##### 



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 March 31, 2006
 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 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 Sheets
March 31, 2006 (Unaudited) and December 31, 2005
    
    
    3Condensed Consolidated Statements of Income (Unaudited)
Three months ended March 31, 2006 and 2005
    
    
    4Condensed Consolidated Statements of Cash Flows (Unaudited)
Three months ended March 31, 2006 and 2005
    
    
    5Notes to Condensed Consolidated Financial Statements (Unaudited)
    
    
    62.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    153.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    214.
    
    Controls and Procedures
    
    
    22PART II  OTHER INFORMATION1.
    
    Legal Proceedings
    
    
    221A.
    
    Risk Factors
    
    
    222.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    223.
    
    Defaults Upon Senior Securities
    
    
    224.
    
    Submission of Matters to a Vote of Security Holders
    
    
    225.
    
    Other Information
    
    
    236.
    
    Exhibits
    
    
    23Signatures
    
    
    24
 2




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##### 



PART I  FINANCIAL INFORMATION
 ITEM 1. FINANCIAL STATEMENTS
 Portec Rail Products, Inc.
Condensed Consolidated Balance Sheets
 March 31
    
    December 312006
    
    2005(Unaudited)
    
    (Audited)(In Thousands)AssetsCurrent assetsCash and cash equivalents
    
    $
    1,192
    
    
    $
    5,367Accounts receivable, net
    
    
    16,381
    
    
    
    14,198Inventories, net
    
    
    21,625
    
    
    
    20,140Prepaid expenses and other current assets
    
    
    2,087
    
    
    
    845Deferred income taxes
    
    
    806
    
    
    
    808Total current assets
    
    $
    42,091
    
    
    $
    41,358Property, plant and equipment, net of
accumulated depreciation of $10,487 and
$10,019 at March 31, 2006 and December 31,
2005, respectively
    
    
    12,206
    
    
    
    12,173Intangible assets, net of accumulated
amortization of $872 and $708 at March 31,
2006 and December 31, 2005, respectively
    
    
    23,839
    
    
    
    24,012Goodwill
    
    
    11,002
    
    
    
    11,008Other assets
    
    
    360
    
    
    
    318Total assets
    
    $
    89,498
    
    
    $
    88,869Liabilities and Shareholders EquityCurrent liabilitiesCurrent maturities of long-term debt
    
    $
    5,158
    
    
    $
    3,847Accounts payable
    
    
    6,890
    
    
    
    5,774Accrued income taxes
    
    
    665
    
    
    
    813Customer deposits
    
    
    1,441
    
    
    
    1,401Accrued compensation
    
    
    672
    
    
    
    2,231Other accrued liabilities
    
    
    2,281
    
    
    
    1,877Total current liabilities
    
    
    17,107
    
    
    
    15,943Long-term debt, less current maturities
    
    
    9,533
    
    
    
    10,402Accrued pension costs
    
    
    3,047
    
    
    
    3,036Deferred income taxes
    
    
    8,414
    
    
    
    8,556Other long-term liabilities
    
    
    490
    
    
    
    484Total liabilities
    
    
    38,591
    
    
    
    38,421Commitments and Contingencies
    
    
    
    
    
    
    Shareholders equity:Common stock, $1 par value, 50,000,000
shares authorized, 9,601,779 shares
issued and outstanding at March 31, 2006
and December 31, 2005, respectively
    
    
    9,602
    
    
    
    9,602Additional paid-in capital
    
    
    25,290
    
    
    
    25,290Retained earnings
    
    
    17,789
    
    
    
    17,332Accumulated other comprehensive loss
    
    
    (1,774
    )
    
    
    (1,776
    )Total shareholders equity
    
    
    50,907
    
    
    
    50,448Total liabilities and shareholders equity
    
    $
    89,498
    
    
    $
    88,869
 See Notes to Condensed Consolidated Financial Statements
 3




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##### 



Portec Rail Products, Inc.
Condensed Consolidated Statements of Income
(Unaudited)
 Three Months EndedMarch 312006
    
    2005(Dollars in Thousands, Except Per Share Data)Net sales
    
    $
    23,115
    
    
    $
    20,821Cost of sales
    
    
    16,276
    
    
    
    14,299Gross profit
    
    
    6,839
    
    
    
    6,522Selling, general and administrative
    
    
    5,034
    
    
    
    4,695Amortization expense
    
    
    170
    
    
    
    166Operating income
    
    
    1,635
    
    
    
    1,661Interest expense
    
    
    209
    
    
    
    263Other income, net
    
    
    (2
    )
    
    
    (71
    )Income before income taxes
    
    
    1,428
    
    
    
    1,469Provision for income taxes
    
    
    395
    
    
    
    464Net income
    
    $
    1,033
    
    
    $
    1,005Earnings per shareBasic and diluted
    
    $
    0.11
    
    
    $
    0.10Weighted average shares outstandingBasic and diluted
    
    
    9,601,779
    
    
    
    9,601,779Dividends per share
    
    $
    0.06
    
    
    $
    0.05
 See Notes to Condensed Consolidated Financial Statements
 4




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##### 



Portec Rail Products, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
 Three Months EndedMarch 312006
    
    2005(In Thousands)Operating ActivitiesNet income
    
    $
    1,033
    
    
    $
    1,005Adjustments to reconcile net income to net cash
provided by (used in) operating activities:Depreciation expense
    
    
    461
    
    
    
    414Amortization expense
    
    
    170
    
    
    
    167Provision for doubtful accounts
    
    
    27
    
    
    
    Changes in operating assets and liabilities:Accounts receivable
    
    
    (2,390
    )
    
    
    (1,397
    )Inventories
    
    
    (1,501
    )
    
    
    997Prepaid expenses and other current assets
    
    
    (1,134
    )
    
    
    (1,145
    )Accounts payable
    
    
    1,280
    
    
    
    (1,080
    )Accrued income taxes
    
    
    (485
    )
    
    
    310Accrued expenses
    
    
    (1,129
    )
    
    
    (1,413
    )Net cash used in operating activities
    
    
    (3,668
    )
    
    
    (2,142
    )Investing ActivitiesPurchases of property, plant and equipment
    
    
    (489
    )
    
    
    (284
    )Net cash used in investing activities
    
    
    (489
    )
    
    
    (284
    )Financing ActivitiesNet increase in revolving credit agreements
    
    
    1,350
    
    
    
    1,168Principal payments on bank term loans
    
    
    (549
    )
    
    
    (906
    )Principal payments on promissory notes
    
    
    (280
    )
    
    
    Principal payments on capital leases
    
    
    (6
    )
    
    
    (8
    )Cash dividends paid to shareholders
    
    
    (576
    )
    
    
    (480
    )Net cash used in financing activities
    
    
    (61
    )
    
    
    (226
    )Effect of exchange rate changes on cash and cash equivalents
    
    
    43
    
    
    
    (1
    )Decrease in cash and cash equivalents
    
    
    (4,175
    )
    
    
    (2,652
    )Cash and cash equivalents at beginning of period
    
    
    5,367
    
    
    
    7,749Cash and cash equivalents at end of period
    
    $
    1,192
    
    
    $
    5,097Supplemental Disclosures of Cash Flow InformationCash paid during the period for:Interest
    
    $
    279
    
    
    $
    433Income taxes
    
    $
    698
    
    
    $
    241
 See Notes to Condensed Consolidated Financial Statements
 5




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##### 



Portec Rail Products, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
 Note 1: Organization
  Note 2: Basis of Presentation
  Note 3: Inventories
   March 31
    
    December 312006
    
    2005(In Thousands)Raw materials
    
    $
    8,531
    
    
    $
    8,764Work in process
    
    
    919
    
    
    
    284Finished goods
    
    
    12,430
    
    
    
    11,59221,880
    
    
    
    20,640Less reserve for slow-moving and obsolete inventory
    
    
    255
    
    
    
    500Net inventory
    
    $
    21,625
    
    
    $
    20,140
 6




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##### 



Portec Rail Products, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
 Note 4: Long-Term Debt
  March 31
    
    December 312006
    
    2005(In Thousands)National City Bank Credit Facility: (a)Term loan facility
    
    $
    11,123
    
    
    $
    11,716Revolving credit facility  United States
    
    
    
    
    
    
    Revolving credit facility  Canada
    
    
    2,697
    
    
    
    1,376United Kingdom overdraft credit facility (b)
    
    
    
    
    
    
    Salient Systems promissory notes (c)
    
    
    840
    
    
    
    1,120Capitalized lease obligations
    
    
    31
    
    
    
    3714,691
    
    
    
    14,249Less current maturities
    
    
    5,158
    
    
    
    3,847$
    9,533
    
    
    $
    10,402
 (a) National City Bank Credit Facility
   National City Bank (Canada) Term Loan Facility
  7




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##### 



Portec Rail Products, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
 National City Bank  United States Revolving Credit Facility
   National City Bank (Canada)  Canadian Revolving Credit Facility
  (b) United Kingdom Overdraft Credit Facility
   (c) Salient Systems Promissory Notes
 Wall Street Journal
 8




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##### 



Portec Rail Products, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
  Note 5: Retirement Plans
  Three Months EndedMarch 312006
    
    2005(In Thousands)Interest cost
    
    $
    133
    
    
    $
    130Expected return on plan assets
    
    
    (162
    )
    
    
    (170
    )Amortization of unrecognized loss
    
    
    27
    
    
    
    12Pension (benefit)
    
    $
    (2
    )
    
    $
    (28
    )
   Portec Rail
    
    Conveyors
    
    Portec Rail
    
    ConveyorsPlan
    
    Plan
    
    Plan
    
    Plan2006
    
    2006
    
    2005
    
    2005(In Thousands)Interest cost
    
    $
    69
    
    
    $
    15
    
    
    $
    82
    
    
    $
    11Expected return on plan assets
    
    
    (75
    )
    
    
    (16
    )
    
    
    (77
    )
    
    
    (19
    )Amortization of transition amount
    
    
    (13
    )
    
    
    (2
    )
    
    
    (14
    )
    
    
    (2
    )Amortization of unrecognized loss (gain)
    
    
    29
    
    
    
    1
    
    
    
    31
    
    
    
    (3
    )Pension cost (benefit)
    
    $
    10
    
    
    $
    (2
    )
    
    $
    22
    
    
    $
    (13
    )
  Note 6: Comprehensive Income
  Three Months EndedMarch 312006
    
    2005(In Thousands)Net income
    
    $
    1,033
    
    
    $
    1,005Minimum pension liability adjustment, net of tax
    
    
    (12
    )
    
    
    25Foreign currency translation adjustments, net of tax
    
    
    14
    
    
    
    (115
    )Comprehensive income
    
    $
    1,035
    
    
    $
    915
 9




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##### 



Portec Rail Products, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
 Note 7: Earnings Per Share
   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
    
    $
    11,964
    
    
    $
    1,618
    
    
    $
    4,876
    
    
    $
    4,596
    
    
    $
    874Revolving credit facilities
    
    
    2,696
    
    
    
    2,696
    
    
    
    
    
    
    
    
    
    
    
    Future interest payments (1)
    
    
    1,919
    
    
    
    535
    
    
    
    965
    
    
    
    403
    
    
    
    16Purchase obligations
    
    
    4,067
    
    
    
    4,067
    
    
    
    
    
    
    
    
    
    
    
    Operating leases
    
    
    3,421
    
    
    
    835
    
    
    
    1,447
    
    
    
    483
    
    
    
    656Capital leases
    
    
    31
    
    
    
    18
    
    
    
    13
    
    
    
    
    
    
    
    Pension contributions (2)
    
    
    16
    
    
    
    16
    
    
    
    
    
    
    
    
    
    
    
    Total contractual obligations
    
    $
    24,114
    
    
    $
    9,785
    
    
    $
    7,301
    
    
    $
    5,482
    
    
    $
    1,546
 
 (1)
    
    Represents future interest payments on long-term debt obligations as of March 31, 2006.
Assumes that the interest rates on our long-term debt agreements at March 31, 2006 (See Note 4 of
the consolidated financial statements of Form 10-Q) will continue for the life of the agreements.(2)
    
    Pension plan contributions that may be required more than one year from March 31, 2006 will be
dependent upon the performance of plan assets. Litigation
  10




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##### 



Portec Rail Products, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
  Note 9: Segment Information
  Three Months EndedMarch 312006
    
    2005(In Thousands)External Sales (A)RMP
    
    $
    10,244
    
    
    $
    9,359SSD
    
    
    1,124
    
    
    
    1,333Canada
    
    
    5,797
    
    
    
    5,893United Kingdom
    
    
    5,950
    
    
    
    4,236Total
    
    $
    23,115
    
    
    $
    20,821Intersegment Sales (A)RMP
    
    $
    554
    
    
    $
    516SSD
    
    
    
    
    
    
    Canada
    
    
    1,676
    
    
    
    1,080United Kingdom
    
    
    2
    
    
    
    25Total
    
    $
    2,232
    
    
    $
    1,621Total SalesRMP
    
    $
    10,798
    
    
    $
    9,875SSD
    
    
    1,124
    
    
    
    1,333Canada
    
    
    7,473
    
    
    
    6,973United Kingdom
    
    
    5,952
    
    
    
    4,261Total
    
    $
    25,347
    
    
    $
    22,442Operating Income (Loss) (A), (B)RMP
    
    $
    935
    
    
    $
    1,203SSD
    
    
    108
    
    
    
    207Canada
    
    
    461
    
    
    
    569United Kingdom
    
    
    864
    
    
    
    356Corporate shared services
    
    
    (733
    )
    
    
    (674
    )Total
    
    
    1,635
    
    
    
    1,661Interest Expense
    
    
    209
    
    
    
    263Other Income, net
    
    
    (2
    )
    
    
    (71
    )Income Before Income Taxes
    
    $
    1,428
    
    
    $
    1,469
 11




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##### 



Portec Rail Products, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
 (A)
 Three Months EndedMarch 312006
    
    2005(In Thousands)Effect on External SalesCanada
    
    $
    
    
    
    $
    (797
    )United Kingdom
    
    
    
    
    
    
    797Total
    
    $
    
    
    
    $
    (In Thousands)Effect on Intersegment SalesCanada (1)
    
    $
    
    
    
    $
    439United Kingdom
    
    
    
    
    
    
    Total
    
    $
    
    
    
    $
    439(In Thousands)Effect on Operating IncomeCanada
    
    $
    
    
    
    $
    (141
    )United Kingdom
    
    
    
    
    
    
    141Total
    
    $
    
    
    
    $
    
 
  (B)
    Operating Income (Loss) for the three months ended March 31, 2005 includes an
adjustment for the reclassification of three professional and two executive employees
salary and benefit expenses to be consistent with the allocation of these expenses in 2006.
Beginning in April 2005, corporate shared services began to absorb the salaries, benefits
and business travel expenses for one professional and two executive employees due to
internal promotions and new responsibilities. Beginning in January 2006, corporate shared
services began to absorb the salaries, benefits and business travel expenses for two
professional employees due to the assignment of new responsibilities for these employees.
The effects of these adjustments on total Operating Income are zero; however, the effects
on Operating Income (Loss) by business segment is as follows:
 Three Months EndedMarch 312006
    
    2005(In Thousands)Effect on Operating Income (Loss)RMP
    
    $
    
    
    
    $
    98Canada
    
    
    
    
    
    
    31Corporate shared services
    
    
    
    
    
    
    (129
    )Total
    
    $
    
    
    
    $
    
 12




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##### 



Portec Rail Products, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
 Three Months EndedMarch 312006
    
    2005(In Thousands)Depreciation and AmortizationRMP
    
    $
    190
    
    
    $
    178SSD
    
    
    5
    
    
    
    2Canada
    
    
    305
    
    
    
    279United Kingdom
    
    
    111
    
    
    
    120Corporate shared services
    
    
    20
    
    
    
    2Total
    
    $
    631
    
    
    $
    581Capital ExpendituresRMP
    
    $
    192
    
    
    $
    107SSD
    
    
    
    
    
    
    Canada
    
    
    243
    
    
    
    95United Kingdom
    
    
    34
    
    
    
    61Corporate shared services
    
    
    20
    
    
    
    21Total
    
    $
    489
    
    
    $
    284
 March 31
    
    December 312006
    
    2005(In Thousands)Total AssetsRMP
    
    $
    40,456
    
    
    $
    42,531SSD
    
    
    2,177
    
    
    
    2,007Canada
    
    
    32,605
    
    
    
    32,040United Kingdom
    
    
    13,471
    
    
    
    11,503Corporate shared services
    
    
    789
    
    
    
    788Total
    
    $
    89,498
    
    
    $
    88,869
 Note 10: Subsequent Events
 Business Combinations
  13




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##### 



Portec Rail Products, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
 Share-Based Payments
 Note 11: Change in Accounting Principle
    14




---



##### 



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.
  15




---



##### 



Overview
   Results of Operations
 Three Months Ended March 31, 2006 compared to Three Months Ended March 31, 2005
 Net Sales. %,
 Gross Profit.
 Selling, General and Administrative Expenses.
 Amortization Expense.
 16




---



##### 



Interest Expense.
 Provision for Income Taxes.
 Net Income.
 Business Segment Review
  Railway Maintenance Products Division  RMP.
 Three Months EndedMarch 312006
    
    
    2005(In Thousands)External sales
    
    $
    10,244
    
    
    $
    9,359Intersegment sales
    
    
    554
    
    
    
    516Operating income (2)
    
    
    935
    
    
    
    1,203Sales by product line(1)Rail joints and related products
    
    $
    6,046
    
    
    $
    5,592Friction management products and services
    
    
    3,796
    
    
    
    3,140Wayside data collection and data management systems
    
    
    703
    
    
    
    853Other products and services
    
    
    253
    
    
    
    290Total product and service sales
    
    $
    10,798
    
    
    $
    9,875
 
 (1)
    
    Includes intersegment sales.(2)
    
    Includes an adjustment of $98,000 for the three months ended March 31, 2005 to reclass salary
and benefit expenses for one executive and three professional employees to be consistent with
the allocation of these expenses during 2006. Beginning in April 2005, corporate shared
services began to absorb the salaries, benefits and business travel expenses for one
professional and one executive employee due to internal promotions and assignment of new
responsibilities. The adjustment for this one professional and one executive employee totaled
$59,000 for the three months ended 17




---



##### 



March 31, 2005. Additionally, beginning in January 2006, corporate shared services began to
absorb the salaries, benefits and business travel expenses for two professional employees due to
the assignment of new responsibilities. The adjustment for these two professional employees
totaled $39,000 for the three months ended March 31, 2005.  Shipping Systems Division  SSD .
 Three Months EndedMarch 312006
    
    
    2005(In Thousands)External sales
    
    $
    1,124
    
    
    $
    1,333Intersegment sales
    
    
    
    
    
    
    Operating income
    
    
    108
    
    
    
    207Sales by product line(1)Auto rack load securement systems
    
    $
    136
    
    
    $
    519Heavy duty load securement systems
    
    
    445
    
    
    
    454All other load securement systems
    
    
    543
    
    
    
    360Total product and service sales
    
    $
    1,124
    
    
    $
    1,333
 
 (1)
    
    Includes intersegment sales.  Portec Rail Nova Scotia Company  Canada . ® ®
 18




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##### 



Three Months EndedMarch 312006
    
    
    2005(In Thousands)External sales (2)
    
    $
    5,797
    
    
    $
    5,893Intersegment sales (2)
    
    
    1,676
    
    
    
    1,080Operating income (2), (3)
    
    
    461
    
    
    
    569Average translation rate of Canadian dollar
to United States dollar
    
    
    0.8714
    
    
    
    0.8152Sales by product line(1)Rail anchors and spikes
    
    $
    4,502
    
    
    $
    4,621Friction management products and services
    
    
    2,813
    
    
    
    2,159Other products and services
    
    
    158
    
    
    
    193Total product and service sales
    
    $
    7,473
    
    
    $
    6,973
 
 (1)
    
    Includes intersegment sales.(2)
    
    Results for the three months ended March 31, 2005 include adjustments of ($797,000),
$439,000, and ($141,000) to external sales, intersegment sales, and operating income,
respectively, to be consistent with 2006 segment presentation. The net effect of the
adjustment made to external and intersegment sales is reflected within sales of friction
management products and services. On December 31, 2005, the assets of Kelsan Europe (formerly
part of the Canada segment) were purchased by Portec Rail Products (UK) Ltd. (United Kingdom
segment). Beginning January 1, 2006 the results of operations for Kelsan Europe are included
within our United Kingdom business segment. The net effect of these adjustments on
consolidated results for the three months ended March 31, 2005 is zero.(3)
    
    Includes an adjustment of $31,000 for the three months ended March 31, 2005 to reclass
salary expense for one executive to be consistent with the allocation of these expenses during
2006. Beginning in April 2005, corporate shared services began to absorb the salary and
business travel expenses for this employee due to an internal promotion and assignment of new
responsibilities for this employee. Operating income includes an operating loss from Portec
Rail Nova Scotia Company of $147,000 and $138,000 for the three months ended March 31, 2006
and 2005, respectively.  Portec Rail Products (UK) Ltd. - United Kingdom .
 19




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##### 



Three Months EndedMarch 312006
    
    
    2005(In Thousands)External sales (2)
    
    $
    5,950
    
    
    $
    4,236Intersegment sales
    
    
    2
    
    
    
    25Operating income (2)
    
    
    864
    
    
    
    356Average translation rate of British
pound sterling to United States dollar
    
    
    1.7566
    
    
    
    1.8988Sales by product line(1)Material handling products
    
    $
    3,298
    
    
    $
    2,249Friction management products and services
    
    
    2,654
    
    
    
    2,012Total product and service sales
    
    $
    5,952
    
    
    $
    4,261
 
 (1)
    
    Includes intersegment sales.(2)
    
    Results for the three months ended March 31, 2005 include adjustments of $797,000 and
$141,000 to external sales and operating income, respectively, to be consistent with 2006
segment presentation. The increase in external sales is reflected within sales of friction
management products and services. On December 31, 2005, the assets of Kelsan Europe (formerly
part of the Canada segment) were purchased by Portec Rail Products (UK) Ltd. Beginning
January 1, 2006 the results of operations for Kelsan Europe are included in our United Kingdom
business segment. The net effect of these adjustments on the consolidated results for the
three months ended March 31, 2005 is zero.  Liquidity and Capital Resources
  Cash Flow Analysis.
 20




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##### 



Financial Condition
    ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
   21




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##### 



ITEM 4. CONTROLS AND PROCEDURES
  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
  ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  22




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##### 



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
 23




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##### 



SIGNATURES
  PORTEC RAIL PRODUCTS, INC.Date: May 12, 2006
    By:
    /s/ John S. CooperJohn S. Cooper, President and Chief ExecutiveOfficerDate: May 12, 2006
    By:
    /s/ John N. PesarsickJohn N. Pesarsick, Chief Financial Officer 24




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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
 25