<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996
COMMISSION FILE NO. 1-13782
WESTINGHOUSE AIR BRAKE COMPANY
(Exact name of registrant as specified in its charter)
Delaware 25-1615902
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1001 Air Brake Avenue
Wilmerding, Pennsylvania 15148
(Address of principal executive offices)
(412) 825-1000
Registrant's telephone number, including area code
Indicate by checkmark 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 (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Number of shares of common stock outstanding, excluding unearned ESOP shares,
as of August 1, 1996:
28,432,813
----------
Number of shares of common stock outstanding, including unearned ESOP shares,
as of August 1, 1996:
37,488,733
----------
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<PAGE> 2
WESTINGHOUSE AIR BRAKE COMPANY
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996
INDEX
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
PART I FINANCIAL INFORMATION
ITEM 1 Financial Statements
Condensed Consolidated Statement of Operations 3
Condensed Consolidated Balance Sheet 4
Condensed Consolidated Statement of Cash Flows 5
Condensed Consolidated Statement of
Shareholders' Equity 6
Notes to Condensed Consolidated Financial Statements 7
ITEM 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II OTHER INFORMATION
ITEM 4 Submission of Matters to a Vote of Security Holders 13
SIGNATURES 14
</TABLE>
<PAGE> 3
WESTINGHOUSE AIR BRAKE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(Dollars in thousands except per share amounts)
(Unaudited)
-----------
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------- ----------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
NET SALES $ 109,135 $ 115,134 $ 214,866 $ 224,876
COST OF SALES 72,066 74,779 142,700 144,320
--------- --------- --------- ---------
Gross Profit 37,069 40,355 72,166 80,556
SELLING AND MARKETING EXPENSES 3,816 3,217 7,372 5,959
GENERAL AND ADMINISTRATIVE EXPENSES 7,549 5,811 13,889 11,702
ENGINEERING EXPENSES 3,923 3,511 8,177 6,812
AMORTIZATION EXPENSE 1,925 1,355 3,717 2,636
OTHER OPERATING (INCOME) EXPENSE, net (131) (307) (197) 534
--------- --------- --------- ---------
Income from operations 19,987 26,768 39,208 52,913
OTHER INCOME AND EXPENSES:
Interest expense 5,859 7,420 11,886 12,596
Interest expense to affiliates 403 2,571 808 5,343
Other (income) expense, net (36) 146 (73) (32)
--------- --------- --------- ---------
Income before income taxes and extraordinary item 13,761 16,631 26,587 35,006
INCOME TAXES 5,505 6,819 10,635 14,352
--------- --------- --------- ---------
Income before extraordinary item 8,256 9,812 15,952 20,654
EXTRAORDINARY ITEM, net of taxes -- (1,382) -- (1,382)
NET INCOME $ 8,256 $ 8,430 $ 15,952 $ 19,272
========= ========= ========= =========
INCOME PER COMMON SHARE:
Income before extraordinary item $ 0.29 $ 0.44 $ 0.56 $ 0.84
Extraordinary item $ -- $ (0.06) $ -- $ (0.06)
--------- --------- --------- ---------
Net income $ 0.29 $ 0.38 $ 0.56 $ 0.78
========= ========= ========= =========
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 28,410 22,376 28,446 24,632
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of this statement.
3
<PAGE> 4
WESTINGHOUSE AIR BRAKE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 1996 AND DECEMBER 31, 1995
(Dollars in thousands)
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
---- ----
(Unaudited)
<S> <C> <C>
ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents $ 3,196 $ 210
Accounts receivable 56,684 45,644
Inventories 49,915 52,922
Other current assets 4,912 7,942
--------- ---------
Total current assets 114,707 106,718
PROPERTY, PLANT AND EQUIPMENT 135,656 125,036
Less: Accumulated depreciation (61,985) (52,278)
--------- ---------
Property, plant and equipment, net 73,671 72,758
OTHER ASSETS:
Prepaid pension costs 4,484 4,441
Goodwill 51,442 42,286
Intangibles 27,069 26,812
Debt issuance costs 7,979 9,014
Other noncurrent assets 1,386 1,378
--------- ---------
Total other assets 92,360 83,931
TOTAL ASSETS $ 280,738 $ 263,407
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Current portion of long-term debt $ 11,000 $ 22,448
Accounts payable 19,668 20,698
Accrued income taxes 2,830 2,829
Advance deposits 8,086 7,257
Accrued compensation 8,226 6,766
Accrued warranty 4,372 3,655
Accrued interest 2,748 2,786
Other accrued liabilities 4,547 3,605
--------- ---------
Total current liabilities 61,477 70,044
Long-term debt 293,590 283,487
Reserve for Post Retirement Benefits 10,774 10,415
Accrued Pension Costs 5,267 5,061
Deferred Income Taxes 3,314 3,098
--------- ---------
Total liabilities 374,422 372,105
SHAREHOLDERS' EQUITY:
Common stock, $.01 par value; 100,000,000 shares authorized and
47,426,600 shares issued 474 474
Additional paid-in capital 104,489 104,776
Less: Treasury stock, at cost, 9,937,867 and 9,783,567 shares (149,331) (147,702)
Less: Unearned ESOP shares, 9,055,920 and 9,149,280 shares (135,839) (137,239)
Retained earnings 89,153 73,765
Cumulative translation adjustment (2,630) (2,772)
--------- ---------
Total shareholders' equity (93,684) (108,698)
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 280,738 $ 263,407
========= =========
</TABLE>
The accompanying notes are an integral part of this statement.
4
<PAGE> 5
WESTINGHOUSE AIR BRAKE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(Dollars in thousands)
(Unaudited)
-----------
<TABLE>
<CAPTION>
Six months ended
June 30,
---------------------
1996 1995
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Income before extraordinary item $ 15,952 $ 20,654
Extraordinary item, net -- (1,382)
-------- ---------
Net income 15,952 19,272
Adjustments to reconcile net income to cash provided by operations:
Depreciation and amortization 10,602 8,657
Provision for contribution to ESOP 1,113 1,400
Deferred income taxes 213 149
Changes in certain assets and liabilities:
Accounts receivable (9,981) (5,844)
Inventories 4,506 (3,647)
Other assets and liabilities 3,328 (4,583)
Accounts payable (1,700) 8,185
Accrued income taxes (212) (4,434)
Accrued liabilities and advance deposits 3,316 422
-------- ---------
Net cash provided by operating activities 27,137 19,577
INVESTING ACTIVITIES:
Purchase of property, plant and equipment (5,788) (7,764)
Disposals of property, plant and equipment 72 4
Purchase of Pulse Electronics, Inc. -- (54,900)
Purchase of Futuris Industrial Products, Ltd. (15,040) --
-------- ---------
Net cash used for investing activities (20,756) (62,660)
FINANCING ACTIVITIES:
Net payments of term debt (19,400) (175,000)
Proceeds from issuance of debt obligations -- 417,000
Debt issuance fees -- (11,401)
Purchase of treasury stock, net of Pulse shares (1,629) (145,493)
Purchase of ESOP shares -- (140,040)
Net borrowings on revolving credit arrangements 18,055 83,230
Net proceeds from stock offering -- 90,100
Payment of debt to affiliate -- (73,910)
Cash dividends (564) --
-------- ---------
Net cash provided by (used for) financing activities (3,538) 44,486
FOREIGN CURRENCY TRANSLATION ADJUSTMENT 143 385
Increase in cash and cash equivalents 2,986 1,788
CASH AND CASH EQUIVALENTS, beginning of period 210 1,042
-------- ---------
CASH AND CASH EQUIVALENTS, end of period $ 3,196 $ 2,830
======== =========
</TABLE>
The accompanying notes are an integral part of this statement.
5
<PAGE> 6
WESTINGHOUSE AIR BRAKE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(Dollars in thousands)
(Unaudited)
-----------
<TABLE>
<CAPTION>
Additional Unallocated Cumulative Total
Common Paid-In Treasury ESOP Retained Translation Shareholders'
Stock Capital Stock Shares Earnings Adjustment Equity
----- ------- ----- ------ -------- ---------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1995 $ 474 $ 104,776 $(147,702) $ (137,239) $73,765 $ (2,772) $(108,698)
Net income -- -- -- -- 15,952 -- 15,952
Purchase of treasury stock at cost -- -- (1,629) -- -- -- (1,629)
Allocation of ESOP shares -- (287) -- 1,400 -- -- 1,113
Dividends paid -- -- -- -- (564) -- (564)
Cumulative translation adjustment -- -- -- -- -- 142 142
--------- ---------- --------- ---------- ------- -------- ---------
BALANCE, June 30, 1996 $ 474 $ 104,489 $(149,331) $ (135,839) $89,153 $ (2,630) $ (93,684)
========= ========== ========= ========== ======= ======== =========
</TABLE>
The accompanying notes are an integral part of this statement.
6
<PAGE> 7
WESTINGHOUSE AIR BRAKE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996
(UNAUDITED)
1. BASIS OF PRESENTATION:
The information contained in these financial statements and notes for the three
and six months ended June 30, 1996, should be read in conjunction with the
financial statements and notes for the year ended December 31, 1995, contained
in the Company's Annual Report, as filed with the Securities and Exchange
Commission on Form 10-K. The accompanying unaudited Condensed Consolidated
Financial Statements have been prepared in accordance with generally accepted
accounting principles and the rules and regulations of the Securities and
Exchange Commission. These condensed interim statements do not include all of
the information and footnotes required for complete financial statements. It is
management's opinion that all adjustments (including all normal recurring
accruals) considered necessary for a fair presentation have been made; however,
results for these interim periods are not necessarily indicative of results to
be expected for the full year.
EARNINGS PER SHARE
Earnings per common and common equivalent share is based upon the weighted
average common and common equivalent shares outstanding during the period.
Primary and fully diluted earnings per share are the same.
Employee stock options, when dilutive, are considered common stock equivalents
using the treasury stock method. Also included in the weighted average shares
is the pro-rata amount of the annual allocation of 187,000 shares to the ESOP
participants.
2. 1995 RECAPITALIZATION AND INITIAL PUBLIC OFFERING:
In January, 1995, the Company completed a recapitalization transaction whereby
it repurchased 10,664,000 shares of its outstanding Common Stock for the
treasury. In conjunction with this transaction, the Company established an
Employee Stock Ownership Plan (ESOP) which in turn purchased 9,336,000 shares
of the Company's outstanding Common Stock in exchange for a $140 million loan
from the Company. These transactions, which required an aggregate of $300
million, were financed by both term and revolving bank debt.
In June, 1995, the Company completed an Initial Public Stock Offering, whereby
it received net proceeds of approximately $95 million (including the
underwriters' over-allotment option exercised in July, 1995) that were used to
reduce outstanding debt; also, a public debt offering of $100 million was
completed and the proceeds were used to reduce outstanding bank debt; finally
in June, 1995 the Company entered into an Amended Bank Credit Agreement which
provided for an aggregate credit facility of $250 million. The public debt
offering and the Amended Bank Credit Agreement replaced the Company's prior
credit facility of $350 million.
7
<PAGE> 8
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. The components of inventory at June 30, 1996, and December 31,
1995 are:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
----------------------
June 30, December 31,
1996 1995
-------- ------------
<S> <C> <C>
Raw materials $13,481 $17,118
Work-in-process 22,769 20,262
Finished goods 13,665 15,542
------- -------
$49,915 $52,922
------- -------
</TABLE>
4. ACQUISITIONS:
Effective January 31, 1996, the Company acquired 100% of the stock of Futuris
Industrial Products Pty. Ltd. (Futuris), an Australian company, for a cash
purchase price of approximately $15 million. Futuris is a leading manufacturer
of brake shoes and disc brake pads for railroads in Australia and the Pacific
Rim, with annual revenues of approximately $10.5 million. The acquisition has
been accounted for under the purchase method and the excess of the purchase
price over the fair value of net assets acquired was approximately $10 million
and has been allocated primarily to goodwill. The effect of the acquisition is
not considered material to the consolidated results of the Company.
Effective January 31, 1995, the Company purchased Pulse Electronics, Inc.
(Pulse) for $54.9 million, consisting of $20 million in cash, a $17 million
note payable with interest at 9.5% due 2004 and 1,193,333 shares of the
Company's common stock having an equivalent value of $17.9 million at $15 per
share. Pulse manufactures a variety of electronic products for the rail
industry including event recorders and end-of-train devices. The net tangible
assets of Pulse were approximately $9 million at the date of purchase and the
excess of the purchase price over the fair value of the net assets was
approximately $46 million and has been allocated primarily to goodwill and
other intangibles based upon an independent appraisal. Pulse has been included
in the Company's consolidated results of operations since its acquisition date
of January 31, 1995, and its revenues for the five month and six month periods
ended June 30, 1995 and 1996 were $15.8 million and $21.4 million respectively.
8
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis by management of financial condition
provides information with respect to the results of operations of the Company
for the three month and six month periods ended June 30, 1996 and 1995,
respectively. This discussion should be read in connection with the information
in the condensed consolidated financial statements and the notes pertaining
thereto.
RESULTS OF OPERATIONS
The following table summarizes sales by market:
<TABLE>
<CAPTION>
For the three months ended For the six months ended
June 30, June 30,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Locomotive $ 31,885 $ 27,226 $ 57,830 $ 52,038
Freight 55,362 66,330 113,636 129,486
Transit 18,389 17,980 36,510 35,910
Other 3,499 3,598 6,890 7,442
-------- -------- -------- --------
$109,135 $115,134 $214,866 $224,876
======== ======== ======== ========
</TABLE>
SECOND QUARTER 1996 COMPARED TO SECOND QUARTER 1995
NET SALES
Net sales decreased 5.2% or $6.0 million to $109.1 million in the second
quarter of 1996 compared to $115.1 million in the same period of 1995. The
primary factor contributing to the decrease was a 16.5% or $10.9 million drop
in sales in the Company's Freight Car operations, from $66.3 million in 1995 to
$55.4 million in 1996, as a result of the reduced level of OEM freight car
production. Sales were also adversely affected by customer imposed delays in
the timing of deliveries of freight related products.
Net sales in the Locomotive business increased by 17.1% or $4.7 million, from
$27.2 million in 1995 to $31.9 million in 1996. The increase was due to
increased sales of the end-of-train monitoring devices supplied by the
Company's Pulse subsidiary. Recent railroad industry safety requirements were a
primary factor in these increased sales. Revenues in the Passenger Transit
business increased by 2.3% from $18.0 million in 1995 to $18.4 million in 1996.
GROSS PROFIT
Gross profit decreased $3.3 million, or 8.1% to $37.1 million in 1996 versus
$40.4 million in 1995 while gross profit margin declined from 35.1% in 1995 to
34.0% in 1996. The reduced sales volume in the Freight Car operations and the
resultant impact on the Company's sales mix were the primary factors in the
lower margins. Increased sales of the Company's friction products and railway
electronics partially offset the volume related margin reduction in the freight
business.
SELLING AND MARKETING EXPENSES
Selling and marketing expenses increased $.6 million in 1996 compared to 1995
with approximately $.2 million of the increase due to the Futuris acquisition
and the remainder attributable to increased international marketing efforts,
promotional efforts for new products, and expanded sales activities by the
Company's Integrated Railway Systems group.
9
<PAGE> 10
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses increased $1.7 million to $7.5 million in
1996 from $5.8 million in 1995. Increased corporate expenses for shareholder
communications, legal expenses, insurance expenses and costs associated with
international activities comprised approximately $1.5 million of the increase.
The remainder of the increase was due to the expenses of the Futuris operations
acquired January, 1996.
ENGINEERING EXPENSES
Engineering expenses, which do not include that portion of engineering which
supports manufacturing, increased $.4 million to $3.9 million in 1996 from $3.5
million in 1995, due primarily to increased engineering incurred in new product
development in the Company's Integrated Railway Systems group.
AMORTIZATION EXPENSE
Amortization expense increased $.5 million in 1996 due primarily to the
amortization of intangibles, including goodwill, associated with the
acquisition of Futuris in January, 1996 and increased deferred financing costs.
INCOME FROM OPERATIONS
Operating income decreased 25.3% to $20.0 million in 1996 from $26.8 million in
1995. Operating income for the second quarter of 1996 was adversely impacted by
the aforementioned reduced sales volumes, lower gross margins and increased
operating expenses.
INTEREST EXPENSE
Interest expense decreased $3.7 million to $6.3 million in 1996 from $10.0
million in 1995, due to lower overall interest rates and lower average debt
levels as a result of the positive cash flow from operations and the proceeds
from the Company's June, 1995 Initial Public Stock Offering.
INCOME TAXES
The provision for income taxes was $6.8 million in 1995 compared to $5.5
million in 1996. The effective tax rate declined from 41.0% in 1995 to 40.0% in
1996, due to lower overall state tax rates.
INCOME BEFORE EXTRAORDINARY ITEM
Income before extraordinary item decreased by $1.5 million or 15.9% from $9.8
million in 1995 to $8.3 million in 1996 as a result of the lower volume and
margins, partially offset by lower interest expense and provision for income
taxes.
EXTRAORDINARY ITEM
The 1995 second quarter results include a net charge of $1.4 million or $.06
per share for the write-off of previously deferred financing costs, as the
result of amending the Company's credit agreement in June, 1995.
NET INCOME
Net income decreased by 2% or approximately $.1 million from $8.4 million in
1995 to $8.3 million in 1996, while per share earnings decreased by 24% from
$.38 to $.29 primarily as a result of the additional average shares outstanding
due to the Company's June, 1995 Initial Public Stock Offering.
10
<PAGE> 11
SIX MONTH PERIOD ENDED JUNE 30, 1996 COMPARED TO SIX MONTH PERIOD ENDED JUNE
30, 1995
NET SALES
Net sales decreased 4.4% or $10.0 million to $214.9 million in 1996 compared to
$224.9 million in 1995. This decrease was primarily due to a $15.9 million, or
12.3%, reduction in sales in the Freight Car division, from $129.5 million in
1995 to $113.6 million in 1996, as the result of a slowdown in the freight car
OEM market. Net sales in the Locomotive business increased $5.8 million, or
11.1%, from $52.0 million in 1995 to $57.8 million in 1996 due to strong demand
in 1996 for the end-of-train monitoring devices supplied by the Company's Pulse
subsidiary (acquired January, 1995) and because 1995 results included only five
months of revenues from this acquisition. Revenues in the Passenger Transit
business remained relatively constant between periods.
GROSS PROFIT
Gross profit decreased $8.4 million, or 10.4% to $72.2 million in 1996 versus
$80.6 million in 1995 while gross profit margin decreased from 35.8% in 1995 to
33.6% in 1996. The reduced margins were due to the decreases in sales,
primarily the aforementioned reduction in sales of the Company's Freight Car
operations, as well as unfavorable overhead absorption of fixed manufacturing
costs resulting from the lower operating levels in 1996 compared to 1995. Also,
adversely affecting 1996 margins were the overall sales mix and higher
manufacturing costs associated with the Company's newest version of its
electronic braking product (EPIC).
SELLING AND MARKETING EXPENSES
Selling and marketing expenses increased $1.4 million in 1996 compared to 1995
primarily due to the acquisition of Futuris effective January 31, 1996 and
increased marketing expenses in conjunction with new product introductions and
the Company's expanded international marketing efforts.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses increased $2.2 million to $13.9 million in
1996 from $11.7 million in 1995. Approximately $.7 million of the increase was
due to the effects of the Futuris and Pulse acquisitions; the remainder was due
to increased corporate expenses including shareholder communications, legal
expenses, insurance expenses and costs associated with international
activities.
ENGINEERING EXPENSES
Engineering expenses, which do not include that portion of engineering which
supports manufacturing, increased $1.4 million to $8.2 million in 1996 from
$6.8 million in 1995, due primarily to expanded staffing for engineering in
conjunction with new product development, which commenced in the second half of
1995, as well as the related effects of a full six months in 1996 of the Pulse
acquisition.
AMORTIZATION EXPENSE
Amortization expense increased $1.1 million in 1996 due primarily to the
amortization of intangibles, including goodwill, associated with the
acquisitions of Futuris and Pulse in January, 1996 and 1995 respectively.
OTHER OPERATING INCOME (EXPENSE)
Other operating expense in 1995 included approximately $1 million of initial
start up expenses related to the formation of the Company's ESOP.
11
<PAGE> 12
INCOME FROM OPERATIONS
Operating income decreased 25.9% to $39.2 million in 1996 from $52.9 million in
1995. Operating income for the six months ended June 30, 1996 was adversely
impacted by the aforementioned reduced sales volumes, lower gross margins and
increased expenses.
INTEREST EXPENSE
Interest expense decreased $5.2 million to $12.7 million in 1996 from $17.9
million in 1995, due to lower overall interest rates and lower average debt
levels primarily as the result of operating cash flow and the proceeds from the
Company's June, 1995 Initial Public Stock Offering.
INCOME TAXES
The provision for income taxes was $14.4 million in 1995 compared to $10.6
million in 1996. The effective tax rate declined from 41.0% in 1995 to 40.0% in
1996, due to lower overall state tax rates.
NET INCOME
Net income decreased 17% or approximately $3.3 million from $19.3 million in
1995 to $16.0 million in 1996 as the result of the reduced sales volume and
gross margins, and increased operating expenses, offset by lower interest and
tax expenses. The 1995 results also included an extraordinary charge of $1.4
million related to the write-off of deferred financing fees as the result of
the Company amending its credit facility in June, 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company has generated cash from operating activities of $27.1 million and
$19.6 million in the first six months of 1996 and 1995, respectively. During the
six months ended June 30, 1996, the Company decreased its bank debt obligations
by a net $1.3 million, in addition to funding the $15 million payment for the
acquisition of Futuris Industrial Products and increasing cash and cash
equivalents by $3 million. During the period the Company reduced inventory by
$4.5 million or nearly 9%; accounts receivable increased approximately $10
million or 24% due to sales volume in the second quarter of 1996 being 15%
higher than the fourth quarter of 1995 and a modest slowdown in customer
payments. Cash generated from operating activities has remained strong due to
continued profitability, which has enabled the Company to fund both its
anticipated capital expenditures and the related working capital requirements.
The Company's primary source of liquidity, other than operations, is the $125
million revolving credit facility (the Revolving Credit Facility) pursuant to
the Amended Credit Agreement, of which approximately $82 million had been
utilized for borrowings at June 30, 1996.
At June 30, 1996, the total indebtedness of the Company was approximately
$304.6 million, of which approximately $187.6 million is outstanding under the
Amended Credit Agreement, $100.0 million is outstanding under the Company's
Senior Notes and $17.0 million is due to the former owners of Pulse. The
Company's total annual interest obligation on such indebtedness would be
approximately $24.8 million based on the interest rates in effect as of June
30, 1996 (using a weighted average interest rate of approximately 8.14%). The
interest rate for the Notes is fixed at 9.375%, which will result in an annual
interest obligation on the Notes of $9.4 million (based on a total outstanding
amount of $100 million). Substantially all of the remaining indebtedness bears
interest at variable interest rates and, therefore, the Company's total annual
interest obligation will change based on the applicable interest rates in
effect from time to time. However, the Company has entered into interest rate
swap agreements that fix the interest cost on $75 million at a weighted average
interest rate of approximately 7.95%.
In conjunction with a plan approved on November 1, 1995, to repurchase up to
one million shares of its Common Stock, the Company had purchased 405,000
shares at an aggregate cost of approximately $3.9 million.
Management believes, based upon current levels of operations and forecasted
earnings, that cash flows from operations, together with borrowings under the
Amended Credit Agreement, will be adequate to make required payments of
principal and interest on debt, including the Notes, to permit anticipated
capital expenditures, and to fund working capital requirements and other cash
needs. Nevertheless, the Company will remain leveraged to a
12
<PAGE> 13
significant extent with corresponding requirements for debt service
obligations. Moreover, the ability of the Company to comply with the covenants
and other restrictions contained in the Notes and the Amended Credit Agreement
may be affected by events beyond its control. If the Company's sources of funds
were to be inadequate 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 any such new financing alternatives would be available
and, in any case, such new financing, if available, could be expected to be
more costly and burdensome than the debt agreements currently in place.
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Stockholders of the Company was held on April 30, 1996.
Four matters were considered and voted upon at the Annual Meeting; an amendment
to the Company's By-Laws dividing the directors into three classes, the
election of seven persons to serve as directors, the approval of the Board of
Directors' adoption of the 1995 Non-Employee Directors' Fee and Stock Option
Plan and the ratification of the appointment of Arthur Andersen LLP as
independent public accountants to audit the financial statements of the Company
and its subsidiaries for the 1996 fiscal year.
The holders of 29,276,593 shares of the Common Stock voted for amending the
Company's By-Laws. The holders of 799,045 shares voted against such amendment.
There were 12,975 abstentions and 366,915 broker non-votes as to such matter.
Accordingly, the amendment to the By-Laws was approved.
Nominations of the following seven persons to serve as directors for the
following terms were considered; Robert J. Brooks and Mikael Lilius for a term
expiring in 1997, James P. Kelley and James C. Huntington, Jr. for a term
expiring in 1998 and William E. Kassling, Emilio A. Fernandez and James V.
Napier for a term expiring in 1999.
<TABLE>
<CAPTION>
Votes Votes Votes Broker
Nominee For Against Withheld Non-Votes
- ------- ----- ------- -------- ---------
<S> <C> <C> <C> <C>
Robert J. Brooks 30,424,207 -- 30,851 470
Mikael Lilius 30,424,107 -- 30,951 470
James P. Kelley 30,424,107 -- 30,951 470
James C. Huntington, Jr. 30,443,207 -- 11,851 470
William E. Kassling 30,424,207 -- 30,851 470
Emilio A. Fernandez 30,424,407 -- 30,651 470
James V. Napier 30,424,107 -- 30,951 470
</TABLE>
The holders of 29,996,734 shares of the Common Stock voted for the adoption of
the 1995 Non-Employee Directors' Fee and Stock Option Plan. The holders of
427,140 shares voted against such adoption. There were 31,654 abstentions and
- -0- broker non-votes as to such matters. Accordingly, the adoption of such
Plan was approved.
The holders of 30,422,797 shares of the Common Stock voted to ratify the
appointment of Arthur Andersen LLP. The holders of 16,770 shares voted against
such appointment. There were 15,391 abstentions and 570 broker non-votes
as to such matter. Accordingly such appointment was ratified.
13
<PAGE> 14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WESTINGHOUSE AIR BRAKE COMPANY
(Registrant)
August 6, 1996 /s/ ROBERT J. BROOKS
--------------------------
Robert J. Brooks
Vice President and Chief Financial Officer
14
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 3,196
<SECURITIES> 0
<RECEIVABLES> 56,684
<ALLOWANCES> 0
<INVENTORY> 49,915
<CURRENT-ASSETS> 114,707
<PP&E> 135,656
<DEPRECIATION> 61,985
<TOTAL-ASSETS> 280,738
<CURRENT-LIABILITIES> 61,477
<BONDS> 293,590
0
0
<COMMON> 474
<OTHER-SE> (94,158)
<TOTAL-LIABILITY-AND-EQUITY> 280,738
<SALES> 214,866
<TOTAL-REVENUES> 214,866
<CGS> 142,700
<TOTAL-COSTS> 142,700
<OTHER-EXPENSES> (131)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,694
<INCOME-PRETAX> 26,587
<INCOME-TAX> 10,635
<INCOME-CONTINUING> 15,952
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,952
<EPS-PRIMARY> .56
<EPS-DILUTED> .56
</TABLE>
