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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 2001
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD
from ______ to ______
Commission file number 1-13782
WESTINGHOUSE AIR BRAKE TECHNOLOGIES CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 25-1615902
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1001 AIR BRAKE AVENUE
WILMERDING, PENNSYLVANIA 15148 (412) 825-1000
(Address of principal executive offices) (Registrant's telephone number)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for at least the past 90 days. Yes [X] No [ ].
As of May 10, 2001, 42,922,780 shares of Common Stock of the registrant
were issued and outstanding.
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WESTINGHOUSE AIR BRAKE TECHNOLOGIES CORPORATION
MARCH 31, 2001 FORM 10-Q
TABLE OF CONTENTS
Page
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of March 31, 2001
and December 31, 2000 3
Condensed Consolidated Statements of Operations for the
three months ended March 31, 2001 and 2000 4
Condensed Consolidated Statements of Cash Flows for the
three months ended March 31, 2001 and 2000 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Position
and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures about Market Risk 12
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
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WESTINGHOUSE AIR BRAKE TECHNOLOGIES CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
UNAUDITED
MARCH 31 DECEMBER 31
In thousands, except shares and par value 2001 2000
- ---------------------------------------------------------------------------------------------------- ---------------- --------------
ASSETS
CURRENT ASSETS
Cash $ 7,950 $ 6,071
Accounts receivable 185,838 194,379
Inventories 195,307 202,828
Other current assets 36,260 44,277
--------- ---------
Total current assets 425,355 447,555
Property, plant and equipment 406,851 407,322
Accumulated depreciation (196,347) (192,677)
--------- ---------
Property, plant and equipment, net 210,504 214,645
OTHER ASSETS
Contract underbillings 21,788 23,898
Goodwill,net 223,994 226,597
Other intangibles,net 44,313 38,797
Other noncurrent assets 30,120 32,555
--------- ---------
Total other assets 320,215 321,847
--------- ---------
Total Assets $ 956,074 $ 984,047
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt $ 753 $ 751
Accounts payable 80,594 86,316
Accrued merger and restructuring costs 4,714 6,257
Customer deposits 29,034 25,125
Accrued income taxes 12,634 8,758
Accrued interest 8,159 2,104
Other accrued liabilities 61,114 61,345
--------- ---------
Total current liabilities 197,002 190,656
Long-term debt 507,160 539,446
Reserve for postretirement and pension benefits 19,929 19,387
Other long-term liabilities 31,933 38,187
--------- ---------
Total liabilities 756,024 787,676
SHAREHOLDERS' EQUITY
Preferred stock, 1,000,000 shares authorized, no shares issued -- --
Common stock, $.01 par value; 100,000,000 shares authorized: 65,447,867 shares issued and
42,925,637 outstanding at March 31, 2001 and 42,841,985 outstanding at December 31, 2000 654 654
Additional paid-in capital 273,179 273,494
Treasury stock, at cost, 22,522,230 and 22,605,882 shares, respectively (280,530) (281,665)
Retained earnings 228,410 218,470
Deferred compensation 788 900
Accumulated other comprehensive income (loss) (22,451) (15,482)
--------- ---------
Total shareholders' equity 200,050 196,371
--------- ---------
Total Liabilities and Shareholders' Equity $ 956,074 $ 984,047
========= =========
The accompanying notes are an integral part of these statements.
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WESTINGHOUSE AIR BRAKE TECHNOLOGIES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
THREE MONTHS ENDED
MARCH 31
In thousands, except per share data 2001 2000
- -------------------------------------------------------------------------------------
Net sales $ 266,545 $ 258,859
Cost of sales (195,579) (182,366)
--------- ---------
Gross profit 70,966 76,493
Selling, general and administrative expenses (29,180) (29,481)
Restructuring charges (1,173) (2,348)
Engineering expenses (8,543) (8,236)
Amortization expense (3,790) (3,689)
--------- ---------
Total operating expenses (42,686) (43,754)
Income from operations 28,280 32,739
Other income and expenses
Interest expense (11,278) (11,170)
Other income (expense), net (812) 4,071
--------- ---------
Income before income taxes 16,190 25,640
Income tax expense (5,829) (9,230)
--------- ---------
Net income $ 10,361 $ 16,410
========= =========
EARNINGS PER COMMON SHARE
Basic $ 0.24 $ 0.38
========= =========
Diluted $ 0.24 $ 0.38
========= =========
Weighted average shares outstanding
Basic 42,884 43,259
Diluted 43,144 43,350
--------- ---------
The accompanying notes are an integral part of these statements.
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WESTINGHOUSE AIR BRAKE TECHNOLOGIES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
THREE MONTHS ENDED
MARCH 31
In thousands 2001 2000
- --------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income $ 10,361 $ 16,410
Adjustments to reconcile net income to net cash provided by operations:
Depreciation and amortization 10,320 11,203
Provision for ESOP contribution -- 700
Gain on sale of product line -- (4,375)
Other, primarily non-cash restructuring related charges 160 --
Changes in operating assets and liabilities
Accounts receivable 4,667 (783)
Inventories 3,174 (11,795)
Accounts payable (4,123) (4,583)
Income taxes receivable and accrued income taxes 9,374 5,070
Accrued liabilities and customer deposits 3,844 2,084
Other assets and liabilities 1,788 4,904
-------- --------
Net cash provided by operating activities 39,565 18,835
INVESTING ACTIVITIES
Purchase of property, plant and equipment, net (5,852) (6,910)
Disposal of fixed assets 864 --
Cash received from disposition of product line 500 4,500
-------- --------
Net cash used for investing activities (4,488) (2,410)
FINANCING ACTIVITIES
(Repayments of) proceeds from credit agreement (32,000) 12,200
Repayments of other borrowings (218) (17,181)
Purchase of treasury stock (232) (4,369)
Proceeds from the issuance of treasury stock from stock options and other
benefit plans 802 3,338
Cash dividends (420) (427)
-------- --------
Net cash used for financing activities (32,068) (6,439)
Effect of changes in currency exchange rates (1,130) (2,311)
-------- --------
Increase in cash 1,879 7,675
Cash, beginning of year 6,071 7,056
-------- --------
Cash, end of period $ 7,950 $ 14,731
======== ========
The accompanying notes are an integral part of these statements.
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WESTINGHOUSE AIR BRAKE TECHNOLOGIES CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2001 (UNAUDITED)
1. BUSINESS
Westinghouse Air Brake Technologies Corporation (the "Company", "Wabtec") is one
of North America's largest providers of value-added, technology-based equipment
and services for the rail industry. Our major products are intended to enhance
safety, improve productivity and reduce maintenance costs for our customers and
include electronic controls and monitors, air brakes, traction motors, cooling
equipment, turbochargers, low-horsepower locomotives, couplers, door controls,
draft gears and brake shoes. The Company aggressively pursues technological
advances with respect to both new product development and product enhancements.
The Company has two reporting segments: Freight Group and Transit Group.
Although approximately 58% of the Company's sales are to the aftermarket, a
significant portion of the Freight Group's operations and revenue base is
generally dependent on the capital replacement cycles for locomotives and
freight cars of the large North American-based railroad companies. The Transit
Group's operations are dependent on the budgeting and expenditure appropriation
process of federal, state and local governmental units for mass transit needs
established by public policy.
2. ACCOUNTING POLICIES
BASIS OF PRESENTATION The unaudited condensed consolidated interim financial
statements have been prepared in accordance with generally accepted accounting
principles and the rules and regulations of the Securities and Exchange
Commission and include the accounts of Wabtec and its majority owned
subsidiaries. These condensed interim financial statements do not include all of
the information and footnotes required for complete financial statements. In
management's opinion, these financial statements reflect all adjustments, which
are of a normal, recurring nature, necessary for a fair presentation of the
results for the interim periods presented. Results for these interim periods are
not necessarily indicative of results to be expected for the full year. Certain
prior period amounts have been reclassified, where necessary, to conform to the
current period presentation.
The Company operates on a four-four-five week accounting quarter, and
accordingly, the quarters end on or about March 31, June 30, September 30 and
December 31.
The notes included herein should be read in conjunction with the audited
consolidated financial statements included in Wabtec's Annual Report on Form
10-K for the year ended December 31, 2000.
REVENUE RECOGNITION Revenue is recognized when products have been shipped to the
respective customers and the price for the product has been determined.
The Company recognizes revenues on long-term contracts based on the percentage
of completion method of accounting. Contract revenues and cost estimates are
reviewed and revised at a minimum quarterly and adjustments are reflected in the
accounting period as known. Provisions are made currently for estimated losses
on uncompleted contracts.
Costs and estimated earnings in excess of billings ("underbillings") and
billings in excess of costs and estimated earnings ("overbillings") on the
contract in progress are recorded on the balance sheet and are classified as
non-current.
USE OF ESTIMATES The preparation of financial statements in conformity with
generally accepted accounting principles requires the Company to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and reported amounts of revenues and
expenses during the reporting period. Actual amounts could differ from the
estimates.
FINANCIAL DERIVATIVES AND HEDGES ACTIVITY The Company has adopted Statement of
Financial Accounting Standards ("SFAS") No. 133, and as amended by SFAS 138,
"Accounting for Derivative Instruments and Hedging Activities" effective January
1, 2001. In the application, the Company has concluded its interest rate swap
contracts qualify for "special cash flow hedge accounting" which permit
recording the fair value of the swap and corresponding adjustment to other
comprehensive income on the balance sheet while creating some volatility in
future earnings, due to market sensitivity and ineffectiveness in offsetting
changes in interest rates of the Company's variable rate borrowings.
OTHER COMPREHENSIVE INCOME Comprehensive income is defined as net income and all
nonowner changes in shareholders' equity. The Company's accumulated other
comprehensive income (loss) consists of foreign currency translation adjustments
and cumulative adjustment relating to the fair value of cash flow hedge
derivatives. Prior to the adoption of SFAS 133, the company's accumulated other
comprehensive income (loss) consisted solely of foreign currency translation
adjustments. Total comprehensive income for the three months ended March 31 was:
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In thousands 2001 2000
- ----------------------------------------------------------------------
Net Income $ 10,361 $ 16,410
Foreign Currency Translation (5,164) (2,396)
Unrealized losses on hedges, net of tax (1,805) --
------------------------
Total Comprehensive Income $ 3,392 $ 14,014
- ----------------------------------------------------------------------
3. INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined under
the first-in, first-out (FIFO) method. Inventory costs include material, labor
and overhead. Cores inventory is defined as inventory units designated for unit
exchange programs. The components of inventory, net of reserves, were:
MARCH 31 DECEMBER 31
In thousands 2001 2000
- ------------------------------------------------------------------
Cores $ 27,456 $ 28,213
Raw materials 92,364 95,430
Work-in-process 46,468 53,240
Finished goods 29,019 25,945
-----------------------
Total inventory $195,307 $202,828
- ------------------------------------------------------------------
4. EARNINGS PER SHARE
The computation of earnings per share is as follows:
THREE MONTHS
ENDED MARCH 31
---------------------
In thousands, except per share 2001 2000
- --------------------------------------------------------------
BASIC EARNINGS PER SHARE
Income applicable to common
shareholders $10,361 $16,410
Divided by
Weighted average shares
outstanding 42,884 43,259
Basic earnings per share $ 0.24 $ 0.38
- --------------------------------------------------------------
DILUTED EARNINGS PER SHARE
Income applicable to common
shareholders $10,361 $16,410
Divided by sum of the
Weighted average shares
outstanding 42,884 43,259
Conversion of dilutive stock
options 260 91
----------------------
Diluted shares outstanding 43,144 43,350
Diluted earnings per share $ 0.24 $ 0.38
- --------------------------------------------------------------
5. COMMITMENTS AND CONTINGENCIES
Under the terms of the purchase agreement and related documents for the 1990
Acquisition, American Standard, Inc. ("ASI"), has indemnified the Company for
certain items including, among others, environmental claims. The indemnification
provisions of the agreement expired at various dates through 2000, except for
those claims, which were timely asserted, which continue until resolved. If ASI
was unable to honor or meet these indemnifications, the Company would be
responsible for such items. In the opinion of management, ASI currently has the
ability to meet its indemnification obligations.
The Company's operations do not use and its products do not contain any
asbestos. Asbestos actions have been filed against the Company and certain of
its affiliates. These cases involve products manufactured prior to the time the
Company was formed. The Company has not incurred any significant costs related
to these asbestos claims as the claims are indemnified by the companies who
manufactured the products in question or are covered by insurance. Management
believes that these claims will not be material; and accordingly, the financial
statements do not reflect any costs or reserves for such claims.
The Company is subject to a number of other commitments and contingencies as
described in its Annual Report on Form 10-K for the Year Ended December 31,
2000. During the first quarter, there were no material changes to the
information described in Note 15 therein.
Also, as described in Note 15 of the Form 10-K, the Company is subject to a RCRA
Part B Closure Permit ("the Permit") issued by the Environmental Protection
Agency (EPA) and the Idaho Department of Health and Welfare, Division of
Environmental Quality relating to the monitoring and treatment of groundwater
contamination on, and adjacent to, the Boise Locomotive Company facility. In
compliance with the Permit, the Company has completed the first phase of an
accelerated plan for the treatment of contaminated groundwater, and continues
onsite and offsite monitoring for the amount of hazardous constituents. At March
31, 2001, the Company has accrued $2.5 million representing the estimated
remaining costs for remediation. The Company was in compliance with the Permit
at March 31, 2001.
6. SEGMENT INFORMATION
Wabtec has two reportable segments - the Freight Group and the Transit Group.
The key factors used to identify these reportable segments are the organization
and alignment of the Company's internal operations, the nature of the products
and services, and customer type. The business segments are:
FREIGHT GROUP manufactures products and provides services geared to the
production and operation of freight cars and locomotives, including braking
control equipment, engines, traction motors, on-board electronic components and
train coupler equipment. Revenues are derived from OEM sales and locomotive
overhauls, aftermarket sales and from freight car repairs and services.
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TRANSIT GROUP consists of products for passenger transit vehicles (typically
subways, rail and buses) that include braking and monitoring systems, climate
control and door equipment that are engineered to meet individual customer
specifications. Revenues are derived from OEM and aftermarket sales as well as
from repairs and services.
The Company evaluates its business segments' operating results based on income
from operations before merger and restructuring charges. Corporate activities
include general corporate expenses, elimination of intersegment transactions,
interest income and expense and other unallocated charges. Since certain
administrative and other operating expenses and other items have not been
allocated to business segments, the results in the following tables are not
necessarily a measure computed in accordance with generally accepted accounting
principles and may not be comparable to other companies.
Segment financial information for the three months ended March 31, 2001 is as
follows:
FREIGHT TRANSIT CORPORATE
In thousands GROUP GROUP ACTIVITIES RESTRUCTURING TOTAL
- --------------------------------------------------------------------------------------------------------------------------------
Sales to external customers $190,835 $75,710 -- -- $ 266,545
Intersegment sales/(elimination) 3,255 151 (3,406) -- --
---------------------------------------------------------------------
Total sales $194,090 $75,861 $ (3,406) -- $ 266,545
=====================================================================
Income from operations $ 26,634 $ 7,743 $ (4,924) $(1,173) $ 28,280
Interest expense and other -- -- (12,090) -- (12,090)
---------------------------------------------------------------------
Income before income taxes and extraordinary item $ 26,634 $ 7,743 $(17,014) $(1,173) $ 16,190
=====================================================================
Segment financial information for the three months ended March 31, 2000 is as
follows:
FREIGHT TRANSIT CORPORATE
In thousands GROUP GROUP ACTIVITIES RESTRUCTURING TOTAL
- --------------------------------------------------------------------------------------------------------------------------------
Sales to external customers $194,048 $64,811 -- -- $ 258,859
Intersegment sales/(elimination) 2,876 43 (2,919) -- --
---------------------------------------------------------------------
Total sales $196,924 $64,854 $ (2,919) -- $ 258,859
=====================================================================
Income from operations $ 33,222 $ 6,691 $ (4,826) $(2,348) $ 32,739
Interest expense and other -- -- (7,099) -- (7,099)
---------------------------------------------------------------------
Income before income taxes and extraordinary item $ 33,222 $ 6,691 $(11,925) $(2,348) $ 25,640
=====================================================================
7. RESTRUCTURING CHARGES
The Company previously announced a merger and restructuring plan pursuant to the
merger of the Company and MotivePower Industries, Inc. ("the merger"). The
Company estimates synergies from the plan yielded approximately $20 million of
pre-tax cost savings in 2000 and reached an ongoing annualized savings of $25
million pre-tax, with such benefits realized through reduced cost of sales and
reduced selling, general and administrative expenses. The merger and
restructuring plan involves the elimination of duplicate facilities and excess
capacity, operational realignment and related workforce reductions, and the
evaluation of certain assets as to their perceived ongoing benefit to the
Company. The Company estimates the charges to complete the merger and
restructuring plan will now total $84 million pre-tax, due to an acceleration
and refinement of the plan, with approximately $50 million of the charge
previously expensed in 1999 and $29 million in 2000. The Company expects to
incur $5 million in 2001.
The $80 million charge to date included the following announced actions:
o Costs associated with the transaction for items such as investment bankers,
legal fees, accountant fees, SEC fees, etc.
o Consolidation of the corporate headquarters to Wilmerding, PA and the
elimination of duplicate corporate functions.
o Closing and moving of Young Radiator's Centerville, IA plant and
consolidating the Young administrative offices into the Company's Jackson, TN
facility from Racine, WI.
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o Closing and relocation of several production operations to San Luis Potosi,
Mexico.
o Closing and relocation of several additional manufacturing operations.
o Eliminating duplicate sales functions.
As of March 31, 2001, $4.7 million of the merger and restructuring charge was
still remaining as accrued on the balance sheet. The table below identifies the
significant components of the charge and reflects the accrual balance at that
date.
LEASE
IMPAIRMENTS
AND
ASSET
In thousands WRITEDOWNS OTHER TOTAL
- --------------------------------------------------------------------------
Beginning balance, January 1, 2001 $ 5,961 $296 $6,257
Amounts paid (1,477) (66) (1,543)
--------------------------------
Balance at March 31, 2001 $ 4,484 $230 $4,714
- --------------------------------------------------------------------------
The lease impairment charges and asset writedowns are associated with the
Company's closing of the plants noted, the relocation of the corporate
headquarters, and the Company's evaluation of certain assets where projected
cash flows from such assets over their remaining lives are estimated to be less
than their carrying values. The other category represents other related costs
that have been incurred and not yet paid as of March 31, 2001.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion should be read in conjunction with the information in
the unaudited condensed consolidated financial statements and notes thereto
included herein and Westinghouse Air Brake Technologies Corporation's Financial
Statements and Management's Discussion and Analysis of Financial Condition and
Results of Operations included in its 2000 Annual Report on Form 10-K.
OVERVIEW
Net income for the first quarter of 2001 was $10.4 million, or $0.24 per diluted
share, as compared to $16.4 million, or $0.38 per diluted share in the same
period in 2000. The results for the first quarter of 2001 include a $1.2 million
restructuring-related charge. The results for the same period in 2000 include a
$2.3 million restructuring-related charge and a $4.4 million gain on the
disposition of a product line. Without the effect of the aforementioned items,
net income for the first quarter of 2001 would have been $11.1 million or $0.26
per diluted share as compared to $15 million or $0.35 per diluted share in the
same period in 2000. Net sales increased 3% in the first quarter of 2001 as
compared to the same period in 2000. Operating margins for the first quarter of
2001 decreased to 10.6% as compared to 12.6% in the same period in 2000. After
excluding the restructuring-related charges that affect operating income,
operating margins in the first quarter of 2001 would have been 11% compared to
13.6% in the same period in 2000.
MERGER AND RESTRUCTURING PLAN
The Company previously announced a merger and restructuring plan pursuant to the
merger of the Company and MotivePower Industries, Inc. ("the merger"). The
Company estimates synergies from the plan yielded approximately an ongoing
annualized savings of $25 million pre-tax, with such benefits realized through
reduced cost of sales and reduced selling, general and administrative expenses.
The merger and restructuring plan involves the elimination of duplicate
facilities and excess capacity, operational realignment and related workforce
reductions, and the evaluation of certain assets as to their perceived ongoing
benefit to the Company. The Company estimates the charges to complete the merger
and restructuring plan will now total $84 million pre-tax, $80 million incurred
through the end of the first quarter 2001 with the remaining charge of $4
million to be incurred in 2001.
The accrual on the balance sheet is discussed in greater detail in Note 7 to
"Notes to Condensed Consolidated Financial Statements" included in this report.
FIRST QUARTER 2001 COMPARED TO
FIRST QUARTER 2000
The following table sets forth the Company's net sales by business segment:
THREE MONTHS ENDED
MARCH 31
----------------------------
In thousands 2001 2000
- -----------------------------------------------------------------
Freight Group $190,835 $194,048
Transit Group 75,710 64,811
----------------------------
Net sales $266,545 $258,859
- -----------------------------------------------------------------
Net sales for the first quarter of 2001 increased $7.7 million, or 3%, to $266.5
million as compared to the prior year period. This increase was attributable to
higher Transit Group sales, reflecting continued significant shipments of
product under the MTA contract, partially offset by lower OEM freight car and
locomotive component sales volumes and lower locomotive overhauls, both within
the Freight Group. Sales volumes within the Freight Group reflect a softening
OEM market for freight cars, with approximately 11,000 freight cars delivered in
the first quarter of 2001 compared with 16,867 in the same period in 2000.
Gross profit decreased to $71.0 million in the first quarter of 2001 compared to
$76.5 million in the same period of 2000. Gross profit is dependent on a number
of factors including pricing, sales volume and product mix. Gross profit, as a
percentage of sales, was 26.6% compared to 29.6% in the same period of 2000. The
decrease in gross profit is primarily attributed to the effect of a decrease in
sales volumes of OEM freight car components.
Total operating expenses as a percentage of net sales were 16% in the first
quarter of 2001 and 16.9% in the same period a year ago. After excluding
restructuring charges of $1.2 million and $2.3 million in the first quarter of
2001 and 2000, operating expenses would have been 15.6% and 16% of net sales,
respectively. This decrease, excluding restructuring charges, is due to benefits
derived from cost reduction programs and synergies from the merger.
Operating income totaled $28.3 million (or 10.6% of sales) in the first quarter
of 2001 compared with $32.7 million (or 12.6% of sales) in the same period in
2000. After excluding the restructuring-related charges that affect operating
income in both periods, operating income would have been $29.5 million (or 11%
of sales) and $35.1 million (or 13.6% of sales). Lower operating income resulted
from decreased sales volumes of OEM freight car components in the Freight Group
and overall changes to product mix. (See Note 6 - "Notes to Condensed
Consolidated Financial Statements" regarding segment-specific information,
included elsewhere in this report).
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In February 2000, the Company disposed its transit electrification product line
for $4.5 million in cash and a note receivable, and recognized a gain of $4.4
million, which is reported as other income.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity is provided primarily by operating cash flow and borrowings under the
Company's credit facility with a consortium of commercial banks ("credit
agreement"). The following is a summary of selected cash flow information and
other relevant data.
THREE MONTHS ENDED
MARCH 31
-------------------------
In thousands 2001 2000
- ---------------------------------------------------------------
Cash provided (used) by:
Operating activities $39,565 $18,835
Investing activities (4,488) (2,410)
Financing activities (32,068) (6,439)
Earnings before interest, taxes,
depreciation and amortization
(EBITDA) 38,600 43,942
Adjusted EBITDA (before
restructuring-related charges) 39,773 46,290
- ---------------------------------------------------------------
Operating cash flow in the first quarter of 2001 was $39.6 million compared to
$18.8 million in the same period a year ago. Working capital decreased 11.5%
since December 31, 2000, primarily due to a decrease in accounts receivable and
inventories. During the first quarter of 2001 and 2000, cash outlays for
restructuring-related activities were approximately $1 million and $2.3 million,
respectively, and are reported as a reduction to cash provided by operating
activities. Excluding these cash outlays, cash provided by operating activities
in the first quarter of 2001 and 2000 would have been approximately $40.6
million and $21.1 million, respectively.
Cash used for investing activities increased in the first quarter of 2001 to
$4.5 million from $2.4 million a year ago. In the first quarter of 2000, cash
received from the sale of a product line was $4.5 million. Capital expenditures
were $5.9 million and $6.9 million in the first quarter of 2001 and 2000,
respectively. The majority of capital expenditures for these periods relates to
upgrades to existing equipment, replacement of existing equipment and purchases
of new equipment due to expansion of Wabtec's operations, where the Company
believes overall cost savings can be achieved through increasing efficiencies.
Cash used for financing activities was $32.1 million in the first quarter of
2001 versus $6.4 million in the same period a year ago. In the first quarter of
2001, the Company reduced long term debt, specifically outstanding borrowings on
its credit facility, by approximately $32 million as compared to a reduction in
long term debt of $5 million in the same period of 2000.
The Company estimates the charges at completion of the merger and restructuring
plan will total approximately $84 million pre-tax with approximately $80 million
of the charge expensed to date with the remaining $4 million to be incurred in
2001.
The following table sets forth the Company's outstanding indebtedness and
average interest rates at March 31, 2001. The revolving credit note and other
term loan interest rates are variable and dependent on market conditions.
MARCH 31 DECEMBER 31
In thousands 2001 2000
- -----------------------------------------------------------------
Revolving credit agreement, 6.53% $326,000 $358,000
9.375% Senior notes due 2005 175,000 175,000
5.5% Industrial revenue bond due 2008 6,019 6,169
Other 894 1,028
-------------------------
Total $507,913 $540,197
Less-current portion 753 751
-------------------------
Long-term portion $507,160 $539,446
- -----------------------------------------------------------------
Credit Agreement
The company currently has an unsecured credit agreement that provides a $275
million five-year revolving credit facility expiring in 2004 and a 364 -day $213
million convertible revolving credit facility maturing in November 2001. At
March 31, 2001, the Company had available borrowing capacity, net of letters of
credit, of approximately $137 million.
9 3/8% Senior Notes Due June 2005
In June 1995, the Company issued $100 million of 9.375% Senior Notes due in 2005
(the "1995 Notes"). In January 1999, the Company issued an additional $75
million of 9.375% Senior Notes which are due in 2005 (the "1999 Notes"; the 1995
Notes and the 1999 Notes are collectively, the "Notes"). The 1999 Notes were
issued at a premium resulting in an effective rate of 8.5%. The terms of the
1995 Notes and the 1999 Notes are substantially the same, and the 1995 Notes and
the 1999 Notes were issued pursuant to indentures that are substantially the
same.
Principal repayments of outstanding loan balances are due at various intervals
until maturity.
The Company is highly leveraged and its debt service obligations will continue
to be substantial. The debt of the Company requires the dedication of a
substantial portion of future cash flows to the payment of principal and
interest on indebtedness, thereby reducing funds available for capital
expenditures and future business opportunities that the Company believes are
available. The Company believes, based on current levels of operations and
forecasted earnings, cash flow and liquidity will be sufficient to fund its
working capital
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and capital equipment needs as well as meeting the debt service requirements. If
the Company's sources of funds were to fail to satisfy the Company's cash
requirements, the Company may need to refinance its existing debt or obtain
additional financing. There is no assurance that such new financing alternatives
would be available, and, in any case, such new financing, if available, would be
expected to be more costly and burdensome than the debt agreements currently in
place.
FORWARD LOOKING STATEMENTS
We believe that all statements other than statements of historical facts
included in this report, including certain statements under "Business" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," may constitute forward-looking statements. We have based these
forward-looking statements on our current expectations and projections about
future events. Although we believe that our assumptions made in connection with
the forward-looking statements are reasonable, we cannot assure you that our
assumptions and expectations are correct.
These forward-looking statements are subject to various risks, uncertainties and
assumptions about us, including, among other things:
Economic and Industry Conditions
- materially adverse changes in economic or industry conditions generally
or in the markets served by us, including North America, South America,
Europe, Australia and Asia;
- demand for services in the freight and passenger rail industry;
- consolidations in the rail industry;
- demand for our products and services;
- continued outsourcing by our customers;
- demand for freight cars, locomotives, passenger transit cars and buses;
- industry demand for faster and more efficient braking equipment;
- fluctuations in interest rates;
Operating Factors
- supply disruptions;
- technical difficulties;
- changes in operating conditions and costs;
- successful introduction of new products;
- labor relations;
- completion and integration of additional acquisitions;
- the development and use of new technology ;
Competitive Factors
- the actions of competitors;
Political/Governmental Factors
- political stability in relevant areas of the world;
- future regulation/deregulation of our customers and/or the rail
industry;
- governmental funding for some of our customers;
- political developments and laws and regulations, such as forced
divestiture of assets, restrictions on production, imports or exports,
price controls, tax increases and retroactive tax claims, expropriation
of property, cancellation of contract rights, and environmental
regulations; and
Transaction or Commercial Factors
- the outcome of negotiations with partners, governments, suppliers,
customers or others.
The Company undertakes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATE RISK In the ordinary course of business, Wabtec is exposed to
risks that increases in interest rates may adversely affect funding costs
associated with $242 million of variable-rate debt (after considering the
effects of interest rate swaps, further described below), which represent 48% of
total long-term debt at March 31, 2001. Management has entered into pay-fixed,
receive-variable interest rate swap contracts that partially mitigate the impact
of variable-rate debt interest rate increases At March 31, 2001, an
instantaneous 100 basis point increase in interest rates would reduce the
Company's annual earnings by $1.5 million, assuming no additional intervention
strategies by management.
The Company has adopted Statement of Financial Accounting Standards ("SFAS") No.
133, and as amended by SFAS 138, "Accounting for Derivative Instruments and
Hedging Activities" effective January 1, 2001. In the application, the Company
has concluded that its swap contracts qualify for "special cash flow hedge
accounting" which permit recording the fair value of the swap and corresponding
adjustment to other comprehensive income on the balance sheet while creating
some volatility in future earnings, due to market sensitivity and
ineffectiveness in offsetting changes in interest rates of Wabtec's variable
rate borrowings. This fluctuation is not expected to have a material effect on
the Company's financial condition, results of operations or liquidity.
FOREIGN CURRENCY EXCHANGE RISK
The Company occasionally enters into several types of financial instruments for
the purpose of managing its exposure to foreign currency exchange rate
fluctuations in countries in which the Company has significant operations. As of
March 31, 2001, the Company had no such instruments outstanding.
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Wabtec is also subject to certain risks associated with changes in foreign
currency exchange rates to the extent its operations are conducted in currencies
other than the U.S. dollar. For the three month period ended March 31, 2001,
approximately 74% of Wabtec's net sales are in the United States, 11% in Canada,
5% in Mexico, and 10% in other international locations, primarily Europe. At
March 31, 2001, the Company does not believe changes in foreign currency
exchange rates represent a material risk to results of operations, financial
position, or liquidity.
LEGAL PROCEEDINGS AND COMMITMENTS AND CONTINGENCIES
There have been no material changes to report regarding the Company's
commitments and contingencies as described in Note 15 of the Company's Annual
Report on Form 10-K for the Year Ended December 31, 2000.
EXHIBITS AND REPORTS ON FORM 8-K
None.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
WESTINGHOUSE AIR BRAKE TECHNOLOGIES
CORPORATION
By: /s/ ROBERT J. BROOKS
--------------------------------------
Robert J. Brooks
Chief Financial Officer
Date: May 10, 2001
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