    $
    101,682Liabilities and Shareholders EquityCurrent liabilitiesCurrent maturities of long-term debt
    
    $
    8,495
    
    
    $
    5,655Accounts payable
    
    
    6,691
    
    
    
    7,701Accrued income taxes
    
    
    505
    
    
    
    995Customer deposits
    
    
    1,477
    
    
    
    2,046Accrued compensation
    
    
    1,457
    
    
    
    1,826Other accrued liabilities
    
    
    3,913
    
    
    
    2,212Deferred purchase price  current portion
    
    
    602
    
    
    
    587Total current liabilities
    
    
    23,140
    
    
    
    21,022Long-term debt, less current maturities
    
    
    10,883
    
    
    
    13,737Deferred income taxes
    
    
    10,303
    
    
    
    9,517Accrued pension costs
    
    
    4,028
    
    
    
    3,336Deferred purchase price, less current maturity
    
    
    
    
    
    
    294Other long-term liabilities
    
    
    378
    
    
    
    680Total liabilities
    
    
    48,732
    
    
    
    48,586Commitments and Contingencies
    
    
    
    
    
    
    Shareholders equity:Common stock, $1 par value, 50,000,000
shares authorized, 9,601,779 shares
issued and outstanding at June 30, 2007
and December 31, 2006, respectively
    
    
    9,602
    
    
    
    9,602Additional paid-in capital
    
    
    25,315
    
    
    
    25,290Retained earnings
    
    
    21,274
    
    
    
    19,647Accumulated other comprehensive loss
    
    
    (290
    )
    
    
    (1,443
    )Total shareholders equity
    
    
    55,901
    
    
    
    53,096Total liabilities and shareholders equity
    
    $
    104,633
    
    
    $
    101,682
 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 302007
    
    2006
    
    2007
    
    2006(Dollars in Thousands, Except Per Share Data)Net sales
    
    $
    29,090
    
    
    $
    28,972
    
    
    $
    56,574
    
    
    $
    52,087Cost of sales
    
    
    19,987
    
    
    
    20,488
    
    
    
    39,425
    
    
    
    36,764Gross profit
    
    
    9,103
    
    
    
    8,484
    
    
    
    17,149
    
    
    
    15,323Selling, general and administrative
    
    
    5,649
    
    
    
    5,668
    
    
    
    11,312
    
    
    
    10,701Amortization expense
    
    
    303
    
    
    
    247
    
    
    
    609
    
    
    
    418Operating income
    
    
    3,151
    
    
    
    2,569
    
    
    
    5,228
    
    
    
    4,204Interest expense
    
    
    307
    
    
    
    296
    
    
    
    624
    
    
    
    505Other expense, net
    
    
    168
    
    
    
    73
    
    
    
    98
    
    
    
    71Income before income taxes
    
    
    2,676
    
    
    
    2,200
    
    
    
    4,506
    
    
    
    3,628Provision for income taxes
    
    
    789
    
    
    
    678
    
    
    
    1,414
    
    
    
    1,072Net income
    
    $
    1,887
    
    
    $
    1,522
    
    
    $
    3,092
    
    
    $
    2,556Earnings per share
Basic and diluted
    
    $
    0.20
    
    
    $
    0.16
    
    
    $
    0.32
    
    
    $
    0.27Weighted average shares outstanding
Basic and diluted
    
    
    9,601,779
    
    
    
    9,601,779
    
    
    
    9,601,779
    
    
    
    9,601,779Dividends 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 302007
    
    
    2006(In Thousands)Operating ActivitiesNet income
    
    $
    3,092
    
    
    $
    2,556Adjustments to reconcile net income to net cash
provided by operating activities:Depreciation expense
    
    
    1,119
    
    
    
    971Amortization expense
    
    
    609
    
    
    
    418Provision for doubtful accounts
    
    
    48
    
    
    
    36Deferred income taxes
    
    
    (141
    )
    
    
    (223
    )Pension expense
    
    
    36
    
    
    
    13Loss on disposal of assets
    
    
    35
    
    
    
    54Stock based compensation expense
    
    
    25
    
    
    
    Impairment of long-lived assets
    
    
    50
    
    
    
    Changes in operating assets and liabilities:Accounts receivable
    
    
    (2,295
    )
    
    
    (2,434
    )Inventories
    
    
    511
    
    
    
    597Prepaid expenses and other current assets
    
    
    (1,263
    )
    
    
    (385
    )Accounts payable
    
    
    (615
    )
    
    
    42Income taxes payable
    
    
    (489
    )
    
    
    (80
    )Accrued expenses
    
    
    301
    
    
    
    (104
    )Net cash provided by operating activities
    
    
    1,023
    
    
    
    1,461Investing ActivitiesPurchases of property, plant and equipment
    
    
    (1,075
    )
    
    
    (1,289
    )Proceeds from sale of assets
    
    
    2,436
    
    
    
    1Business acquisition, net of cash acquired
    
    
    
    
    
    
    (4,664
    )Contingent consideration  business acquisition
    
    
    (71
    )
    
    
    Net cash provided by (used in) investing activities
    
    
    1,290
    
    
    
    (5,952
    )Financing ActivitiesNet increase (decrease) in working capital facilities
    
    
    2,709
    
    
    
    (258
    )Principal payments on promissory note
    
    
    (280
    )
    
    
    (280
    )Proceeds from term loans
    
    
    54
    
    
    
    4,178Principal payments on term loans
    
    
    (3,418
    )
    
    
    (1,204
    )Principal payments on capital leases
    
    
    (46
    )
    
    
    (27
    )Fees paid to obtain new financing
    
    
    
    
    
    
    (73
    )Cash dividends paid to shareholders
    
    
    (1,152
    )
    
    
    (1,152
    )Net cash (used in) provided by financing activities
    
    
    (2,133
    )
    
    
    1,184Effect of exchange rate changes on cash and cash equivalents
    
    
    (41
    )
    
    
    98Increase (decrease) in cash and cash equivalents
    
    
    139
    
    
    
    (3,209
    )Cash and cash equivalents at beginning of period
    
    
    1,822
    
    
    
    5,367Cash and cash equivalents at end of period
    
    $
    1,961
    
    
    $
    2,158Supplemental Disclosures of Cash Flow InformationCash paid during the period for:Interest
    
    $
    669
    
    
    $
    553Income taxes
    
    $
    1,910
    
    
    $
    1,560
 See Notes to Condensed Consolidated Financial Statements
 5




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##### Table of Contents



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




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##### 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




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##### 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




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##### Table of Contents



Portec Rail Products, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
  Three Months Ended
    
    Six Months EndedJune 30
    
    June 302007
    
    2006
    
    2007
    
    2006(Dollars in Thousands, Except Per Share Data)Pro forma net sales
    
    $
    29,090
    
    
    $
    29,009
    
    
    $
    56,574
    
    
    $
    54,130Pro forma net income
    
    $
    1,887
    
    
    $
    1,517
    
    
    $
    3,092
    
    
    $
    2,782Pro forma net income per basic and diluted
share
    
    $
    0.20
    
    
    $
    0.16
    
    
    $
    0.32
    
    
    $
    0.29Shares used for basic and diluted computation
    
    
    9,601,779
    
    
    
    9,601,779
    
    
    
    9,601,779
    
    
    
    9,601,779
 Note 5: Inventories
   June 30
    
    December 312007
    
    2006(In Thousands)Raw materials
    
    $
    14,055
    
    
    $
    11,109Work in process
    
    
    320
    
    
    
    700Finished goods
    
    
    9,392
    
    
    
    11,75123,767
    
    
    
    23,560Less reserve for slow-moving and obsolete inventory
    
    
    432
    
    
    
    305Net inventory
    
    $
    23,335
    
    
    $
    23,255
 9




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##### Table of Contents



Portec Rail Products, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
 Note 6: Long-Term Debt
  June 30
    
    December 312007
    
    2006(In Thousands)National City Bank Credit Facility: (a)Term loan  Kelsan acquisition
    
    $
    9,049
    
    
    $
    9,350Term loan  Vulcan asset acquisition
    
    
    2,650
    
    
    
    2,950Revolving credit facility  United States
    
    
    3,950
    
    
    
    850Revolving credit facility  Canada
    
    
    188
    
    
    
    1,029United Kingdom loans: (b)Term loans  Coronet Rail acquisition
    
    
    2,401
    
    
    
    4,307Working capital facility  invoice discounting
    
    
    510
    
    
    
    Working capital facility  overdraft
    
    
    
    
    
    
    Term loans  vehicles
    
    
    48
    
    
    
    Promissory notes  Salient Systems acquisition (c)
    
    
    560
    
    
    
    840Revolving credit facility  Boone County Bank, Inc. (d)
    
    
    
    
    
    
    Capitalized lease obligations
    
    
    22
    
    
    
    6619,378
    
    
    
    19,392Less current maturities
    
    
    8,495
    
    
    
    5,655$
    10,883
    
    
    $
    13,737
 (a) National City Bank Credit Facility
   Term Loan  Kelsan Acquisition:
  10




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##### 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




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##### 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




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##### Table of Contents



Portec Rail Products, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
 Note 7: Retirement Plans
  Three Months Ended
    
    Six Months EndedJune 30
    
    June 302007
    
    2006
    
    2007
    
    2006(In Thousands)Interest cost
    
    $
    134
    
    
    $
    132
    
    
    $
    268
    
    
    $
    265Expected return on plan assets
    
    
    (157
    )
    
    
    (162
    )
    
    
    (314
    )
    
    
    (324
    )Amortization of unrecognized loss
    
    
    32
    
    
    
    27
    
    
    
    64
    
    
    
    54Pension cost (benefit)
    
    $
    9
    
    
    $
    (3
    )
    
    $
    18
    
    
    $
    (5
    )
   Portec Rail PlanThree Months Ended
    
    Six Months EndedJune 30
    
    June 302007
    
    2006
    
    2007
    
    2006(In Thousands)Interest cost
    
    $
    80
    
    
    $
    71
    
    
    $
    159
    
    
    $
    140Expected return on plan assets
    
    
    (88
    )
    
    
    (77
    )
    
    
    (174
    )
    
    
    (152
    )Amortization of transition amount
    
    
    (15
    )
    
    
    (13
    )
    
    
    (30
    )
    
    
    (26
    )Amortization of unrecognized loss
    
    
    33
    
    
    
    30
    
    
    
    66
    
    
    
    59Pension cost
    
    $
    10
    
    
    $
    11
    
    
    $
    21
    
    
    $
    21
 Conveyors PlanThree Months Ended
    
    Six Months EndedJune 30
    
    June 302007
    
    2006
    
    2007
    
    2006(In Thousands)Interest cost
    
    $
    18
    
    
    $
    16
    
    
    $
    36
    
    
    $
    31Expected return on plan assets
    
    
    (18
    )
    
    
    (16
    )
    
    
    (36
    )
    
    
    (32
    )Amortization of transition amount
    
    
    (3
    )
    
    
    (3
    )
    
    
    (6
    )
    
    
    (5
    )Amortization of unrecognized loss
    
    
    1
    
    
    
    2
    
    
    
    2
    
    
    
    3Pension (benefit)
    
    $
    (2
    )
    
    $
    (1
    )
    
    $
    (4
    )
    
    $
    (3
    )
  13




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##### Table of Contents



Portec Rail Products, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
  Note 8: Comprehensive Income
  Three Months Ended
    
    Six Months EndedJune 30
    
    June 302007
    
    2006
    
    2007
    
    2006(In Thousands)Net income
    
    $
    1,887
    
    
    $
    1,522
    
    
    $
    3,092
    
    
    $
    2,556Minimum pension liability adjustment, net of tax
    
    
    (45
    )
    
    
    (81
    )
    
    
    (54
    )
    
    
    (93
    )Foreign currency translation adjustments, net of tax
    
    
    1,095
    
    
    
    652
    
    
    
    1,207
    
    
    
    666Comprehensive income
    
    $
    2,937
    
    
    $
    2,093
    
    
    $
    4,245
    
    
    $
    3,129
 Note 9: Earnings Per Share
   14




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##### Table of Contents



Portec Rail Products, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
 Note 10: Commitments and Contingencies
 Contractual Obligations
  MoreLess
    
    
    1 - 3
    
    
    3 - 5
    
    
    than 5Contractual Obligations
    
    Total
    
    
    than 1 year
    
    
    years
    
    
    years
    
    
    years(In Thousands)Term loans
    
    $
    14,708
    
    
    $
    1,809
    
    
    $
    7,703
    
    
    $
    5,196
    
    
    $
    Working capital facilities
    
    
    4,648
    
    
    
    4,648
    
    
    
    
    
    
    
    
    
    
    
    Future interest payments (1)
    
    
    1,898
    
    
    
    432
    
    
    
    1,214
    
    
    
    252
    
    
    
    Purchase obligations
    
    
    3,567
    
    
    
    3,567
    
    
    
    
    
    
    
    
    
    
    
    Operating leases
    
    
    5,219
    
    
    
    667
    
    
    
    1,781
    
    
    
    1,123
    
    
    
    1,648Deferred purchase price (2)
    
    
    602
    
    
    
    301
    
    
    
    301
    
    
    
    
    
    
    
    Capital leases
    
    
    22
    
    
    
    22
    
    
    
    
    
    
    
    
    
    
    
    Pension contributions (3)
    
    
    184
    
    
    
    184
    
    
    
    
    
    
    
    
    
    
    
    Total contractual obligations (4)
    
    $
    30,848
    
    
    $
    11,630
    
    
    $
    10,999
    
    
    $
    6,571
    
    
    $
    1,648
 
 (1)
    
    Represents future interest payments on long-term debt obligations as of June 30, 2007. Assumes
that the interest rates on our debt obligations at June 30, 2007 (See Note 4 of the consolidated
financial statements of Form 10-Q) will continue for the life of the agreements.(2)
    
    Represents the deferred purchase price obligation related to the purchase of Coronet Rail in
April 2006.(3)
    
    Pension plan contributions that may be required more than one year from June 30, 2007 will be
dependent upon the performance of plan assets.(4)
    
    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 June 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 Accrual for Loss Contingencies and
Obligations Related to Product Warranties and Product Defects
 15




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##### Table of Contents



Portec Rail Products, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
  Litigation
  Note 11: Segment Information
  Three Months Ended
    
    Six Months EndedJune 30
    
    June 302007
    
    2006
    
    2007
    
    2006(In Thousands)External SalesRMP
    
    $
    14,082
    
    
    $
    13,905
    
    
    $
    25,196
    
    
    $
    24,149SSD
    
    
    2,067
    
    
    
    729
    
    
    
    4,215
    
    
    
    1,853Canada
    
    
    6,340
    
    
    
    7,191
    
    
    
    13,686
    
    
    
    12,988United Kingdom
    
    
    6,601
    
    
    
    7,147
    
    
    
    13,477
    
    
    
    13,097Total
    
    $
    29,090
    
    
    $
    28,972
    
    
    $
    56,574
    
    
    $
    52,087Intersegment SalesRMP
    
    $
    627
    
    
    $
    638
    
    
    $
    1,118
    
    
    $
    1,192SSD
    
    
    
    
    
    
    11
    
    
    
    (3
    )
    
    
    11Canada
    
    
    1,995
    
    
    
    1,988
    
    
    
    3,786
    
    
    
    3,664United Kingdom
    
    
    146
    
    
    
    10
    
    
    
    146
    
    
    
    12Total
    
    $
    2,768
    
    
    $
    2,647
    
    
    $
    5,047
    
    
    $
    4,879
 16




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##### Table of Contents



Portec Rail Products, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
 Three Months Ended
    
    Six Months EndedJune 30
    
    June 302007
    
    2006
    
    2007
    
    2006(In Thousands)Total SalesRMP
    
    $
    14,709
    
    
    $
    14,543
    
    
    $
    26,314
    
    
    $
    25,341SSD
    
    
    2,067
    
    
    
    740
    
    
    
    4,212
    
    
    
    1,864Canada
    
    
    8,335
    
    
    
    9,179
    
    
    
    17,472
    
    
    
    16,652United Kingdom
    
    
    6,747
    
    
    
    7,157
    
    
    
    13,623
    
    
    
    13,109Total
    
    $
    31,858
    
    
    $
    31,619
    
    
    $
    61,621
    
    
    $
    56,966Operating Income (Loss)RMP
    
    $
    1,962
    
    
    $
    2,082
    
    
    $
    2,986
    
    
    $
    3,017SSD
    
    
    344
    
    
    
    32
    
    
    
    638
    
    
    
    140Canada
    
    
    1,009
    
    
    
    697
    
    
    
    2,125
    
    
    
    1,158United Kingdom
    
    
    651
    
    
    
    568
    
    
    
    1,349
    
    
    
    1,432Corporate Shared Services
    
    
    (815
    )
    
    
    (810
    )
    
    
    (1,870
    )
    
    
    (1,543
    )Total
    
    
    3,151
    
    
    
    2,569
    
    
    
    5,228
    
    
    
    4,204Interest Expense
    
    
    307
    
    
    
    296
    
    
    
    624
    
    
    
    505Other Expense, net
    
    
    168
    
    
    
    73
    
    
    
    98
    
    
    
    71Income Before Income Taxes
    
    $
    2,676
    
    
    $
    2,200
    
    
    $
    4,506
    
    
    $
    3,628DepreciationRMP
    
    $
    203
    
    
    $
    197
    
    
    $
    404
    
    
    $
    387SSD
    
    
    40
    
    
    
    5
    
    
    
    67
    
    
    
    10Canada
    
    
    192
    
    
    
    137
    
    
    
    367
    
    
    
    272United Kingdom
    
    
    102
    
    
    
    149
    
    
    
    228
    
    
    
    260Corporate Shared Services
    
    
    27
    
    
    
    22
    
    
    
    53
    
    
    
    42Total
    
    $
    564
    
    
    $
    510
    
    
    $
    1,119
    
    
    $
    971AmortizationRMP
    
    $
    1
    
    
    $
    
    
    
    $
    2
    
    
    $
    SSD
    
    
    54
    
    
    
    
    
    
    
    107
    
    
    
    Canada
    
    
    186
    
    
    
    177
    
    
    
    360
    
    
    
    348United Kingdom
    
    
    62
    
    
    
    70
    
    
    
    140
    
    
    
    70Corporate Shared Services
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    303
    
    
    $
    247
    
    
    $
    609
    
    
    $
    418Capital ExpendituresRMP
    
    $
    228
    
    
    $
    79
    
    
    $
    293
    
    
    $
    271SSD
    
    
    131
    
    
    
    37
    
    
    
    465
    
    
    
    37Canada
    
    
    66
    
    
    
    625
    
    
    
    134
    
    
    
    868United Kingdom
    
    
    24
    
    
    
    25
    
    
    
    135
    
    
    
    59Corporate Shared Services
    
    
    34
    
    
    
    34
    
    
    
    48
    
    
    
    54Total
    
    $
    483
    
    
    $
    800
    
    
    $
    1,075
    
    
    $
    1,289
 17




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##### Table of Contents



Portec Rail Products, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
 June 30
    
    December 312007
    
    2006(In Thousands)
    
    (In Thousands)Total AssetsRMP
    
    $
    41,876
    
    
    $
    40,903SSD
    
    
    8,033
    
    
    
    7,571Canada
    
    
    33,413
    
    
    
    30,022United Kingdom
    
    
    21,087
    
    
    
    22,478Corporate Shared Services
    
    
    224
    
    
    
    708Total
    
    $
    104,633
    
    
    $
    101,682
 Note 12: Restructuring Costs
 United Kingdom
  ,
Accounting for Costs Associated with Exit or Disposal Activities
  18




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##### Table of Contents



Portec Rail Products, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
  Employee
    
    Lease
    
    OtherTermination
    
    Termination
    
    AssociatedTotal
    
    Benefits
    
    Costs
    
    CostsBeginning 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, June 30, 2007
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
 Kelsan
   Employee
    
    Lease
    
    OtherTermination
    
    Termination
    
    AssociatedTotal
    
    Benefits
    
    Costs
    
    CostsBeginning 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, June 30, 2007
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
 19




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##### Table of Contents



Portec Rail Products, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
 Note 13: Impairment of Long-Lived Assets
  Note 14: Change in Accounting Principle
  Note 15: Recent Accounting Pronouncements
   Note 16: Stock Options
  20




---



##### Table of Contents



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




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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.
  22




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##### Table of Contents



Overview
     Results of Operations
 Three Months Ended June 30, 2007 compared to Three Months Ended June 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.
 Six Months Ended June 30, 2007 compared to Six Months Ended June 30, 2006
 Net Sales.
 24




---



##### Table of Contents



Gross Profit.
 Selling, General and Administrative Expenses.
 Amortization Expense.
 Interest Expense.
 Other Expense.
 Provision for Income Taxes.
 Net Income.
 25




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##### Table of Contents



Business Segment Review
 Railway Maintenance Products Division  RMP .
 Three Months Ended
    
    
    Six Months EndedJune 30
    
    
    June 302007
    
    
    2006
    
    
    2007
    
    
    2006(In Thousands)External sales
    
    $
    14,082
    
    
    $
    13,905
    
    
    $
    25,196
    
    
    $
    24,149Intersegment sales
    
    
    627
    
    
    
    638
    
    
    
    1,118
    
    
    
    1,192Operating income
    
    
    1,962
    
    
    
    2,082
    
    
    
    2,986
    
    
    
    3,017Sales by product line(1)Track component products
    
    $
    7,702
    
    
    $
    7,336
    
    
    $
    15,058
    
    
    $
    13,382Friction management products and services
    
    
    4,580
    
    
    
    5,352
    
    
    
    7,931
    
    
    
    9,148Wayside data collection and data management systems
    
    
    1,958
    
    
    
    1,458
    
    
    
    2,535
    
    
    
    2,161Other products and services
    
    
    469
    
    
    
    397
    
    
    
    790
    
    
    
    650Total product and service sales
    
    $
    14,709
    
    
    $
    14,543
    
    
    $
    26,314
    
    
    $
    25,341
 
 (1)
    
    Includes intersegment sales.   Shipping Systems Division  SSD .
 26




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##### Table of Contents



Three Months Ended
    
    
    Six Months EndedJune 30
    
    
    June 302007
    
    
    2006
    
    
    2007
    
    
    2006(In Thousands)External sales (1)
    
    $
    2,067
    
    
    $
    729
    
    
    $
    4,215
    
    
    $
    1,853Intersegment sales
    
    
    
    
    
    
    11
    
    
    
    (3
    )
    
    
    11Operating income (1)
    
    
    344
    
    
    
    32
    
    
    
    638
    
    
    
    140Sales by product line(2)Chain securement systems (3), (4)
    
    $
    516
    
    
    $
    401
    
    
    $
    1,256
    
    
    $
    1,183Automotive products (3), (5)
    
    
    1,186
    
    
    
    34
    
    
    
    2,115
    
    
    
    170Strap securement systems
    
    
    199
    
    
    
    240
    
    
    
    445
    
    
    
    379All other load securement systems (3)
    
    
    166
    
    
    
    65
    
    
    
    396
    
    
    
    132Total product and service sales
    
    $
    2,067
    
    
    $
    740
    
    
    $
    4,212
    
    
    $
    1,864
 
 (1)
    
    Includes Vulcan-acquired product sales of $892,000 and $1.7 million, and operating income of
$216,000 and $349,000 for the three and six months ended June 30, 2007. The three and six
months ended June 30, 2006 do not include historical sales and operating income for Vulcan.(2)
    
    Includes intersegment sales.(3)
    
    Includes Vulcan-acquired product sales of $148,000, $622,000, and $122,000 within chain
securement systems, automotive products, and all other securement systems, respectively, for
the three months ended June 30, 2007. Includes Vulcan-acquired product sales of $325,000,
$1.1 million, and $319,000 within chain securement systems, automotive products, and all other
securement systems, respectively, for the six months ended June 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




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##### Table of Contents



Three Months Ended
    
    
    Six Months EndedJune 30
    
    
    June 302007
    
    
    2006
    
    
    2007
    
    
    2006(In Thousands)External sales
    
    $
    6,340
    
    
    $
    7,191
    
    
    $
    13,686
    
    
    $
    12,988Intersegment sales
    
    
    1,995
    
    
    
    1,988
    
    
    
    3,786
    
    
    
    3,664Operating income
    
    
    1,009
    
    
    
    697
    
    
    
    2,125
    
    
    
    1,158Average translation rate of Canadian dollar
to United States dollar
    
    
    0.9101
    
    
    
    0.8883
    
    
    
    0.8909
    
    
    
    0.8852Sales by product line(1)Rail anchors and spikes
    
    $
    4,074
    
    
    $
    5,479
    
    
    $
    9,580
    
    
    $
    9,986Friction management products and services
    
    
    3,744
    
    
    
    3,396
    
    
    
    7,163
    
    
    
    6,205Other products and services
    
    
    517
    
    
    
    304
    
    
    
    729
    
    
    
    461Total product and service sales
    
    $
    8,335
    
    
    $
    9,179
    
    
    $
    17,472
    
    
    $
    16,652
 
 (1)
    
    Includes intersegment sales.   Portec Rail Products (UK) Ltd.  United Kingdom .
 Three Months Ended
    
    
    Six Months EndedJune 30
    
    
    June 302007
    
    
    2006
    
    
    2007
    
    
    2006(In Thousands)External sales
    
    $
    6,601
    
    
    $
    7,147
    
    
    $
    13,477
    
    
    $
    13,097Intersegment sales
    
    
    146
    
    
    
    10
    
    
    
    146
    
    
    
    12Operating income
    
    
    651
    
    
    
    568
    
    
    
    1,349
    
    
    
    1,432Average translation rate of British
pound sterling to United States dollar
    
    
    1.9890
    
    
    
    1.8208
    
    
    
    1.9808
    
    
    
    1.8027Sales by product line(1)Material handling products
    
    $
    3,069
    
    
    $
    3,625
    
    
    $
    6,314
    
    
    $
    6,911Friction management products and services
    
    
    2,188
    
    
    
    1,985
    
    
    
    4,285
    
    
    
    4,651Track component products
    
    
    1,490
    
    
    
    1,547
    
    
    
    3,024
    
    
    
    1,547Total product and service sales
    
    $
    6,747
    
    
    $
    7,157
    
    
    $
    13,623
    
    
    $
    13,109
 
 (1)
    
    Includes intersegment sales. 28




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##### Table of Contents



Liquidity and Capital Resources
  Cash Flow Analysis .
   29




---



##### Table of Contents



Financial Condition
    Discussion of Critical Accounting Policies
  Revenue Recognition.
   30




---



##### Table of Contents



Allowances for Doubtful Accounts.
  Inventories.
 Goodwill and Other Intangible Assets.
    31




---



##### Table of Contents



Retirement Benefit Plans.
   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




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##### Table of Contents



Accounting for Contingencies 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
   For
    
    Withheld
    
    Broker Non-VoteMarshall T. Reynolds
    
    
    8,930,777
    
    
    
    149,593
    
    
    
    514,185John S. Cooper
    
    
    8,931,577
    
    
    
    148,793
    
    
    
    514,185Carl M. Callaway
    
    
    7,117,725
    
    
    
    1,962,645
    
    
    
    514,185Philip E. Cline
    
    
    8,923,469
    
    
    
    156,901
    
    
    
    514,185Daniel P. Harrington
    
    
    7,120,213
    
    
    
    1,960,157
    
    
    
    514,185A. Michael Perry
    
    
    7,117,575
    
    
    
    1,962,795
    
    
    
    514,185Douglas V. Reynolds
    
    
    7,112,933
    
    
    
    1,967,437
    
    
    
    514,185Neal W. Scaggs
    
    
    7,111,833
    
    
    
    1,968,537
    
    
    
    514,185Phillip Todd Shell
    
    
    9,067,476
    
    
    
    12,894
    
    
    
    514,185Kirby J. Taylor
    
    
    8,924,577
    
    
    
    155,793
    
    
    
    514,185Thomas W. Wright
    
    
    7,120,081
    
    
    
    1,960,289
    
    
    
    514,185
 
 ITEM 5. OTHER INFORMATION
  34




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##### 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 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




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##### Table of Contents



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




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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
 37