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Portec Rail Products
distributes traditional railroad products as well as railway friction management products
and railway wayside data collection
Portec Rail Products, Inc.
PO Box 38250
900 Old Freeport Road
Pittsburgh, PA 15238
John S. Cooper
President and CEO
Interview conducted by:
Lynn Fosse, Senior Editor
June 2, 2005
John S. Cooper
Chief Executive Officer
John S. Cooper was hired by Portec Rail Products predecessor in July 1979 as
division vice president of operations of the companys Railcar Division. Mr. Cooper
became division vice president and general manager of the Railcar Division in August 1980,
vice president and group executive in June 1983, vice president and general manager of the
Railway Maintenance Products Division in April 1985, senior vice president and group
executive of the Railroad Group in February 1987 and president, chief executive officer
and a member of the Board of Directors of Portec Rail Products, Inc. in December 1997.
Prior to Portec Rail Products, he worked for the American Bridge Division of U.S. Steel
for 23 years. Mr. Cooper received his degree in civil engineering from Penn State University.
Portec Rail Products, Inc., headquartered in Pittsburgh, Pennsylvania, manufactures,
supplies and distributes a broad range of railroad products, including rail joints, rail
anchors and spikes, railway friction management products, railway wayside data collection
and data management systems and load securement systems. The Company's largest business
unit, the Railway Maintenance Products Division, operates a manufacturing and assembly
plant in Huntington, West Virginia, an engineering and assembly facility in Dublin, Ohio
(Salient Systems), and is also headquartered in Pittsburgh. The Company also has two
Canadian subsidiaries, one of which is headquartered near Montreal with a manufacturing
operation in St. Jean, Quebec and the other headquartered in Vancouver, British Columbia
that is a technology and manufacturing facility (Kelsan Technologies). In addition, the
Company sells load securement systems to the railroad freight car market through its
Shipping Systems Division located near Chicago, Illinois. The Company also manufactures
railway products and material handling equipment at its wholly- owned subsidiary in the United
Kingdom with operations in Wrexham, Wales and Leicester, England.
Cooper, will you tell us a bit about your background with Portec Rail?
Mr. Cooper: Portec Rail Products had a predecessor
company called Portec Inc. I came to work with Portec Inc. about twenty-four years ago.
Portec Inc. had three businesses; material handling, construction equipment and railway
products. I was hired into Portec to run the freight car division where we were
manufacturing freight cars and automobile carriers. In Atlanta, we had three manufacturing
facilities. We sold that business and Portec asked me to come to Pittsburgh to run the
track components business. Prior to Portec, I had spent twenty some years with the
American bridge division in U.S. Steel, doing structural fabrications. Freight cars are
structural steel on wheels and that was the connection there. Like so many companies, many
things changed over the years with Portec. We rolled up to 1997 and the business that I
was running for Portec, headquartered out of Pittsburgh, was such that the company decided
to break up and sell it off in three components; material handling, construction equipment
and railway products. Myself and my team had been through a lot of these changes and we
said enough already we would like to control our own destiny, and I got
financial backing to do a management buy-out in December of 1997.
did you go public in 2004?
Mr. Cooper: When we got control of our company in 1997,
we were highly leveraged; we borrowed a lot of money to buy the company. We spent those
years between 1998-2003 building the business and strengthening the balance sheet, as well
as paying down debt. As we approached the end of 2003, our decision was that we would
raise money again and try to grow the company and take it to another level. Rather than
borrow a lot of money to make that happen, we decided to go public to raise the money. Our
chairman, Marshall Reynolds, has been quite successful in taking a number of businesses
public on the NASDAQ. Our board guided us through that process and we were able to sell
stock in January of 2004 and raise about $18 million and that is our seed money for making
acquisitions and growing the company.
CEOCFOinterviews: How do
you plan to grow the company?
Mr. Cooper: We have several legs to our strategy. We
have been doing our best to grow the company internally by gaining market share on our
traditional product, which are track components, insulated rail joints, rail anchors and
spikes. These are kind of commodity products but they are products that have a steady
volume and we have a long experience of providing a quality product. We have been
developing a product area that we call friction management. In the former days in the old
Portec, it was called lubrication and they sold equipment that railroads would use to put
lubricants on the side of the railhead so that as the trains rolled through a curve, the
wheel flange will rub up against the rail. We put lubricant there and it
reduces the friction and saves rail wear. We have tried to take that traditional business
called lubrication to a much higher level, which we now call friction management. With our
acquisition of Kelsan, they have a product called top of rail friction modifier.
In the past, we would not have put lubricant on the running surface of a rail because it
would interfere with traction and breaking. They have a thin film mineral-based material
that is not a lubricant but still reduces friction but only to a certain level, so you
still have breaking and traction. We have grown this friction management from a level of
$5-6 million eight years ago up to about $25 million last year.
We have had some growth in our track components
as well. Now we are making these acquisitions, which we are trying to concentrate on the
higher margin product areas. Kelsan, who we have been working with as a distributor for
many years, was one of our main targets and we have added the friction management thing to
our business internally. Salient, which was an acquisition we made in Columbus Ohio,
is a high-tech business for collecting impact data electronically and running it through
their software. When a train goes by a certain site that has been instrumented, we
can tell the railroads in real-time, that a certain car number has passed this site and it
has a certain wheel or certain axel that has a problem and is pounding excessive forces
into the rail structure. We can tell them that they have to have it maintained or to stop
the train before there is a derailment, or that the equipment is causing damage to the
roadbed. These are allowing them to do predictive and preventative maintenance procedures.
We are trying to base the future of our company on higher-tech, higher margin product
lines, which provide tremendous benefits to our customers in reducing wear, maintenance,
saving fuel, and saving maintenance expenses on the roadway itself.
do you have in the way of competition?
Mr. Cooper: At one point, domestically there were
400-500 suppliers, but most of them were small private companies. There are some bigger
players and there a number of sizeable companies. What provides us
opportunity was there are a lot of smaller companies out there, such as Salient and Kelsan
that we have acquired this year, which we believe are potentially available for
acquisition. In North America, the railroad industry is largely a freight system. There
are two freight railroads in the west, two in the east and two up in Canada. There are six
big guys and some sizeable regionals. What these folks do is give up their low volume
traffic lines and let truckers and non-union short-line railroads operate them. They have
concentrated their traffic on high volume core lines. One such line is the coal traffic
from the Powder River basin in Wyoming down to Houston. The railroads have many car unit
train systems that run up and down the road several times a week. That is good for our
business because it puts wear-and-tear on the rail structure. The railroads are moving
more freight today than ever in the history of the country, and they are doing it with
about a third of the people and half of the track mileage. There has been some tremendous
productivity increases there. On the transit side, because of the congestion at the
airports and on the interstate highway system, there is getting to be more money spent on
expanding the commuter rail services around the big cities. Our products have a good
opportunity there because we save the transit owners wheel wear and we have had success in
eliminating noise in highly populated areas. We have those opportunities internationally.
We have a nice program going in Japan and we have a number of programs going in Europe. Europe
and places like Japan are more oriented toward people transport and less on freight.
is the financial position of the company?
Mr. Cooper: We had record sales for the full year 2004.
When we bought our company on a management buy-out in 1997, our sales were about $38
million and we finished 2004 with $69 million. There was a little bit of contribution in
the fourth quarter from Salient but most of the sales were from our core businesses. We
have had some nice growth on our core business. On the last public data that went out on
Kelsan, I think they did $8 million in sales and the most recent public on Salient, they
did about $5million. If you add our $69 million in 2004 to the sales of Kelsan and
Salient, it will put us into the $80 million plus range. We bought Salient on a
combination of stock and cash. That helped us with the conservation of the cash that we
had to work with. When we bought Kelsan there were a number of factors that seemed to make
it advantageous for us to finance Kelsan totally in Canada, where we have operations in Montreal
and Vancouver. Post acquisition of those two companies, we end up with five million in
cash. We will hopefully pursue our acquisition strategy further.
closing, what should potential investors know about Portec Rail and why should they be
Mr. Cooper: One of our strengths is our management
team. We have been together as a team for twenty years and our CFO has been with us for
eight years. We know our business. We have an excellent reputation with our customer base
and the railroads know Portec Rail products. We have the ability to go in and get approval
and test new products or modify products where sometimes it is hard for newcomers to
break-in and get things tested on the railroads. Our position in the industry with our
customers is a real strength. For a company our size, we have operations now in Vancouver,
Montreal and two places in the U.K. We have international opportunities that a lot of
companies our size would not have. We have a good record of accomplishment. In the years
when things were rough here, many companies in our industry lost money. We came through
that and were profitable through those couple of years. We started paying a dividend; last
year I think we paid seven quarters at five cents per share. I think we have a good
strategy for growing our company in a way that will be very successful.
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