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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 JUNE 30, 2003
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 ___.
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Exchange Act Rule 12b-2). Yes _X_ No ___.
As of August 13, 2003, 43,529,457 shares of Common Stock of the
registrant were issued and outstanding.
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1
WESTINGHOUSE AIR BRAKE TECHNOLOGIES
CORPORATION
JUNE 30, 2003 FORM 10-Q
TABLE OF CONTENTS
Page
-------
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of June
30, 2003 and December 31, 2002 3
Condensed Consolidated Statements of Operations
for the three and six months ended June 30, 4
2003 and 2002
Condensed Consolidated Statements of Cash Flows
for the six months ended June 30, 2003 and 2002 6
Notes to Condensed Consolidated Financial 7
Statements
Item 2. Management's Discussion and Analysis of Financial
Position and Results of Operations 14
Item 3. Quantitative and Qualitative Disclosures about 17
Market Risk
Item 4. Controls and Procedures 18
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 6. Exhibits and Reports on Form 8-K 18
Signatures 19
2
WESTINGHOUSE AIR BRAKE TECHNOLOGIES CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
UNAUDITED
JUNE 30 DECEMBER 31
In thousands, except shares and par value 2003 2002
- -------------------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash $ 8,705 $ 19,210
Accounts receivable 131,669 108,019
Inventories 93,467 88,470
Other current assets 30,648 29,524
-------------------------
Total current assets 264,489 245,223
Property, plant and equipment 324,841 308,495
Accumulated depreciation (175,376) (159,903)
-------------------------
Property, plant and equipment, net 149,465 148,592
OTHER ASSETS
Goodwill, net 109,450 109,450
Other intangibles, net 39,612 41,524
Other noncurrent assets 47,158 44,076
-------------------------
Total other assets 196,220 195,050
-------------------------
Total Assets $610,174 $588,865
=========================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt $ 809 $ 833
Accounts payable 72,218 62,104
Customer deposits 17,025 10,827
Accrued income taxes 3,205 3,928
Other accrued liabilities 52,989 57,571
-------------------------
Total current liabilities 146,246 135,263
Long-term debt 180,994 194,318
Reserve for postretirement and pension benefits 40,671 38,266
Other long-term liabilities 22,812 21,756
-------------------------
Total liabilities 390,723 389,603
SHAREHOLDERS' EQUITY
Common stock, $.01 par value; 100,000,000 shares authorized: 65,447,867
shares issued and 43,493,116 and 43,440,840 outstanding at June 30, 2003
and December 31, 2002, respectively 654 654
Additional paid-in capital 272,703 272,782
Treasury stock, at cost, 21,954,751 and 22,007,027 shares, respectively (272,983) (273,634)
Retained earnings 241,614 231,282
Deferred compensation 270 270
Accumulated other comprehensive income (loss) (22,807) (32,092)
-------------------------
Total shareholders' equity 219,451 199,262
-------------------------
Total Liabilities and Shareholders' Equity $610,174 $588,865
=========================
The accompanying notes are an integral part of these statements.
3
WESTINGHOUSE AIR BRAKE TECHNOLOGIES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED UNAUDITED
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
In thousands, except per share data 2003 2002 2003 2002
- ------------------------------------------------------------------------------------------------------------
Net sales $174,856 $179,808 $344,379 $357,133
Cost of sales (127,294) (134,452) (251,541) (266,997)
-----------------------------------------------------
Gross profit 47,562 45,356 92,838 90,136
Selling, general and administrative expenses (24,429) (22,231) (48,136) (46,954)
Engineering expenses (8,246) (8,476) (16,514) (16,581)
Amortization expense (1,045) (1,349) (2,045) (2,834)
-----------------------------------------------------
Total operating expenses (33,720) (32,056) (66,695) (66,369)
Income from operations 13,842 13,300 26,143 23,767
Other income and expenses
Interest expense (2,398) (5,579) (4,797) (10,889)
Other expense, net (2,673) (392) (3,809) (1,505)
-----------------------------------------------------
Income from continuing operations before income 8,771 7,329 17,537 11,373
taxes
Income tax expense (3,201) (2,565) (6,401) (3,981)
-----------------------------------------------------
Income from continuing operations 5,570 4,764 11,136 7,392
Discontinued operations, net of tax
Income (loss) from discontinued operations (44) 57 73 181
Loss on sale of discontinued operations - - - (529)
-----------------------------------------------------
Total discontinued operations (44) 57 73 (348)
-----------------------------------------------------
Income before cumulative effect of accounting change 5,526 4,821 11,209 7,044
-----------------------------------------------------
Cumulative effect of accounting change for goodwill,
net of tax - - - (61,663)
-----------------------------------------------------
Net income (loss) $5,526 $4,821 $11,209 $(54,619)
=====================================================
EARNINGS (LOSS) PER COMMON SHARE
Basic
Income from continuing operations $0.13 $0.11 $0.26 $0.17
Income (loss) from discontinued operations - - - (0.01)
-----------------------------------------------------
Income before cumulative effect of accounting
change 0.13 0.11 0.26 0.16
Cumulative effect of accounting change for
goodwill, net of tax - - - (1.42)
-----------------------------------------------------
Net income/(loss) $0.13 $0.11 $0.26 $(1.26)
=====================================================
Diluted
Income from continuing operations $0.13 $0.11 $0.26 $0.17
Income (loss) from discontinued operations - - - (0.01)
-----------------------------------------------------
4
Income before cumulative effect of accounting
change 0.13 0.11 0.26 0.16
Cumulative effect of accounting change for
goodwill, net of tax - - - (1.41)
-----------------------------------------------------
Net income/(loss) $0.13 $0.11 $0.26 $(1.25)
=====================================================
Weighted average shares outstanding
Basic 43,478 43,321 43,462 43,239
Diluted 43,790 43,734 43,685 43,592
-----------------------------------------------------
The accompanying notes are an integral part of these statements.
5
WESTINGHOUSE AIR BRAKE TECHNOLOGIES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
SIX MONTHS ENDED
JUNE 30
In thousands 2003 2002
- ----------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income/(loss) $11,209 $(54,619)
Adjustments to reconcile net income/(loss) to net cash used for
operations:
Depreciation and amortization 11,849 13,013
Results of discontinued operations, net of tax (73) 348
Cumulative effect of accounting change for goodwill - 61,663
Discontinued operations 47 218
Changes in operating assets and
liabilities, net of acquisition and
disposition of product line
Accounts receivable (18,119) 374
Inventories (818) 6,696
Accounts payable 6,983 (283)
Accrued income taxes 1,675 (29,231)
Accrued liabilities and customer deposits (112) (3,809)
Other assets and liabilities (1,230) (4,266)
----------------------
Net cash provided by (used for) operating activities 11,411 (9,896)
INVESTING ACTIVITIES
Purchase of property, plant and equipment, net (5,364) (5,327)
Cash received from disposition of discontinued operations - 1,400
Cash paid for acquisition of product line - (1,654)
Discontinued operations (108) (36)
----------------------
Net cash used for investing activities (5,472) (5,617)
FINANCING ACTIVITIES
Repayments of loans under credit agreement (12,700) -
Repayments of other borrowings (659) (1,047)
Proceeds from the issuance of treasury stock for stock options and
other benefit plans 572 2,119
Cash dividends (877) (997)
----------------------
Net cash (used for) provided by financing activities (13,664) 75
Effect of changes in currency exchange rates (2,780) (283)
----------------------
Decrease in cash (10,505) (15,721)
Cash, beginning of year 19,210 53,949
----------------------
Cash, end of period $ 8,705 $ 38,228
======================
The accompanying notes are an integral part of these statements.
6
WESTINGHOUSE AIR BRAKE TECHNOLOGIES CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2003 (UNAUDITED)
1. BUSINESS
Westinghouse Air Brake Technologies Corporation (the "Company", "Wabtec") is one
of the largest providers in North America of value-added, technology-based
equipment and services for the global rail industry. Our highly engineered
products, which are intended to enhance safety, improve productivity and reduce
maintenance costs for our customers, can be found on virtually all U.S.
locomotives, freight cars and passenger transit vehicles. Our primary products
and services are essential in the safe and efficient operation of freight rail
and passenger transit vehicles. Product offerings include brakes for
locomotives, freight cars and passenger transit vehicles, electronic controls
and monitors, heat exchangers and cooling systems, switcher and commuter
locomotives, couplers, door systems and draft gears. The Company aggressively
pursues technological advances with respect to both new product development and
product enhancements.
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 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.
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, 2002. The December 31, 2002 information has
been derived from the Company's December 31, 2002 Annual Report on Form 10-K.
REVENUE RECOGNITION Revenue is recognized in accordance with Staff Accounting
Bulletin (SAB) 101, "Revenue Recognition in Financial Statements." Wabtec
recognizes revenue upon the passage of title, ownership and risk of loss to the
customer.
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 quarterly, at a minimum, and adjustments are reflected in
the accounting period as known. Provisions are made for estimated losses on
uncompleted contracts as known, if necessary.
USE OF ESTIMATES The preparation of financial statements in conformity with
accounting principles generally accepted in the United States 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. On an ongoing basis, management reviews its
estimates based on currently available information. Changes in facts and
circumstances may result in revised estimates.
FINANCIAL DERIVATIVES AND HEDGES ACTIVITY The Company has adopted Statement of
Financial Accounting Standards ("SFAS") No. 133, 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 (loss) on the balance sheet.
RECENT ACCOUNTING PRONOUNCEMENTS In April 2002, SFAS No. 145, "Rescission of
FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and
Technical Corrections", was issued. The Statement updates, clarifies and
simplifies existing accounting pronouncements. While the technical corrections
to existing pronouncements are not substantive in nature, in some instances,
they may change accounting practice. The provisions of this standard related to
SFAS No. 13 are effective for transactions occurring after May 15, 2002. All
other provisions of this standard must be applied for financial statements
issued on or after May 15, 2002. The Company will reclassify items previously
recorded as extraordinary item to interest expense.
In January 2003, the Financial Accounting Standards Board issued Interpretation
No. 46, "Consolidation of Variable Interest Entities." A variable interest
entity ("VIE") is one where the contractual or ownership interests in an entity
change with changes in the entity's net asset value. This interpretation
requires the consolidation of a VIE by the primary beneficiary, and also
requires disclosure about VIEs where an enterprise has a significant variable
interest but is not the primary beneficiary. The Company does not believe that
this statement will have a material impact on the Company's financial statements
or results of operations.
7
In April 2003, the Financial Accounting Standards Board issued SFAS No. 149,
"Amendment of Statement 133 on Derivative Instruments and Hedging Activities."
SFAS No. 149 amends and clarifies accounting for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities under SFAS No. 133. The provisions of this statement are
effective for contracts entered into or modified after June 30, 2003 and for
hedging relationships designated after June 30, 2003 and should be applied
prospectively. SFAS No. 149 has no impact on the Company's financial statements
or results of operations.
In May 2003, the Financial Accounting Standards Board issued SFAS No. 150,
"Accounting for Certain Instruments with Characteristics of Both Liabilities and
Equity." SFAS No. 150 requires that certain financial instruments embodying an
obligation to transfer assets or to issue equity securities be classified as
liabilities. It is effective for financial instruments entered into or modified
after May 31, 2003, and otherwise is effective July 1, 2003. SFAS No. 150 has no
impact on the Company's financial statements r results of operations.
STOCK BASED COMPENSATION PLANS In December 2002, the Financial Accounting
Standards Board issued SFAS No. 148, "Accounting for Stock-Based Compensation,"
to provide alternate methods of transition to SFAS No. 123's fair value method
of accounting for stock-based compensation. While the Statement does not amend
SFAS No. 123 to require companies to account for employee stock options using
the fair value method, the disclosure provisions of the Statement are applicable
to all companies with stock-based compensation. The provisions of this standard
are effective for fiscal years ending after December 15, 2002.
The Company applies APB 25 and related interpretations in accounting for its
stock-based compensation plans. Accordingly, no compensation expense has been
recognized under these plans. Had compensation expense for these plans been
determined based on the fair value at the grant dates for awards, the Company's
net income and earnings per share would be as set forth in the following table.
For purposes of pro forma disclosures, the estimated fair value is amortized to
expense over the options' vesting period.
THREE MONTHS ENDED
JUNE 30
In thousands, except per share 2003 2002
- -----------------------------------------------------------
Net income
As reported $5,526 $4,821
Stock-based compensation
under FAS123 20 331
--------------------
Pro forma 5,506 4,490
Basic earnings per share
As reported $0.13 $0.11
Pro forma 0.13 0.10
Diluted earnings per share
As reported $0.13 $0.11
Pro forma 0.13 0.10
SIX MONTHS ENDED
JUNE 30
In thousands, except per share 2003 2002
- -----------------------------------------------------------
Net income (loss)
As reported $11,209 $(54,619)
Stock-based compensation
under FAS123 1,409 893
--------------------
Pro forma 9,800 (55,512)
Basic earnings (loss) per share
As reported $0.26 $(1.26)
Pro forma 0.23 (1.28)
Diluted earnings (loss) per share
As reported $0.26 $(1.25)
Pro forma 0.22 (1.27)
Since compensation expense associated with option grants would be recognized
over the vesting period, the initial impact of applying SFAS No. 123 on pro
forma net income is not representative of the potential impact on pro forma net
income in future years. In each subsequent year, pro forma compensation expense
would include the effect of recognizing a portion of compensation expense from
multiple awards.
For purposes of presenting pro forma results, the fair value of each option
grant is estimated on the date of grant using the Black-Scholes option-pricing
model with the following weighted-average assumptions:
THREE AND SIX MONTHS
ENDED JUNE 30
2003 2002
- ---------------------------------------------------
Dividend yield .30% .30%
Risk-free interest rate 5.3% 5.7%
Stock price volatility 46.0 46.7
Expected life (years) 5.0 5.0
- ---------------------------------------------------
The Black-Scholes option valuation model was developed for use in estimating
fair value of traded options, which are significantly different than employee
stock options. Although this valuation model is an acceptable method for use in
presenting pro forma information, because of the differences in traded options
and employee stock options, the Black-Scholes model does not necessarily provide
a single measure of the fair value of employee stock options.
OTHER COMPREHENSIVE INCOME (LOSS) Comprehensive income (loss) is defined as net
income and all nonowner changes in shareholders' equity. The Company's
accumulated other comprehensive income (loss) consists of foreign currency
8
translation adjustments, unrealized gains and losses on derivatives designated
and qualified as cash flow hedges and pension related adjustments. Total
comprehensive income (loss) for the three and six months ended June 30 was:
THREE MONTHS ENDED
JUNE 30
In thousands 2003 2002
- -----------------------------------------------------------
Net income $ 5,526 $4,821
Foreign currency translation 5,185 3,134
Unrealized gain on hedges, net of tax 226 49
--------------------
Total comprehensive income $ 10,937 $8,004
- -----------------------------------------------------------
SIX MONTHS ENDED
JUNE 30
In thousands 2003 2002
- -----------------------------------------------------------
Net income (loss) $ 11,209 $(54,619)
Foreign currency translation 8,761 3,131
Unrealized gain on hedges, net of tax 524 578
--------------------
Total comprehensive income (loss) $ 20,494 $(50,910)
- -----------------------------------------------------------
The components of accumulated other comprehensive income (loss) consisted of the
following at June 30, 2003 and December 31, 2002:
JUNE 30 DECEMBER 31
In thousands 2003 2002
- -------------------------------------------------------
Foreign currency translation $ (8,726) $(17,487)
Unrealized loss on hedges,
net of tax (482) (1,006)
Additional minimum pension
liability, net of tax (13,599) (13,599)
------------------------
Total accumulated
comprehensive loss $(22,807) $(32,092)
- -------------------------------------------------------
3. DISCONTINUED OPERATIONS
In the fourth quarter of 2001, the Company decided to exit certain small,
non-core businesses. One of these businesses was sold in the first quarter of
2002, and the other is still being marketed for sale. In accordance with SFAS
144, the operating results of these businesses have been classified as
discontinued operations for all years presented and are summarized for the three
and six months ended June 30, as follows:
THREE MONTHS
ENDED JUNE 30
In thousands 2003 2002
- ---------------------------------------------------------
Net sales $2,069 $2,322
Income (loss) before income taxes (69) 87
Income tax expense (benefit) (25) 30
--------------------
Income (loss) from
discontinued operations $ (44) $ 57
- ---------------------------------------------------------
SIX MONTHS ENDED
JUNE 30
In thousands 2003 2002
- -------------------------------------------------------
Net sales $4,380 $6,661
Income before income taxes 115 278
Income tax expense 42 97
------------------
Income from discontinued
operations $ 73 $ 181
- -------------------------------------------------------
4. 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. The components of inventory, net of reserves, were:
JUNE 30 DECEMBER 31
In thousands 2003 2002
- -------------------------------------------------------
Raw materials $49,051 $56,016
Work-in-process 37,995 27,856
Finished goods 6,421 4,598
------------------------
Total inventory $93,467 $88,470
- -------------------------------------------------------
5. INTANGIBLES
The Company has adopted SFAS No. 142, "Goodwill and Other Intangible Assets"
effective January 1, 2002. Under its provisions, all goodwill and other
intangible assets with indefinite lives are no longer amortized under a
straight-line basis over the assets estimated useful life. Instead, they are
subject to periodic assessments for impairment by applying a fair-value based
test. As a result of the adoption of SFAS 142 during 2002, the Company wrote
down the carrying value of goodwill by $90 million ($83.2 million for the
freight group and $6.8 million for the transit group), resulting in a non-cash
after-tax charge of $61.7 million. The fair value of these reporting units was
determined using a combination of discounted cash flow analysis and market
multiples based upon historical and projected financial information. Goodwill
still remaining on the balance sheet is $109.5 million.
As of June 30, 2003 and December 31, 2002, the Company's trademarks had a gross
carrying amount of $23.1 million and accumulated amortization of $3.6 million,
which are no longer amortized because the Company has determined that this
intangible has an indefinite life.
Intangible assets of the Company, other than goodwill and trademarks, consist of
the following:
9
JUNE 30 DECEMBER 31
In thousands 2003 2002
- ---------------------------------------------------------
Patents and other, net of $14,883 $16,124
accumulated amortization of
$40,371 and $39,136
Covenants not to compete, net of
accumulated amortization of
$17,344 and $16,673 809 1,480
Intangible pension asset 4,357 4,357
----------------------
Total $20,049 $21,961
- ---------------------------------------------------------
In connection with the adoption of SFAS No. 142, the Company reassessed the
useful lives and the classification of its identifiable assets and determined
that they continue to be appropriate. The weighted average useful lives of
patents was 13 years and covenants not to compete was 5 years.
Amortization expense for intangible assets was $1 million and $2 million for the
three and six months ended June 30, 2003 and $1.3 million and $2.8 million for
the three and six months ended June 30, 2002, respectively. Estimated
amortization expense for the remainder of 2003 and the five succeeding years are
as follows (in thousands):
2003 (remainder) $1,995
2004 2,876
2005 2,318
2006 2,177
2007 1,920
2008 1,473
There was no change in the carrying amount of goodwill for the three and six
months ended June 30, 2003. Goodwill for the freight group and transit group is
$92.6 million and $16.9 million, respectively.
6. EARNINGS PER SHARE
The computation of earnings per share from continuing operations is as follows:
THREE MONTHS ENDED
JUNE 30
In thousands, except per share 2003 2002
- ------------------------------------------------------
BASIC EARNINGS PER SHARE
Income from continuing
operations before
cumulative effect of
accounting change
applicable to common
shareholders $5,570 $4,764
Divided by
Weighted average shares
outstanding 43,478 43,321
Basic earnings from
continuing operations
before cumulative
effect of accounting
change per share $0.13 $0.11
- ------------------------------------------------------
DILUTED EARNINGS PER SHARE
Income from continuing
operations before
cumulative effect of
accounting change
applicable to common
shareholders $5,570 $4,764
Divided by sum of the
Weighted average shares
outstanding 43,478 43,321
Conversion of dilutive
stock options 312 413
--------------------
Diluted shares 43,790 43,734
outstanding
Diluted earnings from
continuing operations
before cumulative
effect of accounting
change per share $0.13 $0.11
- ------------------------------------------------------
SIX MONTHS ENDED
JUNE 30
In thousands, except per share 2003 2002
- ------------------------------------------------------
BASIC EARNINGS PER SHARE
Income from continuing
operations before
cumulative effect of
accounting change
applicable to common
shareholders $11,136 $7,392
Divided by
Weighted average shares
outstanding 43,462 43,239
Basic earnings from
continuing operations
before cumulative
effect of accounting
change per share $0.26 $0.17
- ------------------------------------------------------
DILUTED EARNINGS PER SHARE
Income from continuing
operations before
cumulative effect of
accounting change
applicable to common
shareholders $11,136 $7,392
Divided by sum of the
Weighted average shares
outstanding 43,462 43,239
Conversion of dilutive
stock options 223 353
--------------------
Diluted shares 43,685 43,592
outstanding
Diluted earnings from
continuing operations
before cumulative
effect of accounting
change per share $0.26 $0.17
- ------------------------------------------------------
10
7. WARRANTIES
The following table reconciles the changes in the Company's product warranty
reserve as of and for the six months ended June 30, 2003 and 2002.
SIX MONTHS ENDED
JUNE 30
In thousands 2003 2002
- ------------------------------------------------------
Balance at beginning of period $17,407 $15,373
Warranty expense 7,429 11,010
Warranty payments 7,878 10,550
-------------------
Balance at end of period $16,958 $15,833
- ------------------------------------------------------
8. COMMITMENTS AND CONTINGENCIES
Actions have been filed against the Company and certain of its affiliates in
various jurisdictions across the United States by persons alleging bodily injury
as a result of exposure to asbestos-containing products. Since 2000, the number
of such claims has increased. Most of these claims have been made against our
wholly-owned subsidiary, Railroad Friction Products Corporation (RFPC), and are
based on a product sold by RFPC before we acquired American Standard, Inc.'s
(ASI) 50% interest in RFPC in 1990. We acquired the remaining interest in RFPC
in 1992. These claims include a suit against RFPC by ASI seeking contribution
and indemnity for asbestos claims brought against ASI that ASI alleges claim
exposure to RFPC's product.
Most of these claims, including all of the RFPC claims, are submitted to
insurance carriers for defense and indemnity or to non-affiliated companies that
retain the liabilities for the asbestos-containing products at issue. Neither
the Company nor its affiliates have to date incurred material costs related to
these asbestos claims. We cannot, however, assure that all these claims will be
fully covered by insurance or that the indemnitors will remain financially
viable. Our ultimate legal and financial liability with respect to these claims,
as is the case with other pending litigation, cannot be estimated with
certainty.
On November 3, 2000, the Company settled a suit brought against it in 1999 by
GE-Harris Railway Electronics, L.L.C. and GE-Harris Railway Electronics
Services, L.L.C. (collectively "GE-Harris"). On September 20, 2002, a motion in
that lawsuit was filed by the successor to GE Harris, GE Transportation Services
Global Signaling, L.L.C. ("GETS-GS"). The motion by GETS-GS contends that the
Company is acting beyond authority granted in the parties' November 2000
settlement and license agreement and in contempt of the consent order that
concluded the suit at that time. In support of its motion, GETS-GS points
principally to sales and offers to sell certain railway brake equipment,
including distributed power equipment, to Australian customers. GETS-GS is
seeking substantial money damages and has claimed a significant business loss.
This matter is in discovery and a hearing on GETS-GS' motion was held on May 13,
2003. The parties are currently preparing and filing post-hearing papers.
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,
2002. During the first six months of 2003, there were no material changes to the
information described in Note 20 therein.
9. 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, on-board electronic components and train coupler
equipment. Revenues are derived from OEM sales and locomotive overhauls,
aftermarket sales and freight car repairs and services.
TRANSIT GROUP consists of products for passenger transit vehicles (typically
subways, commuter rail and buses) that include braking, coupling, and monitoring
systems, climate control and door equipment 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. 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.
11
Segment financial information for the three months ended June 30, 2003 is as
follows:
FREIGHT TRANSIT CORPORATE
In thousands GROUP GROUP ACTIVITIES TOTAL
- -------------------------------------------------------------------------------------------------
Sales to external customers $128,578 $46,278 - $174,856
Intersegment sales/(elimination) 2,547 223 (2,770) -
-----------------------------------------------
Total sales $131,125 $46,501 $(2,770) $174,856
===============================================
Income from operations $19,313 $80 $(5,551) $13,842
Interest expense and other - - (5,071) (5,071)
-----------------------------------------------
Income from continuing operations before
income taxes and cumulative effect of
accounting change $19,313 $80 $(10,622) $8,771
===============================================
Segment financial information for the three months ended June 30, 2002 is as
follows:
FREIGHT TRANSIT CORPORATE
In thousands GROUP GROUP ACTIVITIES TOTAL
- -------------------------------------------------------------------------------------------------
Sales to external customers $106,760 $73,048 - $179,808
Intersegment sales/(elimination) 2,572 119 (2,691) -
-----------------------------------------------
Total sales $109,332 $73,167 $(2,691) $179,808
===============================================
Income from operations $11,168 $7,406 $(5,274) $13,300
Interest expense and other - - (5,971) (5,971)
-----------------------------------------------
Income from continuing operations before
income taxes and cumulative effect of
accounting change $11,168 $7,406 $(11,245) $7,329
===============================================
Segment financial information for the six months ended June 30, 2003 is as
follows:
FREIGHT TRANSIT CORPORATE
In thousands GROUP GROUP ACTIVITIES TOTAL
- -------------------------------------------------------------------------------------------------
Sales to external customers $251,212 $93,167 - $344,379
Intersegment sales/(elimination) 4,510 390 (4,900) -
-----------------------------------------------
Total sales $255,722 $93,557 $(4,900) $344,379
===============================================
Income from operations $35,018 $2,299 $(11,174) $26,143
Interest expense and other - - (8,606) (8,606)
-----------------------------------------------
Income from continuing operations before
income taxes and cumulative effect of
accounting change $35,018 $2,299 $(19,780) $17,537
===============================================
Segment financial information for the six months ended June 30, 2002 is as
follows:
FREIGHT TRANSIT CORPORATE
In thousands GROUP GROUP ACTIVITIES TOTAL
- -------------------------------------------------------------------------------------------------
Sales to external customers $215,367 $141,766 - $357,133
Intersegment sales/(elimination) 5,468 226 (5,694) -
-----------------------------------------------
Total sales $220,835 $141,992 $(5,694) $357,133
===============================================
Income from operations $21,027 $13,255 $(10,515) $23,767
Interest expense and other - - (12,394) (12,394)
-----------------------------------------------
Income from continuing operations before
income taxes and cumulative effect of
accounting change $21,027 $13,255 $(22,909) $11,373
===============================================
12
10. RESTRUCTURING CHARGES
In 2001, the Company completed a merger and restructuring plan with charges
totaling $71 million pre-tax, with approximately $2 million of the charge
expensed in 2001, $20 million in 2000 and $49 million in 1999. The plan involved
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.
As of June 30, 2003, $297,000 of the merger and restructuring charge was still
remaining as accrued on the balance sheet as part of other accrued liabilities.
The table below identifies the significant components of the charge and reflects
the accrual balance at that date.
In thousands LEASE IMPAIRMENTS TOTAL
- ------------------------------------------------------------------------------------------
Beginning balance, January 1, 2003 $647 $647
Amounts paid 350 350
-------------------------------------
Balance at June 30, 2003 $297 $297
- ------------------------------------------------------------------------------------------
The lease impairment charges are associated with the Company's closing of a
plant and the consolidation of the corporate headquarters.
11. SUBSEQUENT EVENT
In August 2003, the Company issued $150 million of Senior Notes due July 2013 at
an interest rate of 6.875%. The net proceeds were used to repay debt under the
Company's revolving credit agreement.
13
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 2002 Annual Report on Form 10-K.
OVERVIEW
Net sales of ongoing operations decreased by 3.6% from $357.1 million in the
first six months of 2002 to $344.4 million in the same period in 2003. The major
cause for the change was the completion of a major transit contract during 2002,
which was partially offset by increased sales of components for new freight cars
and sales of commuter locomotives.
Net income from continuing operations for the first six months of 2003 was $11.1
million or $0.26 per diluted share. Net loss from continuing operations for the
first six months of 2002 was $54.3 million or $1.24 per diluted share The
results for the first six months of 2002 included a $61.7 million, net of tax,
write off of goodwill in accordance with SFAS No. 142. Net income from
continuing operations before cumulative effect of accounting change was $7.4
million or $0.17 per diluted share. This increase in net income from $0.17 per
diluted share to $0.26 per diluted share was primarily due to improved margins
and lower interest expense.
SECOND QUARTER 2003 COMPARED TO SECOND QUARTER 2002
The following table sets forth the Company's net sales by business segment:
THREE MONTHS
ENDED JUNE 30
----------------------
In thousands 2003 2002
- -----------------------------------------------------
Freight Group $128,578 $106,760
Transit Group 46,278 73,048
----------------------
Net sales $174,856 $179,808
- -----------------------------------------------------
Net sales for the second quarter of 2003 decreased $5 million, or 2.8%, to
$174.9 million as compared to the prior year period. The increased sales in the
Freight Group were offset by lower sales in the Transit Group. The Freight
Group's increased sales reflected higher sales of components for new freight
cars and sales of commuter locomotives and also higher aftermarket sales. In the
quarter, industry deliveries of new freight cars increased to 7,365 units as
compared to 4,155 in the same period in 2002. The Transit Group's decreased
sales were due to the completion of a contract to supply components for New York
City subway cars and lower aftermarket sales.
Gross profit increased to $47.6 million in the second quarter of 2003 compared
to $45.4 million in the same period of 2002. Gross profit is dependent on a
number of factors including pricing, sales volume and product mix. Gross profit,
as a percentage of sales, was 27.2% compared to 25.2% in the same period of
2002. (Gross profit was 26.7% in the first quarter of 2003.) The increase in
gross profit percentage is primarily due to operating efficiencies and favorable
product mix.
Operating expenses increased by $1.7 million in the second quarter of 2003 as
compared to the same period of 2002, due to an increase in selling, general and
administrative expenses primarily as a result of higher insurance costs, both
medical and general.
Operating income totaled $13.8 million (or 7.9% of sales) in the second quarter
of 2003 compared with $13.3 million (or 7.4% of sales) in the same period in
2002. Higher operating income resulted from increased margins in the second
quarter of 2003. (See Note 9 - "Notes to Condensed Consolidated Financial
Statements" regarding segment-specific information, included elsewhere in this
report).
Interest expense decreased 57% in the second quarter of 2003 as compared to the
prior year quarter primarily due to a substantial decrease in debt and interest
rates.
Other expense was $2.7 million in the second quarter of 2003 as compared to
$392,000 in the same period in 2002. The increase was primarily due to a foreign
exchange loss of $2.3 million in the second quarter of 2003, as a result of the
U. S. dollar weakening compared to the Canadian dollar. This weakening of the
U.S. dollar impacted the Company's Canadian locations that sell primarily to
U.S. customers.
The effective income tax rate was 36.5% in the second quarter of 2003 and 35% in
the second quarter of 2002. The increase in the effective tax rate was due to
higher effective state tax rates.
SIX MONTH PERIOD OF 2003 COMPARED TO SIX MONTH PERIOD OF 2002
The following table sets forth the Company's net sales by business segment:
SIX MONTHS ENDED
JUNE 30
----------------------
In thousands 2003 2002
- -----------------------------------------------------
Freight Group $251,212 $215,367
Transit Group 93,167 141,766
----------------------
Net sales $344,379 $357,133
- -----------------------------------------------------
Net sales for the first six months of 2003 decreased $12.8 million, or 3.6%, to
$344.4 million as compared to the prior year period. The increased sales in the
Freight Group were offset by lower sales in the Transit Group. The Freight
14
Group's increased sales reflected higher sales of components for new freight
cars and sales of commuter locomotives and also higher aftermarket sales. In the
first six months, industry deliveries of new freight cars increased to 13,979
units as compared to 8,010 in the same period in 2002. The Transit Group's
decreased sales were due to the completion of a contract to supply components
for New York City subway cars and lower aftermarket sales.
Gross profit increased to $92.8 million in the first six months of 2003 compared
to $90.1 million in the same period of 2002. Gross profit is dependent on a
number of factors including pricing, sales volume and product mix. Gross profit,
as a percentage of sales, was 27% compared to 25.2% in the same period of 2002.
The increase in gross profit percentage is primarily due to operating
efficiencies and favorable product mix.
Operating expenses in total were virtually unchanged in the first six months of
2003 as compared to the same period of 2002, as an increase in selling, general
and administrative expenses was offset by a decrease in amortization expense.
Operating income totaled $26.1 million (or 7.6% of sales) in the first six
months of 2003 compared with $23.8 million (or 6.7% of sales) in the same period
in 2002. Higher operating income resulted from increased margins in the first
six months of 2003. (See Note 9 - "Notes to Condensed Consolidated Financial
Statements" regarding segment-specific information, included elsewhere in this
report).
Interest expense decreased 56% in the first six months of 2003 as compared to
the prior year quarter primarily due to a substantial decrease in debt and
interest rates.
Other expense was $3.8 million in the first six months of 2003 as compared to
$1.5 million in the same period in 2002. The increase was primarily due to a
foreign exchange loss of $2.7 million in the first six months of 2003, as a
result of the U. S. dollar weakening compared to the Canadian dollar. This
weakening of the U.S. dollar impacted the Company's Canadian locations that sell
primarily to U.S. customers.
The effective income tax rate was 36.5% in the first six months of 2003 and 35%
in the first six months of 2002. The increase in the effective tax rate was due
to higher effective state tax rates.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity is provided primarily by operating cash flow and borrowings under the
Company's unsecured credit facility with a consortium of commercial banks
("credit agreement"). The following is a summary of selected cash flow
information and other relevant data.
SIX MONTHS ENDED
JUNE 30
---------------------
In thousands 2003 2002
- ----------------------------------------------------
Cash provided (used) by:
Operating activities $11,411 $(9,896)
Investing activities (5,472) (5,617)
Financing activities (13,664) 75
Cash provided by operations in the first six months of 2003 was $11.4 million
compared to cash used by operations of $9.9 million in the same period a year
ago. Earnings before depreciation and amortization were the main provider of
cash from operations in the first six months of 2003 and 2002. An increase in
accounts receivable was the main use of cash from operations in the first six
months of 2003. Planned income tax payments of approximately $30 million due to
the fourth quarter 2001 net gain from the sale of certain businesses to General
Electric were the primary use of cash from operations for the first six months
of 2002.
Cash used for investing activities was $5.5 million in the first six months of
2003 as compared to $5.6 million a year ago. Capital expenditures for continuing
operations were $5.4 million and $5.3 in the first six months of 2003 and 2002,
respectively. The majority of capital expenditures for these periods relates to
upgrades to existing equipment and replacement of existing equipment. In the
first six months of 2002, cash received from the sale of a product line was $1.4
million and $1.7 million was paid to acquire the minority interest of a business
that the Company did not already own.
Cash used by financing activities was $13.7 million in the first six months of
2003 versus $75,000 of cash provided by financing activities in the same period
a year ago. The Company reduced long-term debt by approximately $13.4 million in
the first six months of 2003 compared to $1 million in the same period a year
ago.
The following table sets forth the Company's outstanding indebtedness at June
30, 2003 and December 31, 2002. The revolving credit agreement interest rates
are variable and dependent on market conditions.
JUNE 30 DECEMBER 31
In thousands 2003 2002
- -----------------------------------------------------------------
Revolving credit agreement $177,000 $189,700
5.5% Industrial revenue bond due 2008 4,572 4,909
Other 231 542
-----------------------
Total $181,803 $195,151
Less-current portion 809 833
-----------------------
Long-term portion $180,994 $194,318
- -----------------------------------------------------------------
Credit Agreement
At June 30, 2003, the Company's credit agreement provides a $275 million
five-year revolving credit facility expiring in November 2004 and a 364-day $95
million convertible revolving credit facility maturing in November 2004, with an
15
annual renewal in November 2003. The credit facility was amended subsequent to
June 30, 2003, to provide a $225 million credit facility expiring in November
2004. At June 30, 2003, the Company had available borrowing capacity, net of
letters of credit, of approximately $171 million, subject to certain financial
covenant restrictions.
The Company believes, based on current levels of operations and forecasted
earnings, cash flow and liquidity will be sufficient to fund its working capital
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. The Company currently expects to refinance and replace its existing bank
facility well prior to its November 2004 expiration.
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.
CRITICAL ACCOUNTING POLICIES
The preparation of the financial statements in accordance with generally
accepted accounting principles requires management to make judgments, estimates
and assumptions regarding uncertainties that affect the reported amounts of
assets and liabilities, disclosure of contingent assets and liabilities and the
reported amounts of revenues and expenses. Areas of uncertainty that require
judgments, estimates and assumptions include the accounting for derivatives,
environmental matters, the testing of goodwill and other intangibles for
impairment, proceeds on assets to be sold, pensions and other postretirement
benefits, and tax matters. Management uses historical experience and all
available information to make these judgments and estimates, and actual results
will inevitably differ from those estimates and assumptions that are used to
prepare the Company's financial statements at any given time. Despite these
inherent limitations, management believes that Management's Discussion and
Analysis of Financial Condition and Results of Operations (MD&A) and the
financial statements and related footnotes provide a meaningful and fair
perspective of the Company. A discussion of the judgments and uncertainties
associated with accounting for derivatives and environmental matters can be
found in the "Notes to Consolidated Financial Statements" included elsewhere in
this report.
A summary of the Company's significant accounting policies is included in Note 2
in the "Notes to Consolidated Financial
16
Statements" included elsewhere in this report. Management believes that the
application of these policies on a consistent basis enables the Company to
provide the users of the financial statements with useful and reliable
information about the Company's operating results and financial condition.
In 2002, Wabtec adopted the new standard of accounting for goodwill and
intangible assets with indefinite lives. The cumulative effect adjustment
recognized on January 1, 2002, upon adoption of the new standard, was a charge
of $61.7 million (after tax). Also in 2002, amortization ceased for goodwill and
intangible assets with indefinite lives. Additionally, goodwill and
indefinite-lived intangibles are required to be tested for impairment at least
annually. The evaluation of impairment involves comparing the current fair value
of the business to the recorded value (including goodwill). The Company uses a
combination of a guideline public company market approach and a discounted cash
flow model ("DCF model") to determine the current fair value of the business. A
number of significant assumptions and estimates are involved in the application
of the DCF model to forecasted operating cash flows, including markets and
market share, sales volume and pricing, costs to produce and working capital
changes. Management considers historical experience and all available
information at the time the fair values of its business are estimated. However,
actual fair values that could be realized in an actual transaction may differ
from those used to evaluate the impairment of goodwill.
Other areas of significant judgments and estimates include the liabilities and
expenses for pensions and other postretirement benefits. These amounts are
determined using actuarial methodologies and incorporate significant
assumptions, including the rate used to discount the future estimated liability,
the long-term rate of return on plan assets and several assumptions relating to
the employee workforce (salary increases, medical costs, retirement age and
mortality). The rate used to discount future estimated liabilities is determined
considering the rates available at year-end on debt instruments that could be
used to settle the obligations of the plan. The long-term rate of return is
estimated by considering historical returns and expected returns on current and
projected asset allocations and is generally applied to a five-year average
market value of assets.
The recent declines in equity markets and interest rates have had a negative
impact on Wabtec's pension plan liability and fair value of plan assets. As a
result, the accumulated benefit obligation exceeded the fair value of plan
assets at the end of 2002, which resulted in a $7.1 million, net of tax, charge
to other comprehensive loss in the fourth quarter.
As a global company, Wabtec records an estimated liability or benefit for income
and other taxes based on what it determines will likely be paid in various tax
jurisdictions in which it operates. Management uses its best judgment in the
determination of these amounts. However, the liabilities ultimately realized and
paid are dependent on various matters including the resolution of the tax audits
in the various affected tax jurisdictions and may differ from the amounts
recorded. An adjustment to the estimated liability would be recorded through
income in the period in which it becomes probable that the amount of the actual
liability differs from the recorded amount. Management does not believe that
such a charge would be material.
RECENT ACCOUNTING PRONOUNCEMENTS
See Notes 2 and 5 of "Notes to Condensed Consolidated Financial Statements"
included elsewhere in this report.
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 its
variable-rate debt. After considering the effects of interest rate swaps,
further described below, the Company's variable-rate debt represented 75% of
total long-term debt at June 30, 2003. Management has entered into pay-fixed,
receive-variable interest rate swap contracts that partially mitigate the impact
of variable-rate debt interest rate increases. An instantaneous 100 basis point
increase in interest rates would reduce the Company's annual earnings by
$870,000, assuming no additional intervention strategies by management. The
Company issued $150 million of Senior Notes in August 2003, which decreased the
interest rate risk on the Company. The result of this issue is to reduce
variable debt to under 10%. See Note 11 of the Company's Notes to Condensed
Consolidated Financial Statements for the Quarterly Period Ended June 30, 2003
included herein.
See Note 2 of the Company's Notes to Condensed Consolidated Financial Statements
for the Quarterly Period Ended June 30, 2003 included herein for discussion of
swap contracts. These swap contracts are 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
June 30, 2003, the Company had no such instruments outstanding.
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 first six months of 2003, approximately 72%
of Wabtec's net sales are in the United States, 10% in Canada, 1% in Mexico, and
17% in other international locations, primarily Europe.
17
At June 30, 2003, the Company does not believe changes in foreign currency
exchange rates represent a material risk to results of operations, financial
position, or liquidity.
CONTROLS AND PROCEDURES
Wabtec's principal executive officer and its principal financial officer have
evaluated the effectiveness of Wabtec's "disclosure controls and procedures,"
(as defined in Exchange Act Rule 13a-15(e)) as of June 30, 2003. Based upon
their evaluation, the principal executive officer and principal financial
officer concluded that Wabtec's disclosure controls and procedures are effective
to provide reasonable assurance that information required to be disclosed by
Wabtec in the reports filed or submitted by it under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified
in the SEC's rules and forms, and to provide reasonable assurance that
information required to be disclosed by Wabtec in such reports is accumulated
and communicated to Wabtec's management, including its principal executive
officer and principal financial officer, as appropriate to allow timely
decisions regarding required disclosure.
There was no change in Wabtec's "internal control over financial reporting" (as
defined in Rule 13a-15(f) under the Exchange Act) that occurred during the
quarter ended June 30, 2003, that has materially affected, or is reasonably
likely to materially affect, Wabtec's internal control over financial reporting.
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 20 of the Company's Annual
Report on Form 10-K for the Year Ended December 31, 2002.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Stockholders of the Company was held May 23, 2003. Two
matters were considered and voted upon at the Annual Meeting: the election of
three persons to serve as directors and the ratification of the appointment of
Ernst & Young as independent public accountants of the Company for the 2003
fiscal year.
Nominations of Gregory T. H. Davies, Kim G. Davis and Michael W. D. Howell to
serve as directors for a term expiring in 2006 were considered and each nominee
was elected. The latter two directors are independent and are not employees of
the Company.
Ernst & Young was ratified as the independent public accountant of Wabtec for
the 2003 fiscal year.
The voting was as follows:
Nominee Title Votes For Votes Against Votes Withheld
----------------------------------------------------------------------------------------------------------------------------------
Gregory T. H. Davies President and Chief Executive Officer, Wabtec 29,347,422 - 8,075,112
Kim G. Davis Managing Director, Charlesbank Capital Partners, LLC 36,771,206 - 651,328
Michael W. D. Howell Chief Executive Officer, Transport Initiatives Edinburgh Limited 36,819,618 - 602,916
----------------------------------------------------------------------------------------------------------------------------------
Votes For Votes Against Votes Abstain Broker Non-Votes
---------------------------------------------------------------------------------------------
Ernst & Young 36,647,442 759,241 15,851 -
---------------------------------------------------------------------------------------------
EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are being filed with this report:
3.1 Restated Certificate of Incorporation of the Company dated January
30, 1995, as amended March 30, 1995, filed as an exhibit to the
Company's Registration Statement on Form S-1 (No. 33-90866), and
incorporated herein by reference.
3.2 Restated By-Laws of the Company, effective November 19, 1999, filed
as part of the Company's Registration Statement on Form S-4
(No. 333-88903), and incorporated herein by reference.
31.1 Rule 13a-14(a) Certification of Chief Executive Officer
31.2 Rule 13a-14(a) Certification of Chief Financial Officer
32.1 Section 1350 Certification of Chief Executive Officer and Chief
Financial Officer
(b) The Company filed a Current Report on Form 8-K dated May 16, 2003,
furnishing a copy of the press release announcing Wabtec's first quarter
2003 earnings.
18
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/ ALVARO GARCIA-TUNON
-----------------------------
Alvaro Garcia-Tunon
Chief Financial Officer
Date: August 14, 2003
19
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION AND METHOD OF FILING
------ --------------------------------
3.1 Restated Certificate of Incorporation of the Company dated January 30,
1995, as amended March 30, 1995, filed as an exhibit to the Company's
Registration Statement on Form S-1 (No. 33-90866), and incorporated
herein by reference
3.2 Restated By-Laws of the Company, effective November 19, 1999, filed as
part of the Company's Registration Statement on Form S-4 (No.
333-88903), and incorporated by reference
31.1 Rule 13a-14(a) Certification of Chief Executive Officer, filed herewith
31.2 Rule 13a-14(a) Certification of Chief Financial Officer, filed herewith
32.1 Section 1350 Certification of Chief Executive and Chief Financial
Officer, filed herewith
20