##### 



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
 For the Quarterly Period Ended September 30, 2005
 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, including area code)
 þ o
 o þ
 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 SheetsSeptember 30, 2005 (Unaudited) and December 31, 2004
    
    3Condensed Consolidated Statements of Income (Unaudited)Three and nine months ended September 30, 2005 and 2004
    
    4Condensed Consolidated Statements of Cash Flows (Unaudited)Nine months ended September 30, 2005 and 2004
    
    5Notes to Condensed Consolidated Financial Statements (Unaudited)
    
    62.
    
    Managements Discussion and
Analysis of Financial Condition and Results of Operations
    
    143.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    234.
    
    Controls and Procedures
    
    23PART II  OTHER INFORMATION1.
    
    Legal Proceedings
    
    242.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    243.
    
    Defaults Upon Senior Securities
    
    244.
    
    Submission of Matters to a Vote of Security Holders
    
    245.
    
    Other Information
    
    246.
    
    Exhibits
    
    25Signatures
    
    26
 2




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##### 



PART I  FINANCIAL INFORMATION
 ITEM 1. FINANCIAL STATEMENTS
 Portec Rail Products, Inc.
Condensed Consolidated Balance Sheets
 September 30
    

    December 312005
    
    2004(Unaudited)
    
    (Audited)(In Thousands)AssetsCurrent assetsCash and cash equivalents
    
    $
    6,977
    
    
    $
    7,749Accounts receivable, net
    
    
    14,033
    
    
    
    12,452Inventories, net
    
    
    16,799
    
    
    
    18,814Prepaid expenses and other current assets
    
    
    811
    
    
    
    895Deferred income taxes
    
    
    584
    
    
    
    762Total current assets
    
    $
    39,204
    
    
    $
    40,672Property, plant and equipment, net of
accumulated depreciation of $9,632 and $9,347
at September 30, 2005 and December 31, 2004,
respectively
    
    
    12,137
    
    
    
    12,660Intangible assets, net of accumulated
amortization of $540 and $51 at September 30,
2005 and December 31, 2004, respectively
    
    
    24,144
    
    
    
    24,185Goodwill
    
    
    11,045
    
    
    
    10,957Other assets
    
    
    248
    
    
    
    151Total assets
    
    $
    86,778
    
    
    $
    88,625Liabilities and Shareholders EquityCurrent liabilitiesCurrent maturities of long-term debt
    
    $
    3,042
    
    
    $
    3,611Accounts payable
    
    
    4,571
    
    
    
    6,417Accrued income taxes
    
    
    1,168
    
    
    
    503Customer deposits
    
    
    799
    
    
    
    1,572Accrued compensation
    
    
    1,648
    
    
    
    1,484Other accrued liabilities
    
    
    2,079
    
    
    
    1,824Total current liabilities
    
    
    13,307
    
    
    
    15,411Long-term debt, less current maturities
    
    
    11,727
    
    
    
    14,108Accrued pension costs
    
    
    2,613
    
    
    
    2,829Deferred income taxes
    
    
    8,692
    
    
    
    8,889Other long-term liabilities
    
    
    460
    
    
    
    344Total liabilities
    
    
    36,799
    
    
    
    41,581Commitments and Contingencies
    
    
    
    
    
    
    Shareholders equity:Common stock, $1 par value, 50,000,000
shares authorized, 9,601,779 shares
issued and outstanding at September 30,
2005 and December 31, 2004, respectively
    
    
    9,602
    
    
    
    9,602Additional paid-in capital
    
    
    25,290
    
    
    
    25,290Retained earnings
    
    
    16,507
    
    
    
    13,521Accumulated other comprehensive loss
    
    
    (1,420
    )
    
    
    (1,369
    )Total shareholders equity
    
    
    49,979
    
    
    
    47,044Total liabilities and shareholders equity
    
    $
    86,778
    
    
    $
    88,625
 See Notes
to Condensed Consolidated Financial Statements
 3




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##### 



Portec Rail Products, Inc.
 Condensed Consolidated Statements of Income
(Unaudited)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30
    
    
    September 302005
    
    
    2004
    
    
    2005
    
    
    2004(Dollars in Thousands, Except Per Share Data)Net sales
    
    $
    24,191
    
    
    $
    17,023
    
    
    $
    69,098
    
    
    $
    50,729Cost of sales
    
    
    16,336
    
    
    
    12,535
    
    
    
    46,946
    
    
    
    36,940Gross profit
    
    
    7,855
    
    
    
    4,488
    
    
    
    22,152
    
    
    
    13,789Selling, general and administrative
    
    
    4,862
    
    
    
    2,967
    
    
    
    14,607
    
    
    
    9,082Amortization expense
    
    
    177
    
    
    
    16
    
    
    
    516
    
    
    
    48Operating income
    
    
    2,816
    
    
    
    1,505
    
    
    
    7,029
    
    
    
    4,659Interest expense
    
    
    193
    
    
    
    20
    
    
    
    665
    
    
    
    91Other expense (income), net
    
    
    175
    
    
    
    (9
    )
    
    
    140
    
    
    
    (42
    )Income before income taxes
    
    
    2,448
    
    
    
    1,494
    
    
    
    6,224
    
    
    
    4,610Provision for income taxes
    
    
    735
    
    
    
    518
    
    
    
    1,798
    
    
    
    1,513Net income
    
    $
    1,713
    
    
    $
    976
    
    
    $
    4,426
    
    
    $
    3,097Earnings per shareBasic and diluted
    
    $
    .18
    
    
    $
    .11
    
    
    $
    .46
    
    
    $
    .36Weighted average shares outstandingBasic and diluted
    
    
    9,601,779
    
    
    
    8,711,150
    
    
    
    9,601,779
    
    
    
    8,711,150Dividends per share
    
    $
    .05
    
    
    $
    .05
    
    
    $
    .15
    
    
    $
    .15
 See
Notes to Condensed Consolidated Financial Statements
 4




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##### 



Portec Rail Products, Inc.
 Condensed Consolidated Statements of Cash Flows
(Unaudited)
 Nine Months EndedSeptember 302005
    
    2004(In Thousands)Operating ActivitiesNet income
    
    $
    4,426
    
    
    $
    3,097Adjustments to reconcile net income to net cash
provided by operating activities:Depreciation expense
    
    
    1,276
    
    
    
    1,072Amortization expense
    
    
    517
    
    
    
    48Provision for doubtful accounts
    
    
    7
    
    
    
    46Deferred income taxes
    
    
    (19
    )
    
    
    Loss (gain) on sale of fixed assets
    
    
    8
    
    
    
    (11
    )Impairment of long-lived assets
    
    
    193
    
    
    
    Changes in operating assets and liabilities:Accounts receivable
    
    
    (2,342
    )
    
    
    (2,285
    )Inventories
    
    
    1,955
    
    
    
    (373
    )Prepaid expenses and other current assets
    
    
    (223
    )
    
    
    249Accounts payable
    
    
    (1,128
    )
    
    
    (212
    )Income taxes payable
    
    
    700
    
    
    
    (123
    )Accrued expenses
    
    
    (243
    )
    
    
    178Net cash provided by operating activities
    
    
    5,127
    
    
    
    1,686Investing ActivitiesBusiness acquisition, net of cash acquired
    
    
    
    
    
    
    (2,411
    )Purchases of property, plant and equipment
    
    
    (1,128
    )
    
    
    (823
    )Proceeds from sale of assets
    
    
    5
    
    
    
    14Net cash used in investing activities
    
    
    (1,123
    )
    
    
    (3,220
    )Financing ActivitiesNet decrease in revolving credit agreements
    
    
    (597
    )
    
    
    (6,301
    )Principal payments on bank term loans
    
    
    (2,680
    )
    
    
    (2,082
    )Principal payments to Boone County Bank, Inc. (related
party)
    
    
    
    
    
    
    (74
    )Principal payments on capital leases
    
    
    (19
    )
    
    
    (9
    )Cash dividends paid to shareholders
    
    
    (1,440
    )
    
    
    (1,292
    )Issuance of common stock
    
    
    
    
    
    
    17,972Net cash (used in) provided by financing activities
    
    
    (4,736
    )
    
    
    8,214Effect of exchange rate changes on cash and cash equivalents
    
    
    (40
    )
    
    
    34(Decrease) increase in cash and cash equivalents
    
    
    (772
    )
    
    
    6,714Cash and cash equivalents at beginning of period
    
    
    7,749
    
    
    
    418Cash and cash equivalents at end of period
    
    $
    6,977
    
    
    $
    7,132Supplemental Disclosures of Cash Flow InformationCash paid during the period for:Interest
    
    $
    701
    
    
    $
    89Income taxes
    
    $
    1,447
    
    
    $
    1,730Capital lease obligation incurred for equipment
    
    
    
    
    
    $
    16Non cash items for business acquisition:Issuance of common stock
    
    
    
    
    
    $
    7,187Notes payable
    
    
    
    
    
    $
    1,120
 See
Notes to Condensed Consolidated Financial Statements
 5




---



##### 



Note 1: Organization
  Note 2: Basis of Presentation
  Note 3: Inventories
   September 30
    
    
    December 312005
    
    
    2004(In Thousands)Raw materials
    
    $
    7,237
    
    
    $
    8,972Work in process
    
    
    180
    
    
    
    357Finished goods
    
    
    9,749
    
    
    
    9,82217,166
    
    
    
    19,151Less reserve for slow-moving and obsolete inventory
    
    
    367
    
    
    
    337Net inventory
    
    $
    16,799
    
    
    $
    18,814
 6




---



##### 



Note 4: Long-Term Debt
  September 30
    
    December 312005
    
    2004(In Thousands)National City Bank Credit Facility: (a)Term loan facility
    
    $
    13,037
    
    
    $
    14,710Revolving
credit facility  United States
    
    
    
    
    
    
    Revolving
credit facility  Canada
    
    
    
    
    
    
    834United Kingdom loans: (b)Term loan
    
    
    
    
    
    
    211Property loan
    
    
    
    
    
    
    137Quodeck acquisition loan
    
    
    
    
    
    
    320Overdraft credit facility
    
    
    
    
    
    
    Kelsan overdraft credit facility (c)
    
    
    570
    
    
    
    325Salient Systems promissory notes (d)
    
    
    1,120
    
    
    
    1,120Capitalized lease obligations
    
    
    42
    
    
    
    6214,769
    
    
    
    17,719Less current maturities
    
    
    3,042
    
    
    
    3,611$
    11,727
    
    
    $
    14,108
 (a) National City Bank Credit Facility
  National City Bank (Canada) Term Loan Facility
  7




---



##### 



(b) United Kingdom Loans
 Term Loan
  Property Loan
  Quodeck Acquisition Loan
  Overdraft Credit Facility
  (c) Kelsan Overdraft Credit Facility
  (d) Salient Systems Promissory Notes
 Wall Street Journal
 8




---



##### 



Note 5: Retirement Plans
 Employers Disclosures about Pensions and
Other Postretirement Benefits
  Three Months Ended
    
    
    Nine Months EndedSeptember 30
    
    
    September 302005
    
    
    2004
    
    
    2005
    
    
    2004(In Thousands)Service cost
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Interest cost
    
    
    130
    
    
    
    128
    
    
    
    390
    
    
    
    384Expected return on plan assets
    
    
    (170
    )
    
    
    (178
    )
    
    
    (510
    )
    
    
    (534
    )Amortization of unrecognized loss
    
    
    12
    
    
    
    
    
    
    
    35
    
    
    
    Pension (benefit)/cost
    
    $
    (28
    )
    
    $
    (50
    )
    
    $
    (85
    )
    
    $
    (150
    )
   Portec Rail
    
    Conveyors
    
    Portec Rail
    
    ConveyorsPlan
    
    Plan
    
    Plan
    
    Plan2005
    
    2005
    
    2004
    
    2004(In Thousands)Service cost
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Interest cost
    
    
    77
    
    
    
    11
    
    
    
    69
    
    
    
    10Expected return on plan assets
    
    
    (72
    )
    
    
    (18
    )
    
    
    (69
    )
    
    
    (17
    )Amortization of transition amount
    
    
    (13
    )
    
    
    (2
    )
    
    
    (14
    )
    
    
    (2
    )Amortization of unrecognized loss (gain)
    
    
    30
    
    
    
    (3
    )
    
    
    19
    
    
    
    (1
    )Pension cost/(benefit)
    
    $
    22
    
    
    $
    (12
    )
    
    $
    5
    
    
    $
    (10
    )
 9




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##### 



Portec Rail
    
    Conveyors
    
    Portec Rail
    
    ConveyorsPlan
    
    Plan
    
    Plan
    
    Plan2005
    
    2005
    
    2004
    
    2004(In Thousands)Service cost
    
    $
    
    
    
    $
    
    
    
    $
    28
    
    
    $
    Interest cost
    
    
    236
    
    
    
    33
    
    
    
    208
    
    
    
    30Expected return on plan assets
    
    
    (222
    )
    
    
    (54
    )
    
    
    (215
    )
    
    
    (51
    )Amortization of transition amount
    
    
    (41
    )
    
    
    (8
    )
    
    
    (41
    )
    
    
    (8
    )Amortization of unrecognized
loss (gain)
    
    
    92
    
    
    
    (9
    )
    
    
    57
    
    
    
    (3
    )Pension cost/(benefit)
    
    $
    65
    
    
    $
    (38
    )
    
    $
    37
    
    
    $
    (32
    )
  Note 6: Comprehensive Income
  Three Months Ended
    
    
    Nine Months EndedSeptember 30
    
    
    September 302005
    
    
    2004
    
    
    2005
    
    
    2004(In Thousands)Net income
    
    $
    1,713
    
    
    $
    976
    
    
    $
    4,426
    
    
    $
    3,097Minimum pension liability adjustment, net of tax
    
    
    25
    
    
    
    4
    
    
    
    137
    
    
    
    (20
    )Foreign currency translation adjustments, net of tax
    
    
    300
    
    
    
    316
    
    
    
    (188
    )
    
    
    260Comprehensive income
    
    $
    2,038
    
    
    $
    1,296
    
    
    $
    4,375
    
    
    $
    3,337
 Note 7: Earnings Per Share
  10




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##### 



Note 8: Commitments and Contingencies
 Contractual Obligations
  Less
    
    
    
    
    
    
    
    
    
    
    Morethan 1
    
    
    1  3
    
    
    3  5
    
    
    than 5Contractual Obligations
    
    Total
    
    
    year
    
    
    years
    
    
    years
    
    
    years(In Thousands)Long term debt
    
    $
    14,157
    
    
    $
    542
    
    
    $
    4,897
    
    
    $
    4,898
    
    
    $
    3,820Future interest payments for
long-term debt obligations
(1)
    
    
    2,031
    
    
    
    155
    
    
    
    1,128
    
    
    
    616
    
    
    
    132Revolving credit facilities
    
    
    570
    
    
    
    570
    
    
    
    
    
    
    
    
    
    
    
    Capital leases
    
    
    42
    
    
    
    6
    
    
    
    35
    
    
    
    1
    
    
    
    Operating leases
    
    
    3,951
    
    
    
    278
    
    
    
    2,106
    
    
    
    759
    
    
    
    808Total contractual obligations
    
    $
    20,751
    
    
    $
    1,551
    
    
    $
    8,166
    
    
    $
    6,274
    
    
    $
    4,760
 
 (1)
    
    Assumes that the interest rates on our long-term debt agreements at September 30, 2005 (See
Note 4 of the consolidated financial statements of Form 10-Q) will continue for the life of the
agreements. Litigation
  Note 9: Segment Information
   11




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##### 



Three Months Ended
    
    Nine Months EndedSeptember 30
    
    September 302005
    
    2004
    
    2005
    
    2004(In Thousands)External SalesRMP
    
    $
    12,501
    
    
    $
    8,177
    
    
    $
    33,263
    
    
    $
    24,497SSD
    
    
    1,846
    
    
    
    1,430
    
    
    
    4,723
    
    
    
    3,367Canada
    
    
    6,332
    
    
    
    3,299
    
    
    
    21,029
    
    
    
    12,003United Kingdom
    
    
    3,512
    
    
    
    4,117
    
    
    
    10,083
    
    
    
    10,862Total
    
    $
    24,191
    
    
    $
    17,023
    
    
    $
    69,098
    
    
    $
    50,729Intersegment SalesRMP
    
    $
    759
    
    
    $
    369
    
    
    $
    1,794
    
    
    $
    1,134SSD
    
    
    6
    
    
    
    
    
    
    
    9
    
    
    
    Canada
    
    
    1,247
    
    
    
    722
    
    
    
    3,670
    
    
    
    1,618United Kingdom
    
    
    6
    
    
    
    4
    
    
    
    38
    
    
    
    31Total
    
    $
    2,018
    
    
    $
    1,095
    
    
    $
    5,511
    
    
    $
    2,783Total SalesRMP
    
    $
    13,260
    
    
    $
    8,546
    
    
    $
    35,057
    
    
    $
    25,631SSD
    
    
    1,852
    
    
    
    1,430
    
    
    
    4,732
    
    
    
    3,367Canada
    
    
    7,579
    
    
    
    4,021
    
    
    
    24,699
    
    
    
    13,621United Kingdom
    
    
    3,518
    
    
    
    4,121
    
    
    
    10,121
    
    
    
    10,893Total
    
    $
    26,209
    
    
    $
    18,118
    
    
    $
    74,609
    
    
    $
    53,512Depreciation and AmortizationRMP
    
    $
    187
    
    
    $
    178
    
    
    $
    546
    
    
    $
    496SSD
    
    
    4
    
    
    
    3
    
    
    
    8
    
    
    
    9Canada
    
    
    300
    
    
    
    88
    
    
    
    865
    
    
    
    249United Kingdom
    
    
    117
    
    
    
    122
    
    
    
    359
    
    
    
    363Corporate
    
    
    6
    
    
    
    1
    
    
    
    15
    
    
    
    3Total
    
    $
    614
    
    
    $
    392
    
    
    $
    1,793
    
    
    $
    1,120
 12




---



##### 



Three Months Ended
    
    Nine Months EndedSeptember 30
    
    September 302005
    
    2004
    
    2005
    
    2004(In Thousands)Operating Income (Loss) (A)RMP
    
    $
    2,046
    
    
    $
    1,092
    
    
    $
    4,885
    
    
    $
    3,580SSD
    
    
    309
    
    
    
    220
    
    
    
    810
    
    
    
    437Canada
    
    
    758
    
    
    
    287
    
    
    
    2,617
    
    
    
    1,559United Kingdom
    
    
    281
    
    
    
    343
    
    
    
    633
    
    
    
    508Corporate
    
    
    (578
    )
    
    
    (437
    )
    
    
    (1,916
    )
    
    
    (1,425
    )Total
    
    
    2,816
    
    
    
    1,505
    
    
    
    7,029
    
    
    
    4,659Interest Expense
    
    
    193
    
    
    
    20
    
    
    
    665
    
    
    
    91Other Expense (Income), net
    
    
    175
    
    
    
    (9
    )
    
    
    140
    
    
    
    (42
    )Income Before Income Taxes
    
    $
    2,448
    
    
    $
    1,494
    
    
    $
    6,224
    
    
    $
    4,610Capital ExpendituresRMP
    
    $
    132
    
    
    $
    95
    
    
    $
    536
    
    
    $
    330SSD
    
    
    40
    
    
    
    23
    
    
    
    40
    
    
    
    25Canada
    
    
    77
    
    
    
    380
    
    
    
    252
    
    
    
    414United Kingdom
    
    
    98
    
    
    
    10
    
    
    
    204
    
    
    
    64Corporate
    
    
    12
    
    
    
    6
    
    
    
    96
    
    
    
    6Total
    
    $
    359
    
    
    $
    514
    
    
    $
    1,128
    
    
    $
    839
 September 30
    
    December 312005
    
    2004(In Thousands)
    
    (In Thousands)Total AssetsRMP
    
    $
    41,430
    
    
    $
    40,060SSD
    
    
    2,016
    
    
    
    1,699Canada
    
    
    32,836
    
    
    
    32,504United Kingdom
    
    
    9,616
    
    
    
    10,532Corporate
    
    
    880
    
    
    
    3,830Total
    
    $
    86,778
    
    
    $
    88,625
 
 (A)
    
     Operating Income (Loss) for 2004 and for the nine month period ended September 30,
2005 includes pro forma adjustments for the reclassification of one professional and two
executive employees salary and benefit expenses to be consistent with the allocation of
these expenses during 2005. Beginning in April 2005, Corporate shared services began to
absorb the salaries, benefits and business travel expenses for these employees due to
internal promotions and new responsibilities. The effects of these pro forma adjustments
on total Operating Income is zero; however, the pro forma effects on Operating Income
(Loss) by business segment is as follows: Three Months Ended
    
    Nine Months EndedSeptember 30
    
    September 302005
    
    2004
    
    2005
    
    2004(In Thousands)Pro Forma Effect
on Operating
Income (Loss)RMP
    
    $
    
    
    
    $
    75
    
    
    $
    59
    
    
    $
    226Canada
    
    
    
    
    
    
    32
    
    
    
    31
    
    
    
    87Corporate
    
    
    
    
    
    
    (107
    )
    
    
    (90
    )
    
    
    (313
    )Total
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
 13




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##### 



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.
  14




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##### 



Overview
  Results of Operations
 Three Months Ended September 30, 2005 compared to Three Months Ended September 30, 2004
 Net Sales.
 Gross Profit.
 Selling, General and Administrative Expenses.
 Amortization Expense.
 15




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##### 



Interest Expense.
 Other Expense (Income).
 Provision for Income Taxes.
 Net Income.
 Nine Months Ended September 30, 2005 compared to Nine Months Ended September 30, 2004
 Net Sales.
 Gross Profit.
 Selling, General and Administrative Expenses.
 16




---



##### 



Amortization Expense.
 Interest Expense.
 Other Expense (Income).
 Provision for Income Taxes.
 Net Income.
 Business Segment Review
  17




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##### 



Railway
Maintenance Products Division  RMP.
 Three Months Ended
    
    
    Nine Months EndedSeptember 30
    
    
    September 302005
    
    
    2004
    
    
    2005
    
    
    2004(In Thousands)External sales
    
    $
    12,501
    (2)
    
    $
    8,177
    
    
    $
    33,263
    (2)
    
    $
    24,497Intersegment sales
    
    
    759
    
    
    
    369
    
    
    
    1,794
    
    
    
    1,134Operating income
    
    
    2,046
    (2)
    
    
    1,092
    (4)
    
    
    4,885
    (2), (4)
    
    
    3,580
    (4)Sales by product line(1)Rail joints and related products
    
    $
    5,568
    
    
    $
    4,889
    
    
    $
    17,236
    
    
    $
    13,902Friction management products and services
    
    
    5,884
    
    
    
    3,264
    
    
    
    13,750
    
    
    
    10,680Wayside data collection and data management systems
    
    
    1,500
    (2)
    
    
    
    (3)
    
    
    3,182
    (2)
    
    
    
    (3)Other products and services
    
    
    308
    
    
    
    393
    
    
    
    889
    
    
    
    1,049Total product and service sales
    
    $
    13,260
    
    
    $
    8,546
    
    
    $
    35,057
    
    
    $
    25,631
 
 (1)
    
    Includes intersegment sales.(2)
    
    Includes Salient Systems external sales of $1.5 million and $3.1 million and operating
income of $480,000 and $602,000 for the three and nine months ended September 30, 2005,
respectively.(3)
    
    On an unaudited basis and before pro forma adjustments, Salient Systems net sales were
$2.6 million and $3.5 million, and operating income was $1.3 million and $1.0 million for
the three and nine months ended September 30, 2004, respectively. The amounts listed in
this footnote are not included in the RMP table above.(4)
    
    Includes pro forma adjustments of $75,000 for the third quarter of 2004, $59,000 for
the first nine months of 2005, and $226,000 for the first nine months of 2004 to reclass
salary and benefit expenses for one executive and one professional employee to be
consistent with the allocation of these expenses during 2005. Beginning in April 2005,
Corporate shared services began to absorb the salaries, benefits and business travel
expenses for these employees due to internal promotions and assignment of new
responsibilities.   18




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##### 



Shipping
Systems Division  SSD.
 Three Months Ended
    
    
    Nine Months EndedSeptember 30
    
    
    September 302005
    
    
    2004
    
    
    2005
    
    
    2004(In Thousands)External sales
    
    $
    1,846
    
    
    $
    1,430
    
    
    $
    4,723
    
    
    $
    3,367Intersegment sales
    
    
    6
    
    
    
    
    
    
    
    9
    
    
    
    Operating income
    
    
    309
    
    
    
    220
    
    
    
    810
    
    
    
    437Sales by product line(1)Heavy duty load securement systems
    
    $
    1,155
    
    
    $
    322
    
    
    $
    2,045
    
    
    $
    1,086Auto rack load securement systems
    
    
    30
    
    
    
    
    
    
    
    1,005
    
    
    
    1All other load securement systems
    
    
    667
    
    
    
    1,108
    
    
    
    1,682
    
    
    
    2,280Total product and service sales
    
    $
    1,852
    
    
    $
    1,430
    
    
    $
    4,732
    
    
    $
    3,367
 
 (1)
    
    Includes intersegment sales.   3094497
Nova Scotia Company  Canada. ® ®
 19




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##### 



Three Months Ended
    
    
    Nine Months EndedSeptember 30
    
    
    September 302005
    
    
    2004
    
    
    2005
    
    
    2004(In Thousands)External sales
    
    $
    6,332
    (2)
    
    $
    3,299
    
    
    $
    21,029
    (2)
    
    $
    12,003Intersegment sales
    
    
    1,247
    (3)
    
    
    722
    
    
    
    3,670
    (3)
    
    
    1,618Operating income
    
    
    758
    (2)
    
    
    287
    (5)
    
    
    2,617
    (2), (5)
    
    
    1,559
    (5)Average translation rate of Canadian
dollar to United States dollar
    
    
    0.8340
    
    
    
    0.7634
    
    
    
    0.8192
    
    
    
    0.7536Sales by product line(1)Rail anchors and spikes
    
    $
    3,974
    
    
    $
    3,012
    
    
    $
    14,090
    
    
    $
    10,241Friction management products and services
    
    
    3,215
    (2)
    
    
    858
    (4)
    
    
    9,703
    (2)
    
    
    2,879
    (4)Other products and services
    
    
    390
    
    
    
    151
    
    
    
    906
    
    
    
    501Total product and service sales
    
    $
    7,579
    
    
    $
    4,021
    
    
    $
    24,699
    
    
    $
    13,621
 
 (1)
    
    Includes intersegment sales.(2)
    
    Includes Kelsan external sales of $1.7 million and $4.8 million, and operating income
of $157,000 and $387,000 for the three and nine months ended September 30, 2005,
respectively.(3)
    
    Includes Kelsan intersegment sales of $201,000 and $627,000 for the three and nine
months ended September 30, 2005, respectively.(4)
    
    On an unaudited basis and before pro forma adjustments, Kelsans net sales were $1.5
million and $5.9 million and operating income/(loss) was ($73,000) and $569,000 for the
three and nine months ended September 30, 2004, respectively. The amounts listed in this
footnote are not included in the Canada table above.(5)
    
    Includes pro forma adjustments of $32,000 for the third quarter of 2004, $31,000 for
the first nine months of 2005, and $87,000 for the first nine months of 2004 to reclass
salary and benefit expenses for one executive employee to be consistent with the allocation
of these expenses during 2005. Beginning in April 2005, Corporate shared services began to
absorb the salary, benefit and travel expenses for this employee due to an internal
promotion and assignment of new responsibilities.   20




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##### 



Portec Rail Products (UK) Ltd.  United Kingdom.
 Three Months Ended
    
    
    Nine Months EndedSeptember 30
    
    
    September 302005
    
    
    2004
    
    
    2005
    
    
    2004(In Thousands)External sales
    
    $
    3,512
    
    
    $
    4,117
    
    
    $
    10,083
    
    
    $
    10,862Intersegment sales
    
    
    6
    
    
    
    4
    
    
    
    38
    
    
    
    31Operating income
    
    
    281
    
    
    
    343
    
    
    
    633
    
    
    
    508Average translation rate of British
pound sterling to United States dollar
    
    
    1.7789
    
    
    
    1.8137
    
    
    
    1.8374
    
    
    
    1.8225Sales by product line(1)Material handling products
    
    $
    2,354
    
    
    $
    2,839
    
    
    $
    6,769
    
    
    $
    7,507Friction management products and services
    
    
    1,164
    
    
    
    1,282
    
    
    
    3,352
    
    
    
    3,386Total product and service sales
    
    $
    3,518
    
    
    $
    4,121
    
    
    $
    10,121
    
    
    $
    10,893
 
 (1)
    
    Includes intersegment sales.   Liquidity and Capital Resources
  Cash Flow Analysis.
 21




---



##### 



Financial Condition
    22




---



##### 



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
   ITEM 4. CONTROLS AND PROCEDURES
  23




---



##### 



PART
II  OTHER INFORMATION
 ITEM 1. LEGAL PROCEEDINGS
  ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  ITEM 3. DEFAULTS UPON SENIOR SECURITIES
  ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  ITEM 5. OTHER INFORMATION
  24




---



##### 



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
 25




---



##### 



SIGNATURES
  PORTEC RAIL PRODUCTS, INC.Date: November 10, 2005
    By:
    /s/ John S. CooperJohn S. Cooper, President and ChiefExecutive OfficerDate: November 10, 2005
    By:
    /s/ Michael D. BornakMichael D. Bornak, Vice President ofFinance, Chief Financial Officer and
Chief Accounting Officer 26




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##### 



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
 27