##### 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, 2008
 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
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company þ(Do not check if a smaller reporting company)
 o þ




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##### 



PORTEC RAIL PRODUCTS, INC.
 INDEX TO FORM 10-Q
 ItemNumber
    
    
    
    Page NumberPART I  FINANCIAL INFORMATION1.
    
    Financial Statements:Condensed Consolidated Balance Sheets June 30, 2008 (Unaudited) and December 31, 2007
    
    
    3Condensed Consolidated Statements of Income (Unaudited) Three and six months ended June 30, 2008 and 2007
    
    
    4Condensed Consolidated Statements of Cash Flows (Unaudited) Six months ended June 30, 2008 and 2007
    
    
    5Notes to Condensed Consolidated Financial Statements (Unaudited)
    
    
    62.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    183.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    304T.
    
    Controls and Procedures
    
    
    30PART II  OTHER INFORMATION1.
    
    Legal Proceedings
    
    
    311A.
    
    Risk Factors
    
    
    312.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    313.
    
    Defaults Upon Senior Securities
    
    
    314.
    
    Submission of Matters to a Vote of Security Holders
    
    
    325.
    
    Other Information
    
    
    326.
    
    Exhibits
    
    
    32Signatures
    
    
    33EX-31.1EX-31.2EX-32
  2




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 Portec Rail Products, Inc.
 
 Condensed Consolidated Balance Sheets
 June 30
    
    
    December 312008
    
    
    2007(Unaudited)
    
    
    (Audited)(In Thousands)AssetsCurrent assetsCash and cash equivalents
    
    $
    3,724
    
    
    $
    4,273Accounts receivable, net
    
    
    18,896
    
    
    
    17,411Inventories, net
    
    
    24,726
    
    
    
    22,990Prepaid expenses and other current assets
    
    
    1,030
    
    
    
    586Deferred income taxes
    
    
    221
    
    
    
    375Total current assets
    
    $
    48,597
    
    
    $
    45,635Property, plant and equipment, net of
accumulated depreciation of $13,423 and
$13,540 at June 30, 2008 and December 31,
2007, respectively
    
    
    12,085
    
    
    
    11,121Intangible assets, net of accumulated
amortization of $3,898 and $3,140 at June 30,
2008 and December 31, 2007, respectively
    
    
    31,159
    
    
    
    31,542Goodwill
    
    
    14,655
    
    
    
    15,059Other assets
    
    
    923
    
    
    
    869Total assets
    
    $
    107,419
    
    
    $
    104,226Liabilities and Shareholders EquityCurrent liabilitiesCurrent maturities of long-term debt
    
    $
    10,025
    
    
    $
    6,865Accounts payable
    
    
    8,523
    
    
    
    6,167Accrued income taxes
    
    
    558
    
    
    
    706Customer deposits
    
    
    1,416
    
    
    
    1,380Accrued compensation
    
    
    1,850
    
    
    
    2,979Other accrued liabilities
    
    
    2,653
    
    
    
    2,795Deferred purchase price  current portion
    
    
    
    
    
    
    298Total current liabilities
    
    
    25,025
    
    
    
    21,190Long-term debt, less current maturities
    
    
    7,197
    
    
    
    9,463Deferred income taxes
    
    
    11,339
    
    
    
    11,524Accrued pension costs
    
    
    736
    
    
    
    1,175Other long-term liabilities
    
    
    969
    
    
    
    977Total liabilities
    
    
    45,266
    
    
    
    44,329Commitments and Contingencies
    
    
    
    
    
    
    Shareholders equity:Common stock, $1 par value, 50,000,000
shares authorized, 9,602,029 shares
issued and outstanding at June 30, 2008
and 9,601,779 outstanding at December
31, 2007, respectively
    
    
    9,602
    
    
    
    9,602Additional paid-in capital
    
    
    25,391
    
    
    
    25,342Retained earnings
    
    
    25,756
    
    
    
    23,161Accumulated other comprehensive gain
    
    
    1,404
    
    
    
    1,792Total shareholders equity
    
    
    62,153
    
    
    
    59,897Total liabilities and shareholders equity
    
    $
    107,419
    
    
    $
    104,226
 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 302008
    
    
    2007
    
    
    2008
    
    
    2007(Dollars in Thousands, Except Per Share Data)Net sales
    
    $
    30,194
    
    
    $
    29,090
    
    
    $
    55,037
    
    
    $
    56,574Cost of sales
    
    
    20,276
    
    
    
    19,987
    
    
    
    37,409
    
    
    
    39,425Gross profit
    
    
    9,918
    
    
    
    9,103
    
    
    
    17,628
    
    
    
    17,149Selling, general and administrative
    
    
    5,986
    
    
    
    5,649
    
    
    
    11,395
    
    
    
    11,312Amortization expense
    
    
    297
    
    
    
    303
    
    
    
    595
    
    
    
    609Operating income
    
    
    3,635
    
    
    
    3,151
    
    
    
    5,638
    
    
    
    5,228Interest expense
    
    
    210
    
    
    
    307
    
    
    
    436
    
    
    
    624Other (income) expense, net
    
    
    (43
    )
    
    
    168
    
    
    
    (121
    )
    
    
    98Income before income taxes
    
    
    3,468
    
    
    
    2,676
    
    
    
    5,323
    
    
    
    4,506Provision for income taxes
    
    
    1,065
    
    
    
    789
    
    
    
    1,576
    
    
    
    1,414Net income
    
    $
    2,403
    
    
    $
    1,887
    
    
    $
    3,747
    
    
    $
    3,092Earnings per shareBasic and diluted
    
    $
    0.25
    
    
    $
    0.20
    
    
    $
    0.39
    
    
    $
    0.32Weighted average shares outstandingBasic
    
    
    9,601,872
    
    
    
    9,601,779
    
    
    
    9,601,826
    
    
    
    9,601,779Diluted
    
    
    9,602,309
    
    
    
    9,601,779
    
    
    
    9,601,826
    
    
    
    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 302008
    
    
    2007(In Thousands)Operating ActivitiesNet income
    
    $
    3,747
    
    
    $
    3,092Adjustments to reconcile net income to net cash
provided by operating activities:Depreciation expense
    
    
    875
    
    
    
    1,119Amortization expense
    
    
    595
    
    
    
    609Provision for doubtful accounts
    
    
    104
    
    
    
    48Deferred income taxes
    
    
    195
    
    
    
    (141
    )Pension (income) expense
    
    
    (20
    )
    
    
    36Defined benefit pension plan contributions
    
    
    (472
    )
    
    
    (12
    )Loss on disposal of assets
    
    
    21
    
    
    
    35Stock based compensation expense
    
    
    47
    
    
    
    25Impairment of long-lived assets
    
    
    
    
    
    
    50Changes in operating assets and liabilities:Accounts receivable
    
    
    (1,931
    )
    
    
    (2,295
    )Inventories
    
    
    (1,880
    )
    
    
    511Prepaid expenses and other current assets
    
    
    (456
    )
    
    
    (1,263
    )Accounts payable
    
    
    2,581
    
    
    
    (704
    )Income taxes payable
    
    
    (120
    )
    
    
    (489
    )Accrued expenses
    
    
    (1,525
    )
    
    
    313Net cash provided by operating activities
    
    
    1,761
    
    
    
    934Investing ActivitiesPurchases of property, plant and equipment
    
    
    (2,046
    )
    
    
    (1,075
    )Proceeds from sale of assets
    
    
    12
    
    
    
    2,436Contingent consideration  business acquisition
    
    
    (97
    )
    
    
    (71
    )Net cash (used in) provided by investing activities
    
    
    (2,131
    )
    
    
    1,290Financing ActivitiesNet increase in working capital facilities
    
    
    3,224
    
    
    
    2,709Book overdrafts
    
    
    (42
    )
    
    
    89Principal payments on promissory notes
    
    
    (280
    )
    
    
    (280
    )Proceeds from term loans
    
    
    
    
    
    
    54Principal payments on term loans
    
    
    (1,859
    )
    
    
    (3,418
    )Principal payments on capital leases
    
    
    
    
    
    
    (46
    )Fees paid to obtain new financing
    
    
    (21
    )
    
    
    Issuance of common stock
    
    
    2
    
    
    
    Cash dividends paid to shareholders
    
    
    (1,152
    )
    
    
    (1,152
    )Net cash used in financing activities
    
    
    (128
    )
    
    
    (2,044
    )Effect of exchange rate changes on cash and cash equivalents
    
    
    (51
    )
    
    
    (41
    )(Decrease) increase in cash and cash equivalents
    
    
    (549
    )
    
    
    139Cash and cash equivalents at beginning of period
    
    
    4,273
    
    
    
    1,822Cash and cash equivalents at end of period
    
    $
    3,724
    
    
    $
    1,961Supplemental Disclosures of Cash Flow InformationCash paid during the period for:Interest
    
    $
    459
    
    
    $
    669Income taxes
    
    $
    1,083
    
    
    $
    1,910
 See Notes to Condensed Consolidated Financial Statements
 5




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##### Table of Contents



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




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##### Table of Contents



Portec Rail Products, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
 Note 3: Inventories
   June 30
    
    December 312008
    
    2007(In Thousands)Raw materials
    
    $
    11,237
    
    
    $
    9,849Work in process
    
    
    383
    
    
    
    521Finished goods
    
    
    13,817
    
    
    
    13,01725,437
    
    
    
    23,387Less reserve for slow-moving and obsolete inventory
    
    
    711
    
    
    
    397Net inventory
    
    $
    24,726
    
    
    $
    22,990
 Note 4: Long-Term Debt
  June 30
    
    December 312008
    
    2007(In Thousands)National City Bank Credit Facility: (a)Term loan  Kelsan acquisition
    
    $
    6,984
    
    
    $
    8,435Term loan  Vulcan asset acquisition
    
    
    2,000
    
    
    
    2,300Revolving credit facility  United States
    
    
    6,100
    
    
    
    2,300Revolving credit facility  Canada
    
    
    
    
    
    
    United Kingdom loans: (b)Term loan  Coronet Rail acquisition
    
    
    1,828
    
    
    
    2,119Working capital facility
    
    
    
    
    
    
    575Term loans  vehicles
    
    
    30
    
    
    
    39Promissory notes  Salient Systems acquisition (c)
    
    
    280
    
    
    
    560Revolving credit facility  Boone County Bank, Inc. (d)
    
    
    
    
    
    
    17,222
    
    
    
    16,328Less current maturities
    
    
    10,025
    
    
    
    6,865$
    7,197
    
    
    $
    9,463
 (a) National City Bank Credit Facility
  7




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##### Table of Contents



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




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##### Table of Contents



Portec Rail Products, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
 (b) United Kingdom Loans
 Term Loan  Coronet Rail Acquisition:
  Working Capital Facility:
   (c) Salient Systems Promissory Notes
 Wall Street Journal
 9




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##### Table of Contents



Portec Rail Products, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
 d) Revolving Credit Facility  Boone County Bank, Inc.
  Note 5: Income Taxes
 Accounting for Uncertainty in Income
Taxes  an interpretation of FASB Statement No. 109
    Six Months EndedJune 30, 2008(In Thousands)Balance at January 1, 2008
    
    $
    313Additions based on tax positions related to the current year
    
    
    76Reductions for tax positions of prior years
    
    
    (50
    )Balance at June 30, 2008
    
    $
    339
  10




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##### Table of Contents



Portec Rail Products, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
 Note 6: Retirement Plans
  Three Months Ended
    
    Six Months EndedJune 30
    
    June 302008
    
    2007
    
    2008
    
    2007(In Thousands)Interest cost
    
    $
    138
    
    
    $
    134
    
    
    $
    276
    
    
    $
    268Expected return on plan assets
    
    
    (165
    )
    
    
    (157
    )
    
    
    (330
    )
    
    
    (314
    )Amortization of unrecognized loss
    
    
    17
    
    
    
    32
    
    
    
    35
    
    
    
    64Pension (benefit) cost
    
    $
    (10
    )
    
    $
    9
    
    
    $
    (19
    )
    
    $
    18
   Portec Rail PlanThree Months Ended
    
    Six Months EndedJune 30
    
    June 302008
    
    2007
    
    2008
    
    2007(In Thousands)Service cost
    
    $
    10
    
    
    $
    
    
    
    $
    21
    
    
    $
    Interest cost
    
    
    84
    
    
    
    80
    
    
    
    168
    
    
    
    159Expected return on plan assets
    
    
    (98
    )
    
    
    (88
    )
    
    
    (196
    )
    
    
    (174
    )Amortization of transition amount
    
    
    (15
    )
    
    
    (15
    )
    
    
    (30
    )
    
    
    (30
    )Amortization of unrecognized loss
    
    
    21
    
    
    
    33
    
    
    
    42
    
    
    
    66Pension cost
    
    $
    2
    
    
    $
    10
    
    
    $
    5
    
    
    $
    21
 Conveyors PlanThree Months Ended
    
    Six Months EndedJune 30
    
    June 302008
    
    2007
    
    2008
    
    2007(In Thousands)Service cost
    
    $
    1
    
    
    $
    
    
    
    $
    2
    
    
    $
    Interest cost
    
    
    19
    
    
    
    18
    
    
    
    38
    
    
    
    36Expected return on plan assets
    
    
    (20
    )
    
    
    (18
    )
    
    
    (40
    )
    
    
    (36
    )Amortization of transition amount
    
    
    (3
    )
    
    
    (3
    )
    
    
    (6
    )
    
    
    (6
    )Amortization of unrecognized loss
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    2Pension (benefit)
    
    $
    (3
    )
    
    $
    (2
    )
    
    $
    (6
    )
    
    $
    (4
    )
 11




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##### Table of Contents



Portec Rail Products, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
  Note 7: Comprehensive Income
  Three Months Ended
    
    Six Months EndedJune 30
    
    June 302008
    
    2007
    
    2008
    
    2007(In Thousands)Net income
    
    $
    2,403
    
    
    $
    1,887
    
    
    $
    3,747
    
    
    $
    3,092Minimum pension liability adjustment, net of tax
    
    
    (4
    )
    
    
    (45
    )
    
    
    
    
    
    
    (54
    )Foreign currency translation adjustments, net of tax
    
    
    103
    
    
    
    1,095
    
    
    
    (389
    )
    
    
    1,207Comprehensive income
    
    $
    2,502
    
    
    $
    2,937
    
    
    $
    3,358
    
    
    $
    4,245
 Note 8: Earnings Per Share
 Earnings per Share
 12




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##### Table of Contents



Portec Rail Products, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
 Note 9: Commitments and Contingencies
 Contractual Obligations
  Less
    
    
    
    
    
    
    
    
    
    
    Morethan 1
    
    
    1  3
    
    
    3  5
    
    
    than 5Contractual Obligations
    
    Total
    
    
    year
    
    
    years
    
    
    years
    
    
    years(In Thousands)Term loans
    
    $
    11,122
    
    
    $
    1,836
    
    
    $
    7,711
    
    
    $
    1,575
    
    
    $
    Purchase obligations
    
    
    8,701
    
    
    
    6,307
    
    
    
    2,394
    
    
    
    
    
    
    
    Working capital facilities
    
    
    6,100
    
    
    
    6,100
    
    
    
    
    
    
    
    
    
    
    
    Operating leases
    
    
    5,660
    
    
    
    716
    
    
    
    2,427
    
    
    
    1,164
    
    
    
    1,353Future interest payments (1)
    
    
    822
    
    
    
    252
    
    
    
    546
    
    
    
    24
    
    
    
    Pension plan contributions (2)
    
    
    664
    
    
    
    375
    
    
    
    289
    
    
    
    
    
    
    
    Total contractual obligations (3)
    
    $
    33,069
    
    
    $
    15,586
    
    
    $
    13,367
    
    
    $
    2,763
    
    
    $
    1,353
 
 (1)
    
    Represents future interest payments on long-term debt obligations as of June 30, 2008. Assumes
that the interest rates on our debt obligations at June 30, 2008 (See Note 4, Long-Term Debt, Page
7) will continue for the life of the agreements.(2)
    
    Pension plan contributions that may be required more than one year from June 30, 2008 will be
dependent upon the performance of plan assets.(3)
    
    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).
During the first quarter 2008, we recognized $26,000 of additional liability. See Note 5, Income
Taxes, Page 10. The total amount of $339,000 is included within other long-term liabilities on the
June 30, 2008 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
(SFAS 5)
 13




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##### Table of Contents



Portec Rail Products, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
  Litigation
  Note 10: Segment Information
  Three Months Ended
    
    Six Months EndedJune 30
    
    June 302008
    
    2007
    
    2008
    
    2007(In Thousands)External SalesRMP
    
    $
    12,534
    
    
    $
    14,082
    
    
    $
    22,577
    
    
    $
    25,196SSD
    
    
    3,577
    
    
    
    2,067
    
    
    
    5,942
    
    
    
    4,215Canada
    
    
    7,540
    
    
    
    6,340
    
    
    
    13,955
    
    
    
    13,686United Kingdom
    
    
    6,543
    
    
    
    6,601
    
    
    
    12,563
    
    
    
    13,477Total
    
    $
    30,194
    
    
    $
    29,090
    
    
    $
    55,037
    
    
    $
    56,574
 14




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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 302008
    
    
    2007
    
    
    2008
    
    
    2007(In Thousands)Intersegment SalesRMP
    
    $
    865
    
    
    $
    627
    
    
    $
    1,397
    
    
    $
    1,118SSD
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3
    )Canada
    
    
    2,024
    
    
    
    1,995
    
    
    
    3,483
    
    
    
    3,786United Kingdom
    
    
    
    
    
    
    146
    
    
    
    
    
    
    
    146Total
    
    $
    2,889
    
    
    $
    2,768
    
    
    $
    4,880
    
    
    $
    5,047Total SalesRMP
    
    $
    13,399
    
    
    $
    14,709
    
    
    $
    23,974
    
    
    $
    26,314SSD
    
    
    3,577
    
    
    
    2,067
    
    
    
    5,942
    
    
    
    4,212Canada
    
    
    9,564
    
    
    
    8,335
    
    
    
    17,438
    
    
    
    17,472United Kingdom
    
    
    6,543
    
    
    
    6,747
    
    
    
    12,563
    
    
    
    13,623Total
    
    $
    33,083
    
    
    $
    31,858
    
    
    $
    59,917
    
    
    $
    61,621Operating Income (Loss)RMP
    
    $
    1,863
    
    
    $
    1,962
    
    
    $
    3,106
    
    
    $
    2,986SSD
    
    
    853
    
    
    
    344
    
    
    
    1,371
    
    
    
    638Canada
    
    
    1,183
    
    
    
    953
    
    
    
    1,679
    
    
    
    2,121United Kingdom
    
    
    615
    
    
    
    707
    
    
    
    1,187
    
    
    
    1,353Corporate Shared Services
    
    
    (879
    )
    
    
    (815
    )
    
    
    (1,705
    )
    
    
    (1,870
    )Total
    
    
    3,635
    
    
    
    3,151
    
    
    
    5,638
    
    
    
    5,228Interest Expense
    
    
    210
    
    
    
    307
    
    
    
    436
    
    
    
    624Other (Income) Expense, net
    
    
    (43
    )
    
    
    168
    
    
    
    (121
    )
    
    
    98Income Before Income Taxes
    
    $
    3,468
    
    
    $
    2,676
    
    
    $
    5,323
    
    
    $
    4,506DepreciationRMP
    
    $
    134
    
    
    $
    203
    
    
    $
    254
    
    
    $
    404SSD
    
    
    50
    
    
    
    40
    
    
    
    99
    
    
    
    67Canada
    
    
    201
    
    
    
    192
    
    
    
    398
    
    
    
    367United Kingdom
    
    
    83
    
    
    
    102
    
    
    
    90
    
    
    
    228Corporate Shared Services
    
    
    17
    
    
    
    27
    
    
    
    34
    
    
    
    53Total
    
    $
    485
    
    
    $
    564
    
    
    $
    875
    
    
    $
    1,119AmortizationRMP
    
    $
    4
    
    
    $
    1
    
    
    $
    6
    
    
    $
    2SSD
    
    
    54
    
    
    
    54
    
    
    
    108
    
    
    
    107Canada
    
    
    177
    
    
    
    186
    
    
    
    357
    
    
    
    360United Kingdom
    
    
    62
    
    
    
    62
    
    
    
    124
    
    
    
    140Corporate Shared Services
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    297
    
    
    $
    303
    
    
    $
    595
    
    
    $
    609
 15




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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 302008
    
    
    2007
    
    
    2008
    
    
    2007(In Thousands)Capital ExpendituresRMP
    
    $
    963
    
    
    $
    228
    
    
    $
    1,734
    
    
    $
    293SSD
    
    
    38
    
    
    
    131
    
    
    
    46
    
    
    
    465Canada
    
    
    34
    
    
    
    66
    
    
    
    93
    
    
    
    134United Kingdom
    
    
    95
    
    
    
    24
    
    
    
    153
    
    
    
    135Corporate Shared Services
    
    
    12
    
    
    
    34
    
    
    
    20
    
    
    
    48Total
    
    $
    1,142
    
    
    $
    483
    
    
    $
    2,046
    
    
    $
    1,075
 June 30
    
    December 312008
    
    2007(In Thousands)
    
    (In Thousands)Total AssetsRMP
    
    $
    41,009
    
    
    $
    40,360SSD
    
    
    8,888
    
    
    
    7,862Canada
    
    
    36,681
    
    
    
    36,014United Kingdom
    
    
    20,652
    
    
    
    19,775Corporate Shared Services
    
    
    189
    
    
    
    215Total
    
    $
    107,419
    
    
    $
    104,226
 Note 11: Recent Accounting Pronouncements
 Business Combinations  a revision of SFAS 141
 The Fair
Value Option for Financial Assets and Financial Liabilities  Including an Amendment of FASB
Statement 115
 16




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##### Table of Contents



Portec Rail Products, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
 Fair Value
Measurements
 Note 12: Stock Options
 Share-Based Payments
   Stock Price
    
    Exercise
    
    Annual
    
    
    
    
    
    
    
    
    
    ExpectedFair Value
    
    on Grant
    
    Price per
    
    Dividend
    
    Risk-free
    
    Expected
    
    Term (inGrant Date
    
    Price
    
    Date
    
    Stock Option
    
    Yield
    
    Rate
    
    Volatility
    
    years)1/30/08
    
    $
    3.67
    
    
    $
    9.68
    
    
    $
    9.68
    
    
    
    2.48
    %
    
    
    4.00
    %
    
    
    38.87
    %
    
    
    7.51/16/07
    
    $
    3.61
    
    
    $
    9.65
    
    
    $
    9.65
    
    
    
    2.50
    %
    
    
    4.73
    %
    
    
    39.40
    %
    
    
    6.5
 Note 13: Subsequent Event
  17




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##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
  Cautionary Statement Relevant to Forward-looking Statements
   
    
    customer demand;
    
    competitive dynamics in the North American and worldwide railroad and railway supply
industries;
    
    capital expenditures by the railway industry in North America and worldwide;
    
    economic conditions, including changes in inflation rates or interest rates;
    
    product development and the success of new products;
    
    our ability to successfully pursue, consummate and integrate attractive acquisition
opportunities;
    
    changes in laws and regulations;
    
    the development and retention of sales representation and distribution agreements
with third parties;
    
    limited international protection of our intellectual property;
    
    the loss of key personnel;
    
    fluctuations in the cost and availability of raw materials and supplies, and any
significant disruption of supplies;
    
    foreign economic conditions, including currency rate fluctuations;
    
    political unrest in foreign markets and economic uncertainty due to terrorism or
war;
    
    exposure to pension liabilities;
    
    seasonal fluctuations in our sales;
    
    technological innovations by our competitors; and
    
    the importation of lower cost competitive products into our markets.
  18




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##### Table of Contents



Overview
     Results of Operations
 Three Months Ended June 30, 2008 compared to Three Months Ended June 30, 2007
 Net Sales.
 Gross Profit. TM
 19




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##### Table of Contents



Selling, General and Administrative Expenses.
 Interest Expense.
 Other Income.
 Provision for Income Taxes.
 Net Income.
 Six Months Ended June 30, 2008 compared to Six Months Ended June 30, 2007
 Net Sales.
 Gross Profit.
 20




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##### Table of Contents



TM
 Selling, General and Administrative Expenses.
 Interest Expense.
 Other Income.
 Provision for Income Taxes.
 Net Income.
 21




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##### Table of Contents



Business Segment Review
 Railway Maintenance Products Division  RMP .
 Three Months Ended
    
    
    Six Months EndedJune 30
    
    
    June 302008
    
    
    2007
    
    
    2008
    
    
    2007(In Thousands)External sales
    
    $
    12,534
    
    
    $
    14,082
    
    
    $
    22,577
    
    
    $
    25,196Intersegment
sales
    
    
    865
    
    
    
    627
    
    
    
    1,397
    
    
    
    1,118Operating income
    
    
    1,863
    
    
    
    1,962
    
    
    
    3,106
    
    
    
    2,986Sales by product line(1)Track component
products
    
    $
    7,085
    
    
    $
    7,702
    
    
    $
    12,678
    
    
    $
    15,058Friction management
products and services
    
    
    4,328
    
    
    
    4,580
    
    
    
    6,991
    
    
    
    7,931Wayside data collection
and data management
systems
    
    
    1,324
    
    
    
    1,958
    
    
    
    2,725
    
    
    
    2,535Other products and
services
    
    
    662
    
    
    
    469
    
    
    
    1,580
    
    
    
    790Total product and
service sales
    
    $
    13,399
    
    
    $
    14,709
    
    
    $
    23,974
    
    
    $
    26,314
 
 (1)
    
    Includes intersegment sales.   22




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##### Table of Contents



Shipping Systems Division  SSD .
 Three Months Ended
    
    
    Six Months EndedJune 30
    
    
    June 302008
    
    
    2007
    
    
    2008
    
    
    2007(In Thousands)External sales
    
    $
    3,577
    
    
    $
    2,067
    
    
    $
    5,942
    
    
    $
    4,215Intersegment sales
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3
    )Operating income
    
    
    853
    
    
    
    344
    
    
    
    1,371
    
    
    
    638Sales by product line(1)Automotive products
    
    $
    2,611
    
    
    $
    1,186
    
    
    $
    3,799
    
    
    $
    2,115Chain securement systems
    
    
    730
    
    
    
    516
    
    
    
    1,555
    
    
    
    1,256Strap securement
systems
    
    
    66
    
    
    
    199
    
    
    
    148
    
    
    
    445Other load securement systems
    
    
    170
    
    
    
    166
    
    
    
    440
    
    
    
    396Total product and service sales
    
    $
    3,577
    
    
    $
    2,067
    
    
    $
    5,942
    
    
    $
    4,212
 
 (1)
    
    Includes intersegment sales. TM TM
 TM TM
 Portec Rail Nova Scotia Company  Canada . ® ®
 23




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##### Table of Contents



Three Months Ended
    
    
    Six Months EndedJune 30
    
    
    June 302008
    
    
    2007
    
    
    2008
    
    
    2007(In Thousands, Except Translation Rate )External sales
    
    $
    7,540
    
    
    $
    6,340
    
    
    $
    13,955
    
    
    $
    13,686Intersegment sales
    
    
    2,024
    
    
    
    1,995
    
    
    
    3,483
    
    
    
    3,786Operating income
    
    
    1,183
    
    
    
    953
    
    
    
    1,679
    
    
    
    2,121Average translation rate of Canadian
dollar to United States dollar
    
    
    0.9885
    
    
    
    0.9101
    
    
    
    0.9957
    
    
    
    0.8909Sales by product line(1)Rail anchors and spikes
    
    $
    4,553
    
    
    $
    4,074
    
    
    $
    9,398
    
    
    $
    9,580Friction management products and
services
    
    
    4,667
    
    
    
    3,744
    
    
    
    7,283
    
    
    
    7,163Other products and services
    
    
    344
    
    
    
    517
    
    
    
    757
    
    
    
    729Total product and service sales
    
    $
    9,564
    
    
    $
    8,335
    
    
    $
    17,438
    
    
    $
    17,472
 
 (1)
    
    Includes intersegment sales.   Portec Rail Products (UK) Ltd.  United Kingdom .
 24




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##### Table of Contents



Three Months Ended
    
    
    Six Months EndedJune 30
    
    
    June 302008
    
    
    2007
    
    
    2008
    
    
    2007(In Thousands, Except Translation Rate)External sales
    
    $
    6,543
    
    
    $
    6,601
    
    
    $
    12,563
    
    
    $
    13,477Intersegment sales
    
    
    
    
    
    
    146
    
    
    
    
    
    
    
    146Operating income
    
    
    615
    
    
    
    707
    
    
    
    1,187
    
    
    
    1,353Average translation rate of British pound
sterling to United States dollar
    
    
    1.9865
    
    
    
    1.9890
    
    
    
    1.9877
    
    
    
    1.9808Sales by product line(1)Friction management products and services
    
    $
    2,621
    
    
    $
    2,188
    
    
    $
    5,261
    
    
    $
    4,285Material handling products
    
    
    2,344
    
    
    
    3,069
    
    
    
    4,344
    
    
    
    6,314Track component products
    
    
    1,578
    
    
    
    1,490
    
    
    
    2,958
    
    
    
    3,024Total product and service sales
    
    $
    6,543
    
    
    $
    6,747
    
    
    $
    12,563
    
    
    $
    13,623
 
 (1)
    
    Includes intersegment sales.   Liquidity and Capital Resources
  Cash Flow Analysis .
 25




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##### Table of Contents



Financial Condition
    Discussion of Critical Accounting Policies
  26




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##### Table of Contents



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




---



##### Table of Contents



Accounting for Impairment or Disposal of Long-Lived Assets.
     28




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##### Table of Contents



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




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##### Table of Contents



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
   
 ITEM 4T. CONTROLS AND PROCEDURES
  30




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##### Table of Contents



PART II  OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  
 ITEM 1A. RISK FACTORS
  
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES
  31




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##### Table of Contents



ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  1.
    
    With respect to the election of eleven (11) directors whose terms expire in 2008:
 For
    
    Withheld
    
    Broker Non-VoteMarshall T. Reynolds
    
    
    7,871,552
    
    
    
    953,501
    
    
    
    769,797John S. Cooper
    
    
    8,658,733
    
    
    
    166,320
    
    
    
    769,797Carl M. Callaway (1)
    
    
    8,619,215
    
    
    
    205,838
    
    
    
    769,797Philip E. Cline
    
    
    8,559,553
    
    
    
    265,500
    
    
    
    769,797Daniel P. Harrington
    
    
    8,567,516
    
    
    
    257,537
    
    
    
    769,797A. Michael Perry
    
    
    7,002,557
    
    
    
    1,822,496
    
    
    
    769,797Douglas V. Reynolds
    
    
    6,918,488
    
    
    
    1,906,565
    
    
    
    769,797Neal W. Scaggs
    
    
    8,567,074
    
    
    
    257,979
    
    
    
    769,797Phillip Todd Shell
    
    
    8,667,836
    
    
    
    157,217
    
    
    
    769,797Kirby J. Taylor
    
    
    8,660,633
    
    
    
    164,420
    
    
    
    769,797Thomas W. Wright
    
    
    7,011,558
    
    
    
    1,813,495
    
    
    
    769,797
 2.
    
    With respect to the ratification of the appointment of Arnett & Foster, PLLC as the
Companys independent auditors for the year ending December 31, 2008:
 For
    
    Against
    
    Abstained
    
    Broker Non-VoteArnett & Foster, PLLC
    
    
    8,752,885
    
    
    
    62,645
    
    
    
    9,523
    
    
    
    769,797
 
 (1)
    
    On May 29, 2008, Director Carl Callaway resigned from our Board of Directors. Mr. Callaway
previously served as Chairman of the audit committee. On June 12, 2008, Mr. Louis Akers was
appointed as a member of our Board of Directors, effective June 13, 2008. Director Akers will
serve on the audit committee. 
 ITEM 5. OTHER INFORMATION
  
 ITEM 6. EXHIBITS
  31.1
    
    Certification of Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 200231.2
    
    Certification of Chief Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 200232
    
    Certification of Chief Executive Officer and Chief
Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
 32




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##### Table of Contents



SIGNATURES
  PORTEC RAIL PRODUCTS, INC.Date: August 7, 2008
    By:
    /s/ Richard J. JarosinskiRichard J. Jarosinski, President andChief Executive OfficerDate: August 7, 2008
    By:
    /s/ John N. PesarsickJohn N. Pesarsick, Chief Financial Officer 33




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##### Table of Contents



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